In reliance onCode of Business Conduct and Ethics and Corporate Governance Guidelines
We have adopted a Code of Business Conduct and Ethics which applies to our chief executive officer, principal financial officer, principal accounting officer and to all other First Financial directors, officers and associates. We will disclose any substantive amendments to or waiver from provisions of the reviews and discussions referred to above, the Committee recommendedcode made with respect to the Boardchief executive officer, principal financial officer or principal accounting officer on our website.
We have also adopted Corporate Governance Principles, which are intended to provide guidelines for the governance of Directors, andFirst Financial by the Board has approved, thatand its committees.
These documents are available through the audited financial statements be includedCorporation’s Web site atwww.bankatfirst.com under the “Investor Information” link, by clicking on “Corporate Governance.” They also are available in the Annual Report on Form 10-Kprint to any shareholder who requests them.
BOARD COMPENSATION
Set forth below is a breakdown of fees paid to non-employee directors for the year ended December 31, 2005, for filing with the SEC. The Committee has approved the selection of Ernst & Young as the Corporation’s independent registered public accounting firm for 2006. Each component is discussed in detail below.
Audit and Risk Management Committee
| | |
Barry S. Porter, Chair | | Richard E. Olszewski |
Donald M. Cisle | | Steven C. Posey |
William J. Kramer | | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, FEES
AND ENGAGEMENT
Ernst & Young has been selected as the independent registered public accounting firm to audit the financial statements of the Corporation for the current fiscal year. Management expects that representatives of that firm will be present at the Annual Meeting, will have the opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.
The following table sets forth the aggregate fees billed to the Corporation and related entities for the last two fiscal years by the Corporation’s independent registered public accounting firm.
| | | | | | | | |
Fees by Category | | 2005 | | | 2004 | |
Audit Fees | | $ | 683,000 | | | $ | 91,100 | |
Audit-Related Fees (1) | | | 27,500 | | | | 25,000 | |
Tax Fees (2) | | | 203,221 | | | | 161,940 | |
All Other Fees (3) | | | 56,000 | | | | 54,000 | |
| | | | | | |
Total | | $ | 969,721 | | | $ | 832,040 | |
| | | | | | |
| | | | | | | | | | | | | | | | |
| | Fees | | | | | | | | |
| | Earned or | | | | | | | | |
| | Paid in | | Stock | | All Other | | |
| | Cash | | Awards | | Compensation | | Total |
Name | | ($) (1) (2) | | ($)(3) | | ($)(4) | | ($) |
J. Wickliffe Ach | | $ | — | | | $ | — | | | $ | — | | | $ | 0 | |
Donald M. Cisle, Sr. | | | 38,100 | | | | — | | | | 4,164 | | | | 42,264 | |
Corinne R. Finnerty | | | 42,850 | | | | — | | | | 1,257 | | | | 44,107 | |
Murph Knapke | | | 40,850 | | | | 20,000 | | | | 5,731 | | | | 66,581 | |
Susan L. Knust | | | 42,350 | | | | — | | | | 2,749 | | | | 45,099 | |
William J. Kramer | | | 48,950 | | | | 20,000 | | | | 5,896 | | | | 74,846 | |
Bruce E. Leep | | | 64,250 | | | | — | | | | 4,244 | | | | 68,494 | |
Richard E. Olszewski | | | 43,850 | | | | — | | | | 4,280 | | | | 48,130 | |
Barry S. Porter | | | 50,117 | | | | 20,000 | | | | 1,808 | | | | 71,925 | |
Steven C. Posey | | | 31,250 | | | | — | | | | — | | | | 31,250 | |
| | |
(1) | | Services covered by theseIncludes retainers, board and committee attendance fees, consist of employee benefit plan audits.and retainers for committee chairs for both First Financial Bancorp and First Financial Bank. |
|
(2) | | Services covered by these fees consist of professional tax services, including preparationPursuant to the Corporation’s Director Fee Stock Plan, directors may elect to have all or any part of the federal income tax returns forannual retainer fee paid in the Corporation and its subsidiaries.Corporation’s common shares. See also “—Director Fee Plan.” This column includes shares purchased under such plan as follows: |
| | | | |
| | Amount of Fees Used to |
Name | | Purchase Common Shares |
J. Wickliffe Ach | | $ | — | |
Donald M. Cisle, Sr. | | | 12,400 | |
Corinne R. Finnerty | | | 12,400 | |
Murph Knapke | | | 12,400 | |
Susan L. Knust | | | 9,375 | |
William J. Kramer | | | 12,400 | |
Bruce E. Leep | | | 9,250 | |
Richard E. Olszewski | | | 12,400 | |
Barry S. Porter | | | 12,400 | |
Steven C. Posey | | | 14,063 | |
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| | |
(3) | | Services covered by these fees consistTotal value is computed utilizing the grant date market value for restricted stock awards. See Note 17 – Stock Options and Awards of audit and tax compliance work billed to the Legacy Funds Group of mutual funds for which the Corporation’s subsidiary, First Financial Capital Advisors LLC, serves as investment advisor.Annual Report on Form 10-K for additional information on SFAS No. 123R valuation methodology. Shares vest over a three-year period. See “—Director Stock Plan.” |
|
(4) | | Includes taxes imposed on directors’ fees by the City of Hamilton, Ohio (Messrs. Cisle, Finnerty, Knapke, Kramer, Leep and Olszewski), spouse travel for director retreat (excluding Messrs. Porter and Posey), and dividends paid on unvested restricted stock awards (Messrs. Knapke, Kramer and Porter). |
Board/Committee Fees
It isNon-employee directors of the policyCorporation and First Financial Bank received (a) annual retainers of $10,000 and $10,000, respectively; and (b) $750 and $600 for each board and committee meeting attended, respectively. Committee chairs receive annual retainers of $2,000; however, the chair of the Audit and Risk Management Committee receives a $4,000 annual retainer. These chair retainers are to recognize the extensive time that beforeis devoted to committee matters including meetings with management, auditors, attorneys and consultants and preparing committee agendas. Director fees are paid on the last day of each quarter.
Director Stock Plan
In 2006, First Financial’s shareholders approved the Amended and Restated Director Stock Plan. The plan provides that directors can receive options and/or restricted stock awards. Beginning in 2006, upon election or re-election to a three-year term, each non-employee director receives $60,000 in value of restricted stock which vest 1/3 each year after the first year following election or re-election. Prior to 2006, upon election or re-election to a three-year term, each non-employee director received stock options with an expected value of $60,000 at the time of grant. Grants are made on the date of the annual meeting based on the closing price of the Corporation’s common shares that day.
Director Fee Plan
Each year directors are given the opportunity to have all or a portion of their board fees invested in the Corporation’s common stock. Elections are made once a year. Shares are purchased by an independent broker dealer after the payment of the quarterly board fees.
Reimbursement
Directors are entitled to reimbursement of their reasonable travel expenses for attending Board of Director and Committee meetings. Claude Davis, who is also an employee of the Corporation engages an accounting firmdid not receive any additional fees for serving on the Board of Directors and therefore has been omitted from the table. For a discussion of Mr. Davis’ compensation, see “Executive Compensation.”
Stock Ownership Guidelines
In January 2007, the Compensation Committee adopted stock compensation guidelines whereby directors are required to render audit services asown Corporation stock equal to at least three times the Corporation’s independent registered public accounting firm,director’s annual retainer within three years of first becoming a director of the engagement must be approved byCorporation. The requirement in the Audit and Risk Management Committee. In addition, before an accounting firm serving asFirst Financial Bank, N.A. Bylaws that a director own at least $1,000 of Bancorp stock upon election or appointment to the Corporation’s independent registered public accounting firmBoard is engaged by the Corporation to render non-audit services, the engagement must be approved by the Audit and Risk Management Committee.still in place.
1012
PROPOSAL TO APPROVE AN AMENDMENT TO THE FIRST FINANCIAL BANCORP.BANCORP REGULATIONS TO ALLOW THE BOARD OF DIRECTORS TO AUTHORIZE THE CORPORATION TO ISSUE SHARES WITHOUT ISSUING PHYSICAL CERTIFICATES
AMENDED AND RESTATED 1999 NON-EMPLOYEE DIRECTOR STOCK PLAN
(Item 2 on Proxy Card)
The Corporation’s shareholders have previouslyBoard of Directors has approved, the 1999 Stock Option Plan for Non-Employee Directors and authorized awards pursuantsubject to the plan to be made to non-employee directors. The plan was subsequently amended at the annual meeting of shareholders in April 2005. At this meeting, the shareholders are being asked to approve additional amendments to the plan for the following reasons.
In November 2005, the Compensation Committee met with an independent consultant to review Board compensation, which review included consideration of compensation awarded pursuant to the plan. The Compensation Committee determined that, in order to provide it with the flexibility to structure Board compensation in line with current market practices, it needed the ability under the plan to grant restricted stock in lieu of, or in combination with, its ability to grant stock options. Subsequently, in February 2006, the Board approved amendments to the plan that would provide the Committee with the choice of granting new or re-elected directors stock options, restricted stock or a combination thereof.
The amendments to the plan are subject to shareholder approval. If the proposed amendments are adopted, it is the Committee’s intention to grant each new or re-elected director restricted shares having an aggregate fair market value of $60,000 (determined without regard to restrictions). The $60,000 figure is based on the analysis of Compensation Committee and its independent consultant of the approximate equivalent value of the previous stock option awards. The number of restricted shares to be granted would be determined by dividing $60,000 by the fair market value (as defined in the plan)approval of the Corporation’s common shares on the date of grant. If the proposed amendments are not adopted, new and re-elected non-employee directors will be granted stock options to purchase 8,663 common shares withshareholders, an exercise price equalamendment to the fair market valueCorporation’s Regulations (the equivalent of suchbylaws under Ohio corporate law) that would allow the Board of Directors to authorize the Corporation to issue shares onwithout issuing physical paper certificates to evidence those shares (“uncertificated shares”). The Board of Directors recommends that shareholders approve the date of grant, which is the same award as the 2005 grant.amendment.
The principal provisionsfull text of Article V of the 1999 Stock Option Plan for Non-Employee Directors, includingRegulations reflecting this amendment is attached to this proxy statement as Exhibit A. The following description of the proposed amendments thereto, are summarized below. In addition to the proposed changes, the plan will be renamed the “Amended and Restated 1999 Non-Employee Director Stock Plan” (as amended and restated, the “Directors Stock Plan”). This summaryamendment is qualified in its entirety by reference to the provisionsExhibit A.
Current Regulations Requirements
Article V of the Corporation’s Regulations currently requires the Corporation to issue physical certificates to each shareholder of record evidencing the shares owned by such shareholder. The current version of Article V was consistent with the requirements of Ohio law when drafted. However, in view of changes in Ohio law and developments in technology and recordkeeping processes, the Board of Directors Stock Plan, a copybelieves that the current requirements of which is attached asAppendix A. Terms not defined herein shallthe Regulations are unduly restrictive and that the Corporation should have the same meanings as set forth in the Directors Stock Plan.flexibility to issue uncertificated shares.
Shares AvailableReason for Issuanceand Effects of Proposed Amendment
The Directors Stock Plan provides that 577,500 (originally 500,000 in 1999 but adjusted subsequently for stock dividends and splits) shares of Common Stock will be available for the granting of awards. There are 395,577 shares available for future issuance under the Directors Stock Plan. The Common StockOhio law now permits us, subject to the Directors Stock Plan will be authorized but unissuedcertain restrictions, to issue shares or previously acquiredwithout issuing physical certificates to evidence those shares. TheAccordingly, the proposed amendment to Article V of our Regulations would permit us to issue such uncertificated shares to shareholders of record, while at the Directorssame time mandating that we must comply with all applicable legal requirements and the listing standards of the Nasdaq Stock PlanExchange with respect to issuing shares. In addition, although not required by law, the amendments to Article V further would require that, with the exception of shares held under certain employee benefit plans (as to which we may require that uncertificated shares be issued), no shareholder of record would be required to hold his or her shares in uncertificated form and that, upon request, each shareholder of record would have a right to have physical certificates issued to evidence his or her shares.
The approval of the proposed amendment to Article V of the Regulations will not increasehave no effect on the vast majority of our shareholders who hold their shares in the Corporation through a brokerage or other account in “street name.”
If approved by shareholders and implemented by us, an uncertificated share program would be administered by our transfer agent, currently Registrar & Transfer Company. Such programs are sometimes referred to as “direct registration” or “book entry” systems. Under such a program, the transfer agent would maintain an electronic record of the name of the applicable shareholder of record and the number of shares owned. The transfer agent would also maintain systems and controls designed to track accurately the ownership of Common Stock available for grant underuncertificated shares by shareholders of record and, when directed by the Directors Stock Plan.
Pursuant to the Directors Stock Plan, the number and kind of shares which are subject to awards will be appropriately adjusted in the event of certain changes in capitalization ofshareholder or the Corporation including stock dividends and splits, reclassifications, recapitalizations, reorganizations, mergers, consolidations, spin-offs, split-ups, combinations or exchanges(in the case of shares,transactions for the Corporation’s own account and certain distributionstransaction under employee benefit plans), to provide for the transfer of such shares pursuant to those directions. Except as may otherwise be required by law, and repurchases of shares.
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Stock Options
In the past, each non-employee director received in the year in which he or she was elected initially or re-elected to the Board of Directors an option to purchase 8,663 common shares (originally 7,500 in 1999 but adjusted subsequently for stock dividends and splits). The exercise price of each option is the fair market value of the Common Stock subject to the option onterms of any applicable employee benefit plan, the daterights and obligations of grant. Upon exercise, the exercise price may be paid in cash or, in lieuholders of all or partuncertificated shares and holders of the cash,physical shares of the Common Stock. However, see “Proposed Amendments to the Directors Stock Plan – Non-Discretionary Restricted Stock Grants” for a discussion of proposed new awards of restricted stock.
Under the Directors Stock Plan, all options are exercisable following the first anniversary of the date of grant of the option. Upon a Change in Control (as defined in the Directors Stock Plan), the optionee will have the right to exercise the option in full as to all shares subject to the option within the lesser of six months plus one day after the Change in Control or the expiration of the option. The exercise period for any stock option will be ten years from the date of grant unless sooner terminated. Each option will provide that the optionee agrees not to sell, assign or transfer any shares acquired as a result of exercising the option until such shares have been held for at least one year after the date of the exercise of the option which resulted in their acquisition, except after a Change in Control or the optionee’s death, disability or retirement, or in connection with tax withholding or option exercise.
If the optionee ceases to be a director of the Corporation for any reason other than death, disability, retirement, or removal for cause, the option will terminate on the earlier of three months after the optionee ceases to be a director or on the option’s expiration date. During the three month period, such option will be exercisable only with respect to the numberparticular class and series of shares which the optionee was entitled to purchase on the day preceding the day on which the optionee ceased towould be a director. If the optionee ceases to be a director because of removal for cause, the option will terminate on the date of the optionee’s removal. In the event of the optionee’s death, disability, or retirement while a director or the optionee’s death within three months after the optionee ceases to be a director (other than by reason of removal for cause), the option will terminate upon the earlier of (i) 12 months after the date of the optionee’s death, disability, or retirement, or (ii) the option’s expiration date. During such period, the option will be exercisable for the number of shares as to which the option would have been exercisable on the date preceding the optionee’s death, disability or retirement.
Generally, options granted under the Directors Stock Plan are not transferable by an optionee except by bequest or the laws of descent and distribution, and during the optionee’s lifetime, the option may be exercised only by the optionee.
Proposed Amendments to the Directors Stock Plan — Non-Discretionary Restricted Stock Grants
Awards.The Directors propose to add a restricted stock feature to the Directors Stock Plan whereby the Compensation Committee will direct whether the non-discretionary awards under the Plan are made as options, restricted stock grants, or a combination thereof. Shares of Common Stock awarded as restricted stock will reduce the shares for which options are awarded. If made as restricted stock, the awards will be granted as follows:
| • | | Non-Discretionary Initial Grant. Each individual who first becomes a non-employee director on or after the effective amendment date of the Directors Stock Plan shall automatically be granted on the first day of such individual’s first term of office as a non-employee director restricted shares having a fair market value of $60,000 (determined without regard to restrictions). |
| • | | Non-Discretionary Grant Upon Re-election. On the date of each annual meeting of the shareholders of the Corporation on or subsequent to the effective amendment date of the Plan, each non-employee director who first became a non-employee director prior to such annual meeting and who has been elected at such annual meeting to continue to serve as a non-employee director after |
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| | | such annual meeting shall automatically be granted restricted shares having a fair market value of $60,000 (determined without regard to restrictions). |
Vesting of Restricted Stock Grants.While shares of Common Stock awarded as restricted stock remain restricted, grantees shall have the rights to vote such shares and to receive dividends thereon. Such restricted stock awards shall vest and restrictions shall lapse as follows: one-third of the award shall vest as of the date of grant and one-third each shall vest as of the day prior to the Corporation’s Annual Meeting dates of each of the years containing the first and second anniversaries of the date of grant, provided the grantee remains a director of the Corporation as of those dates.
For example, if a director is elected for the first time or re-elected on April 25, 2006 and the Corporation’s stock is then trading at $17.00 per share, he or she would receive 3,529 restricted shares with approximately 1,176 shares vesting on April 25, 2006 and 1,176 shares vesting on the days prior to the Annual Meeting dates in 2007 and 2008, provided the grantee remained a director as of each such date.
Vesting will occur earlier than otherwise provided if the grantee ceases to be a director due to death, disability, retirement from the Board on or after age 70 or with the consent of the Board, or on or within twelve months after a Change in Control. All nonvested restricted stock will be forfeited if the grantee ceases to be a director because of removal for cause.
Duration
The Directors Stock Plan will terminate on the earliest to occur of (i) the date when all of the shares available under Directors Stock Plan have been acquired through the exercise of options and (if amended) all restricted shares under the Directors Stock Plan have vested, (ii) April 26, 2009, or (iii) such other earlier date as the Board may determine.
Additional Conforming Changes
In addition to the proposed changes above, the Director Stock Plan will be amended to make conforming changes to reflect the restricted stock provisions. The Director Stock Plan atAppendix Ais marked to show all proposed changes and is incorporated herein by reference.
Awards to Nominees for Director
If the amendments to the Directors Stock Plan are adopted and if the three nominees (Messrs. Knapke, Kramer and Porter) are re-elected on April 25, 2006, and assuming the Corporation’s stock had a fair market value of $17.00 per share on that date, each nominee would receive approximately 3,529 restricted shares with approximately 1,176 shares vesting on April 25, 2006, and approximately 1,176 shares vesting each of the next two years thereafter. At March 1, 2006, the closing price of the Corporation’s stock was $17.02 per share.
