UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Amendment No. 1)

 

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ­ ­ to ­ ­

 

Commission File Number 0-15829

 

FIRST CHARTER CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Registrant’s telephone number, including area code (704) 688-4300

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

 

Common stock, no par value

 

Series X Junior Participating Preferred Stock Purchase Rights

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o No þ

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o No þ

 

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2007, determined using a per share closing sale price on that date of $19.47, as quoted on the NASDAQ Global Select Market, was $627,711,000.

 

As of February 15, 2008, the registrant had outstanding 35,004,515 shares of common stock, no par value.

 

Documents Incorporated by Reference

 

Not applicable.

 

 

FIRST CHARTER CORPORATION
FORM 10-K/A
FISCAL YEAR ENDED DECEMBER 31, 2007

 

All reports filed electronically by First Charter Corporation with the United States Securities and Exchange Commission (“SEC”), including its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost on the Corporation’s Web site at www.firstcharter.com. These filings are also accessible on the SEC’s Web site at www.sec.gov.

 

 

TABLE OF CONTENTS

 

FIRST CHARTER CORPORATION
EXPLANATORY NOTE

 

First Charter Corporation (the “Corporation”) is filing this amendment (the “Amendment”) to the Corporation’s Annual Report on Form 10-K (the “Original Filing”), originally filed with the SEC on February 29, 2008, solely for the purpose of amending and supplementing Part III of the Original Filing. This Amendment changes the Corporation’s Original Filing only by amending and restating Items 10, 11, 12, 13, and 14 of Part III and Item 15 of Part IV of the Original Filing to contain currently dated certifications from the Corporation’s Chief Executive Officer and principal financial officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 with respect to this Amendment. The currently dated certifications of the Corporation’s Chief Executive Officer and principal financial officer are attached to this Amendment as Exhibits 31.1, 31.2, 32.1, and 32.2.

 

As used in this Amendment, references to “First Charter,” “the Corporation,” “we,” “our” or “us” means First Charter Corporation.

 

 

EXECUTIVE OFFICERS

 

The information required by this item with respect to the Corporation’s executive officers is incorporated by reference to the information included under “Executive Officers of the Registrant,” in Part I, Item 4A of the Original Filing.

 

DIRECTORS

 

The names, ages and principal occupations (which have continued for the past five years unless otherwise indicated) and certain other information for each of the directors are set forth below. Each director also serves as a First Charter Bank director.

 

Jewell D. Hoover, age 59, has been the President of Hoover & Associates, LLC, a bank consulting firm, since 2003. Prior to that time, she was a Senior Bank Regulator with the Office of the Comptroller of the Currency, until her retirement in 2003. Ms. Hoover has been a director of the Corporation since 2006. Ms. Hoover’s term expires in 2010.

 

Walter H. Jones, Jr., age 66, is a partner in the law firm of Jones, Childers, McLurkin & Donaldson PLLC. Mr. Jones is the Chairman of the Board of First Charter Bank and has been a director of the Corporation since 2000. Mr. Jones’ term expires in 2010.

 

Samuel C. King, Jr., age 60, is the President of King’s Office Supply, Inc., an office products retailer. Mr. King is also the President of The UPS Store, Lincolnton, North Carolina, a retail packaging and shipping company. Mr. King has been a director of the Corporation since 2000. Mr. King’s term expires in 2010.

 

Jerry E. McGee, age 65, is the President of Wingate University. Dr. McGee has been a director of the Corporation since 1995. Dr. McGee’s term expires in 2010.

 

John S. Poelker, age 65, has been the President of The Poelker Consultancy, Inc., a financial services consulting firm, since 2005. Prior to that time, he was the Executive Vice President and Chief Financial Officer of Old National Bancorp (Evansville, Indiana) until his retirement in 2005. Mr. Poelker has been a director of the Corporation since 2006. Mr. Poelker’s term expires in 2010.

 

Michael R. Coltrane, age 61, was the President, Chairman, and Chief Executive Officer of CT Communications, Inc., a telecommunications company, until August 31, 2007. Mr. Coltrane is the Vice Chairman of the Board of the Corporation. He served as a director of the Corporation from 1983 until 1985, and currently has served as a director of the Corporation since 1988. Mr. Coltrane also served as a director of CT Communications, Inc. until August 31, 2007, and is presently a director of Centennial Communications Inc. Mr. Coltrane’s term expires in 2009.

 

Charles A. James, age 61, is the President of Mt. Pleasant Insurance Agency and the co-owner of Mt. Pleasant Bonded Warehouse, a general commodity storage company. Mr. James has been a director of the Corporation since 2000. Mr. James’ term expires in 2009.

 

Robert E. James, Jr., age 57, has served as the President and Chief Executive Officer of the Corporation since 2005, and of First Charter Bank since 2004. He served as Executive Vice President of the Corporation from 1999 to 2005 and Executive Vice President of First Charter Bank from 1999 to 2004. Mr. James has been a director of the Corporation since 2005. Mr. James’ term expires in 2009.

 

Ellen L. Messinger, age 49, is the Vice President of Curb Fox Equipment, LLC, a manufacturing company. Ms. Messinger has been a director of the Corporation since 2003. Ms. Messinger’s term expires in 2009.

 

Hugh H. Morrison, age 60, is the President of E. L. Morrison Holding Company, Inc., a real estate holding company, owner of M.B. Commercial Real Estate, Inc., a real estate sales, leasing and property management

company and owner of Engineered Lumber Supply LLC, a wholesale lumber company. Mr. Morrison has been a director of the Corporation since 1984. Mr. Morrison’s term expires in 2009.

 

William R. Black, age 59, is a medical doctor specializing in oncology. Dr. Black is the Vice Chairman of the Board of First Charter Bank and has been a director of the Corporation since 1990. Dr. Black’s term expires in 2008.

 

James E. Burt, III, age 70, is a retired banker and Chairman of the Board of the Corporation. Mr. Burt has been a director of the Corporation since 2000. Mr. Burt’s term expires in 2008.

 

Richard F. Combs, age 59, has served as the President and Chief Operating Officer of High Rock Raceway since February of 2008 and has also been the President of Excella International Corp., an advanced oxidation technology company in the food preparation industry since 2005. Prior to that time, he was the President of Pureflow Ultraviolet, Inc., an industrial water treatment company, and subsidiary of Trojan Technologies, Inc. Mr. Combs has been a director of the Corporation since 2006. Mr. Combs’ term expires in 2008.

