DEF 14A 1 nc10020480x1_def14a.htm DEF 14A

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.   )
Filed by the Registrant ☒
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))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-12
INDEPENDENT BANK CORPORATION
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
 
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
(5)
Total fee paid:
 
 
 
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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Independent Bank Corporation
Proxy Statement and Notice of 2021
Annual Meeting of Shareholders

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Independent Bank Corporation
4200 East Beltline, Grand Rapids, Michigan, 49525
March 8, 2021
Dear Fellow Shareholder,
It is our pleasure to invite you to attend the 2021 Annual Meeting of Shareholders of Independent Bank Corporation at 3:00 p.m., Eastern Time, on Tuesday, April 20, 2021. We will be conducting our annual Meeting of Shareholders by means of remote communication via the Internet. To attend the meeting, please log on to the Internet at www.virtualshareholdermeeting.com/IBCP2021. At this site you will be able to vote electronically and submit questions during the meeting. You will need the 16 digit control number included with these proxy materials to vote or submit questions during the meeting.
We are again providing proxy materials to our shareholders primarily through the Internet. We are pleased to use this process, which allows our shareholders to receive proxy materials in an expedited manner, while significantly lowering the costs of conducting our Annual Meeting. On or about March 8, 2021, we mailed to our shareholders of record (other than those who previously requested electronic delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access this proxy statement and our annual report online. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request them. The Notice of Internet Availability of Proxy Materials instructs you on how to electronically access and review all of the information contained in this proxy statement and the annual report, and it provides you with information on voting. The proxy materials available online include our 2021 proxy statement and our 2020 annual report, which summarizes Independent Bank Corporation’s 2020 results and includes our 2020 consolidated financial statements.
Whether or not you plan to attend the Annual Meeting, please submit your proxy promptly so that your shares will be voted as you desire.
Sincerely,

William B. Kessel
President and Chief Executive Officer

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PROXY STATEMENT
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INDEPENDENT BANK CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 20, 2021
 
 
Date:
April 20, 2021
 
Time:
3:00 p.m., Eastern Time
 
Virtual Meeting URL:
www.virtualshareholdermeeting.com/IBCP2021
 
We are holding the 2021 Independent Bank Corporation Annual Meeting of Shareholders for the following purposes:
1.
To elect four directors to serve three-year terms expiring in 2024;
2.
To ratify the appointment of Crowe LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021;
3.
To participate in an advisory (non-binding) vote to approve the compensation of our executives, as disclosed in this proxy statement;
4.
To consider and vote upon the approval of the Independent Bank Corporation 2021 Long-Term Incentive Plan (the “LTIP”): and
5.
To transact any other business that is properly submitted before the Annual Meeting or any adjournments or postponements of the Annual Meeting.
The record date for the Annual Meeting is February 19, 2021 (the “Record Date”). Only shareholders of record at the close of business on the Record Date can vote at the Annual Meeting.
Under rules adopted by the Securities and Exchange Commission, we are furnishing proxy materials to our shareholders primarily via the Internet this year. Shareholders of record have been mailed a Notice of Internet Availability of Proxy Materials on or around March 8, 2021, which provides them with instructions on how to vote and how to electronically access the proxy materials on the Internet. It also provides them with instructions on how to request paper copies of these materials, should they so desire.
Independent Bank Corporation will have a list of shareholders who can vote at the Annual Meeting available for inspection by shareholders on the date of the Annual Meeting and, for 10 days prior to the Annual Meeting, during regular business hours at the offices of the Company – 4200 East Beltline, Grand Rapids, Michigan 49525.
Whether or not you plan to attend the Annual Meeting and whether you own a few or many shares of stock, the Board of Directors urges you to vote promptly. Registered holders may vote through the Internet, by telephone or, once you receive (upon your request) a printed proxy card in the mail, by completing, dating, signing and returning the proxy card. You will find instructions for voting in the “Questions and Answers” section of the proxy statement.
By Order of the Board of Directors,

Gavin A. Mohr
Executive Vice President, Chief Financial Officer and Corporate Secretary
March 8, 2021
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Independent Bank Corporation
4200 East Beltline
Grand Rapids, Michigan 49525
2021 PROXY STATEMENT QUESTIONS AND ANSWERS
The following is information regarding the meeting and the voting process, presented in a question and answer format.
What is a proxy?
A proxy is your authorization for someone else to vote for you in the way that you want to vote and allows you to be represented at our Annual Meeting if you are unable to attend the meeting. When you complete and submit a proxy card, use the automated telephone voting system, or use the Internet voting system, you are submitting a proxy. The Board of Directors of Independent Bank Corporation is soliciting this proxy. As used in this proxy statement, the terms “the Company,” “IBCP,” “we,” “our” and “us” all refer to Independent Bank Corporation and its subsidiaries.
What is a proxy statement?
A proxy statement is a document the United States Securities and Exchange Commission (“SEC”) requires to explain the matters on which you are asked to vote on by proxy and to disclose certain related information. This proxy statement was first made available to our shareholders on or about March 8, 2021.
Why am I receiving my proxy materials electronically instead of receiving paper copies through the mail?
Under rules adopted by the SEC, we are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of the proxy statement and annual report. In addition to reducing the amount of paper used in producing these materials, this method lowers the costs associated with mailing the proxy materials to shareholders.
On or about March 8, 2021, we mailed to our shareholders of record (other than those who previously requested electronic delivery) a Notice of Internet Availability of Proxy Materials containing instructions on how to access this proxy statement and our annual report online. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials in the mail unless you specifically request them. The Notice of Internet Availability of Proxy Materials instructs you on how to electronically access and review all of the information contained in this proxy statement and the annual report, and it provides you with information on voting.
If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a paper copy of our proxy materials, follow the instructions contained in the Notice of Internet Availability of Proxy Materials about how you may request to receive your materials in printed form on a one-time or ongoing basis.
Where is this year’s proxy statement available electronically?
You may view this proxy statement and the 2020 annual report electronically by going to www.proxyvote.com.
Who can vote?
Only record holders of Independent Bank Corporation common stock at the close of business on February 19, 2021, the Record Date, can vote at the Annual Meeting. Each shareholder of record has one vote, for each share of common stock owned, on each matter presented for a vote at the Annual Meeting.
What is the difference between a shareholder of record and a “street name” holder?
If your shares are registered directly in your name, you are considered the shareholder of record with respect to those shares.
If your shares are held in a stock brokerage account or by a bank or other nominee, then the brokerage firm, bank or other nominee is considered to be the shareholder of record with respect to those shares. However, you still are
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considered the beneficial owner of those shares, and your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct the brokerage firm, bank or other nominee how to vote their shares. See “How can I vote?” below.
How can I vote?
If your shares are held in “street name,” follow the instructions provided by your bank, broker, or other nominee. If your shares are held in your name, you can vote in one of four ways:
Via Internet before the Annual Meeting: Go to www.proxyvote.com and follow the instructions. You may do this at your convenience, 24 hours a day, 7 days a week. You will need to have your proxy card or Notice of Internet Availability of Proxy Materials in hand. The deadline for Internet voting is 11:59 p.m., Eastern Time, April 19, 2021.
By Telephone: Call toll-free 1-800-690-6903 and follow the instructions. You may do this at your convenience, 24 hours a day, 7 days a week. You will need to have your proxy card or Notice of Internet Availability of Proxy Materials in hand. The deadline for voting by phone is 11:59 p.m., Eastern Time, April 19, 2021.
In Writing: Complete, sign, date, and return the proxy card in the return envelope provided with your proxy card.
At the Annual Meeting: To attend the meeting virtually and cast your vote, please log on to the Internet at www.virtualshareholdermeeting.com/IBCP2021. At this site you will be able to vote electronically and submit questions during the meeting.
If you submit a proxy to the Company before the Annual Meeting, whether by proxy card, by telephone or by Internet, the persons named as proxies will vote your shares as you direct. If no instructions are specified, the proxy will be voted for four directors nominated by the Board of Directors; for the ratification of the appointment of Crowe LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021; for the non-binding, advisory proposal to approve executive compensation; and for the approval of the Independent Bank Corporation 2021 Long-Term Incentive Plan (the “LTIP”).
Can I revoke my proxy?
You may revoke a proxy at any time before the proxy is exercised by:
(1)
delivering written notice of revocation to the Corporate Secretary of Independent Bank Corporation, 4200 East Beltline, Grand Rapids, Michigan 49525;
(2)
submitting another properly completed proxy card that is later dated;
(3)
voting by telephone at a subsequent time;
(4)
voting by the Internet at a subsequent time; or
(5)
voting at the Annual Meeting.
If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your brokerage firm, bank or other nominee. Your brokerage firm, bank or other nominee should have enclosed or otherwise provided a voting instruction card for you to use in directing the brokerage firm, bank or other nominee how to vote your shares.
How many votes do we need to hold the Annual Meeting?
In order to carry on the business of the meeting, we must have a quorum. This means that at least a majority of the shares that are outstanding and entitled to vote as of the Record Date must be present in person or by proxy.
Shares are counted as present at the meeting if the shareholder either:
has properly submitted a signed proxy card or other form of proxy (through the telephone or Internet); or
is present at the Annual Meeting.
On the Record Date, there were 21,891,206 shares of common stock issued and outstanding. Therefore, at least 10,945,604 shares need to be present at the Annual Meeting in order for there to be a quorum.
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What matters will be voted on at the meeting?
You are being asked to vote on: (i) the election of four directors to serve three-year terms expiring in 2024; (ii) the ratification of the appointment of Crowe LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021; (iii) a non-binding advisory proposal on the compensation of our named executives, otherwise known as a “say-on-pay” proposal; and (iv) the approval of the Independent Bank Corporation 2021 Long-Term Incentive Plan (the “LTIP”). These matters are more fully described in this proxy statement.
How many votes are needed for each proposal?
A majority of votes cast at the meeting will approve each matter that arises at the Annual Meeting. Under the Company’s majority vote standard for the election of directors (described in more detail below), in order to be elected, a nominee must receive a greater number of votes cast “for” his or her election than the number of votes cast “against.” Because the say-on-pay vote is advisory, it will not be binding upon the Board of Directors or the compensation committee.
Also, please remember that the election of directors, the say-on-pay vote, and the approval of our LTIP are each considered non-routine matters. Consequently, if your shares are held by a broker or other fiduciary, it cannot vote your shares on these matters unless it has received voting instructions from you.
Abstentions and broker non-votes, if any, will not be counted as votes cast but will count for purposes of determining whether or not a quorum is present. So long as a quorum is present, abstentions and broker non-votes will have no effect on any of the matters presented for a vote at the Annual Meeting.
What happens if a nominee is unable to stand for re-election?
The Board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than four nominees. We have no reason to believe any nominee will be unable to stand for re-election.
What options do I have in voting on each of the proposals?
You may vote “for,” “against,” or “abstain” on each proposal properly brought before the meeting.
Where do I find the voting results of the meeting?
If available, we will announce voting results at the Annual Meeting. The voting results will also be disclosed on a Form 8-K that we will file with the SEC within four business days after the meeting.
Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to be Held on April 20, 2021.
This proxy statement along with our annual report is available at: www.proxyvote.com.
A copy of Independent Bank Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC, may be obtained without charge upon written request to the Chief Financial Officer, Independent Bank Corporation, 4200 East Beltline, Grand Rapids, Michigan 49525.
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VOTING SECURITIES AND RECORD DATE
As of February 19, 2021, the Record Date for the Annual Meeting, we had issued and outstanding 21,891,206 shares of common stock. Shareholders are entitled to one vote for each share of our common stock registered in their names at the close of business on the Record Date. Votes cast at the meeting and submitted by proxy are counted by the inspectors of the meeting, who are appointed by us.
As of February 19, 2021 no person was known by us to be the beneficial owner of 5% or more of our common stock, except as follows:
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of
Outstanding
Black Rock, Inc.(1)
55 East 52nd Street
New York, NY 10055
2,189,047
10.0%
 
 
 
FJ Capital Management, LLC(2)
1313 Dolley Madison Blvd, Ste 306
McLean, VA 22101
1,491,458
6.81
 
 
 
The Vanguard Group(3)
100 Vanguard Boulevard
Malvern, PA 19355
1,106,991
5.06
(1)
Based on information set forth in Schedule 13G filed with the SEC on February 10, 2021 by BlackRock, Inc. (“BlackRock”). The Schedule 13G reports that the shares of common stock listed above are held of record by clients of BlackRock, in its capacity as investment adviser.
(2)
Based on information set forth in Schedule 13G filed with the SEC on February 10, 2021 by FJ Capital Management, LLC.
(3)
Based on information set forth in Schedule 13G filed with the SEC on February 10, 2021 by The Vanguard Group.
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PROPOSAL I
SUBMITTED FOR YOUR VOTE – ELECTION OF DIRECTORS
Our Amended and Restated Articles of Incorporation provide that our Board be divided into three classes of nearly equal size, with the classes to hold office for staggered terms of three years each. Our Bylaws permit our Board of Directors to establish the size of our Board. Our current Board has fixed the size of our Board at 11 members. Christina L. Keller, Ronia F. Kruse, Michael M. Magee, Jr., and Matthew J. Missad are nominees to serve three-year terms expiring in 2024. All of the nominees are incumbent directors previously elected by our shareholders except for Ms. Kruse who was appointed to the Board in October 2019.
The proxies cannot be voted for a greater number of persons than the number of nominees named. The persons named as proxy holders in the accompanying proxy will vote for the above named nominees unless a shareholder directs otherwise. In the event that any nominee is unable to serve, which is not now contemplated, our Board may designate a substitute nominee. The proxy holders, to the extent they have been granted authority to vote in the election of directors, may or may not vote for a substitute nominee.
The vote required for the election of a director shall, except in a contested election, be the affirmative vote of a majority of the votes cast in the election of a nominee. A “majority of the votes cast” means that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. ‘Abstentions’ and broker non-votes are not counted as votes cast either “for” or “against” a director’s election. In a contested election, directors are elected by a plurality of the votes cast at the meeting of shareholders. An election is considered contested if there are more nominees for election than positions on the Board of Directors to be filled by election at that meeting.
In any non-contested election of directors, any director nominee who receives a greater number of votes cast against his or her election than in favor of his or her election is required to immediately tender his or her resignation to the Board. The Nominating and Corporate Governance Committee will make a recommendation to the Board on whether to accept or reject the resignation or whether other action should be taken. The Board will act on the Committee’s recommendation and publicly disclose its decision within 90 days from the date of the certification of the election results for that meeting.
In addition to the nominees for director, each director whose term will continue after the meeting is named in the following table. Each nominee and director owned beneficially, directly or indirectly, the number of shares of common stock set forth opposite their respective names. The stock ownership information and the information relating to each nominee’s and director’s age, principal occupation or employment for the past five years has been furnished to us as of February 19, 2020, by the respective nominees and directors.
The Board of Directors recommends a vote FOR the election of each of the four nominees.
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Amount and
Nature of
Beneficial
Ownership(1)
Percent of
Outstanding
Beneficial
Ownership
(and percent)
Including
Certain
Deferred
Shares(2)
Nominees for a three-year term expiring 2024
 
 
 
Christina L. Keller (age 39)
12,206
.06%
17,776
Ms. Keller has been a member of our Board since December 2016. Since October 2019, Ms. Keller has served as the President & CEO of Cascade Engineering (CE). CE is a global manufacturing company based in Grand Rapids, Michigan. Prior to becoming President & CEO of CE, Ms. Keller served in a variety of roles at the organization since 2009. Her role as an executive of a global manufacturing company and her leadership skills provide an important resource to the Board and management.
 
