of these materials. Chemical Financial Corporation is also soliciting proxies by telephone and the Internet. See the enclosed proxy for instructions.
Chemical Financial’s Board of Directors and Nominees for Election as Directors
Gary E. Anderson,age 63,64, has served as a director of Chemical Financial since January 2005 and is a member of the Audit Committee and Chairman of both the Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Anderson has been a director of Chemical Bank since January 2001. Mr. Anderson was appointed as Lead Independent Director of the Corporation in April 2006. Mr. Anderson is retired Chairman of the board of the Dow Corning Corporation.Corporation (Dow Corning). Mr. Anderson joined the Dow Corning, Corporation, a diversified company specializing in the development, manufacture and marketing of silicones and related silicon-based products, in 1967 and served in various executive capacities for over 25 years, including Chairman, President and Chief Executive Officer, retiring as Chairman on December 31, 2005. On May 15, 1995, Dow Corning voluntarily filed a petition under Chapter 11 of the United States Bankruptcy Code in connection with litigation pertaining to product liability for breast implants, and emerged from bankruptcy in June 2004. Mr. Anderson ishas served as a director of Eastman Chemical Company.Company since August 2007. In nominating Mr. Anderson, the Corporate Governance and Nominating Committee considered as important factors Mr. Anderson’s extensive experience in leading a large, regionally diverse business organization, his familiarity with an important market area in which Chemical Financial competes, his familiarity with financial statements of large business organizations, and his experience in the areas of corporate finance, corporate governance and executive compensation.
J. Daniel Bernson,age 67,68, has served as a director of Chemical Financial since January 2001 and is a member of the Audit, Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Bernson served as a director of Chemical Bank Shoreline (merged into Chemical Bank on December 31, 2005) from July 1999 through December 31, 2005. Mr. Bernson became a director of Chemical Bank on January 1, 2006. Mr. Bernson is Vice Chairman of The Hanson Group, St. Joseph, Michigan, a holding company with diversified business interests in southwest Michigan, including Hanson Mold, Hanson Logistics, Eagle Technologies Group, Pure Fact, Inc., Hanson Xpress and Hanson Transportation Management Services. Mr. Bernson was President of The Hanson Group from 1988 until December 2006 and Chief Executive Officer from April 2004 until December 2006. Mr. Bernson became Vice Chairman of The Hanson Group upon his retirement as President and Chief Executive Officer in December 2006. In nominating Mr. Bernson, the Corporate Governance and Nominating Committee considered as important factors Mr. Bernson’s extensive experience in leading a diversified business organization, his familiarity with an important market area in which Chemical Financial competes, his historical experience with Shoreline Financial Corporation, whose operations now comprise a significant portion of Chemical Financial’s operations, and his experience in the corporate finance and financial needs of an organization that is typical of many of Chemical Financial’s customers.
Nancy Bowman,age 57,58, has served as a director of Chemical Financial since January 2003 and is a member of the Audit and Compensation and Pension Committees. Ms. Bowman served as a director of Chemical Bank West (merged into Chemical Bank on December 31, 2005) from 1982 through December 31, 2005. Ms. Bowman became a director of Chemical Bank on January 1, 2006. Ms. Bowman is also a community advisory board member. Ms. Bowman is a certified public accountant and co-owner of Bowman & Rogers, PC, an accounting and tax services company located in Lake City, Michigan. In nominating Ms. Bowman, the Corporate Governance and Nominating Committee considered as important factors Ms. Bowman’s education as a certified public accountant, her expertise in the preparation and examination of financial statements, her familiarity with an important market area in which Chemical Financial competes, and her experience in owning and managing the financial needs of a smaller business that is typical of many of Chemical Financial’s customers.
James A. Currie,age 50,51, has been a director of Chemical Financial since August 1993 and is a member of the Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Currie has served as a director of Chemical Bank since February 1992. Mr. Currie is an investor. In nominating Mr. Currie, the Corporate Governance and Nominating Committee considered as important factors Mr. Currie’s experience in investing and investment vehicles, his familiarity with an important market area in which Chemical Financial competes, and his experience in the business and financial needs of typical investment customers of Chemical Financial.
Thomas T. Huff,age 66,67, has served as a director of Chemical Financial since January 2004 and is a member of the Audit and Compensation and Pension Committees. Mr. Huff served as a director of Chemical Bank Shoreline (merged into Chemical Bank on December 31, 2005) from 1986 through December 31, 2005. Mr. Huff became a director of Chemical Bank on January 1, 2006 and is also a community advisory board member. From 1987 to 2002, Mr. Huff was a senior partner with the Varnum, Riddering, Schmidt and Howlett law firm. Mr. Huff is owner of Peregrine Realty LLC (a real estate development company) and Peregrine Restaurant Group LLC (owner of London Grill restaurants), and continues to practice law in Kalamazoo, Michigan. In nominating Mr. Huff, the Corporate Governance and Nominating Committee considered as important factors Mr. Huff’s education and experience as a practicing attorney, his experience in real estate development, his familiarity with an important market area in which Chemical Financial competes, his historical experience with Shoreline
3
Financial Corporation, whose operations now comprise a significant portion of Chemical Financial’s operations, and his experience in the business and financial needs of a professional practice similar to many of Chemical Financial’s customers.
Michael T. Laethem,age 50,51, has served as a director of Chemical Financial since January 1, 2006.2006 and became a member of the Corporate Governance and Nominating Committee in 2010. Mr. Laethem has served as a director of Chemical Bank since January 2001 and is also a community advisory board member. Mr. Laethem has served on various subsidiary and advisory boardsas a director of Chemical Financial since 1993.Bank Thumb Area (merged into Chemical Bank on December 31, 2000) from 1993 through December 31, 2000. Mr. Laethem is a certified public accountant and is also President of Farm Depot, Ltd, a company that purchases, sells and leases farm equipment, in Caro, Michigan. In nominating Mr. Laethem, the Corporate Governance and Nominating Committee considered as important factors Mr. Laethem’s education as a certified public accountant, his expertise in the examination of financial statements, his familiarity with an important market area in which Chemical Financial competes, his experience in agribusiness, and his experience in operating a small business and satisfying the financial needs of a business that is typical of many of Chemical Financial’s customers.
Geoffery E. Merszei,age 57,58, has served as a director of Chemical Financial and Chemical Bank since January 1, 2006 and is a member of the Audit and Corporate Governance and Nominating Committees. Mr. Merszei is Executive Vice President and Chief Financial Officer and a director of The Dow Chemical Company (Dow), President of Dow Europe, Middle East and Africa and Chairman of Dow Europe. Dow is a diversified science and technology company that manufactures chemical, plastic and agricultural products. Mr. Merszei joined Dow in 1977 as a credit manager and progressed through various roles in the finance organization of the company, becoming Vice President and Treasurer in 1996. Mr. Merszei left Dow in 2001 and became Executive Vice President and Chief Financial Officer of Alcan Inc., a diversified company specializing in the production of aluminum, a provider of packaging, and metal trading. Mr. Merszei left Alcan Inc. and returned to Dow in July 2005 and became2005. Mr. Merszei served as Executive Vice President and Chief Financial Officer of Dow from July 2005 until December 1, 2009, when he became Executive Vice President, President of Dow Europe, Middle East and Africa and Chairman of Dow Europe. Mr. Merszei served as a member of itsthe board of directors.directors of Dow from July 2005 until December 31, 2009. In nominating Mr. Merszei, the Corporate Governance and Nominating Committee considered as important factors Mr. Merszei’s education in corporate finance, his extensive experience in leading the finances and financial statement disclosure of a large, geographically diverse publicly-held corporation, and his experience and familiarity with financial statements, audit committees and corporate governance of large publicly-held corporations.
