Document:

exv10w4

 

Exhibit 10.4

MERCANTILE BANCORP, INC.

Quincy, Illinois

COMPANY AND BANK

EXECUTIVE and SENIOR OFFICER

INCENTIVE COMPENSATION PLAN

EXECUTIVE and SENIOR OFFICER INCENTIVE COMPENSATION PLAN

BASIC PLAN

	 	1.	 	PURPOSE
	 
	 	 	 	The purpose of the Executive and Senior Management Incentive Compensation Plan (the Plan) is
to maximize the achievement of Mercantile Bancorp, Inc. (the Company) and its affiliate
bank’s objectives by providing incentives and awards to those senior-level executives and
officers who attain and sustain consistently high levels of performance which exceed normal
expectations and which contribute to the success and profitability of the bank or the
Company. The Plan is designed to support the key goals and objectives of each bank and the
Company.
	 
	 	2.	 	GENERAL DESCRIPTION
	 
	 	 	 	Incentive awards can be based on individual and/or organization-wide contributions to
performance as measured by critical operating ratios, including selected financial ratios,
percentage improvements and overall profitability. At the same time, the Plan establishes
annual targets which will help the bank and Company achieve its strategic goals, as well as
provide a performance review and measurement system.
	 
	 	 	 	The incentive formulas are constructed to provide awards consistent with the increase in
profits to the banks and Company. The incentive formulas are designed to provide a level of
performance award that is competitive with comparable levels of performance in other
institutions, to assist the banks and Company in retaining and motivating key executives,
and to provide incentive toward the bank’s and Company continued growth and profitability.

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	 	 	 	An earned incentive bonus is to be supplemental compensation in the form of cash paid on an
annual basis. The Plan is established in addition to regular salary and other benefits
programs. The Plan presumes an equitable base compensation system and a competitive
benefits program.
	 
	 	3.	 	ADMINISTRATION

The Board of Directors of the Company has the responsibility to interpret, administer, and amend
the Plan.

	 	 	 	Matters before the Board shall be decided based upon the vote of a majority of the entire
Board. Company officers who are members of the Board shall not be entitled to vote on
matters relating to the eligibility for and/or determination of their own incentive
compensation award.
	 
	 	 	 	Prior to the beginning of each fiscal year, the Compensation Committee shall review and
revise, if deemed advisable, the guidelines for implementing the Plan for the coming fiscal
year.
	 
	 	 	 	Computation of incentive awards will be performed by executive and or senior management at
the Company level and reviewed by the Compensation Committee.
	 
	 	 	 	The Board may deem to exclude extraordinary occurrences, which could impact the incentive
awards, either positively or negatively, but are, by their nature, outside the significant
influence of Plan participants.
	 
	 	 	 	The actions of the Board as to the interpretation, construction, and administration of the
Plan shall be final and binding for all parties, including the Company and its employees.
	 
	 	4.	 	PARTICIPANTS
	 
	 	 	 	Eligibility for participation in the Plan shall be limited to those individuals approved by
the CEO of the Company who, in unison with the judgment of the Compensation Committee and
the Board of Directors agree, are responsible for directing functions in each bank or the
Company that have a significant bearing on the growth and profitability of the Company.
	 
	 	 	 	Participants in this Plan are not eligible for and will not participate in the Company
“Performance Compensation Plan”.
	 
	 	 	 	Prior to the beginning of each Plan year, participants may be added or deleted at the
discretion of the CEO.

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	 	5.	 	DEFINITIONS

For the purpose of determining the amount of the incentive compensation awards under the
guidelines, the following definitions shall apply:

	 	•	 	Key Performance Factors – Those key operating ratios, plus other pertinent
measures of the Company or individual bank performance, on which the participants will
be evaluated. Factors are to be disclosed explicit to Company or bank. The exact
factors and number of factors may vary per individual. Factors include but are not
limited to:

	 	–	 	Return on Assets – After-tax net income adjusted for
extraordinary items divided by average assets.
	 
	 	–	 	Return on Equity – After-tax net income adjusted for
extraordinary items divided by average equity.
	 
	 	–	 	Book Value Per Share – The improvement of BVPS on an average
weighted share basis. ($ or %)
	 
	 	–	 	Market Price Multiple of Book Value per Share — The improvement
of MPMBVPS on a per share basis.
	 
