Filed by Bowne Pure Compliance
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 (Amendment No. )
Filed by the Registrant þ
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
FIRST FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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FIRST FINANCIAL BANK
One First Financial Plaza
P.O. Box 540
Terre Haute, IN 47808
March 26, 2008
Dear Shareholders:
Our 2008 Annual Meeting of Shareholders will be held on Wednesday, April 16, 2008 at 11:00
a.m., local time, at One First Financial Plaza, Terre Haute, Indiana. We have enclosed a copy of
our 2007 Annual Report to Shareholders for your review.
We hope you can attend the meeting. If you are unable to join us, we urge you to exercise your
right as a shareholder and vote. Please mark, sign, date, and return the enclosed proxy card in the
envelope provided. Your cooperation is appreciated.
This Proxy Statement is first being mailed to shareholders on or about March 26, 2008.
Sincerely,
/s/ Donald E. Smith
Chairman of the Board and President
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 2008
To our Shareholders:
Notice is hereby given that, pursuant to the call of its Directors, an Annual Meeting of
Shareholders of First Financial Corporation (“Corporation”) will be held on Wednesday, April 16,
2008 at 11:00 o’clock a.m., local time, at One First Financial Plaza, Terre Haute, Indiana.
The purposes of the meeting are:
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To elect B. Guille Cox, Jr., Anton H. George, Gregory L. Gibson and Virginia L.
Smith to the Board of Directors of the Corporation for a three (3) year term to expire
in 2011; |
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To ratify the appointment of Crowe Chizek and Company LLC as the independent
registered public accounting firm of the Corporation for the fiscal year ending
December 31, 2008; and |
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To transact such other business as may properly be presented at the meeting. |
Only shareholders of record at the close of business on March 12, 2008 will be entitled to
notice of and to vote at the meeting.
By Order of the Board of Directors
Donald E. Smith
Chairman of the Board and President
March 25, 2008
IMPORTANT — PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT
THE MEETING, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
PROXY STATEMENT OF
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
(812) 238-6000
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the Board of
Directors of First Financial Corporation (the “Corporation” or “we”) and contains information
related to the Annual Meeting of Shareholders of the Corporation to be held on Wednesday, April 16,
2008, beginning at 11:00 a.m., local time, at One First Financial Plaza, Terre Haute, Indiana, and
at any postponements or adjournments of the meeting. This proxy statement and accompanying form of
proxy were first mailed to shareholders on or about March 26, 2008.
QUESTIONS AND ANSWERS ABOUT THE MEETING
Q: What is the purpose of the annual meeting?
At the annual meeting, shareholders will act upon the matters outlined in the notice of
meeting accompanying this proxy statement, including the election of directors and the ratification
of the selection of Crowe Chizek and Company LLC as the independent registered public accounting
firm of the Corporation for the fiscal year ending December 31, 2008. In addition, the
Corporation’s management will report on the performance of the Corporation during the fiscal year
ended December 31, 2007, and respond to questions from shareholders.
Q: Who is entitled to vote at the meeting?
Only shareholders of record at the close of business on the record date, March 12, 2008, are
entitled to receive notice of the annual meeting and to vote the common shares that they held on
that date at the meeting, or any postponements or adjournments of the meeting. Each shareholder is
entitled to one vote for each share of common stock held on the record date.
Q: Who can attend the meeting?
All shareholders as of the record date, or their duly appointed proxies, may attend the
meeting. Admission to the meeting will be on a first-come, first-admitted basis.
Q: What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a majority of the common
shares outstanding on the record date will constitute a quorum, permitting the meeting to conduct
its business. As of the record date, 13,118,859 common shares of the Corporation were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included in the calculation
of the number of shares considered to be present at the meeting.
Q: How do I vote?
If you complete and properly sign the accompanying proxy card and return it to us, it will be
voted as you direct. If you are a registered shareholder and attend the meeting, you may deliver
your completed proxy card in person. “Street name” shareholders who wish to vote at the meeting
will need to obtain a proxy form from the institution that holds their shares.
1
Q: Can I vote by telephone or electronically?
If you are a registered shareholder (that is, if you hold your shares in certificate form),
you may only vote in person or by written proxy.
If your shares are held in “street name,” please check your proxy card or contact your broker
or nominee to determine whether you will be able to vote by telephone or electronically through the
Internet.
Q: Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at any time before the
proxy is exercised by filing with the Secretary of the Corporation, Michael A. Carty, First
Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808, either
a notice of revocation or a duly executed proxy bearing a later date. The powers of the proxy
holders will be suspended if you attend the meeting in person and so request, although attendance
at the meeting will not by itself revoke a previously granted proxy.
Q: What are the Board’s recommendations?
Unless you give other instructions on your proxy card, the persons named as proxy holders on
the proxy will vote in accordance with the recommendations of the Board of Directors (or “Board”).
The Board’s recommendations are set forth together with the description of each proposal in this
proxy statement. In summary, the Board recommends a vote “FOR” election of the nominated slate of
directors.
With respect to any other matter that properly comes before the meeting, the proxy holders
will vote as recommended by the Board of Directors or, if no recommendation is given, in their best
judgment.
Q: What vote is required to approve each item?
Directors will be elected by a plurality of the votes cast at the meeting. A properly executed
proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be
voted with respect to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum.
The affirmative vote of the holders of a majority of the shares represented in person or by
proxy and entitled to vote will be required for the ratification of Crowe Chizek and Company LLC as
our independent registered public accounting firm. Action on any other matters to come before the
meeting must be approved by an affirmative vote of a majority of the shares present, in person, or
by proxy.
If you hold your shares in “street name” through a broker or other nominee, your broker or
nominee may not be permitted to exercise voting discretion with respect to some of the matters to
be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares
may not be voted on those matters and will not be counted in determining the number of shares
necessary for approval. However, shares represented by such “broker non-votes” will be counted in
determining whether there is a quorum.
Q: What if other matters come up during the meeting?
If any matters other than those referred to in the notice of Annual Meeting of Shareholders
properly come before the meeting, the individuals named in the accompanying form of proxy will vote
the proxies held by them as recommended by the Board of Directors or, if no recommendation is
given, in accordance with their best judgment. The Corporation is not aware of any business other
than the items referred to in the Notice of Annual Meeting of Shareholders that may be considered
at the meeting.
2
If for any reason any of the director/nominees becomes unable or is unwilling to serve at the
time of the meeting (an event which the Board of Directors does not anticipate), the persons named
as proxies in the accompanying form of proxy will have discretionary authority to vote for a
substitute nominee or nominees
named by the Governance/Nominating Committee if the Board of Directors elects to fill such
nominees’ position. If any shareholder proposal intended to be presented at the 2008 Annual Meeting
was not received by the Corporation on or before February 6, 2008, the proxies will have
discretionary authority to vote on the matter.
Q: Who pays to prepare, mail and solicit the proxies?
The Corporation pays all costs of preparing, mailing and soliciting proxies. The Corporation
asks brokers, banks, voting trustees and other nominees and fiduciaries to forward proxy materials
to the beneficial owners and to obtain authority to execute proxies. The Corporation will
reimburse the brokers, banks, voting trustees and other nominees and fiduciaries upon request. In
addition, proxies may be solicited by mail, in person, or by telephone by certain of the
Corporation’s officers, directors and employees, who will not be separately compensated for such
activity.
Q: Whom should I call with other questions?
If you have additional questions about this proxy statement or the meeting or would like
additional copies of this document or our 2007 Annual Report on Form 10-K, please contact: Michael
A. Carty, Secretary, First Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre
Haute, Indiana 47808.
3
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors is currently composed of ten (10) members. The Corporation’s Articles
of Incorporation divide the Board of Directors into three classes, as nearly equal in size as
possible, with one class of directors elected each year for a term extending to the third
succeeding Annual Meeting after such election. The nominees for election as director are nominated
to serve for terms to expire as of the 2011 Annual Meeting. Each nominee is a current director of
the Corporation. The following information is provided concerning each nominee and each incumbent
director continuing in office.
Names and Ages of Nominees for Terms to Expire in 2011
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B. Guille Cox, Jr., Age 62
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Director since 1983* |
Attorney with Cox Zwerner Gambill & Sullivan |
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Anton H. George, Age 48
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Director since 1989 |
President of Indianapolis Motor Speedway Corp. |
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Director of Vectren Corporation |
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Gregory L. Gibson, Age 45
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Director since 1994 |
President of ReTec, Inc. |
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Virginia L. Smith, Age 59
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Director since 1987 |
President of Deep Vein Coal Company, Inc. |
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Names and Ages of Incumbent Members of the Board of Directors Whose Terms Expire in 2009
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Thomas T. Dinkel, Age 57
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Director since 1989 |
President of Sycamore Engineering, Inc. |
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Norman L. Lowery, Age 61
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Director since 1989 |
Vice Chairman of the Board, Chief Executive Officer
of the Corporation, and President and Chief Executive Officer
of First Financial Bank, N.A. |
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Patrick O’Leary, Age 71
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Director since 1983* |
President of Contract Services, LLC |
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Names and Ages of Incumbent Members of the Board of Directors Whose Terms Expire in 2010
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W. Curtis Brighton, Age 54
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Director since 2004 |
Executive Vice President of Hulman and Company |
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Ronald K. Rich, Age 70
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Director since 2005 |
Financial Representative for Northwestern
Mutual Financial Network |
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Donald E. Smith, Age 81
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Director since 1983* |
Chairman of the Board and President of the Corporation |
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*First Financial Corporation was formed in 1983.
4
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 2007, the Board of Directors of the Corporation met 18
times. Each Director attended more than 75% of the aggregate of (i) all meetings of the Board held
while he or she was a director and (ii) all meetings of committees on which he or she served during
the period that he or she served on the committee. Although the Corporation has no formal policy
on director attendance at annual meetings of shareholders, they are encouraged to attend such
meetings. Eight directors attended the 2007 Annual Meeting of Shareholders.
The Board of Directors has established a number of committees which facilitate the
administration and oversight of the Corporation. Among these committees are the Audit,
Compensation, and Governance / Nominating Committees.
Governance/Nominating Committee. Members consist of Messrs. O’Leary, Gibson and Rich. The
Board of Directors has determined that Messrs. O’Leary, Gibson and Rich are independent under the
rules of the NASDAQ Global Select Market. The Governance/Nominating Committee identifies director
nominees through a combination of referrals, including referrals from management, existing board
members and shareholders. The Governance/Nominating Committee currently does not maintain any
formal criteria for selecting directors and may take into consideration such factors and criteria
as it deems appropriate. However, in reviewing qualifications for prospective nominees to the
Board, the Governance/Nominating Committee may take into consideration, among other matters, the
prospective nominee’s judgment, skill, educational background or equivalent lifetime experience,
integrity, reputation, possession of the ability to oversee the Corporation’s business and affairs,
the time available to serve, community involvement, civic-mindedness, and business and other
experience. The Governance/Nominating Committee does not evaluate nominees proposed by shareholders
any differently than other nominees to the Board.
This Committee met three times during 2007. A copy of the charter of this Committee is
available on the Corporation’s web site at www.first-online.com.