 

John J. Godbold, Jr., age 67, is the President of Godbold Financial Associates, Inc., a bank consulting company. Mr. Godbold has been a director of the Corporation since 1997. Mr. Godbold’s term expires in 2008.

 

L. D. Warlick, Jr., age 68, is the President of Warlick Funeral Home. Mr. Warlick has been a director of the Corporation since 2000. Mr. Warlick’s term expires in 2008.

 

William W. Waters, age 66, is the retired President of Waters Construction Company, a homebuilder. Mr. Waters has been a director of the Corporation since 2000. Mr. Waters’ term expires in 2008.

 

Messrs. Charles A. James and Robert E. James, Jr. are not related. No director has a family relationship as close as first cousin with any other director or executive officer of the Corporation.

 

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our directors and executive officers to file reports with the SEC indicating their holdings of and transactions in our equity securities and to provide copies of such reports to us. Based solely upon our review of such copies or written representations related thereto, we believe that all Section 16 filing requirements of our directors and executive officers have been complied with on a timely basis for 2007, except (i) Mr. Coltrane reported a late transaction on Form 5 to report an indirect ownership interest in the Corporation that he acquired in a previous year; (ii) Mr. Robert E. James, Jr. timely filed a Form 4 for an option exercise which inadvertently omitted the corresponding sale of the acquired shares and was promptly corrected (five transactions on the same day); (iii) Mr. Morrison filed a late Form 5 to report a gift from a previous year; (iv) Mr. Rownd timely filed two Form 4’s for option exercises which inadvertently omitted the subsequent sales of the acquired shares and was promptly corrected (one transaction and three transactions, respectively); and (v) Mr. Jones filed a Form 4 one day late which included the report of an option exercise.

 

CODE OF BUSINESS CONDUCT AND ETHICS AND CORPORATE GOVERNANCE GUIDELINES

 

The Corporation’s Board of Directors previously adopted the “First Charter Corporation Code of Business Conduct and Ethics” (the “Code”), applicable to the directors and employees (including the Chief Executive Officer and the interim principal financial officer) of the Corporation and its subsidiaries. During 2007, the Board of Directors reaffirmed the adoption of the Code. In addition, in furtherance of our long-standing goal of providing effective corporate governance of our business and affairs for the benefit of shareholders, the Board of Directors previously adopted the “First Charter Corporation Corporate Governance Guidelines” (the “Corporate Governance Guidelines”). A copy of each of the Code and the Corporate Governance Guidelines is available on our website at www.FirstCharter.com under the “Corporate Governance” section.

CHANGES TO PROCEDURES FOR SHAREHOLDERS TO NOMINATE PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS

 

There were no material changes made during fiscal year 2007 to the procedures by which shareholders may recommend nominees to the Corporation’s Board of Directors.

 

As discussed below, on August 15, 2007, the Corporation and Fifth Third Bancorp (“Fifth Third”) entered into an Agreement and Plan of Merger, as amended by the Amended and Restated Agreement and Plan of Merger, dated September 14, 2007, (“Merger Agreement”) by and among the Corporation, Fifth Third, and Fifth Third Financial Corporation (“Fifth Third Financial”). Under the terms of the Merger Agreement, the Corporation will be merged with and into Fifth Third Financial. The Merger Agreement has been approved by the Board of Directors of the Corporation, Fifth Third and Fifth Third Financial. The Corporation’s shareholders approved the Merger Agreement, and the merger has been approved by all necessary state and federal regulatory agencies. The merger remains subject to customary closing conditions. The Corporation is planning for closing in the second quarter of 2008, and pursuant to this plan, the Corporation does not intend to hold a 2008 annual meeting of shareholders. If First Charter were to schedule an annual meeting of shareholders, First Charter will provide notice of the date fixed for the annual meeting, as well as the deadline for submitting shareholder proposals for such meeting and to have shareholder proposals included in the Corporation’s proxy statement.

 

AUDIT COMMITTEE

 

The Audit Committee, among other things, is responsible for the appointment, compensation, retention and oversight of the Corporation’s independent auditors, and reviews the Corporation’s financial statements, audit reports, internal controls and internal audit procedures. The Audit Committee met twenty-five times during 2007. William R. Black, Jewell D. Hoover, Charles A. James, Samuel C. King, Jr., Ellen L. Messinger and John S. Poelker (Chairman) are the current members of the Audit Committee. As determined by the Board of Directors, each of the members of the Audit Committee is an independent director in accordance with the independence requirements of the SEC and the NASDAQ Stock Market Marketplace Rules (the “NASDAQ Rules”).

 

AUDIT COMMITTEE FINANCIAL EXPERT

 

The Board of Directors has determined that John S. Poelker qualifies as an audit committee financial expert. Mr. Poelker is “independent” as that term is defined in the NASDAQ Rules.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

EXECUTIVE COMPENSATION PHILOSOPHY

 

The Corporation’s executive compensation program has been designed as an active management tool that directs and rewards specific results. The primary objective of the executive compensation program is to reinforce the strategic goals and objectives that management and the Board of Directors have developed by directly aligning specific, targeted levels of performance with specific levels of compensation. The impact of performance on pay is intended to be clear, direct and easy to understand.

 

The executive compensation program is founded upon the idea that a strong, performance-oriented compensation program, aligned with the practices of our peers, is a key ingredient in becoming a leading performer relative to organizations of similar size, and is, therefore, in the best interests of shareholders. We also believe that a performance-based compensation program is vital to attracting and retaining highly talented and motivated executives to lead the Corporation.

 

As described elsewhere in this Form 10-K/A, the Compensation Committee of the Board of Directors is responsible for the administration of and overall structure of the Corporation’s executive compensation program. The Compensation Committee is composed entirely of independent, nonmanagement directors.

PROPOSED MERGER WITH FIFTH THIRD

 

On August 15, 2007, the Corporation and Fifth Third entered into a Merger Agreement by and among the Corporation, Fifth Third, and Fifth Third Financial. Under the terms of the Merger Agreement, the Corporation will be merged with and into Fifth Third Financial. The Merger Agreement has been approved by the Board of Directors of the Corporation, Fifth Third and Fifth Third Financial. The Corporation’s shareholders approved the Merger Agreement, and the merger has been approved by all necessary state and federal regulatory agencies. The merger remains subject to customary closing conditions. The Corporation is planning for closing in the second quarter of 2008.