In the event the amendments to the Directors Stock Plan are not adopted, it is expected that each of the three nominees would receive an option to purchase 8,663 common shares. The exercise price of each option will be the fair market value of the Common Stock subject to the option on the date of grant. Options would vest on the first anniversary of grant.
Federal Income Tax Aspects
The following is a brief summary of the Federal income tax consequences of awards made under the Directors Stock Plan based upon the Federal income tax laws in effect on the date hereof. This summary is not intended to be exhaustive and does not describe state or local tax consequences. The Corporation intends to operate the Directors Stock Plan in good faith compliance with the provisions of Section 409A of the Code and IRS Noticeidentical.
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2005-1 during calendar years 2005 We currently intend only to use uncertificated shares to evidence the holdings of participants in certain of our employee benefit plans, such as the our restricted stock programs for directors, executive officers and 2006certain employees. The ability to issue these shares in uncertificated form will ease the administrative burden associated with these plans and further intends to amendreduce the Directors Stock Planexpenses that would otherwise be incurred by us as share certificates are issued, cancelled, transferred or replaced. Participants in the plans will have the same rights and any outstanding awards on or before December 31, 2006, or such later dateobligations as may be permitted, to conformif physical certificates had been issued for the restricted shares, subject to the provisions of Section 409Athe applicable benefit plan. We expect a substantial savings in costs and employee time as a result of this new procedure.
Although we do not currently anticipate issuing uncertificated shares to other shareholders of record, we will consider this issue from time to time. If we determine in the future that the cost savings, ease of administration, technical feasibility and shareholder acceptance of such a program justify the use of uncertificated shares for other shareholders of record, the Board of Directors may choose to implement such a program in the future. However, as noted above, even if an uncertificated share program were to be implemented in the future, the proposed amendment to Article V of the Code with respectRegulations provides that no shareholder would be required to amounts subjecthold his or her shares in uncertificated form and that, upon request, each shareholder would have a right to Section 409A of the Code. Accordingly, this summary assumes that the Directors Stock Plan complies with Section 409A of the Code with respecthave physical certificates issued to amounts subject to Section 409A of the Code.evidence his or her shares.
Vote Required For Approval
Non-qualified Stock Options. No income is realized by a grantee at the time a non-qualified stock option is granted. Generally, upon exercise of a non-qualified stock option, a grantee will realize ordinary income in an amount equal to the difference between the price paid for the sharesUnder Ohio corporation law and the fair market value ofCorporation’s Regulations, the shares on the date of exercise. The Corporation will be entitled to a tax deduction in the same amount. Any appreciation (or depreciation) after date of exercise will be either short-term or long-term gain or loss, depending upon the length of time that the grantee has held the shares. The rate of tax payable on capital gains also varies depending on the length of time the shares are held. Special rules apply in the event all or a portion of the exercise price is paid in already owned shares of Common Stock.
Restricted Stock. A grantee receiving restricted stock generally will recognize ordinary income in the amount of the fair market value of the restricted stock at the time the stock is no longer subject to forfeiture, less any consideration paid for the stock. The Corporation will be entitled to a deduction at the same time and in the same amount. The holding period to determine whether the grantee has long-term or short-term capital gain or loss on a subsequent sale of such shares generally begins when the restriction period expires, and the grantee’s tax basis for such shares will generally equal the fair market value of such shares on such date.
However, a grantee may elect under Section 83(b) of the Code, within 30 days of the grant of the restricted stock, to recognize taxable ordinary income on the date of grant equal to the excess of the fair market value of the shares of restricted stock (determined without regard to the restrictions) over any consideration paid by the Grantee for the restricted stock, as applicable. By reason of such an election, the Grantee’s holding period will commence on the date of grant and the Grantee’s tax basis will be equal to the fair market value of the shares on that date (determined without regard to restrictions). Likewise, the Corporation generally will be entitled to a deduction at that time in the amount that is taxable as ordinary income to the Grantee. If shares are forfeited after making such an election, the Grantee will be entitled to a capital loss for tax purposes in an amount equal to the excess of the consideration paid for the forfeited shares over the amount, if any, realized by the Grantee upon the forfeiture of the shares.
Approval and Related Matters
The affirmative vote of a majority of the shares present at the Annual Meeting, in person or by proxy, and entitled to vote on this proposaloutstanding Common Shares is required to approvefor approval of this proposal to amend the Directors Stock Plan. Abstentions will be counted as shares entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal. A broker non-vote will be treated as a share not entitled to vote on the proposal.
The Board of Directors’ Recommendation
The Board of Directors unanimously recommends that shareholders vote FOR the adoption of this proposal.
Effect of Management Vote on Proposal
The directors and executive officers of the Corporation beneficially own beneficially 1,744,1661,623,480 common shares, or 4.41%4.11% of the outstanding voting power. The directors and executive officers have indicated a present intention to vote the common shares beneficially owned by them in favor of this proposal.
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Equity Compensation Plan Information
The following table sets forth information regarding securities authorized for issuance under the Corporation’s equity compensation plans as of December 31, 2005.
| | | | | | |
| | | | | | Number of securities |
| | | | | | remaining available for future |
| | Number of securities to be | | | | issuance under equity |
| | issued upon exercise of out- | | Weighted-average exercise | | compensation plans (excluding |
| | standing options, warrants and | | price of outstanding options, | | securities reflected in column |
| | rights | | warrants and rights | | (a)) |
Plan category | | (a) | | (b) | | (c)(1) |
Equity compensation plans approved by security holders | | 1,609,945 | | $17.43 | | 5,227,589 |
| | | | | | |
Equity compensation plans not approved by security holders | | N/A | | N/A | | N/A |
| | |
(1) | | The securities included in this column are available for issuance under the Directors Stock Plan and the 1999 Stock Incentive Plan for Officers and Employees (the “1999 Stock Incentive Plan”). Both the Directors Stock Plan and the 1999 Stock Incentive Plan include provisions regarding adjustments to the number of securities available for future issuance under the respective plans in the event of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation affecting the Corporation’s common shares. In any of the foregoing events, the Directors Stock Plan permits the Board of Directors and the 1999 Stock Incentive Plan permits the Board of Directors or the Compensation Committee to make such substitution or adjustments in the aggregate number and kind of shares available for issuance under the respective plans as the Board of Directors (or, in the case of the 1999 Stock Incentive Plan, the Compensation Committee) may determine to be appropriate in its sole discretion. Of the securities reported in column (c) 395,577 are available for future issuance under the Directors Stock Plan and 4,832,012 are available under the 1999 Stock Incentive Plan. |
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation of Corporation’s Chief Executive Officer and its four other most highly compensated executive officers. All ofCOMPENSATION DISCUSSION AND ANALYSIS (CD&A)
Introduction
Discussed herein is the executive officers named incompensation philosophy that the Summary Compensation Table are referredCommittee believes best supports our strategy. As such, the executive compensation program is intended to hereafter assupport the “Named Executive Officers.”achievement of our business strategy while aligning executive’s financial interests with those of shareholders.
SUMMARY COMPENSATION TABLE (1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Annual Compensation | | | | | | | Long Term Compensation | |
| | | | | | | | | | | | | | | | | | | | | | Awards | | | | |
(a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | |
| | | | | | | | | | | | | | Other | | | | | | | | | | |
| | | | | | | | | | | | | | Annual | | | Restricted | | | Securities | | | All Other | |
| | | | | | | | | | | | | | Compen- | | | Stock | | | Underlying | | | Compen- | |
Name and | | | | | | | | | | | | | | sation | | | Award(s) | | | Options/ | | | sation | |
Principal Position | | Year | | | Salary($) | | | Bonus ($) | | | ($)(2) | | | ($)(3)(4) | | | SARs (#) | | | ($)(5) | |
Claude E. Davis | | | 2005 | | | $ | 416,923 | | | $ | 130,261 | | | $ | 0 | | | $ | 294,168 | | | | 84,100 | | | $ | 1,927 | |
President and Chief Executive Officer | | | 2004 | | | | 101,538 | | | $ | 49,354 | | | | 0 | | | | 601,650 | | | | 50,000 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C. Douglas Lefferson | | | 2005 | | | | 246,923 | | | | 46,053 | | | | 0 | | | | 87,550 | | | | 24,989 | | | | 7,146 | |
Executive Vice President and | | | 2004 | | | | 195,122 | | | | 90,953 | | | | 0 | | | | 85,450 | | | | 2,500 | | | | 14,825 | |
Chief Operating Officer | | | 2003 | | | | 183,596 | | | | 16,466 | | | | 0 | | | | 166,778 | | | | 10,000 | | | | 15,420 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
J. Franklin Hall | | | 2005 | | | | 192,308 | | | | 26,808 | | | | 0 | | | | 50,779 | | | | 14,300 | | | | 2,827 | |
Senior Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mark W. Immelt | | | 2005 | | | | 302,510 | | | | 49,394 | | | | 56 | | | | 77,044 | | | | 21,800 | | | | 15,062 | |
Executive Vice President, | | | 2004 | | | | 290,160 | | | | 106,822 | | | | 224 | | | | 85,450 | | | | 2,500 | | | | 22,401 | |
Wealth Resource Group | | | 2003 | | | | 281,227 | | | | 16,824 | | | | 224 | | | | 140,930 | | | | 10,000 | | | | 18,842 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel J. Munafo | | | 2005 | | | | 208,192 | | | | 34,086 | | | | 0 | | | | 42,024 | | | | 12,000 | | | | 13,248 | |
Executive Vice President, Banking | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | | On December 16, 2005, the Corporation announced changes in its management structure. Furthermore, as previously disclosed, during 2005 three executives left and two executives joined the Corporation. Effective January 1, 2006, the executive group of the Corporation is as follows: |
Our core strategy is to: | • | | Claude E. Davis, PresidentFollow a “People Led” strategy. Our primary competitive advantage must be our people. Their knowledge and Chief Executive Officerexpertise in providing financial products and commitment to exceptional service quality will be what separates us from competitors. |
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| • | | C. Douglas Lefferson, Executive Vice President and Chief Operating OfficerOur goal is to be an “Employer of Choice” for high performance associates in our various communities. |
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| • | | J. Franklin Hall, Senior Vice PresidentBe a top quartile performer in both return and Chiefgrowth compared to our peers. |
The following statement of philosophy is intended to serve as the foundation upon which our executive compensation program is structured and administered, and serve as a basis for guiding the continuing development and evolution of the program:
“The executive compensation philosophy of First Financial is to provide compensation opportunities to associates that are both market based and reflect the value delivered by the individual to the organization. The objectives of the executive compensation programs are to recruit, retain and incent the best talent in our industry to provide top quartile performance to all of our stakeholders on a consistent basis over the long-term.”
Philosophical Principles and Guidelines
Our executive compensation program seeks to:
• | | support the creation of shareholder value along with the achievement of other key corporate goals and objectives |
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• | | focus attention and appropriately balance both current priorities and our longer-term strategy |
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• | | attract and retain top organizational contributors to ensure we have the caliber of executives needed to perform at the highest levels of the industry |
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• | | provide a totally integrated program that is aligned with performance results in a cost effective manner |
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• | | encourage teamwork and cooperation while recognizing individual contributions by linking variable compensation to Corporation and individual performance, based on position responsibilities and the ability to influence financial and organizational results |
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• | | be designed and administered in a manner that achieves external competitiveness and internal equity |
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• | | award compensation based on the performance of the individual and our company, and not as an entitlement based on position or tenure |
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• | | demonstrate executives’ commitment to our corporation and shareholder value creation through executive stock ownership |
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• | | be administered in an objective, consistent, fair, and fact-based manner |
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• | | avoid payouts if the Corporation or individual fails to meet minimum acceptable performance standards |
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• | | provide flexibility and some discretion in applying the compensation principles to appropriately reflect individual circumstances as well as changing business conditions and priorities |
The total compensation mix attributable to the relative weighting of each element reflects the competitive market and our priorities
| – | | As such, the mix of pay may be adjusted from time to time to best support our immediate and longer-term objectives |
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| – | | As associates move to higher levels of responsibility with greater ability to influence our results, the percentage of pay at risk generally increases |
Process
Throughout the year, the Compensation Committee meets with the Chief Executive Officer and other executive officers to solicit and obtain recommendations with respect to the Corporation’s compensation programs and practices; however, the Committee makes the final determinations with respect to all forms of compensation for the executive officers of the Corporation, and no executive officer is part of the final deliberations and decisions impacting their own compensation. In reaching its decisions, the Committee considers recommendations from the Chief Executive Officer, utilizes information provided by the human resources department, and engages the services of an independent outside consultant with nationally recognized experience and credentials in public company compensation matters. During 2006, the services of Watson Wyatt were utilized. See also “—External Benchmarks.”
Components of Compensation
To achieve the above principles, our primary compensation program includes the following elements:
| § | | base salary |
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| § | | performance-based incentive compensation |
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| § | | long-term equity incentive compensation |
| • | | stock options |
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| • | | Richard Barbercheck, Senior Vice Presidentrestricted stock |
| § | | retirement and Chief Risk Officerother benefits |
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| •§ | | Gregory A. Gehlmann, Senior Vice Presidentperquisites and General Counsel |
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| • | | David S. Harvey, Executive Vice President / Commercial Credit and Product Management (Chief Credit Officer) |
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| • | | John C. Hoying, Senior Vice President / Retail Credit and Product Management |
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| • | | Mark W. Immelt, Executive Vice President / Wealth Resource Group |
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| • | | Samuel J. Munafo, Executive Vice President / Banking Markets |
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| • | | Jill L. Wyman, Senior Vice President / Sales & Marketingother personal benefits |
These elements of compensation have been chosen to create a flexible package that reflects the long-term nature of the banking business and can reward both short and long-term performance of the Corporation and individual. Each element is discussed below.