Audit Committee. Members consist of Anton H. George, Thomas T. Dinkel and Patrick O’Leary. The
Board of Directors has determined that Messrs. George, Dinkel and O’Leary are independent under
Rule 10A-3 of the SEC and the rules of the NASDAQ Global Select Market. The Audit Committee
reviews the Corporation’s operations and management, accounting functions, and the adequacy and
effectiveness of the internal controls and internal auditing methods and procedures and is
responsible for the appointment, compensation, retention and oversight of the independent
registered public accounting firm for the Corporation. The Audit Committee had four meetings during
2007. A copy of the charter of this Committee is posted on the Corporation’s website at
www.first-online.com.
The Board of Directors has determined that a current member of the Audit Committee is
financially sophisticated under applicable NASDAQ rules. The Board of Directors selected the
members of the Audit Committee based on the Board’s determination that they are fully qualified to
monitor the performance of management, the public disclosures by the Corporation of its financial
condition and performance, our internal accounting operations and our independent auditors. In
addition, the Audit Committee has the ability on its own to retain independent accountants or other
consultants whenever it deems appropriate.
The Board of Directors has determined that the Corporation currently does not have a director
who qualifies as a “financial expert” under federal securities laws. To be considered a “financial
expert,” an individual’s past experience generally must include experience in the preparation or
audit of comparable public company financial statements, or the supervision of someone in the
preparation or audit of comparable public company financial statements. While it might be possible
to recruit a person who meets these qualifications of a “financial expert,” the Board has
determined that in order to fulfill all the functions of our Board and our Audit Committee, each
member of our Board and our Audit Committee, including any “financial expert,” should ideally
understand community banking and understand the markets in which the Corporation operates, and that
it is not in the best interests of our Corporation to nominate as a director someone who does not
have all the experience, attributes and qualifications we seek.
5
Compensation Committee. Members consist of Messrs. George, O’Leary and Rich. The Board of
Directors has determined that Messrs. George, O’Leary and Rich are independent under the rules of
the NASDAQ Global Select Market. The Compensation Committee approves the compensation of the named
executive officers. This committee also administers the compensation plans of the Corporation.
The Compensation Committee met three times in 2007. A copy of the charter of this Committee is
available on the Corporation’s website at www.first-online.com.
Compensation of Directors
The goal of the compensation package is to attract and retain qualified candidates to serve on
the Board of Directors. In setting compensation, the Board considers compensation levels of
directors of other financial institutions of similar size. In addition, directors are compensated
under the 2001 and 2005 Long-Term Incentive Plan, which is directly linked to Corporation
performance (as described below). Each director of the Corporation is also a director of First
Financial Bank, N.A. (the “Bank”), the lead subsidiary bank of the Corporation, and receives
directors’ fees from each of the Corporation and the Bank. During 2007 each director of the
Corporation and the Bank received a fee of $750 for each board meeting attended. No changes were
made to director compensation arrangements in 2007 compared to 2006.
Non-employee directors also receive a fee for each meeting attended of the Audit Committee of
$1,000, the Compensation Committee of $1,000, the Governance/Nominating Committee of $500 and the
Loan Committee of $300. Each director also received from the Bank a semi-annual director’s fee of
$2,500 on July 15th and December 16th. No non-employee director served as a director of any other
subsidiary of the Corporation.
Director Compensation Table
The table below summarizes the compensation paid by the Corporation to each non-employee
Director for the fiscal year ended December 31, 2007.
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Change in Pension |
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Value and |
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Nonqualified |
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Deferred |
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Fees Earned or Paid |
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Nonequity Incentive |
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Compensation |
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All Other |
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in Cash |
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Plan Compensation |
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Earnings |
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Compensation |
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Total |
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($) |
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($) |
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($) |
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($) |
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($) |
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(b)(2)(3) |
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W. Curtis Brighton |
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$ |
33,700 |
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$ |
43,800 |
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N/A |
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- 0 - |
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$ |
77,500 |
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B. Guille Cox, Jr. |
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$ |
36,100 |
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$ |
43,800 |
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N/A |
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$ |
10,097 |
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$ |
89,997 |
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Thomas T. Dinkel |
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$ |
40,100 |
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$ |
43,800 |
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N/A |
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- 0 - |
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$ |
83,900 |
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Anton H. George |
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$ |
36,200 |
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$ |
43,800 |
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N/A |
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- 0 - |
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$ |
80,000 |
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Gregory L. Gibson |
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$ |
34,700 |
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$ |
43,800 |
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N/A |
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$ |
13,924 |
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$ |
92,424 |
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Patrick O’Leary |
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$ |
43,500 |
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$ |
43,800 |
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N/A |
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$ |
10,097 |
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$ |
97,397 |
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Ronald K. Rich |
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$ |
39,200 |
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$ |
43,800 |
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N/A |
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- 0 - |
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$ |
83,000 |
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Virginia L. Smith |
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$ |
35,500 |
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$ |
43,800 |
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N/A |
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- 0 - |
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$ |
79,300 |
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Norman L. Lowery, the Vice Chairman of the Board and Chief Executive Officer of the
Corporation, is not included in this table because he is an employee of the Corporation.
Donald E. Smith, the Chairman of the Board and President of the Corporation, is also not
included in this table because he is an employee of the Corporation. The compensation
received by Mr. Lowery and Mr. Smith as employees of the Corporation is shown in the
Summary Compensation Table on page 10. |
6
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Amounts reported represent fees earned for serving on the Board of Directors of the
Corporation, the Board of Directors of the Bank and committees of the Board of the
Corporation during 2007. |
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Members of the Board of Directors have the ability to defer a portion of their director
fees under the First Financial Corporation Directors’ Deferred Compensation Plan. For a
more detailed discussion of this plan, see the narrative immediately following these
footnotes. |
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Amounts reported represent compensation earned pursuant to participation in the
Corporation’s 2005 Long-Term Incentive Plan, see the “Compensation Discussion and Analysis”
section of this proxy on page 6. |
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(5) |
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Amounts reported represent benefit earned pursuant to participation in the
Corporation’s Employee Group Health Plan. |
First Financial Corporation Directors’ Deferred Compensation Plan. Directors of the
Corporation and the Bank may participate in the First Financial Corporation 2005 Directors’
Deferred Compensation Plan. Under this plan, a director may defer up to $6,000 of his or her
director’s fees each year over a five-year period provided that the director timely submits a
deferral election to the Corporation. The amount of deferred fees is used to purchase an insurance
product, which the Corporation is the beneficiary of, that funds benefit payments. An amount equal
to the face amount of the policy will be paid to the director in addition to an amount equal to the
tax savings the Corporation will receive by obtaining the proceeds from the policy on a tax-free
basis. Payment will be made in 120 monthly installments beginning on the first day of the month
after the earlier of the director’s 65th birthday or death. If the director is still a director at
the end of the five-year period, then he or she will be entitled to enter into a new deferred fee
agreement with the Corporation and/or the Bank. Each year from the initial date of deferral until
payments begin, the Corporation accrues a non-cash expense which will equal, in the aggregate, the
amount of the payments to be made to the director over the ten-year period. If a director fails
for any reason, other than death, to serve as a director during the entire five-year period, or the
director fails to attend at least 12 regular or special meetings each year, the amount of benefits
paid will be prorated appropriately. For 2007, the allocated cost of the deferred directors’ fees
was $176,867.
First Financial Corporation 2001 and 2005 Long-Term Incentive Plans. Directors also may be
compensated under the First Financial Corporation 2001 and 2005 Long-Term Incentive Plans,
discussed under “Compensation Discussion and Analysis,” beginning on page 6. Under these plans,
directors may receive 90%, 100% or 110% of the directors’ “award amount” if the Corporation and the
Bank attain certain performance goals established by the Compensation Committee. For 2007, each
director earned an award of $43,800 pursuant to the 2005 Long-Term Incentive Plan, which amount
represented 100% of the director “award amount” under that plan for 2007.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or was formerly an officer or an employee of the
Corporation or its subsidiaries.
Other than as described below, no executive officer of the Corporation or its subsidiaries
serves as a member of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Corporation’s Board of Directors. Donald E.
Smith and Norman L. Lowery serve as members of the Executive Committee of Lynch Coal Operators
Reciprocal Association, an unincorporated reciprocal insurance association, and participate in
setting the compensation of the executive officers of the Association. W. Curtis Brighton serves
as the General Manager of Lynch Coal Operators Reciprocal Association.
7
Certain Relationships and Related Transactions
Certain family relationships exist among the directors of the Corporation. Donald E. Smith is
the father of Virginia L. Smith and father-in-law of Norman L. Lowery. There are no arrangements or
understandings between any of the directors pursuant to which any of them have been selected for
their respective positions.
The Audit Committee is responsible for approving any transactions between the Corporation or
its subsidiaries and any related party, including loans or extensions of credit and any sale of
assets or other financial transactions. Directors and principal officers of the Corporation and
their associates were customers of, and have had transactions with, the Corporation and its
subsidiary banks in the ordinary course of business during 2007. Comparable transactions may be
expected to take place in the future. During 2007 various directors and officers of the
Corporation and their respective associates were indebted to the subsidiary banks from time to
time. These loans were made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for similar transactions
with other persons and did not involve more than the normal risk of collectability or present other
unfavorable features. Loans made to directors and executive officers are in compliance with federal
banking regulations and thereby are exempt from the insider loan prohibitions included in the
Sarbanes-Oxley Act of 2002.
Related party transactions are evaluated on a case-by-case basis in accordance with the
applicable provisions of the Articles of Incorporation and the Code of Business Conduct and Ethics
of the Corporation.
The provisions of the Articles of Incorporation apply to contracts or transactions between the
Corporation and (i) any Director; or (ii) any corporation, unincorporated association, business
trust, estate, partnership, trust, joint venture, individual or other legal entity in which any
Director has a material financial interest. The provisions of the Code of Business Conduct and
Ethics apply to the Directors, officers and employees of the Corporation.
The Articles of Incorporation provide that contracts or transactions between the Corporation
and any of the persons described above are valid for all purposes, if the material facts of the
contract or transactions and the Director’s interest were disclosed or known to the Board of
Directors, a committee of the Board of Directors with authority to act thereon, or the shareholders
entitled to vote thereon, and the Board of Directors, such committee or such shareholders
authorized, approved or ratified the contract or transaction.
The Code of Business Conduct and Ethics provides that Directors, officers and employees of the
Corporation must make business decisions for the Corporation free of conflicting influences. Such
persons are expected to avoid situations that may lead to real or apparent material conflicts
between such person’s self interest and their duties or responsibilities as a Director, officer or
employee of the Corporation.
The Senior Compliance Officer is responsible for annually reaffirming compliance with this
Code of Business Conduct and Ethics by the Directors, officers and employees of the Corporation.
During 2007, Platolene 500, Inc., an indirect subsidiary of Deep Vein Coal Company, Inc.,
received payments for providing fuel and services to First Financial Bank N.A. in the amount of
approximately $146,000. Donald E. Smith (the Chairman of the Board of the Corporation), Virginia
L. Smith (the daughter of Mr. Smith and a director of the Corporation), and Sarah J. Lowery, the
wife of Norman L. Lowery (the Chief Executive Officer of the Corporation), own in the aggregate
greater than a 10% equity interest in Deep Vein Coal Company, Inc. and serve as the Chairman, Vice
President and Chief Operating Officer and Vice President, respectively of Platolene 500, Inc.
