UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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| FIRST DEFIANCE FINANCIAL CORP. |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
April 22, 2008
and
PROXY STATEMENT
601 Clinton Street
Defiance, Ohio 43512
(419) 782-5015
NOTICE OF SPECIALANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 31, 2007APRIL 22, 2008
| (1) | To |
| (2) | To transact such other business as may properly come before the |
The Board of Directors has fixed November 19, 2007March 7, 2008 as the voting record date for the determination of shareholders entitled to notice of and to vote at the SpecialAnnual Meeting or at any adjournment thereof. Only those shareholders of record as of the close of business on that date will be entitled to vote at the SpecialAnnual Meeting or at any such adjournment.
| BY ORDER OF THE BOARD OF DIRECTORS | |
  | |
| William J. Small | |
| Chairman, President and Chief Executive Officer | |
Defiance, Ohio
YOU ARE CORDIALLY INVITED TO ATTEND THE |
PROXY STATEMENT
First Defiance Financial Corp.
601 Clinton Street
Defiance, Ohio 43512
GENERAL
This Proxy Statement is being furnished to the shareholdersholders of common stock, $0.01 par value per share ("Common Stock"), of First Defiance Financial Corp., Defiance, Ohio (the "Company," "we"("First Defiance" or "us"“the Company”). OurProxies are being solicited on behalf of the Board of Directors is soliciting proxiesof First Defiance to be used at the SpecialAnnual Meeting of Shareholders (the "Special("Annual Meeting") to be held at the home officeOperations Center of First Federal Bank of the Midwest ("First Federal") located at 601 Clinton Street,25600 Elliott Road, Defiance, Ohio 43512, on Monday, December 31, 2007Tuesday April 22, 2008 at 1:00 p.m., Eastern Time, and at any adjournment thereof.thereof for the purposes set forth in the Notice of Annual Meeting of Shareholders. This Proxy Statement is first being mailed to shareholders on or about November 26, 2007.
PROXIES
The following questions proxy solicited hereby, if properly submitted to First Defiance and answers highlight only selected information. We urge younot revoked prior to read carefullyits use, will be voted in accordance with the remainderinstructions contained therein. If no contrary instructions are given, each proxy received will be voted for the nominees for director described herein and, upon the transaction of this Proxy Statement becausesuch other business as may properly come before the questions and answers below do not contain allmeeting, in accordance with the best judgment of the information that might be importantpersons appointed as proxies. Any shareholder giving a proxy has the power to yourevoke it at any time before it is exercised by (i) filing written notice of revocation with respectthe Secretary of First Defiance (John W. Boesling, Secretary, First Defiance Financial Corp., 601 Clinton Street, Defiance, Ohio 43512); (ii) submitting a valid proxy bearing a later date; or (iii) appearing at the Annual Meeting and giving notice of revocation to the proposal that willSecretary. Proxies solicited hereby may be considered at the Special Meeting.
VOTING RIGHTS
Only shareholders of record at the close of business on March 7, 2008 ("Voting by proxy will in no way limit your rightRecord Date") are entitled to notice of and to vote at the SpecialAnnual Meeting. On the Voting Record Date, there were 7,070,669 shares of Common Stock issued and outstanding and First Defiance had no other class of equity securities outstanding. Each share of Common Stock is entitled to one vote at the Annual Meeting on all matters properly presented at the meeting.
The presence, either in person or by proxy, of at least a majority of the outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Annual Meeting. Abstentions are considered in determining the presence of a quorum.
Directors are elected by a plurality of the votes cast with a quorum present. Abstentions will not affect the plurality vote required for the election of directors. The proposal for election of directors is considered a "discretionary" item upon which brokerage firms may vote in their discretion on behalf of their clients if you later decide to attendsuch clients have not furnished voting instructions.
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PROPOSAL 1
Election of Directors
Composition of the Board
The full Board consists of 11 directors. The Board has determined that John L. Bookmyer, Stephen L. Boomer, Peter A. Diehl, John U. Fauster III, Thomas A. Voigt, Douglas A. Burgei, Dwain I. Metzger, Gerald W. Monnin, and Samuel S. Strausbaugh are "independent" as set forth in person.(a) section 10A(m)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(m)(3)), (b) Securities and Exchange Commission (SEC) Rule 10A-3(b) (17CFR 240.10A-3(b)), and (c) Rule 4200(a) of the National Association of Securities Dealers, Inc. The Board is divided into three classes, with two of the classes having four members and the third having three members. The directors in each class serve a three-year term. The terms of each class expire at successive annual meetings so that the stockholders elect one class of directors at each annual meeting.
| Directors whose terms expire at this Annual Meeting | Dr. John U. Fauster III | |
| James L. Rohrs | ||
| Thomas A. Voigt | ||
| Directors whose terms expire at | Douglas A. Burgei | |
| Dwain I. Metzger | ||
| Gerald W. Monnin | ||
| Samuel S. Strausbaugh | ||
| Directors whose terms expire at 2010 Annual Meeting | John L. Bookmyer | |
| Stephen L. Boomer | ||
| Peter A. Diehl | ||
| William J. Small |
| The election of three directors will take place at the Annual Meeting. Mr. Rohrs and Mr. Voigt will be standing for election. Dr. Fauster is unable to stand for election because he has reached the board of directors’ mandatory retirement age. Jean A. Hubbard has been nominated to fill that board seat. Ms. Hubbard also is "independent" as set forth in (a) section 10A(m)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(m)(3)), (b) Securities and Exchange Commission (SEC) Rule 10A-3(b) (17CFR 240.10A-3(b)), and (c) Rule 4200(a) of the National Association of Securities Dealers, Inc. If elected, each of the three Director nominees will serve on the Board until the annual meeting of shareholders in 2011, or until their successors are duly elected and qualified in accordance with the Company’s Code of Regulations. If any of the three nominees should become unable to accept election, the persons named on the proxy card as proxies may vote for other person(s) selected by the Board of the named proxies. Management has no reason to believe that any of the three nominees for election named below will be unable to serve. |
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Vote FOR All Three Nominees Listed Below. |
| Jean A. Hubbard | Age: Director Since: Committees: Principal Occupation: | 50 N/A N/A Corporate Treasurer and Business Manager of The Hubbard Company, Defiance, OH since 2003; Senior Vice President and Human Resource Director, Rurban Financial Corp., 1990 to 2003 |
| James L. Rohrs | Age: Director Since: Committees: Principal Occupation: | 60 2002 Member of Executive Committee Executive Vice President of First Defiance and President and Chief Operating Officer of First Federal since August 1999 |
| Thomas A. Voigt | Age: Director Since: Committees: Principal Occupation: | 65 1995 Chairman of Long-Range Planning Committee and Member of Compensation and Corporate Governance Committees. Member of Executive Committee on a rotating basis. Vice President and General Manager of Bryan Publishing Company, Bryan, OH since 1980 |
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Continuing Directors With Terms Expiring at the securities industry that allows companies to issue shares in book entry form without the use of share certificates. The Company does not currently participate in a DRS and does not intend at present to eliminate share certificates. However, the NASDAQ rule requires that the Company must be eligible for such a program, even if it does not participate in DRS. To remain listed on NASDAQ, the Company must have the ability to participate in a DRS, which requires that the Company be authorized to issue uncertificated shares. The proposed amendments to the Regulations provide that authority. If the amendments are not adopted, the Company’s shares will be delisted from NASDAQ.2009 Annual Meeting:
| Douglas A. Burgei | Age: Director Since: Committees: Principal Occupation: | 53 1995 Chairman of Corporate Governance Committee and Member of Long-Range Planning Committee. Member of Executive Committee on a rotating basis. Veterinarian at Napoleon Veterinary Clinic, Napoleon OH since 1978; Co-Owner of PetVet / Pampered Pets Bed & Biscuit, Napoleon OH (since 2003) and Ft. Wayne IN (since 2006). |
| Dwain I. Metzger | Age: Director Since: Committees: Principal Occupation: | 66 2005 Member of Long-Range Planning and Corporate Governance Committees. Member of Executive Loan Committee on a rotating basis. Self-Employed Farmer since 1960 |
