SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [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 materials pursuant to Rule 14a-11(c) or Rule 14a-12.
MBT FINANCIAL CORP.
(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 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 security 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.:
______________________________________________________________________
(3) Filing Party:
______________________________________________________________________
(4) Date Filed:
______________________________________________________________________
(MBT LOGO)
MBT FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 3, 2007
TO THE SHAREHOLDERS OF MBT FINANCIAL CORP.:
The Annual Meeting of Shareholders of MBT Financial Corp will be held at
the Monroe Bank & Trust headquarters at 10 Washington Street, Monroe, Michigan
48161 on Thursday, May 3, 2007, at 10:00 a.m. (local time), for the following
purposes:
1. ELECTION OF DIRECTORS - To elect ten directors of MBT Financial Corp.;
2. To transact such other business as may properly come before the meeting or
any adjournment of it.
Only shareholders of record at the close of business on March 15, 2007 are
entitled to notice of and to vote at the Annual Meeting or any adjournment of
it.
By order of the Board of Directors,
/s/ H. Douglas Chaffin
----------------------------------------
H. Douglas Chaffin, President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT. YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED IN THIS PROXY STATEMENT.
TABLE OF CONTENTS
Introduction 1
Meeting Information 2
Ownership of Voting Shares 2
Election of Directors 4
Corporate Governance 5
Audit Committee Report 11
Principal Accounting Firm Fees 12
Compensation Discussion and Analysis 12
Compensation Committee Report on Executive Compensation 23
Additional Information Regarding Compensation 24
Director Compensation 40
Director Independence and Related Party Transactions 44
Review, Approval or Ratification of Transactions with Related Persons 46
Section 16(a) Beneficial Ownership Reporting Compliance 46
Selection of Auditors 46
Other Business 46
Delivery of Documents to Shareholders Sharing an Address 46
MBT FINANCIAL CORP.
102 EAST FRONT STREET
MONROE, MICHIGAN 48161
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 3, 2007
INTRODUCTION
This Proxy Statement is being furnished to shareholders of MBT Financial
Corp. ("MBT" or the "Corporation") in connection with the solicitation of
proxies by the Board of Directors of the Corporation to be used at the Annual
Meeting of Shareholders, and any adjournment of the meeting, to be held at the
time and place set forth in the accompanying notice ("Annual Meeting"). It is
anticipated that the mailing of this Proxy Statement and the enclosed proxy card
will commence on or about April 2, 2007.
At the Annual Meeting, shareholders of the Corporation will be asked to
elect ten directors.
VOTING AND REVOCATION OF PROXIES
If the enclosed form of proxy is properly executed and returned to the
Corporation in time to be voted at the Annual Meeting, the shares represented by
your proxy will be voted in accordance with your instructions marked on the
proxy. Where properly executed proxies are returned but no such instructions are
given, the shares will be voted "For" the election to the Board of Directors of
the persons nominated by the Board of Directors of the Corporation.
The presence of a shareholder at the Annual Meeting will not automatically
revoke such shareholder's proxy. However, shareholders may revoke a proxy at any
time prior to its exercise by filing with the Secretary of the Corporation a
written notice of revocation, by delivering to the Corporation a duly executed
proxy bearing a later date or by attending the Annual Meeting and voting in
person. Written notices of revoked proxies may be directed to James E. Morr,
Secretary, MBT Financial Corp., 102 East Front Street, Monroe, Michigan 48161.
SOLICITATION OF PROXIES
The cost of soliciting proxies in the form enclosed herewith will be borne
by the Corporation. In addition to the solicitation of proxies by mail, the
Corporation, through its directors, officers and regular employees, may also
solicit proxies personally or by telephone or telecopy without additional
compensation. The Corporation will also request persons, firms and corporations
holding shares in their names or in the name of their nominees, which are
beneficially owned by others, to send proxy material to and
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obtain proxies from the beneficial owners and will reimburse the holders
for their reasonable expenses in doing so.
MEETING INFORMATION
DATE, PLACE AND TIME
The Annual Meeting of Shareholders of the Corporation will be held on
Thursday, May 3, 2007, at 10:00 a.m., local time, at the Monroe Bank & Trust
headquarters at 10 Washington Street, Monroe, Michigan 48161.
RECORD DATE; VOTING RIGHTS
Each common share entitles its record owner to one vote on all matters at
the Annual Meeting.
The close of business on March 15, 2007 (the "Record Date") has been fixed
as the record date for the determination of shareholders entitled to vote at the
Annual Meeting. There were 1,267 record holders of the Corporation's common
shares and 16,659,904 of the Corporation's common shares outstanding as of the
Record Date.
The presence in person or by proxy of a majority of the outstanding shares
of the Corporation entitled to vote at the meeting will constitute a quorum at
the Annual Meeting. Abstentions and broker non-votes will be counted for
purposes of determining the presence of a quorum.
The ten nominees for director who receive the largest number of votes cast
"For" will be elected as directors. Shares represented at the Annual Meeting in
person or by proxy but withheld or otherwise not cast for the election of
directors will have no impact on the outcome of the election of directors.
OWNERSHIP OF VOTING SHARES
The following table sets forth the beneficial ownership of the
Corporation's common shares by each of the Corporation's directors and nominees
for election as a director and the Corporation's named executive officers, and
the directors, nominees and executive officers as a group, as of March 15, 2007.
COMMON SHARES PERCENT
NAME OF BENEFICIAL OWNER OWNED (1) OF CLASS
- ------------------------ ------------- --------
Peter H. Carlton 43,776 *
H. Douglas Chaffin 72,519(2) *
Joseph S. Daly 2,779(3) *
Thomas M. Huner 32,500(4) *
Donald M. Lieto 51,865(5) *
2
Rocque E. Lipford 51,402(6) *
William D. McIntyre, Jr. 56,099(7) *
Michael J. Miller 22,375(8) *
James E. Morr 107,690(9) *
Thomas G. Myers 38,268(10) *
Debra J. Shah 1,000 *
John L. Skibski 32,310(11) *
Philip P. Swy 9,704(12) *
Karen M. Wilson 1,000 *
All Directors, Nominees
and Executive Officers
as a Group
(15 in group) 550,007 3.3%
* Ownership is less than 1% of the class.
- ----------
(1) Except as otherwise noted, none of the named individuals shares with
another person either voting or investment power as to the shares reported.
(2) Includes 62,834 shares subject to options, which are presently exercisable.
(3) Includes 2,779 shares subject to shared voting and investment power.
(4) Includes 14,131shares which are pledged.
(5) Includes 167 shares subject to shared voting and investment power and
45,668 shares subject to options, which are presently exercisable.
(6) Includes 277 shares subject to shared voting and investment power and 3,407
shares subject to options, which are presently exercisable and 33,000
shares held in trusts for which the director, as co-trustee, has shared
voting and investment power.
(7) Includes 3,407 shares subject to options, which are presently exercisable.
(8) Includes 22,375 shares subject to shared voting and investment power.
(9) Includes 52,368 shares subject to options, which are presently exercisable.
(10) Includes 32,268 shares subject to options, which are presently exercisable.
(11) Includes 2,650 shares subject to shared voting and investment power and
23,602 shares subject to options, which are presently exercisable.
(12) Includes 5,070 shares subject to shared voting and investment power and
3,093 shares subject to options, which are presently exercisable.
As of March 15, 2007, no person was known by the Corporation to be the
beneficial owner of more than 5% of the outstanding common shares of the
Corporation, except as follows:
NAME AND ADDRESS
OF BENEFICIAL OWNER COMMON SHARES OWNED PERCENT OF CLASS
- ------------------- ------------------- ----------------
Monroe Bank & Trust
102 East Front Street
Monroe, Michigan 48161 1,945,318(1) 11.7%
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John F. Weaver
305 West Elm Avenue
Monroe, Michigan 48162 900,100 5.4%
(1) These shares are held in various fiduciary capacities in the ordinary
course of business under numerous trust relationships by Monroe Bank &
Trust. As fiduciary, Monroe Bank & Trust has sole power to dispose of
1,520,296 of these shares, shared power to dispose of 425,022 of these
shares, sole power to vote 363,215 of these shares and shared power to vote
23,862 of these shares.
ELECTION OF DIRECTORS
The number of directors of the Corporation has been fixed at ten. At the
Annual Meeting, ten directors will be elected to a one-year term, to hold office
until the annual meeting of shareholders in 2008, or until their successors
shall be duly elected.
The nominees for election at the Annual Meeting are Peter H. Carlton, H.
Douglas Chaffin, Joseph S. Daly, Thomas M. Huner, Rocque E. Lipford, William D.
McIntyre, Jr., Michael J. Miller, Debra J. Shah, Philip P. Swy, and Karen M.
Wilson, each of whom is currently a director of the Corporation.
NOMINEES
We have set forth below information about the nominees made by the
Corporation's Governance Committee for election to the Corporation's Board of
Directors.
POSITIONS AND
OFFICES HELD WITH DIRECTOR
NAME AGE PRINCIPAL OCCUPATION FOR PAST FIVE YEARS THE CORPORATION SINCE
---- --- ------------------------------------------ ----------------- --------
Peter H. Carlton 58 Member, Cooley, Hehl, Wohlgamuth & Director 2004
Carlton, PLLC, a Certified Public
Accounting firm
H. Douglas Chaffin 51 President and Chief Executive Officer President, 2004
(2004-2006); President and Chief Operating Chief Executive
Officer (2003-2004), Executive Vice Officer and
President, Senior Lending Manager (2002). a Director
Joseph S. Daly 47 President and General Counsel, Daly Director 2003
Merritt Inc., an independent insurance
agency; Manager, DM Investments, LLC doing
business as DM Company, a real estate
investment firm; and Assistant Dean,
University of Detroit Mercy School of Law
4
Thomas M. Huner 57 General Partner, Thomas M. Huner Builders, Director 2000
a home building company.
Rocque E. Lipford 68 Attorney and Salaried Senior Principal, Director 1981
Miller, Canfield, Paddock and Stone,
P.L.C.; Director, La-Z-Boy Inc.
William D. McIntyre, Jr. 71 Chairman and Chief Executive Officer Chairman of 1971
(2003-2006), President and Chief Executive the Board
Officer (2002-2003), Allegra Network, LLC, of Directors
a franchisor of printing businesses.
Michael J. Miller 58 Chief Executive Officer, Floral City Director 2000
Beverage, Inc., a wholesale beer
distributor.
Debra J. Shah 60 President, Sensational Beginnings, a Director 2006
catalog and internet retailer of
children's products.
Philip P. Swy 53 President, Michigan Tube Swagers & Director 1997
Fabricators, Inc., a hospitality table and
chair manufacturer marketing as MTS
Seating.
Karen M. Wilson 61 Chairman and Chief Executive Officer, Director 2005
Central Distributors of Beer, Inc., a
wholesale beer distributor
There were no agreements or understandings pursuant to which any of the
persons listed above was selected as a director.
The Board of Directors of MBT met seventeen times in 2006. In 2006, each
director attended at least 75% of the combined total of meetings of the Board of
Directors and meetings of each committee on which such director served.
CORPORATE GOVERNANCE
BOARD INDEPENDENCE
The Board of Directors has determined that all current Directors and
nominees have met the independence standards of Rule 4200(a)(15) of the National
Association of Securities Dealers listing standards and SEC rules, with the
exception of Mr. Chaffin, our Chief Executive Officer. The Board of Directors
took into account the transactions disclosed under the caption Director
Independence and Related Party Transactions appearing in this proxy. In making
this determination, the board has concluded that none of these members has a
relationship which, in the opinion of the board, would interfere
5
with the exercise of independent judgment in carrying out the responsibilities
of a director. Directors and nominees deemed independent by the Board of
Directors are Peter H. Carlton, Joseph S. Daly, Thomas M. Huner, Rocque E.
Lipford, William D. McIntyre, Jr., Michael J. Miller, Debra J. Shah, Philip P.
Swy, and Karen M. Wilson.
BOARD MEETINGS
During 2006, the board held a total of 17 meetings. Each director attended
at least 75% of the total number of meetings of the board and at least 75% of
the meetings of all committees on which he or she served. The Corporation's
Corporate Governance Guidelines and Directors' Policy requires that the board
conduct at least one executive session per calendar quarter at which only non
employee directors are present. Neither the Board nor the Governance Committee
has implemented a formal policy regarding director attendance at the Annual
Meeting. Typically, the Board holds its annual organizational meeting directly
following the Annual Meeting, which results in most directors being able to
attend the Annual Meeting. In 2006, all ten Directors attended the Annual
Meeting.
BOARD COMMITTEES
The board currently has, and appoints members to, three standing
committees: the audit committee, the compensation committee and governance
committee. Each member of these committees is independent as defined by
applicable NASDAQ(R) and SEC rules. Each of the committees has a written charter
approved by the board which may be found on the Corporation's website at
www.mbandt.com. The current members of the committees are identified below:
Director Audit Compensation Governance
- -------- ----------- ------------ -----------
Peter H. Carlton [X] (Chair) [X] [X]
Joseph S. Daly
Thomas M. Huner [X] (Chair) [X]
Rocque E. Lipford [X]
William D. McIntyre, Jr. [X] [X] (Chair)
Michael J. Miller [X] [X]
Debra J. Shah [X]
Philip P. Swy [X] [X]
Karen M. Wilson
Audit Committee. (Mr. Carlton, Chair, and Messrs. McIntyre, Miller, and
Swy.)
