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
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 ss. 240.14a-12
FIRST MERCHANTS CORPORATION
--------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
|_| Check box 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:
---------------------------------------------------------------------------
FIRST MERCHANTS CORPORATION
200 EAST JACKSON STREET
MUNCIE, INDIANA 47305
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 13, 2006
The annual meeting of the shareholders of First Merchants Corporation (the
"Corporation") will be held at the Horizon Convention Center, 401 South High
Street, Muncie, Indiana 47305, on Thursday, April 13, 2006, at 3:30 p.m. for the
following purposes:
(1) To elect three directors, to hold office for a term of three years and
until their successors are duly elected and qualified.
(2) To ratify the appointment of the firm of BKD, LLP as the independent
public accountants for 2006.
(3) To transact such other business as may properly come before the
meeting.
Only those shareholders of record at the close of business on February 10, 2006
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 2, 2006
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 2, 2006
FIRST MERCHANTS CORPORATION
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 13, 2006
This proxy statement is furnished in connection with the solicitation of the
enclosed proxy by and on behalf of the Board of Directors (the "Board") of First
Merchants Corporation (the "Corporation") for use at the annual meeting of
shareholders of the Corporation to be held April 13, 2006. The distribution of
these proxy materials is expected to commence on March 2, 2006.
Please sign, date and return your proxy card or submit your proxy via the
telephone or Internet as soon as possible, so that your shares can be voted at
the meeting in accordance with your instructions. If you plan to vote by
telephone or Internet, you should have your control number, which is imprinted
on your proxy card, available when you call or access the web page.
o To vote by telephone, please call toll-free 1-800-PROXIES
(1-800-776-9437) on a touch-tone telephone and follow the instructions.
o To vote by Internet, please access the web page "www.voteproxy.com"
and follow the on-screen instructions.
Similar instructions are included on the enclosed proxy card.
Any shareholder giving a proxy has the right to revoke it any time before it is
exercised by giving written notice of revocation to the Secretary received prior
to the annual shareholders' meeting, by voting again in writing or via the
telephone or Internet, or by voting in person at the meeting. The shares
represented by proxies will be voted in accordance with the instructions on the
proxies. In the absence of specific instructions to the contrary, proxies will
be voted for election to the Board of Directors of all nominees listed in Item 1
of the proxy and for ratification of the appointment of BKD, LLP as the
Corporation's independent public accountants for 2006. If any director nominee
named in this proxy statement shall become unable or declines to serve (an event
which the Board does not anticipate), the persons named as proxies will have
discretionary authority to vote for a substitute nominee named by the Board, if
the Board determines to fill such nominee's position.
VOTING SECURITIES
Only shareholders of record at the close of business on February 10, 2006 will
be entitled to notice of and to vote at the annual meeting. 18,422,622 shares of
common stock were outstanding and entitled to vote as of February 10, 2006.
Each share of the Corporation's common stock is entitled to one vote. Directors
are elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present. Shareholders do not have
a right to cumulate their votes for directors. The affirmative vote of a
majority of the shares present and voting at the meeting in person or by proxy
is required for approval of all items submitted to the shareholders for their
consideration other than the election of directors. The Secretary will count the
votes and announce the results of the voting at the meeting. Abstentions will be
counted for the purpose of determining whether a quorum is present but for no
other purpose. Broker non-votes will not be counted.
ELECTION OF DIRECTORS
Three directors will be elected at the annual meeting.
The persons named below have been nominated for election to the Board of
Directors, with terms expiring as of the 2009 annual meeting of shareholders.
All of the nominees are currently members of the Board.
Those persons nominated as directors include:
Director
Name and Age Present Occupation Since
Class III (Terms expire 2009):
Richard A. Boehning Of counsel, Bennett, Boehning & Clary, since 2001. Prior 2002
age 68 to 2001, Mr. Boehning was a partner in that law firm.
Barry J. Hudson Since 1982, Chairman of the Board of Directors of First 1999
age 66 National Bank of Portland ("FNB"), a wholly owned
subsidiary of the Corporation. Mr. Hudson was Chief
Executive Officer of FNB from 1982 to 2000, and he was its
President from 1982 to 1998.
Michael C. Rechin Executive Vice President and Chief Operating Officer of 2005
Age 47 the Corporation since November 21, 2005. Mr. Rechin was
Executive Vice President of National City Bank of Indiana
from 1995 to 2005 and was responsible for its commercial
banking operations in Indiana.
Those persons named below continue to serve as directors:
Class I (Terms expire 2007):
Michael L. Cox President of the Corporation since 1998, and its Chief 1984
Age 61 Executive Officer since 1999. Mr. Cox has also served as
Chairman of the Board of Directors of First Merchants
Bank, National Association ("FMB"), a wholly owned
subsidiary of the Corporation, since 2005.
Chairman of the Board of Directors, President and Chief
Thomas D. McAuliffe(1) Executive Officer, Commerce National Bank ("CNB"), a 2003
age 56 wholly owned subsidiary of the Corporation, since 1991.
2
Director
Name and Age Present Occupation Since
Charles E. Schalliol Director, Indiana State Office of Management and Budget, 2004
Age 58 since January 10, 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.
Robert M. Smitson Retired Chairman of the Board of Directors, President and 1982
Age 69 Chief Executive Officer, Maxon Corporation, a
manufacturer of combustion equipment. Mr. Smitson was
Maxon's President from 1979 to 1997, CEO from 1985 to 1998,
and Board Chairman from 1998 to 2004.
Class II (Terms expire 2008):
Thomas B. Clark Retired Chairman of the Board of Directors, President and 1989
Age 60 Chief Executive Officer, Jarden Corporation, a provider
of niche consumer products for the home. Jarden changed
its name from Alltrista Corporation in 2002. Mr. Clark
was Alltrista's President and CEO from 1995 to 2001, and
Board Chairman from 2000 to 2001.
Roderick English Senior Vice President of Human Resources and 2005
Age 54 Communications, Remy International, Inc., a manufacturer
of electrical and powertrain products for autos, trucks
and other vehicles, since 1994. Remy changed its name
from Delco Remy International, Inc. in 2004.
Jo Ann M. Gora President, Ball State University, since 2004. Dr. Gora 2004
Age 60 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 48 Management Corp., a manager of non-traditional sources of
financing, since 1983. Ms. Wojtowicz is also a director
of Vectren Corporation and a trustee of Windrose Medical
Properties Trust, which are both listed on
the New York Stock Exchange.
3
(1) Under an Agreement of Reorganization and Merger between the Corporation
and CNBC Bancorp, the Board appointed Mr. McAuliffe as a member of the
Board in 2003 and agreed to nominate him for election to a full 3-year
term as a director at the 2004 annual meeting of shareholders.
MEETINGS OF THE BOARD
The Board of Directors of the Corporation held 6 meetings during 2005. All of
the directors attended at least 75% of the total number of meetings of the Board
and the committees on which they served.