| Gerald W. Monnin | Age: Director Since: Committees: Principal Occupation: | 69 1997 Member of Compensation, Corporate Governance and Long-Range Planning Committees. Member of Executive Committee on a rotating basis. Retired Chairman of the Board and CEO of Northwest Controls, formerly of Defiance OH since 2004 |
| Samuel S. Strausbaugh | Age: Director Since: Committees: Principal Occupation: | 44 2006 Member of Audit Committee. Member of Executive Committee on a rotating basis. Co-President and CFO of Defiance Metal Products, Defiance OH since September 2006. CFO of Defiance Metal Products from November 1998 to September 2006. |
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| John L. Bookmyer | Age: Director Since: Committees: Principal Occupation: | 43 2005 Chairman of the Audit Committee, Member of Compensation Committee President of Blanchard Valley Regional Health Center and Executive Vice President and Chief Operating Officer and Chief Financial Officer of Blanchard Valley Health System, Findlay OH since 2001 |
| Stephen L. Boomer | Age: Director Since: Committees: Principal Occupation: | 57 1994 Member of Executive, Audit, Compensation and Corporate Governance Committees. Mr. Boomer also serves as Lead Independent Director CEO and President, Arps Dairy, Inc., Defiance, OH since 1997 |
| Peter A. Diehl | Age: Director Since: Committees: Principal Occupation: | 57 1998 Chairman of Compensation Committee and Member of Audit and Long-Range Planning Committee. Member of Executive Committee on a rotating basis Retired. Formerly President and CEO of Diehl, Inc., Defiance OH from April 1996 to May 2006. |
| William J. Small | Age: Director Since: Committees: Principal Occupation: | 57 1998 Chairman of Executive Committee President, Chairman of the Board and Chief Executive Officer of First Defiance and Chairman of the Board and Chief Executive Officer of First Federal since January 1, 1999. |
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Board Committees
The Board of our Regulations requiresDirectors has five standing committees: Audit Committee, Corporate Governance Committee, Compensation Committee, Long-Range Planning Committee and Executive Committee. In addition, all directors also serve as directors of First Federal and Messrs Boomer, Rohrs, Small and Strausbaugh serve as directors of First Insurance and Investments, a wholly-owned subsidiary of First Defiance. Also, Dr. Fauster (1), Dr. Burgei and Mr. Strausbaugh serve on the Investment Committee at First Federal and Mr. Small and Mr. Boomer serve as permanent members of First Federal’s Trust Committee and Mr. Small, Mr. Rohrs and Mr. Boomer serve as permanent members of First Federal’s Executive Loan Committee. All other directors, except for Mr. Bookmyer, serve on First Federal’s Executive Loan Committee and all other directors, except for Mr. Rohrs and Mr. Bookmyer, serve on First Federal’s Trust Committees on a rotating basis.
Members of the individual standing committees are named below:
Audit | Corporate Governance | Compensation | Long-Range Planning | Executive |
| J.L. Bookmyer* | S.L. Boomer | J.L. Bookmyer | D.A. Burgei | S.L. Boomer |
| S.L. Boomer | D.A. Burgei* | S.L. Boomer | P.A. Diehl | D.A. Burgei** |
| P.A. Diehl | J.U. Fauster III (1) | P.A. Diehl* | J.U. Fauster III (1) | P.A. Diehl** |
| S.S. Strausbaugh | D.I. Metzger | G.W. Monnin | D.I. Metzger | J.U. Fauster III (1)** |
| G.W. Monnin | T.A. Voigt | G.W. Monnin | D.I. Metzger** | |
| T.A. Voigt | T.A. Voigt* | G.W. Monnin** | ||
| J.L. Rohrs | ||||
| W.J. Small* | ||||
| S.S. Strausbaugh** | ||||
| T.A. Voigt** | ||||
* -- Chairperson | ||||
** -- Denotes Rotating Service (1) – Dr. Fauster will retire from the board effective with the 2008 annual meeting | ||||
The Audit Committee is responsible for (i) the appointment of First Defiance’s independent registered public accounting firm; (ii) review of the external audit plan and the results of the auditing engagement; (iii) review of the internal audit plan and results of the internal audits; (iv) review of reports issued by First Federal’s Compliance Officer and (v) review of the effectiveness of First Defiance’s system of internal control, including review of the process used by management to evaluate the effectiveness of the system of internal control, and (vi) oversight of the accounting and financial reporting practices of First Defiance. The Audit Committee has adopted a written charter setting forth these responsibilities. A copy of the Audit Committee Charter is posted under the Corporate Governance tab of the Company’s website at http://www.fdef.com. The specific link to the charter is: http://www.snl.com/Cache/1001133143.PDF?FID=1001133143&O=PDF&T=&D=&IID=102284&Y=. The Board of Directors has determined that our shares be representedMr. Bookmyer and Mr. Strausbaugh are "Audit Committee financial experts." The other members of the other Audit Committee, through their past or current employment as chief executive officers, meet the Nasdaq standard for financial sophistication. The Committee met five times in 2007.
The Audit Committee Report is included on page 27 of this proxy statement.
The Corporate Governance Committee was established by certificates, although Ohio Law permits uncertificated shares. If the amendments are adopted, the Board of Directors to ensure that the Board is appropriately constituted and conducts its affairs in a manner that will best serve the
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interests of First Defiance and its shareholders. Specific duties of the Committee include administering First Defiance’s code of ethics/conflict of interest policy, administering the process for evaluation of the Chairman and Chief Executive Officer, monitoring the Board’s continuing education and self-assessment process, nominating directors to the Board, and conducting an annual assessment of the Board as a whole including assessment of Board composition and committee assignments. The Corporate Governance Committee has adopted a written charter setting forth the responsibilities of the committee. A copy of the Corporate Governance Committee charter is posted under the Corporate Governance tab of the Company’s website at http://www.fdef.com. The specific link to the charter is http://www.snl.com/Cache/1500017104.PDF?FID=1500017104&O=PDF&T=&D=&IID=102284&Y=. The committee met twice during 2007.
The Board does not have a separate nominating committee as those functions are performed by the authorityCorporate Governance Committee and the Board as a whole. The Corporate Governance committee considers the following criteria in proposing nominations for director to adopt resolutions permitting uncertificatedthe full Board: independence; high personal and professional ethics and integrity; ability to devote sufficient time to fulfilling duties as a director; impact on diversity of the Board, including skills and other factors relevant to First Defiance’s business; overall experience in business, education, and other factors relevant to First Defiance’s business. Shareholders of First Defiance may also make nominations to the Board of Directors, provided that notice of such nomination is given in writing to the Secretary of First Defiance not less than 60 days prior to the anniversary date of the immediately preceding annual meeting of shareholders. Such notice with respect to director nominations shall set forth the name, age, business address and residence address (if available) of the nominee and the number of shares of stock of First Defiance which are beneficially owned by such nominee. Also, the shareholder making such nomination shall promptly provide any other information reasonably requested by the Corporate Governance Committee. No such nominations were received from shareholders for the 2008 election of directors.
The Compensation Committee is responsible for overseeing First Defiance’s compensation programs, including base salaries, long-term incentive compensation, equity-based compensation and perquisites and benefit plans. Further description of the Committee’s responsibilities is set forth under the “Compensation Discussion and Analysis” below. The Compensation Committee does not have a charter. The Committee also makes recommendations to the full Board regarding Board of Directors’ compensation. The Committee met seven times in 2007.
The Compensation Committee Report is included on page 16 of this proxy statement.
The Executive Committee generally has the power and authority to act on behalf of the Board of Directors between scheduled Board meetings unless specific Board action is required or unless otherwise restricted by First Defiance's articles of incorporation or code of regulations or its Board of Directors. As Chairman of the Board, Mr. Small serves as Chairman of the Executive Committee and Mr. Rohrs and Mr. Boomer serve as permanent members. The remaining directors, with the exception of Mr. Bookmyer, serve on the Committee on a rotating basis during the year. The Executive Committee met two times during 2007. The members of the Executive Committee also serve on the Executive Loan Committee of First Federal, which meets each week.