	 	–	 	Earnings Per Share – The improvement of EPS on an average
weighted share basis. ($ or %)
	 
	 	–	 	Net Income After Tax — The after-tax income increases or
decreases in the amount as compared with the previous year. ($ or %)
	 
	 	–	 	Net Interest Margin Ratio – Interest income minus interest
expense divided by average earning assets.
	 
	 	–	 	Asset Growth – The average increases or decreases in the amount
of assets as compared with the previous year. ($ or %)
	 
	 	–	 	Loan Growth – The average percentage increases or decreases in
the amount of identified loans as compared with the previous year. ($ or %)
	 
	 	–	 	Deposit Growth – The average increases or decreases in the
amount of identified deposits as compared with the previous year. ($ or %)
	 
	 	–	 	Non-interest Income – The average percentage increases or
decreases in the amount of identified non-interest income as compared with the
previous year. ($ or %)
	 
	 	–	 	Non-interest Income Ratio – The dollar amount of non-interest
income adjusted for extraordinary items divided by average assets.

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	 	–	 	Overhead Expense Ratio – The dollar amount of total
overhead expenses divided by average assets.
	 
	 	–	 	Earning Assets Ratio – The average dollar amount of total
earning assets divided by the average dollar amount of total assets.
	 
	 	–	 	Loan to Deposit Ratio – The average dollar amount of total
loans (less non-accrual) divided by the average dollar amount of total deposits.
	 
	 	–	 	Net Charge-Off Ratio – Net charged-off divided by average
total loans outstanding.
	 
	 	–	 	Specific Objectives – Measurable specific goals and objectives,
which may be established for certain participants.

Participants are encouraged to suggest Key Performance Factors, and what is listed will not
limit what is considered or agreed to.

	 	•	 	Threshold Performance Trigger –The minimum overall performance level for a
single key performance ratio identified for each individual’s core responsibility link
to individual bank profitability or overall Company performance, which can vary per
individual, bank and position.
	 
	 	•	 	Key Performance Factors – The minimum or maximum performance level for each
other factor (other than Trigger) identified for each individual’s core responsibility
area to an individual bank or overall Company performance, which can vary per
individual, bank and position, below or above which no award will be given.
	 
	 	•	 	Incentive Factor Weighting – A percentage for each of the Threshold Trigger
and Key Performance Factors for each participating position, which is used to modify
the basic incentive percentage to reflect the relative importance of the factor to that
position, and to the expectations directed to the participant. The total of the
weightings must equal 100%. The weightings per factor can vary per individual, bank
and position.
	 
	 	•	 	Percentage of the Base Award – A percentage of the base salary received in
the bonus formula if the Threshold Trigger is met, which can vary per individual, bank
and position.
	 
	 	•	 	Discretionary/Individual Performance Adjustment – A multiplier, which allows
the Compensation Committee some subjective discretion in the determination of, the
final incentive award for each participant.

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	 	•	 	Extraordinary Occurrences – Those events which, in the opinion of the Board
of Directors, are outside the significant influence of Plan participants and would, by
their inclusion, cause a significant unintended effect, positive or negative, on the
Company’s operating and financial performance results.

	 	6.	 	INCENTIVE COMPUTATION – GENERAL PROCEDURES

The general formula for converting overall Company results into individual incentive awards is
as follows:

	 	•	 	Incentive dollars for a participant for the Plan year are calculated by:

	 	–	 	The base annual salary of the participant,
	 
	 	–	 	Times the “Percentage of the Base Award,”
	 
	 	–	 	Times the “Individual Performance Adjustment.” (Discretionary)
	 
	 	–	 	Equals the Total Possible Incentive Award,
	 
	 	–	 	Neutral effect or Minus (-) the sum of the measures on each Key
Performance Factor and its weighting applicable to the participant’s Plan for that
year,
	 
	 	–	 	Equals the Total Actual Payout

	 	 	 	No incentive awards will be granted for a fiscal year, regardless of performance on
individual Key Performance Factors, if the individual’s Threshold Performance Trigger is not
met for that fiscal year.
	 
	 	 	 	At the discretion of the Compensation Committee of the Company, the calculation of the
incentive compensation award may also include a discretionary incentive award adjustment
(noted above as the “Individual Performance Adjustment”).
	 
	 	7.	 	PAYMENT OF INDIVIDUAL INCENTIVE COMPENSATION AWARDS
	 
	 	 	 	When the Company’s year-end financial results are known, participants will receive the
incentive payment determined by evaluating their performance for the year using the formula
established for their Plan. An award payout, if earned, would be made following the Plan
year-end when final audited numbers are finalized and available. Applicable withholding of
taxes will be deducted from each payment.

