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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 [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Citizens Banking Corporation
- --------------------------------------------------------------------------------
(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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
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:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY 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.
SEC 1913 (02-02)
[CITIZENS BANKING CORPORATION LOGO]
328 S. Saginaw St.
Flint, Michigan 48502
THOMAS W. GALLAGHER
General Counsel and Secretary
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, APRIL 15, 2003
To the Shareholders of Citizens Banking Corporation:
Notice is hereby given that the annual meeting of shareholders of
Citizens Banking Corporation (the "Corporation") will be held in the
Presidential Ball Room located in the Holiday Inn, Gateway Centre, Flint,
Michigan, on Tuesday, April 15, 2003, at 10:00 a.m., local time, for the
following purposes:
(1) To elect four (4) Class II directors to serve a three (3) year term
and until their successors are duly elected and qualify; and
(2) 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. ---
Shareholders of record of the Corporation's common stock outstanding at
the close of business on February 28, 2003 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.
By Order of the Board of Directors
/s/ Thomas W. Gallagher
-----------------------
Thomas W. Gallagher
General Counsel and Secretary
Flint, Michigan
March 14, 2003
[CITIZENS BANKING CORPORATION LOGO]
Citizens Banking Corporation
328 South Saginaw Street
Flint, Michigan 48502
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation
of proxies by the board of directors of Citizens Banking Corporation (the
"Corporation") to be used at the annual meeting of shareholders of the
Corporation and any adjournments thereof. The annual meeting will be held on
April 15, 2003 at the time and place and for the purposes set forth in the
accompanying notice of annual meeting of shareholders.
This proxy statement, the proxy and the notice of annual meeting of
shareholders are first being provided to shareholders on or about March 14,
2003.
The shareholders of the common stock of the Corporation ("Common
Stock") as of the close of business on February 28, 2003 will be entitled to be
present and to vote at the meeting. Each share is entitled to one vote on each
matter to be voted upon at the meeting. On February 28, 2003, there were
43,503,508 shares of Common Stock outstanding and entitled to vote. The
Corporation has no other class of stock issued and outstanding at this time that
is entitled to vote at the meeting. The board of directors requests that you
execute and return the proxy promptly, whether or not you plan to attend the
meeting. Instead of returning signed proxy cards, shareholders of record can
vote their shares over the Internet, or by calling a specially designated
telephone number. These Internet and telephone voting procedures are designed to
authenticate shareholders' identities, allow shareholders to give their voting
instructions and confirm that shareholders' instructions have been recorded
properly. Specific instructions for shareholders of record that wish to use the
Internet or telephone voting procedures are included on the enclosed proxy card.
Shareholders who vote via the Internet or by telephone do not need to mail their
proxy cards. Any proxy or prior Internet or telephone vote may be revoked by the
person giving it at any time before the meeting by giving written notice of such
revocation to the secretary of the Corporation, 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, 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.
THE SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS PROVIDED THEREIN AND WHERE NO INSTRUCTIONS ARE
GIVEN, WILL BE VOTED IN FAVOR OF THE ELECTION OF THE CLASS II NOMINEES
IDENTIFIED HEREIN. Directors are elected by the affirmative vote of a plurality
of the votes cast at the meeting. For purposes of determining the number of
votes cast with respect to the election of directors, only those cast "for" are
included. Withheld votes are counted only for purposes of determining whether a
quorum is present at the annual meeting.
The cost of soliciting proxies will be borne by the Corporation.
Proxies will be solicited primarily by mail. The Corporation has, however,
retained the firm of Georgeson Shareholder Communications, Inc., specialists in
proxy solicitation, to solicit proxies on its behalf from brokers, bank
nominees, and other institutional holders of its stock at an anticipated cost of
$8,500 plus certain out-of-pocket expenses. Proxies may also be solicited by
directors, officers and other employees of the Corporation and its subsidiaries
personally, and by telephone, facsimile, or other means. No additional
compensation will be paid to directors, officers, or employees for any such
solicitation nor is any such solicitation expected to result in more than a
minimal cost to the Corporation. Arrangements may also be made directly by the
Corporation with banks, brokerage houses, custodians, nominees and fiduciaries
to forward solicitation material to the beneficial owners of stock held of
record by them and to obtain authorization for the execution of proxies. The
Corporation may reimburse such institutional holders for reasonable expenses
incurred by them in connection therewith.
The persons named in the proxy to represent shareholders who are
present by proxy at the meeting are Richard J. Dolinski and Lawrence O.
Erickson.
1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below includes all of the shareholders of the Corporation
known by the Corporation to beneficially own more than five percent of its
Common Stock as of February 28, 2003.
COMMON
STOCK
BENEFICIALLY
OWNED AS A
PERCENTAGE
OF
COMMON STOCK OUTSTANDING
NAME AND ADDRESS OF BENEFICIALLY INVESTMENT POWER VOTING POWER COMMON STOCK
BENEFICIAL OWNER OWNED ----------------------------------- -------------------------------------
SOLE SHARED NONE SOLE SHARED NONE
CenTra, Inc.
12225 Stephens
Warren, Michigan
48089(1/) 3,268,870 3,147,168 121,702 -0- 3,147,168 121,702 -0- 7.51%
CB Wealth
Management, N.A.
328 S. Saginaw St.
Flint, Michigan
48502(2/) 3,038,885 929,731 656,658 1,452,496 1,366,348 1,467,336 205,201 6.99%
- -------------------
(1/) The information furnished for CenTra, Inc. is based upon data which have
been supplied to the Corporation by CenTra, Inc. As set forth in the table,
CenTra, Inc. shares investment and voting power with respect to 121,702 shares.
Such powers are shared with the Manuel J. Moroun Trust under agreement dated
March 4, 1977, for the benefit of Manuel J. Moroun.
(2/) As fiduciary, CB Wealth Management, N.A., a wholly owned subsidiary of the
Corporation, will not vote the shares held by it in trusts or estates unless the
governing document requires CB Wealth Management, N.A. to exercise such power.
In this regard the 1,366,105 shares held in trust for the benefit of persons
participating in the Corporation's Section 401(k) Plan which are included in the
shared voting power column will be voted by CB Wealth Management, N.A. as
trustee in the exercise of its fiduciary discretion if the participant fails to
direct CB Wealth Management, N.A. on how to vote the shares pursuant to the
requirements of the Plan and Department of Labor regulations. Shares held in all
other trusts or estates shall not be voted unless a co-fiduciary unrelated to CB
Wealth Management, N.A. votes the shares.
2
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the
Corporation's Common Stock beneficially owned as of February 28, 2003, together
with the percentage of the outstanding shares which such ownership represents,
by (i) each director and nominee for election to the board of directors, (ii)
each executive officer and former executive officer named in the Summary
Compensation Table under "Executive Compensation" and (iii) all directors and
executive officers of the Corporation as a group. The information with respect
to directors and executive officers has been obtained from the respective
individuals and is reported in accordance with the beneficial ownership rules of
the Securities and Exchange Commission (the "Commission") under which a person
may be deemed to be the beneficial owner of a security if such person has or
shares voting power or investment power with respect to such security or has the
right to acquire such ownership within the next 60 days. Accordingly, the
amounts shown in the following table do not purport to represent beneficial
ownership for any purpose other than compliance with the Commission's reporting
requirements.
COMMON STOCK
BENEFICIALLY OWNED AS A
COMMON STOCK SOLE VOTING AND SHARED VOTING AND PERCENTAGE OF OUTSTANDING
NAME BENEFICIALLY OWNED(1/) DISPOSITIVE POWER(1/) DISPOSITIVE POWER COMMON STOCK
Edward P. Abbott 23,658 23,511 147 *
Jonathan E. Burroughs II(2/) 293,730 250,632 43,098 *
Charles D. Christy(3/) 8,300 5,000 3,300 *
Joseph P. Day 11,500 8,000 3,500 *
Richard J. Dolinski 4,500 4,500 - 0 - *
John W. Ennest 203,541 203,541 - 0 - *
Lawrence O. Erickson 453,818 7,975 445,843 1.04%
William R. Hartman(4/) 69,750 69,750 - 0 - *
Benjamin W. Laird 5,030 5,030 - 0 - *
Stephen J. Lazaroff 31,928 31,928 - 0 - *
Wayne G. Schaeffer 111,109 100,601 10,508 *
William C. Shedd 14,141 14,141 - 0 - *
James M. Van Tiflin 27,496 27,496 - 0 - *
Robert J. Vitito 323,592 217,975 105,617 *
Ada C. Washington 10,262 10,262 - 0 - *
Jack S. Werner 28,804 28,804 - 0 - *
Kendall B. Williams 12,479 12,407 72 *
James L. Wolohan(5/) 25,191 13,500 11,691 *
All directors and executive
officers as a group (24) (6/) 1,799,255 1,167,744 631,511 4.14%
* Represents holdings of less than one percent.
