OLD SECOND BANCORP, INC.
37 South River Street, Aurora, Illinois 60507
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 2019AUGUST 18, 2020
TO THEOUR STOCKHOLDERS:
The annual meeting of stockholders of Old Second Bancorp, Inc., will be held on Tuesday, May 21, 2019,August 18, 2020, at 9:00 a.m., central time,time. As noted below, due to health and safety concerns related to the coronavirus (COVID-19), this year’s annual meeting will be a completely virtual meeting of stockholders. You can attend the meeting via the Internet at Waubonsee Community College, 18 South River Street, Aurora, Illinois, 60506www.virtualshareholdermeeting.com/OSBC2020 by using the 16-digit control number which appears on your proxy card and the instructions included in these proxy materials. The meeting will be held for the following purposes:
1. | to elect the |
2. | to conduct an advisory, non-binding vote to approve the compensation of our named executive officers; |
3. |
|
|
|
|
|
|
|
| to transact such other business as may properly be brought before the meeting or any postponements or adjournments of the meeting. |
The board of directors is not aware of any other business to come before the meeting. Stockholders of record at the close of business on March 29, 2019June 26, 2020 are the stockholders entitled to vote at the meeting and any and all adjournments or postponements of the meeting.
Our board of directors and management is sensitive to the evolving developments associated with COVID-19, including current Illinois government health directives to use social distancing and to limit the size of gatherings. The health and well-being of our employees, stockholders, directors, officers and other stakeholders are paramount. Your virtual attendance at the meeting affords you the same rights and opportunities to participate as you would have at an in-person annual meeting. We intend to resume in-person meetings of our stockholders under normal circumstances.
Whether or not you plan to virtually attend the annual meeting, we urge you to vote now to make sure there will be a quorum for the meeting. Voting by the Internet is fast and convenient, and your vote is immediately confirmed and tabulated. You may also vote by completing, signing, dating and returning the accompanying proxy card in the enclosed return envelope furnished for that purpose. If you attend the meeting virtually over the Internet, you may continue to have your shares of common stock voted as instructed in a previously delivered proxy or you may vote your shares of common stock via the Internet during the meeting.
Important Notice Regarding Availability of Proxy Materials for the Annual Meeting: Our 20192020 proxy statement, proxy card and 20182019 Annual Report to ShareholdersStockholders are available free of charge online at www.oldsecond.com under “2019“2020 Annual Meeting Materials.”
| |
| By order of the board of directors |
|
|
| James L. Eccher |
Aurora, Illinois
April 19, 2019July 17, 2020
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF‑ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
OLD SECOND BANCORP, INC.
37 South River Street, Aurora, Illinois 60507
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by the board of directors of Old Second Bancorp, Inc., a Delaware corporation, of proxies to be voted at the annual meeting of stockholders. This meeting is to be held at Waubonsee Community College,virtually over the Internet,, on August 18, South River Street, Aurora, Illinois, 60506, on May 21, 20192020 at 9:00 a.m., central time, or at any postponements or adjournments of the meeting. Instructions for the attending the meeting are included below. Old Second conducts full service community banking and trust business through its wholly owned subsidiary, Old Second National Bank.
A copy of our annual report for the year ended December 31, 2018,2019, which includes audited financial statements, is enclosed. This proxy statement was first mailed to our stockholders on or about April 19, 2019.July 17, 2020. As used in this proxy statement, the terms “Old Second,” “the Company,” “we,” “our” and “us” all refer to Old Second Bancorp, Inc., and its subsidiaries. Additionally, references to the term “the Bank” refers“Bank” refer to Old Second National Bank.
Why am I receiving this proxy statement and proxy form?card?
You are receiving a proxy statement and proxy formcard from us because on March 29, 2019,June 26, 2020, the record date for the annual meeting, you owned shares of our common stock. This proxy statement describes the matters that will be presented for consideration by the stockholders at the annual meeting. It also gives you information concerning these matters to assist you in making an informed decision.
When you sign the enclosed proxy form,card, you appoint the proxy holder as your representative at the meeting. The proxy holder will vote your shares as you have instructed in the proxy form,card, ensuring that your shares will be voted whether or not you attend the meeting. Even if you plan to attend the annual meeting, we urge you to complete, sign and return your proxy formcard in advance of the annual meeting in case your plans change.
How can I attend the annual meeting?
This year, due to the public health and travel concerns our stockholders may have related to COVID-19 and the protocols that federal, state, and local governments have imposed on public gatherings, including current Illinois government health directives to use social distancing and to limit the size of gatherings, our meeting will be conducted online, in a fashion similar to an in-person meeting. We designed the format of this year’s virtual annual meeting to ensure that our stockholders who attend our annual meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Our board members and executive officers will attend the meeting and be available for questions. We intend to resume in-person meetings of our stockholders under normal circumstances.
Access to the Audio Webcast of the Meeting: The live audio webcast of the meeting will begin promptly at 9:00 a.m. central time. Online access to the audio webcast will open approximately 15 minutes prior to the start of the meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time to allow ample time to complete the online check-in process.
Log-in Instructions: To attend the virtual meeting, login at www.virtualshareholdermeeting.com/OSBC2020. Stockholders will need their unique 16-digit control number which appears on your proxy card and the instructions included in these proxy materials.
How can I ask questions during the meeting?
Stockholders may submit questions in real time during the meeting at www.virtualshareholdermeeting.com/OSBC2020. We intend to answer all questions submitted during the meeting in accordance with the annual meeting’s Rules of Conduct which are pertinent to the Company and the meeting matters, as time permits. The Rules of Conduct will be posted at the virtual annual meeting forum at www.virtualshareholdermeeting.com/OSBC2020. Responses to any such questions that are not addressed during the meeting will be published following the meeting on our website at www.oldsecond.com under the link “Investor Relations.” Questions and responses will be grouped by topic and substantially similar questions will be grouped and responded to once.
1
What can I do if I need technical assistance during the meeting?
If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the virtual annual meeting log-in page.
What matters will be voted on at the meeting?
You are being asked to vote on seventhree matters:
| the election of |
| a non-binding, advisory proposal to approve the compensation of our named executive officers, which |
|
|
|
|
|
|
| the ratification of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, |
How does the board of directors recommend that I vote?
| “FOR” the election of each Class I director nominee; |
| “FOR” the |
| ● | “FOR” the |
1
HowIf I am a stockholder of record, how do I vote?
A form of proxy is enclosed for use at the meeting. If the proxy is executed and returned, it may nevertheless be revoked at any time insofar as it has not been exercised. Stockholders attending the meeting may, on request, vote their own shares even though they have previously sent in a proxy. Unless revoked or instructions to the contrary are contained in the proxies, the shares represented by validly executed proxies will be voted at the meeting and will be voted “FOR” the election of the nominees for director named in this proxy statement, “FOR” the say-on-pay proposal, "FOR" the "every year" frequency alternative for the say-on-frequency proposal, "FOR" approval of the 2019 Equity Incentive Plan, “FOR” the amendment to our certificate of incorporation eliminating the mandatory retirement age for directors, “FOR” the ratification of our independent registered public accounting firm, and "FOR" the adjournment proposal, and in accordance with the proxy holder’s judgement on any other business that is properly brought before the meeting.
If you want to vote in person, please come to the meeting. We will distribute written ballots to anyone who wants to vote at the meeting. Please note, however, that if your shares are held in the namea stockholder of a broker or other fiduciary (or what is usually referred to as “street name”),record, you will need to arrange to obtain a proxy from the record holder in order to vote in person at the meeting. Even ifmay:
| ● | Vote via the Internet Before the Meeting: You may vote via the Internet 24 hours a day, seven days a week, by visiting www.proxyvote.com before the day of the virtual annual meeting. |
| ● | Vote by Proxy: If you choose to vote by proxy, simply mark your proxy card, date and sign it and return it in the postage-paid envelope provided. If you receive more than one proxy card, it means that you have multiple accounts in our stock transfer records. Please sign and return all proxy cards to be sure that ALL of your shares are voted. |
| ● | Vote via the Internet During the Meeting: You may choose to vote electronically via the Internet at www.virtualshareholdermeeting.com/OSBC2020 during the virtual annual meeting. Stockholders will need their unique control number which appears on the proxy card (printed in the box and marked by the arrow) and the instructions that accompanied the proxy materials. |
Regardless of whether you plan to attendparticipate in the annualaudio webcast of the meeting, we ask that you complete,are urged to either vote via the Internet before the meeting or sign, date, and return your proxy cardcard. If you participate in advance of the annual meeting in case your plans change.
What does it mean if I receive more than one proxy form?
It means thataudio webcast, you have multiple holdings reflected in our stock transfer records and/or in accounts with stockbrokers. Please sign and return ALL proxy formsmay continue to ensure that allhave your shares are voted.of common stock voted as you instructed in a previously delivered proxy.
2
If I hold shares in the“street” name ofthrough a bank, broker who votes my shares?or other nominee, how do I vote?
If you hold your shares in street name and you received this proxy statement from your bank, broker or other nominee (collectively, a “broker”), your broker should have givenwill provide you with instructions for directing how your broker should votevoting your shares. It will then be your broker’s responsibilityIf you hold shares through a broker and wish to vote your shares for you in the manner you direct.
Under the applicable stock exchange rule, brokers may generally vote on routine matters, but cannot vote on non‑routine matters, such as the election of directors, the say-on-pay proposal, the say-on-frequency proposal, and the 2019 Equity Incentive Plan proposal, unless they have received voting instructions from the person for whom they are holding shares. If there is a matter presented to stockholders at the meeting and your broker does not receive instructions from you on how to vote on that matter, your broker will return the proxy card to us, indicating that he or she does not have the authority to vote on that matter. This is generally referred to as a “broker non‑vote.”
Each of the proposals you will be asked to consider and vote upon at the annual meeting, other than the ratification of the appointment of our independent registered accountants, the proposed amendment to our certificate of incorporation eliminating the mandatory retirement age for directors, and the adjournment proposal, is considered a non‑routine matter. Therefore, we encourage you to provide directions towill need your broker as to how you want your shares votedunique 16-digit control number which appears on all matters to be brought before the 2019 annual meeting upon receipt of our proxy materials. You should do this by carefully following the instructions your broker gives you concerning its procedures. This ensures that your shares will be voted ataccompanied the meeting.proxy materials.
What if I change my mind after I return my proxy card?
If you hold your shares in your own name,are a stockholder of record, you may revoke your proxy and change your vote at any time before the polls close at the annual meeting. You may do this by:
|
|
| sending notice to |
| attending the meeting and voting |
2
If you hold your shares in the name of your broker or other fiduciary and desire to revoke your proxy, you will need to contact that party to revoke your proxy.
How many shares must be represented for us to hold the annual meeting?
A majority of the shares that were outstanding and entitled to vote as of the record date must be present in personproxy or by proxy at the meeting in order to hold the meeting and conduct business. On March 29, 2019, the record date, there were 29,895,022 shares of common stock outstanding. A majority of these shares must be present in person or by proxy at the meeting.
Shares are counted as present at the meeting if the stockholder either:
|
|
|
|
What happens if any nominee is unable to stand for re-election?
The board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than four nominees. The board has no reason to believe any nominee will be unable to stand for re-election.
What options do I have in voting on each of the proposals?
You may vote “FOR,” “AGAINST” or “ABSTAIN” on each proposal properly brought before the meeting, other than the say-on-pay frequency proposal, including the election of directors. You may vote for “EVERY YEAR,” “EVERY TWO YEARS,” “EVERY THREE YEARS,” or “ABSTAIN” on the say-on-frequency proposal.
How many votes may I cast?
You are entitled to cast one vote for each share of stock you owned on the record date with respect to each of the proposals. Stockholders do not have cumulative voting rights. The proxy card included with this proxy statement indicates the number of shares owned by an account attributable to you.change your vote.
What is the quorum for the annual meeting?a broker non-vote?
A majority of our outstanding shares of common stock as of the record date must be present at the meeting, either in person or by proxy, to hold the meeting and conduct business. This is called a quorum. In determining whether we have a quorum at the annual meeting for purposes of all matters to be voted on, all votes “FOR” or “AGAINST” and all votes to “ABSTAIN” will be counted. Shares will be counted for quorum purposes if they are represented at the meeting for any purpose other than solely to object to holding the meeting or transacting business at the meeting. If you hold your shares in street name, your brokerage firm may vote your shares under certain circumstances. Brokerage firms have authority under stock exchange rules to vote their customers’ unvoted shares on certain “routine” matters. We expect that brokers will be allowed to exercise discretionary authority for beneficial owners who have not provided voting instructions ONLY with respect to Proposal 5 – the amendment of our certificate of incorporation, Proposal 6 -3, the ratification of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, 2019, and Proposal 7 - the adjournment proposal,2020, but not with respect to any of the other proposals to be voted on at the annual meeting. If you hold your shares in street name, please provide voting instructions to your bank, broker or other nominee so that your shares may be voted on all other proposals.
When a brokerage firm votes its customers’ unvoted shares on routine matters, these shares are counted for purposes of establishing a quorum to conduct business at the meeting. If a brokerage firm indicates on a proxy that it does not have discretionary authority to vote certain shares on a particular matter, then those shares will be treated as “broker non‑votes”non-votes”. Shares represented by broker non‑votes
What is the quorum requirement for the annual meeting?
We will have a quorum and will be counted in determining whether there is a quorum.
No notice of an adjourned meeting need be given ifable to conduct the time and place of the adjourned meeting are announced at the annual meeting, unless the adjournment is for more than 30 days or if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting shall be given to each shareholder of
3
record entitled to vote at the meeting. At an adjourned meeting, all proxies will be voted in the same manner as they would have been voted at the original conveningbusiness of the annual meeting exceptif the holders of a majority of our issued and outstanding shares entitled to vote are present in person or by proxy at the annual meeting. On June 26, 2020, the record date, we had 29,589,341 shares of common stock issued and outstanding. Abstentions and broker non-votes are counted as shares present at the meeting for purposes of determining a quorum. Shares will be counted for quorum purposes if they are represented at the meeting for any proxies that have been effectively revokedpurpose other than solely to object to holding the meeting or withdrawn prior totransacting business at the adjourned meeting.
How many votes may I cast?
You are neededentitled to cast one vote for each share of stock you owned on the record date with respect to each of the proposals. Stockholders do not have cumulative voting rights. The proxy card included with this proxy statement indicates the number of shares owned by an account attributable to you.
What happens if any nominee is unable to stand for re-election?
The board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than three nominees. The board has no reason to believe any nominee will be unable to stand for re-election.
3
What is the required vote for each proposal?
Assuming a quorum is present, a majority of the shares having voting power present in person or represented by proxy must approverequired vote for each proposal brought before the annual meeting other than the say-on-frequencyis as follows:
| ● | Proposal 1: Class I directors will be elected by a majority of the shares having voting power present in person or represented by proxy at the annual meeting, |
| ● | Proposal 2: The say-on-pay proposal requires the approval of a majority of the shares having voting power present in person or represented by proxy at the annual meeting. |
| ● | Proposal 3: The ratification of Plante & Moran, PLLC as our independent registered public accounting firm for 2020 requires the approval of a majority of the shares having voting power present in person or represented by proxy at the annual meeting. |
For each proposal, and the proposal to amend our certificate of incorporation (meaningthis means that the number of votes cast “FOR” each proposal must exceed the number of votes cast “AGAINST” or “ABSTAIN” with respect to that proposal).proposal. This includes the proposal regarding the election of directors in accordance with the policy of majority voting in uncontested director elections set forth in our bylaws. The proposal to amend our certificate of incorporation must be approved by 75% of the voting power of all outstanding shares of our common stock. With respect to the say-on-frequency proposal, the alternative receiving the highest number of votes will be considered the preference of our stockholders.
Broker non‑votesnon-votes will not affect the outcome of voting on a particular proposal, other than the proposal to amend our certificate of incorporation orincluding the election of directors, but abstentions and withheld votes will have the effect of a vote against the applicable proposal or director. Broker non-votes will have the effect of a vote against the proposal to amend our certificate of incorporation.
Please note that, because the say‑on‑pay and say-on-frequency votes aresay-on-pay vote is advisory, theyit will not be binding upon the board of directors or the Compensation Committee.
All valid proxies that we receive will be voted in accordance with the instructions indicated in such proxies. As noted above, if you hold your shares in street name through a broker and you do not give voting instructions, your broker is not permitted to vote your shares on any proposal other than Proposal 3, which is the only routine proposal on the agenda. If no instructions are indicated in an otherwise properly executed proxy, it will be voted “FOR” each of the Class I director nominees named in this proxy statement, “FOR” the say-on-pay proposal, and “FOR” the ratification of Plante & Moran, PLLC as our independent registered public accounting firm for 2020. If any other matters are presented at the annual meeting, the persons named as proxies on the enclosed proxy will have discretionary authority to vote for you on those matters.
Where do I find the voting results offor the annual meeting?
If available, we will announce voting results at the meeting. The voting results will also be disclosed in a Form 8‑K8-K filed with the Securities and Exchange Commission (the “SEC”) within four business days of the meeting. The determination of the board of directors with respect to the frequency of the say-on-pay vote also will be disclosed in a Form 8-K filed with the SEC.
4
PROPOSAL 1:
ELECTION OF DIRECTORS
Old Second’sOur board of directors is divided into three classes approximately equal in number, serving staggered three‑yearthree-year terms. As a result, the terms of only approximately one‑thirdone-third of our board members expire at each annual meeting. The current termsterm of our Class IIII directors will expire at this year’s annual meeting. The terms of our Class I directors will expire at the 2020 annual meeting and the termsterm of our Class II directors will expire at the 2021 annual meeting and the term of our Class III directors will expire at the 2022 annual meeting.
Each proposed Class IIII director nominee currently serves as a Class IIII director.
Following a review and nomination from our Corporate Governance and Nominating Committee, our board has proposed that the following Class IIII directors be elected as Class IIII directors at our 20192020 annual meeting of shareholdersstockholders for a term that will expire at our 20222023 annual meeting and until their respective successors are duly elected and qualified.
Class IIII Director Nominees
|
|
|
|
|
Name |
| Age |
| Served as Director Since |
Edward Bonifas |
| 59 |
| 2000 |
Gary Collins |
| 60 |
| 2016 |
William B. Skoglund |
| 68 |
| 1992 |
Duane Suits |
| 69 |
| 2012 |
| | | | |
Name |
| Age |
| Served as Director Since |
William Kane | | 69 | | 1999 |
John Ladowicz | | 67 | | 2008 |
Patti Temple Rocks | | 60 | | 2015 |
| | | | |
Each Class IIII director nominee will be elected if the number of shares voted “FOR” the nominee constitutes a majority of the shares having voting power present in person or represented by proxy at the annual meeting. Accordingly, broker non‑votesnon-votes will not have any effect on the outcome of voting, but abstentions will have the effect of a vote “AGAINST” the applicable nominee.
The board of directors recommends that you vote your shares “FOR” each of the above Class IIII director nominees.
Set forth below is information concerning our other directors, whose term of office will continue after the annual meeting, including their age, year first elected or appointed as a director.
Continuing Directors
|
|
|
|
| ||||
| | | | | ||||
Name |
| Age |
| Served as Director Since |
| Age |
| Served as Director Since |
Class I (term expires 2020) |
|
|
|
| ||||
William Kane |
| 68 |
| 1999 | ||||
John Ladowicz |
| 66 |
| 2008 | ||||
Patti Temple Rocks |
| 59 |
| 2015 | ||||
|
|
|
|
| ||||
|
|
|
|
| ||||
Class II (term expires 2021). |
|
|
|
| ||||
Class II (term expires 2021) | | | | | ||||
James Eccher |
| 53 |
| 2006 | | 54 | | 2006 |
Barry Finn |
| 58 |
| 2004 | | 59 | | 2004 |
James F. Tapscott |
| 68 |
| 2015 | | 69 | | 2015 |
Hugh McLean |
| 60 |
| 2018 | | 61 | | 2018 |
| | | | | ||||
Class III (term expires 2022) | | | | | ||||
Edward Bonifas | | 60 | | 2000 | ||||
Gary Collins | | 62 | | 2016 | ||||
William B. Skoglund | | 69 | | 1992 | ||||
Duane Suits | | 70 | | 2012 | ||||
All directors will hold office for the terms indicated, or until their earlier death, resignation, removal or disqualification and until their respective successors are duly elected and qualified.
There are no arrangements or understandings between any of the nominees, directors or executive officers and any other person pursuant to which any of our nominees, directors or executive officers have been selected for their respective positions.
5
No nominee, member of the board of directors or executive officer is related to any other nominee, member of the board of directors or executive officer.
5
Director Experience
Biographical information regarding each of our director nominees and continuing directors is set forth below, including the particular experience, qualifications, attributes or skills that led the board to conclude that each member is qualified to serve on the board and any committee he or she serves.
Mr. Bonifas: Mr. Bonifas is the Executive Vice President of Alarm Detection Systems, Inc., a producer and installer of alarm systems, closed circuit video systems and card access control systems, a position he has held since 2000. We consider Mr. Bonifas to be qualified for service on the board, the Risk Committee, the Nominating and Corporate Governance Committee and the Compensation Committee due to his skills and expertise acquired as a leader of a successful business and his prominence in the communities we serve. Mr. Bonifas also serves as Chairman of our Information Technology Steering committee where he uses his business expertise for cybersecurity oversight.
Mr. Collins: Mr. Collins has served as theour Vice Chairman of the Company since October 2016. Before that, he was Vice Chairman of Talmer Bancorp, Inc., a publicly traded bank holding company, from 2011 until 2016. He also served as a director of Talmer Bancorp, Inc. from 2010 until 2016. Mr. Collins served as Chairman and Co‑ChiefCo-Chief Executive Officer of Lake Shore Wisconsin Corporation, a bank holding company, from 2010 until 2011, and as a founding Managing Director and Vice Chairman of The Private Bank — Chicago from 1991 until 2009. We consider Mr. Collins to be qualified for service on the board due to his experience focused within mortgage banking and real estate opportunities among residential, multi‑family,multi-family, and commercial lending.
Mr. Eccher: Mr. Eccher has served as the Chief Executive Officer and President of the Company since 2015 and has served as President and Chief Executive Officer of the Bank since 2003. He also serves as Chief Operating Officer of the Company, a position he has held since 2007, and served as Senior Vice President and Branch Director of the Bank from 1999 until 2003. Before that, he served as President and Chief Executive Officer of the Bank of Sugar Grove from 1996 until 1999. We consider Mr. Eccher to be qualified for service on the board due to his experience in the financial services industry and thehis familiarity with Old Second’s operations that he has acquired as the Chief Executive Officer and President of Old Second and Old Second National Bank.our operations.
Mr. Finn: Mr. Finn has served as the President and Chief Executive Officer of Rush‑CopleyRush-Copley Medical Center since 2002.from 2002 until his retirement in 2019. Before that, Mr. Finn served as the Chief Operating Officer and Chief Financial Officer of Rush‑CopleyRush-Copley Medical Center from 1996 until 2002. We consider Mr. Finn to be a qualified candidate for service on the board, including as our Lead Director, and the Nominating and Corporate Governance Committee, as Lead Director, the Information Technology Steering Committee and the Audit Committee due to his business and financial expertise acquired as an executive at a successful local medical center, as well as his prominence in the communities we serve. We also consider Mr. Finn to be a qualified financial expert.
Mr. Kane: Mr. Kane is a Partner of Label Printers, Inc., a printing company, a position he has held since 1977. We consider Mr. Kane to be a qualified candidate for service on the board, and the Compensation Committee, and the Risk Committee as Chairman,(as Chairman) and the Nominating and Corporate Governance Committee due to his experience as a partner at a successful local business, his general experience in business and his prominence in the communities we serve.
Mr. Ladowicz: Mr. Ladowicz is the former Chairman and Chief Executive Officer of HeritageBanc, Inc. and Heritage Bank, where he served from 1996 until 2008, when it was acquired by Old Second.the Company. We consider Mr. Ladowicz to be a qualified candidate for service on the board, the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee as Chairman(as Chairman) due to his previous experience as a chief executive officer in the financial services industry, as well as his extensive knowledge of the market areas we entered through the acquisition of HeritageBanc, Inc. in 2008.
Mr. McLean: Mr. McLean has been a Partner with Rock Island Capital since November 2016. Before that, Mr. McLean served as Regional President and Managing Director of Talmer Bank from 2010 until October 2016. From 2009 until 2010, he was President and Director of Lake Shore Wisconsin Corporation. Mr. McLean was Vice Chairman of The PrivateBank, a publicly traded commercial bank headquartered in Chicago, from 1996 until 2008, and was a Managing Director of The PrivateBank from 1996 until 2001. He also held senior commercial banking positions with
6
Firstar Bank and American National Bank prior to joining the PrivateBank in 1996. We consider Mr. McLean to be a qualified candidate for service on the board, and the Audit Committee and the Information Technology Steering Committee due to his previous experience in the financial industry.
Mr. Skoglund: Mr. Skoglund serves as the Chairman of the Company and the Bank. From 1998 until 2014, Mr. Skoglund served as the Chief Executive Officer of the Company. He also served as Chief Executive Officer of the Bank from 1996 until 2014. We consider Mr. Skoglund to be qualified for service on the board due to his skills and experience in the financial services industry and his familiarity with the Company’sour operations as our former Chief Executive Officer.
6
Mr. Suits: Mr. Suits was a founding Partner of Sikich LLC, a financial services firm, from 1982 until his retirement in 2004. We consider Mr. Suits to be a qualified candidate for service on the board, and the Audit Committee as(as Chairman (including as the audit committee financial expert) and), the Risk Committee and the Nominating and Corporate Governance Committee due to his skills and experience in the financial services industry and his familiarity with Old Second’s operations.industry.
Mr. Tapscott: Mr. Tapscott was a Partner of McGladrey LLP, an audit, tax and consulting firm, from 1991 until his retirement in 2015. Before that, he was a Partner with Wilkes Besterfield and Co., Ltd., from 1972 until 1991. We consider Mr. Tapscott to be a qualified candidate for service on the board, and the Risk Committee and the Audit Committee due to his previous experience in accounting and financial matters as a partner of McGladrey LLP and Wilkes Besterfield and Co., Ltd.
Ms. Temple Rocks: Ms. Temple Rocks is Senior Partner, head of Client Impact, for ICF Next, a global communications agency, a position she has held since 2019, where she is responsible for client leadership in both the Chicago and Minneapolis office for the agency. Before that, she was the Managing Director of the Chicago office of Golin, a global communications agency from 2011 until her retirement in 2018. We consider Ms. Temple Rocks to be a qualified candidate for service on the board, and the Compensation Committee and the Information Technology Steering Committee due to her business experience and familiarity with the greater Chicago market through her managing directorshippositions with ICF Next and Golin.
Biographical Information for Executive Officers
| | |
Name | Title | |
James Eccher | | President and Chief Executive Officer of the Company and the Bank |
Bradley Adams | | Executive Vice President, Chief Financial Officer |
Gary Collins | | Vice Chairman |
Donald Pilmer | | Executive Vice President, |
Keith Gottschalk | | Executive Vice President, Digital Banking Services |
Because each of Mr. Eccher and Mr. Collins also serves on our board of directors, we have provided biographical information for them above. Biographical information for each of Mr. Adams, Mr. Gottschalk and Mr. Pilmer is provided below:
Mr. Adams, age 45,46, joined Old Secondthe Company and Old Second Nationalthe Bank in May 2017 to serve as an Executive Vice President and our Chief Financial Officer. From November 2016 until joining us, he served as Executive Vice President and Director of Corporate Development and Strategy for TCF National Bank, where he oversaw corporate development and strategy. Before that, he served as Executive Managing Director, Corporate Development, of Talmer Bancorp, Inc. from 2011 and 2016. While at Talmer, Mr. Adams was responsible for management of internal financial reporting, budgeting, mortgage bank accounting, investor relations, strategic planning and corporate development activities. Prior to joining Talmer, Mr. Adams also held positions as Managing Director of W2 Freedom, LLC, a private investment fund manager focused on investing in community banks, and as Director of Investor Relations for Fifth Third Bancorp.
Mr. Pilmer, age 54,55, joined Old Secondthe Company and Old Second Nationalthe Bank in 1989. He currently serves as Executive Vice President (a position he has held since 2016)2012) and as Chief Lending Officer (a position he has held since 2008)2016). Mr. Pilmer manages the Commercial Banking unit and has more than 25 years of experience in the Commercial Banking industry.
Mr. Gottschalk, age 57,58, joined Old Secondthe Company and Old Second Nationalthe Bank in 2001. He currently serves as Executive Vice President, Digital Banking Services at Old Second Nationalthe Bank, a position he has held since January
7
2019. Prior toBefore that, Mr. Gottschalk was Executive Vice President and Chief Operating Officer of the Bank since 2012. From 2007 until 2012, he served as Executive Vice President of Operations of the Bank. Mr. Gottschalk has more than 35 years of banking experience, including managing Operations, Information Technology, Retail Banking and extensive experience in the ATM/Debit arena. Before joining the Old Second team, Mr. Gottschalk held senior management positions for Old Kent Bank (Elmhurst, IL), Fifth Third Bank (Elmhurst, IL), Pinnacle Bank (Berwyn, IL) and FBOP Corporation (Oak Park, IL). He has served on many customer advisory boards in the operations field.
87
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
General
Currently, the board of directors is made up of eleven directors, who are elected by the holders of our common stock every three years to serve staggered terms. In accordance with our corporate governance procedures, the board does not involve itself in the day‑to‑dayour day-to-day operations, of Old Second, which isare monitored by our executive officers and management. Our directors fulfill their duties and responsibilities by attending regular meetings of the board and through committee membership, which is discussed below.
Director Attendance
The board of directors held ten regularfour meetings during 2018.2019. All of the directors attended at least 75% of these meetings and the meetings of the committees on which they served. We typically schedule a board meeting in conjunction with our annual meeting and expect that our directors will attend our annual meeting. Last year, all of our then‑serving directors attended our annual meeting.