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	 	8.	 	PARTIAL PAYMENTS: TERMINATION OF EMPLOYMENT/NEW HIRES

In the event of termination of employment through retirement or death, the employee shall be
considered to have earned one-twelfth of the annual incentive compensation award of a particular
year for each full month of employment in the fiscal year of his/her retirement or death.

	 	 	 	If a participant dies, any unpaid incentive awards shall be paid to the estate, or
designated beneficiary, in one lump sum.
	 
	 	 	 	Participants may not be added to the Plan after September 1 of the Plan year. If an
individual becomes a new participant prior to September 1 during the Plan year, the
incentive compensation award will be earned on the basis of one-twelfth of the annual
incentive compensation for each full month of participation.
	 
	 	 	 	In all other cases of termination, the employee forfeits any unpaid awards.
	 
	 	9.	 	INCENTIVE COMPENSATION GUIDELINES
	 
	 	 	 	As of the beginning of each fiscal year, the Board shall review and revise, if deemed
advisable, the guidelines of the Plan for the year then beginning. The guidelines shall
include the following:

	 	a.	 	Identification of employees selected under Paragraph 4 for participation in the
Plan.
	 
	 	b.	 	Percentage of base award, key performance factors and weightings for
determining the amount of the incentive compensation awards for the fiscal year then
beginning.
	 
	 	c.	 	Measure barometers are to be standardized and rely mainly on UBPR reports,
Banker’s Dashboard, and audit work of the Company’s external audit firm.
	 
	 	d.	 	Other administrative and procedural rules that the Board considers appropriate.

	 	 	 	After approval by the Board of Directors, Company management shall, as soon as practical,
inform each of the participants under the Plan of the guidelines for the fiscal year then
beginning.
	 
	 	10.	 	PERFORMANCE PROGRESS REPORTING
	 
	 	 	 	The Company’s President, or his designee, will be responsible for a quarterly reporting to
the Board of Directors of Plan performance during the course of the year. This data is to
be made available to the Board within 30 days of its date of availability.

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	 	11.	 	AMENDMENT OR TERMINATION OF PLAN
	 
	 	 	 	The Board of Directors may modify, amend, or terminate this Plan at any time effective at
the end of a fiscal year. The modification, amendment, or termination of the Plan shall in
no way affect a participant’s right to unpaid incentive compensation awards for the year
prior to termination or modification.

This Plan was adopted April 17, 2007 and is effective January 1, 2007.

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Example payout calculation:

Assumptions

Individual bank structure

$75,000 base salary

Percentage of Base Award Level – 15%

	 	 	 	 	 	 	 	 	 
	Factors	 	Targets	 	Weightings
	Trigger
	 	 	 	 	 	 	 	 
	Return on Equity
	 	 	13.0	%	 	 	20	%

Key Performance Factors

	 	 	 	 	 	 	 	 	 
	Net Interest Margin Ratio
	 	 	3.25	%	 	 	25	%
	Loan Growth Percentage
	 	 	10.0	%	 	 	25	%
	Net Charge-Off Ratio
	 	 	2.0	%	 	 	20	%
	Non-Interest Income Ratio
	 	 	.90	%	 	 	10	%
	Specific Objective
	 	None	 	 	 	 

Actual target performance:

	 	 	 	 	 	 	 	 	 
	1. Return on Equity
	 	 	13.2	%	 	(trigger met)
	2. Net Interest Margin Ratio
	 	 	3.21	%	 	(KPF not met)*
	3. Loan Growth Percentage
	 	 	11.3	%	 	(KPF met)
	4. Net Charge-Off Ratio
	 	 	1.9	%	 	(KPF met)
	5. Non-Interest Income Ratio
	 	 	.88	%	 	(KPF not met)*

Bonus calculation:

	 	 	 	 	 	 	 	 	 
	Base Salary
	 	$	75,000	 	 	 	 	 
	15% of Base Award
	 	 	11,250	 	 	 	 	 
	Individual Adjustment
	 	 	0	 	 	(Discretionary)
	 
	 	 	 	 	 	 	 
	Total Award Possible
	 	$	11,250	 	 	 	 	 
	Minus # 2 KPF
	 	 	- 2,813	 	 	(11,250 x 25% weighting)
	Minus # 5 KPF
	 	 	- 1,125	 	 	(11,250 x 10% weighting)
	 
	 	 	 	 	 	 	 
	Total actual payout
	 	$	7,312	 	 	 	 	 

In this example, if the Trigger factor of ROE would have been below the target established, there
would - 0 - payout to the individual.

