SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
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For the fiscal year ended December 31, 2009
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Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
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Commission File No.: 001-32434
MERCANTILE BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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37-1149138
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification Number)
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200 N. 33
rd
Street, Quincy, Illinois
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62301
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(Address of Principal Executive Offices)
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(Zip Code)
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(217) 223-7300
(Registrants Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock (par value $.42 per share)
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NYSE Amex
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Securities registered under Section 12(g) of the Exchange Act:
Not Applicable
(Title of Class)
Indicate by check mark if the Company is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes
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No
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Indicate by check mark if the Company is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if and, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one).
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
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No
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As of June 30, 2009 the aggregate market value of the outstanding shares of the Companys common
stock (based on the average stock price on June 30, 2009), other than shares held by persons who
may be deemed affiliates of the Company, was approximately $41.4 million. Determination of stock
ownership by non-affiliates was made solely for the purpose of responding to this requirement and
the Company is not bound by this determination for any other purpose.
As of March 29, 2010, the number of outstanding shares of the Companys common stock, par value
$0.4167 per share, was 8,703,330.
TABLE OF CONTENTS
Explanatory Note:
This Amendment No. 1 on Form 10-K/A amends the Registrants Annual Report on
Form 10-K for the fiscal year ended December 31, 2009, as originally filed on April 7, 2010, and is
being filed solely for the purpose of amending portions of Part III and Item 15 Exhibits,
Financial Statement Schedules of Part IV to include certain information required therein in lieu
of incorporating such information by reference from the definitive proxy statement for its 2010
Annual Meeting of Stockholders.
PART III
Item 10. Directors and Executive Officers of the Company and Corporate Governance
For information on the executive officers of the Company, please see Part I of Form 10-K under
the caption Item 4A Executive Officers of Registrant which is incorporated herein by reference
in response to this item.
THE BOARD OF DIRECTORS
Our Board of Directors currently consists of nine members, as follows: Ted T. Awerkamp, Julie
A. Brink, Michael J. Foster, Alexander J. House, Lee R. Keith, William G. Keller, Jr., Dennis M.
Prock, John R. Spake and James W. Tracy.
Upon the recommendation of the Nominating/Corporate Governance Committee, the Companys Board
of Directors has nominated all of the current directors for reelection to the Board at the 2010
annual meeting.
Information on Directors
The following table sets forth certain information with respect to each current director of
the Company who has been re-nominated for election as a director at the annual meeting.
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Position
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Company
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Name
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Age
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With our Company
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Director Since
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Ted T. Awerkamp
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President
and CEO,
Director
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1994
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Julie A. Brink
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Director
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2009
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Michael J. Foster
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Chairman of the
Board
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2003
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Alexander J. House
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Director
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2009
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Lee R. Keith
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56
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Director
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2009
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William G. Keller, Jr.
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61
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Director
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1983
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Dennis M. Prock
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Director
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2006
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John R. Spake
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58
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Director
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2009
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James W. Tracy
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55
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Director
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2007
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The business experience during at least the last five years of each current director and
nominee, and other information about the persons experience, qualifications, attributes and/or
skills that the Companys Nominating/Corporate Governance Committee considered important in its
process for determining its nominees for director, are as follows:
Ted T. Awerkamp
was named President and Chief Executive Officer of the Company as of March 1,
2007. Prior to that date, he served as Vice President and Secretary of the Company (since 1994)
and as President and CEO of Mercantile Bank (since 2005). He served as Executive Vice President
and Chief Operating Officer of Mercantile Bank from 1993 to 2005. Prior to 1993, he served as Vice
President of Mercantile Bank and as President, Chief Executive Officer and a director of the former
Security State Bank of Hamilton (later merged with Marine Bank & Trust). Prior to joining
Mercantile Bank in 1984, he worked for two years as a bank examiner for the Commissioner of Bank
and Trust Companies of the State of Illinois. Mr. Awerkamp has also been active in numerous civic,
charitable and industry organizations in the Quincy area. Mr. Awerkamp has been a member of the
Board of
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Directors of the Company and Mercantile Bank since 1994 and is the Chairman of the Board of
Mercantile Bank. Mr. Awerkamp is also a director of the following subsidiaries of the Company:
Royal Palm Bancorp, Inc. and its subsidiary Royal Palm Bank of Florida, both of which he is
Chairman; Mid-America Bancorp, Inc., of which he is Chairman, and its subsidiary Heartland Bank;
and Mercantile Investments, Inc.
Julie A. Brink
is Vice President (since 2009) and Secretary of R.L. Brink Corp. (since 1980),
which is engaged in heavy construction and concrete and asphalt production, and Vice President
(since 2009) and Secretary of Thompson, Inc. (since 1985), an interstate trucking company. She has
been employed in various capacities by R.L. Brink Corp. since 1990. Both businesses are
headquartered in Quincy, Illinois. She is also Vice President of Leeser TX, Inc. (since 1988), an
interstate trucking company located in Palmyra, Missouri. Ms. Brink has been involved in many
civic and charitable organizations in the Quincy area and has served as a director of the Company
and Mercantile Bank since 2009.
Michael J. Foster
is a retired agribusiness executive, having worked for 33 years in the
international livestock feed and supplement business. He was President of ADM Alliance Nutrition,
Inc. (ADM Alliance), a subsidiary of Archer-Daniels-Midland Company, from 1998 through 2004. ADM
Alliance is headquartered in Quincy, Illinois, and manufactures and sells livestock feeds
nationally and internationally. In that capacity, Mr. Foster was responsible for approximately
2,000 employees and $800 million in sales volume. From 1992 through 1999, he served as a member of
the Advisory Board of Directors for Mercantile Bank of St. Louis, a bank unrelated to the Company.
Mr. Foster is currently engaged in several civic and charitable organizations, including serving as
chairman of a nonprofit integrated health care delivery system headquartered in Quincy. He has
served as a director of the Company and of Mercantile Bank since 2003.
Alexander J. House
is founder and President of Mid-America Carbonates, LLC (since 2006), which
has corporate offices in Quincy and operations in southern Illinois. The company is engaged in the
milling and marketing of calcium carbonate, a high purity limestone, for industrial applications.
Prior to 2006, Mr. House was President of Quincy Carbonates, Inc., a firm also engaged in the
mining, milling and marketing of calcium carbonate. Mr. House has also been engaged in farming
operations in the Quincy area for many years. He has served as a director of the Company and
Mercantile Bank since 2009.
Lee R. Keith
is President and Chief Lending Officer of Premier Bank (since 2009) in St.
Peters, Missouri and has over 33 years of experience in the banking industry. From 2008 through
2009, he was President of Mid-MO Bank in Springfield, Missouri. He served as President of Progress
Bank/First State Community Bank in Sullivan, Missouri, from 2006 through 2008, and as President of
Gold Bank in St. Joseph, Missouri, from 2000 through 2006. Prior to 2000, he worked in various
other executive and operational positions in the banking industry. The Companys Board of
Directors appointed Mr. Keith as a director of the Company and Mercantile Bank in August 2009.
William G. Keller, Jr.
, is a partner with the law firm of Schmiedeskamp, Robertson, Neu &
Mitchell LLP, located in Quincy, Illinois, which acts as outside counsel to the Company and its
subsidiaries. He has 35 years of experience practicing law, including the representation of
individuals and entities in the areas of estate planning, banking, corporate law and finance. Mr.
Keller has been and currently is involved in many civic and charitable organizations in the Quincy
area and has been a director of the Company since its inception in 1983 and Mercantile Bank since
1982. Mr. Keller also serves as a director of the Companys subsidiary Mid-America Bancorp, Inc.
and the Companys indirect subsidiary Mercantile Investments, Inc.
Dennis M. Prock
is chairman of the board and founder of For Your Convenience, one of the
largest distributors of convenience store equipment in the country, which since 1986 has
manufactured millwork, walk-in coolers and graphics for major convenience store chains across
America. Mr. Prock has been chairman of For Your Convenience since 1986 and served as its
President from 1986 to 2004. From 1995 through 2002, he also served as President of Huck Store
Fixture Co. in Quincy, Illinois. Mr. Prock is involved in numerous business enterprises in
Missouri and Illinois. Mr. Prock has been a director of the Company and Mercantile Bank since 2006
and serves as a director of the Companys subsidiary Royal Palm Bancorp, Inc. (and its subsidiary
Royal Palm Bank of Florida).
John R. Spake
has been President and Chief Executive Officer of Comstock-Castle Stove Company
for more than 10 years. The company manufactures and services commercial cooking equipment,
selling in the U.S. and internationally. Mr. Spake is active in community and trade organizations,
having served as a member of the Board of Directors of both the Quincy Area Chamber of Commerce and
the North American Association of Food Equipment Manufacturers for the past six years. He has been
a director of the Company and Mercantile Bank since 2009.
James W. Tracy
is Senior Vice President and General Counsel of Dot Foods, Inc., headquartered
in Mt. Sterling, Illinois, a redistributor of food products from manufacturers to distributors
throughout the United States. He has been employed with Dot Foods, Inc. since 1980 and, prior to
taking his current position in 2002, he was Senior Vice President of Operations. He has served on
the Board of Directors of Dot Foods, Inc. for 25 years. In addition, Mr. Tracy has served on the
board of directors of numerous
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industry-specific and civic organizations, including Loyola Family Business Center, Mt.
Sterling Chamber of Commerce, Mt. Sterling Community Center, West Central Mass Transit Board, Brown
County Economic Development Board, and the International Foodservice Distributors Association. He
was a director of the Companys former subsidiary Brown County State Bank from 2000 through early
2010, and has been a director of the Company and Mercantile Bank since 2007.
There is no arrangement or understanding between any director or nominee and the Company or
any other person pursuant to which such director was selected as a director as of the date of this
report other than with respect to Mr. Keith. The Company is party to a Fourth Amended and Restated
Loan Agreement, dated as of April 30, 2009, as amended (the Great River Loan Agreement) with
Great River Bancshares, Inc. (Great River) pursuant to which Great River has extended various
loans and lines of credit to the Company. In addition, under the Great River Loan Agreement, R.
Dean Phillips, the sole shareholder of Great River, is entitled to nominate a person to the
Companys Board of Directors. In the event that Mr. Phillips or any person nominated by him is not
elected to the Board of Directors at the Companys annual meeting, the Great River Loan Agreement
provides that Great River may request the Companys Board of Directors to take all action necessary
to appoint Mr. Phillips or his designee as a director of the Company, including increasing the size
of the Board of Directors or obtaining the resignation of another director of the Company.
Pursuant to this provision, in 2009 James Senty was nominated by Mr. Phillips and elected as a
director by the shareholders at the 2009 annual meeting. Mr. Senty resigned as a director in June
2009. Following Mr. Sentys resignation, pursuant to the Great River Loan Agreement Great River
designated Mr. Keith as a director to serve on the Companys Board of Directors, and Mr. Keith was
appointed as a director of the Company effective as of August 25, 2009. See the sections entitled
Certain Relationships and Transactions and Director Independence under Item 13 of this report.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires our Companys directors and executive officers, and
persons who own more than 10% of any class of equity securities of our Company registered pursuant
to Section 12 of the Exchange Act, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership in such securities and other equity
securities of our Company. Securities and Exchange Commission regulations require directors,
executive officers and greater than 10% stockholders to furnish our Company with copies of all
Section 16(a) reports they file.
Based solely on our review of these reports, or written statements from these persons that
they were not required to file any reports in 2009, we believe that all of our directors, executive
officers and greater than 10% stockholders complied with all Section 16(a) reporting requirements
in 2009 and timely filed all reports.
CORPORATE GOVERNANCE
Audit Committee
The Audit Committee consists of Michael J. Foster (Chairman), Alexander J. House, Dennis M.
Prock and Julie A. Brink. The Audit Committee acts on behalf of the Board in reviewing the
financial statements of the Company and in approving and overseeing the relationship between the
Company and its independent auditor. In addition to monitoring the scope and results of audit and
non-audit services rendered by our independent auditor, the Audit Committee reviews the adequacy of
internal controls, internal auditing and the results of examinations made by supervisory
authorities. The Audit Committee also performs other duties, including oversight of our
whistle-blowing policy and review and approval of certain related party transactions. The Board of
Directors has determined that each member of the Audit Committee, in addition to qualifying as
independent under Section 802 of the NYSE Amex Company Guide, also qualifies as independent
under the more stringent requirements set forth in Section 10A(m)(3) of the Securities Exchange Act
of 1934 (the 1934 Act) and Section 803 of the NYSE Amex Company Guide, both of which are
applicable to audit committee members. Each member also has been deemed to qualify as an audit
committee financial expert within the meaning of the rules and regulations of the Securities and
Exchange Commission. The Audit Committee met four times during 2009.
4
Stockholder Communications with Directors
Our policy is to forward to our directors any stockholder correspondence we receive that is
addressed to them. Stockholders who wish to communicate with our Board or individual directors may
do so by sending their comments in writing addressed to the Board or to the individual director or
directors at our headquarters at 200 North 33rd Street, Quincy, Illinois 62301. Stockholders
wishing to submit candidates for nomination or election as directors of our Company or wishing to
submit other proposals for consideration by our stockholders at the annual meeting should review
the information set forth below under the headings Nomination of Directors; Stockholder Access to
Process and Stockholder Proposals for the Annual Meeting.
Code of Ethics Applicable to Directors, Officers and Employees
We have adopted a Code of Ethics for directors, officers and employees including our principal
executive officer, principal financial officer, principal accounting officer, controller and
persons performing similar functions. A copy of this Code of Ethics was filed with the Securities
and Exchange Commission (SEC) as an exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ending December 31, 2004 and is available on our internet website in the Corporate
Governance section under Investor Relations at
www.mercbanx.com
. Any substantive amendments to
this Code, or any waivers from the Code granted for any director or senior officer, including our
principal executive officer, principal financial officer, principal accounting officer, controller
and persons performing similar functions, will be disclosed in a report on Form 8-K filed with the
SEC.