8
CORPORATE GOVERNANCE
General
The Corporation aspires to the highest ethical standards for its employees, officers and
directors, and remains committed to the interests of its shareholders. The Corporation believes it
can achieve these objectives only with a plan for corporate governance that clearly defines
responsibilities, sets high standards of conduct and promotes compliance with the law. The Board of
Directors has adopted policies and procedures designed to foster the appropriate level of corporate
governance. Some of these procedures are discussed below. For further information, including
electronic versions of our Code of Business Conduct and Ethics, our Audit Committee Charter, our
Compensation Committee Charter and our Nominating/Corporate Governance Committee Charter please
contact the Secretary of the Corporation, Michael A. Carty, First Financial Corporation, One First
Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808, (812) 238-6000, or visit our website at
www.first-online.com.
Director Independence
The Board of Directors has determined that a majority of the Board, including Messrs. Cox,
Rich, George, Gibson, Dinkel and O’Leary, are independent, as independence is defined under revised
listing standards of the Nasdaq Global Select Market applicable to the Corporation.
Code of Ethics
The Corporation has adopted a Code of Business Conduct and Ethics that applies to all of the
Corporation’s directors, officers and employees, including its principal executive officer,
principal financial officer, principal accounting officer and controller. The Corporation intends
to disclose any amendments to the Code by posting such amendments on its website. In addition, any
waivers of the Code for directors or executive officers of the Corporation will be disclosed in a
report on Form 8-K.
Communications with Independent Directors
Any shareholder who desires to contact the Chairman of the Board of Directors or the other
members of the Board of Directors, or who desires to make a recommendation of a director candidate
for consideration by the Governance/Nominating Committee, may do so electronically by sending an
email to the following address: directors@ffc-in.com. Alternatively, a shareholder can contact the
Chairman of the Board or the other members of the Board by writing to: Chairman, First Financial
Corporation, P.O. Box 540, Terre Haute, IN 47808. The Governance/Nominating Committee will consider
any candidate submitted by a shareholder in the manner described above. Communications received
electronically or in writing are distributed to the Chairman of the Board or the other members of
the Board as appropriate depending on the facts and circumstances outlined in the communication
received. For example, if any complaints regarding accounting, internal accounting controls and
auditing matters are received, then they will be forwarded by the Secretary to the Chairman of the
Audit Committee for review.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of the Compensation Program and the Compensation Committee
The Compensation Committee of the Board of Directors is responsible for evaluating and
establishing compensation levels and compensation programs for the Corporation’s named executive
officers. The Committee has established a range of plans and programs which are intended to
encourage both current year performance and long-term shareholder value.
9
Compensation Philosophy and Objectives
The Compensation Committee’s executive compensation policies are designed to attract and
retain highly qualified persons as named executive officers, to provide competitive levels of
compensation to the named executive officers and to reward the named executive officers for
satisfactory individual performance and for satisfactory performance of the Corporation as a whole.
Additionally, the policies seek to provide a vehicle for the Committee to evaluate and measure the
performance of the Corporation and the executives in accordance with the results of those
evaluations. The individual goals established in the strategic plan and budget for the Corporation
and the Bank are also utilized in setting compensation levels of the named executive officers. The
Corporation seeks to achieve these objectives through a blend of both short and long-term
compensation.
Role of Named Executive Officers in Compensation Decisions
Mr. Smith and Mr. Lowery participate in meetings of the Compensation Committee at which
compensation actions involving our named executive officers are discussed. Mr. Smith and Mr.
Lowery assist the Committee by making recommendations regarding compensation actions relating to
the named executive officers other than themselves. Mr. Smith and Mr. Lowery each recuses himself
and does not participate in any meetings of the Committee at which his compensation is discussed.
The other named executive officers do not participate in the meetings of the Committee or in
establishing the compensation of the named executive officers.
Elements of Executive Compensation
The compensation programs of the Corporation for its named executive officers are administered
by or under the direction of the Compensation Committee and are reviewed on an annual basis to
ensure that remuneration levels and benefits are comparable to other similarly sized corporations
within our industry and reasonable using the guidelines described above. With respect to the named
executive officers other than the Chairman of the Board and Chief Executive Officer, the
Compensation Committee reviews and compares individual performance with respect to individual
goals, area goals, and Corporation goals. Because the Chairman of the Board and the Chief
Executive Officer have greater responsibility for the overall operations of the Corporation, the
Compensation Committee reviews and compares the following with respect to their compensation:
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the performance of the Corporation compared to previous years and to the budget; |
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past compensation levels for these officers; |
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the performance of the Chairman of the Board and the Chief Executive Officer with
respect to individual goals; |
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the compensation levels at comparable financial institutions, as discussed below; and |
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total shareholder return. |
The particular elements of the compensation programs for the named executive officers are described
in more detail below.
Base Salary.
Base salary is the fixed component of total cash compensation and is intended to reward the
named executive officers for their past performance and to facilitate the attraction and retention
of a skilled and experienced executive management team. The Board of Directors establishes a total
“pool” for salaries for each fiscal year, typically expressed as a percentage increase over the
prior year’s total salary pool. In establishing this amount, the Compensation Committee considers
inflation and also looks at a number of sources including WorldatWork — Financial Institutions,
Buck Consultants, The Conference Board, Mercer, Hewitt and Culpepper Pay Trends. Salaries are
established based on the idea that increases should reward performance and not longevity.
Executives who exceed job expectations may be rewarded with an increase of greater than the overall
salary percentage increase. Executives who did meet job expectations may be rewarded at a
lower percentage increase, and those who do not meet job expectations may not be awarded a salary
increase.
10
Base salary for a named executive officer is determined after the officer’s performance is
reviewed by the Compensation Committee. This review includes an analysis of the performance of the
Corporation and the Bank and an analysis of the individual’s performance during the past fiscal
year, with a focus on the executive’s quality and quantity of work; supervisory skills;
dependability; initiative; attendance; overall skill level; and overall value to the Corporation.
In addition, the Compensation Committee also refers, generally, to the Indiana Bankers Association
study of Midwestern banks for similarly-rated jobs. With respect to the Chairman of the Board and
Chief Executive Officer, the Compensation Committee reviews and compares the performance of the
Corporation and the Bank to prior years and to the budget, and compares earnings per share, net
income, loans, and outstanding deposits to budget. Additionally, in determining salary for the
Corporation’s Chairman of the Board and Chief Executive Officer, the Compensation Committee
considers the compensation levels of comparable peers in the same geographical location (generally,
this consists of financial institutions in Midwestern markets with comparable demographics as the
Corporation with assets between $2 billion and $5 billion).
Annual Bonus Amounts. The Compensation Committee determines whether an annual bonus should
be paid based primarily upon the overall performance of the Corporation and the Bank. Similar to
salary, bonus amounts are based upon a comparison of the Corporation’s and the Bank’s performance
to budget and prior year performance.
First Financial Corporation 2001 and 2005 Long-Term Incentive Plans. Beginning in 1999, the
Board began discussions with several consultants regarding compensation programs. These
discussions focused on an analysis of compensation programs of other financial institutions and
what actions were needed to provide comparable compensation packages to directors, officers and key
employees of the Corporation and its subsidiaries. These discussions and the analysis of the
information received culminated with the adoption by the Board in November 2000 of the First
Financial Corporation 2001 Long-Term Incentive Plan (the “2001 Plan”), effective January 1, 2001.
The 2001 Plan was adopted after lengthy Board discussions with and consultation from an
independent consultant. The 2001 Plan was designed to enhance the Corporation’s value to
stockholders by attracting and retaining qualified directors, officers and other key employees and
by providing further incentive for directors, officers and other key employees to give their
maximum effort to the continued growth and success of the Corporation. The 2001 Plan is an
unfunded, nonqualified plan of deferred compensation which is administered by the Compensation
Committee. The 2001 Plan was frozen effective December 31, 2004 to exempt all amounts under the
2001 Plan from the application of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”). The Board adopted the First Financial Corporation 2005 Long-Term Incentive Plan (the
“2005 Plan”) as a replacement plan, effective January 1, 2005. The terms of the 2005 Plan comply
with the requirements of Code Section 409A and related guidance. Collectively the 2001 Plan and
2005 Plan are referred to as the “Plans.”
Directors and executive officers who are considered highly compensated employees and who are
age 65 or under are eligible to participate in the 2005 Plan; however, the Compensation Committee
exempted Messrs. Smith and O’Leary from the age limitations at each Plan’s inception and exempted
Mr. Rich, who did not become a director until 2005, from the age limitation of the 2005 Plan. The
Compensation Committee has designated as participants in the 2005 Plan all directors of the
Corporation, the executive officers listed in the summary compensation table on the following page
and certain other officers. Individuals are not eligible to receive awards under the Plans after
age 65, except for Messrs. Smith, Rich and O’Leary. Furthermore, because Mr. Brighton had not been
an employee or director for five years when he entered into the 2005 Plan, he will vest in 20% of
the Plan awards in his first year of participation, 40% in the second year, 60% in the third year,
80% in the fourth year, until he becomes 100% vested in the total awards after five years. Mr.
Rich, having joined the Corporation when there were four years remaining in the 2005 Plan, was
approved by the Compensation Committee to vest in the 2005 Plan in the amounts of 25% in his first
year of participation, 50% in
his second year of participation, 75% in his third year of participation, until he becomes 100%
vested in the total awards after four years.
11
Awards under the 2005 Plan are based upon the specific “award amount” for each individual
specified. There are four tiers of participants, with a different award amount specified for each
tier. The first tier consists of Mr. Smith and Mr. Lowery; the second tier consists of Messrs.
Carty, White and Clary; the third tier consists of other senior officers; and the fourth tier
consists of the directors. The award amounts were established after discussions with, and receipt
of, advice from the Corporation’s consultant (the predecessor to Clark Consulting) when the 2001
Plan was established, who had performed an analysis of a peer group of companies for the
Corporation and the financial institutions industry generally.
Payments under the 2001 and 2005 Plans generally do not begin until the earlier of January 1,
2015, or the January 1 immediately following the year in which the participant reaches age 65.
Payment may also be made upon death, disability, change in control or termination for other than
cause. Mr. Smith’s payout will not begin until the earlier of January 1, 2010 or death,
disability, change in control or termination for other than cause. If a participant is a “key
employee” as defined by Code Section 409A, then payments will be suspended for the six-month period
following the participant’s separation from service. Payments are in cash only and are generally
made in 180 equal consecutive monthly installments.
Life Insurance. As an incentive for the named executive officers to remain with the
Corporation and the Bank, the Corporation also provides a life insurance program (the “Life
Insurance Program”) for the named executive officers of the Bank other than Mr. Smith. Under the
Life Insurance Program, the Bank purchased a life insurance policy on behalf of and pays the
premiums on behalf of each officer of the Bank. The policy is owned by the individual and is
intended to be fully paid at age 65 for those who were 55 or older, and at age 60 for those who
were less than 55 years of age at the time the program was started.
Employee Benefit Plans
401(k) Savings Plan. The First Financial Corporation Employees’ 401(k) Savings Plan (the
“Savings Plan”) is a qualified salary reduction plan within the meaning of Code Section 401(k)
available to substantially all of the employees of the Corporation and its subsidiaries. Under the
Savings Plan all eligible employees may elect to have a portion of their compensation deferred and
contributed to their individual accounts within the Savings Plan Trust. Subject to limits
established under the Internal Revenue Code, contributions may be directed in any whole percentage
between 1% and 50% of the employee’s base compensation and certain variable pay including overtime
pay, bonuses, commissions, but excluding welfare benefits, deferred compensation, reimbursements
and expense allowances. Amounts contributed to a participant’s individual account in the Savings
Plan may be invested, at the direction of the Savings Plan participant, in certain investment fund
choices made available for that purpose.
