SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-12
FIRST FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
FIRST FINANCIAL CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(4) Date filed:
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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, 2003
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 April 16, 2003 at 11:00 o'clock a.m., local time, at One First
Financial Plaza, Terre Haute, Indiana.
The purposes of the meeting are:
(1) To elect Thomas T. Dinkel, Mari H. George, Norman L. Lowery
and Patrick O'Leary to the Board of Directors of the
Corporation for a three (3) year term to expire in 2006;
(2) To elect Chapman J. Root II to the Board of Directors of the
Corporation for a one (1) year term to expire in 2004; and
(3) 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, 2003
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 19, 2003
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
_______________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 2003
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of First Financial Corporation (the "Corporation") of Proxies
for use at the Annual Meeting of Shareholders of the Corporation to be held on
April 16, 2003, at 11:00 a.m. at One First Financial Plaza, Terre Haute,
Indiana, and at any and all adjournments of such meeting. This Proxy Statement
and accompanying form of proxy were first mailed to the shareholders on or about
March 19, 2003.
The Corporation is a financial services holding company which owns Terre Haute
First National Bank ("Terre Haute First"), First State Bank, First Citizens
State Bank, First Farmers State Bank, First Ridge Farm State Bank, First Parke
State Bank, First National Bank of Marshall, First Crawford State Bank, The
Morris Plan Company of Terre Haute, Inc., First Community Bank N.A., Forrest
Sherer, Inc. and First Financial Reinsurance Company, Ltd.
Only shareholders of record as of March 12, 2003, will be entitled to notice of,
and to vote at, the Annual Meeting. As of March 12, 2003 the Corporation had
issued and outstanding 6,799,085 shares of common stock, which were held by
approximately 991 shareholders of record. There are no other outstanding
securities of the Corporation entitled to vote. On the matters to be voted on at
this Annual Meeting, each share is entitled to one vote, exercisable in person
or by proxy.
The presence, in person or by proxy, of a majority of the outstanding shares of
Common Stock is necessary to constitute a quorum. Shares voting, abstaining or
withholding authority to vote on any issue will be counted as present for
purposes of determining a quorum. Approval by a plurality of the votes cast at
the meeting, assuming a quorum is present, is required for election of each
nominated director. 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. Abstentions, broker non-votes, and instructions on the
accompanying proxy card to withhold authority to vote for one or more of the
named nominees will result in the respective nominee receiving fewer votes.
The cost of soliciting proxies will be borne by the Corporation. In addition to
use of the mails, proxies may be solicited personally or by telephone by
officers, directors and certain employees who will not be specially compensated
for such soliciting.
Any shareholder giving a proxy has the right to revoke it at any time before it
is exercised. Therefore, execution of the proxy will not affect the
shareholder's right to vote in person if he or she attends the meeting.
Revocation may be made prior to the meeting (i) by written notice sent to
Michael A. Carty, Secretary, First Financial Corporation, One First Financial
Plaza, P.O. Box 540, Terre Haute, Indiana 47808, (ii) personally upon oral or
written request at the Annual Meeting, or (iii) by duly executing a proxy
bearing a later date.
The shares represented by proxies will be voted as instructed by the
shareholders giving the proxies. In the absence of specific instructions to the
contrary, proxies will be voted in favor of the election as directors of the
five (5) persons named as nominees in this Proxy Statement. 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 Board of Directors if the Board of Directors elects to fill such nominees'
positions. Any other matters that may properly come before the meeting will be
acted upon by the persons named as proxies in the accompanying form of proxy in
accordance with his or her discretion.
ELECTION OF DIRECTORS
The Board of Directors is currently composed of twelve (12) 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 in 2006, with the exception of nominee Chapman J. Root
II, who has been nominated for one year in order to create classes with an equal
number of directors consistent with the Corporation's articles of incorporation.
Each nominee is a director of the Corporation whose current term will expire in
2003. The following information is provided concerning each nominee and each
incumbent director continuing in office.
