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EXECUTIVE INCENTIVE PLAN 1982 AMENDED 2003
Amended as of 1/17/2003
1ST SOURCE CORPORATION
1982 EXECUTIVE INCENTIVE PLAN
1. PURPOSE. This Executive Incentive Plan (the "Plan") is
intended to promote the interest of 1st Source Corporation, an Indiana
corporation ("1st Source" or the "Corporation") and its shareholders by
attracting and motivating educated, self-disciplined and aggressive
managers, and by providing an incentive to induce continued future
employment of certain key employees of the Corporation and certain key
employees of one or more Subsidiaries of the Corporation. For the
purposes of this Plan, the term "Subsidiary" shall mean a corporation
or corporations of which the Corporation owns, directly or indirectly,
a majority of the outstanding voting stock.
2. ADOPTION AND ADMINISTRATION OF THE PLAN. The Plan shall
become effective as of January 1, 1982. The Plan shall be administered
by the Executive Compensation Committee of the Corporation (the
"Committee"). The Committee shall interpret, implement, and administer
the Plan and to the extent and the manner contemplated herein it shall
exercise the discretion granted to it as to the determination of who
shall participate in the Plan, the terms and conditions under which key
employees may participate or continue participating in the Plan, how
many shares shall be allocated to each participant, and the time when
such shares shall be allocated and issued to each participant. Any
action taken by the Committee with respect to the implementation,
interpretation or administration of the Plan shall be final, conclusive
and binding on the Corporation and each participant.
3. STOCK SUBJECT TO THE PLAN.The Committee shall determine the
number of shares of common stock of the Corporation to be allocated to
the Plan annually. Such common stock is herein sometimes referred to
either as "book value shares" or as "market value shares." The
distribution of shares pursuant to this Plan may be made either from
authorized and unissued shares or from Treasury shares, as determined
by the Committee. All Shares issued in accordance with the Plan shall
be fully paid and non-assessable shares and free from preemptive
rights.
4. ELIGIBILITY. The Committee shall designate from time to
time, those key executives in Salary Levels VI, VII, VIII and IX, or
selected executives from other salary levels as the Chief Executive
Officer may recommend, and the Committee deems appropriate, who are
employees of the Corporation or any of its subsidiaries, who shall be
eligible to receive an award under the Plan. The Committee shall make
its selections from candidates recommended by the Chief Executive
Officer. In making the allocation, the Committee shall consider, among
other items, the position and responsibility of the participant, the
value of the future service to be performed, the compensation of the
participant, the actual earnings performance of the Corporation and the
allocation proposed by the Chief Executive Officer. The Committee shall
establish the amount of the award to be granted to each participant.
1
5. FORM OF ALLOCATION. The Committee shall forthwith advise
each employee selected to participate in an award by written notice.
Each employee who shall be the subject of an Award shall be designated
as a "Participant."
(a) The Corporation may provide an annual award consisting of
two distinct parts: (1) an amount payable in cash and earned
immediately, and (2) an amount allocated immediately in book value or
market value shares of common stock which must be earned over the
succeeding five (5) years during which time they will be subject to a
substantial risk of forfeiture. The book value shares are restricted as
described in paragraph 7 below.
(b) The Corporation may also provide for a long-term award
from time to time as designated by the Committee. These awards will be
granted for attainment of five-year and other longer-term goals. Such
awards will consist of two distinct parts: (1) an amount payable in
cash and earned immediately; and (2) an amount allocated immediately in
market value shares of common stock of which 10% is earned immediately
and the remaining 90% must be earned over the succeeding nine (9) years
during which time they will be subject to a substantial risk of
forfeiture.
(c) The stock portion of the awards shall be made in whole
book value shares or whole market value shares only. No fractional
shares shall be awarded.
6. ACTION REQUIRED OF PARTICIPANTS.
(a) Within 30 days from the date of such written notice of the
Participant's initial allocation under the Plan, the Participant shall
notify the Committee, in writing, of acceptance of the allocation and
the terms thereof, applicable to the initial allocation and to all
subsequent allocations accepted under the Plan, which notice shall be
deemed delivered for all purposes by this Plan when personally
delivered or mailed to Chief Financial Officer, 1st Source Corporation,
P.O. Box 1602, South Bend, Indiana 46634 by postpaid certified United
States mail.