Code of Business Conduct and Ethics
The board of directors believes that it is important to encourage the highest level of corporate ethics and responsibility. Among other things, the board adopted a Code of Business Conduct and Ethics, which applies to all of our directors, officers and employees, as well as a procedure for allowing employees to anonymously report any problems they may detect with respect to our financial reporting. The Code of Business Conduct and Ethics, as well as other information pertaining to our committees, corporate governance and reporting with the Securities and Exchange Commission, can be found on our website at www.oldsecond.com. The CompanyWe will post on itsour website any amendments to, or waiver from, the Code of Business Conduct and Ethics as it applies to any director or officer to the extent required to be disclosed by applicable NASDAQ or SEC requirements.
Director Independence
The board of directors has standing Audit, Nominating and Corporate Governance, and Compensation Committees, each of which is made up solely of directors who are deemed to be “independent” under the rules of NASDAQ. NASDAQ’s independence rules include certain instances that will preclude a director from being deemed independent and the board reviews those requirements each year to determine a director’s status as an independent director. The board has determined that all of the directors and nominees are “independent” as defined by the NASDAQ Stock Market, with the exception of Messrs. Eccher and Collins, each of whom has beenis an executive officer of the Company during the past three calendar years ended December 31, 2018.officer.
During its review of director independence, the board considered Mr. Finn’s roles as President and Chief Executive Officer at Rush‑Copley Medical Center and Mr. Skoglund’s position as the Vice Chairman of Rush‑Copley’s board of directors. Our board determined that this does not preclude a finding that Mr. Finn is independent under NASDAQ’s rules because Mr. Skoglund does not serve on Rush‑Copley’s compensation committee and has recused himself from any discussions or votes that involve Mr. Finn’s salary. The board also reviewed certain transactions between Alarm Detection Systems, Inc. and the Company. Mr. Bonifas is an Executive Vice President of Alarm Detections Systems, Inc. The board determined that Mr. Bonifas qualified as an independent director because the amounts paid by the Company to Alarm Detection Systems in 2018,2019, which totaled approximately $214,921,$352,956, were less than 5% of Alarm Detection System’s gross revenues for 20182019 and because Mr. Bonifas had no interest in the transaction with the Company, except an indirect and de minimis interest as a stockholder of Alarm Detection Systems.
Actions taken by each committee of the board are reported to the full board, usually at its next meeting. The principal responsibilities of each of the committees are described below.
Board Resignation Policy
Our board of directors has adopted a resignation policy that provides that no person will be elected to serve, or will continue to serve, as a director of the Company after attaining age 73, and each director candidate or nominee has agreed that upon attaining age 73 during his or her tenure as director, the director will be deemed, effective at such time, to have resigned his or her directorship.
Our bylaws further provide that a nominee for director in an uncontested election will be elected by a majority of the shares having voting power present in person or represented by proxy at the meeting. Under our resignation policy, if a nominee receives more votes “against” his or her election than votes “for” his or her election, the director must promptly tender a written offer of resignation to the Chairman of the board of directors. Our Nominating and Corporate Governance Committee will promptly consider the director’s offer of resignation and recommend to the board of directors whether to accept or reject it. The board will act on the committee’s recommendation and will publicly disclose its decision within 120 days after the election results are certified.
98
Committees of the Board of Directors
Our board committees are currently composed as follows (M — member; C — chair):
| | | | | | | | | ||||
Name | Audit | Compensation | Nominating and | Risk | ||||||||
Edward Bonifas | | | | M | | M | | M | ||||
Gary Collins | | | | | | | | | ||||
James Eccher | | | | | | | | | ||||
Barry Finn | | M | | | | C | | | ||||
William Kane | | | | M | | M | | C | ||||
John Ladowicz | | M | | C | | M | | | ||||
Hugh McLean | | M | | M | | | | | ||||
William B. Skoglund | | | | | |
| | M | ||||
Duane Suits |
| | M | | | | M | | M | |||
James Tapscott | |
| | | | | | M | ||||
Patti Temple Rocks | | | | M | | | | |
Audit Committee
The Audit Committee assists the board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit Committee is solely responsible for the pre‑approvalpre-approval of all required audit and non‑auditnon-audit services to be provided by our independent registered public accounting firm and exercises its authority to do so in accordance with a policy that it has adopted. The committee’s duties, responsibilities and functions are further described in its charter, which is available on our website at www.oldsecond.com, in the “Governance Documents” section under “Investor Relations.” You can request a copy of the committee’s charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60507, or by requesting via e‑maile-mail to corporatesecretary@oldsecond.com.
The members of our Audit Committee during 20182019 were Mr. Suits (who servesserved as Chairman), Mr. Finn, Mr. Tapscott (who currently serves as Chairman), Mr. Ladowicz and Mr. McLean, each of whom is deemed to be an independent director under SEC Rule 10A‑310A-3 and NASDAQ’s listing requirements. The Audit Committee met sixfour times in 2018.2019.
The board has designated each of Mr. Suits, Mr. Finn and Mr. Tapscott as thean “audit committee financial expert,” as such term is defined by the regulations of the SEC. The board’s determination was based upon Mr. Suits’ level of knowledge and experience regarding financial matters and his experience as an independent financial consultant and as the founding partner of Sikich Gardner & Co., LLP, a public accounting and consulting firm. The board believes that each of the other members of the Audit Committee possesses knowledge and experience sufficient to understand the complexities of theour financial statements of Old Second.statements. Mr. Suits met on a quarterly basis during 20182019 with our independent registered public accounting firm.
To review our annual Audit Committee report, please see “Proposal 63 — Ratification of Our Independent Registered Public Accounts — Audit Committee Report.”
Compensation Committee
The Compensation Committee reviews the performance of Old Second’sour executive officers and establishes their compensation levels. The committee also has the authority, among other things, to:
| review and approve the compensation of our chief executive officer and other executive officers; |
| ● | approve performance goals and objectives relevant to the chief executive |
| review and approve (and administer) supplemental retirement benefit plans, employment agreements, and any severance arrangements |
10
|
|
|
|
9
| review and evaluate the risks |
The committee’s duties, responsibilities and functions are described more fully in its charter, which is available on our website at www.oldsecond.com, in the “Governance Documents” section under “Investor Relations.” You can request a copy of the committee’s charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60507, or by requesting via e‑maile-mail to corporatesecretary@oldsecond.com.
The members of our Compensation Committee during 20182019 were Mr. Ladowicz (who serves as Chairman), Mr. Kane, Mr. Bonifas, Mr. McLean and Ms. Temple Rocks, each of whom is deemed to be an independent director under NASDAQ’s listing requirements. The Compensation Committee met three times in 2018.2019.
The Compensation Committee has the authority under its charter to select, or receive advice from, advisors (including compensation consultants). In 2018,2019, the committee continued its engagement of ChaseCompGroup LLC, in addition to utilizing the services of McLagan Partners, Inc., as an independent advisoradvisors to assist the committee in determining and evaluating executive compensation. The Compensation Committee assessed the independence of ChaseCompGroup LLC and McLagan Partners, Inc., taking into consideration all factors specified in NASDAQ listing standards. Based on this assessment, the committeeCompensation Committee determined the engagement of ChaseCompGroup LLC and McLagan Partners, Inc. did not raise any conflict of interest.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee reviews the qualifications of, and recommends to the board for nomination, candidates to stand for election at each annual meeting or to fill vacancies on the board as they may occur during the year. The committee also reviews on at least an annual basis whether each director is “independent” under NASDAQ listing requirements. Additionally, the Nominating and Corporate Governance Committee is responsible for reviewing our policies, procedures and structure as they relate to corporate governance. The committee’s duties, responsibilities and functions are further described in its charter, which is available on our website at www.oldsecond.com, in the “Governance Documents” section under “Investor Relations.” You can request a copy of the committee’s charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60507, or by requesting via e‑maile-mail to corporatesecretary@oldsecond.com.
The members of the Nominating and Corporate Governance Committee in 20182019 were Mr. Finn (who serves as Chairman), Mr. Kane, Mr. Bonifas, Mr. Suits and Mr. Ladowicz, each of whom is deemed to be an independent director under NASDAQ’s listing requirements. The Nominating and Corporate Governance Committee met two timesone time in 2018.2019.
Board and Committee Evaluation Process
Under its charter, our Nominating and Corporate Governance Committee annually reviews and assesses the performance of our board of directors, including each committee of the board, and makes recommendations for areas of improvement as it deems appropriate. In this regard, the Nominating and Corporate Governance Committee also oversees an annual assessment of each director’s individual performance, which may be accomplished through a self-evaluation process. Each committee of the key committees of the board of directors (Audit, Compensation and Nominating and Corporate Governance) also performs an annual assessment of its performance and charter.
Director Nominations and Qualifications
In making its nominations for persons to be elected to the board of directors and included in our proxy statement, the Nominating and Corporate Governance Committee evaluates incumbent directors, board nominees and persons nominated by stockholders, if any. The committee reviews each candidate in light of the criteria that we believe each director should possess. Included in the criteria are whether each nominee: (i) meets the minimum requirements for service on the board of directors contained in our bylaws; (ii) is under the age of 70 in accordance with our certificate of incorporation (but see Proposal 5 for a proposed amendment to the certificate of incorporation regarding this criterion); (iii) possesses the highest personal and professional ethics, integrity and values; (iv)(iii) has, in the committee’s opinion, a sufficient educational and professional background and relevant past and current employment affiliations, board affiliations and experience for service on the board; (v)(iv) has demonstrated effective leadership and sound judgment in his or her professional life; (vi)(v) has a strong sense of service to the communities in which we serve; (vii)(vi) has exemplary management and communication skills; (viii)(vii) is free of conflicts of interest that would prevent him or her from serving on the board; (ix)(viii) will ensure that other existing and future commitments do not materially interfere with his or her service as a director; (x)(ix) will review and agree to meet the standards and duties set forth in the Company’s Code of Business Conduct and Ethics; (xi)(x) is willing to devote sufficient time to carrying out their duties and responsibilities effectively; and (xii)(xi) is
11
committed to serving on the board for an extended period of time. While we do not have a separate diversity policy, the committee does consider the diversity of its directors and nominees in terms of knowledge, experience, skills, expertise and
10
other demographics which may contribute to the board. The committee also evaluates potential nominees to determine if they have any conflicts of interest that may interfere with their ability to serve as effective board members and to determine whether they are “independent” in accordance with NASDAQ requirements (to ensure that at least a majority of the directors will, at all times, be independent).
The committee, when considering potential board members, will look at all of the foregoing criteria. The various qualifications and criteria are normally considered by the committee in connection with its evaluation of who the committee will recommend as the Company’sour director nominees. Generally, each incumbent director standing for re‑electionre-election should have and will have, at a minimum, attended at least 75% of board meetings during the past year and attended 75% of committee meetings of which he or she is a member. The committee retains the ability to make exceptions to this attendance requirement as individual circumstances warrant.
All of the nominees for election as directors at the 20192020 annual meeting were recommended for nomination by the committee. The committee did not receive any formal nominations for directors from our common stockholders.
Common Stock Ownership and Retention Guidelines for Non-Employee Directors
In order to align the interests of board members and stockholders, we require each non-employee director to develop a significant equity stake in the company. The Compensation Committee is responsible for monitoring compliance with these stock ownership and retention guidelines.
Non‑employeeNon-employee directors are expected to acquire and hold during their service as board members, shares of our common stock equal in value to at least three times the annual cash retainer for non‑employeenon-employee directors. Non‑employee directorsEach non-employee director will have threefive years from their initial electionthe date they first become subject to the boardthese guidelines to meet theachieve these target stock ownership guidelines. Once they obtain the requisite number of shares, they are expected to continuously own sufficient shares to meet the guidelines. The stock ownership goal will be determined by using the value of their retainers as of January 1 of each year and the average closing stock price for our common stock over the prior twelve months.
Shares that count toward meeting the stock ownership guidelines include: (i) shares owned, which include shares obtained upon exercise of options or shares purchased in the open market; (ii) shared ownership, which includes shares owned or held in trust by immediate family; and (iii) restricted stock units. Unexercised stock options do not count toward meeting the stock ownership guidelines. Until such time as the director reaches his or her target stock ownership, the director will be required to hold 50% of thelevels. Individuals who acquire shares of common stock received upon lapseunder our equity-based incentive plans must hold at least 50% of the restrictions, and upon exercise of stock options. In the rare instance in whichall net after-tax acquired shares until these guidelines would place a severe hardship on a director, the Compensation Committee may decide to allow an alternative stock ownership guidelineguidelines are satisfied.
The following share types are included under these guidelines: shares directly owned, family-owned shares, retirement plan shares and unvested time-based restricted stock. Stock options that reflects the intentionsare unexercised, regardless of their vesting status and in-the-money value, are not counted toward satisfaction of these overall guidelines and the director’s own personal circumstances.guidelines. Unvested performance-based restricted stock is also not counted toward stock ownership.
All of our non-employee directors are currently in compliance with these guidelines.
Board Leadership Structure
The roles of Chairman of the Board and Chief Executive Officer are separate positions within our Company. Mr. Skoglund, our former Chief Executive Officer, serves as our Chairman, and Mr. Eccher serves as our Chief Executive Officer and President. We currently separate the roles of Chairman and Chief Executive Officer in recognition of the differences between the two roles.
Our board of directors has also created the position of a “lead” independent director,“Lead Independent Director”, who assists the board of directors in assuring effective corporate governance, and serves as chairman when the board of directors meets in independent director sessions. In 2018,2019, our board of directors designated Mr. Finn to serve as Lead Independent Director. In this role, he may call and preside over executive sessions of the Company’s lead independent director. directors, without management present, as he deems necessary, serves as a liaison between the chair or the chief executive officer and the independent directors on certain matters, and has power to provide formal input on the agenda for meetings of the board.The Nominating and Corporate Governance Committee reviews this appointment annually and the full board has the opportunity to ratify the committee’s selection.
Our board of directors believes this structure is appropriate for our Company because it allows theour Chief Executive Officer to focus on our strategic direction and our day‑to‑dayday-to-day leadership and performance, and we are also ablewhile allowing us to leverage the experience and perspective of theour Chairman through his guidance to theour Chief Executive Officer and hissenior management, team as well as to the board of directors. In addition, the lead independent director,Lead Independent Director, who is an
12
independent member of our Board,board, provides independent leadership within our Boardboard that strengthens its effectiveness and oversight of our business.
Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including general economic risks, credit risks, regulatory risks, audit risks, cyber security risk, reputational risks and others, such as the impact of competition. Management is responsible for the day‑to‑dayday-to-day management of the risks the Company faces,we face, while the
11
board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
While the full board of directors is charged with ultimate oversight responsibility for risk management, various committees of the board and members of management also have responsibilities with respect to our risk oversight. In particular, the Risk Committee plays a large role in monitoring and assessing our financial, legal and organizational risks, and receives regular reports from the management team’s senior risk officer regarding comprehensive organizational risk as well as particular areas of concern. The board’s Compensation Committee monitors and assesses the various risks associated with compensation policies, and oversees incentives that encourage a level of risk‑takingrisk-taking consistent with our overall strategy. With respect to cybersecurity, our Information Technology Steering Committee, chaired by Mr. Bonifas, the Chairman ofis responsible for cybersecurity oversight. While the Information Technology Steering Committee serves asand the board of directors to which it reports, oversees our cybersecurity expert.risk management, management is responsible for the day-to-day cybersecurity risk management processes. Threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. Our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. While we believe that our cybersecurity programs are appropriate and have been effective to prevent material incidents thus far, risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. Additionally, our senior credit officer and loan review staff are directly responsible for overseeing our credit risk.
We believe that establishing the right “tone at the top” and providing for full and open communication between management and the board of directors are essential for effective risk management and oversight. Our executive management meets regularly with our other senior officers to discuss strategy and risks facing the Company. Senior officers attend many of the board meetings, or, if not in attendance, are available to address any questions or concerns raised by the board on risk management‑relatedmanagement-related and any other matters. Additionally, each of our board‑levelboard-level committees provides regular reports to the full board and apprises the board of our comprehensive risk profile and any areas of concern.
Certain Relationships and Related Party Transactions
Statement of Policy Regarding Transactions with Related Persons
Transactions by us with related parties are subject to regulatory requirements and restrictions. These requirements and restrictions include Sections 23A and 23B of the Federal Reserve Act (which govern certain transactions by us with our affiliates) and the Federal Reserve’s Regulation O (which governs certain loans by us to our executive officers, directors and principal shareholders)stockholders). We have also adopted policies to comply with these regulatory requirements and restrictions, including policies governing the approval of related party transactions. Our Audit Committee reviews and approves all related person transactions between Old Secondthe Company and related parties in accordance with NASDAQ’s rules and regulations. For purposes of this review, related person transactions are those transactions required to be disclosed under applicable SEC regulations.
Banking Relationships
Certain of our executive officers and directors have, from time to time, engaged in banking transactions with Old Second National Bank and are expected to continue such relationships in the future. All loans or other extensions of credit made by Old Second National Bank to such individuals were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated third parties and did not involve more than the normal risk of collectability or present other unfavorable features.
Compensation Committee Interlocks and Insider Participation
For the year ended December 31, 2018,2019, our Compensation Committee consisted of Mr. Ladowicz, Mr. Kane, Mr. Bonifas, Mr. McLean and Ms. Temple Rocks. No member of our Compensation Committee in 20182019 was, during the last
13
fiscal year, an officer or employee of the Company or formerly an officer of the Company. In addition, none has had any relationship with the Company of the type that is required to be disclosed under “Certain Relationships and Related Party Transactions,Transactions.” except Mr. Bonifas as described above. During 2018,2019, none of our executive officers served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of another entity that had one or more executive officers serving as a member of the board of directors or Compensation Committee of the Company.
12
Vote Standard for Bylaw Amendments
Our certificate of incorporation and bylaws authorize our board of directors to adopt, amend or repeal our bylaws by a majority vote. In addition, under Delaware law, our stockholders also have the power to adopt, amend or repeal our bylaws. Under our bylaws, such an action would require a majority of the shares having voting power present in person or represented by proxy at the meeting.
Stockholder Communications with the Board; Nomination and Proposal ProceduresOur Directors
Stockholder Communications with Directors. Our stockholders may contact any member of the board of directors (including our Chairman or Lead Independent Director), or the board as a whole, through theour Corporate Secretary, either in person, in writing by mail at 37 South River Street, Aurora, Illinois 60507, or by e‑mail toe-mail at corporatesecretary@oldsecond.com. Any such communication should indicate whether the sender is an Old Second stockholder. The address for submitting communications to the board by mail is 37 South River Street, Aurora, Illinois 60507. Any communication will be forwarded promptly to the board as a group or to the attention of athe specified director per your request, except for communicationsrequest. Communications that are primarilypersonal grievances, commercial in naturesolicitations, customer complaints, incoherent, or relatedobscene will not be communicated to an improperour board or irrelevant topic.any director or committee of our board.
Stockholder Proposals and Director Nominations
Stockholder Nominations of Directors. In order forUnder our certificate of incorporation a stockholder nominee to be consideredmay nominate a candidate for election at a stockholder meeting by the Nominating and Corporate Governance Committee to be its nominee and included in our proxy statement, the nominating stockholder must file agiving written notice, of the proposed director nomination withdelivered to or mailed, to our Corporate Secretary, at 37 South River Street, Aurora, Illinois 60507, not fewer than 14 days nor more than 60 days before any meeting of the above address, at least 120stockholders called for the election of directors. If notice of the meeting is given to stockholders less than 21 days prior tobefore the date of the meeting, such written nomination must be delivered or mailed, as prescribed, to our Corporate Secretary, not later than the close of business on the seventh day following the day on which notice of the previous year’s proxy statementmeeting was mailed to stockholders. Nominationsstockholders Each written nomination must includeset forth (a) the full name, age, business address and, if known, residence address of each nominee proposed in such written nomination; (b) the proposedprincipal occupation or employment of each such nominee and a brief description offor the proposed nominee’s business experience for at least the previouspast five years and as to(c) the stockholder giving the notice, his or her name and address, and the class and number of shares of our capital stock beneficially owned by that stockholder. All submissions must be accompaniedeach such nominee and by the written consent ofnominating stockholder.
Stockholder Proposal at the proposed nomineeMeeting. A stockholder seeking to be named as a nominee and to serve as a director if elected. The committee may request additional information in order to make a determination as to whether to nominate the person for director.
In accordance with our Certificate of Incorporation, a stockholder may otherwise nominate a director for election to the boardpresent any business at an annual meeting of stockholders by giving timelymust submit a notice in writing to our Corporate Secretary, at the address provided above. To be timely, stockholder nominations must be made in writing, delivered37 South River Street, Aurora, Illinois 60507, on or mailed by first class United States mail, postage prepaid, to our Corporate Secretary not fewer thanbefore 60 days nor more than 90 days prior toin advance of the first anniversary date of the priorprevious year’s annual meeting, and all business so stated, proposed and filed will, unless prior action thereon is required by the board, be considered at the annual meeting. Each written nomination must set forth (i)Any stockholder may make any other proposal at the name, age, business addressannual meeting and residential addressthe same may be discussed and considered, but unless stated in writing and filed with the Corporate Secretary on or before 60 days in advance of the nominee; (ii) the principal occupation or employment of such person; (iii) the class and number of shares of the Company’s stock which are beneficially owned by such person on the date of such stockholder notice; and (iv) any other information relating to such person that would be required to be disclosed on Schedule 13D pursuant to Regulation 13D under the Exchange Act and pursuant to Regulation 14A under the Exchange Act. The nominating stockholder must also provide certain information regarding his, her or itself including (a) the name and address, as they appear on the Company’s books, of such stockholder and the name and principal business or residential address of any other beneficial stockholders known by such stockholder to support the nominees; and (b) the class and number of shares of Old Second’s stock which are beneficially owned by the stockholder on thefirst anniversary date of the stockholder notice.previous year’s annual meeting, such proposal may only be voted on at a meeting held at least 30 days after the annual meeting at which it is presented. No other proposal made by stockholders may be acted upon at the annual meeting.
In the event that a stockholder nominates an individual to serve as a director in accordance with our bylaws and the applicable federal and state laws, the Committee shall evaluate the individual to determine whether the individual satisfies the qualification criteria and determine whether the individual will be nominated by the Committee to serve on the board.
Other Stockholder Proposals. Proposals in Our Proxy StatementTo. This year, our annual meeting, which is usually held in May, was rescheduled to August 18, 2020, due to the ongoing developments with respect to the public health impacts of COVID-19. However, we intend to resume holding our annual meeting in mid-May beginning in 2021. Under SEC rules, for a stockholder’s proposal to be considered for inclusionincluded in our proxy statement and formproxy card for the 2021 Annual Meeting of proxy relating to our 2020 annual meeting of stockholders, the proposing stockholderStockholders, you must file a written notice of the proposal with our Corporate Secretary, at 37 South River Street, Aurora, Illinois 60507, not less than 120 calendar days before the above address, by Decemberdate of our proxy statement released to stockholders in connection with the previous year’s annual meeting, or March 19, 2019,2021, and must otherwise comply with the rules and regulations set forth by the SecuritiesSEC. However, if the date of next year’s annual meeting is changed by more than 30 days from the date of this year’s meeting, then the deadline is a reasonable time before we begin to print and Exchange Commission.send our proxy materials.
1413
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 29, 2019,June 26, 2020, by each director or nominee for director, by each named executive officer, by all of our directors, director nominees and executive officers as a group, and each stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock.
Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Old Second Bancorp, Inc., 37 South River Street, Aurora, Illinois 60507. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of our common stock that they beneficially own, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on 29,895,02229,589,341 shares of common stock outstanding as of March 29, 2019.June 26, 2020. Beneficial ownership has been determined for this purpose in accordance with Rule 13d‑313d-3 under the Exchange Act, under which a person is deemed to be the beneficial owner of securities if he or she has or shares voting power or investment power with respect to such securities or has the right to acquire beneficial ownership of securities within 60 days of March 29, 2019.June 26, 2020.
|
|
|
|
|
| |||||
|
| Shares Beneficially |
|
|
| |||||
| | | | | | |||||
|
| Shares Beneficially |
| |
| |||||
Name |
| Owned |
| Percent of Class |
| | Owned | | Percent of Class |
|
Directors and named executive officers: |
|
|
|
|
|
|
|
|
| |
Bradley Adams(1) |
| 41,800 |
| * |
|
| 66,800 |
| * | |
Edward Bonifas(2) |
| 153,130 |
| * |
|
| 155,630 |
| * | |
Gary Collins(3) |
| 110,213 |
| * |
|
| 119,114 |
| * | |
James Eccher(4) |
| 175,732 |
| * |
|
| 193,547 |
| * | |
Barry Finn(5) |
| 54,386 |
| * |
|
| 56,886 |
| * | |
Keith Gottschalk(6) |
| 7,080 |
| * |
|
| 8,509 |
| * | |
William Kane(7) |
| 41,659 |
| * |
|
| 44,159 |
| * | |
John Ladowicz(8) |
| 245,423 |
| * |
|
| 247,923 |
| * | |
Hugh McLean(9) |
| 125,000 |
| * |
| | 132,500 | | * | |
Donald Pilmer(10) |
| 32,725 |
| * |
|
| 39,387 |
| * | |
William B. Skoglund(11) |
| 92,731 |
| * |
|
| 92,331 |
| * | |
Duane Suits(12) |
| 28,109 |
| * |
|
| 30,609 |
| * | |
James Tapscott(13) |
| 26,500 |
| * |
|
| 31,000 |
| * | |
Patti Temple Rocks(14) |
| 11,054 |
| * |
|
| 13,553 |
| * | |
|
|
|
|
|
| |||||
| | | | | | |||||
All directors and executive officers as a group (14 persons) |
| 1,145,542 |
| 3.83 | % |
| 1,231,948 |
| 4.16 | % |
|
|
|
|
|
| |||||
| | | | | | |||||
5% Stockholders: |
|
|
|
|
| | | | | |
BlackRock, Inc.(15) |
| 1,998,050 |
| 6.90 | % |
| 2,056,294 |
| 6.95 | % |
The Banc Funds Company(16) | | 2,175,763 | | 7.35 | % | |||||
*Denotes ownership of less than 1%.
* |
|
| (1) | Consists of |
| (2) |
| Consists of: (i) |
| (3) |
| Consists of: (i) |
| (4) |
| Consists of: (i) |
15
106,000 shares subject to restricted stock unit awards that are currently unvested and that are not deemed to be shares beneficially owned by Mr. Eccher. |
| (5) |
| Consists of: (i) |
| (6) |
| Consists of: (i) |
14
| (7) |
| Consists of: (i) |
| (8) |
| Consists of: (i) |
| (9) |
| Consists of: |
| (10) |
| Consists of: (i) 10 shares held with Mr. Pilmer as custodian; (ii) |
| (11) |
| Consists of: (i) |
| (12) |
| Consists of: (i) |
| (13) |
| Consists of: (i) 22,000 shares held in a brokerage account; (ii) 3,500 shares held in an IRA; |
| (14) |
| Consists of: (i) 2,500 shares held outright in Ms. Temple Rocks’ name; and (ii) |
16
| (15) |
| This information is based solely on the Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 5, |
| (16) | This information is based solely on the Schedule 13G/A filed by The Banc Funds Company, LLC with the SEC on February 13, 2020, reporting that Banc Fund X L.P. has sole voting and dispositive power over 234,092 shares, Banc Fund VIII L.P., has sole voting and dispositive power over 1,419,629 shares and Banc Fund IX L.P. has sole voting and dispositive power over 522,042 shares. The Schedule 13G/A also reports that Charles J. Moore, as the manager Banc Fund X L.P, and Banc Fund VIII L.P and Banc Fund IX L.P has voting and dispositive power over all of the shares held by those entities. The Bank Funds Company, L.L.C. business address is 20 North Wacker Drive, Suite 3300, Chicago, IL 60606. |
SECURITY 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that our directors, executive officers and ten percent stockholders file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the Section 16(a) reports furnished to us with respect to 2018 and written representations from our executive officers and directors, we believe that all Section 16(a) filing requirements applicable to each covered person were satisfied during 2018, except for a late Form 4 filed by Gary Collins on February 20, 2018 that reported dividend reinvestment transactions that occurred between September 2017 and December 2017; and a late Form 4 filed by Keith Gottschalk on January 2, 2019, that reported a sale transaction that occurred on May 11, 2018, that was inadvertently not reported by the broker.
1715
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A”) is intended to assist our shareholdersstockholders in understanding our compensation programs, the philosophy underlying our compensation strategy and the fundamental elements of the compensation paid to our “named executive officers” whose 20182019 compensation information is provided in the tables following this discussion. Our named executive officers as of December 31, 2018,2019, are noted in the following table, along with their current titles:
| | |
Name | Title | |
James Eccher | | President and Chief Executive Officer of the Company and the Bank |
Bradley Adams | | Executive Vice President, Chief Financial Officer |
Gary Collins | | Vice Chairman |
Donald Pilmer | | Executive Vice President, |
Keith Gottschalk | | Executive Vice President, Digital Banking Services |
|
|
|
Introduction
Our CD&A is organized as follows:
| Overview and Executive Summary. We provide background context and financial and operational highlights that puts our overall disclosure into perspective. |
| Objectives of Our Compensation Program. The objectives of our executive compensation program are based on our business model and the competitive pressures we face in attracting and retaining executive talent. We structure our executive compensation program to reflect our compensation philosophy and related operating principles. |
| Elements of Compensation. The key components of our compensation program are base salary, annual |
| Severance and Change in Control Arrangements. We provide certain severance benefits in the event of Mr. Eccher’s involuntary termination and |
| Compensation Process. Our executive compensation program is regularly reviewed by the Compensation Committee to ensure that we meet our compensation objectives and to ensure that our compensation program does not pose material risks to the Company. |
| Analysis of |
| Regulatory Considerations. We consider guidance established by the Federal Deposit Insurance Corporation (the “FDIC”) and other bank regulatory agencies, in addition to various other regulatory requirements, in making decisions about executive compensation. |
Overview and Executive Summary
Business Overview. The Company, through its banking subsidiary, providesWe provide lending, deposit, and trust services for businesses and individuals. We offer competitive commercial and personal banking products and are committed to providing superior customer service. We place a high priority on community service and are actively involved with many civic and community projects in the communities where we conduct our business. We operate in an intensely competitive and uncertain business environment. From a business perspective, not only do we compete with numerous companies in our markets for customers, but we also compete with many different types and sizes of organizations for
18
senior leadership capable of executing our business strategies. Among other challenges, our business model requires experienced leaders with banking and operational expertise who are capable of taking on high levels of personal responsibility in an ever‑evolvingever-evolving banking industry and economy.
