Schedule 14A
(Rule 14a-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant X
Filed by a party other than the registrant
Check the appropriate box:
Preliminary proxy statement
X Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Old Second Bancorp, Inc.
(Name of Registrant as Specified in Its Charter)
Stathy Darcy, Chapman and Cutler, 312/845-2992
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
X No Fee Required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
(4) Proposed maximum aggregate value of transaction:
Fee paid previously with preliminary materials.
Check box if any part of this fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
[FN]
Set forth the amount on which the filing fee is calculated and state how it
was determined
Proxy for Annual Meeting of Stockholders
On March 10, 1998
Old Second Bancorp, Inc.
Aurora, Illinois
The undersigned hereby appoints Jesse Maberry, Townsend Way, Jr., and Clarence
Ruddy, or any one of them, the undersigned's attorneys and proxies, with full
power of substitution, to vote all shares of Common Stock of Old Second
Bancorp, Inc., which the undersigned is entitled to vote, as fully as the
undersigned could do if personally present, at the Annual Meeting of
Stockholders of said Corporation to be held at the Corporation's premises
at 37 South River Street, Aurora, Illinois on the 10th day of March 1998, at
11:00 a.m., Central Standard Time, and at any and all postponements or
adjournments thereof:
(1) Election of Directors.
For all nominees listed below (except as marked to the contrary)
WITHHOLD AUTHORITY to vote for all nominees listed below
ABSTAIN
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Walter Alexander, William Meyer, Larry Schuster, William B. Skoglund, George
Starmann III
(2) Ratification and approval of the selection of Ernst & Young, L.L.P. as
the Corporation's independent accountants.
FOR
AGAINST
ABSTAIN
(3) In their discretion on such other matters as may properly come before
the meeting or at any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED FOR DIRECTORS AND FOR THE RATIFICATION AND APPROVAL
OF THE SELECTION OF ERNST & YOUNG, L.L.P. AS INDEPENDENT ACCOUNTANTS.
Dated ________________________________ _______________________________________
__________________________________________
Stockholder's Signature-please sign name exactly as imprinted below. (Do not
print.)
PLEASE INDICATE ANY CHANGE OF ADDRESS
NOTE: Executors, administrators, trustees, and others signing in a
representative capacity should indicate the capacity in which they sign.
If shares are held jointly, EACH holder should sign.
PLEASE DATE, SIGN, AND RETURN THIS PROXY
Notice of Annual Meeting of Stockholders to be Held March 10, 1998
To the Stockholders of Old Second Bancorp, Inc.
The Annual Meeting of Stockholders of Old Second Bancorp, Inc., will be held
on Tuesday, March 10, 1998 at 11:00 a.m. at the Corporation's premises at 37
South River Street, Aurora, Illinois, for the following purposes:
1. The election of five directors to serve for a term of three years
each, the Board of Directors' nominees being listed in the Proxy
Statement;
2. The ratification and approval of the selection of Ernst & Young,
L.L.P. as the Corporation's independent accountants for the fiscal
year ended December 31, 1998; and
3. The transaction of such other business as may properly come before
the meeting or any postponement or adjournment thereof.
The Board of Directors of the Corporation has fixed the close of business on
February 2, 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at this meeting and at any and all
postponements or adjournments thereof.
By Order of the Board of Directors
/s/ James Benson
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 11, 1998
Your Vote is Important
Even if you plan to attend the meeting in person, please date, sign, and
return your proxy in the enclosed envelope. Prompt response is helpful and
your cooperation will be appreciated.
Old Second Bancorp, Inc.
37 South River Street / Aurora, IL 60507 / (630) 892-0202
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 (the
"Corporation"), 37 South River Street, Aurora, Illinois 60507, of proxies to
be used at the Annual Meeting of Stockholders of the Corporation to be held
at the Corporation's premises at 37 South River Street, Aurora, Illinois on
March 10, 1998 at 11:00 a.m., Central Standard Time, and at any and all
postponements or adjournments thereof.