Retirement Plans. The Corporation sponsors the First Financial Corporation Employee Stock
Ownership Plan (the “ESOP”) and the First Financial Corporation Employees’ Pension Plan (the
“Pension Plan”) for the benefit of substantially all of the employees of the Corporation and its
subsidiaries. These plans together constitute a “floor offset” retirement program, so that the
Pension Plan provides each participant with a minimum benefit which is offset by the benefit
provided by the ESOP.
Under the terms of the ESOP, the Corporation or its subsidiaries, as participating employers,
may contribute Corporation common stock to the ESOP or contribute cash to the ESOP, which will be
primarily invested by the Bank, as the ESOP trustee, in the Corporation’s common stock. The amount
of contributions, when they are made, is determined by the Board of Directors of the Corporation.
No participant contributions are required or allowed under the ESOP. Participants have the right to
direct the voting of the shares of the Corporation’s stock allocated to their accounts under the
ESOP on all corporate matters. Participants may elect to receive a direct payment of dividends
paid on shares of the Corporation’s common stock allocated to their accounts or to have the
dividends reinvested in Corporation common stock within the ESOP. Upon completing
ten years of participation in the ESOP and attaining age 55 1/2, an ESOP participant may elect to
diversify over a six-year period up to 50% of the Corporation’s common stock allocated to the
participant’s ESOP account.
12
For the year ended December 31, 2007, the Corporation contributed 41,000 shares of the
Corporation’s stock valued at $1,242,300 to the ESOP. The stock will be allocated to the
individual ESOP accounts of the participants who are eligible to receive allocations of those
contributions, effective as of December 31, 2007, although the allocation to the individual
accounts had not been made or calculated as of the date of mailing of this Proxy Statement.
Defined Benefit Plan. The Pension Plan is a defined benefit pension plan sponsored by the
Corporation for the benefit of substantially all of the employees of the Corporation and its
subsidiaries. The monthly guaranteed minimum benefit under the Pension Plan is reduced by the
monthly benefit derived from the vested portion of the participant’s ESOP account balance,
calculated by the actuary for the Pension Plan as a single life annuity. Unless the participant
elects an alternate form of benefit under the Pension Plan, the normal retirement benefit, if any,
payable under the Pension Plan, will begin at the later of the participant’s retirement or age 65
and be paid monthly for as long as the participant lives. Messrs Lowery, Carty, Clary and White,
having surpassed their 55th birthday and served the Corporation for more than 5 years,
are eligible for early retirement under the Pension Plan. The Pension Plan allows for an early
retirement benefit equal to a participant’s accrued benefit, determined before the reduction for
the monthly ESOP benefit, reduced by 1/180 for each full month for the first five years and 1/360
for each full month for the next five years that the commencement of benefit payments precedes the
participant’s normal retirement date.
The following table shows the estimated annual benefits payable under the Pension Plan upon
retirement at age 65 in 2007 for various periods of Benefit Service at specified levels of
remuneration. A participant’s Final Average Annual Compensation shown under the Pension Plan is
generally based on the salary and bonus set forth in the Summary Compensation Table.
Final Average Annual Compensation(1)
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| Years of Benefit |
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$70,000 |
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$100,000 |
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$130,000 |
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$160,000 |
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$190,000 |
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$220,000 |
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$250,000 |
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$300,000 |
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10 |
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14,845 |
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22,795 |
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30,745 |
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38,695 |
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46,645 |
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54,595 |
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62,545 |
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75,795 |
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20 |
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29,690 |
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45,590 |
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61,490 |
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77,390 |
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93,290 |
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109,190 |
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125,090 |
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151,590 |
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30 |
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37,535 |
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58,385 |
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79,235 |
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100,085 |
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120,935 |
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141,785 |
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162,635 |
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197,385 |
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40 |
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37,958 |
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59,783 |
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81,608 |
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103,433 |
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125,258 |
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147,083 |
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168,908 |
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205,283 |
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The amounts indicated in the chart will be offset by any ESOP benefit the participant has. If
the ESOP benefit is greater than the Pension Plan benefit, then no benefit will be paid by the
Pension Plan. To the extent the Pension Plan benefit exceeds the ESOP benefit, such excess
will be paid by the Pension Plan. |
Explanation of ESOP/Pension Plan Offset Arrangement. The offset between the ESOP and the
Pension Plan works in the following manner. If a participant’s ESOP benefit exceeds the benefit he
has accrued under the Pension Plan, the participant will receive his ESOP benefit in lieu of the
Pension Plan benefit. For example, a participant’s ESOP benefit is $120,000 and his Pension Plan
benefit is $100,000. The $120,000 benefit will be paid from the ESOP and $0 will be paid from the
Pension Plan. However, if a participant’s Pension Plan benefit exceeds his ESOP benefit, then the
participant will receive his ESOP benefit along with the amount the Pension Plan benefit exceeded
the ESOP benefit paid from the Pension Plan. For example, a participant’s ESOP benefit is $100,000
and his Pension benefit is $120,000. The $100,000 benefit will be paid from the ESOP and $20,000
will be paid from the Pension Plan.
13
Executive Supplemental Retirement Plan. The First Financial Corporation Executive
Supplemental Retirement Plan (the “ESRP”) provides supplemental retirement benefits for a select
group of management or
highly compensated employees to help recompense the employees for benefits reduced due to the
imposition of Code limitations on benefits under the Pension Plan. Amounts payable under the ESRP
are offset by amounts payable under the First Financial Executives’ Deferred Compensation Plan. The
ESRP was frozen effective December 31, 2004 to exempt all amounts under the ESRP from Code Section
409A. The Board adopted The First Financial Corporation 2005 Executive Supplemental Retirement
Plan (the “2005 ESRP”) as a replacement plan, effective January 1, 2005. The 2005 ESRP is designed
to comply with Code Section 409A. Amounts payable under the ESRP will be offset by amounts payable
under the First Financial Corporation Executives’ Deferred Compensation Plan and amounts payable
under the 2005 ESRP will be offset by amounts payable under the First Financial Corporation 2005
Executives’ Deferred Compensation Plan.
Executives’ Deferred Compensation Plan. The First Financial Executives’ Deferred Compensation
Plan (the “EDC Plan”) permits a select group of management or highly compensated employees to elect
to defer compensation from the employers, in addition to that which can be deferred under the
Savings Plan, without regard to the limitations imposed by the Internal Revenue Code on the amount
of compensation which may be deferred. The EDC Plan also provides for a supplemental ESOP benefit
which is equal to the amount of the benefit a participant would have been allocated under the ESOP
if not for the limitations imposed by the Internal Revenue Code on the ESOP. Amounts payable under
the supplemental ESOP portion of the EDC Plan will offset amounts payable under the ESRP. The EDC
Plan was frozen effective December 31, 2004 to exempt all amounts accrued under the EDC from Code
Section 409A. The Board adopted the First Financial Corporation 2005 Executives’ Deferred
Compensation Plan (the “2005 EDC Plan”) as a replacement plan, effective January 1, 2005. The 2005
EDC Plan is designed to comply with Code Section 409A. Amounts payable under the 2005 EDC Plan will
offset amounts payable under the 2005 ESRP.
Explanation of ESRP/EDC Arrangement. The offset between the ESRP and the EDC works just like
the ESOP/Pension Plan offset. If a participant’s EDC benefit exceeds the benefit he has accrued
under the ESRP, the participant will receive his EDC benefit in lieu of the ESRP benefit. For
example, a participant’s EDC benefit is $120,000 and his ESRP benefit is $100,000. The $120,000
benefit will be paid from the EDC and $0 will be paid from the ESRP. However, if a participant’s
ESRP benefit exceeds his EDC benefit, then the participant will receive his EDC benefit along with
the amount the ESRP benefit exceeded the EDC benefit paid from the ESRP. For example, a
participant’s EDC benefit is $100,000 and his ESRP is $120,000. The $100,000 benefit will be paid
from the EDC and $20,000 will be paid from the ESRP.
Employment Agreement
The Bank agreed to enter into an Employment Agreement with Norman L. Lowery, its President and
Chief Executive Officer, upon the beginning of Mr. Lowery’s employment in January 1996. The
Employment Agreement was finalized and became effective in 1997. It has been extended each year
since that time, and was last extended effective January 1, 2008. The Employment Agreement is a
five-year agreement which may be extended on each anniversary by the board of directors of the Bank
for an additional one-year term. During the period of his employment, the Employment Agreement
requires that Mr. Lowery devote all of his full business time, attention, skill and efforts to the
faithful performance of his duties. He has also agreed to the following nonsolicitation,
noncompetition and nondisclosure provisions:
Nonsolicitation. For a one year period after termination for any reason or the expiration of
the term, Mr. Lowery will not: (i) solicit any non-legal business of any party which is a customer
of the Bank at the time of such termination or during the one-year period immediately preceding
such termination, (ii) request or advise any customers or suppliers of the Bank to terminate,
reduce, limit or change their business or relationship with the Bank, or (iii) induce, request or
attempt to influence any employee of the Bank to terminate his employment with the Bank.
Noncompetition. In the event Mr. Lowery voluntarily terminates his employment with the Bank,
he will not during the period of his employment, and for a period of two years following
termination: (i) engage in the same trade or business as the Bank which would conflict with the
interests of the Bank or in a trade or business
competitive with that of the Bank; or (ii) offer or provide employment to any person who then
currently is, or who within one year prior to such offer has been, a management-level employee of
the Bank.
14
Nondisclosure. Mr. Lowery will not, directly or indirectly, use any “confidential
information” (as defined in the agreement) for any purpose other than for the benefit of the Bank
provide any confidential information except as required in the normal course of his service as a
consultant or employee of the Bank during the term of the agreement and following termination of
the agreement until either (i) such confidential information becomes obsolete; or (ii) such
confidential information becomes generally known in the Bank’s trade or industry by means other
than a breach of this covenant.
Under the Employment Agreement, Mr. Lowery receives an annual salary equal to his current
salary, which is $467,960 for 2008, subject to increases approved by the Board of Directors, and is
entitled to participate in other bonus and fringe benefit plans available to the Corporation’s and
the Bank’s employees. Additional information regarding the terms of the Employment Agreement is
included in the narrative discussion under “Potential Payment Upon Termination or Change in Control
of the Corporation” on page 13.
Accounting and Tax Considerations
We have structured our compensation program to comply with Internal Revenue Code Sections
162(m) and 409A. Under Code Section 162(m), a limitation was placed on tax deductions of any
publicly-held corporation for individual compensation to certain executives of such corporation
exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. The
Corporation has no individuals with non-performance based compensation paid in excess of the
Internal Revenue Code Section 162(m) tax deduction limit. If an executive is entitled to
nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do
not comply with Section 409A, then the benefits are taxable in the first year they are not subject
to a substantial risk of forfeiture. In such case, the executive is subject to payment of regular
federal income tax, interest and an additional federal income tax of 20% of the benefit includible
in income.
Compensation Committee Report
The Compensation Committee of the Corporation has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on
such review and discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy Statement on Schedule 14A.
Members of the Compensation Committee
/s/ Anton H. George
/s/ Patrick O’Leary
/s/ Ronald K. Rich
15
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total compensation earned or paid to our
Chief Executive Officer, our Chief Financial Officer and our three most highly compensated
executive officers who served in such capacities as of December 31, 2007, each of which had total
annual compensation exceeding $100,000 in 2007 or in either of the preceding two years (the “named
executive officers”), for services rendered to the Corporation during the fiscal year ended
December 31, 2007.