Nomination of Directors; Stockholder Access to Process
Nomination Process
On an annual basis, the Nominating/Corporate Governance Committee of the Board makes
recommendations to the full Board on individuals it believes should be nominated for director,
including, if appropriate, re-nomination of incumbent directors, accompanied by key factors
underlying its recommendations. If it so chooses, the Committee may include with its
recommendations a report on other candidates considered by it but not recommended for nomination,
including candidates the Committee believes should be given serious consideration for nomination in
future time periods as well as candidates considered by the Committee that were deemed unsuitable
for nomination. The Committee will include in its report any suggestions received from
stockholders on nominees and its reaction to such suggestions. The full Board reviews and
discusses the Committees recommendations and report, and then determines the slate of nominees to
be submitted by the Board for stockholder approval at the ensuing annual meeting.
To the extent vacancies in the Board arise between annual stockholders meetings or the Board
determines to expand the number of directors between annual meetings, the Committee will be
expected to prepare an ad hoc review and recommendation of suitable candidates for appointment to
the vacant or newly created directorships, utilizing a process similar to that undertaken by it in
connection with elections of directors at annual meetings. Thereafter, the full Board will review
the Committees recommendations and make the final determination on appointment of appropriate
persons to the new directorships on an interim basis.
Identification of Candidates
On an ongoing basis, the Nominating/Corporate Governance Committee identifies and reviews
possible candidates for director and, if appropriate, conducts inquiries into the backgrounds and
qualifications of candidates. The Committee may identify candidates as a result of suggestions
received by it from Committee members, other directors, or Company officers or search firms
retained by the Committee. In addition, the Committee considers any suggestions on director
candidates that may be received from stockholders from time to time, subject to the Companys
procedures for stockholder submission of candidates as described below.
Director Qualifications
The Committee and the full Board believe that the Board should be comprised of directors with
varied, complementary backgrounds, and that directors should, at a minimum, have knowledge and
experience that may be useful to our Company. Directors should also possess the highest personal
and professional ethics and should be willing and able to devote the required amount of time to our
business. In accordance with its charter, the Nominating/Corporate Governance Committee has
identified the following additional attributes as desirable for its directors: knowledge of the
banking industry; financial expertise; experience in the management or leadership of a substantial
private business enterprise or educational, religious or not-for-profit organization; engagement in
the communities served by the Company; and such other professional and personal experience that the
Committee determines may be helpful on the Board. The Committee also considers a candidates
relationships with customers and potential customers and, for those candidates who are also
customers, the nature, dollar amount and history of the candidates customer
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relationship with the Company. While the Company has no written policy regarding the
consideration of the specific issue of diversity in identifying director nominees, the Committee
and full Board consider the issue of diversity in the context of identifying potential candidates
who would provide varied, complementary backgrounds in terms of their professional and business
experience, education, skill and other attributes. In identifying director candidates, the
Committee makes every effort to ensure that the Board and its committees will include the required
number of independent directors, as that term is defined by NYSE Amex and the SEC. In determining
whether an incumbent director should be retained and stand for re-election, the Committee considers
the quality of the directors past service to the Company, including the directors attendance
record at meetings. The Company has no mandatory retirement age for directors.
Stockholder Submission of Candidates to Committee for its Consideration and Possible Nomination
Any stockholder wishing to submit the names of one or more individuals for consideration in
future years by the Nominating/Corporate Governance Committee and the full Board as nominees for
director of the Company must follow the Companys procedures for stockholder submission of
candidates, as formulated by the Committee and approved by the Board. A copy of these
procedures can be found on our internet website in the Corporate Governance section under
Investor Relations at
www.mercbanx.com
. In summary, stockholder submissions of candidates
must be in writing and sent by mail or courier to the Nominating/Corporate Governance Committee
at the Companys offices at 200 North 33rd Street, Quincy, Illinois 62301. The submission
should include the candidates name, mailing address, business experience and other relevant
background information, shareholding in the Company (if any), and other information relevant to
the persons appropriateness to serve as a director of the Company. Additional information may
be required by law or requested by the Nominating/Corporate Governance Committee after the
submission. The committees consideration of a candidate submitted by a stockholder may not
involve significant review or discussion in cases where the committee deems such not to be
appropriate in light of the circumstances. In some instances, the committee may defer serious
consideration of a stockholder-submitted candidate until a later date deemed more suitable.
Stockholders submitting candidates for consideration by the Nominating/Corporate Governance
Committee as nominees will be advised by the Company when their submissions have been received
and when the candidates are likely to receive consideration by the committee. The
Nominating/Corporate Governance Committee, after consideration of any candidates submitted by
the stockholders, will advise any such candidates whether the committee will nominate such
candidate. There is no assurance that the Committee will act within any specified time period
in response to stockholder suggestions or that candidates or their proponents will be entitled
to make a presentation to the Committee or receive any formal Company or Committee decision.
Stockholders are referred to the complete explanation of the applicable procedures set forth on
the Companys website mentioned above.
Direct Nomination of Candidates by Stockholders at Annual Meeting
In addition to submitting names of potential candidates for director to our
Nominating/Corporate Governance Committee for possible consideration by the Committee and our Board
in their annual selection of director nominees, stockholders may desire to act directly to place a
candidates name in nomination for election as director at an annual meeting. Any stockholder
wishing to do so, however, must comply with our bylaw provision governing direct nominations by
stockholders. Under our bylaw, any stockholder who wishes to place a name directly in nomination
for election as director at an annual meeting must, among other things, give advance notice to our
Corporate Secretary at our principal executive offices not less than 120 days prior to the
anniversary of the previous years annual meeting of stockholders nor more than 180 days prior to
such anniversary date (unless the calendar day of the current years annual meeting is more than 30
days before or after the calendar day of the previous years annual meeting, in which case the
Board of Directors will establish a different and more suitable deadline for notices). The notice
deadline for the 2010 annual meeting was January 19, 2010. For a direct stockholder nomination to
be considered at the 2011 annual meeting, notice must be received not later than January 24, 2011,
and not earlier than November 25, 2010. In the event that the date of the upcoming annual meeting
is changed by more than 30 days from the prior years annual meeting, the Board of Directors will
establish a different and suitable deadline date for notices. To obtain a copy of the relevant
bylaw, please contact the Corporate Secretary. The bylaw provision is also available on our
internet website in the Corporate Governance section under Investor Relations at
www.mercbanx.com
. The Company is not obligated to include in its proxy materials
information regarding candidates expected to be nominated by stockholders.
6
Item 11. Executive Compensation
COMPENSATION OF DIRECTORS
The following table sets forth for the year ended December 31, 2009 the compensation paid to
each director of the Company who served during that year other than directors who were executive
officers whose compensation is included in the Summary Compensation Table for executive officers.
Compensation of Non-Management Directors
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Fees Earned or Paid
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All Other
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Name
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in Cash ($)
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Compensation ($)
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Total ($)
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Julie A. Brink
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26,000
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0
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26,000
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Dan S. Dugan(1)
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0
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63,300
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(2)
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63,300
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Michael J. Foster
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39,000
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0
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39,000
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Alexander J. House
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26,000
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0
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26,000
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William G. Keller, Jr.
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0
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0
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0
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Lee R. Keith
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16,250
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0
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16,250
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Frank H. Musholt(1)
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14,808
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0
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14,808
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Dennis M. Prock
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48,000
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0
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48,000
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James A. Senty(3)
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6,500
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0
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6,500
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John R. Spake
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26,000
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0
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26,000
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Walter D. Stevenson III(1)
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14,808
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0
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14,808
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James W. Tracy
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48,300
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0
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48,300
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(1)
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This directors term expired at the 2009 annual meeting of stockholders, and the
director did not stand for reelection as a director. However, in the case of Mr.
Dugan, he continued after the annual meeting as a consultant and advisory director.
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(2)
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Amount consists of consulting fees paid to Mr. Dugan pursuant to his consulting
agreement with the Company, which agreement expired by its terms on February 28, 2010.
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(3)
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Mr. Senty was a director of the Company and Mercantile Bank from May through June
2009.
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All of the directors of the Company in 2009 also served as directors of the Companys
principal subsidiary bank, Mercantile Bank. Certain directors also served as directors of other
direct or indirect subsidiaries of the Company. Mr. Prock served as a director of Royal Palm
Bancorp, Inc. (and its subsidiary Royal Palm Bank of Florida); Mr. Tracy served as a director of
Brown County State Bank (Brown County) which the Company sold in February 2010; Mr. Dugan served
as a director of Mid-America Bancorp, Inc. (and its subsidiary Heartland Bank), HNB Financial
Services, Inc. (and its subsidiary HNB National Bank) which the Company sold in December 2009, and
Royal Palm Bancorp, Inc. (and its subsidiary Royal Palm Bank of Florida); and Mr. Keller served as
a director of Mid-America Bancorp, Inc. and the Companys indirect subsidiary Mercantile
Investments, Inc. No other director of the Company in 2009, other than Mr. Awerkamp, served as a
director of any other subsidiary of the Company in 2009.
Directors fees for service on the Board of Directors of the Company or any subsidiary of the
Company are reviewed and, if appropriate, adjusted annually by the board of the respective entity.
Directors fees are established as an annual amount, which is then
7
paid in cash to the director in twelve (12) equal installments, except for Royal Palm Bancorp,
Inc. and Royal Palm Bank of Florida, which pay directors for attendance at each meeting. In 2009,
the annual fee amount for Company directors was $17,304, and the annual fee amount for Mercantile
Bank directors was $21,696. In 2009, Royal Palm Bancorp, Inc. and Royal Palm Bank of Florida paid
Mr. Prock $9,000 in directors fees, and Brown County paid Mr. Tracy $9,300 in directors fees. No
additional fees are paid to directors for their service on committees of any board. It has been
the Companys policy that no directors fees have been paid to directors who are also executive
officers or employees of the Company or to other non-independent directors, including Mr. Keller
whose law firm provides legal services to the Company and its subsidiaries. The Company has paid
Mr. Keith directors fees as an exception to this policy because he has had no direct or indirect
compensatory relationship with the Company. Upon the recommendation of the Compensation Committee
beginning after the annual meeting in May 2010, the directors fees will be reduced by 15% as a
cost-savings measure and will be paid to directors who are not executives or other employees of the
Company or any of its subsidiaries. All other directors will be paid the reduced fees, which will
be $14,708 for the Company and $18,442 for Mercantile Bank.
In 2009, no director, other than Messrs. Awerkamp, Dugan and Keller, received any compensation
from the Company or its subsidiaries other than directors fees for services rendered on the boards
of directors of such entities.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
Executive officers of our Company are appointed by the Board of Directors and serve at the
discretion of the Board. The following are the current executive officers of our Company.
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Name
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Age
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Position
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Ted T. Awerkamp
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52
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President and Chief Executive Officer
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Michael P. McGrath
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55
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Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
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Daniel J. Cook
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54
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Executive Vice President and Chief Investment
Officer
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There is no arrangement or understanding between any executive officer and any other person
pursuant to which such executive officer was selected as an officer, except for the employment and
other arrangements described in this report.
Compensation Discussion and Analysis
General
. In this Compensation Discussion and Analysis (the Analysis), references to
Committee are to the Compensation Committee of our Companys Board of Directors, which has
general responsibility for the establishment, direction and administration of all aspects of our
executive compensation program. As discussed above under the heading Corporate
GovernanceInformation Concerning the Board and Committees of the Board, the Committee currently
is composed of four independent directors, none of whom is an officer or employee of our Company or
any subsidiary bank. We use the term Executives to refer to the executive officers of the
Company listed above.
This Analysis has been prepared by management of the Company. The Company is responsible for this
Analysis and for the disclosure controls relating to executive compensation. The Analysis is not a
report or disclosure of the Committee. However, the Committee has reviewed and discussed the
Analysis with management and has submitted a Report hereon which immediately follows this Analysis.
Overall Compensation Policy
. Our Companys executive compensation policy is premised upon two
basic goals: (1) to attract and retain qualified individuals who provide the skills and leadership
necessary to enable our Company and its subsidiary banks to achieve earnings growth, capital growth
and compliance, return on investment and other performance objectives, and (2) to create incentives
for those individuals to achieve Company and individual performance objectives through the use of
performance-based compensation measures. The Company also has a goal of creating a mutuality of
interest between executive officers and stockholders through compensation structures that correlate
a material portion of executive compensation with stockholder returns. Our incentive plan provides
a clear and effective method for motivating our Executives to achieve financial results that will
enhance the share value over time, to the benefit of the stockholders.
8
Overview of Executive Compensation Components
In 2009, our compensation program for the Executives consisted of several compensation
components, which are identified in the following paragraphs and discussed individually in more
detail below. In determining the structure and levels of each element of executive compensation,
the compensation package is considered in total, rather than any one element in isolation. As more
fully described in the ensuing sections of this Analysis, the ultimate determination of each
element of executive compensation is a subjective process in which many factors are considered,
including our Companys and/or subsidiary banks performance and the individual Executives
specific responsibilities, historical and anticipated personal contribution to our business, and
length of service with our Company or subsidiary banks.
The following are the material elements of the compensation program for our Executives:
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A base salary;
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Annual incentive compensation;
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Retirement benefits; and
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Change-in-control protections.
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Each of these elements is described in more detail under Components of Compensation, below.
We also provide various health and welfare benefits to the Executives on the same basis as apply to
all salaried employees, as well as modest perquisites and personal benefits to assist the
Executives in performing their functions. The perquisites and benefits are discussed in the
Summary Compensation Table under Item 11 and footnotes to the table.
Use of Consultants; Market Data
In recent years, we have used compensation consultants occasionally to assist management, the
Committee and the Board in refining and updating our compensation program and plans, not only for
the Executives, but for all employees. Some of these consultants have been asked to review and
make recommendations on only selected aspects of compensation; others were instructed to review and
comment upon our executive compensation program as a whole.
In December 2007, the Compensation Committee engaged Frederic W. Cook & Co., Inc. of Chicago,
Illinois (Cook & Co.), to provide a comprehensive review of the compensation practices and
programs for all employees of the Company and compensation levels for the Companys senior
management, including the Executives. The consultants duties also included an internal review of
the Companys compensation practices and programs for effectiveness and alignment with the
Companys business strategy, as well as external benchmarking against practices in relevant
markets.
In performing its review, which occurred in the first quarter of 2008, Cook & Co. selected,
and compared the Company with, 18 similarly situated bank holding companies. The comparison
companies were publicly traded, classified as regional banks, thrifts or mortgage finance
institutions, and headquartered in the Midwest (sixteen companies) or Florida (two companies). The
median of assets among the companies was $1.5 billion. Our Company was determined at the time to
be in the middle of the group in terms of size and performance although the Companys total
shareholder returns over the several years immediately preceding the review were above the
75
th
percentile of the group.