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: (i) for the election of the nominees for director named
below; (ii) for the ratification and approval of the selection of Ernst &
Young, L.L.P. as the Corporation's independent accountants for the fiscal
year ended December 31, 1998; and (iii) in the discretion of the named
proxies upon such other matters as may properly come before the meeting or
at any postponement or adjournment thereof.
In order to be elected a director, a nominee must receive a plurality of the
votes cast at the meeting for the election of directors. Since the five
nominees receiving the largest number of affirmative votes will be elected,
shares represented by proxies which are marked "withhold authority" or
"abstain" will have no effect on the outcome of the election. Ratification
and approval of the selection of Ernst & Young, L.L.P. as the Corporation's
independent accountants requires the affirmative vote of at least a majority
of the votes cast at the meeting on such matter. Shares represented by
proxies which are marked "abstain" as to any such matter will be counted
as votes cast, which will have the same effect as a negative vote on such
matter. Proxies relating to "street name" shares which are not voted by
brokers on one matter will be treated as shares present for purposes of
determining the presence of a quorum but will not be treated as votes cast
as to such matter not voted upon.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1997, which includes certified financial statements, has been
previously mailed to you. The financial statements contained therein are not
deemed material to the exercise of prudent judgment in regard to any matter
to be acted upon at the Annual Meeting and, therefore, such financial
statements are not incorporated in this Proxy Statement by reference.
This Proxy Statement was mailed to stockholders on or about February 11, 1998.
Voting Securities and Principal Holders Thereof
Only holders of Common Stock of record at the close of business on
February 2, 1998 will be entitled to vote at the Annual Meeting of
Stockholders. At such date, the Corporation had outstanding 3,049,190 shares
of Common Stock without par value. Each share of Common Stock entitled the
holder to one vote upon each matter to be voted at the meeting.
To the best of the knowledge of the Corporation, no person, other than the
persons shown below and the Trust Department of The Old Second National Bank
of Aurora ("Old Second"), owned beneficially more than 5% of the outstanding
voting securities of the Corporation as of December 31, 1997.
Name and Address Number and Percent
of Shares Beneficially Owned
Old Second Bancorp, Inc. 248,630 shares (8.15%) of the
Profit Sharing Plan and Trust Corporation's Common Stock
37 South River Street
Aurora, Illinois 60507
As of December 31, 1997, Old Second held in its Trust Department, in various
fiduciary capacities (other than as trustee of the Corporation's Profit
Sharing Plan and Trust) 364,652 shares of the Corporation's Common Stock
(11.96% of the total outstanding shares). Old Second had full voting
responsibility with respect to 201,697 of such shares (6.61% of the total
outstanding shares) and no voting responsibility with respect to the
remaining shares. Old Second had full investment power with respect to
134,736 shares (4.42% of the total outstanding shares) and shared investment
power with respect to 229,916 shares (7.54% of the total outstanding
shares).
The following table sets forth information as of December 31, 1997, with
respect to the ownership of shares of the Corporation's Common Stock held
by each director, director nominee, and each executive officer and all
directors, director nominees, and executive officers of the Corporation as
a group based upon information received from such persons. Beneficial
ownership of securities generally means the power to vote or dispose of
securities, regardless of any economic interest.
Corporation Common Stock
Beneficially Owned
Name Number of Shares Percentage*
Walter Alexander 17,392 0.57%
James Benson 58,606 1.92%
Ronald J. Carlson 9,220 0.30%
Marvin Fagel 2,276 0.08%
Joanne Hansen 1,312 0.04%
Kenneth Lindgren 15,450 0.51%
Jesse Maberry 4,705 0.16%
Gary McCarter 691 0.02%
D. Chet McKee 3,416 0.11%
William Meyer 10,007 0.33%
Alan J. Rassi 1,250 0.04%
Larry Schuster 13,700 0.45%
William B. Skoglund 7,823 0.26%
George Starmann III 2,888 0.09%
All Directors, Director Nominees, and
Executive Officers as a group
(14 persons) 148,736 4.88%
<FN>
*Includes ownership of securities by spouse (even though any beneficial
interest is disclaimed), and in the Corporation's Profit Sharing Plan and
Trust and the Corporation's Salary Savings Plan.