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Nonqualified |
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|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
Compensation |
|
|
|
|
|
|
|
| Name, Age and |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Compensation |
|
|
Earnings |
|
|
All Other |
|
|
Total |
|
| Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Compensation ($) |
|
|
($) |
|
| (a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(g) (1) |
|
|
(h) (2) |
|
|
(i) (3) |
|
|
(j) |
|
Donald E. Smith, |
|
|
2007 |
|
|
$ |
596,066 |
(4) |
|
$ |
160,000 |
|
|
$ |
463,900 |
|
|
|
- 0 - |
|
|
|
-0- |
(3) |
|
$ |
1,219,966 |
(3) |
Age 81
Chairman of the |
|
|
2006 |
|
|
$ |
576,897 |
|
|
$ |
160,000 |
|
|
$ |
429,000 |
|
|
|
- 0 - |
|
|
|
-0- |
|
|
$ |
1,165,897 |
|
Board and President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norman L. Lowery, |
|
|
2007 |
|
|
$ |
492,224 |
(5) |
|
$ |
150,000 |
|
|
$ |
386,500 |
|
|
$ |
246,478 |
|
|
$ |
32,698 |
(3)(8) |
|
$ |
1,307,900 |
(3) |
Age 61,
Vice Chairman and |
|
|
2006 |
|
|
$ |
477,050 |
|
|
$ |
150,000 |
|
|
$ |
357,300 |
|
|
$ |
54,774 |
|
|
$ |
27,380 |
|
|
$ |
1,066,504 |
|
Chief Executive
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael A. Carty, |
|
|
2007 |
|
|
$ |
188,284 |
(6) |
|
$ |
20,000 |
|
|
$ |
91,600 |
|
|
$ |
184,180 |
|
|
$ |
1,200 |
(3)(9) |
|
$ |
485,264 |
|
Age 57,
Chief Financial |
|
|
2006 |
|
|
$ |
181,775 |
|
|
$ |
20,000 |
|
|
$ |
84,700 |
|
|
|
-0- |
|
|
$ |
1,200 |
|
|
$ |
287,675 |
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard O. White, |
|
|
2007 |
|
|
$ |
152,316 |
|
|
$ |
12,000 |
|
|
$ |
81,900 |
|
|
$ |
209,064 |
|
|
$ |
1,200 |
(3)(9) |
|
$ |
456,480 |
(3) |
Age 60,
Senior Vice |
|
|
2006 |
|
|
$ |
147,900 |
|
|
$ |
12,000 |
|
|
$ |
75,690 |
|
|
|
-0- |
|
|
$ |
1,200 |
|
|
$ |
236,790 |
|
President of First
Financial Bank, N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas S. Clary, |
|
|
2007 |
|
|
$ |
166,516 |
(7) |
|
$ |
15,000 |
|
|
$ |
74,700 |
|
|
$ |
28,108 |
|
|
$ |
2,344 |
(3)(9) |
|
$ |
286,668 |
(3) |
Age 56
Chief Credit |
|
|
2006 |
|
|
$ |
161,390 |
|
|
$ |
15,000 |
|
|
$ |
69,210 |
|
|
$ |
24,903 |
|
|
$ |
2,344 |
|
|
$ |
272,847 |
|
Officer and Senior
Vice President of
First Financial
Bank, N.A. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
| (1) |
|
The amounts in column (g) reflect amounts awarded pursuant to the 2005 Long-Term Incentive
Compensation Plan, which is discussed in more detail on page 7 of the Compensation Discussion
and Analysis section of this Proxy Statement. |
| (2) |
|
The amounts in column (h) reflect the actuarial increase in the present value of the named
executive officers’ benefits under the Pension Plan determined using interest rate and
mortality rate assumptions consistent with those used in the Corporation’s financial
statements and includes amounts which the named executive officer may not be entitled to
receive because such amounts are not vested. Because the ESOP and the Pension Plan constitute
a “floor offset” retirement program as described on page 8, this column represents amounts
that are required to be paid under the Pension Plan because they are not offset by the
executive’s ESOP benefit. |
| (3) |
|
Allocations to the named individual’s respective account in the First Financial Corporation
Employee Stock Ownership Plan for 2007, which are properly included in this column, were not
calculable as of the date of this Proxy Statement. Such amounts for 2006 were as follows:
$11,092 for Mr. Smith; $11,092 for Mr. Lowery; $9,991 for Mr. Carty; $8,437 for Mr. Clary; and
$8,122 for Mr. White. |
| (4) |
|
Includes $14,000 for service as a director of the Corporation and $18,500 for service as a
director of the Bank. |
| (5) |
|
Includes $8,000 for service as a director of the Corporation, $12,500 for service as a
director of the Bank, $12,000 in deferred director fees and $4,800 for service as a director
of Portfolio Management Specialist A (a subsidiary of the Bank), Portfolio Management
Specialist B (an indirect subsidiary of the Bank) and Global Portfolio Limited Partnership (an
indirect subsidiary of the Bank). |
| (6) |
|
Includes $4,800 for service as a director of Portfolio Management Specialist A (a subsidiary
of the Bank), Portfolio Management Specialist B (an indirect subsidiary of the Bank) and
Global Portfolio Limited Partnership (an indirect subsidiary of the Bank). |
| (7) |
|
Includes $4,800 for service as an advisory director to the Bank’s Sullivan region ,$6,200
for service as a director of The Morris Plan Company of Terre Haute, Inc. (a subsidiary of the
Corporation)and $200 for service as a manager of First Financial Real Estate LLC (a real
estate investment trust of the bank). |
| (8) |
|
Includes (a) the premiums paid by the Corporation pursuant to a life insurance program for
named executive officers, and (b) $27,274 accrued under the Executive Deferred Compensation
Plan, which is discussed in more detail on page 9 of the Compensation Discussion and Analysis
section of this Proxy Statement. |
| (9) |
|
Represents the premiums paid by the Corporation pursuant to a life insurance program for
named executive officers. |
17
Grants of Plan-Based Awards
The following table sets forth the plan-based grants made during the fiscal year ended
December 31, 2007, pursuant to the Corporation’s 2005 Long-Term Incentive Plan, which is discussed
in more detail on page 7 of the Compensation Discussion and Analysis section of this Proxy
Statement.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Estimated Future Payouts Under |
|
| |
|
|
|
|
|
Non-Equity Incentive Plan Awards (1) |
|
| |
|
|
|
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
| Name |
|
Grant Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
| (a) |
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
Donald E. Smith |
|
|
N/A |
|
|
$ |
417,510 |
|
|
$ |
463,900 |
(2) |
|
$ |
510,290 |
|
Norman L. Lowery |
|
|
N/A |
|
|
$ |
347,850 |
|
|
$ |
386,500 |
(2) |
|
$ |
425,150 |
|
Michael A. Carty |
|
|
N/A |
|
|
$ |
82,440 |
|
|
$ |
91,600 |
(2) |
|
$ |
100,760 |
|
Richard O. White |
|
|
N/A |
|
|
$ |
81,900 |
(2) |
|
$ |
91,000 |
|
|
$ |
100,100 |
|
Thomas S. Clary |
|
|
N/A |
|
|
$ |
74,700 |
(2) |
|
$ |
83,000 |
|
|
$ |
91,300 |
|
| (1) |
|
Awards of compensation equal 90%, 100% or 110% of the individual’s award amount. The
percentage of the award made is dependent upon whether the participant attains either the
first, second or third target level of performance goals established by the Compensation
Committee for the Corporation and each subsidiary financial institution. If the first target
level is not attained, no award is made. If the first, second or third levels of the
performance goals are attained, the award will equal 90%, 100% or 110% of the award amount,
respectively. Awards for 2007 were based on weighted point totals related to goals established
for the Corporation, the Bank and various product line performance. Goals include net income,
product growth, contribution to income, and the containment of agreed levels of controllable
expenditures for the respective participants. |
| (2) |
|
For the fiscal year 2007 Messrs. Smith, Lowery, and Carty achieved the “Target” level award
and Messrs. White and Clary achieved the “Threshold” level, which amounts are included in the
named executive officer’s compensation in column (g) of the Summary Compensation Table on page
10 of this Proxy Statement. |
Pension Benefits
The table below shows the present value of accumulated benefits payable to each of the named
executive officers, including the number of years of service credited to each such named executive
officer, under the Corporation’s Qualified Pension Benefit Plan (the “Pension Plan”), the
Corporation’s Executive Supplemental Retirement Plan which was frozen on December 31, 2004 (the
“Frozen ESRP”), and the Corporation’s 2005 Executive Supplemental Retirement Plan (the “2005
ESRP”). The benefits were determined using interest rate and mortality rate assumptions consistent
with those used in the Corporation’s financial statements and are not payable as a lump sum; they
are generally paid as a monthly annuity for the life of the
retiree. Information regarding these plans can be found on page 12 of the Compensation Discussion
and Analysis section of this Proxy Statement.