 
(.08%)
Ronia F. Kruse (age 50)
6,376
Ms. Kruse was appointed to the Board in October 2019. She is the founder and CEO of OpTech, LLC and OpTech Solutions. These firms provide solutions for clients in the areas of analytics, cyber security, application development and connected vehicles. Prior to founding this business in 1999, Ms. Kruse was a senior tax consultant for a big 4 CPA firm. She is a certified public accountant. Her role as the CEO of a technology consulting firm, her background at a public accounting firm and her leadership skills provide an important resource to the Board and management.
 
 
(.03%)
Michael M. Magee, Jr. (age 64)
37,112
.17%
37,112
Mr. Magee is the Chairman of the Board of Directors. Prior to January 1, 2013, Mr. Magee was the Chief Executive Officer of the Company since January 1, 2005, Executive Vice President and Chief Operating Officer since 2004 and prior to that he served as President and Chief Executive Officer of Independent Bank since 1993. He became a director of the Company in 2005. Mr. Magee has over 33 years of service in the financial services industry and served as our Chief Executive Officer for 8 years. That position and those experiences make him a particularly important component of the Board, and his prior roles with the Company allow him to be particularly effective as Chairman of the Board.
 
 
(.17%)
Matthew J. Missad (age 60)
18,924(3)
.09%
31,272
Mr. Missad has been a member of our board since October 2014. Mr. Missad is the Chief Executive Officer of UFP Industries, Inc. (“UFP”), a position he has held since July, 2011. UFP is a $5.1 billion (revenue) supplier of wood, wood composite and other products to the retail, construction and industrial markets around the globe. From 1996 to 2011, Mr. Missad served as Executive Vice President, General Counsel and Secretary of UFP. He also serves as a director of UFP. In the fall of 2015, Mr. Missad was listed in Fortune Magazine’s “Top 50 Corporate Leaders.” Mr. Missad’s experience as the chief executive officer of a publicly-held corporation, as well as a director of that corporation, provides a unique resource to the Board and management.
 
 
(.14%)
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Amount and
Nature of
Beneficial
Ownership(1)
Percent of
Outstanding
Beneficial
Ownership
(and percent)
Including
Certain
Deferred
Shares(2)
Directors whose term expire in 2022
 
 
 
Dennis W. Archer Jr. (age 51)
1,000
1,947
Mr. Archer has been a member of our board since October 2020. Mr. Archer is the CEO of Ignition Media Group, a leading integrated marketing agency, and president and founding partner of Archer Corporate Services (ACS). ACS is one of the nation’s leading marketing fulfillment service firms, serving clients such as General Motors, Procter & Gamble, Johnson & Johnson, Prestige Brands and Blue Buffalo. Mr. Archer’s hospitality holding company, Congress Hospitality, is creator and managing partner of Central Kitchen + Bar. Previously Mr. Archer was a director of Main Street Bank, where he served on the audit committee, loan committee and CRA committee. Mr. Archer holds a law degree from the University of Michigan. Mr. Archer’s entrepreneurial experience, background in community banking and community involvement in Southeast Michigan make him a valuable contributor to our Board.
 
 
(.01%)
William J. Boer (age 65)
36,383
.17%
36,383
Mr. Boer is President and Founder of Grey Dunes, an independent family office advisory firm in Grand Rapids, Michigan. He has been a member of our board since 2012. From 1995 to 2005, Mr. Boer served as Vice President and Chief Operating Officer of RDV Corporation, the family office of the Richard M. DeVos family. Prior to joining RDV Corporation in 1995, Mr. Boer was President of Michigan National Bank, Grand Rapids, and from 1987 to 1993 was Vice President for Administration and Finance at Calvin College. Mr. Boer’s past banking experience, his investment advisory expertise, and his broad experience in executive leadership roles within a number of industries provides important skill sets to our Board.
 
 
(.17%)
Joan A. Budden (age 59)
6,742
.03%
26,493
Ms. Budden has been a director since July 2015. She was President & CEO of Priority Health from January 2016 to January 2021, one of Michigan’s largest health plans with over $3 billion in revenue. Ms. Budden accepted the position having served as Chief Marketing Officer for Priority Health since 2009. Ms. Budden’s responsibilities as Chief Marketing Officer included leading strategic positioning and profitable growth for Priority Health’s individual, group commercial and government markets. Ms. Budden has more than 25 years of health insurance experience. She has held a number of leadership and executive management positions in the health insurance industry that include leading the individual consumer division, project management office and corporate strategy departments for Blue Cross Blue Shield of Michigan prior to joining Priority Health. Ms. Budden’s experience in a highly competitive and regulated industry that is undergoing significant change, as well as her marketing expertise and leadership skills, make her an important contributor to the Board.
 
 
(.12%)
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Amount and
Nature of
Beneficial
Ownership(1)
Percent of
Outstanding
Beneficial
Ownership
(and percent)
Including
Certain
Deferred
Shares(2)
Michael J. Cok (age 59)
12,991
Mr. Cok has been a member of the board since June 2017. He is the President of Foremost, a division of Farmers Group, Inc., which manages the insurance operations of the Farmers Insurance Group of Exchanges (Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance Exchange). He also serves as President of Foremost Insurance Company, Grand Rapids, Michigan, and its subsidiaries, which are wholly-owned subsidiaries of the Exchanges. Farmers Group, Inc. is a wholly-owned subsidiary of the Zurich Insurance Group Ltd. family of insurance companies. Foremost provides a variety of specialty, personal lines insurance products throughout the United States. Mr. Cok is a certified public accountant and is active in a variety of charitable and civic organizations. Mr. Cok’s role as an executive of a large insurance company, his accounting background, and his community involvement make him a valuable contributor to the Board.
 
 
(.06%)
Directors with terms expiring in 2023
 
 
 
Terance L. Beia (age 61)
36,289
.17%
36,289
Mr. Beia was appointed to the Board in April 2018 in conjunction with the Company’s acquisition of Traverse City State Bank (“TCSB”). He is active in the oil and gas exploration industry and he owns and manages commercial and residential real estate holdings in the Traverse City area. He served on the TCSB Board of Directors for 17 years. Mr. Beia’s business experience in the Traverse City area and long-term service with TCSB make him a valuable contributor to our Board.
 
 
(.17%)
Stephen L. Gulis, Jr. (age 63)
52,833
Mr. Gulis retired in 2008 as the Executive Vice President and President of Wolverine Worldwide Global Operations Group. He served as Executive Vice President, CFO and Treasurer of Wolverine Worldwide prior to his appointment as President, Global Operations. He became a director of IBCP in 2004. Mr. Gulis’ prior experience as a chief financial officer of a major corporation is an important skill set to have on the Board. In addition, his prior experience with a corporation that is subject to the reporting requirements of the Securities Exchange Act of 1934 provides additional value to the Board.
 
 
(.24%)
William B. Kessel (age 56)
132,818(4)
.61%
132,818
Mr. Kessel serves as President and CEO of IBCP and Independent Bank. He became a director of IBCP on January 1, 2013. Prior to his appointment as CEO as of January 1, 2013, Mr. Kessel served as President since April 1, 2011, and as Chief Operating Officer from 2007 to 2011. He also served as President of Independent Bank (prior to the consolidation of our four bank charters) from 2004 to 2007. Prior to joining IBCP in 1994, Mr. Kessel worked for a regional certified public accounting firm in their financial institutions group. Mr. Kessel has over 30 years of service in the financial services industry. His positions with the Company and those experiences make him a particularly important component of the Board.
 