Terence F. Moore,age 65,66, has served as a director of Chemical Financial since January 1998 and is Chairman of the Audit Committee and a member of the Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Moore has served as a director of Chemical Bank since February 1991. Mr. Moore is President Emeritus of MidMichigan Health.Health, Midland, Michigan, a health care organization operating in central and northern Michigan. Mr. Moore served as President and Chief Executive Officer of MidMichigan Health in Midland, Michigan from 1982 until his retirement in June 2008. MidMichigan Health is a health care organization operating in central and northern Michigan. From 1977 to 1984, Mr. Moore was President and Chief Executive Officer of MidMichigan Medical Center in Midland, which is MidMichigan Health’s largest subsidiary. In nominating Mr. Moore, the Corporate Governance and Nominating Committee considered as important factors Mr. Moore’s experience in leading a large, geographically diverse business organization, his familiarity with an important market area in which Chemical Financial competes, his experience in the health care and life sciences industries, and his familiarity with financial statements of large business organizations.
3
Aloysius J. Oliver,age 68,69, has served as a director of Chemical Financial since January 1997 and served as Chairman of its board of directors from January 2002 until May 1, 2004. Mr. Oliver is a member of the Audit, Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Oliver previously served as President and Chief Executive Officer of Chemical Financial from January 1997 until his retirement on December 31, 2001. Before being appointed President and Chief Executive Officer of Chemical Financial, Mr. Oliver served as Executive Vice President and Secretary from January 1985 to December 1996. Mr. Oliver joined Chemical Financial from Chemical Bank in January 1985. Mr. Oliver joined Chemical Bank in 1957 and served in various management capacities. Mr. Oliver became Vice President and Cashier of Chemical Bank in 1975, Secretary to the board of directors in 1979 and Senior Vice President in 1981. Mr. Oliver became a director of Chemical Bank in August 1996. In nominating Mr. Oliver, the Corporate Governance and Nominating Committee considered as important factors Mr. Oliver’s leadership of, extensive service to and familiarity with Chemical Financial, his extensive experience in the banking industry, his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, and his familiarity with the various market areas in which Chemical Financial competes.
David B. Ramaker,age 53,54, is Chairman, Chief Executive Officer and President of Chemical Financial. Mr. Ramaker was appointed Chief Executive Officer and President in January 2002 and Chairman in April 2006. Mr. Ramaker has been a director of Chemical Financial since October 2001. Mr. Ramaker also serves as Chairman, Chief Executive Officer and President of Chemical Bank. Mr. Ramaker joined Chemical Bank as Vice President on November 29, 1989. Mr. Ramaker became President of Chemical Bank Key State (consolidated into Chemical Bank) in October 1993. Mr. Ramaker became
4
President and a member of the board of directors of Chemical Bank in September 1996 and Executive Vice President and Secretary to the board of Chemical Financial and Chief Executive Officer of Chemical Bank on January 1, 1997. Mr. Ramaker served as Chief Executive Officer and President of Chemical Bank until December 31, 2001. He resumed these positions on January 1, 2006. Mr. Ramaker became Chairman of the board of Chemical Bank in January 2002. During the last five years, Mr. Ramaker has served as a director of all of the Corporation’s subsidiaries. Mr. Ramaker is also a member of the Executive Management Committee of Chemical Financial. In nominating Mr. Ramaker, the Corporate Governance and Nominating Committee considered as important factors Mr. Ramaker’s leadership of, service to and familiarity with Chemical Financial, his extensive experience in the banking industry, his experience and familiarity with the financial statements and financial disclosure of publicly-held bank holding companies, and his familiarity with the various market areas in which Chemical Financial competes.
Larry D. Stauffer,age 63,64, has served as a director of Chemical Financial and Chemical Bank since January 1, 2006.2006 and became a member of the Compensation and Pension Committee in 2010. Mr. Stauffer served as a director of Chemical Bank West (merged into Chemical Bank on December 31, 2005) from May 2004 through December 31, 2005. Mr. Stauffer is also a community advisory board member. Mr. Stauffer served from 1984 to November 2007 as President of Auto Paint Inc. and Auto Wares Tool Company, both divisions of Auto Wares Inc., an automotive parts distribution company that serves the Midwest section of the United States, headquartered in Grand Rapids, Michigan. In November 2007, Mr. Stauffer became an employee consultant of Auto Wares Inc. In nominating Mr. Stauffer, the Corporate Governance and Nominating Committee considered as important factors Mr. Stauffer’s experience in leading a geographically diverse business organization, his familiarity with an important market area in which Chemical Financial competes, his experience in the automotive industry, and his experience in running and managing the financial needs of a business that is typical of many of Chemical Financial’s customers.
William S. Stavropoulos,age 69,70, has been a director of Chemical Financial since August 1993 and a director of Chemical Bank since April 1992. Mr. Stavropoulos is a member of the Audit, Compensation and Pension and Corporate Governance and Nominating Committees. Mr. Stavropoulos is retired Chairman of the board of directors of The Dow Chemical Company (Dow), a diversified science and technology company that manufactures chemical, plastic and agricultural products. Mr. Stavropoulos joined Dow in 1967 and served in various senior management positions. Mr. Stavropoulos was named President of Dow Latin America in 1984, Group Vice President in 1987, Vice President in 1990, President of Dow U.S.A. in 1990, Senior Vice President in 1991, President and Chief Operating Officer in 1993, Chief Executive Officer in November 1995 and Chairman of the board of directors in November 2000. Mr. Stavropoulos was a member of the board of directors of Dow from July 1990 to March 2006. Mr. Stavropoulos served as President and Chief Executive Officer of Dow from 1995 to 2000 and was reappointed to that position in December 2002. In November 2003, Mr. Stavropoulos relinquished the position as President, in November 2004 he relinquished the position as Chief Executive Officer and he retired as Chairman of Dow on April 1, 2006. Mr. Stavropoulos is Chairman Emeritus of Dow. Mr. Stavropoulos is alsohas served as a director of Maersk Inc., since July 2002, Teradata Corporation since September 2007 and Tyco International, Inc. since March 2007 and a trustee of the Fidelity Group of Funds.Funds since January 2001. In nominating Mr. Stavropoulos, the Corporate Governance and Nominating Committee considered as important factors Mr. Stavropoulos’ extensive experience in leading a large, geographically diverse publicly-held corporation, his familiarity with the issues relating to executive compensation and corporate governance at publicly-held corporations, his experience with audit, nominating and compensation committees of boards of directors, his extensive experience and familiarity with financial statements and financial disclosure of large, publicly-held corporations, and his familiarity with an important market area in which Chemical Financial competes.
Franklin C. Wheatlake,age 61,62, has served as a director of Chemical Financial and Chemical Bank since January 1, 2006 and is a member of the Audit and Compensation and Pension Committees. Mr. Wheatlake served as a director of Chemical Bank West (merged into Chemical Bank on December 31, 2005) from 2001 through December 31, 2005. Mr. Wheatlake is Chairman of Utility Supply and Construction Company, a company that provides supply chain, material distribution, logistics support and construction services to the electric and gas utility industry, and a dealer/principal of Reed City GMC Truck (d.b.a. Crossroads Chevrolet),Chevrolet, an automobile/light truck dealership, both located in Reed City, Michigan. In nominating Mr. Wheatlake, the Corporate Governance and Nominating Committee considered as important factors Mr. Wheatlake’s experience in leading a diverse business organization, his familiarity with an important market area in which Chemical Financial competes, and his experience in running and managing the financial needs of a business that is typical of many of Chemical Financial’s customers.
Your Board of Directors recommends that you vote
FOR the election of all nominees as directors.
5
Ratification of Appointment of Independent Registered Public Accounting Firm The Audit Committee has appointed KPMG LLP as the Company’s independent registered public accounting firm to audit the financial statements of the Corporation and its subsidiary and the effectiveness of internal control over financial reporting for the year ending December 31, 2010, and to perform such other appropriate accounting services as may be approved by the Audit Committee. The Audit Committee and the Board of Directors propose and recommend that shareholders ratify the appointment of KPMG LLP as the independent registered public accounting firm for the year ending December 31, 2010.
More information concerning the relationship of the Company with its independent registered public accounting firm appears below under the headings “Audit Committee,” “Audit Committee Report” and “Independent Registered Public Accounting Firm.”
If the shareholders do not ratify the appointment of KPMG LLP, the Audit Committee will consider a change of the independent registered public accounting firm for the next year.