Election of Directors
Under the Corporation's Certificate of Incorporation, the Board of Directors
is divided into three classes, approximately equal in number. Each year the
stockholders are asked to elect the member of a class for a term of three
years. The five nominees named below have been recommended for election as
directors for a term ending at the Annual Meeting in 2001 or until their
successors are elected.
The Board of Directors has no reason to believe that any of the nominees
will not be available for election. However, if any such nominees are not
available for election, proxies may be voted for the election of other
persons selected by the Board of Directors.
Alan J. Rassi resigned from the Board as of December 31, 1997. His term as
director was to terminate in 1999. At this time, the Board has not nominated
another person to take Mr. Rassi's place on the Board. The Board of Directors
will consist of 13 members until such time as the Board determines to
nominate another director to the Board. The Corporation acknowledges Mr.
Rassi's long years of service and expresses appreciation for his significant
contribution. Mr. Rassi's principal occupation is Vice President at
Caterpillar, Inc., a construction equipment manufacturer, and he has served
in such capacity since 1987.
Director Nominees
Name Age Principal Occupation1,2
Walter Alexander 63 President, Alexander Lumber Co., lumber
and building material sales (1976)
William Meyer 50 President, William F. Meyer Co., a
wholesale plumbing supply company (1995)
Larry Schuster 57 Chairman, Westside Mechanical, Inc.,
mechanical contractor (1990)
William B. Skoglund 47 Vice President and Assistant Secretary
of the Corporation, President and CEO
of Old Second (1992)
George Starmann III 54 Vice President of the Corporation,
Executive Vice President and Senior
Trust Officer of Old Second (1995)
<FN>
1 Each director nominee has been employed in his principal occupation with
the same organization or other responsible position with the same
organization for at least the last five years, or is retired after having
served in responsible positions with the organization indicated.
2 The date shown in parentheses refers to the year originally elected or
appointed to the Board of Old Second or the Corporation. Pursuant to a
reorganization in 1982, Old Second became a wholly-owned subsidiary of the
Corporation. Each director has served continuously since the date indicated.
Continuing Directors
Name Age Principal Occupation1,2
James Benson3 67 Chairman of the Board and CEO of the
Corporation (1971)
Ronald J. Carlson4 62 President, COO, CFO, and Secretary
of the Corporation, Vice President and
CFO of Old Second (1987)
Marvin Fagel3 50 President, Aurora Packing Company and
Chairman of the Board and CEO, New
City Packing Company, a meat packing
company
Joanne Hansen3 57 President, Furnas Foundation, Inc., a
charitable foundation (1993)
Kenneth Lindgren3 57 President, Daco Incorporated,
contract manufacturer of machined
components (1990)
Jesse Maberry3 54 Treasurer, Aurora Bearing Company,
manufacturer of rod end and spherical
bearings (1985)
Gary McCarter4 61 Vice President, Farmers Group, Inc.,
an insurance company (1988)
D. Chet McKee4 58 President, Copley Memorial Hospital
(1978)
<FN>
1 Each director has been employed in his principal occupation with the same
organization or other responsible position with the same organization for at
least the last five years, or is retired after having served in responsible
positions with the organization indicated, except for George Starmann III
who prior to 1993 was Executive Vice President and Senior Trust Officer at
BancOne, La Grange, Illinois.
2 The date shown in parentheses refers to the year originally elected or
appointed to the Board of Old Second or the Corporation. Pursuant to a
reorganization in 1982, Old Second became a wholly-owned subsidiary of the
Corporation. Each director has served continuously since the date indicated.
3 Serves as director until 1999.
4 Serves as director until 2000.
Walter Alexander, a director of the Corporation, is also a director of
Wausau-Mosinee Paper Corporation, a corporation with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or
subject to the reporting requirements of Section 15(d) of that Act or
registered as an investment company under the Investment Company Act of 1940.
Upon attaining age 70, an elected director would assume the status of a
Senior Director for a period of three years. Every Senior Director has a
right to attend all Board of Director meetings and Board of Director
Committee meetings to which they are appointed and to participate in all
discussions during such meetings. However, a Senior Director does not have
the right to vote on any matter.
