MBHI Midwest Banc Hlds (MM)

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 (Amendment No.       )

Filed by the Registrant þ

Filed by a Party other than the Registrant o :

Check the appropriate box: o

o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Preliminary Proxy Statement
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

MIDWEST BANC HOLDINGS, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

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Fellow Stockholders:

 

You are cordially invited to attend the 2010 annual meeting of stockholders of Midwest Banc Holdings, Inc. (the “Company”), which will be held on, Wednesday, May 26, 2010, at 9:00 a.m., central time, at Dominican University Priory Campus, 7200 West Division Street, River Forest, Illinois 60305.

 

The attached notice of the annual meeting and the proxy statement describe the formal business to be transacted at the meeting. Directors and officers of the Company as well as representatives of PricewaterhouseCoopers LLP will be present at the meeting to respond to any questions that our stockholders may have regarding the business to be transacted.

 

The board of directors of the Company has determined that the matters to be considered at the meeting are in the best interests of the Company and its stockholders. For the reasons set forth in the proxy statement, the board unanimously recommends that you vote FOR each of the matters to be considered.

 

Please sign and return the enclosed proxy card promptly. Your cooperation is appreciated since a majority of the common stock must be represented, either in person or by proxy, to constitute a quorum for the conduct of business.

 

Please note that the rules which guide how brokers vote your stock have been changed. Brokers may no longer vote your shares on the election of directors without your specific instructions. Therefore, persons whose shares are held of record by a bank, broker or other agent must receive instructions from them for granting proxies.

 

On behalf of the board of directors and all of the employees of the Company and its subsidiaries, I thank you for your continued interest and support.

 

Sincerely yours,

 

 

Roberto R. Herencia

President and Chief Executive Officer

 

April 7, 2010

 

501 West North Avenue     l      Melrose Park, Illinois 60160


NOTICE OF THE 2010 ANNUAL MEETING OF STOCKHOLDERS
OF MIDWEST BANC HOLDINGS, INC.

 

 

By Order of the board of directors,

 

JoAnn Sannasardo Lilek

Secretary

 

Melrose Park, Illinois

April 7, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the 2010 Stockholder Meeting:

 

A copy of this Proxy Statement and the Annual Report on Form 10-K for the year ended December 31, 2009 are available at www.envisionreports.com/MBHI for registered holders and www.edocumentview.com/MBHI for beneficial holders.

 

 

 

 

 

PROXY STATEMENT FOR THE
ANNUAL MEETING OF STOCKHOLDERS OF
MIDWEST BANC HOLDINGS, INC.
TO BE HELD ON WEDNESDAY, MAY 26, 2010

 

TABLE OF CONTENTS

 

PROXY STATEMENT
FOR THE
2010 ANNUAL MEETING OF STOCKHOLDERS OF
MIDWEST BANC HOLDINGS, INC.
To Be Held On Wednesday, May 26, 2010

 

 

This proxy statement, the accompanying proxy card and the annual report to stockholders on Form 10-K of Midwest Banc Holdings, Inc., the Company or Midwest, are being mailed on or about April 7, 2010. The board of directors of the Company is soliciting your proxy to vote your shares at the annual meeting of stockholders. The board is soliciting your proxy to give all stockholders of record the opportunity to vote on matters that will be presented at the meeting. This proxy statement provides you with information on these matters to assist you in voting your shares.

 

Why am I receiving this proxy statement?

 

Midwest’s board of directors is soliciting proxies for the meeting. You are receiving a proxy statement because you owned shares of Midwest common stock on March 30, 2010, and that entitles you to vote at the meeting. By use of a proxy, you can vote whether or not you attend the meeting. This proxy statement describes the matters on which we would like you to vote and provides information on those matters so that you can make an informed decision.

 

The notice of annual meeting, proxy statement and proxy are being mailed to stockholders on or about April 7, 2010. If you hold your shares in “street name,” please refer to the information forwarded by your bank, broker or other holder of record to see the options available to you.

 

What is a proxy?

 

A proxy is your legal designation of another person, the proxy, to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the board, as your proxy, the authority to vote your shares in the manner you indicate on your proxy card.

 

Why did I receive more than one proxy card?

 

You will receive multiple proxy cards if you hold your shares in different ways (e.g., joint tenancy, trusts, custodial accounts) or in multiple accounts. If your shares are held by a broker (i.e., in “street name”), you will receive your proxy card or other voting information from your broker, and you will return your proxy card or cards to your broker. You should vote on and sign each proxy card you receive.

 

Who is qualified to vote?

 

You are qualified to receive notice of and to vote at the annual meeting of stockholders if you own shares of our common stock at the close of business on our record date, March 30, 2010.

 

How many shares of common stock may vote at the meeting?

 

As of the record date, there were 38,855,873 shares of common stock outstanding and entitled to vote. Each share of common stock is entitled to one vote on each matter presented.

 

What is the difference between a “stockholder of record” and a “street name” holder?

 

These terms describe how your shares are held. If your shares are registered directly in your name with Computershare Investor Services, LLC, our transfer agent, you are a “stockholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.

How do I vote my shares?

 

Stockholders of record can vote either in person at the meeting or by proxy without attending the meeting. We urge you to vote by proxy even if you plan to attend the meeting so that we will know as soon as possible that enough votes will be present for us to hold the meeting. If you attend the meeting in person, you may vote at the meeting and your proxy will not be counted.

 

Stockholders of record who desire to vote by proxy may do so by filling out the enclosed form of proxy, signing it, and mailing it in the enclosed postage-paid envelope. Stockholders of record may also vote by telephone or the Internet.

 

Telephone Voting.   Stockholders of record may grant a proxy to vote your shares by telephone by calling 1-800-652-VOTE. Please see the instructions on your proxy card.

 

Internet Voting.   Stockholders of record may also grant a proxy to vote your shares by means of the Internet. The Internet voting procedures are designed to authenticate your identity, to allow you to grant a proxy to vote your shares, and to confirm that your instructions have been recorded properly.

 

As a stockholder of record, you may go to www.envisionreports.com/MBHI to grant a proxy to vote your shares by means of the Internet. You will be required to provide our number and the control number, both of which are contained on your proxy card. You will then be asked to complete an electronic proxy card. The votes represented by such proxy will be generated on the computer screen, and you will be prompted to submit or revise them as desired.

 

General information for all shares voted via the Internet or by phone.   We must receive Internet or telephone votes by 1:00 a.m. on May 26, 2010. Submitting your proxy via the Internet or by phone will not affect your right to vote in person should you decide to attend the annual meeting.

 

“Street name” holders must receive instructions for granting proxies from their banks, brokers or other agents, rather than a proxy card.

 

Please note that the rules which guide how brokers vote your stock have been changed. Brokers may no longer vote your shares on the election of directors without your specific instructions. Therefore, persons whose shares are held of record by a bank, broker or other agent must receive instructions from them for granting proxies.

 

What are the board’s recommendations on how I should vote my shares?

 

The board recommends that you vote your shares as follows:

 

Proposal 1 — FOR the election of seven nominees for director with terms expiring at the next annual meeting of stockholders.

 

Proposal 2 — FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010.

 

Proposal 3 — FOR the compensation of the executive officers named herein.

 

How would my shares be voted if I do not specify how they should be voted?

 

If you sign and return your proxy card without indicating how you want your shares to be voted, the board of directors will vote your shares as follows:

 

Proposal 1 — FOR the election of all nominees for directors.

 

Proposal 2 — FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010.

 

Proposal 3 — FOR the compensation of the executive officers named herein.

How many votes must be present to hold the meeting?

 

Under our by-laws, a majority of the votes that can be cast must be present, in person or by proxy, to hold the meeting.

 

What if I don’t return my proxy card and don’t attend the meeting?

 

If you are a holder of record (that is, your shares are registered in your own name with our transfer agent) and you don’t vote your shares, your shares will not be voted.

 

If you hold your shares in “street name,” and you don’t give your bank, broker or other holder of record specific voting instructions for your shares, your record holder can vote your shares on the ratification of the independent registered public accounting firm. Under the rules of the New York Stock Exchange, brokers, banks or other holders of record do not have the discretion to vote your shares on the election of directors or the executive compensation proposal without instructions from you. We strongly urge you to submit your proxy card and exercise your right to vote.

 

If you don’t give your record holder specific voting instructions and your record holder does not vote, the votes will be “broker non-votes.” “Broker non-votes” will have no effect on the vote for the election of directors or on the other proposals. “Broker non-votes” will be counted as present for purposes of determining whether enough votes are present to hold the annual meeting.

 

How are votes withheld, abstentions and broker non-votes treated?

 

You may vote “abstain” for any nominee in the election of directors and on the other proposals. Shares voting “abstain” on any nominee for director will be excluded entirely from the vote and will have no effect on the election of directors. Shares voting “abstain” on the other proposals will be counted as present at the annual meeting for purposes of that proposal and your abstention will have the effect of a vote against the proposal.

 

Broker non-votes, if any, are counted for general quorum purposes, but are not deemed to be “present” with respect to any matter for which a broker does not have authority to vote.

 

What happens if a nominee for director declines or is unable to accept election?

 

If you vote by proxy, and if unforeseen circumstances make it necessary for the board to substitute another person for a nominee, the board of directors will vote your shares for that other person.

 

Is my vote confidential?

 

Yes. Your voting records will not be disclosed to us except:

 

 

The inspector of election, a representative of our transfer agent, must comply with confidentiality guidelines that prohibit disclosure of the votes to Midwest.

 

Can I change my vote after I have mailed in my proxy card?