COMPENSATION OF DIRECTORS
The directors of the Corporation who are employees of the Corporation or one of
its subsidiaries received no separate compensation for their services as
directors in 2005. The directors of the Corporation who are not employees of the
Corporation or one of its subsidiaries, other than the Chairman of the Board,
were paid an annual retainer of $15,000, plus $3,000 for each Board Committee on
which the director served. The Committee Chairmen received an additional $2,000,
except that the Audit Committee Chairman, James F. Ault, who is retiring as a
director as of the 2006 annual shareholders' meeting, received an additional
$5,000. The Chairman of the Board, Robert M. Smitson, received an annual
retainer of $50,000 in 2005, but no retainer for Committee service. In addition,
under the provisions of the Corporation's 1999 Long-term Equity Incentive Plan,
options were granted to each of the non-employee directors on July 1, 2005 to
purchase shares of the Corporation's common stock. Each option was for 1,157
shares at an option price of $25.00 per share, the market price on the date of
the grants.
Some non-employee directors received additional compensation in 2005 for their
services as a director of a subsidiary of the Corporation. James F. Ault was the
Chairman of the Board of Directors of The Madison Community Bank, National
Association ("MCB"), a wholly owned subsidiary of the Corporation, and was paid
$375 and $75, respectively, for each MCB board and committee meeting he
attended. Barry J. Hudson was Chairman of the Board of Directors of FNB and was
paid $10,976 in 2005 for his services in this capacity, of which $4,356 was
deferred compensation under an insurance-funded deferred compensation plan
maintained by FNB. Richard A. Boehning and Robert T. Jeffares were directors of
Lafayette Bank and Trust Company, National Association ("LBT"), a wholly owned
subsidiary of the Corporation, for which Mr. Boehning received a retainer of
$19,800 and Mr. Jeffares received a retainer of $13,200 in 2005. The full amount
of both retainers was deferred under an unfunded deferred compensation plan
maintained by LBT. Mr. Boehning and Mr. Jeffares also received life insurance
coverage from LBT in the amount of $6,000. Mr. Jeffares retired as a director of
LBT in August 2005 and is retiring as a director of the Corporation as of the
2006 annual shareholders' meeting.
BOARD INDEPENDENCE
The Board has determined that each of the director-nominees and continuing
directors is an "independent director," as defined in the listing standards of
the Nasdaq Stock Market, Inc. ("NASDAQ"), except for the Corporation's President
and CEO, Michael L. Cox, the Corporation's Executive Vice President and COO,
Michael C. Rechin, FNB's Board Chairman, Barry J. Hudson, and CNB's Board
Chairman, President and CEO, Thomas D. McAuliffe. 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.
4
COMMITTEES OF THE BOARD
Nominating and Governance Committee
The Corporation has a Nominating and Governance Committee whose purpose is to
seek to ensure continuation of the effectiveness and independence of the Board
of Directors. The Committee is responsible for reviewing the credentials of
persons suggested as prospective directors, nominating persons to serve as
directors and as officers of the Board of Directors, including the slate of
directors to be elected each year at the annual meeting of shareholders, making
recommendations concerning the size and composition of the Board of Directors,
as well as criteria for Board membership, making recommendations concerning the
Board's committee structure and makeup, providing for continuing education of
the directors and self-assessment of the Board's effectiveness, and overseeing
the Corporate-wide Code of Business Conduct and the Code of Ethics for senior
financial officers of the Corporation. As of the date of this proxy statement,
the Nominating and Governance Committee is composed of directors Thomas B. Clark
(Chairman), James F. Ault, who is retiring as a director of the Corporation as
of the 2006 annual meeting, Richard A. Boehning, Robert M. Smitson and Jean L.
Wojtowicz. The Nominating and Governance Committee met 4 times during 2005.
The Board has adopted a written charter for the Nominating and Governance
Committee. A copy of the charter is included among the documents under the
"Corporate Governance Disclosures" link on the Corporation's website,
www.firstmerchants.com.
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's market area, ability and willingness to devote sufficient time to
director responsibilities, and willingness to maintain a meaningful ownership
interest in the Corporation and assist the Corporation in developing new
business.
In addition to considering the criteria described in the preceding paragraph,
the Committee's process for identifying and evaluating nominees involves, for
incumbent directors whose terms are expiring, reviewing the quality of their
prior service to the Corporation, including the nature and extent of their
participation in the Corporation's governance and their contributions of
management and financial expertise and experience to the Board and the
Corporation. For new director candidates, the Committee also considers whether
their skills are complementary to those of existing Board members and whether
they will fulfill the Board's needs for management, financial, technological or
other expertise. The Nominating and Governance Committee considers candidates
coming to its attention through current Board members, search firms,
shareholders and other persons.
Article IV, Section 9, of the Corporation's 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's shares owned by the shareholder; (b) the name, address, age and
principal occupation of the suggested nominee; and (c) such other information
concerning the suggested nominee as the shareholder may wish to submit or the
Committee may reasonably request. A suggestion for a director nominee submitted
by a shareholder must be in writing and delivered or mailed to the Secretary,
First Merchants Corporation, 200 East Jackson Street, Muncie, Indiana 47305.
Suggestions for nominees from shareholders are evaluated in the same manner as
other nominees.
There are no nominees for election to the Corporation's Board of Directors at
the 2006 annual shareholders' meeting other than directors standing for
re-election.
5
Compensation and Human Resources Committee
The Corporation has a Compensation and Human Resources Committee whose functions
are: (a) to review and approve the compensation and benefits to be paid to the
executive officers and senior management employees of the Corporation and the
chief executive officers of its subsidiaries, and (b) to review and approve the
compensation and benefits to be paid to the executive officers and senior
management employees and the compensation ranges and benefits for other officers
and employees of the Corporation's subsidiaries. The authority to periodically
adjust the compensation and benefits of employees, other than executive officers
and senior management of the Corporation and the chief executive officers of its
subsidiaries, has been delegated by the Committee to the chief executive
officers of the subsidiaries. The Compensation and Human Resources Committee is
responsible for the administration of the Corporation's incentive compensation
and stock plans. As of the date of this proxy statement, the Compensation and
Human Resources Committee is composed of directors Robert M. Smitson (Chairman),
Thomas B. Clark, Roderick English and Charles E. Schalliol. The Committee met 5
times during 2005.
Compensation and Human Resources Committee Interlocks and Insider Participation
No member of the Compensation and Human Resources Committee was an officer or
employee of the Corporation or any of its subsidiaries during 2005. No other
member of the Compensation and Human Resources Committee or executive officer of
the Corporation had a relationship during 2005 requiring disclosure in this
proxy statement under Securities and Exchange Commission ("SEC") regulations.
Audit Committee
The Corporation has an Audit Committee which assists the Board (1) in its
oversight of the Corporation's accounting and financial reporting principles and
policies and internal accounting and disclosure controls and procedures, (2) in
its oversight and supervision of the Corporation's internal audit function, (3)
in its oversight of the certification of the Corporation's quarterly and annual
financial statements and disclosures and assessment of internal disclosure
controls by the Corporation's CEO and CFO, (4) in its oversight of the
Corporation's consolidated financial statements and the independent external
audit thereof, and (5) in evaluating the independence of the external auditors.
The Audit Committee recommends the selection of the independent auditor for
approval by the Board and ratification by the shareholders, and it approves the
independent auditor's compensation. As of the date of this proxy statement, the
Audit Committee is composed of directors James F. Ault (Chairman), Thomas B.
Clark, Jo Ann M. Gora, Robert T. Jeffares, Robert M. Smitson and Jean L.