(b) The Corporation may require that, in allocating shares,
the Participant agree with, and represent to, the Corporation that
Participant is acquiring such shares for the purpose of investment and
with no present intention to transfer, sell or otherwise dispose of
such shares except such transfer by a legal representative as shall be
required by will or the laws of any jurisdiction in winding up the
estate of any Participant. Such shares shall be transferable thereafter
only if the proposed transfer shall be permissible pursuant to this
Plan and if, in the opinion of counsel (who shall be satisfactory to
Corporation), such transfer shall at such time be in compliance with
applicable securities law.
2
7. RESTRICTIONS. By accepting the allocation of shares under
this Plan, a Participant agrees and consents to the following
additional restrictions:
(a) All unearned shares shall be retained by Corporation. A
receipt for the certificate or certificates for the shares allocated to
a Participant shall be delivered by the Corporation to a Participant on
or after the date of issuance. Such Participant thereupon shall be a
shareholder with respect to all of the shares represented by such
certificate or certificates and shall have all rights of a shareholder
with respect to all such shares, including the right to vote such
shares and receive all dividends and other distributions, subject to
termination upon the occurrence of an Act of Forfeiture as set forth in
the Plan. The certificates for such shares may be either imprinted or
stamped with a legend to the effect that the shares represented thereby
may not be sold, exchanged, transferred, pledged, hypothecated (except
to issuer), assigned, conveyed, or otherwise voluntarily or
involuntarily disposed of except in accordance with this Plan (any such
disposition being automatically an Act of Forfeiture) by the holder
thereof until such time as the restrictions provided for herein lapse.
(b) If new or additional or different shares or securities are
distributed with respect to shares of common stock of the Corporation
as the result of a stock split, stock dividend, combination of shares
or other change involving 1st Source securities, or exchange for other
securities, or reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, the Participant shall, as the owner of
book value or market value shares subject to restrictions hereunder, be
entitled to such new or additional or different shares of stock or
securities.
(1) In the case of such a stock split, stock
dividend, combination or other change involving 1st Source
securities, exchange for other 1st Source securities,
reclassification, recapitalization, or other like event
involving the distribution of 1st Source securities, the
certificate or certificates for, or other evidences of, such
new or additional or different book value or market value
shares or securities, shall be appropriately imprinted with
the legend provided in paragraph 7(a) of this Plan and all
provisions of this Plan relating to restrictions to such new
or additional or different book value or market value shares
or securities to the extent applicable to the shares with
respect to which they were distributed; provided, further,
that if the Participant shall receive rights, warrants or
fractional interests in respect of any of such shares, such
rights or warrants and such fractional interests shall be
received, by the Participant subject to all of the remaining
restrictions herein set forth. All such additional book value
or market value shares, rights or other securities shall be
retained in safekeeping by the Corporation for the account of
the Participant.
3
(2) In the case of such an exchange for securities of
an issuer other than 1st Source, or such a reorganization,
merger, consolidation, or other like event involving the
distribution of securities of an issuer other than 1st Source,
which will result in a change of control of 1st Source, (i)
all awarded shares subject to forfeiture under this Plan shall
no longer be subject to forfeiture and shall be earned stock
for all purposes of the Plan, and (ii) all restrictions on
shares of stock theretofore awarded hereunder shall terminate
(except for any restrictions imposed by applicable securities
laws). The foregoing sentence shall be effective immediately
prior to such distribution. The Committee shall have full and
sole discretion to determine whether a change in control of
1st Source will occur for these purposes, but in the absence
of a contrary finding by the Committee, the acquisition by any
person or group of persons, other than 1st Source, of
beneficial ownership of 50.01% or more of the then outstanding
shares of 1st Source common stock shall be deemed to be a
change of control.
(c) The term "Restricted Period" with respect to any book
value shares allocated to a Participant under this Plan shall mean that
period commencing with the date of issuance of such shares and ending
on the date at which all such shares have been purchased from
Participant by Corporation.
(d) The term "Forfeiture Period" with respect to any
allocation of shares issued to a Participant under this Plan shall mean
a period commencing on the date of issuance of such shares to the
Participant and ending over a five (5) year period (for annual awards)
or a nine (9) year period (for long-term awards) thereafter. The
forfeiture period shall terminate at an equal and proportionate rate
for each year in which:
(1) the Participant served continuously as an
employee, for the full Plan Year, or in which the employee
died, became totally disabled or retired at his normal
retirement date while an employee, and during which,
(2) for book value shares only, the Corporation's
consolidated earnings grew at a rate not less than the rate of
growth established in advance by the Committee in connection
with the applicable award.
