SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
FIRST FINANCIAL CORPORATION
(Name Of Registrant As Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
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applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
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(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
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(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
FIRST FINANCIAL CORPORATION
One First Financial Plaza
P.O. Box 540
Terre Haute, Indiana 47808
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held April 16, 1997
Notice is hereby given that, pursuant to the call of its Directors, an
Annual Meeting of Shareholders of First Financial Corporation ("Corporation")
will be held on April 16, 1997 at 11:00 o'clock a.m., local time, at One First
Financial Plaza, Terre Haute, Indiana.
The purposes of the meeting are:
(1) To elect the Board of Directors of the Corporation. In the
event the proposed Amended and Restated Articles of
Incorporation specified in Item 3 below are adopted by the
shareholders, the nominees will be elected in two classes of
five nominees each and one class of four nominees, with one
class having an initial term of one year, the second class
having an initial term of two years, and the third class
having an initial term of three years. If the Amended and
Restated Articles of Incorporation are not adopted, all
nominees will be elected for a term of one year.
(2) To adopt an amendment to the Corporation's Articles of
Incorporation increasing the authorized shares of Common Stock
from 10,000,000 to 40,000,000. This same change is a part of
the Amended and Restated Articles of Incorporation specified
in Item 3 below, and is being proposed as a separate item to
permit its adoption even if proposition 3 is not approved.
(3) To adopt Amended and Restated Articles of Incorporation of the
Corporation as outlined in the accompanying Proxy Statement.
(4) To transact such other business as may properly be presented
at the meeting.
Some of the items to be voted on may have an "anti-takeover" effect.
Therefore, you are urged to read carefully the accompanying Proxy Statement.
Your Board of Directors recommends unanimously that you vote FOR the adoption of
the above proposals.
Only shareholders of record at the close of business on March 7, 1997,
will be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
/s/ Donald E. Smith
DONALD E. SMITH
Chairman of the Board and President
March ___, 1997
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE
MEETING, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES
1
PROXY STATEMENT OF
FIRST FINANCIAL CORPORATION
One First Financial Plaza
P.O. Box 540
Terre Haute, Indiana 47808
(812) 238-6000
-----------------------
ANNUAL MEETING OF SHAREHOLDERS
to be held April 16, 1997
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of First Financial Corporation (the "Corporation") of
Proxies for use at an Annual Meeting of Shareholders of the Corporation to be
held on April 16, 1997 at 11:00 a.m. at One First Financial Plaza, Terre Haute,
Indiana, and at any and all adjournment of such meeting. This Proxy Statement
and accompanying form of proxy were first mailed to the shareholders on or about
March 17, 1997.
The Corporation is a multi-bank holding company which owns Terre Haute
First National Bank ("Terre Haute First"), First State Bank, First Citizens
State Bank, First Farmers State Bank, First Ridge Farm State Bank, First Parke
State Bank, First National Bank of Marshall and First Crawford State Bank.
Only shareholders of record as of March 7, 1997, will be entitled to
notice of, and to vote at, the Annual Meeting. As of March 1, 1997 the
Corporation had issued and outstanding 6,681,876 shares of common stock, which
were held by approximately 1,130 shareholders of record. There are no other
outstanding securities of the Corporation entitled to vote.
For the matter to be voted on at this Annual Meeting, each share is
entitled to one vote, exercisable in person or by proxy. Approval of a plurality
of the votes cast at the meeting, assuming a quorum is present, is required for
election of each nominated director. Action on any other matters to come before
the meeting must be approved by an affirmative vote of a majority of the shares
present, in person, or by proxy. Abstentions, broker non-votes, and instructions
on the accompanying proxy card to withhold authority to vote for one or more of
the named nominees will result in the respective nominee receiving fewer votes.
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The cost of soliciting proxies will be borne by the Corporation. In
addition to use of the mails, proxies may be solicited personally or by
telephone by officers, directors and certain employees who will not be specially
compensated for such soliciting.
Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised. Therefore, execution of the proxy will not affect the
shareholder's right to vote in person if he or she attends the meeting.
Revocation may be made prior to the meeting (i) by written notice sent to John
W. Perry, Secretary, First Financial Corporation, One First Financial Plaza,
P.O. Box 540, Terre Haute, Indiana 47808, (ii) personally upon oral or written
request at the Annual Meeting, or (iii) by duly executing a proxy bearing a
later date.
The shares represented by proxies will be voted as instructed by the
shareholders giving the proxies. In the absence of specific instructions to the
contrary, proxies will be voted in favor of the election as directors of the
fourteen (14) persons named as nominees in this Proxy statement. If for any
reason any of the director/nominees becomes unable or is unwilling to serve at
the time of the meeting (an event which the Board of Directors does not
anticipate), the persons named as proxies in the accompanying form of proxy will
have discretionary authority to vote for a substitute nominee or nominees named
by the Board of Directors if the Board of Directors elects to fill such
nominees' positions. Any other matters that may properly come before the meeting
will be acted upon by the persons named as proxies in the accompanying form of
proxy in accordance with their discretion.
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PROPOSAL I: ELECTION OF DIRECTORS
Fourteen (14) directors will be elected at the Annual Meeting. If the
proposed Amended Restated Articles of Incorporation, as discussed below in
"PROPOSAL FOR APPROVAL AND ADOPTION OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION," are adopted by the shareholders, the Board of Directors will
consist of three classes holding the terms of office indicated below. If such
amendments are not adopted, all fourteen (14) nominees will be nominated to
serve for one-year terms, until the next Annual Meeting and until his or her
successor is elected and qualified:
Class I (one-year term) Walter A. Bledsoe
Max L. Gibson
William A. Niemeyer
Donald E. Smith
Class II (two-year term) B. Guille Cox, Jr.
Anton H. George
Gregory L. Gibson
John W. Ragle
Virginia L. Smith
Class III (three-year term) Thomas T. Dinkel
Mari H. George
Norman L. Lowery
Patrick O'Leary
Chapman J. Root II
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For each of the fourteen (14) nominees for director listed below there is a
brief summary of his or her present principal occupation, other business
experience during the last five years, age, and the year such individual first
became a director.
Title or
Year Became Position with Principal Occupation
Name and Age a Director Corporation for the Last Five Years
------------ ---------- ----------- -----------------------
Walter A. Bledsoe, 81 1983* Director Personal Investments
B. Guille Cox, Jr., 51 1987 Director Attorney-At-Law with Cox Zwerner
Gambill & Sullivan
Thomas T. Dinkel, 46 1989 Director President of Sycamore Engineering, Inc.
Anton H. George, 37 1987 Director President of Indianapolis Motor
Speedway Corp.; Director of Indiana
Energy, Inc.
Mari H. George, 62 1989 Director Chairman of Indianapolis Motor
Speedway Corp.
Gregory L. Gibson, 34 1994 Director President of ReTec, Inc.
Max L. Gibson, 56 1983* Director President of Majax Company; Director,
IPALCO, Inc.
Norman L. Lowery, 50 1989 Vice-Chairman of President of Terre Haute First (effective
the Board January 1, 1996); Attorney-At-Law with
Wright Shagley & Lowery through 1995
William A. Niemeyer, 74 1983* Director President of Niemeyer Coal Co.
Patrick O'Leary, 60 1983* Director President of Contract Services, LLC
John W. Ragle, 70 1983* Director President of Ragle & Company, Inc.
Chapman J. Root, II, 47 1989 Director President of Root Company; Director of
International Speedway Corp.
Donald E. Smith, 70 1983* Chairman of the President of Terre Haute First and First
Board and Financial Corporation through 1995;
President Director of Southern Indiana Gas and
Electric Company
Virginia L. Smith, 49 1987 Director President of R.J. Oil Co., Inc.
* First Financial Corporation was formed in 1983.
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Additional Information Concerning Board of Directors
Attendance at Meetings. During 1996, the Board of Directors of the
Corporation held 12 regular meetings and a total of 19 meetings. No director
standing for re-election attended fewer than 75% of the aggregate number of
Board meetings and meetings on committees on which he or she served, except Mr.
George, Mr. Root and Mrs. George, who attended 60%, 50% and 40% of such
meetings, respectively.
Certain Relationships. Certain family relationships exist among the
directors of the Corporation. Donald E. Smith is the father of Virginia L. Smith
and father-in-law of Norman L. Lowery. Mari H. George is the mother of Anton H.
George. Max L. Gibson is the father of Gregory L. Gibson. There are no
arrangements or understandings between any of the directors pursuant to which
any of them have been selected for their respective positions.
Committees. The Board of Directors had no standing nominating or any
committee performing similar functions during 1996; such functions are performed
by the Board of Directors as a whole.