1
SHARES OF COMPANY COMMON STOCK
NAME, AGE AND PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY OWNED ON MARCH 10, 2003
DURING THE PAST FIVE YEARS SINCE NUMBER PERCENT OF CLASS(1)
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NOMINEES FOR TERMS TO EXPIRE IN 2006
Thomas T. Dinkel, 52 1989 5,435 .08%
President of Sycamore Engineering, Inc.
Mari H. George, 67 1989 231 .01%
Chairman of Indianapolis Motor Speedway Corp.
Norman L. Lowery, 56, Vice Chairman of the 1989 6,724 .10% (3)
Board and CEO; Vice President of the Corporation;
President of Terre Haute First
Patrick O'Leary, 66 1983* 25,350 .37%
President of Contract Services, LLC
NOMINEE FOR TERM TO EXPIRE IN 2004
Chapman J. Root II, 53 1989 17,047 .25%
President of Root Organization;
Director of International Speedway Corp.
INCUMBENT MEMBERS OF THE BOARD OF DIRECTORS
WHOSE TERMS EXPIRE IN 2004
Walter A. Bledsoe, 87 1983* 14,991 .22%
Personal Investments
William A. Niemeyer, 80 1983* 13,380 .20%
President of Niemeyer Coal Co.
Donald E. Smith, 76, Chairman of the Board 1983* 72,157 1.06%
and President; President of Terre Haute
First National Bank, 1974 through 1995
INCUMBENT MEMBERS OF THE BOARD OF DIRECTORS
WHOSE TERMS EXPIRE IN 2005
B. Guille Cox, Jr., 57 1987 42,748 .63% (2)
Attorney-at-Law with Cox Zwerner Gambill & Sullivan
Anton H. George, 43 1989 309 .01%
President of Indianapolis Motor Speedway Corp.;
Director of Indiana Energy, Inc.
Gregory L. Gibson, 40 1994 33,481 .49%
President of ReTec, Inc.
Virginia L. Smith, 54 1987 3,067 .05%
President of R.J. Oil, Inc.
* First Financial Corporation was formed in 1983.
OTHER EXECUTIVE OFFICERS OF THE CORPORATION
Stanley V. Hart, 60, Chief Operations Officer 11,671 .17%
Senior Vice President of Terre Haute First National Bank
Michael A. Carty, 52, Secretary/Treasurer 5,898 .09%
Senior Vice President & CFO of Terre Haute First National Bank
Richard O. White, 55 8,361 .12%
Senior Vice President of Terre Haute First National Bank
All Directors and Executive Officers as a group have 260,849 shares, which is
3.84% of the shares outstanding. This includes shares held for the accounts of
Donald E. Smith, Norman L. Lowery, Stanley V. Hart, Michael A. Carty and Richard
O. White in the First Financial Corporation Employee Stock Ownership Plan.
2
(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.
(2) Mr. Cox, under certain circumstances, has the power, with the consent of
others, to vote an additional 189,402 shares (2.78%). These shares are not
reflected in the amount on the previous page.
(3) Mr. Lowery has the power to vote an additional 83,334 (1.22%) shares as
co-trustee of the Root Children's Business Trust. These shares are not reflected
in the amount on the previous page.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS. During 2002 the Board of Directors of the Corporation
held 12 regular meetings and a total of 18 meetings. No incumbent director
attended fewer than 75% of the aggregate number of Board meetings and meetings
on committees on which he or she served.
CERTAIN RELATIONSHIPS. 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. Mari H. George is the mother of Anton H.
George. There are no arrangements or understandings between any of the directors
pursuant to which any of them have been selected for their respective positions.
COMMITTEES. The Board of Directors had no standing nominating committee or any
committee performing similar functions during 2002; such functions are performed
by the Board of Directors as a whole.
The Corporation's Examining Committee, which in 2002 consisted of Anton H.
George, Thomas T. Dinkel and Patrick O'Leary, reviews the Corporation's
operations and management, accounting functions, the adequacy and effectiveness
of the internal controls and internal auditing methods and procedures. This
Committee recommends to the Board the appointment of the independent public
accountants for the Corporation. The Examining Committee met four times during
2002.
The Corporation's Compensation Committee, which consists of Messrs. A. George,
O'Leary, Lowery, Niemeyer, D. Smith, and V. Smith, overviews the compensation of
the officers of subsidiary banks and recommends salaries and bonus amounts to
the full Board of Directors. Such Committee met three times in 2002.