 

You may revoke your proxy by doing one of the following:

 

 

What vote is required to approve each proposal?

 

For Proposal 1, each director will be elected by a majority of the votes cast with respect to such director. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. Under Delaware law, if the director is not elected at the annual meeting, the director will continue to serve on the board of directors as a “holdover director.” As required by the Company’s by-laws, each director has submitted an irrevocable letter of resignation as director that becomes effective if he or she is not elected by stockholders and the board accepts the resignation. If a director is not elected, the corporate governance and nominating committee will consider the director’s resignation and recommend to the board whether to accept or reject the resignation. The board will decide whether to accept or reject the resignation and publicly disclose its decision, including the rationale behind the decision if it rejects the resignation, within 90 days after the election results are certified.

 

For Proposal 2, the ratification of PricewaterhouseCoopers LLP’s appointment requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

For Proposal 3, the stockholder (non-binding) vote on executive compensation must be approved by the affirmative vote of a majority of the shares of common stock present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

Who will count the votes?

 

Representatives from Computershare Investor Services, LLC, our transfer agent, will count the votes and serve as our inspectors of election. The inspectors of election will be present at the meeting.

 

Who pays the cost of this proxy solicitation?

 

We pay the costs of soliciting proxies. Upon request, we will reimburse brokers, dealers, banks and trustees, or their nominees, for reasonable expenses incurred by them in forwarding proxy materials to beneficial owners of shares of our common stock.

 

Is this proxy statement the only way that proxies are being solicited?

 

No. In addition to mailing these proxy materials, certain of our directors, officers or employees may solicit proxies by telephone, facsimile, e-mail or personal contact. They will not be specifically compensated for doing so.

 

If you have any further questions about voting your shares or attending the meeting please call JoAnn Sannasardo Lilek at (708) 865-1053.

 

The following table sets forth information as of March 30, 2010, the record date, for: (1) those people believed by management to be the beneficial owners of more than 5% of our common stock; (2) the nominees for the board of directors of the Company; and (3) certain executive officers of the Company. The table includes, with respect to directors, the year in which each became a director of the Company; if elected, their terms will expire at the next annual meeting of stockholders. The table also sets forth the amount of our common stock and the percent thereof beneficially owned by each director and executive officer and by all executive officers as a group as of the record date. Ownership information is based upon information furnished by the respective individuals.

 

On December 5, 2008, Midwest completed the sale to the U.S. Treasury of $84.78 million of its non-voting cumulative perpetual preferred shares, the Series T Preferred Stock, as part of the U.S. Treasury’s Capital Purchase Program, CPP, and issued a warrant to the Treasury to purchase 4,282,020 shares of Midwest common stock for $2.97 per share.

 

On February 25, 2010, Midwest entered into an exchange agreement, the Exchange Agreement, with the U.S. Treasury pursuant to which the U.S. Treasury agreed to exchange all shares of the Series T Preferred Stock it owns, for a new series of Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series G, the Series G Preferred Stock. The Series G Preferred Stock was exchanged for the Series T Preferred Stock on March 8, 2010.

 

Each share of Series G Preferred Stock will be convertible into approximately 528 shares of common stock of the Company, subject to any required anti-dilution adjustments. If the U.S. Treasury were to convert all of the Series G Preferred Stock, the Company would be required to issue approximately 47.1 million shares of its common stock, subject to any required anti-dilution adjustments. As of March 30, 2010, Midwest has 38.9 million shares of common stock issued and outstanding and entitled to vote at the meeting. In addition, the U.S. Treasury holds a warrant entitling it to acquire an additional 4.3 million shares of common stock.

 

Under the terms of the Exchange Agreement, the U.S. Treasury has the authority to convert the Series G Preferred Stock into the Company’s common stock at any time. In addition, the Company can compel a conversion of the Series G Preferred Stock into common stock, subject to the following conditions:

 

(i) the Company receives appropriate approvals from the Federal Reserve;

 

(ii) approximately $78.6 million principal amount of the Company’s senior and subordinated debt shall have been previously converted into common stock on terms acceptable to the U.S. Treasury in its sole discretion;

 

(iii) the Company shall have completed a new cash equity raise of not less than $125 million on terms acceptable to the U.S. Treasury in its sole discretion; and

(iv) the Company has made the anti-dilution adjustments to the Series G Preferred Stock, if any, as required by the terms thereof.

 

 

 

 

Our by-laws provide that the board of directors shall consist of three to twenty directors with the number fixed from time to time by a resolution of the board of directors. The board of directors has set the number of directors at seven.

 

Under our by-laws, all directors are to be elected at each annual meeting of stockholders and will serve a one-year term until their successors are elected and qualified or until their earlier resignation, removal or death.

 

All persons standing for election as director were unanimously nominated by the board of directors. No person being nominated as a director is being proposed for election pursuant to any agreement or understanding between any such person and the Company.

 

Each director will be elected by a majority of the votes cast with respect to such director. A “majority of the votes cast” means that the number of votes cast “for” a director exceeds the number of votes cast “against” that director. Under Delaware law, if the director is not elected at the annual meeting, the director will continue to serve on the board of directors as a “holdover director.” As required by the Company’s by-laws, each director has submitted an irrevocable letter of resignation as director that becomes effective if he or she is not elected by stockholders and the board accepts the resignation. If a director is not elected, the corporate governance and nominating committee will consider the director’s resignation and recommend to the board whether to accept or reject the resignation. The board will decide whether to accept or reject the resignation and publicly disclose its decision, including the rationale behind the decision if it rejects the resignation, within 90 days after the election results are certified.

Under our by-laws, if the number of nominees exceeds the number of directors to be elected, this is deemed a “contested election.” If a contested election occurs, directors will be elected by a plurality of the votes cast.

 

The nominees proposed for election at this meeting are set forth below.

 

In the event that any of these individuals is unable to serve or declines to serve for any reason, it is intended that the proxies will be voted for the election of such other person as may be designated by the board of directors. The board has no reason to believe that any director nominee will be unable or unwilling to serve. Unless authority to vote for the nominees is withheld, it is intended that the shares represented by the enclosed proxy card, if executed and returned, will be voted FOR the election of the nominees proposed by the board of directors.

 

Your board recommends that you vote “FOR” each of the nominees listed below.

 

Director Nominees

 

Percy L. Berger, CPA, was elected chairman of the board of the Company and the Bank effective December 31, 2008 and has served as a director of the Company and the Bank since May 2008. Mr. Berger is the founder and managing partner of Dempster Group, a middle-market private equity investment firm. He is chairman of the board and chief executive officer of NEATT Wireless, LLC, a regional wireless telecommunications company. Mr. Berger founded Green Leaf Ridge Company, a private equity investment firm in 1998. Mr. Berger is a former vice chairman and director of Dynix.com. He also served as a director of PrimeCo Wireless Communication, LLC and Chicago’s Lincoln Park Zoo. He is currently a director of NorthShore University Health System. Mr. Berger was managing director, senior vice president and senior client manager at Bank of America, and its predecessor bank, NationsBanc, NA in the midwest. During his career, Mr. Berger served in progressively increasing capacities as a corporate banker in Continental Bank, Wells Fargo Bank, and Chemical Bank (now JPMorgan Chase). Mr. Berger is a member of the Illinois Society of Certified Public Accountants and The American Institute of Certified Public Accountants. Mr. Berger brings to the board entrepreneurial business, investment, and leadership skills through his owner-operator experiences in private equity as well as extensive banking experience from his corporate banking career. Mr. Berger also contributes to the board through his leadership as board chairman.

 

Barry I. Forrester, CFA, has served as a director of the Company since May 2005 and as a director of the Bank since June 2005. He has been a private investor since 2004. Previously, he had worked over 14 years as an investment banker specializing in providing corporate finance services to financial institutions including public offerings of equity and debt, mergers and acquisitions, and mutual-to-stock conversion transactions. He served clients through positions at William Blair & Company from 2000 through 2004, ABN AMRO Incorporated from 1997 to 2000, and EVEREN Securities, Inc. (including predecessors Kemper Securities and Blunt Ellis & Loewi) from 1989 to 1997. Prior thereto he was a financial analyst with Crowe Chizek and Company, LLP. He was a director of Eagle Savings Bank from January 2006 to June 2007. He holds the Chartered Financial Analyst designation and is a member of the CFA Institute and CFA Society of Chicago. Mr. Forrester brings to the board broad perspectives into community banking and knowledge of financial, accounting, and public-company issues in our industry through his specialized investment-banking experience. Mr. Forrester also contributes to the board through leadership of and membership on standing board committees and assistance carrying out specific board initiatives such as with the ad hoc CEO search committee in 2009.

 

Robert J. Genetski, PhD, has served as director of the Company since June 2005. He has also served as a director of the Bank since 2004. He served as a research analyst for Morgan Guaranty Trust Co. from 1969-71. Genetski joined Harris Trust & Savings Bank in 1971 and served as Senior Vice President and Chief Economist for from 1981-88. He has also served as President of Chicago Economics an economic consulting firm and Director of Investment Research and Asset Management for Chicago Capital, an investment bank. He is currently President of Robert Genetski & Associates, Inc., an international economic and financial consulting firm. Dr. Genetski taught economics at Wheaton College, New York University and the University of Chicago’s Graduate School of Business. He has written three books dealing with economics and finance — Winning With Money, Taking the Voodoo Out of Economics, and A Nation of Millionaires. Genetski was recently named one of the top five speakers in the country for the category Economics/Finance. He has served on several community bank boards, on the board of Central DuPage Health Systems and currently serves as a director of DNP Select Income Fund. He has also served as a member of the audit committee for DNP Select Income Fund for the past decade. Dr. Genetski brings to the board

extensive knowledge and perspective on economic and financial issues affecting our business as well as community banking experience through prior bank board service. Dr. Genetski also contributes to the board through leadership of and membership on standing board committees.