The Audit Committee met twelve times during 2006. The Audit Committee
serves in a multiple capacity as the Audit Committee of the Corporation and its
subsidiaries Monroe Bank & Trust and MBT Credit Company, Inc. The functions of
this Committee
6
include the engagement of independent auditors, reviewing with those independent
auditors the plans and results of the audit engagement of the Corporation,
approving the annual audit plan and reviewing the results of the procedures for
internal auditing, reviewing the independence of the independent auditors,
reviewing the Corporation's financial results and Securities and Exchange
Commission filings, reviewing the effectiveness of the Corporation's internal
controls and similar functions and approving all auditing and non-auditing
services performed by its independent auditors. The Board of Directors has
adopted a written charter for the Audit Committee, which may be found on the
Corporation's website at www.mbandt.com. All members of the Audit Committee are
outside directors as determined under the MBT Corporate Governance Guidelines &
Directors' Policy. In addition the Board has determined that all members meet
the independence standards of Rule 4200(a)(15), the requirements of SEC Rule
10A-3(b)(1), and the qualifications of Rule 4350(d)(2) of the National
Association of Securities Dealers listing standards. The Board of Directors has
determined that Peter H. Carlton is an audit committee financial expert and is
independent as described in the preceding sentence. The report of the Audit
Committee with respect to 2006 appears under the caption "Audit Committee
Report."
Compensation Committee. (Mr. Huner, Chair, Messrs. Carlton, Miller and Swy,
and Mrs. Shah.)
The Compensation Committee met seven times during 2006. The Compensation
Committee is responsible for the oversight and administration of the
compensation and benefit plans of the Corporation. Director and executive
officer and senior management's compensation are determined by this Committee of
the Board of Directors. All members of the compensation committee are outside
directors as required by and determined under the MBT Corporate Governance
Guidelines & Directors' Policy and the Board has determined that each member
meets the independence standards of Rule 4200(a)(15) of the National Association
of Securities Dealers. The report of the Compensation Committee with respect to
2006 compensation appears under the caption "Compensation Committee Report on
Executive Compensation."
The firm of Findley Davies, Inc. is engaged directly by the Compensation
Committee to provide consulting services to the Committee on matters relating to
the compensation of named executive officers and directors. The consultant is
engaged by the Committee to provide:
- Market pay data and related analysis;
- Timely and relevant information on industry and peer group pay
practices;
- Guidance on alternative approaches to delivering compensation to
executive officers and directors consistent with the Board's
compensation philosophies and objectives;
- Modeling of financial and compensation impact of pay plan
alternatives;
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- Current and projected values for each element of compensation
delivered to executive officers;
- Technical briefings on statutes and regulations impacting executive
compensation and related compliance;
- Support as required in preparing plan documents, agreements and
disclosures; and
- Administrative support relating to maintaining reports, documents, and
analysis.
The consultant provides services and performs work under the direction of
the Compensation Committee Chairperson. The Committee chair provides instruction
to the consultant on the nature and scope of work to be performed, and
authorizes or is made aware of any work performed or communications with
management or the staff of the Corporation.
Governance Committee. (Mr. McIntyre, Chair, and Messrs. Carlton, Huner and
Lipford.)
The Governance Committee met one time in 2006. The Governance Committee of
MBT serves as the nominating committee of the Board. The Board has determined
that each member of the Governance Committee meets the independence standards of
Rule 4200(a)(15) of the National Association of Securities Dealers. The
Governance Committee provides reports and makes recommendations to the Board of
Directors on matters such as nominees for director, the duties of directors,
director qualifications, Board structure, Board functions, Board committee
structure and responsibilities and general policies. The Board of Directors has
adopted a Governance Committee Charter.
DIRECTOR CANDIDATES
The Governance Committee reviews the performance of incumbent directors.
The Governance Committee seeks characteristics in proposed nominees to the Board
of Directors that will complement or expand those of the existing members and
which are particularly relevant to competitive and other issues anticipated by
the Corporation and its subsidiaries. The Governance Committee of the Board of
Directors selects nominees for the Board of Directors who are subsequently
authorized by the full Board for submission for approval by stockholders. The
Governance Committee has the responsibility to actively seek individuals
qualified to become members of the Board of Directors. The Governance Committee
is empowered to engage a third party search firm to assist it in identifying
qualified candidates but to date has determined that such assistance has not
been required.
MBT's Corporate Governance Guidelines & Directors' Policy and Code of
Ethics set forth the following criteria for Directors: independence; honesty and
integrity; willingness to devote sufficient time to fulfilling duties as a
Director; particular experience, skills or expertise relevant to the
Corporation's business and ties to MBT's
8
geographic markets. The committee does not assign specific weights to particular
criteria and no particular criterion is a prerequisite for each prospective
nominee. MBT's Corporate Governance Guidelines provide that shareholders may
submit names to the Governance Committee for consideration as director nominees.
SHAREHOLDER NOMINATIONS, SHAREHOLDER PROPOSALS AND SHAREHOLDER COMMUNICATIONS
Shareholder Nominations. Under MBT's Corporate Governance Guidelines and
Directors' Policy, the Governance Committee of the Board will consider
recommendations for nominations received by shareholders in accordance with the
Corporation's Bylaws. Shareholder recommendations for nomination should be
submitted in writing to the Corporation at its principal office in Monroe,
Michigan, and must include the shareholder's name, address, and the number of
shares of the Corporation owned by the shareholder. In considering
recommendations the Governance Committee does not distinguish between
shareholder recommendations and those made by directors.
The recommendation should also include the name, age, business address,
residence address, principal occupation of and number of shares of the
Corporation owned by the recommended candidate for nomination. Shareholder
recommendations must also include the information that would be required to be
disclosed in the solicitation of proxies for the election of directors under
federal securities laws, including the candidate's consent to be elected and to
serve. The Corporation may also require any nominee to furnish additional
information regarding the eligibility and qualifications of the recommended
candidate. Assuming that appropriate biographical and background material has
been provided on a timely basis, the committee will evaluate
stockholder-recommended candidates by following substantially the same process,
and applying substantially the same criteria, as it follows for candidates
recommended by our board or others. If the board determines to nominate a
stockholder-recommended candidate and recommends his or her election, then his
or her name will be included in the proxy card for the next annual meeting.
The Corporation's Bylaws establish advance notice procedures as to the
nomination, other than by the Board of Directors, of candidates for election as
directors. In order to make a director nomination, it is necessary that the
shareholder making the nomination notify the Secretary of the Corporation no
fewer than thirty days in advance of next year's Annual Meeting unless the
Corporation gives less than forty days notice or prior public disclosure of the
Annual Meeting and then notice of nominations must be given no later than the
tenth day after the Corporation mails notice of the Annual Meeting or makes
public disclosure of the meeting, but in no event may a nomination be received
by the Secretary of the Corporation less than seven days prior to the Annual
Meeting. Notice of nominations of directors must also meet all other
requirements contained in the Corporation's Bylaws. Shareholders may obtain the
Bylaws by written request to the Corporation's Secretary at our principal
executive offices.
9
Shareholder Proposals To be considered eligible for inclusion in the
Corporation's Proxy Statement for the 2008 Annual Meeting of Shareholders, a
proposal must be made by a qualified shareholder and received by the Corporation
at its principal office in Monroe, Michigan, not later than December 5, 2007.
Any shareholder who intends to propose any other matter to be acted upon at the
2008 Annual Meeting of Shareholders must inform the Corporation not less than
thirty days prior to the meeting; provided, however, that if less than forty
days' notice or prior public disclosure of the date of the meeting is given to
shareholders, notice by the shareholder must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. If notice is
not provided by that date, the persons named in the Corporation's proxy for the
2007 Annual Meeting will be allowed to exercise their discretionary authority to
vote upon any such proposal without the matter having been discussed in the
Proxy Statement for the 2007 Annual Meeting. Shareholder proposals should be
directed to Mr. James E. Morr, Secretary, MBT Financial Corp., 102 East Front
Street, Monroe, Michigan 48161.
Shareholder Communications. Shareholders of the Corporation may send
communications to the Board of Directors through the Corporation's office of
Corporate Secretary, MBT Financial Corp., Inc., 102 E. Front Street, Monroe,
Michigan 48161. Communications sent by shareholders for proper, non-commercial
purposes will be transmitted to the Board of Directors or the appropriate
committee, as soon as practicable.
CODE OF CONDUCT AND ETHICS
We have adopted a written code of conduct and ethics that applies to all
our directors, officers and employees, including our chief executive officer and
our chief financial and accounting officer. We have posted a current copy of the
code on our website, which is located at www.mbandt.com.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the compensation committee are independent directors, and
none of them are present or past employees or officers of ours or any of our
subsidiaries. During the past year, certain directors and officers, including
members of the Compensation Committee, and one or more of their associates may
have been customers of and had business transactions with the Corporation or its
subsidiaries. All loans included in such transactions were made in the ordinary
course of business and on substantially the same terms, including interest rates
and collateral, as those prevailing at the same time for comparable transactions
with other persons, and did not involve more than normal risk of collectibility
or present other unfavorable features. It is expected that similar transactions
will occur in the future. None of our executive officers has served on the board
or compensation committee (or other committee serving an equivalent function) of
any other entity, one of whose executive officers served on our board or
compensation committee.
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AUDIT COMMITTEE REPORT
The Audit Committee oversees the Corporation's financial reporting process
on behalf of the Board of Directors. The Committee is composed of four
directors, each of whom is independent as defined by the NASDAQ(R) listing
standards and operates under a written charter adopted by the Board of Directors
which is available on the Corporation's website at www.mbandt.com. The Committee
retains the Corporation's independent accountants.
Management has the primary responsibility for the financial statements and
the reporting process, including the system of internal control. In fulfilling
its oversight responsibilities, the Committee reviewed the audited financial
statements in the Annual Report with management, including a discussion of the
quality, not just the acceptability, of the accounting principles; the
reasonableness of significant judgments; and the clarity of disclosures in the
financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Corporation's accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards (including Statement on
Auditing Standards No. 61). In addition, the Committee has discussed with the
independent auditors the auditors' independence from management and the
Corporation, including the matters in the written disclosures and the letter
from the independent auditors required by the Independence Standards Board
(including Independence Standards Board Standard No. 1), and considered the
compatibility of permitted non-audit services with the auditors' independence.
The Committee discussed with the Corporation's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Corporation the Corporation's internal control, and the overall quality of the
Corporation's financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2006 for filing with the Securities and Exchange
Commission.
Peter H. Carlton, Chair
William D. McIntyre, Jr.
Michael J. Miller
Philip P. Swy
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PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to the Corporation
for the fiscal years ended December 31, 2006 and December 31, 2005 by Plante &
Moran, PLLC, the Corporation's principal accounting firm.
2006 2005
-------- --------
Audit Fees $188,900 $192,800
Audit-Related Fees 59,599(a) 58,950(a)
Tax Fees 25,500(b) 11,100(b)
All Other Fees 63,468(c) 40,675(c)
-------- --------
$337,467 $303,525
======== ========
(a) Includes fees for services related to information technology external
testing and miscellaneous consultations.
(b) Includes fees for services related to tax compliance and tax planning.
(c) Includes fees for regulatory compliance review, website design, and
miscellaneous consultations.
The Audit Committee is responsible for pre-approving all auditing services
and permitted non-audit services to be performed by its independent auditors,
except as described below.
The Audit Committee will establish general guidelines for the permissible
scope and nature of any permitted non-audit services in connection with its
annual review of the audit plan and will review such guidelines with the Board
of Directors. Pre-approval may be granted by action of the full Audit Committee
or, in the absence of such Audit Committee action, by the Audit Committee Chair
whose action shall be considered to be that of the entire Committee.
Pre-approval shall not be required for the provision of non-audit services if
(1) the aggregate amount of all such non-audit services constitutes no more than
5% of the total amount of revenues paid by the Corporation to the auditors
during the fiscal year in which the non-audit services are provided, (2) such
services were not recognized by the Corporation at the time of engagement to be
non-audit services, and (3) such services are promptly brought to the attention
of the Audit Committee and approved prior to the completion of the audit. No
services were provided pursuant to these exceptions.
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION PHILOSOPHIES AND OBJECTIVES
The executive compensation philosophy of the Board is to deliver levels of
total compensation that are sufficiently competitive to attract and retain top
leadership talent, with primary emphasis on pay for performance. Guiding
principles that influence the structure and level of compensation for executive
officers are:
12
- The executive management team should be rewarded as a group for the
financial performance of the Corporation, and also rewarded for
individual performance;
- The level of total compensation opportunity for each individual
executive officer should reflect the relative level of job
responsibility, market pay, and expected impact on the current and
long term performance of the Corporation;
- A significant portion of total direct compensation should be at risk,
with the opportunity for executive officers to earn correspondingly
meaningful and competitive amounts of compensation relative to
performance that drives growth in shareholder value;
- Executive officers should be expected to attain and retain a
meaningful level of ownership in MBT Financial Corp. stock as a means
of aligning the interests of management with those of shareholders;
- Incentive compensation should be structured to focus management on
achieving annual financial objectives in a manner that supports and
drives the company's long term success and profitability; and
- Elements of compensation other than direct pay, including perquisites,
personal benefits, or protection agreements should serve a balance of
interests among executives, the Corporation, customers, and
shareholders.