Compensation Committee Interlocks and Insider Participation
Mr. John L. Bookmyer, Mr. Stephen L. Boomer, Mr. Peter A. Diehl, Mr. Gerald W. Monnin and Mr. Thomas A. Voigt served on the Compensation Committee during 2007. There were no Compensation Committee interlocks or insider (employee) participation during 2007.
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Board and Board Committee Meetings
Regular meetings of the Board of Directors of First Defiance are held quarterly and special meetings of the Board of Directors of First Defiance are held from time to time as needed. Regular meetings of the Board of Directors of First Federal are held on a monthly basis and special meetings of the Board of Directors of First Federal are held from time to time as needed. There were eight meetings of the Board of Directors of First Defiance and 13 meetings of the Board of Directors of First Federal held during 2006. No director attended fewer than 75% of the total number of meetings of the Board of Directors of First Defiance or First Federal, as applicable, and meetings held by all committees of the Board on which the director served during 2007.
Neither the Board nor the Corporate Governance Committee has implemented a formal policy regarding director attendance at the Annual Meeting. Typically, the Board holds its annual organizational meeting directly following the Annual Meeting, which results in most directors attending the Annual Meeting. In 2007, all 11 directors attended the Annual Meeting.
Non-management directors met in three executive sessions in 2007. Mr. Boomer, who has been designated the lead director, presided over those meetings.
Director Compensation
The following table provides information concerning the compensation of directors for the fiscal year ended December 31, 2007. Except as noted below, all directors are paid at the same rate. The differences among directors in the table are a function of additional compensation for chairing a committee, varying number of meetings attended and corresponding payment of meeting fees.
Each non-employee director received an annual retainer of $21,000 in 2007 with the exception of Mr. Boomer, the lead director, who received a retainer of $24,500. In addition each non-employee director received $400 for each Board meeting attended for either First Defiance or First Federal Bank. Mr. Boomer and Mr. Strausbaugh are also directors of First Insurance and Investments, and they receive $400 for each First Insurance Board meeting attended. Non-employee directors also receive compensation for each committee meeting attended as follows: Audit Committee -- $500 (chairman $750); Compensation Committee -- $400 (chairman $600); Executive or First Federal Bank Executive Loan Committee meetings -- $200; and other First Defiance and First Federal Board committees -- $300 (chairman $400). Effective January 2008, committee chairs will receive annual retainers as follows: Audit Committee - -- $3,000; Compensation Committee -- $2,000; Corporate Governance Committee and Long Range Planning Committee -- $1,000. Meeting fees for committee chairs in 2008 are the same as meeting fees for other committee members.
Directors may defer their retainer and/or meeting fees payable to them under the First Defiance Deferred Compensation Plan. The return on the amounts deferred is dependent on the investment elections made by the director. The directors’ choices for election include a number of mutual funds and a First Defiance stock account. Returns under the plan are calculated to mirror these elections. Because these earnings are denominated in First Defiance stock or the mutual fund equivalents, such earnings are not considered to be issued consistentpreferential or above market and are not reported in the table below. Also directors do not receive perquisites or personal benefits that have an aggregate value that exceeds $10,000.
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2007 Director Compensation
| Director | Fees Earned or Paid in Cash ($) | Option Awards ($)(1) | Total ($) |
| Bookmyer, John L. | $ 35,650 | $ 1,498 | $ 37,148 |
| Boomer, Stephen L. | $ 52,400 | − | $ 52,400 |
| Burgei, Douglas A. | $ 35,000 | − | $ 35,000 |
| Diehl, Peter A. | $ 42,000 | − | $ 42,000 |
| Fauster, John U. III | $ 33,100 | − | $ 33,100 |
| Metzger, Dwain I. | $ 34,100 | $ 1,498 | $ 35,598 |
| Monnin, Gerald W. | $ 34,400 | − | $ 34,400 |
| Strausbaugh, Samuel S. | $ 38,400 | $ 1,498 | $ 39,898 |
| Voigt, Thomas A. | $ 37,700 | − | $ 37,700 |
| (1) | The amounts in the option awards column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 in accordance with FAS 123(R). Assumptions used in the calculation of this amount are included in footnote 20 to the Company’s audited financial statements for the fiscal year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008. These options, which have an exercise price of $27.41, vest 20% per year over the first five years of their 10-year term. |
Communication with Ohio law. However, suchDirectors
The Board of Directors has adopted a resolutionprocess by which shareholders may communicate with the directors. Any shareholder wishing to do so may write to the Board of Directors at the Company’s principal business address, 601 Clinton St., Defiance, OH 43512. Any shareholder communication so addressed will not applybe delivered unopened to shares then represented by certificates until such certificates are surrenderedthe director to whom it is addressed or to the Lead Director if addressed to the Board of Directors.
Board’s Role in Strategic Planning
The Board of Directors has the legal responsibility for overseeing the affairs of the Company and, any record holderthus, an obligation to keep informed about the Company’s business and strategies. This involvement enables the Board to provide guidance to management in formulating and developing plans and to exercise independently its decision-making authority on matters of importance to the Company's shares will haveCompany. Acting as a full Board and through the right to request a certificate representing his or her shares at any time.Board’s standing committees (Audit Committee, Corporate Governance Committee, Compensation Committee, Long-Range Planning Committee and Executive Committee), the Board is fully involved in the Company’s strategic planning process.
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EXECUTIVE OFFICERS
The Board elects executive officers annually following the Annual Meeting of Shareholders to serve until the meeting of the Board following the next annual meeting. The following table sets forth the name of each executive officer as of December 31, 2007 and the principal position and offices he holds with First Defiance. These officers have served as executive officers of First Defiance or its principal subsidiary, First Federal, for at least five years.
| Name | Information about Executive Officers |
| William J. Small | Chairman, President and Chief Executive Officer of First Defiance and Chairman and Chief Executive Officer of First Federal |
| James L. Rohrs | Executive Vice President of First Defiance and President and Chief Operating Officer of First Federal |
| John C. Wahl | Executive Vice President and Chief Financial Officer of First Defiance and First Federal. Mr. Wahl also serves as a director of First Federal and First Insurance & Investments. Mr. Wahl is 47 |
| Gregory R. Allen | President of First Federal’s Southern Market Area since January 2006. Prior to his promotion to President of the Southern Market Area, Mr. Allen served as Executive Vice President and Chief Lending Officer of First Federal since 1998. Mr. Allen is 44 |
| Jeffrey D. Vereecke | President of First Federal’s Northern Market Area since January 2008. Prior to his promotion to President of the Northern Market Area, Mr. Vereecke served as Executive Vice President, Retail Banking. He has served First Federal in a number of roles since joining the Company in 1984. Mr. Vereecke is 46 |
| Dennis E. Rose, Jr. | Executive Vice President of Operations for First Federal since 2001. Mr. Rose joined First Federal in 1996 and served as Corporate Controller prior to his role in operations. Mr. Rose is 39 |
| Rachel L. Ulrich | Executive Vice President of Human Resources of First Defiance and First Federal since 2005. Ms. Ulrich joined First Federal as Director of Human Resources in 1996. Ms. Ulrich, who is 42, resigned her position effective March 21, 2008. |
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COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the material elements of compensation for the First Defiance executive officers identified in the Summary Compensation Table ("Named Executive Officers"). The Compensation Committee of the Board (the "Committee") has responsibility for establishing, implementing and monitoring adherence to First Defiance’s compensation philosophy.
Compensation Philosophy and Objectives
The Committee believes the most effective executive compensation program is one that rewards the achievement of specific annual, long-term and strategic goals which are established in conjunction with on-going strategic planning initiatives and the long-term objective of maximizing shareholder value. The Committee evaluates compensation provided to key employees to ensure that it remains competitive relative to the compensation paid to similarly situated executives of peer companies to maintain the ability to attract and retain qualified employees in key positions. The Committee believes executive compensation packages provided to the Named Executive Officers should include both cash and stock-based compensation that reward performance as measured against predetermined goals.