 

Gerald F. Hartley has served as a director of the Company and chairman of the audit committee since June 2003. Mr. Hartley was named director of the Bank in February 2004. Mr. Hartley has over 40 years experience in financial, accounting, and auditing responsibilities. He served as a director of Republic Bank of Chicago and Republic Bancorp Co. from August 2000 through May 2003. Previously, he spent 35 years in the public accounting profession, primarily with Crowe Chizek and Company, LLP, dealing with community-based banks and bank holding companies. Mr. Hartley served as a member of the AICPA Committee on Bank Accounting and Auditing and as a director of the Illinois CPA Society. Mr. Hartley brings to the board extensive financial, accounting, and auditing expertise as well as in-depth knowledge of the banking business from his public accounting career and prior bank board service. Mr. Hartley also contributes substantially to the board through leadership of the audit committee and membership on other standing board committees.

 

Roberto R. Herencia assumed the roles of president and chief executive officer of the Company and the Bank, and was appointed to the board of directors of the Company on May 15, 2009. He was formerly president and director of Banco Popular North America based in Chicago and executive vice president of Popular, Inc., the parent company. Mr. Herencia spent 17 years at Banco Popular. In addition to serving as executive vice president of Popular, Inc. since 1997, and president and director of Banco Popular North America since December 2001, he served as chief operating officer, senior credit officer and reported to Popular’s CFO in charge of capital markets, M&A and rating agencies between 1991 and 2001. Prior to joining Popular, Mr. Herencia spent 10 years in a variety of senior positions at The First National Bank of Chicago, including serving as head of the emerging markets division and operations in Latin America. He was directly involved in the restructure, workout and debt for equity swaps of public and private sector credits in Latin America. Mr. Herencia brings valuable insight to the board due to his service as its president and chief executive officer. Mr. Herencia has also gained valuable banking and Chicago-market knowledge, including extensive credit experience, and leadership skills from his years of experience in the banking industry and civic involvement in Chicago.

 

E. V. Silveri served as chairman of the board of the Company from 1983 until December 31, 2007. Mr. Silveri was elected a director of the Bank in 1972 and served as chairman of the board of the Bank from 1975 until December 31, 2007. He was also a member of the board of directors of Midwest Bank of Hinsdale, and served as chairman of First Midwest Data Corp from 1991 to 2002. Since 1984, Mr. Silveri has been the president and also a director of Go-Tane Service Stations, Inc., a firm he co-founded in 1966. Mr. Silveri brings to the board entrepreneurial business knowledge and Chicago-market retailing experience through his operation of a chain of gas stations and related convenience stores. He also has intimate knowledge of the Company through his 38 years of service as a director of the Bank.

 

Monsignor Kenneth Velo has served as a director of the Company since June 2005. He has served as a director of the Bank since 2004. He has been a priest in the Archdiocese of Chicago since 1973 and named Monsignor in 1996. He has been the head of the Office of Catholic Collaboration of DePaul University serving in the capacity of senior executive since 2001. He has served as president of The Big Shoulders Fund since 2003. Monsignor Velo was president of Catholic Extension, a national organization funding more than 75 dioceses in the United States of America from 1994 to 2001. He is a member of the board of Children’s Memorial Hospital, the boards of two significant foundations and serves on the board of trustees of Fenwick College Preparatory School as well as other civic and community efforts. Monsignor Velo brings to the board extensive management experience of complex organizations with hundreds of employees and multi-million dollar budgets under his supervision as well as substantial civic and charitable involvement in metropolitan Chicago.

 

Director Nomination Procedures

 

The corporate governance and nominating committee will consider candidates for nomination as a director recommended by directors or stockholders. The committee will consider nominees recommended by our stockholders if the procedures set forth below are followed.

 

In evaluating candidates, the committee considers the attributes of the candidate (including skills, experience, diversity, age, and legal and regulatory requirements) and the needs of the board and will review all candidates in the same manner. Our by-laws require that a director own 3,000 shares of our common stock and that a director must acquire these shares within three years of being elected or appointed to the board. The board has the authority to waive this requirement and has waived it in the past. The by-laws also provide that commencing at the 2008 annual meeting of stockholders, a person who is older than age 75 will not be eligible to serve as a director of the Company unless this provision is waived with respect to a director pursuant to a majority vote of the directors.

 

Mr. Silveri stepped down as chairman of the board of directors of the Company on January 1, 2008, having served in that capacity since 1983. The board of directors waived the by-law retirement provision to allow Mr. Silveri to stand for election at the 2008, 2009 and 2010 annual meetings.

 

Under our stock and incentive plan, non-employee directors elected or appointed to the board for the first time (other than those non-employee directors who are elected or appointed to the board in conjunction with an acquisition) will receive an award of 3,000 shares of restricted stock which will vest as follows: 1,000 shares following the director’s election or appointment to the board and 1,000 shares on the two succeeding annual meetings following such election or appointment provided the individual is still serving as a director on such anniversary.

 

The committee reviews and shapes governance policies and identifies qualified individuals for nomination to the board. Nominees may be suggested by directors, members of management, stockholders, or, if applicable, by a third party engaged to recommend directors.

 

In identifying and recommending nominees for positions on the board of directors, the committee places primary emphasis on:

 

 

The board of directors believes that it is necessary for each of the Company’s directors to possess many qualities and skills. When searching for new candidates, the corporate governance and nominating committee considers the evolving needs of the board and searches for candidates that fill any current or anticipated future gap. The committee when considering director candidates assessed a candidate’s character, leadership abilities, business judgment, and occupational experience and perspective as well as independence, potential conflicts of interest, and commitment to the goal of maximizing stockholder value. The board of directors has not adopted a diversity policy. The board and the committee have considered issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The board and the committee believe that it is essential that the board members represent diverse viewpoints. In considering candidates for the board, the committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the board are also considered.

 

There are no other specific minimum qualifications that nominees must meet in order for the committee to recommend them to the full board. Each nominee will be evaluated based on his or her individual merits.

Members of the committee will discuss and evaluate potential candidates in detail and suggest individuals to explore in more depth. Once a candidate is identified whom the committee desires to seriously consider and move toward nomination, the candidate will be invited to meet with the entire committee. If the entire committee approves the candidate, the chairman of the committee, or his or her designee, will enter into a discussion with the nominee with the objective of obtaining the nominee’s permission to be submitted for election at the next annual meeting of stockholders or to be appointed to the board. If the candidate accepts the invitation, the candidate is recommended for approval to the entire board of directors.

 

Stockholder Nominations.   The committee will consider nominees recommended by our stockholders. A stockholder who wishes to recommend a nominee for the committee’s consideration may do so by submitting the name of the nominee in writing to the Chairman of the Corporate Governance and Nominating Committee, Midwest Banc Holdings, Inc., 501 West North Avenue, Melrose Park, IL 60160 prior to January 1st of each year, for consideration at the next annual meeting of stockholders. In submitting nominees, persons should be aware of and apply the guiding principles for director qualifications cited above. Persons submitting nominations may be asked to provide additional background information about a prospective candidate as determined by the committee. The committee is not obligated to nominate any such individual for election.

 

Director Independence

 

The board of directors (after receiving a recommendation from the corporate governance and nominating committee) determined that Messrs. Berger, Forrester, Hartley, Silveri, and Dr. Genetski and Monsignor Velo are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards. In addition, Messrs. DiPaolo, O’Hara, Rizza and Rosenquist, who served as directors during 2009, were also “independent directors”. A copy of our director independence standards is available at www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance.

 

When making the independence determinations, both the corporate governance and nominating committee and the board of directors reviewed the information relating to transactions certain directors had in the ordinary course of business with the Company and the Bank (see Transactions with Certain Related Persons found on page 17, for a discussion of these transactions). After considering this information, both the committee and the board concluded that these transactions would not interfere with the exercise of independent judgment of these directors in carrying out their responsibilities as directors of the Company.

 

Independent Director Meetings

 

Independent directors may meet in executive session, without management, at any time, and are regularly scheduled for such executive sessions four times a year.

 

Attendance at Board of Directors Meetings, Committee Meetings and Stockholder Meetings

 

The board of directors conducts its business through meetings of the board and through activities of its committees. The board of directors meets regularly and may schedule special meetings as needed. During fiscal year 2009, our board held fourteen meetings primarily related to general Company matters. Each of our directors attended at least 75% of the total number of the Company’s board meetings held and committee meetings on which such director served during fiscal year 2009.

 

The board encourages all board members to attend the annual meeting of stockholders. All of the board members attended the 2009 annual meeting of stockholders.

 

Communications with Directors

 

If you wish to communicate with the board of directors or any individual board member, you may send correspondence to Roberto Herencia, president and chief executive officer, Midwest Banc Holdings, Inc., 501 West North Avenue, Melrose Park, Illinois 60160. Mr. Herencia will submit your correspondence to the board member, all of the board members or the appropriate board committee, as applicable. Concerns relating to accounting,

internal controls, or auditing matters are to be immediately brought to the attention of the chairperson of the audit committee.

 

Related Party Transactions

 

The board of directors has adopted a policy concerning the approval of related party transactions — transactions between the Company and its subsidiaries and our related parties, our directors, officers or principal stockholders, and their respective family members and businesses they control (see Transactions with Certain Related Persons found on page 17, for a discussion of these transactions). Except as noted below, any related party transaction may be consummated or may continue only if:

 

 

All related party transactions where the amount involved is less than $100,000 may be approved by our chief executive officer and if so approved shall be presented for ratification to the committee or a majority of the independent directors.

