UPDATE 1-First Merchants to buy Indiana's Lincoln Bancorp

(Recasts; adds details, share movement)

Sept 3 (Reuters) - Indiana's First Merchants Corp (FRME.O) said it agreed to buy smaller rival Lincoln Bancorp LNCB.O, the holding company of Lincoln Bank, in a cash-and-stock deal valued at between $74 million and $77 million.

Lincoln shareholders may elect to receive cash of about $15.76 a share, or 0.7004 shares of First Merchants common stock for each Lincoln share owned, the companies said.

In a regulatory filing, the company said, shareholders would be eligible for a maximum of 3.6 million common shares or $16.8 million in cash, adding that re-allocations may be made if the threshold exceeds the set limits.

The deal-value range has been calculated based on First Merchants' closing price of $19.89 on Tuesday, the company said.

The merger is expected to slightly hurt earnings in 2009, but should add to it in 2010 and beyond, First Merchants Chief Executive Mike Rechin, said in a statement.

Upon closure, the combined company will have assets totaling $4.7 billion and will operate 82 banking offices in 23 Indiana and three Ohio counties.

The company also named First Merchants' Chief Banking Officer Michael Stewart as President of the newly consolidates First Merchants Bank of Central Indiana.

Shares of Lincoln Bancorp, the top gainer on Nasdaq, were trading up more than 34 percent at $13.98 Wednesday. They earlier touched a high of $14.70.

First Merchants shares were trading up 5 cents at $19.71. (Reporting by Anurag Kotoky in Bangalore, Editing by Dinesh Nair) ((anurag.kotoky@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: anurag.kotoky.thomsonreuters.com@reuters.net))