Representatives of KPMG LLP are expected to be present at the annual meeting of shareholders on April 19, 2010, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Your Board of Directors Recommendsand Audit Committee, which consists entirely of
independent directors, recommend that You Vote
you voteFOR the Electionratification of All Nomineesthe
appointment of KPMG LLP as Directorsthe independent registered public accounting firm.
Board Leadership Structure and Role in Risk Oversight
Currently, Chemical Financial’s Chief Executive Officer also serves as Chairman of the board of directors, in conjunction with a Lead Independent Director. The board of directors has determined that this dual structure is appropriate for Chemical Financial due to the size of Chemical Financial relative to other companies. The board of directors also believes it is more efficient and effective to have the Chief Executive Officer also fill the role of Chairman. The board of directors believes this structure is appropriate from a governance perspective due to the extensive regulatory supervision exercised by bank examiners and other regulatory authorities. Chemical Financial has an independent director serving as the chairperson of each significant board committee, and only one member of management serves on Chemical Financial’s board of directors.
The duties and responsibilities of the Lead Independent Director include: (i) acting as a liaison and channel for communication between the Chief Executive Officer and the independent directors; (ii) providing leadership to ensure the board works cohesively and independently and during times of crisis; (iii) advising the Chief Executive Officer as to the quality, quantity and timeliness of the flow of information from Chemical Financial’s management to the independent directors; (iv) being available as a resource to consult with the Chief Executive Officer and other board members on corporate governance practices and policies; (v) together with management where appropriate, considering questions of conflicts of interest of the Chief Executive Officer and other board members; (vi) coordinating the assessment of board committee structure, organization and charters and evaluating the need for change, as well as committee membership; (vii) together with the chairperson of the Corporate Governance and Nominating Committee, interviewing all board candidates and making recommendations concerning such candidates; (viii) serving as non-executive chairperson in the event of incapacitation of the Chief Executive Officer; (ix) coordinating, developing the agenda and leading executive sessions of the independent directors and communicating the results thereof to the Chief Executive Officer; (x) ensuring the appropriate segregation of duties between board members and management; (xi) suggesting agenda items for board meetings; and (xii) together with the chairperson of the Compensation and Pension Committee, communicating the board’s evaluation of the performance of the Chief Executive Officer.
Chemical Financial has appointed a Risk Management Committee of the board of directors. The Risk Management Committee is composed entirely of independent directors. The Risk Management Committee is responsible for oversight of Chemical Financial’s risk management strategies, except to the extent that specific responsibilities have been delegated to other board committees. If responsibilities are delegated to other board committees, the Risk Management Committee reviews the work of such other committees to ensure coordination among the committees and that all appropriate risks are monitored.
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Committees of the Board of Directors
Among others, the board of directors has established the following three standing committees:
| |
• | Audit Committee |
|
• | Compensation and Pension Committee |
|
• | Corporate Governance and Nominating Committee |
Audit Committee. The Audit Committee of the Corporation serves in a dual capacity as the Audit Committee of the Corporation and Chemical Bank. The Audit Committee was established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee oversees the accounting and financial reporting processes on behalf of the boards of directors of the Corporation and Chemical Bank. The Audit Committee oversees the audit of the financial statements and is directly responsible for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged by the Corporation. The Audit Committee operates pursuant to a written charter, a current copy of which is available on Chemical Financial’s corporate website atwww.chemicalbankmi.com under “Investor Information.” The Audit Committee is comprised solely of independent directors as defined by the Sarbanes-Oxley Act of 2002 and theThe Nasdaq Stock Market® listing standards. The Audit Committee has a Pre-Approval Policy to pre-approve the audit and non-audit services performed by the independent registered public accounting firm. All services provided by the independent registered public accounting firm are either within general pre-approved limits or specifically approved by the Audit Committee. The general pre-approval limits are detailed as to each particular service and are limited by a specific dollar amount for each type of service per project. Subject to certain limitations, the authority to grant pre-approvals may be delegated to one or more members of the Audit Committee. The Pre-Approval Policy requires the Audit Committee to be informed of the services provided under the pre-approval guidelines at the next regularly scheduled Audit Committee meeting. The Audit Committee met seven times during 2008.2009. During 2008,2009, the Audit Committee was composed of Mr. Moore, Chairman, Ms. Bowman and Messrs. Anderson, Bernson, Huff, Merszei, Oliver, Stavropoulos and Wheatlake. Messrs. Anderson, Bernson, Merszei, Moore, Oliver and Stavropoulos are considered “audit committee financial experts” as defined by the Securities and Exchange Commission (SEC).
Compensation and Pension Committee. The Compensation and Pension Committee reviews salaries, bonuses and other compensation of all officers of Chemical Financial and Chemical Bank, administers Chemical Financial’s share-based compensation plans, makes recommendations to the board of directors regarding the grants of share-based compensation awards under these plans, and annually reviews the Corporation’s benefit programs, including the pension, supplemental pension, nonqualified deferred compensation and 401(k) savings plans. All share-based compensation plans outstanding have been approved by the Corporation’s shareholders. The Compensation and Pension Committee operates pursuant to a written charter, a current copy of which is available on Chemical Financial’s corporate website atwww.chemicalbankmi.com under “Investor Information.” The Compensation and Pension Committee is comprised solely of independent directors as defined by theThe Nasdaq Stock Market® listing standards. The Compensation and Pension Committee met twothree times during 2008.2009. During 2008,2009, the Compensation and Pension Committee was composed of Mr. Anderson, Chairman, Ms. Bowman and Messrs. Bernson, Currie, Huff, Moore, Oliver, Stavropoulos and Wheatlake.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee oversees the Corporation’s corporate governance responsibilities on behalf of the board of directors and is responsible for the identification and recommendation of individuals qualified to become members of the board of directors for each vacancy that occurs and for each election of directors at an annual meeting of shareholders. The Corporate Governance and Nominating Committee operates pursuant to a written charter, a current copy of which is available on Chemical Financial’s corporate website atwww.chemicalbankmi.com under “Investor Information.” The Corporate Governance and Nominating Committee met oncetwice during 2008.2009. All members of the Corporate Governance and Nominating Committee are independent as defined by theThe Nasdaq Stock Market® listing standards. During 2008,2009, the Corporate Governance and Nominating Committee was composed of Mr. Anderson, Chairman, and Messrs. Bernson, Currie, Merszei, Moore, Oliver and Stavropoulos.
Board and Annual Meeting Attendance
During 2008,2009, the Chemical Financial board of directors held five regular meetings and twofive special meetings. Twelve outAll of thirteenthe directors attended at least 75% of the aggregate number of meetings of the board of directors and meetings of committees on which they served during the year (during the periods that they served). The Corporation has a policy that requires all members of and nominees to the board of directors to attend the annual meeting each year. Twelve outAll of thirteenthe directors serving at April 21, 200820, 2009 attended the Corporation’s 20082009 annual meeting held on that date.date, except for Mr. Stavropoulos.
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Shareholder Nominations
The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders, directors, officers, third-party search firms and other sources. Shareholders may recommend individual nominees for consideration by the Corporate Governance and Nominating Committee by communicating with the committee as described under the heading “Communicating with the Board.” The Corporate Governance and Nominating Committee will ultimately determine whether a shareholder recommendation will result in a nomination under this process. In considering potential nominees, the committee will review all candidates in the same manner, regardless of the source of the recommendation. The goal of the Corporate Governance and Nominating Committee is to nominate a slate of individuals who will reflect the communities in which Chemical Financial operates and the customers that Chemical Financial serves. In evaluating the skills and characteristics required of board members, the committee considers factors such as business and industry experience, diversity, potentials forpublicly held company experience, education, potential conflicts of interest, independence, character and integrity, gender, race, national origin, ability to devote sufficient time to board service, familiarity with the market area, and capacity to represent the balanced, best interests of the shareholders as a group.