 

All loans to a related party shall be approved by the board of directors of the Bank as required by Regulation O of the Board of Governors of the Federal Reserve System and by a majority of the independent directors. Any loan to a related party: (i) must be made in the ordinary course of business; (ii) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to us; and (iii) must not involve more than the normal risk of collectibility or present other unfavorable features.

 

All related party transactions approved by our chief executive officer must be submitted for ratification by the corporate governance and nominating committee or a majority of the independent directors. All other related party transactions (except loans approved as discussed above) shall be submitted for approval to the committee or a majority of the disinterested independent directors. After such approval, management must update the committee and the full board of directors as to any material change to those proposed transactions.

 

All related party transactions are to be disclosed in our applicable filings as required by the Securities Act of 1933 and the Securities Exchange Act of 1934, the Exchange Act, and related rules. Furthermore, all related party transactions shall be disclosed to the audit committee and to the full board of directors.

 

Code of Business Conduct and Ethics

 

We have adopted a Code of Business Conduct and Ethics which applies to all directors, officers, and employees of the Company, including the chief executive officer and the chief financial officer. There were no waivers during 2009. A copy of the Code is available at www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance. We will post any changes to the Code, as well as waivers of the Code for directors or executive officers, at the same location on our website.

 

Board Leadership Structure

 

The board believes that it is in the best interests of the Company’s stockholders to have one of the board’s independent directors serve as chairman of the board (rather than the company’s chief executive officer). Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the company and industry, while the chief executive officer brings company-specific experience and expertise. The board believes that separating the roles of chairman and chief executive officer promotes strategy development and execution, and facilitates information flow between management and the board, which are essential to effective governance. This structure has been particularly useful given the Company’s relatively new chief executive officer as the board has

considered significant changes in the Company’s strategic direction. The structure ensures a greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of the Board.

 

One of the key responsibilities of the board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The board believes that by separating the role of chairman and chief executive officer, together with the fact that six of the seven directors are independent directors, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

 

Risk Management

 

The board has an active role, as a whole and through its committees, in overseeing management of the Company’s risks. The board regularly reviews information regarding the Company’s credit, liquidity and operations, as well as the risks associated with each. The board has appointed committees that assist the board in overseeing certain aspects of the Company’s business. The Company’s compensation committee assists in board oversight of risks inherent in the Company’s executive compensation plans and arrangements. The audit committee assists board oversight of financial reporting, controls, disclosure, compliance, and fraud risks. The corporate governance and nominating committee assists board oversight of risks associated with director independence, potential conflicts of interest, management succession, insurance, business conduct and ethics, and insider trading. The asset liability committee assists board oversight of investment, asset/liability management, liquidity, and capital risks. The enterprise risk management committee assists the board in coordinating board oversight of risks, assessing the Company’s risk management philosophy and risk, management’s assessment of key systemic (global) risks facing the Company, and management’s structure and processes to identify, measure, monitor, and manage risks. In assisting board oversight of their respective business areas and related risks, each committee regularly informs the entire board of directors through committee reports at board meetings and submission of committee meeting minutes.

 

Section 16 of the Exchange Act requires the Company’s directors and certain officers, and certain other owners of our common stock, to periodically file notices of changes in beneficial ownership of such common stock with the Securities and Exchange Commission, the SEC. To the best of the Company’s knowledge, during 2009 all required filings were timely submitted.

 

Audit Committee

 

The audit committee is composed entirely of outside directors who are not officers of Midwest. The members of the committee are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards as currently in effect and the financial literacy requirements under applicable SEC and Nasdaq rules. The committee currently consists of Messrs. Hartley (chairman), Forrester and Dr. Genetski. The board of directors has determined that Mr. Hartley and Mr. Forrester each qualifies as an “audit committee financial expert” within the meaning of the SEC rules. A copy of the committee charter is available at our website www.midwestbanc.com — About Us — Corporate Information — Corporate Governance.

 

Generally, the committee has the responsibility for oversight of financial controls, as well as the Company’s accounting, regulatory and audit activities, and annually reviews the qualifications of Midwest’s independent registered public accounting firm. The audit committee is responsible for oversight of Company risks relating to accounting matters, financial reporting and legal and regulatory compliance. The independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s financial statements. During 2009, the committee met ten times.

Corporate Governance and Nominating Committee

 

The corporate governance and nominating committee currently consists of Messrs. Forrester (chairman), Berger ( ex officio ), Hartley and Silveri, and Monsignor Velo. Committee members are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards as currently in effect. The committee is responsible for oversight of risks relating to management and board succession planning, stockholder communications, director independence issues and related party transactions. To satisfy these oversight responsibilities, the committee receives regular reports from officers of the Company responsible for each of these risk areas on matters such as progress against succession planning programs and goals, trends in risk levels, the employee climate, risk management activities, and non-governmental and governmental policies or proposals that could affect Company operations. A copy of the committee charter is available at our website www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance. During 2009, the committee met eight times.

 

The committee has the following responsibilities:

 

 

Asset Liability Committee

 

The asset liability committee consists of Messrs. Forrester (chairman), Genetski, Silveri and Herencia. The members of the committee are the Company’s president and chief executive officer, and three independent directors

as determined by the board. The committee chairman must be an independent director. Each committee member is subject to annual reconfirmation and may be removed by the board at any time. A copy of the committee charter is available at our website www.midwestbanc.com — About Us — Corporate Information — Corporate Governance.

 

The committee assists in board oversight of the Company’s investment and asset/liability strategy. The committee is the main liaison between the board and management with respect to the overall investment portfolio and asset/liability strategies. The committee works with management in the formulation of the investment portfolio and asset/liability policies and recommends these policies to the full board, which retains final authority to adopt them. Committee oversight also involves reviewing the Company’s investment portfolio performance and consistency with its strategy and policies; reviewing and assessing the risk and returns associated with the Company’s investment portfolio in the context of the overall assets, liabilities and capital of the Company; and reviewing the capital needs and strategies of the Company. In carrying out its oversight responsibilities, the committee receives regular reports from Company officers on interest rates and the economy, the investment portfolio, interest rate risk, liquidity, funding and collateral, and capital as well as topical reports initiated by management, committee members, and regulators. The committee is also responsible for overseeing the use of bank owned life insurance by the Company. The committee met ten times in 2009.

 

Compensation Committee

 

The compensation committee consists of Monsignor Velo (chairman), and Messrs. Berger ( ex officio ), Genetski and Silveri. The members of the committee are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards as currently in effect. The compensation committee is responsible for risks relating to employment policies and the Company’s compensation and benefits systems. To assist it in satisfying these oversight responsibilities, the committee has retained its own compensation consultant and meets regularly with management to understand the financial, human resources and stockholder implications of compensation decisions being made. The committee chair also meets between formal committee meetings with management and the committee’s consultant. A copy of the committee charter is available at our website www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance. The committee met eleven times during 2009.

 

The fundamental responsibilities of the committee are to:

 

 

 

On December 5, 2008, Midwest issued $84.78 million of preferred stock to the U.S. Treasury under the U.S. Treasury Capital Purchase Program, or the CPP. In order to participate in the CPP, Midwest has to comply with certain executive compensation rules contained in the Emergency Economic Stabilization Act, EESA. The American Recovery and Reinvestment Act of 2009, ARRA, was signed by President Obama on February 17, 2009. This legislation includes provisions that further regulate the executive compensation of financial institutions participating in the CPP. The Treasury has adopted regulations to implement the EESA compensation rules as amended by ARRA. See Compensation Discussion and Analysis — Participation in Capital Purchase Program beginning on page 24 for a discussion of these rules.

 

Management plays a significant role in the compensation-setting process. The most significant aspects of management’s role are: evaluating employee performance; suggesting business performance targets and objectives; and recommending salary levels, cash incentives and restricted stock awards. Ms. Ceas, our senior vice president-human resources, and Mr. Fritz (during the first four months of 2009) and Mr. Herencia (since May of 2009) work with Monsignor Velo in establishing the agenda for committee meetings. Management also prepares meeting information for each committee meeting.

 

Mr. Herencia (and Mr. Fritz during the first four months of 2009) and Ms. Ceas participate in committee meetings at the committee’s request to provide: background information regarding our strategic objectives; Mr. Herencia’s evaluation (and Mr. Fritz’s during the first four months of 2009) of the performance of the senior executive officers; and compensation recommendations as to senior executive officers (other than himself). Mr. Herencia (and Mr. Fritz during the first four months of 2009) does not participate in those portions of the committee meetings where his compensation is reviewed and approved.

 

The committee charter grants the committee the sole and direct authority to hire and fire its advisors and compensation consultants and approve their compensation. These advisors report directly to the committee. We pay the committee’s advisors and consultants. The committee has, for several years, used the services of a compensation consultant to identify specific study groups of companies and to provide research regarding compensation programs and compensation levels among the companies in the study groups.

 

The committee engaged The Delves Group to serve as its consultant for fiscal 2009. The Delves Group has provided consulting services to the committee since 2005. The committee has determined that The Delves Group is independent because it has never done any work for Midwest other than advise the committee and has no prior relationship with management. The Delves Group reports directly to the committee but is authorized to communicate with Ms. Ceas to obtain information. The Delves Group will not do any work for Midwest except as authorized by the committee.

 

Compensation Risks

 

The compensation committee believes that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. In addition, the compensation committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks.