 

The Merger Agreement contains a number of restrictive covenants regarding the Corporation’s conduct prior to the effective time of the merger, including restrictions on the Corporation’s ability to grant stock options, restricted shares and other equity-based awards and the ability to increase compensation of the Corporation’s directors, executive officers, and employees. The majority of the Corporation’s compensation decisions for 2007 were made prior to the execution of the Merger Agreement. However, as a result of the proposed merger and the covenants contained in the Merger Agreement, the Corporation has not evaluated its executive compensation for 2008 beyond providing annual salary increases permitted under the Merger Agreement.

 

Consummation of the proposed merger will also trigger change in control provisions under various benefits plans, employment agreements, and change in control agreements of the Corporation.

 

In connection with the merger, certain named executive officers entered into employment agreements with Fifth Third. Benefits under these agreements include a salary, bonus, retirement and fringe benefits, payment for covenants not to compete and lump-sum payments as consideration for termination of such executives’ employment agreements with the Corporation. These employment agreements were independently negotiated by the executives directly with Fifth Third. If the proposed merger is consummated, the employment agreements with the Corporation, including applicable change in control provisions, will terminate in accordance with the new Fifth Third employment agreements.

 

OVERVIEW OF COMPENSATION PROGRAM

 

The Corporation’s executive compensation program is aligned with our pay for performance philosophy. From a business perspective, one of management’s primary goals is to enhance total return to shareholders. To reinforce this overarching business goal, the Compensation Committee and management seek to tie executive compensation to quantifiable earnings metrics, such as the Corporation’s Operating Earnings Per Share (“EPS”) and Cash Return on Equity (“ROE”). However, the Compensation Committee maintains discretion to modify the compensation of the executives based on personal performance and other factors.

 

Based on a review of our competitors’ business practices and our understanding of the relationship between pay and performance within our Peer Group (defined below), the Compensation Committee structures the executive compensation program as follows:

 

 

Although the Corporation considers the LTIP and its performance-driven incentives to be a focal point of the executive compensation program, it is only one element of a comprehensive executive compensation program designed to align pay with performance and to aid in the attraction and retention of highly qualified executives. Each element of the program is briefly described below along with a summary of its objectives:

 

OPERATION OF COMPENSATION COMMITTEE

 

The Compensation Committee is responsible for the overall structure of the Corporation’s executive compensation program. The Compensation Committee considers, recommends and oversees the Corporation’s major benefit plans, including incentive compensation plans, and equity-based plans in which directors, the Corporations’ top level of “executive management” (which consists of the Chief Executive Officer and six other 16b executive officers), and other employees of the Corporation and its subsidiaries may participate. The executive officers named in the Summary Compensation Table, which consists of the Chief Executive Officer, the former Chief Financial Officer, the interim principal financial officer, and three other members of executive management, are referred to as “NEOs” or “named executive officers.” In 2007, two individuals served as the principal financial officer of the Corporation. Prior to May 16, 2007, Charles A. Caswell served as the Executive Vice President and Chief Financial Officer of the Corporation. However, on May 16, 2007, Mr. Caswell commenced his transition from those roles, and the Corporation appointed Sheila A. Stoke to serve as its interim principal financial officer effective May 17, 2007. Consequently, both individuals are listed as named executive officers for 2007. The Corporation entered into a Transition Agreement and Release with Mr. Caswell which is described herein under the caption, Narrative to Summary Compensation Table.

 

The Compensation Committee also approves option grants and restricted stock or other awards, and imposes such limitations, restrictions and conditions upon those awards as the Compensation Committee deems necessary or advisable. The Compensation Committee is composed entirely of independent, non-management directors. Except for the broad-based compensation and benefit programs available to all employees, the Compensation Committee approves all compensation-related decisions for executive management.

 

OUTSIDE CONSULTANT

 

In 2007, Semler Brossy Consulting Group, LLC, (“Semler Brossy”) was retained as the independent executive compensation advisor to the Compensation Committee. Semler Brossy works directly for the Compensation Committee, reporting to the Chairman.

 

During 2007, Semler Brossy consulted with the Compensation Committee on the establishment of salary and incentive targets for executive officers; long-term incentive grant levels for 2007 for other key officers; board member compensation for 2007; short-term incentive plan amendments to provide rewards for executive officers consistent with the other plan participants (i.e., for the accomplishment of personal objectives); and the change to a stipend approach for certain perquisites (which was initially expected to be implemented in 2008).

 

The role and selection of the outside consultant is reviewed against a set of standards on an annual basis. This review includes feedback from management.

 

COMPETITIVE BENCHMARKING AND POSITIONING

 

We believe that the compensation practices of our peers provide important context to the Corporation’s executive compensation program. The primary source of peer data for our executive compensation program is a customized Peer Group developed to specifically reflect banks with whom the Corporation competes for talent, banks of similar size and scope to the Corporation and banks that operate with a similar, metropolitan focused branch footprint. Additionally, as a secondary reference point, the Compensation Committee considers data from financial services compensation surveys.

 

The Compensation Committee has developed a set of criteria to consistently identify banks most similar to the Corporation in size and scope of operations (the “Peer Group”). Under these criteria, we consider our Peer Group to consist of financial institutions that:

 

 

 

The Compensation Committee intends to apply these criteria annually, based on completed fiscal year results to update the list of banks that comprise the Peer Group. Based on an historical analysis, we believe that the majority of the competitors in the Peer Group will remain in the Peer Group year over year, with banks leaving and entering the Peer Group primarily because of acquisition or divestiture activity. For fiscal 2007, the Peer Group was comprised of the following 26 banks:

 

 

In general, the Corporation positions each element of compensation at the median of the Peer Group to provide pay opportunities comparable to the marketplace. When the compensation design decisions were initially made, the Corporation’s performance was assessed as below the median of our Peer Group, measured by one-year and three-year total shareholder return, earnings per share growth, return on equity and return on assets. The Compensation Committee determined that it was in the best interests of the shareholders to target 2007 compensation near the median level of the Peer Group to ensure the Corporation’s ability to attract and retain the key leadership talent that would ultimately be responsible for improving the Corporation’s performance.