Specifically, the objective of the Board is to target base salary and total
cash compensation at approximately the 50th percentile (i.e., median) of market
pay (refer to benchmarking section of this Compensation Discussion and Analysis
(CD&A) for discussion of how market pay is defined for named executive
officers). Current base salary levels for named executive officers are on
average closer to the 25th percentile of market base salary pay, and total cash
compensation (i.e., base salary plus target cash bonus) is on average at or near
the 50th percentile. The Board believes that improving base salary pay over time
to more closely align it with median market base salary pay is essential in
attracting and retaining the knowledge, skills, and top leadership talent
required to achieve the long term strategic objectives of the Corporation. It is
therefore the intent of the Board to increase levels of base salary pay over a
reasonable period of time to more competitive levels as supported by both the
performance of the bank and individual executives. As base salary pay is
adjusted, target cash bonus levels may be adjusted concurrently to maintain
target total cash compensation at the 50th percentile of total cash market pay.
This is intended to achieve a reasonable and competitive balance between base
salary pay and annual cash incentive pay, without diminishing the strength of
incentive cash pay in motivating executives to achieve financial results.
The annual grant value of Long Term Incentive compensation (i.e., currently
delivered in the form of equity awards) is targeted at levels that deliver
competitive total direct compensation (i.e., annual cash compensation plus long
term incentive compensation) in comparison to the Corporation's peer group
(refer to benchmarking section of CD&A for discussion of peer group
composition).
13
BENCHMARKING
The Compensation Committee maintains competitive levels of total
compensation for executive officers by applying market pay data and prevalence
of practice information provided by the compensation consultant to the
Committee. Market pay information is used by the Committee to establish and
maintain target levels of total direct compensation and to determine the level
of pay actually delivered to each named executive officer. Market pay data is
applied in setting target levels of:
- base salary;
- total cash compensation (i.e., base salary plus target cash bonus
awards); and
- total direct compensation (i.e., total cash compensation plus targeted
long term incentive compensation).
The Committee also relies on prevalent market practices in assessing the
competitiveness and appropriateness of perquisites, personal benefits, deferred
compensation, and payments in connection with events that may trigger payments
or benefits to executive officers such as a change-in-control.
Market pay for executive positions is measured within both a defined peer
group of commercial banks and the general commercial banking industry.
The peer group market for the Corporation includes twelve (12) financial
institutions. The financial institutions included in the peer group are
identified by an independent management consultant and reviewed by the Committee
on an annual basis. Peer organizations are located within a multi-state
geographic region near Monroe, Michigan, and are of comparable asset size and
mix to the Corporation. The peer group composition for the current period
includes:
PEER COMPANY LOCATION ASSET SIZE ($000)
------------ ---------------- -----------------
First Financial Corp. Terre Haute, IN 2,136,918
First Indiana Corporation Indianapolis, IN 1,966,356
Macatawa Bank Corp. Holland, MI 1,869,990
Peoples Bancorp Inc. Marietta, OH 1,855,277
Mercantile Bank Corp. Grand Rapids, MI 1,838,210
Farmers Capital Bank Corp. Frankfort, KY 1,672,576
MainSource Financial Group Greensburg, IN 1,645,605
Lakeland Financial Corp. Warsaw, IN 1,634,613
Main Street Trust Inc. Champaign, IL 1,625,137
Merchants & Manufacturers Bancorp, Inc. New Berlin, WI 1,458,948
S.Y. Bancorp Inc Louisville, KY 1,330,438
Oak Hill Financial Jackson, OH 1,241,058
14
The median asset size of $1,659,091 for this peer group is comparable to
the $1,638,356 asset size of the Corporation at the time the peer group was
determined. These peer companies remain in the peer group each year to maintain
a stable and consistent market pay measure, with additions and deletions
occurring when required to assure comparability to the Corporation.
The independent compensation consultant to the Committee provides the
Committee, on an annual basis, total direct compensation pay amounts delivered
by the peer group to each named executive officer. The source of data applied in
the market analysis is the annual proxy reports for each peer company. Market
pay data is statistically summarized and presented for the CEO, CFO, and all
other Executive Vice President level officers. Market pay data is summarized
separately for base salary, total cash compensation, long term incentive
compensation, and total direct compensation.
The Committee also uses general banking industry pay data provided by the
independent consultant. This data is sourced from published management
compensation surveys that report the level of base salary and total cash
compensation paid to executives in like positions by commercial banks of
comparable asset size.
Market pay data from both the peer group and industry data sources are
collectively a primary factor in the Committee's recommendations to the full
Board on setting target levels of base salary, bonus awards, and long term
incentive awards; and are taken into account along with performance in
determining base pay increases.
ELEMENTS OF EXECUTIVE COMPENSATION
The elements of total compensation delivered to all or certain named
executive officers, including potential payments or benefits include:
- Base salary (refer to column (c) of Summary Compensation Table)
- Annual incentive bonus (refer to column (g) of Summary Compensation
Table)
- Equity grants or awards (refer to columns (e) and (f) of Summary
Compensation Table)
- Perquisites and personal benefits (refer to Column (i) of Summary
Compensation Table, and Payments or Benefits in Connection with
Termination of Employment or Change-in-Control)
- Supplemental Retirement Benefits (refer to Pension table)
- Severance and/or Change-in-Control agreements (refer to Payments or
Benefits in Connection with Termination of Employment or
Change-in-Control)
15
Base Salary
Base salary is delivered to executive officers at levels that are improving
each year to more competitive levels. As discussed in the pay philosophy
section, base salary pay is targeted at the median market base salary pay for
each executive officer position. Market base salary pay is the primary
determinant of base salary pay levels, with internal equity or pay relationships
among officer positions a second consideration.
Base salary pay for each executive officer is reviewed annually and subject
to adjustment consistent with individual performance. Other factors that
influence the amount of adjustment to base salaries are the budget made
available bank-wide for base pay increases, and the need for market equity
adjustments referenced in the pay philosophy section.
Annual Incentive Bonus
All named executive officers participate in an annual incentive bonus plan
that provides a cash award opportunity tied to the level of the Corporation's
net operating income, before federal income tax and bonus awards ("Adjusted
NOI"). The amount of the cash bonus award payable under the bonus plan is
dependent upon the level of Adjusted NOI achieved compared to the Corporation's
financial plan for the year. The objective of the bonus plan is to place a
meaningful portion of targeted cash compensation at risk, and to deliver
reasonable and competitive rewards to executive officers as a group for
achieving the income objectives set for the year.
Target incentive cash bonus awards, expressed as a percentage of base
salary, are established before the beginning of the fiscal year period for each
executive officer. The target cash bonus award amounts for the fiscal year
period are disclosed under column (d) of the Grants of Plan-Based Awards Table
for each named executive officer. These award amounts correspond to target award
levels of 75% of base salary for the CEO; and 40% of base salary for all other
named executive officers. The target incentive award levels set for executive
officers reflect the Board's executive pay objectives explained under the pay
philosophy section.
The award schedule presented below for the fiscal year determines the level
of cash bonus under the plan based upon the percentage of Adjusted NOI actually
achieved.
16
ADJUSTED NOI AS PERCENT OF FUNDED AWARD
ADJUSTED NOI ($) 2006 TARGET ADJUSTED NOI (PERCENT OF TARGET BONUS)
- ---------------- -------------------------- -------------------------
39,135,604 120% 175.0%
38,483,344 118% 167.5%
37,831,083 116% 160.0%
37,178,823 114% 152.5%
36,526,563 112% 145.0%
35,874,303 110% 137.5%
35,222,043 108% 130.0%
34,569,783 106% 122.5%
33,917,523 104% 115.0%
33,265,263 102% 107.5%
32,613,003 100% 100.0%
31,960,743 98% 93.3%
31,308,483 96% 86.7%
30,656,223 94% 80.0%
30,003,963 92% 73.3%
29,351,703 90% 66.7%
28,699,443 88% 60.0%
28,047,183 86% 53.3%
27,721,053 85% 50.0%
For example, at planned Adjusted NOI for the year of $32,613,003, 100% of
target awards would be paid to the executive officers. Adjusted NOI for the
fiscal year must be at least 85% of planned Adjusted NOI before any award is
earned. At 85% performance, 50% of the executive's target award is earned.
Awards under the schedule are scaled proportionately for performance between 85%
and 100% of planned Adjusted NOI. The award schedule provides executives with
the opportunity to earn bonuses greater than their target awards with Adjusted
NOI performance above plan. There is no fixed award cap under the plan. Bonus
awards earned for performance above planned Adjusted NOI increase
proportionately based on the relationship between awards paid at target Adjusted
NOI and 120% of planned Adjusted NOI.
As disclosed under the Grant of Plan-Based Awards table, no bonuses were
earned by the named executive officers for the fiscal year because Adjusted NOI
performance was below the threshold level of planned Adjusted NOI.
17
Long Term Incentive Compensation
The MBT Financial Corp. Long Term Incentive Compensation Plan (The Plan)
was approved by shareholders in 2000. The plan was established to enable the
Corporation to attract and retain future leadership talent and as a means of
aligning the long term interests of executives with those of shareholders. The
Plan allows the Committee to deliver equity based awards to selected senior
officers. Until the current fiscal year, equity awards have been delivered
annually to selected executive and senior officers in the form of stock options.
With the introduction of new accounting rules under FAS 123R that treated all
forms of equity based awards under a common expense standard, the Committee made
2006 equity grants in the form of both stock options and Performance Stock Units
(PSU).
The grant of equity awards in the form of both stock options and PSUs
strengthened the pay for performance linkage by rewarding both growth in the
value of MBT Financial Corp. stock, and growth in profitability that drives
shareholder value. The combined grant date fair value of these equity awards for
the current year is disclosed in column (l) of the Grants of Plan-Based Awards
table for each named executive officer. The grant date fair value, determined in
accordance with FAS 123R, defines the compensation value of equity awards on the
grant date of January 3, 2006. Approximately 65% of the aggregate grant date
value of total 2006 equity awards is in the form of PSUs, with the remaining 35%
representing stock options.
Stock Options
Stock options were granted during the year to named executive officers in
the form of non-qualified options. Options are viewed as a direct link between
compensation value realized by the executive from the option (i.e., difference
between share price on exercise date and grant date fair market value of stock),
and shareholder interests. The grant date for all stock options approved by the
Board under The Plan has been consistently the first day of the fiscal year on
which MBT Financial Corp. stock is traded on the exchange. The current fiscal
year grant of options was approved by the Board on December 22, 2005, with a
grant date of January 3, 2006.
The authorized terms and conditions of the option grant are covered under a
written option agreement. All options were granted with an exercise price equal
to the average of the highest and lowest selling price of the Corporation shares
on the grant date. Other material terms and conditions of the grant are:
- The right to exercise the option vests on a scaled basis over three
years, with a third of the option shares incrementally vesting each
year.
- All options become immediately vested and subject to exercise upon the
death, disability, change-in-control, or retirement (age 62) of the
executive.
- The right to exercise a vested option expires on the earlier of 10
years from the date of grant, one year from date of participant's
termination of employment for reasons other than for cause, or
termination for cause.
18
- Options may be exercised by cash payment of exercise price, tendering
previously acquired shares subject to holding requirements; or through
a broker assisted transaction.
Performance Stock Units (PSUs)
PSU grants provide the recipient the right to receive a full-value share of
MBT Financial Corp. stock for each unit granted, upon satisfaction of the
performance conditions set forth under the grant agreement. This form of equity
award was chosen by the Board for several reasons including: favorable
accounting treatment under FAS 123R, direct linkage of pay to long term
financial performance, use of fewer shares relative to comparable value of stock
options, and retention of awarded shares by the executive when coupled with the
share ownership and retention policy. Up to 100% of PSU grants made on January
3, 2006, along with any dividend equivalents become fully vested based upon
Earnings Per Share (EPS) growth over a three year period ending on December 31,
2008, as follows:
Cumulative EPS
(Cumulative sum
of EPS over 3 year
period ending Percent of 2006
12/31/08) PSU Grant Vested
- ------------------ ----------------
$4.38 100%
$4.31 80%
$4.23 60%
$4.13 40%
$4.06 20%
$3.75 0%
The estimated range of future payout value of this PSU grant, based on MBT
Financial Corp's. stock price on December 31, 2006, is disclosed in columns (f)
and (h) under the Grants of Plan-Based Awards table.
The impact on vesting of outstanding PSUs in the event of the executive's
death, disability, or retirement at or after age 62; or in the event of a change
in control of the Corporation is explained under the Post Employment
Compensation section of this proxy statement. The executive forfeits any
potential vesting in awards in the event of voluntary termination of employment
or termination for cause during the performance period.
Stock Ownership and Retention Policy
The Board adopted a stock ownership and retention policy effective with the
current year. Consistent with the stated philosophy of aligning the interests of
executives with those of shareholders, the Board believes that all executive
officers should maintain a meaningful level of ownership in the Corporation's
stock over their period of service. Under this policy, a targeted share
ownership level (number of shares) is established for each named executive
officer. The targeted number of shares is subject to annual review and may be
increased at the discretion of the Board. Named executive officers are expected
to attain this ownership level within a minimum of five years from the inception
19
of the policy, and maintain this level during their period of executive officer
service. Executive officers are expected to meet the share ownership targets
from either equity based awards or purchase of shares on the open market. 100%
of all shares awarded under the MBT Financial Corp. Long Term Incentive
Compensation Plan, net of taxes due, are to be retained by the executive until
the share ownership target is attained. Upon attainment of the share ownership
target, all future shares awarded under any equity grant are to be retained for
a minimum of one year
Personal Benefits, Perquisites, and Supplemental Retirement Benefits
The Board provides a reasonable level of personal benefits, perquisites,
and supplemental retirement benefits to one or more named executive officers to
support the business interests of the bank, provide competitive compensation,
and to recognize the substantial commitment both professionally and personally
expected from executive officers.