 
(.61%)
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(1)
Except as described in the following notes, each nominee or incumbent director owns the shares directly and has sole voting and investment power or shares voting and investment power with his or her spouse under joint ownership.
(2)
Certain of our directors have made elections to defer fees they received or will receive for service as a director and to have such fees paid to them in shares of our common stock after their retirement from the Board. These elections were made pursuant to the terms of the Deferred Compensation and Stock Purchase Plan for Non-employee Directors described under “Director Compensation” below. Until such shares are issued to the director, the director does not have the right to vote or sell the shares, so the shares are not deemed “beneficially owned” by the director for purposes of this table. However, because these shares represent a material portion of certain directors’ investment in the Company, we are presenting them in this additional column. As of February 19, 2021, a total of 111,110 of our outstanding shares of common stock have been issued to, and are being held by, a trust to be issued to directors pursuant to the foregoing plan.
(3)
Includes 11,098 shares held in a foundation that Mr. Missad has voting and investment power over.
(4)
Includes 6,448 shares allocated to Mr. Kessel’s account in the Independent Bank Corporation Employee Stock Ownership Plan (“ESOP”).
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of our common stock by our “Named Executives” (listed in the Summary Compensation Table below) and by all of our directors and executive officers as a group as of February 19, 2021.
Name
Amount and Nature of
Beneficial Ownership(1)(2)
Percent of
Outstanding
William B. Kessel
132,818
.61
Gavin A. Mohr
116,975(3)
.53
Patrick J. Ervin
23,325
.11
Stefanie M. Kimball
67,225
.31
Dennis J. Mack
37,511
.17
Robert N. Shuster
2,460
.01
Stephen A. Erickson
All executive officers and directors as a group (consisting of 20 persons)
1,086,121(4)
4.96
(1)
In addition to shares held directly or under joint ownership with their spouses, beneficial ownership includes shares that are issuable under options exercisable within 60 days, and shares that are allocated to their accounts as participants in the ESOP.
(2)
Does not include shares that may be issued pursuant to performance unit shares granted to each Named Executive in January 2019, 2020 and 2021, as described under “Executive Compensation” below.
(3)
Includes 111,110 shares of our outstanding common stock being held in trust for issuance to directors pursuant to our Deferred Compensation and Stock Purchase Plan for Non-employee Directors. See footnote (2) on page 13 above. As co-trustee, Mr. Mohr shares voting and investment power over these shares and is therefore deemed to beneficially own these shares for purposes of this table. The executive officer has no pecuniary interest in the shares.
(4)
Beneficial ownership is disclaimed as to 503,012 shares, all of which are held in the ESOP for employees other than executive officers.
CORPORATE GOVERNANCE AND BOARD MATTERS
CORPORATE GOVERNANCE PRINCIPLES
For many years, our Board of Directors has been committed to sound and effective corporate governance practices. The Board has documented those practices in our Corporate Governance Principles. These principles address director qualifications, periodic performance evaluations, stock ownership guidelines and other corporate governance matters. Under those principles, a majority of the members of our Board must qualify as independent under the rules established by the NASDAQ stock market on which our stock trades. Our principles also require the Board to have an audit committee, compensation committee and a nominating and corporate governance committee, and that each member of those committees qualifies as independent under the NASDAQ rules. Our Corporate Governance Principles, as well as the charters of each of the foregoing committees, are available for review on our website at www.IndependentBank.com under the “Investor Relations” tab.
CODE OF BUSINESS CONDUCT AND ETHICS AND CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
Our Board has also adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. In addition, the Board has adopted a Code of Ethics for Senior Financial Officers, which includes our principal executive officer, principal financial officer and controller. Each of these codes is posted on our website and
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can also be obtained free of charge through our Corporate Secretary at 4200 East Beltline, Grand Rapids, Michigan 49525. Any changes to or waivers of either code for our CEO or senior financial officers will be disclosed on our website.
DETERMINATION OF INDEPENDENCE OF BOARD MEMBERS
As required by our Corporate Governance Principles, our Board has determined that each of the following directors qualifies as an “Independent Director”, as such term is defined in The NASDAQ Stock Market Listing Rule 5605(a)(2): Terance L. Beia, William J. Boer, Joan A. Budden, Michael J. Cok, Stephen L. Gulis, Christina L. Keller, Ronia Kruse, Michael M. Magee, Jr., Matthew J. Missad and Dennis W. Archer Jr. Our Board has also determined that each member of the three committees of the Board meets the independence requirements applicable to those committees as prescribed by the NASDAQ listing requirements, and, as to the audit committee, under applicable SEC rules. There are no family relationships between or among our directors, nominees or executive officers.
MEETING ATTENDANCE
Each of our directors is expected to attend all meetings of the Board, applicable committee meetings, and our Annual Meeting of Shareholders. All of our directors (who were on the Board at the time) attended our 2020 annual shareholders meeting. During 2020, the Board held 13 meetings; each director (who was on the Board at the time) attended at least 75% of the aggregate number of meetings of our Board and Board committees on which they served.
BOARD COMMITTEES AND FUNCTIONS
Our Board of Directors has three standing committees: audit, compensation and nominating and corporate governance. Copies of the charters of each of these committees are available on our Website at www.IndependentBank.com.
Our audit committee, which met on eight occasions in 2020, consists of directors Gulis (Chairman), Archer, Cok, and Kruse. Our Board has determined that Mr. Gulis qualifies as the “Audit Committee Financial Expert,” as that term is defined in SEC rules. The primary purpose of the audit committee is to assist the Board in overseeing (1) the quality and integrity of our accounting, auditing and reporting practices, (2) the performance of our internal audit function and independent auditor, and (3) our disclosure controls and system of internal controls regarding finance, accounting, legal compliance, and ethics that management and our Board have established.
Our compensation committee, which met on three occasions in 2020, consists of directors Budden (Chairman), Keller and Missad. This committee reviews and makes recommendations to the Board on executive compensation matters, including any benefits to be paid to our executives and officers. At the beginning of each year, our compensation committee meets to review our CEO’s performance against the Company’s goals and objectives for the preceding year and also to review and approve the corporate goals and objectives that relate to CEO compensation for the forthcoming year. This committee also evaluates the CEO and other key executives’ compensation against (1) pre-established, measurable performance goals and budgets, (2) generally comparable groups of executives, and (3) external market trends. Following this review, this committee recommends to the full Board the annual base salary, annual incentive compensation, total compensation and benefits for our CEO. This committee is also responsible for approving equity-based compensation awards under our Long-Term Incentive Plan. The base salaries of executive officers, other than our CEO, are established by our CEO.
This committee is also responsible to recommend to the full Board the amount and form of compensation payable to directors. From time to time, the committee relies upon third party consulting firms to assist the committee in its oversight of the Company’s executive compensation policy and our Board compensation. This is discussed in more detail in the “Compensation Discussion and Analysis” included in this proxy statement.
Our nominating and corporate governance committee, which met on three occasions in 2020, consists of directors Boer (Chairman), Beia and Gulis. This committee is responsible for making recommendations on the qualifications and standards to serve on our Board, identifying Board candidates and monitoring our corporate governance standards. In view of the recent retirements of Company Board members, the committee has been active in seeking and evaluating qualified candidates to serve on the Board. This effort led to the recent appointments to the Board of Mr. Archer in 2020, Ms. Kruse in 2019, Mr. Cok in 2017 and Ms. Keller in 2016 as well as the appointment of Mr. Beia in 2018 in conjunction with the TCSB acquisition. These individuals were recommended by a number of sources, including non-management directors and management.
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Our Amended and Restated Articles of Incorporation contain certain procedural requirements applicable to shareholder nominations of directors. Shareholders may nominate a person to serve as a director if they provide written notice to us not later than 60 and no more than 90 days prior to the first anniversary date of the preceding year’s annual meeting. The notice must include (1) name and address of the shareholder who intends to make the nomination and of the person or persons nominated, (2) a representation that the shareholder is a current record holder and will continue to hold those shares through the date of the meeting and intends to appear in person or by proxy at the meeting, (3) a description of all arrangements between the shareholder and each nominee, (4) the information regarding each nominee as would be required to be included in a proxy statement filed under Regulation 14A of the Securities Exchange Act of 1934 had the nominee been nominated by the Board of Directors, and (5) the consent of each nominee to serve as director. Our nominating and corporate governance committee does not currently utilize the services of any third party search firm to assist in the identification or evaluation of Board member candidates. However, this committee may use the services of such a firm in the future if it deems it necessary or appropriate.
The nominating and corporate governance committee has not established specific, minimum qualifications for director nominees. Our Corporate Governance Principles mandate that directors possess the requisite background and experience to make a strong, positive contribution to Independent Bank Corporation and our shareholders. This committee is responsible for reviewing the qualifications and independence of the members of the Board. This assessment includes a consideration of the skills, experience and diversity of the prospective candidates. In light of these general requirements, this committee reviews the suitability of each person nominated to our Board. These same standards and suitability requirements are applicable to all director nominees, regardless of the party making the director nomination. While the Board does not have a formal policy regarding the consideration of nominee diversity, this committee does consider diversity in its identification of director candidates. Diversity in business, industry and professional experience, education, and training, as well as an individual’s general background, benefits our Company by increasing the range of skills and perspectives of our Board and enhances its ability to govern the affairs of the Company.
The nominating and corporate governance committee has not received any recommended director nominations from any of our shareholders in connection with our 2021 Annual Meeting. Each of the nominees that are standing for election as directors at the 2021 Annual Meeting are incumbent directors that were previously elected by our shareholders, except for Ms. Kruse who was appointed to our board in October 2019.
MAJORITY VOTING
In January 2017 our Board of Directors approved an amendment to our Bylaws to provide for majority voting for the election of directors. This majority voting standard is described above under “Proposal I Submitted for Your Vote – Election of Directors.”
LEADERSHIP STRUCTURE AND THE BOARD’S ROLE IN RISK OVERSIGHT
Our Board has separated the positions of the Company’s Chief Executive Officer and Chairman of the Board. Mr. Kessel serves as our CEO and Mr. Magee serves as Chairman of the Board. Further, Mr. Boer serves as the Lead Independent Director in the instance where the Board meets without the presence of either the Chairman or CEO. In addition to this structure, the Board regularly meets in executive session, without the presence of management. The Board may also meet without the presence of any directors who are not considered independent directors.
Our Board oversees the Company’s risk management, satisfying itself that our risk management practices are consistent with our corporate strategy and are functioning appropriately. While a degree of risk is inherent in any business activity, our Board strives to ensure that risk management is incorporated into the Company’s culture, and to foster risk-aware and risk-adjusted decision-making throughout the organization. Our risk management processes bring to the Board’s attention our most material risks and permit the Board to understand and evaluate how those risks interrelate and how management addresses them.
Our Board performs its risk oversight function in several ways. The Board establishes standards for risk management by approving policies that address and mitigate the Company’s most material risks. These include policies addressing credit risk, interest rate risk, capital risk, and liquidity risk, as well as Bank Secrecy Act/Anti-Money Laundering compliance. The Board also monitors, reviews, and reacts to our risks through various reports presented by management, internal and external auditors, and regulatory examiners.
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The Board conducts certain risk oversight activities through its committees with direct oversight over specific functional areas. Our audit committee’s risk oversight functions include:
Approving the independent auditor and its annual audit plan, as well as our Internal Audit Department annual plan; and,
Receiving periodic reports from our independent auditors and our Internal Audit Department.
Our compensation committee most closely monitors the risks to which our compensation policies and practices could subject us. In performing these functions, this committee considers input from the Company’s senior risk officers and outside legal counsel. For 2020 compensation, this Committee reviewed the incentive plans for the Company to determine whether those plans subject us to unnecessary or excessive risk or motivate staff members to manipulate the Company’s earnings. In conducting its review, this committee considered asset quality, asset valuations, oversight and treatment of certain non-performing assets and the introduction of new products and services. As a result of that evaluation and an analysis of how the plans operate in practice, this committee concluded that our incentive plans do not subject the Company to unnecessary or excessive risk or motivate staff members to manipulate the Company’s earnings.
Our nominating and corporate governance committee’s role in risk oversight includes recommending director candidates with appropriate experience and skills to understand the Company’s risk profile and provide effective oversight over our material risks.
Our Board does not have a separate risk committee, but instead believes that the entire Board is responsible for overseeing the Company’s risk management. The Board helps ensure that management is properly focused on risk by, among other things, reviewing and discussing the performance of senior management and business lines leaders and conducting succession planning for key leadership positions at the Company. Since July 2012, Stefanie Kimball has served as our Chief Risk Officer. Ms. Kimball is charged with overseeing the Company’s risk management function and, in this capacity, works closely with the Company’s internal audit department. In addition to regular reports from each of the Board’s committees, our Board receives reports, at each regularly scheduled Board meeting, from the Chief Risk Officer as well as other members of the Company’s management on the Company’s most material risks and the degree of its exposure to those risks. These include reports on the Company’s credit risk, interest rate risk, capital risk, regulatory risk, liquidity risk, cyber-security and information technology risk and contingency planning. As part of the Company’s risk management function, management conducts and oversees its informational security training program for Company employees.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD
The Board of Directors has implemented a process by which a shareholder may send written communications to the Board’s attention. Any shareholder desiring to communicate with the Board or one or more of our directors may send a letter addressed to the Company’s Corporate Secretary at 4200 East Beltline, Grand Rapids, Michigan 49525. The Secretary has been directed to promptly forward all communications to the full Board or the specific director indicated in the letter.
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REPORT OF OUR AUDIT COMMITTEE
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Our audit committee has met with management and the independent auditors to review and discuss our audited consolidated financial statements as of and for the year ended December 31, 2020.
Our audit committee obtained from our independent auditors the written disclosures and the letter required by applicable provisions of the Public Company Accounting Oversight Board regarding their independence. Our audit committee has also discussed with our auditors any relationships that may impact their objectivity and independence and satisfied itself as to our auditors’ independence.
Our audit committee has reviewed and discussed with our independent auditors all communications required by generally accepted auditing standards, including those described in Auditing Standard No. 16, as amended, and adopted by the Public Company Accounting Oversight Board. Our audit committee also discussed, with and without management present, the results of our independent auditors’ examination of our consolidated financial statements.
Based on the reviews and discussions referred to above, the audit committee has recommended to our Board of Directors that the consolidated financial statements referred to above be included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Stephen L. Gulis, Jr.
Dennis W. Archer Jr.
Michael J. Cok
Ronia F. Kruse
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DISCLOSURE OF FEES PAID TO OUR INDEPENDENT AUDITORS
Crowe LLP (“Crowe”) has been the Company’s independent auditors since 2005. Under its charter, the audit committee is solely responsible for selecting and reviewing the qualifications of the Company’s independent auditors.
The following sets forth the fees paid to our independent auditors for the last two fiscal years:
 