18
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Number of Years |
|
|
Present Value of |
|
|
Payments During |
|
| |
|
|
|
Credited Service |
|
|
Accumulated Benefit |
|
|
Last Fiscal Year |
|
| Name |
|
Plan Name |
|
(#) |
|
|
($) |
|
|
($) |
|
| (a) |
|
(b) |
|
(c) |
|
|
(d) (1) |
|
|
(e) |
|
Donald E. Smith |
|
Qualified Pension Plan |
|
|
39 |
|
|
|
0 |
(2) |
|
|
0 |
|
Norman L. Lowery |
|
Qualified Pension Plan |
|
|
12 |
|
|
$ |
420,230 |
(3)(5) |
|
|
0 |
|
|
|
Frozen and 2005 ESRP |
|
|
12 |
|
|
$ |
827,699 |
(4)(5) |
|
|
|
|
Michael A. Carty |
|
Qualified Pension Plan |
|
|
32 |
|
|
$ |
227,845 |
(3)(5) |
|
|
0 |
|
Richard O. White |
|
Qualified Pension Plan |
|
|
39 |
|
|
$ |
209,064 |
(3)(5) |
|
|
0 |
|
Thomas S. Clary |
|
Qualified Pension Plan |
|
|
6 |
|
|
$ |
114,358 |
(3)(5) |
|
|
0 |
|
| (1) |
|
The calculation of present value of accumulated benefit assumes a discount rate of 5.58% and
mortality based on the 2007 IRS Current Liability Tables. Benefits are not payable as a lump
sum; they are generally paid as a monthly annuity for the life of the retiree. |
| (2) |
|
Mr. Smith is not entitled to a benefit from the Pension Plan because the value of his ESOP
benefit exceeds the value of his Pension Plan benefit pursuant to the floor offset
arrangement discussed on page 8. |
| (3) |
|
These amounts represent the amount that Messrs. Lowery, Carty, White and Clary’s Pension Plan
benefit exceeds their ESOP benefit pursuant to the floor offset arrangement discussed on page
8. |
| (4) |
|
This amount represents the amount Mr. Lowery’s Executive Supplemental Retirement benefit
exceeds his Executive Deferred Compensation benefit. |
| (5) |
|
As Messrs. Lowery, Carty, White and Clary were over 55 years of age and had more than five
years of service as of December 31, 2006, they would have qualified for early retirement
benefits equal to approximately 73%, 57%, 67% and 53%, respectively, of their full retirement
benefit if they had retired at December 31, 2007. |
Nonqualified Deferred Compensation For 2007
Pursuant to the Corporation’s Executive Deferred Compensation Plan, which was frozen on
December 31, 2004 (the “EDC”), and the Corporation’s 2005 Executive Deferred Compensation Plan (the
“2005 EDC Plan”), the Corporation permits certain management and highly compensated employees to
defer a portion of their compensation and also provides supplemental benefits to certain highly
compensated employees to recompense the employees for benefits lost due to the imposition of Code
limitations in the ESOP. The amounts shown below represent the accumulated benefit cost to the
Corporation for these plans.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Registrant |
|
|
|
|
|
|
Aggregate |
|
|
Aggregate Balance |
|
| |
|
|
|
Executive |
|
|
Contributions in |
|
|
Aggregate Earnings |
|
|
Withdrawals/ |
|
|
at Last |
|
| |
|
|
|
Contributions in |
|
|
Last FY |
|
|
in Last FY |
|
|
Distributions |
|
|
FYE |
|
| Name |
|
Plan Name |
|
Last FY |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
| (a) |
|
|
|
(b) |
|
|
(c) (1) |
|
|
(d) (2) |
|
|
(e) |
|
|
(f) (3) |
|
Norman L. Lowery |
|
Frozen and 2005 EDC Plan |
|
|
0 |
|
|
$ |
27,274 |
|
|
$ |
22,156 |
|
|
|
0 |
|
|
$ |
398,746 |
|
Richard O. White |
|
Frozen EDC Plan |
|
|
0 |
|
|
|
0 |
|
|
$ |
5,504 |
|
|
|
0 |
|
|
$ |
12,566 |
|
19
| |
(1) |
|
These amounts are included in the named executive officer’s compensation in column (g)
of the Summary Compensation Table on page 10 of this Proxy Statement. |
| |
(2) |
|
These amounts include the aggregate earnings related to the employee’s contributions
made over the years in the amounts of $22,156 and $5,504 for Messrs. Lowery and White
respectively. |
| |
(3) |
|
These amounts include the aggregate balance at the last fiscal year related to the
employee’s contributions, earnings, and appreciation over the years in the amounts of
$207,118 and $12,566 for Messrs. Lowery and White, respectively. |
Potential Payments Upon Termination or Change in Control of the Corporation
Employment Agreement with Norman L. Lowery
The Corporation entered into a five-year employment agreement with Mr. Lowery in 1997. The
employment agreement, which may be extended each year by the board of directors of the Bank for an
additional one-year term was last extended for an additional one-year term in January 2008. Mr.
Lowery must satisfy the terms of the agreement, including its nonsolicitation, noncompetition and
nondisclosure provisions, to receive the following severance benefits, in addition to any benefits
he is due under the Corporation’s qualified and nonqualified employee benefit plans:
| |
• |
|
Termination For Cause, Death or Disability: If Mr. Lowery is terminated for “cause” (as
defined below), death or disability, he is entitled to receive the base salary, bonuses,
vested rights, and other benefits due him through his date of termination. Any benefits
payable under insurance, health, retirement, bonus, incentive (including, but not limited
to, the 2001 or 2005 Long Term Incentive Plans), performance or other plans as a result of
his participation in such plans through such date of termination will be paid when and as
due under those plans. |
For purposes of the agreement, “cause” is defined as: (i) an intentional act of fraud,
embezzlement, theft, or personal dishonesty; willful misconduct, or breach of fiduciary duty
involving personal profit by the Mr. Lowery in the course of his employment or director
service; (ii) intentional wrongful damage by Mr. Lowery to the business or property of the
Bank; (iii) breach by Mr. Lowery of any confidentiality or non-disclosure obligation; (iv)
gross negligence or insubordination in the performance of his duties; or (v) removal or
permanent prohibition of Mr. Lowery from participating in the Bank’s affairs by order under
the Federal Deposit Insurance Act.
| |
• |
|
Termination by Corporation Without Cause or by Employee For Good Reason: If Mr. Lowery
is terminated without “cause” or if he terminates his employment for “good reason” (as
defined below), and such termination does not occur in connection with, or within 12 months
after a “change in control,” he will receive an amount equal to the sum of the following
benefits as if he had terminated employment on December 31, 2007: (i) four times his base
salary and bonuses; (ii) the Corporation’s portion of the cost of obtaining health
insurance for himself and his spouse and child living in his home for a period of four
years; (iii) the cost of obtaining disability insurance for a period of four years; (v) the
cost of obtaining life insurance for a period of four years; (vi) the cost of existing
professional and club dues for a period of four years, (vii) the cost of continuing legal
education for a period of four years; (viii) the cost of automobile benefits for a period
of four years; (ix) four times the benefit accrued in 2007 under the 2005 Executive
Supplemental Retirement Plan; (x) four times the benefit accrued in 2007 under the 2005
Executive Deferred Compensation Plan; (xi) four times the benefit accrued in 2007 under the
Employees’ Pension Plan; (xii) four times the benefit accrued in 2007 under the Employee
Stock Ownership Plan. The amounts provided in the prior sentence will be provided net of
all income and
payroll taxes that would not have been payable by Mr. Lowery had he continued participation
in the benefit plan or program instead of receiving cash reimbursement. |
20
For purposes of the agreement, “good reason” means the occurrence of any of the following
events, which has not been consented to in advance by Mr. Lowery in writing: (i) the
requirement that Mr. Lowery move his personal residence; (ii) a reduction of ten percent or
more in Mr. Lowery’s base salary, unless part of an institution-wide reduction and similar
to the reduction in the base salary of all other executive officers of the Bank; (iii) the
failure by the Bank to continue to provide Mr. Lowery with the base salary, bonuses or
benefits provided for in the Employment Agreement, as the same may be increased from time to
time, or with benefits substantially similar to those provided to him under those sections
or under any benefit plan or program in which he now or hereafter becomes eligible to
participate, or the taking of any action by the Bank which would directly or indirectly
reduce any such benefits or deprive Mr. Lowery of any such benefit enjoyed by him, unless
part of an institution-wide reduction and applied similarly to all other executive officers
of the Bank; (v) the assignment to Mr. Lowery of duties and responsibilities materially
different from those normally associated with his position; (vi) a failure to elect or
re-elect Mr. Lowery to the Board of the Bank or a failure on the part of the Corporation to
honor its obligation to nominate him to the Board of the Corporation; (vii) a material
diminution or reduction in the Mr. Lowery’s responsibilities or authority (including
reporting responsibilities) in connection with his employment with the Bank; or (viii) a
material reduction in the secretarial or administrative support of Mr. Lowery.
| |
• |
|
Termination due to Retirement: If Mr. Lowery voluntarily retires, he will receive full
health, life and disability coverage for himself, his spouse and his children living in his
home until both he and his spouse are eligible for Medicare. When both Mr. Lowery and his
spouse are eligible for Medicare, the Bank agrees to pay for supplemental coverage until
both his and his spouse’s death. He is also entitled to receive a life insurance policy on
his life in the amount of $350,000 and a life insurance policy on his life in the amount
established by the Bank’s insurance program for executive officers. |
| |
• |
|
Termination Following Change in Control: If Mr. Lowery is terminated for other than
“cause” or is constructively discharged and this occurs in connection with, or within 12
months following a “change in control” (as defined below) of the Bank or Corporation he
would be entitled to an amount equal to the greater of the amount he would receive if he
was terminated by the Corporation without cause; or, the product of 2.99 times the sum of
(i) his base salary in effect as of the date of the change in control; (ii) an amount equal
to the bonuses received by or payable to him in or for the calendar year prior to the year
in which the change in control occurs; and (iii) cash reimbursements in an amount equal to
his cost of obtaining, for a period of three years, beginning on the date of termination,
all benefits which he was eligible to participate in or receive as of the date of
termination. Mr. Lowery is also entitled to the payment provided for in this paragraph if
a change in control occurs that was not approved by a majority of the Board regardless of
whether his employment is terminated within 12 months. If, as a result of a change in
control, Mr. Lowery becomes entitled to any payments which are determined to be payments
subject to the Code Section 280G, the amount due Mr. Lowery will be increased to include
payment equal to the amount of excise tax imposed under Sections 280G and 4999 of the Code
(the “Excise Tax Payment”) and the amount necessary to provide the Excise Tax Payment net
of all income, payroll and excise taxes. |
| |
• |
|
Termination for Good Reason: If Mr. Lowery terminates employment following one of the
events specified above under the definition of good reason (with the exception that reason
(i) above is modified to state a requirement that he perform his principal executive
functions more than 30 miles from Terre Haute, Indiana) within 12 months following a change
in control of the Bank or the Corporation, he is entitled to an amount equal to the greater
of the compensation and benefits described above if he was terminated by the Corporation
without cause; or, the product of 2.99 times the sum of (i) his base salary in effect as of
the date of the change in control; (ii) an amount equal to the bonuses received by or
payable to him in or for the calendar year prior to the year in which the change in control
occurs; and (iii) cash reimbursements in an amount equal to his cost of obtaining for a
period of three years, beginning on the date of termination, all benefits which he was
eligible to participate in or receive. If, as a result of a change in control, Mr. Lowery
becomes entitled to any payments which are determined to be payments subject to the Code
Section 280G, the amount due Mr. Lowery will be increased to include payment equal to the
amount of excise tax imposed under Sections 280G and 4999 of the Code and the amount
necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes. |
21
For purposes of the agreement, “change in control” means:
(i) Change in Ownership. Any person, or group of persons acquires ownership of stock of
the Bank or the Corporation that, together with stock held by the person or group,
constitutes more than 50% of the total fair market value or total voting power of the stock.
However, if any person or group is considered to own more than 50% of the total fair market
value or total voting power of the stock, the acquisition of additional stock by the same
person or group is not considered to cause a change in the ownership of the Bank or the
Corporation.
(ii) Change in the Effective Control. (a) Any person or group acquires, or has acquired
during the twelve-month period ending on the date of the most recent acquisition by such
person(s), ownership of stock of the Bank or the Corporation possessing 35% or more of the
total voting power; or (b) A majority of members of the Board is replaced during any
twelve-month period by Directors whose appointment or election is not endorsed by a majority
of the members of the Bank’s or the Corporation’s Board prior to the date of the appointment
or election.
(iii) Change in the Ownership of a Substantial Portion of the Bank’s or First Financial
Corporation’s Assets. Any person or group acquires, or has acquired during the 12-month
period ending on the date of the most recent acquisition by such person(s), assets from the
Bank or the Corporation that have a total gross fair market value equal to or more than 40%
of the total gross fair market value of all of the assets immediately prior to such
acquisition(s). Gross fair market value means the value of the assets of the Bank or the
Corporation, or the value of the assets being disposed of, determined without regard to any
liabilities associated with such assets. However, there is no change in control when there
is a transfer to an entity that is controlled by the shareholders of the Bank or the
Corporation immediately after the transfer.
Notwithstanding the foregoing, the acquisition of Bank or the Corporation stock by any
retirement plan sponsored by the Bank or an affiliate of the Bank will not constitute a
change in control.
If Mr. Lowery qualifies as a “key employee” at the time of his separation from service, the
Corporation may not make certain payments earlier than six months following the date of his
separation from service (or, if earlier, the date of his death). In this event, payments to which
Mr. Lowery would otherwise be entitled during the first six months following the date of his
separation from service will be accumulated and paid to Mr. Lowery on the first day of the seventh
month following his separation from service. Mr. Lowery is currently considered a “key employee”
for this purpose.