The Board of Directors of the Corporation has established Audit and
Nominating Committees, as well as other Committees, to assist it in the
discharge of its responsibilities. The principal responsibilities of the
Audit and Nominating Committees are described below. The members of each
Committee serve on the respective Committees during the period between annual
stockholders' meetings. The Corporation does not have a Compensation
Committee, since compensation levels are determined by the Board of Directors
of each subsidiary of the Corporation. The Corporation's executive officers
also are executive officers of Old Second, and are compensated by Old Second
rather than the Corporation; accordingly, their compensation is determined
and approved by the Compensation Committee and Board of Directors of Old
Second.
The members of the Corporation's Audit Committee during 1997 were Messrs.
Alexander, McCarter, McKee, and Fagel. Each year, such Committee recommends
to the Board the appointment of a firm of independent accountants to examine
the books of the Corporation. It reviews with representatives of the
independent accountants the auditing arrangement and scope of the independent
accountants' examination of the books, results of those audits, their fees,
and any problems identified by the independent accountants regarding internal
controls, together with their recommendations. The Committee also reviews
with the Corporation's internal auditors any problems identified by them
regarding internal controls and their recommendations. The Committee is also
prepared to meet privately at any time at the request of the independent
accountants, the internal auditors, or members of the Corporation's
management to review any special situation arising on any of the above
subjects. The Committee met seven times during 1997.
The members of the Corporation's Nominating Committee during 1997 were
Messrs. Alexander, Benson, Carlson, Maberry, McKee, Rassi, Schuster,
Skoglund, and Starmann. The Committee reviews the qualifications of, and
recommends to the Board, candidates to fill Board vacancies as they may
occur during the year. The Nominating Committee will consider suggestions
from all sources, including stockholders, regarding possible candidates for
director. Such suggestions, together with appropriate biographical
information, should be submitted to the Corporation. The Committee did not
meet in 1997.
The Board of Directors of the Corporation held 12 meetings during 1997.
Actions taken by any Committee of the Board are reported to the Board of
Directors, usually at its next meeting. During 1997 all of the directors
attended at least 75% of the aggregate of the Corporation's Board of
Directors meetings and meetings of the Committees on which they served.
All persons who serve as directors of the Corporation also serve as directors
of Old Second. No fees are paid by the Corporation to the directors in
their capacity as directors of the Corporation, and no fees are paid by Old
Second to inside directors in their capacity as directors of Old Second.
During 1997, Old Second paid directors' fees to outside directors consisting
of a $3,500 annual retainer fee, $250 for each Board of Director meeting
attended, and $200 for each Committee meeting attended.
Executive Compensation
The following table sets forth information with respect to compensation paid
for the fiscal years ended December 31, 1997, 1996, and 1995, to those
persons who were at December 31, 1997: (i) the chief executive officer and
(ii) the other executive officers of the Corporation whose annual salary
exceeded $100,000.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($)1 Options(#)2 Compensation
James Benson 1997 $ 96,410 - $ 0
Chairman and Chief 1996 102,034 - 0
Executive Officer 1995 268,695 3,250 16,904
of the Corporation
Ronald J. Carlson 1997 $243,525 3,450 $14,683
President, Chief 1996 222,555 2,300 14,284
Operating Officer 1995 208,135 3,000 13,584
and Chief Financial
Officer and Secretary
of the Corporation
Vice President and
Chief Financial Officer
of Old Second
William B. Skoglund 1997 $191,235 3,300 $13,145
Vice President and 1996 172,550 2,200 12,490
Assistant Secretary 1995 156,565 2,750 11,611
of the Corporation
President and Chief
Executive Officer
of Old Second
George Starmann III 1997 $173,435 3,150 $11,951
Vice President of 1996 160,615 2,100 11,834
the Corporation 1995 149,465 2,500 9,446
Executive Vice
President and
Senior Trust Officer
of Old Second
<FN>
1 Salary amounts for Mr. Benson include director fees received from the
Corporation's subsidiaries in the amounts of $34,100, $28,150, and $15,900
for the years 1997, 1996, and 1995, respectively. Salary amounts for Mr.
