pre14a
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OMB APPROVAL |
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OMB Number: 3235-0059 |
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Expires:
May 31, 2009
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
þ Preliminary Proxy Statement
o Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional
Materials
o Soliciting Material Pursuant to §240.14a-12
CITIZENS
REPUBLIC BANCORP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
o Fee paid previously with preliminary materials.
o Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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SEC 1913 (02-02)
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Persons who are to respond to the collection of
information contained in this form are not required to
respond unless the form displays a currently valid OMB
control number. |
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Thomas W. Gallagher
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Executive Vice President, |
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General Counsel and Secretary |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, TO BE HELD MAY 18, 2011
To the Shareholders of Citizens Republic Bancorp, Inc.:
Notice is hereby given that the annual meeting of shareholders of Citizens Republic Bancorp,
Inc. (the Corporation) will be held at the Riverfront Banquet Center (located within the new
Riverfront Residence Hall, which is located next door to our headquarters), 1 Riverfront Center
West, Flint, Michigan 48502 on Wednesday, May 18, 2011, at 10:00 a.m., local time, for the
following purposes:
(1) To elect ten (10) directors to serve a one (1) year term, or until their successors are
duly elected and qualified;
(2) To approve a nonbinding proposal to approve the compensation of certain of our executive
officers;
(3) To approve an amendment to the articles of incorporation to implement at anytime prior to
December 31, 2011, a reverse stock split at a ratio ranging from 1-for 2 to 1-for 10 and a decrease
in the number of authorized shares of our common stock on a proportional basis in each case as
determined by the board of directors, and empowering the board of directors to abandon the reverse
stock split and amendment if the board of directors determines that doing so would be in the best
interests of the Corporation and our shareholders (the Reverse Stock Split Proposal);
(4) To ratify the selection of Ernst & Young LLP as our independent auditors for the fiscal
year ending December 31, 2011; and
(5) To transact such other business as may properly come before the meeting or any adjournment
or adjournments thereof.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE DIRECTORS NOMINATED, FOR
THE APPROVAL OF THE NONBINDING COMPENSATION PROPOSAL,
FOR THE APPROVAL OF THE REVERSE STOCK
SPLIT PROPOSAL AND FOR THE RATIFICATION OF OUR INDEPENDENT AUDITORS.
Shareholders of record of our common stock outstanding at the close of business on March 21,
2011 are entitled to notice of and to vote at the meeting.
You are invited to attend this meeting. Please date, sign and return your proxy promptly in
the enclosed, stamped envelope whether or not you plan to be present at the meeting. In the
alternative, you may vote via the Internet or by telephone by following the procedures set forth on
the enclosed proxy card. You may still vote in person if you attend the meeting and are a
shareholder of record or have a legal proxy from a shareholder of record.
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By Order of the Board of Directors,
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Thomas W. Gallagher |
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Executive Vice President,
General Counsel and Secretary |
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Flint, Michigan
, 2011
Citizens Republic Bancorp, Inc.
328 South Saginaw Street
Flint, Michigan 48502
PROXY STATEMENT
Meeting Information
We are delivering this proxy statement to our shareholders in connection with the
solicitation of proxies by our board of directors for our annual meeting of shareholders to be held
on May 18, 2011 and any adjournments of the meeting. This proxy statement, the proxy and the
notice of annual meeting of shareholders are being provided to our shareholders on or about April
4, 2011. The meeting will be held at the Riverfront Banquet Center (located inside of the
Riverfront Residence Hall, which is located next door to our headquarters), 1 Riverfront Center
West, Flint, Michigan 48502. Directions to attend the meeting in person may be obtained by
contacting Ms. Kristine Brenner, Director of Investor Relations at 810-257-2506 or at
www.citizensbanking.com/shareholdermeeting.
Voting Information
Record Date
Shareholders as of the close of business on March 21, 2011 will be entitled to be present and
to vote at the meeting. Each share of our common stock is entitled to one vote on each matter to
be voted upon at the meeting. There are no other classes of our stock entitled to vote at the
meeting. On February 25, 2011, there were 397,138,900 shares of our common stock outstanding and
entitled to vote and 300,000 shares of our fixed rate cumulative perpetual preferred stock, Series
A outstanding. Our outstanding preferred stock is not entitled to vote on the matters to be voted
upon at the meeting.
How to Vote
The board of directors requests that you execute and return the proxy promptly, whether or not
you plan to attend the meeting.
If you hold your shares of our stock under your own name (also known as record ownership),
you can vote your shares in one of the following manners:
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By proxy via the Internet at
www.citizensbanking.com/shareholdermeeting or www.proxyvote.com and following
the instructions; |
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By proxy via telephone at 1-800-690-6903 on a touch-tone phone and
following the recorded instructions; |
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By proxy via mail by signing and returning the enclosed proxy card
in the postage-paid envelope; and |
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By coming to the meeting and voting your shares in person. |
We also have posted our proxy statement, proxy card, directions to our shareholder meeting and
2010 annual report to shareholders at the www.citizensbanking.com address noted above.
1
Any vote by proxy, Internet or telephone may be revoked by you at any time before the meeting
by (1) giving written notice of such revocation to the corporate secretary, (2) by executing
another proxy or using the Internet or telephone voting procedures as of a date subsequent to the
prior proxy or Internet or telephone vote, or (3) if you are a shareholder of record or have a
legal proxy from a shareholder of record, by voting in person at the annual meeting. Shareholders
who vote via the Internet or by telephone need not mail their proxy cards and doing so will revoke
any prior vote or proxy.
If a broker, bank or other nominee holds your shares (street name ownership), you will
receive a voting instruction form directly from them. Follow the instructions on the form they
provide to have your shares voted by proxy. If you wish to attend the meeting and vote in person,
you must obtain a proxy, executed in your favor, from the broker, bank or nominee to do so.
We will bear the cost of soliciting proxies, which will be solicited primarily by mail. We
have retained Alliance Advisors, specialists in proxy solicitation, to solicit proxies from
brokers, bank nominees, and other institutional holders of our common stock at an anticipated cost
of $7,000 plus certain out-of-pocket expenses. Proxies may also be solicited by our directors and
employees personally, and by telephone, facsimile, or other means. No additional compensation will
be paid to these individuals for proxy solicitation nor is it expected to result in more than a
minimal cost to us. We may make arrangements directly with banks, brokerage houses, custodians,
nominees and fiduciaries to forward solicitation material to the beneficial owners of our common
stock held of record by them and to obtain authorization for the execution of proxies. We expect
to reimburse these institutional holders for their reasonable expenses in connection with these
activities.
Voting Requirements and Manner of Voting Proxies
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The shareholders will elect directors. Each outstanding share is entitled
to vote for each director position. A director will be elected if he or she receives
the affirmative vote of a majority of the votes cast for that director. Votes cast
includes votes cast to withhold authority to vote for a director and excludes
abstentions and broker non-votes. An incumbent director who does not receive a
majority of the votes cast for that director position is required to tender his or her
resignation to the board of directors, and the resignation will be reviewed by our
corporate governance and nominating committee, which will make a recommendation to the
board of directors as to whether it should accept or reject the resignation. This
process is more fully described in our Bylaws. |
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The shareholders will vote on a nonbinding proposal to approve the
compensation of our executives. The nonbinding resolution to approve the compensation
of certain of our executive officers will be approved if authorized by a majority of
the votes cast by shareholders on the matter. |
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The shareholders will vote on approval of the Reverse Stock Split
Proposal. The Reverse Stock Split Proposal will be approved if approved by a majority
of the outstanding shares of our common stock entitled to vote at the meeting. |
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The shareholders will vote on the ratification of the appointment of our
independent auditors. The appointment will be ratified if approved by a majority of the
votes cast by shareholders on the matter. |
The shares represented by properly executed proxies received by Internet, telephone or by mail
will be voted in the manner specified, and where there are no instructions given, will be voted in
favor of the director nominees and in favor of the other matters specified in this proxy statement.
2
Withheld votes, abstentions and broker non-votes are counted only for purposes of determining
whether a quorum is present at the meeting. Broker non-votes will have the effect of a vote
against the reverse stock split proposal, but will not affect the vote on other matters listed in
the proxy statement. Broker non-votes result when shareholders hold their shares in street name
and do not provide voting instructions to their broker or other nominee. Those shares will not be
voted on any proposal on which the broker or other nominee does not have discretionary authority to
vote under applicable rules.
The persons named in the proxy to represent shareholders who are present by proxy at the
meeting are Lizabeth A. Ardisana and Stephen J. Lazaroff.
Meeting Attendance
If you plan to attend the meeting and your shares of common stock are registered in your name,
your admission ticket is either the top-half of your proxy card or your Notice Regarding the
Availability of Proxy Materials. If you hold your shares in street name, you will need to bring
with you a letter from your broker or nominee confirming your beneficial ownership of common stock
as of the record date.
Important Notice Regarding Delivery of Annual Report and Proxy Statement
To reduce the expenses of delivering duplicate materials to our shareholders, we are
taking advantage of householding rules that permit us to deliver only one set of proxy solicitation
materials, our Annual Report for the fiscal year ended December 31, 2010, and the Notice Regarding
the Availability of Proxy Materials to shareholders who share the same address, unless otherwise
requested. Each shareholder retains a separate right to vote on all matters presented at the
meeting.
If you share an address with another shareholder and have received only one set of materials,
you may write or call us to request a separate copy of these materials at no cost to you. For
future annual meetings, you may request separate materials or request that we only send one set of
materials to you if you are receiving multiple copies by writing to us at
sendmaterial@proxyvote.com, or calling us at 1-800-579-1639.
3
SECURITY OWNERSHIP
Certain Beneficial Owners
The table below includes all of our shareholders that we know to beneficially own more
than five percent of our common stock as of December 31, 2010, unless otherwise indicated.
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Common |
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Stock |
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Beneficially |
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Owned as a |
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Percentage |
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of |
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Common Stock |
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Outstanding |
Name and address of |
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Beneficially |
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Investment Power |
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Voting Power |
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Common |
Beneficial Owner |
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Owned |
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Sole |
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Shared |
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None |
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Sole |
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Shared |
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None |
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Stock |
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BlackRock, Inc.
40 East 52nd Street
New York, NY 10022(1) |
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21,934,415 |
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21,934,415 |
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-0- |
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-0- |
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21,934,415 |
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-0- |
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-0- |
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5.5 |
% |
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Wellington Management
Company, LLP
280 Congress Street
Boston, MA 02210(2) |
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38,416,535 |
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-0- |
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38,416,535 |
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-0- |
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-0- |
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38,416,535 |
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-0- |
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9.7 |
% |
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Bay Pond Partners, L.P.
Wellington Hedge
Management, LLC
c/o 280 Congress Street
Boston, MA 02210(3) |
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26,413,441 |
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-0- |
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26,413,441 |
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-0- |
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-0- |
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26,413,331 |
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-0- |
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6.7 |
% |
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(1) |
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The information furnished for BlackRock, Inc. is based upon information
contained in Schedule 13G filed with the Securities and Exchange Commission on February 3, 2011. |
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(2) |
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The information furnished for Wellington Management Company, LLP is based
upon information contained in Schedule 13G filed with the Securities and Exchange Commission on
February 14, 2011. The 38,416,535 shares of common stock disclosed as beneficially owned by
Wellington Management Company, LLP includes the 26,413,441 shares of common stock disclosed in the
table as beneficially owned by Bay Pond Partners, L.P. and Wellington Hedge Management, LLC due to
Wellington Management Company, LLPs role as investment advisor for Bay Pond Partners, L.P. and
Wellington Hedge Management, LLC. |
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(3) |
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The information furnished for Bay Pond Partners, L.P. and Wellington
Hedge Management, LLC is based upon information contained in Schedule 13G filed by them with the
Securities and Exchange Commission on February 14, 2011. The 26,413,441 shares of common stock
disclosed as beneficially owned by Bay Pond Partners, L.P. and Wellington Hedge Management, LLC are
included in the 38,416,535 shares of common stock disclosed in the table as beneficially owned by
Wellington Management Company, LLP. |
4
Management
The following table reflects the beneficial ownership of our common stock as of February
25, 2011 by:
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Each director and nominee for election to our board of directors; |
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Each executive officer named in the Executive Compensation Summary
Compensation Table, whom we refer to as our Named Executive Officers; and |
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Our current directors and all executive officers as a group. |
The information in the table has been obtained from these individuals and is reported in accordance
with the applicable rules of the Securities and Exchange Commission, or Commission. Under these
rules, a person is deemed to beneficially own stock if they have or share the power to vote or
dispose of the stock or have the right to acquire the power to vote or dispose of the stock within
the next 60 days. As a result, the amounts shown in the table do not necessarily reflect stock
ownership for any purpose other than compliance with the Commissions reporting requirements.
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Common Stock |
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Beneficially Owned |
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as a Percentage of |
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Common Stock |
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Sole Voting and |
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Shared Voting and |
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Outstanding |
Name |
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Beneficially Owned(1) |
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Dispositive Power |
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Dispositive Power |
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Common Stock |
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Lizabeth A. Ardisana |
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45,660 |
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45,660 |
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-0- |
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* |
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George J. Butvilas |
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244,829 |
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244,829 |
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-0- |
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* |
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Charles D. Christy |
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49,055 |
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49,055 |
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-0- |
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* |
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Robert S. Cubbin |
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54,390 |
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54,390 |
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-0- |
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* |
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Richard J. Dolinski |
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64,117 |
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64,117 |
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-0- |
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* |
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Thomas W. Gallagher(3) |
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89,661 |
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89,661 |
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-0- |
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* |
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Gary J. Hurand |
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594,158 |
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103,113 |
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491,045 |
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* |
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Dennis J. Ibold |
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193,353 |
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193,353 |
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-0- |
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* |
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Judith L. Klawinski |
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211,742 |
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211,742 |
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-0- |
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* |
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Benjamin W. Laird |
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47,790 |
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47,790 |
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-0- |
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* |
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Stephen J. Lazaroff |
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133,310. |
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133,310 |
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-0- |
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* |
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Lisa T. McNeely |
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337,636 |
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337,636 |
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-0- |
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* |
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Cathleen H. Nash |
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640,670 |
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640,670 |
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-0- |
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* |
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Mark W. Widawski(4) |
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87,364 |
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87,364 |
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-0- |
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* |
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Kendall B. Williams |
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58,198 |
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57,484 |
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714 |
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* |
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James L. Wolohan(2) |
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372,760 |
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372,760 |
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-0- |
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* |
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Steven E. Zack |
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106,643 |
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106,643 |
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-0- |
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* |
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All current directors and
executive officers as a
group (25 persons) |
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3,896,977 |
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3,400,723 |
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496,254 |
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* |
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Represents holdings of less than one percent. |
5
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(1) |
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The following table shows the number of shares included in the column that
(1) may be acquired upon exercise of options which are exercisable or become exercisable on or
before April 26, 2011, (2) are unvested restricted shares or restricted stock units granted under
our Stock Compensation Plan, or (3) are pledged by the owner as security. Vesting provisions for
the restricted shares are described in the Executive Compensation Outstanding Equity Awards at
Year-End table in this proxy statement. |
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Restricted |
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Pledged |
Name |
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Options |
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Shares |
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Shares |
Lizabeth A. Ardisana |
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3,425 |
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-0- |
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-0- |
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George J. Butvilas |
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-0- |
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-0- |
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198,196 |
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Charles D. Christy |
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-0- |
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-0- |
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-0- |
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Robert S. Cubbin |
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-0- |
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-0- |
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-0- |
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Richard J. Dolinski |
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5,925 |
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-0- |
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-0- |
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Thomas W. Gallagher |
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52,712 |
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19,445 |
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-0- |
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Gary J. Hurand |
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2,371 |
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-0- |
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80,205 |
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Dennis J. Ibold |
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2,371 |
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-0- |
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-0- |
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Judith L. Klawinski |
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15,449 |
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173,860 |
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-0- |
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Benjamin W. Laird |
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5,925 |
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-0- |
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-0- |
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Stephen J. Lazaroff |
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5,925 |
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-0- |
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-0- |
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Lisa T. McNeely |
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38,281 |
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294,805 |
|
|
|
-0- |
|
Cathleen H. Nash |
|
|
-0- |
|
|
|
551,497 |
|
|
|
-0- |
|
Mark W. Widawski |
|
|
2,000 |
|
|
|
73,433 |
|
|
|
-0- |
|
Kendall B. Williams |
|
|
5,925 |
|
|
|
-0- |
|
|
|
-0- |
|
James L. Wolohan |
|
|
5,925 |
|
|
|
-0- |
|
|
|
-0- |
|
Steven E. Zack |
|
|
-0- |
|
|
|
-0- |
|
|
|
22,611 |
|
All current directors and executive
officers as a group
(25 persons) |
|
|
267,250 |
|
|
|
1,431,885 |
|
|
|
301,012 |
|
|
|
|
(2) |
|
The shares shown for Mr. Wolohan do not include 31,691 shares held by the
Wolohan Family Foundation, of which Mr. Wolohan is a director, or 22,500 shares held in trusts for
Mr. Wolohans nieces and nephews of which Mr. Wolohan is a trustee. Mr. Wolohan disclaims
beneficial ownership of such shares. |
|
(3) |
|
The shares shown for Mr. Gallagher do not include 104,476 restricted stock
units that have not yet vested and will not vest within the next 60 days. |
|
(4) |
|
The shares shown for Mr. Widawski do not include 122,950 restricted stock
units that have not yet vested and will not vest within the next 60 days. |
6
PROPOSAL 1 ELECTION OF DIRECTORS
The terms of all directors expire at the 2011 annual meeting of shareholders. The
following ten nominees have been nominated for reelection at the 2011 annual meeting of
shareholders.
Lizabeth
A. Ardisana
George J. Butvilas
Robert S. Cubbin
Richard J. Dolinski
Gary J. Hurand
Benjamin W. Laird
Stephen J. Lazaroff
Cathleen H. Nash
Kendall B. Williams
James L. Wolohan
Mr. Ibold is not standing for reelection and Mr. Zack passed away in March 2011. In
light of Mr. Zacks death, Mr. Dolinski, who had previously indicated his desire not to be
renominated to the board, has agreed to be nominated and, if reelected, to continue to serve as a
director until a suitable replacement has been found. As a result, the number of
directors on the board will reduce to ten immediately preceding the annual meeting of shareholders.
You may vote for no more than ten directors on your proxy card. The term for directors elected at
the 2011 annual meeting will expire at the 2012 annual meeting of shareholders and upon the
election and qualification of their successors. If any of the nominees should be unable to serve,
the board of directors may choose to nominate a replacement candidate. If the board of directors
chooses to nominate a replacement candidate, then the proxies may be voted for the election of such
other person or persons as the board of directors may recommend.
On the basis of information presently available to the board of directors, only the ten
persons named above as nominees will be nominated for election as directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
7
The name and age of each nominee and incumbent director, his or her five-year business
experience, and the year each became a director, according to information furnished by such
nominees, are set forth below. Each is a director of the Corporation and its Citizens Bank and
Citizens Bank Wealth Management, N.A. subsidiaries.
Lizabeth A. Ardisana, 59, has served on our board since 2004. Ms. Ardisana has been the Chief
Executive Officer and owner of ASG Renaissance, a technical and communications firm since 1994.
Ms. Ardisana has extensive management and marketing experience as the founder of her own business.
With her demonstrated leadership skills, business expertise and entrepreneurial spirit, Ms.
Ardisana provides valuable management and financial insight to the board.
George J. Butvilas, 65, has served on our board since 2006. He has been the President and
Chief Executive Officer of Quincy Hill Advisors, LLC, a financial services industry consulting
firm, from 2007 to the present. He has served as Chairman of the Michigan Technological University
Foundation since 1996. He also served as Vice Chairman of Republic Bancorp Inc. from 1999 to 2006.
In his 35 years of service in the banking industry, Mr. Butvilas has served as Chief Executive
Officer of D&N Financial Corporation, a publicly traded bank holding company, for 9 years, and as a
chief operating officer, commercial banker, community banker and director. Mr. Butvilas brings
strong financial and risk management expertise to the board and as Chairman of the risk management
committee because of his extensive expertise in the banking and financial services industry, as
well as institutional knowledge regarding the Republic portion of our business.
Robert S. Cubbin, 53, has served on our board since 2008. Mr. Cubbin has been the President
and Chief Executive Officer of Meadowbrook Insurance Group, Inc., a publicly traded company, since
May 2002 and has been a director since 1995. From February 1999 to May 2002, Mr. Cubbin served as
the President and Chief Operating Officer of Meadowbrook Insurance Group, Inc. Mr. Cubbin joined
Meadowbrook Insurance Group, Inc. in 1987 as Vice President and General Counsel. Mr. Cubbins
public company background and his extensive skills and experience pertaining to risk, capital, and
financial management enable him to assist the board in assessing risk and developing capital
planning strategies, which are particularly relevant in todays financial services industry.
Richard J. Dolinski, 70, has served on our board since 2001. Mr. Dolinski has been the
President and Chief Executive Officer of Dolinski Associates, Inc., a management consulting firm
since 1997, and has been President of The Legacy Center for Student Success, a non-profit
organization focusing on non-school related learning impediments since 2004. Mr. Dolinski had over
30 years of experience as a Vice President of the Dow Chemical Company with experience in human
resources development and systems integration, product development, and research. Mr. Dolinskis
human resource experience allows him to provide insight to the board with regard to leadership
development, talent management and corporate culture.
Gary J. Hurand, 64, has served on our board since 2006. Mr. Hurand has been the President of
Dawn Donut Systems, Inc., a property development management company since 1988. Mr. Hurand, a
successful business owner in the Michigan commercial real estate market, brings an entrepreneurial
vision and valuable business and leadership skills to the board. Mr. Hurand also has public
company board experience as a trustee of BRT Realty Trust for 20 years and as a director at
Republic Bancorp Inc. for 16 years. With this background, Mr. Hurand provides the board with
valuable insights regarding the current economic environment in Michigan.
8
Benjamin W. Laird, 61, has served on our board since 2001. Mr. Laird has been Of Counsel to
the law firm of Godfrey & Kahn, S.C. since January 2008. He had been an attorney at Godfrey &
Kahn, S.C. since 1985. Mr. Laird has also been a co-partner in Schoen-Laird Development, LLC, a
real estate investment company since 1999. Mr. Laird has over 30 years of experience as an
attorney practicing general business law representing large and small companies, including banks.
Mr. Laird also has a long history of service on the board of directors of a paper converting
machine company and various public and private financial institutions, which, together with his law
practice, has given him valuable experience in corporate governance and oversight matters. As a
Wisconsin resident and member of its business community, Mr. Laird provides a unique point of view
with regard to our business in Wisconsin.