Direct shareholder nominations may only be made by sending a notice to the Secretary of Chemical Financial that sets forth:
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• | the name, age, business address and residence address of each nominee; |
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• | the principal occupation or employment of each nominee; |
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• | the number of shares of Chemical Financial common stock beneficially owned by each nominee; |
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• | a statement that each nominee is willing to be nominated and to serve if elected; and |
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• | such other information concerning each nominee as would be required to be provided in a proxy statement soliciting proxies for the election of each nominee. |
You must send this notice to the Secretary of Chemical Financial not less than 120 days before the date of an annual meeting and not more than seven days following the date of notice of a special meeting called for election of directors. The Corporate Governance and Nominating Committee will evaluate and consider every nominee so proposed by a shareholder and report each such nomination and the Committee’s recommendation to the full board of directors. The Committee may also, in its discretion, consider shareholders’ informal recommendations of possible nominees. In considering possible candidates for election as a director, the Committee and the other directors will be guided by applicable rules and regulations, any specific criteria established by the Committee and the following criteria:
Each candidate should:
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• | be chosen without regard to sex, race, religion or national origin; |
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• | be an individual of the highest character and integrity and have an inquiring mind, vision and the ability to work well with others; |
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• | be free of any conflict of interest that would violate any applicable law or regulation or interfere with the proper performance of the responsibilities of a director; |
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• | possess substantial and significant experience that would be of particular importance to the Corporation in the performance of the duties of a director; |
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• | have sufficient time available to devote to the affairs of the Corporation in order to carry out the responsibilities of a director; and |
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• | have the capacity and desire to represent the balanced, best interests of the shareholders as a whole. |
Communicating with the Board
Shareholders and interested parties may communicate with members of Chemical Financial’s board of directors by sending correspondence addressed to the board as a whole, a specific committee, or a specific board memberc/o Joseph Torrence, Senior Vice President, Director of Human Resources, Chemical Financial Corporation, 333 E. Main Street, Midland, Michigan 48640. All correspondence will be forwarded directly to the applicable members of the board of directors.
6
Approval of the Proposed Amendment to the Restated Articles of Incorporation
to Authorize the Issuance of Up to 200,000 Shares of Preferred Stock
The board of directors has unanimously approved, and recommends that the Corporation’s shareholders approve, the proposed amendment to the Restated Articles of Incorporation to authorize the issuance of up to 200,000 shares of preferred stock attached asAppendix A to this proxy statement. The board of directors determined the approval of the proposed amendment to authorize a limited class of preferred stock would be in the best interests of the Corporation and its shareholders. No class of preferred stock is presently authorized by the Corporation’s current Restated Articles of Incorporation.
One reason for proposing to authorize a limited class of preferred stock is to give the Corporation the ability to acquire an entity that has sold shares of preferred stock to the United States Department of the Treasury (Treasury) pursuant to the Treasury’s Capital Purchase Program (CPP) established under the Troubled Assets Relief Program (TARP). The Corporation has historically grown through acquisitions of banks and bank holding companies. If the Corporation determined in the future to acquire an entity that had participated in the CPP, then the Corporation could be required to issue shares of its preferred stock to the Treasury in substitution for the target entity’s preferred stock in order to complete the acquisition. While the Corporation evaluates strategic acquisition opportunities on an ongoing basis, as of the date of this proxy statement, the Corporation has no current plans to acquire an entity that has participated in the CPP.
Another reason for proposing to authorize a limited class of preferred stock is to give the Corporation the ability to participate in the TARP (but not the CPP), or other government program that is established in the future, which may require the issuance of preferred stock, should the board of directors decide that such participation in the future is in the best interests of the Corporation and its shareholders. The Corporation does not intend to participate in the CPP. As previously announced, the Corporation expressly decided against participation in the CPP even though Treasury approved it for participation. However, given the current financial and credit crisis and the continued deterioration of the Michigan economy, specifically, and the United States economy, generally, the board of directors believes it is in the best interests of the Corporation and its shareholders for the Corporation to have the ability to participate in other programs that may be announced under TARP or other government programs in the future. The board of directors cannot presently predict the nature or terms of any future government program and would evaluate whether participation in any such future program is in the best interests of the Corporation and its shareholders when and if any such future program is announced.
The proposed amendment does not allow the board of directors to issue preferred stock in its discretion. Rather, it limits the ability of the board of directors to issue preferred stock to the circumstances described above, namely: (i) in connection with the acquisition of an entity that has participated in a government sponsored program, or (ii) in connection with participation by the Corporation in a government sponsored program established in the future. These are the only circumstances under which the board of directors would be permitted to issue shares of preferred stock.
In these two limited circumstances, the proposed amendment would allow the board of directors to issue up to 200,000 shares of preferred stock without further shareholder approval. The board of directors would be able to determine the designations and relative voting, distribution, dividend, liquidation and other rights, preferences and limitations of the preferred stock, including, among other things: (i) the designation of each class or series and the number of shares in the class or series; (ii) the dividend rights, if any, of the class or series; (iii) the voting rights, if any (in addition to any prescribed by law), of the holders of shares of the class or series; (iv) the rights, if any, to convert or exchange the shares into or for other securities; (v) the conditions or restrictions, if any, on specified actions of the Corporation affecting the rights of the shares; (vi) the redemption provisions, if any, of the shares; (vii) the preference, if any, to which any class or series would be entitled in the event of the liquidation or distribution of the Corporation’s assets; and (viii) the provisions of a sinking fund, if any, provided for the redemption of the preferred stock.
The board of directors believes it is in the best interests of the Corporation and its shareholders to authorize a limited class of preferred stock. If approved, the proposed amendment would position the Corporation to be able to capitalize on future strategic acquisition opportunities and to respond effectively to future market conditions. The board of directors presently does not have any plan or proposal to issue preferred stock.
Your board of directors unanimously recommends that
you voteFOR approval of the Proposed Amendment
to the Restated Articles of Incorporation to
authorize the issuance of up to
200,000 shares of preferred stock
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Ownership of Chemical Financial Common Stock
Five Percent Shareholders