The compensation committee, with assistance of its independent compensation consultant, reviewed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and concluded:

 

 

Furthermore, as described in our Compensation Discussion and Analysis (beginning on page 20), compensation decisions include subjective considerations, which restrain the influence of formulae or objective factors on excessive risk taking.

 

Enterprise Risk Management Committee

 

The enterprise risk management committee consists of Messrs. Genetski (chairman), Berger ( ex officio ), Forrester and Hartley. A copy of the committee charter is available at our website www.midwestbanc.com — About Us — Corporate Information — Corporate Governance. The committee met eight times during 2009.

 

The committee has the responsibility for reviewing and discussing with management Midwest’s enterprise risk structure and the process established to identify, measure, monitor and manage risks including global, governmental and business risks. The committee reviews with management the guidelines and responsibilities for assessing and managing such risks, benchmarks for major financial risk exposures, management’s performance measured against policies and benchmarks, and Midwest’s capital allocation.

 

Some of our executive officers and directors are, and have been during the preceding year, clients of the Bank and some of our executive officers and directors are direct or indirect owners of 10% or more of the equity of entities which are, or have been in the past, clients of the Bank. As such clients, they have had transactions in the ordinary course of business of the Bank, including borrowings, all of which transactions are or were on substantially the same terms (including interest rates and collateral on loans) as those prevailing at the time for comparable transactions with nonaffiliated persons. At December 31, 2009, none of the Company’s directors, executive officers, and their business interests had loans outstanding, whose individual aggregate indebtedness to the Bank exceeded $120,000. All loans with such persons or entities were approved in conformity with the guidelines established by bank regulatory agencies. In addition, such loans were made in the ordinary course of business, were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to us, and, in the opinion of management, did not involve more than the normal risk of collectibility or present other unfavorable features.

 

During 2009, the Company paid $4,000 for subscription to an economic service provided by Dr. Robert J. Genetski.

 

The Company made payments totaling $1.4 million in 2008 to DiPaolo Company, a company controlled by Angelo DiPaolo (who resigned as a director of the Company in July of 2009), for construction services described below. The Company also made payments totaling $127,000 for the purchases of bank owned vehicles and services on bank owned vehicles performed by Joe Rizza Ford, a company controlled by Joseph Rizza, who resigned as a director of the Company in July of 2009 (which represented less than 1% of the consolidated gross revenues of these entities).

 

On December 29, 2005, the Bank entered into a lease for a branch office in Franklin Park, Illinois with Crossings Commercial, LLC, an entity controlled by Angelo DiPaolo. The lease is for fifteen years and provides for

annual rental payments of approximately $43,500 on average. However, if another tenant enters into a lease at this facility for a square foot rental less than what the Bank is paying, the annual rental for the Bank will be reduced to this amount.

 

In the first quarter of 2008, the board of directors (including all of the independent directors) approved an agreement with the DiPaolo Company pursuant to which the DiPaolo Company made repairs at one of the Bank’s branches. The total contract award is $1.5 million. The Company received three other bids for this project. Management, after reviewing all of the bids, concluded that the DiPaolo Company made the best bid for the work.

Compensation Committee Report

 

The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates such information by reference in such filing.

 

The compensation committee consists of Monsignor Velo (chairman) and Messrs. Genetski and Silveri. The members of the committee are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards as currently in effect. A copy of the committee charter is available at www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance.

 

The compensation committee has reviewed the Compensation Discussion and Analysis contained in this proxy statement with the management of Midwest, and based on the review and discussions, the compensation committee has recommended to the board of directors that the Compensation Discussion and Analysis be included in our annual report on form 10-K and its proxy statement.

 

On December 5, 2008, Midwest issued $84.78 million of preferred stock to the U.S. Treasury under the U.S. Treasury Capital Purchase Program, or the CPP. In order to participate in the CPP, Midwest has to comply with certain executive compensation rules contained in the Emergency Economic Stabilization Act, EESA. The American Recovery and Reinvestment Act of 2009, ARRA, was signed by President Obama on February 17, 2009. This legislation includes provisions that further regulate the executive compensation of financial institutions participating in the CPP. The Treasury has adopted regulations to implement the EESA compensation rules as amended by ARRA. See Compensation Discussion and Analysis — Participation in Capital Purchase Program beginning on page 24 for a discussion of these rules.

 

On March 8, 2010, Midwest exchanged all shares of the Series T Preferred Stock owned by the U.S. Treasury for the Series G Preferred Stock. Under the terms of the agreement with the Treasury, Midwest must continue to comply with the EESA compensation rules.

 

The compensation committee certifies that the committee has reviewed:

 

 

This report is submitted by the compensation committee.

 

Kenneth J. Velo (chairman)
Dr. Robert J. Genetski
E.V. Silveri

Compensation Committee Interlocks and Insider Participation

 

Robert Herencia, president and chief executive officer of the Company and the Bank, serves on the board of directors of the Company and the Bank. Each of the directors of the Company is also a director of the Bank.

 

Determinations regarding compensation of the employees of Midwest and the Bank are made by the compensation committee of the board of directors, who are all independent directors. Additionally, there were no compensation committee interlocks during 2009, which generally means that no executive officer of Midwest served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or member of our compensation committee.

Directors’ Compensation

 

The following table summarizes the compensation earned by or paid to non-employee directors in 2009.

 

 

 

 

 

Committee chairmen receive the following fees for serving as chairmen:

 

 

Executive Compensation

 

Compensation Discussion and Analysis

 

Our Compensation Discussion and Analysis addresses the following topics: the members and role of our compensation committee; our compensation-setting process; our compensation philosophy and policies regarding executive compensation; the components of our executive compensation program; and our compensation decisions for 2009 and for the first quarter of 2010.

 

Executive Summary

 

2008 and 2009 were the most challenging years that Midwest has ever faced. Due to the economic crisis in the U.S. and other factors, Midwest experienced a substantial loss and its stock price declined precipitously. Midwest’s financial performance for 2009 is reflected in the total compensation paid to executives. For example:

 

 

 

Committee Members and Independence

 

The compensation committee consists of Monsignor Velo (Chairman), Messrs. Berger ( ex officio ), Genetski and Silveri. The members of the committee are “independent directors” as such term is defined in Rule 4200(a)(15) of the Nasdaq listing standards currently in effect. A copy of the committee charter is available at our website www.midwestbanc.com  — About Us — Corporate Information — Corporate Governance.

 

Committee Meetings

 

The committee meets as often as necessary to perform its duties and responsibilities. It held eleven meetings during 2009 and has held three meetings so far during 2010. Monsignor Velo works with our chief executive officer and our senior vice president — human resources to establish the meeting agenda. The committee typically meets with these officers, outside counsel and, where appropriate, outside advisors. The committee also meets in executive session without management.

 

Our compensation planning process neither begins nor ends with any particular committee meeting. Compensation decisions are designed to promote our fundamental business objectives and strategy. Business and succession planning, evaluation of management performance, and consideration of the business environment are year-round processes.

 

The committee receives and reviews materials in advance of each meeting. These materials include information that management believes will be helpful to the committee as well as materials that the committee has specifically requested. Depending on the agenda for the particular meeting, these materials may include:

 

 

Philosophy and Policies

 

We believe that the skills, abilities and commitment of our senior executives are essential to our long-term success and competitiveness. The primary goal of our compensation program is to attract, retain and motivate talented individuals who can assist us in delivering high performance to our stockholders and customers. This philosophy is intended to align the interests of management with those of our stockholders.

A variety of compensation elements is used to attract, retain and motivate talented individuals who can assist us in delivering high performance to our stockholders and customers. These include:

 

 

The allocation of each component varies by executive and is set to balance appropriately for each executive at-risk pay and fixed compensation. We have developed a compensation philosophy of providing market competitive salaries and incentive awards that, when combined with base salaries, rewards performance that exceeds objectives with above-market total compensation, performance below objectives with below-market total compensation, and performance that meets objectives with at-market total compensation. We accomplish this through annual and long-term incentive awards and provide that the awards vary significantly with performance.

 

At the core of our compensation philosophy is our guiding belief that pay should be directly linked to performance. This philosophy has guided many compensation related decisions:

 

 

 

 

We also believe that total compensation and accountability should generally increase with position and responsibility. Consistent with this philosophy:

 

 

 

Program Design

 

We have developed a compensation program which is comprised of components typically offered to executives by financial institutions similar to us. The committee recognizes that attracting and retaining key executives is critical to our long term success. The committee has set certain guidelines regarding the compensation of our executive officers. Each executive officer is reviewed annually and that officer’s compensation is based on the committee’s assessment of that individual’s contribution to the Company.

 

Compensation Decisions Should Promote the Interests of Stockholders

 

We believe that compensation should focus management on achieving strong short-term (annual) performance in a manner that supports and ensures our long-term success and profitability. The cash incentive portion of our incentive program is designed to encourage executives to meet annual performance targets while the restricted stock award portion of the incentive program encourages the achievement of objectives on a one year performance cycle, with vesting in three years if the objectives are not met. We believe that restricted stock awards create long-term incentives that align the interest of management with the long-term interests of stockholders. No cash or equity incentive awards were paid for 2009 performance. At the present time, we do not anticipate that equity incentive awards will be offered for 2010.

 

Compensation Disclosures Should be Clear and Complete

 

We have decided that all aspects of executive compensation should be clearly and comprehensibly disclosed in plain English. We believe that compensation disclosures should provide all of the information necessary to permit stockholders to understand our compensation philosophy, our compensation-setting process and how much our executives are paid.