(1/) The directors and officers listed in the table have the right to purchase
the following number of shares pursuant to options which are exercisable
currently or become exercisable within the next 60 days: Edward P. Abbott -
6,000; Jonathan E. Burroughs - 7,500; Charles D. Christy - 0; Joseph P. Day
7,500; Richard J. Dolinski - 3,000; John W. Ennest - 120,008; Lawrence O.
Erickson - 7,500; William R. Hartman - 6,750; Benjamin W. Laird - 3,000; Stephen
J. Lazaroff - 7,500; Wayne G. Schaeffer - 100,601; William C. Shedd - 6,000;
James M. Van Tiflin - 27,429; Robert J. Vitito - 160,080; Ada C. Washington -
7,500; Jack S. Werner - 24,756; Kendall B. Williams - 7,500; James L. Wolohan -
7,500.
3
(2/) The shares shown for Mr. Burroughs include 38,050 shares held in the
Burroughs' Memorial Trust, for which Mr. Burroughs is one of five trustees. Mr.
Burroughs disclaims beneficial ownership of such shares.
(3/) The shares shown for Mr. Christy include 5,000 shares which were awarded to
him as restricted shares under the Corporation's Stock Compensation Plan in
connection with his appointment as executive vice president and chief financial
officer of the Corporation. The transfer restrictions on 1,000 of these shares
lapsed on December 3, 2002. In general, assuming his continued employment, the
transfer restrictions on the remaining 4,000 shares will lapse at the rate of
1,000 shares per year on September 3 of each of the next four years.
(4/) The shares shown for Mr. Hartman include 20,000 shares which were awarded
to him as restricted shares under the Corporation's Stock Compensation Plan in
connection with his appointment as president and chief executive officer of the
Corporation. The transfer restrictions on 4,000 of these shares lapsed on May
26, 2002 and on February 26, 2003 the transfer restrictions on an additional
4,000 of the shares lapsed. In general, assuming his continued employment, the
transfer restrictions on the remaining 12,000 shares will lapse at the rate of
4,000 shares per year on February 26 of each of the next three years.
(5/) The shares shown for Mr. Wolohan include 11,691 shares held by the Wolohan
Family Foundation, of which Mr. Wolohan is a trustee. Mr. Wolohan disclaims
beneficial ownership of such shares.
(6/) The directors and executive officers disclaim beneficial ownership of
49,741 of these shares. See also notes 2 and 5.
4
ELECTION OF DIRECTORS
In accordance with the Corporation's restated articles of
incorporation, the board of directors is divided into three classes. Each year,
on a rotating basis, the terms of office of the directors in one of the three
classes will expire. Successors to the class of directors whose terms have
expired will be elected for a three-year term. The directors whose terms expire
at the 2003 annual meeting of shareholders ("Class II directors") are Joseph P.
Day, Benjamin W. Laird, Ada C. Washington, and James L. Wolohan. Four nominees
will be elected as Class II directors at the 2003 annual meeting of
shareholders. The board of directors has nominated Messrs. Day, Laird and
Wolohan and Ms. Washington for election. The term for the Class II directors
will expire at the 2006 annual meeting of shareholders or upon the election and
qualification of their successors. If any of the nominees should be unable to
serve, the proxies may be voted for the election of such other person or persons
as the board of directors may recommend or the number of directors will be
automatically reduced by the number of nominees unable to serve if no substitute
is recommended by the board of directors.
On the basis of information presently available to the board of
directors, only the four 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.
The name and age of each nominee and incumbent director, positions and
offices currently held with the Corporation and its subsidiaries, his or her
five-year business experience, and the year each became a director of the
Corporation, according to information furnished by such nominees and incumbent
directors, are set forth below.
CLASS II NOMINEES TO SERVE THREE (3) YEARS
BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, DIRECTORSHIPS
SERVED IN CERTAIN CORPORATIONS, AND
CONTINUOUSLY AS PRINCIPAL OCCUPATION IF OTHER
POSITIONS AND OFFICES WITH A DIRECTOR OF THAN CURRENT POSITION WITH
AGE CORPORATION AND ITS SUBSIDIARIES CORPORATION CORPORATION AND ITS SUBSIDIARIES
NAME
Joseph P. Day 63 Director of Corporation and 1992 President, Banner Engineering &
Director of Citizens Bank. Sales, Inc., a combustion engineering
and manufacturing firm.
Benjamin W. Laird 53 Director of Corporation and 2001 Attorney, Godfrey & Kahn, S.C.
Director of Citizens Bank.
Ada C. Washington 52 Director of Corporation; 1997 Community volunteer.
Director of Citizens Bank; and
Director of CB Wealth
Management, N.A.
James L. Wolohan 51 Director of Corporation; 1997 Chairman, President and Chief
Director of Citizens Bank; and Executive Officer of Wolohan Lumber
Director of CB Wealth Co., a retailer of lumber, building
Management, N.A. materials and home improvement
products.
5
CLASS III CONTINUING DIRECTORS - TERM EXPIRING IN 2004
BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, DIRECTORSHIPS
SERVED IN CERTAIN CORPORATIONS, AND
CONTINUOUSLY AS PRINCIPAL OCCUPATION IF OTHER
POSITIONS AND OFFICES WITH A DIRECTOR OF THAN CURRENT POSITION WITH
NAME AGE CORPORATION AND ITS SUBSIDIARIES CORPORATION CORPORATION AND ITS SUBSIDIARIES
Richard J. Dolinski 62 Director of Corporation and 2001 President and Chief Executive
Director of Citizens Bank. Officer, Dolinski Associates, Inc., a
management consulting firm.
William R. Hartman 54 Chairman, President and Chief 2002 Chairman of Corporation from January
Executive Officer of 2003 to present. President and Chief
Corporation and of Citizens Executive Officer of Corporation and
Bank; and Chairman of CB Wealth Chairman, President and Chief
Management, N.A. Executive Officer of Citizens Bank
from February 2002 to present.
Chairman of CB Wealth Management,
N.A. from June 2002 to present.
Chairman, President and Chief
Executive Officer, Bank One,
N.A.-Ohio and Kentucky from May 2000
to February 2002. Chairman,
President and Chief Executive
Officer, Bank One, Kentucky, N.A.
from January 1997 to May 2000.
Stephen J. Lazaroff 49 Director of Corporation and 1997 President, Diversified Precision
Director of Citizens Bank. Products, Inc., a special cutting
tool manufacturer serving the
automotive and hydraulic fittings
industries.
William C. Shedd 63 Director of Corporation and 1982 Member of the law firm Shedd, Fraiser
Director of Citizens Bank. & Grossman, PLLC from November 2001
to present. Of counsel to the law firm of
Winegarden, Shedd, Haley, Lindholm &
Robertson, PLC from December 1999 to
November 2001. Previously an attorney and
partner with such firm.
Kendall B. Williams 50 Director of Corporation and 1992 Attorney and Counselor,
Director of Citizens Bank. The Williams Firm, P.C.
6
CLASS I CONTINUING DIRECTORS - TERM EXPIRING IN 2005
BUSINESS EXPERIENCE DURING THE
PAST FIVE YEARS, DIRECTORSHIPS
SERVED IN CERTAIN CORPORATIONS, AND
CONTINUOUSLY AS PRINCIPAL OCCUPATION IF OTHER
POSITIONS AND OFFICES WITH A DIRECTOR OF THAN CURRENT POSITION WITH
NAME AGE CORPORATION AND ITS SUBSIDIARIES CORPORATION CORPORATION AND ITS SUBSIDIARIES
Edward P. Abbott 63 Director of Corporation and 1982 President and Chief Executive
Director of Citizens Bank. Officer, Abbott's Meat, Inc., a
wholesale and retail meat
distributor.