38exv4w1

 

Exhibit 4.1

FIRST AMENDMENT TO CREDIT AGREEMENT

     THIS FIRST AMENDMENT, dated as of April 13, 2007, amends and modifies a certain Credit
Agreement, dated as of September 1, 2006 (the “Credit Agreement”), between OTTER TAIL CORPORATION,
dba OTTER TAIL POWER COMPANY, a Minnesota corporation (the “Borrower”) and U.S. BANK NATIONAL
ASSOCIATION (the “Bank”). Terms not otherwise expressly defined herein shall have the meanings set
forth in the Credit Agreement.

     FOR VALUE RECEIVED, the Borrower and the Bank agree that the Credit Agreement is amended as
follows.

ARTICLE I — AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Commitment. The definition of “Commitment” in Section 1.1 is amended to read as
follows:

     ”‘Commitment’ means the maximum unpaid principal amount of the Loans which may
from time to time be outstanding hereunder, being initially $25,000,000, increased to
$50,000,000 on and after effectiveness of the First Amendment hereof, as the same may be
reduced from time to time pursuant to Section 4.3, and, as the context may require,
the agreement of the Bank to make Loans to the Borrower subject to the terms and conditions
of this Agreement up to its Commitment.”

     1.2 Note. A promissory note in the amount of the Commitment, as amended hereby,
shall be executed and delivered by the Borrower and shall be and constitute the “Note” for purposes
of all references thereto in the Credit Agreement.

     1.3 Construction. All references in the Credit Agreement to “this Agreement”,
“herein” and similar references shall be deemed to refer to the Credit Agreement as amended by this
Amendment.

ARTICLE II — REPRESENTATIONS AND WARRANTIES

     To induce the Bank to enter into this Amendment and to make and maintain the Loans under the
Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Bank that it
is duly authorized to execute and deliver this Amendment, and to perform its obligations under the
Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms.

ARTICLE III — CONDITIONS PRECEDENT

     This Amendment shall become effective on the date first set forth above, provided, however,
that the effectiveness of this Amendment is subject to the satisfaction of each of the following
conditions precedent:

 

 

     3.1 Warranties. Before and after giving effect to this Amendment, the representations
and warranties in Article VI of the Credit Agreement shall be true and correct as though
made on the date hereof, except for changes that are permitted by the terms of the Credit
Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that
the Borrower has complied with the foregoing condition.

     3.2 Defaults. Before and after giving effect to this Amendment, no Default and no
Event of Default shall have occurred and be continuing under the Credit Agreement. The execution
by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied
with the foregoing condition.

     3.3 Documents and Fees. The Borrower shall have executed and delivered this Amendment
and the Note in the form provided by the Bank, and shall have paid the Bank a non-refundable fee of
$10,000.

ARTICLE IV — GENERAL

     4.1 Expenses. The Borrower agrees to reimburse the Bank upon demand for all
reasonable expenses (including reasonable attorneys’ fees and legal expenses) incurred by this Bank
in the preparation, negotiation and execution of this Amendment and any other document required to
be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and
save the Bank harmless from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Amendment or the issuance of the Note hereunder, which
obligations of the Borrower shall survive any termination of the Credit Agreement.

     4.2 Counterparts. This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed an original but all such counterparts shall constitute
but one and the same instrument.

     4.3 Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provisions in any other jurisdiction.

     4.4 Law; Consent to Jurisdiction; Waiver of Jury Trial. This Amendment shall be a
contract made under the laws of the State of Minnesota, which laws shall govern all the rights and
duties hereunder. This Amendment shall be subject to the Consent to Jurisdiction and Waiver of
Jury Trial provisions of the Credit Agreement.

     4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the benefit of the
Borrower and the Bank and the successors and assigns of the Bank. Except as hereby amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all
respects.

2

 

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at
Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first
written above.