 

Management’s Role in the Compensation-Setting Process

 

Management plays a significant role in the compensation-setting process. The most significant aspects of management’s role are suggesting business performance targets and objectives; formulating individual performance objectives; evaluating employee performance; and recommending salary levels, cash incentives and restricted stock awards. The senior vice president — human resources and chief executive officer work with Monsignor Velo in establishing the agenda for committee meetings. Management also prepares meeting information for each committee meeting.

 

The chief executive officer and the senior vice president — human resources participate in committee meetings at the committee’s request to provide background information regarding our strategic objectives; the chief executive officer’s evaluation of the performance of the senior officers; and compensation recommendations as to the senior officers (other than himself). The chief executive officer does not participate in those portions of the committee meetings where his compensation is reviewed and approved.

 

Committee Advisors

 

The committee charter grants the committee the sole and direct authority to hire and terminate its advisors and compensation consultants and approve their compensation. These advisors report directly to the committee. Midwest pays the committee’s advisors and consultants. The committee uses the services of a compensation consultant to identify specific study groups of companies and to provide research regarding compensation programs, compensation levels and performance among the companies in the study groups (see discussion below at Benchmarking on page 27).

 

The committee engaged The Delves Group to serve as a consultant for 2009 and 2010. The Delves Group has provided consulting services to the committee since 2005. The committee has determined that The Delves Group is independent because it has not performed any other work for Midwest other than providing advice to the committee

and has no prior relationship with management. The Delves Group reports directly to the committee but is authorized to communicate with the senior vice president — human resources to obtain information. The Delves Group will not do any work for Midwest except as authorized by the committee. During 2009, The Delves Group did not provide any services to Midwest beyond the services provided to the committee.

 

Participation in Capital Purchase Program

 

On December 5, 2008, Midwest issued $84.78 million of preferred stock to the U.S. Treasury, the Series T Preferred Stock, under the U.S. Treasury Capital Purchase Program, or the CPP. In order to participate in the CPP, Midwest has to comply with certain executive compensation rules contained in the Emergency Economic Stabilization Act, EESA. The American Recovery and Reinvestment Act of 2009, ARRA, was signed by President Obama on February 17, 2009. This legislation includes provisions that further regulate the executive compensation of financial institutions participating in the CPP. The Treasury has adopted regulations to implement the EESA compensation rules as amended by ARRA.

 

On March 8, 2010, Midwest exchanged all shares of the Series T Preferred Stock owned by the U.S. Treasury for the Series G Preferred Stock. Under the terms of the agreement with the Treasury, Midwest must continue to comply with the EESA compensation rules.

 

The EESA compensation rules apply to the Company’s senior executive officers, SEOs, and certain other executives as discussed below. Midwest’s SEOs subject to the EESA compensation rules for 2010 are: Roberto R. Herencia, JoAnn Sannasardo Lilek, J.J. Fritz, Jonathan P. Gilfillan and Stephan L. Markovits.

 

Set forth below is a discussion of the EESA compensation rules.

 

Persons Subject to the Rules.   These rules apply to the senior executive officers, the SEOs, and certain most highly compensated employees of Midwest. SEOs are the principal executive officer, the PEO, the principal financial officer, the PFO, and the three most highly compensated executive officers (other than the PEO and the PFO). The determination of the three most highly compensated executive officers and the most highly compensated employees for a particular year is based on their annual compensation for the last completed fiscal year (as it is determined pursuant to Item 402(a) of Regulation S-K).

 

Compensation Committee Duties — Semi-annual Reviews.   The compensation committee must review at least every six months with senior risk officers the SEO compensation plans and all employee compensation plans and the risks these plans pose to Midwest. In this review, the committee must identify and limit:

 

 

Annual Narrative.   The compensation committee must annually prepare a narrative description of how it limited the features in:

 

 

Annual Certification.   The compensation committee must certify annually that the committee has reviewed:

 

 

Reporting of Narrative and Certification.   The Company must provide the narrative disclosure and the certification in its annual compensation committee report included in its annual meeting proxy statement and file a copy of the certification with the U.S. Treasury within 90 days of the end of its fiscal year.

 

Stockholder Non-Binding “Say on Pay.”   Midwest must allow its stockholders the opportunity to participate annually in a non-binding vote on senior executive compensation. The stockholder vote will not be construed as overruling a decision by the board of directors nor does it create or imply any additional fiduciary duty by the board. Furthermore, it does not restrict or limit the ability of stockholders to make other proposals related to executive compensation. See Advisory Vote on Compensation of Named Executive Officers beginning on page 52.

 

Compliance Certifications.   Midwest’s PEO and PFO must provide a written certification of compliance with the provisions of Section 111 of EESA, as amended by ARRA. The certification must be filed within 90 days of the end of any fiscal year. Midwest must include these certifications in its annual report on Form 10-K and must file them with the U.S. Treasury.

 

Limitation on a Midwest’s Compensation Tax Deduction.   Midwest is subject to the provisions of Section 162(m)(5) of the Internal Revenue Code of 1986, as amended; this provision limits the deduction for compensation paid to SEOs to $500,000 (including performance based compensation).

 

Clawback.   Midwest must recover any bonus, retention award or incentive compensation paid to (or accrued for) SEOs and the next 20 most highly compensated employees if the payments or accruals were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria, the Clawback. Midwest must exercise its Clawback rights unless it determines that it is unreasonable to do so (e.g., the costs of recovery exceed the amount involved).

 

Severance Prohibited.   Midwest may not make golden parachute payments (defined as any payment for “departure from a company for any reason, except for payments for services performed or benefits accrued”) to its SEOs or any of the next five most highly compensated employees. A golden parachute payment includes a payment for departure from Midwest for any reason, other than a payment for services performed or benefits accrued, including an amount due upon a change in control of Midwest.

 

Limits on Bonuses, Retention Awards and Incentive Compensation.   Midwest may not pay or accrue any bonus, retention award, or incentive compensation to or for Midwest’s SEOs unless the amounts are payable as long-term restricted stock, provided that the stock does not fully vest until the repayment of TARP assistance and has a value that is no greater than one-third of the total annual compensation.

 

Long-Term Restricted Stock.   The value of the long-term restricted stock can be no greater than 1 / 3 of the employee’s total annual compensation. For purposes of determining annual compensation, each equity-based compensation (including the long-term restricted stock grant ) will be included in this calculation in the year in which it is granted at its total fair market value on the grant date.

 

Except as described below, the long-term restricted stock cannot fully vest until the repayment of all financial assistance by Midwest.

 

Furthermore, an employee must provide services to Midwest for at least two years after the grant date of the long-term restricted stock (or stock unit) in order to vest in this stock (or stock unit). However, the award may vest prior to this two year period (but after the TARP funds have been repaid) due to the death, disability or a change in control.

Restricted stock may become transferable (or in the case of a restricted stock unit, payable) earlier. For each 25% of the TARP financial assistance which is repaid, 25% of the total long-term restricted stock may become transferable (or 25% of the restricted stock unit may be payable).

 

In the case of restricted stock (but not a restricted stock unit), the fair market value of the stock may be subject to inclusion in income for income tax purposes before the stock becomes transferable. As a consequence, if this occurs, the rule permits sales to the extent necessary to pay the applicable taxes.

 

Perquisites.   Midwest must disclose annually to the U.S. Treasury and the Federal Reserve any perquisites (as defined in Item 402(c)(2) of Regulation S-K) whose total value exceeds $25,000 provided to the SEOs and next 20 most highly compensated employees. The filing must include the amount and nature of the perquisite and a justification for offering the perquisite (including a justification for all perquisites offered to the individual). The filing must be made within 120 days of the end of the fiscal year. None of the SEOs or the next 20 most highly compensated employees received perquisites in 2009 where the total value of such perquisites exceeded $25,000 with the exception of Mr. Fritz; the value of his perquisites in 2009 was $25,450.

 

Tax Gross-Ups.   Midwest is prohibited from providing tax gross-ups or other reimbursements for the payment of taxes to any of the SEOs and next twenty most highly compensated employees relating to any form of compensation, including severance payments and perquisites.

 

Compensation Consultant.   Midwest must disclose annually to U.S. Treasury and the Federal Reserve whether Midwest, the board, or the compensation committee has engaged a compensation consultant. This disclosure must include all of the types of services the compensation consultant has provided during the past three years, including any “benchmarking” or comparisons employed to identify certain percentile levels of compensation (for example, other peer group companies used for benchmarking and a justification for using these companies, and the lowest percentile level of other companies’ employee compensation considered for compensation proposals). The filing must be made within 120 days of the end of the fiscal year.

 

Limits on Luxury Expenditures.   The board of directors of a Midwest must adopt an excessive or luxury expenditures policy, file this policy with Treasury and the Fed, and post the text of this policy on its Internet website. The policy must cover, among other things (i) entertainment or events; (ii) office and facility renovations; (iii) aviation or other transportation services; and (iv) other similar items, activities or events. The policy (1) must identify the types and categories of expenses prohibited or requiring prior approval; (2) include approval procedures for those expenses requiring prior approval; (3) mandate PEO and PFO certification of the prior approval of any expenditures requiring the prior approval of any SEO, other similar executive officers, or the board of directors; (4) mandate prompt internal reporting of any violation of this policy; and (5) require accountability for adherence to this policy.

 

This policy was adopted in August of 2009 and is posted on our website at www.midwestbanc.com About Us — Corporate Information — Corporate Governance. If a material amendment is made to the policy it must be provided to U.S. Treasury and Federal Reserve and it must be posted on the Company’s website (if it has one) within ninety days.