Jonathan E. 60 Director of Corporation and 1986 President, JEB Enterprises, an
Burroughs II Director of Citizens Bank. investment consulting firm.
Lawrence O. Erickson 67 Director of Corporation and 1993 Chief Executive Officer, Four-Way
Director of Citizens Bank. Tool & Die, Inc., an engineering
consulting firm for metal stamping
fabrication and tool manufacturing.
7
MEETINGS OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 2002, seven meetings of the board of directors of the
Corporation were held. During such period, all incumbent directors attended at
least 75% of the aggregate of the number of meetings of the board of directors
and the number of meetings held by the committees on which they serve.
The Corporation has several committees on which members of the board of
directors serve, including a compensation and human resources committee, a
corporate governance and nominating committee, and an audit committee. The audit
committee meets quarterly and on call when needed, and the compensation and
human resources committee and the corporate governance and nominating committee
meet on call.
The COMPENSATION AND HUMAN RESOURCES COMMITTEE met six times during
2002 and is currently comprised of the following directors: Kendall B. Williams,
chairman; Lawrence O. Erickson; Stephen J. Lazaroff; and James L. Wolohan. The
responsibilities of the committee include approval of all aspects of corporate
executive compensation and administration of the Corporation's compensation and
benefits plans.
The CORPORATE GOVERNANCE AND NOMINATING COMMITTEE met one time during
2002 and is currently comprised of the following directors: James L. Wolohan,
chairman; Jonathan E. Burroughs II; Lawrence O. Erickson; Benjamin W. Laird;
Stephen J. Lazaroff; and Ada C. Washington. 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 the Corporation's 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 the Corporation's proxy
statement for election by the shareholders at the annual meetings; to consider
director nominees proposed by shareholders; and to handle such other matters as
may be properly delegated to the committee by the board of directors.
Shareholders proposing director nominees at any annual meeting of shareholders
must provide written notice of such intention, along with certain information
regarding the proponent and the nominees as provided in the bylaws, to the
secretary of the Corporation at least 90 days prior to an annual shareholders
meeting for which such nominations are proposed. If the annual meeting date has
been advanced to a date earlier than the last Thursday in January then notice of
such 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 AUDIT COMMITTEE met eight times during 2002 and is currently
comprised of the following directors: Edward P. Abbott, chairman; Joseph P. Day;
Richard J. Dolinski; Benjamin W. Laird; and William C. Shedd. The
responsibilities of the committee are primarily to oversee the Corporation's
financial reporting process, and also include oversight of the internal
accounting controls for and internal audit function of the Corporation and its
subsidiaries; recommending to the board of directors the independent auditors to
be retained to conduct the annual audit of the Corporation; reviewing the annual
audit plan with the independent auditors and the internal auditors; oversight of
the Corporation's legal, compliance, and ethics policies; and reviewing the
results of the internal and independent audits of the Corporation.
8
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter adopted by the board of
directors, the audit committee of the board of directors (the "Audit Committee")
assists the board of directors in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Corporation. Each Audit Committee member is "independent," as
defined in Rule 4200(a)(14) of the National Association of Securities Dealers'
Listing Standards.
The Audit Committee received and reviewed a statement from the
independent auditors describing all relationships between the auditors and the
Corporation that might bear on the auditors' independence, as required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," discussed with the auditors any relationships that may impact
their objectivity and independence and satisfied itself as to the auditors'
independence.
The Audit Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees," and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed and discussed the audited financial
statements of the Corporation as of and for the year ended December 31, 2002
with management and the independent auditors.
Based on the above-mentioned review and discussions with management and
the independent auditors, the Audit Committee recommended to the board of
directors that the Corporation's audited financial statements be included in its
Annual Report on Form 10-K for the year ended December 31, 2002 for filing with
the Securities and Exchange Commission. The Audit Committee also recommended the
reappointment of the independent auditors.
The Audit Committee of the Board of Directors:
Edward P. Abbott, Chairman
Joseph P. Day
Richard J. Dolinski
Benjamin W. Laird
William C. Shedd
COMPENSATION OF DIRECTORS
During 2002, directors of the Corporation were paid an annual retainer
of $14,500 plus the sum of $1,000 for attendance at each meeting of the board of
directors. Non-officer directors were paid $600 for each committee meeting
attended with the exception of the committee chairpersons who were paid $1,000.
Committee members who are also employees of the Corporation do not receive fees
for committee meeting attendance. In addition, each nonemployee director serving
on the board of directors immediately following last year's annual meeting of
shareholders received, pursuant to the Stock Compensation Plan, a grant of a
non-qualified stock option to purchase 1,500 shares of Common Stock at an
exercise price of $33.41, which was the fair market value per share of Common
Stock on the date of last year's annual meeting of shareholders. Each such
option becomes exercisable six months following the grant date and expires five
years after grant.
9
EXECUTIVE OFFICERS
The following information is provided for those officers currently
designated as executive officers by the Corporation's board of directors and
includes the president, chief financial officer, controller, and secretary of
the Corporation, officers of the Corporation who are in charge of principal
business units, divisions or functions, and officers of the Corporation or its
subsidiaries who perform significant policy making functions for the
Corporation.
YEAR BECAME
EXECUTIVE OFFICER OF
NAME AGE FIVE-YEAR BUSINESS EXPERIENCE THE CORPORATION
Marilyn K. Allor 57 Senior Vice President and Director of Human 2002
Resources of Corporation and of
Citizens Bank (June 1996 to present).
Daniel E. Bekemeier 46 Senior Vice President, Controller and Chief 1996
Accounting Officer of Corporation (April 2001 to
present); Senior Vice President and Controller
of Citizens Bank (April 1995 to present);
Treasurer and Manager of Citizens Bank Consumer
Finance, LLC (September 2000 to present);
Treasurer and Manager of Citizens Bank Mortgage
Company, LLC and its predecessor (October 1997
to present).
Charles D. Christy 45 Executive Vice President and Chief Financial 2002
Officer of Corporation and of Citizens Bank
(September 2002 to present); Director of
Strategy and Acquisitions-Investment Management
Group, Bank One Corporation (January 2002 to
August 2002); Treasurer-Retail Line of Business,
Bank One Corporation (January 2000 to January
2002); Executive Vice President and Chief
Financial Officer-Consumer Financial Services
Division, Bank One Corporation (March 1997 to
January 2000).
Roy A. Eon 51 Executive Vice President and Manager of 2002
Operations and Technology of Corporation and of
Citizens Bank (August 2002 to present); Manager
of Operations and Technology, First Merchants
Corporation (November 2001 to August 2002);
Operations Manager, One Valley Bank Corporation
(December 1999 to November 2001); National
Deposit Operations Manager, Bank One Corporation
(January 1997 to December 1999).
10
YEAR BECAME
EXECUTIVE OFFICER OF
NAME AGE FIVE-YEAR BUSINESS EXPERIENCE THE CORPORATION
Thomas W. Gallagher 50 General Counsel of Corporation (August 1988 to 1989
present); Secretary of Corporation (January 1989
to present); General Counsel and Secretary of
Citizens Bank (August 1988 to present);
Secretary and Manager of Citizens Bank Consumer
Finance, LLC (September 2000 to present);
Secretary and Manager of Citizens Bank Mortgage
Company, LLC (October 1997 to present).
William R. Hartman 54 Chairman of Corporation (January 2003 to 2002
present); President and Chief Executive Officer
of Corporation and Chairman, President and Chief
Executive Officer of Citizens Bank (February
2002 to present); Chairman, CB Wealth
Management, N.A. (June 2002 to present);
Chairman, President and Chief Executive Officer,
Bank One, N.A.-Ohio and Kentucky (May 2000 to
February 2002); Chairman, President and Chief
Executive Officer, Bank One, Kentucky, N.A.
(January 1997 to May, 2000).