With respect to book value shares only, for any year in which the
cumulative growth rate is equal to or has exceeded the rate
established for the accumulated years subsequent to the date of the
award, all risk of forfeiture is removed for those shares which were
not released in that year or any prior year in which the Corporation
failed to meet the required annual or cumulative rate of return.
4
Notwithstanding the foregoing, the Committee may in its sole
discretion at any time extend the Forfeiture Period on issued shares
for the current or prior year(s), despite the Corporation's failure to
meet the required annual or cumulative rate of return.
(e) All stock subject to forfeiture shall be called "unearned
stock."
(f) For all purposes of this Plan, an Act of Forfeiture shall be
deemed to be any one of the following:
(1) With respect to shares subject to Forfeiture, the
voluntary or involuntary termination of the employment of a
Participant during the Forfeiture Period, other than by death,
disability or normal retirement, or
(2) The attempted sale, exchange, transfer, pledge,
hypothecation, assignment, conveyance or other voluntary or
involuntary disposition of any of the unearned stock all of
which is hereby expressly prohibited by this agreement;
(3) The election by the Participant to be taxed in
the year of receipt of the allocation of stock under Section
83(b) of the Internal Revenue Code of 1986 as amended, or
(4) Termination of the five (5) year Forfeiture
Period for book value shares if the earnings growth rate or
cumulative growth rate has not been achieved, with respect to
any portion of the unearned stock.
(g) Upon the occurrence of an Act of Forfeiture relating to a
Participant, the right, title and interest of all remaining unearned
stock of Corporation held by such Participant shall be automatically
forfeited and terminated for all purposes and Participant agrees on
behalf of himself, his personal representative, heirs, legatees, or
successors to execute and deliver to Corporation such forms of stock
power, assignments or instruments of transfer which Corporation may
reasonably request and, upon the failure of Participant or his personal
representatives, heirs, legatees or successors to execute and deliver
any and all forms of stock power, assignments and instruments of
transfer requested by the Committee to vest and transfer to Corporation
complete title to all such Forfeited shares, each Participant consents
and agrees that the St. Joseph Circuit Court of St. Joseph County,
Indiana, shall have personal jurisdiction over such Participant to
permit Corporation to obtain an order of specific performance which is
authorized and for which consent is hereby given by each Participant
who accepts an allocation of shares under this Plan.
(h) The right, title and interest of any transferee of any
shares acquired from a Participant under this Plan by will or by laws
of descent and distribution will and shall be subject to all of the
terms and conditions of the Plan, including but without limitation, the
restrictions on transfer and the provisions relating to forfeiture.
5
(i) The book value shares may only be sold to the Corporation
under the terms of this Plan. 1st Source may, in addition to any other
purchases required by this Plan, upon request of a participant,
purchase earned book value stock from the participant prior to death,
disability, retirement, or other termination of employment. Any such
purchase is limited to 50% of the participant's shares of earned book
value stock which, at the time of purchase, have been earned book value
stock for at least seven years. Such a purchase is permitted only upon
approval of the Committee and only for the following reasons: (1)
purchase of the participant's principal residence or a second home, (2)
payment of tuition or related educational expenses for the participant,
the participant's spouse, or a dependent, and (3) financial hardship.
The Committee will have sole discretion to determine whether the
enumerated criteria are being satisfied in any purchase. Any transfer
or purported transfer made by a Participant at any time, except at the
times and in the manner expressly authorized, shall be null and void
and the Corporation shall not be obligated to recognize nor to give
effect to such transfer on its books or records nor to recognize the
person or persons to whom such purported transfer has been made as the
legal beneficial holder of such shares.
(j) The Committee may impose such other restrictions on any
shares allocated to a Participant pursuant to this Plan as it may deem
advisable, including without limitation, restrictions under the
Securities Act of 1933, as amended, under the requirements of any stock
exchange upon which such shares or shares of the same class are then
listed, and under any blue-sky or securities laws applicable to such
shares.
8. MANDATORY RESALE OF BOOK VALUE STOCK.
(a) If the Participant is employed at the time of his death,
total disability, or retirement, Participant or his personal
representative must sell his book value stock back to the Corporation.
(1) Twenty percent (20%) of the purchase price will
be paid each year thereafter, beginning on the first
anniversary of the date of death, or retirement, or total
disability.