The Corporation's Examining Committee, which consists of John W. Ragle,
Max Gibson, and Patrick O'Leary, reviews the Corporation's accounting functions,
operations and management and the adequacy and effectiveness of the internal
controls and internal auditing methods and procedures. This Committee recommends
to the Board the appointment of the independent public accountants for the
Corporation. This Committee met twice during 1996.
The Corporation's Compensation Committee, which consists of Messrs.
O'Leary, Smith, M. Gibson, Niemeyer, A. George, and Lowery, overviews the
compensation of the officers of subsidiary banks and recommends salaries and
bonus amounts to the full Board of Directors. Such Committee met four times in
1996.
Compensation of Directors. Directors of the Corporation received a fee
of $100 per meeting during 1996 if the meeting was held as a joint meeting with
the Board of Directors of Terre Haute First. Only one meeting of the Board of
Directors of the Corporation was not held as a joint meeting with the Board of
Directors of Terre Haute First during 1996. For meetings of the Board of
Directors of the Corporation which were not joint meetings with the Board of
Directors of Terre Haute First, directors received a fee of $500 per such
meeting attended.
Directors of Terre Haute First, a wholly-owned banking subsidiary of
the Corporation, received a fee in 1996 of $500 for each meeting attended and a
semi-annual fee of $2,300. In addition, Directors of Terre Haute First, other
than those employed by Terre Haute First, received a fee of $300 for each Loan
Discount Committee meeting attended. Directors of Terre Haute First that are not
yet seventy (70) have the option of participating in a deferred director's fee
program, pursuant to which each year, for five years, $6,000 of Director's fees
are deferred until the participant reaches the age of sixty-five (65) or seventy
(70), at which point the Director may elect
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to receive payments over a ten year period. For 1996, the allocated cost of the
deferred Director's fees was $142,216, which is funded by Terre Haute First with
insurance products.
Directors of First State Bank, a wholly-owned banking subsidiary of the
Corporation, received a fee of $200 for each meeting attended.
Directors of First Citizens State Bank, a wholly-owned banking
subsidiary of the Corporation, received a fee of $300 for each meeting attended.
Directors of First Farmers State Bank, a wholly-owned banking
subsidiary of the Corporation, received a fee of $200 for each meeting attended.
Directors of First Ridge Farm State Bank, a wholly-owned banking
subsidiary of the Corporation, received a fee of $200 for each meeting attended.
Directors of First Parke State Bank, a wholly-owned banking subsidiary
of the Corporation, received a fee of $200 for each meeting attended.
Directors of First National Bank of Marshall, a wholly-owned banking
subsidiary of the Corporation, received a fee of $325 for each meeting attended.
Directors of First Crawford State Bank, a wholly-owned banking
subsidiary of the Corporation, received a fee of $500 for each meeting attended.
EXECUTIVE OFFICERS OF THE CORPORATION
The executive officers of the Corporation, all of whom serve for a one
year term, consist of Donald E. Smith, Chairman of the Board and President;
Norman L. Lowery, Vice Chairman; John W. Perry, Secretary; Michael A. Carty,
Treasurer; and W. Edward Jukes, Chief Credit Officer. Mr. Perry, age
fifty-three, was Treasurer of the Corporation from 1983 through 1990 and has
been Secretary from 1990 through the present. For the past ten years, Mr.
Perry's principal occupation has been as the Senior Vice President of Terre
Haute First. Mr. Carty, age forty-six, has been Senior Vice President of Terre
Haute First since 1990 and was Vice President of Terre Haute First from 1983
until 1990. Mr. Jukes, age fifty-four, has been Senior Vice President of Terre
Haute First since 1989. For additional information concerning Messrs. Smith and
Lowery, see "ELECTION OF DIRECTORS."
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COMPENSATION OF OFFICERS
Compensation Committee Report
Decisions on compensation of the Corporation's executives are made by
the Compensation Committee of the Board, which also serves as the Compensation
Committee of Terre Haute First. Each member of the Compensation Committee,
except Mr. Smith and Mr. Lowery, was a non-employee director. All decisions of
the Compensation Committee relating to the compensation of the Corporation's
executive officers are reviewed by the full Board. Pursuant to rules of the
Securities and Exchange Commission designed to enhance disclosure of corporation
policies toward executive compensation, set forth below is a report submitted by
Messrs. O'Leary (Chairman), Smith, Gibson, Niemeyer, A. George and Lowery in
their capacity as the Board's Compensation Committee addressing the
Corporation's compensation policies for 1996 as they affected Mr. Smith and
Messrs. Lowery, Perry, Jukes and Carty, the other executive officers other than
Mr. Smith who, for 1996, were the Corporation's most highly paid executive
officers whose total annual salary and bonus exceeded $100,000.
Compensation Policies Toward Executive Officers. The Compensation
Committee's executive compensation policies are designed to provide competitive
levels of compensation to the executive officers and to reward officers for
satisfactory individual performance and for satisfactory performance of the
Corporation as a whole. There are no established goals or standards relating to
performance of the Corporation which have been utilized in setting compensation
of individual employees.
Base Salary. Each executive officer is reviewed individually by the
Compensation Committee, which review includes an analysis of the performance of
the Corporation and Terre Haute First. In addition, the review includes, among
other things, an analysis of the individual's performance during the past fiscal
year, focusing primarily upon the following aspects of the individual's job or
characteristics of the individual exhibited during the most recent fiscal year:
quality and quantity of work; supervisory skills; dependability; initiative;
attendance; overall skill level; and overall value to the Corporation.
Annual Bonus Amounts. The Compensation Committee determines whether a
bonus should be paid based primarily upon the overall performance of the
Corporation. For 1996, Mr. Smith received a bonus of $115,000 and Messrs.
Lowery, Perry, Jukes and Carty each received a bonus, equal to 10.0% of their
salary, of $20,000, $13,707, $10,891, and $9,291, respectively.
Other Compensation Plans. At various times in the past the Corporation
has adopted certain broad-based employee benefit plans in which the executive
officers are permitted to participate on the same terms as other corporation
employees who meet applicable eligibility criteria, subject to any legal
limitations on the amount that may be contributed or the benefits that may be
payable under the plans.
8
Benefits. The Corporation provides medical and pension benefits to the
executive officers that are generally available to other Corporation employees.
The amount of perquisites, as determined in accordance with the rules of the
Securities and Exchange Commission relating to executive compensation, did not
exceed 10% of salary and bonus for fiscal 1996.
Mr. Smith's 1996 Compensation. Regulations of the Securities and
Exchange Commission require that the Compensation Committee disclose the
Committee's basis for compensation reported for Mr. Smith in 1996. Mr. Smith's
salary and bonus are determined in the same manner as discussed above for other
executives, except that $75,000 of Mr. Smith's $115,000 bonus was made in
connection with an employment agreement providing for a split-dollar life
insurance arrangement between the Corporation, Terre Haute First and Mr. Smith.
The Compensation Committee believes that Mr. Smith has managed the Corporation
well.
Members of the 1996 Compensation Committee
Anton H. George Max L. Gibson Norman L. Lowery
William A. Niemeyer Patrick O'Leary Donald E. Smith
Compensation Committee Insider Participation
During the past fiscal year, Mr. Smith, the Chief Executive Officer,
and Mr. Lowery, the Vice- Chairman, served on the Compensation Committee but did
not participate in any discussion or voting with respect to the salaries or
bonuses of either Mr. Smith or Mr. Lowery. Moreover, Mr. Smith and Mr. Lowery
excused themselves from the room during the discussion by the Compensation
Committee of the compensation of both Mr. Smith and Mr. Lowery.
Summary Compensation Table
The following table sets forth for the fiscal years ending December 31,
1996, 1995, and 1994 the cash compensation paid by the Corporation, as well as
certain other compensation paid or awarded during those years, to the Chief
Executive Officer and any other executive officer whose total annual salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1996.
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Name and Principal Year Annual Compensation (1) All Other
Position Salary Bonus (2) Compensation (3)
- --------------------------- ---- -------- -------- ----------------
Donald E. Smith 1996 $274,148 $ 115,000 $ 9,188 (4)
President, CEO and 1995 $263,604 $ 115,000 $14,997
Chairman 1994 $253,465 $ 40,000 $36,144
Norman L. Lowery 1996 $200,000 $ 20,000 $15,395
Vice Chairman (5)
John W. Perry 1996 $137,075 $ 13,707 $ 1,247 (4)
Secretary 1995 $131,801 $ 12,673 $ 8,643
1994 $126,732 $ 12,673 $ 8,083
W. Edward Jukes 1996 $108,912 $ 10,891 $ 1,394 (4)
Chief Credit Officer 1995 $104,723 $ 10,069 $ 7,185
1994 $100,695 $ 10,069 $ 6,844
Michael A. Carty 1996 $ 92,964 $ 9,296 $ 354 (4)
Treasurer 1995 $ 89,389 $ 8,595 $ 5,127
1994 $ 85,951 $ 8,595 $ 4,880
(1) While officers enjoy certain perquisites, such perquisites do not
exceed the lesser of $50,000 or 10% of such officer's salary and bonus
and are not required to be disclosed by applicable rules of the
Securities and Exchange Commission.