The consultants findings and recommendations are discussed throughout this Analysis. Among
the consultants recommendations was the adoption and implementation of an equity incentive plan to
provide equity-based, long-term incentives to our key employees including the Executives. The
Company presented an equity incentive plan to stockholders for consideration in May 2008, but it
was not approved.
At the Committees request, Cook & Co. provided supplemental advice to the Committee through
July 2008 regarding issues raised during its review earlier in the year. Although the Company has
not engaged a compensation consultant since the 2008 review by Cook & Co., we expect to continue to
utilize the services of compensation consultants when appropriate from time to time in the future.
Also in 2009, as in prior periods, we conducted our own internal review of executive
compensation practices at a peer group of 27 similarly sized bank holding companies located in the
Midwest, with particular focus on total dollar amounts of compensation and the mix of compensation
paid by our peers to various levels of executives. In preparing this internal review, we used
executive compensation information obtained from SNL Financial, a national information specialist
for the financial services sector. On the basis of our internal review, we concluded that total
compensation received by our Executives as a group in preceding years was largely in line with the
average for our peer group, and that our mix of compensation was similar to our peer group, except
for the absence of equity-based, long-term incentive compensation, which is a common feature of
compensation packages among publicly traded financial institutions. In February 2010, to address
the down-sizing of the Company as a result of the sale or exchange of three of its subsidiary
banks, the Committee revisited the make-up of the peer group and concluded a more accurate group
would be one
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comprised of 10 Midwest bank holding companies of similar asset size and organizational
structure. The new peer group will be used for comparisons beginning in 2010, again utilizing the
executive compensation information obtained from SNL Financial.
Mix of Pay
We believe that the combination of base salary and annual incentive compensation utilized by
us in recent periods provides a suitable and effective program for compensating and incentivizing
our Executives, to the benefit of our Company and our stockholders. The Committee and the Board
believe that designating a portion of executive compensation to be at risk (the annual incentive
compensation piece) advances the interests of our stockholders. We must perform satisfactorily as
an organization, exceeding clear and objective financial benchmarks, in order for annual incentive
compensation to be paid to any Executive, and then individual performance and the Executives
personal contribution to our Companys and/or subsidiary banks success is factored in to determine
precisely how much annual incentive compensation each Executive receives.
Components of Compensation
Base Salary.
Base salary compensates for sustained performance in the executive function. It
is a standard compensatory element. The base salary for each Executive is reviewed at each
year-end in comparison to the previous years salary. In determining whether to adjust base salary
levels, recommendations and subjective assessments of individual performance by members of
management other than the individual officer in question are taken into account. In addition, the
performance of our Company and the subsidiary banks is considered. Based primarily upon a
subjective analysis of our Companys financial performance during the period since the last salary
increase, the Company concluded not to increase base salaries for the Executives in 2010. In this
regard, the analysis of performance included a review of our Companys earnings and return on
equity for the prior year. The factors impacting base salary levels are not independently assigned
specific weights. Rather, all of these factors are reviewed, and specific base pay recommendations
are made that reflect an analysis of the aggregate impact of these factors. Principal factors
underlying the Committees salary determinations at year-end 2009 were the Companys overall
performance in 2009, the general economic conditions, and the difficulties facing financial
institutions in particular. The base salaries currently receivable by our Executives are $325,000
for Mr. Awerkamp, $185,000 for Mr. Cook and $185,000 for Mr. McGrath. For all of the foregoing
reasons, we believe that base pay levels for the Executives are within a range that is appropriate
and sufficient.
Annual Incentive Compensation.
Our basic annual incentive compensation component at present
is our Incentive Compensation Plan. This is an annual incentive plan, involving establishment on
an annual basis of financial targets for the Company which, if met, may result in cash payments to
Executives and other key employees. Until 2007, the incentive plan was not a comprehensive uniform
plan for all senior management; rather the Committee, with input from management, established the
financial targets at the beginning of each year as a series of separate targets for the different
executives, and then provided a cash payout at year-end for each executive if his target level of
performance had been exceeded. The amount of the payment usually was based on some other objective
standard, such as a percentage of the executives base salary. The plan, as applied until 2007,
was divided into a series of separate arrangements and had operated with only a minimum of
flexibility and discretion; selected financial measures, benchmark targets and the calculation of
year-end cash payouts were largely objective. The plan was never submitted to a stockholder vote
because deductibility of plan payments under Section 162(m) of the Internal Revenue Code was not
(and still is not) an issue given the conservative levels of compensation we have traditionally
paid our executives.
In early 2007, after weighing the recommendation of its compensation consultants, the
Committee, with the approval of the Board of Directors, determined to amend the Incentive
Compensation Plan, both by formalizing the plan and by expanding the range of financial targets
that the Committee would be able to utilize when making annual plan awards to executives. The plan
as amended has both an objective test feature and a discretionary, subjective feature for
determining plan payments in any year. Under the objective feature, there is a two-step formula
for establishing annual awards. The Committee must first make a determination as to which
performance criterion or criteria will be so-called threshold performance triggers for individual
executives or groups of executives (triggers). If the trigger or triggers are not met, then the
executive(s) will receive no year-end payments under the objective feature and the analysis ends
without proceeding to the second step of the formula. If the trigger or triggers are met, then the
executive(s) will receive a year-end payment, the total amount of which may increase depending upon
the outcome at year-end under the second step. Under the second step, the Committee must determine
which additional factors, so-called key performance factors (factors), will apply to awards for
the year to the executive or group of executives and, together with the trigger, affect the
ultimate amount of any payments. In identifying triggers and factors, the Company will compare its
performance against the performance of a peer group of bank holding companies for the ensuing year,
as reported after the conclusion of the year by the Federal Reserve Boards Division of Banking
Supervision and Regulation in its year-end Bank Holding Company Performance Report (the BHC
Report). In addition, the Company may choose to compare the total annual return on its stock
price to the performance of the banks and bank holding companies included in the ABA NASDAQ
Community Bankers Index (ABAQ). The ABAQ is the most broadly representative stock index for the
community bank segment of the banking industry.
Peer group ratio averages documented in the BHC Report serve as a frame of reference for
evaluating the financial condition and actual performance of the Company relative to other bank
holding companies with similar characteristics. This information
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serves as a benchmark against which the Companys balance sheet structure and earnings can be
evaluated. The 2009 BHC Report compared the performance of the Company to Peer Group Number 3,
which consisted of 296 U.S. bank holding companies with consolidated assets between $1 billion and
$3 billion. A peer group average for a financial ratio is the arithmetic mean of the ratio
values calculated for all bank holding companies in the selected peer group subject to upper and
lower exclusion limits. That is, to reduce the influence of erroneous or atypical data on peer
group ratio averages, values falling above the 95
th
and below the 5
th
percentiles for the peer group are excluded from the calculation of the peer group average.
As a final step under the objective feature of the plan, the Committee assigns a weight to
each trigger (in the first step) and key factor (in the second step), the total of which must equal
100%. All triggers and factors, and their weighting, are established typically late in the first
quarter or early in the second quarter of each fiscal year. If any factor is not met, the weight
of that factor is added to the weight of each other performance factor that is also not met for the
year and the total percentage is then deducted from the executives objective determinant of plan
payment, i.e., the maximum percentage of his base salary that the executive is entitled to receive
if all triggers and factors are met for the year.
The following paragraphs illustrate how the triggers and factors impacted the determination of
awards under the plan in 2009 for each Executive. The trigger for all the Executives was the
Companys achieving a return on average assets equal to or exceeding the lesser of 0.50% or 97% of
the return on average assets reported in the BHC Report (which was a negative 0.25% for 2009). The
trigger was weighted at 25%. Their key performance factors were (a) net interest margin ratio
equal to or exceeding the lesser of 3.25 or 90% of such ratio reported in the BHC Report (which was
3.50 for 2009) (weighted at 25%), (b) the ratio of total non-interest expense to average assets
equal to or less than the greater of 2.65 or 93% of such ratio reported in the BHC Report (which
was 3.17 for 2009) (weighted at 25%), and (c) the ratio of net charge-offs to average loans equal
to or less than the greater of 0.50 or 100% of such ratio reported in the BHC Report (which was
1.32 for 2009) (weighted at 25%).
Because the Company, like many other financial institutions, suffered substantial
deterioration in its asset quality in 2009, the Company failed to achieve positive net income for
the year 2009 and thus failed to satisfy the specified trigger for payouts to Executives under the
plan for 2009. As a consequence, there were no payments of annual incentive compensation to the
Executives under the objective feature of the plan for 2009.
The plan also permits the Committee to make additional, discretionary awards to Executives, to
reflect individual performance or other significant corporate achievements even if no awards are
authorized or granted under the objective feature of the plan. The plan thus gives the Committee a
degree of discretion over plan awards without undercutting the importance of objective performance
targets selected in advance. Due to the extent of difficulties experienced by the Company in 2009,
there were also no awards to Executives under the plans discretionary feature for 2009.
Since the Company committed the Incentive Compensation Plan to a written document in 2007, the
Board has approved and applied amendments to the plan from time to time to reflect recommendations
of compensation consultants and the Committee. In addition, upon the recommendation of the
Committee, the Board amended the plan in February 2010 to reserve to the Companys Board of
Directors the right to reduce, modify, withhold or discontinue awards under the plan to some or all
eligible participants at any time without notice, regardless of whether objective performance
measures are achieved. The Committee and the full Board believe the Company needs maximum
flexibility in making incentive compensation determinations in todays financially challenging
environment.
In February 2010, the Committee recommended and the full Board agreed that, in conjunction
with Company-wide budget reductions for 2010, the Company will suspend the objective test feature
of the Incentive Compensation Plan for the Companys Executives for this year. Therefore, the
Company will not establish the 2010 trigger and factors under the plan and their respective
weighting, and the Executives will not be eligible at the end of this year for 2010 awards under
the objective test feature of the plan.
Retirement Benefits.
Our retirement benefits provide post-retirement security to all eligible
employees, including our Executives. There are two sources of retirement benefits covering one or
more of our current Executives, as follows:
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Our tax-qualified retirement plan, the Mercantile Bancorp, Inc. Profit-Sharing Plan
and Trust (the Profit-Sharing Plan), which covers all eligible employees and is
described briefly in the Narrative following the Summary Compensation Table below; and
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A salary continuation agreement that the Board of Directors, with the Committees
approval, extended to President and CEO Ted T. Awerkamp in 1994, under which, following
his retirement, Mr. Awerkamp will receive cash payments in addition to those received by
him under the qualified plan; more information is provided about these payments in the
Pension Benefits table below as well as the Narrative following the table.
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Upon recommendation of Cook & Co. after its first quarter 2008 review, the Board and Committee
considered and approved changes to the retirement benefits. First, the Company amended its
Profit-Sharing Plan to provide a Company match of employee contributions up to three percent of the
employees eligible compensation; however, the Company retains the discretion to make additional
Company contributions tied to profitability year to year. The Companys match contributions vest
over a three-year period. Second, the Company and Mr. Awerkamp amended his salary continuation
agreement to reduce the vesting age to his current age (51) from age 55 for an involuntary
termination without cause, including disability, and for a change-in-control termination (formerly,
there would have been no benefits under these circumstances). If Mr. Awerkamp terminates
voluntarily before the age of 55, the vesting age would remain at age 55. Also, the Company
updated the benefits under the salary continuation agreement to reflect Mr. Awerkamps current pay
level. Formerly, the benefits were based on his pay level in 1994 plus a projection of adjustments
since that time, which projection was no longer consistent with actual pay levels. See the
description of Mr. Awerkamps salary continuation agreement, as amended, under the section below
entitled Pension Benefits.
We believe the combination of these retirement benefits, as amended, adequately provides for
the security of our Executives following their cessation of service, such that their efforts can be
directed solely to the success of the Company in their pre-retirement years.
Change-in-Control Protections
. A component of executive compensation is the additional income
security we provide to our management team in the event the Company undergoes a change in control
and the Executives are thereafter dismissed or de facto dismissed by reason of their demotion or
reassignment to remote locations. The employment agreements with all three of our current
Executives contain a change-in-control provision giving them such security. Under this provision,
if during the term of the agreement the Company is the subject of a change in control (as
defined in the agreement) and subsequently the Executive either (i) is terminated by the Company
without cause or (ii) terminates his own employment following a post-change-in-control decrease in
salary, demotion in position or relocation to a remote place of business, the Executive will be
entitled to receive a lump sum cash payment in an amount equal to 250% (for Mr. Awerkamp) or 200%
(for Messrs. McGrath and Cook) of the sum of (x) his current base salary at the time of termination
plus (y) the amount of his payment, if any, under the Incentive Compensation Plan for the most
recently completed fiscal year of the Company.
We believe that providing this protection to our Executives upon a change in control of the
Company is in the stockholders best interest because doing so serves to maintain a stable
executive team during a change-in-control process and incentivizes management to explore, when
appropriate, possible transactions involving a sale or other change in control of the Company, to
the benefit of our stockholders. Under this provision in the employment agreements, the triggering
of a payment requires both a change in control of the Company and the Executives loss of position.
The structure of the provision lessens the likelihood that any payment made thereunder to an
Executive will exceed the ceiling established under Section 280G of the Internal Revenue Code on
the tax deductibility of such payments. Also, the Company is not obligated under the agreements to
make any tax gross-up payments to taxing authorities on behalf of the Executives of amounts they
would otherwise be required to pay individually with respect to payments they may receive following
a change in control and termination of their employment.
For further information on the Executives employment agreements, see the discussion under the
heading, Employment and Other Compensatory Agreements with the Executives Employment Agreements
below.
Mr. Awerkamp may also be entitled to receive payments in the event of a change in control
under his salary continuation agreement. For more information regarding these payments, see the
discussion under the heading Potential Payments to Executives upon Termination or Change in
Control, below.
Regulatory Parameters.