COMPENSATION OF DIRECTORS. Each director of the Corporation is also a director
of Terre Haute First, the lead subsidiary bank of the Corporation, and receives
directors' fees from each organization. During 2002 a director of the
Corporation and Terre Haute First received a fee of $625 for each board meeting
attended in person or a fee of $500 for each board meeting in which the director
participated by telephone.
Non-employee directors also receive a fee for meetings attended of the Examining
Committee of $1,000, the Compensation Committee of $1,000 and the Loan Discount
Committee of $300. Each director also received from Terre Haute First a
semi-annual director's fee of $1,250 on July 16th and December 17th. No
non-employee director served as a director of any other subsidiary of the
Corporation.
Directors of the Corporation and Terre Haute First who are not yet 70 years of
age may participate in a deferred director's fee program at each institution.
Under this program, a director may defer $6,000 of his or her director's fees
each year over a five-year period. When the director reaches age 65 or age 70,
the director may elect to receive payments over a ten-year period. The amount of
the deferred fees is used to purchase an insurance product which funds these
payments. Each year from the initial date of deferral until payments begin at
age 65 or 70, 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. The Corporation expects that the cash surrender value of the
insurance policy will offset the amount of expenses accrued. 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 60 regular or special
meetings, the amount to be received at age 65 or 70, as applicable, will be
pro-rated appropriately. For 2002, the allocated cost of the deferred directors'
fees was $194,126.
Directors also may be compensated under the Corporation's 2001 Long-Term
Incentive Plan, discussed under "Report of the Compensation Committee on
Executive Compensation." Under the plan, directors may receive 90, 100 or 110
percent of the director's "award amount" if the Corporation and Terre Haute
First attain certain goals established by the Compensation Committee. For 2002,
each director received pursuant to the 2001 Long-Term Incentive Plan an award of
$33,100 from the Corporation, which represented 100 percent of the director's
"award amount" under the plan for 2002.
COMPENSATION OF OFFICERS
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Decisions on compensation of the Corporation's executives are made by the
Compensation Committee of the Board, which also serves as the Compensation
Committee of Terre Haute First. Each member of the Compensation Committee,
except Mr. Smith and Mr. Lowery, was a non-employee director. All decisions of
the Compensation Committee relating to the compensation of the Corporation's
executive officers are reviewed and approved by the full Board.
3
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS. The Compensation Committee's
executive compensation policies are designed to provide competitive levels of
compensation to the executive officers and to reward officers for satisfactory
individual performance and for satisfactory performance of the Corporation as a
whole. The individual goals established in the strategic plan and budget for the
Corporation and Terre Haute First, and the goals relating to performance of the
Corporation established under the 2001 Long-Term Incentive Plan discussed below,
are also utilized in setting compensation levels of executive officers.
BASE SALARY. Base salary for an executive officer is determined after the
executive officer is reviewed by the Compensation Committee. This review
includes an analysis of the performance of the Corporation and Terre Haute First
and an analysis of the individual's performance during the past fiscal year,
with a focus on the executive officer's quality and quantity of work;
supervisory skills; dependability; initiative; attendance; overall skill level;
and overall value to the Corporation. This analysis also includes a comparison
of actual individual performance versus established strategic planning and
budgetary goals.
ANNUAL BONUS AMOUNTS. The Compensation Committee determines whether a bonus
should be paid based primarily upon the overall performance of the Corporation.
For 2002, Mr. Smith received a bonus of $150,000 and Messrs. Lowery, Hart, Carty
and White each received a bonus of $150,000, $16,000, $15,500 and $15,000,
respectively.
LONG-TERM INCENTIVE PLAN. Beginning in 1999 the Board began discussions with
several consultants regarding compensation programs. These consultations and
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. These discussions and the
analysis of the information received culminated with the adoption by the Board
in November 2000 of the 2001 Long-Term Incentive Plan, effective January 1,
2001. The plan expires on December 31, 2009.
This plan was adopted after lengthy Board discussions with and consultation from
Clarke Bardes Consulting. The plan is designed to enhance stockholder value of
the Corporation by attracting and retaining directors, officers and other key
employees and provide further incentive for directors, officers and other key
employees to give their maximum effort to the continued growth and success of
the Corporation. This is an unfunded, nonqualified plan of deferred compensation
which is administered by the Compensation Committee.