Stephen J. Lazaroff, 57, has served as a director on our board since 1997. Mr. Lazaroff has
been the President of Diversified Precision Products, Inc., a special cutting tool manufacturer
serving the automotive and hydraulic fittings industry, for the last 20 years. Mr. Lazaroff brings
strong leadership management abilities to the board. His professional experience as a small
business owner and manager allows him to provide the board with a solid understanding of business
opportunities and customer views. He also has significant financial and operational expertise,
which gives him unique oversight capabilities.
Cathleen H. Nash, 48, has served on our board since 2009. Ms. Nash has served as our
President and Chief Executive Officer since February 2009 and was formerly our Executive Vice
President responsible for regional banking from August 2007 to February 2009, and Executive Vice
President and Head of Consumer Banking from July 2006 to August 2007. She was the director of
Branch Banking at SunTrust Corporation from September 2003 to June 2006. Ms. Nash, as our current
President and Chief Executive Officer, brings to the board extensive knowledge regarding the
financial services industry and the current operational, economic and regulatory environment in
which we operate, allowing her to provide critical insight into operational requirements and
strategic planning. In that position, she is also able to promote the flow of information between
the board and management and provide managements perspective on issues facing the board.
Kendall B. Williams, 58, has served on our board since 1992. Mr. Williams is an attorney and
counselor with The Williams Firm, P.C., which was established in 1997. Mr. Williams has over 30
years of experience as an attorney specializing in employment and labor law, general civil
litigation, corporate law and municipal law. This expertise allows him to bring a unique and
informed point of view with regard to management and human resources issues to the board.
Furthermore, Mr. Williams legal experience allows him to make valuable contributions with regard
to risk management and corporate governance issues.
James L. Wolohan, 59, has served on our board since 1997. Mr. Wolohan has been President of
Wolohan Investments, LLC, a financial investment company since January 2008. He served as Chairman
of Wolohan Capital Strategies, a real estate and financial investment company from April 2006 to
December 2007. Mr. Wolohan was formerly the President and Chief Executive Officer of Wolohan
Lumber Co., a publicly traded retailer of lumber, building materials and home improvement products
from June 1987 to March 2006 and also served as Chairman of the board of directors for nine years.
Mr. Wolohans previous public company experience as Chairman, President and Chief Executive Officer
of Wolohan Lumber Co. has provided him with valuable financial and management expertise, as well as
leadership abilities that are valuable to the board. Because of these skills and his ability to
communicate and encourage discussion, Mr. Wolohan has served as our lead independent director for
four years and, beginning in May 2009, as our Chairman. He also brings strong accounting and
financial skills to our audit committee and board and is an audit committee financial expert as
defined by applicable Commission rules.
9
Biographical information regarding Mr. Ibold and Mr. Zack, who are not standing for reelection
is set forth below.
Dennis J. Ibold, 62, has served on our board since 2006. Mr. Ibold is President of Petersen &
Ibold, Attorneys at Law, which was established in 1980. Mr. Ibold has over 35 years of experience
as an attorney in Ohio with an emphasis in family law, real estate and general corporate law, and
has served on the board of directors of public and private financial institutions since 1982,
including as a director at Republic Bancorp Inc. from 1993 to 2006.
Steven E. Zack, 60, had served on our board since 2006. Mr. Zack had been Chairman of Global
Commercial Credit, a specialty credit insurance firm since 2001 and Vice President of LSG Insurance
Partners, a retail insurance agency, specializing in products for business or industry since 2000.
Mr. Zack also served on the board of Republic Bancorp Inc. from 1999 to 2006.
10
Compensation Of Directors
In 2010, our non-employee directors were compensated as follows:
|
|
Annual retainer: $20,000. |
|
|
|
Meeting fee for board and committee meetings: $1,500 if attended in person, $750
if attended by telephone. |
|
|
|
Non-Executive Chairman: additional $40,000 annual retainer. |
|
|
|
Chairperson of the audit committee: additional $10,000 annual retainer. |
|
|
|
Chairperson of the compensation and human resources committee and the risk
management committee: additional $7,500 annual retainer. |
|
|
|
Chairperson of the corporate governance and nominating committee: additional
$5,000 annual retainer. |
Directors may participate in our directors deferred compensation plan, which allows directors
to elect to defer up to 100% of their retainer, meeting and committee fees. The investment options
available under the directors deferred compensation plan are the same as those available under our
401(k) plan. As a general rule, amounts deferred and investment returns are required to be
distributed no earlier than upon the directors termination of all directorships with us and our
subsidiaries. No additional compensation is paid pursuant to this plan. Other than Mr. Butvilas,
non-employee directors generally do not receive perquisites or other personal benefits for their
service as a director. Mr. Butvilas received medical benefits during 2010 under an employment
agreement with his former employer, Republic Bancorp Inc., which we acquired in 2006. This benefit
ended at the beginning of 2011. Directors who are also our employees do not receive any additional
compensation for their service as a director.
The following table provides information regarding compensation that was paid to the
individuals who served as our directors during 2010, other than Ms. Nash. As a Named Executive
Officer, Ms. Nashs compensation is included in the Executive Compensation section of this proxy
statement.
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
All Other |
|
|
|
|
Paid in Cash(1) |
|
Compensation |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
Lizabeth A. Ardisana |
|
|
38,750 |
|
|
|
-0- |
|
|
|
38,750 |
|
George J. Butvilas |
|
|
44,000 |
|
|
|
9,960 |
|
|
|
53,960 |
|
Robert S. Cubbin |
|
|
71,250 |
|
|
|
-0- |
|
|
|
71,250 |
|
Richard J. Dolinski |
|
|
41,750 |
|
|
|
-0- |
|
|
|
41,750 |
|
Gary J. Hurand |
|
|
48,500 |
|
|
|
-0- |
|
|
|
48,500 |
|
Dennis J. Ibold |
|
|
42,500 |
|
|
|
-0- |
|
|
|
42,500 |
|
Benjamin W. Laird |
|
|
59,750 |
|
|
|
-0- |
|
|
|
59,750 |
|
Stephen J. Lazaroff |
|
|
62,500 |
|
|
|
-0- |
|
|
|
62,500 |
|
Kendall B. Williams |
|
|
42,500 |
|
|
|
-0- |
|
|
|
42,500 |
|
James L. Wolohan |
|
|
108,750 |
|
|
|
-0- |
|
|
|
108,750 |
|
Steven E. Zack |
|
|
46,250 |
|
|
|
-0- |
|
|
|
46,250 |
|
|
|
|
(1) |
|
In May 2010, the board determined to permit our directors to elect to
receive their annual retainer and committee chair fees in the form of cash or shares of our common
stock issued pursuant to our Stock Compensation Plan. All of our directors, except for Mr.
Dolinski and Mr. Lazaroff, received their $20,000 annual retainer fee in the form of 16,393 shares
of our common stock. In addition, Mr. Cubbin chose to receive his $10,000 audit committee chair
fee in the form of 8,197 shares of our common stock. In each case, the number of shares was based
on the closing price per share on the NASDAQ Capital Market on May 4, 2010, the date of the annual
organizational meeting. As participants in our directors deferred compensation plan, Mr. Dolinski
and Mr. Lazaroff were not permitted to elect to receive their fees in shares of common stock
pursuant to the terms of that plan. The plan has since been amended to allow participants to
receive common stock. |
11
Prior to 2008, as part of our standard non-employee director compensation arrangement, we
made awards to our directors either in the form of restricted common shares or stock options. The
table below sets forth for each director the number of options held as of December 31, 2010. All
prior grants of restricted stock held by the directors have vested.
|
|
|
|
|
|
|
Options |
|
|
Outstanding |
Name |
|
(#) |
Lizabeth A. Ardisana |
|
|
3,425 |
|
George J. Butvilas |
|
|
-0- |
|
Robert S. Cubbin |
|
|
-0- |
|
Richard J. Dolinski |
|
|
5,925 |
|
Gary J. Hurand |
|
|
2,371 |
|
Dennis J. Ibold |
|
|
2,371 |
|
Benjamin W. Laird |
|
|
5,925 |
|
Stephen J. Lazaroff |
|
|
5,925 |
|
Kendall B. Williams |
|
|
5,925 |
|
James L. Wolohan |
|
|
5,925 |
|
Steven E. Zack |
|
|
-0- |
|
Since September 2002, we have maintained common stock ownership guidelines for our
non-employee directors. In August 2010, our stock ownership guidelines were amended. Prior to
August, our stock ownership guidelines required directors to hold at least 25,000 shares, with
directors not meeting the guideline required to take grants of our common stock under our Stock
Compensation Plan in lieu of his or her annual cash retainer fee at the time of the annual
organizational meeting, until the director is in compliance. At the time of our 2010 annual
organizational meeting, all of our directors were in compliance with the stock ownership guidelines
in existence at the time. The board of directors amended our stock ownership guidelines because
the board thought it was important for the directors to show an increased commitment to our
shareholders by more closely aligning the financial interests of the directors with the interests
of the other shareholders. The new guidelines require our non-employee directors to own shares of
our common stock with an aggregate fair value of at least five (5) times the annual board retainer.
In the event that any director does not possess such ownership level at the time of the annual
organizational meeting, which immediately follows the annual meeting of shareholders, he or she
will be required to take all or such portion of their annual retainer fee in restricted stock or
restricted stock units until such time as the aforementioned stock ownership guidelines are
achieved. In the event that a director shall terminate his or her directorship prior to the next
annual organizational meeting of the board, he or she shall forfeit, on a pro rata basis, that
portion of the annual retainer amount paid in restricted stock or restricted stock units.
12
The corporate governance and nominating committee is responsible for monitoring compliance
with these guidelines and receives periodic updates from management with regard to progress towards
complying with the guidelines. The table below shows the stock ownership of our non-employee
directors as of February 25, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Other |
|
Total |
|
|
|
|
|
Ownership |
|
|
Owned |
|
Ownership(1) |
|
Holdings |
|
Value(2) |
|
Guideline |
|
|
(#) |
|
(#) |
|
(#) |
|
($) |
|
($) |
Lizabeth A. Ardisana |
|
|
42,235 |
|
|
|
-0- |
|
|
|
42,235 |
|
|
|
33,788 |
|
|
|
100,000 |
|
George J. Butvilas |
|
|
244,694 |
|
|
|
135 |
|
|
|
244,829 |
|
|
|
195,863 |
|
|
|
100,000 |
|
Robert S. Cubbin |
|
|
54,390 |
|
|
|
-0- |
|
|
|
54,390 |
|
|
|
43,512 |
|
|
|
100,000 |
|
Richard J. Dolinski |
|
|
55,192 |
|
|
|
3,000 |
|
|
|
58,192 |
|
|
|
46,554 |
|
|
|
100,000 |
|
Gary J. Hurand |
|
|
100,742 |
|
|
|
491,045 |
|
|
|
591,787 |
|
|
|
473,430 |
|
|
|
100,000 |
|
Dennis J. Ibold |
|
|
99,650 |
|
|
|
91,332 |
|
|
|
190,982 |
|
|
|
152,786 |
|
|
|
100,000 |
|
Benjamin W. Laird |
|
|
41,865 |
|
|
|
-0- |
|
|
|
41,865 |
|
|
|
33,492 |
|
|
|
100,000 |
|
Stephen J. Lazaroff |
|
|
127,385 |
|
|
|
-0- |
|
|
|
127,385 |
|
|
|
101,908 |
|
|
|
100,000 |
|
Kendall B. Williams |
|
|
51,558 |
|
|
|
714 |
|
|
|
52,272 |
|
|
|
41,818 |
|
|
|
100,000 |
|
James L. Wolohan |
|
|
366,835 |
|
|
|
-0- |
|
|
|
366,835 |
|
|
|
293,468 |
|
|
|
100,000 |
|
Steven E. Zack |
|
|
106,643 |
|
|
|
-0- |
|
|
|
106,643 |
|
|
|
85,314 |
|
|
|
100,000 |
|
|
|
|
(1) |
|
Other ownership includes shares owned through the directors spouse or
other family members and shares owned by controlled trusts or their businesses. |
|
(2) |
|
The amounts shown in this column are based on the closing price for a share
of our common stock as reported on the NASDAQ Capital Market on February 25, 2011 multiplied by the
number of shares reported in the Total Holdings column. |
13
CORPORATE GOVERNANCE
General
We are governed by a board of directors and various committees of the board that meet
throughout the year. Directors fulfill their responsibilities at board and committee meetings and
also through telephone contact and other communications with the chairman, chief executive officer,
and others regarding matters of concern and interest to the Corporation. In this portion of our
proxy statement, we describe some of our key governance practices and related matters.
Meetings Of Directors And Committees Of The Board Of Directors
During 2010, our board of directors held seven meetings. All incumbent directors
attended at least 75% of the total number of meetings of our board of directors and the number of
meetings held by our committees on which they served during 2010.
We have several standing committees of our board of directors, including a compensation and
human resources committee, a corporate governance and nominating committee, a risk management
committee, and an audit committee. Our board of directors has adopted a charter for each of these
committees. The charters are accessible on the Governance Documents page of the Investor Relations
Section of our website at www.citizensbanking.com. The audit committee and the risk management
committee meet quarterly and on call when needed. The compensation and human resources committee
and the corporate governance and nominating committee meet on call. Our board of directors has
determined that, except for Ms. Nash, all of our directors, including all the committee members,
are independent directors as defined in Marketplace Rule 5605 of The NASDAQ Stock Market, or
NASDAQ.
The compensation and human resources committee met seven times during 2010 and is currently
comprised of the following directors: Benjamin W. Laird, chairman; Lizabeth A. Ardisana, Robert S.
Cubbin, Dennis J. Ibold, and Stephen J. Lazaroff. The responsibilities of the committee include
approval of all aspects of corporate executive compensation and oversight of our compensation and
benefits plans.
The corporate governance and nominating committee met three times during 2010 and is currently
comprised of the following directors: Stephen J. Lazaroff, chairman; Dennis J. Ibold, Kendall B.
Williams and James L. Wolohan. The responsibilities of the committee are:
|
|
|
To establish criteria for board and committee membership and to recommend
committee appointments; |
|
|
|
|
To review candidates, qualifications and possible conflicts; |
|
|
|
|
To assess contributions of current directors in relation to whether they
should be renominated; |
|
|
|
|
To ensure that a substantial majority of directors are independent; |
|
|
|
|
To review our process for providing information to the board of directors; |
|
|
|
|
To recommend corporate governance principles to the board of directors; |
|
|
|
|
To oversee and evaluate the effectiveness of the board; |
|
|
|
|
To determine a desirable balance of expertise among board members; |
|
|
|
|
To identify qualified candidates to fill board positions and provide aid
in attracting them to the board of directors; |
|
|
|
|
To recommend the slate of director nominees to the board of directors for
inclusion in our proxy statement for election by the shareholders at the annual
meetings; |
|
|
|
|
To recommend to the board of directors qualified nominees to fill
vacancies on the board; |
|
|
|
|
To consider director nominees proposed by shareholders; |
14
|
|
|
To recommend and oversee compliance with stock ownership guidelines for
the chief executive officer, other senior executives and members of the board of
directors; |
|
|
|
|
To nominate and recommend a candidate for non-executive chairman and
review the non-executive chairmans duties annually; and |
|
|
|
|
To handle such other matters as may be properly delegated to the committee
by the board. |
The committee uses a number of means to identify director candidates, including requesting
recommendations from existing board members and others, hiring an independent search firm or
consultant, and considering candidates submitted by shareholders. If the committee hires an
independent search firm or consultant, such firm or consultant will provide the committee with the
names of director candidates who meet criteria established by the committee. When evaluating a
director candidate, the committee looks at the candidates qualifications in light of our needs at
that time given the then current mix of director expertise. While the committee does not have a
formal policy with regard to diversity, the committee believes that the board will function best
when its members possess a broad range of backgrounds and expertise so that the board as a whole
reflects diverse and complementary skills and viewpoints. For a description of procedures for
submitting nominations to the committee, see Corporate Governance Shareholder Proposals and
Corporate Governance Shareholder Nomination of Director Candidates.
The audit committee met twelve times during 2010 and is currently comprised of the following
directors: Robert S. Cubbin, chairman; Gary J. Hurand, Benjamin W. Laird and James L. Wolohan.
Our board of directors has determined that each of the members of the committee is independent,
as defined in the applicable NASDAQ and Commission rules for audit committee members. Our board of
directors has also determined that Mr. Wolohan is an audit committee financial expert as defined
by applicable Commission rules and that each of the audit committee members satisfies all other
qualifications for audit committee members set forth in the applicable NASDAQ rules. The
responsibilities of the committee are:
|
|
|
To oversee our financial reporting process and the internal accounting
controls for our internal audit function; |
|
|
|
|
To appoint, compensate, oversee, evaluate and replace, if necessary, the
external auditors; |
|
|
|
|
To approve in advance all audit services to ensure that a written
statement is received from the external auditors setting forth all relationships with
us; |
|
|
|
|
To review and approve any related party transactions; |
|
|
|
|
To review the annual audit plan with the independent auditors and the
General Auditor; |
|
|
|
|
To oversee our legal, compliance, and ethics policies; and |
|
|
|
|
To review the results of our internal and independent audits. |
The risk management committee assists our board in overseeing our risk management practices,
including our ability to assess and manage our risks related to credit, market, interest rate,
liquidity, reputation, strategic, fiduciary, legal, compliance and operations. The committee met
six times during 2010 and is currently comprised of the following directors: George J. Butvilas,
chairman; Richard J. Dolinski, Gary J. Hurand, Kendall B. Williams and James L. Wolohan. The
responsibilities of the committee are:
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To review, evaluate and approve risk management programs; |
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To provide guidance on strategies and practices that pertain to the
management of credit, market, fiduciary, reputation, strategic, legal, compliance and
operational risks; |
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To review and approve managements risk assessment and risk mitigation and
ensure that risks are managed within our tolerance levels; |
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To evaluate and provide guidance on significant risk exposure; |
15
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To receive and evaluate information relating to asset and liability
management including our capital position, our liquidity position, our earnings
sensitivity under varying interest rate scenarios and appropriate liquidity and capital
levels; |
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To review and assess information relating to credit risk, including
nonperforming assets, charge-offs, level and adequacy of the allowance for loan and
lease losses, the policies and procedures relating to loan and credit risk management;
and |
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To act as the Qualified Legal Compliance Committee. |
We have an enterprise risk management program overseen by our executive vice president and
corporate risk officer, who reports directly to Ms. Nash and is responsible for identifying
potential material risks and implementing appropriate controls to mitigate risks. Information is
presented to the committee at each meeting about the various risks facing us and key risk
indicators are reviewed by the committee in detail. In addition, each of the board committees
considers risks within its areas of responsibility. For example, the audit committee considers
financial risks including those related to internal controls and the annual financial audit and
financial reporting. The compensation and human resources committee oversees the management of
risks associated with our executive compensation plans and ensures that our compensation programs
do not encourage excessive risk taking. The entire board of directors receives a monthly report of
key risk indicators and is regularly informed at its meetings through committee reports. The
boards oversight role in this area has not affected its approach to the boards leadership
structure at least in part due to the level of direct communication between the board, its risk
management and other committees and employees involved in risk management.
16
Report Of The Audit Committee
In accordance with its written charter adopted by our board of directors, the audit
committee assists the board of directors in fulfilling its responsibility for oversight of the
quality and integrity of our accounting, auditing and financial reporting practices.
The committee reviewed with the independent auditors, its judgments as to the quality, not
just the acceptability, of our accounting principles and such other matters required to be
discussed by the Statement on Auditing Standards No. 61, as amended (AICPA Professional Standards,
Vol. 1 AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
In addition, the Committee has discussed with the independent auditors, the auditors independence
from our management and our Corporation, including the matters in the letter from the auditors
required by Public Company Accounting Oversight Board Rule 3526, Communication with Audit
Committees Concerning Independence, and considered the compatibility of non-audit services with the
auditors independence.
The audit committee reviewed and discussed our audited financial statements as of and for the
year ended December 31, 2010 with management and the independent auditors.
Based on the above-mentioned review and discussions with management and the independent
auditors, the audit committee recommended to our board of directors that our audited financial
statements be included in our Annual Report on Form 10-K for the year ended December 31, 2010 for
filing with the Securities and Exchange Commission. The audit committee also reappointed the
independent auditors to serve as such for 2011, subject to ratification by our shareholders.
By the Audit Committee of the Board of Directors:
Robert S. Cubbin, Chairman
Gary J. Hurand
Benjamin W. Laird
James L. Wolohan
17
Board Leadership Structure
Our board believes that it is the chief executive officers primary responsibility to run
the Corporation and the chairmans responsibility to run the board. In making its decision to
appoint an independent chairman, our board considered the time that Ms. Nash would be required to
devote to the chief executive officer position in the current economic environment and the fact
that she was new to the chief executive officer position. By having another director serve as
chairman, Ms. Nash would be able to focus her entire energy on running the Corporation. We believe
this structure is best for the Corporation and our shareholders at this time. Mr. Wolohan was
elected to serve again as the non-executive chairman by the independent members of our board in May
2010. Mr. Wolohan served as our lead independent director since 2005 until his appointment as
non-executive chairman in May 2009, and has previously served as both a director and chair on other
public company boards. The non-executive chairman position is reviewed each year at the annual
organizational meeting of the board of directors.
Annual Meeting Attendance
We encourage all members of the board to attend the annual shareholders meetings but we
have not adopted a formal policy requiring such attendance. All of the members of our board who
were directors at the time of the 2010 annual meeting of shareholders attended that meeting.
Code of Ethics
We have a code of ethics that applies to all of our employees and directors. The code of
ethics, as currently in effect (together with any amendments that may be adopted from time to
time), is posted on the Governance Documents page of the Investor Relations Section of our website
at www.citizensbanking.com. In the future, to the extent any waiver is granted with respect to the
code of ethics that requires disclosure under applicable Commission rules, we intend to post the
waiver on the website at the address specified above.
Shareholder Proposals
Any proposal by a shareholder intended to be included in the proxy statement for the 2012
annual meeting must be received by Thomas W. Gallagher, the secretary of the Corporation, by the
close of business on December 6, 2011. In addition to applicable rules of the Commission for
inclusion of shareholder proposals in our proxy statement, our Bylaws provide that, in order for a
shareholder proposal to be properly brought before the annual meeting, written notice of such
proposal must be given by the shareholder to our corporate secretary, either by personal delivery
or by United States mail, postage prepaid, not later than February 18, 2012, which is the
90th day prior to the first anniversary of the 2011 annual meeting. If the annual
meeting date has been advanced to a date earlier than April 18, 2012, which is the 30th
day prior to the first anniversary of the 2011 annual meeting or delayed to a date later than July
17, 2012, which is the 60th day after the first anniversary of the 2011 annual meeting,
then notice of the proposal must be given within 10 days after the first public disclosure of the
date of such meeting in accordance with the procedures set forth in our Bylaws. We also expect the
persons named as proxies for the 2011 annual meeting of shareholders to use their discretionary
voting authority, to the extent permitted by law, with respect to any proposal properly presented
at that meeting by a shareholder who does not provide us with written notice of the proposal during
the period provided in our Bylaws.