On March 17, 2009, the Company entered into a Memorandum of
Understanding (MOU) with the Federal Reserve Bank of St. Louis (the FRBSL). Under the terms of
the MOU, the Company will pay no salaries, bonuses and other compensation to the Executives without
the prior written approval of the FRBSL. Based on correspondence with the FRBSL, the Company
understands that the current compensatory arrangements with the Executives (and other insiders)
have been properly approved by the FRBSL, but that payment of any other salary amounts, bonuses or
other compensation out of the ordinary course of past business would require prior written approval
by the FRBSL. An MOU is characterized by regulatory authorities as an informal action that is
neither published nor made publicly available by the agencies and is used when circumstances
warrant a milder form of action than a formal supervisory action, such as a cease and desist order.
On February 16, 2010, the Company executed a Written Agreement (WA) with the FRB. The terms
of the WA are generally consistent with the MOU. A WA is a formal enforcement action by the FRB,
similar in nature to an MOU, but is legally binding and will be published and made public.
12
Procedure for Determining Executive Compensation
Committee and Board Roles, Generally.
The Committee oversees and reviews all aspects of the
Companys executive compensation program, including welfare and personal benefits, at least
annually, during its year-end meeting if not before, and often examines specific compensation
issues during the year, if and as appropriate. Its fundamental goal is to ensure that overall
compensation levels and incentive opportunities are competitive and reflect the performance of the
Company and its subsidiary banks as well as performance of the individual executive officer. Types
and amounts of compensation paid to the executives in preceding years have some effect on the
Committees compensation decisions for subsequent years, but are less important than current and
desired future Company performance, retention needs and internal pay equity.
The Board generally monitors the Committees functioning, and makes some decisions on
executive compensation itself, such as approving any compensation agreements with, or plans or
other arrangements involving, the executives. Recommendations received from compensation
consultants are carefully weighed by the Committee and the Board in making their compensation
determinations.
Specific Actions for 2009 and 2010.
The following outlines the executive compensation
decisions made by the Committee and the Board of Directors for 2009 and 2010:
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Annual Incentive Compensation Plan
. Triggers and financial performance
factors for the Executives under the objective feature of the Incentive Compensation
Plan for 2009 (the 2009 awards) were recommended by the Committee at its June 11, 2009
meeting and approved by the Board at its June 16, 2009 meeting. The Committee reviewed
on December 11, 2009 whether the triggers and performance factors for the Executives
under the Incentive Compensation Plan for 2009 would be achieved and, because the return
on average assets trigger would not, no payments were made under the objective feature
for 2009 nor were payments made under the subjective feature. On December 16, 2009, the
Committee adopted a recommendation to amend the plan to give the Board the right to
reduce, modify, withhold or discontinue awards under the plan to some or all eligible
participants at any time without notice, regardless of whether objective performance
measures are achieved. In February 2010, the Board approved an amendment to the plan
with those changes and also suspended the objective test feature of the plan for the
Companys Executives for 2010.
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Executive Employment Agreements
. On February 15, 2010, the Committee decided
not to extend the terms of the Executives employment agreements beyond their current
terms, which expire on February 29, 2012 for Mr. Awerkamp and February 28, 2011 for
Messrs McGrath and Cook. The Committee reached its conclusion after assessing the
performance of the Company in 2009 and noting the fact there was at least a year
remaining on each of the current terms of the agreements, so no immediate action to
renew them was necessary. This action was ratified by the Board on February 16, 2010.
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Compensation Review
. At the Committees meetings in December 2009 and
February 2010, the members considered various year-end 2009 compensation matters in
addition to those described above, including, but not limited to, base salaries. Among
other decisions, the Committee recommended no increases in salaries for the Executives
and no increases in directors fees for service on the boards of the Company and its
subsidiaries. The Committee also reviewed and considered triggers and factors for 2010
under the Incentive Compensation Plan although no metrics were established. The full
Board ratified the decisions regarding salaries and directors fees at its meeting on
March 23, 2010.
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Role of Executive Officers.
Mr. Awerkamp, as the Companys President and CEO, had substantial
input at year-end 2009 into executive compensation decisions of the Committee and the Board. He
participated in formulating a set of management recommendations presented to the Committee and the
Board at various stages of the determination process. Mr. Awerkamp did not actively negotiate with
the Company regarding the terms and conditions of the agreements entered into between the Company
and the Executives, nor did he participate in discussions at the Committee or Board level regarding
his own compensation arrangements generally.
Important Corporate and Individual Factors Utilized at Year-End 2009 in Determining Executive
Compensation.
In making their subjective determinations each year regarding executive
compensation, the Committee and the Board consider both corporate and individual performance.
Corporate factors utilized at year-end 2009 included all key financial metrics, including earnings
per share, net interest income, return on stockholders equity, return on assets, asset quality,
loan growth, and trends in the foregoing measures, compared in each case to results achieved by the
Companys peer group institutions. Individual factors utilized in making year-end compensation
decisions included the particular Executives initiation and implementation of business strategies,
control and oversight of management and departmental teams, and various personal qualities,
including leadership.
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The year 2009 was a difficult year for most financial institutions and the Company, like many
others, suffered from significant deterioration in its asset portfolio, especially in those
geographic areas served by its subsidiaries that experienced the greatest declines in property
values. The Company reported a net loss of $58.5 million or $(6.72) per share for the year ended
December 31, 2009, compared with a net loss of $8.8 million or $(1.01) per share in 2008. The net
losses for both 2009 and 2008 include the income and expense associated with discontinued
operations, namely HNB National Bank, Marine Bank & Trust and Brown County State Bank, all of which
have been sold. From continuing operations, net interest income was $21.2 million in 2009 compared
with $21.8 million the prior year, provision for loan losses decreased from $23.2 million in 2008
to $22.1 million in 2009, total noninterest income was $7.8 million in 2009 compared with $9.2
million the prior year, and total noninterest expense was $71.5 million in 2009 compared with $38.6
million in 2008. In addition, the Company recorded a net loss from discontinued operations of $8.0
million in 2009 compared to net income of $7.3 million in 2008.
The total noninterest expense from continuing operations of $71.5 million in 2009 included
$30.4 million in goodwill impairment loss, primarily related to the Companys acquisition of Royal
Palm Bancshares, Inc. in 2006. Included in the net loss from discontinued operations in 2009 was a
goodwill impairment loss of $14.0 million related to the Companys acquisition of HNB Financial
Services, Inc. in 2007.
Total assets at December 31, 2009 were $1.4 billion compared with $1.8 billion the prior year,
the decrease primarily due to the exchange for debt of HNB National Bank. Loans declined from $1.3
billion a year ago to $776 million as of December 31, 2009, while deposits were $955 million at
year-end 2009 compared with $1.5 billion at year-end 2008. The decreases in total loans and
deposits in 2009 were primarily attributable to the exchange or sale of three banks.
In view of the Companys difficult year and continuing economic pressures forecast for the
financial sector generally, the Committee and Board concluded not to increase 2010 salaries for the
Executives or to pay any bonuses to them under the Incentive Compensation Plan for 2009.
Report of the Compensation Committee
The Compensation Committee of the Company has reviewed and discussed with the Companys
management the Compensation Discussion and Analysis that is required by Securities and Exchange
Commission rules to be included in the proxy statement.
Based on that review and those discussions, the Committee has recommended to the Companys
Board of Directors that the Compensation Discussion and Analysis be included in this report.
Dennis M. Prock, Chairman
Julie A. Brink
Michael J. Foster
James W. Tracy
14
Compensation Tables and Narrative Disclosure
The following table sets forth compensation information for our Executives for services
rendered to the Company and its subsidiaries in 2009, 2008 and 2007.
Summary Compensation Table
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Change in
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Pension Value
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and
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Nonqualified
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Non-Equity
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Deferred
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Name and
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Incentive Plan
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Compensation
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All Other
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Principal
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Salary
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Bonus
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Compensation
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Earnings
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Compensation
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Position (1)
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Year
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($) (2)
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($)(3)
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($) (3)
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($)(4)
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($) (5)
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Total ($)
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Ted T. Awerkamp,
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2009
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325,000
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0
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0
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22,469
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34,665
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382,134
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President and CEO
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2008
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325,000
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0
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0
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24,189
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28,205
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377,394
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(effective March
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2007
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310,000
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30,000
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74,400
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20,504
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44,352
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479,256
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2007)
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Michael P. McGrath,
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2009
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185,000
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0
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0
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0
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11,783
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196,783
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Executive Vice
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2008
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185,000
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0
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0
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0
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10,265
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195,265
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President, Chief
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2007
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175,000
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15,000
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26,425
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0
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20,086
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236,511
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Financial Officer,
Treasurer and
Secretary
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Daniel J. Cook,
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2009
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185,000
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0
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0
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0
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11,783
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196,783
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Executive Vice
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2008
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185,000
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0
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0
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0
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10,265
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195,265
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President and Chief
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2007
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175,000
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15,000
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26,425
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0
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20,090
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236,515
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Investment Officer
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(1)
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Upon Dan S. Dugans retirement as President and CEO on February 28, 2007,
Mr. Awerkamp was promoted to from Vice President and Secretary of the Company
to President and CEO effective March 1, 2007.
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(2)
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Represents base salary paid to the Executive. Although Mr. Awerkamp served
as a director of the Company and certain of its subsidiaries in each of 2009,
2008 and 2007, he received no additional fees for that service. Includes
amounts deferred by the Executives under the 401(k) feature of the Companys
Profit-Sharing Plan.
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(3)
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All cash compensation received by each Executive for 2009, 2008 and 2007
is included in the Salary column, Bonus column or Non-Equity Incentive Plan
Compensation column of this table. Any payments to the Executive under the
discretionary feature of the Companys Incentive Compensation Plan are
contained in the Bonus column. The payments to the Executive under the
objective feature of the plan are found in the Non-Equity Incentive Plan
Compensation column.
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(4)
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Represents amounts accrued in 2009 under the salary continuation agreement
(supplemental retirement payment agreements) for Mr. Awerkamp.
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(5)
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Represents Company contributions under the Profit-Sharing Plan for the
year 2009 of $16,125 for Mr. Awerkamp, $11,783 for Mr. McGrath and $11,783 for
Mr. Cook. Also includes the following perquisites for the year 2009: $8,040
in country club dues and $10,500 in the use of a Company car for Mr. Awerkamp.
Previously, the Company leased a car for Mr. Awerkamp; however, in April 2009
the Company purchased the car for $52,426 and permits Mr. Awerkamp to use it.
The dollar amount attributed to his use of the car is an estimate of the value
of this benefit based on the former lease payment. No other executive received
perquisites in 2009 valued at $10,000 or more.
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Narrative to Summary Compensation Table.
For a further discussion of the details regarding
the salary paid to each Executive, please see the section entitled Base Salary under Components
of Compensation in the Compensation Discussion and Analysis under Item 11. All amounts listed in
the Non-Equity Incentive Plan Compensation column were awarded pursuant to the Companys
Incentive Compensation Plan, which is discussed in more detail in the section entitled Annual
Incentive Compensation under Components of Compensation in the Compensation Discussion and
Analysis on under Item 11.
The amounts listed in the All Other Compensation column as Company contributions under the
Profit-Sharing Plan consist of discretionary payments made by the Board of Directors to the account
of each executive under the Profit-Sharing Plan. This defined-contribution profit-sharing plan
covers substantially all employees. Under the plan, the Board determines the total contribution to
the plan, and then a portion of the total is allocated to each participants account in the same
proportion that the participants compensation, plus the participants excess compensation, bears
to the total compensation plus excess compensation of all participants. Excess compensation is
defined as the portion of a participants compensation that exceeds his or her Social Security
taxable wage base. If after the first step of the allocation process there still remains a portion
of the contribution which has not yet been allocated, then the remainder will be allocated to the
participant in the same proportion that the participants compensation bears to the total
compensation of all participants. Beginning in 2009, the plan provides that the Company will match
the employees contributions to their accounts up to three percent of the employees eligible
compensation, which Company match will vest over a three-year period.
For a further discussion regarding the salary continuation agreements, which are referenced in
the footnote to the Change in Pension Value and Nonqualified Deferred Compensation Earnings
column, see the discussion under the Pension Benefits table under Item 11.
Grants of Plan-Based Awards
The following table sets forth the range of payments our Executives could have received under
the objective feature of the Incentive Compensation Plan as established for 2009. However, no
actual payments were made to the Executives for 2009 because the financial performance trigger and
factors established by the Compensation Committee and Board under the plan for 2009 were not
satisfied.
16
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Grant
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Estimated Future Payouts Under Non-Equity Incentive Plan
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Date
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Awards (2)
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Name
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(1)
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Threshold ($)
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Target ($)
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Maximum ($)
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Ted T. Awerkamp
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56,875
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113,750
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227,500
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Michael P. McGrath
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18,500
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37,000
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74,000
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Daniel J. Cook
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18,500
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37,000
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74,000
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(1)
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See the section entitled Specific Actions for 2009 and 2010 under Procedures for
Determining Executive Compensation in the Compensation Discussion and Analysis for a discussion
of the timing of the Incentive Compensation Plan awards for 2009.
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(2)
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For Messrs. Awerkamp, McGrath and Cook, the threshold, target and maximum payout amounts are
based on the percentage of the Executives base salaries they would have received if the Company
had satisfied the trigger only (25%), the trigger plus one of the other key factors (50%), or the
trigger and all key factors (100%) under the objective feature of the Incentive Compensation Plan
for 2009. The base salaries of Messrs. Awerkamp, McGrath and Cook for 2009 were $325,000,
$185,000 and $185,000, respectively. Listed payouts do not include any additional payments under
the plans discretionary feature. In fact, there were no payments under either the objective or
discretionary features of the plan for 2009.
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Narrative to Grants of Plan-Based Awards Table.
The table sets forth estimated possible payments
under the objective feature of the Companys Incentive Compensation Plan, its only non-equity
incentive plan. Specifically, the table shows the range of possible payments to Executives during
2009 depending upon their meeting certain criteria. However, no actual payments were made to the
Executives for 2009 because the financial performance trigger and factors established by the
Compensation Committee and Board under the plan for 2009 were not satisfied. For a more detailed
discussion of the Incentive Compensation Plan in place for 2009 and the awards thereunder, please
see the section entitled Annual Incentive Compensation under Components of Compensation in the
Compensation Discussion and Analysis under Item 11.
Pension Benefits
The table below shows the actuarial present value of accumulated benefits under the individual
salary continuation agreement held by Mr. Awerkamp as of December 31, 2009:
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Payments
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Number of Years
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Present Value of
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During Last
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Credited Service
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Accumulated Benefit
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Fiscal Year
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Name
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Plan Name
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(#)(1)
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($)(2)
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($)
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Ted T. Awerkamp
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Salary Continuation Agreement
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15
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245,123
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0
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(1)
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Represents the number of years that have transpired since the adoption of Mr.