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Base Salaries
(2) | § | | Priorprovide a level of financial security that is appropriate for the executive’s position within our corporation |
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| § | | are a function of the competitive labor market for specific positions in the organization and recognize the relative value an individual’s work brings to 2005, represents amounts paidthe Corporation, in addition to how well the executive is executing the position’s responsibilities |
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| § | | are generally targeted at the 50th percentile of the relevant labor market with an appropriate range to recognize experience, performance and contributions, and other relevant circumstances |
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| § | | are reviewed at least annually and adjusted, as appropriate, to reflect changes in the labor market in addition to factors such as individual performance, range of responsibilities, value, experience and contribution to the organization |
Non-Equity Incentive Awards – Performance Based (Short-Term Incentive Plan)
| § | | Annual incentives serve as a key mechanism of adjusting pay levels to reflect company wide short-term performance, thereby ensuring affordability and a competitive return to shareholders |
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| § | | Variable incentive pay must be earned annually which downplays entitlement and emphasizes pay for performance |
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| § | | Annual incentives will reward executives for annual financial performance and achievement of established corporate objectives |
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| § | | Annual non-equity incentives are made by the Corporation for taxes imposed on directors’ fees byCommittee at a meeting in April of each year |
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| § | | In March 2006, the City of Hamilton, Ohio. Does not include the value of perquisites and other personal benefits because the aggregate amount of such compensation, if any, does not exceed the lesser of $50,000 or 10%Compensation Committee approved parameters of the total amountShort-Term Incentive Plan. All of annualthe Corporation’s associates, including the Corporation’s Named Executive Officers, participate in the plan. The Short-Term Incentive Plan went in effect beginning with fiscal 2006. Under the plan, a target percentage is established for each participant at the beginning of each fiscal year, based upon median competitive award levels for short-term incentive compensation within the financial services industry. The target percentage, after being adjusted for performance as described below, is applied to actual base salary and bonuspaid for the individual for thatfiscal year. |
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(3) | | | For the 2006 Short-Term Incentive Plan, two performance measures, return on equity (“ROE”) and growth in earnings per share (“EPS”), were used to determine the actual awards under the plan. In April 2006, the Compensation Committee established threshold, target and maximum ROE levels based upon the performance of publicly traded bank holding companies of between $3-10 billion in asset size as published by SNL Financial. In addition, the Compensation Committee established threshold, target and maximum EPS growth levels based upon reasonable growth expectations for the Corporation. At the end fiscal 2006, the amount of the target percentage was multiplied by a factor ranging from zero times the target percentage (for performance at or below the threshold ROE) up to two times the target percentage (for performance at or above the maximum ROE). After adjusting the target percentage based upon ROE performance (the “Adjusted Percentage”), the amount of the Adjusted Percentage was further modified based upon EPS growth. The EPS modifier will range from a 20% reduction to the Adjusted Percentage (for performance at or below the threshold EPS growth rate) to a 20% increase to the Adjusted Percentage (for performance at or above the maximum EPS |
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| | | growth rate). After applying the EPS modifier to the Adjusted Percentage, the resulting percentage was applied to actual base salary paid for the fiscal year to determine the actual award. |
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| | | The 2006 short-term incentive target percentages for Messrs. Davis, Lefferson, Hall, Immelt, Munafo and Gehlmann were 50%, 40%, 35%, 35%, 35% and 30%, respectively. However, based on the Corporation’s performance in 2006, the Chief Executive and the Named Executive Officers did not receive any incentive bonus in 2006. |
Long-Term and Stock Based-Incentives
| § | | serve as a means of attracting, retaining and rewarding executives who are in a position to most directly influence the longer-term success of the Corporation |
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| § | | balance short-term decision making with a long-term perspective, thereby encouraging decisions that have a positive impact on long-term shareholder value creation and our company as a whole |
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| § | | support our capital structure and strategy taking into consideration both Corporation and executive perspectives, and provide a source of executive capital accumulation commensurate with value created for shareholders |
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| § | | are generally targeted to approximate the median competitive market practices, taking into consideration internal equity and the organizational structure |
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| § | | as earned are a function of long-term financial and operational results relative to company objectives and industry performance |
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| § | | may be awarded in cash, equity or some combination to address Corporation objectives and executive stock ownership |
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| § | | all equity awards are made at or above the market price at the time of grant |
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| § | | for 2006 grants were approximately 120% of base salary for Mr. Davis, 50% of base salary for Mr. Lefferson and 40% of base salary for Messrs. Hall, Munafo and Gehlmann for 2006; consisting of 50% stock options and 50% restricted stock grants |
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| § | | Annual awards of equity compensation are made at a Committee meeting in April of each year |
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| § | | Newly hired executives may receive new hire bonus equity awards. If such awards are granted, they are received on the last business day of the quarter in which they are hired and such awards are priced at market value on that date |
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| § | | The 1999 Stock Incentive Plan provides for incentive compensation to our executive officers tied to the enhancement of shareholder value. Under the 1999 Stock Incentive Plan, the Compensation Committee reviewed and approved in April 2006 stock option grants and restricted stock awards for the Named Executive Officers. The option exercise price and the value of restricted stock awardsshares are determined based on the closing pricefair market value of the stock at the close of business on the date of grant (April 18, 2005), or $17.51 per share.grants. The number and valueCompensation Committee reviewed management’s recommendation on the amount of the aggregate unvestedstock option grants and restricted stock holdings asawards based on market practice, the officer’s level in the organization, the performance of December 31, 2005 (basedthe Corporation, and a review of stock option grants and restricted stock awards made in prior years. After discussing and modifying the recommendations, the awards are ratified. Vesting of restricted shares is subject to performance triggers and beginning in 2006, options vest over a four- |
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| | | year period. These awards are discussed elsewhere in this Proxy Statement at “Summary Compensation Table” and “Grants of Plan-Based Awards.” |
Non Performance Based Benefits
| § | | The benefits program, in total, attempts to meet the essential needs of executives in a manner which is market competitive and cost-effective for both the executive and the Corporation |
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| § | | Executives can participate in group medical and life insurance programs and a percentage match by the Corporation under the 401(k) plan, and a defined benefit plan, which are generally available to all of our associates on a closing pricenon-discriminatory basis. The benefits will serve to protect executives and their families against financial risks associated with illness, disability and death and will provide financial security during retirement through a combination of $17.52 on December 31, 2005)personal savings and Corporation contributions, taking advantage of tax-deferral opportunities where permitted |
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| § | | The Named Executive Officers also receive certain fringe benefits, such as participation in the SERP and Deferred Compensation Plan. In addition, the Named Executive Officers are respectively,reimbursed for business-related expenses they incur, receive a monthly car allowance, some are reimbursed for club memberships, and are entitled to up to $2,000 reimbursement for tax/investment advice. Furthermore, relocation benefits are available for qualifying executives. Management believes that the costs of reimbursement of such expenses and allowances constitute ordinary and necessary business expenses that facilitate job performance and minimize work-related expenses incurred by the Named Executive Officers. Finally, biennial physical examinations are provided to senior officers in hopes of ensuring the continued health of key managers and executives of the Corporation. Those approved benefits that are not business-related, however, are paid/reimbursed but taxed as follows: Mr. Davis, 34,300 shares and $600,936; Mr. Hall 6,380 shares and $111,778; Mr. Lefferson, 10,015 shares and $175,463; Mr. Immelt, 9,025 shares and $158,118; and Mr. Munafo, 4,900 shares and $85,848. Dividends will be paid on the restricted stock reported in this column (f).a personal benefit. |
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(4) | § | | Except for the 35,000 shares of restricted stock awarded to Mr. Davis in 2005, the restricted stock awards reported in column (f) vest accordingEmployment agreements provide added benefits to the following schedule: 25%Named Executives in event of the shares vest on eacha change-in-control and/or termination for other than cause. See “—Employment Agreements” and “Other Potential Post-Employment Payments.” |
External Benchmarks
In evaluating the levels of compensation, the Compensation Committee also utilizes the services of Watson Wyatt, an independent compensation consulting firm. Watson Wyatt presents information from survey resources available to Watson Wyatt in addition to information from a customized proxy analysis of similarly sized publicly-traded financial services/banking organizations. In evaluating the market date provided by Watson Wyatt, the committee will also consider:
• | | The primary labor market peer group against which executive compensation and performance is benchmarked (generally comprised of the first, second, thirdcompanies with a financial services/banking industry focus and fourth anniversaries of the date of the award. However, with respecta similar asset size to restricted stock awards in 2005, shares do not vest unless the Corporation meets certain performance targets in 2005. Since the Corporation did not reach such targets in 2005, the first one-fourth of the awards will not vest in 2006. The 35,000 shares of restricted stock awarded to Mr. Davis in 2005 vest according to the following schedule: 50% of the shares vested on the first anniversary of the date of the award (October 1, 2005) and 25% of the shares vest on each of the second and third anniversaries of the date of the award.ensure market competitiveness) |
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(5)• | | Represents fees paid to officers who were board membersCompanies representative of the Corporation’s subsidiaries, the Corporation’s contributionbroader general industry population may provide appropriate compensation benchmarks for certain positions that are not specific to the Thrift Plan, and amounts attributable to the term insurance portionfinancial services/banking industry |
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• | | Pay opportunities are established based on median market practices. Actual compensation earned should reflect overall performance of premiums paid by the Corporation under the Endorsement Method Split Dollar Plan Agreement (the “Split Dollar Agreement”). The payments received during fiscal year 2005 for eachso that in years of the items covered by column (h) arestrong performance, executives may earn higher levels of compensation as follows:compared to executives in similar positions of responsibility at comparative companies. Conversely, in years of below average performance, executives may be paid below average compensation |
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Name | | Directors’ Fees | | Thrift Plan | | Premiums | | Total |
Mr. Davis | | $ | 0 | | | $ | 0 | | | $ | 1,927 | | | $ | 1,927 | |
Mr. Lefferson | | | 0 | | | | 6,299 | | | | 847 | | | | 7,146 | |
Mr. Hall | | | 0 | | | | 2,221 | | | | 606 | | | | 2,827 | |
Mr. Immelt | | | 2,806 | | | | 6,299 | | | | 5,957 | | | | 15,062 | |
Mr. Munafo | | | 3,600 | | | | 6,224 | | | | 3,424 | | | | 13,248 | |
Employment Agreements
The Corporation has employment agreements with each of the Named Executive Officers currently employed by the Corporation as described below.
Employment Agreement with Mr. Davis
In 2004, the Corporation entered into an agreement with Mr. DavisDavis. The agreement was amended and restated on August 24, 2006 (the “Agreement”). The initial term of the Agreement was for one year from the commencement of Mr. Davis’s employment on October 1, 2004 (the “Commencement Date”). The Agreement automatically renews for successive one-year periods after the initial term, unless and until terminated in accordance with the terms of the Agreement. The Agreement provides that Mr. Davis will receive an annual salary, incentive awards, non-incentive related compensation (including executive benefits/perquisites), and broad-based employee benefits as determined from time-to-time by the Board. Mr. Davis’s annual base salary was increased from $400,000 in 2005 to 450,000 in August of 2006.
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Pursuant to the agreement and in connection with his initial hiring, Mr. Davis is entitled to a bonus of $33,000 on each of the first three anniversaries of his employment, ending October 1, 2007. Furthermore, pursuant to the Agreement, Mr. Davis received (i) a stock option grant, subject to the terms of the Corporation’s 1999 Stock Incentive Plan, for 50,000 shares of the Company’s common shares that vested on October 1, 2005 with an exercise price equal to the fair market value on the date of grant; and (ii) a restricted stock award, subject to the terms of the stock plan, for 35,000 shares of the Corporation’s common shares (17,500 vested on October 1, 2005, 8,750 vested on October 1, 2006, and 8,750 will vest on October 1, 2007). He must be employed by the Corporation on the applicable anniversary to receive the additional bonuses or restricted shares, except as otherwise provided in the Agreement, as described below.
Termination. Mr. Davis’s employment with the Corporation:
| • | | Will terminate automatically upon his death; |
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| • | | May be terminated either by the Corporation or Mr. Davis at the end of the agreement’s initial term or any renewal term upon 90 days prior written notice from either of them to the other; |
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| • | | May be terminated by Mr. Davis at any time for “Good Reason,” meaning the occurrence, without Mr. Davis’s consent, of a significant reduction in his base salary or his authority or responsibilities as set forth in the Agreement; |
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| • | | May be terminated by the Corporation immediately upon notice to Mr. Davis at any time for Cause, as defined in the Agreement; or |
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| • | | May be terminated by the Corporation immediately upon notice to Mr. Davis at any time if he is then under a Long-Term Disability, as defined in the Agreement; or |
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| • | | May be terminated by the Corporation immediately upon notice to Mr. Davis at any time for Cause (as defined in the Agreement).Agreement. |
Severance. If Mr. Davis’s employment is terminated as follows:
| • | | By the Corporation, without Cause (as defined in the Agreement), by providing 90 days written notice prior to the end of the Agreement’s initial term or any renewal term; |
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| • | | By the Corporation, without Cause, immediately upon notice to Mr. Davis at any time, if he is then under a Long-Term Disability, as defined in the Agreement; or |
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| • | | By Mr. Davis at any time for “Good Reason,” as defined in the Agreement; and |
Mr. Davis has provided the Corporation with a separate, written release and covenant not to sue; then Mr. Davis will be entitled to receive both A. and B., as follows:
A. | | “Termination Compensation,” meaning an aggregate amount based on the multiple of Mr. Davis’s base salary as of the date of termination as set forth below if termination occurs during the corresponding period indicated. |
termination compensation equal to: | | |
Termination Date• | | Termination Compensation |
On or before the third anniversarycompensation equal to 24 months of the Commencement Date (other than a termination within one year following a change in control, as defined in the Agreement) | | 1 xhis Base Salary |
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After the third anniversary of the Commencement Date or within one year following a change in control | | 2 x Base Salary |
The Termination Compensation will be paid over the “Applicable Severance Period,” meaning the period of time set forth below if termination occurs during the corresponding period indicated.
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Termination Date | | Severance Period |
On or before the third anniversary of the Commencement Date (other than a termination within one year following a change in control) | | 1 year |
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After the third anniversary of the Commencement Date or within one year• | | 2 yearsa termination bonus equal to twice the target payment under the Corporation’s Short-Term Incentive Bonus Plan for the calendar year in which the termination occurred; |
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following a change in control
B. | • | | Anyany additional bonuses not yet paid under the Agreement, and |
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| • | | if the termination occurs within 12 months of three bonuses of $33,000, due on eacha Change in Control as such term is defined in the Agreement, Mr. Davis will receive a payment equal to the present value of the first three anniversaries of the Commencement Date (the “Additional Bonuses”), that remain unpaid at the time of such termination, which will be paid todeath benefit he would have received under an Employee Split Dollar Agreement and calculated as if Mr. Davis died at the time that such Additional Bonuses would have been payable had his employment continued.age 75. |
The termination compensation will be paid over a two-year Severance Period as such term is defined in the Agreement. Following any termination, should Mr. Davis elect COBRA coverage, the Corporation shall pay the premiums for the first 12 months of such coverage. Mr. Davis shall also be entitled to executive outplacement assistance with an agency selected by the Corporation in an amount not to exceed 5% of Mr. Davis’s base salary.
In the event the receipt of any payment under the Agreement, in combination with any other payments to Mr. Davis from the Corporation, will result in the payment by Mr. Davis of any excise tax under Section 280G and Section 4999 of the Internal Revenue Code (“Code”), the Corporation will pay to Mr. Davis an additional amount equal to the amount of such excise tax and the additional federal, state and local income taxes for which Mr. Davis will be liable as a result of this additional payment. Furthermore, the Agreement is subject to the limitations of Section 409A of the Code.
Employment Agreements with Named Executive Officers Other than Mr. Davis
The Corporation is party to employment agreements with each of the Named Executive Officers other than Mr. Davis (each referred to as an “Officer”). Each agreement is for a term of fiveone or two years. Unless and until terminated in accordance with the terms of the agreement, each agreement renews annually from and after the fifth anniversary of its commencement dateinitial term unless the Corporation or the Officer gives three to six months prior notice of termination.
The agreements can be terminated upon the Officer’s death or disability; at the end of the initial term or any renewal term if not renewed upon six month’s prior written notice; for Cause, as defined in the agreements; or for “Good Reason,” meaning:
| • | | a change in the duties of the Officer’s position or the transfer to a new position in violation of the terms of the agreement; |
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| • | | a substantial alteration in the nature or status of the Officer’s responsibilities in violation of the agreement; |
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| • | | a reduction in the Officer’s base salary; |
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| • | | refusal by the Corporation or its successor to renew the term of the agreement for any reason prior to the Officer reaching his or her normal retirement date under the Corporation’s retirement plan; or |
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| • | | changesa change in the Officer’s employment benefits in violation of the terms of the agreement. |
Except as otherwise provided in the agreements, if the Officer is terminated for any reason other than Cause, and the Officer has provided the Corporation with a separate, written release and covenant not to sue in accordance with the agreement and does not revoke such release and covenant, then the Officer will be entitled to receive the following:
| • | | The Officer’s base salary will be continued for a period of 12- 24 months from the date of termination of employment (such period being called the “Severance Pay Period”). |
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| • | | During the Severance Pay Period, those employee benefit plans, policies,only medical and practices that generally apply to similarly situated members of the executive management group will be continued, except that during the Severance Pay Period the Officer will not accumulate vacation pay, first qualify for long term disabilitydental benefits or sickness or accident benefits, be eligible to make or receive contributions under a defined contribution qualified retirement plan, be eligible to accumulate service for pension plan purposes, or retain any personal property such as a motor vehicle or computer provided by the Corporation.continue. |
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| • | | If, prior to the Officer’s date of termination, the Officer has participated in the Corporation’s PICShort-Term Incentive Plan for a complete calendar year, the Officer will receive a payment in one lump-sum in an amount equal to one or two times the percentage of the incentive payment made or required to be made for the calendar year pursuant to the PIC Planplan immediately preceding the calendar year in which the Officer’s date of termination occurs. |
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| | | termination occurs. In 2005, the Compensation Committee replaced the PIC with the Short-Term Incentive Plan. |
| | | Notwithstanding the above, if the employment of an Officer is terminated as follows: |
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| • | | By the Corporation, with Cause, the Officer will receive a payment in one lump-sum in an amount equal to two times the percentage of the incentive payment made or required to be made for the calendar year pursuant to the PICShort-Term Inventive Plan immediately preceding the calendar year in which the Officer’s date of termination occurs. |
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| • | | If the Officer’s date of termination of employment is within 12 months after a change in control (as defined in the agreements), the Officer will receive a payment equal to: (A) with respect to shares subject to an option granted as of the time of the change in control under the Corporation’s 1991 Stock Incentive Planand 1999 stock plans that the Officer cannot exercise due to the termination of employment, the difference between the fair market value of such common shares determined as of the date of termination of employment and the option exercise price, and (B) with respect to any restricted stock granted under the Corporation’s 1991 Stock Incentive Plan as of the time of the change in control which the Officer forfeits as a result of the termination of employment, the fair market value of such restricted shares determined as of the date of termination of employment and as if all restrictions had been removed. |
If the receipt of any payments described above to the Officers (other than Mr. Munafo)Messrs. Munafo and Gehlmann), in combination with any other payments to them, shall, in the opinion of independent tax counsel selected by the Corporation, result in liability for the payment by the Officer of any excise tax pursuant to Sections 280G and 4999 of the Internal Revenue Code, (the “Code”), the Corporation will pay to the Officer within 60 days of the date his or her employment terminates an additional amount equal to the amount of such excise tax and the additional federal, state, and local income taxes for which he or she will be liable as the result of this additional payment. Furthermore, the Agreements are subject to the limitations of Section 409A of the Code.
Confidentiality and Non-Competition
The Named Executive Officers, including Mr. Davis, are prohibited, at all times, from disclosing any confidential information, as defined in the agreements, except as required by law, and must return all confidential information to the Corporation upon termination of their employment. During the term of each Named Executive Officer’s employment and for a period of six months following termination of the officer’s employment for any reason other than by the Corporation for Cause (as defined in the agreements), the Named Executive Officer has agreed not to be employed by, serve as an officer or director of, consultant to, or advisor to any business that engages either directly or indirectly in commercial banking, savings banking, or mortgage lending in the geographic area of Ohio, Indiana, Michigan, or Kentucky, or which is reasonably likely to engage in such businesses in the same geographic area.
Severance Agreements
The Corporation entered into Severance Agreementsan Agreement and Release with Messrs. Thomas Murrell and Rex HockemeyerMr. Immelt on December 4, 2005 and January 28,June 27, 2006 respectively, pursuant to which such individualshe will receive certain payments in accordance with theirhis previous employment agreementsagreement with the Corporation. Messrs. Murrell and Hockemeyer were “namedMr. Immelt was a named executive officers” in the Corporation’s proxy statement last year.officer during part of fiscal 2006.
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Tax and Accounting Implications
Deductibility of Executive Compensation.Section 162(m) of the Code generally disallows a corporate tax deduction for annual compensation paid to executive officers to the extent that it exceeds $1,000,000. It is the policy of the Compensation Committee that compensation to executive officers should, in general, be structured to qualify for deductibility under Section 162(m). For those exceptional circumstances where executive compensation may exceed the deductible amount, the Corporation has adopted a deferred compensation plan which provides for the mandatory deferral of such excess compensation.
Nonqualified Deferred Compensation.On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, the Corporation believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005.
Accounting for Stock-Based Compensation.Beginning on January 1, 2006, the Corporation began accounting for stock-based payments in accordance with the requirements of Financial Accounting Standards Statement No. 123(R) (“FAS 123(R)”).
Incentive Stock Option AwardsOptions. Federal income tax rules impose limits to the favorable tax treatment for incentive options. The limit is that no employee may hold incentive options that become exercisable in a single calendar year whose total value exceeds $100,000. If this limit is exceeded, the “excess” above $100,000 becomes a non-qualified stock option and does not receive the favorable tax treatment described above. In the event options granted to the Named Executive Officers exceed the $100,000 limit they automatically become non-qualified options.
Other Information
The Corporation currently does not have any stock ownership guidelines for executive officers.
Summary
The total compensation mix attributable to the relative weighting of each element reflects the competitive market and our priorities. As such, the mix of pay may be adjusted from time to time to best support our immediate and longer-term objectives. Generally, as associates move to higher levels of responsibility with greater ability to influence our results, the percentage of pay at risk may increase
We believe our approach to executive compensation is a critical element to the successful attraction and retention of the right talent to effectively implement our strategic plan. We can apply multiple approaches and tactics but the key principles of market based compensation, adjusted for the value created by the individual and organizational performance should be the cornerstones of our philosophy. We believe the compensation packages provided to the Named Executive Officers is appropriate and consistent with our compensation philosophy.
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SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the compensation of Corporation’s Principal Executive Officer, Principal Financial Officer and the next three highest compensated executive officers. All of the executive officers named in the Summary Compensation Table are referred to hereafter as the “Named Executive Officers.” Mark Immelt is also included because he was a Named Executive Officer for a portion of 2006.