18
Shareholder Nomination of Director Candidates
Shareholders proposing director nominees at the 2012 annual meeting of shareholders must
provide written notice of their intention, along with certain information regarding the proponent
and the nominees as provided in our Bylaws, to our corporate secretary not later than the close of
business on February 18, 2012, which is the 90th day prior to the first anniversary of
the 2011 annual meeting. If the annual meeting date has been advanced to a date earlier than April
18, 2012, which is the 30th day prior to the first anniversary of the 2011 annual
meeting or delayed to a date later than July 17, 2012, which is the 60th day after the
first anniversary of the 2011 annual meeting, then notice of their intention must be given within
10 days after the first public disclosure of the date of the annual meeting. With respect to an
election to be held at a special meeting of shareholders, such notice must be given by the close of
business on the seventh day following the date on which notice of such meeting is first given to
shareholders. The corporate governance and nominating committee may seek additional biographical
and background information from any candidate that must be received on a timely basis to be
considered by the committee. The corporate governance and nominating committee reviews the
qualifications of candidates submitted for nomination by shareholders and evaluates them using the
same criteria used to evaluate candidates submitted by the board for nomination.
Shareholder Communications with the Board of Directors
Although we have not developed formal processes by which shareholders may communicate
directly with directors, we believe that our informal process, by which any communication sent to
our board of directors either generally or in care of the chief executive officer, corporate
secretary or another corporate officer and forwarded to the addressee, has served the needs of both
our board of directors and our shareholders.
The corporate governance and nominating committee will monitor this matter and may develop
more specific procedures. Until any other procedures are developed and posted on the Corporate
Governance page in the Investor Relations section of our website at www.citizensbanking.com, any
communication to the board of directors may be mailed to the board, in care of our corporate
secretary, at 328 South Saginaw Street, Flint, Michigan 48502. The mailing envelope should contain
a clear notation indicating that the enclosed letter is a Shareholder-Board Communication or
Shareholder-Director Communication. All such communications should identify the author as a
shareholder and clearly state whether the intended recipients are all members of the board of
directors or just certain specified individual directors. Our corporate secretary will make copies
of all such communications and circulate them to the appropriate director or directors.
19
Executive Officers
The following information is provided for those officers currently designated as
executive officers by our board of directors.
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Year Became |
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Executive Officer of the |
Name |
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Age |
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Five-Year Business Experience |
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Corporation |
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Gerald D. Bettens
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51 |
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Executive Vice President and
Chief Information Officer
and Director of Operations
of the Corporation and of
Citizens Bank (July 2009 to
present); Senior Vice
President and Chief
Information Officer of
Citizens Bank (August 2007
to July 2009); Senior Vice
President and Chief
Technology Officer of
Citizens Bank (December 2005
- August 2007).
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2009 |
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Brian D.J. Boike
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34 |
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Senior Vice President and
Treasurer of the Corporation
and of Citizens Bank
(October 2009 to present);
Vice President and Asset
Liability Manager of
Citizens Bank (October 2005
to October 2009).
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2009 |
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Susan P. Brockett
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61 |
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Executive Vice President and
Director of Corporate Human
Resources of the Corporation
and of Citizens Bank
(February 2008 to present);
Executive Vice President and
Senior Human Resources
Director at KeyCorp (March
1996 to January 2008).
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2008 |
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Joseph C. Czopek
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53 |
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Senior Vice President and
Controller of the
Corporation and of Citizens
Bank (July 2009 to present)
and Principal Accounting
Officer of the Corporation
and of Citizens Bank
(October 2009 to present);
Vice President and Assistant
Controller of Citizens Bank
(March 2009 to July 2009);
Chief Financial Officer of
Ace Holding Company, LLC and
Ace Mortgage Funding, LLC
(July 2007 to November
2008)1;
Controller of Ace Holding
Company, LLC and Ace
Mortgage Funding, LLC
(December 2006 to June
2007); Controller of Oak
Street Mortgage (September
2003 to September 2006).
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2009 |
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1 |
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Ace Holding Company, LLC and Ace Mortgage Funding,
LLC filed a petition under Chapter 7 of the federal bankruptcy laws on November
5, 2008. |
20
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Year Became |
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Executive Officer of the |
Name |
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Age |
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Five-Year Business Experience |
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Corporation |
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Stephen Figliuolo
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54 |
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Executive Vice President and
Corporate Risk Officer of
the Corporation and of
Citizens Bank (May 2005 to
present) and Director of
Core Sales Administration of
the Corporation and of
Citizens Bank (September
2009 to present).
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2005 |
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Thomas W. Gallagher
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58 |
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Executive Vice President,
General Counsel and
Secretary of the Corporation
and of Citizens Bank (June
2007 to present); General
Counsel of the Corporation
(August 1988 to present);
Secretary of the Corporation
(January 1989 to present);
General Counsel and
Secretary of Citizens Bank
(August 1988 to June 2007).
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1989 |
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Judith L. Klawinski
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50 |
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Executive Vice President and
Director of Core Banking of
the Corporation and of
Citizens Bank (September
2009 to present); Executive
Vice President and Director
of Client Segmentation and
Delivery of the Corporation
and of Citizens Bank
(February 2009 to September
2009); Senior Vice President
and Head of Retail Delivery
of the Corporation (July
2005 to February 2009).
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2009 |
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Lisa T. McNeely
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51 |
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Executive Vice President and
Chief Financial Officer of
the Corporation and of
Citizens Bank (August 2010
to present); Executive Vice
President and Interim Chief
Financial Officer (May 2010
to August 2010); Senior Vice
President and Director of
Credit Analytics of Citizens
Bank (November 2008 to May
2010); Senior Vice President
and Director of Consumer
Administration and Sales
Strategy of Citizens Bank
(March 2005 to November
2008).
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2010 |
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Cathleen H. Nash
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48 |
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President and Chief
Executive Officer of the
Corporation and of Citizens
Bank (February 2009 to
present); Executive Vice
President, Regional Banking
of the Corporation (August
2007 to February 2009); Vice
Chair of Regional Banking of
Citizens Bank (August 2007
to February 2009); Executive
Vice President and Head of
Consumer Banking of the
Corporation (July 2006 to
August 2007); Director of
Branch Banking of SunTrust
Corporation (September 2003
to June 2006).
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2006 |
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Year Became |
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Executive Officer of the |
Name |
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Age |
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Five-Year Business Experience |
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Corporation |
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Louise N. OConnell
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51 |
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Executive Vice President and
General Auditor of the
Corporation and of Citizens
Bank (September 2009 to
present); Senior Vice
President and General
Auditor of the Corporation
and of Citizens Bank
(November 2007 to September
2009); Senior Vice President
and Michigan Region Audit
Director, LaSalle Bank
(October 2003 to November
2007).
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2007 |
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Peter W. Ronan
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66 |
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Executive Vice President and
Director of Wealth
Management of the
Corporation and President of
Citizens Bank Wealth
Management, N.A. (October
2007 to present); Senior
Vice President and Group
Business Manager of Personal
Trust, Comerica Bank (April
2004 to July 2007).
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2007 |
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Clinton A. Sampson
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65 |
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Executive Vice President and
Commercial Banking
Consulting Advisor of the
Corporation and of Citizens
Bank (January 2009 to
present); Executive Vice
President and Regional
Chairman of the
Corporation-Michigan
(November 2003 to January
2009); Vice Chair of
Commercial Banking of
Citizens Bank (August 2007
to December 2008).
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2003 |
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Mark W. Widawski
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53 |
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Executive Vice President and
Chief Credit Officer of the
Corporation and of Citizens
Bank (February 2009 to
present); Senior Vice
President and Managing
Director of Asset Based
Lending of Citizens Bank
(March 2006 to February
2009).
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2009 |
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22
EXECUTIVE COMPENSATION
Compensation Discussion And Analysis
Executive Summary and Key Highlights of 2010 Executive Compensation Decisions
In 2010, the Compensation Committee and the board of directors made the following decisions
with regard to executive compensation:
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We increased base salaries for Named Executive Officers for the first time in two
years; |
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We did not pay short-term incentive awards to our Named Executive Officers for the
third year in a row; and |
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We granted long-term equity incentive awards to our Named Executive Officers, half
of which have performance criteria designed to further focus our senior executives
attention on returning to profitability and managing credit risk, and half of which are
time vested to encourage retention. |
Our executive compensation program is designed to reward financial performance that creates
shareholder value. We provide the opportunity to earn compensation at levels that are competitive
with our peer institutions, but actual compensation paid to our senior executives varies based on
our financial performance. Our compensation philosophy and program are described below, along with
a discussion and analysis of the compensation we paid to our Named Executive Officers during the
year.
Overview of Compensation Philosophy and Program
Our compensation philosophy is to offer competitive total compensation that is aligned with
performance goals that motivate our executives to achieve strategic goals prudently and within
acceptable risk tolerances while driving financial performance and generating long term,
sustainable shareholder value. Our compensation philosophy is based on three objectives:
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Align total compensation opportunity with shareholder interests with a focus on
funding at-risk pay opportunities, in whole or in part, based on our performance; |
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Ensure appropriate risk mitigation measures are integrated into compensation
programs and practices; and |
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Design a total compensation opportunity that is competitive and will attract,
motivate and retain talent. |
Our executive compensation program generally has four basic elements:
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Base salary; |
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Annual short-term, cash incentive awards; |
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Long-term, typically equity-based awards; and |
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Employee and retirement benefits. |
Decisions about compensation of our executive officers are made by the Compensation and Human
Resources Committee, or Compensation Committee, all of the members of which are independent as
defined under applicable NASDAQ rules. To help with its decision making each year, the
Compensation Committee hires its own independent compensation consultants to advise it. Towers
Watson provided independent advice on executive compensation matters to the Compensation Committee
in 2010. Towers Watson was retained by and reported directly to the Compensation Committee.
23
For 2010, the Compensation Committee reviewed competitive market data for comparable executive
positions prepared by our human resources department. These data generally compare total
compensation and plan design for nationwide banking and financial services organizations and are
adjusted to reflect our asset size in comparison to these organizations. In addition, the
Compensation Committee also reviews market data of comparable banks in a customized peer group on a
periodic basis in order to better understand actual market practices and trends. The banks in the
peer group are reviewed annually and we make adjustments to the group when necessary due to changes
in circumstances during the prior year. The Compensation Committee, with assistance from its
consultant, selected the customized peer group for 2010 with the intention of creating a group
consisting of comparable banks having similar size, business and/or geographic characteristics.
The key considerations for peer group selection were industry and size, specifically financial
service companies that are regional commercial banks with assets from $4 billion to $60 billion.
The Compensation Committee also considered certain other qualitative factors for peer group
inclusion such as mix of business, geography, sources of executive talent, participation in the
Capital Purchase Program, and whether the entity is a direct business competitor. Below is a list
of the banks in the customized peer group for 2010.
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Associated Banc-Corp |
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BancorpSouth, Inc. |
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BOK Financial Corporation |
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Capitol Bancorp, Ltd. |
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Chemical Financial Corporation |
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Comerica, Inc. |
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Commerce Bancshares, Inc. |
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Cullen/Frost Bankers, Inc. |
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First Citizens Bancshares, Inc. |
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FirstMerit Corporation |
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First Midwest Bancorp, Inc. |
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Fulton Financial Group |
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NewAlliance Bancshares, Inc. |
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Old National Bancorp |
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Park National Corporation |
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Sterling Financial Corporation |
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Susquehanna Bancshares, Inc. |
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TFS Financial Corporation |
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UMB Financial Corporation |
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Valley National Bancorp |
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Whitney Holding Corporation |
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Wilmington Trust Corporation |
We intend for our total direct compensation (which includes base salary, short-term incentive
awards, and long-term incentive awards) for our executive officers to be at or around the
50th percentile of the market, which includes the national banking and financial
services companies whose size has been adjusted to our asset size, as well as our customized peer
group. Based on an evaluation by our human resources team in 2010, total direct compensation for
our Current Named Executive Officers in 2010 was slightly below the 50th percentile.
Actual realized compensation will depend on actual performance and has been significantly below
those levels in recent years.
24
In making compensation decisions, the Compensation Committee considers each element of our
compensation program individually and in relation to the total direct compensation of each
executive officer. We believe that a significant portion of executive compensation should be in
the form of annual incentive awards and long-term incentive awards, or at-risk pay. We believe
this pay mix emphasizes both a short-term and a long-term perspective that is directly tied to
shareholder value. The at-risk pay portion of compensation recognizes the significance of our
executive officers efforts on our overall financial performance. For instance, our Named
Executive Officers and our other executive officers did not receive a Management Incentive Plan, or
MIP, award for 2008, 2009 and 2010 due in part to our financial performance. In addition, while we
remain committed to our pay-for-performance philosophy, our ability to offer to our executive
officers competitive total compensation and reward financial performance results that drive
shareholder value is limited due to restrictions imposed by applicable law because of our
participation in the Capital Purchase Program, or CPP, as discussed in more detail in Executive
Compensation- Compensation Discussion and Analysis Regulatory Requirements Capital Purchase
Program below.
References in this discussion to the Named Executive Officers are to the individuals listed in
the Summary Compensation Table. References to our Current Named Executive Officers are to Mses.
Nash, McNeely and Klawinski and Messrs. Widawski and Gallagher. Mr. Christy resigned in June 2010.
Regulatory Requirements
Capital Purchase Program
We are subject to various restrictions on our ability to compensate our senior executives,
including the Named Executive Officers, as long as the preferred shares issued to the U.S.
Department of the Treasury, or Treasury under the CPP remain outstanding. Like other participants
in the CPP, our ability to deduct compensation in excess of $500,000 paid to our Named Executive
Officers and to use certain arrangements to compensate our executives is limited by the Emergency
Economic Stabilization Act of 2008, or EESA, the American Recovery and Reinvestment Act, or ARRA,
and the Treasury regulations issued thereunder. These restrictions on executive compensation
significantly affect our executive compensation program, and include, among others:
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A prohibition on paying or accruing any bonuses, retention awards, or
incentive compensation to our Named Executive Officers and the next 10 most highly
compensated employees, other than (i) restricted shares with a prescribed minimum vesting
period, which are not fully transferable until the CPP assistance has been repaid in
full, which have a value on the grant date that is no greater than one-third of the
executives annual compensation, and which are subject to such other conditions as the
Secretary of the Treasury may determine; and (ii) bonus payments pursuant to pre-existing
employment contracts executed on or before February 11, 2009 and not determined invalid by
the Secretary of the Treasury; |
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A prohibition on paying any golden parachute payments (defined as any payment
for departure from a company for any reason except for payment for services performed or
benefits accrued, and any payment due to a change in control of the CPP participant) to our
Named Executive Officers and the next five most highly compensated employees; |
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A requirement to seek the return of any bonus, retention award, or incentive
compensation paid to our Named Executive Officers and any of the next 20 most highly
compensated employees based on financial statements or performance metrics later determined
to have been materially inaccurate; |
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A requirement to ask our shareholders to vote on a non-binding advisory
resolution each year to approve the compensation of our Named Executive Officers; |
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A prohibition on tax gross-ups for our Named Executive Officers and the next
20 most highly compensated employees; |
25
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A requirement to establish a Corporation-wide policy on excessive or luxury
expenditures; |
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A requirement to disclose to the Treasury any perquisites in excess of $25,000
paid or provided to our Named Executive Officers or the next 10 most highly compensated
employees; |
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A requirement that our Compensation Committee review on a semi-annual basis
employee compensation plans to limit any features that would encourage our Named Executive
Officers to take unnecessary and excessive risks, identify and eliminate any provisions
in such plans that encourage the manipulation of reported earnings to enhance employee
compensation and certify each year in the annual meeting proxy statement that it has done
so; and |
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A requirement that our chief executive officer and our chief financial officer
provide a written certification as an exhibit to our Annual Report on Form 10-K of
compliance with these compensation standards. |
Other Regulatory Requirements
In July 2010, we entered into a written supervisory agreement with the Federal Reserve Bank of
Chicago and the State of Michigan Office of Financial and Insurance Regulation. Among other
requirements contained in the written supervisory agreement, we are required to comply with the
restrictions on golden parachute payments under Part 359 of the Federal Deposit Insurance
Corporations rules and regulations, which are similar to the CPP restrictions on golden parachute
payments noted above. Under Part 359, we are prohibited from making payments to our Named Executive
Officers that are payable due to their termination, with certain exceptions. We would generally be
permitted to make payments made by reason of death or disability, mandated by state law or pursuant
to:
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a qualified pension or retirement plan; |
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an employee welfare plan; |
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a bona-fide deferred compensation plan; and |
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a non-discriminatory severance pay plan. |
Therefore, while we are subject to the written supervisory agreement, we would generally be
prohibited from making payments to Ms. Nash pursuant to the terms of her letter agreement and to
all of our Current Named Executive Officers that are payable pursuant to the terms of our change in
control agreements with them.
Base Salary
We believe that if we want to attract and retain high performing executive officers, the base
salaries we pay must be competitive, and must reflect individual performance. As a result, we
typically use the previously discussed market data for salaries along with the results of annual
performance evaluations to determine salary levels.
Each year, our chief executive officer reviews the performance of the other executive officers
and assigns a performance rating to each executive officer based on the financial performance of
the executive officers line of business, the executives unique contributions to us and our need
for the executives expertise. Additionally, executives are evaluated on core competencies that
are used to evaluate all of our staff members. These core competencies are centered on
collaboration, prerequisites, and results. Each executive is also measured on core management
competencies like decision making and talent management, as well as strategic capabilities like
vision and strategy and technical expertise. These competencies and capabilities link our
executives behavior to our vision and are designed to enhance our financial performance. Our chief executive officer reviews the performance ratings and salary
recommendations for the other executive officers that report directly to her with the Compensation
Committee. Following a discussion of our chief executive officers recommendations and a review of
the competitive market data, the Compensation Committee either approves the recommendations or
adjusts executive salaries as appropriate in its judgment.
26
Ms. Nashs performance as the chief executive officer is evaluated each year by the board of
directors as a whole, based on the same core competencies described above and our financial
performance. She also conducts a self-assessment of her performance and prepares goals for the
following year. The chairman of the board of directors and the chairman of the Compensation
Committee prepare a performance appraisal and development plan, and prepare a recommendation to the
Compensation Committee with regard to Ms. Nashs total compensation. The Compensation Committee
then reviews the performance evaluation, the development plan, Ms. Nashs self-assessment, the
recommendation of the chairman of the board and the chairman of the Committee and the competitive
market data and determines the appropriate salary level for Ms. Nash for the year. The
Compensation Committee recommends any salary adjustments to our board of directors, who after
reviewing the recommendation and the performance review make the final determination with regard to
Ms. Nashs salary.
2010 Base Salary Determinations
As a result of the process described above, in May 2010, our Current Named Executive Officers
received base salary increases that reflected the limitations placed on executive compensation
because of our participation in the CPP. Our participation in the CPP has required us to place
more emphasis on base salary and to use base salary increases in ways that also align the interests
of our executives with those of our shareholders. The laws and regulations applicable to CPP
participants permit our Compensation Committee to pay salary increases in the form of shares of our
common stock, which we refer to as Stock Salary, as long as such Stock Salary is granted in dollars
and not shares, is fully earned and accrues like salary. The Compensation Committee and the board
of directors determined that base salary increases in the form of Stock Salary would link
compensation to our financial performance, as a portion of their compensation would be directly
tied to an increase or decrease in the price of our stock price. Additionally, the Compensation
Committee and the board of directors determined, primarily based on peer group market data and
competitive market data, that base salary increases were appropriate in order to maintain
competitive salaries and retain our Current Named Executive Officers. As a result, our Current
Named Executive Officers, except for Mr. Gallagher, received salary increases to be paid in Stock
Salary. Stock Salary is paid to these individuals as part of each bi-weekly pay period for one
year, with the number of shares determined by dividing the dollar amount of salary to be paid in
stock for that pay period, net of applicable withholdings and deductions, by the reported closing
price per share on the NASDAQ Capital Market on the pay date for such period. The Stock Salary so
granted is fully earned and not forfeitable at the time of the grant, but transfer restrictions on
the shares do not lapse until the earliest to occur of May 4, 2012, or the death, disability,
retirement or termination of employment resulting in benefits being payable under our severance
plan. Those Current Named Executive Officers receiving Stock Salary have voting and dividend
rights with respect to the restricted stock prior to the lapse of the transfer restrictions. The
Stock Salary will not continue to be paid after May 2011 without further action by the Compensation
Committee. The Compensation Committee intends to review the Stock Salary arrangement each year and
will determine at that time whether to renew the Stock Salary grant for an additional year or
convert the Stock Salary to cash salary.
27
As a result of the salary increases in May 2010, Ms. Klawinskis base salary is slightly above
the 50th percentile for her position compared to competitive market data and Mr.
Gallaghers base salary remains slightly below the 50th percentile compared to
competitive market data. Mr. Widawskis base salary is at the 75th percentile of chief
credit officer compensation compared to competitive market data. The Compensation Committee
determined that it was appropriate to increase Mr. Widawskis base salary above the 50th
percentile given the importance of Mr. Widawskis role in managing our credit issues during this
economic cycle.
Additionally, in May 2010, the Compensation Committee increased Ms. McNeelys base salary when
she was appointed interim chief financial officer in view of the additional responsibilities of her
new role. In August 2010, the Compensation Committee further increased Ms. McNeelys base salary
when she was appointed Chief Financial Officer to bring it more in line with the most recent
competitive market data. The Compensation Committee also determined that the additional increase
was in the Corporations best interests given Ms. McNeelys performance in the interim role as
chief financial officer and the importance of her role in assisting in navigating us through the
prolonged and adverse economic cycle. After the August base salary increase, Ms. McNeelys base
salary was slightly above the 60th percentile of chief financial officer compensation
compared to market data.