Awerkamps agreement in 1994; however, the benefits payable under the agreement are
determined by reference to the age of Mr. Awerkamp at his retirement date and are not
directly related to his number of years of service to the Company.
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(2)
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For purposes of calculating the present value of the accumulated benefits under Mr.
Awerkamps salary continuation agreement as of December 31, 2009, the Company engaged Clark
Consulting, Inc. (Clark). According to Clark, the dollar amount above was determined in
accordance with standard actuarial assumptions and utilizing methods prescribed by the
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17
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Financial Accounting Standards Board. In calculating the dollar amount for Mr. Awerkamp,
the Company assumed monthly payments of $5,741.66 commencing September 1, 2022, the date Mr.
Awerkamp would be able to retire at age 65, the normal retirement age under the agreement,
and continuing for a period of time as determined using the 1994 Group Annuity Reserving
Table. Clark applied a discount rate of 6.0%.
|
Narrative to Pension Benefits Table.
Retirement benefits for executives consist of
participation in the Companys Profit-Sharing Plan, a tax-qualified retirement plan which covers
all eligible employees, and supplemental retirement benefits under salary continuation agreements
awarded to certain executives (currently, Mr. Awerkamp is the only executive with a salary
continuation agreement). The Executives participation in the Profit-Sharing Plan is discussed
above in the narrative to the Summary Compensation Table.
In 1994 the Companys Board of Directors consulted with Bank Compensation Strategies Group
(now Clark Consulting) regarding a supplemental executive retirement program (SERP) for top
management to supplement existing retirement programs and provide incentive to remain with the
Company. The consultants provided the Company with data from Wyatt Data Services and Hay/Huggins
Benefit Report regarding the use of some type of SERP or other nonqualified retirement plan in
organizations in the financial, industrial and service sectors. The Wyatt data had a significant
representation of financial institutions. The data indicated that approximately 50% of the
reporting financial institutions had some form of nonqualified retirement plan for chief executive
officers, top management and senior management. The amount of the SERP benefit for those
reporting organizations was usually a percent of final salary with the average being approximately
53% of final salary for the financial sector.
Consequently in 1994, upon the consultants recommendation, the Company entered into a salary
continuation agreement with Mr. Awerkamp to establish SERP benefits. Under his agreement, Mr.
Awerkamp is entitled to receive, following his retirement, certain amounts in addition to the
payments receivable by him under the Companys qualified retirement plan, the Profit-Sharing Plan.
The amount of the supplemental payment under the agreement depends on when he retires, when his
agreement payments commence, and certain other factors.
As originally contemplated in 1994, the target benefit was 75% of final salary (using the 1994
salary amount and increasing annually at the rate of 5% to age 65) but including projected benefits
the participant would receive from social security and the Profit-Sharing Plan. Using that target,
Mr. Awerkamps SERP benefit was projected at 21% of final salary, although taking into
consideration projected social security and profit-sharing plan benefits, he had a combined benefit
of 75%. In order to provide incentive to him to remain with the Company, the Board elected to
defer vesting of the SERP benefit until age 55 years and provided for a lower benefit if the
participant retired prior to age 65 years.
The agreement was amended in April 2004 to clarify that no benefits would be payable if Mr.
Awerkamps employment were terminated for cause, in December 2007 to comply with Section 409A of
the Internal Revenue Code, and again on July 15, 2008 to clarify the calculation of benefits and to
address certain additional termination scenarios described below.
Under his salary continuation agreement, if Mr. Awerkamp retires at normal retirement age,
that is, at age 65, he or his beneficiaries will be entitled to receive thereafter $68,900 per
year, in monthly installments of $5,742, for the greater of (i) his remaining life, or (ii) 180
months (15 years). If Mr. Awerkamp retires at an early retirement age, that is, retires before
age 65 but after age 60, he or his beneficiaries will be entitled to receive supplemental cash
payments over the same period of time, but in amounts that are progressively smaller depending on
how early in that time period he retires, down to a minimum cash amount of $48,632 per year, or
$4,053 per monthly installment, if he elects early retirement at age 60. However, if Mr. Awerkamp
retires early but elects to defer commencement of his supplemental payments until his normal
retirement age of 65, he will be able to receive the higher payments receivable by him upon normal
retirement.
If Mr. Awerkamp voluntarily terminates his employment before age 60 but after age 55, his
employment is terminated prior to age 65 as the result of a disability, or his employment is
terminated involuntarily (regardless of his age) for any reason other than death, disability or
for cause, he will receive supplemental cash payments under his agreement in lesser amounts. He
or his beneficiaries will receive the payments in monthly installments for 15 years (180 months).
If Mr. Awerkamps employment terminates before age 55 under any circumstances other than those
outlined above, he receives nothing under his salary continuation agreement, except in the case of
termination of his employment under certain circumstances following a change in control. The
payments due Mr. Awerkamp following a change in control are discussed below in footnote (d) to the
Post-Termination of Employment Benefits Table.
In the event Mr. Awerkamp is terminated for cause, he receives no payments or benefits under
his salary continuation agreement, regardless of his age. The agreement also provides that, if Mr.
Awerkamp dies while in the service of the Company before payments are due him under the agreement,
the Company will pay his beneficiaries certain survivors benefits for 15 years.
18
Mr. Awerkamp is receiving no payments under the agreement at this time, so there are no
benefits reportable by him for income tax purposes and no corresponding deductions for the Company.
For a further discussion of these payments, see the section entitled Potential Payments to
Executives Upon Termination or Change in Control under Item 11.
Post-Termination of Employment Benefits Table
The table below shows the estimated payouts to each of the named Executives in connection with
termination of their employment under special circumstances, including disability, death,
termination other than for cause, and termination in connection with a change in control. For the
purposes of this table we are assuming that the individual was terminated on December 31, 2009.
Furthermore, for purposes of the benefits determined by reference to the Executives base salaries
and annual incentive compensation, we used the Executives actual base salaries in 2009 and annual
incentive compensation payments for 2009 (which were $0 for all Executives). The timing and other
terms of these payments, the payments receivable by the Executives upon the voluntary termination
of their employment or termination for cause, and the applicability of restrictive covenants after
termination of the Executives employment are discussed below under the sections entitled
Employment and Other Compensatory Agreements with Executives beginning immediately below this
table and Potential Payments To Executives Upon Termination or Change In Control under Item 11.
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Termination
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Termination by Company
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After a Change
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Disability
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Death
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Other than for Cause
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in Control
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Name
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(a)($)
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(b)($)
|
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(c)($)
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(d)($)
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Ted T. Awerkamp
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195,000
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1,033,499
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704,167
|
|
|
|
1,035,154
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Michael P. McGrath
|
|
|
111,000
|
|
|
|
0
|
|
|
|
215,833
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|
|
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370,000
|
|
Daniel J. Cook
|
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111,000
|
|
|
|
0
|
|
|
|
215,833
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|
|
|
370,000
|
|
|
|
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(a)
|
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Represents potential payments to Executives under their employment agreements.
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(b)
|
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Represents total potential value of payments to the beneficiaries of Mr. Awerkamp under
his salary continuation agreement.
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(c)
|
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Represents potential payments to Executives under their employment agreements, each of
which provides that the Executive would receive his base salary for the remaining term of
his agreement and the annual incentive compensation payment for the last calendar year
preceding the termination that he would have received had he remained employed. At December
31, 2009, the remaining term for Mr. Awerkamp was two years and two months and for Messrs.
McGrath and Cook was one year and two months. The base salaries and annual incentive
compensation payments for 2009 are disclosed in the Summary Compensation Table above.
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(d)
|
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Represents potential payments to Executives under their employment agreements and,
for Mr. Awerkamp, an additional $222,654 in total potential payments under his salary
continuation agreement. Each employment agreement provides that the Executive would
receive a multiple (2.5 times for Mr. Awerkamp and 2 times for Messrs. McGrath and
Cook) of his current annual base salary plus the incentive compensation payment for the
last calendar year preceding the termination and change in control. The payments under
the employment agreement may be reduced in connection with the application of IRC 280G
as discussed below. The base salaries and annual incentive compensation payments for
2009 are disclosed in the Summary Compensation Table above. For further information
regarding the salary continuation agreements, see the section entitled Pension
Benefits.
|
EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS WITH EXECUTIVES
We have in place two types of individual compensatory agreements with our Executives: First,
we have employment agreements with each of our Executives (Messrs. Awerkamp, McGrath and Cook),
which we entered into as of January 1, 2008. Second, we have a supplemental retirement benefit
agreement (so-called salary continuation agreement) with Mr. Awerkamp, which we entered into in
1994 and have amended several times since then. The employment agreements are described in the
immediately following section of this report, Employment Agreements. The salary continuation
agreement with Mr. Awerkamp is described above under the heading Pension Benefits.
19
Employment Agreements
After a series of discussions with our compensation consultants and a review of peer group
practices, our Board of Directors, upon the recommendation of our Compensation Committee, approved
in early 2007 our entering into employment agreements with each of our Executives, Messrs.
Awerkamp, McGrath and Cook. Those agreements, which became effective March 1, 2007, were amended
and restated in their entirety as of January 1, 2008, to comply with Section 409A of the Internal
Revenue Code, which sets forth certain requirements for arrangements involving deferred
compensation. The agreements were further amended as of July 15, 2008, to change the maximum
percentage of each Executives base salary that the Executive is entitled to receive if all
specified financial performance targets under the Incentive Compensation Plan are met for the year.
The employment agreements are intended to further the stability and effectiveness of our
management team, while providing the Executives with substantial incentives to continue to achieve
financial success at the Company level and thereby build shareholder value. For further discussion
of the Companys compensation philosophy and the decision to award employment agreements to the top
Executives, see the Compensation Discussion and Analysis above.
The agreements for the three Executives are similar in structure and effect. As restated on
January 1, 2008, the agreement for Mr. Awerkamp was to continue through February 28, 2010, and the
agreements for Messrs. McGrath and Cook were to continue through February 28, 2009, in each case
renewable by the Board of Directors as of February of each year of the term for an additional year.
In both February 2008 and 2009, upon the recommendation of the Compensation Committee, the Board
of Directors approved the extension of the term of each agreement for an additional year; however,
in February 2010, upon recommendation of the Compensation Committee, the Board declined to approve
extensions of the terms. The Board based its decision on the performance of the Company in 2009
and the fact there was at least a year remaining on each of the current terms of the agreements, so
no immediate action to renew them was necessary. The agreement for Mr. Awerkamp is now for a term
of two years (ending February 29, 2012) and the agreements for Messrs. McGrath and Cook are for
terms of one year (ending February 28, 2011).
Under the agreements, the Executive is guaranteed an annual base salary, as the same may be
adjusted upward (but not downward) from time to time, and certain job-related benefits that are
typically covered by such agreements, including specified life and health insurance coverage. In
addition, Mr. Awerkamp is entitled to the use of a Company automobile and limited perquisites such
as club fees, and Mr. Cook is entitled to receive club fees. Each agreement also provides that the
Executive will be entitled to participate in the objective feature of the Companys Incentive
Compensation Plan, that is, the Executive will be eligible to receive an award under that feature
for each year if the specified financial performance target or targets applicable to the Executive
for that year are met. The agreements also specify the maximum amount of the payment thus
receivable by the particular Executive in any year, as a percentage of such Executives base
salary. Specifically, the maximum payment for Mr. Awerkamp in any year is 70% of his base salary
and the maximum payment for each of Messrs. McGrath and Cook for any year is 40% of his base
salary. Such percentages were selected by the Board and Committee based on their review of
incentive compensation arrangements for executives at similarly situated bank holding companies,
including the mix of compensation components, and after consultation with Frederic W. Cook & Co.,
the Companys compensation consultant. The consultant confirmed the payment terms under the
objective feature, including the percentages, were within a reasonable range for similar plans
among comparison bank holding companies, again taking into consideration the current mix of
compensation components. The base salaries currently receivable by the Executives under the
agreements are $325,000 for Mr. Awerkamp, $185,000 for Mr. McGrath and $185,000 for Mr. Cook. No
changes were made in the base salaries for 2010.
The agreements also call for special payments to be made to the Executives if they are
disabled, if their employment with the Company is terminated without cause, or if their employment
is terminated following a change in control of the Company, as that term is defined in the
agreements. For a further discussion of these special payment provisions, see the discussion below
under the heading, Potential Payments to Executives Upon Termination or Change in Control. The
agreements also contain non-competition covenants that may be triggered upon certain terminations
of the Executives employment and, if so, apply for two years thereafter; however, in the case of
Mr. McGrath and Mr. Cook, the non-competition period would be one year if the Company terminated
his employment without cause. In cases where these covenants apply, the executives are generally
precluded from being employed by or affiliated with any bank or other insured depository
institution, or other entity engaged in commercial, agricultural or consumer lending or the sale of
any services or products provided by the Company, if that institution or entity is located within
fifty (50) miles of the corporate city limits of Quincy, Illinois, or within five (5) miles of the
main or branch facility of any of the subsidiaries of the Company.
20
POTENTIAL PAYMENTS TO EXECUTIVES UPON TERMINATION OR CHANGE IN CONTROL
Employment Agreements for Executives
As discussed in the immediately preceding section of this report under the heading Employment
Agreements, each of the Companys three Executives has an employment agreement with the Company,
under which, among other things, the Executive is entitled to receive a special cash payment if his
employment with us is terminated under non-standard circumstances, such as following a change in
control of the Company. These agreements became effective on January 1, 2008.
The information required to be set forth in this section of this report, regarding special
benefits that may be payable to Executives upon termination of their employment under various
circumstances, assumes for purposes of presentation and analysis that the Executives employment
should be deemed to have terminated, hypothetically, as of the last day of the preceding fiscal
year, in this case, as of December 31, 2009.