Richard J. Mitsdarfer 54 Senior Vice President and General Auditor of 2002
Corporation (August 1990 to present);
Senior Vice President and General
Auditor of Citizens Bank (July 1987 to
present).
Wayne G. Schaeffer 56 Executive Vice President of Corporation 1987
(December 1993 to present); Executive Vice
President-Consumer Banking of Citizens Bank
(June 2002 to present); President-South East
Region of Citizens Bank (June 1996 to June
2002); President and Manager of Citizens Bank
Consumer Finance, LLC (September 2000 to
present).
John D. Schwab 58 Executive Vice President and Chief Credit 2002
Officer of Corporation and of Citizens Bank
(November 2002 to present); Senior Vice
President and Senior Credit Officer of Bank One
Corporation (November 1998 to July 2002); Senior
Vice President and Chief Credit Officer of
Regional Bank, First Chicago NBD (July 1997 to
November 1998).
11
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Corporation and its subsidiaries, to or on
behalf of the Corporation's Chief Executive Officer, each of the four other most
highly compensated executive officers who were serving as such at December 31,
2002 and the former chief executive officer and one other former executive
officer of the Corporation (such current and former officers are referred to as
the "Named Officers") for each of the last three calendar years:
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL ANNUAL COMPENSATION LONG TERM
POSITION COMPENSATION
---------------------------------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
SALARY ($) BONUS ($) COMPENSATION STOCK UNDERLYING COMPENSATION(1/)
YEAR OPTIONS/ ($)
SARS(#)
- -------------------------------------------------------------------------------------------------------------------------------
William R. Hartman 2002 442,211 20,000(3/) 72,420(4/) 27,862(5/) 225,000 61,575
Chairman, President and
Chief Executive Officer(2/)
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
Wayne G. Schaeffer 2002 227,832 - 0 - 20,000 9,916
Executive Vice President 2001 200,707 65,516 27,400 8,651
2000 187,078 14,413 30,000 8,253
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
James M. Van Tiflin 2002 214,550 - 0 - 18,000 9,455
Executive Vice President 2001 192,621 72,068 22,100 8,267
2000 172,937 12,436 26,000 8,214
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
Charles D. Christy 2002 83,000 130,000(6/) 94,863(7/) 5,000(8/) 85,000 131,499
Executive Vice President
and Chief Financial Officer(2/)
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
Jack S. Werner 2002 197,785 - 0 - 16,000 10,396
Executive Vice President 2001 178,423 66,952 19,400 8,841
2000 160,950 11,663 20,000 8,841
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
Robert J. Vitito 2002 550,000 - 0 - 50,000 33,807
Former Chairman, President 2001 516,950 264,532 116,000 32,180
and Chief Executive Officer(9/) 2000 489,999 52,376 114,000 32,580
- ------------------------------- ------- ------------ ----------- ---------------- ------------- ------------- -----------------
John W. Ennest 2002 262,470 - 0 - 20,000 318,469
Former Vice Chairman and 2001 288,765 88,597 33,700 32,180
Chief Financial Officer(10/) 2000 281,036 19,491 32,000 32,580
- -------------------------------------------------------------------------------------------------------------------------------
(1/) The amounts set forth in the "All Other Compensation" column for 2002
represent: (i) matching contributions on behalf of each of the Named Officers to
the Corporation's Section 401(k) Plan in the amount of $9,000, except for
Messrs. Hartman and Christy whose matching contributions were $2,877 and 0
respectively; (ii) insurance payments with respect to term life insurance as
follows: Mr. Hartman $2,155, Mr. Schaeffer $916, Mr. Van Tiflin $455, Mr.
Christy $260, Mr. Werner $1,396, Mr. Vitito $4,307 and Mr. Ennest $3,676; (iii)
director fees in the amount of $19,500 paid to Mr. Hartman and $20,500 paid to
each of Messrs. Vitito and Ennest for services as a director of the Corporation;
(iv) relocation assistance for each of Messrs. Hartman and Christy in the
amounts of $37,043 and $131,239 respectively; and (v) severance payments paid to
Mr. Ennest in the amount of $285,293 (see note 10 below).
12
(2/) Mr. Hartman was hired by the Corporation in February 2002 and Mr. Christy
was hired in September 2002.
(3/) Represents a relocation bonus paid to Mr. Hartman as required by his
employment agreement upon relocating his residence near the Corporation's
headquarters to reimburse him for legal and other professional expenses incurred
by him in connection with his acceptance of the position of president and chief
executive officer of the Corporation.
(4/) The amount in the table represents (i) a country club initiation fee and
annual dues of $44,900, (ii) an automobile allowance and related expenses of
$17,028 incurred in connection with the discontinuation of the Corporation's
automobile program, and (iii) a tax gross up of $10,492 associated with
relocation benefits paid.
(5/) The shares shown for Mr. Hartman include 20,000 shares which were awarded
to him as restricted shares under the Corporation's Stock Compensation Plan in
connection with his appointment as president and chief executive officer of the
Corporation. The transfer restrictions on 4,000 of these shares lapsed on May
26, 2002 and on February 26, 2003 the transfer restrictions on an additional
4,000 of the shares lapsed. In general, assuming his continued employment, the
transfer restrictions on the remaining 12,000 shares will lapse at the rate of
4,000 shares per year on February 26 of each of the next three years. In
addition, Mr. Hartman voluntarily relinquished his right to receive a guaranteed
cash bonus in the amount of $200,000 pursuant to the provisions of his
employment agreement. In lieu of the bonus, Mr. Hartman received a grant of
7,862 shares of Common Stock (which had a fair market value of $200,000 on the
date of grant). The Common Stock is not permitted to be sold as long as he
remains employed by the Corporation. Of the 27,862 restricted shares shown for
Mr. Hartman, 7,862 represent the converted bonus amount. At December 31, 2002,
Mr. Hartman held 23,862 shares of restricted stock of the Corporation. Such
shares are valued at $588,794 as of such date based on the average of the high
and low trading prices as quoted on the Nasdaq National Market. Mr. Hartman is
entitled to vote the restricted stock and to receive dividends thereon.
(6/) Represents a signing bonus paid to Mr. Christy in connection with his
hiring and relocation to Michigan.
(7/) The amount in the table represents (i) a country club initiation fee of
$42,500 and (ii) a tax gross up of $52,363 associated with relocation benefits
paid.
(8/) The shares shown for Mr. Christy were awarded to him as restricted shares
under the Corporation's Stock Compensation Plan in connection with his
appointment as executive vice president and chief financial officer of the
Corporation. The transfer restrictions on 1,000 of these shares lapsed on
December 3, 2002. In general, assuming his continued employment, the transfer
restrictions on the remaining 4,000 shares will lapse at the rate of 1,000
shares per year on September 3 of each of the next four years. At December 31,
2002, Mr. Christy held 4,000 shares of restricted stock of the Corporation. Such
shares are valued at $98,700 as of such date based on the average of the high
and low trading prices as quoted on the Nasdaq National Market. Mr. Christy is
entitled to vote the restricted stock and to receive dividends thereon.
(9/) Effective January 16, 2003, Mr. Vitito retired as chairman of the
Corporation and, in connection therewith has also resigned his position as a
member of the board of directors. Mr. Vitito, however, remains as an employee of
the Corporation working on a part-time basis with an annual salary of $12,000.
(10/), Mr. Ennest discontinued his employment with the Corporation on November
1, 2002 pursuant to a mutually agreed upon arrangement entered into on June 20,
2002. Pursuant to such arrangement, Mr. Ennest is entitled to receive a total of
$285,293, which was paid in a lump sum on November 27, 2002. In addition to such
lump sum payment, Mr. Ennest is entitled to continued medical and dental
insurance coverages for himself and his qualifying dependents until November 1,
2003, and professional outplacement assistance.
13
STOCK OPTION GRANTS
The following table contains information concerning the grant of stock
options under the Corporation's Stock Compensation Plan to the Named Officers
during 2002.