2001 and 2005 Long-Term Incentive Plans
The Corporation entered into award agreements with Messrs. Smith, Lowery, Carty, White and
Clary under the 2001 and 2005 Plans. They are entitled to the following benefits upon a “change in
control” (as defined below):
22
Mr. Smith: In addition to the benefits otherwise payable, if Mr. Smith is terminated within
12 months following a change in control, for reasons other than “cause” (as defined below),
disability or death, he will be paid the vested account balance under the 2001 and 2005 Plans as of
the December 31 of the year preceding the year of termination, plus the “projected amount” under
the 2005 Plan, which is the projected payment to Mr. Smith assuming a 100% award level for the
remaining term of the award beginning with the year of the separation from service. Any payments
from the Corporation or the Bank which are determined to be payments subject to the “golden
parachute” rules of the Code, the amount due will be increased to include payment equal to the
amount of excise tax imposed under Code Sections 280G and 4999 (the “Excise Tax Payment”) and the
amount necessary to provide the Excise Tax Payment net of all income, payroll and excise taxes.
The applicable amount will be paid in one single sum, for the 2001 and 2005 Plan, within 180 days
following termination of employment.
Mr. Lowery: In addition to the benefits otherwise payable, if Mr. Lowery, is terminated
within 12 months following a change in control, for reasons other than cause, disability or death,
he will be paid the vested account balance under the 2001 and 2005 Plans as of the December 31 of
the year preceding the year of termination, plus the “projected amount” under the 2005 Plan, which
is the projected payment to Mr. Lowery assuming a 100% award level for the remaining term of the
award beginning with the year of the separation from service. Any payments from the Corporation or
the Bank which are determined to be payments subject to the “golden parachute” rules of the Code,
the amount due will be increased to include payment equal to the amount of excise tax imposed under
Code Sections 280G and 4999 (the “Excise Tax Payment”) and the amount necessary to provide the
Excise Tax Payment net of all income, payroll and excise taxes. The applicable amount will be paid
in one single sum, for the 2001 and 2005 Plans, within 180 days following termination of
employment.
Messrs. Carty, White and Clary: In addition to the benefits otherwise payable, if Messrs.
Carty, White or Clary are terminated within 12 months following a change in control, for reasons
other than cause, disability or death, they will be paid the vested account balance under the 2001
and 2005 Plans as of the December 31 of the year preceding the year of termination under both
Plans.
For purposes of the 2001 and 2005 Plans, “cause” is defined as: (i) an intentional act of
fraud, embezzlement, theft or personal dishonesty, willful misconduct or breach of fiduciary duty
involving personal profit by the participant in the course of his employment or director service.
No act or failure to act shall be deemed to have been intentional or willful if it was due
primarily to an error in judgment or negligence. An act or failure to act shall be considered
intentional or willful if it is not in good faith and if it is without a reasonable belief that the
action or failure to act is in the best interest of the Corporation or its subsidiaries; (ii)
intentional wrongful damage by the participant to the business or property of the Corporation or
its subsidiaries, causing material harm to the Corporation or its subsidiaries; (iii) breach by the
participant of any confidentiality or non-disclosure and non-solicitation agreement in effect from
time to time with the Corporation or its subsidiaries; (iv) gross negligence or insubordination by
the participant in the performance of his or her duties; or (v) removal or permanent prohibition of
the participant from participating in the conduct of the affairs of the Corporation or any of its
subsidiaries, by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance
Act, 12 USC 1818(e)(4) and (g)(1).
For purposes of the 2001 and 2005 Plans, “change in control” is defined as:
(i) Merger. The Corporation merges into or consolidates with another corporation or
business entity, or merges another corporation or business entity into the Corporation, and
as a result less than 50% of the combined voting power of the resulting corporation or
business entity immediately after the merger or consolidation is held by persons who were
the holders of the Corporation’s voting securities immediately before the merger or
consolidation;
23
(ii) Acquisition of Significant Share Ownership. A report on Schedule 13D, or a successor
form or schedule is filed or is required to be filed under Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, if the report discloses that the filing person or persons
acting in concert has or have become the beneficial owner of 20% or more of a class of the
Corporation’s voting securities after the effective date of the 2001 or 2005 Plan, but this
provision shall not apply to beneficial ownership of voting shares of the Corporation held
in a fiduciary capacity by a subsidiary of the Corporation or to beneficial ownership of
voting shares of the Corporation held by the ESOP;
(iii) Change in Board Composition. During any period of two consecutive years, individuals
who constitute the Board at the beginning of the two year period cease for any reason to
constitute at least a majority thereof. However, each director who, by a vote of at least
two-thirds of the directors who were directors at the beginning of the period, is first (a)
nominated by the Board for election by stockholders, or (b) elected to fill a vacancy on the
Board, shall be deemed to have been a director at the beginning of the two-year period.
(iv) Sale of Assets. The Corporation (a) transfers substantially all of its assets to
another corporation or business entity which is not a wholly-owned subsidiary of the
Corporation, or (b) sells substantially all of the assets of a subsidiary or affiliate which
constitutes 20% or more of the assets of the Corporation and is a subsidiary or affiliate as
of the effective date of the 2001 or 2005 Plan.
The following table sets forth the severance and change in control benefits for each named
executive officer under the specifically described scenarios as if such change in control and
termination occurred as of December 31, 2007.
| |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Termination by |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Corporation |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Without Cause, |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
by Executive for |
|
|
Termination |
|
|
Amounts |
|
| |
|
|
|
|
|
|
|
Good Reason or |
|
|
Within 12 |
|
|
Payable Under |
|
| |
|
|
|
|
|
|
|
Within 12 Months |
|
|
Months After |
|
|
Internal Revenue |
|
| |
|
|
|
Termination |
|
|
After Change |
|
|
Change in |
|
|
Code Section |
|
| |
|
|
|
due to |
|
|
in Control |
|
|
Control |
|
|
280G Gross Up |
|
| |
|
|
|
Retirement |
|
|
(Employment |
|
|
(2005 Plan) |
|
|
Provisions |
|
| Name |
|
Plan Name |
|
($) |
|
|
Agreement)($) |
|
|
($) |
|
|
($) |
|
| (a) |
|
(b) |
|
(c) |
|
|
(d) |
|
|
(e) |
|
|
(f) |
|
Donald E. Smith |
|
2005 LTIP |
|
|
— |
|
|
|
— |
|
|
$ |
3,692,600 |
(4) |
|
$ |
138,153 |
(4) |
Norman L. Lowery |
|
2005 LTIP |
|
|
— |
|
|
|
— |
|
|
$ |
3,068,000 |
(4) |
|
$ |
97,863 |
(4) |
|
|
Employment Agreement |
|
$ |
199,565 |
(1)(2) |
|
$ |
4,055,205 |
(1)(3) |
|
|
— |
|
|
$ |
2,165,664 |
|
Michael A. Carty |
|
2005 LTIP |
|
|
— |
|
|
|
— |
|
|
$ |
476,400 |
(4) |
|
|
— |
|
Richard O. White |
|
2005 LTIP |
|
|
— |
|
|
|
— |
|
|
$ |
455,890 |
(4) |
|
|
— |
|
Thomas S. Clary |
|
2005 LTIP |
|
|
— |
|
|
|
— |
|
|
$ |
303,352 |
(4) |
|
|
— |
|
(1) Calculation of the health insurance amounts were based on the assumptions used for financial
reporting purposes under generally accepted accounting principles assuming (i) termination
occurred on December 31,2007; (ii) termination was as a result of retirement or change in control;
and (iii) a 5.5% discount rate. Calculation of the life insurance amounts were based on the cost
of buying a fully paid policy as of December 31, 2007.
(2) This amount consists of (i) $91,000 for health, life and disability coverage; (ii) $103,670
for the $350,000 life insurance policy; and (iii) $4,895 for the executive officer life insurance
policy.
(3) This amount consists of (i) $2,471,840 for base salary and bonuses; (ii) $91,000 for health,
life and disability coverage;
24
(iii) $103,670 for the $350,000 life insurance policy; (iv) $4,895 for the executive officer life
insurance policy; (v) $21,832 for professional and club dues; (vi) $1,980 for continuing legal
education; (vii) $52,000 for automobile benefits; (viii) $341,804 for his Pension Plan benefit;
(ix) $44,368 for his ESOP benefit; (x) $644,108 for his ESRP benefit; (xi) $109,096 EDC Plan
benefit; and (xii) $168,612 representing the payment of items (ii)-(vii) net of all income and
payroll taxes, as discussed on page 13.
(4) All participants in the plans are entitled to receive their respective vested benefits upon
the occurrence of any change of control as listed on page 15. In addition, Messrs. Smith and
Lowery are entitled to receive their remaining projected benefit under the 2005 Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of March 12, 2008, the number and percentage of shares of common
stock held by each person or entity known to the Corporation to own beneficially more than five
percent (5%) of the issued and outstanding common stock of the Corporation:
| |
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
|
|
| |
|
Of Shares |
|
|
Percent of |
|
| |
|
Beneficially |
|
|
Shares |
|
| Name and Address of Beneficial Owner |
|
Owned |
|
|
Outstanding |
|
First Financial Corporation
Employee Stock Ownership Plan
One First Financial Plaza
Terre Haute, Indiana 47807 |
|
|
879,233 |
(1) |
|
|
6.70 |
% |
|
|
|
|
|
|
|
|
|
T. Rigasco Trust Co-Trustees
National City Bank of Indiana
One National City Center
Indianapolis, Indiana 46255
Jack R. Snyder
One American Square
Indianapolis, Indiana 46282 |
|
|
960,458 |
|
|
|
7.32 |
% |
|
|
|
|
|
|
|
|
|
Princeton Mining Company
State Road 46 South
Terre Haute, Indiana 47803 |
|
|
1,313,264 |
|
|
|
9.99 |
% |
|
|
|
|
|
|
|
|
|
Dimension Fund Advisors LP
1299 Ocean Avenue
Santa Monica, California 90401 |
|
|
949,617 |
|
|
|
7.24 |
% |
| (1) |
|
Represents shares held in trust by the Corporation’s subsidiary, First Financial Bank, N.A. |
The following table shows as of March 12, 2008 the number of our common shares beneficially
owned (unless otherwise indicated) by the Corporation’s nominees for election as directors, the
executive officers named in the Summary Compensation Table, and the directors and executive
officers of the Corporation as a group.