Directors and executive officers who are "highly compensated employees" within
the meaning of Section 201(2) of ERISA, and who are age 65 or under are eligible
to participate in the plan. The Compensation Committee has designated as
participants in the plan all directors of the Corporation, the executive
officers listed in the summary compensation table below, the presidents of its
subsidiary banks and certain other officers. Individuals are not eligible to
receive rewards of compensation under the plan after age 65. The Compensation
Committee exempted Messrs. Smith, Bledsoe, Niemeyer and O'Leary and Ms. George
from the age limitations of the plan at the plan's inception.
Rewards of compensation under the plan are based upon the specific "award
amount" for each individual specified in the plan. There are four tiers of
participants in the plan, with a different award amount specified for each tier.
The award amounts were established after discussions with and receipt of advice
from the Corporation's consultant, who had performed an analysis of a peer group
of companies for the Corporation and the financial institution industry
generally.
Rewards of compensation equal 90, 100 or 110 percent of the individual's award
amount. The percentage of the award made is dependent upon whether the
Corporation and the subsidiary banks attain either the first, second or third
target level of performance goals established by the Compensation Committee for
the Corporation and each subsidiary bank. 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 percent of
the award amount, respectively.
Payments under the plan 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. Payments are in cash only and are generally made in 180 equal
consecutive monthly installments.
Directors and executives become 100 percent vested in their awards if or when
they have provided five years of service to the Corporation or the respective
subsidiary.
Awards for 2002 were based on a weighted point total of the following target
goals for the Corporation and its subsidiary banks: return on average assets,
return on average equity, net after-tax income and corporate earnings per share.
The Corporation and most of its affiliate banks each attained the second target
level for 2002, which resulted in directors and executive officers receiving
rewards under the plan equal to 100% of the individual's award amount. One
affiliate bank attained the first target level resulting in a 90% individual
award amount and one affiliate bank failed to reach its goals and was not
rewarded for 2002.
OTHER COMPENSATION PLANS. At various times in the past the Corporation has
adopted certain broad-based employee benefit plans in which the executive
officers are permitted to participate on the same terms as other corporation
employees who meet applicable eligibility criteria, subject to any legal
limitations on the amount that may be contributed or the benefits that may be
payable under the plans.
4
BENEFITS. The Corporation provides certain other benefits to the executive
officers which did not exceed 10% of salary and bonus for fiscal 2002.
CHIEF EXECUTIVE OFFICER'S 2002 COMPENSATION. The Compensation Committee
determines Mr. Lowery's salary and bonus in the same manner as discussed above
for other executives.
MEMBERS OF THE 2002 COMPENSATION COMMITTEE
Anton H. George Norman L. Lowery William A. Niemeyer
Patrick O'Leary Donald E. Smith Virginia L. Smith
COMPENSATION COMMITTEE INSIDER PARTICIPATION
During the past fiscal year, Mr. Smith and Mr. Lowery were the only employees of
the Corporation to serve on the Compensation Committee. Messrs. Smith and Lowery
excused themselves from the meeting during the discussion by the Compensation
Committee of their compensation and did not participate in any discussion or
voting with respect to their compensation. Messrs. Smith and Lowery also excused
themselves from the meeting during any discussion of the 2001 Long-Term
Incentive Plan concerning their eligibility to participate in such plan or
awards under the plan. Ms. Smith, a member of the Compensation Committee, is the
daughter of Donald E. Smith and the sister-in-law of Mr. Lowery.
SUMMARY COMPENSATION TABLE
The following table sets forth for each of the last three fiscal years the cash
compensation paid by the Corporation, as well as certain other compensation paid
or awarded during those years, to the Chief Executive Officer and each of the
next four most highly compensated executive officers of the Corporation in all
capacities in which they served.