Roles of the Committee and Chief Executive Officer in Compensation Decisions
The Committee makes all compensation decisions for the Chief Executive Officer and approves all compensation for the other Named Executive Officers utilizing recommendations made by the Chief Executive Officer. The Committee also approves all stock-based awards made to employees. Decisions regarding non-equity compensation of employees who are not Named Executive Officers are made by the Chief Executive Officer.
2007 Executive Compensation Components
For the fiscal year ended December 31, 2007, the principal components of compensation for Named Executive Officers were:
· Base salary;
· Performance-based incentive compensation;
· Equity compensation;
· Retirement and other benefits; and
· Perquisites and other personal benefits.
Base Salary
First Defiance provides Named Executive Officers and other employees with a base salary to compensate them for services rendered during the fiscal year. The base salary for each of the Named Executive Officers is generally determined at the beginning of the year.
The 2007 base salary for the Chief Executive Officer was set in January 2007. In June 2006, the Committee engaged Mercer Human Resource Consulting ("Mercer"), an independent global human resource consulting firm, to conduct a review of its compensation program for the Chief Executive Officer. Mercer provided the Committee with relevant market data and alternatives to consider when making compensation decisions for the Chief Executive Officer.
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In making compensation decisions for the Chief Executive Officer, the Committee compared each element of compensation against a peer group of publicly-traded banks located primarily in the Midwest or adjacent states with assets ranging between $750 million to $2.7 billion (collectively, the "Compensation Peer Group"). The Compensation Peer Group utilized in 2006 consists of the following companies, which the Committee believes engage in similar lines of business:
· First Place Financial Corp, Warren, OH | · Mercantile Bank Corp., Grand Rapids, MI |
· Firstbank Corp., Alma, MI | · Oak Hill Financial, Inc., Jackson, OH |
· German American Bancorp, Inc. Jasper, IN | · Ohio Valley Banc Corp., Gallipolis, OH |
· Horizon Bancorp, Inc., Michigan City, IN | · Old Second Bancorp, Inc., Aurora, IL |
· Integra Bank Corp., Evansville, IN | · Peoples Bancorp Inc., Marietta, OH |
· Lakeland Financial Corp., Warsaw, IN | · Pinnacle Financial Partners, Inc., Nashville, TN |
· LNB Bancorp Inc., Lorain, OH | · Princeton National Bancorp, Inc., Princeton, IL |
· Macatawa Bank Corp., Holland, MI | · QCR Holdings, Inc., Moline, IL |
· MBT Financial Corp., Monroe, MI | · S Y Bancorp, Inc., Louisville, KY |
For comparison purposes, First Defiance’s asset size was comparable to the median asset size of the Compensation Peer Group and its net income for 2005, excluding one-time acquisition related charges, is also comparable to the median net income level of the Compensation Peer Group. First Defiance’s market value as of March 2006 of $187 million was less than the median market value of the Compensation Peer Group of $275 million, but more than the 25th percentile of market value of the Compensation Peer Group of $128 million.
In September 2006, as a result of the compensation review completed by Mercer which stated that the Chief Executive Officer’s base salary lagged the median base salary of the Compensation Peer Group by what was deemed an unacceptable amount, the Committee raised the base salary of the Chief Executive Officer from $253,050 to $265,650. When the committee adjusted the base salary of the Chief Executive Officer in 2006, it was with the understanding that increases to reach the median base salary of the Compensation Peer Group would be made over a period of several years. Effective January 1, 2007, the Compensation Committee increased the base salary of the Chief Executive Officer by 5% to $278,930.
Base salaries for Named Executive Officers other than the Chief Executive Officer are determined based upon recommendations made by the Chief Executive Officer. While First Defiance has no defined guidelines, the Chief Executive Officer generally compares the base salary levels of the Named Executive Officers with the median levels of public companies of similar asset size and geographic location to First Defiance. Salary information provided in the America’s Community Bankers Compensation and Benefits Survey, the Ohio Bankers’ League Compensation and Benefits Survey and the SNL Bank and Thrift Director Compensation Review were utilized for setting 2007 salaries. General market conditions in the First Defiance market area, experience and performance levels of the Named Executive Officer and the guidelines for percentage increases that the Board establishes overall for all employees of First Defiance were also considered.
In 2007, the Compensation Committee engaged Findley Davies, Inc., an independent regional human resources firm, to perform an analysis of Executive and Director Compensation. Following the completion of their study, base salaries for the Chief Executive Officer and the other named executive officers were established for 2008. The Compensation Committee has reviewed Findlay Davies’ recommendations for changes to the incentive compensation structure but has not yet finalized the incentive compensation plans for the named executive officers for 2008.
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Performance-Based Incentive Compensation
The Board believes that allowinga significant amount of Named Executive Officer compensation should be performance based. Named Executive Officers have an opportunity to earn cash bonuses based on the achievement of performance targets that are established at the beginning of each year by the Committee. The 2007 target bonus component for each of the Named Executive Officers was as follows:
Named Executive Officer | Bonus Potential at Target (% of Base Salary) | Bonus Potential at Target ($) |
| William J. Small | 45% | $125,519 |
| John C. Wahl | 35% | $56,490 |
| James L. Rohrs | 35% | $64,610 |
| Gregory R. Allen | 35% | $52,535 |
| Jeffrey D. Vereecke | 30% | $34,530 |
The 2007 First Defiance performance targets and related payout percentages of the bonus potential are described below. Each of the four established targets is weighted as a percent of the total payout:
Bonus Formula Component | Threshold (50% Payout) | Target (100% Payout) | Maximum (150% Payout) |
| Earnings Per Share (50% weighting) | $2.07 | $2.18 | $2.44 |
Revenue Growth1 (20% weighting) | 3.5% | 6.0% | 11.0% |
| Return on Average Equity (20% weighting) | 9.0% | 10.0% | 12.0% |
| Return on Average Assets (10% weighting) | 0.88% | 1.00% | 1.25% |
| 1 – Revenue growth is determined based on net interest income after provision for loan losses plus non-interest income. | |||
When the Threshold performance level is not achieved, the payout percentage for that component of the bonus calculation is zero. If the performance level for a component is between the Threshold and Target or between the Target and the Maximum amount, the payout percentage is prorated. For 2007, the overall total bonus payout percentage was determined as follows:
Bonus Component | Actual Result | Payout Percentage Achieved | Weighting % | Computed Factor |
| Earnings Per Share | $1.94 | -0- | x 50% | = -0- |
| Revenue Growth | 2.39% | -0- | x 20% | = -0- |
| Return on Average Equity | 8.48% | -0- | x 20% | = -0- |
| Return on Average Assets | 0.90% | 60.0% | x 10% | = 6.0% |
| Total Bonus Payout Percentage | 6.0% | |||
The resulting total bonus payout percentage is then multiplied by the respective bonus potential for each Named Executive Officer to determine his bonus. The Committee retains the discretion to adjust the bonus for the issuanceNamed Executive Officers based on a number of uncertificated shares isfactors, including achievement of individual objectives and other factors as determined by the Committee. For 2007, the Committee recognized that incentive targets were not met in part, because of a number of factors outside of management’s control including both the national and local economy. In response, the committee approved the allocation of a total of $100,000 of discretionary bonuses to be allocated among Senior and Executive Vice Presidents of First Federal. Mr. Small, Mr. Wahl and Mr. Rohrs were not included in that allocation. The discretionary pool was allocated based on the officer’s base compensation relative to the base compensation of all senior officers eligible for the payout.