- ------------------------------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1/)
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ POTENTIAL REALIZABLE
UNDERLYING SARS VALUE AT ASSUMED ANNUAL
OPTIONS GRANTED TO EXERCISE OR RATE OF STOCK PRICE
/SARS EMPLOYEES IN BASE PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE OPTION TERM(2/)
---------------------------
5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------
W.R. Hartman 225,000 25.43% 31.99 2/25/12 4,526,626 11,471,360
W.G. Schaeffer 20,000 2.26% 33.41 5/17/12 420,227 1,064,939
J.M. Van Tiflin 18,000 2.03% 33.41 5/17/12 378,205 958,445
C.D. Christy 85,000 9.61% 25.81 9/3/12 1,379,700 3,496,432
J.S. Werner 16,000 1.81% 33.41 5/17/12 336,182 851,951
R.J. Vitito 50,000 5.65% 33.41 5/17/07 461,528 1,019,857
J.W. Ennest 20,000 2.26% 33.41 5/17/12 420,227 1,064,939
- ------------------------------------------------------------------------------------------------------------------
(1/) These stock options are nonqualified stock options and except for those
granted to Messrs. Hartman and Christy were granted on May 17, 2002 pursuant to
the Corporation's Stock Compensation Plan. The stock options granted to Mr.
Hartman were granted on February 25, 2002 in connection with his appointment as
president and chief executive officer of the Corporation and the options granted
to Mr. Christy were granted on September 3, 2002 in connection with his
appointment as executive vice president and chief financial officer of the
Corporation. All of the options granted are exercisable in whole or in part
during the term thereof once vested. Generally, such options will become 100%
vested after 5 years from the date of grant, but may vest earlier on a graduated
basis in accordance with a pre-determined option vesting schedule. Such vesting
schedule is based upon a rolling four quarter diluted earnings per share ("EPS")
target for the Corporation (excluding extraordinary gains and losses). With
respect to all options except for those granted to Messrs. Hartman and Vitito, a
minimum vesting of 2% will occur upon the Corporation's achieving EPS of $2.28
and 100% vesting will occur upon the Corporation's achieving EPS of $2.86. With
respect to the options granted to Mr. Hartman, a minimum vesting of 2% will
occur upon the Corporation's achieving EPS of $2.26 and 100% will occur upon the
Corporation's achieving EPS of $2.83. The options granted to Mr. Vitito became
fully vested on November 17, 2002. In the event of a change in control of the
Corporation, the options granted to all Named Officers will immediately become
exercisable in full.
(2/) Such "potential realizable values" represent the value of such options at
the end of their term, assuming a 5% and 10% appreciation in the price of the
Common Stock compounded annually over the term without discounting for
inflation. The actual value of such options is dependent upon actual
appreciation in the market price of the Common Stock during the term of the
options.
14
OPTION/SAR EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Officers, about the exercise of options and/or stock appreciation rights
("SARs") during the last fiscal year, and the unexercised options and SARs held
as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED ON VALUE OPTIONS/SARS AT FISCAL MONEY OPTIONS/SARS AT
NAME EXERCISE (#) REALIZED ($) YEAR END (#) FISCAL YEAR END ($)(1/)
--------------------------------- -------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- --------------- -------------- ---------------- ---------------- --------------- ---------------
W.R. Hartman - 0 - - 0 - 6,750 218,250 - 0 - - 0 -
W.G. Schaeffer - 0 - - 0 - 100,601 74,249 351,324 168,084
J.M. Van Tiflin 17,109 100,502 10,795 63,156 - 0 - 145,673
C.D. Christy - 0 - - 0 - - 0 - 85,000 - 0 - - 0 -
J.S. Werner 30,750 429,288 24,756 50,644 50,344 112,056
R.J. Vitito 127,500 1,534,102 210,080 211,920 286,961 638,719
J.W. Ennest - 0 - - 0 - 120,008 81,042 437,393 179,290
- ---------------------------------------------------------------------------------------------------------------------
(1/) The value set forth in the table was calculated by subtracting the exercise
price of the options from the closing price of the Common Stock at year end and
then multiplying the difference by the number of shares subject to such options.
PENSION PLANS
Effective January 1, 2002, the Corporation's final average pay defined
benefit pension plan was changed to a cash balance defined benefit pension plan.
Although benefits earned through December 31, 2001 under the final pay pension
plan are protected as minimum benefits and participants have a five-year window
to elect either old or new benefits, all future benefits otherwise will be
earned under the cash balance pension plan. Certain of the Named Officers also
have supplemental retirement arrangements. These programs are described below.
FINAL AVERAGE PAY PENSION PLAN. Under the old final average pay pension
plan, retirement benefits payable as a life annuity at the normal retirement age
of 65 were based on a participant's average monthly compensation and years of
service. Compensation was averaged over the 60 consecutive months of the
participant's last 120 months in which he or she received the greatest amount.
Compensation was defined as the participant's base salary, exclusive of bonuses,
overtime, and fringe benefits, but included the participant's 401(k) salary
reduction contributions. However, annual compensation over the federal tax law
limit was not considered. Benefits were not subject to offset for Social
Security or other benefits.
15
The following table shows the estimated annual pension benefits payable
to the Named Officers at normal retirement age under the final average pay
pension plan, based on remuneration that is covered under the plan, years of
service with the Corporation and its subsidiaries, and cessation of accruals as
of December 31, 2001.
PENSION PLAN TABLE
- ------------------------------------------------------------------------------------------------
YEARS OF CREDITED SERVICE
REMUNERATION
15 20 25 30 35
- --------------------- ------------- ------------- --------------- -------------- ---------------
$125,000 $29,000 $39,000 $49,000 $59,000 $69,000
150,000 36,000 48,000 60,000 72,000 84,000
175,000 43,000 57,000 71,000 86,000 100,000
200,000 50,000 66,000 83,000 99,000 116,000
- ------------------------------------------------------------------------------------------------
Covered remuneration for the Named Executives who participated in this
plan is $164,000 for Messrs. Vitito, Ennest, and Schaeffer, $162,048 for Mr. Van
Tiflin, and $143,620 for Mr. Werner. The estimated credited years of service for
each named executive are as follows: Mr. Vitito, 34; Mr. Ennest, 19; Mr.
Schaeffer, 18; Mr. Van Tiflin, 27; and Mr. Werner, 26. Messrs. Hartman and
Christy did not participate in this plan.
CASH BALANCE PENSION PLAN. As of January 1, 2002, each participant's
age 65 lifetime annuity benefit under the final average pay pension plan was
converted to a present value amount, based on stated assumptions of life
expectancy and interest rates. This amount was then increased by 5% as a special
one-time plan inception contribution, yielding each participant's January 1,
2002 opening cash balance in the cash balance pension plan, which is shown on
the plan's records as a bookkeeping account.
At the close of each subsequent year of participation in the plan, an
employee's cash balance plan account is credited with two amounts. First, there
is a credit of 4% of the participant's total compensation earned for the year.
For this purpose, compensation includes a participant's base salary, plus
bonuses, overtime and taxable fringe benefits, as well as any elective salary
reduction contribution made by the participant to the Corporation's 401(k) plan.
However, the plan does not consider annual compensation in excess of the federal
tax law limit, which was $200,000 for 2002 and will also be $200,000 for 2003.
Participants who are age 35 or older with at least 10 years of service as of
December 31, 2001 also will receive an additional annual transition credit as
follows: ages 35-39 0.5%; ages 40-44 1.5%; ages 45-49 2.5%; and ages 50 and
older 3.0%. Second, each participant's bookkeeping account as of January 1 of
each year is credited with interest at an assumed rate equal to the 30-year U.S.
Treasury bond rate in effect for November of the previous year. The rate for
November 2001 was 5.12%, which is the rate that was used for 2002; the rate for
November 2002 was 4.96%, and that rate will be used for 2003.
16
Participants in the cash balance plan are entitled to a lump sum
distribution of their accumulated bookkeeping account upon retirement or may
elect to have this balance transferred to one of various lifetime annuity
options using the plan's stated actuarial assumptions for the age at which
payments are to begin. There is no offset for Social Security or other benefits.