NAME AND ANNUAL COMPENSATION (1)
PRINCIPAL POSITION YEAR SALARY(2) BONUS (3) OTHER (4) ALL OTHER COMPENSATION (5)
DONALD E. SMITH 2002 $496,764 $150,000 $353,000 $36,964
President and 2001 $468,000 $150,000 $370,170 $28,368
Chairman of the 2000 $424,600 $150,000 -- $22,278
Corporation;
Chairman of
Terre Haute First
NORMAN L. LOWERY 2002 $397,630 $150,000 $295,200 $ 4,895
Vice Chairman, CEO 2001 $385,500 $150,000 $317,300 $ 4,895
and Vice President of 2000 $349,000 $100,000 -- $ 4,895
the Corporation;
President and CEO
of Terre Haute First
STANLEY V. HART 2002 $137,883 $ 16,000 $ 64,300 $ 2,500
Senior Vice President 2001 $132,765 $ 15,500 $ 88,900 $ 2,500
of Terre Haute First 2000 $127,254 $ 14,500 -- $ 2,535
MICHAEL A. CARTY 2002 $137,916 $ 15,500 $ 69,300 $ 1,200
CFO, Secretary and 2001 $131,483 $ 15,000 $ 86,900 $ 1,200
Treasurer of the 2000 $126,900 $ 15,000 -- $ 1,200
Corporation; Senior
Vice President of
Terre Haute First
RICHARD O. WHITE 2002 $127,961 $ 15,000 $ 68,900 $ 1,200
Senior Vice President 2001 $123,040 $ 14,500 $ 86,500 $ 1,200
of Terre Haute First 2000 $117,741 $ 12,000 -- $ 1,200
(1) While officers enjoy certain perquisites, such perquisites do not exceed the
lesser of $50,000 or 10% of such officer's salary and bonus and are not required
to be disclosed by applicable rules of the Securities and Exchange Commission.
(2) Salary reflects base compensation and income earned in the form of
director's fees from the Corporation or its affiliate banks during the indicated
calendar years.
5
(3) The bonus amounts are payable pursuant to determinations made by the
Compensation Committee of the Corporation, as described in the Compensation
Committee Report and as approved by the Board of Directors.
(4) These amounts represent the amount awarded for 2002 under the 2001 Long-Term
Incentive Plan. Payment of these amounts will not begin until the earlier of
January 1, 2015, or the January 1 immediately following the year in which the
participant reaches age 65. These payments generally will be annuitized over a
180-month period. Interest accrues on these amounts at 3.50% from January 1,
2010, until payment begins. When payment begins, interest will accrue on the
unpaid portion at a 7.00% annual rate compounded monthly. See the discussion
under "Employment Agreements" concerning payments resulting from a "change in
control," as defined in the plan.
(5) These amounts include Corporation payments for the years noted on behalf of
the above-named individuals (except Mr. Smith) pursuant to a life insurance
program (Life Insurance Program) for the executive officers of Terre Haute
First. Under the Life Insurance Program, Terre Haute First purchased a life
insurance policy on behalf of each executive officer of Terre Haute First. The
policy is owned by the individual and will be paid at age 65 for those that were
55 or older, and at age 60 for those who are less than 55 years of age at the
time the program was started. The annual cost of this insurance for those
reported (except for Mr. Smith) was as follows: $4,895 for Mr. Lowery; $2,500
for Mr. Hart; $1,200 for Mr. Carty; and $1,200 for Mr. White.
Mr. Smith does not participate in the Life Insurance Program of the Corporation.
The Corporation pays for its portion of a separate split-dollar life insurance
policy for Mr. Smith, unless the increase in the cash surrender value of the
policy is sufficient to cover such premiums. In 2002, the premiums were paid
from the increase in the cash surrender value of the policy. The policy will
continue to be in effect following Mr. Smith's retirement as an executive
officer of the Corporation and Terre Haute First. In 2002, the dollar value of
benefit to Mr. Smith of the premium paid from the increase in the cash value of
the policy was $36,964 (which amount is included in the amount reported for Mr.
Smith above). The Corporation expects to recover the premiums it pays for this
split-dollar policy from the proceeds of such policy.