 

Compensation Committee Review

 

As required by the EESA compensation rules, the compensation committee has met with Midwest’s senior risk officers to identify any features of the Midwest’s incentive compensation plans that would encourage the SEOs to take unnecessary and excessive risks that could threaten the value of Midwest. The Company did not pay any incentives to its executives for 2009 performance and is not offering an incentive plan for 2010; therefore, the compensation committee concluded that there were no incentive compensation features that would encourage the SEOs to take unnecessary and excessive risks that could threaten the value of Midwest. The committee has also met with Midwest’s senior risk officers to review the compensation plan design features for all other employees as part of its assessment to eliminate any features of these plans that would encourage the manipulation of reported earnings of Midwest to enhance the compensation of any employee. The committee concluded that the features of these other employee compensation plans do not promote undue risk taking. The features of all employee compensation plan that were reviewed included the “mix” of salary and incentive compensation, the incentive

compensation performance measures, the relationship between the performance measures and the corresponding incentive payouts and the use of equity in incentive awards.

 

The committee concluded that in the absence of the management incentive plan, there are no incentive compensation features that would encourage executive officers to take unnecessary and excessive risks that could threaten Midwest’s value. The committee made all reasonable efforts to analyze and conclude that the same is true for all other employees compensation plans. The committee intends to undertake this review at least twice a year.

 

Annual Evaluation

 

As indicated above, the committee determined that no incentive compensation (whether in the form of cash, restricted stock or options) would be paid under the 2009 management incentive plan. In August 2009, Mr. Herencia took a voluntary 10% decrease in base salary, the SEOs took a voluntary 7% decrease in base salary and all other executive vice presidents took a 3% decrease in base salary. The committee also determined that the base salaries for the senior executive group would not be increased for 2010 and would remain at their reduced 2009 levels. All of these committee actions were subsequently approved by the board of directors.

 

Performance Objectives

 

In December of 2009, the committee prepared a series of performance goals for 2010 for the chief executive officer. At its January meeting, the committee approved these performance goals, which have been approved by the board of directors.

 

For other members of the executive officer group, the process begins with establishing individual and corporate performance objectives during the first quarter of each fiscal year. The committee engages in an active dialogue with the chief executive officer concerning strategic objectives and performance targets and reviews the appropriateness of the financial measures used in incentive plans and the degree of difficulty in achieving specific performance targets. The target measures and the amount of the awards are set on a yearly basis by the committee. At the current time, the Company has decided not to offer an incentive compensation program for 2010.

 

Benchmarking

 

We do not believe it is appropriate to establish compensation levels primarily based on benchmarking. However, it is our belief that information regarding pay practices at other companies is useful in two respects. First, we recognize that our compensation practices must be competitive in the marketplace especially in light of the competitive nature of the Chicago market. Second, this marketplace information is one of the many factors that we consider in assessing the reasonableness of compensation.

 

Accordingly, the committee reviews compensation levels for our named executive officers and other senior officers against compensation levels at the companies in a study group identified by our compensation consultant. The compensation consultant provided the committee with information regarding compensation programs and compensation levels at the median and 75th percentiles among companies in this study group described below.

 

To remain consistent from year to year, the committee currently intends to use this study group (same industry, high growth and geographic) as part of the annual marketplace study. The specific companies included in each group may change based on their size, relevance or other pertinent factors.

 

Decisions on compensation levels for members of the executive group are based on the committee’s assessment of each executive’s contribution to our success as well as median competitive market compensation levels determined by the consultant.

 

During 2009, The Delves Group was engaged to evaluate the effectiveness and structure of our executive compensation programs and practices. This included a market review of competitive compensation levels as well as a review of our annual incentive plan. The committee directed the consultant to design study groups of companies and to provide a research report regarding compensation levels and compensation programs at those companies. For the purpose of the peer group, the consultant and the committee agreed to use the following Chicago-based companies: Old Second Bancorp Inc., Taylor Capital Group, Inc., Amcore Financial Inc, First Midwest Bancorp Inc.,

MB Financial Inc., Private Bancorp Inc., Wintrust Financial Group. The consultant had also used several other compensation surveys as additional data sources in order to develop a market consensus. These surveys are: The Delves Group 2009 Bank Compensation Surveys, Crowe Horwath 2009 Financial Institutions Compensation Survey, American Bankers Association (ABA) 2009 Compensation and Benefits Survey, and Watson-Wyatt 2009 Financial Institutions Compensation Survey. The study included 50 key employees, including SEOs, other executive vice presidents, and selected senior vice presidents.

 

The consultant indicated in its report that our base salaries for the positions studied are generally aligned with or slightly below the 75th percentile market consensus; however there are note worthy exceptions to this general observation. Market consensus is defined as the average of the 75th percentile data points derived from the previously mentioned peer group and compensation surveys. Our compensation consultant has determined through their benchmarking studies that Chicago’s competitive median often represents the national 75th percentile. This is especially true of the compensation surveys that include data for many of the nation’s banks found outside of major metropolitan areas. Accordingly, we used national 75th percentile data from all compensation surveys to define Chicago’s competitive median. Mr. Herencia took a voluntary $50,000 pay cut in 2009. Mr. Herencia’s base salary is aligned with the median market consensus. The entire management team is not aligned with the median market consensus; therefore all 50 studied executives fall below the 75th percentile market consensus for actual cash bonuses paid during 2009. SEOs were not eligible for cash bonuses during 2009. The entire management team, including the SEOs, falls between the median and 75th percentile market consensus for total cash compensation. The entire management team falls below the median market consensus for value of long-term incentive grants. Finally, SEOs fall below the median market consensus for total direct compensation (cash compensation + LTI compensation).

 

Upon the completion of our board compensation analysis, the consultant indicated in its report that our director compensation package is below the median of its Chicago peer group.

 

Targeted Compensation Levels

 

Together with the performance objectives, targeted total compensation levels are established (i.e., threshold, target and maximum achievable compensation) for each of our senior officers. In making this determination, we are guided by the compensation philosophy described above. We also consider historical compensation levels, competitive pay practices at the companies in the study group, and the relative compensation levels among our senior officers. We may also consider industry conditions, corporate performance versus a peer group of companies and the overall effectiveness of our compensation program in achieving desired performance levels.

 

Performance Pay

 

As targeted total compensation levels are determined, we also determine the portion of total compensation that will be contingent, performance-based pay. Performance-based pay generally includes awards made under our incentive plan for achievement of specified performance objectives.

 

Under the terms of their employment agreements, once Midwest is no longer subject to the EESA compensation rules, Mr. Herencia is eligible to earn a market competitive annual cash bonus award and Mr. Fritz is eligible to earn a performance based cash award with a range from zero to 70% of his base salary. The other executive officer group members are eligible for performance based awards ranging from zero to 80% of their base salaries in cash. No bonuses were paid based upon our performance in 2009 and in accordance with executive compensation rules contained in the EESA compensation rules.

 

At the current time, the Company has decided not to offer an incentive compensation program for 2010.

 

Committee Effectiveness

 

The committee reviews, on an annual basis, its performance and the effectiveness of our compensation program in obtaining desired results.

Base Salary

 

It is our philosophy to target base salaries at the competitive median level for companies of similar size, performance and industry. In determining individual salaries, the committee considers — in addition to market median data and study group data — the scope of the executive’s responsibilities, individual contributions, experience in the position, our financial performance, historical compensation and the relative compensation levels among our executive officers. Salary ranges and individual salaries for executive officers are reviewed annually, and adjusted from time to time to take into account outstanding performance, promotions, and updated competitive information. While there are no specific performance weightings established, salary recommendations are based on performance criteria such as:

 

 

The committee also considers the minimum base salaries set for the chief executive officer of the Company and the senior executive vice president of the Bank in their employment agreements.

 

In August 2009, Mr. Herencia took a voluntary 10% decrease in base salary, the SEOs volunteered for a 7% decrease in base salary and all other executive vice presidents agreed to a 3% salary reduction.

 

There were no base salary increases in 2010 for the members of the executive officer group and their 2010 base salaries will continue at the 2009 reduced levels.

 

Historically, in setting base salaries, we considered:

 

 

The committee believes that increases in future total compensation should be more heavily weighted toward the cash and stock incentive components rather than salary to promote a pay for performance compensation framework.

 

Annual Management Incentive Compensation Program

 

In February 2009, the board of directors of Midwest approved the 2009 management incentive plan, or the 2009 Plan. The 2009 Plan provided employees an opportunity to earn annual cash incentive compensation for achieving specified, performance-based goals established for the fiscal year. The goals were position specific and included a mix of corporate, individual, and where relevant, business unit measures. The performance objectives allowed the employee to earn cash incentive compensation up to a specified percentage of his or her base salary. Two criteria had to

be met to earn an incentive payment. First, established corporate goals relating to earnings per share, core deposit and fee income growth had to be met for the 2009 Plan to fund, and second, the employee had to achieve his or her individual performance goals. Awards to executive officer group members would be made only if earnings exceeded budgeted earnings per share and other specific goals were achieved. If earnings exceed budgeted earnings per share and other specific goals were achieved, executive awards would be based upon the compensation committee’s review and discussion with Midwest’s chief executive officer concerning his evaluation of each executive’s performance during the year relative to specific goals developed at the beginning of the year. The primary corporate goals for the Plan in 2009 included earnings per share, core deposit growth and fee income growth.

 

Due to Midwest’s financial performance in 2009, the committee determined that no employees would receive incentive compensation for 2009. In accordance with the EESA compensation rules, ARRA, no named executive officers were eligible for cash incentive compensation awards for 2009. Furthermore, at the present time, Midwest does not plan on offering a management incentive compensation plan for 2010.