Estimated lump sum benefits, based on projected future earnings and interest
rates, and corresponding annual lifetime annuity amounts, payable at age 65 to
each of the Named Officers, are as follows:
- --------------------------------------------------------------------------------------------------------------------
PROJECTED LUMP SUM BALANCE PLAN ALTERNATIVE ANNUAL LIFE ANNUITY
NAME BENEFIT AT AGE 65 BENEFIT AT AGE 65
- --------------------------------------------------------------------------------------------------------------------
W.R. Hartman $124,026 $10,716
W.G. Schaeffer $601,548 $58,680
J.M. Van Tiflin $859,083 $83,124
C.D. Christy $279,125 $24,120
J.S. Werner $787,600 $76,212
R.J. Vitito $946,436 $89,772
J.W. Ennest $596,379 $52,608
- --------------------------------------------------------------------------------------------------------------------
The Corporation has an agreement with each of Messrs. Hartman, Vitito,
and Ennest providing that they will be entitled to receive a supplemental
benefit from the Corporation if the sum of their pension benefits under the
plans described above and Social Security retirement benefits at age 65 do not
equal a stated minimum amount. That amount is 60% for Mr. Hartman, 60% for Mr.
Vitito, and 50% for Mr. Ennest, of their average annual base salary and bonus
over the consecutive 36-month period in which they received the highest
compensation during their final 60 months of employment, with appropriate
percentage reductions in the event of their retirement before age 65. For
Messrs. Hartman, Vitito, and Ennest, these minimum benefits payable annually for
life at age 65 are estimated to be $450,000, $374,771 and $167,322,
respectively. If their pension and Social Security benefits exceed these
amounts, no supplemental benefits are payable.
CHANGE IN CONTROL, SEVERANCE AND EMPLOYMENT AGREEMENTS
The Corporation has change in control agreements with each of the Named
Officers, except for Messrs. Ennest and Vitito, whose agreements terminated in
November 2002 and January 2003, respectively. Each agreement provides severance
benefits to the Named Officer if there is a change in control of the Corporation
and the Named Officer's employment with the Corporation 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 thereafter. A
"change in control" of the Corporation is generally defined as 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,
a liquidation or dissolution of the Corporation, a sale of substantially all of
the assets of the Corporation, a merger, consolidation or combination in which
the shareholders of the Corporation immediately before such a transaction do not
continue to control more than 65% of the voting power of the resulting entity
or, under certain circumstances, a change in the majority of the members of the
board of directors within a two-year period. A Named Officer's employment is
deemed to have been constructively terminated following a change in control if
(i) there is a significant reduction in the scope of the Named Officer's
authority or in the extent of such Officer's powers, functions, duties or
responsibilities, (ii) there is a reduction in the Named Officer's rate of
compensation, (iii) fringe benefits are not provided to such Named Officer on a
basis commensurate with other executives of the Corporation, or (iv) there are
17
changes in the Named Officer's responsibilities which would require moving such
Officer's job location outside of lower Michigan.
Each change in control agreement continues until two years after a
change in control of the Corporation and generally provides severance benefits
of a lump-sum payment equal to three years salary and three years bonus plus
medical, dental and life insurance coverage for a period of three years.
Further, each change in control agreement provides for additional payments to
make the Named Officer whole, on an after-tax basis, for any excise tax imposed
by Section 4999 of the Code. Any Named Officer whose employment is terminated
and who thereafter receives the benefits provided under such change in control
agreement may not, for a period of twenty-four months 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 location of the Corporation or its subsidiary banks.
The employment of Mr. John W. Ennest, as executive vice president and
chief financial officer of the Corporation, was discontinued on November 1,
2002, pursuant to a mutually agreed upon arrangement. Pursuant to such
arrangement, Mr. Ennest is entitled to receive a total of $285,293, which was
paid to him in a lump sum on November 27, 2002. In addition to such lump sum
payment, Mr. Ennest is entitled to continued medical and dental insurance
coverages for himself and his qualifying dependents until November 1, 2003 and
professional outplacement assistance. In exchange for the foregoing, Mr. Ennest
has agreed to a release of all claims against the Corporation and to a two year
non-compete and non-solicitation provision.
The Corporation entered into an employment agreement with Mr. Hartman
in February 2002 in connection with his appointment as president, chief
executive officer and a director of the Corporation. The agreement provides for
a minimum base salary of $525,000, a restricted stock award of 20,000 shares, an
initial stock option award of 225,000 option shares with a subsequent guaranteed
option award for 2003 of an additional 225,000 option shares, participation in
the Corporation's management incentive plan with a minimum cash bonus for 2002
of $200,000, participant in a supplemental executive retirement plan, various
perquisites, relocation benefits (including a $20,000 relocation bonus), and
change of control protection under a change in control agreement (described
above). If Mr. Hartman's employment is terminated without cause, he is entitled
to a lump sum payment equal to three times his current base salary plus his
average annual bonus over the preceding three years, and all outstanding options
and restricted stock held by him will immediately vest. Mr. Hartman has agreed
not to compete with the Corporation during the term of the agreement or for
three years after termination. The initial term of the employment agreement
extends to February 25, 2005, and automatically extends for an additional year
beginning on the first anniversary of the date of the agreement unless either
party gives notice of non-renewal. In December 2002, the agreement was amended
to provide for the value of the guaranteed cash bonus to be paid to Mr. Hartman
in Common Stock and in January 2003 the initial term of the agreement was
extended from three years to five years.
18
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation and human resources committee (the "Compensation
Committee") of the board of directors of the Corporation presently consists of
four directors who are not employed by the Corporation and are not eligible to
participate in any of the Corporation's benefit plans other than the Stock
Compensation Plan and the Directors Deferred Compensation Plan. The following
report is submitted by the Compensation Committee.
OVERVIEW AND PHILOSOPHY. The Compensation Committee, pursuant to
authority delegated by the board of directors of the Corporation, is responsible
for determining and implementing compensation and benefit systems for executive
officers and other employees of the Corporation. The Compensation Committee
determines the annual salaries and other compensation for executive officers
based upon recommendations from the Corporation's chief executive officer, as
well as information from the Corporation's human resources department and
independent outside consultants. With respect to the compensation of the
Corporation's chief executive officer, in addition to the utilization of the
Corporation's human resources department and independent outside consultants,
the members of the board of directors also provide input and recommendations.
The Compensation Committee's determinations relating to executive compensation
are intended to:
* align the financial interests of the executive officers with
the long-term interests of the Corporation's shareholders;
* attract and retain high performing executive officers to lead
the Corporation to greater levels of profitability; and
* motivate executive officers to attain the Corporation's
performance goals by placing a significant portion of such
officers' financial reward at risk relative to achievement of
Corporate goals.
In furtherance of these objectives, the compensation package structured
for the Corporation's executive officers has three primary components: base
compensation (including salary, pension, welfare benefits and perquisites),
annual cash bonus awards, which may be made under the Management Incentive Plan
("MIP") or otherwise, for performance during the year, and long term,
stock-based compensation generally awarded under the Corporation's Stock
Compensation Plan (the "Plan"). This Plan provides for stock-based compensation
and is intended to motivate participants and promote the long-term growth and
profitable operation of the Corporation.
19
BASE COMPENSATION. Given the Compensation Committee's continuing
emphasis on performance-based long-term and short-term compensation, base
compensation for executive officers has been established by the Compensation
Committee at competitive levels based upon information available to the
Compensation Committee relating to compensation for corresponding executive
positions at similarly situated financial institutions, some of which are
included in the 50 Bank Index shown in the Shareholder Return Graph. Executive
officer salaries are evaluated by the Compensation Committee on a periodic basis
utilizing information from independent outside compensation consultants, the
Corporation's human resources department and the Corporation's chief executive
officer. Input from the members of the Corporation's board of directors is
utilized with respect to the salary of the chief executive officer. To determine
the actual base salary for each executive officer, the Compensation Committee
also takes into account individual performance, experience, and unique
contributions or needs for certain expertise required by the Corporation.