(2) The bonus amounts are payable pursuant to determinations made by the
Compensation Committee of the Corporation, as described in the
"Compensation Committee Report."
(3) These amounts include Corporation payments for the years noted on
behalf of the above-named individuals (except Mr. Smith) pursuant to a
life insurance program ("Life Insurance Program") for the executive
officers of Terre Haute First. Under the Life Insurance Program, Terre
Haute First purchased a life insurance policy on behalf of each
executive officer of Terre Haute First. The policy is owned by the
individual and will be paid at age 65 for those presently 55 or older,
and at age 60 for those who are less than 55 years of age. The annual
cost of this insurance for those reported (except for Mr. Smith) was as
follows: $4,395 for Mr. Lowery; $1,247 for Mr. Perry; $1,394 for Mr.
Jukes; and $354 for Mr. Carty.
Mr. Smith no longer participates in the group term life insurance
policy of the Corporation (which coverage would terminate upon his
retirement). The Corporation paid for its portion of a separate
split-dollar life insurance policy for Mr. Smith in 1996, which will
continue to be in effect following his retirement as an executive
officer of the Corporation and Terre Haute First. In 1996, the dollar
value of the benefit to Mr. Smith of the premium paid by the
Corporation and Terre Haute First in connection with such policy, which
was issued pursuant
10
to an Employment Agreement between the Corporation, Terre Haute First,
and Mr. Smith, was $9,188 (which amount is included in the amount
reported for Mr. Smith above). The Corporation expects to recover the
premiums it pays for this split-dollar policy from the proceeds of such
policy.
Because Mr. Lowery was not eligible for the ESOP in 1996, a
non-qualified deferred compensation program was established.
Contributions of $11,000 were made in 1996 to this non-qualified plan
on behalf of Mr. Lowery.
(4) Allocations to the named individual's respective account in the
Corporation's Employee Stock Ownership Plan ("ESOP") for 1996, which
are properly includable in this column, were not calculable as of the
date of this Proxy Statement. Such amounts for 1995 were as follows:
$7,216 for Mr. Smith; $7,216 for Mr. Perry; $5,791 for Mr. Jukes and
$4,773 for Mr. Carty.
(5) Did not become an executive officer of the Corporation until January 1,
1996.
Employee Benefit Plans
Employee Stock Ownership Plan. The Corporation sponsors the First
Financial Corporation Employee Stock Ownership Plan ("ESOP") and the First
Financial Corporation Employees' Pension Plan ("Pension Plan") for the benefit
of substantially all of the employees of the Corporation and its subsidiaries.
As discussed below, these plans constitute a "floor-offset" retirement program.
The Pension Plan is a defined benefit "floor" plan which provides each
participant with a minimum benefit or "floor" which is offset by the benefit
provided by the ESOP. Thus, if a participant's benefit under the ESOP is
insufficient to fund the minimum "floor" of benefits specified by the Pension
Plan, the Pension Plan will make up the difference. If a participant's benefit
under the ESOP is higher than the minimum or "floor" benefit under the Pension
Plan, the participant receives the higher benefit under the ESOP.
All employees of the Corporation and its subsidiaries become
participants in the ESOP after completing one year of service for the
Corporation or its subsidiaries and attaining age 21. Under the terms of the
ESOP, the Corporation or its subsidiaries, as participating employers, may
contribute Corporation common stock to the ESOP or contribute cash to the ESOP
which will be primarily invested in the Corporation's common stock. The amount
of contributions, when they are made, is determined by the Board of Directors of
the Corporation. No participant contributions are required or allowed under the
ESOP.
For a discussion of the forms in which benefits may be distributed
under the ESOP, see the discussion under "Defined Benefit Plan" below.
Participants have the right to direct the voting of the shares of the
Corporation's stock allocated to their accounts under the ESOP on all corporate
matters.
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For the year ended December 31, 1996, the Corporation contributed to
the ESOP $600,000 in Corporation stock. The stock will be allocated to the
individual ESOP accounts of the participants effective as of December 31, 1996,
although no allocation to the individual accounts had been made or calculated as
of the date of mailing of this Proxy Statement.
Defined Benefit Plan. As described above, the Pension Plan was adopted
in conjunction with, but is separate from, the ESOP. Employees become
participants in the Pension Plan after completing one year of service for the
Corporation or its subsidiaries and attaining age 21. All employees of the
Corporation and its subsidiaries are eligible to become participants. No
participant contributions are required or allowed under the Pension Plan. The
Pension Plan, in conjunction with the ESOP, is designed to provide participants
with a minimum retirement benefit.
The monthly guaranteed minimum benefit under the Pension Plan is
reduced by the monthly benefit derived from the participant's vested portion of
his ESOP account balance, calculated by the actuary for the Pension Plan as a
single life annuity. The normal retirement benefit will begin at age 65 and be
paid monthly for as long as the participant lives.
The normal form of retirement benefit under the ESOP and Pension Plan
is a monthly life annuity. A married participant will receive an actuarially
equivalent joint and 50% survivor annuity (a monthly payment for the
participant's life with the surviving spouse receiving 50% of that amount for
life), unless the participant otherwise elects and the participant's spouse
consents to such election. A participant may also elect to receive his
retirement income from the ESOP and Pension Plan in the form of: a monthly
income payable for life; a monthly income payable for life with either 50%,
66-2/3%, or 100% of the participant's benefit paid to the participant's
designated beneficiary starting upon the participant's death and continuing for
as long as the beneficiary lives; or a monthly income payable for life with 60,
120 or 180 monthly payments guaranteed, provided that the number of guaranteed
monthly payments cannot be for a period greater than the joint life expectancy
of the participant and his spouse. The ESOP also provides that a participant's
benefit may be distributed in a single lump sum or substantially equal monthly,
quarterly or annual installments over a period which does not exceed the
participant's life expectancy (or the joint life expectancy of the participant
and his spouse). However, a participant may deem that all or any part of the
distribution from the ESOP be made in whole shares of the Corporation's common
stock prior to the date specified for distribution, with any fractional shares
distributed in cash.
The following table shows the estimated annual benefits payable under
the Pension Plan upon retirement at age 65 for various periods of Benefit
Service at specified levels of remuneration. The benefit amounts presented in
the totals are annual straight life annuity amounts without deduction for social
security or other offset amounts. A participant's Final Average Annual
Compensation shown under the Pension Plan is generally based on the compensation
set forth in the Summary Compensation Table.
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Estimated Minimum Annual Retirement Benefit
Final Average Annual Compensation
Years
of Benefit
Service
250K
70K 100K 130K 160K 190K 220K or more
------ ------ ------ ------- ------- ------- -------
10 $ 16,795 $ 24,550 $ 32,500 $ 40,497 $ 45,267 $ 50,037 $ 52,555
20 33,200 49,100 65,000 81,025 93,745 106,465 113,181
30 42,800 63,650 84,500 105,553 125,000 125,000 125,000
40 44,100 65,925 87,750 109,848 125,000 125,000 125,000
Maximum benefits under the Pension Plan are subject to the annual
limitation ($125,000 for 1996) imposed on qualified plans by the Internal
Revenue Code. The maximum compensation which may be taken into account for any
purpose under the Pension Plan is limited by the Internal Revenue Code to
$160,000 for 1997.
Under the Pension Plan, the executive officers of the Corporation named
in the Summary Compensation Table under "COMPENSATION OF OFFICERS" have the
following current years of benefit service: Donald E. Smith - 28 years; John W.
Perry - 22 years; Michael A. Carty - 20 years; W. Edward Jukes - 7 years; and
Norman L. Lowery - 1 year.
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Corporation and their
associates were customers of, and have had transactions with, the Corporation
and its subsidiary banks in the ordinary course of business during 1996.
Comparable transactions may be expected to take place in the future.
During 1996 various directors and officers of the Corporation and their
respective associates were indebted to the subsidiary banks from time to time.
These loans were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for similar transactions with other persons and did not involve more than
the normal risk of collectability or present other unfavorable features.
The law offices of B. Guille Cox, Jr., in which Mr. Cox is a partner,
were paid $16,113 in legal fees by the Corporation and its subsidiaries for the
fiscal year ending December 31, 1996.