16
Financial and Operational Performance. During 2018,2019, we continued our emphasis on sustaining profitability and growth as primary objectives.growth. Specific accomplishments in 20182019 that directly impacted those objectives include:
| Net income of $39.5 million for 2019, compared to $34.0 million for |
| ● | An efficiency ratio of 61.44% in 2019, compared to |
|
|
Overview of Performance Metrics.In 2018,2019, our Compensation Committee selected, among others, corporate performance metrics for our annual incentive plan based on our (a) adjusted net income, which excludes after-tax acquisition related costs, and was earned at 115% of target based on our 2018 adjusted net income of $36.7 million, and (b) adjusted efficiency ratio, which was earned at 110% of target based on our adjusted efficiency ratio of 58.94% at year-end 2018. The adjusted efficiency ratio is calculated as noninterest expense, excluding OREO expenses, amortization of core deposits and acquisition related costs divided by the sum of net interest income on a fully tax equivalent basis, total noninterest income less net gains and losses on securities and includes a tax equivalent adjustment on the increase in cash surrender value of bank-owned life insurance.
| ● | Adjusted net income, which excluded after-tax losses on mortgage servicing rights, after-tax net security gains, and bank-owned life insurance (“BOLI”) death benefits, and was earned at 110% of target based on our 2019 adjusted net income of $37.2 million; and |
| ● | Adjusted efficiency ratio, which was earned at 87.45% of target based on our adjusted efficiency ratio of 59.00% at year-end 2019. Our adjusted efficiency ratio was calculated as noninterest expense, excluding OREO expenses and amortization of core deposits, divided by the sum of net interest income on a fully tax equivalent basis, and total noninterest income less net gains and losses on securities, net losses on mortgage servicing rights, and including a tax equivalent adjustment on the increase in the cash surrender value of BOLI. |
Overview of Our Executive Compensation Programs. The Company and the Bank share an executive management team, the members of which are compensated by the Bank rather than the Company.team. The compensation packages of our named executive officers are determined and approved by our Compensation Committee based on their performance and roles for both the Company and the Bank.
We are committed to paying for performance. This commitment is reflected by the significant portion of our named executive officers’ compensation that is provided through performance‑basedperformance-based programs. Our executive compensation programs evolve and are adjusted over time to support theour business goals of the Company and the Bank and to promote both near‑near- and long‑termlong-term profitable growth. Total compensation for each named executive officer varies with performance in achieving financial and nonfinancial objectives.
Accordingly, our executive compensation, particularly metrics for the organization’s short‑termour short-term incentive plans, focused on the following goals and accountabilities: our and the Bank’s net income growth; the Bank’s loan growth; asset‑creditasset-credit quality risk reduction and a reduction in classified assets; cost savings initiatives; and specific profit center performance. These metrics were prudently designed to contain and minimize risk while at the same time emphasizing growth and profitability.
Say‑on‑Pay.Say-on-Pay. OfAt our 2019 annual meeting, approximately 97.4% of the votes cast on ourthe say-on-pay proposal at our 2018 annual meeting, 97% votedwere in supportfavor of approving the compensation of our named executive officers. Our board and the Compensation Committee pay careful attention to communications received from stockholders regarding executive compensation, including the non‑binding advisoryresults of the say-on-pay vote. The Compensation Committee believes that these voting results reflect strong confidence in our board to exercise good judgement in structuring thoughtful executive compensation programs that benefit our stockholders. We considered the result of the 20182019 advisory vote on executive compensation but not for specific 20182019 compensation decisions. Based on this consideration and the other factors described in this CD&A, the Compensation Committee did not alter the policies or structure for named executives’ compensation for 2018.2019.
Objectives of Our Compensation Program
The goal of our compensation program is to align the interests of management with those of our stockholders while minimizing undue risk‑taking.risk-taking. The Compensation Committee has designed our executive compensation program in a manner that does not provide our executives with incentives to engage in business activities or other behavior that would threaten our value or the investments of our stockholders.
The executive compensation program is intended to accomplish the following objectives:
| pay for performance; |
19
| tie equity compensation to |
| align the financial interests of our named executive officers with those of our stockholders; |
| maintain a corporate environment that encourages stability and a |
17
| maintain a program that: |
o | clearly motivates personnel to perform and succeed according to our current goals; |
o | attracts and retains key personnel critical to our |
o | does not encourage undue |
| ensure that management: |
o | fulfills its oversight responsibility to its constituents which include stockholders, customers, employees, the community and government regulatory agencies; |
o | conforms its business conduct to the highest ethical standards; |
o | remains free from any influences that could impair or appear to impair the objectivity and impartiality of its judgments or treatment of our constituents; and |
o | continues to avoid any conflict between its responsibilities to us and each individual’s personal interests. |
Below we summarize certain governance practices we have implemented to drive performance and those we
have not implemented because we do not believe they would serve our stockholders’ long-term interests.
What We Do | |
Pay-for-Performance | We have structured compensation so that a meaningful portion of pay for our executive officers is subject to the attainment of key performance objectives. |
Risk Management | We annually review our compensation programs to ensure that they do not encourage excessive risk-taking. |
Caps on Annual Cash Incentive Payments | We have appropriate caps on annual cash incentive payments. |
Stock Ownership Guidelines | We maintain stock ownership guidelines of 3x salary for our chief executive officer and 3x annual retainer for our non-employee directors. |
Double Trigger Change in Control Provisions | Our change in control provisions require a double trigger. |
Compensation Consultant | We engage an independent compensation consultant to assist in the development of our executive compensation program and to provide information on market trends and developments. |
What We Don’t Do | |
No Tax Gross-Ups | We do not provide our executive officers excise tax gross-ups on benefits or under any change in control provisions or agreements. |
No Excessive Perquisites | We do not offer excessive perquisites and those perquisites we do offer are limited and primarily serve to enhance our executives’ business development activities. |
No Hedging or Pledging | We prohibit hedging of the pledging of our securities of our securities in a margin account or as collateral for a loan. |
No Repricing of Options | Our Equity Incentive Plan prohibits repricing of underwater options without prior stockholder approval |
18
Elements of Compensation
Our named executive officers’ compensation program consists of four main components: (i)(a) base salary, (ii)(b) annual cash incentives, (iii)(c) equity awards, and (iv)(d) additional benefits.
The Compensation Committee’s decisions regarding each of the components for the named executive officers are based in part on the Compensation Committee’s subjective judgment and take into accountconsider qualitative and quantitative factors, as discussed below. In reviewing an executive officer’s compensation, the Compensation Committee considers and evaluates all components of the officer’s total compensation package. This involves reviewing base salary, bonus/cash incentives, equity incentive awards, perquisites, participation in our non‑qualifiednon-qualified executive plans, participation in our 401(k) plan and any other payments, awards or benefits that an officer earns. Additionally, the Compensation Committee takes into consideration any amounts an executive officer is entitled to upon retirement, termination or a change‑in‑controlchange-in-control event.
The following overview explains the structure and rationale of the elements of compensation used for 2018.2019.
Base Salary. The Compensation Committee believes that base compensation should offer security to each executive sufficient to maintain a stable management team and environment. In establishing an executive officer’s initial base salary the Compensation Committee considers, among other things, the executive’s level of responsibility, prior experience, breadth of knowledge, the competitive salary practices at peer companies, internal performance objectives, education, internal pay equity, potential bonus and equity awards, level of benefits and perquisites and the tax deductibility of base salary.
The Compensation Committee reviews salaries of the named executive officers on an annual basis. As with all of its decisions regarding compensation levels, when reviewing salaries the Compensation Committee considers the levels of all aspects and components of the officer’s compensation, including the individual’s potential bonus and equity awards as well as the level of benefits and perquisites offered. All of these factors are considered on a subjective basis in the aggregate, and none of the factors is accorded a specific weight.
20
Annual Cash Incentives. The Compensation Committee believes that annual cash incentive compensation is an integral component of our total compensation program that links executive decision‑makingdecision-making and performance with our annual strategic objectives. We use this component to focus management on the achievement of corporate financial goals while considering the mitigation of any risks which may affect our overall financial performance.
OnIn February 20, 2018,2019, the Compensation Committee approvedestablished performance metrics under the Old Second Bancorp, Inc. Executive Annual Incentive Plan, which we refer to as our “Incentive Plan.” Under the Incentive Plan, as soon as practicable at the beginning of each fiscal year, the Compensation Committee, in consultation with our Chief Executive Officer, selects key performance objectives, which will be used to determine the actual incentive cash payment to be awarded to our executive officers upon the achievement of the selected performance objectives. Generally speaking, performance targets are set so that improvement in a performance objective is necessary in order to receive any or all of the incentive award with respect to that objective. In addition, under the Incentive Plan, in order to be eligible for a cash incentive payment with respect to a particular year, the executive must also meet the expectations of his position during such year.
Maximum incentive opportunities are capped under the Incentive Plan to avoid encouraging excessive risk‑takingrisk-taking and to avoid any focus on maximizing short‑termshort-term results at the expense of our long‑termlong-term soundness.
Equity Awards. The Compensation Committee believes that senior management equity ownership effectively aligns the interests of senior management with those of our stockholders. Accordingly, we have implemented equity‑basedequity-based incentives to both encourage our management’s long‑termlong-term service and give management a more direct interest in our future success. The equity incentive plan in effect in 2018,2019, which was approved by our stockholders in 2014, and amended in 2016on May 21, 2019 (the “Equity Incentive Plan”), authorizes the granting of qualified stock options, non‑qualifiednon-qualified stock options, restricted stock, restricted stock units and stock appreciation rights.
All awards are at the discretion of the Compensation Committee and are generally subjective in nature. In determining the number of equity awards to be granted to executive officers, the Compensation Committee considers individual and corporate performance goals and achievement as measured by those goals, the executive’s position and his or her ability to affect profits and stockholder value, as well as the level of awards granted to individuals with similar positions at our peer organizations. Because of the nature of equity awards, the Compensation Committee also evaluates prior awards of stock options and restricted stock and takes into accountconsiders the overall wealth accumulation of a given executive officer through such awards.
As discussed below in “Analysis of 20182019 Compensation—Long-Term Equity Compensation,” in 2018,2019, the Compensation Committee granted our named executive officers service-based restricted stock units that are subject to three-year cliff vesting. In
19
addition, with respect to Mr. Eccher, Mr. Adams and Mr. Collins, in 2018, the Compensation Committee awarded performance-based restricted stock units subject to specified performance conditions.conditions to be measured over the three year period ending December 31, 2020.
Additional Benefits
Retirement Benefits. We sponsor a tax‑qualifiedtax-qualified 401(k) savings plan and trust intended to be qualified under Section 401(k) of the Internal Revenue Code. Virtually all employees are eligible to participate after meeting certain age and service requirements. Eligible employees are permitted to contribute up to a dollar limit set by law. Participants can choose between several different investment options under the 401(k) plan, including shares of our common stock.
During 2018,2019, we provided a matching contribution on elective deferrals to eligible participants in an amount equal to 100% of the first 3% of each participant’s contributions, and 50% of the next 2% of the participant’s contributions. There is also a profit‑sharingprofit-sharing portion of the 401(k) plan which provides for an annual discretionary contribution to the retirement account of each employee based in part on our profitability in a given year and on each participant’s annual compensation. The contribution amount granted each year is on a discretionary basis and there is no set formula used by the Compensation Committee. For 2018,2019, the Compensation Committee elected not to make a discretionary profit sharing contribution.
Deferred Compensation. We sponsor an executive deferred compensation plan (the “Executive Deferred Compensation Plan”), which provides a means for certain executives to voluntarily defer all or a portion of their salary and/or bonus, if any, without regard to the statutory limitations applicable to tax‑qualifiedtax-qualified plans, such as our 401(k) plan. The Executive Deferred Compensation Plan provides for participant deferrals, company matching contributions and discretionary employer profit‑sharingprofit-sharing contributions. A company matching contribution is credited to the plan on behalf
21
of a participant when the participant elects to defer the maximum amount permitted under the 401(k) plan (including catch‑upcatch-up contributions, if applicable) and keeps that level of deferral for the entire plan year. The company matching contribution is an amount up to 3%, provided at least a 6% deferral was met, of the participant’s combined base salary and bonuses, less any matching contribution paid to the 401(k) plan on the participant’s behalf. The determination of whether a profit‑sharingprofit-sharing contribution is made and in what amount is entirely at the Compensation Committee’s discretion and there is no set formula. Participants are permitted to make hypothetical investments with respect to their account balances. The participants may select such hypothetical investments from an array of publicly‑tradedpublicly-traded mutual funds that are held in an insurance company separate account. Participants may elect to receive their Executive Deferred Compensation Plan balance in a lump sum or in installments. Participants may make a withdrawal from the plan during their employment in the event of hardship as approved by the plan’s administrator. The plan is administered through an independent service provider. Messrs. Eccher, Collins, Adams, and Gottschalk currently have account balances under the Executive Deferred Compensation Plan.
Perquisites and Other Benefits. We provide general and customary benefit programs to executive officers and other employees. Benefits offered to executives are intended to serve a different purpose than base salary, bonus, cash incentive and equity incentive awards. While the benefits offered are competitive with the marketplace and help attract and retain executives, the benefits also provide financial security for employees for retirement as well as in the event of illness, disability or death. The benefits we offer to executive officers are generally those offered to other employees with some variation to promote tax efficiency and replacement of benefit opportunities lost to regulatory limits although there are some additional perquisites that may only be offered to executive officers. Because of the nature of the benefits offered, the Compensation Committee normally does not adjust the level of benefits offered on a year‑to‑yearyear-to-year basis. We will continue to offer benefits, the amount of which shall be determined from time‑to‑timetime-to-time in the sole discretion of the Compensation Committee.
The following table summarizes the benefits and perquisites we do and do not provide as well as identifies those employees that may be eligible to receive them:
| | | | | | |
| Executive | Other Designated | Full-Time | |||
Health Plans: | |
| |
| |
|
| | |||||
Life & Disability Insurance | | X | | X | | X |
Medical/Dental/Vision Plans | | X | | X | | X |
Retirement Plans: | | | | | | |
401(k) Plan/ | | X | | X | | X |
Deferred Compensation Plan | | X | | X | | Not Offered |
Perquisites: | | | | | | |
Car Allowance | | X | | Not Offered | | Not Offered |
Country Club Membership | | X | | Not Offered | | Not Offered |
20
It is our belief that perquisites for executive officers should be very limited in scope and value. Due to this philosophy, we have generally provided very nominal benefits to executives that are not available to full‑timefull-time employees, and we plan to continue this approach in the future. We do provide country club memberships to certain executives and managers in the ordinary course of business to give them the opportunity to bring in and recruit new business opportunities. These individuals are eligible to use the club membership for their own personal use. Additionally, we provide Messrs. Eccher, Adams, Collins and Pilmer with an automobile allowance to enable them to visit our banking locations on a regular basis as well as to call on our customers. We have disclosed the value of all perquisites to named executive officers in the Summary Compensation Table even if they fall below the disclosure thresholds under the SEC rules. We will continue to offer perquisites, the amount of which shall be determined from time‑to‑timetime-to-time in the sole discretion of the Compensation Committee.
Severance and Change in Control Arrangements
Employment Agreements and Compensation and Benefits Assurance Agreements. Under his employment agreement, we provide Mr. Eccher with certain “double trigger” severance benefits in the event of his involuntary termination following a change in control, as well as salary continuation following certain other involuntary terminations. We have also entered into Compensation and Benefits Assurance Agreements with each of our other named executive officers which also provide “double trigger” severance benefits in the event of a qualifying termination
22
following a change in control. We believe these agreements help us recruit and retain executives with the experience, skills, knowledge and background needed to achieve our business goals and strategy. For a detailed description of the severance and change in control benefits applicable to our named executive officers, see the discussion below under “Potential Payments Upon Termination or Change in Control.”
Acceleration of Equity Awards. All employees, including our named executive officers, who receive equity awards under our Equity Incentive Plan will immediately vest in any unvested equity awards held by such employees upon the occurrence of a change in control if (i)(a) the equity plan and the respective awards are not assumed by the surviving entity or (ii)(b) the plan and the respective awards are assumed by the surviving entity but the individual is terminated without cause or resigns for good reason. Additionally, under the terms of the Employment Agreement and Assurance Agreements noted above and described in greater detail below, all equity awards held by a named executive officer will become vested and exercisable upon a qualifying termination following a change in control.
No Tax Gross‑Ups.Gross-Ups. We do not provide excise tax gross‑upsgross-ups on benefits under any change in control provisions or other agreements. All of our named executive officers currently have employment agreements or Compensation and Benefits Assurance Agreements that provide that in the event the officer would be subject to excise tax for any amounts payable under such agreement, the amounts to be paid will be reduced to such lesser extent that would result in no portion of such amounts being subject to excise taxes.
Compensation Process
The Compensation Committee has overall responsibility for evaluating the compensation plans, policies and programs relating to our executive officers. Further, as required by guidance issued by the Federal Reserve and other financial institution regulatory agencies, and the SEC’s guidance regarding risk associated with compensation arrangements (each as described more fully below), the Compensation Committee is also responsible for a more expansive risk review with respect to the compensation plans, policies and programs maintained for our employees.
During 2018,2019, the Compensation Committee convened in February, May and March.December. Mr. Ladowicz, as Chairman of the Compensation Committee, also met, as needed, with internal staff members to compile compensation information for this proxy statement. The Compensation Committee also met in February and again in March 20192020 to approve salaries, incentive plans and performance metrics for 2019,2020, as well as approving officer incentives earned during 2018.2019.
Role of Compensation Consultant. The Compensation Committee’s charter gives it the authority to delegate its responsibility to members or subcommittees of the Compensation Committee. Also, the charter gives the Compensation Committee the authority to hire outside consultants to further its objectives and responsibilities. In prior years, the Compensation Committee has retained ChaseCompGroup LLC to provide services in connection with a review and analysis of compensation paid to our named executive officers and board of directors. In keeping with the Compensation Committee’s philosophy of comparing our compensation with that of the competitive marketplace on an annual basis, the Compensation Committee retained ChaseCompGroup LLC in 20182019 to provide an updated market analysis of our executive compensation program. In 2019, the Compensation Committee also engaged McLagan Partners, Inc. for select executive compensation analysis, including executive compensation review, incentive plan review, and peer group review.
Role of Executive Officers. The Compensation Committee relies upon the input of management, when carrying out its responsibilities in establishing executive compensation. The Compensation Committee relies on Mr. Eccher’s input in establishing
21
compensation for our named executive officers other than himself. Management provides the Compensation Committee with evaluations as to employee performance, guidance on establishing performance targets and objectives and recommends salary levels and equity awards. The Compensation Committee also consults with management on matters that are relevant to executive compensation and benefit plans where board or stockholder action is expected, including the adoption of new plans or the amendment of existing plans. Finally, the Compensation Committee consults with our management, specifically the Bank’s SeniorChief Risk Officer, in completing the risk review with respect to employee compensation plans. No executive officer participates in any recommendation, discussion or decision regarding his or her own compensation.
Peer Group. Market pay practices are one of many factors we consider in setting executive pay levels and designing compensation programs. Information on pay levels and practices is gathered from a group of publicly traded companies selected based on their business focus, scope and location of operations, size and other considerations. The Company’sOur peer group of 1623 financial institutions was jointly presented by ChaseCompGroup LLC and management and approved by the Compensation Committee. The group is periodically reviewed, with changes made to reflect merger
23
and acquisition activity, financial situation and development, and other considerations. The institutions included in the peer group for 20182019 include:
| | |
Wintrust Financial Corporation MB Financial, Inc. First Midwest Bancorp, Inc. First Financial Bancorp First Busey Corporation Park National Corporation 1st Source Corporation Enterprise Financial Services Corp. Lakeland Financial Corporation MainSource Financial Group, Inc. Midland States Bancorp, Inc. QCR Holdings, Inc. |
| Peoples Bancorp Inc. Merchants Bancorp Byline Bancorp, Inc. Mercantile Bank Corporation First Financial Corporation First Defiance Financial Corp. First Independent Bank Corporation Farmers National Banc Corp. First Business Financial Services, Inc. BankFinancial Corporation |
Analysis of 20182019 Compensation
This section describes the decisions made by the Compensation Committee with respect to the compensation for our named executive officers for 2018.2019.
Base Salary. We annually review the base salaries of the named executive officers to determine whether or not they will be adjusted, as described above. The salaries for 2018,2019, determined by the Compensation Committee at the beginning of 2018,2019, are set forth in the Summary Compensation Table below. In determining base salary levels, we generally considered the following:
| the compensation philosophy and guiding principles described above; |
| the general economic factors in the financial industry beyond our control and our financial performance compared to our peers; |
| the experience and industry knowledge of our named executive officers and the quality and effectiveness of their leadership; |
| all of the components of executive compensation, including annual cash incentives, equity awards, retirement and death benefits, as well as other benefits and perquisites; and |
| internal pay equity among our executives. |
22
The following table details the base salary of our named executive officers for the periods presented. In early
| | | | | | | | |
| | |
| 2018 |
| 2019 |
| Percent |
Name |
| Position |
| ($) |
| ($) |
| Change (%) |
James Eccher |
| President and Chief Executive Officer | | 505,050 | | 535,353 | | 6.0 |
Bradley Adams |
| Executive Vice President, Chief Financial Officer | | 308,250 | | 320,580 | | 4.0 |
Gary Collins |
| Vice Chairman | | 308,250 | | 316,727 | | 2.8 |
Donald Pilmer |
| Executive Vice President, Chief Lending Officer | | 269,216 | | 276,620 | | 2.8 |
Keith Gottschalk |
| Executive Vice President, Digital Banking Services | | 266,267 | | 225,000 | | (15.5) |
For 2019, the Compensation Committee determinedmodestly increased the base salaries for our named executive officers for 2019. In determining the base salaries for 2019, we considered the same general factors discussed above including the growth in our earnings, return on average assetssalary of Mr. Eccher, Mr. Adams, Mr. Collins and overall assets.
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2018 |
| 2019 |
Name |
| Position |
| ($) |
| ($) |
| ($) |
James Eccher |
| President and Chief Executive Officer |
| 481,000 |
| 505,050 |
| 535,353 |
Bradley Adams |
| Executive Vice President and Chief Financial Officer |
| 300,000 |
| 308,250 |
| 320,580 |
Gary Collins |
| Vice Chairman |
| 300,000 |
| 308,250 |
| 316,727 |
Donald Pilmer |
| Executive Vice President and Chief Lending Officer |
| 261,375 |
| 269,216 |
| 276,620 |
Keith Gottschalk |
| Executive Vice President, Digital Banking Services |
| 261,046 |
| 266,267 |
| 266,267 |
24
For 2019 and 2018, the Compensation Committee increased Mr. Eccher’s base salary by 6.0% and 5.0%, respectively,Pilmer based on our overall company and his individual performance. Mr. Adam’s base salary was increased by 4.0% and 2.75% for 2019 and 2018, respectively, due to overall companycorporate performance, andincluding the successful completion of the 2018 acquisition of Greater Chicago Financial Corp. (“GCFC”)/ABC Bank. Mr. Collin’s base salary was increased by 2.75% in both 2019 and 2018, due to overall company performance and successful completion of the GCFC/our merger with ABC Bank, acquisition.and each officer’s own individual performance. In addition, Mr. PilmerPilmer’s increase also received merit increasesrelated to growth in base salary of 2.8% and 3.0% in 2019 and 2018, respectively, due primarily to commercial loanloans and commercial treasury management growth.management. Mr. Gottschalk’s base salary declined in 2019 compared to 2018 commensurate with a change in his responsibilities.
Annual Cash Incentive Payments. As discussed above, under our Incentive Plan, the Compensation Committee, in consultation with our Chief Executive Officer, selects key performance objectives, which will be used to determine the actual incentive cash payment to be awarded to our executive officers upon the achievement of the selected performance objectives. In addition, under the Incentive Plan, the Compensation Committee also determines each executive officer’s target incentive opportunity, expressed as a percentage of base salary.
For 2018,2019, the Compensation Committee set the target potential incentive payment, expressed as a percentage of base salary, as follows:
|
|
|
|
| ||||
|
| Percentage of |
| Target Incentive | ||||
|
| Base Salary |
| Payment | ||||
| | | | | ||||
|
| Percentage of |
| Target Incentive | ||||
| | Base Salary | | Payment | ||||
Name |
| (%) |
| ($) | | (%) | | ($) |
James Eccher |
| 55 |
| 277,778 |
| 55 | | 294,444 |
Bradley Adams |
| 50 |
| 154,125 |
| 50 | | 160,290 |
Gary Collins |
| 40 |
| 123,300 |
| 40 | | 126,691 |
Donald Pilmer |
| 40 |
| 107,686 |
| 40 | | 110,648 |
Keith Gottschalk |
| 40 |
| 106,507 |
| 35 | | 78,750 |
For 2018,2019, the Compensation Committee selected five performance objectives, as identified in the following table (and described in more detail below), and assigned a weight for each performance objective, stated as a percentage of the total target incentive payment.
25
The performance objectives chosen by the Compensation Committee and the assigned weight for each objective for 20182019 performance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Adjusted |
| Organic |
| Adjusted |
| Adjusted |
| Department/ |
|
|
| |||||||||||||
|
| Net Income |
| Loan |
| Classified |
| Efficiency |
| Personal |
|
|
| |||||||||||||
|
| Growth |
| Growth |
| Assets Ratio |
| Ratio |
| Performance |
| Total(1) |
| |||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| Adjusted |
| Organic |
| Adjusted |
| Adjusted |
| Department/ |
| |
| |||||||||||||
| | Net Income | | Loan | | Classified | | Efficiency | | Personal | | |
| |||||||||||||
| | Growth | | Growth | | Assets Ratio | | Ratio | | Performance | | Total(1) |
| |||||||||||||
Name |
| (%) |
| (%) |
| (%) |
| (%) |
| (%) |
| (%) |
| | (%) | | (%) | | (%) | | (%) | | (%) | | (%) | |
James Eccher |
| 35 |
| - |
| 5 |
| 5 |
| 10 |
| 55 |
|
| 40 | | - | | 10 | | 5 | | - | | 55 | |
Bradley Adams |
| 30 |
| - |
| - |
| 10 |
| 10 |
| 50 |
|
| 35 | | - | | - | | 10 | | 5 | | 50 | |
Gary Collins |
| 25 |
| - |
| - |
| 5 |
| 10 |
| 40 |
|
| 30 | | - | | 5 | | 5 | | - | | 40 | |
Donald Pilmer |
| 20 |
| 5 |
| 5 |
| - |
| 10 |
| 40 |
|
| 20 | | 5 | | 10 | | - | | 5 | | 40 | |
Keith Gottschalk |
| 15 |
| 5 |
| - |
| 5 |
| 15 |
| 40 |
|
| 15 | | - | | - | | 5 | | 15 | | 35 | |
| (1) |
| Represents each officer’s target incentive payment expressed as a percentage of their base salary. As discussed below, under the incentive plan, the Committee has set threshold and maximum performance levels for certain objectives. |
The Compensation Committee established threshold, target and maximum performance levels and weights for each selected corporate goal. Threshold represents the minimum level of performance at which, if achieved, a payment is earned on each corporate goal. If performance is below the threshold level for any particular corporate goal, no payment will be earned; however, payment will be earned for other corporate objectives that are achieved at least at a threshold level of performance. Maximum represents the maximum level of performance at which, if achieved, a maximum payment is earned on each corporate goal. If performance exceeds the maximum level for any corporate goal, no further incentive above the maximum incentive for such corporate goal is earned. Actual performance
23
between threshold, target and maximum performance levels will be interpolated to determine the amount of payment based on relative achievement of the corporate objectives.
How we defined each of these corporate objects is set forth below.
Adjusted Net Income Growth
Each named executive officer participating in the incentive plan had a portion of their annual incentive tied to this performance objective in 2018.2019. The Compensation Committee believes that our growth, as measured by our adjusted net income, is an appropriate performance measure because it focuses on our financial performance, which in turn affects stockholder value. The Compensation Committee defined adjusted net income in 20182019 as net income, excluding after-tax acquisition related costs. Thelosses on mortgage servicing rights, after-tax net security gains, and BOLI death benefits. In addition, the Compensation Committee defined a return on average assets (“ROAA”) metric for our performance, defined as net income divided by average assets, as compared to our peer group. The ROAA metric superseded the adjusted net income in 2018performance metric if we performed as net income, excluding adjustments to income tax expense due to deferred tax asset revaluations stemming from tax rate changes atwell as, or better than, the Federal and State levels, and the after-tax effectROAA median of acquisition related costs.our peer group.
The Compensation Committee applied the following scale to determine how much of the total assigned weight for this performance objective each named executive officer could receive based on our net income:
|
|
|
|
|
|
|
|
|
| Percent of |
|
|
|
|
| Assigned |
|
Adjusted Net Income |
| Notes |
| Weight (%) |
|
$24.2 million |
| 5% over 2017 net income |
| 40 | (1) |
$25.4 million |
| 10% over 2017 net income |
| 60 |
|
$26.6 million |
| 15% over 2017 net income |
| 80 |
|
$29.4 million |
| Budgeted net income for 2018 |
| 100 | (2) |
ROAA |
| Peer group >25% but <50% |
| 110 |
|
ROAA |
| Peer group median |
| 115 | (3) |
| | | | | |
| | Percent of | |||
| | | | Assigned | |
Adjusted Net Income | | Notes | | Weight (%) | |
$35.2 million | 3% over 2018 net income | 40 | (1) | ||
$35.8 million | 5% over 2018 net income | 60 | | ||
$36.5 million | 7% over 2018 net income | 80 | | ||
$39.7 million | Budgeted net income for 2019 | 100 | (2) | ||
ROAA | Peer group median | | 110 | | |
ROAA | Peer group median > 50% | 115 | (3) |
| (1) | Represents the threshold level of performance necessary to earn any portion of this objective, which will result in 40% of the assigned weight being earned. |
| (2) |
| Represents the target level of performance for this objective, which will result in 100% of the assigned weight being earned. |
26
| (3) |
| Represents the maximum level of performance for this objective, which will result in 115% of the assigned weight being earned. The median return on average assets, or ROAA, for all peers listed in the Compensation Process – Peer Group as detailed above, was used as a baseline for this metric. |
Our adjusted net income in 20182019 was $36.7$37.2 million, which resulted in adjustedand our reported net income was $39.5 million. However, our ROAA was in excess of our peer group median, ROAA.but less than 50% above our peer group median. Accordingly, each named executive officer earned 115.0%110.0% of the assigned weight for this performance objective.