25
| |
|
|
|
|
|
|
|
|
| |
|
Aggregate Number |
|
|
Percent of |
|
| |
|
Of Shares Beneficially |
|
|
Shares |
|
| Name (Age) |
|
Owned(1) |
|
|
Outstanding(2) |
|
W. Curtis Brighton (54) |
|
|
13,000 |
|
|
|
* |
|
Michael A. Carty (57) |
|
|
15,943 |
(3) |
|
|
* |
|
Thomas S. Clary (56) |
|
|
860 |
(4) |
|
|
* |
|
B. Guille Cox, Jr. (62) |
|
|
82,790 |
(5) |
|
|
* |
|
Thomas T. Dinkel (57) |
|
|
13,023 |
|
|
|
* |
|
Anton H. George (48) |
|
|
618 |
|
|
|
* |
|
Gregory L. Gibson (45) |
|
|
76,962 |
|
|
|
* |
|
Norman L. Lowery (61) |
|
|
19,665 |
(6) |
|
|
* |
|
Patrick O’Leary (71) |
|
|
54,050 |
|
|
|
* |
|
Ronald K. Rich (70) |
|
|
2,050 |
|
|
|
* |
|
Virginia L. Smith (59) |
|
|
12,423 |
|
|
|
* |
|
Donald E. Smith (81) |
|
|
165,655 |
(7) |
|
|
1.26 |
% |
Richard O. White (60) |
|
|
21,612 |
(8) |
|
|
* |
|
All directors and executive officers as a group (13 persons) |
|
|
478,651 |
|
|
|
3.65 |
% |
| |
|
|
| * |
|
Represents less than 1% of the Corporation’s outstanding common shares. |
| |
| (1) |
|
The information contained in this column is based upon stockholder records of the Corporation
and information furnished to the Corporation by the individuals identified above. Unless
otherwise indicated, each individual has sole voting and investment power of the shares
indicated. |
| |
| (2) |
|
Based on the number of shares outstanding at March 12, 2008. |
| |
| (3) |
|
Includes 15,805 shares held for Mr. Carty’s account in the First Financial Corporation
Employee Stock Ownership Plan. |
| |
| (4) |
|
Includes 860 shares held for Mr. Clary’s account in the First Financial Corporation Employee
Stock Ownership Plan. |
| |
| (5) |
|
Mr. Cox, under certain circumstances, has the power, with the consent of others, to vote an
additional 213,032 shares (1.62%). These shares are not reflected in the number of shares or
percent of class attributed to him in the above table. |
| |
| (6) |
|
Includes 3,983 shares held for Mr. Lowery’s account in the First Financial Corporation
Employee Stock Ownership Plan. |
| |
| (7) |
|
Includes 160,233 shares held for Mr. Smith’s account in the First Financial Corporation
Employee Stock Ownership Plan. |
| |
| (8) |
|
Includes 21,612 shares held for Mr. White’s account in the First Financial Corporation
Employee Stock Ownership Plan. |
26
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF CROWE CHIZEK AND COMPANY LLC AS THE CORPORATION’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors appointed Crowe Chizek and Company LLC (“Crowe
Chizek”) as the Corporation’s independent registered public accounting firm to audit the books,
records and accounts of the Corporation for 2007 and 2006. At its March 7, 2008 meeting, the
Audit Committee recommended and approved the appointment of Crowe Chizek as the Corporation’s
independent public accounting firm to audit the books, records, and accounts of the Corporation for
2008. The Corporation is seeking ratification of such action. Representatives of Crowe Chizek are
expected to be in attendance at the annual meeting and will be provided an opportunity to make a
statement should they desire to do so and to respond to appropriate inquiries from the
shareholders.
Report of the Audit Committee
In accordance with its written charter adopted by the Board of Directors, the Audit Committee
of the Board (“Committee”) assisted the Board in fulfilling its responsibility for oversight of the
quality and integrity of the accounting, auditing and financial reporting practices of the
Corporation. All of the members of the Committee are independent, as defined in the Corporation’s
listing requirements, from management and the Corporation. During the current year, the Committee
met four times, and the Committee chair, as representative of the Committee, discussed the interim
financial information contained in each quarterly earnings announcement with the CFO, controller
and independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process, the Committee obtained
from the independent auditors a formal written statement describing all relationships between the
auditors and the Corporation that might bear on the auditors’ independence consistent with
Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,”
discussed with the auditors any relationships that may impact their objectivity and independence
and satisfied itself as to the auditors’ independence. The Committee also discussed with
management, the internal auditors and the independent auditors the quality and adequacy of the
Corporation’s internal controls and the internal audit functions organization, responsibilities,
budget and staffing. The Committee reviewed both with the independent and internal auditors their
audit plans, audit scope and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all communications required
by generally accepted auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended, “Communication with Audit Committees,” and, with and without
management present, discussed and reviewed the results of the independent auditors’ examination of
the financial statements. The Committee also discussed the results of the internal audit
examinations.
The Committee reviewed and discussed the audited financial statements of the Corporation as of
and for the year ended December 31, 2007, with management and the independent auditors. Management
has the responsibility for the preparation of the Corporation’s financial statements and the
independent auditors have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the independent
auditors, the Committee recommended to the Board that the Corporation’s audited financial
statements be included in its Annual Report on Form 10-K for the year ended December 31, 2007, for
filing with the Securities and Exchange Commission.
Anton H. George, Audit Committee Chairman Patrick O’Leary Thomas T. Dinkel
27
Fees Paid to Crowe Chizek and Company LLC
The following table sets forth the aggregate fees billed by Crowe Chizek for audit services
rendered in connection with the consolidated financial statements and reports for fiscal year 2007
and fiscal year 2006 and for other services rendered during fiscal year 2007 and fiscal year 2006
on behalf of the Corporation and its subsidiaries, as well as all out-of-pocket costs incurred in
connection with these services, which have been billed to the Corporation:
| |
|
|
|
|
|
|
|
|
| |
|
2007 |
|
|
2006 |
|
Audit Fees |
|
$ |
295,000 |
|
|
$ |
300,000 |
|
Audit Related Fees |
|
|
6,250 |
|
|
|
8,200 |
|
Tax Fees |
|
|
75,705 |
|
|
|
85,050 |
|
All Other Fees |
|
|
4,000 |
|
|
|
15,100 |
|
|
|
|
|
|
|
|
Total |
|
$ |
380,955 |
|
|
$ |
408,350 |
|
Audit Fees. Consists of fees billed for professional services rendered for (i) the audit of
the Corporation’s consolidated financial statements, (ii) the integrated audit over internal
controls as required under Section 404 of the Sarbanes-Oxley Act applicable in 2007, (iii) the
review of the interim condensed consolidated financial statements included in quarterly reports,
(iv) the services that are normally provided by Crowe Chizek in connection with statutory and
regulatory filings or engagements, and (v) attest services, except those not required by statute or
regulation.
Audit-Related Fees. Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Corporation’s consolidated
financial statements and are not reported under “Audit Fees.” These services include accounting
consultations and performance of attestation services for student loan servicing for both 2007 and
2006.
Tax Fees. Consists of tax compliance/preparation and other tax services. Tax
compliance/preparation consists of fees billed for professional services related to federal and
state tax compliance, and assistance with tax audits and appeals. Other tax services consist of
fees billed for other miscellaneous tax consulting and planning.
All Other Fees. All other fees include internal audit software training in 2006 and
Sarbanes-Oxley Section 404 (SOX 404) and internal audit software licensing fees in 2007 and 2006.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
All of the fees and services described above under “audit fees,” “audit-related fees,” “tax
fees” and “all other fees” were pre-approved by the Audit Committee. The Audit Committee
pre-approves all audit and permissible non-audit services provided by the independent auditors.
These services may include audit services, audit-related services, tax services and other services.
The Audit Committee has adopted a policy for the pre-approval of services provided by the
independent auditors. Under the policy, pre-approval is generally provided for up to one year and
any pre-approval is detailed as to the particular service or category of services and is subject to
a specific budget. In addition, the Audit Committee may also pre-approve particular services on a
case-by-case basis. For each proposed service, the independent auditor is required to provide
detailed back-up documentation at the time of approval. The Audit Committee may delegate
pre-approval authority to one or more of its members. Such a member must report any decisions to
the Audit Committee at the next scheduled meeting.
28
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the Corporation’s directors
and executive officers, and persons who own more than ten percent of a registered class of the
Corporation’s equity securities, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Corporation common stock and other
equity securities of the Corporation. Officers, directors and greater than ten percent shareholders
are required by SEC regulations to furnish the Corporation with copies of all Section 16(a) forms
they file. To the best knowledge of the Corporation, during the most recent fiscal year all
officers, directors and greater than ten percent beneficial owners of the Corporation timely filed
all statements of beneficial ownership required to be filed with the SEC.
SHAREHOLDER PROPOSALS
Under our bylaws, no business may be brought before an annual meeting unless in one of the
following ways: (i) it is specified in the notice of the meeting (which includes shareholder
proposals that the Corporation is required to include in its proxy statement pursuant to Rule 14a-8
under the Securities Exchange Act of 1934); (ii) such business is otherwise brought before the
meeting by or at the direction of the Board of Directors; or (iii) such business is brought before
the meeting by a shareholder who has delivered notice to the Corporation (containing certain
information specified in our bylaws) not less than 120 days prior to the meeting, or December 17,
2007 for purposes of the 2008 Annual Meeting. These requirements are separate from and in addition
to the SEC’s requirements that a shareholder must meet in order to have a shareholder proposal
included in the Corporation’s proxy statement. All proposals and notifications should be addressed
to the Secretary of the Corporation.
Any proposals which shareholders desire to present at the 2008 Annual Meeting must be received
by the Corporation at its principal executive offices on or before November 29, 2008 to be
considered for inclusion in the Corporation’s proxy material for that meeting. The proxy rules of
the Securities and Exchange Commission govern the content and form of stockholder proposals and the
minimum stock holding requirement. All proposals must be a proper subject for action at the 2008
Annual Meeting.
For additional information regarding the shareholder nomination process, please see
“Communications with Independent Directors” on page 6.
ADDITIONAL INFORMATION
UPON WRITTEN REQUEST, THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO EACH REQUESTING
SHAREHOLDER, A COPY OF THE CORPORATION’S ANNUAL REPORT ON FORM 10-K, WHICH IS REQUIRED TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2007. ADDRESS ALL
REQUESTS TO:
MICHAEL A. CARTY, SECRETARY AND TREASURER
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
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OTHER MATTERS
As of the date of this Proxy Statement, the Corporation knows of no business that will be
presented for consideration at the annual meeting other than the items referred to above. If any
other matter is properly brought before the meeting for action by shareholders, proxies in the
enclosed form returned to the Corporation will be voted in accordance with the recommendation of
the Board of Directors or, in the absence of such a recommendation, in accordance with the judgment
of the proxy holder.
By Order of the Board of Directors,
/s/ Donald E. Smith
Chairman of the Board and President
March 25, 2008
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FIRST FINANCIAL CORPORATION
One First Financial Plaza
P.O. Box 540
Terre Haute, Indiana 47808
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James E. Brown and Richard J. Shagley, or either of them as
Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and
to vote, as designated below, all shares of common stock of First Financial Corporation which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at One First
Financial Plaza, Terre Haute, Indiana on Wednesday, April 16, 2008, at 11:00 a.m. (local time), or
any adjournment thereof, on the following matters:
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For all nominees listed below for a three-year term to expire in 2011
(except as marked to the contrary below): |
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B. Guille Cox, Jr., Anton H. George, Gregory L. Gibson and Virginia L. Smith |
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WITHHOLD AUTHORITY to vote for all nominees listed above. |
(INSTRUCTIONS: To withhold authority to vote for any individual, strike a line through the
nominees’ name in the list above.)
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Ratification of the selection of Crowe Chizek and Company LLC, as the independent registered
public accounting firm for the Corporation for the year ending December 31, 2008. |
For o Against o Abstain o
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In their discretion, on such matters as may properly come before the meeting. |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR ALL THE NOMINEES LISTED ABOVE.
Please sign exactly as name appears below. If there are two or more owners, both must sign.
When signing as attorney, executor, administrator, trustee, or guardian, please give full title as
such. If a corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
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Dated:
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, 2008 |
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(Signature) |
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(Signature, if held jointly) |
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Your vote is important. Please mark, sign, and date and
return this Proxy promptly, using the enclosed envelope. |