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Name and | | | | | | Salary | | Bonus | | Awards | | Awards | | Compensation | | Earnings | | Compensation | | Total |
Principal Position | | Year | | ($)(1) | | ($)(2) | | ($)(3) | | ($)(4) | | ($)(5) | | ($)(6) | | ($)(7) | | ($) |
Claude E. Davis | | | 2006 | | | | 420,000 | | | | 33,000 | | | | 277,146 | | | | 299,232 | | | | — | | | | 31,549 | | | | 57,998 | | | | 1,118,925 | |
President & CEO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
C. Douglas Lefferson | | | 2006 | | | | 262,404 | | | | 0 | | | | 67,284 | | | | 73,440 | | | | — | | | | 60,162 | | | | 29,787 | | | | 493,077 | |
EVP and Chief Operating Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
J. Franklin Hall | | | 2006 | | | | 220,673 | | | | 0 | | | | 46,458 | | | | 49,824 | | | | — | | | | 15,876 | | | | 17,055 | | | | 349,866 | |
SVP and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mark W. Immelt | | | 2006 | | | | 297,962 | | | | 0 | | | | 0 | | | | 0 | | | | — | | | | 98,469 | | | | 860,779 | | | | 1,257,210 | |
EVP, Wealth Resource Group | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Samuel J. Munafo | | | 2006 | | | | 228,461 | | | | 0 | | | | 48,060 | | | | 50,976 | | | | — | | | | 110,352 | | | | 32,891 | | | | 470,740 | |
EVP, Banking | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gregory A. Gehlmann | | | 2006 | | | | 219,327 | | | | 0 | | | | 44,856 | | | | 47,520 | | | | — | | | | 10,971 | | | | 19,197 | | | | 341,871 | |
SVP, Chief Risk Officer and General Counsel | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | The dollar value of base salary (cash and non-cash) earned during the fiscal year. |
|
(2) | | The dollar value of bonus (cash and non-cash) earned during the fiscal year. With respect to Mr. Davis, the amount above was paid pursuant to his employment agreement and not tied to any performance in 2006. See also “Compensation Discussion and Analysis – Employment Agreements – Employment Agreement with Mr. Davis. |
|
(3) | | The aggregate grant date fair value of stock awards computed in accordance with FAS 123(R). In addition to vesting over a four year period, restricted stock awards do not vest unless the Corporation meets certain performance targets. During 2006, the Corporation did not reach such targets and therefore one-fourth of such awards will not vest in 2007, but may vest in subsequent years if performance targets are met.With respect to Mr. Davis, also includes the vesting of 25% of a restricted stock award of 30,000 shares (8,750 shares at $15.91 per share) in connection with the |
24
| | |
| | Corporation hiring Mr. Davis in October 2004. See also “—Employment Agreements – Employment Agreement with Mr. Davis.” |
|
(4) | | The aggregate grant date fair value of option awards computed in accordance with FAS 123(R). Options vest over a four-year period. See also “Grants of Plan Based Awards.” |
|
(5) | | The dollar value of all earnings for services performed during the fiscal year pursuant to awards under non-equity incentive plans and all earnings on any outstanding awards. No payouts were made under the short-term incentive plan. See “Compensation Discussion and Analysis – Components of Compensation – Non-Equity Incentive Awards – Performance Based (Short-Term Incentive Plan)” and “Plan Based Awards.” |
|
(6) | | The aggregate change in the actuarial present value of accumulated benefits under all defined benefit and actuarial pension plans (Employees’ Pension Plan and Supplemental Retirement Plan) (Employees’ Pension Plan only with respect to Mr. Gehlmann) from the plan measurement date used for financial statement reporting purposes with respect to the prior completed fiscal year to the plan measurement date used for financial statement reporting purposes with respect to the covered fiscal year (e.g., interest rate and mortality rate assumptions). Includes amounts which the named executive may not currently be entitled to receive because such amounts are not vested. |
|
(7) | | All other compensation for the year that could not properly be reported in any other column. The column titled “Other” below includes tax/investment advice (Messrs. Davis, Lefferson and Immelt), organization dues (Messrs. Davis, Immelt and Munafo), and spouse travel to director/management retreat and/awards ceremony, of which none individually exceeded $10,000. Also included in the “Other” column below is $821,642 accrued or paid to Mr. Immelt pursuant to the terms of an Agreement and Release. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Company | | | | | | | | | | |
| | | | | | Match | | | | | | Dividends on | | | | |
| | | | | | Under | | Split Dollar | | Unvested | | | | |
| | Automobile | | 401(k) | | Insurance | | Restricted | | | | |
Name | | Allowance | | Plan | | Premiums | | Stock | | Other | | Total |
Mr. Davis | | $ | 9,078 | | | $ | 6,581 | | | $ | 2,254 | | | $ | 27,488 | | | $ | 12,597 | | | $ | 57,998 | |
Mr. Lefferson | | | 9,068 | | | | 6,574 | | | | 898 | | | | 8,751 | | | | 4,496 | | | | 29,787 | |
Mr. Hall | | | 6,000 | | | | 2,296 | | | | 715 | | | | 5,547 | | | | 2,497 | | | | 17,055 | |
Mr. Immelt | | | 8,854 | | | | 6,906 | | | | 5,957 | | | | 7,547 | | | | 831,515 | | | | 860,779 | |
Mr. Munafo | | | 8,686 | | | | 6,853 | | | | 2,863 | | | | 6,399 | | | | 8,090 | | | | 32,891 | |
Mr. Gehlmann | | | 6,000 | | | | 6,466 | | | | 742 | | | | 2,368 | | | | 3,621 | | | | 19,197 | |
25
GRANTS OF PLAN-BASED AWARDS
The following table shows all individual grants of stock optionsawards to the Named Executive Officers of the Corporation during the fiscal year ended December 31, 2005.2006. Total value is computed utilizing the grant date market value for restricted stock awards and the grant date fair value in accordance with FAS 123(R )on stock option awards.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Potential Realizable Value | |
| | | | | | | | | | | | | | | | | | (Gain) at Assumed Annual | |
| | | | | | | | | | | | | | | | | | Rates of Stock Price | |
| | | | | | | | | | | | | | | | | | Appreciation | |
| | Individual Grants | | | | | | | | | | | for Option Term (1) | |
(a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | |
| | Number of | | | % of Total | | | | | | | | | | | | | |
| | Securities | | | Options/SARs | | | Exercise | | | | | | | | | | |
| | Underlying | | | Granted to | | | or Base | | | | | | | | | | |
| | Options/SARs | | | Employees in | | | Price (2) | | | Expiration | | | 5% | | | 10% | |
Name | | Granted (#) | | | Fiscal Year | | | ($/Sh) | | | Date | | | ($) | | | ($) | |
Claude E. Davis | | | 84,100 | | | | 17.61 | % | | $ | 17.51 | | | | 2015 | | | $ | 927,732 | | | $ | 2,341,419 | |
C. Douglas Lefferson | | | 24,989 | | | | 5.23 | | | | 17.51 | | | | 2015 | | | | 275,661 | | | | 695,716 | |
J. Franklin Hall | | | 14,300 | | | | 2.99 | | | | 17.51 | | | | 2015 | | | | 157,747 | | | | 398,554 | |
Mark W. Immelt | | | 21,800 | | | | 4.56 | | | | 17.51 | | | | 2015 | | | | 240,482 | | | | 606,931 | |
Samuel J. Munafo | | | 12,000 | | | | 2.51 | | | | 17.51 | | | | 2015 | | | | 132,376 | | | | 334,091 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Estimated Future Payouts | | | | | | | | | | | | | | |
| | | | | | | | | | Under Equity Incentive Plans(4) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | All | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Other | | | | | | | | | | | |
| | | | | | Estimated | | | | | | | | | | | | | | | Stock | | | | | | | | | | | |
| | | | | | Future | | | | | | | | | | | | | | | Awards: | | | All Other | | | | | | | Grant | |
| | | | | | Payouts | | | | | | | | | | | | | | | Number | | | Option | | | Exercise | | | Date | |
| | | | | | Under | | | | | | | | | | | | | | | of | | | Awards: | | | Or Base | | | Fair | |
| | | | | | Non- | | | | | | | | | | | | | | | Shares | | | Number of | | | Price of | | | Value of | |
| | | | | | Equity | | | | | | | | | | | | | | | of Stock | | | Securities | | | Option | | | Stock and | |
| | Grant | | | Incentive | | | | | | | | | | | | | | | or Units | | | Underlying | | | Awards | | | Option | |
Name | | Date | | | Plans | | | Threshold | | | Target | | | Maximum | | | (#)(1) | | | Options (#) | | | (2) | | | Awards(3) | |
Claude Davis | | | 4/24/06 | | | NONE | | | N/A | | | $ | 540,000 | | | | N/A | | | | 17,300 | | | | | | | | | | | $ | 277,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 103,900 | | | $ | 16.02 | | | | 299,232 | |
C. Douglas Lefferson | | | 4/24/06 | | | NONE | | | N/A | | | | 132,500 | | | | N/A | | | | 4,200 | | | | | | | | | | | | 67,284 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 25,500 | | | $ | 16.02 | | | | 73.440 | |
J. Franklin Hall | | | 4/24/06 | | | NONE | | | N/A | | | | 90,000 | | | | N/A | | | | 2,900 | | | | | | | | | | | | 46,458 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 17,300 | | | $ | 16.02 | | | | 49.824 | |
Sam Munafo | | | 4/24/06 | | | NONE | | | N/A | | | | 92,000 | | | | N/A | | | | 3,000 | | | | | | | | | | | | 48,060 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 17,700 | | | $ | 16.02 | | | | 50,976 | |
Mark Immelt | | | — | | | NONE | | | N/A | | | | — | | | | N/A | | | | — | | | | | | | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | — | | | — | | | — | |
Greg Gehlmann | | | 4/24/06 | | | NONE | | | N/A | | | | 92,000 | | | | N/A | | | | 2,800 | | | | | | | | | | | | 44,856 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 16,500 | | | $ | 16.02 | | | | 47,520 | |
(1) | | |
1. | | As required by rules ofRestricted shares vest over a four-year period and are subject to certain performance triggers. During 2006, the SEC, potential values stated are based on the prescribed assumption that the Corporation’s common shares will appreciate in value from the date of grant to the end of the option term (ten years from the date of grant) at annualized rates of 5% and 10% (total appreciation of 63% and 159%), respectively,Corporation did not reach such targets and therefore one-fourth of such awards will not vest in 2007, but may vest in subsequent years if performance targets are not intended to forecast possible future appreciation, if any, in themet. |
|
2. | | Closing price of the Corporation’s common shares.shares on the date of grant. |
(2) |
3. | | The grant date fair value of each stock option, calculated using the Black-Scholes option pricing model is $2.88. This reflects compensation costs recognized under FAS 123(R) in 2006. All options are granted at 100% of fair market value on the date of grant. The options are exercisable duringratably over a four—year period (25% per year) commencing one year after the date of grant and ending on the date specified in the option which, ingrant. In no event iscan options be exercised later than 10 years after the date of grant, provided that the optionee remainedremains in the employment of the Corporation or its affiliates. The option exercise period may be shortened upon an optionee’s disability, retirement or death. Shares acquired upon option exercise must be held one year from the date of exercise. |
|
4. | | The amounts of the estimated future payouts under equity incentive plans column represent the opportunities in the event the Corporation meets certain targets pursuant to the terms of the stock awards. For 2006, grants were targeted at approximately 120% of base salary for Mr. Davis, 50% of base salary for Mr. Lefferson and 40% of base salary for Messrs. Hall, Munafo and Gehlmann. |
2126
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table represents stock options and restricted stock awards outstanding for each NEO as of December 31, 2006. All stock options and restricted awards have been adjusted for stock dividends and stock splits. The closing per share price of the Corporation’s stock on the last trading date of the fiscal year was $16.61.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Restricted Stock Awards |
| | Number of | | Number of | | | | | | | | | | Number of | | |
| | Securities | | Securities | | | | | | | | | | Shares or | | |
| | Underlying | | Underlying | | | | | | | | | | Units of | | Market Value of |
| | Unexercised | | Unexercised | | | | | | | | | | Stock That | | Shares or Units of |
| | Options | | Options | | Option | | Option | | Have Not | | Stock That Have Not |
| | (#) | | (#) | | Exercise Price | | Expiration | | Vested | | Vested |
Name | | Exercisable | | Unexercisable | | ($) | | Date | | (#) (1) | | ($) |
Claude E. Davis | | | | | | | | | | | | | | | | | | | 42,850 | | | $ | 711,739 | |
| | | 50,000 | | | | 0 | | | $ | 17.19 | | | | 10/01/2014 | | | | | | | | | |
| | | 21,024 | | | | 63,076 | (3) | | $ | 17.51 | | | | 04/18/2015 | | | | | | | | | |
| | | 0 | | | | 103,900 | (4) | | $ | 16.02 | | | | 04/24/2016 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
C. Douglas Lefferson | | | | | | | | | | | | | | | | | | | 11,700 | | | $ | 194,337 | |
| | | 1,271 | | | | 0 | | | $ | 19.09 | | | | 01/27/2008 | | | | | | | | | |
| | | 4,201 | | | | 0 | | | $ | 22.57 | | | | 01/25/2009 | | | | | | | | | |
| | | 1,574 | | | | 0 | | | $ | 22.57 | | | | 06/12/2010 | | | | | | | | | |
| | | 12,127 | | | | 0 | | | $ | 17.56 | | | | 01/24/2010 | | | | | | | | | |
| | | 10,500 | | | | 0 | | | $ | 16.01 | | | | 01/23/2011 | | | | | | | | | |
| | | 10,000 | | | | 0 | | | $ | 17.20 | | | | 01/17/2012 | | | | | | | | | |
| | | 10,000 | | | | 0 | | | $ | 16.58 | | | | 01/22/2013 | | | | | | | | | |
| | | 2,500 | | | | 0 | | | $ | 17.09 | | | | 01/21/2014 | | | | | | | | | |
| | | 6,249 | | | | 18,751 | (3) | | $ | 17.51 | | | | 04/18/2015 | | | | | | | | | |
| | | 0 | | | | 25,500 | (4) | | $ | 16.02 | | | | 04/24/2016 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
J. Franklin Hall | | | | | | | | | | | | | | | | | | | 7,800 | | | $ | 129,558 | |
| | | 6,772 | | | | 0 | | | $ | 17.56 | | | | 01/24/2010 | | | | | | | | | |
| | | 5,250 | | | | 0 | | | $ | 16.01 | | | | 01/22/2011 | | | | | | | | | |
| | | 5,000 | | | | 0 | | | $ | 17.20 | | | | 01/17/2012 | | | | | | | | | |
| | | 10,000 | | | | 0 | | | $ | 16.58 | | | | 01/22/2013 | | | | | | | | | |
| | | 2,500 | | | | 0 | | | $ | 17.09 | | | | 01/21/2014 | | | | | | | | | |
| | | 3,574 | | | | 10,726 | (3) | | $ | 17.51 | | | | 04/18/2015 | | | | | | | | | |
| | | 0 | | | | 17,300 | (4) | | $ | 16.02 | | | | 04/24/2016 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Samuel J. Munafo | | | | | | | | | | | | | | | | | | | 7,900 | | | $ | 131,219 | |
| | | 7,624 | | | | 0 | | | $ | 19.09 | | | | 01/27/2008 | | | | | | | | | |
| | | 8,662 | | | | 0 | | | $ | 22.57 | | | | 01/25/2009 | | | | | | | | | |
| | | 15,120 | | | | 0 | | | $ | 17.56 | | | | 01/24/2010 | | | | | | | | | |
| | | 7,875 | | | | 0 | | | $ | 16.01 | | | | 01/22/2011 | | | | | | | | | |
| | | 5,000 | | | | 0 | | | $ | 17.20 | | | | 01/17/2012 | | | | | | | | | |
| | | 5,000 | | | | 0 | | | $ | 16.58 | | | | 01/22/2013 | | | | | | | | | |
| | | 2,500 | | | | 0 | | | $ | 17.09 | | | | 01/21/2014 | | | | | | | | | |
| | | 2,999 | | | | 9,001 | (3) | | $ | 17.51 | | | | 04/18/2015 | | | | | | | | | |
| | | 0 | | | | 17,700 | (4) | | $ | 16.02 | | | | 04/24/2016 | | | | | | | | | |
27
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Restricted Stock Awards |
| | Number of | | Number of | | | | | | | | | | Number of | | |
| | Securities | | Securities | | | | | | | | | | Shares or | | |
| | Underlying | | Underlying | | | | | | | | | | Units of | | Market Value of |
| | Unexercised | | Unexercised | | | | | | | | | | Stock That | | Shares or Units of |
| | Options | | Options | | Option | | Option | | Have Not | | Stock That Have Not |
| | (#) | | (#) | | Exercise Price | | Expiration | | Vested | | Vested |
Name | | Exercisable | | Unexercisable | | ($) | | Date | | (#) (1) | | ($) |
Gregory A. Gehlmann | | | | | | | | | | | | | | | | | | | 5,100 | | | $ | 84,711 | |
| | | 2,849 | | | | 8,551 | (5) | | $ | 18.63 | | | | 06/21/2016 | | | | | | | | | |
| | | 0 | | | | 16,500 | (4) | | $ | 16.02 | | | | 04/24/2016 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Mark W. Immelt | | | | | | | | | | | | | | | | | | | 0 | | | | 0 | |
| | | 12,706 | | | | 0 | | | $ | 19.09 | | | | 01/28/2007 | | | | | | | | | |
| | | 17,325 | | | | 0 | | | $ | 22.57 | | | | 12/31/2007 | | | | | | | | | |
| | | 33,810 | | | | 0 | | | $ | 17.56 | | | | 12/31/2007 | | | | | | | | | |
| | | 10,500 | | | | 0 | | | $ | 16.01 | | | | 12/31/2007 | | | | | | | | | |
| | | 10,000 | | | | 0 | | | $ | 17.20 | | | | 12/31/2007 | | | | | | | | | |
| | | 10,000 | | | | 0 | | | $ | 16.58 | | | | 12/31/2007 | | | | | | | | | |
| | | 2,500 | | | | 0 | | | $ | 17.09 | | | | 12/31/2007 | | | | | | | | | |
| | | 5,449 | | | | 0 | | | $ | 17.51 | | | | 12/31/2007 | | | | | | | | | |
| | |
(1) | | Shares of restricted stock shown in this column include both time-based and performance-based restricted shares. |
Time-based restricted shares will vest according to the following schedule:
| | | | | | | | | | | | | | | | | | | | | | | | |
Vesting Date | | Davis | | Lefferson | | Hall | | Munafo | | Gehlmann | | Immelt |
January 21, 2007 | | | — | | | | 1,250 | | | | 1,000 | | | | 1,250 | | | | — | | | | — | |
January 21, 2008 | | | — | | | | 1,250 | | | | 1,000 | | | | 1,250 | | | | — | | | | — | |
October 1, 2007 | | | 8,750 | | | | — | | | | — | | | | — | | | | — | | | | — | |
|
Performance-based restricted shares will vest according to the following schedule: |
| | | | | | | | | | | | | | | | | | | | | | | | |
Vesting Date | | Davis | | Lefferson | | Hall | | Munafo | | Gehlmann | | Immelt |
April 18, 2007 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
April 24, 2007 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
April 18, 2008 | | | 12,600 | | | | 3,750 | | | | 2,175 | | | | 1,800 | | | | 1,725 | | | | — | |
April 24, 2008 | | | 8,650 | | | | 2,100 | | | | 1,450 | | | | 1,500 | | | | 1,400 | | | | — | |
April 18, 2009 | | | 4,200 | | | | 1,250 | | | | 725 | | | | 600 | | | | 575 | | | | — | |
April 24, 2009 | | | 4,325 | | | | 1,050 | | | | 725 | | | | 750 | | | | 700 | | | | — | |
April 24, 2010 | | | 4,325 | | | | 1,050 | | | | 725 | | | | 750 | | | | 700 | | | | — | |
| | |
(3) | | The unvested portion of this option grant will vest 50% on April 18, 2007, 75% on April 18, 2008, and 100% on April 18, 2009. |
|
(4) | | The unvested portion of this option grant will vest 25% on April 24, 2007, 50% on April 24, 2008, 75% on April 24, 2009, and 100% on April 24, 2010. |
|
(5) | | The unvested portion of this option grant will vest 50% on June 21, 2007, 75% on June 21, 2008, and 100% on June 21, 2009. |
28
OPTION EXERCISES AND STOCK VESTED
The following table shows aggregate option exercisesthe stock options exercised and restricted stock that vested by NEOs in 2006 and the last fiscal year and year-end values.value realized upon exercise.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | | (b) | | (c) | | (d) | | (e) | | |
| | Number of Securities | | Value of Unexercised | | | Option Awards | | Stock Awards |
| | Underlying Unexercised | | In-the-Money | | | Number of | | Number of | | |
| | Options/SARs | | Options/SARs | | | Shares | | Shares | | Value |
| | Shares | | at FY-End (#) | | at FY-End ($)(2) | | | Acquired | | Value | | Acquired | | Realized on |
| | Acquired | | Value | | Exercisable (E)/ | | Exercisable (E)/ | | | on Exercise | | Realized on | | on Vesting | | Vesting |
Name | | on Exercise (#) | | Realized ($)(1) | | Unexercisable (U) | | Unexercisable (U) | | | (#) | | Exercise ($) | | (#) | | ($) |
Claude E. Davis | | - 0 - | | - 0 - | | | 50,000 | (E) | | $ | 16,500 | (E) | | — | | $ | — | | 8,750 | | $ | 139,213 | |
| | | 84,100 | (U) | | | 841 | (U) | |
C. Douglas Lefferson | | - 0 - | | - 0 - | | | 52,173 | (E) | | | 28,973 | (E) | | 1,537 | | 10,095 | | 6,236 | | 108,766 | |
| | | 24,989 | (U) | | | 250 | (U) | |
J. Franklin Hall | | - 0 - | | - 0 - | | | 35,243 | (E) | | | 17,840 | (E) | | — | | — | | 3,351 | | 58,399 | |
| | | 8,579 | (U) | | | 143 | (U) | |
Mark W. Immelt | | - 0 - | | - 0 - | | | 98,531 | (E) | | | 39,975 | (E) | | — | | — | | 7,168 | | 125,139 | |
| | | 21,800 | (U) | | | 218 | (U) | |
Samuel J. Munafo | | - 0 - | | - 0 - | | | 55,974 | (E) | | | 43,677 | (E) | | 3,074 | | 19,391 | | 3,721 | | 65,005 | |
| | | 12,000 | (U) | | | 120 | (U) | |
Gregory A. Gehlmann | | | — | | — | | — | | — | |
| | |
(1) | | Aggregate market value on the exercise date of shares covered by the option less the aggregate price paid by the Named Executive Officer. |
|
(2) Values stated reflect gains | | The value realized on outstanding options based onvesting of restricted stock awards represents the fairaggregate dollar amount realized upon vesting by multiplying the number of shares of stock by the market value of $17.52 per common sharethe underlying shares as of the Corporation on December 31, 2005.prior day’s close. |
The Corporation has no long-term incentive plans relating to future compensation of the Named Executive Officers other than the 1991 Stock Incentive Plan and the 1999 Stock Incentive Plan. No additional awards can be granted under the 1991 Stock Incentive Plan.