Loan Growth
Both Mr. Pilmer and Mr. Gottschalk had a commercial loan growth performance objective that was measured based on achievement of 100% of6.6% over 2018 budgeted loan growth over 2017.total commercial loans. The Compensation Committee set a threshold of 70%75% of budget to achieve a 50% performance measurement, and a maximum of 110% of budget to achieve 110% performance measurement. Accordingly, growth below the threshold level would result in no payment for this objective and growth above the maximum level would result in payment at the maximum level. We did not achieve these objectives and, therefore, Mr. Pilmer and Mr. Gottschalk earned 0% of the assigned weight for this performance objective.
Mr. Pilmer had a24
The commercial loan growth performance objective that was measured based on 20182019 budgeted organic growth, excluding acquired loans, over 20172018 results, as detailed in the following table.
|
|
|
|
|
|
2018 Budgeted Organic |
| As a % of |
| Percent of |
|
Commercial Loan Growth |
| Budget |
| Assigned Weight |
|
(%) |
| (%) |
| (%) |
|
4.41 |
| 70 |
| 50 | (1) |
5.67 |
| 90 |
| 75 |
|
6.30 |
| 100 |
| 100 | (2) |
6.93 |
| 110 |
| 110 | (3) |
| | | | | |
2019 Budgeted Organic |
| As a % of |
| Percent of |
|
Commercial Loan Growth | | Budget | | Assigned Weight | |
(%) | | (%) | | (%) |
|
4.95 | | 75 | | 50 | (1) |
5.61 | | 85 | | 75 | |
6.60 | | 100 | | 100 | (2) |
7.26 | | 110 | | 110 | (3) |
| (1) |
| Represents the threshold level of performance necessary to earn any portion of this objective, which will result in 50% of the assigned weight being earned. |
| (2) |
| Represents the target level of performance for this objective, which will result in 100% of the assigned weight being earned. |
| (3) |
| Represents the maximum level of performance for this objective, which will result in 110% of the assigned weight being earned. |
Actual commercial loan growth was 4.10%2.71%, which was below the threshold performance level and, therefore, Mr. Pilmer earned 0% of the assigned weight for this performance objective.
Mr. Gottschalk had a retail loan growth performance objective that was measured based on 2018 budgeted organic growth, excluding acquired loans, over 2017 results, as detailed in the following table:
|
|
|
|
|
|
2018 Budgeted Organic |
| As a % of |
| Percent of |
|
Retail Loan Growth |
| Budget |
| Assigned Weight |
|
(%) |
| (%) |
| (%) |
|
0.70 |
| 70 |
| 50 | (1) |
0.90 |
| 90 |
| 75 | (2) |
1.00 |
| 100 |
| 100 |
|
1.10 |
| 110 |
| 110 | (2) |
|
|
|
|
27
|
|
There was no actual retail loan growth in 2018 compared to 2017, which was below the threshold performance level and, therefore, Mr. Gottschalk earned 0% of the assigned weight for this performance objective.
Asset/Credit Quality
Mr. Eccher, Mr. Collins and Mr. Pilmer each had a performance objective related to asset quality, measured with 50% of the metric related to our adjusted classified assets ratio.ratio and 50% related to the maintenance of a satisfactory asset quality rating with bank regulators. Management monitors a ratio of classified assets as a percent of the sum of Bank Tier 1 capital and the allowance for loan and lease losses, which is referred to as the “classified assets ratio.” The adjusted classified assets ratio is our classified assets ratio, excluding purchased credit impaired loans, nonperforming acquired loans and acquired other real estate owned. The Compensation Committee believes that a continued focus by these executives on our asset/credit quality will ensure that we are working toward sustainable growth and profitability.
|
|
|
|
Adjusted Classified |
| Percent of |
|
Assets Ratio |
| Assigned Weight |
|
(%) |
| (%) |
|
10.75 |
| 50 | (1) |
9.75 |
| 75 |
|
9.11 |
| 100 | (2) |
7.50 |
| 110 | (3) |
| | | |
Adjusted Classified |
| Percent of |
|
Assets Ratio | | Assigned Weight |
|
(%) | | (%) |
|
10.50 | | 50 | (1) |
9.50 | | 75 | |
8.77 | | 100 | (2) |
8.00 | | 110 | (3) |
| (1) |
| Represents the threshold level of performance necessary to earn any portion of this objective, which will result in 50% of the assigned weight being earned. |
| (2) |
| Represents the target level of performance for this objective, which will result in 100% of the assigned weight being earned. |
| (3) |
| Represents the maximum level of performance for this objective, which will result in 110% of the assigned weight being earned. |
At December 31, 2018,2019, our adjusted classified assets ratio was 10.42%11.11%, and, therefore, no incentive was paid out for this component of the metric. However, we did attain a satisfactory rating by the regulators for asset quality. Therefore Mr. Eccher, Mr. Collins and Mr. Pilmer each earned 58.05%50% of the assigned weight for this performance objective.
Adjusted Efficiency Ratio
The Compensation Committee believes that expense control and efficiency of operations is a goal we should continually strive for in order to provide for the best financial return for our stockholders. Further, the Compensation Committee believes that our named executive officers are best situated to impact our efforts in this regard. As such, Mr. Eccher, Mr. Adams, Mr. Collins and Mr. Gottschalk each had a portion of their annual incentive tied to our adjusted efficiency ratio, as noted in the following table. For 2018, the Compensation Committee defined2019, our adjusted efficiency ratio was calculated as our efficiency ratio,noninterest expense, excluding after-tax acquisition related costs.OREO expenses and amortization of core deposits, divided by the sum
25
of net interest income, on a fully tax equivalent basis, and total noninterest income, less net gains and losses on securities and net losses on mortgage servicing rights, and including a tax equivalent adjustment on the increase in the cash surrender value of BOLI.
28
|
|
|
|
Adjusted |
| Percent of |
|
Efficiency Ratio |
| Assigned |
|
(%) |
| Weight (%) |
|
≤ to 65.0 |
| 50 | (1) |
≤ to 62.5 |
| 75 |
|
≤ to 60.5 |
| 100 | (2) |
≤ to 60.0 |
| 110 | (3) |
| | | |
Adjusted | Percent of | ||
Efficiency Ratio | | Assigned | |
(%) | | Weight (%) | |
≤ to 62.0 | 50 | (1) | |
≤ to 60.0 | 75 | | |
≤ to 58.0 | 100 | (2) | |
≤ to 56.0 | 110 | (3) |
| (1) | Represents the threshold level of performance necessary to earn any portion of this objective, which will result in 50% of the assigned weight being earned. |
| (2) |
| Represents the target level of performance for this objective, which will result in 100% of the assigned weight being earned. |
| (3) |
| Represents the maximum level of performance for this objective, which will result in 110% of the assigned weight being earned. |
For 2018,2019, our adjusted efficiency ratio at year‑endyear-end was 58.94%59.00% and, therefore, Mr. Eccher, Mr. Adams, Mr. Collins and Mr. Gottschalk earned 110%87.45% of their applicable assigned weight for this performance objective.
Department and Individual Performance
The Compensation Committee also set performance metrics for each executive,Mr. Adams, Mr. Pilmer and Mr. Gottschalk, related to their respective departments and/or individual performance to promote the leadership and development of our various lines of business. For 2018, Mr. Eccher was evaluated on successful acquisition activity, assimilation of newly acquired staff, and overall cost savings realized, for which he earned 10% of a total possible 10% related to personal goals.2019, Mr. Adams was evaluated on Finance and Accounting Department strategies and efficiencies, and earned 8%0% of a possible 10%. Mr. Collins5% as one large project was evaluated on successful acquisition completion, including technology integration, as well as cost savings stemming from the acquisition, and earned 10% of a possible 10% for this metric.not completed. Mr. Pilmer was evaluated on commercial treasury department income growth, commercial merchant income growth, and commercial deposit growth, and earned 7.5%4.7% of a possible 10%5% for these goals. Mr. Gottschalk was evaluated on the performance of our RetailDigital Banking Department, including retail deposit growth and retail service charge growth,new debit card contract implementation, and earned 5%13% of a possible 15% for this metric.
Total 20182019 Annual Cash Incentive Plan Awards
As outlined above, the Compensation Committee reviewed our performance and the performance of each department and executive officer, as applicable. Based on this review, the Compensation Committee approved awards at an amount equal to an interpolated amount between the total potential threshold incentive and the total maximum incentive for each performance objective (if the threshold performance level was obtained for such objective). Our named executive officers’ actual cash incentive awards for 20182019 are noted in the table below, along with the percentage of the total target incentive each officer achieved.
|
|
|
|
| ||||
|
|
|
| Percentage of | ||||
|
|
|
| Target Incentive | ||||
|
| Actual Award |
| Payment Achieved | ||||
| | | | | ||||
|
| |
| Percentage of | ||||
| | | | Target Incentive | ||||
| | Actual Award | | Payment Achieved | ||||
Name |
| ($) |
| (%) | | ($) | | (%) |
James Eccher |
| 296,212 |
| 106.6 | | 285,731 |
| 97.0 |
Bradley Adams |
| 164,914 |
| 107.0 | | 151,464 |
| 94.5 |
Gary Collins |
| 136,401 |
| 110.6 | | 126,266 |
| 99.7 |
Donald Pilmer |
| 89,918 |
| 83.5 | | 87,690 |
| 79.3 |
Keith Gottschalk |
| 73,889 |
| 69.4 | | 76,214 |
| 96.8 |
Discretionary Cash Bonus. In 2018, the Compensation Committee also awarded a discretionary cash bonus to each of Messrs. Eccher, Adams and Collins of $50,000 for the successful completion of our acquisition of Greater Chicago Financial Corp. and its subsidiary bank, ABC Bank, that closed on April 20, 2018.
29
Long‑TermLong-Term Equity Compensation. In 2018,2019, the Compensation Committee approved equity grants for our named executive officers comprised of both performance-based restricted stock units, or PRSUs, and time-vesting restricted stock units, or TRSUs, as shown in the following table.
|
|
|
|
|
Name |
| PRSUs (#)(1) |
| TRSUs (#) |
James Eccher |
| 40,000 |
| 20,000 |
Bradley Adams |
| 25,000 |
| 8,000 |
Gary Collins |
| 25,000 |
| 8,000 |
Donald Pilmer |
| ― |
| 6,566 |
Keith Gottschalk |
| ― |
| 3,729 |
| | |
Name |
| TRSUs (#) |
James Eccher |
| 22,500 |
Bradley Adams | | 10,196 |
Gary Collins | | 10,196 |
Donald Pilmer | | 7,248 |
Keith Gottschalk | | 2,048 |
We granted performance-based equity awards in 2014, which had a three year performance period that ended on December 31, 2017. In 2018, the Compensation Committee granted new PRSUs in order to provide new long-term incentives and payment for performance.
PRSUs. Under the terms of the PRSU agreement, the PRSUs will vest annually in equal one-third increments over the three year performance period based on our achievement of performance goals determined by the Compensation Committee during the performance period at a threshold, target and maximum performance level, if the named executive officer continues to be employed with the us through the applicable performance period, with accelerated vesting in certain circumstances as described in the “Potential Payments upon Termination or Change in Control” below. The performance metrics selected by the Compensation Committee for the above-referenced awards are:
|
|
26 |
|
|
|
|
|
|
TRSUs. The TRSUs are subject to three‑yearthree-year cliff vesting, with accelerated vesting in certain circumstances as described in the “Potential Payments upon Termination or Change in Control” section below.
The Compensation Committee determined not to grant any performance-based equity awards, or PRSUs, in 2019, given the grants of PRSUs to Mr. Eccher, Mr. Adams and Mr. Collins, in 2018. The 2018 PRSUs have a three year performance period that ends on December 31, 2020. The performance metrics selected by the Compensation Committee for the 2018 PRSUs were (a) cumulative adjusted earnings per share (b) return on tangible common equity, (c) efficiency ratio, and (d) relative stockholder return measured relative to the KBW NASDAQ Regional Banking Index.
Perquisites and Other Benefits. While the Compensation Committee reviews and monitors the level of other compensation offered to the named executive officers, the Compensation Committee typically does not adjust the level of benefits offered on an annual basis. The Compensation Committee does consider the benefits and perquisites offered to the named executive officers in its evaluation of the total compensation received by each. The perquisites received by the named executive officers in 20182019 are reported in the Summary Compensation Table below. The benefits offered in 20182019 to the named executive officers are expected to continue for 2019.2020.
Regulatory Considerations
As a publicly‑tradedpublicly-traded financial institution, we must contend with several often overlapping layers of regulations when considering and implementing compensation‑relatedcompensation-related decisions. These regulations do not set specific parameters within which compensation decisions must be made, but do require the Compensation Committee to be mindful of the risks that often go hand‑in‑handhand-in-hand with compensation programs designed to incentivize the achievement of better than average performance. While the regulatory focus on risk assessment has been heightened over the last several years, the incorporation of general concepts of risk assessment into compensation decisions is not a recent development.
The Compensation Committee continues to believe in and practice a sensible approach to balancing risk‑takingrisk-taking and rewarding reasonable, but not necessarily easily attainable, goals and this has always been a component of its overall assessment of the compensation plans, programs and arrangements it has put in place for our named executive officers.
30
The Compensation Committee believes we have adequate policies and procedures in place to balance and control any risk‑takingrisk-taking that may be incentivized by the employee compensation plans. The Compensation Committee further believes that such policies and procedures will work to limit the risk that any employee would manipulate reporting earnings in an effort to enhance his or her compensation.
In making decisions about executive compensation, in addition to the above, we also consider the impact of other regulatory provisions, including: the provisions of the Internal Revenue codeCode of 1986, as amended (the “Code”), such as Code Section 162(m) that may limit the tax deductibility of certain compensation; Code Section 409A regarding nonqualified deferred compensation; and Code Section 280G regarding excise taxes and deduction limitations on golden parachute payments made in connection with a change in control. In making decisions about executive compensation, we also consider how various elements of compensation will impact our financial results. For example, we consider the impact of FASB ASC Topic 718, which requires us to recognize the compensation cost of grants of equity awards based upon the grant date fair value of those awards.
Code Section 162(m) generally prohibits a federal income tax deduction to public companies for compensation over $1,000,000 paid to a “covered employee.” A “covered employee” includes (a) the Chief Executive Officer, (b) the Chief Financial Officer, (c) the three other most highly compensated executive officers, and (d) any individual who was a covered employee for any taxable year beginning after December 31, 2016. Before 2018, we were permitted to receive a federal income tax deduction for qualifying “performance-based” compensation as defined under Code Section 162(m) without regard to this $1,000,000 limitation. However, recent U.S. tax legislation eliminated the performance-based exception. These new rules became effective starting in 2018 for us. To the extent that in 2018 or any later year, the aggregate amount of any covered employee’s salary, bonus, and amount realized from vesting of restricted stock units or other equity awards, and certain other compensation amounts that are recognized as income for federal income tax purposes by the covered employee exceeds $1,000,000 in any year, we will not be entitled to a U.S. federal income tax deduction for the amount over $1,000,000 in that year. The Compensation Committee has not adopted a formal policy regarding tax deductibility of compensation paid to our executive officers, and may determine it is appropriate to provide compensation that may exceed deductibility limits in order to recognize performance, meet market demands, retain key executives, and take into account other appropriate considerations.
Compensation‑Related27
Compensation-Related Governance Policies
Common Stock Ownership and Retention Guidelines for Our Chief Executive Officer
In order to align the interests of our chief executive officer with our stockholders, we have adopted a policy that requires our chief executive officer to develop a significant equity stake in the company. The Compensation Committee is responsible for monitoring compliance with these stock ownership and retention guidelines.
Under the policy our chief executive officer must acquire and hold shares of our common stock equal in value to at least three times his or her annual base salary. The officer will have five years from the date he or she first becomes subject to these guidelines to achieve these target ownership levels. If the officer acquires share of common stock under our equity-based incentive plans he or she must hold at least 50% of all net after-tax acquired shares until these stock ownership guidelines are satisfied. The following share types are included under these guidelines: shares directly owned, family-owned shares, retirement plan shares and unvested time-based restricted stock. Stock options that are unexercised, regardless of their vesting status and in-the-money value, are not counted toward satisfaction of these guidelines. Unvested performance-based restricted stock is also not counted toward stock ownership. Currently, our chief executive officer is in compliance with these guidelines.
Prohibitions on Hedging and Pledging
We consider it improper and inappropriate for our directors, officers and employees to engage in short-term or speculative transactions in our securities or in other transactions in our securities that may lead to inadvertent violations of the insider trading laws. Accordingly, under our Insider Trading Policy, we prohibit:
The Company has an insider trading policy that prohibits open market transactions in Company stock during the period beginning five business days prior to the end of the fiscal quarter and terminating two full business days after the public announcement of the Company’s current financial results for the most recently ended fiscal quarter or year.
| ● | trade in puts, calls or similar options on any of our securities or the sale of any of our securities “short”; |
| ● | hedging or monetization transactions, such as zero-cost collars and forward sale contracts, which allow a director, officer or employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock; |
| ● | holding our securities in a margin account or pledging our securities as collateral for a loan. |
3128
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the foregoing CD&A with management. Based on the Compensation Committee’s review and discussion with management, the Compensation Committee has recommended to our board of directors that the CD&A be included in this proxy statement and in Old Second’s Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019.
Submitted by:
Mr. John Ladowicz, Chairman
Mr. Edward Bonifas
Mr. William Kane
Mr. Hugh McLean
Ms. Patti Temple Rocks
Members of the Compensation Committee
3229
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non-Equity |
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| Incentive |
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
| Stock |
| Plan |
| Other |
|
| ||||||||||||||||
|
|
|
| Salary |
| Bonus |
| Awards |
| Compensation |
| Compensation |
| Total | ||||||||||||||||
Name and Principal Position(1) |
| Year |
| ($) |
| ($) |
| ($)(2) |
| ($)(3) |
| ($)(4) |
| ($) | ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||
|
| |
| |
| |
| |
| |
| Change in |
| |
| | ||||||||||||||
| | | | | | | | | | | | Pension Value | | | | | ||||||||||||||
| | | | | | | | | | Non-Equity | | and Nonqualified | | | | | ||||||||||||||
| | | | | | | | | | Incentive | | Deferred | | All | | | ||||||||||||||
| | | | | | | | Stock | | Plan | | Compensation | | Other | | | ||||||||||||||
Name and | | | | Salary | | Bonus | | Awards | | Compensation | | Earnings | | Compensation | | Total | ||||||||||||||
Principal Position(1) | | Year | | ($) | | ($) | | ($)(2) | | ($)(3) | | ($)(4) | | ($)(5) | | ($) | ||||||||||||||
James Eccher |
| 2018 |
| 501,042 |
| 50,000 | (5) | 841,000 | (6) | 296,212 |
| 40,665 |
| 1,728,918 |
| 2019 |
| 530,303 |
| - | | 290,475 | | 285,731 | | - |
| 57,333 |
| 1,163,842 |
President and Chief Executive |
| 2017 |
| 474,333 |
| - |
| 271,250 |
| 223,425 |
| 31,779 |
| 1,000,787 |
| 2018 |
| 501,042 |
| 50,000 | (6) | 841,000 | | 296,212 | | - |
| 40,665 |
| 1,728,919 |
Officer |
| 2016 |
| 437,500 |
| - |
| 204,300 |
| 170,888 |
| 32,699 |
| 845,387 |
| 2017 |
| 474,333 |
| - | | 271,250 | | 223,425 | | - | | 31,779 |
| 1,000,787 |
Bradley S. Adams(7) |
| 2018 |
| 306,875 |
| 50,000 | (5) | 463,750 | (6) | 164,914 |
| 26,194 |
| 1,011,733 |
| 2019 |
| 318,525 |
| - | | 131,630 | | 151,464 | | - | | 35,434 |
| 637,053 |
Executive Vice President |
| 2017 |
| 199,038 |
| 100,000 | (5) | 296,250 |
| 163,260 |
| 13,593 |
| 772,141 | | 2018 |
| 306,875 |
| 50,000 | (6) | 463,750 | | 164,914 | | - | | 26,194 |
| 1,011,733 |
and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | 2017 | | 199,038 | | 100,000 | (7) | 296,250 | | 163,260 | | - | | 13,593 | | 772,141 |
Gary Collins(8) |
| 2018 |
| 306,875 |
| 50,000 | (5) | 463,750 | (6) | 136,401 |
| 42,203 |
| 999,228 |
| 2019 |
| 315,314 |
| - | | 131,630 | | 126,266 | | - | | 54,684 |
| 627,895 |
Vice Chairman |
| 2017 |
| 300,000 |
| - |
| 54,250 |
| 106,290 |
| 33,999 |
| 494,539 |
| 2018 |
| 306,875 |
| 50,000 | (6) | 463,750 | | 136,401 | | - | | 42,203 |
| 999,229 |
|
| 2016 |
| 54,807 |
| - |
| 127,200 |
| - |
| 300 |
| 182,307 | ||||||||||||||||
| | 2017 |
| 300,000 |
| - |
| 54,250 | | 106,290 | | - | | 33,999 |
| 494,539 | ||||||||||||||
Donald Pilmer |
| 2018 |
| 267,909 |
| - |
| 90,283 | (6) | 89,918 |
| 31,142 |
| 479,252 |
| 2019 |
| 275,386 |
| - | | 93,572 | | 87,690 | | - | | 29,030 |
| 485,678 |
Executive Vice President, |
| 2017 |
| 257,370 |
| - |
| 108,500 |
| 73,710 |
| 26,979 |
| 466,559 |
| 2018 |
| 267,909 |
| - | | 90,283 | | 89,918 | | - | | 31,142 |
| 479,252 |
Commercial Lending |
| 2016 |
| 243,384 |
| - |
| 47,670 |
| 68,994 |
| 21,870 |
| 381,918 |
| 2017 |
| 257,370 |
| - |
| 108,500 | | 73,710 | | - | | 26,979 |
| 466,559 |
Keith Gottschalk |
| 2018 |
| 265,397 |
| - |
| 51,274 | (6) | 73,889 |
| 17,087 |
| 407,647 |
| 2019 |
| 231,878 |
| - |
| 26,440 | | 76,214 | | - | | 13,807 |
| 348,339 |
Executive Vice President, Digital |
| 2017 |
| 259,882 |
| - |
| 65,100 |
| 75,599 |
| 15,550 |
| 416,131 |
| 2018 |
| 265,397 |
| - |
| 51,274 |
| 73,889 | | - | | 17,087 |
| 407,647 |
Banking Services |
| 2016 |
| 253,803 |
| - |
| 47,670 |
| 60,339 |
| 15,003 |
| 376,815 |
| 2017 |
| 259,882 |
| - |
| 65,100 |
| 75,599 |
| - |
| 15,550 |
| 416,131 |
| (1) |
| Reflects current principal positions. |
| (2) |
| The amounts represent the grant date fair value for equity awards in accordance with ASC 718 — “Compensation — Stock Compensation.” A discussion of the assumptions used in calculating the values may be found in Note 1 to our audited financial statements included in our |
| (3) |
| See “Compensation Discussion and Analysis —Analysis of |
| (4) |
|
| (5) | The |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Mr. Eccher |
| Mr. Adams |
| Mr. Collins |
| Mr. Pilmer |
| Mr. Gottschalk | ||||||||||||||||||||
|
| ($) |
| ($) |
| ($) |
| ($) |
| ($) | ||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
|
| Mr. Eccher |
| Mr. Adams |
| Mr. Collins |
| Mr. Pilmer |
| Mr. Gottschalk | ||||||||||||||||||||
| | ($) | | ($) | | ($) | | ($) | | ($) | ||||||||||||||||||||
401(k) match |
|
| 11,000 |
|
| 11,000 |
|
| 11,000 |
|
| 11,000 |
|
| 7,962 | | | 11,200 | | | 11,200 | | | 11,200 | | | 11,200 | | | 7,894 |
Deferred Compensation Plan contributions | | | 19,931 | | | 9,840 | | | 5,377 | | | - | | | - | |||||||||||||||
Life insurance |
|
| 474 |
|
| 474 |
|
| 474 |
|
| 474 |
|
| 474 | |
| 474 | |
| 474 | |
| 474 | |
| 474 | |
| 474 |
Car allowance |
|
| 10,800 |
|
| 6,800 |
|
| 7,800 |
|
| 6,000 |
|
| - | |
| 10,800 | |
| 6,000 | |
| 7,800 | |
| 6,000 | |
| - |
Country club/Social club dues |
|
| 11,979 |
|
| 7,200 |
|
| 21,420 |
|
| 11,979 |
|
| 6,663 | |
| 10,270 | | | 7,200 | | | 27,273 | | | 10,270 | |
| 3,633 |
TRSU dividend equivalents | | | 4,658 | | | - | | | 1,840 | | | 1,087 | | | 1,087 | |||||||||||||||
Other(a) |
|
| 6,411 |
|
| 720 |
|
| 1,509 |
|
| 1,689 |
|
| 1,989 | |
| - | |
| 720 | |
| 720 | |
| - | |
| 720 |
Total |
|
| 40,665 |
|
| 26,194 |
|
| 42,203 |
|
| 31,142 |
|
| 17,087 | | | 57,333 | | | 35,434 | | | 54,684 | | | 29,030 | | | 13,807 |
a. | “Other” includes |
| (6) |
| Represents a discretionary cash bonus paid to Messrs. Eccher, Adams and Collins for the successful completion of our acquisition of Greater Chicago Financial Corp. and its subsidiary bank, ABC Bank, completed on April 20, |
|
|
3330
|
|
|
|
|
|
|
|
| PRSUs(a) |
| TRSUs | ||
Name |
| ($) |
| ($) | ||
Mr. Eccher |
|
| 566,000 |
|
| 275,000 |
Mr. Adams |
|
| 353,750 |
|
| 110,000 |
Mr. Collins |
|
| 353,750 |
|
| 110,000 |
Mr. Pilmer |
|
| - |
|
| 90,283 |
Mr. Gottschalk |
|
| - |
|
| 51,274 |
| (7) |
|
|
| Mr. Adams |
|
|
Grants of Plan‑BasedPlan-Based Awards
The following table shows plan-based awards granted to our named executive officers in 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| All Other |
| Grant | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock |
| Date | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Awards: |
| Fair | ||||||||||||
|
|
|
| Estimated Possible Payouts Under |
| Estimated Possible Payouts Under |
| Number of |
| Value | ||||||||||||||||||||
|
| Grant |
| Non-Equity Incentive Plan Awards(1) |
| Equity Incentive Plan Awards(2) |
| Shares of |
| of Stock | ||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | All Other | | | ||||||||||||||||||
| | | | | | | | | | Stock Awards: | | Grant Date | ||||||||||||||||||
| | | | Estimated Possible Payouts Under | | Number of | | Fair Value | ||||||||||||||||||||||
| | | | Non-Equity Incentive Plan Awards(1) | | Shares of Stock | | of Stock | ||||||||||||||||||||||
Name |
| Date |
| Thresh-old ($) |
| Target ($) |
| Maximum ($) |
| Thresh-old (#) |
| Target (#) |
| Maximum (#) |
| Stock or Units (#)(3) |
| Awards ($)(4) |
| Grant Date |
| Threshold ($) |
| Target ($) |
| Maximum ($) |
| or Units (#)(2) |
| Awards ($)(3) |
James Eccher |
| 2/20/2018 |
| 95,960 |
| 277,778 |
| 309,343 |
|
|
|
|
|
|
| 20,000 |
| 275,000 |
| 5/21/2019 |
| 101,717 |
| 294,444 |
| 327,904 |
| 22,500 |
| 290,475 |
|
| 4/17/2018 |
|
|
|
|
|
|
| 30,000 |
| 40,000 |
| 50,000 |
|
|
| 566,000 | ||||||||||||
Bradley S. Adams |
| 2/20/2018 |
| 52,403 |
| 154,125 |
| 171,079 |
|
|
|
|
|
|
| 8,000 |
| 110,000 |
| 5/21/2019 |
| 54,499 |
| 160,290 |
| 177,922 |
| 10,196 |
| 131,630 |
|
| 4/17/2018 |
|
|
|
|
|
|
| 18,750 |
| 25,000 |
| 31,250 |
|
|
| 353,750 | ||||||||||||
Gary Collins |
| 2/20/2018 |
| 38,531 |
| 123,300 |
| 136,401 |
|
|
|
|
|
|
| 8,000 |
| 110,000 |
| 5/21/2019 |
| 39,591 |
| 126,691 |
| 140,152 |
| 10,196 |
| 131,630 |
|
| 4/17/2018 |
|
|
|
|
|
|
| 18,750 |
| 25,000 |
| 31,250 |
|
|
| 353,750 | ||||||||||||
Donald Pilmer |
| 2/20/2018 |
| 34,998 |
| 107,686 |
| 118,455 |
|
|
|
|
|
|
| 6,566 |
| 90,283 |
| 5/21/2019 |
| 35,961 |
| 110,648 |
| 121,713 |
| 7,248 |
| 93,572 |
|
| 4/17/2018 |
|
|
|
|
|
|
| - |
| - |
| - |
|
|
| - | ||||||||||||
Keith Gottschalk |
| 2/20/2018 |
| 29,289 |
| 106,507 |
| 115,160 |
|
|
|
|
|
|
| 3,729 |
| 51,274 |
| 5/21/2019 |
| 19,125 |
| 78,750 |
| 84,938 |
| 2,048 |
| 26,440 |
|
| 4/17/2018 |
|
|
|
|
|
|
| - |
| - |
| - |
|
|
| - | ||||||||||||
| | | | | | | | | | | | | ||||||||||||||||||
| (1) |
| Amounts reported represent the potential payouts pursuant to our Incentive Plan subject to the evaluation criteria set by the Compensation Committee, with all payments subject to achievement of Company and/or individual and departmental goals as discussed in “Compensation Discussion and Analysis —Analysis of |
| (2) |
|
|
| Represents the award of TRSUs that will cliff vest on the third anniversary of the grant date. |
| (3) |
| This amount represents the |
34
Outstanding Equity Awards at Fiscal Year‑EndYear-End
The following table sets forth information concerning the outstanding equity awards at December 31, 2018,2019, held by the individuals named in the Summary Compensation Table:
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Stock Awards | ||||||||||||||||
|
|
|
|
|
|
| Equity Incentive |
| Equity Incentive Plan | |||||||||
|
| Number of |
|
| Market value of |
| Plan Awards: |
| Awards: Market value | |||||||||
|
| shares or units of |
|
| of shares or |
| Number of shares |
| of PRSU shares or | |||||||||
|
| stock that have |
| units of stock that |
| or units of stock |
| units of stock that | ||||||||||
|
| not vested |
| have not vested |
| that have not vested |
| have not vested | ||||||||||
| | | | | | | | | | |||||||||
| | Stock Awards | ||||||||||||||||
| | | | | | | Equity Incentive | | Equity Incentive Plan | |||||||||
|
| Number of | | | Market value of |
| Plan Awards: |
| Awards: Market value | |||||||||
| | shares or units of | | | of shares or | | Number of shares | | of PRSU shares or | |||||||||
| | stock that have | | units of stock that | | or units of stock | | units of stock that | ||||||||||
|
| not vested |
| have not vested |
| that have not vested |
| have not vested | ||||||||||
Name |
| (#) (TRSUs) |
| ($) (TRSUs)(1) |
| (#) (PRSUs) |
| ($)(1)(7) |
| (#) (TRSUs) | | ($) (TRSUs)(1) |
| (#) (PRSUs) | | ($)(1)(7) | ||
James Eccher |
| 75,000 | (2) |
| 974,250 |
| 40,000 |
| 519,600 |
| 67,500 | (2) | | 908,550 |
| 43,209 | | 581,593 |
Bradley Adams |
| 33,000 | (3) |
| 428,670 |
| 25,000 |
| 324,750 |
| 43,196 | (3) | | 581,418 |
| 27,006 | | 363,501 |
Gary Collins |
| 29,000 | (4) |
| 376,710 |
| 25,000 |
| 324,750 |
| 23,196 | (4) | | 312,218 |
| 27,006 | | 363,501 |
Donald Pilmer |
| 23,566 | (5) |
| 306,122 |
| - |
| - |
| 23,814 | (5) | | 320,536 |
| - | | - |
Keith Gottschalk |
| 16,729 | (6) |
| 217,310 |
| - |
| - |
| 11,777 | (6) | | 158,518 |
| - | | - |
| (1) |
| Based upon the closing price of our common stock on December 31, |
| (2) |
| Represents the following unvested TRSUs granted to Mr. Eccher: |
|
|
| 25,000 that vest on February 21, 2020 |
| 20,000 that vest on February 20, 2021 |
| 22,500 that vest on May 21, 2022 |
| (3) | Represents the following unvested TRSUs granted to Mr. Adams: |
| 25,000 that vest on May 2, 2020 |
| 8,000 that vest on February 20, 2021 |
| 10,196 that vest on May 21, 2022 |
| (4) | Represents the following unvested TRSUs granted to Mr. Collins: |
|
|
| 5,000 that vest on February 21, 2020 |
| 8,000 that vest on February 20, 2021 |
| 10,196 that vest on May 21, 2022 |
| (5) | Represents the following unvested TRSUs granted to Mr. Pilmer: |
|
|
| 10,000 that vest on February 21, 2020 |
| 6,566 that vest on February 20, 2021 |
31
| 7,248 that vest on May 21, 2022 |
| (6) | Represents the following unvested TRSUs granted to Mr. Gottschalk: |
|
|
| 6,000 that vest on February 21, 2020 |
| 3,729 that vest on February 20, 2021 |
| 2,048 that vest on May 21, 2022 |
| (7) | Represents PRSUs that are subject to the achievement of pre-established performance targets and the officer’s continued service through the vesting date. Any PRSUs that vest will be converted to shares of our common stock on a one-for-one basis. PRSUs that do not vest will be forfeited. The number of unearned PRSUs reported assumes the units are earned and vested at 1.0x the number of units granted (representing satisfaction of corporate performance goals at the target performance level) |
35
Stock Vested
The following table provides information concerning stock awards that vested in 20182019 for our named executive officers. No stock options were exercised by our named executive officers in 2018.2019.