 

The Compensation Committee planned to obtain an independent evaluation against the Peer Group of the measures of Operating EPS and Cash ROE under the LTIP. However, due to the proposed merger with Fifth Third, this evaluation has not yet been made. In accordance with outstanding agreements, upon consummation of the merger, all performance objectives with respect to performance shares under the LTIP will be deemed to be satisfied to the extent necessary to earn 100% of the performance shares and the performance period shall be deemed to be complete.

 

The structure of the Corporation’s executive compensation program coupled with the positioning of each compensation element results in a mix of compensation that is heavily weighted toward variable, at-risk compensation. Approximately 65% of Mr. James’ 2007 compensation opportunity and an average of approximately 49% of the other NEOs’ 2007 compensation opportunity are performance-based, and therefore at risk based on the Corporation’s performance. This structure ensures that the interests of the NEOs are aligned with the interests of the Corporation’s shareholders.

 

The Corporation maintains and monitors adherence to desired positioning of its executive compensation program through a combination of periodic reviews, as well as at the time of a new plan introduction or modification and when individual compensation decisions are made. While the Corporation does not make compensation decisions solely based on Peer Group positioning, compensation decisions are evaluated against their impact on the desired positioning.

 

 

 

ELEMENTS OF COMPENSATION

 

Base Salary

 

For all members of executive management, base salaries are reviewed annually as well as at the time of a promotion or other change in responsibilities. Increases are based on an evaluation of the previous year’s performance of the executive, the relative strategic importance of the position, market conditions and median pay levels within the Peer Group. However, as previously indicated, the Compensation Committee maintains discretion to modify the compensation of the executives based on personal performance and other factors.

 

For 2007, Mr. James received a 10% salary increase to $385,000. The new salary level positions Mr. James below the median pay level for the Peer Group. While the Compensation Committee sought to increase Mr. James’ base pay closer to the median of the Peer Group, it committed to make such adjustments gradually when the Corporation’s performance reached targeted levels.

 

The Compensation Committee considered the following factors when increasing Mr. James’ compensation:

 

 

For 2007, base salaries of the NEOs (excluding the CEO) were reviewed and, on average, increases of 6.2% were provided. These increases resulted in base salaries consistent with the median pay levels.

 

2007 Base Salary Adjustment

 

 

Annual Incentive Plan

 

The Corporation’s Annual Incentive Plan (“AIP”) is a performance-based annual incentive plan that is based on achievement of targeted levels of Operating EPS and the achievement of individual goals.

 

Management and the Board believe that successful performance against Operating EPS is consistent with a well-run financial services institution. (Accordingly, the LTIP also uses Operating EPS as a key performance metric and both plans define the term in the same way.) The Corporation believes that

Operating EPS better reflects the performance of the Corporation than EPS presented in the Corporation’s financial statements, which is calculated according to generally accepted accounting principles (“GAAP EPS”), since certain less frequently occurring items are excluded from the Operating EPS calculation. Adjustments are made to GAAP EPS to derive Operating EPS for the following types of items:

 

 

Operating EPS is based on fully diluted shares outstanding. For 2007, AIP payments were based 70% on the achievement of Operating EPS targets and 30% on the achievement of individual goals established in advance by the Compensation Committee, as agreed to by Mr. James on behalf of each member of executive management. The intent of this change is to balance the team-based incentive to achieve targeted corporate performance with an individual accountability performance measure.

 

The Operating EPS targets set for the AIP are the same Operating EPS targets set forth in the annual business plan submitted by executive management to the Board of Directors for their approval. In determining the reasonableness of these annual goals, the Board considers the following factors:

 

 

In 2007, the Corporation’s Operating EPS goal was targeted at $1.70 per share. Our actual Operating EPS for the year was $1.20, which includes a net impact of the adjustments from GAAP EPS ($1.18 per share) to Operating EPS of $0.02 per share.

 

Commensurate with competitive practices within the Peer Group, 2007 target annual incentives were 65% of base salary for Mr. James and 25% to 50% of base salary for other NEOs. Officers may earn between 0% — 125% of their targeted award based on their performance against goals. Based on the payout grid in place for 2007, the Operating EPS of $1.20 resulted in a payout based only on the achievement of personal objectives (50% of the targeted award for Ms. Stoke, and 30% of the targeted award for the CEO and other NEOs). Awards to the NEOs under the AIP for performance in 2007 are reflected in column (g) of the Summary Compensation Table, included under “Compensation of Executive Officers” section below.

 

The Compensation Committee is responsible for reviewing this result and can, in its discretion, adjust an individual dollar award. For 2007, the Compensation Committee determined that, although the EPS target had not been achieved, the achievement of personal objectives deserved a commensurate reward. In 2007, EPS was impacted by continued higher provision for loan losses expense, largely due to certain real estate development and ongoing merger expenses caused by the proposed merger with Fifth Third. Therefore, AIP awards were adjusted downward for executives with responsibility for real estate lending, and the AIP payment was increased for Ms. Stoke and Mr. Smith due to their instrumental role in connection with the proposed merger with Fifth Third. No award was made to Mr. Caswell in accordance with the terms of his separation agreement with the Corporation. The Corporation entered into a Transition

Agreement and Release with Mr. Caswell which is described herein under the caption, Narrative to Summary Compensation Table.

 

 

Long-Term Incentive Plan

 

For 2007, the Compensation Committee approved the following target levels of long-term awards based on its review of competitive practices: 100% of base salary for Mr. James, 70% of base salary for all other NEOs with the exception of Stoke, and 35% for Stoke. Consistent with the renewed emphasis on performance, the new LTIP calls for 70% of this targeted LTIP value to be delivered through performance shares and 30% to be delivered through time-based stock options. (Stoke’s target is delivered entirely through restricted stock, with a time-based restriction.) We believe this mix is consistent with our pay for performance philosophy. The number of stock options granted was determined by dividing the value of the stock option component of the award by our FAS 123(R) Black-Scholes value as of the date of grant. The number of performance shares granted was determined by dividing the value of the performance share component of the award by the grant-date fair value of $22.70, then adjusting the award to compensate for the value of the dividends that participants will not receive on the award during the performance period. The grant-date fair value of $22.70 represented the closing market price on the date of the grant, less the discounted present value of such dividends.

 

With the introduction of the new LTIP in 2006, a gap in the long-term incentive program was created since the performance shares component does not vest for three years. To offset this gap, the target value of the performance share component was increased by 33% in 2007.