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The 2007 bonus payouts were as follows:
Named Executive Officer | Target Bonus Potential ($) | Computed Bonus Payout (%) | Computed Bonus Amount ($) | Discretionary Payment | Total Bonus Payout | ||
| William J. Small | $125,519 | X | 6.0% | = | $7,531 | $ -0- | $ 7,531 |
| John C. Wahl | $ 56,490 | X | 6.0% | = | $3,389 | $ -0- | $ 3,389 |
| James L. Rohrs | $ 64,610 | X | 6.0% | = | $3,877 | $ -0- | $ 3,877 |
| Gregory R. Allen | $ 52,535 | X | 6.0% | = | $3,152 | $15,932 | $19,084 |
| Jeffrey D. Vereecke | $ 34,530 | X | 6.0% | = | $2,072 | $10,472 | $12,544 |
Equity Based Compensation
First Defiance utilizes stock options to link shareholder value and long-term executive incentive compensation and to provide an opportunity for increased equity ownership by executives. Significant levels of stock options were granted to the Named Executive Officers at the time they were named to their current positions. Since then, the Committee has not granted Named Executive Officers a substantially higher level of stock option awards than are awarded to other officers of First Defiance. Generally, all of the Named Executive Officers are awarded option grants of 1,000 options on an annual basis.
Stock option awards are typically granted annually at the April board meeting. Options are awarded at the Nasdaq Global Market closing price of First Defiance’s common stock on the date of the grant. Stock options granted to First Defiance employees have never been dated on any date other than the grant date.
Options granted under First Defiance’s stock option plans vest at a rate of 20% per year over the first five years of the ten-year option term. Vesting and exercise rights cease upon termination of employment except in the best interestscase of death, disability or retirement. Prior to the exercise of the option, the holder has no rights as a shareholder with respect to the shares subject to such option, including voting rights and the right to receive dividends.
Retirement and Other Benefits
All employees of First Defiance, including the Named Executive Officers, are eligible to participate in the First Defiance Financial Corp. 401(k) Employee Savings Plan (the "Savings Plan") and the First Defiance Employee Stock Ownership Plan (the "ESOP").
The Savings Plan is a tax-qualified retirement savings plan pursuant to which all employees are able to contribute up to the limit prescribed by the Internal Revenue Service to the Savings Plan on a before-tax basis. First Defiance matches 50% of the first 6% of pay that is contributed to the Savings Plan. All employee contributions to the Savings Plan are fully vested upon contribution and First Defiance’s matching contribution is vested upon completion of a minimum service requirement.
The ESOP is a tax qualified plan under which shares of First Defiance common stock are allocated annually to participant accounts based on the participant’s compensation relative to compensation of all active participants in the Plan. The compensation of participants, including the Named Executive Officers, is limited to the Internal Revenue Service mandated maximum of $225,000 in 2007 for purposes of calculating the annual allocation of shares. Shares allocated to participant accounts are fully vested when the participant has completed three years of service. Participants in the ESOP hold full voting privileges for shares allocated to their account. Additional shares are allocated to participant accounts in lieu of dividends earned on allocated shares.
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The Named Executive Officers are entitled to participate in the First Defiance Deferred Compensation Plan. Pursuant to this plan, Named Executive Officers can defer up to 80% of their base salary and up to 100% of bonus payments. The First Defiance Deferred Compensation Plan is discussed in further detail under the heading "Nonqualified Deferred Compensation" on page 20.
Perquisites and Other Personal Benefits
First Defiance provides Named Executive Officers with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain employees for key positions. The Committee periodically reviews the levels of perquisites and other personal benefits provided to Named Executive Officers.
In 2007, each of the Named Executive Officers was provided with either the use of company automobile or a $600 monthly automobile allowance. The Committee determined that the practice of providing company automobiles would be discontinued for all employees, including the Named Executive Officers, and replaced with a monthly automobile allowance unless the employee drives more than 15,000 business miles in a year. The automobiles were phased out as existing leases expired in 2007. Employees who drive more than 15,000 business miles in a year will retain a company owned automobile in lieu of an automobile allowance. Each Named Executive Officer also is entitled to receive a country club membership. Mr. Vereecke opted not to receive a country club membership in 2007. Named Executive officers are also entitled, upon relocation, to receive reimbursement for certain reasonable expenses associated with the costs of such relocation. There were no relocations of executive officers in 2007.
Each Named Executive Officer is entitled to receive life insurance proceeds equal to two times the executive’s base salary, provided that the executive is employed by the Company at the time of his death. Approximately one half of such coverage (i.e., one times base salary) is provided as part of the Company’s group life insurance program that is offered to all full-time employees, and the balance is provided as an inducement for employees to consent to allowing the Company to insure them under their Bank Owned Life Insurance program.
The value of these perquisites is included in column (i) of the "Summary Compensation Table" on page 17.
The Company has entered into Employment Agreements with certain key employees, including the Named Executive Officers. The employment agreements include provisions for severance payments upon a change of control and are designed to promote stability and continuity of senior management. Information regarding applicable payments under such agreements for the named executive officers is provided under the heading "Potential Payments Upon Termination or Change in Control" beginning on page 21.
Tax and Accounting Implications
Nonqualified Deferred Compensation
On October 22, 2004, The American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, the Company believes it is operating in good faith compliance with the statutory provisions which were effective January 1, 2005. A more detailed discussion of the Company’s
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nonqualified deferred compensation arrangements is provided on page 20 under the heading "Nonqualified Deferred Compensation."
Accounting for Stock-Based Compensation
Beginning on January 1, 2006, the Company began accounting for its stock option plans in accordance with the requirements of FASB Statement No. 123(R) Share-Based Payment.
COMPENSATION COMMITTEE REPORT
The First Defiance Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
| THE COMPENSATION COMMITTEE | |
| Peter Diehl, Chairman | |
| John Bookmyer | |
| Stephen Boomer | |
| Gerald W. Monnin | |
| Thomas A. Voigt |
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EXECUTIVE COMPENSATION
Summary Compensation Table
The table below summarizes the total compensation paid or earned by each of the Named Executive Officers for the fiscal years ended December 31, 2007 and 2006. The Named Executive Officers are the Company’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers.
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (i) | (j) |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compen- sation ($)(3) | All Other Compen- sation ($)(4) | Total ($) |
William J. Small Chairman of the Board & Chief Executive Officer | 2007 2006 | $ 278,932 257,250 | − − | − − | $ 5,377 4,160 | $ 7,531 113,818 | $ 25,858 31,257 | $ 317,698 406,485 |
John C. Wahl Executive Vice President & Chief Financial Officer | 2007 2006 | $ 161,400 155,900 | − − | − �� | $ 10,193 8,976 | $ 3,389 53,648 | $ 28,467 28,144 | $ 203,449 246,668 |
James L. Rohrs Executive Vice President & President of First Federal Bank | 2007 2006 | $ 184,600 178,350 | − − | − $17,427 | $ 10,193 26,281 | $ 3,877 61,374 | $ 25,565 35,378 | $ 224,235 318,810 |
Gregory R. Allen First Federal Bank President of Southern Market Area | 2007 2006 | $ 150,100 145,000 | $ 15,932 − | − − | $ 21,647 32,942 | $ 3,152 49,897 | $ 23,286 44,020 | $ 214,117 271,859 |
Jeffrey D. Vereecke First Federal Bank Executive Vice President Retail | 2007 | $ 115,100 | $ 10,472 | − | $ 6,505 | $ 2,072 | $ 14,403 | $ 148,552 |
| (1) | The amount in column (e) reflects amounts for grants made in 2001 to the extent the vesting period for such grant fell in 2006. |
| (2) | The amounts in column (f) reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended December 31, 2007 and 2006, in accordance with FAS 123(R) of awards pursuant to the Stock Option Plans and thus include amounts from awards granted in and prior to 2007 and 2006. Assumptions used in the calculation of this amount are included in footnote 20 to the Company’s audited financial statements for the fiscal year ended December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2008. |
| (3) | The amounts in column (g) reflect the cash awards to the named individuals under the Company’s Performance Based Incentive Compensation Plan which is discussed in further detail on page 13 under the heading “Performance Based Incentive Compensation”. |
| (4) | The amount shown as “All Other Compensation” includes the following perquisites and personal benefits: |
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Name | Club Membership | Automobile Allowance or Personal Use of Company Automobile | 401(k) Match | ESOP Allocation | Value of Life Insurance | Employee Stock Purchase Plan Match (a) |
| William J. Small | $ 4,963 | $ 2,129 | $ 6,750 | $ 9,112 | $ 1,104 | $ 1,800 |
| John C. Wahl | $ 4,963 | $ 5,845 | $ 6,750 | $ 8,782 | $ 326 | $ 1,800 |
| James L. Rohrs | $ 4,963 | $ 1,640 | $ 6,750 | $ 9,112 | $ 1,300 | $ 1,800 |
| Gregory R. Allen | $ 4,702 | $ 2,348 | $ 6,048 | $ 8,164 | $ 224 | $ 1,800 |
| Jeffrey D. Vereecke | $ -0- | $ 4,663 | $ 3,453 | $ 5,977 | $ 310 | $ -0- |
2007 Grants of Plan-Based Awards
The following table provides information on stock options granted in 2007 to each of the Named Executive Officers. There is no assurance that the grant date fair value of option awards will ever be realized. The amount included in the column labeled “Grant Date Fair Value of Stock and Option Awards” is the aggregate FAS 123(R) value of all awards made in 2007. In contrast, the Summary Compensation Table includes only the portion of that value that was expensed in 2007.