Carlson include director fees received from the Corporation's subsidiaries
other than Old Second in the amounts of $21,000, $17,400, and $15,700 for
the years 1997, 1996, and 1995, respectively. Salary amounts for Mr. Skogland
include director fees received from the Corporation's subsidiary mortgage
company of $1,800 for 1997.
2 Share amounts for 1995 have been restated for the five-for-four stock split
effective June 1996.
3 The amounts shown for 1997 represent the contribution to (i) the
Corporation's qualified Profit Sharing Plan and Trust in the amount of
$8,400 each for Messrs. Carlson, Skoglund, and Starmann; (ii) the
Corporation's Salary Savings Plan in the amounts of $3,000, $3,200, and
$2,846 for Messrs. Carlson, Skoglund, and Starmann, respectively, as vested
and accrued during 1997; and (iii) the Corporation's nonqualified
Supplemental Executive Retirement Plan ("SERP") in the amounts of $3,283,
$1,545, and $705 for Messrs. Carlson, Skoglund, and Starmann, respectively.
No amounts were paid or distributed pursuant to the plans to the named
individuals during 1997, 1996, or 1995.
Option Grants
The following table provides information about stock options granted during
1997 to the Named Executive Officers other than Mr. Benson, to whom no stock
options were granted during the year.
Option Grants in Last Fiscal Year*
Individual Grant Potential Realizable
Pecent of Value at Assumed
Total Options Annual Rates of Stock
Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term
Name Granted(#) Fiscal Year ($/Share) Date 5% 10%
Ronald J. Carlson 3,450 24.60% $60.50 12/08/07 $131,266 $332,654
William B. Skoglund 3,300 23.50% $60.50 12/08/07 125,559 318,191
George Starmann III 3,150 22.40% $60.50 12/08/07 119,852 303,727
<FN>
*Messrs. Carlson, Skoglund, and Starmann received the 1997 options on
December 9, 1997. One-third of the options granted vest and become
exercisable on each of the first three anniversaries of their grant date.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of Old Second has
furnished the following report on executive compensation.
The Corporation's executive officers are also executive officers of Old
Second and are compensated by Old Second (not the Corporation); accordingly,
their compensation is determined and approved by the Compensation Committee
and Board of Directors of Old Second. The members of the Compensation
Committee and Board of Directors of Old Second are Directors of both the
Corporation and Old Second. The members of the Compensation Committee during
1997 were Walter Alexander, Gary McCarter, Alan Rassi, and William Meyer.
Although the executive officers are compensated by Old Second and their
compensation is determined by the Compensation Committee of Old Second,
their scope of authority for management of the Corporation, as well as Old
Second, is an important consideration by the Committee when establishing
compensation.
Compensation Philosophy and Overall Objectives
The Corporation's mission is to maximize stockholder value over the long
term. To accomplish this mission, the Corporation has developed a
comprehensive business strategy that emphasizes superior financial products
and customer services. The Corporation believes its executive compensation
program should motivate its executives to both individually and collectively
take actions that support the attainment of this mission.
The program of executive compensation is intended to reflect the following
stated executive compensation policies:
* The program of executive compensation should strengthen the relationship
between pay and performance by providing compensation that is dependent upon
the level of success in meeting specified Corporate goals.
* Compensation opportunities should enhance the Corporation's ability to
attract, retain, and encourage the development of exceptionally knowledgeable
and experienced executives upon whom, in large part, the successful operation
and management of the Corporation depends.
* Each program element should target compensation levels at rates that are
reflective of current market practices. Offering market-comparable pay
opportunities should allow the Corporation to maintain a stable, successful
management team.
Competitive market data is provided by an independent
compensation consultant. The data provided compares Old Second's compensation
practices to banking institutions with similar asset size and employment
levels.
The competitive market data used for compensation purposes differs from the
companies which comprise the Custom Peer Group in the Performance Graph
included in this proxy statement. The Compensation Committee believes that
the Company's most direct competitors for executive talent reflects a broader
group of companies than those included in the Custom Peer Group established
for comparing shareholder returns.