 

Equity Award Timing Policy

 

All LTIP equity awards relating to fiscal 2007 performance were granted on February 8, 2007, which was the day of the meeting at which these awards were approved. In addition, these awards were granted during an “Open Trading Window,” defined under the Corporation’s Insider Trading Policy as a time when trading in the Corporation’s common stock is permitted following the announcement of the Corporation’s earnings.

 

Effective for 2007, the Corporation adopted a policy to grant equity awards to directors, members of executive management, and other officers and employees annually only at such time as when an Open Trading Window is scheduled to occur. This procedure is designed to further the Corporation’s policy that it will not have any program, plan or practice to time or select the grant dates of any equity award in coordination with the Corporation’s release of material non-public information. In the event of a “new hire” or ad hoc grant, the employee will be notified that his or her grant will be recommended to the Compensation Committee at their next meeting and effective the date of the Compensation Committee approval.

 

As previously disclosed, in connection with the proposed merger with Fifth Third, the Corporation is currently restricted from issuing additional awards under the LTIP and has not issued any additional awards to the NEOs since February 2007.

 

Stock Options

 

It is the Compensation Committee’s belief that the members of executive management are in the best position to have a direct positive impact on the Corporation’s stock price. Accordingly, stock options continue to be an element in the incentive compensation package. Consistent with competitive practice,

stock options are granted with an exercise price at not less than the fair market value on date of grant. Additionally, the Corporation has a policy that it will not re-price stock options.

 

Options typically vest ratably over five years, and expire ten years after grant. However, under the terms of the First Charter Corporation 2000 Omnibus Stock Option and Award Plan, and the agreements thereunder, any unvested options fully vest upon a Change in Control. Therefore, if the merger with Fifth Third is consummated, options awarded under the 2007 LTIP will fully vest at the close of the proposed merger with Fifth Third and such options will be converted into options to purchase Fifth Third common stock.

 

Performance Shares

 

Performance shares awarded under the terms of the First Charter Corporation 2000 Omnibus Stock Option and Award Plan (and the agreements thereunder) also fully vest upon a Change in Control. Therefore, if the merger with Fifth Third is consummated, all performance objectives with respect to performance shares under the LTIP shall be deemed to be satisfied to the extent necessary to earn 100% of the performance shares and the performance period shall be deemed to be complete. Such performance shares shall be deemed to be converted to actual performance share awards and the actual performance share awards shall be paid out in cash as soon as practicable upon the effective date of the proposed merger.

 

Typically, the performance shares vest based on achievement of three goals as evaluated over a three-year performance period. It is the Compensation Committee’s intention that, when achieved, these goals taken as a whole are consistent with third quartile performance within the Peer Group.

 

First, Net Charge-offs must remain below 1% during the performance period before any vesting would occur. Second, assuming the Net Charge-off goal has been met, 70% of the shares would vest based on Operating EPS growth assessed against the Peer Group and 30% of the shares would vest based on Cash ROE assessed against pre-established goals. Finally, the total value of the shares received by the participant from the LTIP is a function of the future value of the stock.

 

The following performance schedules are in place for the 2006 to 2008 and 2007 to 2009 performance periods:

 

 

 

 

Results between threshold and target and target and maximum will be interpolated. In addition, participants will not receive dividends or dividend equivalents on performance shares.

 

Supplemental Executive Retirement Plan

 

From time to time, the Corporation has provided Supplemental Executive Retirement Plans (“SERPs”) to select executives through contractual agreements that guarantee additional retirement benefits beyond

those made available through the Corporation’s qualified retirement plan and deferred compensation arrangements. The Corporation’s existing SERPs have been structured as a pre-set, fixed annuity value.

 

Currently, the Corporation provides SERP benefits to two of the NEOs: Messrs. James and Rownd. Mr. James was provided a SERP when he was being recruited to First Charter to replace a benefit that his previous employer provided. Mr. Rownd’s SERP was provided primarily as a retention device and to achieve equity parity with SERPs provided to other members of executive management at that time. Under the SERPs, upon reaching age 65 and subject to the satisfaction of the vesting requirements, Mr. James is entitled to receive a sum of $785,000 and Mr. Rownd is entitled to receive a sum of $1,205,000. Mr. James and Mr. Rownd were 80% and 60% vested as of December 31, 2007, respectively, and will continue to vest at a rate of 10% each year. However, if the merger with Fifth Third is consummated, both executives shall become 100% vested in their respective SERP benefits.

 

Additional details regarding the terms and provisions of the SERPs are described in this Form 10-K/A in the section called “Change in Control and Employment Agreements.”

 

Deferred Compensation

 

Executive Management, as well as select members of senior management, are eligible to participate in the Corporation’s Option Plan Trust (“OPT Plan”) which is a non-qualified deferred compensation plan. Under this tax-deferred capital accumulation plan, executives may elect to defer up to 100% of their base salary and cash annual incentive and invest these deferrals in mutual funds. Subject to approval by the Compensation Committee, the OPT Plan may provide a restoration contribution for company matching contributions otherwise limited under the broad-based qualified 401(k) plan as a result of Internal Revenue Code restrictions on compensation that can be recognized under qualified plans. Amounts contributed by the Corporation to the account of each of the NEOs under the OPT Plan during 2007 are reflected in the table entitled “Nonqualified Deferred Compensation for 2007” included under “Compensation of Executive Officers” section below.

 

Perquisites and Other Benefits

 

The Corporation provides certain perquisites to executive management where they generally either (i) meet the business needs of the organization, or (ii) provide a level of benefits commensurate with the group insurance plans offered all employees to recognize limitations on wages.

 

Company-owned vehicles are provided to certain executive officers to meet the needs of the organization by facilitating business travel and customer relations. The cost of certain golf and social club memberships is covered for executive officers, provided that the club membership provides for a business-use opportunity such as use of the facilities for functions and meetings, and client networking and entertainment.

 

As discussed last year, the Compensation Committee reviewed the Corporation’s policies regarding perquisites and related gross-up payments for executive management for 2008 and beyond. The Compensation Committee decided that perquisites would be a less prevalent component of executive compensation; that perquisites would be approved by the Compensation Committee for executive officers using guidelines established; that certain perquisites would be replaced with a fixed stipend, the amount which would be revisited from time-to-time; and that, with few exceptions (i.e., club initiation fees for compelling business purposes) the stipend would not be grossed-up for taxes. However, in light of the proposed merger with Fifth Third and the executives’ transition to Fifth Third’s executive compensation program, the Corporation has not implemented the stipend program.