Listed below are the only entities known by management to have been the beneficial owners of more than 5% of the outstanding shares of Chemical Financial common stock as of December 31, 2008.2009.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount and Nature of Beneficial Ownership
| | | | |
| | of Common Stock(1) | | | | |
| | Sole
| | | Shared
| | | Sole
| | | Shared
| | | Total
| | | | |
Name and Address of
| | Voting
| | | Voting
| | | Dispositive
| | | Dispositive
| | | Beneficial
| | | Percent
| |
Beneficial Owner | | Power | | | Power | | | Power | | | Power(2) | | | Ownership | | | of Class | |
| |
|
Dimensional Fund Advisors LP(3) | | | 1,940,234 | | | | — | | | | 1,977,520 | | | | — | | | | 1,977,520 | | | | 8.3 | % |
Palisades West, Building One 6300 Bee Cave Road Austin, TX 78746 | | | | | | | | | | | | | | | | | | | | | | | | |
Chemical Bank(4) | | | 1,556,723 | | | | — | | | | 1,559,579 | | | | 188,784 | | | | 1,748,363 | | | | 7.3 | % |
Trust Department 333 E. Main Street Midland, MI 48640 | | | | | | | | | | | | | | | | | | | | | | | | |
Franklin Advisory Services, LLC and Affiliates(5) | | | 1,467,809 | | | | — | | | | 1,522,909 | | | | — | | | | 1,522,909 | | | | 6.4 | % |
One Parker Plaza, 9th Floor Fort Lee, NJ 07024 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount and Nature of Beneficial Ownership
| | |
| | of Common Stock(1) | | |
| | Sole
| | Shared
| | Sole
| | Shared
| | Total
| | |
Name and Address of
| | Voting
| | Voting
| | Dispositive
| | Dispositive
| | Beneficial
| | Percent
|
Beneficial Owner | | Power | | Power | | Power | | Power(2) | | Ownership | | of Class |
|
|
Dimensional Fund Advisors LP(3) Palisades West, Building One 6300 Bee Cave Road Austin, TX 78746 | | | 1,794,359 | | | | — | | | | 1,831,334 | | | | — | | | | 1,831,334 | | | | 7.6 | % |
Chemical Bank(4) Trust Department 333 E. Main Street Midland, MI 48640 | | | 1,629,666 | | | | — | | | | 1,705,320 | | | | 118,147 | | | | 1,823,467 | | | | 7.6 | % |
Franklin Advisory Services, LLC and Affiliates(5) One Parker Plaza, 9th Floor Fort Lee, NJ 07024 | | | 1,279,959 | | | | — | | | | 1,335,059 | | | | — | | | | 1,335,059 | | | | 5.5 | % |
BlackRock, Inc.(6) 40 East 52nd Street New York, NY 10022 | | | 1,219,697 | | | | — | | | | 1,219,697 | | | | — | | | | 1,219,697 | | | | 5.1 | % |
89
Ownership of Chemical Financial Common Stock by Directors and Executive Officers
The following table sets forth information concerning the number of shares of Chemical Financial common stock held as of December 31, 2008,2009, by each of Chemical Financial’s directors and nominees for director, each of the named executive officers who are included in the Summary Compensation Table, and all of Chemical Financial’s directors, nominees for director and executive officers as a group:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount and Nature of Beneficial Ownership
| | | | | Amount and Nature of Beneficial Ownership
| | | |
| | of Common Stock(1) | | | | | of Common Stock(1) | | | |
| | | | Shared
| | | | | | | | | | | Shared
| | | | | | | |
| | Sole Voting
| | Voting or
| | Stock Options
| | Total
| | | | | Sole Voting
| | Voting or
| | Stock Options
| | Total
| | | |
Name of
| | and Dispositive
| | Dispositive
| | Exercisable
| | Beneficial
| | Percent
| | | and Dispositive
| | Dispositive
| | Exercisable
| | Beneficial
| | Percent
| |
Beneficial Owner | | Power | | Power(2) | | Within 60 Days | | Ownership | | of Class | | | Power | | Power(2) | | Within 60 Days | | Ownership | | of Class | |
| | | | |
|
G.E. Anderson | | | 7,699 | | | | 8,193 | | | | | | | | 15,892 | | | | * | | | | 7,910 | | | | 8,499 | | | | | | | | 16,409 | | | | * | |
J.D. Bernson | | | | | | | 20,903 | | | | | | | | 20,903 | | | | * | | | | | | | | 20,903 | | | | | | | | 20,903 | | | | * | |
N.A. Bowman | | | 2,040 | | | | | | | | | | | | 2,040 | | | | * | | | | 2,040 | | | | | | | | | | | | 2,040 | | | | * | |
J.A. Currie | | | 114,049 | | | | 18,399 | | | | | | | | 132,448 | | | | * | | | | 118,104 | | | | 27,399 | (7) | | | | | | | 145,503 | (7) | | | * | |
L.A. Gwizdala | | | 673 | | | | 39,730 | | | | 26,990 | | | | 67,393 | | | | * | | | | | | | | 12,531 | | | | 32,957 | | | | 45,488 | | | | * | |
T.T. Huff | | | 12,832 | | | | | | | | | | | | 12,832 | | | | * | | | | 12,832 | | | | | | | | | | | | 12,832 | | | | * | |
K.W. Johnson | | | 2,201 | | | | | | | | 14,116 | | | | 16,317 | | | | * | | | | 2,924 | | | | | | | | 17,683 | | | | 20,607 | | | | * | |
T.W. Kohn | | | 24,149 | | | | 8,034 | | | | 22,258 | | | | 54,441 | | | | * | | | | 24,149 | | | | 8,034 | | | | 28,107 | | | | 60,290 | | | | * | |
M.T. Laethem | | | | | | | 2,337 | | | | | | | | 2,337 | | | | * | | | | | | | | 2,337 | | | | | | | | 2,337 | | | | * | |
G.E. Merszei | | | | | | | 8,000 | | | | | | | | 8,000 | | | | * | | | | | | | | 8,745 | | | | | | | | 8,745 | | | | * | |
T.F. Moore | | | | | | | 13,717 | | | | | | | | 13,717 | | | | * | | | | | | | | 13,580 | | | | | | | | 13,580 | | | | * | |
A.J. Oliver | | | 109,391 | | | | | | | | | | | | 109,391 | | | | * | | | | 109,391 | | | | | | | | | | | | 109,391 | | | | * | |
D.B. Ramaker | | | 758 | | | | 17,183 | | | | 64,122 | | | | 82,063 | | | | * | | | | 801 | | | | 18,073 | | | | 78,238 | | | | 97,112 | | | | * | |
L.D. Stauffer | | | | | | | 3,325 | | | | | | | | 3,325 | | | | * | | | | | | | | 3,514 | | | | | | | | 3,514 | | | | * | |
W.S. Stavropoulos | | | 8,519 | | | | 349,683 | (6) | | | | | | | 358,202 | (6) | | | 1.5 | % | | | 8,719 | | | | 300,000 | (8) | | | | | | | 308,719 | (8) | | | 1.3 | % |
J.E. Tomczyk | | | 659 | | | | 1,623 | | | | 23,720 | | | | 26,002 | | | | * | | | | 2,214 | | | | 1,623 | | | | 26,505 | | | | 30,342 | | | | * | |
F.C. Wheatlake | | | 299 | | | | 81,995 | | | | | | | | 82,294 | | | | * | | | | | | | | 82,294 | | | | | | | | 82,294 | | | | * | |
All directors and executive officers as a group | | | 287,300 | | | | 584,392 | (6) | | | 170,335 | | | | 1,042,027 | (6) | | | 4.3 | % | | | 293,291 | | | | 519,052 | (9) | | | 209,600 | | | | 1,021,943 | (9) | | | 4.2 | % |
10
| | |
(1) | | The numbers of shares stated are based on information furnished by each person listed and include shares personally owned of record by that person and shares that, under applicable regulations, are considered to be otherwise beneficially owned by that person. Under these regulations, a beneficial owner of a security includes any person who, directly or indirectly, has or shares voting power or dispositive power with respect to the security. A person will also be considered the beneficial owner of a security if the person has a right to acquire beneficial ownership of the security within 60 days. Shares held in various fiduciary capacities through the Trust and Investment Management Services Department (Trust Department) of Chemical Bank are not included unless otherwise indicated. Chemical Financial and the directors and officers of Chemical Financial and Chemical Bank disclaim beneficial ownership of shares held by the Trust Department in fiduciary capacities. |
| | |
(2) | | These numbers include shares over which the listed person is legally entitled to share voting or dispositive power by reason of joint ownership, trust, or other contract or property right, and shares held by spouses and children over whom the listed person may have influence by reason of relationship. Shares held in fiduciary capacities by the Trust Department of Chemical Bank are not included unless otherwise indicated. The directors and officers of Chemical Financial may, by reason of their positions, be in a position to influence the voting or disposition of shares held in trust by Chemical Bank to some degree, but disclaim beneficial ownership of these shares. |
|
(3) | | This information is based on information filed with the Securities and Exchange Commission on Schedule 13G dated February 9, 2009.8, 2010. Dimensional Fund Advisors LP (“Dimensional”), an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds.” In certain cases, subsidiaries of Dimensional may act as an advisor orsub-advisor to certain Funds. In its role as investment advisor,sub-advisor and/or manager, neither Dimensional possessesor its subsidiaries possess investment and/or voting power over the shares of Chemical Financial common stock that are owned by the Funds, and may be deemed to be the beneficial owner of the shares held by the Funds. Dimensional disclaims beneficial ownership of such securities.shares. |
9
| | |