Allocations to the named individual's respective account in the Corporation's
Employee Stock Ownership Plan ("ESOP") for 2002, which are properly included in
this column, were not calculable as of the date of this Proxy Statement. Such
amounts for 2001 were as follows: $3,280 for Mr. Smith; $3,280 for Mr. Lowery;
$2,816 for Mr. Hart; $2,716 for Mr. Carty; and $2,677 for Mr. White.
EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. The Corporation sponsors the First Financial
Corporation Employee Stock Ownership Plan ("ESOP") and the First Financial
Corporation Employees' Pension Plan ("Pension Plan") for the benefit of
substantially all of the employees of the Corporation and its subsidiaries.
These plans 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 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.
For the year ended December 31, 2002, the Corporation contributed 20,750 shares
of the Corporation's stock valued at $1,037,500 to the ESOP. The stock will be
allocated to the individual ESOP accounts of the participants effective as of
December 31, 2002, although no allocation to the individual accounts had been
made or calculated as of the date of mailing of this Proxy Statement.
DEFINED BENEFIT PLAN. The Pension Plan was adopted in conjunction with, but is
separate from, the ESOP. The monthly guaranteed minimum benefit under the
Pension Plan is reduced by the monthly benefit derived from the participant's
vested portion of his ESOP account balance, calculated by the actuary for the
Pension Plan as a single life annuity. The normal retirement benefit will begin
at age 65 and be paid monthly for as long as the participant lives.
The following table shows the estimated annual benefits payable under the
Pension Plan upon retirement at age 65 in 2002 for various periods of Benefit
Service at specified levels of remuneration. The benefit amounts presented in
the totals are annual straight life annuity amounts without deduction for Social
Security or other offset amounts and without regard for the benefit limitations
of the Internal Revenue Code. 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.
Under the following table, the named executive officers of the Corporation have
the following current levels of benefit service: Mr. Smith has 34 years; Mr.
Lowery has 7 years; Mr. Hart has 41 years; Mr. Carty has 26 years; and Mr. White
has 33 years.
6
ESTIMATED MINIMUM ANNUAL RETIREMENT BENEFIT
FINAL AVERAGE ANNUAL COMPENSATION
YEARS OF
BENEFIT 300K
SERVICE 70K 100K 130K 160K 190K 220K 250K OR MORE
10 $15,625 $23,575 $31,525 $ 39,475 $ 47,425 $ 55,375 $ 63,325 $ 76,575
20 31,250 47,150 63,050 78,950 94,850 110,750 126,650 153,150
30 39,875 60,725 81,575 102,425 123,275 144,125 164,975 199,725
40 40,688 62,513 84,338 106,163 127,988 149,813 171,638 208,013
The Corporation implemented a nonqualified supplemental retirement plan and a
nonqualified deferred compensation plan to replace benefits lost due to the
Internal Revenue Code limitations on benefits and compensation and limitations
imposed on employer contributions under the ESOP and the pension plan. These
plans are unfunded, and no contributions by the Corporation were made to these
plans during the last three fiscal years. The table does not take these limits
into account because it includes benefits from both the qualified and
nonqualified plans.
EMPLOYMENT CONTRACTS
DEFERRED COMPENSATION AGREEMENT AND SPLIT DOLLAR INSURANCE AGREEMENT. On
December 22, 1994, the Corporation, Terre Haute First and Mr. Smith entered into
a Deferred Compensation Agreement and a Split Dollar Insurance Agreement
(collectively, the "Agreement"), which had been extended to December 31, 2002.
The Agreement provides that Mr. Smith will serve as President of the Corporation
during the term of the Agreement and perform such other duties as may be
established by the Board of Directors of the Corporation and Terre Haute First.
Mr. Smith will be paid an annual salary as set by the Board of Directors of the
Corporation and Terre Haute First. In addition, the Agreement requires that the
Corporation and Terre Haute First maintain a split-dollar life insurance
arrangement with Mr. Smith, which insures the life of Mr. Smith. The Corporation
and Terre Haute First expect to recover the premiums they pay for such policy
from the proceeds of such policy.