In September 2010, the Compensation Committee recommended that the board of directors approve
an additional base salary increase for Ms. Nash. The board of directors determined that Ms. Nash
would receive an additional salary increase of $300,000 paid in cash. The board determined that
her salary increase was appropriate for the following reasons:
|
|
|
She has demonstrated her ability as a leader during her tenure; |
|
|
|
|
She has further enhanced our relationship with our banking regulators and has played a
critical role in responding to and complying with the written supervisory agreement; |
|
|
|
|
She has played a critical role in leading us through the current adverse economic
condition; and |
|
|
|
|
The importance, in the boards view, of retaining Ms. Nashs services in view of our
current posture, and the legal limitations imposed currently on our ability to grant
short-term compensation. |
Prior to Ms. Nashs September salary increase, updated peer group information indicated that Ms.
Nash was currently being paid at a rate significantly below the 50th percentile of the
peer group chief executive officers. The base salary increase resulted in Ms. Nashs base salary
being slightly higher than the 50th percentile of chief executive compensation in our
peer group.
The table below sets forth the cumulative effect of the above described increases to our
Current Named Executive Officers base salaries in 2010 and in what form the base salary increases
were paid to our Current Named Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT NAMED |
|
PRE-MAY |
|
|
|
|
|
STOCK |
|
MODIFIED |
|
TOTAL |
EXECUTIVE |
|
2010 BASE |
|
CASH |
|
SALARY |
|
BASE |
|
INCREASE |
OFFICER |
|
SALARY |
|
INCREASE |
|
INCREASE |
|
SALARY |
|
% |
Cathleen H. Nash |
|
$ |
600,000 |
|
|
$ |
300,000 |
|
|
$ |
200,000 |
|
|
$ |
1,100,000 |
|
|
|
83.3 |
% |
Lisa T. McNeely |
|
$ |
205,004 |
|
|
$ |
119,996 |
|
|
$ |
125,000 |
|
|
$ |
450,000 |
|
|
|
119.5 |
% |
Mark W. Widawski |
|
$ |
240,000 |
|
|
$ |
70,000 |
|
|
$ |
60,000 |
|
|
$ |
370,000 |
|
|
|
54.2 |
% |
Judith L. Klawinski |
|
$ |
250,000 |
|
|
$ |
40,000 |
|
|
$ |
40,000 |
|
|
$ |
330,000 |
|
|
|
32.0 |
% |
Thomas W. Gallagher |
|
$ |
248,464 |
|
|
$ |
6,460 |
|
|
|
-0- |
|
|
$ |
254,924 |
|
|
|
2.6 |
% |
28
Despite the salary increases described above, total compensation for our Current Named
Executive Officers is below the 50th percentile. Salaries for the Named Executive
Officers are reflected in the Executive Compensation Summary Compensation Table.
Management Incentive Plan
In past years, we have made annual short-term cash incentive awards to our executives under
our MIP. This plan is designed to advance our pay for performance culture by focusing management
on achieving annual financial goals that are intended to drive shareholder value. It also rewards
management for corporate and individual performance while creating a better understanding of our
goals and performance.
In December 2009, consistent with Ms. Nashs recommendations, the Compensation Committee
determined that the Named Executive Officers would not participate in the MIP for 2010 due to the
prolonged adverse economic conditions and our anticipated unfavorable financial results for 2010.
The laws and regulations applicable to CPP participants described above prohibit us from paying
cash bonuses and other cash incentive compensation to our Named Executive Officers and our next ten
most highly compensated employees as long as the preferred shares issued to Treasury under the CPP
remain outstanding. In December 2009, the Compensation Committee determined that even in the
absence of the CPP-related restrictions on executive compensation, our Named Executive Officers
would not participate in the MIP for 2010. In late 2010, the Compensation Committee made the same
determination with regard to the Named Executive Officers participation in the MIP for 2011.
Cash Component of 2009 Award
In January of 2009, the Compensation Committee approved long-term incentive awards to our
Named Executive Officers (except for Ms. McNeely, who was not an executive officer at the time),
which consisted of a cash component that would vest and be paid in three annual installments each
January 29th beginning in 2010 as long as the Named Executive Officer remains employed
with us. The table below shows the cash component portion of the award that was granted to our
Named Executive Officers in 2009. The bonus column in the Executive Compensation Summary
Compensation Table, reflects the January 2010 installment of the cash component of the 2009 award.
|
|
|
|
|
|
|
|
|
NAMED EXECUTIVE |
|
2009 TOTAL |
|
ANNUAL |
OFFICER |
|
CASH COMPONENT |
|
INSTALLMENT |
Cathleen H. Nash |
|
$ |
300,000 |
|
|
$ |
100,000 |
|
Lisa T. McNeely |
|
$ |
-0- |
|
|
$ |
-0- |
|
Mark W. Widawski |
|
$ |
72,500 |
|
|
$ |
24,167 |
|
Judith L. Klawinski |
|
$ |
80,000 |
|
|
$ |
26,667 |
|
Thomas W. Gallagher |
|
$ |
50,000 |
|
|
$ |
16,667 |
|
Charles D. Christy |
|
$ |
240,000 |
|
|
$ |
80,000 |
|
29
Long-Term Equity-Based Compensation
We believe long-term equity awards will encourage executive officers to have a long-term focus
with regard to our financial success, motivate and engage our executive officers to achieve
financial success during these challenging times, and better align our executive officers
long-term financial interests with those of our shareholders. We believe these types of awards
further align our executives financial interests with our shareholders
interests by linking a portion of executive compensation directly to stock price growth
or decline. As a result, we have previously made annual equity-based grants early in the
calendar year to some or all of our executive officers under our Stock Compensation
Plan.
In May 2010, the Compensation Committee and the board approved long-term incentive awards in
the form of restricted stock and restricted stock units for our Current Named Executive Officers.
Mr. Christy did not receive an award as he tendered his resignation at about the same time the
awards were made. Mr. Widawski and Mr. Gallagher received restricted stock units because of the
more favorable tax treatment for those who are retirement eligible. Also, Mr. Widawski and Mr.
Gallagher would receive a pro-rata portion of any unvested restricted stock units upon retirement,
while other Current Named Executive Officers who retire with unvested restricted stock would
forfeit any unvested shares. Ms. McNeely received an additional award due to the added
responsibilities associated with her appointment as interim chief financial officer effective June
4, 2010 and as chief financial officer in August 2010. Generally, fifty percent of the long-term
incentive award granted to each Current Named Executive Officer is subject to certain
performance-based restrictions and fifty percent of the award is subject to time-based vesting
restrictions. The 2010 long-term incentive awards granted to our Named Executive Officers are
listed in the table below.
|
|
|
|
|
Current Named |
|
|
|
|
Executive Officers |
|
Performance-Based Portion |
|
Time- Based Portion |
Cathleen H. Nash
|
|
163,934 shares of restricted stock
|
|
163,934 shares of restricted stock |
Lisa T. McNeely*
|
|
105,958 shares of restricted stock
|
|
121,948 shares of restricted stock |
Judith L. Klawinski
|
|
59,426 shares of restricted stock
|
|
59,426 shares of restricted stock |
Mark W. Widawski
|
|
61,474 restricted stock units
|
|
61,476 restricted stock units |
Thomas W. Gallagher
|
|
52,238 restricted stock units
|
|
52,238 restricted stock units |
|
|
|
* |
|
Thirty percent of the long-term incentive award received by Ms. McNeely in her capacity of
director of credit analytics is subject to certain performance based restrictions and
seventy percent is subject to time-based vesting restrictions. The performance and
time-based vesting restrictions are the same as those explained below. |
The restrictions as to one-half of the performance-based portion of the award will lapse
on May 4, 2011, if the Current Named Executive Officer remains employed by us, but only to the
extent we attain the designated pre-tax, pre-provision profit threshold for 2010, and we attain the
designated total provision expense threshold for 2010. To the extent either of the performance
conditions are not met, the restricted shares or restricted stock units related to such portion of
the award shall be forfeited. The
30
restrictions as to the remaining one-half of the performance-based portion of the award will
lapse on May 4, 2012 if the individual remains employed by us, but only to the extent we attain the
designated pre-tax, pre-provision income threshold for 2011 and we attain the designated total
provision expense threshold for 2011. To the extent either of the performance conditions are not
met, the restricted shares or restricted stock units related to this portion of the award shall be
forfeited. The restrictions as to the time-based portion of the award will lapse on May 4, 2013,
the third anniversary of the grant date, if the Current Named Executive Officer remains employed by
us.
The restricted stock or restricted stock units meeting the performance-based restrictions will
become earned and no longer forfeitable on May 4, 2011 and May 4, 2012, but may not be transferred,
until the later of May 4, 2012 or the date on which the restricted shares or restricted stock units
are no longer subject to the limitations placed on us as participants in the CPP.
The table below shows the performance thresholds for 2010 and 2011 of the performance-based
portion of the award.
|
|
|
|
|
|
|
|
|
Financial Measure |
|
Weight |
|
2010 Threshold |
|
2011 Threshold |
Pre-Tax, Pre-Provision Profit
|
|
|
75 |
% |
|
At least $102 million
|
|
At least $108 million |
|
|
|
|
|
|
|
|
|
Total Provision Expense
|
|
|
25 |
% |
|
Less than $275
million
|
|
Less than $122 million |
Pre-tax pre-provision profit, or PTPP, represents total revenue (total net interest income and
noninterest income) excluding any securities gains/losses, fair-value adjustments on loans held for
sale, interest rate swaps, and bank owned life insurance, less noninterest expense excluding any
goodwill impairment charges, credit writedowns, fair-value adjustments and special assessments.
While certain of these items are an integral part of our banking operations, in each case, the
excluded items are items that we believe are particularly impacted by economic stress or
significant changes in the credit cycle and are therefore likely to make it more difficult to
understand our underlying performance trends and the ability of our banking operations to generate
revenue. The use of PTPP as a metric focuses the attention of our Named Executive Officers on
improving PTPP, which the Compensation Committee believes is a key metric for our business, as it
represents our ability to generate capital to cover credit losses and other credit related or
impairment charges through the peak of a credit cycle. This underlying ability to generate capital
directly impacts our long-term value and viability. Improving PTPP increases our long-term value
and thus aligns the Named Executive Officers incentives with the creation of shareholder value.
These awards are designed so that this portion of compensation does not depend on managements
performance with regard to managing loan losses, securities impairments, and other asset
impairments. The Compensation Committee chose total provision expense as a means of encouraging
our executives to manage our credit risk through the credit cycle while focusing on returning to
profitability.
Our PTPP of $137.5 million for 2010 exceeded the threshold for PTPP, while our total provision
expense for 2010 was greater than $275 million. As we did not satisfy the 2010 threshold for total
provision expense, the portion of the award relating to that goal for 2010 will be forfeited.
The terms regarding forfeiture of these awards are described in more detail under Executive
Compensation Other Potential Post-Employment Payments Stock Compensation Plan.
Each restricted stock unit will be settled for one share of our common stock at the time the
applicable restrictions lapse, with a portion of these shares withheld to satisfy income and
employment tax withholding requirements. Holders of restricted stock units will have no voting or
dividend rights prior to settlement of the units for shares of stock. Holders of restricted
shares, however, will have voting and dividend rights with respect to those shares from the date of grant except to the extent
such restricted shares are forfeited.
31
With respect to other grants of equity based compensation, as long as the preferred shares
issued to Treasury under the CPP remain outstanding, we are limited by ARRA in the amount of
long-term restricted stock that may be paid to our Named Executive Officers and certain of our
other most highly compensated employees as noted above. Long-term restricted stock awards (not
including Stock Salary) are limited to one-third of the recipients total annual compensation, must
have a minimum two-year vesting requirement, and will not fully vest while the preferred shares
issued to Treasury under the CPP remain outstanding.
Employment Agreements
Nash Letter Agreement
In connection with Ms. Nashs appointment as our president and chief executive officer
effective February 1, 2009, we entered into a letter agreement with Ms. Nash on January 22, 2009.
The Compensation Committee proposed the initial terms based on competitive market and peer group
data and taking into account Ms. Nashs relevant experience. The Compensation Committee negotiated
the final terms of the letter agreement with Ms. Nash, which are designed to be competitive and
motivate Ms. Nash to focus on our long-term growth and profitability. This agreement is described
in more detail under Executive Compensation Other Potential Post-Employment Payments Nash
Letter Agreement.
Retirement Benefits
Pension Benefits
We maintain the Citizens Republic Bancorp Amended and Restated Cash Balance Pension Plan for
Employees, or the Qualified Plan, which provides funded, tax-qualified retirement benefits up to
the limits on compensation permitted under the Internal Revenue Code. The Qualified Plan is a cash
balance pension plan that was frozen effective December 31, 2006. The accrual of future benefits
under the Qualified Plan, other than the accrual of interest, has ceased, so that pay and service
after December 31, 2006 will not increase benefits payable under this plan although post-2006
service will count towards vesting requirements for benefits already accrued.
In 2007 and 2008, we paid an annual non-elective contribution of 2.5% of eligible compensation
to the 401(k) plan on behalf of each eligible employee, regardless of participation in the 401(k)
plan. This non-elective contribution served as a vehicle to supplement retirement savings in the
absence of an active pension plan. In 2009, the Qualified Plan was amended to make the
non-elective contribution discretionary. The Compensation Committee and the board determined that
there would be no contribution for 2010 based in part on our corporate performance during the
year and in an effort to accelerate our financial performance toward profitability.
Benefits payable under the Qualified Plan are paid in the form of a lump sum or an equivalent
annuity immediately following retirement and the attainment of age 55 with 3 years of service or
prior to age 55 with at least 10 years of service. All of our Current Named Executive Officers
earned an interest credit benefit under the Qualified Plan in 2010. As of the end of 2010, all of
our Current Named Executive Officers have earned a vested interest in the Qualified Plan (completed
at least 3 years of credited service). The present value of accumulated benefits under the
Qualified Plan for each Named Executive Officer is disclosed in the Executive Compensation -
Pension Benefits table and the change in those benefits during 2010 is disclosed in the Executive Compensation Summary Compensation
Table.
32
Other Executive Perquisites and Benefits
All of our Named Executive Officers participated in our 401(k) plan in 2010. Prior to August
2009, we matched up to 4% of eligible compensation per year. In 2009 and 2010, the Compensation
Committee, pursuant to a recommendation by Ms. Nash, eliminated the 401(k) matching benefit based
in part on our corporate performance during the year and in an effort to accelerate our financial
performance toward profitability.
Ms. Nash and Ms. Klawinski participate in our Deferred Compensation Plan for Executives, or
Deferred Compensation Plan. Under our Deferred Compensation Plan, we may make matching
contributions in the form of our common stock, not to exceed 30% in value of the participants own
contribution. The Compensation Committee has the discretion to determine whether to make matching
contributions, and in 2010, determined not to make any matching contributions under the Deferred
Compensation Plan for the same reasons the 401(k) matching benefit was eliminated.
We reimbursed certain of our Named Executive Officers for initiation fees and annual dues, as
applicable, for membership in country clubs in 2010. We believe country club memberships enable
our executives to develop business contacts within the communities in which we operate and
entertain clients. Club fees and dues we paid for the Named Executive Officers are disclosed in
the Executive Compensation Summary Compensation Table.
The Compensation Committee adopted an excessive or luxury expenditures policy, which prohibits
excessive or luxury expenditures of our funds on entertainment or events, office or facility
renovation, aviation or other transportation services, or other similar items, activities, or
events, if such expenditures are not reasonable expenditures for staff development, reasonable
performance incentives, or other similar measures conducted in the normal course of the operation
of our business. The policy was adopted to comply with the requirements imposed on participants in
the CPP. The policy is accessible on the Governance Documents page of the Investor Relations
section of our website at www.citizensbanking.com.
Employment Termination Severance Benefits
We provide our Named Executive Officers with severance benefits upon termination of employment
in connection with a change in control of the Corporation and in certain other circumstances as
deemed appropriate by the Compensation Committee. Each of our Current Named Executive Officers is
entitled to benefits upon termination in connection with a change in control pursuant to our
Amended and Restated Change in Control Agreement, or Change in Control Agreement. The Compensation
Committee believes it is important to provide this protection in order to ensure our Current Named
Executive Officers will remain engaged and committed to us during an acquisition of the Corporation
or other transition in management.
We amended our Change in Control Agreements in 2010 to gain consistency and provide more
structure around who is eligible to receive such benefits and the length of such benefits. The
amended Change in Control Agreements generally reduce the value of the benefit payable to the
Current Named Executive Officers upon termination following a change in control. Each Change in
Control Agreement provides for severance benefits in a lump sum payment equal to two times (or in
the case of Ms. Nash three times) the Current Named Executive Officers annual base salary
immediately prior to the change in control plus two times (three times in the case of Ms. Nash) the
average of the annual bonuses paid to the Current Named Executive Officers in the last three full
calendar years of employment under our MIP. The severance benefits under the Change in Control
Agreements were reduced for Mr. Gallagher and Ms. McNeely from three to two times. In addition, we
may negotiate severance benefits with other individual
33
executives upon termination in other circumstances when the Compensation Committee
deems appropriate. Ms. Nashs letter agreement provides that she will be entitled to two years of
base salary plus outplacement services if her employment is terminated by the Corporation without
cause that is not in connection with a change in control. These benefits and arrangements are
described in detail under Executive Compensation Other Potential Post-Employment Payments.
Due to our participation in the CPP, as long as the preferred shares issued to Treasury under
the CPP remain outstanding, and also pursuant to the terms of our written supervisory agreement, we
are generally not permitted to pay amounts to our Named Executive Officers and our next five
highest paid employees for a change in control of the Corporation or their departure from the
Corporation for any reason other than death or disability, except payments for services performed
or benefits accrued and payments pursuant to qualified retirement plans or that are required by
applicable law.
Section 162(m) Compliance
Section 162(m) of the Internal Revenue Code restricts the ability of publicly traded companies
such as ours to deduct executive compensation paid to each of our Named Executive Officers in
excess of $1,000,000 in annual compensation. In years when the preferred shares issued to Treasury
under the CPP are not outstanding, certain performance-based compensation is exempt from this
limitation if it complies with various conditions described in Section 162(m). The Stock Plan and
its predecessor plans contain provisions intended to cause compensation realized in connection with
certain awards under the Stock Plan and its predecessor plans to be exempt from the Section 162(m)
restrictions. As part of our CPP obligations, in years when the preferred shares issued to
Treasury under the CPP are outstanding, the $1,000,000 annual federal compensation deduction is
reduced to $500,000 and the performance-based compensation exemption is not applicable.
Our compensation program will result in payments from time to time that are subject to these
restrictions on deductibility, but we do not believe the effect of these restrictions on us is
currently material. It may be appropriate to exceed the limitation on deductibility to ensure that
executive officers are compensated in a manner that is consistent with our best interests, the best
interests of our shareholders and our executive compensation philosophy and objectives, and we
reserve the authority to approve non-deductible compensation in appropriate circumstances.
Stock Ownership Guidelines
Since September 2002, we have maintained common stock ownership guidelines for our executive
officers. We believe that it is important for executive officers to own our common stock to ensure
that their financial interests are directly aligned with those of our shareholders. Under our
stock ownership guidelines, the chief executive officer is required to hold 100,000 shares of our
stock, and is provided a period of three years to attain such ownership level. The other Named
Executive Officers whose base salaries are $250,000 or more are required to hold at least 30,000
shares of our common stock, and those Named Executive Officers whose base salaries are less than
$250,000 are required to hold at least 10,000 shares or our common stock. The Named Executive
Officers have five years from their date of appointment to attain such ownership. Shares owned
through our 401(k) plan, by the officers spouse or other family members, by controlled trusts, and
unvested shares of restricted stock, in addition to shares owned outright are included in the
officers ownership for purposes of this guideline. The corporate governance and nominating
committee is responsible for monitoring compliance with these guidelines and receives periodic
updates from management with regard to progress towards complying with the guidelines. All of the
Current Named Executive Officers are in full compliance with the stock ownership guidelines, as
shown in the table below as of February 25, 2011.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
401(k) |
|
Restricted |
|
Restricted Stock |
|
|
|
|
|
|
Owned |
|
Shares |
|
Shares |
|
Units |
|
Total |
|
Ownership Guideline |
Cathleen H. Nash |
|
|
89,173 |
|
|
|
-0- |
|
|
|
551,497 |
|
|
|
-0- |
|
|
|
640,670 |
|
|
|
100,000 |
|
Lisa T. McNeely |
|
|
4,550 |
|
|
|
-0- |
|
|
|
294,805 |
|
|
|
-0- |
|
|
|
299,355 |
|
|
|
30,000 |
|
Mark W. Widawski |
|
|
11,931 |
|
|
|
-0- |
|
|
|
73,433 |
|
|
|
122,950 |
|
|
|
208,314 |
|
|
|
30,000 |
|
Judith L. Klawinski |
|
|
13,850 |
|
|
|
8,583 |
|
|
|
173,860 |
|
|
|
-0- |
|
|
|
196,293 |
|
|
|
30,000 |
|
Thomas W. Gallagher |
|
|
17,504 |
|
|
|
-0- |
|
|
|
19,445 |
|
|
|
104,476 |
|
|
|
141,425 |
|
|
|
30,000 |
|
Executive Compensation Clawback Policy
Our general pay-for-performance philosophy means that we will not reward executive officers
for performance if we discover that the applicable performance was due to the officers fraud or
other misconduct. To implement this principle, our board of directors has adopted an Executive
Compensation Clawback Policy to allow us in certain circumstances to recover bonus and incentive
compensation paid to an executive officer. Under this policy, if the board subsequently determines
that, as a result of the executives misconduct, we are required to materially restate all or a
significant portion of our financial statements for the period for which the compensation was paid,
we have the right to require that the executive officer reimburse us for the amount of any related
bonus or incentive compensation received, forfeit any vested options or restricted stock, or cancel
any related unvested restricted or deferred equity awards granted on the basis of having met or
exceeded performance goals if, according to the restated financial statements, such goals were not
in fact met or exceeded. In deciding whether to pursue the remedies provided in the policy, the
board may consider all relevant facts, including whether the misconduct by the executive officer
that caused or partially caused the need for the restatement was negligent, intentional, or gross
misconduct. In addition to the remedies provided in this policy, we may dismiss or pursue other
legal remedies against the executive officer.
In addition, to comply with the Treasurys requirements with respect to the CPP, we are
required to make cash or equity incentive compensation paid to Named Executive Officers and certain
other highly compensated employees subject to recovery or clawback if the payments are based on
materially inaccurate financial statements or any other materially inaccurate performance metric
criteria. Section 304 of the Sarbanes-Oxley Act of 2002 also contains a requirement that the chief
executive officer and the chief financial officer forfeit any bonus, incentive based compensation
or equity-based compensation received and any profits from sales of our securities during the
twelve month period following an accounting restatement due to our material non-compliance, as a
result of misconduct, with any financial reporting requirement under the securities laws.