(4) | | This entity is the Trust Department of Chemical Bank. These numbers consist of certain shares held in various fiduciary capacities through the Trust Department of Chemical Bank. Chemical Bank also holds in various fiduciary capacities a total of 1,741,0661,588,895 shares of Chemical Financial common stock over which it does not have voting or dispositive power and which are not included in these numbers. Chemical Financial and the directors and officers of Chemical Financial and Chemical Bank disclaim beneficial ownership of shares held by the Trust Department in a fiduciary capacity. Chemical Bank has a Trust Committee which reviews the fiduciary activities of the bank and has overall responsibility for evaluating and approving the fiduciary policies of the bank. The Trust Committee met five times in 20082009 and during 20082009 was composed of Mr. Ramaker, Chairman, Ms. Bowman and Messrs. Anderson, Currie, Huff, Merszei, Moore and Wheatlake. |
|
(5) | | This information is based on information filed with the Securities and Exchange Commission on Schedule 13G dated January 16, 2009.February 4, 2010. The Schedule 13G indicates 1,522,9091,335,059 shares of Chemical Financial Corporation common stock are beneficially owned by one or more open- or closed-end investment companies or other managed accounts that are investment management clients of Franklin Advisory Services, LLC, a direct or indirect subsidiary of Franklin Resources, Inc. The filing also indicates that certain affiliates of Franklin Advisory Services, LLC, including Franklin Resources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr., each located at One Franklin Parkway, San Mateo, California 94403, may each be deemed to also beneficially own the 1,522,9091,335,059 shares reported by Franklin Advisory Services, LLC, but disclaims such beneficial ownership. |
|
(6) | | This information is based on information filed with the Securities and Exchange Commission on Schedule 13G dated January 29, 2010. The Schedule 13G indicates 1,219,697 shares of Chemical Financial common stock are beneficially owned by BlackRock, Inc., an investment management firm. In its role as investment advisor or manager, BlackRock, Inc. possesses investment and/or voting power over these shares of Chemical Financial common stock and may be deemed to be the beneficial owner of these shares held. |
|
(7) | | These numbers include 349,6839,000 shares owned by the James A. Currie Foundation as of December 31, 2009. Mr. Currie is President, Treasurer and a trustee of that foundation. Mr. Currie has no beneficial interest in the shares owned by the foundation and disclaims beneficial ownership of these shares. |
|
(8) | | These numbers include 300,000 shares owned by the Rollin M. Gerstacker Foundation as of December 31, 2008.2009. Mr. Stavropoulos is a trustee of that foundation. Mr. Stavropoulos has no beneficial interest in the shares owned by the foundation and disclaims beneficial ownership of these shares. |
|
(9) | | These numbers include the shares described in notes 7 and 8 above. |
1011
Director Compensation
During 2008,2009, Chemical Financial compensated its directors who were not employees of Chemical Financial or its subsidiary, Chemical Bank, with an annual retainer of $20,000, at the rate of $750 for every board and Audit Committee meeting attended and at the rate of $550 for all other committee meetings attended. In addition, during 2008,2009, non-employee directors of Chemical Financial were compensated at a rate of $750 for every Chemical Bank Loan Committee meeting attended and $550 for all other Chemical Bank committee meetings attended. In 2008,2009, community advisory directors were compensated with an annual retainer fee of $2,500 and at the rate of $200 for every meeting attended. Employees of Chemical Financial or Chemical Bank do not receive any compensation for serving on, or attending meetings of, the board of directors of Chemical Financial or Chemical Bank or any community advisory board or meetings of any of their committees.
On April 20,21, 2008, the shareholders approved the Chemical Financial Corporation Directors’ Deferred Stock Plan (DDSP), authorizing the issuance of up to 400,000 shares of Chemical Financial common stock. The DDSP provides benefits to non-employee directors of Chemical Financial in the form of an equity retainer that is required to be deferred annually and invested in stock units representing shares of Chemical Financial common stock. The equity retainer is 50% of the annual retainer of each non-employee director, or such greater percentage as determined by the board of directors. The annual retainer is a lump sum amount paid to each non-employee director for the director’s service throughout the year to Chemical Financial and its shareholders. For 2008,2009, the annual retainer paid to each non-employee director was $20,000, of which the equity retainer was $10,000. The difference between the annual retainer and the equity retainer is the cash retainer. The DDSP allows each non-employee director to voluntarily defer the cash retainerand/or all or any portion of director and community advisory fees and invest in stock units representing shares of Chemical Financial common stock. The amount of the annual retainer, director and directorcommunity advisory fees contributed to the DDSP are vested immediately. The deferral election must be made before the beginning of a plan year. The DDSP is an unfunded supplemental nonqualified deferred compensation plan that complies with Internal Revenue Code Section 409A.
The equity retainer and any cash retainer voluntarily contributed to the DDSP are converted to stock units on the date paid. Any director and community advisory fees that are voluntarily contributed to the DDSP are converted to stock units on the date Chemical Financial pays its next quarterly cash dividend. The number of stock units credited to each participating director’s account is determined by dividing the dollar amount of the equity retainer and any deferred cash retainer by the market value of a single share of Chemical Financial common stock on the date the annual retainer is paid, and by dividing the dollar amount of any deferreddirector and community advisory fees by the market value of a single share of Chemical Financial common stock on the next regularquarterly cash dividend payment date. Each participating director’s account is also credited with dividend equivalents on each date Chemical Financial pays cash dividends. Dividend equivalents are a number of stock units equal to the number of shares of common stock that have a market value equal to the amount of any cash dividends that would have been paid to a shareholdersshareholder owning the number of shares of common stock represented by stock units in a participating director’s account on each cash dividend payment date.
Distributions will be made in common stock of Chemical Financial equal to the number of stock units in the participating director’s account. Any fractional shares will be paid in cash. Distributions will not be made until a director retires or terminates service as a director or upon the death of the director or a change in control of Chemical Financial. For common stock issued upon a director’s retirement from or termination of service, the director has a choice to receive the shares in a lump sum or in five annual installments. A director must make an irrevocable election between the lump sum and five annual installments at the time the director begins participating in the DDSP. The election is irrevocable and applies to all future deferral elections. Upon a change of control of Chemical Financial or death of the director, shares will be issued in a lump sum. Chemical Financial may also permit a distribution to a participating director due to an unforeseeable emergency.
Messrs. Bernson, Laethem and Stauffer were the only two directors during 20082009 that made voluntary contributions to the plan.DDSP.
The board of directors adopted the Chemical Financial Corporation Plan for Deferral of Directors’ Fees in 1982 (prior plan). The prior plan was available to all directors of Chemical Financial and its subsidiaries who receive fees, including community advisory directors through December 31, 2008. Effective December 31, 2008, the prior plan was closed to new participants. Under the prior plan, directors and community advisory directors that participate in the prior plan must elect before December 31 of each year to defer either 50% or 100% of fees to be earned in the following year. Those fees will be paid out in any number of calendar years from one to ten commencing during or following the year the director ceases to be a director or the year after the director attains age 70. During the deferral period, the prior plan provides that the Corporation shall accrue to the directors or community advisory directors interest on the accumulated amount of deferred fees at the rate paid by Chemical Bank on a variable rate money market savings account. Mr. Stauffer was the only director of the Corporation who elected to defer any compensation under the prior plan during 2008.2009. As of December 31, 2008,2009, Ms. Bowman and Mr. Stauffer were the only Chemical Financial directors who were participants in the prior plan.