Personal benefits and perquisites provided to all named executive officers
include club memberships and supplemental disability benefits. The aggregate
value of perquisites and personal benefits, as defined under SEC rules, provided
to each named executive officer is less than the reporting threshold value of
$10,000. The named executive officers are also participants in the MBT Executive
Officer Death Benefit Only Plan (DBO Plan). The DBO Plan provides a death
benefit payable to the beneficiaries of the executive in the event of the
executive's death during employment equal to two times salary. For all
participating officers who satisfy minimum age and service requirements, a post
retirement death benefit equal to one times salary is provided. While the stated
death benefit of two times salary is the same as that provided to all employees
of the Bank under its general group term life insurance coverage, the
arrangement for executive officers under the DBO Plan, including all of the
named executive officers, is structured as a general obligation of the
Corporation and is not provided under the group term life insurance policy.
Participants in the DBO Plan do not report taxable income associated with their
benefit arrangement and the death benefit amount is increased in an amount
necessary to pay all income taxes due on the benefit amount when it is paid to
the participants' beneficiaries. The Corporation has purchased life insurance
policies on the lives of all participants in the DBO Plan. Proceeds from such
policies provide the sums necessary to pay the beneficiaries. The actual gross
death benefit amounts payable under this plan are disclosed under Payments and
Benefits in Connection with Termination or Change-in-Control. The amount of
benefits paid from the supplemental disability benefit, and conditions for
receipt of such benefits are also set forth under the Post Employment
Compensation section of this proxy statement.
The Board entered into an agreement with Mr. Chaffin, President and CEO,
that provides a Supplemental Retirement Benefit. This benefit was provided to
Mr. Chaffin as an incentive to accept the position of CEO, and to establish a
meaningful incentive for him to remain with the organization, thereby promoting
continuity and stability of leadership. The level of benefit provided, material
terms and conditions, and the present value of his accrued benefit under the
plan at year-end is disclosed and explained under the Pension Benefits Table.
20
Severance or Change-in-Control Agreements
The Board entered into a change-in-control agreement with Mr. Chaffin (CEO)
on July 30, 2001, and severance agreements with the other named executive
officers on January 26, 2006. These agreements are intended to provide fair
treatment of executive officers and a reasonable amount of protection against
loss on income and benefits in the event of termination without cause, or
termination in connection with a change-in-control. These agreements also serve
to promote the objectivity of executives in evaluating a potential
change-in-control. Severance agreements entered into with named executive
officers other than the CEO provide identical terms and conditions. The level of
payments and benefits, and an explanation of the material terms and conditions
are provided under the Payments and Benefits upon Termination or
Change-in-Control.
TOTAL COMPENSATION PERSPECTIVE (INTERRELATIONSHIP OF PAY ELEMENTS)
The mix of total direct compensation ( base salary, target annual incentive
bonus, and target long term incentive compensation, expressed as a percent of
total target direct compensation) for 2006, is summarized in the table below for
the CEO and all other named executive officers:
NAMED EXECUTIVE TARGET LONG TERM TOTAL DIRECT
OFFICER BASE SALARY TARGET BONUS INCENTIVE COMPENSATION COMPENSATION
- --------------- ------------ ------------ ---------------------- ------------
CEO 43% 33% 24% 100%
All Other NEOs 56% 22% 22% 100%
Consistent with the Board's executive compensation philosophy, a
significant percentage of total direct compensation is at risk with payments
contingent on the short and long term performance of the Bank (i.e., 57% of
total direct compensation at risk for CEO; and 44% at risk for all other named
executive officers). The amount at risk for the CEO is greater than the amount
at risk for all other named executive officers in recognition of the higher
level of accountability held by the CEO for the performance of the Corporation.
Other important interrelationships between elements of total compensation
are:
- The annual incentive bonus plan and the long term incentive
compensation plan both link pay opportunity to the profitability of
the Corporation.
- Awards of MBT Financial Corp. shares from vested Performance Stock
Units are further tied to shareholder interests by the implementation
during 2006 of the share ownership and retention policy.
21
- The delivery of long term incentive compensation in the form of both
PSUs and stock options reflects the balanced interest in rewarding
performance that drives share value growth, and aligning the interests
of executives with those of shareholders.
- The value of stock awards and the Supplemental Executive Retirement
Plan for the CEO collectively represents wealth accumulation that will
be monitored by the Board to assure delivery of reasonable, fair, and
competitive compensation that is aligned with the stated executive
compensation philosophies.
- Payments or benefits triggered by death, disability, termination
without cause, or change-in-control share a common purpose of
providing a reasonable and fair level of protection against loss of
income or benefits in connection with events over which the executive
has no control.
EXECUTIVE COMPENSATION DECISIONS IN 2006
Base Salary
All named executive officers received base salary increases effective
January 1, 2006 as follows: Mr. Chaffin (5.0%); Mr. Skibski (12.0%); Mr. Myers
(8.0%); Mr. Morr (4.0%); and Mr. Lieto (8.0%). Refer to the Summary Compensation
table for actual base salaries paid in 2006. The rates of increase in base
salaries were based on a combination of factors including the overall budget set
by the Corporation for pay increases; individual executive performance; and the
intent of the Board referenced earlier in the Compensation Discussion and
Analysis to increase base salary levels of executive officers to more
competitive levels.
Role of Executive Officers in Determining Compensation
H. Douglas Chaffin, our President and Chief Executive Officer, recommends
to the Committee base salary, target bonus levels, and long-term incentive
grants for our executive officer group (other than himself). Mr. Chaffin makes
these recommendations to the Committee based on guidelines provided by the
Compensation Committee, and judgments regarding individual performance. Mr.
Chaffin is not involved with any aspect of determining his own pay.
IMPACT OF ACCOUNTING AND TAX TREATMENTS OF COMPENSATION
The accounting and tax treatment of compensation generally has not been a
factor in determining the amounts of compensation for our executive officers.
However, the Committee and management have considered the accounting and tax
impact of various program designs to balance the potential cost to the
Corporation with the benefit/value to the executive.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public companies for compensation in excess of $1
million paid to the corporation's chief executive officer and four other most
highly paid
22
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limitation if certain requirements are met. We
periodically review the potential consequences of Section 162(m) and may
structure the performance-based portion of our executive compensation to comply
with certain exemptions in Section 162(m). However, we reserve the right to use
our judgment to authorize compensation payments that do not comply with the
exemptions in Section 162(m) when we believe that such payments are appropriate
and in the best interests of the stockholders, after taking into consideration
changing business conditions or the officer's performance.
With the adoption of FAS 123R, we do not expect accounting treatment of
differing forms of equity awards to vary significantly and, therefore,
accounting treatment is not expected to have a material effect on the selection
of forms of equity compensation in the future.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee is responsible for discharging the
responsibilities of the board with respect to the compensation of our executive
officers. The compensation committee sets performance goals and objectives for
the chief executive officer and the other executive officers, evaluates their
performance with respect to those goals and sets their compensation based upon
the evaluation of their performance. In evaluating executive officer pay, the
compensation committee may retain the services of a compensation consultant and
consider recommendations from the chief executive officer with respect to goals
and compensation of the other executive officers. The compensation committee
assesses the information it receives in accordance with its business judgment.
The compensation committee also periodically reviews director compensation. All
decisions with respect to executive and director compensation are approved by
the compensation committee and recommended to the full board for ratification.
The compensation committee has reviewed and discussed the Compensation
Discussion and Analysis (the "CD&A") for the year ended December 31, 2006 with
management. In reliance on the reviews and discussions referred to above, the
compensation committee recommended to the board, and the board has approved,
that the CD&A be included in the proxy statement for the year ended December 31,
2006 for filing with the SEC.
By the Compensation Committee of the Board of Directors:
COMPENSATION COMMITTEE
Thomas M. Huner, Chair
Peter H. Carlton
Michael J. Miller
Debra J. Shah
Philip P. Swy
23
ADDITIONAL INFORMATION REGARDING COMPENSATION
SUMMARY COMPENSATION TABLE
CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
STOCK OPTION INCENTIVE DEFERRED ALL OTHER
AWARDS AWARDS PLAN COMPENSATION COMPENSATION
NAME AND PRINCIPAL SALARY BONUS ($) ($) COMPENSATION EARNINGS ($) ($) TOTAL
POSITION YEAR ($) ($) (#1) (#2) ($) (#3) (#4) ($)
- ----------------------- ---- ------- ----- ------- ------ ------------ ------------- ------------ --------
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
H. Douglas Chaffin 2006 267,063 -- -- 89,718 -- 41,300 23,441 421,522
President & Chief
Executive Officer (PEO)
John L. Skibski 2006 136,740 -- -- 38,586 -- -- 14,138 189,464
EVP & Chief Financial
Officer (PFO)
Thomas G. Myers 2006 142,012 -- -- 42,896 -- -- 14,895 199,803
EVP & Chief Lending
Manager
James E. Morr 2006 133,324 -- -- 42,896 -- -- 14,397 190,617
EVP, Senior Wealth
Management Officer and
General Counsel
Donald M. Lieto 2006 130,348 -- -- 38,586 -- -- 13,805 182,739
EVP, Senior
Administration Manager
Summary Compensation Table Footnotes:
(1) Reflects the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with FAS 123R.
Reported values are zero due to the absence of any vesting of performance
stock units expected based on earnings per share growth during the fiscal
year.
(2) Reflects the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with FAS 123R. This
reported value represents the grant date value of all vested stock options
that are attributed to the 2006 fiscal year period for financial statement
reporting purposes.
(3) Reports increase in present value of Supplemental Executive Retirement
Benefit accrual from 2005 to 2006. Refer to Pension Benefits table for
explanation of benefit and disclosure of present value of accumulated
benefit as of December 31, 2006.
(4) Includes contributions to the MBT Retirement Plan and certain life
insurance premiums paid by the Corporation for the benefit of the Named
Executive Officer to provide the benefit under the terms of the Death
Benefit Only plan for certain executive officers.
Retirement Contributions Life Insurance Premiums
Name ($) ($) Total ($)
- ---- ------------------------ ----------------------- --------
H. Douglas Chaffin 21,200 2,241 23,441
John L. Skibski 13,664 474 14,138
Thomas G. Myers 14,191 704 14,895
James E. Morr 13,322 1,075 14,397
Donald M. Lieto 13,025 780 13,805
24
Narrative Explanation to the Summary Compensation table
Named Executive Officers participate in an annual incentive plan that
provides for awards tied to the profit performance of the Corporation during the
fiscal year. The value of any awards paid is disclosed in column (g) of the
summary compensation table. No awards were paid for the fiscal year because
profits were below the threshold set under the plan for funding awards. Refer to
the compensation discussion and analysis for a complete explanation of the Plan.
The stock awards reported in column (e) of the Summary Compensation Table
represent the value of Performance Stock Units granted to Named Executive
Officers during the fiscal year. The vesting of this award depends on the
cumulative growth in Earnings Per Share over a three year measurement period
ending December 31, 2008. The range of award value that could vest is reported
on the Grants of Plan Based Awards table in columns (f) and (h).
Mr. Chaffin participates in a supplemental retirement benefit plan. The
increase in value for the fiscal year is reported in column (h) of the Summary
Compensation Table. The full present value accrued through the end of the fiscal
year is reported on the Pension Benefits Table in column (d). The value of Mr.
Chaffin's accrued benefit becomes fully vested with continued service to April
2, 2009. The benefit structure is more fully explained with the Pension Table
and in the Compensation Discussion & Analysis section of this proxy statement.
The named Executive Officers are participants in the MBT Retirement Plan.
This plan is a qualified profit sharing, 401(k) plan. The employer contribution
amounts for the fiscal year period for each named Executive Officer included in
column (g) and reported under footnote number 4 of the Summary Compensation
Table. Employer contributions under the Plan are structured as a percent of base
salary up to statutory compensation limits. Employer contributions for the
fiscal-year include Safe-Harbor contributions, matching contributions, and
discretionary contributions, applied on a non-discriminatory basis for all Plan
participants.