Voluntary Termination or Early Retirement
Under the employment agreements, an Executive may terminate his employment during the term of
the agreement, upon six months written notice to the Company, but absent some special circumstance,
such as a preceding change in control of the Company, the Executive will not be entitled to any
special payments or benefits under the agreement. The Executive would be required under the
agreement to continue to perform his duties for the six-month period and would be entitled to
continuing compensation during that period, but would not be entitled to any further payments after
the date of termination. However, if the Company fails to renew the term of the Executives
employment agreement for an additional year as of February of any year of the term, then the
Executive may terminate the agreement without cause upon sixty (60) days written notice, in which
case the Executive would only be obligated to perform his duties for such sixty (60)-day period.
Of course, if the Executive terminates his employment voluntarily, the Executive would also be
entitled to receive the vested portion of his account under the Companys Profit-Sharing Plan.
In addition, if the Executive also has a salary continuation agreement with the Company, as
Mr. Awerkamp has, he may be entitled to receive cash payments under that agreement following a
voluntary termination of employment if such termination constitutes early retirement under the
agreement, supplementing his payments under the retirement plan, and he may be able to receive cash
payments under his agreement even if his voluntary termination of employment occurs before the
earliest date of early retirement for him under the retirement plan, if he meets the conditions in
the agreement for such very early retirement payments. In all cases, if the Executive is entitled
to receive cash payments under his salary continuation agreement upon voluntary retirement, the
amount of the payments will depend on how old the Executive is when he voluntarily retires and
whether he elects to receive his payments under the agreement immediately or chooses to wait until
a later date to commence receipt thereof. Because Mr. Awerkamps salary continuation agreement
does not provide for any payments if he voluntarily terminates his employment before he turns 55,
and because he was not yet 55 on December 31, 2009, he would not have been entitled to any cash
payments under his agreement if he had voluntarily terminated his employment at the end of last
year.
Termination for Cause
Under the employment agreements, if the Company terminates an Executive for cause (as defined
in the agreement), he is entitled to receive payment of his base salary only through the end of the
month the termination becomes effective. This limited right to post-termination payment of salary
is driven solely by the demands of payroll processing and is for the convenience of the Company,
not the Executive. Of course, an Executive terminated for cause on December 31, 2009, the last day
of the month, would not have received any benefit from this provision in any case.
Although an Executive terminated for cause may retain the legal right to receive certain
amounts due him upon termination, such an Executive would not receive any enhanced rights or
benefits to retirement payments under the Companys qualified plan. The Executives eligibility to
receive subsequent plan payments under such circumstances would be determined in a manner
consistent for all employees participating in the plan who may be terminated under such
circumstances.
Death or Disability
The Executives employment agreements may provide for enhanced payments if the Executive
becomes disabled during the term of his agreement, depending on the dollar amount of the insurance
payments he receives during his disability. Specifically, under the agreements, if the Executives
employment is suspended due to disability and the disability insurance payments made to
21
him (annualized) are less than 60% of the sum of (i) the Executives annual base salary at the
time his disability commences, plus (ii) the amount of the payment, if any, received by the
Executive under the Incentive Compensation Plan for the year ended immediately prior to the year he
becomes disabled, he is entitled to receive payments equal to the difference for so long as he is
eligible to receive disability income payments. If any Executives employment had been suspended
due to disability on December 31, 2009, it is unlikely that the Executive would have been entitled
to receive any makeup payments under the employment agreement with respect to his base salary,
due to the disability coverage presently held by the Companys Executives. However, the Executive
would have become entitled to receive from the Company under the employment agreement an amount
equal to 60% of his incentive compensation award for the immediately preceding year, which payment
is not included in the Companys disability coverage.
The employment agreements provide that, upon death of an Executive, the Company would be
obligated to pay the Executives compensation through the end of the month during which the
Executive dies. In addition, under the salary continuation agreement with Mr. Awerkamp, if he were
terminated due to death on December 31, 2009, his beneficiaries would be entitled to payments under
the agreement. Specifically, had Mr. Awerkamp died on December 31, 2009 while in service to the
Company, his beneficiaries would have been entitled to receive one hundred eighty (180) equal
monthly installments of $5,742.
No Executive would have been entitled to receive any other special benefits or payments upon
termination of his employment due to death or disability at the end of last year under any other
special agreements or arrangements provided by the Company, other than the payments described above
and other than such benefits and payments that might have been received by him or his heirs or
beneficiaries under the Companys group disability or life insurance plan or the Companys
Profit-Sharing Plan, if applicable, which benefits or payments, if received, would have been
determined in a manner consistent with that applied for all employees of the Company experiencing
termination of employment under similar circumstances.
Termination Other than for Cause
Under the employment agreements, if an Executive is terminated without cause during the term
of the agreement, he is entitled to receive an amount equal to his base annual salary for the
remainder of the term of the agreement (but for not less than two years for Mr. Awerkamp and one
year for Messrs. McGrath and Cook), all other benefits due him under the agreement for the
remaining term of the agreement, plus an amount equal to his award under the Incentive Compensation
Plan for the last full calendar year preceding the date of termination of his employment, with no
duty on his part to mitigate the cost thereof to the Company by seeking other employment, provided,
however, the Executive thus terminated has no right to receive an award under the Incentive
Compensation Plan for any years after the year in which his termination occurs. Had any Executive
been terminated without cause on December 31, 2009, the Executive would have received the remaining
payments of his base salary plus all other benefits due him during the term of the agreement (two
years and two months more for Mr. Awerkamp and one year and two months more for Messrs. McGrath and
Cook), plus his annual incentive compensation award for 2009 ($0 for each Executive). The
severance amount would be payable to the Executive in twenty-four equal monthly installments
following termination; provided, however, if the severance amount would exceed the safe harbor
amount under Section 409A of the Internal Revenue Code, such excess portion would be paid in a lump
sum to the Executive. If the termination without cause of the Executive followed a change in
control of the Company, the consequences to him under the employment agreement would be different,
as discussed in the ensuing section, Termination After a Change in Control.
There are no other plans or agreements under which any of the Executives would be entitled to
receive any special benefits or payments upon termination without cause. We have a policy under
which our employees generally are entitled to receive severance benefits in the event of
termination of their employment other than for cause under certain circumstances; however, the
Executives employment agreements provide that the Executives are not eligible to receive severance
benefits under the policy.
The termination for cause of an Executive would not result in his receipt of enhanced
retirement benefits under our Profit-Sharing Plan beyond those normally receivable by him,
determined in a manner consistent with the determination of plan benefits for all employees of the
Company.
Termination after a Change in Control
The employment agreements provide our executives with financial protection and security should
there be a change in control of the Company and thereafter they are either terminated or
effectively forced out. Specifically, if a change in control (as defined in the agreement) occurs
and, within the remaining term of the agreement, the Executive either (i) is terminated by the
Company without cause or (ii) resigns because he has (a) been demoted; (b) had his compensation
reduced; (c) had his principal place of employment transferred away from the City of Quincy,
Illinois; or (d) had his job title, status or responsibility materially reduced, the Executive will
be entitled to receive from the Company a lump sum cash payment equal to 2.5 (for Mr. Awerkamp) or
2.0 (for Messrs. McGrath and Cook) multiplied by the sum of (x) the Executives annual base salary
at the time of the change in control/the termination of his employment, plus (y) the amount of the
payment, if any, received by him under the Incentive Compensation Plan
22
for the fiscal year immediately preceding the year in which his employment terminates. The
Executive would also be entitled to continue to receive the other benefits due to him under his
employment agreement for two years for Mr. Awerkamp and one year for Messrs. McGrath and Cook,
after the date of termination, other than the right to participate in the Incentive Compensation
Plan in the year following the year of termination. Had the employment of any Executive terminated
on December 31, 2009 following a change in control, the Executive would have been entitled to
receive a lump sum cash payment equal to 2.5 (for Mr. Awerkamp) or 2.0 (for Messrs. McGrath and
Cook) multiplied by his annual salary for 2009 (there were no incentive payments for 2009), as well
as continuing benefits such as health insurance for two years for Mr. Awerkamp and one year for
Messrs. McGrath and Cook.
Under Mr. Awerkamps salary continuation agreement, if Mr. Awerkamp is terminated prior to
reaching age 60 for reasons other than death, disability, or for cause, but after a change in
control, and in connection with the change in control Mr. Awerkamps title, duties,
responsibilities, or base salary is significantly lessened or his situs of employment is changed,
without his consent, then the Company is required to make certain payments to Mr. Awerkamp based
upon schedules in his agreement.
The payment under Mr. Awerkamps employment agreement arising from his death would be reduced
under certain circumstances related to payments under his salary continuation agreement. His
employment agreement provides that if the present value of payments due Mr. Awerkamp on account of
a change in control under the employment agreement, plus the present value of payments due to him
under his salary continuation agreement relating to a change in control, exceed three times the
base amount determined under Internal Revenue Code Section 280G, then the payment under this
employment agreement will be reduced to an amount that would be equal to three times his base
amount less one dollar. This provision is intended to preserve the tax deductibility to the
Company of payments to Mr. Awerkamp in connection with a change in control, which might otherwise
be nondeductible under IRC Section 280G under these circumstances. The base amount is defined as
the persons annualized includible compensation for the most recent five taxable years ending
before the date on which the change in control occurs.
There are no other agreements or plans under which any of the Executives would be entitled to
receive special payments or benefits upon termination of their employment following a change in
control. Such a termination would not result in any Executive receiving enhanced benefits under
our Profit-Sharing Plan beyond the plan benefits otherwise receivable by him upon retirement or
early retirement, determined in a manner consistent with the determination of benefits under the
plan for all participating employees of the Company.
Compensation Committee Interlocks and Insider Participation
At December 31, 2009, members of the Compensation Committee were Directors Prock, Brink,
Foster and Tracy. The Compensation Committee reviews and makes recommendations to the Board of
Directors regarding executive compensation. No member of the Compensation Committee in 2009 was,
or had ever been, an officer or employee of the Company or any of its subsidiaries, or had any
substantial business dealings with the Company. In addition, no compensation committee
interlocks existed during fiscal year 2009, that is, no member of our Compensation Committee or
the Board was an executive officer of another company on whose compensation committee or board any
of our executive officers served.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
OWNERSHIP OF COMMON STOCK BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following tables set forth certain information as of April 12, 2010 regarding the
beneficial ownership of the Companys common stock by (i) each person, including groups of persons
acting in concert, known to the Board of Directors to own beneficially 5% or more of such class of
common stock, (ii) each director of the Company, (iii) by each executive officer named in the
Summary Compensation Table under Executive Compensation and (iv) all directors and officers of
the Company as a group. Generally, all the information set forth below with respect to the
stockholdings of the listed beneficial owners was obtained from such owners, directly or indirectly
from reports filed by them with the SEC.
23
Principal Owners
Persons (including groups acting in concert) who beneficially own in excess of five percent
(5%) of the Companys common stock are required to file with the SEC certain reports regarding
ownership and changes in ownership of such stock pursuant to the 1934 Act. The following table
identifies, as of April 12, 2010, all persons (including groups acting in concert) who are known or
presumed by the Board and management to be the beneficial owners of more than five percent (5%) of
our common stock, based among other things on reports filed by such persons with the SEC.
|
|
|
|
|
|
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|
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Amount and Nature of
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|
Percent of Shares of
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|
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Beneficial
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Common
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Name and Address of Beneficial Owner
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Ownership (1)
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Stock Outstanding
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Mercantile Bank
200 North 33rd Street
Quincy, Illinois 62301
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517,368
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(2)
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5.9
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%
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R. Dean Phillips and others reporting
as a group
524 North 30th Street
R. Dean Phillips
Town & Country Bank
Quincy, Illinois 62301
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3,350,938
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(3)
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38.5
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%
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|
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Dennis M. Prock
8010 Estero Boulevard
Fort Myers Beach, Florida 33931
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562,261
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(4)
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6.5
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%
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(1)
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With respect to the beneficial owners who are natural persons, the figures
include shares of common stock held directly by them as well as by spouses or
minor children, in trust and by other means of indirect ownership, provided the
individual effectively exercises sole or shared voting and/or investment power
over the shares.
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(2)
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All shares are held in nominee name for Mercantile Bank by Northern Trust
Company. All such shares are held directly or indirectly by Mercantile Bank
for the benefit of trust, estate and agency clients, except for 177,744 shares
that are held for the benefit of the participants of the Companys
Profit-Sharing Plan. In its administration of the accounts of all such trust,
estate and agency clients (the Accounts) and its administration of the
Profit-Sharing Plan, Mercantile Bank has voting and/or investment power over
all securities held in such Accounts or the Profit-Sharing Plan, including
shares of our stock, in accordance with the powers specified in the governing
instrument of the estate, trust or agency or the Profit-Sharing Plan document.
Mercantile Bank exercises sole voting power with respect to 310,929 shares,
shared voting power with respect to 80,980 shares, sole investment power with
respect to 96,787 shares, and shared investment power with respect to 78,985
shares. Mercantile Bank disclaims beneficial ownership of any shares over which
it has neither voting nor investment power.
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(3)
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Number of shares beneficially owned derived from a report on Form 4 filed
by Mr. Phillips with the Securities and Exchange Commission on November 4,
2009, and a Schedule 13D filed on February 13, 2009, as amended by Schedules
13D/A filed on April 22, 2009 and November 25, 2009, by Mr. Phillips and
certain other persons reporting as a group, such other persons being the
trustees of various irrevocable unfunded life insurance trusts established by
Betty Jo Phillips for the benefit of various family members and the trustees of
various revocable trusts of Betty Jo Phillips for her benefit and the benefit
of various family members. The individual trustees of the various trusts on
November 25, 2009, were David E. Miller, Philip M. Burns, James R. Behrens, and
Town and Country Bank of Quincy. The reporting persons reported, collectively,
beneficial ownership of 3,350,938 shares of the Companys common stock. Mr.
Phillips reported sole voting and dispositive power with respect to 1,384,695
shares (15.9% of the Companys outstanding shares). As trustee of certain of
the trusts, Mr. Miller reported shared voting and dispositive power with
respect to 264,858 shares. As trustee of certain of the trusts, Mr. Burns
reported shared voting and dispositive power with respect to 264,863 shares.
As trustee of certain of the trusts, Mr. Behrens reported shared voting and
dispositive power with respect to 264,860 shares. As trustee of certain of the
trusts, Town and Country Bank of Quincy reported shared voting and dispositive
power with respect to 1,171,662 shares (13.5% of the Companys outstanding
shares). Except for stock owned directly by such persons, the reporting
persons expressly disclaimed beneficial ownership of the stock reported on the
Schedule 13D, as amended, and expressly disclaimed that
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24
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they have formed a
group as contemplated by Section 13(d)(3) of the 1934 Act.