Wojtowicz. Mr. Ault and Mr. Jeffares are retiring as directors of the
Corporation as of the 2006 annual meeting. In accordance with Section 407 of the
Sarbanes-Oxley Act, the Corporation has identified Mr. Clark, Mr. Jeffares and
Ms. Wojtowicz as "Audit Committee financial experts." All of them are
"independent" as that term is used in the NASDAQ listing standards. The Audit
Committee met 5 times during 2005.
The Board has adopted a written charter for the Audit Committee. The charter was
amended by the Board in February 2006. A copy of the amended charter is attached
as Appendix A to this proxy statement and is also included among the documents
under the "Corporate Governance Disclosures" link on the Corporation's website,
www.firstmerchants.com.
The Audit Committee has reviewed and discussed the audited financial statements
of the Corporation for 2005 with the Corporation's management, and it has
discussed with BKD, LLP, the Corporation's independent auditors for 2005, the
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU ss.380), as modified or supplemented. 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
6
Committees), as modified or supplemented, and has discussed with BKD, LLP its
independence from the Corporation. Based on these reviews and discussions, the
Audit Committee recommended to the Board, and the Board has approved, that the
audited financial statements of the Corporation be included in the Corporation's
Annual Report on Form 10-K for the 2005 fiscal year for filing with the SEC.
The above report is submitted by:
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE
James F. Ault, Chairman
Thomas B. Clark
Jo Ann M. Gora
Robert T. Jeffares
Robert M. Smitson
Jean L. Wojtowicz
COMPENSATION OF EXECUTIVE OFFICERS
The following tables contain information concerning the compensation of the
"Named Executive Officers," including the Corporation's Chief Executive Officer,
its four most highly compensated executive officers other than the CEO who were
serving as executive officers at the end of the Corporation's most recent fiscal
year-end, December 31, 2005, and Larry R. Helms, who was among the four most
highly compensated executive officers other than the CEO for 2005 but was not
serving as an executive officer at the fiscal year-end due to his retirement on
October 28, 2005.
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-------------------------------------------------
Awards Payouts
-----------------------------------------------------------------------------------------------------------
Securities
Name and Underlying LTIP All Other
Principal Position Year Salary Bonus(1) Options(2) Payouts(1)Compensation(3)
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 2005 $350,443 $44,247 20,000 $ 8,371 $3,547
President and Chief 2004 326,855 32,640 15,000 23,333 2,563
Executive Officer 2003 326,715 15,360 13,125 38,988 2,500
Robert R. Connors 2005 180,104 24,264 8,000 3,171 5,169
Senior Vice President, 2004 169,810 17,830 6,000 2,355 2,261
Operations and Technology 2003 166,231 5,085 5,250 0 2,002
Kimberly J. Ellington 2005 94,300 12,043 6,000 1,398 2,700
Senior Vice President, 2004 85,096 7,429 3,600 2,531 821
Director of Human Resources 2003 83,324 2,566 3,150 2,588 1,073
Mark K. Hardwick 2005 173,407 23,918 10,000 3,669 5,023
Executive Vice President 2004 158,112 17,786 6,000 4,713 2,123
and Chief Financial Officer 2003 132,722 6,732 5,250 4,553 1,901
Jeffrey B. Lorentson 2005 124,466 8,682 3,000 1,741 3,510
First Vice President, 2004 114,268 6,653 2,400 8,751 1,518
Corporate Controller 2003 108,656 3,195 2,100 0 1,385
Larry R. Helms 2005 144,443 25,282 8,000 4,592 1,916
Former Senior Vice 2004 138,722 16,226 6,000 8,426 2,018
President, Administrative 2003 135,817 8,426 5,250 10,256 1,918
Services, General Counsel
and Corporate Secretary(4)
7
--------------------------------------------------------------------------------
(1) Under the Corporation's Senior Management Incentive Compensation Program ,
the bonuses earned by each executive officer are paid 2/3 in cash following
the end of the fiscal year and 1/3 in Deferred Stock Units that are payable
in cash two years later, unless the Units are forfeited due to termination
of the executive officer's employment for cause or because the executive
officer voluntarily terminated employment (except on account of retirement,
death or disability) prior to payment. The portion of each year's bonus
paid in Deferred Stock Units is not reportable in the Summary Compensation
Table, but is disclosed in the Long-term Incentive Plan Awards Table below.
The LTIP Payouts column in the Summary Compensation Table sets forth the
cash amounts paid in the year indicated for Deferred Stock Units earned by
the executive officer two years earlier under the Senior Management
Incentive Compensation Program.
(2) The information concerning options for 2003 has been adjusted to give
retroactive effect to the 5% common stock dividend that was distributed on
September 12, 2003 to shareholders of record at the close of business on
August 29, 2003.
(3) Represents employer and matching contributions for fiscal year to First
Merchants Corporation Retirement and Income Savings Plan (a ss.401(k)
plan).
(4) Mr. Helms retired as Senior Vice President, Administrative Services,
General Counsel and Corporate Secretary on October 28, 2005. Because he
retired, Mr. Helms' 2005 bonus under the Senior Management Incentive
Compensation Program was paid entirely in cash and is reported in full in
the Summary Compensation Table.
Long-term Incentive Plans
Stock Option Grants and Exercises
The 1999 Long-term Equity Incentive Plan, which became effective as of July 1,
1999, authorizes the Compensation Committee to grant stock-based incentive
awards, including stock options, to eligible employees of the Corporation or any
subsidiary. The following table contains information concerning individual
grants of stock options under the plan made during 2005 to the Named Executive
Officers. Each option was to purchase the Corporation's common stock at a price
not less than the market price of the stock on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
-----------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price
Name Granted Fiscal Year (per share) Expiration Date 5% 10%
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 20,000 8.91 $26.70 September 1, 2015 $336,420 $849,060
Robert R. Connors 8,000 3.57 26.70 September 1, 2015 134,568 339,624
Kimberly J. Ellington 6,000 2.67 26.70 September 1, 2015 100,926 254,718
Mark K. Hardwick 10,000 4.46 26.70 September 1, 2015 168,210 424,530
Jeffrey B. Lorentson 3,000 1.34 26.70 September 1, 2015 50,463 127,359
Larry R. Helms 8,000 3.57 26.70 September 1, 2015 134,568 339,624
-----------------------------------------------------------------------------------------------------------
The following table contains information concerning exercises of stock options
by the Named Executive Officers during 2005 under the 1994 Stock Option Plan or
the 1999 Long-term Equity Incentive Plan, as well as the value as of December
31, 2005 of each of the Named Executive Officer's unexercised options under
these plans on an aggregated basis.
8
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
--------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Acquired Value Options at In-the-Money Options at
Name On Exercise Realized Fiscal Year-End(1) Fiscal Year-End(1)
-----------------------------------------------------------------------------------------------------------
Michael L. Cox 17,320 $233,232 113,652 $393,009
Robert R. Connors 0 0 22,558 17,981
Kimberly J. Ellington 914 5,731 16,059 9,459
Mark K. Hardwick 0 0 28,670 35,533
Jeffrey B. Lorentson 0 0 9,705 6,306
Larry R. Helms 0 0 52,661 211,221
-----------------------------------------------------------------------------------------------------------
(1) The vesting of the stock options granted to employees under the 1999
Long-term Equity Incentive Plan on July 1, 2004 and September 1, 2005 was
accelerated so that these options became fully vested on November 30, 2005.
As a result, all options granted to the named executive officers were
exercisable at the fiscal year-end.