 

On very limited occasions, spousal travel in connection with a business-related event is also a covered expense. This is limited to events sponsored for the purpose of building customer or employee relationships where the travel is for an extended period of time or extends into the personal time of the executive, or it is expected or customary for the executive to be accompanied by a spouse.

 

Other perquisites such as awarded travel, temporary housing, and moving and relocation costs are provided from time to time, commensurate with the same benefits afforded other employees. The

Corporation’s policy has also been to gross-up for tax purposes certain relocation expenses for all employees.

 

Members of executive management generally participate in the Retirement Savings Plan or 401(k) pursuant to which an eligible employee may elect to defer between 1% and 50% of compensation, and the Corporation contributes a quarterly match of 75 cents for each dollar contributed up to 6% of eligible pay. Additionally, the Corporation may contribute annually (i) a discretionary matching amount based on an EPS target for such year and (ii) a discretionary contribution allocated to eligible employees, including executive officers, based on their eligible compensation. Any and all discretionary contributions are determined by the Board of Directors on an annual basis.

 

The Corporation provides income protection in the event of disability or death under group insurance plans for all employees. These group plans have limitations on income replacement and, as a result, highly compensated employees are not provided proportional income protection. Accordingly, supplemental life and disability coverage are provided by the Corporation to certain members of executive management. For 2007, Mr. James received supplemental term life coverage and Messrs. James and Rownd received disability coverage.

 

Additionally, the Corporation provides Mr. James a whole life insurance policy as a continuation of his plan under prior employment.

 

Employment Agreements

 

The Corporation currently maintains employment agreements with Messrs. James and Rownd primarily as a means of retention during periods of uncertainty and operational challenge.

 

As part of the employment contracts the executives also agree to be bound by non-compete and non-disclosure provisions. These agreements include provisions for, among other things:

 

 

Additionally, the Corporation entered into Change in Control arrangements with Mr. James and the NEOs to provide protection to those executives in the event of their termination related to a change of control. The change in control arrangements are designed to promote stability and continuity of senior management during times of transition and change. The Corporation attempts to ensure that the NEOs are incentivized to achieve the greatest possible return for the Corporation’s shareholders, including through a potential change in control transaction, irrespective of such executives’ loss of employment in connection with such a transaction. The arrangements provide for a payout of base salary and average bonus for 35 months for Messrs. James and Rownd, 24 months for Messrs. Smith and Ensor and 12 months for Ms. Stoke if, within a year of the change in control, their employment is terminated other than For Cause. The employment agreements for Messrs. James and Rownd eliminate the tax-related ceiling on post-employment compensation under Section 280G of the Internal Revenue Code of 1986, as amended, by providing for a corresponding payment by the Corporation of any taxes imposed by that section.

 

Additional details regarding the terms and provisions of the employment contracts are described in this Form 10-K/A in the section called “Employment Agreements, Change in Control and Potential Payments Upon a Change In Control.”

 

SHARE OWNERSHIP GUIDELINES

 

The Board of Directors and the Compensation Committee believe that directors and executives should have a reasonable and tangible equity position in the Corporation which will further the alignment of interests between these parties and the shareholders. Therefore, during 2006, the Compensation

Committee and the Board, acting upon the recommendation of the Corporate Governance and Nominating Committee, approved the following share ownership guidelines for both directors and members of executive management:

 

 

These guidelines are considered by the Board to be modest; however, given the relatively short tenure of the current members of executive management and the relatively light historical reliance on equity-based compensation by the Corporation, the Compensation Committee and the Board believe them to be appropriate and in the best interests of the shareholders. Individuals have three years to achieve these target levels of ownership. Failure to meet these requirements within this timeframe will be taken into consideration when granting future equity awards. Common stock held directly or indirectly (e.g., 401(k) Plan, Deferred Compensation Plan or family members sharing the same household) and restricted stock subject to time-based vesting count towards the ownership for purposes of these guidelines. Unvested performance shares and unexercised stock options do not count for these purposes.

 

DEDUCTIBILITY OF COMPENSATION EXPENSES

 

Section 162(m) of the Internal Revenue Code of 1986 generally limits the tax deductibility by the Corporation for compensation paid to the CEO and the other most highly compensated executive officers to $1 million per officer per year, unless it qualifies as “performance-based” compensation. To qualify as “performance-based,” compensation payments must satisfy certain conditions, including limitations on the discretion of the Compensation Committee in determining the amounts of such compensation. It is the Corporation’s current policy that, to the extent possible, compensation paid to its NEOs is deductible under Section 162(m) of the Internal Revenue Code. The Compensation Committee believes that the compensation program and actions taken during 2007 are consistent with this policy.

EXECUTIVE COMPENSATION

 

 

 

 

Narrative to Summary Compensation Table

 

For a discussion and analysis of the Corporation’s compensation program, including a discussion of each element of compensation provided to the NEOs, please refer to the “Compensation Discussion and Analysis” section above.

 

As discussed in the “Compensation Discussion and Analysis” section above, the Corporation entered into Employment and Change in Control Agreements with certain members of executive management. A discussion of these agreements follows. For additional discussion of the benefits that will be provided to each of the NEOs in the event of their termination or a change in control of the Corporation, please refer to “Potential Payments Upon Termination or Change in Control.”

 

Robert E. James, Jr. Pursuant to an amended and restated employment agreement between the Corporation and Robert E. James, Jr. effective December 19, 2001 (and subsequently amended and restated on November 2, 2007), Mr. James is employed by the Corporation as President and Chief Executive Officer for a rolling thirty-six month term which, unless terminated earlier, automatically extends on the last day of each successive month thereafter, with the last such possible thirty-six month term expiring on October 31, 2015. Under the terms of the agreement, Mr. James will receive an annual base salary of at least $385,000 per year, plus benefits, and may be entitled to receive annual bonus compensation from one or more arrangements including but not limited to the Annual Incentive Plan. In addition, Mr. James has certain other rights in connection with a “change in control” as discussed below. The employment agreements between the Corporation and Messrs. James and Rownd were amended and restated in 2007 to comply with changes in Code section 409A. Additionally, Messrs. James, Rownd and Ensor have entered into employment agreements with Fifth Third, to become effective if the proposed merger with Fifth Third is completed. If the proposed merger is consummated, First Charter’s employment agreements with Messrs. James and Rownd, including applicable change in control provisions within such agreements, will terminate in accordance with the new Fifth Third employment agreements. These employment agreements were independently negotiated directly by the executives with Fifth Third.