35
Compensation And Human Resources Committee Report
In accordance with its written charter adopted by the board of directors, the
Compensation Committee determines and implements compensation and benefit systems for our executive
officers and other employees.
The Compensation Committee certifies that:
|
(1) |
|
It has reviewed with senior risk officers the Named Executive Officers
compensation plans and has made all reasonable efforts to ensure that these plans do
not encourage Named Executive Officers to take unnecessary and excessive risks that
threaten the value of the Corporation; |
|
|
(2) |
|
It has reviewed with senior risk officers the employee compensation plans and
has made all reasonable efforts to limit any unnecessary risks these plans pose to the
Corporation; and |
|
|
(3) |
|
It has reviewed the employee compensation plans to eliminate any features of
these plans that would encourage the manipulation of reported earnings of the
Corporation to enhance the compensation of any employee. |
Risk Review and Assessment Process
As required by ARRA and the Treasury regulations promulgated thereunder, our compensation
plans will be reviewed every six months by our Compensation Committee. Our senior risk officer
will approve the certification of the plans by considering whether any compensation plans might
promote unnecessary risk taking and threaten the value of the financial institution and encourage
manipulation of reported earnings, specifically including the following:
|
|
|
How the level and structure of compensation compares to the peer group; |
|
|
|
|
If there is an appropriate balance between fixed and variable pay; |
|
|
|
|
If the maximum annual payouts are reasonable; and |
|
|
|
|
If the financial metrics are fair and balanced. |
Our senior risk officer focused his review on our incentive based compensation plans and
determined to exclude from detailed review those plans and arrangements that have no incentive
component and therefore no risk of promoting or encouraging excessive or unnecessary risk taking or
encouraging the manipulation of reported earnings. Upon his certification of the plans, the senior
risk officer presented his findings to the Compensation Committee. Based on a review of the above
factors, the senior risk officer has determined that our compensation plans do not promote or
encourage excessive or unnecessary risk taking or encourage the manipulation of reported earnings
and his report and conclusion has obtained the consensus and approval of the Compensation
Committee.
36
Below is a list of the Named Executive Officer compensation plans and other employee
compensation plans reviewed by the Compensation Committee along with a discussion of the reasons
why the compensation plans do not promote or encourage excessive or unnecessary risk taking or
encourage the manipulation of reported earnings.
Named Executive Officer Compensation Plans
|
|
|
Plan Name |
|
Reason for Conclusion |
|
|
|
Base Salary
|
|
Named Executive Officer salaries are fixed
amounts determined based upon individual
performance and peer group market data and
are not based on the performance of the
Corporation. While a portion of certain
Named Executive Officer salaries are paid
in Stock Salary, such amount of Stock
Salary received is a fixed dollar amount
paid and valued at the end of each pay
period. Therefore, our Named Executive
Officers are not encouraged to take
unnecessary or excessive risks that
threaten the Corporations value or
manipulate reported earnings to enhance
the compensation of any employee. |
|
|
|
2009 Long-Term Incentive Awards
|
|
The structure of the awards includes a
three year measurement period that rewards
improvement in years two and three over
results in the prior year, and the goals
have been set on a pass/fail basis
without a sliding scale that might
encourage additional risk taking to
increase the size of the incentive. The
number of restricted shares to be vested
upon satisfaction of the performance goals
is also fixed, and the Compensation
Committee has no discretion to increase
the amounts paid out. In addition, the
payout is relatively modest and restricted
shares will only have significant value if
the market value of the common shares
rises significantly, which we believe is
not as likely to occur if the Corporation
takes unnecessary or excessive risk. The
awards made to executives are subject to
our Executive Compensation Clawback
Policy, reducing the risk that reported
earnings might be manipulated. The cash
portion of the long-term incentive awards
are time based rather than
performance-based and therefore do not
encourage unnecessary or excessive risk
taking or manipulation of reported
earnings. |
|
|
|
2010 Long-Term Incentive Awards
|
|
The structure of the award includes a
two-year measurement period that rewards
attaining certain goals in each year, and
the goals have been set on a pass/fail
basis without a sliding scale that might
encourage additional risk taking to
increase the size of the incentive. The
number of restricted shares or restricted
stock units to be vested upon satisfaction
of the performance goals is also fixed,
and the Compensation Committee has no
discretion to increase the amounts paid
out. In addition, the payout is relatively
modest and restricted shares will only
have significant value if the market value
of the common shares rises significantly,
which we believe is not as likely to occur
if the Corporation takes unnecessary or
excessive risk. The awards made to
executives are subject to our Executive
Compensation Clawback Policy, reducing the
risk that reported earnings might be
manipulated. One-half of the long-term
incentive awards are time based rather
than performance-based and therefore do
not encourage unnecessary or excessive
risk taking or manipulation of reported
earnings. |
|
Qualified Plan
401(k) Plan
Deferred Compensation Plan
Change in Control Agreements
Country Club Dues and Fees
Severance Pay Plan
Employment Agreements
|
|
Benefits paid pursuant to these programs
are generally unrelated to the performance
of the Corporation and therefore do not
encourage unnecessary or excessive risk
taking or the manipulation of reported
earnings to enhance the compensation of
any employee by our Named Executive
Officers or other employees. |
37
Other Employee Compensation Plans
|
|
|
Plan Name |
|
Reason for Conclusion |
|
|
|
MIP
|
|
The MIP provides for incentive based
compensation for certain employees who
are not Named Executive Officers based
on the Corporations pre-tax
pre-provision profits and its total
provision for loss expense. The
portion of the award based on pre-tax
pre-provision profit, a key value
driver for our business, is capped,
discouraging excessive risk taking.
Pre-tax pre-provision profit, while a
non-GAAP financial measure, is derived
from our audited net income figures,
and is subject to our stringent
internal financial controls mitigating
the risk of manipulation. The total
provision factor, by its nature,
discourages taking additional risk and
the amount payable based on this factor
is capped. Moreover, the provision for
loss is determined in accordance with
generally accepted accounting
principles pursuant to a detailed
methodology and is subject to audit by
our independent public accountants,
mitigating the risk of manipulation.
In each case, the amount of the award
may be adjusted down based on
individual performance, which also
reduces the likelihood of excessive
risk taking or manipulation. The
awards made to executive officers are
subject to our Executive Compensation
Clawback Policy, reducing the risk that
reported earnings might be manipulated. |
|
|
|
Core Banking Incentive Plans
Corporate Banking Incentive Plans
Credit Incentive Plans
Wealth Management Incentive Plans
|
|
These plans provide for incentive based
compensation to be paid to employees
who are not Named Executive Officers
based on multiple identified factors
that drive the portion of our business
in which they are engaged. Most of
these factors are operational and not
directly related to our earnings, and
therefore have a low risk of
encouraging manipulation of our
earnings. Substantially all of the
performance factors are inherently
structured so that unnecessary or
excessive risk taking is either
discouraged by the other factors in the
mix and operational policies and
procedures we have in place, or is
irrelevant to the goal. The use of
multiple performance measures
diversifies the risk associated with a
single performance measure. Awards are
also subject to downgrade if certain
credit metrics are not satisfied,
further reducing the likelihood of
excessive risk taking relating to
lending. Individual performance is
measured against the performance
measures of the plan and are reviewed
monthly at accountability meetings with
supervisors and managers. Any
unnecessary or excessive risk taking or
manipulation of earnings is subject to
corrective disciplinary action. |
|
|
|
Reward and Recognition Program
Fraud Busters Program
Business Owner Banking Certificate
Program
|
|
These programs are generally unrelated
to the performance of the Corporation
and therefore, do not encourage
unnecessary or excessive risk taking or
the manipulation of reported earnings
to enhance the compensation of any
employee by our employees. |
38
The Compensation Committee has reviewed and discussed with management the Compensation
Discussion and Analysis section of this proxy statement, or CD&A, for the year ended December 31,
2010. Based on such review and discussion, the Compensation Committee recommended to the board of
directors that the CD&A be included in this proxy statement and incorporated by reference in our
Annual Report on Form 10-K for the year ended December 31, 2010.
By the Compensation Committee of the Board of Directors:
Benjamin W. Laird, Chairman
Lizabeth A. Ardisana
Robert S. Cubbin
Dennis J. Ibold
Stephen J. Lazaroff
39
Summary Compensation Table
The following table provides compensation information for the years ended December 31,
2010, 2009 and 2008 for our chief executive officer, chief financial officer, the three other most
highly paid executive officers who were serving as such at December 31, 2010, and our former chief
financial officer. We refer to these individuals in this proxy statement as our Named Executive
Officers. The material terms of plans and agreements pursuant to which certain items set forth
below were paid are discussed elsewhere in Executive Compensation.
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Change in |
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|
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|
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Pension Value and |
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Nonqualified |
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Deferred |
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Compensation |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Stock Awards |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
Principal Position |
|
Year |
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
Cathleen H. Nash |
|
|
2010 |
|
|
|
813,846 |
(7) |
|
|
100,000 |
|
|
|
400,000 |
|
|
|
387 |
|
|
|
708 |
|
|
|
1,314,941 |
|
President & Chief |
|
|
2009 |
|
|
|
587,238 |
|
|
|
-0- |
|
|
|
128,000 |
|
|
|
355 |
|
|
|
16,286 |
|
|
|
731,879 |
|
Executive Officer(5) |
|
|
2008 |
|
|
|
459,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
384 |
|
|
|
20,956 |
|
|
|
480,340 |
|
|
|
Lisa T. McNeely |
|
|
2010 |
|
|
|
328,051 |
(7) |
|
|
-0- |
|
|
|
225,000 |
|
|
|
1,526 |
|
|
|
-0- |
|
|
|
554,577 |
|
Executive Vice
President & Chief
Financial
Officer(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark W. Widawski |
|
|
2010 |
|
|
|
325,692 |
(7) |
|
|
24,167 |
|
|
|
150,000 |
|
|
|
553 |
|
|
|
-0- |
|
|
|
500,412 |
|
Executive Vice |
|
|
2009 |
|
|
|
235,020 |
|
|
|
-0- |
|
|
|
30,933 |
|
|
|
508 |
|
|
|
4,970 |
|
|
|
271,431 |
|
President & Chief
Credit Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith L. Klawinski |
|
|
2010 |
|
|
|
302,769 |
(7) |
|
|
26,667 |
|
|
|
145,000 |
|
|
|
5,753 |
|
|
|
-0- |
|
|
|
480,189 |
|
Executive Vice |
|
|
2009 |
|
|
|
246,535 |
|
|
|
-0- |
|
|
|
34,134 |
|
|
|
5,281 |
|
|
|
4,721 |
|
|
|
290,671 |
|
President & Director
of Core Banking |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas W. Gallagher |
|
|
2010 |
|
|
|
252,688 |
|
|
|
16,667 |
|
|
|
127,462 |
|
|
|
12,693 |
|
|
|
-0- |
|
|
|
409,510 |
|
Executive Vice |
|
|
2009 |
|
|
|
248,464 |
|
|
|
-0- |
|
|
|
21,334 |
|
|
|
11,651 |
|
|
|
5,352 |
|
|
|
286,801 |
|
President, General |
|
|
2008 |
|
|
|
255,435 |
|
|
|
-0- |
|
|
|
70,320 |
|
|
|
12,597 |
|
|
|
14,825 |
|
|
|
353,177 |
|
Counsel & Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Christy |
|
|
2010 |
|
|
|
149,423 |
|
|
|
80,000 |
|
|
|
-0- |
|
|
|
1,709 |
|
|
|
852 |
|
|
|
231,984 |
|
Executive Vice |
|
|
2009 |
|
|
|
350,000 |
|
|
|
-0- |
|
|
|
102,400 |
|
|
|
1,569 |
|
|
|
15,593 |
|
|
|
469,562 |
|
President & Chief |
|
|
2008 |
|
|
|
363,462 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,696 |
|
|
|
21,685 |
|
|
|
386,843 |
|
Financial
Officer(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts set forth in this column reflect the January 2010 installment
of the cash component of the 2009 long-term award. The cash component of the January 2009
long-term award is paid in three annual installments each January 29th beginning in 2010
if the Named Executive Officer remains employed with us. |
|
(2) |
|
Stock awards consist of restricted shares of common stock and restricted
stock units. The amounts shown represent the grant date fair value of each award calculated in
accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The 2008 award
to Mr. Gallagher vests in three equal annual installments beginning on the first anniversary of the
grant date. The 2009 awards vest only when certain performance-based vesting requirements are
satisfied. The 2010 awards vest when certain performance- based and time-based restrictions are
satisfied. The value reported for the awards is the grant date fair value assuming the probable
outcome of such conditions as of the grant date. In determining the grant date fair value, we have used the
closing price of our stock |
40
|
|
|
|
|
as of the close of the market on the grant date and have assumed that
all performance conditions will also be met. We subsequently determined that it was not probable
that we would meet the performance-based vesting requirements, so we have not yet recorded expenses
related to the stock awards. |
|
(3) |
|
The amounts shown for all Current Named Executive Officers reflect changes
in pension values. |
|
(4) |
|
The amounts in this column for 2010 reflect reimbursement of country clubs
dues and fees only. |
|
(5) |
|
Ms. Nash was an executive vice president until her appointment as our
president and chief executive officer on February 1, 2009. |
|
(6) |
|
Ms. McNeely was appointed as interim chief financial officer effective June
4, 2010 and chief financial officer on August 4, 2010. |
|
(7) |
|
A portion of the amounts shown in this column reflects the Stock Salary
grants made in May 2010, and for Ms. McNeely the Stock Salary grants made in connection with her promotions
during 2010, to Ms. Nash, Ms. McNeely, Mr. Widawski and Ms. Klawinski in the amounts of $200,000,
$125,000, $60,000 and $40,000, respectively. During 2010, the number of shares received as Stock
Salary by Ms. Nash was 100,550, by Ms. McNeely was 51,082, by Mr. Widawski was 30,669, and by Ms.
Klawinski was 20,781. Ms. Nash, Ms. McNeely, Mr. Widawski and Ms. Klawinski received Stock Salary
for 16 pay periods in 2010 representing gross amounts of $133,077, $64,135, $39,923, and $26,615,
respectively. Stock
Salary is paid to these individuals as part of each bi-weekly pay period, with the number of shares
determined by dividing the dollar amount of salary to be paid in stock for that pay period, net of
applicable withholdings and deductions, by the reported closing price on the NASDAQ Capital Market
for a share of our common stock on the pay date for such period. The terms of these grants are described below under Executive Compensation
Outstanding Equity Awards at Year End. |
|
(8) |
|
Mr. Christy resigned effective June 4, 2010. |
41
Grants of Plan-Based Awards
The following table shows the estimated future payout under the grants made in 2010
pursuant to the Stock Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of |
|
|
|
|
|
|
Estimated Future Payouts Under |
|
All Other |
|
Stock and |
|
|
|
|
|
|
Equity Incentive Plan Awards(1) |
|
Stock |
|
Option |
|
|
|
|
|
|
Threshold |
|
Target |
|
Maximum |
|
Awards |
|
Awards |
Name |
|
Grant Date |
|
(#) |
|
(#) |
|
(#) |
|
($)(2) |
|
($) |
Cathleen H. Nash |
|
|
05/04/2010 |
|
|
|
20,492 |
|
|
|
163,934 |
|
|
|
163,934 |
|
|
|
400,000 |
|
|
|
600,000 |
|
Lisa T. McNeely |
|
|
05/04/2010 |
|
|
|
1,498 |
|
|
|
11,986 |
|
|
|
11,986 |
|
|
|
84,127 |
|
|
|
98,750 |
|
|
|
|
05/14/2010 |
|
|
|
1,359 |
|
|
|
10,868 |
|
|
|
10,868 |
|
|
|
12,498 |
|
|
|
25,000 |
|
|
|
|
08/04/2010 |
|
|
|
10,388 |
|
|
|
83,104 |
|
|
|
83,104 |
|
|
|
150,625 |
|
|
|
226,250 |
|
Mark W. Widawski |
|
|
05/04/2010 |
|
|
|
7,684 |
|
|
|
61,474 |
|
|
|
61,474 |
|
|
|
135,000 |
|
|
|
210,000 |
|
Judith L. Klawinski |
|
|
05/04/2010 |
|
|
|
7,428 |
|
|
|
59,426 |
|
|
|
59,426 |
|
|
|
112,500 |
|
|
|
185,000 |
|
Thomas W. Gallagher |
|
|
05/04/2010 |
|
|
|
6,528 |
|
|
|
52,238 |
|
|
|
52,238 |
|
|
|
63,730 |
|
|
|
127,461 |
|
Charles D. Christy |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
(1) |
|
The terms of these grants are described below under Executive Compensation
Outstanding Equity Awards at Year End. |
|
(2) |
|
A portion of the amounts shown in this column reflects the Stock Salary
grant made in May 2010 (and for Ms. McNeely the grants made in connection with her promotions
during 2010) to Ms. Nash, Ms. McNeely, Mr. Widawski and Ms. Klawinski in the amounts of $200,000,
$125,000, $60,000 and $40,000, respectively. During 2010, the number of shares received as Stock
Salary by Ms. Nash was 100,550, by Ms. McNeely was 51,082, by Mr. Widawski was 30,669, and by Ms.
Klawinski was 20,781. Ms. Nash, Ms. McNeely, Mr. Widawski and Ms. Klawinski received Stock Salary
for 16 pay periods in 2010 representing $133,077, $64,135, $39,923, and $26,615, respectively.
There are 10 remaining pay periods in 2011 in which the amount of base salary paid in Stock Salary
will be $66,923 for Ms. Nash, $60,865 for Ms. McNeely, $20,077 for Mr. Widawski and $13,385 for Ms.
Klawinski. The previous amounts of Stock Salary paid and remaining represent gross amounts. Stock
Salary is paid to these individuals as part of each bi-weekly pay period, with the number of shares
determined by dividing the dollar amount of salary to be paid in stock for that pay period, net of
applicable withholdings and deductions, by the reported closing price on the NASDAQ Capital Market
for a share of our common stock on the pay date for such period. The terms of these grants are
described below under Executive Compensation Outstanding Equity Awards at Year End. Although
these shares are fully earned when paid they are not transferable until May 4, 2012. |
42
The remaining portion of the amounts shown in this column reflect the time-based portion of the
2010 long-term award. The terms of these grants are described below under Executive Compensation
Outstanding Equity Awards at Year End.
The Stock Compensation Plan, or Stock Plan permits the Compensation Committee to make
grants of stock options, stock appreciation rights, restricted stock, restricted stock units and
various types of performance-based rights to acquire cash, common shares, other property or a
combination thereof to directors and employees of the Corporation. To maintain the Compensation
Committees ability to make equity-based grants for the purposes discussed above, the board
determined in 2010 to amend the Stock Plan and shareholders approved an amendment and restatement
of the Stock Plan that extended the expiration date to March 2020, increased the available shares
to 24,000,000 and made certain other changes. See Executive Compensation Other Potential
Post-Employment Payments Stock Compensation Plan for a summary of certain provisions of the
Stock Plan relating to termination and change in control.
43
Outstanding Equity Awards at Year-End
The following table shows all outstanding equity awards held by our Named Executive
Officers as of December 31, 2010. Market value is based on the closing price of our common stock
of $0.62 on December 31, 2010, as reported on the NASDAQ Capital MarketSM.
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Stock Awards |
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Equity |
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Equity |
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Incentive |
|
Incentive |
|
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Option Awards |
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Market |
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Plan |
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Plan Awards: |
|
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Number of |
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Number of |
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|
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Number of |
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Value of |
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Awards: |
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Market Value |
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Securities |
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Securities |
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|
|
|
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Shares or |
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Shares or |
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Number of |
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of Unearned |
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
Units of |
|
Unearned |
|
Shares |
|
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
Stock That |
|
Stock That |
|
Shares That |
|
That Have |
|
|
Options |
|
Options |
|
Exercise |
|
Option |
|
Have Not |
|
Have Not |
|
Have Not |
|
Not |
|
|
(#) |
|
(#) |
|
Price |
|
Expiration |
|
Vested |
|
Vested |
|
Vested |
|
Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
(#)(1) |
|
($) |
|
(#)(2) |
|
($) |
Cathleen H. Nash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,484 |
|
|
|
163,980 |
|
|
|
263,934 |
|
|
|
163,639 |
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa T. McNeely |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,141 |
|
|
|
107,967 |
|
|
|
105,958 |
|
|
|
65,694 |
|
|
|
|
3,231 |
|
|
|
-0- |
|
|
|
29.02 |
|
|
|
5/31/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,050 |
|
|
|
-0- |
|
|
|
29.06 |
|
|
|
5/12/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
-0- |
|
|
|
26.01 |
|
|
|
5/29/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,000 |
|
|
|
-0- |
|
|
|
25.10 |
|
|
|
2/10/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark W. Widawski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,645 |
|
|
|
64,260 |
|
|
|
85,641 |
|
|
|
53,097 |
|
|
|
|
2,000 |
|
|
|
-0- |
|
|
|
29.34 |
|
|
|
6/01/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith L. Klawinski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,985 |
|
|
|
51,451 |
|
|
|
86,093 |
|
|
|
53,378 |
|
|
|
|
2,349 |
|
|
|
-0- |
|
|
|
29.02 |
|
|
|
5/31/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700 |
|
|
|
-0- |
|
|
|
29.06 |
|
|
|
5/12/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
-0- |
|
|
|
26.01 |
|
|
|
5/29/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
-0- |
|
|
|
33.41 |
|
|
|
5/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400 |
|
|
|
-0- |
|
|
|
25.42 |
|
|
|
5/22/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas W. Gallagher |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,016 |
|
|
|
34,110 |
|
|
|
68,905 |
|
|
|
42,721 |
|
|
|
|
4,112 |
|
|
|
-0- |
|
|
|
29.02 |
|
|
|
5/31/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
-0- |
|
|
|
29.06 |
|
|
|
5/12/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000 |
|
|
|
-0- |
|
|
|
26.01 |
|
|
|
5/29/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000 |
|
|
|
-0- |
|
|
|
33.41 |
|
|
|
5/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,400 |
|
|
|
-0- |
|
|
|
25.42 |
|
|
|
5/22/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Christy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The restricted shares in this column reflect shares granted in 2008 to Ms.
McNeely, Ms. Klawinski, Mr. Widawski and Mr. Gallagher, the Stock Salary issued to Ms. Nash, Ms.