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(4)
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Number of shares beneficially owned derived from a report on Form 4 filed
by Mr. Prock with the Securities and Exchange Commission on March 31, 2009.
Shares held by Mr. Prock through a grantor revocable trust and an individual
retirement account, over both of which he has sole voting and investment power.
Mr. Prock is a director of the Company.
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Management
The following table sets forth, as of April 12, 2010, the number of shares of common stock
beneficially owned by directors, nominees and executive officers of the Company.
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Amount and
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Percent of Shares
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Nature of
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of Common
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Beneficial
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Stock
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Name of Beneficial Owner
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Ownership (1)
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Outstanding
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Directors, Nominees and Named
Executive Officers
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|
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Julie A. Brink
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222,145
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(2)
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2.6
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%
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Michael J. Foster
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9,750
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(3)
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*
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Alexander J. House
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0
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*
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Lee R. Keith
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0
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*
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William G. Keller, Jr.
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88,549
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(4)
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*
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Dennis M. Prock
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562,261
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(5)
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6.5
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%
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John R. Spake
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5,750
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(6)
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*
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James W. Tracy
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1,500
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(7)
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*
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Ted T. Awerkamp
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15,000
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(8)
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*
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Michael P. McGrath
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2,550
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(9)
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*
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Daniel J. Cook
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1,012
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(10)
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*
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All Executive Officers and
Directors as a group
(includes 11 individuals)
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1,086,261
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(11)
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12.5
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%
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|
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|
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(1)
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Includes shares of common stock held directly as well as by spouses or minor children, in trust and
other indirect ownership, over which shares the individuals effectively exercise voting and/or investment
power, as described in the corresponding footnotes.
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(2)
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Includes 2,400 shares of common stock held personally and 219,745 shares held by R.L. Brink Corp. and
Thompson, Inc. of which Ms. Brink is a Director, Vice President and Secretary, over which she holds
shared voting power but not investment power.
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(3)
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Includes 7,050 shares owned by Mr. Foster through an individual retirement account over which he has
sole voting and investment power and 2,700 shares owned by Mr. Foster with his spouse over which he
shares voting and investment power.
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(4)
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Includes 10,620 shares owned by Mr. Keller personally and 77,929 shares held by Mr. Keller as
co-trustee of the Schmiedeskamp, Robertson, Neu & Mitchell LLP Profit-Sharing Plan, over which the
trustees hold voting power but not investment power. The shares in this plan include 15,750 shares for
which Mr. Keller is a beneficiary and thus holds investment power.
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(5)
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Shares held by Mr. Prock through a grantor revocable trust and an individual retirement account, over
both of which he has sole voting and investment power. Includes 559,035 shares pledged as collateral
securing loans from Town and Country Bank, Quincy, Illinois.
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25
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(6)
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Shares held by Mr. Spake through an individual retirement account over which he has sole voting and
investment power.
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(7)
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Shares are held by Mr. Tracy jointly with his spouse, with whom he shares voting and investment power.
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(8)
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Includes 2,895 shares owned by Mr. Awerkamp through an individual retirement account over which he
has sole voting and investment power and 12,105 shares owned jointly with his spouse over which he shares
voting and investment power.
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(9)
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Shares are held by Mr. McGrath through an individual retirement account over which he has sole voting
and investment power.
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(10)
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Shares are held by Mr. Cook through an individual retirement account over which he has sole voting
and investment power.
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(11)
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Includes 177,744 shares owned by the Companys Profit-Sharing Plan, for which Mercantile Bank serves
as trustee. Through its trust department, Mercantile Bank exercises voting and investment power over the
shares.
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|
*
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Less than one percent (1%) of the outstanding shares of common stock.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Loans and Other Customer Relationships Between Company and Certain Related Parties
Our executive officers, current directors, director nominees, beneficial owners of five
percent or more of the Companys outstanding shares, and their respective associates and controlled
companies have been, and we anticipate they will continue to be, customers of our subsidiary banks
in the ordinary course of business, which includes obtaining loans, maintaining deposit accounts
and entering into trust and other fiduciary relationships with our subsidiaries. The most
significant type of these traditional customer relationships are loans that our banks, principally
Mercantile Bank, have extended from time to time to these persons and their associates. All of
our insider loans outstanding at any point during 2009 (a) were extended consistent with similar
practices in the banking industry generally, (b) were made in the ordinary course of business and
on substantially the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with the banks other customers, and (c) did not involve more
than the normal risk of collectability or present other unfavorable features, and, as of December
31, 2009, no such loan was past due more than 90 days, on nonaccrual status, a restructured loan
under FAS 15, or a potential problem loan.
Other Business Relationships with Certain Related Parties
In addition, from time to time the Company and its subsidiaries enter into other business
transactions or business or professional relationships with executive officers, current directors,
director nominees, and beneficial owners of five percent or more of the Companys outstanding
shares (including their respective associates and controlled companies). During 2009, the Company
had no such transaction or relationship with any of the executive officers, current directors,
director nominees, or beneficial owners of five percent or more of the Companys outstanding shares
or their respective affiliates where the dollar amount in question exceeded $120,000, except for
(i) the borrowing relationship described below with Great River Bancshares, Inc. (Great River),
which is owned by R. Dean Phillips (Phillips), a beneficial owner of more than five percent of
the Companys outstanding shares, and (ii) the professional relationship with the Quincy, Illinois
law firm of Schmiedeskamp, Robertson, Neu & Mitchell LLP, of which Director Keller is a senior
partner. During 2009, the Company and its subsidiaries paid aggregate fees of $451,074 to the
Schmiedeskamp firm, which has provided legal services to the Company for several years. This
amount includes a $170,000 annual retainer paid to the firm, which was offset against fees for
services rendered during the year.
The Company and Great River have had a lending relationship since December 2008, when Great
River purchased certain loans that U.S. Bank National Association (USB) had made to the Company,
with principal balances of $15,109,000, $5,037,000, and $2,015,000. The terms of the assumed notes
were the same as the terms with USB, including the various covenants.
The $15,109,000 note payable was secured by 100% of the outstanding shares of the Companys
subsidiary banks and certain other assets. Interest was payable quarterly at a fixed annual rate
of 6.09% until amended in November 2009 to a fixed annual rate of 7.5%. Principal was due in three
payments as follows: $375,000 due March 31, 2009, $375,000 due June 30, 2009, and
26
$14,359,000 due on November 10, 2009. The largest aggregate amount of principal outstanding
regarding this note during 2009 was $15,109,000. Both principal and interest pertaining to this
note in the amounts of $14,359,000 and $107,693, respectively, were paid in full in December 2009
as part of the Exchange Agreement (discussed below) with Phillips.
The $5,037,000 and $2,015,000 notes payable were secured by 100% of the outstanding shares of
the Companys subsidiary banks and certain other assets. Interest was payable quarterly at fixed
annual rates of 6.13% and 6.27%, respectively, until amended in November 2009 to fixed annual rates
of 7.5%. Principal was due in four payments as follows: $125,000 each due December 31, 2009,
$125,000 each due March 31, 2010, $125,000 each due June 30, 2010, and the remaining principal of
$4,662,000 and $1,640,000, respectively, due August 31, 2010. In November 2009, Great River issued
another note payable in the amount of $11,000,000 to the Company, with a maturity of January 31,
2010 and an annual interest rate of 7.5%. Principal of $1,880,000 and interest of $15,112
pertaining to the $2,015,000 note were also paid down as part of the Exchange Agreement (discussed
below) with Phillips, leaving a principal balance due of $135,000 at December 31, 2009. The
largest aggregate amounts of principal outstanding regarding these notes during 2009 were
$5,037,000 with respect to the $5,037,000 note and $2,015,000 with respect to the $2,015,000 note.
This $135,000 balance, along with both principal and interest pertaining to the $5,037,000 and
$11,000,000 notes in the amounts of $16,172,000 and $76,970, respectively, was paid in full in
February 2010 from the proceeds of the Companys sale of Marine Bank & Trust (Marine Bank) and
Brown County State Bank (Brown County).
The notes payable had various covenants including ratios relating to the Companys capital,
allowance for loan losses, return on assets, non-performing assets and debt service coverage. At
December 31, 2008, the Companys non-performing assets to primary capital ratio of 26% was in
noncompliance with the non-performing assets covenant requiring an 18% maximum. Also at December
31, 2008, the Companys fixed charge coverage ratio of (.72)% ratio was in noncompliance with the
covenant requiring a minimum ratio of 1.10%. The notes payable were due upon demand because of the
debt covenant noncompliance and Great River could have required repayment at its discretion before
maturity. In April 2009, the Company received a waiver from Great River relating to the debt
covenant violations at December 31, 2008.
On November 21, 2009, the Company entered into a Second Waiver and Amendment (the Second
Waiver) to the Fourth Amended and Restated Loan Agreement by and between the Company and Great
River. The Second Waiver waived the Companys breaches of, and amended, certain financial and
other covenants, extended the principal payment and maturity dates on certain of the notes payable,
and provided that all principal and interest related to the notes payable would be repaid from the
proceeds of the sale of Marine Bank and Brown County. As of December 31, 2009, the Company was in
compliance with all debt covenants related to the notes payable with Great River. In February
2010, the sale of Marine Bank and Brown County was consummated, and all principal and interest due
to Great River was paid in full.
Also on November 21, 2009, the Company entered into an Exchange Agreement (the Exchange)
with Phillips (Phillips). The Exchange provided for the sale of HNB National Bank (HNB), one
of the Companys subsidiary banks, to Phillips, in exchange for the repayment of $28 million of the
Great River debt. Phillips owned, through participations from Great River, more than $28 million
of the Great River debt. On December 16, 2009, the Company finalized the Exchange eliminating $28
million of the debt owed to Great River, and transferred control of HNB to Phillips. In connection
with the Exchange, the Company entered into other ancillary agreements with HNB. The exchange of
debt for all issued and outstanding stock of HNB left approximately $16 million in outstanding debt
owed to Phillips and Great River. The Company repaid the remainder of this debt following the
closing of the sale of Marine Bank and Brown County on February 26, 2010.
Great River provided the Company a new line of credit on November 21, 2010, in the principal
amount of $7 million, which has a maturity date of December 31, 2010, and bears interest at 7.5%
per annum. There is no outstanding principal under this line of credit as of the date of this
report.
27
Policy and Procedures on Related Party Transactions
The Company has adopted a related person transaction policy applicable to certain transactions
between the Company or its subsidiaries and any executive officer or director of the Company,
including their immediate family members and their controlled companies and business entities.
Under the policy, any such related party transaction, as further defined in Item 404 of Regulation
S-K of the SEC rules, will be evaluated and approved or disapproved by the Companys Audit
Committee or, if it is unable to act, by a majority of the disinterested directors of the Company.
These transactions are also subject to and governed by the Companys Code of Ethics and Standards
of Conduct, which together with the policy are available on the Companys website at
www.mercbanx.com
. The Nominating/Corporate Governance Committee will also be apprised of any
related party transactions and consider that information in determining director independence.
Director Independence
The Board has determined that a majority of the current directors and all current members of
the Nominating/Corporate Governance, Compensation, and Audit Committees are independent for
purposes of Section 802 of the NYSE Amex Company Guide. Specifically, the Board has determined
that the following current directors and director nominees are independent: Julie A. Brink,
Michael J. Foster, Alexander J. House, Dennis M. Prock, John R. Spake and James W. Tracy. In
addition, with respect to other persons who served as directors during any part of 2009 but who are
not now directors, the Board had determined previously that the following were independent at the
time of their service to the Company in 2009: Frank H. Musholt, James A. Senty and Walter D.
Stevenson III. The Board based these determinations primarily on its review of the responses of
these individuals to questions regarding their personal history, their business and professional
relationships with the Company as well as those of their families and their business affiliates,
and other relationships they may have with management.
In making determinations of independence, the Board uses the definition of independent
provided in Section 803 of the NYSE Amex Company Guide, including the objective measures of
director independence established in that section. In applying this NYSE Amex definition of
independence, the Board considers a wide range of subjective factors, including the following:
personal relationships between the director and Company management, business relationships between
the Company and the director (including the latters immediate family members and controlled
business interests) that do not exceed the dollar thresholds automatically resulting in loss of
independence under the NYSE Amex guidelines but that nevertheless may be significant to one or both
parties, and other relationships between the director and the Company or its management that may
affect independent judgment. Chief among these other relationships are customer relationships that
a director may have with the Company.
Generally, the Board does not believe that the mere existence of a traditional customer
relationship between a director (including the directors immediate family and controlled business
interests) and the Company, where, for example, the director is a borrower, depositor or trust
customer of the Company, will jeopardize the independence of the director, except in cases where
the dollar amount of the relationship or account in question is extraordinarily large or where the
particular relationship or account is experiencing significant difficulties.
In reviewing the independence of the current directors, the Board determined that none of
these individuals, directly or through their families or controlled companies, had an
extraordinarily large or troubled customer relationship of any kind with the Company or its banks
although several maintain deposit accounts of various types with us and/or have personal or
corporate loans from us of a non-troubled nature. Moreover, none of the individuals deemed
independent had any non-customer business relationships with us at all, directly or indirectly
through their families or controlled businesses. Finally, none of the individuals deemed
independent had personal ties to Company management that were considered by the Board to be so
material as to compromise his independence.
The directors and nominees who were determined not to be independent under applicable NYSE
Amex guidelines were Ted T. Awerkamp, because he is a current executive officer of the Company;
William G. Keller, Jr., because of the extent of his law firms representation of the Company; and
Lee R. Keith, because he was appointed as a director at the request of Great River Bancshares,
Inc., the Companys primary lender (Great River), which is owned by R. Dean Phillips (the
Companys largest stockholder) pursuant to the Companys contractual obligation to include a
representative selected by Mr. Phillips on the Companys Board. With respect to other persons who
served as directors of the Company during any part of 2009 but who are not now directors, the Board
had determined previously that Dan S. Dugan, former President and CEO of the Company and a
consultant to the Company through February 28, 2010, was not independent as a result of those
relationships.