|
|
|
|
| ||||
|
| Stock Awards | ||||||
|
| Number of |
| Value | ||||
|
| shares acquired |
| realized on | ||||
|
| on vesting |
| vesting(1) | ||||
| | | | | ||||
| | Stock Awards | ||||||
|
| Number of |
| Value | ||||
| | shares acquired | | realized on | ||||
| | on vesting | | vesting(1) | ||||
Name |
| (#) |
| ($) | | (#) | | ($) |
James Eccher |
| 55,000 |
| 791,150 |
| 30,000 |
| 427,200 |
Bradley S. Adams |
| - |
| - |
| - |
| - |
Gary Collins |
| - |
| - |
| 16,000 |
| 199,200 |
Donald Pilmer |
| 14,500 |
| 208,400 |
| 7,000 |
| 99,680 |
Keith Gottschalk |
| 14,500 |
| 208,400 |
| 7,000 |
| 99,680 |
| (1) |
| The dollar values reported in this column were calculated using the per share closing price of our common stock on the vesting date of the awards. |
Nonqualified Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
| Executive |
| Registrant |
| Aggregate |
| Aggregate |
| Aggregate |
|
| contributions |
| contributions |
| losses |
| withdrawals/ |
| balance at |
|
| in last FY |
| in last FY |
| in last FY |
| distributions |
| last FYE |
Name |
| ($) |
| ($) |
| ($) |
| ($) |
| ($) |
James Eccher |
| 16,927 |
| - |
| (12,822) |
| - |
| 195,598 |
Bradley S. Adams |
| - |
| - |
| - |
| - |
| - |
Gary Collins |
| 43,378 |
| - |
| (6,641) |
| - |
| 52,964 |
Don Pilmer |
| - |
| - |
| - |
| - |
| - |
Keith Gottschalk |
| 1,471 |
| - |
| (899) |
| - |
| 18,662 |
We sponsor the Executive Deferred Compensation Plan, which is described in the CD&A above, and the Director Deferred Compensation Plan, which is described below following the Directors Compensation Table. The plans provide a means by which certain executives and directors may voluntarily defer all or a portion of their compensation. The plans are funded by participant deferrals and, in the case of the Executive Deferred Compensation Plan, company matching contributions and discretionary employer profit sharing contributions. With respect to their deferrals and our contributions, participants are permitted to make hypothetical investment elections in publicly‑tradedpublicly-traded mutual funds, which are held in an insurance company separate account. Earnings are credited to the participant accounts under the plan based on the performance of their hypothetical investment elections. The deferrals to the DirectorExecutive Deferred Compensation Plan are credited for earnings based on stock prices of their holdings. Participants may elect to receive their plan balance in a lump sum or in installments. Participants are permitted, in the discretion of the administrator, to make a withdrawal from the plan during their employment in the event of hardship. The information reflected for Messrs. Eccher and Collins in the table above combines their accounts under both the executive plan and the director plan.
| | | | | | | | | | |
|
| Executive |
| Registrant |
| Aggregate |
| Aggregate |
| Aggregate |
| | contributions | | contributions | | gains | | withdrawals/ | | balance at |
| | in last FY | | in last FY | | in last FY | | distributions | | last FYE |
Name | | ($)(1) | | ($)(2) | | ($)(3) | | ($) | | ($)(4) |
James Eccher |
| 5,411 |
| 19,931 |
| 53,024 |
| - |
| 273,964 |
Bradley S. Adams |
| - |
| 9,840 |
| 3,003 |
| - |
| 12,844 |
Gary Collins |
| 35,156 |
| 5,377 |
| 9,891 |
| - |
| 103,117 |
Don Pilmer |
| - |
| - |
| - |
| - |
| - |
Keith Gottschalk |
| - |
| - |
| 4,371 |
| - |
| 23,004 |
| | | | | | | | | |
| (1) | The amounts shown in this column are reported as compensation in the Summary Compensation Table. |
| (2) | The amounts shown in this column are included in the “All Other Compensation” column in the Summary Compensation Table. |
| (3) | There were no above-market or preferential earnings or appreciation in 2019 or previous years. Amounts included in this column are not included in the Summary Compensation Table. |
| (4) | The aggregate balance at last fiscal year-end shown in this column includes contributions in prior years which were reported as “Salary” and “All Other Compensation” in the Summary Compensation Table for the applicable year. |
32
Employment Agreement and Offer Letters
Mr. Eccher’s Employment Agreement.Agreement
On September 16, 2014, but effective January 1, 2015, we entered into an employment agreement with Mr. Eccher to serve as Chief Executive Officer and President of the Company and the Bank. The employment agreement had an initial term of one year, and will be automatically renewed for successive one‑yearone-year terms, unless either party gives at least 90 days prior written notice of non‑renewal;non-renewal; provided, that, the term will be extended for a two-year period immediately following a change in control that occurs during the term. Under the employment agreement, Mr. Eccher initially received an annual base salary of $400,000. The base salary will be reviewed annually and may be increased, but not decreased, at the discretion of the Compensation Committee. His current base salary is $535,535.
36
$572,828.
In addition to his base salary, Mr. Eccher is eligible to receive performance‑basedperformance-based annual incentive bonuses, in accordance with the Company’s annual incentive plan, a monthly car allowance of $900, reimbursement for costs associated with maintaining a country club membership, and also to receive employee benefits on as favorable a basis as other similarly situated senior executives of the Company.
We may terminate Mr. Eccher’s employment with or without cause, and Mr. Eccher may terminate his employment with or without good reason. Mr. Eccher is also eligible for certain severance benefits upon a change in control. Further detail on our severance obligations to Mr. Eccher, including the definitions of “cause”, “good reason” and “change in control,” are set forth below under the heading “Potential Payments Upon Termination or Change in Control.”
Mr. Eccher’s employment agreement also contains provisions related to non‑competitionnon-competition that generally preclude Mr. Eccher, for a period of 12 months following his termination without cause by the Company or for good reason by him, if he is terminated outside of the 24 month period following a change in control, from, among other things, engaging or investing in, managing, owning, operating, financing, rendering consultingcontrolling, participating in the ownership, management, operation or other services tocontrol of, being employed by, associated with, or in any manner being connected with, serving as a director, officer or consultant to, any person or business entity that owns, operates or is in the process of forming a bank, savings bank, savings and loan association, credit union or similar financial institution, with an office within 25 miles from any banking or other office of the Company and its affiliates. In addition, during the term and 12 months following his termination for any reason, he cannot (a) induce or attempt to induce any employee of the Company or any of its affiliates to leave their employment, (b) interfere with the relationship between the Company or (b)its affiliates and any employee of the Company or its affiliates; or (c) induce or attempt to induce any customer, supplier, licenselicensee, or other business relation of the Company or its affiliates with whom he had an ongoing business relationship to cease doing business with the Company or its affiliates or (c)interfere with, induce or attempt to solicit theinduce any customer, supplier, licensee or other business of any person or entityrelation of the Company or its affiliates wherewith whom he or any person reporting to him, had accessed confidential information of, had an ongoing business relationship with, or had made substantialto cease doing business efforts with respect to such person or entity, with respect to products, activities or services that complete with those of the Company or its affiliates.
Mr. Adams’ Offer Letter.Letter
On April 3, 2017, we entered into an offer letter with Mr. Adams, as amended on April 15, 2017 and April 19, 2017, to serve as Executive Vice President and Chief Financial Officer of the Company and the Bank effective May 2, 2017. Under the offer letter, Mr. Adams has an annual base salary of $300,000, which will be reviewed annually for merit increases by the board of directors. His current base salary is $320,580.$331,800. In addition to his base salary, Mr. Adams is eligible to receive a performance‑basedperformance-based annual incentive bonus of 50% of his base salary in accordance with the Company’s officer incentive plan, a monthly car allowance of $500, costs associated with maintaining a country club membership of up to $600 per month, and other benefits, including normal employee insurance benefits and 401(k) and profit sharing plans.
As provided in the offer letter, we also entered into a Compensation and Benefits Assurance Agreement with Mr. Adams that provides him with certain severance benefits if he is terminated following a change in control. Further detail regarding our severance obligations to Mr. Adams, including the definition of “change in control,” are set forth below under the heading “Potential Payments Upon Termination or Change in Control.”
Mr. Collins’ Offer Letter.Letter
On August 1, 2016, we entered into a revised offer letter with Mr. Collins (which superseded and replaced his April 1, 2016 offer letter), to serve as Vice Chairman of the Company and the Bank effective October 2016. Under the offer letter, Mr. Collins has an annual base salary of $300,000, which will be reviewed annually for merit increases by the board of directors. His current base salary is $316,727.$326,229. In addition to his base salary, beginning in 2017, Mr. Collins was eligible to receive a performance‑basedperformance-based annual incentive
33
bonus of 40% of his base salary in accordance with the Company’s officer incentive plan. He is also eligible to participate in the Bank’s Deferred Compensation Plan and in other benefits plans, including normal employee insurance benefits and 401(k) and profit sharing plans. As provided in the offer letter, we also entered into a Compensation and Benefits Assurance Agreement with Mr. Collins that provides him with certain severance benefits if he is terminated following a change in control. Further detail regarding our severance obligations to Mr. Collins, including the definition of “change in control,” are set forth below under the heading “Potential Payments Upon Termination or Change in Control.”
37
Potential Payments Upon Termination or Change in Control
The board of directors believes that the interests of shareholdersstockholders will be best served if the interests of executive management are aligned with the shareholders,stockholders, and that providing change in control benefits should eliminate, or at least reduce, the reluctance of executive management to pursue potential change in control transactions that may be in the best interests of shareholders.stockholders.
The employment agreement for Mr. Eccher provides for certain payments and benefits if we terminate Mr. Eccher’s employment without cause or if Mr. Eccher terminate his employment for good reason. Mr. Eccher is also eligible for certain severance benefits upon a change in control.
In addition, each of Mr. Adams, Mr. Collins, Mr. Gottschalk and Mr. Pilmer have entered into substantially similar Compensation and Benefits Assurance Agreements with us that provide for payments and benefits if the executive is terminated following a change in control.
Employment Agreement with Mr. Eccher.Eccher
The employment agreement provides for severance benefits in the event Mr. Eccher is terminated by the Company without cause or by the executive for good reason (each a “Termination”). For a Termination during the employment period that does not occur in connection with a “change in control” of the Company (as defined below), Mr. Eccher is entitled to receive 24 months of base salary continuation.
For purposes of his employment agreement, “cause” is generally defined to mean the occurrence of any one or more of the following events:
|
|
|
|
|
|
|
|
For purposes of his employment agreement, “good reason” is generally defined to mean the occurrence of any one or more of the following events, unless he agrees in writing that such event will not constitute “good reason”:
|
|
|
|
|
|
|
|
3834
|
|
For a Termination that occurs within 24 months after a change in control of the Company, which we refer to herein as the “Covered Period,” Mr. Eccher is entitled to receive an amount equal to three times the sum of his current base salary plus an amount equal to his average bonus paid for the three calendar years preceding the year of Termination (including deferred amounts). Any severance paid in connection with a Termination during the Covered Period will be paid in a single lump sum. In addition, Mr. Eccher will be entitled to immediate and full vesting of any outstanding, unvested equity awards, continued health insurance for him and his dependents for up to 18 months following the Termination at a cost that is the same as paid by active employees, and one year of outplacement services at the Company’s expense.
For purposes of his employment agreement, “change in control” will generally be deemed to have occurred upon, the first to occur of any of the following events:
|
|
|
|
|
|
All severance benefits under the employment agreement are contingent upon Mr. Eccher’s execution and non‑revocationnon-revocation of a general release and waiver of claims against the Company.
Compensation and Benefits Assurance Agreements with Mr. Adams, Mr. Collins, Mr. GottschalkPilmer and Mr. Pilmer.Gottschalk
Each of Mr. Adams, Mr. Collins, Mr. Gottschalk and Mr. Pilmer have entered into a Compensation and Benefits Assurance Agreement with us. Each agreement has an initial term of one‑yearone-year and, unless earlier terminated by either party, will automatically renew for successive one‑yearone-year periods. In addition, on the effective date of a “change in control,” the agreement will automatically renew for a two‑yeartwo-year period, which we refer to as the “extended period,” and thereafter will automatically terminate.
Each agreement provides that, in the case of: (a) a termination of employment by us without “cause” within six months prior to or 24 months immediately following, a change in control, or (b) a termination of employment by the executive for “good reason” within 24 months following a change in control, the executive officer will be entitled to:
|
|
|
|
39
|
|
|
|
35
| of termination. |
|
|
For purposes of each agreement, “cause” is generally defined to mean the occurrence of any one or more of the following events:
|
|
|
|
For purposes of each agreement, “good reason” is generally defined to mean the occurrence of any one or more of the following events within the extended period:
|
|
|
|
|
|
|
|
| the Company, or any successor company commits a material breach of any provision of the agreement including, but not limited to the Company failing to obtain the assumption of, or the successor company refusing to assume the obligations of the agreement. |
For purposes of each agreement, the term “change in control” generally has the meaning ascribed to it in Mr. Eccher’s employment agreement as described above under “Potential Payments Upon Termination or Change in Control — Employment Agreement with Mr. Eccher.”
In exchange for the payments and benefits provided, under each agreement, the executive officers have agreed to be bound by a 24 month restrictive covenant. The restrictive covenant will prohibit the executive officers from using,
40
attempting to use, disclosing or otherwise making known to any person or entity (other than our board of directors) confidential or proprietary knowledge or information which the executive officers may acquire in the course ofduring their employment.
36
Equity Award Agreements
Retirement, Death and Disability. Generally speaking, a termination of employment due to retirement, death or disability does not entitle the named executive officers to any payments or benefits that are not available to other employees. Following a termination due to death or disability, each named executive officer (or his estate) shall be entitled to the following:
| Upon a termination due to death or disability, all unvested stock options shall become immediately 100% vested and an employee or beneficiary shall have a period of twelve months following such termination during which to exercise his vested stock options. |
| Any unvested restricted stock or TRSUs outstanding at the time of an employee’s termination due to death or disability shall become immediately 100% vested upon such termination. |
| Upon a termination of employment due to retirement (as defined in the applicable award agreement), all unvested stock options and TRSUs shall become immediately 100% vested. |
| With respect to unvested PRSUs, if the executive dies or is disabled, or if the executive provides one year written notice before his intended retirement (as defined in the Equity Plan), then the executive will be issued (a) with respect to PRSUs for which the performance period has already ended, such shares that have vested and the continuous employment requirement will be waived, and (b) with respect to PRSUs’ for which the performance period has not ended, the continuous employment requirement will be waived and a pro rata number of PRSUs will vest determined based on (i) the target (100%) level of PRSUs that can be issued multiplied by (ii) the quotient of (x) the number of full months that have elapsed between the first day of the performance period and the effective date of the executive’s termination and (y) the total number of full months in the respective performance period. |
Acceleration of Vesting Upon a Change in Control.With respect to unvested TRSUs and stock options awarded to our named executive officers, such awards will vest following a change in control if (i) the Equity Plan and the respective awards are not assumed by the surviving entity or (ii) the Equity planPlan and the respective awards are assumed by the surviving entity but the executive is terminated without cause or resigns for good reason.
With respect to the PRSUs, the award agreement provides that, in the event of a change in control, (as defined in the Equity Plan), andif the awards are assumed by the surviving entity, then (a) the PRSUs will be fixed at the target (100%) performance level and will vest as of the end of the performance period, provided that the executive does not incur a termination of service; and provided further that, if within two years of the change in control, the executive is terminated without cause by us or the executive terminates his employment for good reason, all unvested PRSUs will immediately vest at the target (100%) performance level and be settled within 30-days of termination. If the PRSU agreement is not assumed by the surviving entity, the fair market value of the target (100%) number of PRSUs will be determined as of the date of the change in control and such amount will be paid in cash at the end of the performance period; provided that, if within two years of the change in control, the executive is terminated without cause by us or the executive terminates his employment for good reason, then the cash value of the PRSUs will be paid within 30-days of termination.
41
Potential Post‑EmploymentPost-Employment Payments Due to Mr. Eccher, Mr. Adams, Mr. Collins, Mr. GottschalkPilmer and Mr. PilmerGottschalk
The table below sets forth the estimated amount of compensation payable to Mr. Eccher, Mr. Adams, Mr. Collins, Mr. Pilmer and Mr. Gottschalk in the event of (1) the executive’s involuntary termination (termination by the Company without cause or by the officer for good reason), (2) the executive’s involuntary termination following a change in control, and (3) the executive’s retirement,
37
death or disability. The amounts shown assume termination was effective as of December 31, 2018,2019, and that the per share price of our common stock as of termination was the closing price of $12.99$13.46 on December 31, 20182019 (the last trading day of the year).
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
| Payments Upon |
| Payments Upon |
|
|
| |||||||||||||
|
|
|
| Involuntary |
| Involuntary |
| Payments Upon | ||||||||||||||
|
|
|
| Termination(2) — |
| Termination(3) — |
| Retirement, | ||||||||||||||
|
|
|
| No Change in |
| Change in |
| Death or | ||||||||||||||
| | | | | | | | | | | | |||||||||||
|
| |
| Payments Upon |
| Payments Upon |
| | | |||||||||||||
| | | | Involuntary | | Involuntary | | Payments Upon | ||||||||||||||
| | | | Termination(2) — | | Termination(2) — | | Retirement, | ||||||||||||||
| | | | No Change in | | Change in | | Death or | ||||||||||||||
Name |
| Type of Payment(1) |
| Control ($) |
| Control ($) |
| Disability ($) | | Type of Payment(1) | | Control ($) | | Control ($) | | Disability ($) | ||||||
James Eccher |
| Cash Severance |
|
| 1,010,100 | (3) |
| 1,745,325 | (4) |
| - |
| Cash Severance | | | 1,070,706 | (3) | | 1,874,515 | (4) | | - |
|
| Continuation of Insurance |
|
| - |
|
| 24,927 | (5) |
| - | |||||||||||
|
| Acceleration of Stock Awards |
|
| - |
|
| 1,493,850 |
|
| 1,493,850 | |||||||||||
|
| Outplacement Services |
|
| - |
|
| 20,000 |
|
| - | |||||||||||
|
| Continuation of Insurance | |
| - | |
| 25,941 | (5) | | - | |||||||||||
|
| Acceleration of Stock Awards | |
| - | |
| 1,446,950 | | | 1,446,950 | |||||||||||
|
| Outplacement Services | |
| - | |
| 20,000 | | | - | |||||||||||
Bradley Adams |
| Cash Severance |
|
| - |
|
| 725,891 | (4) |
| - |
| Cash Severance | |
| - | |
| 801,039 | (4) | | - |
|
| Continuation of Insurance |
|
| - |
|
| 30,732 | (5) |
| - | |||||||||||
|
| Acceleration of Stock Awards |
|
| - |
|
| 753,420 |
|
| 753,420 | |||||||||||
|
| Outplacement Services |
|
| - |
|
| 20,000 |
|
| - | |||||||||||
|
| Continuation of Insurance | |
| - | |
| 31,929 | (5) | | - | |||||||||||
|
| Acceleration of Stock Awards | |
| - | |
| 917,918 | | | 917,918 | |||||||||||
|
| Outplacement Services | |
| - | |
| 20,000 | | | - | |||||||||||
Gary Collins |
| Cash Severance |
|
| - |
|
| 697,397 | (4) |
| - |
| Cash Severance | |
| - | |
| 756,439 | (4) | | - |
|
| Continuation of Insurance |
|
| - |
|
| 27,269 | (5) |
| - | |||||||||||
|
| Acceleration of Stock Awards |
|
| - |
|
| 701,460 |
|
| 701,460 | |||||||||||
|
| Outplacement Services |
|
| - |
|
| 20,000 |
|
| - | |||||||||||
|
| Continuation of Insurance | |
| - | |
| 20,611 | (5) | | - | |||||||||||
|
| Acceleration of Stock Awards | |
| - | |
| 648,718 | | | 648,718 | |||||||||||
|
| Outplacement Services | |
| - | |
| 20,000 | | | - | |||||||||||
Donald Pilmer |
| Cash Severance |
|
| - |
|
| 615,973 | (4) |
| - |
| Cash Severance | |
| - | |
| 637,012 | (4) | | - |
|
| Continuation of Insurance |
|
| - |
|
| 30,732 | (5) |
| - | |||||||||||
|
| Acceleration of Stock Awards |
|
| - |
|
| 306,122 |
|
| 306,122 | |||||||||||
|
| Outplacement Services |
|
| - |
|
| 20,000 |
|
| - | |||||||||||
|
| Continuation of Insurance | |
| - | |
| 31,929 | (5) | | - | |||||||||||
|
| Acceleration of Stock Awards | |
| - | |
| 320,536 | | | 320,536 | |||||||||||
|
| Outplacement Services | |
| - | |
| 20,000 | | | - | |||||||||||
Keith Gottschalk |
| Cash Severance |
|
| - |
|
| 602,476 | (4) |
| - |
| Cash Severance | |
| - | |
| 525,234 | (4) | | - |
|
| Continuation of Insurance |
|
| - |
|
| 28,732 | (5) |
| - | |||||||||||
|
| Acceleration of Stock Awards |
|
| - |
|
| 217,310 |
|
| 217,310 | |||||||||||
|
| Outplacement Services |
|
| - |
|
| 20,000 |
|
| - | |||||||||||
|
| Continuation of Insurance | |
| - | |
| 25,896 | (5) | | - | |||||||||||
|
| Acceleration of Stock Awards | |
| - | |
| 158,518 | | | 158,518 | |||||||||||
|
| Outplacement Services | |
| - | |
| 20,000 | | | - | |||||||||||
| (1) |
| Payments due to all named executive officers in connection with a change in control are subject to reduction to the extent necessary to avoid an excess parachute payment under Code Section 280G. |
| (2) |
| An “involuntary termination” is a termination by the employer without “cause” or a resignation by the executive for “good reason.” |
| (3) |
| Represents 24 months of salary continuation. |
| (4) |
| For Mr. Eccher, represents three times his current base salary plus his average bonus paid over the past three years. For each other executive, represents two times his base salary plus average bonus paid over the past three years. |
| (5) |
| Represents the monthly premium paid by us for the continuation of health insurance for a period of 18 months with respect to Mr. Eccher and 24 months for each other executive. |
Pay Ratio
As required by Section 953(b) of the Dodd‑FrankDodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S‑K,S-K, we are providing the following information about the relationship of the annual total
42
compensation of our employees and the annual total compensation of our Chief Executive Officer and President, James Eccher.
For 2018,2019, our last completed fiscal year:
| the median of the annual total compensation of all employees of our company (other than Mr. Eccher) was |
| the total annual compensation of our Chief Executive Officer was |
Based on this information, for 20182019 the ratio of the annual total compensation of Mr. Eccher, our Chief Executive Officer and President, to the median of the annual total compensation of all employees was 3318 to 1.
38
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our Chief Executive Officer, we took the following steps:
1. | We determined that as of December 31, |
2. | To identify the “median employee” from our employee population, we compared the wages of our employees as reflected in our payroll records and reported to the Internal Revenue Service on Form |
3. | We identified our median employee using this compensation measure, which was consistently applied to all of our employees included in the calculation. |
4. | Since all of our employees are located in the United States, as is our Chief Executive Officer, we did not make any |
5. | Once we identified our median employee, we combined all of the elements of such employee’s compensation for |
6. | With respect to the annual total compensation of our Chief Executive Officer, we used the amount reported in the “Total” column of our Summary Compensation Table included in this Proxy Statement, adjusted as follows. To maintain consistency between the annual total compensation of our Chief Executive Officer and the median employee, we added the estimated value of our Chief Executive Officer’s health care benefits (estimated for our Chief Executive Officer and his eligible dependents at |
39
DIRECTOR COMPENSATION
We do not pay our “inside” employee‑directorsemployee-directors any additional compensation for their service as directors. In 2018,2019, we paid our non‑employeenon-employee directors the following quarterly cash fees, as follows:
| $ |
| $ |
43
| $ |
| $ |
We also paid our directors $500$750 for every committee meeting attended, if there were no other company‑levelcompany-level meetings held that day.
We also grant our directors annual equity awards in the form of restricted stock units. These awards cliff vest on the third anniversary of the grant date. The grant date of the 20182019 equity awards was February 20, 2018May 21, 2019, and these awards will vest on February 20, 2021. We also grant performance‑based units to our directors with vesting based on the achievement of performance conditions as of December 31, 2020.May 21, 2022.
The following table sets forth the compensation paid to our non‑employeenon-employee directors in 2018:2019:
|
|
|
|
|
|
| ||||||
|
| Fees earned or |
| Stock |
|
| ||||||
|
| paid in cash(1) |
| Awards(2) |
| Total | ||||||
| | | | | | | ||||||
|
| Fees earned or |
| Stock |
| | ||||||
| | paid in cash(1) | | Awards(2) | | Total | ||||||
Name |
| ($) |
| ($) |
| ($) | | ($) | | ($) | | ($) |
Edward Bonifas |
| 29,500 |
| 91,375 |
| 120,875 |
| 37,250 |
| 19,365 |
| 56,615 |
Barry Finn |
| 42,000 |
| 91,375 |
| 133,375 |
| 45,750 |
| 19,365 |
| 65,115 |
William Kane |
| 34,000 |
| 91,375 |
| 125,375 |
| 39,500 |
| 19,365 |
| 58,865 |
John Ladowicz |
| 40,000 |
| 91,375 |
| 131,375 |
| 43,000 |
| 19,365 |
| 62,365 |
Hugh McLean |
| 32,000 |
| 91,375 |
| 123,375 | | 39,000 | | 19,365 | | 58,365 |
William B. Skoglund |
| 55,625 |
| 91,375 |
| 147,000 |
| 48,500 |
| 19,365 |
| 67,865 |
Duane Suits |
| 40,000 |
| 91,375 |
| 131,375 |
| 45,250 |
| 19,365 |
| 64,615 |
James Tapscott |
| 34,000 |
| 91,375 |
| 125,375 |
| 38,750 |
| 19,365 |
| 58,115 |
Patti Temple Rocks |
| 28,000 |
| 91,375 |
| 119,375 |
| 33,500 |
| 19,365 |
| 52,865 |
| (1) |
| We maintain the Old Second Bancorp, Inc. Amended and Restated Voluntary Deferred Compensation Plan for Directors (the “Director Deferred Compensation Plan”) under which directors are permitted to defer receipt of their directors’ fees. The directors who participate in the plan are permitted to make hypothetical investments in |
| (2) |
| The amounts represent the grant date fair value for equity awards in accordance with ASC 718 — |
4440
PROPOSAL 2:
NON‑BINDINGNON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE OFFICER COMPENSATION
Section 14A of the Exchange Act, as created by Section 951 of the Dodd‑FrankDodd-Frank Act, and the rules and regulations promulgated thereunder, require publicly traded companies, such as Old Second,the Company, to conduct a separate stockholder advisory vote to approve the compensation of the registrant’s executive officers, as disclosed pursuant to the Securities and Exchange Commission’sSEC’s compensation disclosure rules, commonly referred to as a “say‑on‑pay”“say-on-pay” vote. In accordance with these requirements, we are providing stockholders with an advisory vote on the compensation of our executive officers.