Long-term Cash Incentive
Under the Senior Management Incentive Compensation Program, the annual bonuses
earned by participating employees are payable 2/3 in cash following the end of
the fiscal year and 1/3 in Deferred Stock Units ("DSUs") two years after the
bonus is earned. When payable, the DSUs are valued at an amount equal to the
fair market value of the Corporation's common stock as of the last day of the
calendar year preceding the date of payment, plus accumulated dividends.
Payments for the DSUs are made in cash, not stock. If the participant's
employment is terminated for cause or is voluntarily terminated by the
participant (except on account of retirement, death or disability) prior to the
date of payment, the DSUs are forfeited. The following table contains
information concerning DSU awards for 2005 under the Senior Management Incentive
Compensation Program to each of the Named Executive Officers. The section of
this proxy statement entitled "Report of the Compensation and Human Resources
Committee on Executive Compensation -- Incentive Compensation," on page 12,
contains additional information about the Senior Management Incentive
Compensation Program.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------
Number of Shares, Performance or Other Period Until
Name Units or Other Rights Maturation or Payout
-------------------------------------------------------------------------------------------------------------
Michael L. Cox 851 1/01/06 - 1/01/08
Robert R. Connors 467 1/01/06 - 1/01/08
Kimberly J. Ellington 232 1/01/06 - 1/01/08
Mark K. Hardwick 460 1/01/06 - 1/01/08
Jeffrey B. Lorentson 167 1/01/06 - 1/01/08
Larry R. Helms 0 N/A
-------------------------------------------------------------------------------------------------------------
9
Pension Plans
The following table shows the estimated annual benefits payable upon retirement
at normal retirement age 65 to employees of the Corporation and its subsidiaries
who are covered by the First Merchants Corporation Retirement Pension Plan (the
"Pension Plan"), a qualified defined benefit pension plan. For employees who are
also covered by the First Merchants Corporation Supplemental Executive
Retirement Plan (the "SERP Plan"), a nonqualified "excess benefit" plan, it
includes the estimated annual benefits payable under that plan. Benefits under
the Pension and SERP plans are computed on the basis of straight-life annuity
amounts under the following formula: 1.6% of average final compensation plus .5%
of average final compensation in excess of Social Security covered compensation,
both times years of service (to a maximum of 25 years). Benefits are integrated
with Social Security but are not subject to any deduction for Social Security or
other offset amounts.
PENSION PLAN TABLE
-----------------------------------------------------------------------------------------------------------
Compensation Years of Service
-----------------------------------------------------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------------------------------------------------
$125,000 $35,052 $ 46,736 $58,421 $58,421 $58,421
150,000 42,927 57,236 71,546 71,546 71,546
175,000 50,802 67,736 84,671 84,671 84,671
200,000 58,677 78,236 97,796 97,796 97,796
250,000 74,427 99,236 124,046 124,046 124,046
300,000 90,177 120,236 150,296 150,296 150,296
350,000 105,927 141,236 176,546 176,546 176,546
400,000 121,677 162,236 202,796 202,796 202,796
450,000 137,427 183,236 229,046 229,046 229,046
500,000 153,177 204,236 255,296 255,296 255,296
-----------------------------------------------------------------------------------------------------------
The benefits shown in the above table are based on covered compensation of
$57,636, the covered compensation set forth in the 2005 covered compensation
table for persons born in 1944 (Mr. Cox's birth year). Mr. Cox is the only one
of the Named Executive Officers who is currently accruing benefits under the
Pension Plan, and he is the only Named Executive Officer who participates in the
SERP Plan.
Compensation for purposes of the Pension Plan consists of the base salary and
service award components of the amounts reported in the "Salary" column in the
Summary Compensation Table on page 7. For plan years beginning on or after
January 1, 2005, $210,000 is the maximum amount of compensation that can be
considered for purposes of calculating pension benefits accruing under the
Pension Plan. This amount increased to $220,000 for plan years beginning on or
after January 1, 2006. Compensation for purposes of the SERP Plan, which
provides benefits to designated executives that would otherwise be payable under
the Pension Plan if Internal Revenue Code Section 401(a)(17) did not limit the
amount of compensation that can be considered for purposes of calculating
benefits accruing under the Pension Plan and if incentive compensation were
included in compensation, also includes the amounts reported in the "Bonus"
column in the Summary Compensation Table. Mr. Cox's 2005 compensation used for
purposes of calculating his pension benefits under the Pension and SERP plans
was $409,426, and he had 10.5 years of credited years of service as of January
1, 2006.
Effective March 1, 2005, the benefits accruing to participants in the Pension
Plan other than those who were at least age 55 with 10 or more credited years of
service, including four of the Named Executive Officers - Mr. Connors, Ms.
Ellington, Mr. Hardwick and Mr. Lorentson, were "frozen," and employees of the
Corporation and its subsidiaries who were not participating in the plan on that
date could not become eligible to participate. The benefits payable at age 65 to
the participants whose benefits were frozen are determined under the formula
described in the paragraph immediately preceding the Pension Plan Table above,
based on their average final compensation as of March 1, 2005 times a fraction,
the numerator of which is the employee's credited years of service as of March
1, 2005, and the denominator of which is the employee's credited years of
service projected to age 65. The average final compensation and the fractions
10
used to determine the benefits payable under the Pension Plan to the Named
Executive Officers whose benefits were frozen are: Mr. Connors, $166,499
(2.50/12.00), Ms. Ellington, $69,868 (8.24/27.99), Mr. Hardwick, $106,541
(7.32/38.32), and Mr. Lorentson $105,565 (3.40/26.82).
The Pension Plan participants who were at least age 55 with 10 or more credited
years of service on March 1, 2005, including Mr. Cox and Mr. Helms, were
"grandfathered;" that is, their benefits continued to accrue under the Pension
Plan until their retirement, and the provisions of the Savings Plan that were in
effect prior to its amendment continued to apply to them. Mr. Helms retired on
October 28, 2005 with 33 credited years of service under the Pension Plan and
receives a benefit under that plan based on the formula that was in effect prior
to 1990, equal to 2% of his average final compensation times his credited years
of service (to a maximum of 25 years). Mr. Helms' average final compensation
used to determine his Pension Plan benefit was $130,042.
The First Merchants Corporation Retirement and Income Savings Plan (the "Savings
Plan"), a Section 401(k) qualified defined contribution plan, was amended on
March 1, 2005 to provide enhanced retirement benefits, including employer and
matching contributions, for eligible employees of the Corporation and its
subsidiaries whose benefits under the Pension Plan were frozen and employees of
the Corporation and its subsidiaries who were not participating in the plan on
that date. Because a participant's benefit under the Savings Plan is determined
by the amounts of the annual employer, employee, and matching contributions and
by the actual investment returns of the underlying assets, it is not possible to
determine the amount of a participant's Savings Plan benefit at any future time.