Base Compensation of Chief Executive Officer. Robert J. Vitito and
William R. Hartman both served in the capacity of chief executive officer during
2002. Mr. Hartman became employed as the president and chief executive officer
of the Corporation on February 25, 2002 and pursuant to his employment agreement
was not eligible for a merit increase during that year. His salary was
determined pursuant to negotiations between the Corporation and Mr. Hartman
prior to his hiring. In establishing Mr. Hartman's compensation, the Committee
believes that his base salary is somewhat below the median for chief executive
officers of peer banks reflected in the KBW 50 index shown in "Shareholder
Return." With respect to Mr. Vitito, the Committee reviewed his performance for
2001 in December of that year and awarded him a 6.4% merit increase effective
January 1, 2002. In support of such increase, the Compensation Committee noted
the balance sheet restructuring initiatives that had been completed under the
direction of Mr. Vitito including the selling of the credit card portfolio as
well as the F&M Bank-Minnesota franchise and the securitization of a $247
million portfolio of seasoned mortgage loans. The Compensation Committee also
noted that under Mr. Vitito's direction the majority of the Corporation's new
mortgage loan production was sold into the secondary market throughout 2001 and
the commercial loan portfolios of the F&M subsidiary banks were decreased in
size in a transition process which involved refocusing these portfolios to
target markets consistent with the Corporation's overall business strategy. The
Compensation Committee noted that Mr. Vitito's efforts to restructure the
Corporation's balance sheet during 2001 effectively reduced the Corporation's
interest rate risk and decreased its reliance on borrowed funds. Moreover, the
Compensation Committee emphasized the savings and efficiencies that will be
achieved prospectively through the Corporation's divestiture of its credit card
portfolio and its only bank in Minnesota.
BONUS COMPENSATION. All of the Corporation's executive officers
participate in the MIP. The MIP is designed to motivate participating officers
of the Corporation and its subsidiaries to achieve strategic goals; to
strengthen links between pay and performance; and to align management more
closely with the interests of shareholders. The amount of an individual's MIP
award is a function of (i) the salary midpoint for the individual's position,
(ii) the "participation rate" established by the Compensation Committee for the
individual (15% for lower level executive officers to 50% for the Chief
Executive Officer), (iii) the performance of the Corporation, and (iv) the
extent to which the individual achieved agreed-upon objectives for the year. As
a general practice under the MIP, no amounts will be awarded unless the
Corporation's earnings target for the year equals or exceeds 96.5% of the
earnings target approved by the Corporation's board of directors for that year.
At such level, awards will be made at 50% of the targeted bonus amount. Award
payouts will increase as the Corporation's earnings increase up to an amount not
to exceed 150% of the targeted bonus amount.
20
Chief Executive Officer Award. Inasmuch as the Corporation did not
achieve its profit plan target for 2002, neither Mr. Hartman nor Mr. Vitito
received a bonus under the MIP. Pursuant to the provisions of his employment
agreement, Mr. Hartman was entitled to a guaranteed cash bonus for 2002 in the
amount of $200,000. Mr. Hartman voluntarily relinquished his right to receive
this bonus in cash and in lieu thereof he received a grant of 7,862 shares of
Common Stock (which had a fair market value of $200,000 on the date of grant).
The Common Stock is not permitted to be sold as long as he remains employed by
the Corporation.
LONG-TERM STOCK-BASED COMPENSATION. The Corporation's Stock
Compensation Plan provides for a variety of different types of compensation
arrangements, such as stock options, restricted stock and stock appreciation
rights, which increase in value as the value of the Common Stock increases. The
purpose of these and similar long-term compensation arrangements is to more
closely align the financial interests of executive officers and other key
employees with the long-term interests of the Corporation's shareholders by
linking a significant portion of their compensation directly to stock price
growth or decline.
In furtherance of such purpose, the Compensation Committee generally
makes annual grants to executive officers of stock options with an exercise
price equal to the fair market value of the Common Stock on the date of grant.
Such options vest and generally become exercisable as the Corporation's EPS
increases in accordance with a vesting schedule pertaining to such option
grants. The Compensation Committee has adopted option grant guidelines to
reflect competitive practices of other similarly situated financial
institutions. These guidelines, implemented by the Compensation Committee with
the assistance of the Corporation's outside compensation consultants, employ a
modified Black-Scholes option valuation model to estimate the present value of
long-term incentive compensation for corresponding executive positions at
similarly situated and performing financial institutions. A similar analysis is
performed to determine the comparative value of an option to be awarded. Based
upon this information and other information concerning compensation practices
within the financial services industry, an appropriate participation rate is
assigned for each of the executive officers in the Plan. The option grant size
for each executive officer is then determined by dividing the product of the
position's salary mid-point and participation rate by the derived fair market
value of an option to be awarded under the Plan, subject to being increased or
decreased by the Compensation Committee based upon its evaluation of the
officer's individual performance.
Chief Executive Officer Long Term Compensation. Mr. Hartman received an
option grant in connection with his hiring and therefore did not receive an
additional grant with the other executive officers. Mr. Vitito received an
option grant of 50,000 shares during 2002. The option grant provided that the
options would be fully vested within six months and would be exercisable for a
period of five years. In making such grant the Committee took into consideration
Mr. Vitito's significant assistance in planning and implementing a smooth and
efficient transition of the president and chief executive officer
responsibilities from himself to Mr. Hartman.
21
Deductibility of Executive Compensation. Section 162(m) of the Code
restricts the deductibility of executive compensation paid to the Corporation's
Chief Executive Officer and any of the four other most highly compensated
executive officers at the end of any fiscal year to not more than $1,000,000 in
annual compensation (including gain from the exercise of certain stock option
grants). Certain performance-based compensation is exempt from this limitation
if it complies with the various conditions described in Section 162(m). The Plan
and its predecessor plans contain a restriction on the number of options that
may be granted which is intended to cause compensation realized in connection
with the exercise of options granted under the Plan and its predecessor plans to
comply with these conditions and be exempt from the Section 162(m) restriction
on deductibility.
The Compensation Committee does not believe that other components of
the Corporation's compensation program are likely to result in payments to any
executive officer in any year which would be subject to the restriction on
deductibility and has concluded that no further action with respect to
qualifying such compensation for deductibility is necessary at this time. The
Compensation Committee intends to continue to evaluate from time to time the
advisability of qualifying future executive compensation programs for exemption
from the Section 162(m) restriction on deductibility.
LAWRENCE O. ERICKSON KENDALL B. WILLIAMS
STEPHEN J. LAZAROFF JAMES L. WOLOHAN
22
SHAREHOLDER RETURN
Set forth below is a graph which summarizes the cumulative return
experienced by the Corporation's shareholders over the past five years compared
with the S&P 500 Index and the Keefe, Bruyette & Woods, Inc. 50 Bank Index. Such
presentation assumes that the value of the investment in the Corporation's
Common Stock and each index was $100 on December 31, 1997 and that all dividends
were reinvested.
Cumulative Total Returns
Five Years Ended December 31, 2002
Value At Year End
[LINE GRAPH]
- --------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
- --------------------------------------------------------------------------------------
Citizens $100 $100 $ 69 $ 94 $110 $ 86
KBW 50 $100 $108 $105 $125 $120 $112
S&P 500 $100 $129 $156 $141 $125 $ 97
- --------------------------------------------------------------------------------------
23
COMPENSATION COMMITTEE INTERLOCKS AND CERTAIN TRANSACTIONS AND RELATIONSHIPS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Messrs.
Lawrence O. Erickson, Stephen J. Lazaroff, Kendall B. Williams, and James L.
Wolohan served on the Compensation Committee throughout the last completed
fiscal year. None of these individuals are or have been employees of the
Corporation.
OTHER TRANSACTIONS WITH OFFICERS AND DIRECTORS. During 2002, the
banking subsidiaries of the Corporation 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 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Corporation's
directors, executive officers and any persons holding more than 10% of the
Common Stock (collectively, the "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, the Corporation is required to report in its proxy
statement any failure to file by these due dates. Based on certifications
received from the Reporting Persons and on copies of the reports that such
persons have filed with the Commission, all required reports of Reporting
Persons have been timely filed with the Commission for 2002, except that two
Forms 4 relating to two transactions for director Joseph P. Day, were filed late
and one Form 4 relating to one transaction for executive vice president, Jack S.