Personal Benefits
The Named Executive Officers of the Corporation receive certain fringe benefits, such as participation in group medical and life insurance programs, which are generally available to employees of the Corporation and its subsidiaries on a non-discriminatory basis. In addition, the Named Executive Officers are reimbursed for business-related expenses they incur (including certain club dues and expenses), and some of the Named Executive Officers also had the use of Corporation-owned automobiles. Effective January 2006, the use of Corporation-owned automobiles was discontinued and officers are given a monthly car allowance. Management believes that the costs of reimbursement of such expenses and providing such automobiles previously constituted ordinary and necessary business expenses that facilitate job performance and minimize work-related expenses incurred by the Named Executive Officers. The Named Executive Officers have included in their taxable income the cost of personal use of Corporation-owned automobiles. Management has concluded that the aggregate amount of such personal benefits does not exceed the lesser of $50,000 with respect to any Named Executive Officer or 10% of the annual salary and bonus of such person.Benefit PlansPENSION BENEFITS
The Corporation has a thrift plan, a retirement plan, a supplemental retirement plan and a deferred compensation plan. It also maintains Split Dollar Agreements covering the Named Executive Officers and certain
22
other management employees.associates. The retirement plan and the thrift plan cover the majority of the employees of the Corporation and its subsidiaries, including the officers of the Corporation. All employees who are 21 years of age and have had one year of service are covered by the retirement plan. Effective in September 2005, the one-year service requirement was removed for most employees. Among the Named Executive Officers, the supplemental retirement plan covers Messrs. Davis, Lefferson, Immelt and Munafo. The deferred compensation plan is a nonqualified deferred compensation plan in which only executive officers of the Corporation are eligible to participate. Participants may elect to defer up to 50% of their base salary and 100% of their bonus or incentive pay for any year.
Thrift Plan.The thrift plan covers employeesassociates who have been credited with at least one year of service and reached age 21. Participation is voluntaryimmediately available and participants may contribute up to 50% of their base salary (unless limited by law or regulation) to the plan. The Corporation’s subsidiaries’ matching contributions are 50% of each participant’s contribution, limited to 3% of base salary of each participant, and become fully vested when made. Effective January 1, 2006, Corporation contributions are fully vested after one year for new employeesassociates entering the plan after that date.
UnderDefined Benefit Pension Plan.The Corporation’s Employee’s Pension Plan covers associates of the Corporation’s subsidiaries who have attained age 21 and completed one year of credited service. An associate is
29
vested after five years of service and receives benefits upon retirement pursuant to a formula based on average salary and years of service.
Supplemental Retirement Plan.The Corporation maintains a supplemental executive retirement plan (“SERP”) to supplement the payments under the pension plan for certain senior officers of the Corporation and supplementalits subsidiaries who may be designated from time-to-time by the Compensation Committee. The SERP’s purpose is to augment an individual’s retirement plan, amounts that are payable to persons in selected remuneration and service classifications at normal retirement age are:income.
Estimated Annual Benefits
For YearsPENSION BENEFITS
The following table shows each pension plan that the NEO participates in, the number of Credited Service Indicated (1)(2)(3)years of credited service and the present value of accumulated benefits.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual | | | | | | | | | | | | | | |
| | Salary | | 10 | | 15 | | 20 | | 25 | | 30 | | 35 | | 40 or more |
|
| | $ | 150,000 | | | | 23,431 | | | | 35,147 | | | | 46,862 | | | | 58,203 | | | | 69,543 | | | | 80,884 | | | | 89,509 | |
| | $ | 175,000 | | | | 27,681 | | | | 41,522 | | | | 55,362 | | | | 68,828 | | | | 82,293 | | | | 95,759 | | | | 105,821 | |
| | $ | 200,000 | | | | 31,931 | | | | 47,897 | | | | 63,862 | | | | 79,453 | | | | 95,043 | | | | 110,634 | | | | 122,134 | |
| | $ | 225,000 | | | | 36,181 | | | | 54,272 | | | | 72,362 | | | | 90.078 | | | | 107,793 | | | | 125,509 | | | | 138,446 | |
| | $ | 250,000 | | | | 40,431 | | | | 60,647 | | | | 80,862 | | | | 100,703 | | | | 120,543 | | | | 140,384 | | | | 154,759 | |
| | $ | 275,000 | | | | 44,681 | | | | 67,022 | | | | 89,362 | | | | 111,328 | | | | 133,293 | | | | 155,259 | | | | 171,071 | |
| | $ | 300,000 | | | | 48,931 | | | | 73,397 | | | | 97,862 | | | | 121,953 | | | | 146,043 | | | | 170,134 | | | | 187,384 | |
| | $ | 325,000 | | | | 53,181 | | | | 79,772 | | | | 106,362 | | | | 132,578 | | | | 158,793 | | | | 185,009 | | | | 203,696 | |
| | $ | 350,000 | | | | 57,431 | | | | 86,147 | | | | 114,862 | | | | 143,203 | | | | 171,543 | | | | 199,884 | | | | 220,009 | |
| | $ | 375,000 | | | | 61,681 | | | | 92,522 | | | | 123,362 | | | | 153,828 | | | | 184,293 | | | | 214,759 | | | | 236,321 | |
| | $ | 400,000 | | | | 65,931 | | | | 98,897 | | | | 131,862 | | | | 164,453 | | | | 197,043 | | | | 229,634 | | | | 252,634 | |
| | $ | 425,000 | | | | 70,181 | | | | 105,272 | | | | 140,362 | | | | 175,078 | | | | 209,793 | | | | 244,509 | | | | 268,946 | |
| | $ | 450,000 | | | | 74,431 | | | | 111,647 | | | | 148,862 | | | | 185,703 | | | | 222,543 | | | | 259,384 | | | | 285,259 | |
| | $ | 475,000 | | | | 78,681 | | | | 118,022 | | | | 157,362 | | | | 196,328 | | | | 235,293 | | | | 274,259 | | | | 301,571 | |
| | $ | 500,000 | | | | 82,931 | | | | 124,397 | | | | 165,862 | | | | 206,953 | | | | 248,043 | | | | 289,134 | | | | 317,884 | |
| | | | | | | | | | | | | | | | | | |
| | | | Number of | | | | |
| | | | Years of | | Present Value of | | |
| | | | Credited | | Accumulated | | Payments During |
| | | | Service | | Benefit | | Last Fiscal Year |
Name | | Plan Name | | (#)(1) | | ($)(2) | | ($) |
Claude E. Davis | | Employees’ Pension Plan | | | 2 | | | $ | 20,246 | | | | | | | $ | 0 | |
| | SERP | | | 2 | | | | 33,176 | | | | | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | |
C. Douglas Lefferson | | Employees’ Pension Plan | | | 21 | | | | 170,641 | | | | | | | $ | 0 | |
| | SERP | | | 21 | | | | 60,143 | | | | | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | |
J. Franklin Hall | | Employees’ Pension Plan | | | 8 | | | | 37,007 | | | | | | | $ | 0 | |
| | SERP | | | 8 | | | | 3,494 | | | | | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | |
Mark W. Immelt | | Employees’ Pension Plan | | | 10 | | | | 257,659 | | | | | | | $ | 0 | |
| | SERP | | | 10 | | | | 195,087 | | | | | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | |
Samuel J. Munafo | | Employees’ Pension Plan | | | 35 | | | | 603,221 | | | | | | | $ | 0 | |
| | SERP | | | 35 | | | | 79,083 | | | | | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | |
Gregory A. Gehlmann | | Employees’ Pension Plan | | | 2 | | | | 19,377 | | | | | | | $ | 0 | |
| | |
(1) | | BenefitsThe number of years of service credited to the named executive officers under the retirement plan, and supplemental retirementcomputed as of the same pension plan are paid based uponmeasurement date used for financial statement reporting purposes with respect to the average monthly compensationregistrant’s audited financial statements for the five consecutive plan years which produce the highest average. The compensation covered by the plans is equal to the salary and bonus reported in columns (c) and (d) of the Summary Compensation Table plus all other amounts included in Form W-2 wages, except amounts realized upon the exercise of nonqualified stock options and amounts realized upon the vesting of restrictedlast completed fiscal year. |
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| | |
| | stock awards. The covered compensation paid to the Named Executive Officers during the prior fiscal year and the credited years of benefit service under the plans for each of the Named Executive Officers are as follows: Claude E. Davis — $500,756 and one year; C. Douglas Lefferson — $345,901 and 20 years; J. Franklin Hall — $233,854 and seven years; Mark W. Immelt — $419,066 and nine years; and Samuel J. Munafo — $253,839 and 34 years. |
|
(2) | | In the retirement plan, participants are 100% vested after five years of credited service. The normal retirement benefit, payable as a single life annuity beginning at the normal retirement age of 65, is 1.15%actuarial present value of the average monthly compensation multiplied by years of service (maximum of 40), plus .0.55% of average monthly compensation greater than Social Security covered compensation multiplied by years of service (maximum of 35) plus $6.25 multiplied by years of service (maximum of 20). The estimated benefits accrued during the year under the retirement plan for each of the Named Executive Officers are not actuarially ascertainable under the methods used for calculation of the cost to the Corporation by the actuaries. |
|
(3) | | As a result of the provisions of the Code, maximum annual compensation for which benefits will be paid under the retirement plan is $220,000 and maximum annual benefits under the retirement plan are $175,000 (for 2006). All of the Named Executive Officers (other than Mr. Hall) participate in the supplemental retirement plan. Thenamed executive officer’s accumulated benefit under the supplemental retirement plan, is equalcomputed as of the same pension plan measurement date used for financial statement reporting purposes with respect to the difference betweenregistrant’s audited financial statements for the annual benefit payable under the retirement plan without regard to the limits imposed by the Code upon qualified plans and the maximum annual benefit payable under the retirement plan upon the executive’s retirement.last completed fiscal year. |
Split Dollar Life Insurance.The Split Dollar Agreement is an endorsement method split dollar arrangement which applies to a life insurance policy owned by the Corporation which, upon a Named Executive Officer’s death, first pays the Corporation the premiums which the Corporation paid for the policy, and then pays the Named Executive Officer’s beneficiary a death benefit equal to three times the executive’s base salary in effect at his or her death. If the Named Executive Officer terminated employment before death and, when employment terminated, he or she was eligible to receive an immediate retirement benefit under the early retirement provisions of the Corporation’s retirement plan and had been employed for at least five years, the Corporation keeps the policy in force until the executive’s death and the death benefit is equal to three times the executive’s base salary at the time of his or her termination of employment. In either case, any amounts payable under the policy after the payment to the Named Executive Officer’s beneficiary are paid to the Corporation.
NONQUALIFIED DEFERRED COMPENSATION
Pursuant to the Corporation’s Deferred Compensation Plan, certain executives, including the named executives, may defer up to 50% of his or her base salary and 100% of his/her bonus or incentive pay of any plan year. The following table provides information on the non-qualified deferred compensation to the named executives in 2006. This information also appears in the Summary Compensation table provided earlier in this document but was not provided in such table in proxies for previous years.