25
GRANTS OF PLAN-BASED AWARDS
ALL
OTHER
STOCK
AWARDS: ALL GRANT
NUMBER OTHER DATE
OF STOCK FAIR
SHARES AWARDS: VALUE
OF NUMBER EXERCISE OF
ESTIMATED FUTURE PAYOUTS STOCK OF OR BASE STOCK
UNDER NON-EQUITY INCENTIVE ESTIMATED FUTURE PAYOUTS OR SECURITIES PRICE OF &
DATE PLAN AWARDS UNDER EQUITY INCENTIVE STOCK UNDERLYNG OPTION EQUITY
EQUITY (#1) PLAN AWARDS UNITS OPTIONS AWARDS AWARDS
GRANT --------------------------- -------------------------- ------- ---------- --------- ------
GRANT APPROVED THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM ($/SHARE) ($)
NAME DATE BY BOARD $ ($) ($) (#) (#) (#) (#) (#) (#2) (#3)
---- ------- -------- --------- ------- ------- --------- ------ ------- ------- ---------- --------- ------
(a) (b) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)
H. Douglas
Chaffin (PEO) 100,111 200,222
H. Douglas
Chaffin (PEO) 1/03/06 12/22/05 1,200 6,000 97,440
H. Douglas
Chaffin (PEO) 1/03/06 12/22/05 15,500 $16.24 55,955
John L. Skibski
(PFO) 27,328 54,656
John L. Skibski
(PFO) 1/03/06 12/22/05 440 2,200 35,728
John L. Skibski
(PFO) 1/03/06 12/22/05 5,800 $16.24 20,938
Thomas G. Myers 28,382 56,765
Thomas G. Myers 1/03/06 12/22/05 440 2,200 35,728
Thomas G. Myers 1/03/06 12/22/05 5,800 $16.24 20,938
James E. Morr 26,645 53,290
James E. Morr 1/03/06 12/22/05 440 2,200 35,728
James E. Morr 1/03/06 12/22/05 5,800 $16.24 20,938
Donald M. Lieto 26,050 52,099
Donald M. Lieto 1/03/06 12/22/05 440 2,200 35,728
Donald M. Lieto 1/03/06 12/22/05 5,800 $16.24 20,938
(1) None of the award amounts disclosed regarding non-equity incentive plans
were paid during 2006 because the threshold level of Adjusted NOI was not
met for the year.
(2) Exercise price is the average of the lowest and highest grant date selling
price on the exchange, as provided for under the MBT Financial Corp.
Long-Term Incentive Compensation Plan.
(3) Reflects grant date fair value of performance stock units and stock
options, computed in accordance with FAS 123R. Refer to financial
statements for assumptions applied in valuation of Equity Awards.
26
Narrative Explanation to the Grants of Plan Based Award table
Named Executive Officers participate in an annual incentive bonus plan that
provides a cash award tied to Net Operating Income, adjusted for income taxes
and bonus amounts (Adjusted NOI). The award amounts reported in column (d) of
the Grants of Plan-Based Award table are set prior to the beginning of the
fiscal year and are paid under the plan if the Corporation earns the targeted
level of Adjusted NOI. The awards reported in column (c) of the table are paid
if the threshold or minimum level of Adjusted NOI performance is achieved. No
awards are payable under the plan if profit falls below the established
performance threshold. A fixed award schedule defines the level of bonus awards
paid for levels of Adjusted NOI between threshold and target performance levels,
and for profit performance above the target. There is no defined award cap under
the plan, and therefore no award value reported in the maximum column (e). Bonus
awards earned for performance above target level increase proportionately based
on the defined relationship between awards paid and Adjusted NOI above target.
None of the award amounts disclosed regarding non-equity incentive plans were
paid during 2006 because the threshold level of Adjusted NOI was not met for the
year. Refer to the Annual Incentive Bonus section of the Compensation Discussion
and Analysis section of this proxy statement for a complete description of the
cash bonus plan.
The grant date for all equity awards is the first day of the fiscal year on
which MBT stock is traded, unless otherwise determined by Board. The date of
grant for fiscal year 2006 awards was January 3, 2006. The Board approved these
equity grants and the related terms and conditions on December 22, 2005. Equity
grants were delivered in the form of non-qualified stock options, and
Performance Stock Units as provided for under the MBT Financial Corp. Long-Term
Incentive Plan.
Payouts under the Performance Stock Unit award disclosed in columns (f)
through (h) are conditioned on the cumulative growth in earnings per share over
a three year vesting period ending December 31, 2008. Each Performance Stock
Unit is equivalent in value to a share of MBT Financial Corp. common shares.
Cumulative earnings per share over the three year vesting period must be at
least $4.06 to vest in the threshold level of units awarded on the grant date
(i.e., refer to column (f)), representing 20% of the number of units awarded on
the grant date. Cumulative earnings per share over the three year vesting period
must be at least $4.38 per share to vest in the maximum number of units awarded
on the grant date (refer to column (h), representing 100% of the units granted
on date of grant. Cumulative earnings per share between $4.06 and $4.38 over the
three year performance period correspond to scheduled levels of vesting between
20% and 100%. Dividend equivalent units accrue during the three year performance
period in proportion to actual dividends declared on MBT Financial Corp stock,
and are subject to the same performance vesting conditions applied to units
awarded on the date of grant. All vested performance stock units and dividend
equivalent units are paid in the form of MBT Financial Corp. common shares at
the end of the performance period.
27
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Stock Awards
------------------------------------
EQUITY
INCENTIVE
PLAN
AWARDS:
MARKET
OR
EQUITY PAYOUT
INCENTIVE VALUE
MARKET PLAN OF
Option Awards NUMBER VALUE AWARDS: UNEARNED
------------------------------------------------------------- OF OF NUMBER SHARES,
EQUITY SHARES SHARES OF UNITS
INCENTIVE OR OR UNEARNED OR
PLAN UNITS UNITS SHARES, OTHER
NUMBER OF NUMBER OF AWARDS: OF OF UNITS OR RIGHTS
SECURITIES SECURITIES NUMBER OF STOCK STOCK OTHER THAT
UNDERLYING UNDERLYING SECURITIES THAT THAT RIGHTS HAVE
UNEXERCISED UNEXERCISED UNDERLYING OPTION HAVE HAVE THAT NOT
OPTIONS OPTIONS (#) UNEXERCISED EXERCISE OPTION NOT NOT HAVE NOT VESTED
(#) UNEXERCISABLE UNEARNED PRICE EXPIRATION VESTED VESTED VESTED ($)
NAME EXERCISABLE (#1) OPTIONS (#) ($) DATE (#) ($) (#) (#2)
---- ----------- ------------- ----------- -------- ---------- ------ ------ --------- ---------
H. Douglas Chaffin (PEO) 19,000 -- -- 13.20 1/2/2013
20,000 -- -- 16.69 1/2/2014
18,667 9,333 -- 23.40 1/3/2015 1,200 $18,384
5,167 10,333 -- 16.24 1/3/2016
John L. Skibski (PFO) 1,000 -- -- 13.85 1/2/2012
2,334 -- -- 13.20 1/2/2013
11,000 -- -- 16.69 1/2/2014
7,334 3,666 -- 23.40 1/3/2015 440 $ 6,741
1,934 3,866 -- 16.24 1/3/2016
Thomas G. Myers 9,500 13.20 1/2/2013
12,500 16.69 1/2/2014
8,334 4,166 23.40 1/3/2015 440 $ 6,741
1,934 3,866 16.24 1/3/2016
James E. Morr 19,600 -- -- 18.125 6/30/2010
4,500 -- -- 13.85 1/2/2012
5,500 -- -- 13.20 1/2/2013
12,500 -- -- 16.69 1/2/2014 440 $ 6,741
8,334 4,166 -- 23.40 1/3/2015
1,934 3,866 -- 16.24 1/3/2016
Donald M. Lieto 15,400 -- -- 18.125 6/30/2010
3,333 -- -- 13.85 1/2/2012
6,667 -- -- 13.20 1/2/2013
11,000 -- -- 16.69 1/2/2014 440 $ 6,741
7,334 3,666 -- 23.40 1/3/2015
1,934 3,866 -- 16.24 1/3/2016
(1) Vesting dates for reported unexercisable shares are:
All reported options expiring on 1/3/2015 become fully vested on
12/31/2007. With respect to reported options expiring on 1/3/2016: 5,167
options held by Mr. Chaffin become fully vested on 12/31/2007 and 5,166
become fully vested on 12/31/2008; 1,933 options held by Messrs. Skibski,
Myers, Morr, and Lieto become fully vested on 12/31/2007, and 1,933 options
held by Messrs. Skibski, Myers, Morr,
28
and Lieto become fully vested on 12/31/2007, and 1,933 options held by
Messrs. Skibski, Myers, Morr, and Lieto become fully vested on 12/31/2008.
(2) Market value based on closing market price of MBT Financial Corp. stock on
December 29, 2006, of $15.32, and threshold vesting level.
OPTION EXERCISES AND STOCK VESTED
(a) (b) (c) (d) (e)
Option Awards Stock Awards
------------------------------------ --------------------------------
NUMBER OF SHARES NUMBER OF
ACQUIRED ON VALUE REALIZED ON SHARES ACQUIRED VALUE REALIZED
NAME EXERCISE (#) EXERCISE ($) ON VESTING (#) ON VESTING ($)
---- ---------------- ----------------- --------------- --------------
H. Douglas Chaffin (PEO) 2,333 $5,658 -- --
John L. Skibski (PFO) -- -- -- --
Thomas G. Myers -- -- -- --
James E. Morr 1,000 $2,760 -- --
Donald M. Lieto -- -- -- --
PENSION BENEFITS
(a) (b) (c) (d) (e)
PAYMENTS
NUMBER OF YEARS PRESENT VALUE DURING LAST
CREDITED SERVICE OF ACCUMULATED FISCAL YEAR
NAME PLAN NAME (#) BENEFIT ($) ($)
---- ---------------------- ---------------- -------------- -----------
H. Douglas Chaffin (PEO) Monroe Bank & Trust n/a $128,673 --
Supplemental Executive
Retirement Agreement
(1) Reports the present value of Mr. Chaffin's unvested benefit accrued under
the plan as of the end of the fiscal year period, based upon the his 2006
base salary and projected benefit offset values at age 65. Actuarial
assumptions applied in determining this value include the 1994 GAR
mortality table, current Social Security Law and related index factor
assumptions, and an interest rate of 6%. This value is approximately 29% of
the full benefit accrual otherwise payable with continued service to age
65, and based on current fiscal year pay and projected benefit offset
values at 65.
Narrative Explanation to the Pension Table
The Corporation has established The Monroe Bank & Trust Supplemental
Executive Retirement Agreement (SERP) for the benefit of Mr. Chaffin. The SERP
provides for payment of a supplemental retirement benefit payable at age 65
equal to
29
65% of the executive's annual base salary at retirement reduced by 50% of the
executive's Primary Social Security Benefit and the life annuity value of
accumulated employer contributions at age 65 in the executive's account balance
under the Monroe Bank Retirement Plan. The resulting annual benefit amount is
converted to 12 equal monthly amounts and paid monthly for 120 months commencing
at age 65. The executive's annual benefit at normal retirement age (65) is
projected to be $134,355, based on current fiscal year compensation and
continued service to normal retirement age. The agreement further provides for
an early termination benefit equal to a portion of the full accrued benefit
value determined at the early termination date and otherwise payable at age 65.
The value of the executive's vested accrued benefit at early termination is
payable in the form of 120 equal monthly installments commencing at age 60, if
termination is before age 60, or upon termination after age 60. The executive
becomes fully vested in his accrued benefit with continued service as the PEO to
April 2, 2009. If the executive were to terminate employment at his vesting
date, he is projected to be vested in approximately 43% of the full benefit
accrual otherwise payable with continued service to age 65, taking into account
pay and the benefit offset amounts valued at termination of employment.
POST-EMPLOYMENT COMPENSATION
We have summarized below the payments that would be made to each of our
named executive officers upon their termination of employment or upon a change
in control as follows:
PAYMENTS OR BENEFITS UPON TERMINATION OF EMPLOYMENT IN CONNECTION WITH A
CHANGE-IN-CONTROL
The Corporation has entered into certain severance or change-in-control
agreements with its named executive officers.
H. Douglas Chaffin Change in Control Agreement
The Corporation has entered into a Change in Control Agreement with Mr.
Chaffin, the Corporation's Chief Executive Officer. Table 1 below describes the
potential payments upon termination of Mr. Chaffin's employment in connection
with a change in control. The Corporation has not entered into any other
agreements with Mr. Chaffin which would provide for payment of severance
benefits unless a change in control event occurs.
The terms of the Change in Control Agreement provide that in the event of a
change in control of the Corporation as defined in the agreement, Mr. Chaffin is
entitled to a severance payment in the event of his termination, without cause,
equal to his annual compensation, which is defined to include his then current
salary plus his previous year's cash bonus. The severance payment is also
payable in the event of his involuntary termination of employment or demotion
within two years of the change in control, or his voluntary termination during
the period beginning six months following the change in
30
control and ending nine months after the change in control. In addition, Mr.
Chaffin is entitled under the terms of the agreement to receive certain health,
disability, dental, life insurance and other benefits for a one-year period
following a change in control.
Mr. Chaffin's Change in Control Agreement provides for the reimbursement of
certain excise taxes imposed upon payments received by Mr. Chaffin, which are
deemed "excess parachute" payments under the provisions of Section 280G of the
Internal Revenue Code. In the event such payments are deemed excess parachute
payments, then the amount of the payment is increased in an amount sufficient to
eliminate any excise tax imposed under Section 4999 of the Internal Revenue Code
and otherwise payable by Mr. Chaffin.
TABLE I - PAYMENTS TO MR. CHAFFIN IN CONNECTION WITH A CHANGE-IN-CONTROL (1)
H. DOUGLAS
CHAFFIN
----------
CASH COMPENSATION: (2)
Base Salary $266,963
Non-Equity Incentive Plan Compensation $ 0
LONG-TERM INCENTIVE AWARDS: (3)
Stock Options/SARs
Unvested and Accelerated Vesting (4) $ 0
Performance Stock Units
* 2006-08 (performance period) (5) $ 91,920
CONTINUATION OF WELFARE BENEFIT COVERAGE AND PERQUISITES
Post-termination Health Care (6) $ 9,733
Post-termination Dental (6) $ 518
Post-termination Disability (6) $ 3,408
Post-termination Life Insurance and AD&D (6) $ 60
Outplacement Services (7) $ 10,000
Club Membership (8) $ 3,780
--------
TOTAL $386,382
========
(1) Change in Control event assumed to occur on December 31, 2006 for
disclosure purposes. Fiscal-year-end base salary is $266,963. Cash bonus
awarded for the last whole calendar year preceding the executive's
termination of employment is $0.