Year Ended
December 31,
 
2020
2019
Audit fees
$379,000
$368,000
Audit related fees(1)
100,750
73,200
Tax fees(2)
72,150
61,750
All other fees
8,000
7,500
Total
$559,900
$510,450
(1)
Consists primarily of fees for an audit required under a Housing and Urban Development (“HUD”) loan program and additional fees due to audit requirements related to our Ginnie Mae seller-servicer activities and for audit procedures related to our current expected credit loss (“CECL”) implementation. 2020 includes additional fees for audit procedures related to our data processing conversion.
(2)
Consists of fees related to the preparation of corporate tax returns and amounts for tax advice and tax planning services.
PRE-APPROVAL POLICY
Our audit committee has established a pre-approval policy for procedures for audit, audit related and tax services that can be performed by our independent auditors. For 2020 and 2019, all of these fees were pre-approved by the audit committee under that policy. Subject to certain limitations, the authority to grant pre-approvals may be delegated to one or more members of the audit committee. A copy of this policy is available on our Website at www.IndependentBank.com.
PROPOSAL II
SUBMITTED FOR YOUR VOTE — RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The audit committee has selected Crowe as independent auditors for the Company for the fiscal year ending December 31, 2021. The services provided to the Company and our subsidiaries by Crowe for 2020 and 2019 are described above under the caption “Disclosure of Fees Paid to our Independent Auditors.”
We are asking our shareholders to ratify the selection of Crowe as our independent auditors. Although ratification is not legally required, the Board is submitting the selection of Crowe to our shareholders for ratification as a matter of good corporate governance.
If our shareholders do not ratify the appointment, the appointment will be reconsidered by the audit committee and the Board. Even if the selection is ratified, the audit committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interest of the Company and our shareholders.
The affirmative vote of a majority of the Company’s common stock cast at the Annual Meeting, by person or by proxy, is required for approval. Broker non-votes and abstentions will not be treated as votes cast on the proposal. Unless otherwise directed by marking the accompanying proxy, the proxy holders will vote FOR the approval of this proposal.
The Board of Directors recommends a vote FOR this proposal
to ratify the appointment of Crowe
as our independent auditors.
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PROPOSAL III
SUBMITTED FOR YOUR VOTE —
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Consistent with our Board’s recommendation, and as approved by our shareholders, we allow our shareholders the opportunity to vote, on an advisory and annual basis, on the compensation of our Named Executives. This vote proposal is commonly known as a “say-on-pay” proposal and gives our shareholders the opportunity to endorse or not endorse our executive pay program. You are encouraged to read the full details of our executive compensation program, including our primary objectives in setting executive pay, under “Executive Compensation” below.
The shareholders will be asked to approve the following resolution at the Annual Meeting:
RESOLVED, that the shareholders of Independent Bank Corporation approve the compensation of the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and any related material disclosed in the Company’s proxy statement for its 2021 Annual Meeting of Shareholders.
The advisory vote on executive compensation was last conducted at our Annual Meeting of Shareholders in 2020, based on the disclosure of our executive compensation in the proxy statement for that meeting. Of the shares of common stock represented at that meeting in person or by proxy and excluding broker non-votes, approximately 96.4% of the shares voted to approve the resolution, 3.2% voted against the resolution, and 0.4% abstained. Our Board considered the results of this vote to be supportive of the Company’s compensation policies and programs and did not make any material changes to our policies or programs as a result of that vote. This is an advisory vote only and neither the Company nor its Board of Directors will be bound to take action based upon the outcome of this vote. The compensation committee of our Board will consider the outcome of this year’s vote when considering future executive compensation arrangements.
The Board of Directors recommends a vote FOR this proposal to approve the resolution approving the compensation of our executives on an advisory basis.
PROPOSAL IV
SUBMITTED FOR YOUR VOTE – APPROVAL OF
THE INDEPENDENT BANK CORPORATION 2021 LONG-TERM INCENTIVE PLAN
The Board has adopted, subject to shareholder approval, the 2021 Independent Bank Corporation Long-Term Incentive Plan (the “Plan”). The Plan will replace our existing Long-Term Incentive Plan previously approved by our shareholders. Upon approval of the Plan, no additional awards will be granted under the previous plan. No awards under the Plan have been granted or will be granted unless and until the Plan is approved by shareholders at the Annual Meeting. The Plan provides for the grant of a variety of equity-based awards, described in more detail below, such as stock options, including incentive stock options as defined in section 422 of the Internal Revenue Code as amended (the “Code”), stock appreciation rights, restricted stock and restricted stock units, performance shares, and other stock-based awards. A copy of the Plan is attached as Appendix I to this Proxy Statement.
Description of the Plan
The following paragraphs summarize the material features of the Plan. The full text of the Plan is included as Appendix I to this Proxy Statement.
Administration
The Plan is administered by the Compensation Committee of the Board (the “Committee”), which is required to consist of no fewer than three non-employee directors, as defined in Rule 16b-3(b)(3) of the Securities Exchange Act of 1934. The Committee determines who may participate in the Plan; the types of awards (or combinations thereof) to be granted; the number of shares of common stock to be covered by each award; the terms and conditions of any award, such as conditions of forfeiture, transfer restrictions; and vesting requirements.
Eligibility
The Plan authorizes awards to non-employee directors, employees of the Company or its subsidiaries, as well as consultants.
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Shares Available for Issuance
As of February 19, 2021, under the current Long-Term Incentive Plan, there were 369,475 shares of common stock available for the grant of future awards; 90,132 stock options outstanding with a weighted exercise price of $3.96 per share and a weighted average remaining term of 1.6 years; and 244,327 shares subject to outstanding restricted stock awards and performance unit awards. The 369,475 shares remaining available for grant will be added to the 2021 Long-Term Incentive Plan upon shareholder approval. Subject to certain adjustments, the maximum number of shares that may be issued under the Plan is 650,000 shares.
Any shares subject to an award that terminates without the issuance of the shares, including awards that are settled in cash in lieu of shares, will be available again for issuance under the Plan. The number of shares available for issuance under the Plan will not, however, be increased by the number of shares that are (1) tendered by the participant or withheld by the Company in payment of the purchase price of an option, (2) tendered by the participant or withheld by the Company to satisfy any tax withholding obligation with respect to an award, (3) purchased by the Company with proceeds received from the exercise of an option, (4) subject to a stock appreciation right that is not issued in connection with the stock settlement of that right upon its exercise, (5) subject to the cancellation of a stock appreciation right granted in tandem with an option upon the exercise of the option, and (6) subject to the cancellation of an option granted in tandem with a stock appreciation right upon the exercise of that right.
The Plan provides that no more than 25% of Plan shares may be awarded to any one Plan participant. In addition, the Plan prohibits the repricing of options or SAR’s or the purchase of underwater options or SAR’s. As of December 31, 2020, there were approximately 983 employees of the Company and its subsidiaries. These employees, as well as the ten non-employee directors of the Company, are eligible to receive grants of awards pursuant to the Plan, as determined by the Committee. In connection with its administration of the Plan, the Committee generally requires a minimum vesting period of at least twelve months for all Awards granted under the Plan.
Types of Awards
The following types of awards may be granted under the Plan.
An “Option” is a contractual right to purchase a number of shares at a price determined at the date the option is granted. The exercise price included in both incentive stock options and nonqualified stock options must equal at least 100% of the fair market value of our stock at the date of the grant. The Plan prohibits the repricing of options. Subject to these limitations, options will be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee and set forth in the option agreement.
A “Stock Appreciation Right” is an award with the right to receive stock or cash of an equivalent value in an amount equal to the difference between the price specified in the stock appreciation right and the prevailing market price of the Company's common stock at the time of exercise. As with options, the per share exercise price for a stock appreciation right may not be less than l00% of the fair market value of our stock on the date of grant. The Plan prohibits the repricing of stock appreciation rights. Subject to these limitations, stock appreciation rights will be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee on the date the award is made.
“Restricted Stock” is an award of common stock granted to a participant for no or nominal consideration. A recipient of a restricted stock award will have all the rights of a shareholder, including the right to vote and receive dividends. In general, shares of restricted stock are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified vesting period and/or the attainment of specified Company or individual performance objectives.
“Restricted Stock Unit” is an award representing the right to receive in cash and/or shares of common stock subject to certain conditions such as continuing employment and/or the achievement of specified Company or individual performance objectives. A recipient of a restricted stock unit does not have any rights as a shareholder of the Company until the date of vesting of such an award.
“Performance Shares” are an award of the right to receive stock or cash of an equivalent value at the end of the designated performance period upon the attainment of specified performance goals. Performance Awards are a type of award where the grant, exercise, and/or settlement of such award is contingent upon the achievement of pre-established performance goals and other terms established by the Committee.
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An “Other Stock-Based Award” is any other award that may be granted under the Plan that is valued in whole or in part by reference to or is payable in or otherwise based on shares of our common stock.
Forfeiture of Awards
Awards may be subject to forfeiture by participants to the extent a participant violates or breaches any agreement between the participant and the Company or any Company policy or procedure, including our Code of Conduct. Awards may be subject to forfeiture if a participant is terminated for cause. Awards under the Plan are subject to mandatory repayment by a participant to the extent that participant is or becomes subject to any Company clawback or recoupment policy or any law or regulation that imposes mandatory recoupment.
Termination of Employment or Service With the Company
The award agreement will specify the terms relating to the exercise, vesting, settlement, cancellation, or forfeiture, including the terms relating to the satisfaction of performance goals and the termination of the vesting period or performance period, of an award based on the reasons for termination of employment or service with the Company.
Amendment or Termination of the Plan
The Board may at any time amend, discontinue, or terminate all or any part of the Plan. However, no amendment may be made without shareholder approval that would (i) increase the aggregate number of shares of common stock that may be issued under the Plan; (ii) decrease the option price of any option to less than 100% of the fair market value of our shares of common stock on the date of the grant; (iii) extend the maximum option period under the Plan; or (iv) otherwise materially increase the benefits to participants in the Plan. Except as required by law, the termination or any amendment of the Plan may not impair the rights of any participant without his or her consent.
Material Federal Income Tax Consequences
The following summarizes the consequences of the grant, vesting and exercise of awards under the Plan for federal income tax purposes, based on management's understanding of existing federal income tax laws. This summary is necessarily general in nature and does not purport to be complete. Also, state and local income tax consequences are not discussed and may vary from locality to locality.
Stock Options. Plan participants will not recognize taxable income at the time an option is granted under the Plan unless the option has readily ascertainable market value at the time of grant. Management understands that options to be granted under the Plan will not have readily ascertainable market value; therefore, income will not be recognized by participants before the time of exercise of an option. For Nonqualified Stock Options, the difference between the fair market value of the shares at the time an option is exercised and the option price generally will be treated as ordinary income to the optionee, in which case the Company will be entitled to a deduction equal to the amount of the optionee's ordinary income.
With respect to incentive stock options, participants will not realize income for federal income tax purposes as a result of the exercise of such options. In addition, if the shares acquired as a result of the exercise of an incentive stock option are disposed of more than two years after the date the option is granted and more than one year after the date the option was exercised, the entire gain, if any, realized upon disposition of such shares will be treated as capital gain for federal income tax purposes. Under these circumstances, no deduction will be allowable to the Company in connection with either the grant or exercise of an incentive stock option. Exceptions to the general rules apply in the case of a “disqualifying disposition.”
If a participant disposes of shares of common stock acquired pursuant to the exercise of an incentive stock option before the expiration of one year after the date of exercise or two years after the date of grant, the sale of such stock will be treated as a “disqualifying disposition.” As a result, such a participant would recognize ordinary income and the Company would be entitled to a deduction in the year in which such disposition occurred. The amount of the deduction and the ordinary income recognized upon a disqualifying disposition would generally be equal to the lesser of: (i) the sale price of the shares sold minus the option price; or (ii) the fair market value of the shares at the time of exercise minus the option price. If the disposition is to a related party (such as a spouse, brother, sister, lineal descendant, or certain trusts for business entities in which the seller holds a direct or indirect interest), the ordinary
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income recognized generally is equal to the excess of the fair market value of the shares at the time of exercise over the exercise price. Any additional gain recognized upon disposition, in excess of the ordinary income, will be taxable as capital gain. In addition, the exercise of incentive stock options may result in an alternative minimum tax liability.
Stock Appreciation Rights. Upon the grant of a stock appreciation right, the participant will realize no taxable income, and the Company will receive no deduction. Upon the exercise of the stock appreciation right, the value of the shares and/or cash received is generally taxable to the participant as ordinary income. The Company will receive a deduction of an equal amount in the same year the participant recognized income.
Restricted Stock. Recipients of shares of restricted stock that are not “transferable” and are subject to “substantial risk of forfeiture” at the time of grant will not be subject to federal income taxes until the lapse or release of the restrictions or sale of the shares, unless the recipient files a specific election under the Internal Revenue Code to be taxed at the time of grant. The recipient's income and the Company's deduction will be equal to the excess of the then fair market value of the shares, less any purchase price.
Restricted Stock Units. Recipients of restricted stock units will not recognize taxable income at the time of grant. Upon receipt of payment for an award of restricted stock units, the fair market value of the shares or the amount of cash received will be taxed to the recipient at ordinary income rates. However, if any shares used as payment for restricted stock units are not “transferable” and are subject to “substantial risk of forfeiture” the taxable event is deferred until either the restriction on transferability or the risk of forfeiture lapses. The basis of any shares issued as payment for restricted stock units will be equal to the fair market value of the shares on the date the recipient recognizes ordinary income as described above. The Company will receive a deduction of an equal amount in the same year the participant recognized income.
Performance Shares. Participants are not taxed upon the grant of performance shares. Upon receipt of the underlying shares or cash, a participant will be taxed at ordinary income tax rates on the amount of cash received and/or the current fair market value of stock received, and the Company will be entitled to a corresponding deduction. The participant's basis in any performance shares received will be equal to the amount of ordinary income on which he or she was taxed and, upon subsequent disposition, any gain or loss will be capital gain or loss.
Additional Medicare Tax
Effective for tax years beginning after 2012, new laws impose a 3.8% Medicare tax on certain investment income earned by individuals, estates, and trusts if their income exceeds certain thresholds. Capital gain and other investment income may be subject to this tax. In addition, recent tax rate increases might also apply to ordinary income of certain individuals.
Adjustment for Certain Corporate Transactions
General Anti-Dilution Adjustments. The Plan provides for the adjustment of the terms of outstanding awards in order to preserve the proportionate interest of the holders in those awards if the number of outstanding shares of the Company's common stock has increased or decreased or other changes in the Company's stock occur due to the result of any reorganization, recapitalization, reclassification, stock split, reverse stock split, spin-off, combination of stock, exchange of stock, stock dividend or other distributions payable in capital stock, or other similar adjustments in the Company's common stock. If the Company is the surviving entity in any reorganization, merger, or similar transaction with one or more entities which does not result in a change of control of the Company, any options, stock appreciation rights, restricted stock, restricted stock units or performance shares will pertain to and apply to the securities to which a holder of the number of shares of common stock subject to those awards would have been entitled immediately after the transaction, with any corresponding proportionate adjustment to the per share option price or SAR price. The Plan also provides for the adjustment of the share limits in the Plan under these circumstances.
Adjustments for Change in Control Transactions. Upon a change in control of the Company in which the outstanding awards are not assumed or continued, awards will be deemed to be immediately vested and exercisable and all restrictions will immediately cease.
Required Vote for Approval
The affirmative vote of the majority of the Company's outstanding common stock represented and voted at the Annual Meeting, by person or by proxy, is required to approve the proposed Plan. Broker non-votes and abstentions
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will not be treated as votes cast on the proposal. Unless otherwise directed by marking the accompanying proxy the proxy holders named therein will vote for the approval of the proposed Plan.
The Board of Directors recommends a vote FOR the approval of the proposed Plan.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview and Objectives
The primary objectives of our executive compensation program are to (1) attract and retain talented individuals, (2) motivate and reward executives for achieving our business goals, (3) align our executives' incentives with our strategies and goals, as well as the creation of shareholder value, and (4) provide competitive compensation at a reasonable cost. Our executive compensation plans are designed to achieve these objectives.
Our executive compensation program has three primary components: base salary; an annual cash incentive bonus; and long-term incentive compensation that is typically in the form of equity-based compensation. The compensation committee of our Board has not established policies or guidelines with respect to the specific mix or allocation of total compensation among base salary, annual incentive bonuses, and long-term compensation. However, the compensation committee believes that there should be an appropriate balance between the compensation components so as to promote and reward for performance but within reasonable risk parameters reflecting a longer-term perspective.
Each year the compensation committee of the Board utilizes the services of third-party consultants to assist in the design of our executive compensation programs and render advice on compensation matters generally. The external review of our executive compensation programs was performed in 2020 by Meridian Compensation Partners, LLC (“Meridian”). Meridian was retained by the Committee to review each element of our executive compensation program, including a review of (1) the overall competitiveness of our compensation program for executives, (2) our annual cash incentive program, and (3) our long-term incentive plan program. As part of its review, Meridian conducted a comparison of our compensation programs relative to a peer group of 20 regional financial institutions1, as well as general market data on executive compensation rates and practices from a variety of third party sources. Based upon Meridian's review and benchmarking, the Committee concluded that our compensation program for executive officers is generally competitive, and based upon our shareholders' support of our executive compensation practices, as reflected in the results of last year's say on pay vote, the committee made no suggested changes to our executive compensation program for 2021.
The foregoing discussion is intended to provide a background and context for the information that follows, regarding our existing compensation programs for those persons who served as our Named Executives during 2020, and to assist in understanding the information included in the executive compensation tables. This year our Named Executives include seven persons. This is due to the departure of our CFO in June of 2020, the interim services of Mr. Robert Shuster (our former CFO) from June until September, and the retention of Mr. Gavin A. Mohr as our CFO in September of 2020.
1
The following financial institutions comprise the peer group entities in evaluating peer group compensation.
Bryan Mawr Bank Corp.
S.Y. Bancorp, Inc.
Community Trust Bancorp, Inc.
Horizon Bancorp
Peoples Bancorp Inc.
First Mid-Illinois Bancshares, Inc.
Mercantile Bank Corporation
West Bancorporation, Inc.
German American Bancorp, Inc.
MidWestOne Financial Group, Inc.
HBT Financial, Inc.
Nicolet Bancshares, Inc.
Old Second Bancorp, Inc.
CNB Financial Corporation
Macatawa Bank Corporation
Civista Bancshares Inc.
QCR Holdings, Inc.
Farmers National Banc Corp
First Financial Corporation
Lakeland Financial Corp
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Components of Compensation
The principal components of compensation we pay to our executives consist of the following:
Base Salary;
Annual Cash Incentive; and
Long-Term Incentive Compensation, generally payable in the form of equity-based compensation.
Base Salary
Base salaries are established each year for our executive officers. None of our executive officers has a separate employment agreement. In determining base salaries, we consider a variety of factors including peer group compensation as well as an individual's performance, experience, expertise, and tenure with the Company.
The compensation committee recommends the base salary for our President and CEO for consideration and approval by the full Board. The base salaries of other Named Executives are established by our CEO, with input from, and approval by, the compensation committee. In setting base salaries, our CEO considers peer group compensation, as well as the individual performance of each respective executive officer. In connection with establishing 2021 salaries, the Committee also reviewed and considered the benchmarking data compiled by Meridian, as discussed above.
The base salaries of our Named Executives for each of the last three years is set forth in the below Summary Compensation Table. Effective January 1, 2021, the Committee approved increases in the base salaries of our Named Executives (other than the CEO) in amounts ranging from 3.0% of base salaries to 6.0% of base salaries. The Board approved a 2.0% increase in Mr. Kessel's base salary to $520,200, based upon the effectiveness of his leadership, the Company's financial performance for 2020, and the significant accomplishments of the Company during 2020, especially in light of the number of challenges and uncertainties resulting from the COVID-19 pandemic.
Annual Cash Incentives and Compensation
Annual cash incentives are payable under the terms of our annual Management Incentive Compensation Plan. This plan sets forth performance incentives that are designed to provide for annual cash awards that are payable if we meet or exceed the annual performance objectives established by our Board. Under this Plan, our Board has established the following performance levels: (1) threshold represents the performance level of what must be achieved before any incentive awards are payable; (2) target performance is defined as a desired level of performance in view of all relevant factors, as described in more detail below; and (3) the maximum represents that which reflects outstanding performance. Target performance under this Plan is intended to provide for aggregate annual cash compensation (salary and bonus) that approximates peer level compensation. Threshold performance would result in earning 50 percent of the target incentive, target would be 100 percent, and maximum would be 200 percent, with compensation prorated between these award levels. Any awards under the Plan are payable in full following finalization of the Company's financial results for the performance period.
2020. Under the terms of the 2020 Management Incentive Compensation Plan, management employees were eligible to receive incentive compensation based on the achievement of certain Company performance objectives (weighted at 60% to 80%) as well as predetermined individual goals (weighted at 20% to 40%). The target bonus levels were 50% of base salary for the CEO and 40% of base salary for the other Named Executives. Twenty percent of each Named Executive's bonus under the plan is based upon the achievement of pre-established individual performance objectives; the balance is based upon the achievement of the Company performance objectives listed below. No bonuses were payable under the 2020 plan unless the Company's earnings per share equaled or exceeded $1.85.
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The following sets forth (1) the Company's performance goals for 2020, (2) the Company's performance for 2020, by goal, (3) the performance factor, comparing performance relative to each goal, (4) the relative weight for each goal, and (5) the payment ratio, which measures the Company's achievement per performance goal by its relative importance and is determined by multiplying the performance factor by the weight of each goal, respectively:
 