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COMPARATIVE PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on the
Corporation's common stock over the last five fiscal years with the returns of
the CRSP Total Return Index for the NASDAQ Stock Market (U.S.) and the CRSP
Total Return Index for NASDAQ bank stocks. The graph assumes $100.00 was
invested on January 1, 1991 in the Corporation's common stock and in each of the
two indices shown, and the reinvestment of all dividends.
FFC STOCK
TOTAL RETURN COMPARISON
[CHART OMITTED AND REPLACED WITH TABLE]
12/91 12/92 12/93 12/94 12/95 12/96
----- ----- ----- ----- ----- -----
NASDAQ MARKET (US) 100 116.38 133.60 130.59 184.67 222.16
NASDAQ BANK 100 145.55 165.99 165.38 246.32 325.60
FFC STOCK 100 163.86 235.75 221.81 240.39 296.46
14
EMPLOYMENT CONTRACTS
On January 3, 1995, the Corporation, Terre Haute First, and Mr. Smith
entered into an Employment Agreement ("Agreement") whose term expires on
December 31, 2000 (although the Agreement may be renewed for successive one (1)
year terms as agreed upon by the parties). The Agreement provides that Mr. Smith
will serve as President and Chief Executive Officer of the Corporation during
the term of the agreement and perform such other duties as may be established by
the Board of Directors of the Corporation and Terre Haute First. Under the terms
of the Agreement, Mr. Smith will be paid an annual salary as set by the Board of
Directors of the Corporation and Terre Haute First. In addition, the Agreement
requires that the Corporation and Terre Haute First establish a split dollar
life insurance arrangement with Mr. Smith which will insure the lives of Mr.
Smith and his spouse. Under the terms of the Agreement, the Corporation and
Terre Haute First expect to recover the premiums they pay for such policy from
the proceeds of such policy.
Effective January 1, 1997, Terre Haute First entered into an Employment
Agreement with Norman L. Lowery, its President and Chief Executive Officer. The
Employment Agreement is a five-year agreement and extends annually for an
additional one-year term to maintain its five-year term if Terre Haute First's
Board of Directors determines to so extend it. Under the Employment Agreement,
Mr. Lowery receives an initial annual salary equal to his current salary subject
to increases approved by the Board of Directors. The Employment Agreement also
provides, among other things, for Mr. Lowery's participation in other bonus and
fringe benefit plans available to the Corporation's and Terre Haute First's
employees. Mr. Lowery may terminate his employment upon ninety (90) days' prior
written notice to Terre Haute First. Terre Haute First may discharge Mr. Lowery
for just cause (as defined in the Employment Agreement) at any time or in
certain events specified by applicable law or regulations.
If Terre Haute First terminates Mr. Lowery's employment for other than
just cause or Mr. Lowery is constructively discharged and such termination does
not occur within twelve months after a change in control of Terre Haute First or
the Corporation, the Employment Agreement provides for Mr. Lowery's receipt in a
lump-sum or periodic payments of an amount equal to the sum of (A) Mr. Lowery's
base salary through the end of the then-current term, plus (B) in Mr. Lowery's
sole discretion and in lieu of continued participation in Terre Haute First's
fringe benefit and retirement plans, cash in an amount equal to the cost of
obtaining all health, life, disability, retirement and other benefits which Mr.
Lowery would otherwise be eligible to receive if he continued to participate in
those plans through the end of the then-current term. In the event Terre Haute
First terminates Mr. Lowery's employment for other than just cause or Mr. Lowery
is constructively discharged within twelve months following a change in control
of Terre Haute First or the Corporation, the Employment Agreement provides for
Mr. Lowery's receipt of a lump-sum payment of an amount equal to the difference
between (A) the product of 2.99 times his "base amount" (as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")) and
(B) the sum of any other parachute payments, as determined under Section
280G(b)(2) of the Code, in addition to the benefits described above which he
would receive if the termination did not occur within 12 months following a
change in control.
15
If the payments provided for under the Employment Agreement, together
with any other payments made to Mr. Lowery by Terre Haute First, are determined
to be payments in violation of the "golden parachute" rules of the Code, such
payments will be reduced to the largest amount which would not cause Terre Haute
First to lose a tax deduction for such payments under those rules. As of the
date hereof, the cash compensation that would be paid to Mr. Lowery under the
Employment Agreement if such agreement were terminated within 12 months after a
change in control of Terre Haute First would be $621,920, plus all other amounts
he would otherwise be due under the Employment Agreement for the balance of its
term.
16
PROPOSAL II: AMENDMENT OF ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK
At a meeting held on March 18, 1997, the Corporation's Board of
Directors adopted resolutions approving and submitting to a vote of the
shareholders, an amendment of the first sentence of Article III of the
Corporation's Articles of Incorporation which would increase the authorized
shares of the Corporation's Common Stock from 10,000,000 shares to 40,000,000
shares (the "Amendment"). This same change is part of the proposed Amended and
Restated Articles of Incorporation, and is being proposed as a separate item so
that it may be adopted even if shareholders do not approve the Amended and
Restated Articles of Incorporation.
On March 7, 1997, the number of the Corporation's outstanding shares of
Common Stock was 6,681,876; and the number of shares of Common Stock reserved
for the exercise of rights under the Shareholder Rights Plan was 3,318,124,
leaving no remaining authorized and unreserved shares of Common Stock.
The Amendment is being proposed to make available additional shares of
Common Stock for general corporate purposes, including acquisitions, financings,
stock dividends, stock splits, and issuances pursuant to the Shareholder Rights
Plan. If the proposed Amendment becomes effective, 3,363,752 additional shares
will be reserved for the exercise of rights under the Shareholder Rights Plan.
See "Proposal III: Proposal For Approval and Adoption of Amended and Restated
Articles of Incorporation - Shareholder Rights Plan." In addition, the Board has
concluded that it would be in the best interest of the Corporation to be in a
position to continue to expand its banking operations by means of bank
acquisitions involving the issuance of its capital stock. In the judgment of
management, the additional shares authorized by the proposed Amendment should be
available to provide flexibility in corporate decisions in the event shares
should be needed for any such desirable corporate purpose. At this time, the
Corporation has no specific plans, understandings, or arrangements for issuing
any of the shares of capital stock to be authorized by the proposed Amendment.
If additional shares are issued, the percentage ownership interests of existing
shareholders would be reduced and, depending on the terms pursuant to which new
shares are issued, the book value and earnings per share of outstanding stock
might be diluted. Moreover, such additional share issuance could be construed as
having an anti-takeover effect because the percentage ownership of a potential
acquiror would be reduced upon the issuance of additional shares. Except to the
extent shares will be reserved for issuance under the Shareholder Rights Plan,
no consideration was given by the Board of Directors to the use of any such
additional shares as an "anti-takeover" measure.
If the proposed Amendment is adopted by the shareholders, the Board of
Directors could authorize the issuance of any authorized but unissued shares,
including those authorized by the Amendment, on terms determined by it without
further action by the shareholders, unless issued in a transaction, such as a
merger or consolidation, requiring shareholder approval. All attributes of
additional Common Stock to be authorized would be the same as those of the
existing shares of Common Stock. There are no preemptive rights with respect to
the Corporation's shares of Common Stock.
17
The consolidated and parent company only financial statements of the
Corporation and its subsidiaries, the notes thereto, and the related report of
Coopers & Lybrand L.L.P., appearing on pages 17 to 32 of the Corporation's
Annual Report for 1996 and Management's Discussion and Analysis of those
statements appearing on pages 34 to 44 of such Annual Report are incorporated
herein by reference.
Provided that a quorum of shares of Common Stock is represented at the
Annual Meeting in person or by proxy (a "quorum" constituting a majority of the
outstanding shares of Common Stock), the affirmative vote of a greater number of
shares than the number of shares voted in opposition will be required for
approval of the proposed Amendment to the Articles of Incorporation. The
proposed Amendment, if approved and adopted, will become effective upon filing
of Articles of Amendment or a Restatement of Articles in the Office of the
Secretary of State of Indiana. If the shareholders approve the proposed
Amendment, the Corporation intends to accomplish this filing as soon as
practicable. The Board of Directors recommends a vote FOR the proposed Amendment
and, unless directed otherwise, the proxies named in the proxy will vote the
shares represented by each proxy received by them FOR approval of the proposed
Amendment.
18
PROPOSAL III: PROPOSAL FOR APPROVAL AND ADOPTION OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
The Corporation's Board of Directors has unanimously adopted
resolutions proposing and recommending that the present Articles of
Incorporation of the Corporation (the "Current Articles") be amended and
restated by the adoption of Amended and Restated Articles of Incorporation of
the Corporation (the "Restated Articles"). A copy of the proposed Restated
Articles is attached to this Proxy Statement as Exhibit A.