(2) Change-in-Control agreement provides for cash payment equal to one times
base salary plus the total cash bonuses for the last whole calendar year
preceding termination of employment for payment triggering events including
(i) termination of executive without cause or voluntary resignation of
executive for specified reasons within two years after a Change-in-Control
with specified reasons including a) demotion, b) reduction in compensation,
c) transfer away from principal place of employment of Monroe County,
Michigan, or a county contiguous thereto, or d) material reduction of job
title, status or responsibility; or (ii) voluntarily termination of
employment not earlier than six months and not later than nine months
following a Change-in-Control of the Corporation, or (iii) discharge of
executive other than for cause and there is a Change-in-Control within two
years following the date of discharge.
(3) The price per share of the Corporation's stock on December 31, 2006 is
$15.32 per share. Only incremental value of equity awards attributed to
payment events is reported.
(4) Vesting of outstanding unvested stock options is accelerated upon a
Change-in-Control assumed to be December 31, 2006 for disclosure purposes.
Realizable value is equal to the difference between the December 31, 2006
per share price and the exercise price for stock options with accelerated
vesting, multiplied by the number of option
31
shares vested upon change-in-control event. Realizable value is reported as
$0 given that the December 31, 2006 share price is below the exercise price
of all applicable option shares.
(5) Change-in-control agreement provides that all outstanding Performance Stock
Units become immediately vested upon a Change-in-Control. Value realized is
equal to the total number of Performance Stock Units with accelerated
vesting multiplied by the December 31, 2006 per share value of $15.32.
(6) Change-in-control agreement provides for the continuation of referenced
benefits with the full cost of benefits paid by the Corporation for a 12
month period following the Executive's termination of employment in
connection with a Change-in-Control. Cost is based on policy rates in
effect at December 31, 2006.
(7) Change-in-control agreement provides for 6 months of out-placement services
following termination of employment in connection with a Change-in-Control.
Reported cost is estimate.
(8) Change-in-control agreement provides for cash payment to executive equal to
12 month cost of current club membership.
Other Named Executive Officers - Separation and Change in Control
Agreements
The Corporation has entered into identical agreements with Messrs. Lieto,
Morr, Myers, and Skibski providing for certain severance payments following
termination of employment other than for cause. Table 2 describes the potential
payments upon involuntary not for cause termination or good reason resignation
as defined in each of the agreements. Table 3 describes the potential payments
in connection with a change-in-control termination.
The agreements for the other named executive offices provide that in the
event such payments are deemed excess parachute payments, then the amount of the
payments provided for in the agreement for each executive will be reduced in an
amount which eliminates any and all excise tax to be imposed under Section 4999
of the Internal Revenue Code.
Involuntary Not For Cause Termination or Good Reason Resignation. In the
event the Corporation terminates the employment of any of the named executive
officers, without cause, prior to a "change in control," as that term is defined
in each of the agreements, the executive is entitled to receive as severance pay
one year of his base salary. Under the terms of the agreements, 50% of the
severance payment is disbursed in a lump sum upon termination, with the
remaining amount payable over the twelve months immediately following
termination. In addition, the Corporation is obligated to pay the COBRA premiums
for the continuation of healthcare benefits for the executive and his eligible
dependants for the twelve month period following termination of employment.
32
TABLE 2
PAYMENTS IN CONNECTION WITH INVOLUNTARY NOT FOR CAUSE TERMINATION OR GOOD REASON
RESIGNATION(1)
THOMAS G. JAMES E. JOHN L. DONALD M.
MYERS MORR SKIBSKI LIETO
---------- ---------- ---------- ----------
CASH COMPENSATION:
Base Salary (2) $141,912 $133,224 $136,640 $130,248
Short-term Incentive (3) No Payment No Payment No Payment No Payment
LONG-TERM INCENTIVE AWARDS: (4)
Stock Options
Unvested and Accelerated (5) No Payment No Payment No Payment No Payment
Performance Stock Units (6)
* 2006-08 (performance period) No Payment No Payment No Payment No Payment
CONTINUATION OF WELFARE BENEFITS
Post-termination Health Care (7) $ 12,522 $ 0 $ 9,936 $ 12,624
Post-termination Dental (7) $ 945 $ 0 $ 945 $ 945
---------- ---------- ---------- ----------
TOTAL $155,379 $133,224 $147,521 $143,817
========== ========== ========== ==========
(1) Severance agreement provides for severance payment equal to one times base
salary. Assumes Executive has either (i) been discharged without Cause, or
(ii) has resigned within 90 days of an event constituting Good Reason which
shall mean a) material reduction in job, b) reduction in base salary, or c)
receipt of Notice of Non-renewal of separation agreement, and such event is
prior to a Change in Control. Amount of payments are reduced to extent
necessary to eliminate any excise tax imposed under IRC Section 4999.
(2) Payment triggering events are assumed to occur on December 31, 2006. Base
salary at fiscal-year-end for each Messrs. Myers, Morr, Skibski and Lieto
are $141,912; $133,224, $136,640, and $130,248 respectively.
(3) Agreement does not provide for short-term incentive severance payment.
(4) The price per share of the Corporation's stock on the assumed payment
triggering date of December 31, 2006 is $15.32 per share. Only incremental
value of awards attributed to triggering events are reported.
(5) No acceleration of outstanding unvested stock options occurs.
(6) No acceleration of outstanding unvested performance stock units occurs.
(7) Agreement provides for the continuation of health care benefits with the
full cost of benefits paid by the Corporation for the 12 month period
following the executive's termination of employment. Cost is computed based
on policy rates in effect at December 31, 2006.
Involuntary Termination or Good Reason Resignation in Connection with
Change in Control. In the event the Corporation terminates the employment of the
named executive officer, without cause, within one year after a change in
control, the executive is entitled to severance payment equal to one year of his
base salary, plus an amount equal to his average annual cash bonus for the prior
three year period. Under the terms of the agreements, the entire severance
payment is due within ten days after the executive's termination.
33
TABLE 3
PAYMENTS IN CONNECTION WITH INVOLUNTARY TERMINATION OR GOOD REASON RESIGNATION
WITHIN ONE YEAR FOLLOWING CHANGE IN CONTROL (1)
THOMAS G. JAMES E. JOHN L. DONALD M.
MYERS MORR SKIBSKI LIETO
--------- -------- -------- ---------
CASH COMPENSATION:
Base Salary (2) $141,912 $133,224 $136,640 $130,248
Short-term Incentive (3) $ 21,409 $ 21,605 $ 18,867 $ 19,200
LONG-TERM INCENTIVE AWARDS: (4)
Stock Options
Unvested and Accelerated (5) $ 0 $ 0 $ 0 $ 0
Performance Stock Units (6)
* 2006-08 (performance period) $ 33,704 $ 33,704 $ 33,704 $ 33,704
CONTINUATION OF WELFARE BENEFITS
Post-termination Health Care (7) $ 12,522 $ 0 $ 9,936 $ 12,624
Post-termination Dental (7) $945 $ 0 $ 945 $ 945
-------- -------- -------- --------
TOTAL $210,492 $188,533 $200,092 $196,721
======== ======== ======== ========
(1) Severance agreement provides for severance payment equal to one times base
salary plus the average annual cash bonus received during the prior three
year period. Assumes Executive has either (i) been discharged without
Cause, or (ii) has resigned within 90 days of an event constituting Good
Reason which shall mean a) material reduction in job, b) reduction in base
salary, or c) receipt of Notice of Non-renewal of separation agreement, and
such event is within one year following a Change in Control as defined in
the agreement. Amount of payments are reduced to extent necessary to
eliminate any excise tax imposed under IRC Section 4999.
(2) Payment triggering events are assumed to occur on December 31, 2006. Base
salary at fiscal-year-end for each Messrs. Myers, Morr, Skibski and Lieto
are $141,912; $133,224, $136,640, and $130,248 respectively.
(3) Average annual cash bonus for the three year period ending 12/31/05 for
Messrs. Myers, Morr, Skibski, and Lieto were $21,409, $21,605, $18,867, and
$19,200 respectively.
(4) The price per share of the Corporation's stock on the assumed payment
triggering date of December 31, 2006 is $15.32 per share. Only incremental
value of awards attributed to triggering events are reported.
(5) Vesting of outstanding unvested stock options is accelerated upon a
Change-in-Control assumed to be December 31, 2006 for disclosure purposes.
Realizable value is equal to the difference between the December 31, 2006
per share price and the exercise price for stock options with accelerated
vesting, multiplied by the number of option shares vested upon
change-in-control event. Realizable value reported is $0 given that the
December 31, 2006 share price is below the exercise price of all applicable
option shares.
(6) Agreement provides that all outstanding PSUs become immediately vested upon
a change-in-control. Value realized is equal to the total number of
Performance Stock Units with vesting accelerated multiplied by December 31,
2006 per share value of $15.32
(7) Agreement provides for the continuation of health care benefits with the
full cost of benefits paid by the Corporation for the 12 month period
following the executive's termination of employment. Cost is computed based
on policy rates in effect at December 31, 2006.
Material Terms of Agreements
The following additional terms apply to both Mr. Chaffin's Change in
Control Agreement and the Separation and Change in Control Agreements with the
other named executive officers.
34
Confidentiality, Non-competition and Non-solicitation Agreements. While
employed by the Corporation and for a period of one year following the
executive's termination of employment for any reason, the executive shall be
bound by the terms of a confidentiality, non-solicitation, and non-competition
agreement which prohibits the executive, without prior written consent of the
Corporation, from rendering services directly or indirectly, as an employee,
officer, director, consultant, advisor, partner, or otherwise, for any
organization or enterprise which competes directly or indirectly with the
business of the Corporation in providing financial products or services to
consumers or businesses in Monroe County, Michigan and its contiguous counties
and municipalities.
Termination for Cause. The executives will be entitled to certain benefits
as described in the tables above if the executive's employment is terminated by
the Corporation for reasons other than for cause. A termination is for cause if
it is for any of the following reasons: (i) the executive's criminal dishonesty,
(ii) the executive's refusal to perform his duties on an exclusive and
substantially full-time basis, (iii) executive's refusal to act in accordance
with any specific substantive instructions given by the Corporation with respect
the executive's performance of duties normally associated with his position
prior to a Change in Control, or (iv) the executive's engaging in conduct which
could be materially damaging to the Corporation without a reasonable good faith
belief that such conduct was in the best interest of the Corporation.
Definition of a Change in Control. We have defined a Change in Control
under Mr. Chaffin's Change in Control Agreement and the Separation and Change in
Control Agreements covering our other named executive officers as an event that
is a: (i) Change in Ownership, ii) Change in Effective Control, or iii) Change
in Ownership of a Substantial Portion of Assets.
Change in Ownership. A change in ownership of the corporation occurs when
one person or a group acquires stock that combined with stock previously
owned, controls more than 50% of the value or voting power of the stock of
the corporation.
Change in Effective Control. A change in effective control occurs on the
date that, during any 12-month period, either (x) any person or group
acquires stock possessing 35% of the voting power of the corporation, or
(y) the majority of the board is replaced by persons whose appointment or
election is not endorsed by a majority of the board.
Change in Ownership of a Substantial Portion of Assets. A change in
ownership of a substantial portion of the assets occurs on the date that a
person or a group acquires, during any 12-month period, assets of the
corporation having a total gross fair market value equal to 40% or more of
the total gross fair market value of all of the corporation's assets.
35
Acceleration of Vesting - Equity Acceleration. In the event of Change in
Control of the Corporation, as defined under the MBT Financial Corporation
Long-Term Incentive Compensation Plan, all unvested stock options and
performance stock units (PSUs) granted under the plan shall become immediately
and unconditionally vested.
PAYMENTS OR BENEFITS MADE UPON TERMINATION DUE TO RETIREMENT
Retiree Medical Coverage
Upon retirement, executive officers named on the Summary Compensation Table
who have attained the age of 55 with at least 5 years of service, and who are
covered under a medical plan offered by the Corporation at retirement, may
participate in the retiree medical plan provided by the Corporation. Employees
below the Senior Vice President level may also participate in the retiree
medical plan if they are at least age 55, and their age plus years of service is
at least 80. All eligible employees of the Corporation participate in the same
retiree medical benefits plan insured through BlueCross/BlueShield. The
Corporation pays the full cost of coverage for the retiree up to a capped amount
(i.e., the current monthly premium cost for under age 65 employee coverage of
$347.46 is below the cap amount of $375.22). The retiree must pay the full
premium cost of coverage for a spouse. Upon attainment of age 65, benefits
provided under the plan coordinate with Medicare, with Medicare becoming the
primary payor, and the plan becoming the secondary payor.