 

Stephen M. Rownd.  Pursuant to an amended and restated employment agreement between the Corporation and Stephen M. Rownd effective December 19, 2001, (and subsequently amended and restated on November 2, 2007), Mr. Rownd is employed by the Corporation as Executive Vice President for a rolling thirty-six month term which, unless terminated earlier, automatically extends on the last day of

each successive month thereafter, with the last such possible thirty-six month term expiring on May 31, 2024. Under the terms of the agreement, Mr. Rownd will receive an annual base salary of at least $257,000 per year, plus benefits, and may be entitled to receive annual bonus compensation from one or more arrangements including but not limited to the Annual Incentive Plan. In addition, Mr. Rownd has certain other rights in connection with a “change in control” as discussed below.

 

Charles A. Caswell.  Charles A. Caswell was previously employed as the Executive Vice President, Chief Financial Officer, and Treasurer of the Corporation pursuant to an Employment Agreement between the Corporation and Mr. Caswell dated as of April 13, 2005. However, pursuant to a Transition Agreement and Release between the Corporation and Mr. Caswell dated as of May 16, 2007 (the “Transition Agreement”), the parties terminated the Employment Agreement (with the exception of certain ongoing restrictive covenants) and Mr. Caswell commenced his transition from his role on May 17, 2007 (the “Transition Date”).

 

Following the Transition Date, Mr. Caswell continued to be employed by the Corporation and received his then-current regular compensation and benefits until August 17, 2007 (the “Separation Date”). Following the Separation Date, Mr. Caswell began to receive severance pay in the aggregate amount of $98,967, payable in equal installments for the period August 17, 2007 through December 31, 2007, less appropriate deductions, including state and federal taxes. In addition, Mr. Caswell was entitled to pro rated payouts pursuant to his performance share award agreements; continued participation in certain broad-based benefits through December 31, 2007 or such earlier time as Mr. Caswell became eligible under another group plan; reimbursement of club membership dues through August 17, 2007; and outplacement services.

 

In exchange for the severance and other benefits contained in the Transition Agreement, Mr. Caswell agreed to continue to honor all return of records, and applicable confidentiality and conflict of interest obligations previously agreed to or in accordance with applicable federal and state laws, fully release the Corporation, its subsidiaries and affiliate companies from all claims (subject to limited exceptions) and for a period of one year after the Separation Date, refrain from engaging in certain specified competitive activities.

 

Change in Control Provisions.  The employment agreements between the Corporation and Messrs. James and Rownd contain provisions relating to a change in control of the Corporation. In addition, Messrs. J. Scott Ensor and Cecil O. Smith, Jr., and Ms. Sheila A. Stoke, are parties to amended and restated change in control agreements with the Corporation, dated November 2, 2007. The specific events that constitute a change in control of the Corporation are discussed below, under “Potential Payments Upon Termination or Change in Control.”

 

The employment agreements for Mr. James and Mr. Rownd also provide that under certain circumstances upon leaving the employment of the Corporation, the NEO may not, within the “restricted territory” and for a period of two years after termination of employment, engage directly or indirectly in the banking, financial services or any other business in which the Corporation and its subsidiaries are engaged. The term “restricted territory” means: (1) the geographic area encompassing a twenty-five (25) mile radius of Charlotte, North Carolina; and/or (2) any Metropolitan Statistical Area (as defined by the United States Department of Commerce) from which First Charter generated at least ten percent (10%) of its gross annual revenue during the last two calendar years before the end of the executive’s employment with First Charter. Additionally, the employment agreements prohibit during the life of the agreement and for three years afterwards, the solicitation or inducement of any of the Corporation’s employees to terminate their employment with the Corporation and join any business activity with which the executive is or expects to be directly or indirectly associated or employed.

Grants of Plan-Based Awards for 2007

 

 

Outstanding Equity Awards at Fiscal Year-End for 2007

 

 

 

 

Option Exercises and Stock Vested for 2007

 

 

 

 

Pension Benefits for 2007

 

 

 

 

Narrative to Pension Benefits Table

 

Pursuant to the SERP between Mr. James and the Corporation dated June 21, 1999, and as amended and restated on December 19, 2001 (and subsequently amended and restated on November 2, 2007), Mr. James will be entitled to receive a total of $785,000 (or $6,541.67 a month, for 120 months), if certain conditions are satisfied, when he reaches the age of 65 on October 17, 2016. This benefit became 50% vested on January 1, 2004 and vests in additional 10% increments on January 1 of each year thereafter, beginning January 1, 2005, until fully vested on January 1, 2009. As of December 31, 2007, Mr. James was 80% vested in his SERP benefit. This benefit will become fully vested if (i) Mr. James dies, (ii) Mr. James becomes disabled, or (iii) upon a “change in control” as described below, and the unvested benefit is subject to forfeiture if Mr. James is terminated for cause under his employment agreement.

Pursuant to the SERP between Mr. Rownd and the Corporation effective December 19, 2001 (and subsequently amended and restated on November 2, 2007), Mr. Rownd will be entitled to receive a total of $1,205,000 (or $10,041.67 a month, for 120 months), if certain conditions are satisfied, when he reaches the age of 65 on May 23, 2025. This benefit became 50% vested on January 1, 2006 and vests in additional 10% increments on January 1 of each year thereafter, beginning January 1, 2007, until fully vested on January 1, 2011. As of December 31, 2007, Mr. Rownd was 60% vested in his SERP benefit. This benefit will become fully vested if (i) Mr. Rownd dies, (ii) Mr. Rownd becomes disabled, or (iii) upon a “change in control” as described below, and the unvested benefit is subject to forfeiture if Mr. Rownd is terminated for cause under his employment agreement.

 

The SERP agreements between the Corporation and Messrs. James and Rownd were amended and restated in 2007 to comply with changes in Internal Revenue Code section 409A.

 

In quantifying the present value of the current accrued benefit, the following assumptions were made:

 

 

Nonqualified Deferred Compensation for 2007⁽¹⁾

 

 

 

 

Narrative to Nonqualified Deferred Compensation Table

 

The First Charter Corporation Option Plan Trust (OPT) (the “OPT Plan”) is a tax-deferred capital accumulation plan. Under the OPT Plan, eligible participants may defer up to 90% of base salary, up to 100% of annual incentive, and excess deferrals, if any, pursuant to Internal Revenue Code section 401(a)(17) and 401(k).