Klawinski, Ms. McNeely and Mr. Widawski during 2010, and the time-based portion of the 2010
long-term award granted to all Current Named Executive Officers, including the additional awards
made to Ms. McNeely in connection with her promotions during 2010. |
|
|
|
The restrictions associated with the 2008 restricted stock grants to Mr. Gallagher, Ms. Klawinski
and Ms. McNeely will lapse at the rate of one-third each year beginning on the first anniversary of the
grant date. The restrictions associated with the 2008 restricted stock grants to Mr. Widawski will
lapse on the third anniversary of the grant date.
|
44
The restricted shares granted in 2008, as described above and reflected in this column become
vested and transferable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/2011 |
|
5/22/2011 |
|
5/31/2011 |
|
7/31/2011 |
|
Total |
Cathleen H. Nash |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Lisa T. McNeely |
|
|
-0- |
|
|
|
1,111 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
1,111 |
|
Mark W. Widawski |
|
|
3,150 |
|
|
|
-0- |
|
|
|
3,150 |
|
|
|
5,250 |
|
|
|
11,550 |
|
Judith L. Klawinski |
|
|
-0- |
|
|
|
2,778 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
2,778 |
|
Thomas W. Gallagher |
|
|
-0- |
|
|
|
2,778 |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
2,778 |
|
Charles D. Christy |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
As a Named Executive Officer in 2008, Ms. Nash did not receive a grant of restricted stock due to
the continuing adverse economic conditions, the challenges facing the financial services industry,
and our unfavorable financial results at that time. For the 2008 restricted stock grants to the
other Current Named Executive Officers, if the Current Named Executive Officer terminates
employment due to death or disability, or if we terminate the Current Named Executive Officers
employment pursuant to our severance pay plan, then the Current Named Executive Officer will
receive a pro-rata portion of any unvested restricted shares. However, if the Current Named
Executive Officer retires, resigns, is terminated for cause, or is terminated without cause and not
pursuant to our severance pay plan, then any unvested restricted shares will be forfeited. In the
event of a change in control, the provisions of our Amended and Restated Change in Control
Agreements would apply, and the restricted stock would become fully vested, subject to limitations
imposed by applicable law at the time. Holders of restricted shares have voting and dividend
rights with respect to these shares upon grant to the same extent as holders of other outstanding
shares of common stock.
A portion of the shares in this column are the earned and no longer forfeitable restricted shares
granted as Stock Salary to Ms. Nash (100,550), Ms. McNeely (51,082), Ms. Klawinski (20,781), and
Mr. Widawski (30,669).
The shares received as Stock Salary do not become transferable until the earliest to occur of May
4, 2012, or the death, disability, retirement or termination of employment would result in benefits
being payable under our severance plan. Also, all transfer restrictions will lapse upon a change
of control. Those Current Named Executive Officers receiving Stock Salary will have voting and
dividend rights with respect to the restricted stock so granted prior to the lapse of the transfer
restrictions.
The restrictions as to the time-based portion of the 2010 long-term award will lapse on May 4,
2013, the third anniversary of the grant date, if the Current Named Executive Officer remains
employed by us. If a Current Named Executive Officer resigns or is terminated for cause, then any
unvested restricted stock or restricted stock units will be forfeited. If a Current Named
Executive Officer retires and has received restricted stock units, then the Current Named Executive
Officer will receive a pro-rata portion of any vested restricted stock units, while a Current Named
45
Executive Officer who retires and has received restricted stock will forfeit any unvested
restricted stock. However, if the Current Named Executive Officer terminates employment due to
death, disability, the Current Named Executive Officers position is eliminated or the Current
Named Executive Officer is terminated without cause, then the Current
Named Executive Officer will receive a pro-rata portion of the restricted shares or restricted
stock units that have vested as of the date employment terminates. In the event of a change in
control, the provisions of our amended and restated change in control agreements would apply and
the restricted stock or restricted stock units would be fully vested, subject to limitations
imposed by applicable law at the time. Each restricted stock unit will be settled for one
share of our common stock at the time the applicable restrictions lapse, with a portion of these
shares withheld to satisfy income and employment tax withholding requirements. Holders of
restricted stock units will have no voting or dividend rights prior to settlement of the units for
shares of stock. Holders of restricted shares, however, will have voting and dividend rights with
respect to those shares from the date of grant except to the extent such restricted shares are
forfeited.
|
|
|
(2) |
|
These shares represent the number of restricted shares granted as part of
the long-term awards made in January 2009 and the restricted shares or restricted stock units of
the performance-based portion of the long-term awards made in May 2010. With regard to the 2009
award, the restrictions as to 50% of the shares granted would have lapsed on January 29, 2011 if
both of the following performance measures were met: (i) we were profitable in 2010 (based on net
income); and (ii) our 2010 PTPP improved over 2009 results. The performance measures were not met
for 2010. Therefore, on January 29, 2012, the restrictions on the full 100% of the 2009 award will
lapse if: (i) we are profitable in 2011 (based on net income); and (ii) 2011 PTPP improves over
2010 results. If both of the aforementioned performance measures are not met for 2011, then the
shares remaining unvested will be canceled. PTPP is explained in more detail under Executive
Compensation Compensation Discussion and Analysis Long-Term Equity Based Compensation. If
the Named Executive Officer retires, resigns, or is terminated for cause, then any unvested
restricted shares and unearned cash will be forfeited. If the Named Executive Officers position
is eliminated, then the Named Executive Officer will receive a pro-rata portion of any vested
restricted shares (if the performance targets have been met) and the cash portion of the award will
be forfeited. However, if the Named Executive Officer terminates employment due to death or
disability, or if we terminate the Named Executive Officers employment without cause, then the
Named Executive Officer will receive a pro-rata portion of any vested restricted shares (if the
performance targets have been met) and earned cash. In the event of a change in control, the
provisions of our Change in Control Agreements would apply and the incentive awards would be fully
vested, subject to limitations imposed by law applicable at the time. |
A portion of the May 2010 long-term awards, including the awards made to Ms. McNeely in connection
with her promotions in 2010, is subject to certain performance-based conditions and is included in
this column. The restrictions as to one-half of the performance-based portion of the award will
lapse on May 4, 2011, if the Current Named Executive Officer remains employed by us, but only to
the extent we exceed the designated PTPP threshold for 2010, and we do not exceed the designated
total provision expense threshold for 2010. Our PTPP of $137.5 million for 2010 exceeded the
threshold for PTPP, while our total provision expense for 2010 exceeded the limit. As we did not
satisfy the 2010 threshold for total provision expense, the portion of the award relating to that
goal for 2010 has been forfeited. The restrictions as to the remaining one-half of the
performance-based portion of the award will lapse in a similar manner based on 2011 performance on May 4, 2012 if the
individual remains employed by us. The restricted shares or restricted stock units meeting the
performance-based conditions may not be transferred, until the later of May 4, 2012 or the
date on which the restricted shares or restricted stock units are no longer subject to the
limitations placed on us by our participation in the CPP.
With regard to the performance-based portion of the 2010 long-term awards, if the Current Named
Executive Officer resigns or is terminated for cause, then any unvested restricted stock or
restricted stock units will be forfeited. However, if the Current Named Executive Officer
terminates employment due to death, disability, retirement, or if the Current Named Executive
Officers position is eliminated or terminated without cause, then the Current Named Executive
Officer will receive a pro-rata portion of any unvested restricted shares or restricted stock units
if the performance targets have been met. For example, if a Current Named Executive Officer
retired on June 30, 2010 and the performance targets were met for 2010, then the executive officer
would receive one-half of the restricted shares subject to the 2010 portion of the award, but would
not be eligible to receive any of the shares related to the 2011 portion of the award. Each
restricted stock unit will be settled for one share of our common stock at the time the applicable
restrictions lapse, with a portion of these shares withheld to satisfy income and employment tax
withholding requirements. Holders of restricted stock units will have no voting or dividend rights
prior to settlement of the units for shares of stock. Holders of restricted shares, however, will
have voting and dividend rights with respect to those shares from the date of grant except to the
extent such restricted shares are forfeited.
46
Options Exercised and Stock Vested
The following table shows all stock awards vested and the value realized upon vesting, by
Named Executive Officers during 2010. None of the Named Executive Officers exercised options
during 2010.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards(1) |
|
|
Number of Shares |
|
Value Realized |
|
|
Acquired on Vesting |
|
on Vesting(2) |
Name |
|
(#) |
|
($) |
Cathleen H. Nash |
|
|
4,173 |
|
|
|
4,340 |
|
Lisa T. McNeely |
|
|
1,632 |
|
|
|
1,697 |
|
Mark W. Widawski |
|
|
9,450 |
|
|
|
6,930 |
|
Judith L. Klawinski |
|
|
4,516 |
|
|
|
4,697 |
|
Thomas W. Gallagher |
|
|
3,733 |
|
|
|
3,882 |
|
Charles D. Christy |
|
|
4,173 |
|
|
|
4,340 |
|
|
|
|
(1) |
|
The table does not show the earned and no longer forfeitable restricted
shares granted as Stock Salary to Ms. Nash, Ms. McNeely, Ms. Klawinski, and Mr. Widawski because,
even though the shares are fully earned upon grant, the transfer restrictions do not lapse on those
shares until May 2012. The restricted shares of our common stock received in 2010 as Stock Salary
were as follows: Ms. Nash 100,550, Ms. McNeely 51,082, Mr. Widawski 30,669, and Ms. Klawinski
- 20,781. The terms of the Stock Salary grants are described in more detail under Executive
Compensation Outstanding Equity Awards at Year End. |
|
(2) |
|
The value realized equals the market value of our common stock on the date
that the transfer restrictions lapsed as reported on the NASDAQ Capital MarketSM,
multiplied by the number of shares for which the transfer restrictions lapsed. |
47
Non-Qualified Deferred Compensation
We offer executive officers and selected key employees the right to participate in our
non-qualified Deferred Compensation Plan. Under the provisions of the plan, the participants may
elect to defer up to 50% of their annual base salary and up to 100% of any cash incentive
compensation. Subject to approval by the Compensation Committee, we may make matching
contributions in an amount not to exceed 30% of the participants own contribution with such match
being made in our common stock. No matching contributions were made in 2010. The investment
options generally available under the Deferred Compensation Plan are the same as those available
under the Corporations 401(k) plan. The Deferred Compensation Plan was amended in 2010 to allow
payments to participants in our common stock. As a general rule, amounts deferred and investment
returns are required to be distributed no earlier than upon the participants termination of
employment and shall be made in a single lump sum payment or, if the participant has made an
irrevocable election at the time of enrollment, in equal annual installments over the period
specified by the participant, not to exceed ten years. The following table shows certain
information for Named Executive Officers under the Corporations non-qualified Deferred
Compensation Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
|
|
|
|
Aggregate |
|
|
|
|
Contributions in |
|
Contribution in |
|
Aggregate Earnings in |
|
Withdrawals/ |
|
Aggregate Balance at |
|
|
Last Fiscal Year |
|
Last Fiscal Year |
|
Last Fiscal Year |
|
Distributions |
|
Last Fiscal Year End |
Name |
|
($)(1) |
|
($) |
|
($)(1) |
|
($) |
|
($) |
Cathleen H. Nash |
|
|
-0- |
|
|
|
-0- |
|
|
|
19,466 |
|
|
|
-0- |
|
|
|
142,738 |
|
Lisa T. McNeely |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Mark W. Widawski |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Judith L. Klawinski |
|
|
-0- |
|
|
|
-0- |
|
|
|
10,510 |
|
|
|
-0- |
|
|
|
132,462 |
|
Thomas W. Gallagher |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
Charles D. Christy |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
(1) |
|
Executive contributions are reflected as compensation in the appropriate
columns of the Summary Compensation Table, but earnings and losses on contributions are not
reflected in the Summary Compensation Table because earnings are not above-market or preferential. |
48
Pension Benefits
The table shows each Named Executive Officers number of years of service, present value
of accumulated benefit and payments during the year ended December 31, 2010 under each of the
plans, which are described in the Executive Compensation
Compensation Discussion and Analysis
Retirement Benefits section of this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years |
|
Present Value of |
|
Payments During |
|
|
|
|
Credited Service |
|
Accumulated Benefit |
|
Last Fiscal Year |
Name |
|
Plan Name |
|
(#) |
|
($)(1) |
|
($) |
Cathleen H. Nash |
|
Citizens Republic |
|
5 |
|
9,613 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa T. McNeely |
|
Citizens Republic |
|
8 |
|
37,951 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark W. Widawski |
|
Citizens Republic |
|
6 |
|
13,763 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judith L. Klawinski |
|
Citizens Republic |
|
32 |
|
143,053 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas W. Gallagher |
|
Citizens Republic |
|
23 |
|
315,628 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles D. Christy |
|
Citizens Republic |
|
7 |
|
42,498 |
|
-0- |
|
|
Bancorp Amended and |
|
|
|
|
|
|
|
|
Restated Cash |
|
|
|
|
|
|
|
|
Balance Pension |
|
|
|
|
|
|
|
|
Plan For Employees |
|
|
|
|
|
|
|
|
|
(1) |
|
The Present Value of Accumulated Benefit is the lump sum value as of
December 31, 2010 of the annual pension benefit payable for the Named Executive Officers life
that was earned as of December 31, 2010. These lump sum values are equal to the accumulated
cash balance as of December 31, 2010. |
49
Other Potential Post-Employment Payments
We have entered into certain plans and agreements that require us to provide compensation to
Named Executive Officers in the event of a termination of employment. Post-employment payments are
provided for under the letter agreement with Ms. Nash, the Stock Compensation Plan, change in
control agreements, and retirement plans. These are described below.
As long as the preferred shares issued to the Treasury under the CPP remain outstanding, there
are limits on the ability to pay termination related or golden parachute payments. These limits
are described in more detail under the Executive Compensation Compensation Discussion and
Analysis section of this proxy statement.
Nash Letter Agreement
On January 22, 2009, we entered into an agreement with Ms. Nash, our president and chief
executive officer. The letter agreement provides that Ms. Nash is employed on an at-will basis and
will receive the following:
|
|
|
An annual base salary of $600,000; |
|
|
|
|
Annual incentive awards under the Management Incentive Plan to the
extent that such awards are granted to the executive officers and subject to
any restrictions on our ability to pay incentive compensation as long as the
preferred shares issued to Treasury under the CPP remain outstanding; and |
|
|
|
|
A long-term award in 2009 under our Stock Compensation Plan equal
to $300,000 in cash and 100,000 shares of restricted stock, with
performance-based vesting terms as described under Executive
Compensation
Compensation Discussion and Analysis- Long-Term Equity-Based Compensation. |
Her annual salary, incentive compensation and long-term compensation will be reviewed annually
by the Compensation Committee and approved by the board of directors. Ms. Nash will continue to be
eligible for other employee benefits and perquisites to the same extent provided to other executive
officers. If her employment is terminated without cause other than in connection with a change in
control, she will be entitled to two years of salary continuance, plus outplacement services. If
her employment terminates due to death or disability, she will be eligible for the same benefits
provided to other executive officers. Ms. Nash has agreed to non-compete and non-solicitation
covenants expiring two years after her termination of employment, as well as confidentiality and
non-disparagement covenants.
Stock Compensation Plan
The Stock Plan permits the Compensation Committee to make grants of stock options, stock
appreciation rights, restricted stock, restricted stock units and various types of
performance-based rights to acquire cash, common shares, other property or a combination thereof to
directors and employees of the Corporation. The Stock Plan provides the following terms with
respect to termination of employment or services of a participant holding an option or stock
appreciation right, unless otherwise provided in the related grant agreement:
|
|
|
If termination occurs for any reason prior to vesting, the right to exercise the option
or stock appreciation right terminates and all rights cease;
|
50
|
|
|
If termination occurs for any reason other than cause, death or disability after
vesting, then the participant has the right to exercise the option or stock appreciation
right to the extent it was exercisable upon termination until the earlier of three months
after termination or the expiration of the option or stock appreciation right; |
|
|
|
|
If termination is due to the participants death or disability, then the participant or
his or her estate may exercise the option or stock appreciation right to the extent it was
exercisable upon termination until the earlier of the one year anniversary of employment
termination or the expiration of the option or stock appreciation right; |
|
|
|
|
If termination is for cause, any unexercised portion of an outstanding option or stock
appreciation right (whether or not then vested or exercisable), will immediately terminate
and be forfeited as of the date of the cause determination. |
The Compensation Committee may, in its discretion, accelerate the participants right to exercise
an option or stock appreciation right or extend the exercise term, subject to any other limitations
in the Stock Plan.
For other awards, the Stock Plan provides that, unless otherwise provided in the related grant
agreement, if a participants employment or services are terminated for any reason prior to vesting
other than death or disability or, in the case of awards that are not Code Section 162(m) awards,
retirement, restricted stock, restricted stock units, performance awards and incentive awards are
generally forfeited. If termination is due to death or disability or, in the case of awards that
are not Code Section 162(m) awards, retirement, restricted stock, restricted stock units,
performance awards and incentive awards will vest upon termination unless the grant agreement
provides otherwise.
Awards under the Stock Plan are generally subject to special provisions upon the occurrence of
a change in control of the Corporation. Under the Stock Plan, the Compensation Committee may
provide in a grant agreement or otherwise that upon a change in control transaction (i) all
outstanding options or stock appreciation rights immediately become fully vested and exercisable;
(ii) any restriction period on any common shares or restricted stock units immediately lapses and
the shares become freely transferable subject to any applicable federal or state securities laws;
(iii) all performance goals are deemed to have been satisfied and any restrictions on any
performance award or incentive award immediately lapse and the awards become immediately payable
(either in full or pro-rata based on the portion of the applicable performance period completed);
and (iv) awards may be treated in any other way as determined by the Compensation Committee. The
Compensation Committee may also determine that upon a change in control, any outstanding option or
stock appreciation right be canceled in exchange for payment in cash, stock or other property for
each vested share in an amount equal to the excess of the fair market value of the consideration to
be paid in the change in control transaction over the exercise price. The Compensation Committee,
in its discretion, may provide in a participants agreement with respect to an option, stock
appreciation right, restricted stock or restricted stock unit award, performance award or incentive
award payable in shares that such awards will not be accelerated in the event of a change in
control in which the successor company assumes the award.
The term change in control is defined in the Stock Plan to include: (i) with certain
exceptions, the acquisition of beneficial ownership of 20% or more of our outstanding common
shares; (ii) a change in a majority of the board not approved by at least a majority of the
incumbent directors or resulting at least in part from an actual or threatened election contest;
(iii) consummation of specified business combination transactions involving the Corporation unless
certain indicia of control are absent following the transaction; and (iv) approval by the
shareholders of a complete liquidation or dissolution of the Corporation. To the extent any payment
subject to Code Section 409A is payable on a change in control, an event will not be considered a
change in control with respect to such payment unless it satisfies certain other conditions under
Code Section 409A.
51
Mr. Charles D. Christy resigned from the Corporation effective June 4, 2010. Pursuant to our
restricted stock agreements described below Mr. Christys unvested restricted shares were
immediately forfeited upon his resignation. Any vested stock options held by Mr. Christy were
forfeited ninety days after his resignation pursuant to the terms of the stock option agreements.
Each of the 2008 restricted stock agreements provides that for the 2008 restricted stock
grants, if the recipient terminates employment due to death or disability, or if we terminate the
recipients employment pursuant to our severance pay plan, then the recipient will receive a
pro-rata portion of any unvested restricted shares. However, if the recipient retires, resigns, is
terminated for cause, or is terminated without cause and not pursuant to our severance pay plan,
then any unvested restricted shares will be forfeited.
Each of the 2009 long-term incentive award agreements provides that if the Current Named
Executive Officer retires, resigns, or is terminated for cause, then any unvested restricted shares
and unearned cash will be forfeited. If the Current Named Executive Officers position is
eliminated, then the Current Named Executive Officer will receive a pro-rata portion of any
unvested restricted shares (if the performance targets are ultimately met) and the cash portion of
the award will be forfeited. However, if the Current Named Executive Officer terminates employment
due to death or disability, or if we terminate the Current Named Executive Officers employment
without cause, then the Current Named Executive Officer will receive a pro-rata portion of any
unvested restricted shares (if the performance targets are ultimately met) and unearned cash.
Each of the 2010 long-term incentive award agreements provides that with regard to the
performance-based portion of the award, if the Current Named Executive Officer resigns or is
terminated for cause, then any unvested restricted stock or restricted stock units will be
forfeited. However, if the Current Named Executive Officer terminates employment due to death,
disability, retirement, or if the Current Named Executive Officers position is eliminated or
terminated without cause, then the Current Named Executive Officer will receive a pro-rata portion
of any unvested restricted shares or restricted stock units if the performance targets are
ultimately met. With regard to the time-based portion of the 2010 long-term incentive award, if a
Current Named Executive Officer resigns or is terminated for cause, then any unvested restricted
stock or restricted stock units will be forfeited. If a Current Named Executive Officer holding
restricted stock units retires, then the holder will receive a pro-rata portion of any unvested
restricted stock units. A Current Named Executive Officer holding restricted stock who retires
will forfeit any unvested restricted stock. If a Current Named Executive Officers employment is terminated due
to death, disability, elimination of the Current Named Executive Officers position or is
terminated without cause, then the Current Named Executive Officer will receive a pro-rata portion
of the restricted shares or restricted stock units that have not yet vested as of the date
employment terminates. In the event of a change in control, the provisions of our amended and
restated change in control agreements would apply and the restricted stock or restricted stock
units would be fully vested, subject to limitations imposed by applicable law at the time.
Change in Control Agreements
We have change in control agreements with each of our Current Named Executive Officers. The
agreements provide severance benefits if there is a change in control of the Corporation and each
Current Named Executive Officers employment with us is actually or constructively terminated at
any time within three months prior to or on the date of such change in control, or within
twenty-four months after a change in control. A change in control is defined as:
|
(i) |
|
the acquisition by any person or group of 20% or more of the outstanding common
stock in a transaction which has not been approved by a majority of the board of
directors; |
|
|
(ii) |
|
a liquidation or dissolution of the Corporation;
|
52
|
(iii) |
|
a sale of substantially all of the assets of the Corporation; |
|
|
(iv) |
|
a merger, consolidation or combination in which our shareholders immediately
before such a transaction do not continue to control more than 65% of the voting power
of the resulting entity; or |
|
|
(v) |
|
under certain circumstances, a change in a majority of the members of the board
of directors within a two-year period. |
Our Current Named Executive Officers employment will have been constructively terminated
following a change in control if:
|
(i) |
|
there is a significant reduction in the scope of the executives authority or
in the extent of such executives powers, functions, duties or responsibilities; |
|
|
(ii) |
|
there is a reduction in the executives rate of compensation; |
|
|
(iii) |
|
fringe benefits are not provided to the executive on a basis commensurate with
other executives; or |
|
|
(iv) |
|
there are changes in our executives responsibilities, which would require
moving such executives job outside of lower Michigan. |
We amended our change in control agreements in 2010 generally to reduce the value of the
benefit payable to the Current Named Executive Officers upon termination following a change in
control. Each change in control agreement provides for severance benefits of a lump sum payment
equal to two times (three times in the case of Ms. Nash) the executives annual base salary
immediately prior to the change in control (or if higher, the annual base salary on the date the
executives employment is terminated) plus two times (three times in the case of Ms. Nash) the
average of the annual bonuses paid to the executive in the last three full calendar years of
employment under the our MIP or such comparable plan in which the executive may have participated
rather than the highest annual bonus paid to the executive in the last three calendar years. The
severance benefits under the change in control agreements were reduced for Mr. Gallagher and Ms.