| | | | | | | | | | | | | | | | | | | | |
| | Executive | | Registrant | | Aggregate | | Aggregate | | Aggregate |
| | Contributions in | | Contributions in | | Earnings in Last | | Withdrawals/ | | Balance |
| | Last FY | | Last FY | | FY | | Distributions | | at Last FYE |
Name | | ($) | | ($) | | ($) | | ($) | | ($) |
Claude E. Davis | | | 33,000 | (1) | | | — | | | | 2,729 | (2) | | | — | | | | 73,599 | (3) |
| | |
(1) | | The amount shown above for Mr. Davis is that portion of an employment agreement benefit that he elected to defer in 2006. This amount was disclosed in the “bonus” column in the Summary Compensation Table and related footnotes. |
|
(2) | | During 2006 the Corporation paid interest on deferred compensation balances. However, because this rate does not exceed the threshold rate requiring disclosure on the Summary Compensation Table and, therefore, the amounts are not included on that table. |
|
(3) | | The amounts are reported in as compensation to Mr. Davis in the Corporation’s Summary Compensation Table in previous years. |
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FINANCIAL PERFORMANCEOTHER POTENTIAL POST-EMPLOYMENT PAYMENTS
The following graph comparestable sets forth the five-year cumulative total returnseverance amounts that each of Messrs. Davis, Lefferson, Hall, Munafo and Gehlmann would be entitled to receive if their employment relationship with the Corporation had been terminated as described above on December 31, 2006. The following table is for illustrative purposes only:
Severance Benefits Table – Termination upon Change In Control
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Gross Up | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Payment | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | (Claw-back) | | Estimated |
| | | | | | | | | | | | | | | | | | | | | | | | | | for | | Total |
| | | | | | | | | | Unvested | | | | | | | | | | | | | | Additional | | Payment |
| | | | | | Multiple | | In-the- | | Unvested | | Accel. | | | | | | Tax Imposed | | Post |
| | Multiple | | of Short- | | Money | | Restricted | | of Life | | Benefits | | by Section | | Gross-Up |
| | of Base | | Term | | Option | | Stock | | Ins. | | per | | 280G of the | | (Claw- |
| | Pay (2x) | | Incentive | | Value | | Value | | Benefit | | Contract | | Tax | | back) |
Executive | | $ | | S | | S | | S | | S | | S | | Code($)(1) | | $ |
C. Davis | | | 900,000 | | | | — | | | | — | | | | 192,699 | | | | 358,984 | | | | 1,451,683 | | | Not triggered | | | 1,451,683 | |
D. Lefferson | | | 530,000 | | | | — | | | | — | | | | 49,839 | | | | 179,184 | | | | 759,023 | | | Not triggered | | | 759,023 | |
F. Hall | | | 450,000 | | | | — | | | | — | | | | 32,414 | | | | 124,451 | | | | 606,865 | | | | 323,385 | | | | 930,250 | |
S. Munafo | | | 460,000 | | | | — | | | | — | | | | 31,564 | | | | 294,990 | | | | 786,554 | | | Not triggered | | | 786,554 | |
G. Gehlmann | | | 460,000 | | | | — | | | | — | | | | 26,189 | | | | 174,251 | | | | 660,440 | | | | (107,175 | ) | | | 553,265 | |
| | |
1. | | In the event severance payments exceed approximately three times an executive’s salary, Section 280G of the Code requires such payments to be taxed at an excise rate of 20% in addition to regular tax rates. The employment agreements for Messrs. Davis, Lefferson and Hall provide that the Corporation will make such additional tax payments on behalf of the executive while employment agreements for Messrs. Munafo and Gehlmann provide that any excess payments will be reduced to avoid the additional tax. Excessive payments are not deductible to the Corporation. |
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Corporation has reviewed and discussed with the Company’s management the Compensation Discussion and Analysis that is required by Item 402(b) of companies that compriseRegulation S-K with the Nasdaq Market Index and a peer group comprised of all actively traded bank holding companies in Ohio and Indiana (the “Peer Group”). The following table assumes $100 invested on January 1, 2000 in the Corporation, the Nasdaq Market Index and equally in the Peer Group and assumes that dividends are reinvested. The returns of the issuers comprising the Peer Group have been weighted according to their respective stock market capitalization.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2000 | | 2001 | | 2002 | | 2003 | | 2004 | | 2005 |
FIRST FINANCIAL BANCORP | | | 100.00 | | | | 113.26 | | | | 108.89 | | | | 108.98 | | | | 123.63 | | | | 128.13 | |
PEER GROUP INDEX | | | 100.00 | | | | 103.49 | | | | 103.66 | | | | 121.49 | | | | 127.18 | | | | 117.87 | |
NASDAQ MARKET INDEX | | | 100.00 | | | | 62.85 | | | | 55.60 | | | | 83.60 | | | | 90.63 | | | | 92.62 | |
Corporation’s management. The Peer Group is comprisedBased on that review and those discussions, the Committee has recommended to the Corporation’s Board of 1st Source Corporation, Community Bank Shares of Indiana, Inc., Fifth Third Bancorp, First Citizens Banc Corp, First Financial Bancorp., First Financial Corporation, First Indiana Corporation, First Merchants Corporation, FirstMerit Corporation, German American Bancorp, Home Federal Bancorp, Horizon Bancorp, Huntington Bancshares Incorporated, Integra Bank Corporation, Irwin Financial Corporation, Keycorp, Lakeland Financial Corporation, LNB Bancorp, Inc., Mainsource Financial Group, Monroe Bancorp, National City Corporation, NB&T Financial Group, Inc., Oak Hill Financial, Inc., Ohio Legacy Corp, Ohio Valley Banc Corp, Old National Bancorp, Park National Corporation, Peoples Bancorp Inc., Rurban Financial Corp., Sky Financial Group, Inc., St. Joseph Capital Corporation, Tower Financial Corporation, United Bancorp, Inc., United Bancshares, Inc.,Directors that the Compensation Discussion and Unizan Financial Corp. Belmont Bancorp. was removed fromAnalysis be included in this year’s Peer Group because it was acquired by Sky Financial Group in 2005.Proxy Statement.
Barry S. Porter, Chair
Donald M. Cisle, Sr.
Susan L. Knust
William J. Kramer
2532
COMPENSATIONREPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE REPORT
Goals of Compensation
The Compensation Committee’s goal in setting executive compensation is to attractIn accordance with its written charter, the Audit and retain executive talent and to provide incentives toRisk Management Committee oversees the Corporation’s executive officers to increase shareholder value. To achieve this goal,financial reporting process on behalf of the Compensation Committee authorizes base salaries that are competitive with those set at bank holding companiesBoard of comparable sizeDirectors. Management has the primary responsibility for the financial statements and performance and uses programs that personally reward executivesthe reporting process including the systems of internal controls. The Corporation’s independent registered public accounting firm, Ernst & Young LLP (“Ernst & Young”), is responsible for corporate financial results (i) that are competitive with comparable bank holding companies and (ii) that have benefitedexpressing an opinion on the Corporation’s shareholders.
Components of Compensation
During the 2005 fiscal year, the componentsconformity of the Corporation’s executive compensation program were base salary,audited financial statements to generally accepted accounting principles.
In fulfilling its oversight responsibilities, the Short-Term Incentive PlanCommittee reviewed the audited financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the 1999 Stock Incentive Plan.clarity of disclosures in the financial statements. The Committee discussed with Ernst & Young those matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU 380). In April 2005,addition, the Compensation Committee approvedreceived from Ernst & Young the Short-Term Incentive Plan. Allwritten disclosures and the letter required by Independence Standards Board Standard No. 1 and discussed with them their independence.
The Committee discussed with the Corporation’s internal auditors and Ernst & Young the overall scope and plans for their respective audits. The Committee met with the internal auditors and with Ernst & Young, with and without management present, to discuss the results of their examinations, their evaluations of the Corporation’s employees, includinginternal controls, and the overall quality of the Corporation’s Named Executive Officers, participatefinancial reporting.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the plan.Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the SEC. The Short-Term Incentive Plan went in effect beginning with fiscal 2005. The plan replacedCommittee has approved the selection of Ernst & Young as the Corporation’s Performance Incentive Compensation Plan (“PIC Plan”). Underindependent registered public accounting firm for 2007.
Audit and Risk Management Committee
| | | | |
| | William J. Kramer, Chair | | Richard E. Olszewski |
| | Barry S. Porter | | Steven C. Posey |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, FEES
AND ENGAGEMENT
Ernst & Young has been selected as the Short-Term Incentive Plan, a target percentage is establishedindependent registered public accounting firm to audit the financial statements of the Corporation for each participantthe current fiscal year. Management expects that representatives of that firm will be present at the beginning of each fiscal year, based upon median competitive award levels for short-term incentive compensation withinAnnual Meeting, will have the financial services industry.opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions.
The target percentage, after being adjusted for performance as described below, is appliedfollowing table sets forth the aggregate fees billed to actual base salary paidthe Corporation and related entities for the last two fiscal year. The Compensation Committee discontinued the PIC Plan and replaced it with the Short-Term Incentive Plan as a better performance measure.
Two performance measures, return on equity (“ROE”) and growth in earnings per share (“EPS”), are used to determine the actual awards under the Short-Term Incentive Plan. At the beginning of each fiscal year, the Compensation Committee establishes threshold, target and maximum ROE levels based upon the performance of banks of a comparable asset size. In addition, the Compensation Committee establishes threshold, target and maximum EPS growth levels based upon reasonable growth expectations for the Corporation. At the end of each fiscal year, the amount of the target percentage will be multipliedyears by a factor ranging from zero times the target percentage (for performance at or below the threshold ROE) up to two times the target percentage (for performance at or above the maximum ROE). After adjusting the target percentage based upon ROE performance (the “Adjusted Percentage”), the amount of the Adjusted Percentage will be further modified based upon EPS growth. The EPS modifier will range from a 20% reduction to the Adjusted Percentage (for performance at or below the threshold EPS growth rate) to a 20% increase to the Adjusted Percentage (for performance at or above the maximum EPS growth rate). After applying the EPS modifier to the Adjusted Percentage, the resulting percentage will be applied to actual base salary paid for the fiscal year to determine the actual award. However, for fiscal 2005, the Compensation Committee has determined that the EPS modifier would not apply.
Based on the Corporation’s performance in 2005, the Chief Executive and the Named Executive Officers received 46.7% of their incentive target percentage under the Short-Term Incentive Plan in February 2006.independent registered public accounting firm.
Chief Executive Compensation | | | | | | | | |
Fees by Category | | 2006 | | | 2005 | |
Audit Fees | | $ | 661,000 | | | $ | 683,000 | |
Audit-Related Fees (1) | | | 33,000 | | | | 27,500 | |
Tax Fees (2) | | | — | | | | 203,221 | |
All Other Fees (3) | | | 61,550 | | | | 56,000 | |
| | | | | | |
Total | | $ | 755,550 | | | $ | 969,721 | |
| | | | | | |
On October 1, 2004, Mr. Davis became President and Chief Executive Officer of the Corporation. The Compensation Committee approved the terms of the Employment and Non-Competition Agreement (the “Agreement”) that established the terms of Mr. Davis’s employment. In April 2005, the Compensation Committee approved an increase in annual base salary for Mr. Davis from $400,000 to $420,000, a 5% increase. In addition, the Compensation Committee approved: (a) a 50% of base target percentage for Mr. Davis under the Short-Term Incentive Plan; and (b) stock option grants and restricted stock awards as disclosed elsewhere in this Proxy Statement. | | |
(1) | | Services covered by these fees consist of employee benefit plan audits. |
2633
| | |
(2) | | Services covered by these fees consist of professional tax services, including preparation of the federal income tax returns for the Corporation and its subsidiaries. |
|
(3) | | Services covered by these fees consist of audit and tax compliance work billed to the Legacy Funds Group of mutual funds for which the Corporation’s subsidiary, First Financial Capital Advisors LLC, serves as investment advisor. |
Furthermore, in accordance with his employment agreement, Mr. Davis also receives a bonus of $33,000 to be paid on each of the first three anniversaries of the commencement date of his employment. Mr. Davis received the first of the three bonuses in October 2005. Under the terms of the employment agreement, Mr. Davis is also eligible to participate in any incentive plans, retirement plans, employee pension and benefit plans which are generally available to the Corporation’s executive personnel, subject to the terms and conditions of those plans. Finally, the Compensation Committee approved the following perquisites for Mr. Davis: reasonable dues and expenses for membership in one country club, the use of a Corporation-owned vehicle, and reimbursement of relocation expenses. Effective 2006, instead of the use of a Corporation-owned vehicle, Mr. Davis will receive a car allowance in accordance with the Corporation’s policy. The Compensation Committee determined the components of Mr. Davis’s compensation based upon a review of competitive market data and their evaluation of Mr. Davis’s performance, qualifications and business experience.
Named Executive Officers
In April 2005, the Compensation Committee reviewed the base salaries for then named executive officers: Messrs. Lefferson, Murrell, Hockemeyer, and Immelt. To determine the appropriate base salaries, the Compensation Committee reviewed competitive market data from surveys prepared by Towers Perrin, Watson Wyatt as well as a detailed salary history for each of these four officers. The Compensation Committee approved increases to the base salaries for each of these four officers as follows: Messrs. Lefferson, 8.7%; Murrell, 6.5%; Hockemeyer, 4%; and Immelt, 5.6%. In April 2005, the Compensation Committee approved the following target percentages for the Short-Term Incentive Plan for the 2005 fiscal year for each of the then named executive officers: Messrs. Lefferson, 40% of base; Murrell, 30% of base; Hockemeyer, 30% of base; and Immelt, 35% of base. Also, in April 2005, the Compensation Committee approved a 33.3% increase in the base salary of, and a 30% of base target percentage under the Short-Term Incentive Plan for, J. Franklin Hall, who was promoted to Chief Financial Officer of the Corporation on April 1, 2005.
Stock Compensation
The 1999 Stock Incentive Plan provides for incentive compensation to executive officers that is tied to the enhancement of shareholder value. Under the 1999 Stock Incentive Plan, the Compensation Committee determined and approved in April 2005 stock option grants and restricted stock awards for the Named Executive Officers. The Compensation Committee determined the amount of the stock option grants and restricted stock awards based on its subjective evaluation of the officers’ performance, taking into consideration the Corporation’s profitability and overall 2004 financial performance, and on a review of stock option grants and restricted stock awards made in prior years. These awards are discussed elsewhere in this Proxy Statement in the “Summary Compensation Table” and under “Stock Option Awards.”
Other Compensation Considerations
Also in December 2005, the Compensation Committee reviewed the accrued benefits and potential lump sum payouts to current participants in the supplemental retirement plan. The Named Executive Officers who currently participate in the supplemental retirement plan are Messrs. Lefferson, Immelt and Munafo. The Compensation Committee also reviewed potential participants in the plan and approved the admission of certain officers to the plan, including Mr. Davis.
27
Section 162(m) of the Internal Revenue Code generally disallows a corporate tax deduction for annual compensation paid to executive officers to the extent that it exceeds $1,000,000. It is the policy of the CompensationAudit and Risk Management Committee that, compensation to executive officers should, in general, be structured to qualify for deductibility under Section 162(m). For those exceptional circumstances where executive compensation may exceed the deductible amount,before the Corporation has adopted a deferred compensation plan which provides forengages an accounting firm to render audit services as the mandatory deferral of such excess compensation.
Compensation Committee
| | |
James C. Garland, Chair | | Barry S. Porter |
William J. Kramer | | Susan L. Knust |
Corporation’s independent registered public accounting firm, the engagement must be approved by the Audit and Risk Management Committee. In addition, before an accounting firm serving as the Corporation’s independent registered public accounting firm is engaged by the Corporation to render non-audit services, the engagement must be approved by the Audit and Risk Management Committee.TRANSACTIONS WITH RELATED PARTIES
Compensation Committee Insider ParticipationCOMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Murph Knapke, a director of the Corporation and a former memberExcept for Mr. Kramer, all members of the Compensation Committee, is a partner of Knapke Law Office, which provided real estate title services foror their affiliates, have engaged in loan transactions with First Financial Bank, N.A. customers during the prior fiscal year and proposes to provideBank. All such services in the current fiscal year. The fees paid by the bank’s customers for these services in the last fiscal year were $29,135. The Board of Directors has determined that these payments, which are below the applicable limits established by the rules of the NASD, do not affect Mr. Knapke’s status as an independent director.
Other Business Relationships
Corinne R. Finnerty, a director of the Corporation, is the sole shareholder and an officer of Corinne R. Finnerty, P.C. d/b/a McConnell & Finnerty, which has been retained by First Financial Bank, N.A. and previous Corporation bank subsidiaries during the prior fiscal year and the current fiscal year. During the prior fiscal year, the Corporation’s subsidiaries paid McConnell & Finnerty $49,334 in legal fees. The Board of Directors has determined that these payments, which are below the applicable limits established by the rules of the NASD, do not affect Ms. Finnerty’s status as an independent director.
Steven C. Posey, a director of the Corporation, has a 19% interest as a limited partner in Midd West Development LTD, from which First Financial Bank, N.A. rented retail office space during the prior fiscal year and proposes to continue to rent such space in the current fiscal year. The total rent paid during the last fiscal year was $74,220. The Board of Directors has determined that these payments, which are below the applicable limits established by the rules of the NASD, do not affect Mr. Posey’s status as an independent director.
Richard E. Olszewski, a director of the Corporation, operates a 7-Eleven franchise at which a First Financial Bank ATM is located. The 7-Eleven franchise received $1,500 in fees from the bank in 2005. The Board of Directors has determined that these payments, which are below the applicable limits established by the rules of the NASD, do not affect Mr. Olszewski’s status as an independent director.
Murph Knapke, a director of the Corporation, is a partner of Knapke Law Office, Celina, Ohio. Mr. Knapke’s law firm provides real estate title searches for First Financial Bank, N.A. customers. The firm received $29,135 in fees from customers of the First Financial Bank, N.A. in 2005. The Board of Directors has determined that these payments, which are below the applicable limits estimated by the rules of the NASD, do not affect Mr. Knapke’s status as an independent director.
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Indebtedness of Management
Some of the officers and directors of the Corporation and the companies with which they are associated were customers of the banking subsidiaries of the Corporation. The loans to such officers and directors and the companies with which they are associated (a) were made in the ordinary course of business (b) were made on substantially the same terms, including interest and nature of collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectibility or present other unfavorable features.
The bank subsidiaries of the Corporation have had,bank. No other relationships required to be reported under the rules promulgated by the Securities and expectExchange Commission exist with respect to have inmembers of the future, banking transactions in the ordinary course of business with directors, officers, principal shareholders and their associates on the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others.Corporation’s Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation’s officers, directors and persons who own more than 10 percent of a registered class of the Corporation’s equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Officers, directors and greater than 10 percent shareholders are required by SEC regulationregulations to furnish the Corporation with copies of all Forms 3, 4 and 5 they file.
Based solely on the Corporation’s review of the copies of such forms that it has received and written representations from certain reporting persons that they were not required to file a Form 5 for the specified fiscal year, the Corporation believes that all of its officers, directors and greater than 10 percent shareholders complied with all filing requirements applicable to them with respect to transactions during fiscal 2005.
SHAREHOLDER PROPOSALS
If an eligible shareholder wishes to present a proposal to be included in the Corporation’s Proxy Statement and form of Proxy relating to the 20072008 Annual Meeting of Shareholders, it must be presented to management by certified mail, written receipt requested, not later than November 22, 2006.2007. Any such proposal must comply with Rule 14a-8 promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended. Any shareholder who intends to propose any other matter to be acted upon at the 20072008 Annual Meeting of Shareholders must inform the Corporation no later than February 8, 2007.January 31, 2008. If notice is not provided by that date, the person(s) named in the Corporation’s Proxy for the 20072008 Annual Meeting will be allowed to exercise his or her discretionary authority to vote upon any such proposal without the matter having been discussed in the Proxy Statement for the 2007 Annual Meeting. Proposals should be sent to First Financial Bancorp., Attention: Gregory A. Gehlmann, General Counsel and Secretary, 300 High Street, P.O. Box 476, Hamilton, Ohio 45012-0476.
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ANNUAL REPORT
The Corporation’s financial statements are not included in this Proxy Statement as they are not deemed material to the exercise of prudent judgment by the shareholders with respect to any proposal to be submitted at the Annual Meeting. The Corporation’s Annual Report for the year ended December 31, 2005,2006, is being mailed to each shareholder with the Proxy and Proxy Statement, but such Annual Report is not incorporated in this Proxy Statement and is not deemed to be a part of the Proxy soliciting material.
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A shareholder of the Corporation may obtain a copy of the Annual Report onForm 10-K,, including financial statements and schedules thereto, for the fiscal year ended December 31, 2005,2006, and as filed with the SEC, without charge by submitting a written request to the following address:
First Financial Bancorp.
Attn: Gregory A. Gehlmann, General Counsel
and Secretary
300 High Street
P.O. Box 476
Hamilton, Ohio 45012-0476
The Annual Report on Form 10-K is also available through the Corporation’s Web site at www.ffbc-oh.comwww.bankatfirst.com under the “Investor Information” link, by clicking on “SEC Filings.”