Estimated Future Payouts Under Non-Equity Incentive Plan Awards | All Other Option | ||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($ / sh) | Grant Date Fair Value of Stock and Option Awards ($) |
| William J. Small | 4/16/07 | $62,759 | $125,519 | $188,279 | 1,000 | $27.41 | $ 5,330 |
| John C. Wahl | 4/16/07 | $28,245 | $ 56,490 | $ 84,735 | 1,000 | $27.41 | $ 5,330 |
| James L. Rohrs | 4/16/07 | $32,305 | $ 64,610 | $ 96,915 | 1,000 | $27.41 | $ 5,330 |
| Gregory R. Allen | 4/16/07 | $26,267 | $ 52,535 | $ 78,803 | 1,000 | $27.41 | $ 5,330 |
| Jeffrey D. Vereecke | 4/16/07 | $17,265 | $ 34,530 | $ 51,795 | 1,000 | $27.41 | $ 5,330 |
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Outstanding Equity Awards at Fiscal Year-End 2007
The following table provides information concerning unexercised options for each Named Executive Officer outstanding as of the end of the most recently completed fiscal year. Each outstanding award is represented by a separate row which indicates the number of securities underlying the award. The table also discloses the exercise price and the expiration date.
| Option Awards | ||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options(1) (#) Unexercisable | Option Exercise Price | Option Expiration Date |
| William J. Small | 800 | 200 | $ 19.53 | 04/20/2013 |
| 600 | 400 | $ 27.13 | 04/18/2014 | |
| 400 | 600 | $ 25.89 | 04/18/2015 | |
| 200 | 800 | $ 26.47 | 05/21/2016 | |
| − | 1,000 | $ 27.41 | 04/16/2017 | |
| John C. Wahl | 4,000 | 1,000 | $ 19.53 | 04/20/2013 |
| 600 | 400 | $ 27.13 | 04/18/2014 | |
| 800 | 1,200 | $ 25.89 | 04/18/2015 | |
| 200 | 800 | $ 26.47 | 05/21/2016 | |
| − | 1,000 | $ 27.41 | 04/16/2017 | |
| James L. Rohrs | 25,000 | − | $ 11.56 | 08/29/2009 |
| 600 | − | $ 10.52 | 12/17/2010 | |
| 40,000 | − | $ 14.00 | 09/16/2011 | |
| 4,000 | 1,000 | $ 19.53 | 04/20/2013 | |
| 600 | 400 | $ 27.13 | 04/18/2014 | |
| 800 | 1,200 | $ 25.89 | 04/18/2015 | |
| 200 | 800 | $ 26.47 | 05/21/2016 | |
| − | 1,000 | $ 27.41 | 04/16/2017 | |
| Gregory R. Allen | 11,700 | − | $ 14.00 | 09/16/2011 |
| 4,000 | 1,000 | $ 19.56 | 01/19/2013 | |
| 4,000 | 1,000 | $ 19.53 | 04/20/2013 | |
| 3,000 | 2,000 | $ 27.13 | 04/18/2014 | |
| 800 | 1,200 | $ 25.89 | 04/18/2015 | |
| 400 | 1,600 | $ 26.47 | 05/21/2016 | |
| − | 1,000 | $ 27.41 | 04/16/2017 | |
| Jeffrey D. Vereecke | 25,000 | − | $ 15.50 | 04/18/2008 |
| 800 | 200 | $ 19.53 | 04/20/2013 | |
| 600 | 400 | $ 27.13 | 04/18/2014 | |
| 800 | 1,200 | $ 25.89 | 04/18/2015 | |
| 200 | 800 | $ 26.47 | 05/21/2016 | |
| − | 1,000 | $ 27.41 | 04/16/2017 | |
| (1) | All options listed above vest at a rate of 20% per year over the first five years of the ten-year option term. |
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Option Exercises and Stock Vested In 2007
The following table provides information concerning exercises of stock options and vesting of stock awards during the most recently completed fiscal year for each of the Named Executive Officers on an aggregated basis. The table reports the number of securities for which the options were exercised; the aggregate dollar value realized upon exercise of options. The value realized upon vesting of stock awards does not include accrued dividends and interest, which is included in "All Other Compensation" in the Summary Compensation Table.
| Option Awards | ||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) |
| William J. Small | − | $ − |
| John C. Wahl | 10,000 | $ 144,100 |
| James L. Rohrs | − | $ − |
| Gregory R. Allen | − | $ − |
| Jeffrey D. Vereecke | − | $ − |
Nonqualified Deferred Compensation
Pursuant to the First Defiance Deferred Compensation Plan, certain executives, including Named Executive Officers, as well as the directors of First Defiance Financial Corp. may defer receipt of up to 80% of their base compensation and up to 100% of non-equity incentive plan compensation and, in the case of directors up to 100% of directors fees. Deferral elections are made by eligible executives or directors in December of each year for amounts to be earned in the following year.
Amounts deferred in the First Defiance Deferred Compensation Plan may be invested in any funds available under the Plan. The table below shows the funds available under the Plan and their annual rate of return for the calendar year ended December 31, 2007, as reported by the administrator of the Plan.
| Name of Fund | Rate of Return | Name of Fund | Rate of Return |
| MainStay VP Cash Management | 4.84% | MainStay VP Midcap Core | 5.03% |
| T. Rowe Limited Term Bond | 5.49% | Royce Small Cap | (2.14%) |
| Fidelity VIP Investment Grade Bond: IC | 4.35% | Royce Micro Cap | 3.98% |
| PIMCO VIT Total Return: AC | 8.76% | MainStay VP International Equity | 4.93% |
| American Century VP Value: CI 2 | (5.29%) | UIF U.S. Real Estate | (17.07%) |
| Fidelity VIP Contrafund: IC | 17.59% | Fidelity VIP Freedom Lifestyle Fund 2020 | 10.23% |
| Janus AS Forty: IS | 36.99% | Fidelity VIP Freedom Lifestyle Fund 2030 | 11.37% |
Benefits under the First Defiance Deferred Compensation Plan are generally paid beginning the year following the executive’s retirement or termination. However, the Plan does have provisions for scheduled "in-service" distributions from the plan and it also allows for hardship withdrawals upon the approval of the Compensation Committee. Retirement benefits are paid either in a lump sum or in scheduled installment payments when the executive’s termination is considered a retirement. All other distributions are made in lump sum payments.
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The following table provides information with respect to the Named Executive Officers participation in the First Defiance Deferred Compensation Plan. All contributions to the First Defiance Deferred Compensation plan are made by the executives participating in the Plan. There are no contributions by First Defiance and none of the Named Executive Officers received a withdrawal or distribution under the Plan.