Termination of Employment and Change of Control Arrangements
The Corporation has change of control agreements with each of the Named
Executive Officers except Mr. Helms, whose change of control agreement
terminated when he retired on October 28, 2005. These are "double trigger"
change of control agreements, in that they provide for the payment of severance
benefits to the executives only in the event of both a change of control of the
Corporation and a termination or constructive termination of the employment of
the executive within 24 months after the change of control (but no payment will
be made if the termination was for cause, because of the executive's death or
disability, or by the executive other than on account of constructive
termination). In general, a "change of control" means an acquisition by any
person of 25% or more of the Corporation's voting shares, a change in the makeup
of a majority of the Corporation's Board of Directors over a 24-month period, a
merger of the Corporation in which the shareholders before the merger own 50% or
less of the Corporation's voting shares after the merger, or approval by the
Corporation's shareholders of a plan of complete liquidation of the Corporation
or an agreement to sell or dispose of substantially all of the Corporation's
assets. A "constructive termination" means, generally, a significant reduction
in duties, compensation or benefits or a relocation of the executive's office
outside of area described in the agreement, unless agreed to by the executive.
The severance benefits payable under each of the change of control agreements,
in addition to base salary and incentive compensation accrued through the date
of termination, would be a lump sum amount, determined by multiplying the sum of
(1) the executive's annual base salary and (2) the executive's largest bonus
under the Corporation's Senior Management Incentive Compensation Program during
the 2 years preceding termination, by 299% in the cases of Mr. Cox and Mr.
Hardwick, 200% in the cases of Mr. Connors and Ms. Ellington and 100% in the
case of Mr. Lorentson. The Corporation also has a change of control agreement
with Michael C. Rechin, who became Executive Vice President and Chief Operating
Officer of the Corporation on November 21, 2005 and a director on December 13,
2005. The multiplier for Mr. Rechin's change of control agreement is 299%. The
Corporation would also pay any excise tax imposed on the executive under Section
4999 of the Internal Revenue Code on an "excess parachute payment;" and it would
provide to the executive 2 years' life, disability, accident and health
insurance coverage, the bargain element value of outstanding stock options,
outplacement services, and reasonable legal fees and expenses incurred as a
result of the termination. The change of control agreements were not entered
11
into in response to any effort to acquire control of the Corporation, and the
Board of Directors is not aware of any such effort.
Report of the Compensation and Human Resources Committee on Executive
Compensation
General Compensation Policy
The Compensation and Human Resources Committee establishes the salaries and
administers the executive compensation program applicable to the Corporation's
executive officers, including the Named Executive Officers. The Corporation's
compensation policy is designed to provide incentives to executive officers to
achieve short-term and long-term corporate strategic management goals, with the
ultimate objective of obtaining a superior return on the shareholders'
investment. The Committee believes that a competitive compensation program,
combining salary, employee benefits, incentive compensation, and equity-based
compensation, is necessary to attract and retain qualified executives. The
incentive compensation for executive officers, including the Chief Executive
Officer, is tied to the Corporation's financial performance and the executive's
individual contributions to that performance. The equity-based compensation
programs encourage ownership and retention of the Corporation's stock by key
employees, assuring that they have a meaningful stake in the Corporation's
continued success and thereby aligning their interests more closely with the
interests of shareholders.
Cash Compensation.
The annual salaries paid to the Corporation's executive officers for 2005,
including the Chief Executive Officer, were determined by the Compensation and
Human Resources Committee. The salaries for 2005 paid to the Named Executive
Officers are shown in the "Salary" column of the Summary Compensation Table on
page 7. These salaries were subjectively determined after consideration of the
executive officer's individual responsibilities, performance, experience, the
CEO's evaluation of the other executive officers, a review of several
measurements of the Corporation's short-term and long-term financial results
compared with industry peers, various industry salary surveys, and other factors
such as budgetary considerations and inflation rates.
Incentive Compensation
The incentive compensation paid to the Corporation's executive officers for
2005, including the Chief Executive Officer, was determined under the Senior
Management Incentive Compensation Program. This program incorporates modern
incentive plan techniques and executive retention features for the purpose of
closely aligning the interests of executives with those of shareholders. Under
the program, at or near the beginning of each calendar year, the Committee
assigns each of the program participants a target bonus for the year that is a
percentage of salary. The participant's incentive compensation for the year is
based on accomplishment of specific performance levels set forth in the program.
The Chief Executive Officer's and Chief Operating Officer's bonuses for 2005
depended on meeting targets with respect to the Corporation's return on equity
and improvements in the Corporation's operating earnings per share and diluted
GAAP earnings per share compared to the previous year. The other executive
officers' bonuses depended on meeting targets with respect to improvement in the
Corporation's operating earnings per share compared to the previous year and
accomplishing personal objectives as determined at or near the beginning of the
year by the CEO. In order to avoid wide swings in payouts and to better focus
the program participants on long-term results, 60% of any bonus paid to the
participants is based on current year performance and 40% is based on the
previous year's payout. To further the purpose of executive retention, 2/3 of
each participant's bonus is payable in cash following the end of the calendar
year, and the other 1/3 is payable in Deferred Stock Units ("DSUs") two years
after the bonus is earned (unless the portion payable in DSUs is less than
$1,000, in which case the entire bonus is payable in cash). When payable, the
DSUs are valued at an amount equal to the fair market value of the Corporation's
common stock on the December 31 preceding the payment date plus accumulated
12
dividends. Payment is made to the participant in cash. The DSUs are forfeited if
the participant's employment is terminated for cause or is voluntarily
terminated by the participant (except on account of retirement, death or
disability) prior to the date of payment. The participant may elect to defer
payment of all or part of the cash portion of the bonus by filing an election to
do so in the manner described in the program. Deferred amounts will be credited
with interest quarterly based on the current 5-year U.S. Treasury Bond rate.
The cash portion of the bonuses for 2005 for the Named Executive Officers is set
forth in the "Bonus" column of the Summary Compensation Table on page 7, and the
DSU portion of these bonuses is set forth in the Long-Term Incentive Plan Awards
Table on page 9. Cash amounts paid to these executive officers for DSUs earned
for 2003 are set forth in the "LTIP Payouts" column of the Summary Compensation
Table on page 7. For 2005, Mr. Cox's target bonus was 45% of salary, and his
actual bonus, based 60% on 2005 performance and 40% on 2004 payout, was 19.35%
of salary. The target bonuses for Mr. Connors, Ms. Ellington, Mr. Hardwick and
Mr. Helms were each 30% of salary, and their actual bonuses, based 60% on 2005
performance and 40% on 2004 payout, were 20.66%, 19.57%, 21.10% and 17.68% of
salary, respectively. The target bonus for Mr. Lorentson was 15% of salary, and
his actual bonus, based 60% on 2005 performance and 40% on 2004 payout, was
10.67% of salary.
Equity-based Compensation.
In addition to the DSUs under the Senior Management Incentive Compensation
Program described above, the Corporation's executive officers, including the
Chief Executive Officer, received equity-based compensation for 2005 under the
Corporation's Long-term Equity Incentive Plan and its 2004 Employee Stock
Purchase Plan. The Long-term Equity Incentive Plan is briefly described in the
paragraph on page 8 immediately preceding the Option Grants in Last Fiscal Year
Table. The number of shares for which the Compensation and Human Resources
Committee awarded options under that plan to the Named Executive Officers during
2005 is set forth in the "Number of Securities Underlying Options Granted"
column of the Option Grants in Last Fiscal Year Table on page 8.
The 2004 Employee Stock Purchase Plan generally provides that full-time
employees of the Corporation or a participating subsidiary with more than 6
months of service may elect, prior to the offering period (July 1 to June 30),
to purchase common shares of the Corporation at a price equal to 85% of the
lesser of the market price of the stock at the beginning of the period and the
market price at the end of the period. For the offering period ending June 30,
2005, Mr. Cox, Mr. Conners, Ms. Ellington, Mr. Lorentson and Mr. Helms purchased
995, 248, 161, 62 and 124 shares, respectively, under the 2004 Employee Stock
Purchase Plan. Mr. Hardwick did not participate in the Plan during this offering
period.