McNeely from three time to two times.
In addition, the change in control agreements provide our executives:
|
|
|
Continued coverage under the medical, dental and life insurance benefit
plans for eighteen months (reduced from three years) after termination, provided the
executive does not enter into other employment providing comparable benefits; |
|
|
|
|
Transfer of any club memberships; |
|
|
|
|
Accelerated vesting of all stock options and restricted stock awards; and |
|
|
|
|
Payment of up to $20,000 for outplacement services. |
Also, the changes to these agreements eliminated the provision for a gross-up amount for each
calendar year in which the executive receives an excess parachute payment as defined in federal
income tax regulations.
In addition to the standard confidentiality requirements, our executives may not, for a period
of two years following termination of employment, accept employment, consult for or otherwise
assist any other financial institution, which conducts business from a location within fifty (50)
miles of any of our locations.
53
Due to our participation in the CPP, as long as the preferred shares issued to Treasury under
the CPP remain outstanding, and as long as we are subject to the written supervisory agreement, we
are generally not permitted to pay amounts to our Current Named Executive Officers and certain
other employees for a change in control of the Corporation despite the contractual obligations in
our change in control agreements.
Retirement Plans
In the event of a termination due to retirement, our Current Named Executive Officers will
receive benefits under our retirement plan. The retirement plan is described in detail in
Executive Compensation Compensation Discussion and Analysis Retirement Benefits of this proxy
statement.
Potential Post-Employment Payments Table
The table below represents the lump sum maximum amount each Named Executive Officer, other
than Mr. Christy who resigned from employment prior to year end, would have been eligible to
receive upon a change in control or if their employment was terminated under one of the various
scenarios described below as of December 31, 2010. The table also shows the post-employment
benefits for which Mr. Christy is eligible following his resignation in June 2010.
Due to our participation in the CPP, as long as the preferred shares issued to Treasury under
the CPP remain outstanding, and for as long as we are subject to the written supervisory agreement,
we are not permitted to pay amounts to our Named Executive Officers for departure from the
Corporation for any reason other than death or disability, other than payments for services
performed or benefits accrued and payments pursuant to qualified retirement plans or that are
required by applicable law.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quit/ |
|
Involuntary |
|
|
|
|
|
|
|
|
|
|
|
|
Termination For |
|
Termination Not For |
|
Change In |
|
Change In Control |
|
|
|
|
|
|
Named Executive |
|
Cause |
|
Cause |
|
Control(1) |
|
With Termination |
|
Retirement |
|
Death(2) |
|
Disability(2) |
Officer |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Cathleen H. Nash |
|
|
-0- |
|
|
|
122,935 |
|
|
|
552,573 |
|
|
|
2,245,840 |
|
|
|
9,613 |
|
|
|
122,935 |
|
|
|
122,935 |
|
Lisa T. McNeely |
|
|
-0- |
|
|
|
6,232 |
|
|
|
36,551 |
|
|
|
642,369 |
|
|
|
37,951 |
|
|
|
6,232 |
|
|
|
6,232 |
|
Mark W. Widawski |
|
|
-0- |
|
|
|
39,414 |
|
|
|
166,109 |
|
|
|
186,109 |
|
|
|
13,763 |
|
|
|
39,414 |
|
|
|
39,414 |
|
Judith L. Klawinski |
|
|
-0- |
|
|
|
36,794 |
|
|
|
167,338 |
|
|
|
773,344 |
|
|
|
143,053 |
|
|
|
36,794 |
|
|
|
36,794 |
|
Thomas W. Gallagher |
|
|
-0- |
|
|
|
26,235 |
|
|
|
122,782 |
|
|
|
698,382 |
|
|
|
326,520 |
|
|
|
26,235 |
|
|
|
26,235 |
|
Charles D. Christy |
|
|
42,498 |
(3) |
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
-0- |
|
|
|
|
(1) |
|
The amounts shown in this column reflect the value of restricted shares with respect
to which transferability restrictions would have lapsed if a change in control had occurred on
December 31, 2010. |
|
(2) |
|
The amounts in this column reflect the pro-rata value of the restricted shares with
respect to which transferability restrictions would have lapsed had the Named Executive Officers
terminated employment because of death or disability on December 31, 2010. |
|
(3) |
|
The amount shown in this column reflects Mr. Christys accumulated benefit under
the Qualified Plan. Mr. Christy will be eligible to receive payments pursuant to the terms of the
Qualified Plan in 2013. He did not otherwise receive payments in connection with his
termination. |
54
Compensation Committee Interlocks And Certain Transactions And Relationships
There were no interlock relationships involving members of the Compensation Committee in
2010, nor were there any transactions involving us in which any member of the Compensation
Committee or any member of their immediate family had a direct or indirect material interest. The
members of the Compensation Committee are Benjamin W. Laird, Lizabeth A. Ardisana, Robert S.
Cubbin, Dennis J. Ibold, and Stephen J. Lazaroff.
During 2010, our banking subsidiaries had, and expect to have in the future, banking
transactions, in the ordinary course of business, with directors, officers and their associates.
These transactions were made on substantially the same terms, including interest rate charges and
collateral requirements, as comparable transactions are made with unrelated parties prevailing at
the time of such transactions and did not involve more than the normal risk of collectability or
present other unfavorable features. All credit transactions involving directors and executive
officers are reviewed and, when required, approved by the board of directors. None of these loans
is currently disclosed as non-accrual, past due, restructured or as a potential problem in our
Annual Report on Form 10-K for the year ended December 31, 2010.
We maintain a written policy requiring the pre-approval by the board of directors of all
lending transactions between us and executive officers and directors in compliance with Federal
Reserve Regulation O. Although we do not have a written policy with regard to the approval of
other transactions between us and our executive officers and directors, any such transactions
constituting a perceived conflict of interest under our code of ethics or applicable law, or that would
require disclosure in our annual meeting proxy statement, are generally discouraged. To the extent
any such transaction were proposed, those individuals would report any such transaction
to the chief executive officer, the general counsel or the chairman of the board and if a decision were made to proceed,
the transaction would be submitted for approval to the board and to a committee of independent
directors in accordance with our code of ethics, applicable law and applicable NASDAQ Marketplace
Rules.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, our directors, executive officers and any
persons holding more than 10% of the common stock, whom we refer to collectively as our reporting
persons, are required to report their ownership of the common stock and any changes in that
ownership to the Commission. Specific due dates for these reports have been established and
pursuant to applicable rules, we are required to report in our proxy statement any failure to file
by these due dates. Based on certifications received from our reporting persons and on copies of
the reports that they have filed with the Commission, all required reports of reporting persons
have been timely filed with the Commission since the beginning of 2010.
55
PROPOSAL 2 ADVISORY (NON-BINDING) PROPOSAL TO APPROVE THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS
In December 2008, we sold $300 million of our preferred shares and warrants to purchase
our common stock to the Treasury, as part of the CPP. Under Section 111 of EESA, as a participant
in the CPP we are required to include in this proxy statement a non-binding shareholder advisory
vote on the compensation of our Named Executive Officers. We are submitting the compensation
arrangements with our Named Executive Officers for non-binding shareholder approval, and will
continue to do so annually, as long as the preferred shares issued to Treasury under the CPP remain
outstanding. Our compensation policies are based on a pay-for-performance philosophy and we
believe they are strongly aligned with the long-term interests of our shareholders. The disclosure
of compensation information provided in the Executive Compensation section of this proxy
statement provides our shareholders with the information they need to make an informed decision
with regard to our executive compensation practices.
Therefore, the board of directors is providing our shareholders with the right to cast an
advisory vote on the compensation of our Named Executive Officers at our 2011 annual meeting of
shareholders. This proposal, commonly known as a say-on-pay proposal, gives you, as a
shareholder, the opportunity to vote on the compensation of our Named Executive Officers through
the following resolution.
RESOLVED, that the shareholders approve the compensation of executives, as disclosed pursuant
to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure
shall include the compensation discussion and analysis, the compensation tables, and any related
material).
The affirmative vote of the holders of a majority of the shares of our common stock voting in
person or by proxy on this resolution is required for approval. Abstentions and broker non-votes
will be disregarded for purposes of determining the number of votes counted toward this vote. Your
vote on this matter is advisory and will therefore not be binding upon the board of directors.
However, the Compensation Committee will take into account the outcome of the vote when considering
future executive compensation arrangements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THIS RESOLUTION.
56
PROPOSAL 3 REVERSE STOCK SPLIT
PROPOSAL TO APPROVE A PROPOSED AMENDMENT TO OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO IMPLEMENT, AT ANY TIME PRIOR TO DECEMBER 31, 2011, A REVERSE STOCK SPLIT AT A WHOLE NUMBER RATIO
RANGING BETWEEN 1-FOR-2 AND 1-FOR-10, AND TO DECREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON
STOCK ON A BASIS PROPORTIONAL TO THE REVERSE SPLIT RATIO, IN EACH CASE AS DETERMINED BY THE BOARD
OF DIRECTORS, AND TO EMPOWER THE BOARD OF DIRECTORS TO ABANDON THE REVERSE STOCK SPLIT AND
AMENDMENT IF THE BOARD OF DIRECTORS DETERMINES THAT DOING SO WOULD BE IN THE BEST INTERESTS OF THE
CORPORATION AND ITS SHAREHOLDERS.
Our common stock is traded on the NASDAQs Capital Market. In order for the stock to
continue to qualify for trading there, various continued listing standards must be satisfied,
including a requirement that the closing bid price of the common stock remain higher than $1.00 per
share. Although we satisfy the other requirements for continued listing on the NASDAQ Capital
Market, its closing bid price does not satisfy the NASDAQ listing requirements and we have received
notice from the NASDAQ that unless we are able to satisfy this listing requirement by July 18,
2011, we will receive a notice of delisting. We intend for the common stock to remain listed on
the NASDAQ Capital Market and believe the most expedient means of increasing the trading value per
share of the common stock is to implement a reverse stock split. Consequently, our board of
directors has resolved to submit to the shareholders for their approval this proposal to approve an
amendment to the amended and restated articles of incorporation to implement a reverse stock split
at a whole number ratio ranging between 1-for-2 and 1-for-10, at any time prior to December 31,
2011, in each case as determined by the board of directors. As part of the proposed amendment, the
number of authorized shares of common stock would be reduced in the same proportion as that chosen
for the reverse stock split. The proposal also empowers our board of directors to abandon the
reverse stock split and amendment if the board determines that doing so would be in the best
interests of the Corporation and its shareholders. If the proposed amendment is approved by the
shareholders and the board determines to proceed with the reverse stock split, the ratio will be
selected by the board prior to the filing of the proposed amendment with the Michigan Department of
Energy, Labor and Economic Growth.
Our board of directors is requesting that shareholders approve an exchange ratio range, as
opposed to a specified exchange ratio, and discretion as to the timing of the reverse stock split
and whether to effect it at all in order to give the board maximum discretion and flexibility to
make a determination following the annual meeting. No further action on the part of the
shareholders will be required to effect or abandon the reverse stock split. If the reverse stock
split is abandoned, the related reduction in the number of authorized shares would also be
abandoned.
In selecting the reverse stock split ratio, our board of directors will be guided primarily by
satisfying the NASDAQ minimum bid price requirement and intends to select a split ratio that, in
its judgment, would allow the common stock to meet the requirement. It is not expected that the
board will select a split ratio significantly greater than necessary, but it may take into account
the historical trading price, volatility and volume of the common stock, administrative
convenience, simplicity and prevailing general market and economic conditions in selecting a ratio
that would result in a trading range above $1.00 per share. The board will not select a split ratio
that is not a whole number, such as 1 for 4.5. Any views that may be expressed by the NASDAQ would
also be taken into account.
57
Pursuant to the laws of the state of Michigan, any amendment to our amended and restated
articles of incorporation generally must be proposed by the board of directors and approved by the
shareholders. The board of directors has approved a form of proposed amendment to our amended and
restated articles of incorporation to effect the reverse stock split and the related proportionate
decrease in the number of authorized common shares, which is attached to this proxy statement as
Annex A, and is submitting the proposed amendment to shareholders for approval. Approval by
shareholders of the proposed amendment will also constitute a grant of discretionary authority to
determine the exact ratio of the reverse stock split, the timing of the reverse stock split and
whether to abandon the reverse stock split and related reduction in authorized shares in the event
the board determines that doing so would be in the best interests of the Corporation and its
shareholders.
Reasons for the Reverse Stock Split
The primary reason for authorizing the reverse stock split is to allow us to take action to
maintain our NASDAQ listing. The shares of our common stock have traded at low prices for some
time. As of July 19, 2010, we received a notice from NASDAQ stating that, the bid price of our
common stock had closed below the minimum $1.00 per share requirement for continued listing on the
NASDAQ Capital Market and that we would be provided 180 calendar days, or until January 18, 2011,
to regain compliance. On January 19, 2011, we received an additional notice from NASDAQ stating
that the closing bid price continued to be less than the minimum for continued listing but, in
accordance with applicable rules, we would be afforded one additional 180 day period, or until July
18, 2011, to regain compliance in light of our representation to NASDAQ that we would take action
before the end of the 180 day period to regain compliance. In order to regain compliance with the
listing requirement, the bid price of our common stock must close at $1.00 per share or more for a
minimum of 10 consecutive trading days on or before July 18, 2011. As of February 25, 2011, the
closing bid price of the common stock was $0.80. If we are not in compliance with the listing
requirement by July 18, 2011, the NASDAQ will issue a notification of delisting to the Corporation.
We may appeal the determination to delist at that time, pay a fee and submit a plan of compliance
to the NASDAQ, which would temporarily stay any delisting action. Any such appeal may not be
successful, however, and our common stock could be delisted from trading on the NASDAQ Capital
Market.
Our board of directors believes that, if implemented, the reverse stock split will have the
effect of increasing the trading price of the common stock and causing the common stock to comply
with the minimum bid price listing requirement, thus avoiding delisting proceedings by the NASDAQ.
However, there can be no assurance that the reverse stock split will increase the trading price of
our common stock, that if the price increases it will remain above the $1.00 per share minimum bid
price required for continued listing or that the common stock will otherwise remain listed for
trading on the NASDAQ Capital Market.
Our board believes it is important to maintain our listing on the NASDAQ. If the common stock
were delisted from the NASDAQ Capital Market, our common stock may still qualify to trade in the
over the counter market. However, shareholders may find it more difficult to obtain accurate
quotations as to the price of our common stock, the liquidity of our common stock would likely be
reduced, making it difficult for shareholders to buy or sell the common stock at competitive market
prices or at all, and support from institutional investors and or market makers that currently buy
and sell our common stock would likely decline, possibly resulting in a further decrease in the
trading price of our common stock.
Our board also believes that the failure to maintain the NASDAQ listing could impede any
future efforts by the Corporation to raise capital. We may need to raise additional capital in the
future and may elect to do so through the issuance of common stock. If our common stock were
delisted from NASDAQ, fewer investors may be willing or able to purchase our common stock or we may
be forced to issue shares at a more significant discount to market price than if our common stock were
listed. We do not have any specific current intentions, plans, arrangements, commitments or
understandings to issue any shares of our common stock except in connection with our existing stock
option and award plans.
58
In addition, any delisting may cause our common stock to be subject to penny stock
regulations promulgated by the Securities and Exchange Commission. Under such regulations,
broker-dealers are required to, among other things, comply with disclosure and special suitability
determinations prior to the sale of shares of common stock.
The reverse stock split may help increase broker interest in our common stock as their
policies can discourage them from recommending companies with lower stock prices. Because of the
trading volatility often associated with lower-priced stocks, many brokerage houses and
institutional investors have adopted internal policies and practices that either prohibit or
discourage them from investing in such stocks or recommending them to their customers. Some of
those policies and practices may also function to make the processing of trades in lower-priced
stocks economically unattractive to brokers. Additionally, because brokers commissions on
transactions in lower-priced stocks generally represent a higher percentage of the stock price than
commissions on higher-priced stocks, the current average price per share of our common stock can
result in individual shareholders paying transaction costs representing a higher percentage of
their total share value than would be the case if the stock price were substantially higher.
Our board of directors is not requesting approval of the reverse stock split in connection
with a going-private transaction within the meaning of Rule 13e-3 of the Exchange Act. There is
no plan or contemplated plan by the Corporation to take itself private and cease to be a reporting
company under the Exchange Act.
Possible Disadvantages of the Reverse Stock Split
Possible disadvantages of the reverse stock split include the following factors.
The reverse stock split may not increase the price of our common stock. Although the board of
directors expects that the reverse stock split will result in a nearly proportional increase in the
price of our common stock, the effect of the reverse stock split cannot be predicted with
certainty. Other factors, such as our financial results, market conditions and the market
perception of our business and prospects may adversely affect the stock price. Also, a reverse
stock split often sends a negative signal to the market regarding our prospects that may cause the
stock price not to increase proportionately or at all. As a result, there can be no assurance that
the stock price will increase following the reverse stock split or that the stock price will not
decrease in the future, and the Corporations total market capitalization following the reverse
stock split may in fact be lower than before the reverse stock split.
The reverse stock split may decrease the trading market for our common stock. Because the
reverse stock split will reduce the number of shares of common stock available in the public
market, the trading market for our common stock may become less liquid even if it remains listed on
the NASDAQ, particularly if the stock price does not increase as a result of the reverse stock
split.
The reverse stock split may leave certain shareholders with odd lots. The reverse stock
split may result in some shareholders owning odd lots of fewer than 100 shares of the common
stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of
transactions in odd lots are generally somewhat higher than the costs of transactions in round
lots of even multiples of 100 shares.
59
Effects of the Reverse Stock Split
General. If the reverse stock split is approved and implemented, the principal effects will be
to decrease the number of outstanding shares of our common stock based on the reverse stock split
ratio selected by our board of directors and to proportionately decrease the number of authorized
shares of the common stock. The reverse stock split will not affect the registration of the common
stock under the Exchange Act, meaning the Corporation will remain a registrant subject to its
reporting requirements. Proportionate voting rights and other rights of the holders of the common
stock will not be affected by the reverse stock split and all shares will remain fully paid and
nonassessable. Except for holders of 10 or fewer shares before the reverse stock split who are
cashed out as a result of holding fractional shares and the adjustments that result from the
treatment of fractional shares discussed below, the number of shareholders of record will not be
affected by the reverse stock split and each shareholder will hold the same percentage of common
stock immediately following the reverse stock split as such shareholder held immediately prior to
the reverse stock split.
Implementation of Reverse Stock Split. The reverse stock split would become effective at 5:00
p.m. on the day a certificate of amendment to our amended and restated articles of incorporation is
filed with the Michigan Department of Energy, Labor and Economic Growth. It is expected that this
filing would take place promptly following a determination by our board of directors to effect the
reverse stock split, assuming the shareholders have approved the proposed amendment. However, the
exact timing of the filing of the amendment will be determined by the board of directors based on
its evaluation as to when and if such action is in the best interests of the Corporation and its
shareholders. If the board fails to implement the reverse stock split by December 31, 2011,
further shareholder approval would be required prior to implementing any reverse stock split.
The board reserves the right, notwithstanding shareholder approval and without further action
by the shareholders, to elect not to proceed with the reverse stock split if, at any time prior to
filing the certificate of amendment, our board, in its sole discretion, determines that it is in
the best interests of the Corporation and its shareholders to abandon the reverse stock split and
related amendment. Factors that may lead the board to abandon the reverse stock split include,
among other things, an increase in the price at which our common shares trade that results in
compliance with the NASDAQ minimum bid price requirement, changes in the profile of the Corporation
and its common stock that would result in its inability to remain listed on the NASDAQ Capital
Market despite the implementation of the reverse stock split or because of its implementation,
changes in the current economic environment that would make implementation of the reverse stock
split ineffectual, and comments from our shareholders indicating their belief that implementation
of the reverse stock split would not be in the best interests of the Corporation and its
shareholders. If a determination to abandon the reverse stock split is made by the board, our
shareholders would be notified through the filing of a Current Report with the SEC on Form 8-K.
If our board determines to proceed with the reverse stock split, then upon the effectiveness
of the reverse stock split, each certificate representing shares of common stock immediately before
such effectiveness, which we refer to as Old Shares, will be deemed for all corporate purposes to
evidence ownership of post-reverse stock split shares, which we refer to as New Shares. As soon
as practicable after the effective date, shareholders will be notified that the reverse stock split
has been effected. We will retain an exchange agent for purposes of implementing the exchange of
stock certificates. Holders of Old Shares will be asked to surrender to the exchange agent
certificates representing Old Shares in exchange for certificates representing New Shares in
accordance with the procedures to be set forth in a letter of transmittal to be sent by us. No New
Shares will be issued to a shareholder until such shareholder has surrendered such shareholders
outstanding certificate(s) together with the properly
completed and executed letter of transmittal to the exchange agent. Any Old Shares submitted
for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be
exchanged for New Shares. SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT
SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO.
60
Effect on Outstanding Securities and Stock Plans. As of February 25, 2011, there were 397,138,900 shares of common stock issued and outstanding, 17,198,773 shares of
common stock available for future awards under the Stock Plan, 5,095,667 shares of common stock
subject to outstanding option and restricted stock unit awards under various plans and warrants
issued to Treasury under the CPP to purchase 17,578,125 shares of our common stock. The number of
shares outstanding, the number of shares reserved and available for issuance under the Stock Plan
and the number and exercise price of shares subject to outstanding options and restricted stock
units and warrants will be proportionately adjusted based on the reverse split ratio selected by
the board of directors if the reverse stock split is effected. For individual holders, the number
of shares subject to an outstanding award would be reduced by the reverse stock split ratio chosen
by the board and, in the case of outstanding stock options and warrants, the exercise price per
share would be increased by the same ratio, such that upon an exercise, the aggregate exercise
price payable by the holder to the Corporation would remain the same. The number of shares
issuable upon exercise of stock options will be rounded to the nearest whole share and no cash
payment will be made in respect of such rounding. The table below summarizes, for illustrative
purposes only, the effect of these adjustments.