As described in more detail in the CD&ACompensation Discussion and Analysis section of this proxy statement, the overall objectives of Old Second’sour compensation programs have been to align executive officer compensation with the success of meeting long‑termour strategic operating and financial goals. Stockholders are urged to read the CD&ACompensation Discussion and Analysis section of this proxy statement, as well as the Summary Compensation Table and other related compensation tables and narrative disclosure that describe the compensation of our named executive officers in 20182019. The Compensation Committee and the board of directors believe that the policies and procedures articulated in the CD&ACompensation Discussion and Analysis section are effective in implementing our compensation philosophy and achieving our goals, and that the compensation of our named executive officers in fiscal 20172019 reflects and supports these compensation policies and procedures.
In accordance with the requirements of the Dodd‑FrankDodd-Frank Act and the rules and regulations promulgated thereunder, the following resolution is submitted for stockholder approval:
“RESOLVED, that Old Second Bancorp, Inc.’sour stockholders approve, on an advisory basis, itsthe compensation paid to our named executive compensationofficers, as described indisclosed pursuant to Item 402 of Regulation S-K, including the section captioned ‘CompensationCompensation Discussion and Analysis’Analysis, compensation tables and the tabular disclosure regarding named executive officer compensation under ‘Executive Compensation’narrative discussion contained in Old Second’sour proxy statement dated April 19, 2019.July 17, 2020.”
Approval of this proposal requires the affirmative vote of holders of a majority of the shares having voting power and present in person or by proxy at the annual meeting. Abstention will be counted as a vote present in person or by proxy at the annual meeting and entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal, and aproposal. A broker non‑votenon-vote will not be considered entitled to vote on this proposal and will therefore have no effect on the outcome.
While this say‑on‑paysay-on-pay vote is required, as provided in Section 14A of the Exchange Act, it is not binding on the Compensation Committee or our board of directors and may not be construed as overruling any decision by the Compensation Committee or our board. However, the Compensation Committee will take into account the outcome of the vote when considering future compensation arrangements.
Board Recommendation:
The board of directors recommends stockholders vote to approve the overall compensation of our named executive officers, as described in this proxy statement, by voting “FOR” this proposal. Proxies properly signed and returned will be voted “FOR” this proposal unless stockholders specify otherwise.
45
PROPOSAL 3:
ADVISORY (NON-BINDING) VOTE RELATING TO THE FREQUENCY OF FUTURE
STOCKHOLDER VOTES ON THE COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
Section 14A of the Exchange Act, as created by Section 951 of the Dodd-Frank Act, and the rules and regulations promulgated thereunder require publicly traded companies, such as Old Second, to permit a separate stockholder vote on the frequency with which stockholders shall conduct an advisory “say‑on‑pay” vote on executive compensation, such as Proposal 2 above. In accordance with these requirements, we are providing stockholders with an advisory (non-binding) vote on the frequency with which our stockholders will vote on a say-on-pay proposal. Section 14A of the Exchange Act requires us to hold an advisory vote on the frequency of say-on-pay votes at least once every six years.
Stockholders may indicate whether they would prefer that we conduct future say-on-pay votes every year, every two years, or every three years. Stockholders may also abstain from casting a vote on this proposal. After careful consideration, our board of directors recommends that future stockholder say-on-pay votes be conducted every year. The board values and encourages constructive input from our stockholders regarding our compensation philosophy, policies and practices, and believes it is important that such policies and practices are aligned with the best interests of our stockholders. An annual say-on-pay vote will provide the board and the Compensation Committee with useful information on stockholder sentiment about these important matters on the most frequent and consistent basis.
Although our board recommends a say-on-pay vote every year, stockholders are not voting to approve or disapprove the board’s recommendation. Rather, stockholders are being asked to vote on the following resolution:
“RESOLVED, that the stockholders of Old Second Bancorp, Inc., determine, on an advisory basis, that the frequency with which the stockholders shall have an advisory vote on executive compensation set forth in Old Second Bancorp, Inc.’s proxy statement for its annual meeting of stockholders, beginning with the 2019 Annual Meeting of Stockholders, is (i) every year, (ii) every two years, or (iii) every three years.”
The choice which receives the highest number of votes will be considered the frequency recommended by the stockholders.
While this advisory vote is required, as provided in Section 14A of the Exchange Act, it is not binding on our Compensation Committee or board of directors and may not be construed as overruling any decision by the Compensation Committee or the board. However, the Compensation Committee will take into account the outcome of the vote when determining the frequency of future say-on-pay votes. Abstentions and broker non-votes will not affect the voting results for this proposal.
Board Recommendation
The board of directors recommends a vote for the “every year” frequency alternative. Proxies properly signed and returned will be voted for the “every year” frequency unless stockholders specify otherwise. Stockholders are not voting to approve or disapprove the board of director’s recommendation. Stockholders may choose among the three choices included in the resolution above, or may abstain for voting on this proposal.
46
PROPOSAL 4:
APPROVAL OF THE 2019 EQUITY INCENTIVE PLAN
Our board of directors has approved, subject to stockholder approval, the Old Second Bancorp, Inc. 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”) to promote our long-term financial success by attracting and retaining key employees and other individuals. Our board has directed that the 2019 Equity Incentive Plan be submitted for approval by our stockholders. We are submitting the 2019 Equity Incentive Plan to our stockholders at this time to:
|
|
|
|
If the 2019 Equity Incentive Plan is not approved by our stockholders, it will not be adopted and we will continue to operate under our existing equity compensation plan. In the event the 2019 Equity Incentive Plan is not approved and our existing plan expires, or ceases to have shares available to grant, we believe that higher cash compensation may be required to attract and retain key employees and other individuals.
A summary of the material provisions of the 2019 Equity Incentive Plan is set forth below. A copy of the 2019 Equity Incentive Plan is set forth as Appendix A to this proxy statement.
Important Plan Features
The 2019 Equity Incentive Plan submitted for approval reflects several current practices in equity incentive plans that we consider best practices such as:
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Practices
Basic burn rate, which is a measure of share utilization rate in equity compensation plans, is an important factor for investors concerned about shareholder dilution. Basic burn rate is defined as the gross number of equity-based awards granted during a calendar year divided by the weighted average number of shares of common stock outstanding during the year.
|
|
|
|
|
Equity Award Vehicle | 2016 | 2017 | 2018 | 3-Yr Avg. |
A. Full-value awards | 170,000 | 161,500 | 254,281 | 195,260 |
B. Stock Options - Granted | --- | --- | --- | --- |
C. Total (A + B) | 170,000 | 161,500 | 254,281 | 195,260 |
|
|
|
|
|
D. Weighted Average Common Shares Outstanding | 29,532,510 | 29,600,702 | 29,728,308 | 29,620,507 |
|
|
|
|
|
E. Basic Burn Rate (D / E) | 0.58% | 0.55% | 0.86% | 0.66% |
During the past three fiscal years, in addition to our historical equity award grant practices with respect to existing directors, officers and employees, the Compensation Committee granted restricted stock units in connection with attracting certain commercial lending teams to join our Company. Also, wegranted performance-based equity awards in 2014, which hada three year performance period that ended December 31, 2017. In 2018, the Compensation
48
Committee granted a substantial number of performance-based restricted stock units (“PRSUs”) in order to provide new long-term incentives and payment for performance, which increased our 2018 equity grant levels.
Our board of directors currently anticipates that, absent a strategic transaction, our burn rate will not exceed an average of 200,000 shares per year over the next three years, and so we currentlybelieve that the additional 600,000 shares to be authorized for issuance under the 2019 Stock Incentive Plan will be sufficient for approximately 3.0 years.
The performance-based restricted stock units grant 2018 and 2019 are earned from 0% to 125% of the number of units originally granted depending on satisfaction of the established performance conditions, and vest upon satisfaction of the service requirement at the end of the restricted period. Time-based-restricted stock units granted in 2018 and 2019 cliff vest three years after the grant date.
In 2018, 66.7% of the equity-based compensation awarded to our Chief Executive Officer were performance-based RSUs with a three year performance period, and 33.3% of his equity grants were time-based vesting RSUs with a three year cliff vesting period.
Overhang
Basic and diluted overhang are a commonly used measures to assess the dilutive impact of equity programs such as the 2019 Equity Incentive Plan. Basic and diluted overhang shows how much existing stockholder ownership would be diluted if all outstanding equity-based awards plus all remaining shares available for equity-based awards were introduced into the market. Basic overhang is equal to the number of equity-award shares currently outstanding plus the number of equity-award shares available to be granted and the number of shares available under the proposed plan, divided by the total number of shares of common stock outstanding. Diluted overhang is equal to the number of equity-award shares currently outstanding plus the number of equity-award shares available to be granted plus the number of shares available under the proposed plan, divided by the total number of shares of common stock outstanding plus the number of equity-award shares available to be granted and the number of shares available under the proposed plan. The 600,000 shares subject to the 2019 Equity Incentive Plan would increase our basic overhang from 1.50% to 3.51% and our diluted overhang from 1.48% to 3.39%, both of which we believe compare very favorably to our peers. The table below provides updated overhang data as of March 13, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Purpose
The 2019 Equity Incentive Plan was established by our board of directors, subject to stockholder approval, to promote our long-term financial success, to attract, retain and reward persons who can contribute to our success, and to further align the participants’ interests with those of our stockholders. The 2019 Equity Incentive Plan will be administered by a committee selected by the board, currently our Compensation Committee, which will select award recipients from the eligible participants, determine the types of awards to be granted, the number of shares covered by the awards, and determine the applicable terms, conditions, performance criteria, restrictions and other provisions of such awards, including any vesting or accelerated vesting requirements or conditions applicable to an award or awards.
General
The 2019 Equity Incentive Plan incorporates a broad variety of equity-based and cash-based incentive compensation elements to provide the Compensation Committee with significant flexibility to address the requirements and limitations of applicable legal, regulatory and financial accounting standards in a manner mutually consistent with the purposes of the 2019 Equity Incentive Plan and our best interests.
The maximum number of shares of our common stock that may be delivered to participants, or their beneficiaries, under the 2019 Equity Incentive Plan is 600,000, with adjustments for certain corporate transactions and for forfeited shares. As of the date of stockholder approval of the 2019 Equity Incentive Plan, no additional awards will be granted under the Prior Plan; provided, however, that dividend equivalents may continue to be issued under the Prior Plan in respect of awards granted under such plans that are outstanding as of the effective date of the 2019 Equity Incentive Plan. However, awards previously granted and outstanding under the 2014 Plan (the “Prior Plan”) will remain in full force and effect under such Prior Plan according to their respective terms. Any shares that become available for reuse under the terms of the 2014 Plan due to forfeiture, termination, expiration or lapse without being exercised (to the extent applicable, or solely with respect to any award that is not exercisable for or convertible into shares, if such award is settled for cash without the delivery of shares), or settlement for cash without the delivery of shares, or the surrender or withholding of shares to satisfy tax withholding obligations with respect to restricted stock awards and restricted stock unit awards (full value awards), will become available for delivery under the 2019 Equity Incentive Plan (provided, for the avoidance of doubt, that the gross number of SARs that are covered under a Prior Plan award that are exercised or settled, and not just the net shares issued upon exercise or settlement, shall be deemed to have been delivered and shall not become available for delivery under the 2019 Equity Incentive Plan).
The 2019 Equity Incentive Plan’s effective date would be the date of its approval by our stockholders. If approved, the 2019 Equity Incentive Plan will continue in effect until terminated by the board. However, no awards may be granted under the 2019 Equity Incentive Plan after the 10-year anniversary of its effective date. Any awards that are outstanding after the 10th anniversary of the effective date will remain subject to the terms of the 2019 Equity Incentive Plan.
The Compensation Committee may use shares available under the 2019 Equity Incentive Plan as the form of payment for grants or rights earned or due under any of our (or a subsidiary’s) compensation plans or arrangements, including the plans and arrangements of our (or a subsidiary’s) assumed in business combinations.
In the event of a corporate transaction involving our stock (such as a stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), the foregoing share limitations and all outstanding awards will automatically be adjusted proportionally and uniformly to reflect such event. However, the Compensation Committee may adjust awards, or prevent the automatic adjustment of awards, to preserve the benefits or potential benefits of awards under the 2019 Equity Incentive Plan.
Awards granted under the 2019 Equity Incentive Plan generally will not be transferable except as designated by the participant by will or by the laws of descent and distribution or pursuant to a domestic relations order. However, the Compensation Committee has the discretion to permit the transfer of awards under the 2019 Equity Incentive Plan to immediate family members of participants, trusts and other entities established for the primary benefit of such family members, as long as the transfers are made without value to the participant.
50
Eligibility
Our selected employees, directors, and eligible service providers are eligible to become participants in the 2019 Equity Incentive Plan, except that non-employees may not be granted incentive stock options. The Compensation Committee will determine the specific individuals who will be granted awards under the 2019 Equity Incentive Plan and the type and amount of any such awards.
Options
The Compensation Committee may grant incentive stock options and nonqualified stock options to purchase stock at a specified exercise price. Each award must be pursuant to an award agreement setting forth the provisions of the individual award. Awards of options must expire no later than 10 years from the date of grant (and no later than five years for incentive stock options granted to a person that beneficially owns 10% or more of our common stock).
The exercise price for any option may not be less than the fair market value of our common stock on the date the option is granted. In addition, the exercise price of an incentive stock option granted to a person that beneficially owns 10% or more of our common stock at the time of grant may not be less than 110% of the fair market value of the stock on the date the option is granted. The exercise price of an option may, however, be higher or lower than the fair market value for an option granted in replacement of an existing award held by an employee or director of, or service provider to, a third party that we or one of our subsidiaries acquire. The exercise price of an option may not be decreased after the date of grant nor may an option be surrendered to us as consideration for the grant of a replacement option with a lower exercise price, except as approved by our stockholders, as adjusted for corporate transactions described above, or in the case of options granted in replacement of existing awards granted under a predecessor plan.
Options awarded under the 2019 Equity Incentive Plan will be exercisable in accordance with the terms established by the Compensation Committee. Any incentive stock option granted under the 2019 Equity Incentive Plan that fails to continue to qualify as an incentive stock option will be deemed to be a nonqualified stock option and the Compensation Committee may unilaterally modify any incentive stock option to disqualify it as an incentive stock option. The full purchase price of each share of stock purchased upon the exercise of any option must be paid at the time of exercise of an option. As determined by the Compensation Committee, the exercise price of an option may be paid in cash, by personal, certified or cashiers’ check, in shares of our common stock (valued at fair market value as of the day of exercise), by net exercise, by other property deemed acceptable by the board or by irrevocably authorizing a third party to sell shares of our common stock and remit a sufficient portion of the proceeds to us to satisfy the exercise price (sometimes referred to as a “cashless exercise”) to the extent permitted by applicable laws and regulations, or in any combination of the foregoing methods deemed acceptable by the Compensation Committee. In a net exercise, the person exercising the option does not pay any cash and the net number of shares received is equal in value to the number of shares as to which the option is being exercised, multiplied by a fraction, the numerator of which is the fair market value less the exercise price, and the denominator of which is fair market value.
Stock Appreciation Rights
SARs entitle the participant to receive cash or stock equal in value to, or based on the value of, the amount by which the fair market value of a specified number of shares on the exercise date exceeds an exercise price established by the Compensation Committee. Except as described below, the exercise price for an SAR may not be less than the fair market value of the stock on the date the SAR is granted. However, the exercise price may be higher or lower than fair market value for an SAR granted in replacement of an existing award held by an employee, director or service provider of a third party that we or one of our subsidiaries acquires, or for SARs granted under a predecessor plan. SARs will be exercisable in accordance with the terms established by the Compensation Committee.
Stock Awards
A stock award is a grant of shares of our common stock or a right to receive shares of our common stock, an equivalent amount of cash or a combination thereof in the future. Awards may include stock units, bonus shares, performance shares, performance units, restricted stock or restricted stock units or any other equity-based award as
51
determined by the Compensation Committee. Any specific performance measures, performance objectives or period of service requirements may be set by the Compensation Committee in its discretion.
Cash Incentive Awards
A cash incentive award is the grant of a right to receive a payment of cash, determined on an individual basis or as an allocation of an incentive pool (or our common stock having a value equivalent to the cash otherwise payable) that is contingent on the achievement of performance objectives established by the Compensation Committee. The Compensation Committee may grant cash incentive awards (including the right to receive payment of cash or our common stock having the value equivalent to the cash otherwise payable) that may be contingent on achievement of performance objectives over a specified period established by the Compensation Committee. The grant of cash incentive awards may also be subject to such other conditions, restrictions and contingencies, as determined by the Compensation Committee.
Forfeiture
Unless specifically provided to the contrary in the applicable award agreement, if a participant’s service is terminated for cause, any outstanding award held by the participant will be forfeited immediately and the participant will have no further rights under the award.
Further, except as otherwise provided by the Compensation Committee, if a participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant in any agreement between us (or a subsidiary) and the participant, whether during or after the participant’s termination of service, the participant will, in addition to any other penalties or restrictions that may apply under such agreements, state law, or otherwise, forfeit or pay the following to us:
|
|
|
|
|
|
|
|
Performance-Based Compensation
Any award under the 2019 Equity Incentive Plan may be conditioned on the achievement of one or more performance measures. The performance measures that may be used for awards designated as intended to be “performance-based compensation” will be based on, among others, any one or more of the following performance measures as selected by the Compensation Committee: earnings (including earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; and earnings per share; all as may be defined by the Compensation Committee); financial return ratios (including return on investment; return on invested capital; return on equity; and return on assets; all as may be defined by the Compensation Committee); “Texas Ratio”; expense ratio; efficiency ratio; increase in revenue, operating or net cash flows; cash flow return on investment; total stockholder return; market share; net operating income, operating income or net income; debt load reduction; loan and lease losses; expense management; economic value added; stock price; book value; overhead; assets; asset quality level; charge offs; loan loss reserves; loans; deposits; nonperforming assets; growth of loans, deposits or assets; interest sensitivity gap levels; regulatory
52
compliance; improvement of financial rating; achievement of balance sheet or income statement objectives; improvements in capital structure; profitability; profit margins; budget comparisons or strategic business objectives, consisting of one or more objectives based on meeting specific cost targets, business expansion goals and goals relating to acquisitions or divestitures. Performance measures may be based on our performance as a whole or of any one or more of our subsidiaries, business units or financial reporting segments, or any combination thereof, and may be measured relative to a peer group, an index or a business plan. The terms of any award may provide that partial achievement of performance criteria may result in partial payment or vesting of the award. Additionally, in establishing the performance measures, the Compensation Committee may provide for the inclusion or exclusion of certain items.
Limitations on Grants to Non-Employee Directors
The maximum number of shares subject to an award granted under the 2019 Equity Incentive Plan or otherwise during any one calendar year to any non-employee director, taken together with any cash fees we paid to such non-employee director during such calendar year for service on our board of directors, shall not exceed $285,000 in total value, or, with respect to the calendar year in which a non-employee director is first appointed or elected to our board of directors, $370,000. These amounts shall be determined without regard to grants of awards or cash fees paid during any period in which such individual was our (or our subsidiary’s) employee or consultant.
Change In Control
Unless otherwise provided in an award agreement, upon the occurrence of a change in control, all stock options and SARs under the 2019 Equity Incentive Plan then held by the participant will become fully exercisable immediately if, and all stock awards and cash incentive awards will become fully earned and vested immediately if, (i) the 2019 Equity Incentive Plan is not an obligation of the successor entity following a change in control or (ii) the 2019 Equity Incentive Plan is an obligation of the successor entity following a change in control and the participant incurs a termination of service without cause or for good reason following the change in control. Notwithstanding the immediately preceding sentence, if the vesting of an award is conditioned upon the achievement of performance measures, then such vesting will be subject to the following: if, at the time of the change in control, the performance measures are less than 50% attained (pro rata based upon the time of the period through the change in control), the award will become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50%; and if, at the time of the change in control, the performance measures are at least 50% attained (pro rata based upon the time of the period through the change in control), the award will become fully earned and vested immediately upon the change in control.
For purposes of the 2019 Equity Incentive Plan, a “change in control” generally will be deemed to occur when (i) any person acquires the beneficial ownership of 33% or more of our combined voting power, except that the acquisition of an interest by a benefit plan we sponsor or a corporate restructuring in which another member of our controlled group acquires such an interest generally will not be a change in control for purposes of the 2019 Equity Incentive Plan, (ii) during any 12-month period, a majority of the board members serving as of the 2019 Equity Incentive Plan’s effective date, or whose election was approved by a vote of a majority of the directors then in office, no longer serves as directors, (iii) we combine or merge with another company and, immediately after the combination, our stockholders immediately prior to the combination hold, directly or indirectly, 67% or less of the voting stock of the resulting company or (iv) the consummation of a complete liquidation or dissolution of, or an agreement for the disposition of all or substantially all of our assets.
In the event an award under the 2019 Equity Incentive Plan constitutes “deferred compensation” for purposes of Code Section 409A, and the settlement or distribution of the award is triggered by a change in control, then such settlement or distribution will be subject to the event constituting the change in control also constituting a “change in control event” for purposes of Code Section 409A. In no event will we reimburse a recipient of an award under the 2019 Equity Incentive Plan for any taxes imposed or other costs incurred as a result of Code Section 409A.
53
Amendment and Termination
Our board may at any time amend or terminate the 2019 Equity Incentive Plan or any award agreement under the 2019 Equity Incentive Plan, but any amendment or termination generally may not impair the rights of any participant or beneficiaries under any awards granted prior to the amendment or termination without participant’s written consent. Our board may not amend any provision of the 2019 Equity Incentive Plan to materially increase the original number of shares that may be issued under the 2019 Equity Incentive Plan (other than as provided in the 2019 Equity Incentive Plan), materially increase the benefits accruing to a participant or materially modify the requirements for participation in the 2019 Equity Incentive Plan without approval of our stockholders. However, our board may amend the 2019 Equity Incentive Plan at any time, retroactively or otherwise, to ensure that the 2019 Equity Incentive Plan complies with current or future law without stockholder approval, and our board may unilaterally amend the 2019 Equity Incentive Plan and any outstanding award, without participant consent, in order to avoid the application of, or to comply with, Code Section 409A.
Clawback Policy
All awards, amounts and benefits received under the 2019 Equity Incentive Plan will be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy or any applicable law even if adopted after the 2019 Equity Incentive Plan becomes effective.
U.S. Federal Income Tax Considerations
The following is a summary of the current U.S. federal income tax consequences that may arise in conjunction with participation in the 2019 Equity Incentive Plan.
Nonqualified Stock Options. The grant of a nonqualified stock option generally will not result in taxable income to the participant. Except as described below, the participant generally will realize ordinary income at the time of exercise in an amount equal to the excess of the fair market value of the shares acquired over the exercise price for those shares and we generally will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares generally will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.
Incentive Stock Options. The grant of an incentive stock option generally will not result in taxable income to the participant. The exercise of an incentive stock option generally will not result in taxable income to the participant, provided that the participant was, without a break in service, our (or a subsidiary’s) employee during the period beginning on the date of the grant of the option and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant is disabled, as that term is defined in the Code).
The excess of the fair market value of the shares at the time of exercise of an incentive stock option over the exercise price generally will be an adjustment that is included in the calculation of the participant’s alternative minimum taxable income for the tax year in which the incentive stock option is exercised. For purposes of determining the participant’s alternative minimum tax liability for the year of disposition of the shares acquired pursuant to the incentive stock option exercise, the participant generally will have a basis in those shares equal to the fair market value of the shares at the time of exercise.
If the participant does not sell or otherwise dispose of the shares within two years from the date of the grant of the incentive stock option or within one year after the transfer of such stock to the participant, then, upon disposition of such shares, any amount realized in excess of the exercise price generally will be taxed to the participant as capital gain. A capital loss generally will be recognized to the extent that the amount realized is less than the exercise price.
If the foregoing holding period requirements are not met, the participant generally will realize ordinary income at the time of the disposition of the shares, in an amount equal to the lesser of (i) the excess of the fair market value of the shares on the date of exercise over the exercise price, or (ii) the excess, if any, of the amount realized upon disposition of the shares over the exercise price, and we generally will be entitled to a corresponding deduction. If the amount realized exceeds the value of the shares on the date of exercise, any additional amount generally will be capital
54
gain. If the amount realized is less than the exercise price, the participant generally will recognize no income, and a capital loss will be recognized equal to the excess of the exercise price over the amount realized upon the disposition of the shares.
Stock Appreciation Rights. The grant of an SAR generally will not result in taxable income to the participant. Upon exercise of an SAR, the fair market value of shares received generally will be taxable to the participant as ordinary income and we will be entitled to a corresponding deduction. Gains and losses realized by the participant upon disposition of any such shares generally will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of exercise.
Stock Awards. A participant who has been granted a stock award generally will not realize taxable income at the time of grant, provided that the stock subject to the award is not delivered at the time of grant, or if the stock is delivered, it is subject to restrictions that constitute a “substantial risk of forfeiture” for U.S. income tax purposes. Upon the later of delivery or vesting of shares subject to an award, the holder generally will realize ordinary income in an amount equal to the then fair market value of those shares and we will be entitled to a corresponding deduction. Gains or losses realized by the participant upon disposition of such shares generally will be treated as capital gains and losses, with the basis in such shares equal to the fair market value of the shares at the time of delivery or vesting. Dividends paid to the holder during the restriction period, if so provided, generally will also be compensation income to the participant and we will be entitled to a corresponding deduction.
Cash Incentive Awards. A participant who has been granted a cash incentive award generally will not realize taxable income at the time of grant, provided that no cash is actually paid at the time of grant. Upon the payment of any cash in satisfaction of the cash incentive award, the participant generally will realize ordinary income in an amount equal to the cash award received and we will be entitled to a corresponding deduction.
Withholding of Taxes. We may withhold amounts from participants to satisfy withholding tax requirements. If permitted by the Compensation Committee, participants may have shares withheld from awards or may tender previously own shares to us to satisfy tax withholding requirements. The shares withheld from awards may not be used to satisfy more than our maximum statutory withholding obligation.
Change in Control. Any acceleration of the vesting or payment of awards under the 2019 Equity Incentive Plan in the event of our change in control may cause part or all of the consideration involved to be treated as an “excess parachute payment” under the Code, which may subject the participant to a 20% excise tax and preclude our corresponding tax deduction.
Tax Advice
The preceding discussion is based on U.S. federal tax laws and regulations presently in effect, which are subject to change, and the discussion does not purport to be a complete description of the U.S. federal income tax aspects of the 2019 Equity Incentive Plan. A participant may also be subject to state and local taxes in connection with the grant of awards under the 2019 Equity Incentive Plan. We strongly encourage participants to consult with their individual tax advisors to determine the applicability of the tax rules to the awards granted to them in their personal circumstances.
The number and types of awards to be made pursuant to the 2019 Equity Incentive Plan is subject to the discretion of the Compensation Committee and is not determinable at this time.
Under applicable law, the adoption of the 2019 Equity Incentive Plan requires the affirmative vote of the majority of the shares present in person or represented by proxy at the annual meeting and entitled to vote on this proposal. In tabulating the votes on this proposal, broker non-votes will have no effect on the outcome of the vote. However, any other abstentions by shares present in person or represented by proxy at the annual meeting are effectively equivalent to votes against this proposal.
Estimate of Benefits
55
The Company currently is not able to estimate the number or terms of grants and awards that may be made under the 2019 Equity Incentive Plan.
The table sets forth information for (i) all equity compensation plans previously approved by the Company’s stockholders and (ii) all equity compensation plans not previously approved by the Company’s stockholders. Equity compensation includes options, warrants, rights and restricted stock units which may be granted from time to time. As of March 13, 2019, the below equity awards were outstanding:
Equity Compensation Plan Information
not
|
|
|
Plan Category |
Number of Securities to be Issued Upon the Exercise of Outstanding Restricted Stock Units |
Number of Securities Remaining Available for Future Issuance |
Equity compensation plans approved by security holders* |
449,200 |
169,791 |
Equity compensation plans not approved by security holders |
--- |
--- |
Total | 449,200 | 169,791 |
_____________
(1)Reflects the outstanding awards under our 2014 Equity Incentive Plan, as well as the total remaining share reserve under our 2014 Equity Incentive Plan. The only awards remaining outstanding under these plans are unvested restricted stock units.
Board Recommendation
The board of directors recommends stockholders vote to approve the 2019 Equity Incentive Plan, as described in this proxy statement, by voting “FOR” this proposal. Proxies properly signed and returned will be voted “FOR” this proposal unless stockholders specify otherwise.
56
PROPOSAL 5:
PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
Our board of directors has adopted, declared advisable and is submitting for stockholder approval an amendment to our Restated Certificate of Incorporation to remove the mandatory director retirement age provision.
Proposed Amendment
If the amendment to our Restated Certificate of Incorporation is approved by our stockholders, the last sentence of the current Paragraph B of Article X will be removed in its entirety as illustrated below:
“B. The directors shall be divided into three classes: Class I, Class II and Class III. Such classes shall be as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders in 1987; the term of office of the initial Class II directors shall expire at the annual meeting of stockholders in 1988; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders in 1989; or thereafter when their respective successors in each case are elected and qualified. At each annual election held after 1986, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual meeting or thereafter when their respective successors in each case are elected and qualified. Any director elected to a particular class by the stockholders or directors shall be eligible, upon resignation, to be elected to a different class. Provided, and notwithstanding anything contained in this Paragraph B to the contrary, no person shall be elected to serve, or continue to serve, as a director of this Corporation after having attained age 70. Any individual who was previously elected as a director of this Corporation who thereafter attains age 70 shall no longer serve as director, and, upon attaining 70, such individual shall be deemed, effective at such time, to have resigned his/her directorship thereby creating a vacancy.