EMPLOYMENT AGREEMENT. Terre Haute First entered into an Employment Agreement
with Norman L. Lowery, its President and Chief Executive Officer, effective
January 1, 2003. The Employment Agreement is a five-year agreement which may be
extended each year by the Board of Directors for an additional one-year term.
Under the Employment Agreement, Mr. Lowery receives an annual salary equal to
his current salary, which is $386,672 for 2003, 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 Terre Haute First's employees.
If Mr. Lowery is terminated for other than "just cause" or is "constructively
discharged," and such termination does not occur within 12 months after a
"change in control" (as such terms are defined in the Employment Agreement), he
would receive an amount equal to the sum of his base salary through the end of
the then-current term of the Employment Agreement. He also would be entitled to
elect to receive, at his sole discretion, either (i) cash in an amount equal to
his cost of obtaining all benefits which he would have been eligible to
participate in or receive through the term of the Employment Agreement, or (ii)
continued participation under such benefit plans through the term of the
Employment Agreement, if he continued to qualify for participation in such
benefit plans.
If Mr. Lowery is terminated for other than just cause or is constructively
discharged, and this occurs within 12 months following a change in control, he
would be entitled to an amount equal to or the greater of the compensation and
benefits described above if the termination did not occur within 12 months
following a change in control; or, the product of 2.99 times the sum of his base
salary in effect as of the date of the change in control and 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, at his sole discretion,
either cash 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, or continued participation under such benefit
plans for a period of three years, beginning on the date of termination, if he
continued to qualify for participation in such benefit plans.
2001 LONG-TERM INCENTIVE PLAN. If Mr. Smith is terminated within 12 months
following a change in control, he is entitled to receive the greater of
$3,424,600 or the amount of any rewards under this plan as of December 31 of the
year prior to termination. If Mr. Lowery is terminated within 12 months
following a change in control, he is entitled to receive the greater of
$3,002,717 or the amount of any rewards under this plan as of December 31 of the
year prior to termination.
If as a result of a change in control Messrs. Smith or Lowery become entitled to
any payments from the Corporation or Terre Haute First 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 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.
7
TRANSACTIONS WITH MANAGEMENT
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 2002. Comparable transactions
may be expected to take place in the future.
During 2002 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.
The law offices of B. Guille Cox, Jr., in which Mr. Cox is a partner, were paid
legal fees by the Corporation and its subsidiaries for the fiscal year ending
December 31, 2002.
During 2002 Terre Haute First National Bank, the lead bank subsidiary of the
Corporation, engaged Construction Technology Associates, Inc. to renovate a
branch office at a total cost of $100,843. Gregory L. Gibson, a director of the
Corporation, is the President and a shareholder of Construction Technology
Associates, Inc. During 2002 the Corporation also purchased fuel products from
R.J. Oil, Inc. at a total cost of $74,768. Virginia L. Smith, a director of the
Corporation and the daughter of Donald E. Smith (the Chairman of the Board of
the Corporation), is the president and a shareholder of R.J. Oil, Inc.
COMPARATIVE PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on the
Corporation's common stock over the last five fiscal years with the returns of
the Russell 2000 Index, comprised of the smallest 2000 companies of the Russell
3000 Index which includes the 3000 largest market capitalization corporations
and the SNL $1B - $5B Bank Index developed by SNL Securities LC which includes
all bank stocks with total assets in this size range. The graph assumes $100.00
was invested on January 1, 1998 in the Corporation's common stock and in each of
the indices shown, and the reinvestment of all dividends.
Period Ending
INDEX 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------------------------------------------------------------------------------------------------------------------
First Financial Corporation 100.00 87.23 75.11 59.87 84.51 96.22
Russell 2000 100.00 97.45 118.17 114.60 117.45 93.39
SNL $1B-$5B Bank Index 100.00 99.77 91.69 104.05 126.42 145.94
REPORT OF THE EXAMINING COMMITTEE
In accordance with its written charter adopted by the Board of Directors, the
Examining 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
8
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
presented, 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, 2002, 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, 2002, for filing with the Securities
and Exchange Commission. The Committee also recommended the reappointment of the
independent auditors.