Other Compensation.
The Corporation's executive officers, including the Named Executive Officers,
are also covered by medical and retirement plans that are generally applicable
to full-time employees of the Corporation and its subsidiaries. The retirement
plans covering each of the executive officers are the First Merchants
Corporation Retirement Pension Plan (the "Pension Plan"), a qualified defined
benefit pension plan (described on page 10 under "Pension Plans"), and the First
Merchants Corporation Retirement and Income Savings Plan (the "Savings Plan"), a
qualified Internal Revenue Code ss.401(k) defined contribution pension plan
(described on page 11 under "Pension Plans" and referred to in note (3) to the
Summary Compensation Table on pages 7 and 8). Mr. Cox is also covered by the
First Merchants Corporation Supplemental Executive Retirement Plan, a
nonqualified "excess benefit" plan (described on page 10 under "Pension Plans").
As explained on page 10, the Pension Plan was "frozen" on March 1, 2005 and the
Savings plan was amended to provide enhanced retirement benefits for eligible
employees of the Corporation and its subsidiaries. The Pension Plan participants
13
who were at least age 55 with 10 or more credited years of service on March 1,
2005, including Mr. Cox and Mr. Helms, were "grandfathered;" that is, their
benefits continue to accrue under the Pension Plan until their retirement and
the provisions of the Savings Plan that were in effect prior to its amendment
continue to apply to them.
The above report is submitted by:
FIRST MERCHANTS CORPORATION COMPENSATION
AND HUMAN RESOURCES COMMITTEE
Robert M. Smitson, Chairman
Thomas B. Clark
Roderick English
Charles E. Schalliol
PERFORMANCE GRAPH
The following graph compares the yearly change in the Corporation's cumulative
total shareholder return on its common stock with the cumulative total returns
of the Russell 2000 Index and the Russell 2000 Financial Services Sector Index
for the five-year period ending December 31, 2005.
Comparative Five-Year Total Returns
First Merchants Corp., Russell 2000, Russell 2000 - Financial Services
[GRAPHIC OMITTED][GRAPHIC OMITTED]
2000 2001 2002 2003 2004 2005
----------------------- ------------- ------------ -------------- ------------ ------------ ---------------
FRME $100.00 $115.62 $119.50 $145.69 $167.61 $159.50
Russell 2000 $100.00 $102.49 $81.49 $120.00 $142.00 $148.46
R2-Finl Svcs $100.00 $115.64 $118.08 $164.69 $200.02 $204.67
----------------------- ------------- ------------ -------------- ------------ ------------ ---------------
Notes: Assumes $100 invested on December 31, 2000.
Total return assumes reinvestment of dividends.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 as of
February 10, 2006.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
Dimensional Fund Advisors Inc. 935,378(1)..................................5.00%
1299 Ocean Avenue, (11)th Floor
Santa Monica, CA (90401)
Merchants Trust Company, N. A. 1,440,001(2)..................................7.68%
200 East Jackson Street
Muncie, IN 47305
(1) Based on a Schedule 13G filing with the SEC, 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) As of February 10, 2006, the Corporation's wholly owned
subsidiary, Merchants Trust Company, National Association
("MTC"), held 1,440,001 shares of the Corporation's common
stock in various fiduciary capacities, in regular, nominee or
street name accounts, consisting of 7.68% of the Corporation's
outstanding shares. Beneficial ownership of shares so held is
disclaimed by the Corporation. It is MTC's practice, when
holding shares as sole trustee or sole executor, to vote the
shares; but, when it holds shares as co-trustee or
co-executor, MTC obtains approval from the co-fiduciary prior
to voting.
The following table lists the amount and percent of the Corporation's common
stock beneficially owned on February 10, 2006 by directors (including directors
who are retiring as of the 2006 annual meeting of shareholders), director
nominees and the Named Executive Officers, and by the Corporation's directors
and 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's records and information filed with the SEC
and provided to the Corporation.
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 which a person has the right to acquire as of April 11, 2006 (60
days after February 10, 2006) by exercising stock options ("Vested Options").
15
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class
-------------------------------------------------------------------------------------------
James F. Ault 27,291(1)...............................*
Richard A. Boehning 24,180(2)...............................*
Thomas B. Clark 14,831(3)...............................*
Michael L. Cox 162,348(4)...............................*
Roderick English 1,157(5)...............................*
Jo Ann M. Gora 1,157(6)...............................*
Barry J. Hudson 455,702(7)...............................2.43%
Robert T. Jeffares 14,734(8)...............................*
Thomas D. McAuliffe 56,353(9)...............................*
Michael C. Rechin 4,000..................................*
Charles E. Schalliol 2,157(10)..............................*
Robert M. Smitson 23,573(11)..............................*
Jean L. Wojtowicz 2,314(12)..............................*
Robert R. Connors 23,016(13)..............................*
Kimberly J. Ellington 16,782(14)..............................*
Mark K. Hardwick 29,390(15)..............................*
Larry R. Helms 77,802(16) .............................*
Jeffrey B. Lorentson 9,913(17)..............................*
Directors and Executive
Officers as a Group (19 persons) 951,700(18)..............................5.08%
* Percentage beneficially owned is less than 1% of the outstanding
shares.
(1) Includes 12,718 shares held by his spouse, Marilyn Ault,
and 4,629 shares that he has the right to acquire by
exercising Vested Options.
(2) 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 4,629 shares that he has the right to acquire by
exercising Vested Options.
(3) Includes 11,227 shares that he has the right to acquire by
exercising Vested Options.
(4) Includes 40,298 shares held jointly with his spouse, Sharon
Cox, and 113,652 shares that he has the right to acquire by
exercising Vested Options.
(5) Includes 1,157 shares that he has the right to acquire by
exercising Vested Options.
(6) Includes 1,157 shares that she has the right to acquire by
exercising Vested Options.
(7) 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 13,007 shares that he has the
right to acquire by exercising Vested Options.
16
(8) Includes 3,595 shares held by his spouse, Olga Jeffares, 2,900
shares held jointly with his spouse, Olga Jeffares, 1,835
shares held in trust for family members for which Mr.
Jeffares, as trustee, has voting and investment power, and
4,629 shares that he has the right to acquire by exercising
Vested Options.
(9) Includes 31,255 shares held jointly with his spouse, Andrea
McAuliffe, 8,398 shares that he and his spouse hold as joint
custodians for his children, and 16,700 shares that he has the
right to acquire by exercising Vested Options.
(10) Includes 1,157 shares that he has the right to acquire by
exercising Vested Options.
(11) Includes 5,859 shares held by his spouse, Marilyn Smitson,
and 11,227 shares that he has the right to acquire by
exercising Vested Options.
(12) Includes 2,314 shares that she has the right to acquire by
exercising Vested Options.
(13) Includes 458 shares held jointly with his spouse, Ann Connors,
and 22,558 shares that he has the right to acquire by
exercising Vested Options.
(14) Includes 34 shares held jointly with her spouse, William
Ellington, and 16,059 shares that she has the right to
acquire by exercising Vested Options.
(15) Includes 28,670 shares that he has the right to acquire by
exercising Vested Options.