Executive Sessions of Independent Directors
The Companys Corporate Governance policies require the Board to provide for regular executive
sessions including only independent directors. At least once a year, the Board holds an executive
session including only independent directors. In 2009, all of
28
the independent directors attended the executive session. In addition, the Boards three
principal committees, Nominating/Corporate Governance, Compensation and Audit, consist of only
independent directors, and the chairmanship of these committees rotates among those directors.
Therefore, each meeting of these committees permits the independent directors to address Company
business in executive session to the extent desired, and each independent director has a
significant role in setting committee agendas and conducting committee meetings.
Item 14. Principal Accounting Fees and Services
Principal Accounting Fees and Services
The following table presents fees billed for professional audit services rendered by BKD, LLP
for the audit of our Companys annual financial statements for 2008 and 2009, and fees billed for
other services rendered by BKD, LLP during such years.
|
|
|
|
|
|
|
|
|
Type of Fee
|
|
2008
|
|
|
2009
|
|
Audit Fees (1)
|
|
$
|
275,800
|
|
|
$
|
191,850
|
|
Audit-Related Fees (2)
|
|
|
40,000
|
|
|
|
53,850
|
|
Tax Fees (3)
|
|
|
45,700
|
|
|
|
46,300
|
|
All Other Fees
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361,500
|
|
|
$
|
292,000
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Audit Fees, including out-of-pocket costs, are for the audit of the Companys
financial statements for the years ended December 31, 2008 and 2009. Also included are
the fees related to the preparation of reports filed by the Company with the SEC under
section 13(a) of the 1934 Act (e.g., annual reports on Form 10-K, quarterly reports on
Form 10-Q).
|
|
(2)
|
|
Audit-Related Fees include the aggregate fees and out-of-pocket costs paid by us
to BKD, LLP during 2008 and 2009 for assurance and related services that are reasonably
related to the performance of the audit or review of the Companys financial statements
and not included in Audit Fees, including a separate profit-sharing plan audit.
|
|
(3)
|
|
Tax Fees include the aggregate fees paid by us to BKD, LLP
during 2008 and 2009
for professional services rendered for tax compliance, tax advice and tax planning.
|
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
Pursuant to its charter, the Audit Committee is responsible for reviewing and approving, in
advance, the engagement of our independent auditor and any permissible non-audit engagement or
relationship between our Company and its independent auditors. In addition to approving our
engagement of BKD, LLP to conduct the audit of our Company in each of the last three years, the
Audit Committee has approved each permissible non-audit engagement or relationship between our
Company and BKD, LLP entered into since January 1, 2009. The percentage of audit-related fees, tax
fees and all other fees that were approved by the Audit Committee for fiscal year 2009 equaled 100%
of the total fees incurred. We have been advised by BKD, LLP that substantially all of the work
done in conjunction with its audit of our financial statements for the most recently completed
fiscal year was performed by permanent full-time employees and partners of BKD, LLP.
29
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements
Reference is made to the consolidated financial statements, reports thereon, and notes
thereto included elsewhere in this Annual Report on Form 10-K. A list of such consolidated
financial statements is set forth below:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2009 and 2008
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and
2007
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2009,
2008, and 2007
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
Notes to Consolidated Financial Statements
(b) Exhibits See Exhibit Index
(c) There are no financial statement schedules filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
MERCANTILE BANCORP, INC.
(Registrant)
|
|
|
By:
|
/s/ Michael P. McGrath
|
|
|
Name:
|
Michael P. McGrath
|
|
|
Title:
|
Executive Vice President,
Treasurer, Secretary and Chief Financial
Officer
|
|
|
|
|
Dated: April 30, 2010
|
30
Exhibit Index
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
3.1
|
|
Certificate of Incorporation of Mercantile Bancorp, Inc., as amended, filed with the Registration Statement on Form 10 dated
May 12, 2004 (File No. 000-50757) (the Registration Statement), under the same exhibit number.
|
|
|
|
3.2
|
|
Certificate of Amendment to the Certificate of Incorporation of Mercantile Bancorp, Inc., filed as Exhibit 3.3 to the Annual
Report on Form 10-K for the year ended December 31, 2008 (the 2008 Form 10-K).
|
|
|
|
3.3
|
|
Bylaws of Mercantile Bancorp, inc. restated and adopted June 16, 2009, filed as Exhibit 3.1 to the Periodic Report on Form
10-Q for the quarter ended June 30, 2009 (the 2009 Second Quarter 10-Q).
|
|
|
|
4.1
|
|
Shareholder Rights Agreement dated July 9, 1999 between the Company and Mercantile Trust & Savings Bank, filed under same
exhibit number with the Registration Statement.
|
|
|
|
4.2
|
|
Amendment to Shareholder Rights Agreement dated May 15, 2000 between the Company and Mercantile Trust &
Savings Bank, filed under same exhibit number with the Registration Statement.
|
|
|
|
10.1
|
|
Executive Employee Salary Continuation Agreement dated December 8, 1994 between Mercantile Trust &
Savings Bank and Dan S. Dugan, filed as Exhibit 10.3 with the Registration Statement.
|
|
|
|
10.2
|
|
Amendment to Dugan Executive Employee Salary Continuation Agreement dated April 26, 2004, filed as
Exhibit 10.4 with the Registration Statement.
|
|
|
|
10.3
|
|
Second Amendment to Dugan Executive Employee Salary Continuation Agreement dated December 29, 2006,
filed as Exhibit 10.1 to a Current Report on Form 8-K filed January 5, 2007.
|
|
|
|
10.4
|
|
Executive Employee Salary Continuation Agreement, as amended and restated effective January 1, 2009
between Mercantile Bank and Ted T. Awerkamp, filed as Exhibit 10.4 to the 2008 Form 10-K.
|
|
|
|
10.5
|
|
Employment Agreement dated January 1, 2008, between the Company and Ted T. Awerkamp, filed as Exhibit
10.8 to the Annual Report on Form 10-K for the year ended December 31, 2007 (the 2007 Form 10-K).
|
|
|
|
10.6
|
|
Amendment to Employment Agreement dated July 15, 2008, between the Company and Ted T. Awerkamp, filed as
Exhibit 10.1 to the Periodic Report on Form 10-Q for the quarter ended September 30, 2008 (the 2008 Third
Quarter Form 10-Q).
|
|
|
|
10.7
|
|
Employment Agreement dated January 1, 2008, between the Company and Michael P. McGrath, filed as Exhibit
10.9 to the 2007 Form 10-K.
|
|
|
|
10.8
|
|
Amendment to Employment Agreement dated July 15, 2008, between the Company and Michael P. McGrath, filed
as Exhibit 10.2 to the 2008 Third Quarter Form 10-Q.
|
|
|
|
10.9
|
|
Employment Agreement dated January 1, 2008, between the Company and Daniel J. Cook, filed as Exhibit
10.10 to the 2007 Form 10-K.
|
|
|
|
10.10
|
|
Amendment to Employment Agreement dated July 15, 2008, between the Company and Daniel J. Cook, filed as
Exhibit 10.3 to the 2008 Third Quarter Form 10-Q.
|
|
|
|
10.11
|
|
Mercantile Bancorp, Inc. Profit Sharing Plan and Trust, filed as Exhibit 10.7 with the Registration Statement.
|
|
|
|
10.12
|
|
401(k) Plan Adoption Agreement, filed as Exhibit 10.8 with the Registration Statement.
|
|
|
|
10.13
|
|
Amendment to the Profit Sharing Plan and Trust, filed as Exhibit 10.9 with the Registration Statement.
|
|
|
|
10.14
|
|
Consulting Agreement dated March 2, 2007 between Mercantile Bancorp, Inc. and Dan S. Dugan, filed as Exhibit
10.1 to a Current Report on Form 8-K filed March 7, 2007.
|
31
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
10.15
|
|
Consulting Agreement dated January 15, 2008 between Mercantile Bancorp, Inc. and Dan S. Dugan, filed as
Exhibit 10.16 to the 2007 Form 10-K.
|
|
|
|
10.16
|
|
Consulting Agreement dated March 1, 2009 between Mercantile Bancorp, Inc. and Dan S. Dugan, filed as Exhibit
10.16 to the 2008 Form 10-K.
|
|
|
|
10.17
|
|
Third Amended and Restated Term Loan Agreement dated November 10, 2006 by and between Mercantile Bancorp,
Inc., Borrower, and U.S. Bank National Association, formerly known as Firstar Bank, N.A., Lender, filed as
Exhibit 10.1 with the Periodic Report on Form 10-Q for the quarter ended September 30, 2006 (the 2006 Third
Quarter Form 10-Q).
|
|
|
|
10.18
|
|
First Amendment to Third Amended and Restated Loan Agreement between Mercantile Bancorp, Inc. and U.S. Bank
National Association, dated March 20, 2007, filed as Exhibit 10.1 to a Current Report on Form 8-K filed March
24, 2007.
|
|
|
|
10.19
|
|
Second Amendment to Third Amended and Restated Loan Agreement between Mercantile Bancorp, Inc. and U.S. Bank
National Association, dated as of June 30, 2007, filed as Exhibit 10.1 to a Current Report on Form 8-K filed
July 19, 2007.
|
|
|
|
10.20
|
|
Third Amendment to Third Amended and Restated Loan Agreement between Mercantile Bancorp, Inc. and U.S. Bank
National Association, dated September 7, 2007, filed as Exhibit 10.1 to a Current Report on Form 8-K filed
September 12, 2007.
|
|
|
|
10.21
|
|
Assignment Agreement among U.S. Bank National Association, Great River Bancshares, Inc. and Mercantile
Bancorp, Inc., dated December 23, 2008, filed as Exhibit 10.21 to the 2008 Form 10-K.
|
|
|
|
10.22
|
|
Secured Demand Promissory Note made by Mercantile Bancorp, Inc. to Great River Bancshares, Inc., dated
December 31, 2008, filed as Exhibit 10.22 to the 2008 10-K.
|
|
|
|
10.23
|
|
Secured Demand Promissory Note made by Mercantile Bancorp, Inc. to Great River Bancshares, Inc., dated
February 5, 2009, filed as Exhibit 10.23 to the 2008 10-K.
|
|
|
|
10.24
|
|
Waiver and Agreement by and between Mercantile Bancorp, Inc., and Great River Bancshares, Inc., dated March
13, 2009, regarding certain loan covenants of the Company, filed as Exhibit 10.24 to the 2008 10-K.
|
|
|
|
10.25
|
|
Construction Agreement dated August 24, 2006 by and between Mercantile Trust & Savings Bank, Owner, and
Clayco, Inc., Contractor, filed as Exhibit 10.2 with the 2006 Third Quarter Form 10-Q.
|
|
|
|
10.26
|
|
General Conditions of the Contract for Construction by and between Mercantile Trust & Savings Bank, Owner,
and Clayco, Inc., Contractor, filed as Exhibit 10.3 with the 2006 Third Quarter Form 10-Q.
|
|
|
|
10.27
|
|
Indenture dated August 25, 2005 between Mercantile Bancorp, Inc. and Wilmington Trust Company, as trustee,
filed as Exhibit 10.1 to the 2009 Second Quarter 10-Q.
|
|
|
|
10.28
|
|
Junior Subordinated Indenture dated July 13, 2006 between Mercantile Bancorp, Inc. and Wilmington Trust
Company, as trustee, filed as Exhibit 10.2 to the 2009 Second Quarter 10-Q.
|
|
|
|
10.29
|
|
Indenture dated July 13, 2006 (Fixed/Floating Rate Junior Subordinated Debt Securities Due 2036) between
Mercantile Bancorp, Inc. and Wilmington Trust Company, as trustee,
filed as Exhibit 10.3 to the 2009 Second
Quarter 10-Q.
|
|
|
|
10.30
|
|
Junior Subordinated Indenture dated August 30, 2007 between Mercantile Bancorp, Inc. and Wilmington Trust
Company, as trustee, filed as Exhibit 10.4 to the 2009 Second Quarter 10-Q.
|
|
|
|
10.31
|
|
Fourth Amended and Restated Loan Agreement dated April 30, 2009 between Mercantile Bancorp, Inc. and Great
River Bancshares, Inc. as assignee of U.S. Bank National Association, filed as Exhibit 99.1 to a Current
Report on Form 8-K filed on May 6, 2009.
|
|
|
|
10.32
|
|
First Amendment to Waiver and Agreement dated April 20, 2009 between Mercantile Bancorp, Inc. and Great River
Bancshares, Inc., filed as Exhibit 99.2 to a Current Report on Form 8-K filed on May 6, 2009.
|
|
|
|
10.33
|
|
Fourth Amended and Restated Loan
Agreement Waiver and Amendment dated August 10, 2009, filed as Exhibit 10.5
to the 2009 Second Quarter 10-Q.
|
32
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
10.34
|
|
Stock Purchase Agreement dated as of November 22, 2009 by and between Mercantile Bancorp, Inc. and United
Community Bancorp, Inc., filed as Exhibit 10.1 to a Current Report on
Form 8-K
filed on November 25, 2009
(the November 2009
Form 8-K).
|
|
|
|
10.35
|
|
Exchange Agreement dated as of November 21, 2009 by and between Mercantile Bancorp, Inc. and R. Dean
Phillips, filed as Exhibit 10.2 to the November 2009 Form 8-K.
|
|
|
|
10.36
|
|
Second Waiver and Amendment dated November 21, 2009 by and between Mercantile Bancorp, Inc. and Great River
Bancshares, Inc., filed as Exhibit 10.3 on the November 2009 Form 8-K.
|
|
|
|
10.37
|
|
Mercantile Bancorp, Inc. Company and Bank Executive and Senior Officer Incentive Compensation Plan
December 2006, amended and restated as of January 1, 2010.*
|
|
|
|
14.1
|
|
Code of Ethics, filed under same exhibit number with Annual Report on Form 10-K for fiscal year ended
December 31, 2004.
|
|
|
|
21
|
|
Subsidiaries of registrant.*
|
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, filed herewith.
|
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934, as amended, filed herewith.
|
|
|
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
32.2
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
|
|
Management contract or compensatory plan or arrangement.
|
|
*
|
|
Filed on April 7, 2010 with Form 10-K
|
33
Grafico Azioni Mercantile Bancorp (AMEX:MBR)
Storico
Da Apr 2024 a Mag 2024
Grafico Azioni Mercantile Bancorp (AMEX:MBR)
Storico
Da Mag 2023 a Mag 2024