Elements of Executive Compensation
(a) Base Salaries
Annually, the Compensation Committee reviews each executive's base salary.
It is the Corporation's philosophy that base salaries offer security to
executives and allow the Corporation to attract competent executive talent
and maintain a stable management team. The Compensation Committee of Old
Second targets base salaries at market levels, though compensation may be
adjusted above or below the median based on company performance. Initially,
base salaries are determined by evaluating an executive's level of
responsibility, prior experience, education, breadth of knowledge, internal
performance objectives, and competitive compensation programs for senior
executives at comparable banks.
Adjustments to base salaries are driven primarily by corporate performance
measured primarily in terms of earnings per share, return on equity and
assets, and enhancement of book value per share. When measuring individual
performance, the Compensation Committee considers the executive's efforts in
achieving established financial and business objectives, managing and
developing employees, and enhancing long-term relationships with customers.
As reflected in the Summary Compensation Table, the Chief Executive Officer's
(Mr. Benson's) salary changed from 1996. Mr. Benson's base salary increased
at a comparable rate to increases for similar executives at other banks;
however, the total dollar amount for 1997 actually decreased from 1996, due
to vacation accruals paid out at the time of Mr. Benson's retirement as
CEO of Old Second. In determining Mr. Benson's salary in 1997, the
Compensation Committee considered Mr. Benson's continuing advisory role,
his individual performance, and his long-term contributions to the success
of the Corporation. Overall, salary increases for the three additional senior
executives were at a rate comparable to the increases provided to similar
executives at other banks, as shown by the survey data.
(b) Stock Options
To establish a link between compensation and management's performance in
creating value for shareholders, top level management employees were granted
stock options during 1997 pursuant to the Company's Long-Term Incentive Plan
as approved by shareholders in 1994. To reinforce the Company's long-term
perspective and to help retain valued executives, these options vest
ratably over the three-year period following grant. Options are issued at
the market value of Company shares on the date of grant, thus providing
reward only for future stock price appreciation. Future grants of option
awards are expected to be reviewed on an annual basis.
In 1997, Mr. Benson received no stock options. As detailed in the table on
page 10, the other Named Executive Officers received stock option grants
comparable to the long-term incentive opportunity granted to individuals
with the same or similar position at various banks of similar size. The
grants are similar in size to the option shares that were granted in the
previous fiscal year. The Compensation Committee has determined that the
compensation opportunities should reflect overall Corporate and individual
achievement, as well as competitive compensation practices.
(c) Benefits, Qualified Savings Plans, and Perquisites
Benefits offered to key executives serve a different purpose than does base
salary and other elements of compensation. In general, they provide a safety
net of protection against financial catastrophes that can result from
illness, disability, or death. Benefits offered to key executives are
generally those offered to the general employee population with some
variation to promote tax efficiency and replacement of benefit opportunities
lost to regulatory limits.
The Corporation offers eligible employees three tax-qualified retirement
plans: a 401(k) savings plan, a profit sharing plan, and a pension plan. The
pension plan targets a 50% pay replacement, integrated with the participant's
social security benefits, at normal retirement age following a full career
of service. The 401(k) savings program authorizes a maximum voluntary salary
deferral of up to 10% (with a partial company match), subject to statutory
limitations. The profit sharing arrangement provides an annual discretionary
contribution to the retirement account of each employee based in part on the
bank's profitability in a given year, and on each participant's annual
compensation. Excluding employees of nonbanking subsidiaries who participate
in the 401(k) plan only, participation in these plans is likewise offered to
the general employee population of full-time salaried and regular part-time
employees. Benefits under these plans, taken as a whole, are competitive with
comparable banks and bank holding companies.
Policy With Respect to the $1 Million Deduction Limit
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy to
$1 million, unless certain requirements are met. The Compensation Committee
has carefully considered the impact of this tax code provision and has
determined that it is unlikely to affect the deductibility of compensation
paid to executive officers.
Conclusion
The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of stockholders and the Corporation.