The following information should be read carefully since the Restated
Articles may be characterized as anti-takeover measures which, if adopted, may
tend to insulate management and make accomplishment of certain transactions
involving a potential change of control of the Corporation more difficult.
If the Restated Articles are approved and adopted by the shareholders
of the Corporation, the Corporation's Board of Directors intends to approve and
adopt a new Code of By-Laws for the Corporation (the "Restated By-Laws"), which
By-Laws also contain provisions not included in the present By-Laws of the
Corporation (the "Current By-Laws"), which may tend to make accomplishment of
certain transactions involving change of control of the Corporation more
difficult. These changes will be described in this Proxy Statement.
Although the Board of Directors of the Corporation is not aware of any
effort that might be made to obtain control of the Corporation, the Board of
Directors believes that it is appropriate to include certain provisions in the
Corporation's Articles of Incorporation to protect the interest of the
Corporation and its shareholders from unsolicited changes in the control of the
Corporation in circumstances under which the Board of Directors of the
Corporation concludes will not be in the best interests of the Corporation or
the Corporation's shareholders.
Although the Corporation's Board of Directors believes that the
restrictions on acquisition described below are beneficial to shareholders, the
provisions may have the effect of rendering the Corporation less attractive to
potential acquirors thereby discouraging future takeover attempts which would
not be approved by the Board of Directors but which certain shareholders might
deem to be in their best interest or pursuant to which shareholders might
receive a substantial premium for their shares over then current market prices.
These provisions will also render the removal of the incumbent Board of
Directors and of management more difficult. The Board of Directors has, however,
concluded that the potential benefits of these restrictive provisions outweigh
the possible disadvantages.
The following general discussion contains a summary of the material
provisions of the Restated Articles and By-Laws that may be deemed to have an
effect of delaying, deferring or preventing a change in the control of the
Corporation. The following description of certain of these provisions is general
and not necessarily complete, and with respect to provisions contained in the
Restated Articles reference should be made in each case to Exhibit A hereto.
19
Provisions of the Corporation's Restated Articles and Restated By-Laws
Directors. Certain provisions in the Restated Articles and Restated
By-Laws will impede changes in majority control of the Board of Directors of the
Corporation. The Restated Articles provide that the Board of Directors of the
Corporation will be divided into three classes, with directors in each class
elected for three-year staggered terms. Therefore, it would take two annual
elections to replace a majority of the Corporation's Board. The Current Articles
provide for one-year terms for directors. Management believes that it is
desirable to ensure continuity and stability of the Corporation's leadership and
policies, thereby enabling it to carry out its long-range plans for its benefit
and that of its shareholders, and that a staggered Board will assist in
achieving such continuity and stability. Such a staggered Board would moderate
the pace of any change of control of the Corporation since a person or entity
acquiring a majority stock interest in the Corporation would have to wait for at
least two consecutive annual meetings, covering a period of two years, in order
to elect a majority of the Corporation's Board of Directors. The inability to
change the composition of the Board of Directors immediately even if such change
and composition were determined by the shareholders of the Corporation to be
beneficial to them may tend to discourage a tender offer or takeover bid for the
Corporation's stock.
The Restated Articles also provide that the size of the Board of
Directors shall range between five (5) and twenty (20) directors, with the exact
number of directors to be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
directors of the Corporation. The Current Articles provide that the By-Laws may
fix the number of directors, without any limits on what that number may be. The
overall effect of this Restated Articles provision may be to prevent a person or
entity from immediately acquiring control of the Corporation through an increase
in the number of the Corporation's directors and election of his or its nominees
to fill the newly-created vacancies.
The Restated Articles provide that any vacancy occurring in the Board
of Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term only by a
majority vote of the directors then in office. The Current By-Laws provide that
directors who fill vacancies on the Board will only serve until the next annual
meeting of the shareholders, and permit shareholders to fill the vacancies if
there is a tie among the remaining Board members on this issue. Moreover, the
Restated By-Laws impose certain advance notice and information requirements in
connection with the nomination by shareholders of candidates for election to the
Board of Directors or the proposal by shareholders of business to be acted upon
at an annual meeting of shareholders. Notice and information concerning these
matters must be provided to the Corporation not less than 120 days prior to the
meeting, assuming sufficient prior public notice of the meeting date has been
given by the Corporation (as provided in the By-Laws). There are no similar
provisions in the Current By-Laws. Management believes that it is in the best
interests of the Corporation and its shareholders to provide sufficient time to
enable management to disclose to shareholders information about a dissident
slate of director nominees. This advance notice requirement may also give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations, should management determine that doing so is in the best
interests of shareholders generally. Similarly, adequate notice of shareholder
proposals will give management
20
time to study such proposals and to determine whether to recommend to the
shareholders that such proposals be adopted.
The Restated Articles provide that a director or the entire Board of
Directors may be removed only for cause and only by the affirmative vote of at
least 80% of the shares eligible to vote generally in the election of directors.
Removal for "cause" includes removal for the director's personnel dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties and willful violation of
any law, rule or regulation (other than minor offenses such as traffic
violations) or final cease-and-desist order. The Current By-Laws provide that
directors may be removed by a majority vote of the shareholders, with or without
cause. This provision may, under certain circumstances, impede the removal of a
director or directors of the Corporation, thus precluding a person or entity
from immediately acquiring control of the Corporation's Board through the
removal of existing directors and the election of his or its nominees to fill
the newly-created vacancies.
Restrictions on Call of Special Meetings. The Restated Articles provide
that a special meeting of shareholders may be called only by the Chairman of the
Board of the Corporation or pursuant to a resolution adopted by a majority of
the total number of directors of the Corporation. Shareholders are not
authorized to call a special meeting. The Current By-Laws permit the President
and holders of not less than 25% of the Corporation's outstanding shares to call
special meetings of shareholders. Thus, under the Restated Articles the
shareholders will lose any right to call special meetings. Although management
of the Corporation believes that this provision will discourage shareholder
attempts to disrupt the business of the Corporation between annual meetings of
shareholders, its effect may be to deter hostile takeovers by making it more
difficult for a person or entity to obtain immediate control of the Corporation
prior to the next annual meeting of shareholders of the Corporation. Moreover,
this provision may also prevent shareholders from using a special meeting as a
forum to address matters they may consider of immediate importance and
discourage takeovers which are desired by the shareholders.
No Cumulative Voting. The Restated Articles provide that there shall be
no cumulative voting rights in the election of directors. This is consistent
with the Current Articles which do not provide for cumulative voting. The
absence of cumulative voting rights effectively means that the holders of a
majority of the shares voted at a meeting of shareholders may, if they so
choose, elect all directors of the Corporation being voted on at the meeting,
thus precluding minority shareholder representation in the Corporation's Board
of Directors. As of March 1, 1997, the Corporation's officers and directors
beneficially owned 10.17% of the Corporation's outstanding shares.
Authorization of Common Stock. The Restated Articles provide for
40,000,000 authorized shares of Common Stock, an increase from the current
10,000,000 authorized shares. This change is being made for the reasons provided
in "Proposal II: Amendment of Articles of Incorporation to Increase Authorized
Capital Stock."
Authorization of Preferred Stock. The Restated Articles authorize
10,000,000 shares of preferred stock, without par value. The Corporation is
authorized to issue preferred stock from time to time in one or more series
subject to applicable provisions of law, and the Board of Directors is
21
authorized to fix the designations, powers, preferences and relative
participating, optional and other special rights of such shares, including
voting rights (if any and which could be as a separate class) and conversion
rights. In the event of a proposed merger, tender offer or other attempt to gain
control of the Corporation not approved by the Board of Directors, it might be
possible for the Board of Directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred stock,
therefore, may be to deter a future takeover attempt. The Board of Directors has
no present plans or understandings for the issuance of any preferred stock and
does not intend to issue any preferred stock except on terms which the Board of
Directors deems to be in the best interests of the Corporation and its
shareholders. The Current Articles do not authorize any preferred stock.