If the proposed amendment is approved by our stockholders, it will become effective upon the filing of an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which we expect to occur promptly following stockholder approval of this proposal. If the proposal is not approved by our stockholders, no amendment with respect to removing this provision will be filed with the Secretary of State of the State of Delaware and the proposal will not be implemented.
Reasons for the Proposed Amendment
We are proposing to amend the Company’s Restated Certificate of Incorporation to remove the requirement for mandatory director retirement at the age of seventy.
The existing mandatory director retirement at the age of seventy provision in our Restated Certificate of Incorporation does not allow for exceptions. As a result, it could force the premature retirement of experienced directors who are valuable, contributing members of our board with deep knowledge of our business and the markets that we serve. Two of our directors who are nominees for election at our 2019 annual meeting of stockholders for a term that will expire at our 2022 annual meeting, and one of our Class I directors (if re-elected at our 2020 annual meeting of stockholders), would be forced to retire from the board prior to the expiration of their term by the existing mandatory director retirement provision in our Restated Certificate of Incorporation.
In addition, the existing mandatory retirement age provision could also deter well-qualified candidates who are approaching, or have passed, the current mandatory retirement age from agreeing to serve as directors. Eliminating the current mandatory retirement age of seventy could allow us to be more competitive with our peers in the recruitment of experienced directors.
Our Nominating and Corporate Governance Committee reviews the qualifications of, and recommends to the board for nomination, candidates to stand for election at each annual meeting or to fill vacancies on the board as they may
57
occur during the year. In making its nominations for persons to be elected to the board of directors and included in our proxy statement, the Nominating and Corporate Governance Committee evaluates incumbent directors, board nominees and persons nominated by stockholders, if any. The committee reviews each candidate in light of the qualifications that we believe each director should possess, including those criteria discussed in this proxy statement under “Director Nominations and Qualifications.” With respect to every director nominee, our Nominating and Corporate Governance Committee and our board of directors intends to evaluate the need for changes to board composition, based on an analysis of the skills and experience needed to achieve a board of directors that can best serve the Company and its stockholders, including the results of director independence evaluations.
If the proposed amendment eliminating the mandatory director retirement age of seventy from our Restated Certificate of Incorporation is approved by our stockholders, our board of directors currently intends to develop a board policy, which may be implemented through a bylaw provision, regarding a review and potential retirement of directors at age seventy-three. The Company believes that addressing director review and potential retirement though such a board policy, which could be subsequently amended by an affirmative vote of the majority of our directors, would provide a process that reinforces board refreshment considerations while also enabling the board to address specific circumstances and evolving trends to seek board composition that best serves the Company and its stockholders.
Stockholder Vote Necessary to Approve the Proposed Amendment
To be approved by our stockholders, this proposal to amend our Restated Certificate of Incorporation must receive the affirmative vote of 75% of the voting power of all outstanding shares of our common stock. If you fail to vote or mark “ABSTAIN” on your proxy card (or your bank or broker fails to vote or abstains) with respect to this proposal to amend our Restated Certificate of Incorporation, it will have the same effect as a vote “AGAINST” the proposal.
Board Recommendation
Our board of directors recommends that you vote your shares “FOR” this proposal to amend our Restated Certificate of Incorporation.proposal.
41
58
PROPOSAL 6:3:
RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
General
Our stockholders are also being asked to adopt a resolution to ratify the appointment of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, 2019.2020. If the stockholders do not ratify the selection of Plante & Moran, PLLC at the annual meeting, the Audit Committee will consider selecting another firm of independent public accountants. Representatives from Plante & Moran, PLLC are expected to be present at the annual meeting and will have an opportunity to make a statement, if they so desire, as well as to respond to appropriate questions that may be asked by stockholders.
Approval of this proposal requires the affirmative vote of holders of a majority of the shares having voting power and present in person or by proxy at the annual meeting. Abstention will be counted as a vote present in person or by proxy at the annual meeting and entitled to vote on the proposal and will have the same effect as a vote “AGAINST” the proposal, andproposal. The ratification of the selection of our independent registered public accounting firm is considered a routine matter. Therefore, no broker non‑vote will not be considered entitlednon-votes are expected with respect to vote on this proposal and will therefore have no effect on the outcome.proposal.
Board Recommendation:
The board of directors recommends that you vote your shares “FOR” the ratification of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, 2019.this proposal.
Accountant Fees
Audit Fees. The aggregatetable below aggregates fees for professional services rendered in or provided for 2019 and expenses billed2018, as applicable, by Plante & Moran, PLLC in connection with the audit of our annual financial statements and the review of our quarterly financial statements were $350,623 for 2018 and $323,933 for 2017.PLLC:
Audit Related Fees. Audit related fees billed by Plante & Moran PLLC were $56,388 for 2018 and $25,157 for 2017. This category includes the aggregate fees billed for non‑audit services, exclusive of the fees disclosed relating to audit fees, during the fiscal years ended December 31, 2018 and 2017. These services principally include the assistance for various filings with the SEC, consultations regarding accounting and disclosure matters and due diligence services related to acquisition activity.
| | | | | | |
Type of Fees | | | 2019 | | | 2018 |
Audit Fees(1) | | $ | 388,234 | | $ | 350,623 |
Audit-Related Fees(2) | |
| 30,976 | |
| 56,388 |
Tax Fees(3) | |
| 5,510 | |
| 17,900 |
All Other Fees(4) | |
| 14,645 | |
| 37,000 |
Total Fees | | $ | 439,365 | | $ | 461,911 |
| (1) | Audit Fees. Audit fees consist of fees for professional services rendered for the integrated audit of our consolidated financial statements, including procedures required to comply with U.S. Department of Housing and Urban Development ("HUD"), review of the Company’s quarterly reports on Form 10-Q, annual report on Form 10-K, consent on Form S-8 in 2019, and consulting on financial accounting and reporting standards in 2019 and 2018. Audit fees are those billed or expected to be billed for audit services related to each fiscal year. |
| (2) | Audit Related Fees. Audit-related fees cover other audit and attest services, services provided in connection with certain agreed-upon procedures and other attestation reports and the employee benefit plan audit. Fees for audit-related services are those billed or expected to be billed for services rendered during each fiscal year. |
| (3) | Tax Fees. Tax fees cover tax compliance/preparation and other tax services billed or expected to be billed for services rendered during each fiscal year. |
| (4) | All Other Fees. Consists of fees for all other services provided other than those reported above and are comprised of non-tax related advisory and consulting services and review of other regulatory filings. |
Tax Fees. Tax fees billed by Plante & Moran PLLC in 2018 totaled $17,900. There were no tax related services billed by Plante & Moran, PLLC for 2017.
All Other Fees. All other fees billed by Plante & Moran, PLLC were $37,000 for 2018 and $13,500 for 2017. This category includes the aggregate fees billed for other regulatory filings during the fiscal years ended December 31, 2018 and 2017.
Pre‑ApprovalPre-Approval Policy
The Audit Committee has a Pre‑ApprovalPre-Approval Policy to pre‑approvepre-approve the audit and non‑auditnon-audit services performed by our independent registered public accounting firm. All services provided by the independent registered public accounting firm are either within general pre‑approvedpre-approved limits or specifically approved by the Audit Committee. The general pre‑approvalpre-approval limits are detailed as to each particular service and are limited by a specific dollar amount for each type of service per project. The authority to grant pre‑approvalspre-approvals may be delegated to one or more members of the Audit Committee. The Pre‑ApprovalPre-Approval Policy requires the Audit Committee to be informed of the services provided under the pre‑approvalpre-approval guidelines at the next regularly scheduled Audit Committee meeting. All services provided by Plante & Moran, PLLC, and all fees related thereto, were approved pursuant to the pre‑approvalpre-approval policy. The Pre‑ApprovalPre-Approval Policy is available on our website at www.oldsecond.com.
5942
PROPOSAL 7:
ADJOURNMENT PROPOSAL
A quorum is the number of shares that must be present, in person or by proxy, in order for business to be transacted at the annual meeting. Holders representing a majority of the outstanding shares of our common stock, present in person or by proxy, are necessary to constitute a quorum. Therefore, at the annual meeting, the presence, in person or by proxy, of the holders of at least 14,947,512 shares of common stock will be required to establish a quorum. Stockholders of record who are present at the annual meeting in person or by proxy and who abstain are considered stockholders who are present and entitled to vote, and will count towards the establishment of a quorum. As referenced earlier, broker non-votes, if any, will be included for purposes of determining whether or not a quorum exists.
If a quorum is not present at the annual meeting, or if the number of shares of common stock present in person or represented by proxy and voting in favor of 2019 Equity Incentive Plan and the amendment to our certificate of incorporation eliminating the mandatory retirement age for directors is insufficient to approve such proposals, the chair of the meeting may move to adjourn, postpone or continue the annual meeting in order to continue to solicit additional proxies. In that event, you will be asked to vote at the annual meeting only upon the adjournment proposal and any other proposal described in this proxy statement for which, at such time, we have received sufficient votes for approval.
Stockholder Vote Necessary to Approve of the Adjournment Proposal
Approval of the adjournment proposal requires the affirmative vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal, whether or not a quorum is present.
Board Recommendation
The board of directors recommends that you vote your shares “FOR” the adjournment proposal.
60
AUDIT COMMITTEE REPORT
The Audit Committee assists the board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit Committee also reviews the audited financial statements and recommends to the board that they be included in our annual report on Form 10‑K.10-K. The committee is comprised solely of directors who are independent under the rules of the NASDAQ Stock Market.
The Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2018,2019, with our management and Plante & Moran, PLLC, the independent registered public accounting firm that audited our financial statements for that period. The committee has discussed with Plante & Moran, PLLC the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board, and by SAS 114 (The Auditor’s Communication With Those Charged With Governance) and received and discussed the written disclosures and the letter from Plante & Moran, PLLC required by Public Company Accounting Oversight Board Rule 3526 (Communication with Audit Committees Concerning Independence). Based on the review and discussions with management and Plante & Moran, PLLC, the Audit committee has recommended to the board that the audited financial statements be included in our annual report on Form 10‑K10-K for the fiscal year ending December 31, 2018,2019, for filing with the Securities and Exchange Commission.SEC.
Submitted by:
Mr. Duane Suits, Chairman(former Chairman)*
Mr. Barry Finn
Mr. John Ladowicz
Mr. Hugh McLean
Mr. Jim TapscottTapscott*
Members of the Audit Committee
* Mr. Suits served as Chairman of the Audit Committee in 2019 and at the time of the Audit Committee’s recommendation to the board of directors that the audited financial statements be included in our annual report on Form 10-K for the fiscal year ending December 31, 2019 for filing with the SEC. Mr. Tapscott currently serves as Chairman of the Audit Committee.
43
HOUSEHOLDING
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports, or Notices Regarding the Availability of Proxy Materials, if applicable, with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, if applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. In accordance with these rules, only one proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, if applicable, may be delivered to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholders. Stockholders who currently receive multiple copies of the proxy statement and annual report at their address and would like to request “householding” of their communications should contact their broker if they are beneficial owners or direct their request to our Stockholder Relations Manager at the contact information below if they are registered holders.
If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, or Notice Regarding the Availability of Proxy Materials, if applicable, please notify your broker, if you are a beneficial owner or, if you are a registered holder, direct your written request to our Stockholder Relations Manager at the contact information below.
If requested, we will also promptly deliver, upon oral or written request, a separate copy of the proxy statement and annual report to any stockholder residing at an address to which only one copy was mailed. Please address such requests to our Stockholder Relations Manager at the contact information below.
Stockholder Relations Manager, Shirley Cantrell
Old Second Bancorp, Inc.
37 S. River St.
Aurora, Illinois 60507
Telephone: 630-906-2303
6144
GENERAL
GENERAL
We will bear the cost of this proxy solicitation. We have engaged D.F. King & Co., Inc., a proxy solicitation firm, to solicit proxies on our behalf. We have agreed to pay D.F. King & Co., Inc. a proxy solicitation fee of $10,500, and we will also reimburse them for their reasonable out-of-pocket costs and expenses. Solicitation will be made primarily through the use of the mail, but our proxy solicitor, officers, directors or employees may solicit proxies personally, by telephone or through any other mode of communication, without additional remuneration to our officers, directors or employees for such activity. In addition, we will reimburse brokerage houses and other custodians, nominees or fiduciaries for their reasonable expenses in forwarding proxy materials to the beneficial owner of such shares.
As of the date of this proxy statement, we do not know of any other matters to be brought before the annual meeting. However, if any other matters should properly come before the meeting, it is the intention of the persons named in the enclosed proxy to vote thereon in accordance with their best judgment.
| |
| By order of the board of directors |
|
|
| James L. Eccher |
Aurora, Illinois
| |
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAILVOTE THEIR PROXIESSHARES PROMPTLY
62
45
Appendix A
OLD SECOND BANCORP, INC.
2019 EQUITY INCENTIVE PLAN
Article 1
INTRODUCTION
Section 1.1 Purpose, Effective Date and Term. The purpose of this OLD SECOND BANCORP, INC. 2019 EQUITY INCENTIVE PLAN is to promote the long-term financial success of OLD SECOND BANCORP, INC. and its Subsidiaries by providing a means to attract, retain and reward individuals who can and do contribute to such success, and to further align their interests with those of the Shareholders. The “Effective Date” of the Plan is May 21, 2019, the date of the approval of the Plan by the Shareholders. The Plan shall remain in effect as long as any Awards are outstanding; provided, however, that no Awards may be granted after the 10-year anniversary of the Effective Date.
Section 1.2 Participation. Each employee and director of, and Service Provider (with respect to which issuances of securities may be registered under Form S-8) to, the Company and each Subsidiary who is granted, and currently holds, an Award in accordance with the provisions of the Plan shall be a “Participant” in the Plan. Award recipients shall be limited to employees and directors of, and Service Providers (with respect to which issuances of securities may be registered under Form S-8) to, the Company and its Subsidiaries; provided, however, that an Award (other than an Award of an ISO) may be granted to an individual up to 12 months prior to the date on which he or she first performs services as an employee, director or Service Provider, provided that such Award does not become vested prior to the date such individual commences such services.
Section 1.3 Definitions. Capitalized terms in the Plan shall be defined as set forth in the Plan (including the definition provisions of Article 8).
Article 2
AWARDS
Section 2.1 General. Any Award may be granted singularly, in combination with another Award (or Awards), or in tandem whereby the exercise or vesting of one Award held by a Participant cancels another Award held by the Participant. Each Award shall be subject to the provisions of the Plan and such additional provisions as the Committee may provide with respect to such Award and as may be evidenced in the Award Agreement. Subject to the provisions of Section 3.4(b), an Award may be granted as an alternative to or replacement of an existing award under the Plan, any other plan of the Company or a Subsidiary or as the form of payment for grants or rights earned or due under any other compensation plan or arrangement of the Company or a Subsidiary, including the plan of any entity acquired by the Company or a Subsidiary. The types of Awards that may be granted include the following:
(a) Stock Options. A stock option represents the right to purchase Shares at an exercise price established by the Committee. Any stock option may be either an ISO or a nonqualified stock option that is not intended to be an ISO. No ISOs may be (i) granted after the 10-year anniversary of the Effective Date or (ii) granted to a non-employee. To the extent the aggregate Fair Market Value (determined at the time of grant) of Shares with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company and its Subsidiaries exceeds $100,000, the stock options or portions thereof that exceed such limit shall be treated as nonqualified stock options. Unless otherwise specifically provided by the Award Agreement, any stock option granted under the Plan shall be a nonqualified stock option. All or a portion of any ISO granted under the Plan that does not qualify as an ISO for any reason shall be deemed to be a nonqualified stock option. In addition, any ISO granted under the Plan may be unilaterally modified by the Committee to disqualify such stock option from ISO treatment such that it shall become a nonqualified stock option.
(b) Stock Appreciation Rights. A stock appreciation right (an “SAR”) is a right to receive, in cash, Shares or a combination of both (as shall be reflected in the respective Award Agreement), an amount equal to or based upon
A-1
the excess of (i) the Fair Market Value at the time of exercise of the SAR over (ii) an exercise price established by the Committee.
(c) Stock Awards. A stock award is a grant of Shares or a right to receive Shares (or their cash equivalent or a combination of both, as shall be reflected in the respective Award Agreement) in the future, excluding Awards designated as stock options, SARs or cash incentive awards by the Committee. Such Awards may include bonus shares, performance shares, performance units, restricted stock, restricted stock units or any other equity-based Award as determined by the Committee. Restricted stock units and other deferred share rights, which are Awards denominated in Shares that will be settled, subject to the terms and conditions of the applicable Award Agreement (which may provide for performance-based vesting or time-based vesting) and the Plan, in an amount in cash (based upon the Fair Market Value of a specified number of Shares), Shares or a combination of both, are sometimes referred to in the Plan as “Restricted Stock Units.” Actual Shares issued to a Participant that are subject to vesting or forfeiture provisions and other terms and conditions of the applicable Award Agreement (which may provide for performance-based vesting or time-based vesting) and the Plan, are sometimes referred to in the Plan as “Restricted Stock.” For the avoidance of doubt, the terms “Restricted Stock Units” and “Restricted Stock” do not include any Awards designated as stock options, SARs or cash incentive awards by the Committee.
(d) Cash Incentive Awards. A cash incentive award is the grant of a right to receive a payment of cash (or Stock having a value equivalent to the cash otherwise payable, excluding Awards designated as stock options, SARs or stock awards by the Committee, all as shall be reflected in the respective Award Agreement), determined on an individual basis or as an allocation of an incentive pool that is contingent on the achievement of performance objectives established by the Committee.
Section 2.2 Exercise of Stock Options and SARs. A stock option or SAR shall be exercisable in accordance with such provisions as may be established by the Committee; provided, however, that a stock option or SAR shall expire no later than 10 years after its grant date (five years in the case of an ISO with respect to a 10% Shareholder). The exercise price of each stock option and SAR shall be not less than 100% of the Fair Market Value on the grant date (or, if greater, the par value of a Share); provided, however, that the exercise price of an ISO shall be not less than 110% of Fair Market Value on the grant date in the case of a 10% Shareholder; and provided, further, that, to the extent permitted under Code Section 409A, and subject to Section 3.4(b), the exercise price may be higher or lower in the case of stock options and SARs granted in replacement of existing awards held by an employee, director or Service Provider granted by an acquired entity. The payment of the exercise price of a stock option shall be by cash or, subject to limitations imposed by applicable laws and regulations, by any of the following means unless otherwise determined by the Committee from time to time: (a) by tendering, either actually or by attestation, Shares acceptable to the Committee and valued at Fair Market Value as of the day of exercise; (b) by irrevocably authorizing a third party, acceptable to the Committee, to sell Shares acquired upon exercise of the stock option and to remit to the Company no later than the third business day following exercise of a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise; (c) by payment through a net exercise such that, without the payment of any funds, the Participant may exercise the option and receive the net number of Shares equal in value to (i) the number of Shares as to which the option is being exercised, multiplied by (ii) a fraction, the numerator of which is the Fair Market Value (on the date of exercise) less the exercise price, and the denominator of which is such Fair Market Value (the number of net Shares to be received shall be rounded down to the nearest whole number of Shares); (d) by personal, certified or cashiers’ check; (e) by other property deemed acceptable by the Committee or (f) by any combination thereof.
Section 2.3 Performance-Based Compensation. Any Award may be conditioned on the achievement of one or more performance measures, as determined by the Committee.
(a) Performance Measures. The performance measures described in this Section 2.3 may be based on any one or more of the following (or such other measures as may be determined by the Committee): earnings (e.g., earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; and earnings per share; each as may be defined by the Committee); financial return ratios (e.g., return on investment; return on invested capital; return on equity; and return on assets; each as may be defined by the Committee); “Texas ratio”; expense ratio; efficiency ratio; increase in revenue, operating or net cash flows; cash flow return on investment; total shareholder
A-2
return; market share; net operating income, operating income or net income; debt load reduction; loan and lease losses; expense management; economic value added; stock price; book value; overhead; assets; asset quality level; charge offs; loan loss reserves; loans; deposits; nonperforming assets; growth of loans, deposits, or assets; interest sensitivity gap levels; regulatory compliance; improvement of financial rating; achievement of balance sheet or income statement objectives; improvements in capital structure; profitability; profit margins; budget comparisons or strategic business objectives, consisting of one or more objectives based on meeting specific cost targets, business expansion goals and goals relating to acquisitions or divestitures. Performance measures may be based on the performance of the Company as a whole or of any one or more Subsidiaries, business units or financial reporting segments of the Company or a Subsidiary, or any combination thereof, and may be measured relative to a peer group, an index or a business plan.
(b) Partial Achievement. An Award may provide that partial achievement of the performance measures may result in payment or vesting based upon the degree of achievement. In addition, partial achievement of performance measures shall apply toward a Participant’s individual limitations as set forth in Section 3.3.
(c) Extraordinary Items. In establishing any performance measures, the Committee may provide for the exclusion of the effects of the following items: (i) extraordinary, unusual or nonrecurring items of gain or loss, including non-cash refinancing charges; (ii) gains or losses on the disposition of a business; (iii) changes in tax or accounting principles, regulations or laws; (iv) mergers or acquisitions; and (v) such other items as the Committee may determine. To the extent not specifically excluded, such effects shall be included in any applicable performance measure.
(d) Adjustments. Pursuant to this Section 2.3, in certain circumstances the Committee may adjust performance measures. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company or the manner in which the Company or a Subsidiary conducts its business or other events or circumstances render current performance measures to be unsuitable, the Committee may modify such performance measures, in whole or in part, as the Committee deems appropriate. If a Participant is promoted, demoted or transferred to a different business unit during a performance period, the Committee may determine that the selected performance measures or applicable performance period are no longer appropriate, in which case, the Committee, in its sole discretion, may (i) adjust, change or eliminate the performance measures or change the applicable performance period or (ii) cause to be made a cash payment to the Participant in an amount determined by the Committee.
Section 2.4 No Delivery of Dividends and Dividend Equivalents on Unvested Awards. Dividend payments or dividend equivalent payments may not be paid on any unvested Award issued under the Plan; provided, that the Committee may provide that dividends, or dividend equivalents, on unvested Awards (other than stock options or SARs, and provided that that stock options and SARs may be adjusted under certain circumstances in accordance with the terms of Section 3.4) may be accrued and paid upon vesting of the applicable Award. Any Award that includes such accrual rights shall comply with Code Section 409A.
Section 2.5 Forfeiture of Awards. Unless specifically provided to the contrary in an Award Agreement, upon notification of Termination of Service for Cause, any outstanding Award held by a Participant, whether vested or unvested, shall terminate immediately, such Award shall be forfeited and the Participant shall have no further rights thereunder.
Section 2.6 Deferred Compensation. The Plan is, and all Awards are, intended to be exempt from (or, in the alternative, to comply with) Code Section 409A, and each shall be construed, interpreted and administered accordingly. The Company does not guarantee that any benefits that may be provided under the Plan will satisfy all applicable provisions of Code Section 409A. If any Award would be considered “deferred compensation” under Code Section 409A, the Committee reserves the absolute right (including the right to delegate such right) to unilaterally amend the Plan or the applicable Award Agreement, without the consent of the Participant, to avoid the application of, or to maintain compliance with, Code Section 409A. Any amendment by the Committee to the Plan or an Award Agreement pursuant to this Section 2.6 shall maintain, to the extent practicable, the original intent of the applicable provision without violating Code Section 409A. A Participant’s acceptance of any Award shall be deemed to constitute the Participant’s acknowledgment of, and consent to, the rights of the Committee under this Section 2.6, without further consideration or action. Any discretionary authority retained by the Committee pursuant to the terms of the Plan or pursuant to an Award Agreement shall not be applicable to an Award that is determined to constitute deferred
A-3
compensation, if such discretionary authority would contravene Code Section 409A. In no event will the Company or any Subsidiary of the Company be required to reimburse a Participant for any taxes imposed or other costs incurred as a result of Code Section 409A.
Article 3
SHARES SUBJECT TO PLAN
Section 3.1 Available Shares. The Shares with respect to which Awards may be granted shall be Shares currently authorized but unissued, currently held or, to the extent permitted by applicable laws and regulations, subsequently acquired by the Company, including Shares purchased in the open market or in private transactions.
Section 3.2 Share Limitations.
(a) Share Reserve. Subject to the following provisions of this Section 3.2, the maximum number of Shares that may be delivered under the Plan shall be 600,000 (all of which may be granted as ISOs), plus Shares that are covered under a Prior Plan award that otherwise would become available for reuse under the terms of the Prior Plan, as and to the extent provided in Section 3.2(b). The maximum number of Shares available for delivery under the Plan (including the number that may be granted as ISOs) and the number of Shares subject to outstanding Awards shall be subject to adjustment as provided in Section 3.4. As of the Effective Date, no further awards shall be granted under the Prior Plan; provided, however, that dividend equivalents may continue to be issued under the Prior Plan in respect of awards granted under such plans that are outstanding as of the Effective Date.
(b) Rules for Calculating Shares Delivered. To the extent that any Award is forfeited, terminates, expires or lapses instead of being exercised (or, solely with respect to any Award that is not exercisable for or convertible into Shares, if such Award is settled for cash without the delivery of Shares), the Shares subject to such Award not delivered as a result thereof shall again be available for issuance in connection with other Awards under this Plan. If the exercise price of any stock option or SAR, or if the tax withholding obligations relating to any Award (other than Restricted Stock Awards and Restricted Stock Unit Awards), are satisfied by delivering Shares (either actually or through attestation) or withholding Shares relating to such Award, the gross number of Shares subject to the Award shall nonetheless be deemed to have been delivered for purposes of the first sentence of Section 3.2(a); and provided, for the avoidance of doubt, that the gross number of SARs exercised or settled, and not just the net Shares issued upon exercise or settlement, will count against the aggregate limit on the number of Shares that may be delivered under the Plan. Shares purchased on the open market with the proceeds of the exercise price of a stock option or SAR shall not be available for issuance in connection with other Awards under this Plan. If tax withholding obligations relating to Restricted Stock Awards and Restricted Stock Unit Awards are satisfied by delivering Shares (either actually or through attestation) or withholding Shares relating to such Award, the Shares subject to such Award not delivered as a result thereof shall again be available for issuance in connection with other Awards under this Plan.
Following the Effective Date, any Shares that are covered under an outstanding Prior Plan award that otherwise would become available for reuse under the terms of the Prior Plan due to forfeiture, termination, expiration or lapse without being exercised (to the extent applicable), (or solely with respect to any Prior Plan award that is not exercisable for or convertible into Shares, if such Prior Plan award is settled for cash without the delivery of Shares), or as a result of tax withholding obligations with respect to restricted stock awards and restricted stock unit awards (“full value” awards) being satisfied by delivering Shares (either actually or through attestation) or withholding Shares relating to such full value awards, shall instead become available for delivery under the Plan. Provided, for the avoidance of doubt, that if the exercise price of any stock option or SAR, or if the tax withholding obligations relating to any award (other than restricted stock awards and restricted stock unit awards), outstanding under a Prior Plan award are satisfied by delivering Shares (either actually or through attestation) or withholding Shares relating to such award, the gross number of Shares subject to the award shall nonetheless be deemed to have been delivered and shall not become available for delivery under the Plan, and that the gross number of SARs that are outstanding under a Prior Plan award that are exercised or settled, and not just the net Shares issued upon exercise or settlement, shall be deemed to have been delivered and shall not become available for delivery under the Plan.
A-4
Section 3.3 Limitations on Grants
(a) Director Participants. Notwithstanding any provisions to the contrary in the Plan, the maximum number of Shares subject to Awards granted under the Plan or otherwise during any one calendar year to any Director Participant, taken together with any cash fees paid by the Company to such Director Participant during such calendar year for service on the Board, will not exceed $285,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes), or, with respect to the calendar year in which a Director Participant is first appointed or elected to the Board, $370,000; provided, however, that the limitation described in this sentence shall be determined without regard to grants of Awards or cash fees paid to a Director Participant during any period in which such individual was an employee or consultant of the Company or a Subsidiary (other than grants of Awards or cash fees paid for service in their capacity as a Director).
(b) Stock Options and SARs. The maximum number of Shares that may be subject to stock options or SARs granted to any one Participant during any calendar year that are intended to be performance-based compensation shall be 100,000. For purposes of this Section 3.3(b), if a stock option is granted in tandem with an SAR, such that the exercise of the option or SAR with respect to a Share cancels the tandem SAR or option right, respectively, with respect to such Share, the tandem option and SAR rights with respect to each Share shall be counted as covering one Share for purposes of applying the limitations of this Section 3.3(b).
(c) Stock Awards. The maximum number of Shares that may be subject to stock awards that are granted to any one Participant during any calendar year and are intended to be performance-based compensation shall be 100,000.
(d) Cash Incentive Awards and Stock Awards Settled in Cash. The maximum dollar amount that may be payable to any one Participant pursuant to cash incentive awards and cash-settled stock awards that are granted to any one Participant during any calendar year and are intended to be performance-based compensation shall be $1,500,000.
(e) Earnings. For purposes of determining the foregoing limitations of this Section 3.3, if the delivery of any Shares or cash under an Award is deferred, any earnings, including dividends and dividend equivalents, shall be disregarded.
(f) Partial Performance. Notwithstanding the preceding provisions of this Section 3.3, if in respect of any performance period or restriction period, the Committee grants to a Participant Awards having an aggregate dollar value and/or number of Shares less than the maximum dollar value and/or number of Shares that could be paid or awarded to such Participant based on the degree to which the relevant performance measures were attained, the excess of such maximum dollar value and/or number of Shares over the aggregate dollar value and/or number of Shares actually subject to Awards granted to such Participant shall be carried forward and shall increase the maximum dollar value and/or the number of Shares that may be awarded to such Participant in respect of the next performance period or restriction period in respect of which the Committee grants to such Participant an Award intended to constitute performance-based compensation, subject to adjustment pursuant to Section 3.4.