The Compensation Committee believes these policies motivate executives to
contribute to the Corporation's overall future successes, thereby enhancing
the value of the Corporation for the stockholders' benefit.
Compensation Committee of the Board of Directors of Old Second
Mr. Walter Alexander
Mr. Gary McCarter
Mr. Alan Rassi
Mr. William Meyer
Employment Agreements
Effective January 2, 1996, Mr. Benson retired as CEO of Old Second. However,
during 1996 and 1997, Mr. Benson continued in his position as Chairman of the
Board of the Corporation and retained the title of CEO of the Corporation.
The initial term of Mr. Benson's agreement was for one year, but was extended
for 1997 as decided by the Board of Directors. As determined at the Board of
Directors meeting on December 9, 1997, Mr. Benson will continue in his
position as Chairman of the Board and CEO of the Corporation for 1998. As in
1996 and 1997, Mr. Benson will continue to serve on the Board Committees of
banks in the holding company, will participate in exit interviews with
regulatory examiners, and will be available to bank management as a
consultant. In exchange for these and other services to be performed during
fiscal 1998, Mr. Benson will receive a fee of $72,000.
On January 1, 1997, Messrs. Carlson, Skoglund, and Starmann entered into
Compensation and Benefits Assurance Agreements (the "Agreements") with the
Corporation. The initial terms of the Agreements were for one year, through
December 31, 1997, but are automatically extended for successive one-year
periods, unless earlier terminated by either the executive or the
Corporation, in accordance with the applicable provisions thereof. The
Agreements provide for lump-sum payments of severance benefits in the amount
of two times base salary for each executive in the event of a "Change in
Control" (as defined in the Agreements) of the Corporation or Old Second and
a qualifying termination of employment two years following a Change in
Control. A qualifying termination includes an involuntary termination without
cause or a constructive termination. Each executive would also receive two
years' continuation of welfare benefits, one year of outplacement services,
accelerated vesting of stock options or other incentive awards, plus any
additional payment necessary to make the executive whole for any excise taxes
that may be imposed. The Agreements also provide that upon termination of
employment with Old Second, each executive agrees to not disclose or
otherwise make known any confidential or proprietary information relating to
the Corporation or Old Second for a period of 24 months from the termination
date.
Comparison of Five-Year Cumulative Total Return*
Old Second Bancorp, Inc.; S&P 500; and Custom Peer Group
(Graph presented here.)
Date Old Second S&P 500 Custom Peer Group
December 1992 $100.00 $100.00 $100.00
December 1993 $133.14 $110.03 $124.97
December 1994 $139.61 $111.53 $127.54
December 1995 $160.74 $153.30 $153.48
December 1996 $185.94 $188.40 $164.79
December 1997 $287.76 $251.17 $297.31
<FN>
*Total return assumes reinvestment of dividends on a quarterly basis.
The above graph represents the five-year cumulative total stockholder return
for the Corporation, the S&P 500 Composite Index, and the Custom Peer Group.
The companies in the Custom Peer Group are: First Oak Brook Bancshares Inc.;
Heritage Financial Services Inc.; Merchants Bancorp Inc.; Northern States
Financial Corporation; Pinnacle Banc Group Inc.; and Princeton National
Bancorp Inc.
Pension Plan
Excluding employees of nonbanking subsidiaries, all full-time salaried and
regular part-time employees who have completed one year of service are
eligible for participation in the Corporation's Pension Plan and the
remuneration credited each participant includes all direct salaries and wages
paid. Generally speaking, retirement benefits are based on final average
monthly earnings during the highest five consecutive years of employment
during the last ten years before retirement and integrates with a portion of
the Primary Social Security Benefit payable to the participant. A participant
receives monthly the amount calculated under the following formula: the
monthly average of the 60 highest paid consecutive months out of the final
ten years of employment times the sum of (i) 1-2/3% times the number of years
of credited service up to a maximum of 30, and (ii) 1/2% times each year of
credited service over 30 years; less one-half the Primary Social Security
Benefit payable to the participant. The following table illustrates the
annual amount of retirement income available under both the Corporation's
Pension Plan and SERP (after deducting 1/2 of the social security benefit,
but without limiting the retirement benefits for the single plan defined
benefit limit of Section 415(c), for the combined plan Section 415 limits,
and for the includable compensation limitation of Section 401(a)(17) of the
Internal Revenue Code (the "Code")) from such plan for a person 65 years of
age in specified average earnings and years of service classification. The
SERP restores benefits lost under the Pension Plan due to the limits imposed
under Sections 401(a)(17) and 415 of the Code. The objective of the SERP is
to permit those employees who are affected by the limitations of Code
Sections 401(a)(17) and 415 to receive the same benefit they would have
received under the Pension Plan but for the limitations imposed by the Code.