Evaluation of Offers. The Restated Articles of the Corporation provide
that the Board of Directors of the Corporation, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Corporation's shareholders, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Corporation, the Corporation's banking subsidiaries and the
shareholders of the Corporation, give due consideration to all relevant factors,
including, without limitation, the social and economic effects of acceptance of
such offer on the Corporation's customers and the Corporations' banking
subsidiaries' present and future account holders, borrowers, employees and
suppliers; the effect on the communities in which the Corporation and the
Corporation's banking subsidiaries operate or are located; and the effect on the
ability of the Corporation to fulfill the objectives of a holding company and of
the Corporation's baking subsidiaries or future financial institution
subsidiaries to fulfill the objectives of a financial institution under
applicable statutes and regulations. The Board of Directors feels a
responsibility for maintaining the financial and business integrity of the
Corporation. Banks occupy positions of special trust in the communities they
serve. They also provide opportunities for abuse by those who are not of
sufficient experience or competence or financial means to act professionally and
responsibly with respect to management of a financial institution. It is of
concern to the Corporation that it be managed in the interest of the communities
that it serves and that it maintain its integrity as a corporation providing
financial services to the communities in which it operates. The Restated
Articles of the Corporation also authorize the Board of Directors to take
certain actions to encourage a person to negotiate for a change of control of
the Corporation or to oppose such a transaction deemed undesirable by the Board
of Directors including the adoption of so-called shareholder rights plans. The
Corporation adopted such a plan as of January 6, 1997. See "Shareholder Rights
Plan." By having these standards and provisions in the Restated Articles of the
Corporation, the Board of Directors may be in a stronger position to oppose such
a transaction if the Board concludes that the transaction would not be in the
best interest of the Corporation, even if the price offered is significantly
greater than the then market price of any equity security of the Corporation.
These provisions are not in the Current Articles, but are contained in the
Indiana Business Corporation Law ("IBCL"), already applicable to the
Corporation.
Procedures for Certain Business Combinations. The Restated Articles
require that certain business combinations between the Corporation (or any
majority-owned subsidiary thereof) and a 10% or greater shareholder ("Interested
Shareholder") either be (i) approved by at least 80% of the total number of
outstanding voting shares of the Corporation or (ii) approved by a majority of
certain
22
directors unaffiliated with such Interested Shareholder or involve consideration
per share generally equal to the higher of (A) the highest amount paid by such
Interested Shareholder or its affiliates in acquiring any shares of the Common
Stock or (B) the "Fair Market Value" (generally, the highest closing bid paid
for the Common Stock during the thirty days preceding the date of the
announcement of the proposed business combination or on the date the Interested
Shareholder became such, whichever is higher). No similar provision is in the
Corporation's Current Articles or Current ByLaws, but there is a similar
provision in the IBCL. See "Other Restrictions on Acquisition of the Corporation
- - State Law."
Management believes it has become a not uncommon practice in corporate
takeovers to pay cash to acquire a controlling equity interest in a company and
then to acquire the remaining equity interest in the company by paying the
balance of the shareholders a price for their shares which is lower than the
price paid to acquire control and/or is in a less desirable form (e.g., debt or
other securities of the purchaser instead of cash). Management believes it is
often the case that in two-step acquisitions, arbitrageurs and professional
investors, because of their sophistication and expertise in the takeover area,
can take advantage of the more lucrative first-step tender offer, while many
long-term stockholders must accept the price paid in the second-step merger. The
Board is of the view that such "two-tier pricing" could work to the disadvantage
of long-term shareholders and could give arbitrageurs and professional investors
an unfair advantage over such shareholders in a takeover situation.
The business combination provision is designed to prevent a purchaser
from utilizing two-tier pricing and similar inequitable tactics in the event of
an attempt to take over the Corporation. The provision is not designed to
prevent or discourage tender offers for 80% or more of the Common Stock of the
Corporation. If an Interested Shareholder owns (or can obtain the affirmative
votes of) at least 80% of the Voting Shares with respect to a business
combination, this provision will not limit the ability of the Interested
Shareholder to effect such business combination and thereby eliminate the
minority interest of the Corporation. However, the fact that the Corporation's
officers and directors currently beneficially own 10.17% of the Corporation's
voting shares could deter hostile tender offers for 80% or more of the
Corporation's outstanding Common Stock or open-market acquisitions of the
Corporation's Common Stock. Thus, this business combination provision might
deprive holders of the Corporation's stock of an opportunity to sell their stock
to such persons at prices which might be higher than the current market price of
such stock.
One effect of this provision might be to encourage consultation by an
offeror with the Board of Directors prior to or after commencing a tender offer
in an attempt to prevent a contest from developing. This provision may, thus,
strengthen the Board of Directors' position in dealing with any potential
offeror which might attempt to effect a takeover of the Corporation. The
provision will not make a business combination regarded by the Board of
Directors as being in the interests of the Corporation more difficult to
accomplish, but it will permit the Board of Directors to determine that a
business combination or tender or exchange offer is not in the interests of the
Corporation (and thus to oppose it) on the basis of various factors deemed
relevant. This provision, however, gives the Board of Directors the power to
oppose a business combination which the shareholders believe would be beneficial
to the Corporation.
23
Amendments to Restated Articles and Bylaws. Amendments to the Restated
Articles must be approved by a majority vote of the Corporation's Board of
Directors and also by a majority of the outstanding shares of the Corporation's
voting shares; provided, however, that approval by at least 80% of the
outstanding voting shares is required for amendment of certain provisions (i.e.,
provisions relating to number, classification, and removal of directors;
provisions relating to the manner of amending By-Laws; call of special
shareholder meetings; criteria for evaluating certain offers; and certain
business combinations). These voting requirements are intended to prevent the
holders of less than the required percentages of outstanding stock of the
Corporation from circumventing any of the foregoing provisions by amending the
Articles of Incorporation to delete or modify one or more of such provisions.
There is no supermajority voting requirement in the Corporation's Current
Articles or Current By-Laws, which may be amended by a majority vote of
shareholders and by a majority vote of directors, respectively.
The Restated By-Laws may be amended only by a majority vote of the
total number of directors of the Corporation.
Indemnification of Officers and Directors and Limitation of Liability.
Article 11 of the Restated Articles generally provides for indemnification of
any person who is or was a director, officer, employee, or agent of the
Corporation, or who served at the Corporation's request as a director, officer,
employee, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
To qualify for indemnification, such a person generally must have been
successful on the merits or otherwise, or (i) must have acted in good faith and
in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interest of the Corporation, and, in all other cases,
was not opposed to the Corporation's best interests and (ii) in any criminal
proceeding, either had reasonable cause to believe that his conduct was lawful
or had no reasonable cause to believe that his conduct was unlawful. A person
who qualifies for indemnification generally is entitled to indemnity for any
obligation to pay any judgments, settlements, penalties, fines and expenses
actually or reasonably incurred in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
and whether formal or informal, in which he or she was made party as a result of
his or her service on behalf of the Corporation.
To the extent that a director, officer, employee or agent of the
Corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding, or in the defense of any claim, issue or matter
therein, the Corporation shall indemnify such person against expenses (including
counsel fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case, upon the
determination that indemnification of the director, officer, employee or agent
is permissible in the circumstances because he has met the applicable standard
of conduct. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not at the time
parties to such action, suit or proceeding; or (2) if a quorum cannot be
obtained under subdivision (1), by a majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are
parties may participate), consisting solely of two or more directors not at the
time parties to such action, suit or proceeding; or (3) by special legal
counsel: (A) selected by the Board of Directors or its
24
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection directors who are
parties may participate); or (4) by the shareholders, but shares owned by or
voted under the control of directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
These provisions are generally consistent with the Current Articles,
although they provide more detail regarding the method for determining if the
standard for permissive indemnification and reasonableness of expenses has been
met.
Chapter 35 of the IBCL and the Corporation's Articles of Incorporation
also generally provide that no director of the Corporation shall be subject to
liability for any action taken as a director, or any failure to take any action
as a director, unless both the director has breached or failed to perform the
duties of the director's office in compliance with Indiana law and the breach or
failure to perform constitutes willful misconduct or recklessness under Indiana
or other governing law. Under Indiana law and Section 9.05, Clause 9.051 of the
Corporation's Restated Articles, a director does not breach his duties as a
director if he acts in good faith, with the care of an ordinary prudent person
similarly situated, and in a manner the director reasonably believes to be in
the best interests of the corporation. The Corporation's Restated Articles
extend these limited liability provisions to officers, employees and agents of
the Corporation, as well as directors.
This provision eliminates the potential liability of the Corporation's
directors and officers for failure, except through willful misconduct or
recklessness, to satisfy their duty of care. It may thus reduce the likelihood
of derivative litigation against directors and officers and discourage or deter
shareholders or management from bringing a lawsuit against directors and
officers for breach of their duty of care, even though such an action, if
successful, might otherwise have been beneficial to the Corporation and its
shareholders. The provision will not preclude all equitable remedies for breach
of the duty of care, although such remedies might not be available as a
practical matter. Although there is no similar provision in the Current Articles
or Current By-Laws, this provision is consistent with existing provisions of the
IBCL, currently applicable to the Corporation.
To the best of management's knowledge, there is currently no pending or
threatened litigation for which indemnification may be sought or any recent
litigation involving directors of the Corporation that might have been affected
by the limited liability provision in the Corporation's Articles of
Incorporation had it been in effect at the time of the litigation.