Section 3.4 Corporate Transactions; No Repricing.
(a) Adjustments. To the extent permitted under Code Section 409A, to the extent applicable, and in accordance with Code Section 424(a)(to the extent applicable), in the event of a corporate transaction involving the Company or the Shares (including any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), all outstanding Awards, the number of Shares available for delivery under the Plan under Section 3.2 and each of the specified limitations set forth in Section 3.3 shall be adjusted automatically to proportionately and uniformly reflect such transaction; provided, however, that, subject to Section 3.4(b), the Committee may otherwise adjust Awards (or prevent such automatic adjustment) as it deems necessary, in its sole discretion, to preserve the benefits or potential benefits of the Awards and the Plan. Action by the Committee under this Section 3.4(a) may include: (i) adjustment of the number and kind of shares that may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the exercise price of outstanding stock options and SARs; and (iv) any other adjustments that the
A-5
Committee determines to be equitable (which may include (A) replacement of an Award with another award that the Committee determines has comparable value and that is based on stock of a company resulting from a corporate transaction, (B) adjustment to the performance measures applicable to an Award, and (C) cancellation of an Award in return for cash payment of the current value of the Award, determined as though the Award were fully vested at the time of payment, provided that in the case of a stock option or SAR, the amount of such payment shall be the excess of the value of the stock subject to the option or SAR at the time of the transaction over the exercise price, and provided, further, that no such payment shall be required in consideration for the cancellation of the Award if the exercise price is greater than the value of the stock at the time of such corporate transaction).
(b) No Repricing. Notwithstanding any provision of the Plan to the contrary, no adjustment or reduction of the exercise price of any outstanding stock option or SAR in the event of a decline in Stock price shall be permitted without approval by the Shareholders or as otherwise expressly provided under Section 3.4(a). The foregoing prohibition includes (i) reducing the exercise price of outstanding stock options or SARs, (ii) cancelling outstanding stock options or SARs in connection with the granting of stock options or SARs with a lower exercise price to the same individual, (iii) cancelling stock options or SARs with an exercise price in excess of the current Fair Market Value in exchange for a cash or other payment, and (iv) taking any other action that would be treated as a repricing of a stock option or SAR under the rules of the primary securities exchange or similar entity on which the Shares are listed.
Section 3.5 Delivery of Shares. Delivery of Shares or other amounts under the Plan shall be subject to the following:
(a) Compliance with Applicable Laws. Notwithstanding any provision of the Plan to the contrary, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under the Plan unless such delivery or distribution complies with all applicable laws and regulations.
(b) No Certificates Required. To the extent that the Plan provides for the delivery of Shares, the delivery may be effected on a non-certificated basis, to the extent not prohibited by applicable law and regulations.
Article 4
CHANGE IN CONTROL
Section 4.1 Consequence of a Change in Control. Subject to the provisions of Section 3.4 (relating to the adjustment of shares), and except as otherwise provided in the Plan or in the respective Award Agreement, at the time of a Change in Control:
(a) Subject to any forfeiture and expiration provisions otherwise applicable to the respective Awards, all stock options and SARs under the Plan then held by the Participant shall become fully exercisable immediately if, and all stock awards and cash incentive awards under the Plan then held by the Participant shall become fully earned and vested immediately if, (i) the Plan and the respective Award Agreements are not the obligations of the entity, whether the Company, a successor thereto or an assignee thereof, that conducts following a Change in Control substantially all of the business conducted by the Company and its Subsidiaries immediately prior to such Change in Control or (ii) the Plan and the respective Award Agreements are the obligations of the entity, whether the Company, a successor thereto or an assignee thereof, that conducts following a Change in Control substantially all of the business conducted by the Company and its Subsidiaries immediately prior to such Change in Control and the Participant incurs a Termination of Service without Cause or by the Participant for Good Reason following such Change in Control.
(b) Notwithstanding the foregoing provisions of this Section 4.1, and except as otherwise provided in the respective Award Agreement, if the vesting of an outstanding Award is conditioned upon the achievement of performance measures, then such vesting shall be subject to the following:
(i) If, at the time of the Change in Control, the established performance measures are less than 50% attained (as determined in the sole discretion of the Committee, taking into account performance through the latest date preceding the Change of Control as to which performance can, as a practical matter, be determined (but not later than the end of the applicable performance period), but in
A-6
any event, based pro rata in accordance with time lapsed through the date of the Change in Control in the event of any period-based performance measures), then such Award shall become vested and exercisable on a fractional basis with the numerator being equal to the percentage of attainment and the denominator being 50% upon the Change in Control.
(ii) If, at the time of the Change in Control, the established performance measures are at least 50% attained (as determined in the sole discretion of the Committee, taking into account performance through the latest date preceding the Change of Control as to which performance can, as a practical matter, be determined (but not later than the end of the applicable performance period), but in any event based pro rata in accordance with time lapsed through the date of the Change in Control in the event of any period-based performance measures), then such Award shall become fully earned and vested immediately upon the Change in Control.
Section 4.2 Definition of Change in Control.
(a) Subject to Section 4.2(c), if the Participant is subject to a change in control agreement (or other similar agreement) with the Company or a Subsidiary that provides a definition of “change in control” (or the like), then, for purposes of the Plan, unless otherwise provided in an applicable Award, the term “Change in Control” has the meaning set forth in such agreement; and in the absence of such a definition, “Change in Control” means the first to occur of the following:
(i) The consummation of the acquisition by any “person” (as such term is defined in Section 13(d) or 14(d) of the Exchange Act) of “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 33% or more of the combined voting power of the then outstanding Voting Securities of the Company;
(ii) During any 12-month period, the individuals who, as of the Effective Date, are members of the Board cease for any reason to constitute a majority of the Board, unless either the election of or the nomination for election by the Shareholders of any new director was approved by a vote of a majority of the Board, in which case such new director shall for purposes of this Plan be considered as a member of the Board; or
(iii) The consummation by the Company of (i) a merger, consolidation or other similar transaction if the Shareholders immediately before such merger, consolidation or other similar transaction do not, as a result of such merger, consolidation or other similar transaction, own, directly or indirectly, more than 67% of the combined voting power of the then outstanding Voting Securities of the entity resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the Voting Securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete liquidation or dissolution or an agreement for the sale or other disposition of all or substantially all of the assets of the Company.
(b) Notwithstanding any provision in the foregoing definition of Change in Control to the contrary, a Change in Control shall not be deemed to occur solely because 33% or more of the combined voting power of the then outstanding securities of the Company are acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained for employees of the entity or (ii) any corporation that, immediately prior to such acquisition, is owned directly or indirectly by the Shareholders in the same proportion as their ownership of Stock immediately prior to such acquisition.
(c) Further notwithstanding any provision in the foregoing definition of Change in Control, in the event that any Award constitutes non-qualified deferred compensation under Code Section 409A, and the settlement of, or distribution of benefits under, such Award is to be triggered by a Change in Control, then a transaction or event will not be deemed to be a Change in Control with respect to such Award unless the transaction or event qualified as a “change in control event” within the meaning of Code Section 409A.
A-7
Article 5
COMMITTEE
Section 5.1 Administration. The authority to control and manage the operation and administration of the Plan shall be vested in the Committee in accordance with this Article 5. The Committee shall be selected by the Board, provided that the Committee shall consist of two or more members of the Board, each of whom is a “non-employee director” (within the meaning of Rule 16b-3 promulgated under the Exchange Act), and an “independent director” (within the meaning of the rules of the securities exchange which then constitutes the principal listing for the Stock). Subject to the applicable rules of any securities exchange or similar entity, if the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.
Section 5.2 Powers of Committee. The Committee’s administration of the Plan shall be subject to the other provisions of the Plan and the following:
(a) The Committee shall have the authority and discretion to select from among the Company’s and the Subsidiary’s employees, directors and Service Providers those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of Shares covered by the Awards, to establish the terms of Awards, to cancel or suspend Awards and to reduce or eliminate any restrictions or vesting requirements applicable to an Award at any time after the grant of the Award; provided, however, that a vesting period of at least one year from the date an Award is granted must apply to at least 95% of the Awards granted under this Plan.
(b) The Committee shall have the authority and discretion to interpret the Plan and any Award Agreement, to establish, amend and rescind any rules and regulations relating to the Plan and/or any Award Agreement, and to make all other determinations that may be necessary or advisable for the administration of the Plan and/or any Award Agreement.
(c) The Committee shall have the authority to define terms not otherwise defined in the Plan and/or any Award Agreement.
(d) Any interpretation of the Plan and/or any Award Agreement by the Committee and any decision made by it under the Plan (including any decision with respect to any Award Agreement) shall be final and binding on all persons.
(e) In controlling and managing the operation and administration of the Plan and/or any Award Agreement, the Committee shall endeavor to take action in a manner that conforms to the articles and bylaws of the Company and all applicable laws and regulations.
Section 5.3 Delegation by Committee. Except to the extent prohibited by applicable laws and regulations, the applicable rules of any securities exchange or similar entity or the Plan or the charter of the Committee, or as necessary to comply with the exemptive provisions of Rule 16b‑3 of the Exchange Act, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers under the Plan to any other person or persons selected by it. The acts of such delegates shall be treated under the Plan as acts of the Committee and such delegates shall report regularly to the Committee regarding the delegated duties and responsibilities and any Awards granted. Any such allocation or delegation may be revoked by the Committee at any time.
Section 5.4 Information to be Furnished to Committee. As may be permitted by applicable laws and regulations, the Company and each Subsidiary shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties under the Plan. The records of the Company and each Subsidiary as to an employee’s or Participant’s employment, termination of employment, leave of absence, reemployment and compensation shall be conclusive with respect to all persons unless determined by the Committee to be manifestly incorrect. Subject to applicable laws and regulations, Participants and other persons entitled to benefits
A-8
under the Plan shall furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.
Section 5.5 Expenses and Liabilities. All expenses and liabilities incurred by the Committee in the administration and interpretation of the Plan or any Award Agreement shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons in connection with the administration and interpretation of the Plan and/or any Award Agreement, and the Company, and its officers and directors, shall be entitled to rely upon the advice, opinions and valuations of any such persons.
Article 6
AMENDMENT AND TERMINATION
Section 6.1 General. The Board may, as permitted by law, at any time, amend or terminate the Plan, and may amend any Award Agreement; provided, however, that no amendment or termination may (except as provided in Section 2.6, Section 3.4 and Section 6.2), in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), impair the rights of any Participant or beneficiary under any Award granted prior to the date such amendment or termination is adopted by the Board; and provided, further, that no amendment may (a) materially increase the benefits accruing to Participants under the Plan, (b) materially increase the aggregate number of securities that may be delivered under the Plan other than pursuant to Section 3.4, or (c) materially modify the requirements for participation in the Plan, unless the amendment under (a), (b) or (c) immediately above is approved by the Shareholders.
Section 6.2 Amendment to Conform to Laws and Regulations. Notwithstanding any provision of the Plan or an Award Agreement to the contrary, the Committee may amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as deemed necessary or advisable for the purpose of conforming the Plan or the Award Agreement to any applicable laws and regulations. By accepting an Award, the Participant shall be deemed to have acknowledged and consented to any amendment to an Award made pursuant to this Section 6.2, Section 2.6 or Section 3.4 without further consideration or action.
Article 7
GENERAL TERMS
Section 7.1 No Implied Rights.
(a) No Rights to Specific Assets. No person shall by reason of participation in the Plan acquire any right in or title to any assets, funds or property of the Company or any Subsidiary, including any specific funds, assets, or other property that the Company or a Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Shares or amounts, if any, distributable in accordance with the provisions of the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan or an Award Agreement shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to provide any benefits to any person.
(b) No Contractual Right to Employment or Future Awards. The Plan does not constitute a contract of employment, and selection as a Participant shall not give any person the right to be retained in the service of the Company or a Subsidiary or any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the Plan. No individual shall have the right to be selected to receive an Award, or, having been so selected, to receive a future Award.
(c) No Rights as a Shareholder. Except as otherwise provided in the Plan, no Award shall confer upon the holder thereof any rights as a Shareholder prior to the date on which the individual fulfills all conditions for receipt of such rights.
Section 7.2 Transferability. Except as otherwise provided by the Committee, Awards are not transferable except as designated by the Participant by will or by the laws of descent and distribution or pursuant to a domestic
A-9
relations order. The Committee shall have the discretion to permit the transfer of Awards; provided, however, that such transfers shall be limited to immediate family members of Participants, trusts, partnerships, limited liability companies and other entities that are permitted to exercise rights under Awards in accordance with Form S-8 established for the primary benefit of such family members; and provided, further, that such transfers shall not be made for value to the Participant.
Section 7.3 Designation of Beneficiaries. A Participant hereunder may file with the Company a designation of a beneficiary or beneficiaries under the Plan and may from time to time revoke or amend any such designation. Any designation of beneficiary under the Plan shall be controlling over any other disposition, testamentary or otherwise; provided, however, that if the Committee is in doubt as to the entitlement of any such beneficiary to any Award, the Committee may determine to recognize only the legal representative of the Participant in which case the Company, the Committee and the members thereof shall not have any further liability to anyone.
Section 7.4 Non-Exclusivity. Neither the adoption of the Plan by the Board nor the submission of the Plan to the Shareholders for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as either may deem desirable, including the granting of restricted stock, stock options or other equity awards otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
Section 7.5 Award Agreement. Each Award shall be evidenced by an Award Agreement. A copy of the Award Agreement, in any medium chosen by the Committee, shall be made available to the Participant, and the Committee may require that the Participant sign a copy of the Award Agreement.
Section 7.6 Form and Time of Elections. Unless otherwise specified in the Plan, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be filed with the Company at such times, in such form, and subject to such terms or conditions, not inconsistent with the provisions of the Plan, as the Committee may require.
Section 7.7 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information that the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties.
Section 7.8 Tax Withholding. All distributions under the Plan shall be subject to withholding of all applicable taxes and the Committee may condition the delivery of any Shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. Except as otherwise provided by the Committee, such withholding obligations may be satisfied (a) through cash payment by the Participant; (b) through the surrender of Shares that the Participant already owns or (c) through the surrender of Shares to which the Participant is otherwise entitled under the Plan; provided, however, that except as otherwise specifically provided by the Committee, such Shares under clause (c) may not be used to satisfy more than the Company's maximum statutory withholding obligation based on the applicable maximum statutory tax rate (or, if applicable, such lesser amount as may be necessary to avoid classification of the Award as a liability for financial accounting purposes).
Section 7.9 Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company.
Section 7.10 Indemnification. To the fullest extent permitted by law, each person who is or shall have been a member of the Committee or the Board, or an employee or an officer of the Company to whom authority was delegated in accordance with Section 5.3, shall be indemnified and held harmless by the Company against and from any loss (including amounts paid in settlement), cost, liability or expense (including reasonable attorneys’ fees) that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her (provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the
A-10
same before he or she undertakes to handle and defend it on his or her own behalf), unless such loss, cost, liability or expense is a result of his or her own willful misconduct or except as expressly provided by statute. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s charter or bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Section 7.11 No Fractional Shares. Unless otherwise permitted by the Committee, no fractional Shares shall be delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, Shares or other property shall be delivered or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
Section 7.12 Governing Law. The Plan, all Awards, and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws, except as superseded by applicable federal law.
Section 7.13 Benefits Under Other Plans. Except as otherwise provided by the Committee, Awards granted to a Participant (including the grant and the receipt of benefits) shall be disregarded for purposes of determining the Participant’s benefits under, or contributions to, any qualified retirement plan, nonqualified plan and any other benefit plan maintained by the Participant’s employer.
Section 7.14 Validity. If any provision of the Plan is determined to be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been included in the Plan.
Section 7.15 Notice. Unless provided otherwise in an Award Agreement or policy adopted from time to time by the Committee, all communications to the Company provided for in the Plan, or any Award Agreement, shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid (provided that international mail shall be sent via overnight or two-day delivery), or prepaid overnight courier to the Company at the address set forth below:
Old Second Bancorp, Inc.
37 South River Street
Aurora, Illinois 60507
Such communications shall be deemed given:
(a) In the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery; and
(b) In the case of certified or registered U.S. mail, five days after deposit in the U.S. mail;
provided, however, that in no event shall any communication be deemed to be given later than the date it is actually received, provided it is actually received. In the event a communication is not received, it shall be deemed received only upon the showing of an original of the applicable receipt, registration or confirmation from the applicable delivery Service Provider. Communications that are to be delivered by U.S. mail or by overnight service to the Company shall be directed to the attention of the Company’s senior human resources officer and corporate secretary.
Section 7.16 Clawback Policy. Any Award, amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other similar action in accordance with any applicable Company clawback policy (the “Policy”) or any applicable laws and regulations. A Participant’s receipt of an Award shall be deemed to constitute the Participant’s acknowledgment of and consent to the Company’s application, implementation and enforcement of (i) the Policy and any similar policy established by the Company that may apply to the Participant, whether adopted prior to or following the making of any Award and (ii) any provision of applicable laws and regulations relating to cancellation, rescission, payback or recoupment of compensation, as well as the Participant’s
A-11
express agreement that the Company may take such actions as are necessary to effectuate the Policy, any similar policy and applicable laws and regulations, without further consideration or action.
Section 7.17 Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if the Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between the Participant and the Company or a Subsidiary, whether during or after the Participant’s Termination of Service, in addition to any other penalties or restrictions that may apply under any such agreement, state law, or otherwise, the Participant shall forfeit or pay to the Company:
(a) Any and all outstanding Awards granted to the Participant, including Awards that have become vested or exercisable;
(b) Any Shares held by the Participant in connection with the Plan that were acquired by the Participant after the Participant’s Termination of Service and within the 12-month period immediately preceding the Participant’s Termination of Service;
(c) The profit realized by the Participant from the exercise of any stock options and SARs that the Participant exercised after the Participant’s Termination of Service and within the 12‑month period immediately preceding the Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by the Participant upon exercise of such stock option or SAR; and
(d) The profit realized by the Participant from the sale, or other disposition for consideration, of any Shares received by the Participant in connection with the Plan after the Participant’s Termination of Service and within the 12-month period immediately preceding the Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Article 8
DEFINED TERMS; CONSTRUCTION
Section 8.1 In addition to the other definitions contained in the Plan, unless otherwise specifically provided in an Award Agreement, the following definitions shall apply:
(a) “10% Shareholder” means an individual who, at the time of grant, owns Voting Securities possessing more than 10% of the total combined voting power of the Voting Securities.
(b) “Award” means an award under the Plan.
(c) “Award Agreement” means the document that evidences the terms and conditions of an Award. Such document shall be referred to as an agreement regardless of whether a Participant’s signature is required.
(d) “Board” means the Board of Directors of the Company.
(e) If the Participant is subject to an employment agreement (or other similar agreement) with the Company or a Subsidiary that provides a definition of termination for “cause” (or the like), then, for purposes of the Plan, the term “Cause” has the meaning set forth in such agreement; and in the absence of such a definition, “Cause” means (i) any act of (A) fraud or intentional misrepresentation or (B) embezzlement, misappropriation or conversion of assets or opportunities of the Company or a Subsidiary, (ii) willful violation of any law, rule or regulation in connection with the performance of a Participant’s duties to the Company or a Subsidiary (other than traffic violations or similar offenses), (iii) with respect to any employee of the Company or a Subsidiary, commission of any act of moral turpitude or conviction of a felony or (iv) the willful or negligent failure of the Participant to perform the Participant’s duties to the Company or a Subsidiary in any material respect.
A-12
Further, the Participant shall be deemed to have terminated for Cause if, after the Participant’s Termination of Service, facts and circumstances arising during the course of the Participant’s employment with the Company are discovered that would have constituted a termination for Cause.
Further, all rights a Participant has or may have under the Plan shall be suspended automatically during the pendency of any investigation by the Board or its designee or during any negotiations between the Board or its designee and the Participant regarding any actual or alleged act or omission by the Participant of the type described in the applicable definition of “Cause.”
(f) “Change in Control” has the meaning ascribed to it in Section 4.2.
(g) “Code” means the Internal Revenue Code of 1986.
(h) “Committee” means the Committee acting under Article 5, and in the event a Committee is not currently appointed, the Board.
(i) “Company” means Old Second Bancorp, Inc., a Delaware corporation.
(j) “Director Participant” means a Participant who is a member of the Board (or the board of directors of a Subsidiary) who is not an employee of the Company or a Subsidiary.
(k) “Disability” means the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering the Company’s or a Subsidiary’s employees.
(l) “Effective Date” has the meaning ascribed to it in Section 1.1.
(m) “Exchange Act” means the Securities Exchange Act of 1934.
(n) “Fair Market Value” means, as of any date, the officially-quoted closing selling price of the Shares on such date on the principal national securities exchange on which Shares are listed or admitted to trading or, if there have been no sales with respect to Shares on such date, then the next preceding date on which Shares were traded on such principal national securities exchange, or if the Shares are not so listed or admitted to trading, the Fair Market Value shall be the value established by the Committee in good faith and, to the extent required, in accordance with Code Sections 422 and 409A.
(o) “Good Reason” If the Participant is subject to an employment agreement (or other similar agreement) with the Company or a Subsidiary that provides a definition of termination for “good reason” (or the like), then, for purposes of the Plan, the term “Good Reason” has the meaning set forth in such agreement; and in the absence of such a definition, “Good Reason” means the occurrence of any one of the following events, unless the Participant agrees in writing that such event shall not constitute Good Reason:
(i) A material, adverse change in the nature, scope or status of the Participant’s position, authorities or duties from those in effect immediately prior to the applicable Change in Control;
(ii) A material reduction in the Participant’s aggregate compensation and benefits in effect immediately prior to the applicable Change in Control; or
(iii) Relocation of the Participant’s primary place of employment of more than 50 miles from the Participant’s primary place of employment immediately prior to the applicable Change in Control, or a requirement that the Participant engage in travel that is materially greater than prior to the
A-13
applicable Change in Control and represents a material negative change to the Participant in their service relationship with the Company and a Subsidiary.
Notwithstanding any provision of this definition to the contrary, prior to the Participant’s Termination of Service for Good Reason, the Participant must give the Company written notice of the existence of any condition set forth in clause (i) - (iii) immediately above within 90 days of its initial existence and the Company shall have 30 days from the date of such notice in which to cure the condition giving rise to Good Reason, if curable. If, during such 30-day period, the Company cures the condition giving rise to Good Reason, the condition shall not constitute Good Reason. Further notwithstanding any provision of this definition to the contrary, in order to constitute a termination for Good Reason, such termination must occur within 12 months of the initial existence of the applicable condition.
(p) “Form S-8” means a Registration Statement on Form S-8 promulgated by the U.S. Securities and Exchange Commission or any successor form thereto.
(q) “ISO” means a stock option that is intended to satisfy the requirements applicable to an “incentive stock option” described in Code Section 422(b).
(r) “Participant” has the meaning ascribed to it in Section 1.2.
(s) “Plan” means the Old Second Bancorp, Inc. 2019 Equity Incentive Plan.
(t) “Policy” has the meaning ascribed to it in Section 7.16.
(u) “Prior Plan” means the Old Second Bancorp, Inc. 2014 Equity Incentive Plan, as amended.
(v) “SAR” has the meaning ascribed to it in Section 2.1(b).
(w) “Securities Act” means the Securities Act of 1933.
(x) “Service Provider” means any natural person, including an advisor, engaged by the Company or a Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8, and provided, further, that a Service Provider will include only those persons to whom the issuance of Shares may be registered under Form S-8.
(y) “Share” means a share of Stock.
(z) “Shareholders” means the shareholders of the Company.
(aa) “Stock” means the common stock of the Company, no par value per share.
(bb) “Subsidiary” means any corporation or other entity that would be a “subsidiary corporation” as defined in Code Section 424(f) with respect to the Company.
(cc) “Termination of Service” means the first day occurring on or after a grant date on which the Participant ceases to be an employee and director of, and Service Provider to, the Company and each Subsidiary, regardless of the reason for such cessation, subject to the following:
(i) The Participant’s cessation as an employee or Service Provider shall not be deemed to occur by reason of the Participant’s being on a leave of absence from the Company or a Subsidiary approved by the Company or Subsidiary otherwise receiving the Participant’s services.
(ii) If, as a result of a sale or other transaction, the Subsidiary for whom the Participant is employed (or to whom the Participant is providing services) ceases to be a Subsidiary, and the
A-14
Participant is not, following the transaction, an employee or director of, or Service Provider to, the Company or an entity that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Participant’s Termination of Service caused by the Participant being discharged by the entity for whom the Participant is employed or to whom the Participant is providing services.
(iii) A Service Provider, other than an employee or director, whose services to the Company or a Subsidiary are governed by a written agreement with such Service Provider shall cease to be a Service Provider at the time the provision of service under such written agreement ends (without renewal); and such a Service Provider whose services to the Company or a Subsidiary are not governed by a written agreement with the Service Provider shall cease to be a Service Provider on the date that is 90 days after the date the Service Provider last provides services requested by the Company or a Subsidiary.
(iv) Notwithstanding the foregoing, in the event that any Award constitutes deferred compensation, the term Termination of Service shall be interpreted by the Committee in a manner consistent with the definition of “separation from service” as defined under Code Section 409A.
(dd) “Voting Securities” means any securities that ordinarily possess the power to vote in the election of directors without the happening of any precondition or contingency.
Section 8.2 In the Plan, unless otherwise stated, the following uses apply:
(a) Actions permitted under the Plan may be taken at any time in the actor’s reasonable discretion;
(b) References to applicable laws and regulations, or to a statute, shall refer to laws and regulations, or the statute, and any amendments and any successor laws and regulations, or statutes, and to all regulations promulgated under or implementing applicable laws or the statute, as amended, or their successors, and any stock exchange (or similar entity) rules or regulations applicable to the Company, all as in effect at the relevant time;
(c) In computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to and including”;
(d) References to a governmental or quasi-governmental agency, authority or instrumentality shall also refer to a regulatory body that succeeds to the functions of the agency, authority or instrumentality;
(e) Indications of time of day shall be based upon the time applicable to the location of the principal headquarters of the Company;
(f) The words “include,” “includes” and “including” mean “include, without limitation,” “includes, without limitation” and “including, without limitation,” respectively; and the word “or” shall not be exclusive (it shall mean “and/or”), unless the context requires otherwise (such as in the use of “either . . . or”);
(g) All references to articles and sections are to articles and sections in the Plan;
(h) All words used shall be construed to be of such gender or number as the circumstances and context require;
(i) The captions and headings of articles and sections appearing in the Plan have been inserted solely for convenience of reference and shall not be considered a part of the Plan, nor shall any of them affect the meaning or interpretation of the Plan or any of its provisions;
(j) Any reference to an agreement, plan, policy, document or set of documents, and the rights and obligations of the parties under any such agreement, plan, policy, document or set of documents, shall mean such agreement, plan, policy, document or set of documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof; and
A-15
(k) All accounting terms not specifically defined in the Plan shall be construed in accordance with GAAP.
A-16
PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
OLD SECOND BANCORP, INC. TO BE HELD ON MAY 21, 2019
The undersigned hereby appoints Duane Suits, Barry Finn, and John Ladowicz, or any two of them acting in the absence of the other, the undersigned’s attorneys and proxies, with full power of substitution, to vote all shares of common stock of Old Second Bancorp, Inc. (the “Company”), which the undersigned is entitled to vote, as fully as the undersigned could do if personally present, at the Annual Meeting of Stockholders to be held at Waubonsee Community College, 18 South River Street, Aurora, Illinois, 60506 on the 21st day of May, 2019 at 9:00 a.m., central time, and at any and all postponements or adjournments of the meeting.
1. Election of Class III Directors to serve for a term expiring in 2022:
| |||
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 p.m. Eastern Time on August 17, 2020. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. OLD SECOND BANCORP, INC. ATTN: SHIRLEY CANTRELL 37 SOUTH RIVER STREET AURORA, IL 60506-4172 During The Meeting - Go to www.virtualshareholdermeeting.com/OSBC2020 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D20428-P42584 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. OLD SECOND BANCORP, INC. The Board of Directors recommends that you vote FOR each director nominee in Proposal 1 and FOR Proposals 2 and 3. 1. Proposal to elect three Class I director nominees to serve for a term expiring in 2023: Nominees: For | Against | Abstain | |
|
|
|
|
|
|
|
|
! ! ! ! ! ! ! ! ! 1a. William |
|
|
|
|
|
|
|
2. Approval, in a non-binding, advisory vote, of the compensation of the Company’s named executive officers, as described in the Company’s Proxy Statement (the “Proxy Statement”).
| ||
|
|
|
|
|
|
3. Approval, in a non-advisory vote, of the frequency of future stockholder advisory votes on the compensation of the Company’s named executive officers.
|
|
|
|
|
|
|
|
4. Approval of the Old Second Bancorp, Inc. 2019 Equity Incentive Plan.
|
|
|
|
|
|
5. Approval and adoption of an amendment to the Company’s Certificate of Incorporation eliminating the mandatory retirement age for directors, as described in the Proxy Statement; and
|
|
|
|
|
|
6. Ratification of the selection of Plante & Moran, PLLC as the Company’s independent registered public accountants for the fiscal year ending December 31, 2019.
|
|
|
|
|
|
7. Approval of a proposal, which may be submitted by the chair of the Annual Meeting, to adjourn, postpone or continue the Annual Meeting in order to solicit additional proxies in favor of any of the proposals described in the Proxy Statement.
|
|
|
|
|
|
(over)
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted “FOR” each of the nominees listed under Proposal 1, “FOR” Proposals 2, 4, 5 , 6 and, if submitted, 7, and “FOR” the “every year” alternative in Proposal 3. In their discretion, the proxy holders are authorized to vote upon all other matters that may properly come before the Annual Meeting and any postponements or adjournments of the Annual Meeting.
|
| ||
|
| ||
NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ABOVE. ALL JOINT OWNERS OF SHARES SHOULD SIGN. STATE THE FULL TITLE WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE ENCLOSED ENVELOPE.
PLEASE INDICATE WHETHER YOU WILL BE ATTENDING THE ANNUAL
MEETING ON MAY 21, 2019:
The meeting will be held at the Waubonsee Community College, 18 South River St., Aurora, Illinois.
| ||
|