Earnings Per
Share1
Organic Deposit
Growth
Efficiency
Ratio
Non-Performing
Assets to
Total Assets
Threshold (50%)
$2.02
2.50%
63.00%
0.40%
Target (100%)
$2.10
5.00%
61.00%
0.30%
Maximum (200%)
$2.26
10.00%
57.00%
0.20%
 
 
 
 
2020 Performance
$2.53
22.00%
59.24%
0.21%
Performance Factor
2.00
2.00
1.44
1.90
Relative Weight
40.00%
16.00%
12.00%
12.00%
Payout Ratio2
.80
.32
.17
.23
(1)
Determined after giving effect to total incentive compensation expense for the year.
(2)
An employee's total cash incentive is determined by multiply his or her target bonus by each payout ratio and adding those amounts, plus the individual performance bonus.
Combined with the relative achievement of individual performance objectives, total incentive compensation for 2020, for all employees, was approximately $8.8 million. The amounts payable to each of our Named Executives under our 2020 Management Incentive Plan is set forth under the column “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table.
2021. In January 2021, the Committee and the Board approved the performance objectives for the 2021 Management Incentive Compensation Plan. The Committee recommended, and the Board approved, the use of the same performance metrics (and weighting) that were used for 2020. The Committee believes that these metrics, as well as their relative importance, effectively balance the Company's growth objectives and asset quality standards.
The target bonus levels remain at 50% of base salary for the CEO and 40% of base salary for the other Named Executives. Twenty percent of each Named Executive's bonus under the plan is based upon the achievement of pre-established individual performance objectives; the balance is based upon the achievement of the Company performance objectives listed below, with earnings per share weighted at 40%, the deposit growth objective weighted at 16%, and the efficiency ratio and asset quality objectives weighted at 12% each. No bonuses are payable under the 2021 plan unless the Company's earnings per share equal or exceed $2.00.
 
Earnings Per
Share(1)
Organic Deposit
Growth
Efficiency
Ratio
Non-Performing
Assets to
Total Assets
Threshold (50%)
$2.10
2.5%
62.00%
0.40%
Target (100%)
$2.30
5.0%
60.00%
0.30%
Maximum (200%)
$2.70
10.0%
56.00%
0.20%
Relative Weight
40%
16%
12%
12%
(1)
Determined after giving effect to total incentive compensation expense for the year.
Long-Term Incentive Program
Our long-term compensation incentives are generally provided for under our Long-Term Incentive Plan (LTIP), which provides for the grant of a variety of stock-based compensation awards.
As a general practice, awards under the LTIP are recommended by the Committee, and approved by the Board, at the Board's first meeting in each calendar year. Under the LTIP, the Committee has the authority to grant a wide variety of stock-based awards. The LTIP is intended to assist our executive officers in the achievement of our share ownership guidelines. Under these guidelines (1) our CEO is expected to own Company stock having a market value equal to at least three (3) times his base salary, (2) our executive vice presidents are to own stock having a market value of at least twice their respective base salaries, and (3) our senior vice presidents are to own stock having a
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market value of not less than 50 percent of their respective base salaries. Once these guidelines are achieved, the failure to maintain the guidelines due to decreases in the market value of our common stock does not mandate additional purchases; rather, further sales of our common stock are prohibited until the employee again reaches the required level of ownership. These guidelines apply ratably over a 5-year period following the date of hire or promotion to one of these positions.
For 2020, the Committee recommended and the Board approved, the grant of restricted stock awards and performance unit awards to the Named Executives under our LTIP, in the following amounts:
Named Executive
Number of Shares of
Restricted Stock(1)
Number of
Performance Units
William B. Kessel
5,551
5,551
Gavin A. Mohr
Stefanie M. Kimball
2,386
2,386
Dennis J. Mack
2,386
2,386
Patrick J. Ervin
2,207
2,207
Stephen A. Erickson (former CFO)
2,602
2,602
Robert N. Shuster (interim CFO)
(1)
The market price of our common stock was $22.29 on the date of grant.
For 2021, the Committee recommended and the Board approved, the grant of restricted stock awards and performance unit awards to the Named Executives under our LTIP, in the following amounts:
Named Executive
Number of Shares of
Restricted Stock(1)
Number of
Performance Shares
William B. Kessel
6,525
6,525
Gavin Mohr
2,865
2,865
Stefanie M. Kimball
2,804
2,804
Dennis J. Mack(2)
Patrick J. Ervin
5,125
2,625
Stephen A. Erickson
Robert N. Shuster
(1)
The market price of our common stock was $19.54 on the date of grant.
(2)
Mr. Mack retired from the Company on January 29, 2021.
Except for awards granted to certain participants for exemplary individual performance, the value of the awards was based on a target rate of 50% of 2020 base salary for our CEO and 40% of 2020 base salary for the other Named Executives. The shares of restricted stock granted in 2020 and 2021 cliff vest after three years. The number of shares that may be issued for each performance share will be determined at the end of the three-year performance period, based upon the total shareholder return (TSR) of the Company's common stock relative to the TSR of the financial institutions that comprise the SNL US Bank $1 billion to $5 billion Index. The actual number of shares issuable is based upon the product of (1) the number of target shares that are subject to the award, and (2) the earn out percentage, based upon the following (with straight line interpolation between the performance levels):
Company TSR Relative
to Peer Group Index
Earn out Percentage
2 times or more
200%
1.5 times Index
150%
Equal to Index
100%
.5 times Index
50%
Below .5 times Index
0%
Severance and Change in Control Payments
The Company has in place Management Continuity Agreements for each of our executive officers. These agreements provide severance benefits if an individual's employment is terminated within 36 months after a change in control or within six months before a change in control and if the individual's employment is terminated or
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constructively terminated in contemplation of a change in control for three years thereafter. For purposes of these agreements, a “change in control” is defined to mean any occurrence reportable as such in a proxy statement under applicable rules of the SEC, and would include, without limitation, the acquisition of beneficial ownership of 20 percent or more of our voting securities by any person, certain extraordinary changes in the composition of our Board, or a merger or consolidation in which we are not the surviving entity, or our sale or liquidation.
Severance benefits are not payable if an individual's employment is terminated for cause, employment terminates due to an individual's death or disability, or the individual resigns without “good reason.” An individual may resign with “good reason” after a change in control and receive his or her severance benefits if an individual's salary or bonus is reduced, his or her duties and responsibilities are inconsistent with his or her prior position, or there is a material, adverse change in the terms or conditions of the individual's employment. The agreements are for self-renewing terms of three years unless we elect not to renew the agreement. The agreements are automatically extended for a three-year term from the date of a change in control. These agreements provide for a severance benefit in a lump sum payment equal to 18 months to three years' salary and bonus and a continuation of benefits' coverage for 18 months to three years. These benefits are limited, however, to one dollar less than three times an executive's “base amount” compensation as defined in Section 280G of the Internal Revenue Code of 1986, as amended.
Other Benefits
We believe that other components of our compensation program, which are generally provided to other full-time employees, are an important factor in attracting and retaining highly qualified personnel. Executive officers are eligible to participate in all of our employee benefit plans, such as medical, group life, and accidental death and dismemberment insurance and our 401(k) Plan, and in each case on the same basis as other employees and are also entitled to the use of Company owned or leased vehicles and reimbursement of certain club dues. We also maintain an ESOP that provides substantially all full-time employees with an equity interest in our Company. Contributions to the ESOP are determined annually and are subject to the approval of our Board. For the year ended December 31, 2019, the Company contributed an amount equal to two percent (2%) of eligible employee compensation to this plan.
Perquisites
Our Board and compensation committee regularly reviews the perquisites offered to our executive officers. The Committee believes that the cost of such perquisites is relatively minimal.
Clawback Policy
Our Board has adopted a Clawback Policy that allows the Company to recoup or otherwise recover certain incentive compensation paid to the Company's executive officers in the event of a restatement of the Company's financial statements or certain improper conduct by those officers.
Anti-Pledging and Anti-Hedging
The Company's Insider Trading Policy prohibits the Company's executive officers, as well as the Company's directors, from pledging the Company's securities as collateral for loans or engaging in hedging transactions or purchasing financial instruments that are designed to hedge or offset any decrease in the market value of the Company's securities.
CEO Pay Ratio
For 2020, the ratio of the median of the annual total compensation of all of our employees excluding our CEO ($52,375) to the annual total compensation of our CEO ($1,293,219) was 1:25.1. The compensation of our median employee was determined by (1) calculating the annual total compensation for all of our employees as of December 31, 2020 (the “Determination Date”), (2) ranking the annual total compensation of all employees (except our CEO) from lowest to highest (which comprised a total of 978 employees), and (3) selecting the employee that ranked as the median (489 on the list of 978). We included all of our full-time and part-time employees as of the Determination Date and annualized the total compensation for those full-time and part-time employees who were employed by us for less than one year as of the Determination Date. Total annual compensation includes each element of compensation listed in the Summary Compensation Table below, based upon our tax reporting requirement (W-2 wages) and including the Company's matching contribution to our 401(k) plan as well as Company contributions to our Employee Stock Ownership Plan.
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Summary Compensation Table
The following table shows certain information regarding the compensation for our Chief Executive Officer, Chief Financial Officer, and the three most highly compensated executive officers other than our CEO and CFO for the last three fiscal years (the “Named Executives”).
Name and Principal Position
Year
Salary(1)
Stock
Awards(2)
Non-Equity
Incentive
Plan
Compensation(3)
All Other
Compensation(4)
Totals
William B. Kessel
President and Chief Executive
Officer
2020
$510,000
$257,400
$469,404
$56,415
$1,293,219
2019
495,000
251,172
286,783
68,040
1,100,995
2018
480,000
232,979
349,870
52,554
1,115,403
 