In certain cases, a participant's actual benefit may be less than that
provided below:
Covered Years of Service
Compensation 15 20 25 30 35 40
$ 15,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250 $ 6,000
25,000 3,750 5,000 6,250 7,500 8,750 10,000
35,000 5,456 7,275 9,093 10,912 12,250 14,000
50,000 8,771 11,695 14,618 17,542 18,792 20,042
75,000 14,724 19,632 24,540 29,448 31,323 33,198
100,000 20,974 27,965 34,957 41,948 44,448 46,948
125,000 27,224 36,299 45,373 54,448 57,573 60,698
150,000 33,474 44,632 55,790 66,948 70,698 74,448
175,000 39,724 52,965 66,207 79,448 83,823 88,198
200,000 45,974 61,299 76,623 91,948 96,948 101,948
225,000 52,224 69,632 87,040 104,448 110,073 115,698
250,000 58,474 77,965 97,457 116,948 123,198 129,448
275,000 64,724 86,299 107,873 129,448 136,323 143,198
300,000 70,974 94,632 118,290 141,948 149,448 156,948
Covered compensation under the qualified and nonqualified pension formulas
and the respective years of credited service as of December 31, 1997 for the
executive officers named in the cash compensation table are as follows: James
Benson, $250,000 (38 years); Ronald J. Carlson, $222,525 (18 years); William
B. Skoglund, $189,435 (25 years); and George Starmann III, $173,435 (4 years).
Compensation Committee Interlocks and Insider Participation
Directors, director nominees, and executive officers of the Corporation and
their associates were customers of, and had transactions with, the
Corporation and its subsidiaries in the ordinary course of business during
1997. Additional transactions may be expected to take place in the future.
All outstanding loans, commitments to loans, transactions in repurchase
agreements and certificates of deposit, and depository relationships, in the
opinion of management, were made on substantially the same terms, including
interest rates, collateral, and repayment terms on extensions of credit, as
those prevailing at the time for comparable transactions with other persons
and in the ordinary course of business and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Independent Accountants
Ernst & Young, L.L.P. ("Ernst & Young") has been selected by the Corporation
to be the Corporation's independent accountants for the fiscal year ended
December 31, 1998. The Board of Directors will propose the adoption of a
resolution at the Annual Meeting ratifying and approving the selection of
Ernst & Young. Representatives of Ernst & Young are expected to be present at
the Annual Meeting with the opportunity to make a statement, if they desire
to do so, and to be available to respond to the appropriate questions.
The Board of Directors recommends that the stockholders vote FOR the above
proposal.
Stockholder Proposals
Proposals of stockholders to be included in the Corporation's Proxy Statement
for the March 1999 Annual Meeting of Stockholders must be received by the
Corporation at its executive office no later than October 2, 1998.
General
The cost of this proxy solicitation will be borne by the Corporation.
Solicitation will be made primarily through the use of the mail, but
officers, directors, or regular employees of the Corporation may solicit
proxies personally or by telephone or telegraph without additional
remuneration for such activity. In addition, the Corporation will reimburse
brokerage houses and other custodians, nominees, or fiduciaries for their
reasonable expenses in forwarding proxies and proxy material to the
beneficial owner of such shares.
As of the date of this Proxy Statement, management knows of no 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
/s/ James Benson
James Benson
Chairman and
Chief Executive Officer
Aurora, Illinois
February 11, 1998