(2) The purchase price for any year shall be the book
value at the close of the year in which death, total
disability or retirement occurs.
(3) Any unearned book value stock at date of
retirement may be earned and sold to the Corporation under the
above terms as earned.
6
(4) At date of retirement or total disability,
Participant may elect to defer the sale of all book value
stock for an additional period of up to five (5) years under
the sale terms above. Such election must be made for all
shares the sale terms above. Such election must be made for
all shares held at time of retirement or disability in
accordance with the requirements established by the Committee.
In such event the purchase price will be the book value at the
end of the year prior to the year in which the payment is to
be made.
(5) Payments shall bear interest at 1st Source Bank's
current one-year certificate of deposit rate.
(b) Upon termination of employment by voluntary act of
employee or by act of Corporation, except death or disability or
retirement, all of such Participant's earned book value stock must be
sold to Corporation.
(1) The price to be paid by Corporation shall be the
lower of (a) book value at the end of the year prior to year
of departure, or (b) book value at the end of the year of
departure. Book value shall be determined by the Committee as
described in Paragraph 9 below.
(2) Installments of ten percent (10%) of the purchase
price of the shares shall be paid to the Participant each
year, without interest.
(c) If the Committee in its sole discretion determines in any
case that lump sum payment instead of installment payment as required
by Section 8(a) or (b) would be desirable (whether for financial
reasons, administrative ease, or otherwise) due to the size of the
required installment payments, the Committee may order without consent
of the participant such lump sum payment be made in lieu of payment in
installments. Such a lump sum payment shall be in an amount equal to
the present value of the installment payments which would have
otherwise been made discounted at the current Applicable Federal Rate.
9. MISCELLANEOUS PROVISIONS.
(a) EXPENSE. All expenses and costs in connection with the
administration of the Plan shall be borne by the Corporation.
(b) NO PRIOR RIGHTS OF OFFER. Nothing in the plan shall be
deemed to give any officer or employee of the Corporation or his or its
legal representatives or assigns or any other person or entity claiming
under or through any Participant any contractual or other right to
participate in the benefits of the Plan.
7
(c) INDEMNIFICATION OF THE COMMITTEE. In addition to such
other rights or indemnification as they may have, the members of the
Committee shall be indemnified by the Corporation against all costs and
expenses reasonably incurred by them or any of them in connection with
any action, suit or proceeding to which they or any of them may be a
party by reason of any action taken or failure to act under or in
connection with the Plan or any award granted thereof and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by legal counsel selected by the Corporation) or paid by them
in satisfaction of a judgment in any such action, suit or proceedings,
the person desiring indemnification shall give the Corporation an
opportunity, at its own expense, to handle and defend the same.
(d) LIABILITY OF CORPORATION. The liability of the Corporation
under this Plan or any allocation of shares made hereunder is limited
to the obligation set forth with respect to such allocation, and
nothing herein contained shall be construed to impose any liability on
the Corporation in favor of any Participant with respect to any loss,
cost or expense which a Participant may incur in connection with or
arising out of any transaction in connection therewith.
(e) NO AGREEMENT TO EMPLOY. Nothing in the Plan shall be
construed to constitute or be evidence of an agreement or understanding
expressed or implied on the part of the Corporation or any Subsidiary
to employ or retain any Participant to whom any shares have been
allocated for any specified period of time or times.
(f) BOOK VALUE. Book value under this Plan shall be determined
in accordance with generally accepted accounting principles, as
published in the Corporation's Annual Report.
(g) MARKET VALUE. Market value under this Plan shall mean the
average closing price of a share of common stock, as reported by
NASDAQ, or by any other exchange upon which the shares may be traded,
for the five consecutive trading days ending on the day on which the
value is to be determined or if that day is not a stock trading day,
then on the last preceding trading day.
10. AMENDMENT AND TERMINATION OF THE PLAN. The Corporation may
at any time terminate or extend the Plan, or make such modification of
the Plan or of the exhibits attached to this Plan as it shall deem
advisable. No termination or amendment of the Plan shall, without the
consent of any person affected thereby, modify or in any way affect any
right or obligation created prior to such termination or amendment.
11. POWERS OF EXECUTIVE COMPENSATION COMMITTEE. The Committee
shall have the authority to make all interpretations of this plan in
its sole discretion. It shall make all administrative rules and other
determinations and shall rule upon all questions and requests with
respect to the Plan.
8
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