(16) Includes 25,140 shares held jointly with his spouse,
Sandra Helms, and 52,661 shares that he has the right to
acquire by exercising Vested Options.
(17) Includes 208 shares held jointly with his spouse, Susan
Lorentson, and 9,705 shares that he has the right to acquire
by exercising Vested Options.
(18) Includes 320,139 shares that the Corporation's directors
and executive officers have the right to acquire by
exercising Vested Options.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain directors and executive officers of the Corporation and its subsidiaries
and their associates are customers of, and have had transactions with, the
Corporation's subsidiary banks from time to time in the ordinary course of
business. Additional transactions may be expected to take place in the ordinary
course of business in the future. All loans and commitments included in such
transactions were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
Richard A. Boehning, a director of the Corporation and LBT, is of counsel to the
law firm of Bennett, Boehning & Clary, Lafayette, Indiana, which LBT has
retained as legal counsel during 2005 and proposes to retain as such during
2006.
COMMUNICATIONS WITH THE BOARD
Shareholders may communicate with the Corporation's Board of Directors by
submitting an e-mail to the Board at bod@firstmerchants.com. All such e-mails
will be automatically forwarded to the Chairman of the Nominating and Governance
Committee, Thomas B. Clark, who will arrange for such communications to be
relayed to the other directors.
17
DIRECTORS' ATTENDANCE AT ANNUAL SHAREHOLDERS MEETING
The Corporation's directors are encouraged to attend the annual meeting of
shareholders. At the 2005 annual meeting, all 17 directors were in attendance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's directors and executive officers to file reports of ownership and
changes in ownership of the Corporation's stock with the SEC. Based on its
records and the written representations of its directors and executive officers,
the Corporation believes that during 2005 these persons complied with all
Section 16(a) filing requirements.
INDEPENDENT PUBLIC ACCOUNTANTS
Selection of Independent Public Accountants
The Board, subject to ratification by the shareholders, has appointed BKD, LLP
as the Corporation's independent public accountants for 2006. 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 be present at the annual shareholders' meeting. They will have an opportunity
to make a statement, if they desire to do so, and are expected to be available
to respond to appropriate questions.
The Board of Directors unanimously recommends a vote "FOR" ratification of the
appointment of the firm of BKD, LLP as independent public accountants for 2006.
Fees for Professional Services Rendered by BKD, LLP
The following table shows the aggregate fees billed by BKD, LLP for audit and
other services rendered to the Corporation for 2004 and 2005.
2004 2005
---- ----
Audit Fees $352,428 $383,400
Audit-Related Fees 43,489 76,292
Tax Fees 79,920 93,320
All Other Fees 0 14,230
-------------- --------------
Total Fees $475,837 $567,242
============== ==============
The audit fees were for professional services rendered for the audits of the
Corporation's consolidated financial statements and internal control over
financial reporting, reviews of condensed consolidated financial statements
included in the Corporation's Forms 10-Q, and assistance with regulatory
filings.
The audit-related fees were for professional services rendered for audits of the
Corporation's benefit plans.
The tax fees were for professional services rendered for preparation of tax
returns and consultation on various tax matters.
The other fees were for professional investigatory services rendered by BKD, LLP
at the request of the Audit Committee.
All of these audit-related, tax and other fees were pre-approved by the Audit
Committee in accordance with the Committee's pre-approval policy described
below.
18
The Audit Committee has considered whether the provision by BKD, LLP of
the services covered by the fees other than the audit fees is compatible with
maintaining BKD, LLP's independence and believes that it is compatible.
Pre-approval Policies and Procedures
The Audit Committee has established a pre-approval policy, under which the
Committee is required to pre-approve all audit and non-audit services performed
by the Corporation's independent auditors, in order to assure that the provision
of such services does not impair the auditor's independence. These services may
include audit services, audit-related services, tax services and other services.
Under this policy, pre-approval is provided for 12 months from the date of
pre-approval unless the Committee specifically provides for a different period.
The policy is detailed as to the particular services or category of services and
fee levels that are pre-approved. Unless a service or type of service to be
provided by the independent auditors has received general pre-approval, it will
require specific pre-approval by the Audit Committee. The Committee must also
approve any proposed services exceeding the pre-approved fee levels. The
independent auditors are required to provide detailed back-up documentation with
respect to each proposed pre-approved service at the time of approval. The Audit
Committee may delegate pre-approval authority to one or more of its members. The
member or members to whom such authority has been delegated must report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. The
Audit Committee does not delegate its responsibilities to pre-approve services
performed by the independent auditors to management.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 2007 annual meeting of
the shareholders must be received by the Secretary of the Corporation at the
Corporation's principal office by November 2, 2006, for inclusion in the
Corporation's 2007 proxy statement and form of proxy relating to that meeting.
Shareholder proposals, if any, intended to be presented at the 2006 annual
meeting that were not submitted for inclusion in this proxy statement will be
considered untimely unless they were received by the Secretary of the
Corporation at the Corporation's principal office by January 17, 2006.
OTHER MATTERS
The Corporation is delivering only one set of proxy materials, including this
proxy statement and the annual report, to shareholders who, according to the
Corporation's records, share an address and whom it believes are members of the
same family. A separate proxy card is included for each of these shareholders.
Any shareholder who received only one set of proxy materials, and who wishes to
receive a separate set now or in the future, may write or call the Corporation's
Shareholder Services Department to request a separate copy of these materials at
First Merchants Corporation, P. O. Box 792, Muncie IN 47308-9915; (800)
262-4261, extension 7278. Similarly, shareholders who share an address and are
members of the same family, and who have received multiple copies of the proxy
materials, may write or call the Corporation's Shareholder Services Department
at the same address and telephone number to request delivery of a single copy of
these materials in the future.
The cost of soliciting proxies will be borne by the Corporation. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
other electronic means, but no solicitation will be made by specially engaged
employees or paid solicitors.
The Board and management are not aware of any matters to be presented at the
annual meeting of the shareholders other than the election of the directors.
However, if any other matters properly come before such meeting or any
19
adjournment thereof, the holders of the proxies are authorized to vote thereon
at their discretion, provided the Corporation did not have notice of any such
matter on or before January 17, 2006.
By Order of the Board of Directors
Muncie, Indiana Cynthia G. Holaday
March 2, 2006 Secretary
20
APPENDIX A
FIRST MERCHANTS CORPORATION AUDIT COMMITTEE CHARTER
Role
The Audit Committee (the "Committee") is appointed by the Board of Directors
(the "Board") of First Merchants Corporation (the "Corporation") to assist the
Board:
1. In its oversight of the Corporation's accounting and financial r
eporting principles and policies and internal accounting and
disclosure controls and procedures;
2. In its oversight and supervision of the Corporation's internal
audit function;
3. In its oversight of the certification of the Corporation's
quarterly and annual financial statements and disclosures and
assessment of internal disclosure controls by the Corporation's
Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO");
4. In its oversight of the Corporation's consolidated financial
statements and the independent external audit thereof, including
the appointing, compensating, overseeing (including resolving any
disagreements between management and the independent external
auditor regarding financial reporting); and
5. In evaluating the independence of the external auditors.
Membership
The members of the Committee shall meet the independence and experience
requirements of the NASDAQ and any other applicable laws and regulations. These
requirements specifically include the rules of the Securities and Exchange
Commission ("SEC") regarding audit committee financial experts, as defined.