1112
20082009 DIRECTOR COMPENSATION
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Change in
| | | | | | | | | | | | | | | Change in
| | | | | |
| | | | | | | | | | Pension
| | | | | | | | | | | | | | | Pension
| | | | | |
| | | | | | | | | | Value and
| | | | | | | | | | | | | | | Value and
| | | | | |
| | Fees
| | | | | | | | Nonqualified
| | | | | | | Fees
| | | | | | | | Nonqualified
| | | | | |
| | Earned
| | | | | | Non-Equity
| | Deferred
| | | | | | | Earned
| | | | | | Non-Equity
| | Deferred
| | | | | |
| | or Paid
| | Stock
| | Option
| | Incentive Plan
| | Compensation
| | All Other
| | | | | or Paid
| | Stock
| | Option
| | Incentive Plan
| | Compensation
| | All Other
| | | |
Name | | in Cash(1) | | Awards(2) | | Awards | | Compensation | | Earnings | | Compensation(3) | | Total | | | in Cash(1) | | Awards(2) | | Awards | | Compensation | | Earnings | | Compensation(3) | | Total | |
| | | | |
|
Gary E. Anderson | | $ | 32,950 | | | $ | 10,000 | | | | | | | | | | | | | | | | | | | $ | 42,950 | | | $ | 37,000 | | | $ | 10,000 | | | | | | | | | | | | | | | | | | | $ | 47,000 | |
J. Daniel Bernson | | | 32,050 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 42,050 | | | | 37,600 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 47,600 | |
Nancy Bowman | | | 30,350 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 40,350 | | | | 32,000 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 42,000 | |
James A. Currie | | | 21,300 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 31,300 | | | | 26,100 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 36,100 | |
Thomas T. Huff | | | 38,050 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 48,050 | | | | 40,650 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 50,650 | |
Michael T. Laethem | | | 20,700 | | | | 19,350 | | | | | | | | | | | | | | | | | | | | 40,050 | | | | 31,150 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 41,150 | |
Geoffery E. Merszei | | | 20,250 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 30,250 | | | | 26,950 | | | | 10,000 | | | | | | | �� | | | | | | | | | | | | | 36,950 | |
Terence F. Moore | | | 33,700 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 43,700 | | | | 38,700 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 48,700 | |
Aloysius J. Oliver | | | 32,800 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 42,800 | | | | 37,600 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 47,600 | |
Larry D. Stauffer | | | 20,850 | | | | 18,050 | | | | | | | | | | | | | | | | | | | | 38,900 | | | | 30,600 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 40,600 | |
William S. Stavropoulos | | | 20,850 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 30,850 | | | | 26,950 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 36,950 | |
Franklin C. Wheatlake | | | 32,600 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 42,600 | | | | 36,500 | | | | 10,000 | | | | | | | | | | | | | | | | | | | | 46,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Represents the aggregate dollar amount of all fees earned or paid in cash for services as a director, including annualthe cash retainer, fees, committee and/or chairmanship fees, and meeting fees. Mr. Stauffer elected toand community advisory fees, including any fees voluntarily defer 100% of his cash paymentsdeferred under the Chemical Financial Corporation PlanDDSP and the prior plan. Voluntary deferrals of the cash retainer and other fees for Deferral of Directors’ Fees.2009 were as follows: $10,000 by Mr. Bernson, $16,650 by Mr. Laethem, and $30,600 by Mr. Stauffer. |
|
(2) | | Represents the grant date fair value of the shares of common stock underlying the stock units. For the equity retainer and any deferred cash retainer, the value is determined as of the date the annual retainer was paid. For any deferred fees, the value is determined as of the date of the next regular cash dividend payment date after the date fees were paid. Amounts include the $10,000 equity retainer and voluntary deferrals of the cash retainer or fees by Messrs. Laethem and Stauffer pursuant to the DDSP.computed in accordance with Financial Accounting Standards Board ASC Topic 718 (ASC 718) for each director. |
|
(3) | | In accordance with SEC regulation, perquisites that in the aggregate total less than $10,000 are not required to be disclosed. |
1213
Compensation Discussion and Analysis
Overview
The Compensation and Pension Committee (the “Committee”) assists the board of directors in discharging its responsibilities relating to executive compensation and in fulfilling its responsibilities relating to Chemical Financial’s compensation and benefit programs and policies. The Committee administers and makes recommendations with respect to Chemical Financial’s compensation plans and reviews and approves the compensation of executive and senior officers.management. The Committee currently consists of nineten directors, all of whom are independent under applicable Nasdaq Stock Market® and SEC standards. The Committee receives recommendations from Chemical Financial’s Chief Executive Officer regarding the compensation of executive and senior officersmanagement (other than the Chief Executive Officer). All executive and senior officersmanagement of Chemical Financial are eligible to participate in the same executive compensation plans that are available to the Chief Executive Officer, with the exception of the supplemental pension plan.
Compensation Philosophy and Objectives
Chemical Financial’s philosophy is to maximize long-term return to shareholders consistent with its commitments to maintain the safety and soundness of the institution and provide the highest possible level of service at a fair price to the customers and communities that it serves. To do this, the Committee believes Chemical Financial must provide competitive salaries and appropriate incentives to achieve long-term shareholder return. The Corporation’s executive compensation policies are designed to achieve four primary objectives:
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• | attract and retain well-qualified executives who will lead the Corporation and inspire superior performance; |
|
• | provide incentives for achievement of corporate goals and individual performance; |
|
• | provide incentives for achievement of long-term shareholder return; and |
|
• | align the interests of management with those of the shareholders to encourage continuing increases in shareholder value. |
The Committee’s goal is to effectively balance salaries with potential compensation that is performance-based commensurate with an officer’s individual management responsibilities and potential for future contribution to corporate objectives. The portion of total compensation that is based on corporate performance and long-term shareholder return increases as an executive’s responsibilities increase.
Elements of Compensation
Chemical Financial’s executive compensation program has consisted primarily of the following elements: (i) base salary and benefits; (ii) annual cash bonus incentives; (iii) longer-term equity-based incentives in the form of stock options and restricted stock performance units; and (iv) participation in the Corporation’s retirement plans. Each component of compensation is intended to accomplish one or more of the compensation objectives discussed above.
Base Salary and Benefits. To attract and retain officers with exceptional abilities and talent, annual base salaries are set to provide competitive levels of compensation. The Committee considers each officer’s performance, current compensation and responsibilities within the Corporation. The Committee determines base salaries by periodically collecting information from other bank holding companies within its peer group for comparison. The Committee also considers past individual performance and achievements when establishing base salaries. The Committee does not give specific weight to any particular factor, although the most weight is given to net income, credit quality and the management of risk.
Annual Cash Bonus Incentives. Annual cash bonus incentives are used to reward executive and senior officers for the Corporation’s overall financial performance, taking into consideration individual performance.
Beginning in 2008, the Corporation implemented a formula approach for awarding cash bonuses to named executive officers. For each named executive officer, the Committee set a bonus target as a percentage of salary. For 2008,2009, the bonus targets as a percentage of salary for each of the named executive officers were as follows: Mr. Ramaker — 70%; Ms. Gwizdala — 50%; Mr. Kohn — 50%; Mr. Tomczyk — 40%; and Mr. Johnson — 40%. The Committee may change the bonus targets each year.
After determining the bonus target for each named executive officer, the Committee then weighted the amount of the bonus between achievement of financial performance goals by the Corporation and achievement of individual goals. For 2008,2009, the weighting for each of the named executive officers was as follows: Mr. Ramaker — 80% (financial performance goals), 20% (individual goals); Ms. Gwizdala — 70% (financial performance goals), 30% (individual goals); Mr. Kohn — 70% (financial
13
performance goals), 30% (individual goals); Mr. Tomczyk — 60% (financial performance goals), 40% (individual goals); and
14
Mr. Johnson — 70% (financial performance goals), 30% (individual goals). The Committee at its own discretion may change the weighting between financial performance goals and individual goals each year.
The Committee further weighted the bonus amount for achievement of financial performance goals by the Corporation among specified goals. For 2008,2009, the specific goals and weighting were as follows: earnings per common share growth (50%(40%), deposit growth (20%), amount of actual expenses compared to budget (20%) and level of nonperforming assets (25%), and amount of noninterest expense (25%credit quality (20%). The Committee at its own discretion may change the specific goals and weightings each year.
For named executive officers other than the Chief Executive Officer, the Chief Executive Officer recommends the individual goals to the Committee. The Committee reviews, modifies, and approves the recommendations of the Chief Executive Officer. The Committee determines the individual goals for the Chief Executive Officer.
The Committee implemented an overall qualifier to the 2009 cash bonus plan. In order for a named executive officer to receive the full amount of the financial performance goals target or individual goals target, the Corporation’s 2009 earnings per common share must equal or exceed the 2009 shareholder cash dividend. In the case that 2009 earnings per common share does not exceed the 2009 shareholder cash dividend, the named executive’s earned bonus is reduced by 50%.