As of December 31, 2006, Mr. Morr is the only named executive officer who
would meet the minimum age and service requirements for participation in the
plan. Had Mr. Morr retired on December 31, 2006, assuming he had active employee
medical coverage in force at retirement, the Corporation would have paid an
annual premium of $4,169 for his coverage. The portion of the total FAS 106
expense attributed to each of the named executive officers during 2006, for
financial statement reporting purposes are:
NAMED EXECUTIVE OFFICER FAS106 EXPENSE ($)
- ----------------------- ------------------
Mr. Chaffin 540
Mr. Skibski 457
Mr. Myers 972
Mr. Morr 2,381
Mr. Lieto 998
Accelerated Vesting of Equity Awards
Upon termination of employment on or after attainment of age 62, the
Performance Stock Unit Agreement provides that the participant's unvested
Performance Stock Units, outstanding at retirement, will remain subject to the
applicable performance vesting schedule, but the amount of any earned award of
shares will be reduced in proportion to the number of months the participant was
actively employed during the performance period.
36
PAYMENTS OR BENEFITS AT TERMINATION DUE TO DISABILITY
Benefit payments from supplemental disability policy
All named executive officers are covered under a supplemental disability
policy written by Metropolitan Life. This policy provides for payment of a
disability benefit in the event of total disability as defined under the policy.
Benefit payments from this policy are in addition to any disability benefit
payable under the group long term disability plan covering all employees of the
Corporation. Monthly total disability benefit payments to named executive
officers in the event of disability as of December 31, 2006 are disclosed below.
In addition to the total disability benefit reported below, named executive
officers may also become eligible for a Catastrophic Disability Benefit in the
event of catastrophic disability as defined under the policy (e.g., loss of
sight in both eyes):
MONTHLY MONTHLY
Named Executive Officer DISABILITY BENEFIT ($) CATASTROPHIC DISABILITY BENEFIT ($)
- ----------------------- ---------------------- -----------------------------------
Mr. Chaffin 5,000 8,000
Mr. Skibski 3,550 2,250
Mr. Myers 3,850 2,550
Mr. Morr 3,350 2,550
Mr. Lieto 3,150 2,300
Accelerated Vesting of Equity Awards
In the event of disability as defined under the MBT Long Term Incentive
Compensation Plan (i.e., permanent and total disability as defined under IRC
Section 22(e)(3)), all outstanding unvested stock options become fully vested
and subject to exercise. At December 31, 2006, the stock price was less than the
exercise price of all outstanding, unvested options; therefore, there is no
realizable value associated with these stock options held by named executive
officers at this year-end date. An assumption is made for purposes of this
disclosure that the executive officer's employment would cease upon becoming
totally and permanently disabled.
Related to the same disability condition, the Performance Stock Unit
Agreement provides that the participant's unvested Performance Stock Units,
outstanding at date of disability, will remain subject to the applicable
performance vesting schedule, but the amount of any earned award of shares will
be reduced proportionate to the number of months the participant was actively
employed during the performance period. With respect to unvested Performance
Stock Units as of December 31, 2006, no awards are expected to be made given the
Corporation's financial performance.
37
PAYMENTS OR BENEFITS AT TERMINATION DUE TO DEATH OF EXECUTIVE OFFICER DURING
EMPLOYMENT PERIOD
Death Benefits
Under the terms of the MBT Executive Officer Death Benefit Only Plan (DBO
Plan) all named executive officers are eligible for a death benefit in the event
of death while employed as an executive officer of the Corporation. The death
benefit is payable to the executive officer's named beneficiary. The death
benefit amount is equal to two times the executive officer's base salary at
death, plus an amount equal to a tax gross-up (i.e., tax rate of 39% assumed for
disclosure purposes) on this death benefit. A tax gross-up amount is paid
because the death benefits are fully taxable benefit payments made from the
general assets of the Corporation. The total death benefit payments to
beneficiaries of named executive officers, assuming a December 31, 2006 payment
trigger date, are:
NEO Death Benefit ($)
- --- -----------------
Mr. Chaffin 1,612,993(1)
Mr. Skibski 366,033
Mr. Myers 383,318
Mr. Morr 354,833
Mr. Lieto 345,075
(1) Mr. Chaffin's death benefits reflect his benefits under both the Executive
Officer Death Benefit Only Plan and the Director Death Benefit Only
program.
The cost of the insurance attributable to providing this death benefit
protection is reflected in all other compensation column (i) of the Summary
Compensation Table.
The referenced death benefit payments are paid from the general assets of
the Corporation in accordance with death-benefit-only agreements between the
Corporation and each named executive officer. The Corporation has insurance
policies in place on the lives of each named executive officer, with the bank
named as the beneficiary. Proceeds from these policies serve to reimburse the
bank for all death benefit payments made to the executive officer's beneficiary.
In addition to the death benefit payments referenced in the table above,
Mr. Chaffin's beneficiary will receive his full accrued benefit under the
Supplemental Executive Retirement Plan at the date of death, unreduced for early
termination before normal retirement age. Assuming a payment trigger date of
December 31, 2006, the benefit payment under this plan would be $413,179. This
benefit payment would be made from proceeds from a Split Dollar Endorsement
attached to certain insurance policies held by the Corporation on the life of
Mr. Chaffin. This agreement was entered into between Mr. Chaffin and Monroe Bank
& Trust on July 1, 2003, which is the effective date of the Supplemental
Executive Retirement Plan. The pension table under column (d) discloses a
present value of accumulated benefit amount of $128,673. This
38
amount is lower than the full benefit accrual amount above because it reflects
the impact of early termination before attainment of normal retirement age of
65.
Accelerated Vesting of Equity Awards
In the event of death while employed, all outstanding unvested stock
options become fully vested and subject to exercise. At December 31, 2006, the
stock price was less than the exercise price of all outstanding, unvested
options; therefore, there is no realizable value associated with these stock
options held by named executive officers at this year-end date.
Related to the same event, the Performance Stock Unit Agreement provides
that the participant's unvested Performance Stock Units, outstanding upon death,
will remain subject to the applicable performance vesting schedule, but the
amount of any earned award of shares will be reduced proportionate to the number
of months the participant was actively employed during the performance period.
With respect to unvested Performance Stock Units as of December 31, 2006, no
awards are expected to be made given the Corporation's financial performance.
PAYMENTS OR BENEFITS AT TERMINATION DUE TO DEATH OF EXECUTIVE OFFICER AFTER
TERMINATION OF EMPLOYMENT
Death Benefits
Under the terms of the MBT Executive Officer Death Benefit Only Plan (DBO
Plan) all named executive officers are eligible for a death benefit after
termination of employment upon attainment of at least age 55 with at least five
year of service, or upon termination of employment due to disability as defined
under the group long term disability plan. Upon the death of the eligible
executive officer, a benefit payment equal to one times the executive's base
salary at termination of employment will be paid to the named beneficiary. In
addition to this payment, a benefit equal to a tax gross-up on the death benefit
amount will be paid to the beneficiary. A tax gross-up amount is paid because
the death benefits are fully taxable benefit payments made from the general
assets of the Corporation. The total death benefit payments to beneficiaries of
named executive officers, assuming a December 31, 2006 payment trigger date and
a 39% tax rate, are:
NEO Death Benefit ($)
- --- -----------------
Mr. Chaffin 437,644
Mr. Skibski 224,000
Mr. Myers 232,643
Mr. Morr 218,400
Mr. Lieto 213,521
39
The accumulated liability accrued under FAS 158 and the incremental FAS 106
expense for the current financial reporting period in connection with the post
service benefit under the DBO Plan, attributed to the benefit amounts for each
of the named executive officers are:
NEO Accrued Liability FAS 106 Expense
- --- ----------------- ---------------
Mr. Chaffin $78,933 $9,966
Mr. Skibski $30,078 $3,797
Mr. Myers $37,327 $4,713
Mr. Morr $76,162 $9,606
Mr. Lieto $56,238 $7,100
DIRECTOR COMPENSATION
GENERAL. We review the level of compensation of our non-employee directors
on an annual basis. To determine the appropriateness of the current level of
compensation for our non-employee directors, we have historically obtained data
from a number of different sources including:
- publicly available data describing director compensation in peer
companies; and
- survey data collected by our compensation consultant.
Cash compensation is paid to non-employee directors in the form of
retainers and meeting fees. The standard annual retainer for board service is
$10,000, paid in quarterly amounts of $2,500. The non-executive officer Chairman
receives an additional annual retainer of $10,000. The Chairperson of the Audit
Committee is paid an additional annual retainer of $5,000. An $800 fee is paid
to a director for each board meeting attended. A $700 fee is paid to a director
for each committee meeting attended. An additional committee meeting fee of $350
is paid to committee chairpersons.
The following table sets forth a summary of the compensation of our
directors for service as directors in 2006.
40
DIRECTOR COMPENSATION TABLE
(a) (b) (c) (d) (e) (f) (g) (h)
CHANGE IN
PENSION VALUE
AND
FEES NON-EQUITY NONQUALIFIED ALL OTHER
EARNED OR STOCK OPTION INCENTIVE PLAN DEFERRED COMPENSATION
PAID IN AWARDS AWARDS COMPENSATION COMPENSATION ($) TOTAL
NAME CASH ($) ($) (1) ($) EARNINGS ($) (2) ($)
---- -------- ------ ------ -------------- ------------- ------------ --------
Peter H. Carlton $45,400 -- -- -- -- $ 1,260 $46,660
H. Douglas Chaffin (3) -- -- -- -- -- (3) --
Joseph S. Daly 45,500 -- -- -- -- 840 46,340
Thomas M. Huner 39,900 -- -- -- -- 2,084 41,984
Rocque E. Lipford (4) 33,500 -- -- -- -- 7,590 41,090
William D. McIntyre, Jr. 43,350 -- -- -- -- 15,760 59,110
Michael J. Miller 48,900 -- -- -- -- 2,456 51,356
Debra J. Shah 27,767 -- -- -- -- 484 28,251
Philip P. Swy (5) 41,800 -- -- -- -- 3,394 45,194
Karen M. Wilson 36,700 -- -- -- -- 1,109 37,809
(1) As of December 31, 2006, Messrs. Lipford and McIntyre had 3,407, and Mr.
Swy had 3,093, unexercised fully vested options to purchase shares of our
common stock issued under the terms of the Director Plan, which is
described below. The following presents the information regarding such
options.
OUTSTANDING
STOCK OPTIONS
NAME GRANT DATE EXPIRATION DATE EXERCISE PRICE (EXERCISABLE)
- ---- ---------- --------------- -------------- -------------
Rocque E. Lipford 1/2/2001 1/2/2011 $13.94 1,572
1/2/2002 1/2/2012 $13.85 1,835
William D. McIntyre, Jr. 1/2/2001 1/2/2011 $13.94 1,572
1/2/2002 1/2/2012 $13.85 1,835
Philip P. Swy 1/2/2001 1/2/2011 $13.94 1,258
1/2/2002 1/2/2012 $13.85 1,835
(2) Represents the annual mortality cost of the life insurance that we
purchased necessary to fund the death benefit amount payable to the
director's named beneficiary pursuant to the split dollar agreements and
the Director DBO Plan, as described below.
(3) Other than the participation by Mr. Chaffin in the Director DBO Plan, Mr.
Chaffin does not receive any compensation for service on the board in
addition to compensation payable for his service as our employee. The life
insurance premiums associated with providing the death benefits to Mr.
Chaffin under the Director DBO Plan are included in the all other
compensation column of the Summary Compensation table.
41
(4) We recorded an accrued liability under FAS 158 of $739,396 as of December
31, 2006 to reflect our obligation to pay $1,639,344 to Mr. Lipford's
beneficiaries after his death, and recorded a FAS 106 expense of $76,519
during 2006 related to Mr. Lipford's post-service death benefits under the
Director DBO Plan, which is described below. The total FAS 158 liability
for directors, including Mr. Lipford and 5 retired directors is $3,149,674.
The total FAS 106 expense recorded in 2006 for directors, including Mr.
Lipford and 5 retired directors was $224,706.
(5) Mr. Swy elected to forgo receipt of his $10,000 cash retainer and to
receive in lieu an award of an equivalent value in shares of our common
stock.
DIRECTOR COMPENSATION PLAN. We have established the MBT Director
Compensation Plan (the "Director Plan"). Under the terms of the Director Plan,
non-employee directors may elect each year to have their quarterly cash retainer
paid in any combination of the following:
- cash paid on a quarterly basis;
- a deferred cash payment;
- deferred payment in MBT stock;
- MBT stock; and
- MBT stock options valued using the Black-Scholes stock option
pricing model.
Non-employee directors may elect each year to have their meeting fees paid in
any of the foregoing except MBT options. Amounts deferred are paid:
- in a lump sum at termination of such service as a director,
- over a 2-5 year period following termination of service, or
- a specified date indicated in the director's initial election.
Options granted and MBT stock issued to directors in connection with the
Director Plan are made pursuant to, and are subject to all of the terms of, the
MBT Long-Term Incentive Compensation Plan. The Director Plan has been amended to
comply with the requirements imposed upon nonqualified deferred compensation
arrangements by Section 409A of the Internal Revenue Code of 1986, as amended.
DIRECTOR DEATH BENEFITS. Until March, 2006, we maintained split-dollar life
insurance agreements with each of our directors, except for Mr. Carlton, Mr.
Chaffin, Ms. Shah and Ms. Wilson. In connection with the split-dollar
agreements, we had purchased single premium life insurance policies on the life
of each director. Under the terms of the split dollar agreement and related
endorsement agreement, each director had the right to designate the beneficiary
of the death proceeds of the policies according to the following formula:
YEARS OF SERVICE AMOUNT
- ---------------- ----------
Less than Three years $ 500,000
Three to Six years $ 600,000
Six to Ten years $ 750,000
Ten plus years $1,000,000
42
We were the sole owner of the policies and beneficiary of the remaining
death benefit proceeds. The split-dollar agreement was to remain in effect for
each director's life, regardless of whether the director remained a member of
the board. The director had no interest in the policy cash value.