Management and the Board of Directors of the Corporation know of no business to be brought before the meeting other than as set forth in this Proxy Statement. However, if any matters other than those referred to in this Proxy Statement should properly come before the meeting, it is the intention of the persons named in the enclosed Proxy to vote such Proxy on such matters in accordance with their best judgment.
The expense of proxy solicitation will be borne by the Corporation. Proxies will be solicited by mail and may be solicited for no additional compensation by some of the officers, directors and employeesassociates of the Corporation or its subsidiaries by telephone or in person. Brokerage houses and other custodians, nominees and fiduciaries may be requested to forward soliciting material to the beneficial owners of shares of the Corporation and will be reimbursed for their related expenses.
| | | | |
| By Order of the Board of Directors,
| |
| /s/ Gregory A. Gehlmann | |
| Gregory A. Gehlmann | |
| General Counsel and Secretary | |
|
March 21, 2006
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APPENDIX A
New text is underlined and deleted text is struck out.
FIRST FINANCIAL BANCORP.
AMENDED AND RESTATED
1999STOCK OPTION PLANFORNON-EMPLOYEEDIRECTORSDIRECTOR STOCK PLAN
SECTION 1. Purpose
The purpose of thisAmended and Restated 1999 Non-Employee Director Stock Plan (formerly known as the 1999 Stock Option Plan for Non-Employee Directors) is to promote the interest of First Financial Bancorp., its Subsidiaries and shareholders, by allowing the Corporation to attract and retain highly qualified non-employee directors by permitting them to obtain or increase their proprietary interest in the Corporation.
SECTION 2. Definitions and Construction
2.1 Definitions.As used in the Plan, terms defined parenthetically immediately after their use shall have the respective meanings provided by such definitions, and the terms set forth below shall have the following meanings (in either case, such terms shall apply equally to both the singular and plural forms of the terms defined):
(a) “Award” means any Option, Restricted Stock or a combination thereof awarded under the Plan.
(b) “Award Agreement” means the agreement, certificate or other instrument evidencing the grant of any Award under the Plan.
(c) “Board” means the Board of Directors of the Corporation.
(bd) “Cause” means a felony conviction of a Non-Employee Director or the failure of a Non-Employee Director to contest prosecution for a felony, oraNon-Employee Director’s willful misconduct or dishonesty, any of which is determined by the Board to be directly and materially harmful to the business or reputation of the Corporation or its subsidiaries.
(ce) “Change in Control” means the happening of any of the following events:
(i) the approval by the shareholders of the Corporation of a reorganization, merger or consolidation of the Corporation (“Corporate Transaction”) and the consummation of such Corporate Transaction, and as a result of such Corporate Transaction less than 75% of the outstanding voting securities of the surviving or resulting corporation will be owned in the aggregate by the former shareholders of the Corporation as the same shall have existed immediately prior to such Corporate Transaction; or
(ii) the approval by the shareholders of the Corporation (or the Board of Directors or appropriate officers if shareholder approval is not required) of the sale by the Corporation of all or substantially all of its assets to another corporation, which is not a wholly owned subsidiary of the Corporation, and the consummation of such sale; or
(iii) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding voting securities of the
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Corporation or the acquisition by such Person of the ability to control in any manner the election of a majority of the directors of the Corporation; excluding, however, the following: (a) an acquisition directly from the Corporation, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Corporation; (b) any acquisition by the Corporation; or (c) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or
(iv) Within any period of two consecutive years commencing on or after the effective date of the Plan, individuals who at the beginning of such period (“Incumbent Directors”) constitute the Board cease for any reason to constitute at least a majority thereof, unless the election of each director who is not a director at the beginning of such period has been approved in advance by directors representing at least a majority of the directors then in office who were directors at the beginning of the period, and any elected director so approved shall be considered as an Incumbent Director.
(df) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
(eg) “Common Stock” means common shares, without par value, of the Corporation.
(fh) “Committee” means the compensation committee of the Board or another committee appointed by the Board, provided that all members of the Committee must be Non-Employee Directors as defined in Section 2.1(o) of this Plan, and must also be “non-employee directors” as such term is defined in Rule 16b-3(b)(3)(i) under the Exchange Act.
(i) “Corporation” means First Financial Bancorp., an Ohio corporation.
(gj) “Disability” means permanent and total disability as determined under procedures established by the Board for purposes of the Plan.
(k) “Effective Amendment Date” means date of the 2006 annual meeting at which this amended and restated Plan is approved by the shareholders of the Corporation.
(hl) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.
(im) “Fair Market Value” means as of any given date the closing price of the Common Stock as reported by the NASDAQ National Market System. In the event that there are no such Common Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were stock transactions. If there is no regular public trading market for such Common Stock, the Fair Market Value of the Common Stock shall be determined by the Board in good faith.
(jn) “Grantee” means a Non-Employee Director who has been granted a Restricted Stock Award, or the personal representative, heir or legatee of the Grantee who has rights to the Restricted Stock.
(o) “Non-Employee Director” means a member of the Board whoqualifies as a non-employee director as defined in Rule 16(b) 3(b)(3)(i), as promulgated by the Commission under the Exchange Act, or any successor definition adopted by the Commissionis not an employee of the Corporation or any Subsidiary of the Corporation.
(kp) “Option” means an option granted to an Optionee pursuant to the Plan.
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(l) “Option Agreement” means a written agreement between the Corporation and an Optionee evidencing the granting of an Option and containing terms and conditions concerning the exercise of the Option.(mq) “Optionee” means a Non-Employee Director who has been granted an Option Award or the personal representative, heir or legatee of an Optionee who has the right to exercise the Option upon the death of the Optionee.
(nr) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a “Group” as defined in Section 13(d).
(os) “Plan” means thisAmended and Restated 1999Stock Option Plan forNon-EmployeeDirectorsDirector Stock Plan, as the same may be amended from time to time.
(pt) “Restriction Period” means the period during which shares of Restricted Stock are subject to forfeiture or restrictions on transfer (if applicable) as described in Section 7 of the Plan and any applicable Award Agreement.
(u) “Restricted Stock” means Common Stock awarded to a Grantee pursuant to the Plan which is subject to forfeiture and restrictions on transferability in accordance with Section 7 of the Plan.
(v) “Retirement” means retirement from the Board on or after age 70 or with the consent of the Board.
(qw) “Subsidiary” means, with respect to any company, any corporation or other Person of which a majority of its voting power, equity securities or equity interest is owned directly or indirectly by such company.
2.2 Gender and Number.Except where otherwise indicated by the context, reference to the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural.
2.3 Severability.In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
SECTION 3. Shares Subject To The Plan
3.1 Shares Available.The stock to be offered under the Plan shall be shares of Common Stock, which may be unissued Common Stock or treasury Common Stock. Subject to the adjustments provided in Section 7, theThe aggregate number of shares of Common Stock to be delivered upon exercise of all Options granted subject to Awards under the Plan shall not exceed 500,000 shares. Shares, subject to the adjustments provided in Section 8. As of the Effective Amendment Date, the adjusted aggregate number of such shares is 577,000.
3.2 Canceled, Terminated or Forfeited Awards. Any shares of Common Stock subject to, but not delivered under, an Option terminating or expiring for any reason prior to its exercise in full any portion of an Award which, in any such case and for any reason, expires, or is canceled, terminated or otherwise forfeited, without the recipient having received any benefits of ownership (as such phrase is construed by the Securities and Exchange Commission or its staff), shallagain be deemed available forOptions to be granted thereafter during the term ofdistribution in connection with Awards under the Plan.
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SECTION 4. Administration
4.1 General.The Plan shall be administered by the Board of Directors of the Corporation (the "Board"). Subject to the express provisions of the Plan, the Board shall have authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of theOption grantsAwards andagreementsAgreements (which shall comply with and be subject to the terms and conditions of the Plan) and to make all other determinations necessary or advisable for the administration of the Plan. The Board’s determination of the matters referred to in this Section 4.1 shall be conclusive.
4.2 Section 16 Compliance.It is the intention of the Corporation that the Plan and the administration of the Plan comply in all respects with Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with Section 16(b) of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act.
SECTION 5. Eligibility and Non-Discretionary Grants
5.1 Non-Discretionary Initial Grant.Each individual who first becomes a Non-Employee Director on or after theeffective dateEffective Amendment Date of the Plan shall automatically be grantedan Option to purchase 7,500 shares of Common Stockon the first day of such individual’s first term of office as a Non-Employee Director. (a) an Option to purchase 8,663 shares of Common Stock; (b) Restricted Shares having a Fair Market Value of $60,000 (determined without regard to restrictions) or a combination thereof. The Committee shall determine whether an Option Award, Restricted Stock Award or a combination thereof, shall be granted. The value of any combination Award shall not exceed the greater of the value of an individual Option Award or Restricted Stock Award, as such value is determined by the Committee in its discretion.
5.2 Non-Discretionary Grant Upon Re-election.On the date of each annual meeting of the shareholders of the Corporation on or subsequent to theeffective dateEffective Amendment Date of the Plan, each Non-Employee Director who first became a Non-Employee Director prior to such annual meeting and who has been elected at such annual meeting to continue to serve as a Non-Employee Director after such annual meeting shall automatically be granted(a) an Option to purchase7,500 shares of Common Stock.8,663 shares of Common Stock; (b) Restricted Shares having a Fair Market Value of $60,000 (determined without regard to restrictions) or a combination thereof. The Committee shall determine whether an Option Award, Restricted Stock Award or a combination thereof, shall be granted. The value of any combination Award shall not exceed the greater of the value of an individual Option Award or Restricted Stock Award, as such value is determined by the Committee in its discretion.
5.3 Nonqualified Stock Options. Only nonqualified stock options shall be granted under the Plan.SECTION 6. Option Terms
6.1 Option Price.The purchase price of the Common Stock under each Option granted under the Plan shall be 100% of the Fair Market Value of the Common Stock on the date such Option is granted.
6.2 Nonqualified Stock Options. Only nonqualified stock options shall be granted under the Plan.
6.3 Vesting.All Options shall become exercisable on and after the first anniversary of the date of grant. Notwithstanding the foregoing provisions of this Section 6.2,6.3, upon a Change in Control, all
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Optionsshall become fully vested and exercisable and the Optionee shall have the right to exercise the Option in full as to all shares of Common Stock subject to the Option.
6.36.4 Option Term.The term of each Option shall be ten years from the date of grant or such shorter period as is prescribed in Section 6.5.6.6.Except as provided in Section 6.5.6.6and Section 6.7,6.8, no Option may be exercised at any time unless the holder is then a director of the Corporation.
6.46.5 Method of Exercise.Subject to Section 6.26.3 and the terms of any Option Agreement, Options may be exercised, in whole or in part, at any time during the Option term, by giving written notice of exercise to the Corporation, specifying the number of shares of Common Stock subject to the Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Corporation may accept. Unless otherwise determined by the Board, payment, in full or in part, also may be made in the form of shares of unrestricted Common Stock already owned by the Optionee for at least six months of the same class as the Common Stock subject to the Option (based on the Fair Market Value of the Common Stock on the date the Option is exercised).
In addition, unless otherwise determined by the Board, payment for any Common Shares subject to an Option also may be made by instructing the Corporation to withhold a number of such Common Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price of such Option.
Upon exercise of an Option, the Corporation shall have the right to retain or sell without notice sufficient Common Stock to cover withholding for taxes, if any, as described in Section 9.10.
No shares of Common Stock shall be issued until full payment therefor has been made. An Optionee shall have all of the rights of a shareholder of the Corporation holding the class or series of Common Stock that is subject to such Option (including, if applicable, the right to vote the shares and the right to receive dividends) only when the Optionee has given written notice of exercise and has paid in full for such shares.
6.56.6 Termination of Option.
(a) If the Optionee ceases to be a director of the Corporation for any reason other than death, Disability, Retirement or removal for Cause, the Option shall terminate three months after the Optionee ceases to be a director of the Corporation (unless the Optionee dies during such period), or on the Option’s expiration date, if earlier, and shall be exercisable during such period after the Optionee ceases to be a director of the Corporation only with respect to the number of shares of Common Stock which the Optionee was entitled to purchase on the day preceding the day on which the Optionee ceased to be a director.
(b) If the Optionee ceases to be a director of the Corporation because of removal for Cause, the Option shall terminate on the date of the Optionee’s removal.
(c) In the event of the Optionee’s death, Disability or Retirement while a director of the Corporation, or the Optionee’s death within three months after the Optionee ceases to be a director (other than by reason of removal for Cause), the Option shall terminate upon the earlier to occur of: (i) 12 months after the date of the Optionee’s death, Disability or Retirement, or (ii) the Option’s expiration date. The Option shall be exercisable during such period after the Optionee’s death, Disability or Retirement with respect to the number of shares of Common Stock as to which the Option shall have been exercisable on the date preceding the Optionee’s death, Disability or Retirement, as the case may be.
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(d) Notwithstanding Section 6.56.6(a) but subject to Section 6.56.6(b), if an Optionee ceases to be a director of the Corporation at or after a Change in Control other than by reason of Cause, death, Disability or Retirement, any Option held by such Optionee shall be exercisable for the lesser of: (1) six months and one day after the Optionee ceases to be a director, and (2) the balance of such Option’s term.
6.66.7 Restriction On Disposition.Each Option granted under the Plan shall require the Optionee to agree not to sell, assign or transfer any shares of Common Stock acquired as a result of exercising an Option, or any part thereof, until after such shares have been held by the Optionee for one year after the date of exercise of the Option which resulted in their acquisition. This Section 6.66.7 shall not apply: (i) on and after a Change in Control, (ii) on and after an Optionee’s Disability or Retirement, (iii) to an Optionee who is the personal representative, heir or legatee of a deceased Non-Employee Director, (iv) to the extent necessary for tax withholding pursuant to Section 6.4,6.5, or (v) to the extent necessary in connection with the exercise of an Option pursuant to the third paragraph of Section 6.4.6.5. Certificates for shares subject to these restrictions on sale, assignment or transfer shall include a legend which describes such restrictions. When such restrictions end, unlegended certificates for such shares shall be delivered upon surrender of the legended certificates.
6.76.8 Transferability and Shareholder Rights of Holders of Options.No Option granted under the Plan shall be transferable otherwise than: (i) by will or by the laws of descent and distribution, or (ii) pursuant to a qualified domestic relations order (as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder). An Option may be exercised, during the lifetime of an Optionee, only by the Optionee. An Optionee shall have none of the rights of a shareholder of the Corporation until the Option has been exercised and the Common Stock subject to the Option has been registered in the name of the Optionee on the transfer books of the Corporation.
SECTION 7.Restricted Stock Terms
7.1 Awards and Certificates.
(a) Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of Restricted Stock shall be registered in the name of the Grantee and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award, substantially in the following form:
“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the First Financial Bancorp. Amended and Restated 1999 Non-Employee Director Stock Plan and an Award Agreement. Copies of such Plan and Agreement are on file at the offices of First Financial Bancorp., Hamilton, Ohio.”
(b) The Committee may require that the certificates evidencing such shares be held in custody by the Corporation until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the Grantee shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award.
(c) Upon the end of the Restriction Period and provided that the Restricted Stock has not been forfeited, the Corporation shall, upon the Grantee’s request or upon its own initiative, issue or have issued new certificates without the legend described in Section 7.1(a), in exchange for those certificates previously issued.
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7.2 Terms and Conditions.Restricted Stock shall be subject to the following terms and conditions.
(a) Except as otherwise provided in Sections 7.2(d), 7.2(e), 7.2(f), and 7.2(g), all restrictions on Restricted Stock granted pursuant to an Award shall end (and the Restricted Stock shall thereupon become vested) only as follows: one-third of the Award shall vest as of the date of the Award and one- third each shall vest as of the dates immediately prior to the Annual Meeting dates of the Corporation of each of the years containing the first and second anniversaries of the date of the Award, respectively, provided the grantee remains a director of the Corporation as of the date on which vesting occurs.
(b) Subject to the provisions of the Plan and the Restricted Stock Agreement referred to in Section 7.2(h), and until the expiration of the Restriction Period, the Grantee shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Restricted Stock.
(c) Except as provided in Sections 7.2(b) and this 7.2(c) and the Award Agreement, the Grantee shall have, with respect to the Restricted Stock, all of the rights of a shareholder of the Corporation holding the class or series of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. If so determined by the Committee in the applicable Award Agreement and provided that sufficient shares are available under Section 3 of the Plan for such reinvestment, (1) cash dividends on the class or series of Common Stock that is the subject of the Restricted Stock Award shall be automatically deferred and reinvested in additional Restricted Stock, held subject to the vesting of the underlying Restricted Stock and (2) dividends payable in Common Stock shall be paid in the form of Restricted Stock of the same class as the Common Stock with which such dividend was paid, held subject to the vesting of the underlying Restricted Stock.
(d) Except to the extent otherwise provided in the applicable Restricted Stock Agreement and Sections 7.2(a), 7.2(f) and 7.2(g), if a Grantee ceases to be a director of the Corporation for any reason other than death, Disability, Retirement, or Cause, all unvested Restricted Stock shall be forfeited as of the date the Grantee ceases to be a director.
(e) If a Grantee ceases to be a director of the Corporation because of removal for Cause, all unvested Restricted Stock shall be forfeited as of the date the Grantee ceases to be a director.
(f) In the event of a Grantee’s death, Disability or Retirement while a director of the Corporation, all unvested Restricted Stock shall become fully vested and all restrictions shall end as of the date of such death, Disability or Retirement.
(g) Notwithstanding Section 7.2(d) but subject to Section 7.2(e), if a Grantee ceases to be a director of the Corporation at or within twelve months after a Change in Control other than by reason of Cause, death, Disability or Retirement, any unvested Restricted Stock held by such Grantee shall become fully vested and all restrictions shall lapse as of the date the Grantee ceases to be a director.
(h) Each Award shall be confirmed by, and be subject to, the terms of an Award Agreement.
SECTION 8.Adjustments Upon Change In Capitalization
Notwithstanding the limitations set forth in Section 3, in the event of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation
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affecting the Common Stock, the Board shall make such substitution or adjustments in the aggregate number and kind of shares reserved for issuance under the Plan, in the number, kind and option price of shares subject to outstanding Options or Restricted Stock Awards, and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any OptionAward shall always be a whole number.
SECTION 8.9. Termination and Amendment
8.19.1 Termination.The Plan shall terminate on the earliest to occur of: (i) the date when all of the Common Stock available under the Plan shall have been acquired through the exercise of Optionsand all Restricted Stockgranted under the Plan shall have vested; (ii) April 26, 2009; or (iii) such earlier date as the Board may determine. Notwithstanding the foregoing sentence, the termination of the Plan shall not terminate the rights of a Grantee or Optionee with respect to Awards made on or prior to the date of such Plan termination.