If all of the financial performance goals were met and a named executive officer met all of his or her individual goals, then the named executive officer would have been paid the full amount of his or her bonus target. If some, but not all, of the financial performance goals or individual goals were met and the 2009 earnings per common share equaled or exceeded the 2009 shareholder cash dividend, then the named executive officer’s bonus amount would have been reduced by the weighting given each goal. For example, using 20082009 weightings, if the earnings per sharedeposit growth goal is not met, then the amount of each named executive officer’s bonus weighted to achievement of financial performance goals would have been reduced by 50%20%. If none of the financial performance goals were met and a named executive officer did not meet his or her individual goals, then the named executive officer would not have been paid a bonus. The Committee may also reduce each named executive officer’s bonus amount based on other factors it considers relevant.
For 2008,2009, bonuses were not paid to the named executive officers totaled $114,000 and represented only 18%because of total potential bonuses because nolimited achievement of financial performance goals and only some individual performance goals were met. Total bonuses paid tocontinued economic difficulties in the named executive officers in 2008 were 8% less than the bonuses paid to such officers in 2007.
Corporation’s market areas.
Longer-Term Equity-Based Incentives. A portion of potential career compensation is also linked to corporate performance through equity-based compensation awards, including stock options and restricted stock performance units. Other forms of equity-based compensation may be awarded by the Committee. Awards under Chemical Financial’s equity-based compensation plan are designed to:
| |
• | more closely align executive officer and shareholder interests; |
|
• | reward officers for building shareholder value; |
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• | reward officers for the achievement of targeted earnings per share levels; and |
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• | encourage long-term investment in the Corporation by participating officers. |
The Committee believes that stock ownership by management has been demonstrated to be beneficial to shareholders and stock options have been granted by Chemical Financial to officers pursuant to various plans for many years. The Committee administers all aspects of these plans and also has authority to determine the individuals to whom and the terms upon which equity-based compensation awards are granted.
Beginning in 2008, the Corporation implemented a formula approach for awarding equity-based compensation. For each named executive officer, the Committee set a target for equity-based compensation based on a percentage of base salary. For 2008,2009, the targets as a percentage of base salary for each named executive officer were as follows: Mr. Ramaker — 100%; Ms. Gwizdala — 70%; Mr. Kohn — 70%; Mr. Tomczyk — 60%; and Mr. Johnson — 50%. The targets set by the Committee are calculated using the market value of the Corporation’s common stock.
After determining the equity-based compensation target for each named executive officer, the Committee then allocated the total target amount between stock options and restricted stock performance units. For 2008,2009, the allocation for each named executive officer was as follows: Mr. Ramaker — 40% (stock options), 60% (restricted stock performance units); Ms. Gwizdala — 50% (stock options), 50% (restricted stock performance units); Mr. Kohn — 50% (stock options), 50% (restricted stock performance units); Mr. Tomczyk — 60% (stock options), 40% (restricted stock performance units); and Mr. Johnson — 60% (stock options), 40% (restricted stock performance units).
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The variable used to determine the amount of stock options and restricted stock performance units awarded is the market price of one share of Chemical Financial common stock on the date of the award. For example, assume the following: (i) the market price of one share of Chemical Financial common stock was $25$23 on the date that the options and restricted stock performance units were awarded to a named executive officer, (ii) the named executive officer’s base salary was $200,000 annually, (iii) the
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Committee set a target of 70% of base salary for the named executive officer, and (iv) the named executive officer’s allocation was 50% (stock options) and 50% (restricted stock performance units). The named executive officer would have been awarded approximately 2,8003,000 stock options and 2,8003,000 restricted stock performance units.
In 2008,2009, the Committee granted awards of stock options to purchase 17,61123,122 shares to the named executive officers. The Committee has no policy as to timing of awards of stock options. All stock option awards have been made at the market value of Chemical Financial’s common stock on the date of grant. Stock options are generally granted for a term of 10 years. All stock options permit the exercise price to be paid by delivery of cash, and the Committee has also approved the payment of the exercise price by surrendering shares of common stock. The stock options granted in 20082009 vest in one-third increments on each anniversary date of the award over the first three years of the option term. Vesting of stock options may be accelerated upon certain events, including a change in control of the Corporation.
In 2008,2009, the Committee granted 19,02424,814 restricted stock performance units to the named executive officers. The restricted stock performance units vest at December 31, 20102011 if any of the predetermined targeted earnings per common share levels are achieved in 2010.2011. The restricted stock performance units vest from 0.5x to 2x1.5x the number of units originally granted depending on which, if any, of the predetermined targeted earnings per common share levels are met in 2010.2011. Upon vesting, the restricted stock performance units will be converted to shares of the Corporation’s common stock on aone-to-one basis. However, if the minimum earnings per common share performance level is not achieved in 2010,2011, no shares will be issued.
Retirement Plans. Chemical Financial has a qualified pension plan (“Pension Plan”) that covers certain employees, a 401(k) savings plan that covers all employees and a supplemental retirement plan currently covering only one active employee, the Chief Executive Officer. The Committee believes that Chemical’s retirement plans encourage long-term commitment by the Corporation’s officers and assist Chemical Financial in attracting and retaining talented executives.
The Pension Plan was frozen as of June 30, 2006 for employees with less than 15 years of vested service or whose age plus years of vested service were less than 65 as of June 30, 2006that date (non-grandfathered employees). At June 30, 2006, approximately two-thirds of the Corporation’s salaried employees were non-grandfathered employees. As of that date, no additional Pension Plan benefits will be earned by non-grandfathered employees. On July 1, 2006, non-grandfathered employees began receiving four percent of their eligible pay as a contribution to a defined contribution plan. Pension Plan benefits for remaining eligible employees (grandfathered employees) as of June 30, 2006 were not changed and grandfathered employees will continue to accrue benefits based on their salary and years of credited service.
Pension Plan benefits are based on the annual base salary of eligible employees as of January 1 of each year. Upon retirement at age 65, a retiree will receive an annual benefit of 1.52% of his or her average annual base salary for the five highest consecutive years during the ten years preceding his or her date of retirement, multiplied by the retiree’s number of years of credited service (subject to a maximum of 30 years). Benefits at retirement ages under 65 are also determined based upon length of service and pay, as adjusted in accordance with the Pension Plan. The Pension Plan provides for vesting of benefits after attaining five years of service, disability and death benefits, and optional joint and survivor benefits for the employee and his or her spouse. Additionally, unreduced Pension Plan benefits are available for retirement at age 60 and above when the retiree’s age plus vested years of service sums at least 85. Pension Plan benefits for non-grandfathered employees will be based on years of credited service as of June 30, 2006 and generally average annual base salary as of January 1 for the five years preceding June 30, 2006.
The Internal Revenue Code limits both the amount of eligible compensation for benefit calculation purposes and the annual benefits that may be paid from a tax-qualified retirement plan. As permitted by the Employee Retirement Income Security Act of 1974 (ERISA), Chemical Financial established a supplemental pension plan, the Chemical Financial Corporation Supplemental Pension Plan (Supplemental Plan) that provides for the payment to certain executive officers of Chemical Financial, as determined by the Committee, of the benefits to which they would have been entitled, calculated under the provisions of the Pension Plan, as if the limits imposed by the Internal Revenue Code did not apply. Currently, only the Chief Executive Officer is a participant in the Supplemental Plan. Under the Supplemental Plan, participant benefits would be payable in a lump sum upon a change in control if the applicable participant was not eligible to retire at the time of the change in control. The Committee believes the triggering event of a simple change of control is appropriate under these circumstances because new management could terminate the Supplemental Plan and eliminate significant previously accumulated benefits.
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Pension Plan benefits are based on the annual base salary of eligible employees as of January 1 of each year. The amount shown under the caption “Salary” in the Summary Compensation Table in this proxy statement is representative of the most recent calendar year compensation used in calculating average pay under the Pension Plan (subject to any applicable cap under ERISA for employees who are not included in the Supplemental Plan). Upon retirement at age 65, a retiree will receive an annual benefit of 1.52% of his or her average annual base salary for the five highest consecutive years during the ten years preceding his or her date of retirement, multiplied by the retiree’s number of years of credited service (subject to a maximum of 30 years). Benefits at retirement ages under 65 are also determined based upon length of service and pay, as adjusted in accordance with the Pension Plan. The Pension Plan provides for vesting of benefits after attaining five years of service,