During March 2006, we entered into agreements with each of our directors
canceling the split dollar agreements and replacing them with the MBT Director
Death Benefit Only Plan, which became effective March 1, 2006 (the "Director DBO
Plan"). The Director DBO Plan provides the same death benefits to be payable
directly by us to the director's beneficiaries that were provided under the
former split dollar agreement. Under the split dollar agreements, the directors
were taxed annually on the imputed cost of the insurance which provided the
death benefits. Upon the death of the director, the insurance proceeds received
by the beneficiary from the insurance policy were non-taxable as life insurance
proceeds. The Director DBO Plan does not require the annual imputation of
taxable income to the director, but beneficiaries are taxed on the receipt of
the death benefits paid to them by us. Accordingly, the Director DBO Plan
provides for a gross-up of the amount payable to the beneficiary in an amount
sufficient to cover all taxes paid by the beneficiaries. We purchased life
insurance policies on the lives of all participants in the Director DBO Plan in
amounts sufficient to cover our payment obligations to beneficiaries under the
Director DBO Plan, including the death benefit and the tax gross-up obligation.
Included in the Director Compensation table in column "g" All Other
Compensation, is the mortality charge incurred during 2006 for the benefit of
the directors associated with the split-dollar agreements and the Director DBO
Plan.
If any of the non employee directors had died on December 31, 2006, their
beneficiary would have received the following payments, consisting of the death
benefit and tax gross-up payment, assuming a tax rate of 39%. Carlton, Shah, and
Wilson $819,672; Daly $983,607; Huner, Miller, and Swy; $1,229,508, and McIntyre
and Lipford; $1,639,344.
As a part of its annual evaluation of director compensation, the
Compensation Committee of our board of directors, with the assistance of its
compensation consultant, Findley Davies, Inc., undertook a review the Director
DBO Plan. Under both the split dollar agreement arrangement and the Director DBO
Plan, directors were fully vested in their death benefits, which would continue
after termination of service on our board for their life. Based upon that
review, including the projected financial impact on the Corporation of the
Director DBO Plan under new accounting pronouncements applicable to
post-retirement obligations, nine directors voluntarily waived the post-service
death benefits provided under the Director DBO Plan.
During December 2006, all currently serving directors who are participants
in the Director DBO Plan, except for Mr. Lipford, agreed, in exchange for a $100
payment, to waive any death benefits after termination of service as a director
(other than by reason of death), except if a "change of control," as referred to
below, occurs during the director's service. In the event of such a change of
control, the director's death benefit would continue through his or her death,
including the tax gross-up provisions and credit for
43
years of service as a director. We have defined a Change in Control as an event
that is a: (i) Change in Ownership, ii) Change in Effective Control, or iii)
Change in Ownership of a Substantial Portion of Assets.
Change in Ownership. A change in ownership of the corporation occurs when
one person or a group acquires stock that combined with stock previously
owned, controls more than 50% of the value or voting power of the stock of
the corporation.
Change in Effective Control. A change in effective control occurs on the
date that, during any 12-month period, either (x) any person or group
acquires stock possessing 35% of the voting power of the corporation, or
(y) the majority of the board is replaced by persons whose appointment or
election is not endorsed by a majority of the board.
Change in Ownership of a Substantial Portion of Assets. A change in
ownership of a substantial portion of the assets occurs on the date that a
person or a group acquires, during any 12-month period, assets of the
corporation having a total gross fair market value equal to 40% or more of
the total gross fair market value of all of the corporation's assets.
Because of his age, length of service, and insurable status, Mr. Lipford
did not elect to execute the waiver and therefore his beneficiaries will be
entitled to receive the specified payments upon his death during or after his
service as a director. As of December 31, 2006 the Corporation had accrued a
current liability of $739,396 to reflect this obligation. Assuming Mr. Lipford
lives to his actuarial mortality age of 82, the Corporation will record
additional expense to provide him with this benefit of $899,948, resulting in a
fully accrued liability of $1,639,344 on the date of his death.
DIRECTOR INDEPENDENCE AND RELATED PARTY TRANSACTIONS
DIRECTOR INDEPENDENCE
The Governance Committee of the Board of Directors of the Corporation
undertakes a review of director independence annually and reports on its
findings to the full board in connection with its recommendation of nominees for
election to the Board of Directors. Based upon this review, the Board of
Directors has determined that all directors are independent, other than Mr.
Chaffin, the current President and Chief Executive Officer.
In making its determination regarding the independence of all directors and
nominees for director, the Governance Committee reviewed and the board
considered a number of specific transactions as follows:
Director Carlton. Monroe Bank & Trust paid NC, Inc. owned by Nicholas
Carlton, Peter H. Carlton's brother, $182,303 in 2006 for janitorial services at
its branch
44
offices. We anticipate paying NC, Inc. a comparable amount for these same
services in 2007. Monroe Bank & Trust has used NC, Inc. for janitorial services
for several years, beginning prior to Peter H. Carlton's service as our
director. We believe the terms, including price, on which NC, Inc.'s services
are provided are competitive and reflect an arms-length transaction. Peter H.
Carlton has no interest in NC, Inc. and receives no benefits from the
Corporation's use of its services.
Director Daly. Monroe Bank & Trust, pursuant to the terms of a lease
entered into on October 15, 2002, paid DM Company $78,059 in 2006, and over the
ten year term of the lease, payments will total $739,094 as lease payments for
the branch located at 2517 Fort Street, Wyandotte, Michigan. Mr. Daly is Manager
and part owner of DM Investments, LLC, doing business as DM Company, a real
estate investment firm. The lease agreement was entered into prior to Mr. Daly
becoming a director, and management believes the lease between the Corporation
and DM Company was made on an arms-length basis. In addition, Monroe Bank &
Trust purchased employee benefits insurance coverage in 2006 for which Daly
Merritt, Inc. received $88,067 in commissions. Monroe Bank & Trust anticipates
renewing these insurance policies in 2007, for which Daly Merritt, Inc. would
receive additional commissions anticipated to be approximately $92,470. Mr. Daly
is President, General Counsel and part owner of Daly Merritt, Inc.
Director Lipford. The law firm of Miller, Canfield, Paddock and Stone, PLC,
in which Mr. Lipford is a Salaried Senior Principal, provides us with legal
services and has done so for many years. Miller, Canfield, Paddock and Stone has
advised us that the revenues paid to Miller, Canfield, Paddock and Stone during
2006 were less than 0.05% of their total revenues for the same period. We
believe that the transactions with the firm are on terms no less favorable than
those that could be obtained from unrelated third parties.
TRANSACTIONS WITH RELATED PARTIES
Certain directors, nominees, and executive officers or their associates
were customers of and had transactions with the Corporation or its subsidiaries
during 2006. Transactions that involved loans or commitments by the Bank were
made in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and did not involve more than the
normal risk of collectability or present other unfavorable features. Except for
the specific transactions described above no director, executive officer or
beneficial owner of more than five percent of the Corporation's outstanding
voting securities (or any member of their immediate families) engaged in any
transaction (other than such a loan transaction as described) with the
Corporation during 2006, or proposes to engage in any transaction with the
Corporation, in which the amount involved exceeds $120,000.
45
REVIEW, APPROVAL OR RATIFICATION OF TRANSACTIONS WITH RELATED PERSONS
The Corporation's Governance Committee Charter requires that all related
party transactions be pre-approved by the Corporation's Governance Committee.
Excepted from that pre-approval requirement are routine banking transactions,
including deposit and loan transactions, between our subsidiaries and any
related party that are made in compliance with, and subject to the approvals
required by, all federal and state banking regulations. In making a
determination to approve a related party transaction the Corporate Governance
Committee will take into account, among other factors it deems appropriate,
whether the proposed transaction is on terms no less favorable than those
generally available to an unaffiliated third-party under the same or similar
circumstances and the extent of the related party's interest in the proposed
transaction.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires MBT Financial
Corp.'s executive officers, directors and more than ten percent shareholders
("Insiders") to file with the Securities and Exchange Commission and MBT
Financial Corp. reports of their ownership of MBT Financial Corp. securities.
Based upon written representations and copies of reports furnished to MBT
Financial Corp. by Insiders, all Section 16 reporting requirements applicable to
Insiders during 2006 were satisfied on a timely basis.
SELECTION OF AUDITORS
The Audit Committee has retained Plante & Moran, PLLC as the Corporation's
independent registered public accounting firm for 2007. Representatives of
Plante & Moran, PLLC will be in attendance at the Annual Meeting of
Shareholders, and such representatives will have an opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
OTHER BUSINESS
Management is not aware of any other matter which may be presented for
action at the meeting other than the matters set forth herein. Should any matter
other than those set forth herein be presented for a vote of the shareholders,
the proxy in the enclosed form directs the persons voting such proxy to vote in
accordance with their judgment.
DELIVERY OF DOCUMENTS TO SHAREHOLDERS SHARING AN ADDRESS
If you share an address with another MBT shareholder, you may request our
transfer agent, American Stock Transfer and Trust Company, to deliver one set of
voting materials to your address. You will then receive only one set of voting
materials at that address, unless otherwise requested by one or more of the
shareholders at that address. A separate proxy card is included in the voting
materials for each of these shareholders. If you have only received one set, you
may request separate copies of the voting materials
46
at no additional cost to you by calling American Stock Transfer and Trust
Company at (800) 937-9449 or by writing to American Stock Transfer and Trust
Company at American Stock Transfer and Trust Company, 59 Maiden Lane, New York,
NY 10038.
You may also contact American Stock Transfer and Trust Company by calling
or writing if you would like to receive separate voting materials for future
annual meetings.
You may request that we send you and the other shareholders who share an
address with you only one set of voting materials by calling American Stock
Transfer and Trust Company at (800) 937-9449 or by writing to American Stock
Transfer and Trust Company at American Stock Transfer and Trust Company, 59
Maiden Lane, New York, NY 10038.
We urge you to sign and return the enclosed proxy form as promptly as
possible whether or not you plan to attend the meeting in person.
47
PROXY FOR
MBT FINANCIAL CORP.
SHAREHOLDERS' ANNUAL MEETING
KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned holder of _____________
common shares of MBT Financial Corp. do hereby constitute and appoint with the
full power of substitution, H. Douglas Chaffin, James E. Morr, and John L.
Skibski my true and lawful attorneys and proxies, and each of them my true and
lawful attorney and proxy, to attend the annual meeting of shareholders of MBT
Financial Corp. to be held at the Monroe Bank & Trust headquarters, 10
Washington Street, Monroe, Michigan 48161, on Thursday, May 3, 2007 at 10:00
o'clock a.m., or at any adjournment thereof, and at such meeting or any
adjournment thereof, to vote the shares of stock of MBT Financial Corp. standing
in my name with respect to the following matters.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
ANNUAL MEETING OF SHAREHOLDERS OF
MBT FINANCIAL CORP.
MAY 3, 2007
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
| |
v Please detach along perforated line and mail in the envelope provided. v
__________________________________________________________________________________________________________________________________
| |
| THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTOR OF EACH OF THE NOMINEES LISTED BELOW. |
| PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X] |
|__________________________________________________________________________________________________________________________________|
|
1. Election of Directors - Te elect a board of Directors for | 2 To take any action which may be necessary or proper in
the ensuing year. | connection with the foregoing matters, or any other matter
| legally coming before the meeting, or any adjournments
NOMINEES: | thereof.
|
[ ] FOR ALL NOMINEES - Peter H. Carlton |
- H. Douglas Chaffin | I hereby give to said attorneys and proxies, and to each of them,
[ ] WITHHELD AUTHORITY - Joseph S. Daly | or to any substitute or substitutes, full power and authority to
FOR ALL NOMINEES - Thomas M. Huner | do any and all acts and things which I might or could do if
- Rocque E. Lipford | personally present, and hereby ratify and confirm all that said
[ ] FOR ALL EXCEPT - William D. McIntyre, Jr.| attorneys and proxies, and each of them, or their substitute or
(See instructions below) - Michael J. Miller | substitutes, might lawfully do or cause to be done by virtue
- Debra J. Shah | thereof.
- Philip P. Swy |
- Karen M. Wilson | In their discretion, the proxies are authorized to vote in their
| judgment upon such other business as properly may come before the
INSTRUCTION: To withhold authority to vote for any individual | meeting or any adjournment thereof. At the present time, the
nominee(s), mark "FOR ALL EXCEPT" and fill in the | Board of Directors knows of no other business to be presented at
circle next to each nominee you wish to withhold, | the meeting.
as shown here: _______________ |
| THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
_______________________________________________________________| DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
| DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
| NOMINEES FOR ELECTION AS DIRECTOR.
|
| THIS PROXY IS REVOCABLE AND IS SOLICITED ON BEHALF OF THE BOARD
| OF DIRECTORS.
|
_______________________________________________________________|
To change the address on your account, please check the |
box at the right and indicate your new address in the |
address space above. Please note that changes to the [ ]|
registered name(s) on the account may not be submitted |
via this method. |
_______________________________________________________________|
_______________ ___________ _______________ ____________
Signature of Shareholder | | Date: | | Signature of Shareholder | | Date: | |
|_______________| |___________| |_______________| |____________|
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.