	 	 	 	 	 
	 	U.S. BANK NATIONAL ASSOCIATION

 	 
	 	By:  	/s/ Delton D. Steele
 	 
	 	 	Delton D. Steele 	 
	 	 	Title:  	Vice President 	 
	 

	 	 	 	 	 
	 	OTTER TAIL CORPORATION, dba

OTTER TAIL POWER COMPANY

 	 
	 	By:  	/s/ Kevin G. Moug
 	 
	 	 	Kevin G. Moug 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

3

 

CERTIFICATE

     I, George Koeck, do hereby certify that I am the duly elected Corporate Secretary of OTTER
TAIL CORPORATION, a corporation organized and existing under the laws of the State of Minnesota. I
certify that at a meeting of the Board of Directors thereof, convened and held in accordance with
the law, and the by-laws of said Corporation, the Board of Directors authorized the officers of the
Corporation to do the following:

     1. To enter into and execute on behalf of the Corporation a First Amendment to the September
1, 2006 Credit Agreement (“Credit Agreement”) on terms consistent with that Credit Agreement, but
increasing the credit limit to $50,000,000, and deliver to U.S. Bank National Association (the
“Bank”) the First Amendment between the Corporation and the Bank, and any promissory note or other
instrument, document or agreement required by the Bank in connection with such First Amendment.

     2. To borrow from time to time under the Credit Agreement as amended by the First Amendment,
to agree to rates of interest and other terms of loans, to repay all amounts so borrowed.

     3. To take such action from time to time on behalf of the Corporation as may be necessary to
carry out and perform the obligations of the Corporation under the Credit Agreement as amended by
the First Amendment.

     I FURTHER CERTIFY THAT the following persons are the officers so authorized by the Board of
Directors and they are presently acting in the capacities set before their respective names:

	 	 	 	 	 
	TITLE	 	NAME	 	SIGNATURE
	 	 	 	 	 
	President & CEO
	 	John Erickson
	 	/s/ John Erickson
	 
	 	 	 	 
	 	 	 	 	 
	Executive VP & COO
	 	Lauris N. Molbert
	 	/s/ Lauris N. Molbert
	 
	 	 	 	 
	 	 	 	 	 
	CFO & Treasurer
	 	Kevin G. Moug
	 	/s/ Kevin G. Moug
	 
	 	 	 	 
	 	 	 	 	 
	General Counsel & Corporate Secretary
	 	George Koeck
	 	/s/ George Koeck
	 
	 	 	 	 

     IN WITNESS WHEREOF, I have subscribed my name as Corporate Secretary of this Corporation as of
this 13th day of April, 2007.

	 	 	 	 	 
	 	 	 
	 	     /s/ George Koeck
 	 
	 	George Koeck, Corporate Secretary 	 
	 	OTTER TAIL CORPORATION, dba
OTTER TAIL POWER COMPANY 	 
	 

4

 

PROMISSORY NOTE

					
	$50,000,000
	 	
	 	Minneapolis, Minnesota: April 13, 2007

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, dba OTTER TAIL POWER COMPANY, a
Minnesota corporation (the “Borrower”), promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the “Bank”), on the Termination Date, or other due date or dates determined under the
Credit Agreement hereinafter referred to, the principal sum of FIFTY MILLION DOLLARS ($50,000,000),
or if less, the then aggregate unpaid principal amount of the Loans (as such terms are defined in
the Credit Agreement) as may be borrowed by the Borrower from the Bank under the Credit Agreement.
All Loans and all payments of principal shall be recorded by the holder in its records which
records shall be conclusive evidence of the subject matter thereof, absent manifest error.

     The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid
principal amount hereof from time to time outstanding from the date hereof until paid in full at
the rates per annum which shall be determined in accordance with the provisions of the Credit
Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement.

     All payments of principal and interest under this Note shall be made in lawful money of the
United States of America in immediately available funds at the office of the Bank, at 800 Nicollet
Mall, Minneapolis, Minnesota 55402, or at such other place as may be designated by the Bank to the
Borrower in writing.

     This Note is the Note referred to in, and evidences indebtedness incurred under, a Credit
Agreement dated as of September 1, 2006 (herein, as it may be amended, modified or supplemented
from time to time, called the “Credit Agreement”) between the Borrower and the Bank, to which
Credit Agreement reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and repayments of
principal of such indebtedness and under which such indebtedness may be declared to be immediately
due and payable.

     All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment,
demand, protest and notice of dishonor in connection with this Note.

     This Note replaces and supersedes, and may evidence indebtedness formerly evidenced by, a
promissory note of the Borrower dated as of September 1, 2006 in the principal amount of
$25,000,000. Delivery and acceptance of this Note shall not evidence repayment of such
indebtedness.

     This Note is made under and governed by the internal laws of the State of Minnesota.

	 	 	 	 	 
	 	OTTER TAIL CORPORATION, dba

OTTER TAIL POWER COMPANY

 	 
	 	By:  	/s/ Kevin G. Moug
 	 
	 	 	Kevin G. Moug 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

5

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