Anton H. George, Examining Committee Chairman
Patrick O'Leary
Thomas T. Dinkel
AUDIT FEES
The following table sets forth the aggregate fees billed to FFC for the fiscal
year ended December 31, 2002, by the Company's principal accounting firm, Crowe,
Chizek and Company LLP:
Audit Fee ....................................................... $120,105
Financial Information Systems Design and Implementation Fees..... 0
All Other Fees................................................... 147,456(a)(b)
--------
Total............................................................ $276,561
(a) Includes fees for tax consulting and compliance work, permitted internal
audit outsourcing and other non-audit services.
(b) The Examining Committee has considered whether the provision of these
services is compatible with maintaining the principal accountant's independence.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table contains information concerning individuals or entities who,
to the knowledge of the Corporation, beneficially owned on March 10, 2002, more
than 5% of the common stock of the Corporation:
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
------------------------------------------------------------------------------------------------------------
First Financial Corporation 455,778(1) 6.70%
Employee Stock Ownership Plan ("ESOP")
One First Financial Plaza
Terre Haute, Indiana 47807
T. Rigasco Trust Co-Trustees: 480,229 7.06%
National City Bank of Indiana
One National City Center
Indianapolis, Indiana 46255
Jack R. Snyder
One American Square
Indianapolis, Indiana 46282
Princeton Mining Company 657,357 9.67%
State Road 46 South
Terre Haute, Indiana 47803
(1) Represents shares held in Trust by the Corporation's subsidiary, Terre Haute
First National Bank.
9
SECTION 16(a) 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.
INDEPENDENT AUDITORS
The Board of Directors appointed Crowe, Chizek and Company LLP, as independent
accountants to audit the books, records and accounts of the Corporation for 2002
and 2001. The Board of Directors anticipates that it will appoint an independent
public accountant to audit the books, records, and accounts of the Corporation
for 2003 in April, 2003. 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.
SHAREHOLDERS PROPOSALS
Any proposals which shareholders desire to present at the 2004 Annual Meeting
must be received by the Corporation at its principal executive offices on or
before November 20, 2003 to be considered for inclusion in the Corporation's
proxy material for that meeting.
If notice of any other shareholder proposal intended to be presented at the 2004
Annual Meeting is not received by the Corporation on or before February 3, 2004,
the proxies will have discretionary authority to vote on the matter. All
proposals and notifications should be addressed to the Secretary of the
Corporation.
ANNUAL REPORT TO SHAREHOLDERS
The 2002 Annual Report to Shareholders, containing financial statements for the
year ended December 31, 2002, and other information concerning the operations of
the Corporation is enclosed herewith, but is not to be regarded as proxy
soliciting material.
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, 2002. ADDRESS ALL REQUESTS TO:
MICHAEL A. CARTY, SECRETARY & TREASURER
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the Notice. The Board
of Directors of the Corporation does not know of any matters for action by
shareholders at such Annual Meeting other than the matters described in the
notice. However, the enclosed Proxy will confer discretionary authority with
respect to matters which were not known to the Board of Directors at the time of
the printing hereof and which may properly come before the Annual Meeting. It is
the intention of the persons named in the Proxy to vote pursuant to the Proxy
with respect to such matters in accordance with their best judgment.
By Order of the Board of Directors
DONALD E. SMITH
Chairman of the Board and President
10
[FIRST FINANCIAL CORPORATION LOGO]
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 Ronald K. Rich, 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, 2003, at 11:00 a.m. (local
time), or any adjournment thereof, on the following matters:
1. ELECTION OF DIRECTORS
/ / For all nominees listed below for a three-year term to expire in
2006 (except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below:
Thomas T. Dinkel, Mari H. George, Norman L. Lowery, Patrick O'Leary
/ / For the nominee listed below for a one-year term to expire in
2004 (except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for the nominee listed below:
Chapman J. Root II
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL,
STRIKE A LINE THROUGH THE NOMINEES' NAME IN THE LIST ABOVE.)
2. 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.
Dated :__________________, 2003 ____________________________________
(Signature)
____________________________________
(Signature, if held jointly)
Your vote is important. Please mark,
sign, and date and return this Proxy
promptly, using the enclosed
envelope.