The above provisions seek to ensure that the ability of the
Corporation's directors to exercise their best business judgment in managing the
Corporation's affairs is not unreasonably impeded by
25
exposure to the potentially high personal costs or other uncertainties of
litigation. The Board believes that provisions are necessary to attract and
retain qualified directors, officers, and employees.
Purpose and Effects of the Anti-Takeover Provisions of the Corporation Restated
Articles and By-Laws.
The Corporation's Board of Directors believes that the provisions
described above are prudent and will reduce the Corporation's vulnerability to
takeover attempts and certain other transactions which have not been negotiated
with and approved by its Board of Directors. The Board of Directors believes
these provisions are in the best interest of the Corporation, its shareholders,
and its banking subsidiaries. In the judgment of the Board of Directors, the
Corporation's Board of Directors will be in the best position to determine the
true value of the Corporation and to negotiate more effectively for what may be
in the best interests of the Corporation and its shareholders. The Board of
Directors believes that these provisions will encourage potential acquirors to
negotiate directly with the Board of Directors of the Corporation and discourage
hostile takeover attempts. It is also the view of the Board of Directors that
these provisions should not discourage persons from proposing a merger or other
transaction at prices reflecting the true value of the Corporation and which is
in the best interests of all shareholders.
Attempts to take over financial institutions and their holding
companies have recently increased. Takeover attempts that have not been
negotiated with and approved by the Board of Directors present to shareholders
the risk of a takeover on terms that may be less favorable than might otherwise
be available. A transaction that is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time to obtain maximum value for the Corporation and its shareholders,
with due consideration given to matters such as the management and business of
the acquiring corporation and maximum strategic development of the Corporation's
assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made at
a price substantially above then current market prices, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to that of the remaining shareholders. The
concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Corporation's remaining shareholders of
the benefits of certain protective provisions of the 1934 Act, if the number of
record owners becomes less than 300 and the Corporation terminates its
registration under the 1934 Act.
Despite the belief of the Corporation's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem to
be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire
26
to participate in such a transaction may not have an opportunity to do so. These
provisions will also render the removal of the incumbent Board of Directors and
of management more difficult. The Board of Directors has, however, concluded
that the potential benefits of these restrictive provisions outweigh the
possible disadvantages.
Other Restrictions on Acquisition of the Corporation
State Law. Several provisions of the IBCL could affect the acquisition
of shares of the Common Stock or otherwise affect the control of the
Corporation. Chapter 43 of the IBCL prohibits certain business combinations,
including mergers, sales of assets, recapitalizations, and reverse stock splits,
between corporations such as the Corporation (assuming that it has over 100
shareholders) and an interested shareholder, defined as the beneficial owner of
10% or more of the voting power of the outstanding voting shares, for five years
following the date on which the shareholder obtained 10% ownership unless the
acquisition was approved in advance of that date by the board of directors. If
prior approval is not obtained, several price and procedural requirements must
be met before the business combination can be completed. These requirements are
similar to those contained in the proposed Restated Articles described in " --
Provisions of the Corporation's Restated Articles and ByLaws -- Procedures for
Certain Business Combinations." In general, the price requirements contained in
the IBCL may be more stringent than those imposed in the Corporation's Restated
Articles. However, the procedural restraints imposed by the Corporation's
Restated Articles are somewhat broader than those imposed by the IBCL. Also, the
provisions of the IBCL may change at some future date, but the relevant
provisions of the Corporation's Restated Articles may only be amended by an 80%
vote of the shareholders of the Corporation.
In addition, the IBCL contains provisions designed to assure that
minority shareholders have some say in their future relationship with Indiana
corporations in the event that a person made a tender offer for, or otherwise
acquired, shares giving that person more than 20%, 33 1/3%, and 50% of the
outstanding voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control Share Acquisitions
Statute, if an acquiror purchases those shares at a time that the corporation is
subject to the Control Share Acquisitions Statute, then until each class or
series of shares entitled to vote separately on the proposal, by a majority of
all votes entitled to be cast by that group (excluding shares held by officers
of the corporation, by employees of the corporation who are directors thereof
and by the acquiror), approves in a special or annual meeting the rights of the
acquiror to vote the shares which take the acquiror over each level of ownership
as stated in the statute, the acquiror cannot vote these shares. An Indiana
corporation otherwise subject to the Control Share Acquisitions Statute may
elect not to be covered by the statute by so providing in its Articles of
Incorporation or By-Laws. The Corporation, however, will be subject to this
statute following the Conversion because of its desire to discourage
non-negotiated hostile takeovers by third parties.
The IBCL specifically authorizes Indiana corporations to issue options,
warrants or rights for the purchase of shares or other securities of the
corporation or any successor in interest of the corporation. These options,
warrants or rights may, but need not be, issued to shareholders on a pro rata
basis.
27
The IBCL specifically authorizes directors, in considering the best
interest of a corporation, to consider the effects of any action on
shareholders, employees, suppliers, and customers of the corporation, and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. As described above, the
Corporation's Restated Articles contain a provision having a similar effect.
Under the IBCL, directors are not required to approve a proposed business
combination or other corporate action if the directors determine in good faith
that such approval is not in the best interest of the corporation. In addition,
the IBCL states that directors are not required to redeem any rights under or
render inapplicable a shareholder rights plan or to take or decline to take any
other action solely because of the effect such action might have on a proposed
change of control of the corporation or the amounts to be paid to shareholders
upon such a change of control. The IBCL explicitly provides that the different
or higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in control will not
apply. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed".
In taking or declining to take any action or in making any
recommendation to a corporation's shareholders with respect to any matter,
directors are authorized under the IBCL to consider both the short-term and
long-term interests of the corporation as well as interests of other
constituencies and other relevant factors. Any determination made with respect
to the foregoing by a majority of the disinterested directors shall conclusively
be presumed to be valid unless it can be demonstrated that such determination
was not made in good faith.
Because of the foregoing provisions of the IBCL, the Board will have
flexibility in responding to unsolicited proposals to acquire the Corporation,
and accordingly it may be more difficult for an acquiror to gain control of the
Corporation in a transaction not approved by the Board.
Under the Indiana Financial Institutions Act, the prior approval of the
Indiana Department of Financial Institutions is required before the acquisition
of "control" of the Corporation or any of its state-chartered bank subsidiaries.
For these purposes, "control" means the acquisition of at least 25% of the
voting stock of an institution or the ability to direct the management or
policies of a bank or bank holding company.
Federal Law. The Change in Bank Control Act provides that no "person,"
acting directly or indirectly, or through or in concert with one or more
persons, other than a company, may acquire control of a bank holding company
unless at least 60 days prior written notice is given to the Board of Governors
of the Federal Reserve System (the "FRB") and the FRB has not objected to the
proposed acquisition.
The Bank Holding Company Act of 1956 also prohibits any "company,"
directly or indirectly or acting in concert with one or more other persons, or
through one or more subsidiaries or transactions, from acquiring control of an
insured bank without the prior approval of the FRB. In addition, any company
that acquires such control becomes a "bank holding company" subject to
registration, examination and regulation as a bank holding company by the FRB.
28
The term "control" for purposes of the Change in Bank Control Act and
the Bank Holding Company Act includes the power, directly or indirectly, to vote
more than 25% of any class of voting stock of the bank or bank holding company
or to control, in any manner, the election of a majority of the directors of the
bank or bank holding company. It also includes a determination by the FRB that
such company or person has the power, directly or indirectly, to exercise a
controlling influence over or to direct the management or policies of the bank.
FRB regulations set forth certain "rebuttable control determinations"
which arise upon (a) the acquisition of any voting securities of a state member
bank or bank holding company if, after the transaction, the acquiring person (or
persons acting in concert) owns, controls, or holds with power to vote 25
percent or more of any class of voting securities of the institution; or (b) the
acquisition of any voting securities of a state member bank or bank holding
company if, after the transaction, the acquiring person (or persons acting in
concert) owns, controls, or holds with power to vote 10 percent or more (but
less than 25 percent) of any class of voting securities of the institution, and
if (i) the institution has registered securities under Section 12 of the 1934
Act or (ii) no other person will own a greater percentage of that class of
voting securities immediately after the transaction.
The regulations also specify the criteria which the FRB uses to
evaluate control applications. The FRB is empowered to disapprove an acquisition
of control if it finds, among other things, that (i) the acquisition would
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the institution or its depositors, or (iii) the
competency, experience, or integrity of the acquiring person indicates that it
would not be in the interest of the depositors, the institution, or the public
to permit the acquisition of control by such person.