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming Certain Exchange Ratios |
(Shares in |
|
Prior to Reverse Stock Split |
|
1-for-2 |
|
1-for-3 |
|
1-for-4 |
|
1-for-10 |
thousands) |
|
# |
|
Avg. Price |
|
# |
|
Avg. Price |
|
# |
|
Avg. Price |
|
# |
|
Avg. Price |
|
# |
|
Avg. Price |
Common Stock
Outstanding |
|
|
397,138,900 |
|
|
NA |
|
|
198,569,450 |
|
|
NA |
|
|
132,379,633 |
|
|
NA |
|
|
99,284,725 |
|
|
NA |
|
|
39,713,890 |
|
|
NA |
Stock Plan Available |
|
|
17,198,773 |
|
|
NA |
|
|
8,599,387 |
|
|
NA |
|
|
5,732,924 |
|
|
NA |
|
|
4,299,693 |
|
|
NA |
|
|
1,719,877 |
|
|
NA |
Options Outstanding |
|
|
2,015,475 |
|
|
$ |
27.58 |
|
|
|
1,007,738 |
|
|
$ |
55.16 |
|
|
|
671,825 |
|
|
$ |
82.74 |
|
|
|
503,869 |
|
|
$ |
110.32 |
|
|
|
201,548 |
|
|
$ |
275.80 |
|
Restricted Stock
Units Outstanding |
|
|
790,091 |
|
|
NA |
|
|
395,046 |
|
|
NA |
|
|
263,364 |
|
|
NA |
|
|
197,523 |
|
|
NA |
|
|
79,009 |
|
|
NA |
Warrants Outstanding |
|
|
17,578,125 |
|
|
$ |
2.56 |
|
|
|
8,789,063 |
|
|
$ |
5.12 |
|
|
|
5,859,375 |
|
|
$ |
7.68 |
|
|
|
4,394,531 |
|
|
$ |
10.24 |
|
|
|
1,757,813 |
|
|
$ |
25.60 |
|
Effect on Authorized but Unissued Shares of Common Stock. Currently, we are authorized to
issue up to a total of 1,050,000,000 shares of common stock and 5,000,000 shares of preferred
stock. Concurrently with the reverse stock split, the proposed amendment would decrease the
authorized shares of common stock by the same ratio as the reverse stock split (rounded to the
nearest whole number). For example, assuming for illustrative purposes only a 1-for-2 reverse
stock split, the number of authorized shares of common stock would be decreased to 525,000,000.
The number of authorized shares of preferred stock will not change.
Fractional Shares. The Corporation does not intend to issue fractional shares in connection
with the reverse stock split. Shareholders who would otherwise hold fractional shares because the
number of shares of common stock they hold before the reverse stock split is not evenly divisible
by the split ratio selected by the board will receive cash (without interest) in lieu of such
fractional shares in an amount equal to the product obtained by multiplying (a) the closing price
per share of the common stock as reported on the NASDAQ Capital Market as of the effective date of
the reverse stock split, by (b) the fraction of one share owned by the shareholder. Shareholders
who own their shares in certificate form will receive such cash payment in lieu of fractional shares following the surrender of their
pre-split certificates for post-split shares. The ownership of a fractional share interest will
not give the holder any voting, dividend or other rights, except to receive the above-described
cash payment. As a result of this treatment, shareholders who own less than 10 shares may cease to
be shareholders following the reverse stock split effective date. Such treatment of fractional
shares would be subject to approval by our regulatory agencies in accordance with our written
supervisory agreement and by Treasury. If such
61
treatment were not approved, the board of directors
intends to round fractional shares up to the nearest whole share for record owners. The proposed amendment to our
articles of incorporation reflects this alternative treatment.
Shareholders should be aware that, under the escheat laws of various jurisdictions, sums due
for fractional interests that are not timely claimed after the reverse stock split becomes
effective may be required to be paid to the designated agent for each such jurisdiction, unless
correspondence has been received by the Corporation or the transfer agent concerning ownership of
such funds within the time permitted in such jurisdiction. Thereafter, if applicable, shareholders
otherwise entitled to receive such funds, but who do not receive them, will have to seek to obtain
such funds directly from the state to which they were paid.
Effect on Holders of Registered Certificated Shares. Some registered shareholders hold their
shares in certificate form or a combination of certificate and book-entry form. If any of your
shares are held in certificate form, you will receive a transmittal letter from our transfer agent
as soon as practicable after the effective date of the reverse stock split. The transmittal letter
will contain instructions on how to surrender your certificate(s) representing your pre-split
shares to the transfer agent. Upon receipt of your properly completed and executed letter of
transmittal and your stock certificate(s), you will be issued the appropriate number of shares
electronically in book-entry form under the direct registration system. This means that, instead
of receiving a new stock certificate, you will receive a direct registration statement that
indicates the number of post-split shares you own in book-entry form. At any time after receipt of
your direct registration statement, you may request a stock certificate representing your
post-split ownership interest. If you are entitled to a payment in lieu of any fractional share
interest, payment will be made as described above under Fractional Shares. No new shares in
book-entry form will be issued and no payment in lieu of any fractional share interest will be made
to you until you surrender your outstanding certificate(s), together with the properly completed
and executed letter of transmittal, to the transfer agent. DO NOT SEND YOUR CERTIFICATES NOW. YOU
SHOULD SEND CERTIFICATES ONLY AFTER YOU RECEIVE A LETTER OF TRANSMITTAL FROM THE TRANSFER AGENT.
No Appraisal Rights. Under applicable Michigan law, shareholders are not entitled to
dissenters rights with respect to the reverse stock split, and we will not independently provide
shareholders with any such right.
Accounting Matters. The reserve stock split will not affect the par value of the common stock
per share, which will continue to have no par value per share. As a result, the stated capital
attributable to common stock and the additional paid-in capital account on our balance sheet will
not change due to the reverse stock split. If the reverse stock split is implemented, reported per
share net income or loss would be proportionately higher because there will be fewer shares of
common stock outstanding and all share and per share information in our financial statements will
be restated to reflect the reverse stock split for all periods presented in our future filings.
Certain Federal Income Tax Consequences of the Reverse Stock Split. The following is a
general summary of the material U.S. federal income tax consequences of the reverse stock split
that may be relevant to shareholders. This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder,
published administrative rulings and judicial decisions as of the date hereof, all of which may
change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that
may differ from those discussed below. This summary does not purport to be complete and does not
address all aspects of federal income taxation that may be relevant to shareholders in light of
their particular circumstances or to shareholders that may be subject to special tax rules,
including, without limitation: (i) shareholders subject to the alternative
62
minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers
in securities or commodities; (v) regulated investment companies or real estate investment trusts;
(vi) partnerships (or other flow-through entities for U.S. federal income tax purposes and their
partners or members); (vii) traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings; (viii) foreign shareholders or U.S. shareholders whose
functional currency is not the U.S. dollar; (ix) persons holding the common stock as a position
in a hedging transaction, straddle, conversion transaction or other risk reduction transaction;
(x) persons who acquire shares of the common stock in connection with employment or other
performance of services; (xi) dealers and other shareholders that do not own their shares of common
stock as capital assets; or (xii) U.S. expatriates. In addition, this summary does not address the
tax consequences arising under the laws of any foreign, state or local jurisdiction or U.S. federal
tax consequences other than federal income taxation. If a partnership (including any entity or
arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of the
common stock, the tax treatment of a partner in the partnership generally will depend upon the
status of the partner and the activities of the partnership. The Corporation has not sought, and
will not seek, an opinion of counsel or a ruling from the Internal Revenue Service, or IRS,
regarding the U.S. federal income tax consequences of the reverse stock split and there can be no
assurance the IRS will not challenge the statements and conclusions set forth below or that a court
would not sustain any such challenge. EACH SHAREHOLDER SHOULD CONSULT THEIR OWN TAX ADVISOR WITH
RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH SHAREHOLDER.
The reverse stock split should constitute a recapitalization for U.S. federal income tax
purposes. As a result, a shareholder generally should not recognize gain or loss upon the reverse
stock split, except with respect to cash received in lieu of a fractional share of the common
stock, as discussed below. A shareholders aggregate tax basis in the shares of the common stock
received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of
the common stock surrendered (excluding any portion of such basis that is allocated to any
fractional share of the common stock), and such shareholders holding period (i.e., acquired date)
in the shares of the common stock received should include the holding period in the shares of the
common stock surrendered. Treasury regulations promulgated under the Code provide detailed rules
for allocating the tax basis and holding period of the shares of the common stock surrendered to
the shares of the common stock received pursuant to the reverse stock split. Shareholders who
acquired their shares of common stock on different dates and at different prices should consult
their tax advisors regarding the allocation of the tax basis and holding period of such shares.
A shareholder who receives cash in lieu of a fractional share of the common stock pursuant to
the reverse stock split generally should recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the holders tax basis in the shares of the
common stock surrendered that is allocated to such fractional share of the common stock. Such
capital gain or loss should be long term capital gain or loss if the holders holding period for
the common stock surrendered exceeded one year at the effective time of the reverse stock split.
Information returns generally will be required to be filed with the IRS with respect to the
receipt of cash in lieu of a fractional share of the common stock pursuant to the reverse stock
split. In addition, shareholders may be subject to a backup withholding tax (at the current
applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer
identification numbers in the manner required or otherwise fail to comply with applicable backup
withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or allowed as a credit against the shareholders
federal income tax liability, if any, provided the required information is timely furnished to the
IRS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
63
PROPOSAL 4 APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
General
In 2010, Ernst & Young LLP, or E&Y, performed audit and audit related services for us, which
included examination of our consolidated financial statements, and consultation with us and our
subsidiaries on accounting and reporting matters. The audit committee has appointed E&Y as
independent auditors for 2011, subject to ratification by the shareholders. Although neither our
organizational documents nor Michigan law require the shareholders to ratify the appointment of our
independent auditors, the board has determined to seek shareholder ratification of the appointment
of our independent auditors as part of its corporate governance practices. Accordingly, a
resolution will be presented at the meeting to ratify their appointment. The affirmative vote of
the holders of a majority of the shares of our common stock voting in person or by proxy on this
proposal is required for approval. Abstentions and broker non-votes, if any, will be disregarded
for purposes of determining the number of votes on this proposal. If the shareholders do not
ratify the appointment of E&Y, then the audit committee will reconsider the selection of the
independent registered public accounting firm and may select a different firm. However, even if
the appointment of E&Y is ratified, the audit committee, in its discretion, may direct the
appointment of a different independent registered public accounting firm at any time during the
year if the audit committee determines that such a change would be in our shareholders best
interests.
Representatives of E&Y will attend the annual meeting, will have an opportunity to make a
statement and will be available to answer any questions by shareholders.
Fees
Audit Fees. E&Y billed us a total of $1,103,844 and $1,311,391 during 2010 and 2009,
respectively, for professional services in connection with the audit of our annual financial
statements and the review of the quarterly financial statements during each such year. The amounts
shown for 2010 and 2009 include fees relating to the audit of our internal controls over financial
reporting.
Audit Related Fees. In 2010 and 2009, E&Y billed us a total of $60,000 each year for
assurance and related services that were related to the performance of the audit and review of the
financial statements, including audits of our benefit plans.
Tax Fees. E&Y did not bill us for tax compliance, tax advice and tax planning services in
2010 and 2009.
All Other Fees. In 2010 and 2009, E&Y billed us a total of $1,995 each year for other
services rendered during 2010 and 2009. These fees related primarily to E&Ys online accounting
research tool.
Our audit committee charter provides that the audit committee of the board of directors shall approve in
advance all audit services and permissible non-audit services provided by our independent auditors.
The audit committee preapproved all of the services performed by E&Y in 2010.
The audit committee does not consider the provision of the services described above by E&Y to
be incompatible with the maintenance of E&Ys independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF OUR
INDEPENDENT AUDITORS.
64
OTHER MATTERS
The board of directors is not aware of any other matters that may come before the
meeting. However, should any such matters properly come before the meeting, it is the intention of
the persons named in the accompanying proxy to vote in accordance with their judgment on such
matters.
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CITIZENS REPUBLIC BANCORP, INC.
Thomas W. Gallagher
Executive Vice President,
General Counsel and Secretary
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Flint,
Michigan
________________, 2011
65
ANNEX A
Form of
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Citizens Republic Bancorp, Inc.
2. The identification number assigned by the Bureau is: 031-208
3. Effective at 5:00 p.m. on the date of filing of this Certificate of Amendment with the
State of Michigan (the Effective Time), Article III of the Articles of Incorporation is hereby
amended so that the initial section (excluding the certificates of designations) reads as follows:
The total authorized capital stock is:
Common shares [ ] No Par Value [the current number of authorized common shares will be
reduced by the reverse stock split ratio determined by the Board of Directors and included in place of the brackets.]
Preferred shares 5,000,000 No Par Value
4. The following language is hereby added to the end of Article III of the Articles of
Incorporation (before the certificates of designations):
Effective at the Effective Time, every [two] [three] [four] [five] [six] [seven] [eight]
[nine] [ten] outstanding shares of Common Stock will be combined into and automatically become one
fully paid and nonassessable share of outstanding Common Stock of the Corporation (the Reverse
Stock Split).
No fractional shares shall be issued in connection with the Reverse Stock Split. All shares
that are held by a shareholder as of the effectiveness hereof shall be aggregated and each
fractional share resulting from the Reverse Stock Split after giving effect to such aggregation
shall be cancelled. Shareholders who otherwise would be entitled to receive fractional shares of
Common Stock shall be entitled to receive cash (without interest or deduction) in lieu of such
fractional share interests upon the submission of a transmission letter by a shareholder holding
the shares in book-entry form and, where shares are held in certificated form, upon the surrender
of the shareholders Old Certificates (as defined below), in an amount equal to the product
obtained by multiplying (a) the closing price per share of the Common Stock as reported on the
NASDAQ Capital Market as of the date of the Effective Time, by (b) the fraction of one share owned
by the shareholder. Each certificate that immediately prior to the Effective Time represented
shares of Common Stock (Old Certificate), shall thereafter represent that number of shares of
Common Stock into which the shares of Common Stock represented by the Old Certificate shall have
been combined pursuant to the Reverse Stock Split, subject to the elimination of fractional share
interests as described above. [If the foregoing treatment of fractional shares is not approved by
applicable regulatory agencies and by the U.S. Treasury to the extent required under existing
contractual obligations, the foregoing discussion would be modified as follows: No fractional
shares shall be issued in connection with the Reverse Stock Split. Shareholders of record who
otherwise would be entitled to receive a fractional share of Common Stock shall be entitled to
receive an additional fraction of a share of Common Stock to round up to the next whole share.
Each certificate that immediately prior to the Effective Time represented shares of Common Stock
(Old Certificate), shall thereafter represent that number of shares of Common Stock into which
the shares of Common Stock represented by the Old Certificate shall have been combined pursuant to
the Reverse Stock Split, including any additional share resulting from the foregoing treatment of
fractional shares.]
5. The foregoing amendment to the Articles of Incorporation proposed by the board was duly
adopted on the _____ day of _______________, 2011, by the shareholders at the annual meeting of
shareholders, where the necessary votes were cast in favor of the amendment.
Signed this ____ day of _______________, 2011
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By: |
/s/ Thomas W. Gallagher
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Thomas W. Gallagher |
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Executive Vice President,
General Counsel and Secretary |
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66
*** Exercise Your Right to Vote ***
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on <mtgdate>.
Meeting Information
Meeting Type: <mtgtype>
For holders as of: <recdate>
Date: Time: <mtgtime>
Location:
0000090087_1 R1.0.0.11699
CITIZENS REPUBLIC BANCORP, INC.
CITIZENS REPUBLIC BANCORP, INC.
328 S. SAGINAW STREET, MC-0-1055
FLINT, MI 48502-2401
ATTN: KRISTINE BRENNER
Annual Meeting
March 21, 2011
May 18, 2011
May 18, 2011 10:00 AM EDT
Riverfront Banquet Center
1 Riverfront Center West
Flint, Michigan, 48502
For Directions Call Kristine
Brenner at (810) 257-2506
You are receiving this communication because you hold
shares in the above named company.
This is not a ballot. You cannot use this notice to vote
these shares. This communication presents only an
overview of the more complete proxy materials that are
available to you on the Internet. You may view the proxy
materials online at www.proxyvote.com or easily request a
paper copy (see reverse side).
We encourage you to access and review all of the important
information contained in the proxy materials before voting. |
Before You Vote
How to Access the Proxy Materials
Proxy Materials Available to VIEW or RECEIVE:
How to View Online:
Have the information that is printed in the box marked by the arrow (located on the
following page) and visit: www.proxyvote.com.
How to Request and Receive a PAPER or E-MAIL Copy:
If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO
charge for
requesting a copy. Please choose one of the following methods to make your request:
1) BY INTERNET: www.proxyvote.com
2) BY TELEPHONE: 1-800-579-1639
3) BY E-MAIL*: sendmaterial@proxyvote.com
* If requesting materials by e-mail, please send a blank e-mail with the information that is
printed in the box marked
by the arrow (located on the following page) in the subject line.
? XXXX XXXX XXXX
? XXXX XXXX XXXX
0000090087_2 R1.0.0.11699
1. Form 10-K 2. Shareholder Letter 3. Notice & Proxy Statement
Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to
your investment
advisor. Please make the request as instructed above on or before April 13, 2011 to facilitate
timely delivery.
How To Vote
Please Choose One of the Following Voting Methods
Vote In Person: Many shareholder meetings have attendance requirements including, but not
limited to, the possession
of an attendance ticket issued by the entity holding the meeting. Please check the meeting
materials for any special
requirements for meeting attendance. At the meeting, you will need to request a ballot to vote
these shares.
Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the information that is
printed in the box
marked by the arrow available and follow the instructions.
Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include
a proxy card. |
0000090087_3 R1.0.0.11699
The Board of Directors recommends you vote
FOR the following:
1. Election of Directors
Nominees
01 Lizabeth A. Ardisana 02 George J. Butvilas 03 Robert S. Cubbin 04 Richard J. Dolinski 05 Gary J,
Hurand
06 Benjamin W. Laird 07 Stephen J. Lazaroff 08 Cathleen H. Nash 09 Kendall B. Williams 10 James L.
Wolohan
The Board of Directors recommends you vote FOR proposals 2, 3 and 4.
2 To approve a nonbinding proposal to approve the compensation of certain of our executive
officers.
3 To approve an amendment to the articles of incorporation to implement, at anytime prior to
December 31, 2011,
a reverse stock split at a ratio ranging from 1-for-2 to 1-for-10 and a decrease in the number of
authorized
shares of our common stock on a proportional basis, in each case as determined by the board of
directors, and
empowering the board of directors to abandon the reverse stock split and amendment if the board of
directors
determines that doing so would be in the best interests of the Corporation and our shareholders.
4 To ratify the selection of Ernst & Young LLP as our independent auditors for the fiscal year
ending December
31, 2011.
NOTE: Such other business as may properly come before the meeting or any adjournment thereof |
0000090087_4 R1.0.0.11699 |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
To withhold authority to vote for any
individual nominee(s), mark For All
Except and write the number(s) of the
nominee(s) on the line below.
0000090088_1 R1.0.0.11699
For Withhold For All
All All Except
The Board of Directors recommends you vote
FOR the following:
1. Election of Directors
Nominees
01 Lizabeth A. Ardisana 02 George J. Butvilas 03 Robert S. Cubbin 04 Richard J. Dolinski 05 Gary J,
Hurand
06 Benjamin W. Laird 07 Stephen J. Lazaroff 08 Cathleen H. Nash 09 Kendall B. Williams 10 James L.
Wolohan
CITIZENS REPUBLIC BANCORP, INC.
328 S. SAGINAW STREET, MC-0-1055
FLINT, MI 48502-2401 |
VOTE BY INTERNET www.proxyvote.com |
Use the Internet to transmit your voting instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an electronic voting
instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the Internet. To sign up for
electronic delivery, please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access proxy materials
electronically in future years.
VOTE BY PHONE 1-800-690-6903 |
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we
have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
The Board of Directors recommends you vote FOR proposals 2, 3 and 4. For Against Abstain
2 To approve a nonbinding proposal to approve the compensation of certain of our executive
officers.
3 To approve an amendment to the articles of incorporation to implement, at anytime prior to
December 31, 2011, a reverse stock
split at a ratio ranging from 1-for-2 to 1-for-10 and a decrease in the number of authorized shares
of our common stock on a
proportional basis, in each case as determined by the board of directors, and empowering the board
of directors to abandon
the reverse stock split and amendment if the board of directors determines that doing so would be
in the best interests of
the Corporation and our shareholders.
4 To ratify the selection of Ernst & Young LLP as our independent auditors for the fiscal year
ending December 31, 2011.
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as your name(s) appear(s) hereon. When signing as
attorney, executor, administrator, or other fiduciary, please give full
title as such. Joint owners should each sign personally. All holders must
sign. If a corporation or partnership, please sign in full corporate or
partnership name, by authorized officer.
For address change/comments, mark here.
(see reverse for instructions) Yes No
Please indicate if you plan to attend this meeting
0000090088_2 R1.0.0.11699 |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Form
10-K, Shareholder Letter, Notice & Proxy
Statement is/are available at www.proxyvote.com .
CITIZENS REPUBLIC BANCORP, INC. |
Annual Meeting of Shareholders |
This proxy is solicited by the Board of Directors |
The shareholder(s) hereby appoint(s) Lizabeth A. Ardisana and Stephen J. Lazaroff, or either of
them, as proxies, each with the power to appoint his/her substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side of this proxy, all of the shares
of Common stock of CITIZENS REPUBLIC BANCORP, INC. that the shareholder(s) is/are
entitled to vote at the Annual Meeting of Shareholder(s) to be held at 10:00 AM, EDT on May 18,
2011, at the Riverfront Banquet Center, 1 Riverfront Center West, Flint, Michigan, and any
adjournment or postponement thereof, and in their discretion upon such matters as may properly come
before the meeting including the election of any person to the board of directors
where a nominee named in the proxy statement dated April 4, 2011, is unable to serve or, for good
cause will not serve. The undersigned acknowledge(s) receipt of the Notice of Annual
Meeting of Shareholders and proxy statement dated April 4, 2011 and the 2010 Annual Report on Form
10-K, ratifies all that the proxies or either of them or their substitutes may lawfully do
or caused to be done by virtue hereof and revokes all former proxies.
This proxy, when properly executed and dated, will be voted in the manner directed herein. If no
such direction is made, this proxy will be voted in, for the election of the
nominees and for each proposal listed on the reverse side of this proxy.
(If you noted any Address Changes and/or Comments above, please mark corresponding box on the
reverse side.)
Address change/comments: |
Continued and to be signed on reverse side |