8.29.2 Amendment.The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would: (i) impair the rights of an Optionee under an OptionAward or Award Agreement theretofore granted without the Optionee's or recipient’s consent, except such an amendment made to cause the Plan to qualify for the exemption provided by Rule 16b-3,3 or to cause the Plan to comply with Code section 409A, or (ii) disqualify the Plan from the exemption provided by Rule 16b-3. In addition, no such amendment shall be made without the approval of the Corporation’s shareholders to the extent such approval is required by law or agreement.
SECTION 9.10. Withholding
Upon(a) the issuance of Common Stock as a result of the exercise of an Option Award or (b) the vesting of Restricted Stock under an Award, the Corporation shall have the right to retain or sell without notice sufficient Common Stock to cover the amount of any federal income tax required to be withheld with respect to such Common Stock being issued or vested, remitting any balance to the Optionee or Grantee; provided, however, that the Optioneeor Granteeshall have the right to provide the Corporation with the funds to enable it to pay such tax.
SECTION 10.11. No Right to Re-Election
Nothing in the Plan or in any OptionAward granted pursuant to the Plan or any action taken under the Plan shall confer on any individual any right to continue as a director of the Corporation or to be renominated by the Board or re-elected by the shareholders of the Corporation.
SECTION 11.12. Effective Date of the Plan
The Plan shall beoriginal effective as of the date of the annual meeting at which the Plan is approved by the vote of the holders of at least a majority of the shares present and voting at the meetingPlan was the date of the 1999 Annual Meeting of Shareholders at which the Corporation’s shareholders approved the Plan. The effective date of this amendment and restatement of the Plan is the Effective Amendment Date as defined in Section 2.1(k).
SECTION 12. Predecessor13. Prior Plan
TheThis Plan is intended to supersedeamend and restate the First Financial Bancorp. 19911999 Stock IncentiveOption Plan (the “1991 Plan”) as such plan related tofor Non-Employee Directors(the “Prior Plan”)for all optionsAwards granted on or after the effective dateEffective Amendment Date of the Plan.
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Options Except as provided in Section 9.2 and Section 15, options granted under the1991Prior Plan which are outstanding on theeffective dateEffective Amendment Date of the Plan will not be affected by theamended and restated Plan.
SECTION13.14. Governing Law
The provisions of the Plan shall be construed, administered and enforced according to the laws of the State of Ohio without regard to its conflict of laws rules.
SECTION 15. Code Section 409A Compliance
The Corporation intends to operate the Plan in good faith compliance with the provisions of Section 409A of the Code and IRS Notice 2005-1 during calendar years 2005 and 2006 and further intends to amend the Plan and any outstanding Awards on or before December 31, 2006, or such later date as may be permitted, to conform to the provisions of Section 409A of the Code with respect to amounts subject to Section 409A of the Code.
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APPENDIX B
FIRST FINANCIAL BANCORP AND SUBSIDIARIES
AUDIT AND RISK MANAGEMENT COMMITTEE CHARTER
Committee Purpose
The Committee’s purpose is to assist the board of directors of First Financial Bancorp. (the “Company”) and oversee the Company’s accounting and financial reporting processes, the external auditors’ qualifications and independence, the performance of the Company’s internal audit function and the external auditors, the Company’s risk assessment and risk management policies, and the Company’s compliance with applicable legal and regulatory requirements. This purpose includes a particular focus on the qualitative aspects of financial reporting to shareholders and the Company’s processes for the management of business/financial risk. In fulfilling its purpose, the Committee shall coordinate with other board Committees and maintain strong, positive working relationships with management, external and internal auditors, counsel and other Committee advisers.
While the Committee has the responsibilities and powers set forth in the Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with the generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditors.
Committee Membership
The Committee shall consist of at least three members, all of whom shall be appointed by the Board of Directors.
Each Committee member must be a member of the Board of Directors,
Gregory A. Gehlmann
General Counsel and meet the independence, financial literacy and other applicable requirements of the Marketplace Rules of the National Association of Securities Dealers (“NASD”) and the Securities and Exchange Commission (“SEC”). At least one member of the Committee must meet the financial sophistication requirements of the NASD Marketplace Rules.Secretary
In appointing members to the Committee, the Board of Directors shall ensure that at least one Committee member qualifies as an audit committee financial expert within the meaning of SEC regulations, and that the composition of the Committee complies with any other listing standards and legal requirements applicable to the Company.
The Board of Directors (or such other committee of the Board as the Board may authorize) shall have sole authority and responsibility for determining whether a member or proposed member of the Committee is qualified for Committee membership, and which Committee member or members will be designated as an audit committee financial expert, based upon appropriate representations of the individual and such other inquiries as the circumstances may warrant.
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The Board shall designate one member of the Committee as Chair. The Chair need not be an audit committee financial expert.
The Committee shall have the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties.
Committee Funding
The Committee shall have the authority to determine, and the board of directors shall provide, the funding necessary for payment of:
| • | | Compensation to the external auditors; |
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| • | | Compensation to any advisers, including independent counsel, engaged by the Committee; |
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| • | | The budget for the internal audit function; and |
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| • | | Ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties. |
Frequency and Conduct of Meetings
The Committee shall meet at least quarterly. Additional meetings shall be scheduled as considered necessary by the Committee or chairperson.
Committee meeting agendas shall be the responsibility of the Committee chair, with the assistance of the internal auditor and input from Committee members. It is expected that management and key Committee advisers, and perhaps others, would participate in this process.
Written materials should, as a general rule, be received from management, auditors, and others at least one week in advance of meeting dates. Meeting conduct will assume Committee members have reviewed written materials in sufficient depth to participate in Committee discussions.
The Committee shall request members of management, counsel, internal auditors, and external auditors, as applicable, to participate in Committee meetings, as necessary, to carry out the Committee responsibilities. It shall be understood that either the external auditors, the chief risk officer, the chief internal auditor, or counsel may, at any time, request a meeting with the Committee or Committee chair with or without management attendance. In any case, the Committee shall meet in executive session at least annually, which session shall include risk management and internal audit, and shall meet separately with the external auditors, at least annually.
Reporting to Board of Directors
The Committee, through the Committee chair, shall report periodically, as deemed necessary, but at least semi-annually, to the full board of directors. In addition, summarized minutes from Committee meetings, separately identifying monitoring activities from approvals, shall beMarch 30, 2007
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provided to each board member at the next regularly scheduled meeting of the board of directors following the date of the Committee meeting.
Reporting to Shareholders
The Committee shall make available to shareholders a summary report on the scope of its activities. This may be identical to the report that appears in the Company’s annual proxy statement.
Relationship with External Auditors
The external auditors, in their capacity as an independent, registered public accounting firm, shall report directly to the Committee. The Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of the external auditors (including resolution of disagreements between management and the external auditors regarding financial reporting).
Before the external auditors are engaged by the Company to render audit or permissible non-audit services, the engagement shall either be approved by the Committee or be entered into pursuant to pre-approval policies and procedures established by the Committee as necessary to maintain the independence of the external auditors under Securities and Exchange Commission (“SEC”) regulations.
The Committee shall annually review the performance (effectiveness, objectivity, and independence) of the external auditors. The Committee shall ensure receipt of a formal written statement from the external auditors consistent with Independence Standards Board Standard No. 1. Additionally, the Committee shall discuss with the external auditors relationships or services that may affect auditor objectivity or independence. If the Committee is not satisfied with the external auditors’ assurances of independence, it shall take appropriate action to oversee the independence of the external auditors.
Oversight of Risk Management
The Committee shall oversee the risk management function. The chief risk officer shall be responsible for the risk management function and for the coordination of risk assessment and monitoring activities listed in the Company’s risk management plan, to better utilize available resources and to enhance the Company’s ability to comprehensively manage risk. The chief risk officer shall annually present a comprehensive risk management plan for the Committee’s approval.
Oversight of Internal Audit Function
The Committee shall oversee the internal audit function and shall appoint a chief internal auditor who shall be responsible for the internal audit function. The chief internal auditor shall report to the Committee regarding internal audit issues and shall annually present an internal audit plan for the Committee’s approval. To maintain the internal auditor’s independence, the Committee shall annually review the performance and compensation of the chief internal auditor.
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Communications from Committee AdvisersEXHIBIT A
Marked to Show Changes
IfPROPOSED AMENDMENT TO ARTICLE V OF REGULATIONS
ARTICLE V
CERTIFICATES
SECTION 5.1.Except as set forth in Section 5.2 hereof, certificates evidencing the external auditors, chief risk officer,ownership of shares of the Corporation shall be issued to those entitled to them by transfer or internal auditor identify significant issues relativeotherwise. Each certificate for shares shall bear a distinguishing number, the signature of the President or Chairman of the Board, and of the Secretary of the Corporation, the corporate seal, and such recitals as may be required by law. Such signatures and seal on the certificate may be facsimile signatures.
SECTION 5.2. Uncertificated Shares. The board of directors, subject to the overall board responsibilityimmediately succeeding paragraph, may provide by resolution that have been communicatedsome or all of any or all classes and series of shares of the corporation shall be uncertificated shares, provided that the resolution shall not apply to management but, in their judgment have not been adequately addressed, they should communicate these issuesshares represented by a certificate until the certificate is surrendered to the Committee chair.corporation and the resolution shall not apply to a certificated security issued in exchange for an uncertificated security. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner of the shares a written notice containing the information required to be set forth or stated on share certificates in accordance with all applicable laws. Except as expressly provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical.
Primary Committee Responsibilities SECTION 5.3. Subject to any applicable provision of law or the Articles, transfers of shares of the Corporation shall be made only upon its books, upon surrender and cancellation of a certificate or certificates for the shares so transferred. Any certificate so presented for transfer shall be endorsed or shall be accompanied by separate written assignment or a power of attorney, signed by the person appearing by the certificate to be the owner of the shares represented thereby. Any uncertificated shares shall be transferable in person or by attorney upon written request in form and substance acceptable to the corporation or any transfer agent for the applicable class of shares, accompanied by a duly endorsed stock power and/or such other assurances as the corporation or such transfer agent may require as to the genuineness and effectiveness thereof.
Monitor Financial Reporting, Disclosures SECTION 5.4. Lost, Stolen, Destroyed, or Mutilated Certificates.Subject to Section 5.2 hereof,the Corporation may, in its discretion, upon evidence satisfactory to it of the loss, theft, or destruction of any certificate for shares of the Corporation, authorize the issuance of a new certificate in lieu thereof, and Risk Control Related Matters
The Committee shall reviewmay, in its discretion, require as a condition precedent to such issuance, the giving, by the owner of such alleged lost, stolen, or destroyed certificate, of a bond of indemnity, in form and assess:
| • | | Risk Management— The Company’s business risk management process, including the adequacy of the Company’s overall control environment and controls in selected areas representing significant financial and business risk. |
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| • | | Internal Controls and Regulatory Compliance— The Company’s system of internal controls for detecting accounting and reporting financial errors, fraud and defalcations, legal violations, and noncompliance with the code of business conduct and ethics. |
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| • | | Annual Reports and Other Major Regulatory Filings— All major financial reports in advance of filings or distribution, including (1) external auditors’ reviews of the quarterly financial statements prior to the filing of the Company’s Form 10-Q; and (2) annual audited financial statements and disclosures made in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), and recommend to the Board whether the audited financial statements should be included in Company’s Form 10-K. |
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| • | | Earnings Press Releases— The Company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. The Committee need not discuss in advance each earnings release or each instance in which the Company may provide earnings guidance. |
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| • | | Disclosures— The Chief Executive Officer’s and Chief Financial Officer’s disclosures during the certification process for the 10-Ks and 10-Qs about (1) any significant deficiencies and material weaknesses in design or operation of internal controls over financial reporting and (2) any fraud, whether or not material, involving management or other employees who have a significant role in the Company’s internal controls. |
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| • | | Internal Audit Responsibilities— The annual internal audit plan and the process used to develop the plan. Status of activities, significant findings, recommendations, and management’s response. |
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| • | | Regulatory Examinations— SEC inquiries and the results of examinations by other regulatory authorities in terms of important findings, recommendations, and management’s response. |
amount, with surety, satisfactory to the Corporation, against any loss or damage which may result to, or claim which may be made against, the Corporation, or any transfer agent or registrar of its shares, in connection with such alleged lost, stolen, or destroyed, or such new, certificate. If any certificate for shares of the Corporation becomes worn, defaced, or mutilated, the Corporation may, upon production and surrender thereof, order that the same be canceled and that a new certificate be issued in lieu thereof.B-4
| • | | External Audit Responsibilities— Auditor independence and the overall scope and focus of the annual/interim audit, including the scope and level of involvement with unaudited quarterly or other interim-period information. |
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| • | | Financial Reporting and Controls— Key financial statement issues and risks, their impact or potential effect on reported financial information, the processes used by management to address such matters, related auditor views, and the basis for audit conclusions. Important conclusions on interim and/or year-end audit work in advance of the public release of financials. |
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| • | | Auditor Recommendations— Important internal and external auditors’ recommendations on financial reporting, controls and other matters, including specifically, discussions with the external auditors regarding: |
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| | All critical accounting policies and practices to be used; |
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| | | All alternative treatments within Generally Accepted Accounting Principles for policies and practices related to material items that have been discussed with management; |
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| ° | | Other material written communications between the external auditors and management; |
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| ° | | Difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, any significant disagreements with management, and communications between the audit team and the audit firm’s national office with respect to difficult auditing or accounting issues presented by the engagement; and |
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| ° | | Management’s response to such recommendations and the views of management and auditors on the overall quality of annual and interim financial reporting. |
| • | | Committee Performance— The Committee’s own performance as well as the Committee’s role and responsibilities, seeking input from senior management, the full board of directors, and others. |
The Committee shall discuss with management and/or external auditors, at least annually:
| • | | Developments and issues with respect to reserves; |
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| • | | Regulatory and accounting initiatives, as well as off-balance sheet structures, and their effect on the Company’s financial statements; |
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| • | | Accounting policies used in the preparation of the Company’s financial statements (specifically those policies for which management is required to exercise discretion or judgment regarding the implementation thereof); |
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| • | | Management’s evaluation of the Company’s internal control structure and procedures for financial reporting and review periodically, but in no event less frequently than quarterly, management’s conclusions about the efficacy of such internal controls and procedures, including any significant deficiencies or material weaknesses in such controls and procedures; |
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| • | | Management’s assessment of (1) the effectiveness of the Company’s internal control structure and procedures for financial reporting and (2) the external auditors’ attestation to, and report on, management’s control assessment related to the Company’s internal controls over financial reporting; |
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| • | | The Company’s major credit, market, liquidity and operational risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk policies; and |
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| • | | Any material legal affairs of the Company and Company’s compliance with applicable law and listing standards with Company’s General Counsel. |
The Committee shall review, assess, and approve:
| • | | At least annually, the code of business conduct and ethics (including the code of ethics for the chief executive officer and senior financial officers), the internal audit charter and the Committee charter. |
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| • | | Waivers of the Code of Business Conduct and Ethics effected for or granted to any director or executive officer. Such waivers shall be promptly reported as required by law or stock exchange regulation. |
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| • | | At least annually, the risk management plan and the internal audit plan and schedules for the Company and its affiliates. |
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| • | | Changes in important accounting principles and the application thereof in both interim and annual financial reports. |
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| • | | Significant conflicts of interest and related-party transactions. |
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| • | | Performance of and changes in external auditors. |
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| • | | Performance of and changes in the chief risk officer and the chief internal auditor and changes in internal audit leadership and/or key financial management. |
The Committee shall establish procedures for:
The receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and
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The confidential, anonymous submission by employees of the Company regarding questionable accounting or auditing matters.
Adopted by the Board of Directors of First Financial Bancorp on January 24, 2006.
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PLEASE MARK VOTES
XAS IN THIS EXAMPLE
REVOCABLE PROXY
FIRST FINANCIAL BANCORP.
ANNUAL MEETING OF SHAREHOLDERS – April 25, 2006May 1, 2007
Each undersigned shareholder of First Financial Bancorp. (the “Corporation”) hereby constitutes and appoints Wanda R. LadyJerry Begley and Frank M. PetersRae LoBuono or either of them, with full power of substitution in each of them, the proxy or proxies of the undersigned to vote only at the Annual Meeting of Shareholders of the Corporation to be held at the Fitton Center for Creative Arts, 101 South Monument Avenue, Hamilton, Ohio 45011, on April 25, 2005,May 1, 2007, at 10:00 A.M., local time, and at any adjournment thereof, all of the shares of the Corporation which the undersigned would be entitled to vote if personally present at such meeting or any adjournment thereof:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOLLOWING ITEMS:
1. | | The election as directors of all nominees listed (except as marked to the contrary below): |
___FOR ___ FOR
___WITHHOLD ___ WITHHOLD
___FOR ___ FOR ALL EXCEPT
| | CLASS II EXPIRING IN 2009: Murph Knapke, William2010: J. KramerWickliffe Ach, Donald M. Cisle, Sr., Corinne R. Finnerty and Barry S. Porter.Richard Olszewski. |
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| | INSTRUCTION: To withhold authority to vote for any individual nominee, mark “For All Except” and write that nominee’s name in the space provided below. |
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2. | | To approve an amendment to the Amended and Restated 1999 Non-Employee Director Stock Plan.Corporation’s Regulations to allow the Board of Directors to authorize the Corporation to issue shares without issuing physical certificates. |
___FOR ___ FOR
___AGAINST ___ AGAINST
___ABSTAIN ___ ABSTAIN
3. | | To consider and act upon, in their discretion, such other matters as may properly come before the meeting or any adjournment thereof. |
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THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFIC INDICATIONS ABOVE. IN THE ABSENCE OF SUCH INDICATIONS THIS PROXY WILL BE VOTED (I) FOR THE ELECTION OF EACH OF THE ABOVE NAMED NOMINEES FOR DIRECTOR, AND (II) IN FAVOR OF THE PROPOSAL IN ITEM NUMBER TWO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and may be revoked prior to its exercise. Receipt of the accompanying Proxy Statement is hereby acknowledged.
Please be sure to sign and date this Proxy in the box below.
Date
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ShareholderCo-holder (if any) sign above | | Co-holder (if any) sign above |
Detach above card, sign, date and mail in postage paid envelope provided.
FIRST FINANCIAL BANCORP.
The signature or signatures on this Proxy should be the same as the name or names which appear hereon. Persons signing in a fiduciary capacity should give full title as such.
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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