Participants may invest in six (6) mutual funds with distinct investment objectives and risk tolerances. From day one, participants are 100% vested in deferrals to the OPT Plan and the earnings on those deferrals. Eligible employees for the OPT Plan include executive management as well as key members of senior management.

 

The OPT Plan was amended and restated in December 2007 to comply with changes in Internal Revenue Code section 409A. Amounts deferred under the OPT Plan will be distributed in the calendar year following the year in which the participant has a termination of service, or in any calendar year following the year of termination of service provided that all benefit payments have been made by the tenth (10th) calendar year (with a minimum balance requirement). Distribution may be made in a lump sum or in annual installments not to exceed a ten-year period. However, in the event of death, payments will be made in a lump sum as soon as practicable following the date of the participant’s death; or, if benefits are in pay status, unpaid amounts will continue to be paid to the beneficiary in the form that the executive had elected to receive such amounts.

 

Potential Payments Upon Termination or Change in Control

 

As discussed in Compensation Discussion and Analysis section and the Narrative to Summary Compensation Table, the Corporation entered into Employment Agreements with Messrs. James and Rownd (and formerly, with Mr. Caswell), and into Change in Control Agreements with Messrs. Ensor and Smith and Ms. Stoke. If the proposed merger is consummated, First Charter’s employment agreements with Messrs. James and Rownd, including applicable change in control provisions within such agreements, will terminate in accordance with the new Fifth Third employment agreements. However, the potential payments to the NEOs in the event of their termination or a change in control are discussed below. In each case, it is assumed that the date of termination is December 31, 2007.

 

Accrued and Vested Benefits.  Each of the NEOs has accrued various benefits under the Corporation’s compensation programs and other broad-based employee benefit plans. Many of these benefits and awards are fully vested and each of the NEOs would receive all of their vested benefits and awards in the event that their employment with the Corporation ends for any reason, including termination by the Corporation for “cause” or resignation without “good reason.” (“Cause” is defined generally as willful misconduct, use of narcotics or alcohol in a manner that affects the officer’s duties, conviction of a crime involving moral turpitude or for any felony, embezzlement or theft, gross inattention or dereliction of duty or the breach by the officer of certain other duties and obligations. “Good reason” generally means a material reduction in the officer’s duties or a change in title resulting in reduction of the officer’s duties, a material reduction in salary or bonus, or the relocation of the officer to an area farther than a specified distance from their primary employment location.) In the event of termination for cause or without good reason, each of the NEOs is entitled only to receive all earned but unpaid base salary, unreimbursed expenses and/or accrued, vested stock options and vested 401(k) or pension benefits through the effective date of the termination.

 

The table below summarizes the accrued and vested benefits that each of the NEOs would be entitled to, assuming they left the Corporation for any reason on December 31, 2007.

 

Accrued and Vested Benefits

 

 

 

Death, Disability or Retirement.  Under the employment agreements with each of Messrs. James and Rownd, if termination of employment occurs at any time due to the death of executive, then executive’s estate will be paid all earned but unpaid base salary, if any, and accrued bonus, and an additional amount representing one year’s base salary. Each executive would receive the same payments in the event of their retirement from First Charter (with the consent of the Corporation) or their disability, except that any salary payments would be reduced by any amounts which executive receives from the Corporation’s long-term disability plan. For death or disability, all supplemental benefits (including those provided under SERPs) and all equity awards will be fully vested. For retirement, all equity awards will be fully vested.

 

The change in control agreements with each of Messrs. Ensor and Smith and Ms. Stoke do not provide for any payments in the event of their death, disability or retirement. However, under the Corporation’s LTIP, each of Mr. Ensor and Smith would be entitled to a pro-rata vesting (representing the pro-rata service over the three-year performance period) of his performance share award at the target level of the award. Additionally, the vesting of the executives’ outstanding stock option and restricted stock awards would be accelerated.

 

The table below summarizes the incremental benefits (beyond the accrued and vested benefits) that each of the NEOs would be entitled to, assuming their death, disability or retirement occurred on December 31, 2007.

 

Death, Disability or Retirement

 

 

 

Termination Without Cause or Resignation For Good Reason.  Under the employment agreements with each of Messrs. James and Rownd, if termination of employment occurs at any time due to termination by the Corporation without cause or due to resignation by the executive for good reason, then the executive shall be entitled to (i) all accrued, unpaid base salary and unreimbursed expenses through the date of such termination; (ii) any prior year annual incentive bonus earned but not yet paid; (iii) continued payment of the executive’s base salary for the greater of the remainder of the employment term under the agreement or two (2) years; (iii) an annual bonus amount (calculated as the average of the three most recent bonuses) for the greater of the remainder of the employment term under the agreement or two (2) years (the agreements have a three-year term and automatically renew on a monthly basis); (iv) continuation of health and welfare benefit coverage (including coverage for the executive’s dependents to the extent such coverage is provided by First Charter for its employees generally) under such plans and programs to which the executive was entitled to participate immediately prior to the date of the end of his employment for the greater of the remainder of the employment term under the agreement or two (2) years, provided such continued participation is possible under the terms and provisions of such plans and programs; and (v) acceleration of vesting of all supplemental benefits, including but not limited to all awards, grants, and options under any supplemental agreement, stock option plan or grant notwithstanding any other provision in such plan or grant.

The change in control agreements with each of Messrs. Ensor and Smith do not provide for any payments in the event of their termination without cause or resignation for good reason. However, under the Corporation’s LTIP, in the event of termination without cause, each of Mr. Ensor and Smith would be entitled to a pro-rata vesting (representing the pro-rata service over the three-year performance period) of his performance share award at the target level of the award. Additionally, in the event of termination without cause, the vesting of the executives’ outstanding stock option and restricted stock awards would be accelerated. In the event of resignation for good reason, Messrs. Ensor and Smith and Ms. Stoke would not receive any additional benefits.

 

The tables below summarize the incremental benefits (beyond the accrued and vested benefits) that each of the NEOs would be entitled to, assuming their termination without cause or resignation for good reason occurred on December 31, 2007.

 

Termination Without Cause/Resignation For Good Reason