 
 
 
 
 
 
Gavin A. Mohr(5)
Executive Vice President and
Chief Financial Officer
2020
86,154
42,900
64,243
18,100
211,397
 
 
 
 
 
 
 
Patrick J. Ervin
Executive Vice President -
Mortgage Banking
2020
256,500
102,339
197,074
34,993
590,906
2019
246,000
97,314
118,466
40,602
502,382
2018
232,500
150,164
142,937
24,890
550,491
 
 
 
 
 
 
 
Stefanie M. Kimball
Executive Vice President -
Chief Risk Officer
2020
274,000
110,639
210,520
34,058
629,217
2019
266,000
108,284
130,736
33,128
538,148
2018
258,700
101,386
152,653
30,868
543,607
 
 
 
 
 
 
 
Dennis J. Mack(6)
Executive Vice President -
Chief Lending Officer
2020
274,000
110,639
199,560
28,892
613,091
2019
266,000
108,284
119,032
28,153
521,469
2018
258,700
101,386
147,653
27,144
534,883
 
 
 
 
 
 
 
Robert N. Shuster(7)
Interim Executive Vice President
and Chief Financial Officer
2020
137,589
19,961
157,550
2019
278,000
112,003
127,714
36,729
554,446
2018
267,525
104,595
152,666
35,251
560,037
 
 
 
 
 
 
 
Stephen A. Erickson(8)
Former Executive Vice President
and Chief Financial Officer
2020
158,106
120,655
99,061
377,822
2019
72,500
173,760
71,073
317,333
(1)
Includes elective deferrals by employees pursuant to Section 401(k) of the Internal Revenue Code.
(2)
The amounts set forth in this column represent the aggregate fair value of awards as of the grant date, computed in accordance with FASB ASC topic 718, “Compensation - Stock Compensation”. The assumptions used in calculating these award amounts are set forth in Note 14, of the Company's 2020 Annual Report.
(3)
The amounts set forth in this column for 2020 represent cash bonuses paid to the Named Executives on February 5, 2021, under the terms of the Company's Management Incentive Compensation Plan for the annual period ended December 31, 2020. The amounts set forth in this column for 2019 represent cash bonuses paid to the Named Executives on February 7, 2020, under the terms of the Company's Management Incentive Compensation Plan for the annual period ended December 31, 2019. The amounts set forth in this column for 2018 represent cash bonuses paid to the Named Executives on February 8, 2019, under the terms of the Company's Management Incentive Compensation Plan for the annual period ended December 31, 2018. In addition, Mr. Ervin was paid an additional cash bonus in February, 2018 relating to certain pre-established goals related to 2017 mortgage lending activity.
(4)
The amounts set forth in this column include our contributions to the ESOP (subject to certain age and service requirements, all employees are eligible to participate in the ESOP), matching contributions to qualified defined contribution plans, IRS determined personal use of company owned automobiles, dividends on restricted stock, and country club and other social club dues. Other compensation for Mr. Erickson in 2020 includes the second half of a signing bonus of $65,000 and a payment upon severance of employment of $22,308 as well as the first half of a signing bonus in 2019. Other compensation for Mr. Mohr in 2020 includes a signing bonus of $17,500.
(5)
Mr. Mohr was appointed as the Company's Chief Financial Officer on September 14, 2020.
(6)
Mr. Mack retired from the Company on January 29, 2021.
(7)
Mr. Shuster served as the Company's Chief Financial Officer from June 23, 2020, through September 13, 2020.
(8)
Mr. Erickson served as the Company's Chief Financial Officer through June 23, 2020.
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Grants of Plan-Based Awards
The table below shows the grant of all awards to all of our Named Executives in 2020 pursuant to our compensation plans.
 
 
Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
All Other
Stock
Awards:
Number
of Shares
of Stock(3)
Grant Date
Fair Value
of Stock
and Option
Awards($)(4)
Name
Grant
Date
Threshold
$
Target
$
Maximum
$
Threshold
#
Target
#
Maximum
#
William B. Kessel
01/21/20
127,500
255,000
510,000
01/21/20
5,551
11,102
133,668
01/21/20
5,551
123,732
 
 
 
 
 
 
 
 
 
 
Gavin A. Mohr
09/14/20
3,000
42,900
 
 
 
 
 
 
 
 
 
 
Patrick J. Ervin
01/21/20
51,300
102,600
205,200
01/21/20
2,207
4,414
53,145
01/21/20
2,207
49,194
 
 
 
 
 
 
 
 
 
 
Stefanie M. Kimball
01/21/20
54,800
109,600
219,200
01/21/20
2,386
4,772
57,455
01/21/20
2,386
53,184
 
 
 
 
 
 
 
 
 
 
Dennis J. Mack
01/21/20
54,800
109,600
219,200
01/21/20
2,386
4,772
57,455
01/21/20
2,386
53,184
 
 
 
 
 
 
 
 
 
 
Robert N. Shuster
 
 
 
 
 
 
 
 
 
 
Stephen A. Erickson
01/21/20
58,000
116,000
232,000
01/21/20
2,602
5,204
62,656
01/21/20
2,602
57,999
(1)
The amounts in these three columns relate to grants made to the Named Executives in January 2020 pursuant to the 2020 Management Incentive Compensation Plan, an annual cash incentive plan. These awards were payable based on various objectives to be achieved during 2020, as discussed under “Compensation Discussion and Analysis - Annual Cash Incentives” above. The amounts in the “Threshold” column reflect the minimum amounts payable to each NEO if threshold performance was achieved for each of the performance metrics under this incentive plan. There were no minimum amounts payable pursuant to these awards; the amounts in the “Maximum” column reflect the maximum amounts payable pursuant to these awards; and the amounts in the “Target ”column represent the target bonus amount. In January 2021, the actual amounts payable to the Named Executives pursuant to these awards were determined and paid as reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above.
(2)
The amounts in these three columns reflect the grant of performance share units pursuant to our Long-Term Incentive Plan. The performance share units represent shares of the Company's common stock and are issuable to participants at the end of the three-year performance period beginning on the date that the performance share units are granted. The number of performance shares reflects the number of shares of common stock that may be issued if certain Total Shareholders Return (TSR) goals are met. The total number of shares which finally vest may vary from zero to 200% of the target amount, depending upon the Company's performance relative to the established TSR goals. (See Compensation Discussion and Analysis above).
(3)
The amounts in this column represent grants of restricted stock made pursuant to our Long-Term Incentive Plan. These shares of restricted stock will vest in full on the third anniversary of the grant date if the employee remains employed by the Company through that date.
(4)
Aggregate grant date values are computed in accordance with FASB ASC Topic 718. For performance share units, the grant date fair value was determined based upon the vesting of 100% of the target shares awarded.
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Outstanding Equity Awards at Fiscal Year-End
This table shows the restricted stock awards that were outstanding as of December 31, 2020. The table shows shares of restricted stock and performance share units that have not yet vested, all of which were granted under our Long-Term Incentive Plan. There were no stock options outstanding for any of the Named Executives as of December 31, 2020.
Name
 
Stock Awards
 
 
 
Equity Incentive Plan Awards:
Grant
Date
Number of Shares
or Units of Stock
That Have
Not Vested(1)
Market Value of
Shares or Units of
Stock That Have
Not Vested(2)
Number of Unearned
Shares or Units of Stock
That Have
Not Vested(3)
Market or Payout Value of
Unearned Shares or
Units of Stock That Have
Not Vested(3)
William B. Kessel
01/23/18
4,936
91,168
01/23/18
4,936
91,168
01/22/19
5,335
98,537
01/22/19
5,335
98,537
01/21/20
5,551
102,527
01/21/20
5,551
102,527
Gavin A. Mohr
09/14/20
3,000
55,410
Patrick J. Ervin
08/29/16
10,000
184,700
01/23/18
1,974
36,460
01/23/18
1,974
36,460
01/23/18
807
14,905
01/22/19
2,067
38,177
01/22/19
2,067
38,177
01/21/20
2,207
40,763
01/21/20
2,207
40,763
Stefanie M. Kimball
01/23/18
2,148
39,674
01/23/18
2,148
39,674
01/22/19
2,300
42,481
01/22/19
2,300
42,481
01/21/20
2,386
44,069
01/21/20
2,386
44,069
Dennis J. Mack
01/23/18
2,148
39,674
01/23/18
2,148
39,674
01/22/19
2,300
42,481
01/22/19
2,300
42,481
01/21/20
2,386
44,069
01/21/20
2,386
44,069
Robert N. Shuster
01/23/18
2,216
40,930
01/22/19
793
14,647
Stephen A. Erickson
(1)
The shares of restricted stock granted in 2018, 2019 and 2020 cliff vest in three years from the date of grant. The number of shares shown in this column reflect the number of shares originally granted through the end of calendar year 2020.
(2)
The market value of the shares of restricted stock that have not vested is based on the closing price of our common stock as of December 31, 2020, which was $18.47.
(3)
The number of shares that may be issued under our performance share unit awards depends upon the achievement of certain TSR goals determined as of the third anniversary (fifth anniversary for the 2016 grant to Mr. Ervin) of the grant date. The number and value of the awards reflect the target level of performance unit shares granted based on the closing price of our common stock as of December 31, 2020, which was $18.47.
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Option Exercises and Stock Vested
The following table reflects (1) options exercised by the Named Executives in 2020, (2) the number of shares of restricted stock previously awarded to the Named Executives that vested during 2020, and (3) the number of performance shares earned in 2020. No options were exercised by the Named Executives in 2020.
 
Stock Awards
 
Restricted Stock
Performance Shares
Name
Number of
Shares
Acquired
on Vesting
Value Realized
on Vesting(1)
Number of
Shares
Acquired
on Vesting(2)
Value Realized
on Vesting(2)
William B. Kessel
5,442
$120,214
5,548
$122,555
Gavin A. Mohr
Patrick Ervin
1,560
34,622
10,573
159,165
Stefanie M. Kimball
2,358
52,088
2,404
53,104
Dennis J. Mack
2,359
52,110
2,405
53,126
Robert N. Shuster
4,686
101,901
2,463
54,408
Stephen A. Erickson
(1)
Represents the fair market value of shares of restricted stock as of the date of vesting.
(2)
Represents the number of shares earned with respect to performance shares granted in 2017 and corresponding value on the date the shares were issued. Mr. Ervin’s amount also includes shares earned with respect to performance shares granted in 2016 and corresponding value on the date the shares were issued.
Nonqualified Deferred Compensation
The Nonqualified Deferred Compensation table below provides certain information relating to our Executive Nonqualified Excess Plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Name
Executive
Officer
Contributions in
Last Fiscal
Year ($)(1)
Registrant
Contributions in
Last Fiscal
Year ($)(2)
Aggregate
Earnings in
Last Fiscal
Year ($)(3)
Aggregate
Withdrawls/
Distributions
Aggregate
Balance at
Fiscal Year
End ($)
William B. Kessel
$33,974
$13,302
$(42,643)
$—
$162,958
Gavin A. Mohr
Patrick Ervin
Stefanie M. Kimball
Dennis J. Mack
Robert N. Shuster
Stephen A. Erickson
(1)
Amounts in this column represent the deferrals of base salary earned in 2020 which are included in Summary Compensation Table under Salary, plus deferral of amounts earned in 2019 and paid in 2020 under the Company’s Management Incentive Plan which was included in the Summary Compensation Table under Non-Equity Incentive Plan Compensation.
(2)
Amounts in this column represent the Company’s contribution and are included in the “All Other Compensation” column of the Summary Compensation Table.
(3)
Amounts reflect increases (decreases) in value of the employee’s account during the year, based upon deemed investment deferred amounts.
The Executive Nonqualified Excess Plan allows certain employees who have compensation above the statutory ceiling to defer a portion of their base salary and incentive compensation. The Company may make discretionary contributions to the Plan. For 2020, the Company made contributions to the plan such that the amounts in the Plan “mirror” the amounts the Company would have contributed to the Company’s tax-qualified 401(k) plan had the employee’s compensation not been above the statutory ceiling. Distributions from the Plan are paid out in cash based on the deferral election specified by the participant. We do not guarantee a rate of return under the Plan. Instead, participants make investment elections for their deferrals and Company contributions.
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Other Potential Post-Employment Payments
The Company has entered into a Management Continuity Agreement with each of the Named Executives that provides for certain severance compensation and other benefits if the executive is terminated in connection with a change in control of the Company under the circumstances described in the agreement. These agreements are described under “Severance and Change in Control Payments” in the Compensation Discussion and Analysis above. The following table reflects the estimated value of the severance payment and benefits that would be payable to each Named Executive pursuant to his or her Management Continuity Agreement if his or her employment was terminated on December 31, 2020 in connection with a change in control of the Company and otherwise in a manner that triggered the application of the agreement (e.g., was not a termination for cause or a resignation with “good reason”).
Executive Name
Estimated Liability
for Severance
Payments & Benefit
Amounts Under
Continuity Agreements
Payment Limitation
Based on IRS
Section 280G Limitation on
Severance Amounts(1)
William B. Kessel
$2,768,913
$3,243,214
Gavin A. Mohr
993,052
923,865
Patrick Ervin
1,304,699
1,246,528
Stefanie M. Kimball
1,419,164
1,571,436
Dennis J. Mack
1,369,879
1,603,396
Robert N. Shuster(2)
Stephen A. Erickson(2)
(1)
The total amounts that may be payable under the Management Continuity Agreements are subject to and limited by Internal Revenue Service Section 280G. This column indicates the estimated payout based on IRS limitations.
(2)
Mr. Shuster and Mr. Erickson were not employed by the Company on December 31, 2020.
DIRECTOR COMPENSATION
For 2020, the annual retainer paid to non-employee directors was $60,000. Additional retainers of $25,000, $8,000, $6,000, and $6,000 were paid during 2020 to the chair of the Board and the chairpersons of the Board’s Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, respectively. No fees (beyond the retainers described above) are payable for attendance at either Board or committee meetings.
Pursuant to the Company’s Long-Term Incentive Plan, the compensation committee may grant options to purchase shares of IBCP common stock to each non-employee director. No such stock options were granted during 2020. To date, no such options have been approved or granted in 2021.
Under the Company’s Corporate Governance Principles, half of the combined retainer for directors is payable in cash and the other half is payable in shares under the Deferred Compensation and Stock Purchase Plan for Non-employee Directors (the “Purchase Plan”) described below until that director achieves the required share ownership under the Company’s share ownership guidelines. Once a director achieves the requisite level of share ownership under those guidelines, each director then has the choice of receiving his or her director compensation in cash or in deferred share units under the Purchase Plan, at his or her discretion. A director is expected to own at least $300,000 in market value of the Company’s common stock within five years of first becoming a director of the Company.
The Purchase Plan provides that non-employee directors may defer payment of all or a part of their director fees (“Fees”) or receive shares of common stock in lieu of cash payment of Fees. Under the Purchase Plan, each non-employee director may elect to participate in a Current Stock Purchase Account, a Deferred Cash Investment Account or a Deferred Stock Account.
A Current Stock Purchase Account is credited with shares of IBCP common stock having a fair market value equal to the Fees otherwise payable. A Deferred Cash Investment Account is credited with an amount equal to the Fees deferred and on each quarterly credit date with an appreciation factor that may not exceed the prime rate of interest charged by Independent Bank. A Deferred Stock Account is credited with the amount of Fees deferred and converted into stock units based on ninety percent of the fair market value of IBCP common stock at the time of the deferral. Amounts in the Deferred Stock Account are credited with cash dividends and other distributions on IBCP
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common stock. Fees credited to a Deferred Cash Investment Account or a Deferred Stock Account are deferred for income tax purposes. The Purchase Plan does not provide for distributions of amounts deferred prior to a participant’s termination as a non-employee director. Participants may generally elect either a lump sum or installment distributions.
 