Werner was filed late.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
GENERAL
In 2002, Ernst & Young LLP ("E&Y") performed audit and audit related
services for the Corporation and its subsidiaries which included examination of
the consolidated financial statements of the Corporation, and consultation with
the Corporation and its subsidiaries on accounting and reporting matters. The
Audit Committee has recommended the appointment of E&Y as independent auditors
for 2003 and the board of directors is expected to approve the appointment of
E&Y at the board's April 2003 meeting. Representatives of E&Y will attend the
annual meeting, will have an opportunity to make a statement and will be
available to answer questions that may be asked by shareholders.
FEES
AUDIT FEES. E&Y billed the Corporation a total of $409,900 and $438,500
for professional services in connection with the audit of the financial
statements for 2002 and 2001, respectively, and review of the quarterly
financial statements during each such year.
24
AUDIT RELATED FEES. E&Y billed the Corporation a total of $92,965 and
$95,285 during 2002 and 2001, respectively, for assurance and related services
that were reasonably related to the performance of the audit and review of the
financial statements, including audits of the Corporation's benefit plans and a
report on controls relating to employee benefit plans operated through its
wholly owned subsidiary CB Wealth Management, N.A.
TAX FEES. E&Y billed the Corporation a total of $43,784 and $432,350
during 2002 and 2001, respectively, for tax compliance, tax advice and tax
planning services, including tax advice and assistance with the implementation
of state tax planning strategies.
ALL OTHER FEES. E&Y billed the Corporation a total of $893,920 and
$1,506,298 for other services rendered during 2002 and 2001, respectively,
relating primarily to the outsourcing of certain financial and credit audits.
Effective January 1, 2003, the accounting firm of Crowe Chizek & Co. LLP was
engaged by the Audit Committee of the board of directors to replace E&Y in the
performance of the outsourced internal audit function and the credit audit
function was internalized beginning in 2002.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of the Corporation to be considered for
inclusion in the proxy statement for the 2004 annual meeting must be received by
Thomas W. Gallagher, the secretary of the Corporation, by the close of business
on November 14, 2003. In addition to applicable rules of the Commission for
inclusion of shareholder proposals in the Corporation's proxy statement, the
Corporation's 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 the secretary of the Corporation, either by
personal delivery or by United States mail, postage prepaid, not later than 90
days in advance of such meeting. If the annual meeting date has been advanced to
a date earlier than the last Thursday in January, then in order to be brought
properly before the annual meeting, notice of such 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 the Corporation's bylaws. The
Corporation also expects the persons named as proxies for the 2004 annual
meeting of shareholders to use their discretionary voting authority, to the
extent permitted by law, with respect to any proposal presented at that meeting
by a shareholder who does not provide the Corporation with written notice of
such proposal during the period provided in the Corporation's bylaws.
OTHER MATTERS
The board of directors is not aware of any other matters which 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.
CITIZENS BANKING CORPORATION
/s/ Thomas W. Gallagher
-----------------------
Thomas W. Gallagher
General Counsel and Secretary
Flint, Michigan
March 14, 2003
25
[CITIZENS BANKING CORP. LOGO]
MEETING OF STOCKHOLDERS
OF CITIZENS BANKING CORPORATION
April 15, 2003
10:00 a.m.
Presidential Ballroom
Holiday Inn, Gateway Centre
Flint, Michigan
HOLDER ACCOUNT NUMBER
MAP TO ANNUAL MEETING:
HOLIDAY INN GATEWAY CENTRE
US 23/HILL ROAD
FLINT, MICHIGAN 48507
(PARK IN REAR FOR CONFERENCE CENTRE)
[MAP] -FROM NORTH: I-75 South to South U.S. 23.
Exit Hill Road (East).
-FROM EAST AND WEST: I-69 to I-75 South
to U.S. 23 South.
Exit Hill Road (East).
-FROM WEST: I-94 to U.S. 23 North.
Exit Hill Road (East).
-FROM SOUTH: I-75 North to I-475 North to
Hill Road (West).
Exit Hill Road West (left)
[CITIZENS BANKING CORP. LOGO]
HOLDER ACCOUNT NUMBER
[ ] Mark this box with an X if you have made
changes to your name or address details above.
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- ------------------------------------------------------------------------------------------------------------------------------------
A ELECTION OF DIRECTORS PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND TELEPHONE VOTING INSTRUCTIONS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED.
1. Election of Directors -- Class II (three year term):
FOR WITHHOLD
01 - Joseph P. Day [ ] [ ]
02 - Benjamin W. Laird [ ] [ ]
03 - Ada C. Washington [ ] [ ]
04 - James L. Woloham [ ] [ ]
B AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR INSTRUCTIONS TO BE EXECUTED.
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, both must sign. When signing as Attorney, Executor, Personal
Representative, Administrator, Trustee or Guardian, please give full title as
such. If signing on behalf of a corporation, please sign in full corporate name
by President or other authorized officer. If signing on behalf of a partnership,
please sign in partnership name by authorized person.
Signature 1 - Please keep signature within the box Signature 2 - Please keep signature within the box Date (dd/mm/yyyy)
__________________________________________________ __________________________________________________ ________________________
- --------------------------------------------------------------------------------
PROXY - CITIZENS BANKING CORPORATION
- --------------------------------------------------------------------------------
PROXY BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS -- APRIL 15, 2003
The undersigned shareholder of Citizens Banking Corporation (the "Corporation")
hereby appoints Richard J. Dolinski and Lawrence O. Erickson, or either of
them, my proxies or proxy, with full power of substitution to vote all shares
of stock of the Corporation that the undersigned would be entitled to vote at
the annual meeting of shareholders of the Corporation to be held in the
Presidential Ballroom located in the Holiday Inn, Gateway Centre, Flint,
Michigan, on Tuesday, April 15, 2003, at 10:00 a.m. local time, and at any
adjournments thereof upon the election of directors as set forth on the reverse
side of this proxy, all of whom are being proposed by the board of directors,
and in their discretion, upon such other 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 March 14, 2003 is unable to
serve or, for good cause, will not serve. UNLESS A CONTRARY INSTRUCTION IS
PROVIDED, THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED FOR EACH NOMINEE
NAMED ON THE REVERSE SIDE OF THIS PROXY.
For participants in the Corporation's Amended and Restated Section 401(k) Plan
("Plan"), this card also provides voting instructions to the Trustee under the
Plan for the undersigned's allowable portion, if any, of the total number of
shares of common stock of the Corporation held by such Plan as indicated on the
reverse side hereof. These voting instructions are solicited and will be
carried out in accordance with the applicable provisions of the Plan.
The undersigned acknowledges receipt of the notice of annual meeting of
shareholders and the proxy statement dated March 14, 2003 and ratifies all that
the proxies or either of them or their substitutes may lawfully do or cause to
be done by virtue hereof and revokes all former proxies.
(Continued and to be signed on reverse side.)
SEE REVERSE SIDE
INTERNET AND TELEPHONE VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy. Have this proxy card in hand when you call.
To vote using the Telephone (within the U.S. and Canada)
- Call toll free 1-866-463-1149 in the United States or Canada any time on
a touch tone telephone. There is NO CHARGE to you for the call.
- Enter the HOLDER ACCOUNT NUMBER (EXCLUDING THE LETTER "C") AND PROXY ACCESS
NUMBER located below.
- Follow the simple recorded instructions.
Option 1: To vote as the Board of Directors recommends on ALL proposals:
Press 1.
When asked, please confirm your vote by pressing 1.
Option 2: If you choose to vote on EACH proposal separately, press 0 and
follow the simple recorded instructions.
HOLDER ACCOUNT NUMBER C0123456789
To vote using the Internet
- Go to the following web site:
WWW.COMPUTERSHARE.COM/US/PROXY
- Enter the information requested on your computer screen and follow the
simple instructions.
PROXY ACCESS NUMBER 12345
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY
CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 01:00, LOCAL
TIME, ON APRIL 15, 2003. THANK YOU FOR VOTING
REMINDER
Dear Shareholder(s):
Enclosed you will find material relating to the Corporation's 2003 annual
meeting of shareholders. The notice of the annual meeting and proxy statement
describes the formal business to be transacted at the meeting, as summarized on
the attached proxy card.
Sincerely,
Ryan P. Mathews
Investor Relations Manager