Shareholder Rights Plan. The Corporation, as of January 6, 1997,
adopted a Shareholder Rights Plan (the "Plan"). The Plan is intended to protect
the long-term value of shareholders' investments in the Corporation by
encouraging any potential acquiror to negotiate with its Board of Directors. The
Plan will guard against partial or inadequate tender offers, open-market share
accumulations, and other abusive or coercive takeover tactics, and allow the
Board time to evaluate any offer and all options for long-term growth.
To implement the Plan, shareholders of record as of January 20, 1997,
received one right for each outstanding share of the Corporation's Common Stock.
Initially, the Rights trade automatically with the Common Stock and separate
Right Certificates will not be issued. The Rights will expire on January 6,
2007, unless earlier redeemed or exchanged.
Each Right entitles the registered holder, subject to the terms of the
Plan, to purchase from the Corporation one share of the Corporation's Common
Stock at a purchase price of $95.00 per share, subject to adjustment. The Rights
will not be exercisable until a subsequent distribution date which will only
occur if a person or group acquires beneficial ownership of 12% or more of the
Corporation's Common Stock (or is declared an "Adverse Person" by the Company's
Board) (subject to certain limits applicable to existing shareholders), or
announces a tender or exchange offer that would result in such person or group
owning 30% or more of the Common Stock.
29
If a person or group acquires beneficial ownership of 15% or more of
the Corporation's outstanding Common Stock (subject to certain limits applicable
to existing shareholders), each holder of a Right (other than the 15% holder
whose Rights become void once such holder reaches the 15% threshold) will
thereafter have a right to purchase, upon payment of the purchase price of the
Right, that number of shares of the Corporation's Common Stock which at the time
of such transaction will have a market value equal to two times the purchase
price of the Right.
In the event that the Corporation is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold, each holder of a Right will thereafter have the right to
purchase, upon payment of the purchase price of the Right, that number of shares
of common stock of the acquiring company which at the time of such transaction
will have a market value of two times the purchase price of the Right.
The Board of Directors of the Corporation may exchange the Rights
(other than Rights owned by such person or group which have become void), in
whole or in part, at an exchange ratio of one share of Common Stock per Right
(subject to adjustment).
Under certain circumstances, the Board of Directors of the Corporation
may redeem the Rights in whole, but not in part, at a price of $0.01 per Right.
Vote Required For Approval and Adoption of Restated Articles
Provided that a quorum of shares of Common Stock is represented at the
Annual Meeting in person or by proxy (a "quorum" consisting of a majority of the
outstanding shares of Common Stock), the affirmative vote of a greater number of
shares than the number of shares voted in opposition will be required for
approval and adoption of the proposed Restated Articles. The proposed Restated
Articles, if approved and adopted, will become effective upon filing of the
Restatement of Articles in the Office of the Secretary of State of Indiana. If
the shareholders approve the proposed Restated Articles, the Corporation intends
to accomplish this filing as soon as practicable. The Board of Directors
recommends a vote FOR the proposed Restated Articles and, unless directed
otherwise, the proxies named in the proxy will vote the shares represented by
each proxy received by them FOR approval of the proposed Restated Articles.
30
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table contains information concerning individuals or
entities who, to the knowledge of the Corporation, beneficially owned on March
1, 1997, more than 5% of the common stock of the Corporation:
Name and Address
of Beneficial Owner Shares Beneficially Owned Percent of Class
First Financial Corporation 433,903 (1) 6.49%
Employee Stock Ownership
Plan ("ESOP")
One First Financial Plaza
Terre Haute, Indiana 47807
Mary F. Hulman 718,066 10.75%
900 Wabash Avenue
Terre Haute, Indiana 47807
Princeton Mining Company 599,424 8.97%
State Road 46 South
Terre Haute, Indiana 47803
(1) Represents shares held in trust by the Corporation's subsidiary, Terre Haute
First.
The Trust Departments of five (5) subsidiary banks of the Corporation
which have trust departments hold, as of March 1, 1997, 1,089,511 shares of the
Corporation's common stock for the beneficiaries of certain trusts, estates and
agencies administered by the subsidiary banks. The respective trust departments
are authorized to vote 397,530 shares of the Corporation's common stock which
such trust departments hold of record, either in person or by proxy, so long as
each vote is in the best interest of any such trust, estate or agency and the
beneficiaries or principals thereof. All shares held by such trust departments
will be voted in accordance with the instructions of co-fiduciaries,
beneficiaries or principals, as applicable.
Security Ownership Management
The following table sets forth as of March 1, 1997 the total number of
shares of common stock of the Corporation beneficially owned by each Director
and certain executive officers of the Corporation and by all Directors and
executive officers as a group. The number of shares shown as being beneficially
owned by each Director and executive officer are those over which he or she has
sole or shared voting or investment power.
31
Name of Beneficial Owner Shares Beneficially Owned (1) Percent of Class
------------------------ ------------------------- ----------------
Walter A. Bledsoe 14,278 .21%
B. Guille Cox, Jr. 40,714 .61% (2)
Thomas T. Dinkel 4,462 .07%
Anton H. George 295 .01%
Mari H. George 220 .01%
Gregory L. Gibson 28,742 .43%
Max L. Gibson 113,510 1.70%
Norman L. Lowery 11,310 .17%
William A. Niemeyer 6,790 .10%
Patrick O'Leary 23,143 .35%
John W. Ragle 54,280 .81%
Chapman J. Root, II 291,661 4.36% (3)
Donald E. Smith 61,608 .92%
Virginia L. Smith 2,914 .04%
John W. Perry 9,991 .15%
W. Edward Jukes 10,886 .16%
Michael A. Carty 4,588 .07%
All Directors and Executive
Officers as a group
(17 individuals)(4) 679,392 10.17%
- ---------------
(1) The information contained in this column is based upon stockholder
records of the Corporation and information furnished to the Corporation
by the individuals identified above.
(2) Mr. Cox, under certain circumstances, has the power, with the consent
of others, to vote an additional 218,609 shares (3.27%). These shares
are not reflected in the above amount.
(3) Includes 291,297 shares held by the 1992 Root Children's Business
Trust, of which Mr. Root is a trustee. Mr. Root disclaims beneficial
ownership with respect to all such shares in the trust except those in
which he is the beneficiary.
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(4) Excludes 218,609 shares over which Mr. Cox may, under certain
circumstances, exercise voting control. Includes shares held for the
accounts of Donald E. Smith, John W. Perry, Michael A. Carty, and W.
Edward Jukes in the First Financial Corporation Employee Stock
Ownership Plan described above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership of Corporation common stock and
other equity securities of the Corporation. Officers, directors and greater than
ten-percent shareholders are required by SEC regulations to furnish the
Corporation with copies of all Section 16(a) forms they file. To the best
knowledge of the Corporation, during the most recent fiscal year all officers,
directors and greater than ten-percent beneficial owners of the Corporation
timely filed all statements of beneficial ownership required to be filed with
the SEC.
INDEPENDENT ACCOUNTANTS
The Board of Directors appointed Coopers & Lybrand L.L.P., Certified
Public Accountants as independent accountants to audit the books, records and
accounts of the Corporation for 1996. The Board of Directors anticipates that it
will appoint an independent public accountant to audit the books, records, and
accounts of the Corporation for 1997 in April, 1997. Representatives of Coopers
& Lybrand L.L.P. are expected to be in attendance at the annual meeting and will
be provided an opportunity to make a statement should they desire to do so and
to respond to appropriate inquiries from the shareholders. Coopers & Lybrand
L.L.P. have been independent accountants for the Corporation since 1984.
SHAREHOLDERS PROPOSALS
Any proposals which shareholders desire to present at the 1998 Annual
meeting must be received by the Corporation at its principal executive offices
on or before November 17, 1997 to be considered for inclusion in the
Corporation's proxy material for that meeting.
ANNUAL REPORT TO SHAREHOLDERS
The 1996 Annual Report to Shareholders, containing financial statements
for the year ended December 31, 1996, and other information concerning the
operations of the Corporation is enclosed herewith, but is not to be regarded as
proxy soliciting material.
33
UPON WRITTEN REQUEST, THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO
EACH REQUESTING SHAREHOLDER, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K WHICH IS REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1996. ADDRESS ALL REQUESTS TO:
MICHAEL A. CARTY, TREASURER
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the Notice.
The Board of Directors of the Corporation does not know of any matters for
action by shareholders at such Annual Meeting other than the matters described
in the notice. However, the enclosed Proxy will confer discretionary authority
with respect to matters which are not known to the Board of Directors at the
time of the printing hereof and which may properly come before the Annual
Meeting. It is the intention of the persons named in the Proxy to vote pursuant
to the Proxy with respect to such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Donald E. Smith
DONALD E. SMITH
Chairman of the Board and President
34