Fees Earned or Paid in
 
Name
Cash(1)(2)
Stock(1)(2)
Total
 
 
 
 
Dennis W. Archer, Jr.
$7,500
$7,500
$15,000
William J. Boer(3)
33,000
33,000
66,000
Joan A. Budden(4)
66,000
66,000
Terance L Beia
60,000
60,000
Michael J. Cok
60,000
60,000
Stephen L. Gulis(5)
68,000
68,000
Christina L. Keller
60,000
60,000
Ronia F. Kruse
60,000
60,000
Michael M. Magee(6)
85,000
85,000
Matthew J. Missad
24,000
36,000
60,000
 
$277,500
$322,500
$600,000
(1)
For 2020, fees were paid in the form of cash and the Company’s common stock, as described above. No stock options were awarded to the Board during 2020.
(2)
Mr. Kessel, our President and CEO, receives no additional compensation for his service as director. All compensation paid to Mr. Kessel for 2020 is reported in the Summary Compensation Table above.
(3)
Includes additional retainer for service as chairperson of the nominating and corporate governance committee during 2020.
(4)
Includes additional retainer for services as chairperson of the compensation committee during 2020.
(5)
Includes additional retainer for service as chairperson of the audit committee during 2020.
(6)
Includes additional fee for service as chairperson of the board.
COMPENSATION COMMITTEE REPORT
The compensation committee has reviewed and discussed with management the information provided under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the compensation committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and in this proxy statement.
Joan A. Budden
Christina L. Keller
Matthew J. Missad
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2020, there did not exist any relationships involving our executive officers that require disclosure under Item 407(e)(4) of Regulation S-K.
TRANSACTIONS INVOLVING MANAGEMENT
Our Board of Directors and executive officers and their associates were customers of, and had transactions with, our bank subsidiary in the ordinary course of business during 2020. All loans and commitments included in such transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to the Company or the bank and do not involve more than a normal risk of collectability or present other unfavorable features. Such loans totaled $2,416,000 at December 31, 2020, equal to 0.6% of shareholders’ equity.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Company directors and executive officers and owners of more than ten percent (10%) of the Company’s common stock to file initial ownership reports with the SEC and to report subsequent changes in ownership of Company common stock and other Company equity securities.
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To our knowledge, based solely on a review of the copies of the reports provided to the Company and written representations that no other reports were required, all Section 16 filing requirements were timely met during 2020 except for Mr. Archer, a director, who was late in filing one report relating to the purchase of common stock.
SHAREHOLDER PROPOSALS FOR 2021 ANNUAL MEETING
Shareholders wishing to submit proposals on matters appropriate for shareholder action to be presented at our 2022 Annual Meeting of Shareholders may do so in accordance with Rule 14a-8 of the Securities Exchange Act of 1934. For such proposals to be included in our proxy materials relating to our 2022 Annual Meeting of Shareholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by us at our principal executive offices at 4200 East Beltline, Grand Rapids, Michigan 49525, no later than November 7, 2021.
Under our Bylaws, no business may be brought before an annual shareholder meeting unless it is specified in the notice of the meeting and included in the Company’s proxy materials, or is otherwise brought before the meeting by or at the direction of the Board or by a shareholder entitled to vote who has delivered written notice to us (containing certain information specified in the Bylaws about the shareholder and the proposed action) not less than 60 nor more than 90 days prior to the date of the first anniversary of the preceding year’s Annual Meeting of Shareholders. If the date of the 2022 Annual Meeting of Shareholders is changed by more than 20 days from the date of the first anniversary of the 2021 Annual Meeting, then notice must be received within 10 days after the date we mail or otherwise give notice of the date of the 2021 Annual Meeting of Shareholders.
As of March 1, 2021, no proposals from any shareholder to be presented at the 2021 Annual Meeting of Shareholders have been received by us.
GENERAL
The cost of soliciting proxies for the Annual Meeting will be borne by us. In addition to solicitation by mail, our officers and employees may solicit proxies by telephone, email, fax, or in person. We have retained the services of Broadridge Financial Solutions, Inc. to deliver proxy materials to brokers, nominees, fiduciaries and other custodians for distribution to beneficial owners, as well as solicit proxies. The cost of such services is expected to total approximately $28,000, plus reasonable out of pocket expenses.
As of the date of this proxy statement, management knows of no other matters to be brought before the meeting. However, if further business is presented by others, the proxy holders will act in accordance with their best judgment.
By order of our Board of Directors,

Gavin A. Mohr
Secretary
Dated: March 8, 2021
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APPENDIX I