Name | Executive Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Balance at Last Fiscal Year End ($) |
| William J. Small | $ 15,000 | $ 16,737 | $ 215,371 |
| John C. Wahl | $ 21,544 | $ 11,932 | $ 127,782 |
| James L. Rohrs | $ -0- | $ 14,604 | $ 118,473 |
| Gregory R. Allen | $ 13,000 | $ 17,178 | $ 122,967 |
| Jeffrey D. Vereecke | $ -0- | $ -0- | $ -0- |
Potential Payments Upon Termination or Change in Control
The table below summarizes the estimated payments to be made under each contract, agreement, plan or arrangement which provides for payments to a Named Executive Officer at, following, or in connection with any termination or employment including by resignation, severance, retirement, disability or a constructive termination; by a change of control of the Company, and its shareholders becauseor by a change in the failure to obtain the ability to issue uncertificated shares will jeopardize the Company's ability to maintain its listingNamed Executive Officer’s responsibilities (that may not result in a termination of shares on NASDAQ and any other major stock exchanges. Accordingly, the Board unanimously recommends that our shareholders vote FOR the adoption of the proposed amendments to Article V of our Regulations.employment).
| · | non-equity incentive compensation earned during the fiscal year; |
| · | amounts contributed under the First Defiance Deferred Compensation Plan; |
| · | unused vacation pay; and |
| · | amounts accrued and vested through the Company’s 401(k) Plan |
Payments Made Upon Retirement
In the event of retirement of a Named Executive Officer, in addition to the items identified above, the executive will be entitled to the following:
| · | vesting of all outstanding unvested stock options; |
| · | a prorated share of the annual allocation of benefits under the First Defiance Employee Stock Ownership Plan; and |
| · | executives who meet minimum age and years of service requirements are entitled to continue to participate in the Company’s health and welfare benefits. These benefits are the same as retiree medical benefits offered to all employees of First Defiance and are more fully described in Note 16 to the Financial Statements |
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Payments Made Upon Death or Disability
In the event of the death or disability of a Named Executive Officer, in addition to the benefits listed under the headings "Payments Made upon Termination" and "Payments Made Upon Retirement" above, the Named Executive Officer will receive benefits under the Company’s disability plan or payments under the Company’s life insurance plans, as appropriate.
Payments Made Upon Change of Control
Each Named Executive Officer has entered into an employment agreement with First Defiance and First Federal, the terms of which are similar for Messrs Small, Wahl, Rohrs and Allen. Pursuant to their agreements, if the executive’s employment is terminated following a change of control (other than termination by the Company for cause or by reason of death or disability) or if the executive terminates his employment in certain circumstances defined in the employment agreements which constitute "good reason", in addition to the benefits listed under the heading "Payments Made Upon Termination" the Named Executive Officer will receive a lump sum severance payment of 2.99 times the employee’s average annual compensation for the five most recent taxable years ending during the calendar year in which the Notice of Termination occurs. Under the agreements, compensation is defined as base salary plus non-equity incentive bonus.
Further, all unvested stock options held by Messrs Small, Wahl, Rohrs and Allen will automatically vest and become exercisable in the event of a change in control. Such unvested options do not vest in the event of termination for reasons other than retirement, death or disability, even if such termination is for "good reason."
Mr. Vereecke has entered into a Change of Control and Non-Compute Agreement. Under the terms of his agreement, in the event his employment is terminated within six months prior to a change of control or within one year after a change of control, Mr. Vereecke is entitled to receive an amount equal to his annual salary most recently set prior to the occurrence of the change in control.
The resolution includedemployment agreements entered into with Mr. Small, Mr. Rohrs, Mr. Wahl, and Mr. Allen were filed as exhibits 10.1, 10.2, 10.3, and 10.4 respectively to Form 8-K filed with the Securities and Exchange Commission on October 1, 2007.
Generally, pursuant to the agreements, a change of control has the meaning set forth in Annex A to this Proxy Statement will be submitted for adoption at the Special Meeting. The affirmative voteSection 409(A)(a)(2)(A)(v) of the holdersInternal Revenue Code of two-thirds of the Company's outstanding shares is necessary to adopt the amendments. Unless otherwise instructed by the shareholder, properly executed proxies will be voted FOR the adoption of the amendments. Abstentions and broker non-votes will have the same effect1986, as votes against the amendment.amended.
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Executive Benefits and Payments upon Termination | Voluntary Termination | For Cause Termination | Involuntary Not for Cause Or Voluntary Good Reason Termination | Involuntary Change of Control Termination (CIC) | Death | Disability |
| William J. Small | ||||||
Severance | $ − | $ − | $1,008,101 | $1,008,101 | $ − | $ − |
Accelerated Vesting of stock options | $ − | $ − | $ − | $ 498 | $ 498 | $ 498 |
| John C. Wahl | ||||||
Severance | $ − | $ − | $ 576,692 | $ 576,692 | $ − | $ − |
Accelerated Vesting of stock options | $ − | $ − | $ − | $ 2,490 | $2,490 | $ 2,490 |
| James L. Rohrs | ||||||
Severance | $ − | $ − | $ 661,379 | $ 661,379 | $ − | $ − |
Accelerated Vesting of stock options | $ − | $ − | $ − | $ 2,490 | $2,490 | $ 2,490 |
| Gregory R. Allen | ||||||
Severance | $ − | $ − | $ 521,674 | $ 521,674 | $ − | $ − |
Accelerated Vesting of stock options | $ − | $ − | $ − | $ 4,950 | $4,950 | $ 4,950 |
| Jeffrey D. Vereecke | ||||||
Severance | $ − | $ − | $ − | $ 115,100 | $ − | $ − |
Accelerated Vesting of stock options | $ − | $ − | $ − | $ 498 | $ 498 | $ 498 |
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BENEFICIAL OWNERSHIP OF COMPANY SHARES
The following table includes, as of the Voting Record Date, certain information as to the common sharesCommon Stock beneficially owned by (i) the only persons or entities, including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended ("1934 Act"), known to usFirst Defiance to be the beneficial owner of more than 5% of the issued and outstanding common shares,Common Stock, (ii) each director and each person nominated to become a director of our directors,First Defiance, (iii) ourthe executive officers listedof First Defiance named in the summary compensation table of our annual proxy statement,Summary Compensation Table set forth under "Executive Compensation," and (iv) all of our directors and executive officers of First Defiance as a group.