1. The number and names of person determined to be audit committee
financial experts will be disclosed in the Corporation's annual
report.
2. The Corporation will disclose in the annual report whether the
audit committee financial experts are independent of management,
and if not, why.
3. If it is determined that the Corporation does not have a financial
expert on the Committee, it must disclose that fact and explain
why it does not.
Members of the Committee shall be appointed annually by majority vote of the
Board and will serve until the next annual meeting of the Board.
Meetings
The Committee shall meet four times annually or more frequently as circumstances
require:
1. To discuss with the Senior Staff Auditor and/or the outsourced
internal auditor the status of completion of the annual audit plan
and audit reports arising therefrom.
2. To discuss with management the annual audited financial statements
and quarterly financial results and the required certifications of
the CEO and CFO.
3. At least annually, the Committee will meet separately with the
internal auditor and the
independent external auditor, without any members of management
being present, to discuss matters that the Committee or any of
these persons or firms believes should be discussed privately.
4. The Committee may request any officer or employee of the
Corporation, or independent counsel, or independent external
auditors to attend a meeting.
Responsibilities
Overseeing Financial Reporting and Disclosures
The Committee shall:
1. Review and approve, prior to filing, the Corporation's annual
audited financial statements filed with the SEC and consider
whether they accurately and appropriately reflect their knowledge
of the financial condition of the Corporation and its results of
operations. Specific consideration will be given to the accuracy
A-1
of the financial statements, off-balance-sheet transactions,
disclosure of pro forma financial information, and real time
issuer disclosure matters.
2. Determine that management has put in place procedures to report to
the SEC changes in
Corporation stockholdings by directors, executive officers and
more than 10% stockholders of the Corporation.
3. Ensure that the Corporation has established adequate procedures to
ensure that quarterly and annual financial statements and
disclosures are accurate and complete. This will include reviewing
and approving the quarterly and annual CEO and CFO certifications.
4. Determine that the Corporation has complied with requirements of
the SEC to disclose in periodic reports whether or not the
Corporation has established a Code of Ethics.
5. Determine that the Corporation has complied with requirements of
the SEC to disclose the approval by the Committee of all non-audit
services to be performed by the Corporation's independent external
auditor.
Internal Audit Supervision
The Committee shall:
1. Review the appointment of the Senior Staff Auditor and/or
outsourced internal auditor; and
2. Evaluate the effectiveness of the internal audit function.
Independent External Auditor
The Committee shall:
1. Recommend the appointment and/or discharge of the independent
external auditor;
2. Pre-approve the external auditor's fees;
3. Evaluate the external auditor's independence; and
4. Pre-approve all permissible non-audit services to be provided by
the external auditors.
Internal and External Audit Plans and Results
The Committee shall:
1. Review and approve the annual audit plans of the internal audit
function and the independent external auditor;
2. Approve any changes to the annual audit plans;
3. Meet with the Senior Staff Auditor and/or outsourced internal
auditor to discuss the status of completion of the annual internal
audit plans and the periodic internal audit reports;
4. Review with management the results of the independent external
auditor's quarterly financial statements reviews;
5. Review with management and the independent external auditor the
results of the annual financial statements audit;
6. Review with management and the independent external auditor their
assessment of the quality of the Corporation's accounting
principles, the adequacy of internal accounting and disclosure
controls and resolution of identified significant deficiencies or
material weaknesses and reportable conditions in internal
accounting and disclosure controls;
7. Review compliance with laws and regulations and other audit
reports deemed significant by the Committee:
8. Receive certain communications from the independent external
auditors on an annual basis which include required
communications under generally accepted auditing standards; and
9. Based on these reviews, the Committee shall make its
recommendation to the Board as to the inclusion of the audited
consolidated financial statements in the Corporation's annual
report on Form 10-K.
A-2
Annual Proxy Statement Disclosure
The Committee should report activities to the Board and issue an annual report
to be included in the Corporation's proxy statement. In addition, the Committee
shall re-approve the Committee Charter annually, with a copy of the charter
filed with the SEC every three (3) years, and after any amendments.
Fraud Reporting and Handling of Complaints
The Committee shall have the responsibility for establishing procedures for:
1. Receipt, retention, and treatment of complaints received by the
Corporation regarding accounting, internal controls, or auditing
matters; and
2. The confidential, anonymous submission by employees of the
Corporation of concerns regarding questionable accounting or
auditing matters.
Regulatory Responsibilities
The Committee shall advise the Board with respect to any significant change in
the regulatory ratings of the Corporation and/or any subsidiary bank.
Resources and Authority
The Committee shall:
1. Meet with the counsel to the Corporation's Board when appropriate;
and
2. Engage independent legal counsel, auditors, or other advisors as
it determines necessary to carry out its duties.
Funding
The Corporation shall provide the Committee with appropriate funding, as
determined by the Committee, for payment of compensation:
1. To the registered independent external auditor employed by the
Corporation for the purpose of rendering or issuing an audit
report, and
2. To any advisors employed by the Committee.
A-3
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 13, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
v Please detach along perforated line and mail in the envelope provided. v
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Richard A. Boehning
( ) Barry J. Hudson
|_| WITHHOLD AUTHORITY ( ) Michael C. Rechin
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)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note |_|
that changes to the registered name(s) on the account may not be
submitted via this method.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of the firm of |_| |_| |_|
BKD, LLP as the independent public accountants for
2006.
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 17, 2006.
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 13, 2006
The undersigned hereby appoints Clell W. Douglass and Hamer D. Shafer, and
each of them, as proxies with power of substitution, to represent and to vote
all shares of common stock of First Merchants Corporation which the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of First
Merchants Corporation to be held at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana 47305, at 3:30 PM EST on April 13, 2006, and at any
adjournment thereof, with all of the powers the undersigned would possess if
personally present. If any of the nominees for election as Directors is unable
or declines to serve for any reason, the persons listed above have the authority
to vote for any substitute nominee named by the Board of Directors of First
Merchants Corporation.
(Continued, and to be marked, dated and signed on the reverse side)
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST MERCHANTS CORPORATION
April 13, 2006
-------------------------
PROXY VOTING INSTRUCTIONS
-------------------------
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
- OR -
-------------------------
COMPANY NUMBER
TELEPHONE - Call toll-free 1-800-PROXIES -------------------------
(1-800-776-9437) from any touch-tone telephone and ACCOUNT NUMBER
follow the instructions. Have your proxy card -------------------------
available when you call.
-------------------------
- OR -
INTERNET - Access "www.voteproxy.com" and follow
the on-screen instructions. Have your proxy card
available when you access the web page.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
v Please detach along perforated line and mail in the envelope provided IF v
you are not voting via telephone or the Internet.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND MANAGEMENT OF FIRST MERCHANTS CORPORATION
RECOMMEND A VOTE "FOR" THE PROPOSALS LISTED.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
--------------------------------------------------------------------------------
1. Election of Directors:
NOMINEES:
|_| FOR ALL NOMINEES ( ) Richard A. Boehning
( ) Barry J. Hudson
|_| WITHHOLD AUTHORITY ( ) Michael C. Rechin
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)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note |_|
that changes to the registered name(s) on the account may not be
submitted via this method.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of the firm of |_| |_| |_|
BKD, LLP as the independent public accountants for
2006.
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 17, 2006.
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.