2021 INDEPENDENT BANK CORORATION
LONG-TERM INCENTIVE PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 Establishment of the Plan. Independent Bank Corporation, a Michigan corporation (the “Company”), hereby establishes an incentive compensation plan to be known as the “2021 Independent Bank Corporation Long-Term Incentive Plan” (the “Plan”), as set forth in this document. The Plan permits the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards to employees of the Company and its Subsidiaries, as well as Directors and Consultants. Upon approval by the Board of Directors of the Company, subject to ratification by the affirmative vote of holders of a majority of shares of the Company's Common Stock present and entitled to vote at the 2021 Annual Meeting of Shareholders, the Plan shall be effective as of April 20, 2021 (the “Effective Date”).
1.2 Purpose of the Plan. The purpose of the Plan is to promote the long-term success of the Company for the benefit of the Company's shareholders, through stock-based compensation, by aligning the personal interests of Plan Participants with those of its shareholders. The Plan is designed to allow Plan Participants to participate in the Company's future, as well as to enable the Company to attract, retain and award such individuals.
1.3 Term of Plan. No Awards shall be granted pursuant to the Plan on or after April 20, 2031 (“Termination Date”), provided that Awards granted prior to the Termination Date may extend beyond that date.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings set forth below:
2.1 “Administrator” shall mean the Board or any of the Committees designated to administer the Plan in accordance with Section 3.1 of the Plan.
2.2 “Award” shall mean any award under this Plan of any Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares or Other Stock-Based Award.
2.3 “Award Agreement” shall mean an agreement evidencing the grant of an Award under this Plan. Awards under the Plan shall be evidenced by Award Agreements that set forth the details, conditions and limitations for each Award, as established by the Administrator and shall be subject to the terms and conditions of the Plan.
2.4 “Award Date” shall mean the date that an Award is made, as specified in an Award Agreement.
2.5 “Board” shall mean the Board of Directors of the Company.
2.6 “Change in Control” shall mean (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, (iii) the sale of all or substantially all of the assets of the Company, or (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period were members of the Board cease for any reason to constitute at least a majority of the Board, unless each new director was nominated or elected by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.
2.7 “Code” shall mean the Internal Revenue Code of 1986, as amended.
2.8 “Committee” shall mean one of the Committees, as specified in Article 3, appointed by the Board to administer the Plan.
2.9 “Common Stock” shall mean the Common Stock, par value $1.00 per share, of the Company.
2.10 “Consultant” shall mean any person or entity engaged by the Company or a Subsidiary to render services to the Company or that Subsidiary.
2.11 “Director” shall mean a member of the Board or a member of the Board of Directors of a Subsidiary.
2.12 “Disability” shall mean permanent and total disability as determined under the rules and guidelines established by the Committee for purposes of the Plan.
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2.13 “Employee” shall mean any person employed by the Company or a Subsidiary. Neither service as a Director nor the payment of a Director's fee by the Company shall be sufficient to constitute employment by the Company.
2.14 “Fair Market Value” shall be the closing sale price of the Company's Common Stock for such date on the National Association of Securities Dealers Automated Quotation System or any successor system then in use (NASDAQ). If no sale of shares of Common Stock is reflected on NASDAQ on a date, “Fair Market Value” shall be determined according to the closing sale price on the next preceding day on which there was a sale of shares of Common Stock reflected on NASDAQ.
2.15 “Incentive Stock Option” or “ISO” shall mean an option to purchase shares of Common Stock granted under Article 6, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.
2.16 “Insider” shall mean an employee who is an officer (as defined in Rule 16a-1(f) of the Exchange Act) or Director, or holder of more than ten percent (10%) of its outstanding shares of the Company's Common Stock.
2.17 “Nonemployee Director” shall mean a person who satisfies the definition of “Nonemployee Director” within the meaning set forth in Rule 16b-3(b)(3), as promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”), or any successor definition adopted by the SEC.
2.18 “Nonqualified Stock Option” or “NQSO” shall mean an option to purchase shares of Common Stock, granted under Article 6, which is not an Incentive Stock Option.
2.19 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.
2.20 “Option Price” shall mean the price at which a share of Common Stock may be purchased by a Participant pursuant to an Option, as determined by the Committee.
2.21 “Other Stock-Based Award” shall mean an Award under Article 10 of this Plan that is valued in whole or in part by reference to, or is payable in or otherwise based on, Common Stock.
2.22 “Participant” shall mean an employee of the Company or a Subsidiary, a Director or Consultant who holds an outstanding Award granted under the Plan.
2.23 “Performance Shares” shall mean an Award granted under Article 9 of this Plan evidencing the right to receive Common Stock or cash of an equivalent value at the end of a specified performance period.
2.24 “Permitted Transferee” means (i) the spouse, children or grandchildren of a Participant (each an “Immediate Family Member”), (ii) a trust or trusts for the exclusive benefit of the Participant and/or one or more Immediate Family Members, or (iii) a partnership or limited liability company whose only partners or members are the Participant and/or one or more Immediate Family Members.
2.25 “Restricted Stock” and “Restricted Stock Unit” shall mean an Award granted to a Participant under Article 8 of this Plan.
2.26 “Retirement” shall mean the termination of a Participant's employment with the Company or a Subsidiary after the Participant attains the age of 55; provided that for purposes of vesting of any Awards under the Plan following age 55, an Employee shall become twenty percent (20%) vested in such Award for each additional year of age after attaining age 55 (determined as of the date of termination of employment) and provided further that the Participant has remained in the employ of the Company or a Subsidiary for at least twelve (12) consecutive months from the date of the Award. With respect to a Director, Retirement shall mean the termination of a Director's service as a Director of the Company or a Subsidiary after serving as a Director of the Company and/or any Subsidiary for a period of at least five (5) consecutive years prior to the date of termination of such service.
2.27 “Stock Appreciation Right” or “SAR” shall mean an Award granted to a Participant under Article 7 of this Plan.
2.28 “Subsidiary” shall mean any corporation in which the Company owns directly, or indirectly through subsidiaries, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns at least fifty percent (50%) of the combined equity thereof.
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2.29 “Termination of Service” shall mean the termination of an Employee's employment with the Company or a Subsidiary. An Employee employed by a Subsidiary shall also be deemed to incur a Termination of Service if the Subsidiary ceases to be a Subsidiary and the Participant does not immediately thereafter become an employee of the Company or another Subsidiary. With respect to a Participant that is not an Employee, Termination of Service shall mean the termination of the person's service as a Director or as a Consultant to the Company or a Subsidiary.
ARTICLE 3
ADMINISTRATION
3.1 Committee Composition. The Plan may be administered by the Board or a Committee designated by the Board consisting of not less than three (3) directors who shall be appointed from time to time by the Board, each of whom shall qualify as a Nonemployee Director. Without limiting the generality of the foregoing, the Committee may be the Compensation Committee of the Board or a subcommittee thereof if the Compensation Committee of the Board or such subcommittee satisfies the foregoing requirements.
3.2 Committee Authority. Subject to the Company's Articles of Incorporation, Bylaws and the provisions of this Plan, the Administrator shall have full authority to grant Awards to key Employees of the Company or a Subsidiary, as well as Directors and Consultants. Awards may be granted singly, in combination, or in tandem. The authority of the Administrator shall include the following:
(a) To select Employees of the Company or a Subsidiary, Directors or Consultants to whom Awards may be granted under the Plan;
(b) To determine whether and to what extent Options, Stock Appreciation Rights, Restricted Stock, Performance Shares and Other Stock-Based Awards, or any combination thereof are to be granted under the Plan;
(c) To determine the number of shares of Common Stock to be covered by each Award, provided that no Participant may be granted Awards under the Plan covering more than twenty five percent (25%) of Plan Shares;
(d) To determine the terms and conditions of any Award Agreement, including, but not limited to, the Option Price, SAR price, any vesting restriction or limitation, any vesting schedule or acceleration thereof, any performance conditions, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Administrator shall determine in its sole discretion;
(e) To determine whether, to what extent and under what circumstances grants of Awards are to operate on a tandem basis and/or in conjunction with or apart from other cash compensation arrangement made by the Company other than under the terms of this Plan;
(f) To determine under what circumstances an Award may be settled in cash, Common Stock, or a combination thereof; and
(g) To determine to what extent and under what circumstances shares of Common Stock and other amounts payable with respect to an Award shall be deferred; provided that any such deferrals shall be made in a manner that complies with Section 409A of the Code.
The Administrator shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (including any Award Agreement) and to otherwise supervise the administration of the Plan. A majority of the any Committee shall constitute a quorum, and the acts of a majority of a quorum at any meeting, or acts reduced to or approved in writing by a majority of the members of any Committee, shall be the valid acts of any Committee. The interpretation and construction by any Committee of any provisions of the Plan or any Award granted under the Plan shall be final and binding upon the Company, the Board and Participants, including their respective heirs, executors and assigns. No member of the Board or any Committee shall be liable for any action or determination made in good faith with respect to the Plan or an Award granted hereunder. Notwithstanding the foregoing, without the prior approval of the Company's shareholders, neither the Committee nor the Board of Directors shall have the authority to lower the option exercise price of previously granted Awards, whether by means of the amendment of previously granted Awards or the replacement or regrant, through cancellation, of previously granted Awards.
3.3 Forfeiture. The Committee may reserve the right in an Award Agreement to cause a forfeiture of the gain realized by a Participant with respect to an Award on an account of actions taken by, or failed to be taken by, that
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Participant in violation or breach of or in conflict with any (a) agreement between the Company and each Participant, (b) any Company policy or procedure (including the Code of Business Conduct and Ethics and the Code of Ethics for Senior Financial Officers), or (c) any other obligation of such Participant to the Company as and to the extent specified in such Award Agreement. The Committee may terminate an outstanding Award if the Participant is terminated for Cause as defined in the applicable Award Agreement or for “cause” as defined in any other agreement between the Company and such Participant, as applicable.
3.4 Recoupment. Any Award granted pursuant to the Plan shall be subject to mandatory repayment by the Participant to the Company to the extent the Participant is, or in the future becomes, subject to (a) any Company “clawback,” recoupment or compensation recovery policy that is adopted to comply with the requirements of any applicable law, rule or regulation, or otherwise, or (b) any law, rule or regulation which imposes mandatory recoupment under circumstances set forth in such law, rule or regulation.
3.5 No Repricing. Subject to any adjustments that may be made under Article 13 of the Plan, the Company may not, without obtaining shareholder approval; (a) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options or SARs; (b) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs; (c) cancel outstanding Options or SARs with an exercise price above the prevailing fair market value of the Company’s Common Stock in exchange for cash or other securities; or (d) acquire for cash or other consideration any outstanding options or SAR’s that have an exercise price less than the prevailing fair market value of the Company’s Common Stock.
ARTICLE 4
COMMON STOCK SUBJECT TO THE PLAN
4.1 General. Subject to adjustment as provided in Section 4.2 and Section 13.1, the maximum aggregate number of shares of Common Stock which may be issued under this Plan, which may be either unauthorized and unissued Common Stock or issued Common Stock reacquired by the Company (“Plan Shares”) shall be 650,000 Shares. Determinations as to the number of Plan Shares that remain available for issuance under the Plan shall be made in accordance with such rules and procedures as the Administrator shall determine from time to time.
4.2 Share Usage.
(a) General. Shares of Common Stock subject to an Award shall be counted as used as of the Award Date.
(b) Conditions Under Which Shares Subject to Awards Become Available for Future Awards. Any shares of Common Stock subject to an Award under the Plan which thereafter terminate by expiration, forfeiture, cancellation, or otherwise, without the issuance of such shares, including Awards that are settled in cash in lieu of shares of Common Stock, shall be available again for issuance under the Plan.
(c) Conditions Under Which Shares Subject to Awards Are Not Available for Future Awards. The number of shares of stock available for issuance under the Plan shall not be increased by the number of shares of Common Stock (i) tendered by the Participant or withheld by the Company in payment of the purchase price of an Option, (ii) tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award, (iii) purchased by the Company with proceeds received from the exercise of an Option, (iv) subject to an SAR that are not issued in connection with the stock settlement of that SAR upon its exercise, (v) subject to the cancellation of an SAR granted in tandem with an Option upon the exercise of the Option and (vi) subject to the cancellation of an Option granted in tandem with an SAR upon the exercise of the SAR.
ARTICLE 5
ELIGIBILITY
The persons who shall be eligible to receive Awards under the Plan shall be selected by the Administrator from time to time. In making such selections, the Administrator shall consider the nature of the services rendered by such persons, their present and potential contribution to the Company's success and the success of the particular Subsidiary of the Company by which they are employed or to whom they provide services, and such other factors as the Administrator in its discretion shall deem relevant. Participants may hold more than one Award, but only on the terms and subject to the restrictions set forth in the Plan and their respective Award Agreements. The Committee may delegate its power to the Company’s Chief Executive Officer to determine the participation eligibility of new
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Participants who are not officers under Section 16 of the Exchange Act and whose fiscal year total direct compensation (consisting of base salary, annual incentive and long-term incentive) is less than $500,000 (“Designated Participants”) and the performance criteria for each such Designated Participant, in which case the Company's CEO shall exercise the delegated power in accordance with this Article 5.
ARTICLE 6
STOCK OPTIONS
6.1 Options. Options may be granted alone or in addition to other Awards granted under this Plan. Each Option granted under this Plan shall be either an Incentive Stock Option (ISO) or a Nonqualified Stock Option (NQSO).
6.2 Grants. The Administrator shall have the authority to grant to any Participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Options. To the extent that any Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Option or the portion thereof which does not qualify shall constitute a separate Nonqualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the Participants affected, to disqualify any Incentive Stock Option under such Section 422. An Incentive Stock Option shall not be granted to an individual who, on the date of grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. The aggregate Fair Market Value, determined on the Award Date of the shares of Common Stock with respect to which one or more Incentive Stock Options (or other incentive stock options within the meaning of Section 422 of the Code, under all other option plans of the Company) granted on or after January 1, 1987, that are exercisable for the first time by a Participant during any calendar year shall not exceed the $100,000 limitation imposed by Section 422(d) of the Code.
6.4 Terms of Options. Options granted under the Plan shall be evidenced by Award Agreements in such form as the Administrator shall, from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions:
(a) Option Price. The Option Price per share of Common Stock purchasable under an Option shall be determined by the Committee at the time of grant but shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the Award Date.
(b) Option Term. The term of each Option shall be fixed by the Administrator, provided that no Option that has been designated as an Incentive Stock Option shall be exercisable more than ten (10) years after the date the Option is granted.
(c) Exercisability. An Option shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator and set forth in the Award Agreement. If the Administrator provides that any Option is exercisable only in installments, the Administrator may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Administrator may determine.
(d) Method of Exercise. Subject to whatever installment exercise and waiting period provisions apply under subsection (c) above, Options may be exercised in whole or in part at any time during the term of the Option, by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price in such form as the Administrator may accept. Notwithstanding the foregoing, an Option shall not be exercisable with respect to less than 100 shares of Common Stock unless the remaining shares covered by an Option are fewer than 100 shares. If and to the extent determined by the Administrator in its sole discretion at or after grant, payment in full or in part may also be made in the form of Common Stock owned by the Participant (and for which the Participant has good title free and clear of any liens and encumbrances and with respect to any shares of Common Stock acquired upon the exercise of an Option, has been held by the Optionee for a period of at least six (6) consecutive months), or by reduction in the number of shares issuable upon such exercise based, in each case, on the Fair Market Value of the Common Stock on the last trading date preceding payment as determined by the Administrator. No shares of stock shall be issued until payment has been made. A Participant shall generally
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have the rights to dividends or other rights of a shareholder with respect to shares subject to the Option when the person exercising such option has given written notice of exercise, has paid for such shares as provided herein, and, if requested, has given the representation described in Section 13.1 of the Plan.
(e) Transferability of Options. No Option may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, provided, however, the Administrator may, in its discretion, authorize all or a portion of a Nonqualified Stock Option to be granted to an optionee to be on terms which permit transfer by such optionee to a Permitted Transferee, provided that (i) there may be no consideration for any such transfer (other than the receipt of or interest in a family partnership or limited liability company), (ii) the Award Agreement pursuant to which such Options are granted must be approved by the Administrator, and must expressly provide for transferability in a manner consistent with this Section 6.4(e), and (iii) subsequent transfers of transferred Options shall be prohibited except those in accordance with Section 6.4(h). Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The events of termination of service of Sections 6.4(f), (g) and (h) hereof, and the tax withholding obligations of Section 14.3 shall continue to be applied with respect to the original optionee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods specified in Sections 6(f), (g), and (h). The Company shall not be obligated to notify Permitted Transferee(s) of the expiration or termination of any Option. Further, all Options shall be exercisable during the Participant's lifetime only by such Participant and, in the case of a Nonqualified Stock Option, by a Permitted Transferee. The designation of a person entitled to exercise an Option after a person's death will not be deemed a transfer.
(f) Termination of Service for Reasons other than Retirement, Disability, or Death. Upon termination of Service for any reason other than Retirement or on account of Disability or death, each Option held by the Participant shall, to the extent rights to purchase shares under such Option have accrued at the date of such Termination of Service and shall not have been fully exercised, be exercisable, in whole or in part, at any time for a period of no more than three (3) months following Termination of Service, subject, however, to prior expiration of the term of such Options and any other limitations on the exercise of such Options in effect at the date of exercise. Whether an authorized leave of absence or absence because of military or governmental service shall constitute Termination of Service for such purposes shall be determined by the Administrator, which determination shall be final and conclusive.
(g) Termination of Service Due to Disability. Upon Termination of Service by reason of Disability, each Option held by such Participant shall, to the extent rights to purchase shares under the Option have accrued at the date of such Disability and shall not have been fully exercised, remain exercisable in whole or in part during the original term of such Options held by that Participant.
(h) Termination of Service Due to Retirement. Upon Termination of Service by reason of Retirement, each Option held by such Participant shall, to the extent rights to purchase shares under the Option have accrued on the date of such Retirement and shall not have been fully exercised, including Options that shall become vested under the provisions of Section 2.27, shall remain exercisable in whole or part during the original term of such Option held by that Participant.
(i) Termination of Service for Death. Upon Termination of Service due to death, each Option held by such Participant or Permitted Transferee shall, to the extent rights to purchase shares under the Options have accrued at the date of death and shall not have been fully exercised, be exercisable, in whole or in part, by the personal representative of the estate of the Participant or Permitted Transferee or by any person or persons who shall have acquired the Option directly from the Participant or Permitted Transferee by bequest or inheritance at any time during the twelve (12) month period following death, subject, however, in any case, to the prior expiration of the term of the Option and any other limitation on the exercise of such Option in effect at the date of exercise.
(j) Termination of Options. Any Option that is not exercised within whichever of the exercise periods specified in Sections 6.4(f), (g), (h), or (i) is applicable shall terminate upon expiration of such exercise period.
(k) Purchase and Settlement Provisions. The Administrator may at any time offer to purchase an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made. In addition, if an Award Agreement so provides at the Award Date or is thereafter amended to so provide, the Administrator may require that all or part of the shares of Common Stock to be issued with respect to the exercise of an Option, in an amount not greater than the Fair
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Market Value of the shares that is in excess of the aggregate Option Price, take the form of Performance Shares, which shall be valued on the date of exercise on the basis of the Fair Market Value of such Performance Shares determined without regard to the deferral limitations and/or forfeiture restrictions involved.
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Awards of Stock Appreciation Rights or “SARs.” A SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (a) the Fair Market Value of one (1) share of Common Stock on the date of exercise over (b) the per-share exercise price of such SAR (the “SAR Price”) as determined by the Administrator. No dividends or dividend equivalents shall be paid or credited on SARs. SARs may be granted in tandem with all or part of an Option granted under the Plan or at any subsequent time during the term of such Option, in combination with all or any part of any other Award or without regard to any Option or other Award; provided that a SAR that is granted subsequent to the Award Date of a related Option must have a SAR Price that is no less than the Fair Market Value of one (1) share of Common Stock on the Award Date of such SAR.
7.2 Terms of SARs. Stock Appreciation Rights granted under the Plan shall be evidenced by an Award Agreement in such form as the Administrator shall, from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions:
(a) SAR Price. The SAR Price per share of Common Stock shall be determined by the Committee at the time of grant but shall not be less than one hundred percent (100%) of the Fair Market Value of one (1) share of Common Stock on the Award Date.
(b) Term. The term of each SAR shall be fixed by the Administrator, but no SAR shall be exercisable more than ten (10) years after the date the SAR is granted.
(c) Exercisability and Settlement. The Administrator shall determine, on the Award Date, the time or times at which and the circumstances under which a SAR may be exercised, in whole or in part (including based on the achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following Termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which shares of Common Stock shall be delivered or deemed to b