| Common Stock | |||||
Name of Beneficial Owner | Shares Owned | Right to Acquire Beneficial Ownership Under Options Exercisable Within 60 Days | Percent of Class (a) | Phantom Stock Units (b) | |
First Defiance Financial Corp. Employee Stock Ownership Plan | 550,027 | (c) | 7.78% | ||
| Private Capital Management | 674,144 | (d) | 9.53% | ||
| Dimensional Fund Advisors, Inc. | 552,786 | (e) | 7.82% | ||
| John L. Bookmyer | 1,061 | 400 | − | 3,065 | |
| Stephen L. Boomer | 13,514 | (f) | − | ||
| Dr. Douglas A. Burgei | 18,993 | (f) | − | ||
| Peter A. Diehl | 12,202 | − | |||
| Dr. John U. Fauster III | 23,450 | (f) | − | ||
| Jean A. Hubbard | 4,500 | (f) | − | ||
| Dwain I. Metzger | 1,945 | 400 | − | ||
| Gerald W. Monnin | 40,778 | (f) | − | ||
| James L. Rohrs | 32,084 | 72,400 | 1.47% | ||
| William J. Small | 113,236 | (f) | 2,800 | 1.64% | |
| Samuel S. Strausbaugh | 1457 | 400 | − | 596 | |
| Thomas A. Voigt | 14,273 | (f) | − | ||
| Gregory R. Allen | 17,464 | 27,500 | − | ||
| Jeffrey D. Vereecke | 44,207 | (f) | 3,600 | ||
| John C. Wahl | 82,360 | (f) | 7,400 | 1.27% | |
All current directors and executive officers as a group (16 persons) | 438,395 | 159,952 | 8.25% | 3,661 | |
Common Stock | ||||||
Name of Beneficial Owner | Shares Owned | Right to Acquire Beneficial Ownership Under Options Exercisable Within 60 Days | Percent of Class (a) | Phantom Stock Units (b) | ||
First Defiance Financial Corp. Employee Stock Ownership Plan | 550,446 | (c) | − | 7.78 | % | − |
| Private Capital Management | 675,711 | (d) | − | 9.54 | % | − |
| Dimensional Fund Advisors, Inc. | 518,122 | (e) | − | 7.32 | % | − |
| John L. Bookmyer | 1,047 | − | − | 2,488 | ||
| Stephen L. Boomer | 13,514 | (f) | − | − | − | |
| Douglas A. Burgei | 21,340 | (f) | − | − | − | |
| Peter A. Diehl | 7,202 | − | − | − | ||
| John U. Fauster III | 23,450 | (f) | 1,943 | − | − | |
| Dwain I. Metzger | 1,036 | − | − | − | ||
| Gerald W. Monnin | 40,778 | (f) | − | − | − | |
| James L. Rohrs | 30,965 | 71,200 | 1.43 | % | − | |
| William J. Small | 111,864 | (f) | 2,000 | 1.61 | % | − |
| Samuel S. Strausbaugh | 1,039 | − | − | 378 | ||
| Thomas A. Voigt | 13,290 | (f) | 1,943 | − | − | |
| Gregory R. Allen | 17,663 | 24,900 | − | − | ||
| John C. Wahl | 80,912 | (f) | 5,600 | 1.22 | % | − |
All directors and executive officers as a group (16 persons) | 425,304 | 175,537 | 8.28 | % | 2,866 | |
| (a) | If no percent is provided, the number of shares is less than 1% of the total outstanding |
| (b) | Represents phantom shares denominated in |
(footnotes continued on next page)
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| (c) | Shares owned by First Defiance Financial Corp. Employee Stock Ownership Plan, 601 Clinton St., Defiance, OH ("ESOP") which have been allocated to persons listed in this table are also included in those |
| (d) | Based on Schedule 13G filed with the Securities and Exchange Commission (the "SEC") on February 14, |
| (e) | Based on Schedule 13G filed with the SEC on February |
| (f) | Includes |
RELATED PERSON TRANSACTIONS
All directors and executive officers have commercial, consumer or mortgage banking relationships with First Federal and a number have insurance relationships through First Insurance & Investments. All loans or deposits made to directors and executive officers (i) were made in the ordinary course of business; (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans or deposits with persons not related to First Federal; and (iii) did not involve more than the normal risk of collectibility or present other unfavorable features.
First Federal has a policy which covers all loans to directors and executive officers. In accordance with that policy, any loan request for directors or executive officers, which when aggregated with other extensions of credit from First Federal exceeds $500,000 requires prior Board of Directors approval. Loans to executive officers, which when aggregated with existing extensions of credit are less than $500,000, do not require prior Board of Directors approval but must be reported at the next Board meeting. Loans to directors, which when aggregated with existing extensions of credit are less than $500,000, do not require Board approval and are not required to be reported to the Board at the next Board meeting. However, all loan transactions with related persons are reported to and ratified by the audit committee quarterly. First Defiance’s policy is that it will not enter into related person transactions that are outside of normal banking relationships.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires First Defiance’s executive officers and directors, and persons who own more than ten percent of Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and to provide First Defiance with a copy of such form. Based on First Defiance’s review of the copies of such forms it has received, First Defiance believes that its executive officers and directors complied with all filing requirements applicable to them with respect to transactions during the fiscal year ended December 31, 2007.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent auditors for the fiscal year ended December 31, 2007 were the independent registered public accounting firm Crowe Chizek and Company LLC. The Audit Committee has reappointed Crowe Chizek and Company LLC to continue as independent aucitors for First Defiance for the year ended December 31, 2008. Crowe Chizek also served as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2006 and has reported on the Company’s consolidated financial statements.
The following table sets forth the aggregate fees that were incurred for audit and non-audit services provided by Crowe Chizek in 2007 and 2006. The table lists audit fees, audit related fees, tax fees and all other fees.
| Services Rendered | 2007 | 2006 | ||||||
| Audit Fees | $ | 264,000 | $ | 252,000 | ||||
| Audit Related Fees | 22,075 | 20,500 | ||||||
| Tax Fees | 44,050 | 48,025 | ||||||
| Other | − | − | ||||||
| Total fees paid | $ | 330,125 | $ | 320,525 | ||||
Audit related fees relate to services for employee benefit plan audits, compliance services and services related to accounting consultations relating to the Company’s mergers and acquisitions activity. Tax fees include the following amounts paid to Crowe Chizek in 2007 and 2006:
| Tax Services Rendered | 2007 | 2006 | ||||||
| Tax return preparation | $ | 24,045 | $ | 20,000 | ||||
| Other tax compliance | 20,005 | 28,025 | ||||||
| Total Tax Fees | $ | 44,040 | $ | 48,025 | ||||
Representatives of Crowe Chizek will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from shareholders.
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee is comprised of four directors, all of whom are considered “independent” under rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards.
The Audit Committee oversees First Defiance’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal control. In fulfilling its oversight responsibilities, the Committee reviewed with management the audited financial statements in the Annual Report on Form 10-K, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Committee also reviews the effectiveness of First Defiance’s system of internal controls, including a review of the process used by management to evaluate the effectiveness of the system of internal control.
The Committee reviewed with the independent registered public accounting firm which is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed under their professional standards. In addition, the Committee has discussed with the independent registered public accounting firm the auditor’s independence from management and the Company, including the matters in the written disclosures required by the Independence Standards Board, and considered the compatibility of non-audit services with the auditors’ independence. The committee also pre-approved all professional services provided to the Company by the independent registered public accounting firm.
The Committee discussed with the Company’s internal auditor and independent registered public accounting firm the overall scope and plans for their respective audits. The Committee meets with the internal auditor and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Committee held five meetings during 2007.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the SEC. The Committee and the Board have also approved the selection of Crowe Chizek and Company LLC as the Company’s independent registered public accounting firm for the year ending December 31, 2008.
John Bookmyer, Audit Committee Chair
Stephen L. Boomer, Audit Committee Member
Peter A. Diehl, Audit Committee Member
Samuel S. Strausbaugh, Audit Committee Member
March 13, 2008
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OTHER MATTERS
Each proxy confers discretionary authority on the Board of Directors of First Defiance to vote the proxy for the election of any person as a director if the nominee is unable to serve or for good cause will not serve, matters incident to the conduct of the meeting, and upon such other matters as may properly come before the Annual Meeting. Management is not aware of any business to come before the Annual Meeting other than those matters described in this Proxy Statement. However, if any other matters should properly come before the Annual Meeting, it is intended that the proxies solicited hereby will be voted with respect to those other matters in accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by First Defiance. First Defiance will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of the Common Stock. In addition to solicitations by mail, directors, officers and employees of First Defiance may solicit proxies personally or by telephone without additional compensation. First Defiance will also pay the standard charges and expenses of brokerage houses, voting trustees, banks, associations and other custodians, nominees and fiduciaries who are record holders of Common Stock not beneficially owned by them, for forwarding the proxy materials to, and obtaining proxies from, the beneficial owners of First Defiance Common Stock entitled to vote at the Annual Meeting.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the proxy solicitation materials to be used in connection with the Company’s next annual meeting of shareholders of First Defiance must have beenbe received at the Company’s main office of First Defiance no later than November 23, 2007.16, 2008. If such proposal is in compliance with all of the requirements of Rule 14a-8 under the 1934 Act, it will be included in the Proxy Statement and set forth on the form of proxy issued for the next annual meeting of shareholders. It is urged that any such proposals be sent by certified mail, return receipt requested. In addition, if a shareholder intends to present a proposal at the Company’s 2008 annual meeting of shareholders of First Defiance without including the proposal in the proxy solicitation materials relating to that meeting, and if the proposal is not received by January 31, 2008,30, 2009, then the proxies designated by the Board of Directors of First Defiance for the 20082009 annual meeting may vote proxies in their discretion on theany such proposal without mention of thesuch matter in the proxy solicitation materials or on the proxy card.card for such meeting.
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ANNUAL REPORTS AND FINANCIAL STATEMENTS
| BY ORDER OF THE BOARD OF DIRECTORS | |
| | |
William J. Small, Chairman, President and | |
| Chief Executive Officer |
Defiance, Ohio
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