 

Equity Based Compensation

 

We believe that equity compensation is the most effective means of creating a long-term link between the compensation provided to officers and other key management personnel with gains realized by the stockholders. We have elected to use performance-accelerated restricted stock awards as our equity compensation vehicle.

 

In 2005 with the assistance of the consultant, the committee designed a performance-based, executive long-term incentive program. Under this program, the committee decided to award a mix of performance-accelerated options and performance-accelerated restricted stock. The intention was to encourage employees to create stockholder value through both the prospect of higher stock values anticipated from achieving performance goals and the vesting structure which encourages employees to achieve the performance goals as soon as possible. This program was also intended to both ensure a closer alignment between long-term compensation and performance, and reduce the dilutive impact to stockholders of service vested equity grants.

 

During 2006 and 2007, the timing of equity award vesting was determined by performance on two measures: earnings per share and return on assets. For 2006 and 2007 performance, the committee and the board elected to award only performance accelerated restricted stock. If the performance targets were met, the awards would vest in three years; if not, the awards would vest in five years. The performance targets for 2006 and 2007 were not met.

 

When initially setting incentive awards granted in January 2008 for performance in 2007, the committee determined that the incentive awards would be made in the form of cash (50%) and performance-accelerated restricted stock awards (50%). The committee also determined that the timing of vesting for these restricted stock awards would be based on one performance measure: earnings per share for 2008. The awards would vest in approximately three years if the performance target was met and in five years if it was not met. The 2008 performance measure was not met so these awards will vest in 2013.

 

When setting incentive awards to be granted in 2009 for performance in 2008, the committee determined that awards would be made in the form of cash and restricted stock awards. These restricted stock awards will vest in three years. The committee also determined that in order to more closely align the interest of employees with those of our stockholders, the committee approved a one-time grant of stock options to employees which will vest in three years.

 

The committee developed guidelines, set forth below, in awarding equity based compensation:

 

 

As part of its philosophy, the committee is opposed to equity plans that contain evergreen features (automatic yearly increases of shares covered by the plan) or permit repricing of previously granted awards.

 

For 2009, no incentive compensation awards (whether in the form of cash, restricted stock or options) were made to the members of the executive officer group or any employee. At the present time, the Company does not plan on offering an incentive compensation plan for 2010.

 

Variable Performance-Based Pay as a Percentage of Potential Compensation

 

We place great emphasis on variable performance-based compensation. However, because no incentive awards were made to executive officers for 2009, none of their 2009 compensation was variable-performance based.

 

Severance Arrangements

 

None of our named executive officers has any arrangement that provides for payment of severance payments except as may be provided in their employment or transitional employment agreements discussed below, see Employment Agreements beginning on page 37 and Transitional Employment Agreements found on page 41. We do offer a severance program in which all eligible employees participate that does not discriminate in favor of the senior officers, including the named executive officers. Severance arrangements are subject to the EESA executive compensation rules, beginning on page 24.

 

Employment Agreements and Transitional Employment Agreements

 

When reviewing compensation matters and developing compensation packages for executive officers during 2009, the committee takes into consideration that the Company and certain of its subsidiaries have entered into an employment agreements with Messrs. Herencia and Fritz and transitional employment agreements with each of the other named executive officers and certain other officers. For a discussion of these agreements, see Employment Agreements beginning on page 37 and Transitional Employment Agreements beginning on page 41. Under our employment agreements and our transitional employment agreements with the other named executive officers, the executive officers are entitled to receive certain payments upon a change-in-control. Our stock plan provides that upon a change in control (as defined in the plan) all unvested stock options and restricted stock awards shall immediately become vested. For a discussion of post-employment termination payments, see Potential Payments Upon Termination of Employment or Change-in-Control beginning on page 41. Payments arising out of the termination of certain executive officers are subject to the EESA executive compensation rules, beginning on page 24.

 

Supplemental Executive Retirement Plan and Retirement Benefits

 

The committee also considers that we have implemented a supplemental executive retirement plan, the SERP, for the purpose of providing retirement benefits to certain officers of the Company and its subsidiaries. The annual retirement benefit available under the SERP is calculated to range from 20% to 35% of final salary (as defined in the SERP agreement) at normal retirement age of 65 and is payable over 15 years. For a further discussion of the SERP, see Supplemental Executive Retirement Plan found on page 41. The amounts accrued for the benefit of the named executive officers for 2009 are set out in column (h) of the Summary Compensation Table found on pages 33-35.

 

401(k) Plan

 

We offer a 401(k) salary reduction plan to almost all of our employees under which participants may elect to make tax deferred contributions. We contribute 1% more than the employee’s contribution up to a maximum of 5% (e.g., if the employee contributes 3% of his salary, we contribute an amount equal to 4% of the employee’s salary). The employer matching contribution was discontinued in August 2009. The amounts contributed to the plan for the benefit of the named executive officers for 2009 through July 2009 are set out in column (i) of the Summary Compensation Table found on pages 33-35.

Employee Stock Purchase Plan

 

The board of directors, based upon a recommendation from the compensation committee, approved the Midwest Employee Stock Purchase Plan in 2008. The plan offers employees the opportunity to purchase shares of Company common stock at a discount to the market price. Employees were permitted to purchase the common stock through accumulated payroll deductions. The plan was suspended January 1, 2010.

 

Additional Benefits

 

Executive officers participate in other employee benefit plans generally available to all employees on the same terms as similarly situated employees. In addition, certain executive officers receive certain other additional perquisites that are described in the proxy statement in column (i) in the Summary Compensation Table found on pages 33-35. The committee requested that Midwest disclose all perquisites provided to the executives shown in the table even if the perquisites fall below the disclosure thresholds under SEC rules.

 

Compensation Policies

 

Set forth below is a discussion of other policies that impact our compensation decisions.

 

Internal Pay Equity.   We believe that internal equity is an important factor to be considered in establishing compensation for the officers. We have not established a policy regarding the ratio of total compensation of the chief executive officer to that of the other officers, but we do review compensation levels to ensure that appropriate equity exists. We intend to continue to review internal compensation equity and may adopt a formal policy in the future if we deem such a policy to be appropriate.

 

The Tax Deductibility of Compensation Should be Maximized Where Appropriate.   Midwest generally seeks to maximize the deductibility for tax purposes of all elements of compensation. Section 162(m) of the Internal Revenue Code, the Code, generally disallows a tax deduction to public corporations for non-qualifying compensation in excess of $1.0 million. We review compensation plans in light of applicable tax provisions, including Section 162(m) and Section 409A of the Code, and may revise compensation plans from time to time to maximize deductibility. However, we may approve compensation that does not qualify for deductibility when we deem it to be in the best interests of Midwest.

 

The committee will continue to evaluate the impact of Section 162(m) and Section 409A and to consider compensation policies and programs appropriate for an organization of the Company’s size and history in an effort to address the potential impact. The committee may determine that it is appropriate to continue to compensate an executive above the 162(m) limit for various reasons, including in circumstances of outstanding corporate or executive achievement.

 

As a result of our participation in CPP, we agreed to be subject to amendments to Section 162(m) which limit the deductibility of all compensation, including performance based compensation, to $500,000 per executive with respect to any taxable year during which the Treasury retains its investment in Midwest. EESA compensation rules provide for application of the $500,000 limitation on a pro rata basis with respect to calendar years during which the Treasury held its investment for less than the full year.

 

When our board of directors determined to participate in CPP, it was aware of, factored into its analysis and agreed to, the potential increased after-tax cost of our executive compensation program that would arise because of the $500,000 deduction limitation. As a result, while the committee will remain mindful of the deduction limitation, it has concluded that the $500,000 deduction limitation will not be a significant factor in its decision-making with respect to the compensation of our executive officers.

 

Financial Restatement.   It is the board of directors’ policy that the compensation committee will, to the extent permitted by governing law, have the sole and absolute authority to make retroactive adjustments to any cash or equity based incentive compensation paid to executive officers and certain other officers where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. Where applicable, the Company will seek to recover any amount determined to have been inappropriately received by the individual executive.

In addition, under the CPP we must condition the payment of bonus and incentive compensation paid to the senior executive officers based on financial statements or financial performance to repayment if such financial statements or performance figures later prove to be materially inaccurate. Under the EESA compensation rules, this restriction applies to the SEOs and the next twenty highest paid employees.

 

Timing of Stock Option Grants and Restricted Stock Awards.   Midwest has adopted a policy on stock option grants and restricted stock awards that includes the following provisions relating to the timing of the award:

 

 

No awards of stock options or restricted stock were made in 2009 under the 2009 incentive plan. Inducement grants to new employees were made in 2009.

 

Summary Compensation Table

 

The following table discloses information concerning the compensation of the named executive officers during the years ending December 31, 2009, 2008 and 2007.

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards

 

During 2009, the Company did not make any non-stock grants of incentive plan awards, stock based incentive plan awards and awards of options, restricted stock and similar instruments under plans that were performance based.

 

Outstanding Equity Awards At Fiscal Year-End

 

The following table summarizes for each named executive officer the information regarding outstanding stock and option awards at December 31, 2009.

 

 

 

 

 

Option Exercises and Stock Vested in Last Fiscal Year

 

The following table summarizes for each named executive officer the number of shares acquired and amounts received upon exercise of options and vesting of restricted stock for the year ended December 31, 2009.

 

 

 

 

Pension Benefits Table

 

The following table sets forth for each named executive officer the specified years of credited service and the estimated present value of accumulated benefits under our supplemental executive retirement plan. The benefits information regarding the supplemental executive retirement plans can be found under the heading Supplemental Executive Retirement Plan on page 41.