HILLS BANCORPORATION
An Iowa Corporation
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 15, 1996
The Annual Meeting of the Shareholders of Hills Bancorporation, an Iowa
corporation (the "Company"), will be held at the Hills Community Center, Hills,
Iowa, on Monday, the 15th day of April, 1996, at 4:00 o'clock p.m., local time,
for the following purposes:
1. To adopt a proposed amendment to the Restated Articles of Incorporation
increasing the authorized capital stock of the Company from 2,000,000 to
10,000,000 shares of common stock without par value. Adoption of this
amendment will enable the Company to effect the 3 for 1 stock split of the
Company's outstanding shares which has been authorized by the Board of
Directors (subject to shareholders approval of this amendment).
2. To elect four members of the Board of Directors.
3. To transact such other business as may properly be brought before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 25,
1996, as the record date for the determination of the shareholders entitled to
notice of, and to vote at, the meeting. Accordingly, only shareholders of record
at the close of business on that date will be entitled to vote at the meeting,
or any adjournments thereof.
TO INSURE YOUR REPRESENTATION AT THE MEETING, THE BOARD OF DIRECTORS OF
THE COMPANY SOLICITS YOU TO MARK, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXER-CISED AND, IF YOU ARE ABLE TO ATTEND THE MEETING AND WISH TO VOTE YOUR
SHARES PERSONALLY, YOU MAY WITHDRAW YOUR PROXY AND DO SO.
Date: March 25, 1996 By Order of the Board of Directors
/s/ Dwight O. Seegmiller
----------------------------------
Hills Bancorporation Dwight O. Seegmiller, President
131 Main Street
Hills, Iowa 52235
HILLS BANCORPORATION
131 Main Street
Hills, Iowa 52235
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 15, 1996
This Proxy Statement is furnished to shareholders of Hills
Bancorporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company for the Annual Meeting of Shareholders to
be held April 15, 1996, and any adjournments thereof. This Proxy Statement and
form of Proxy enclosed herewith are first sent to the shareholders of the
Company entitled thereto on or about March 25, 1996.
If the accompanying Proxy is properly signed and returned and is not
withdrawn or revoked, the shares represented thereby will be voted in accordance
with the specifications thereon. If the manner of voting such shares is not
indicated on the Proxy, the shares will be voted FOR adoption of the proposed
amendment to the Restated Articles of Incorporation and FOR the election of the
nominees for directors named herein. Approval of the proposed amendment to the
Restated Articles of Incorporation requires that the votes cast in favor of the
proposed amendment exceed the votes cast in opposition. Election of any nominee
as a director requires a majority of the votes cast by the shares entitled to
vote at a meeting at which a quorum is present.
Only shareholders of record at the close of business on March 25, 1996,
are entitled to notice of and to vote at the meeting. There were 487,868 shares
of Common Stock of the Company outstanding at the close of business on that
date, all of which will be entitled to vote. The presence, in person or by
proxy, of the holders of a majority of such outstanding shares is necessary to
constitute a quorum for the transaction of business at the meeting. Holders of
the shares of Common Stock are entitled to one vote per share standing in their
names on the record date on all matters. Shareholders do not have cumulative
voting rights. If the holder of shares abstains from voting on any matter, or if
shares are held by a broker which has indicated that it does not have
discretionary authority to vote on a particular matter, those shares will be
counted for quorum purposes, but will not be counted as votes cast with respect
to any matter to come before the meeting and will not affect the outcome of any
matter.
The Company will bear the cost of solicitation of proxies. In addition
to the use of the mails, proxies may be solicited by officers, directors and
regular employees of the Company, without extra compensation, by telephone,
facsimile or personal contact. It will greatly assist the Company in limiting
expense in connection with the meeting if shareholders who do not expect to
attend in person will return signed proxies promptly whether they own a few or
many shares.
A shareholder may revoke his or her Proxy at any time prior to the
voting thereof by filing with the Secretary of the Company at the Company's
principal office at 131 Main Street, Hills, Iowa 52235, a written revocation or
a duly executed Proxy bearing a later date. A shareholder may also withdraw the
Proxy at the meeting at any time before it is exercised.
PROPOSED AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
The Board of Directors of the Company has adopted a resolution setting
forth the following proposed amendment to the Restated Articles of Incorporation
of the Company and directing that the proposed amendment be submitted to a vote
of shareholders of the Company at the 1996 Annual Meeting of Shareholders. The
affirmative vote of the majority of the outstanding shares of the Company (which
can be represented at the Annual Meeting either in person or by proxy) will be
required to approve the proposed amendment to the Restated Articles of
Incorporation of the Company.
PROPOSED AMENDMENT
"RESOLVED, that Article III, Section 1 of the Restated Articles of
Incorporation of the Company be amended by deleting present Section 1 in its
entirety and inserting in lieu thereof the following:
Section 1. The aggregate number of shares of stock which the
corporation is authorized to issue is Ten Million (10,000,000), all common
stock."
DISCUSSION OF PROPOSED AMENDMENT
The Board of Directors has authorized a 3 for 1 stock split subject to
approval by the shareholders of the proposed amendment to Section 1 of Article
III of the Company's Restated Articles of Incorporation increasing the
authorized number of shares from 2,000,000 to 10,000,000. The Iowa Business
Corporation Act permits the Board of Directors to authorize a stock split or
distribution without subsequent shareholder approval. By voting on this Proposed
Amendment, the shareholders are voting solely on the question of amending the
Restated Articles of Incorporation to increase the Company's authorized number
of shares. The amendment is necessary in order to insure that there will be a
sufficient number of shares to effectuate the 3 for 1 stock split while still
providing for a sufficient number of authorized but unissued shares of common
stock as may be necessary to facilitate such general corporate purposes as may
arise from time to time.
If the Proposed Amendment is approved and the 3 for 1 stock split
effectuated, the number of outstanding shares of the Company's common stock will
be increased from 487,868 to 1,463,604. Management is hopeful that such an
increase in the outstanding shares will contribute to a continual broadening of
public ownership of the Company's shares and improved marketability for such
shares. At the present time, management does not believe that an established
trading market exists for the Company's shares. If the Proposed Amendment is
approved by the shareholders and the proposed 3 for 1 stock split approved by
the Board of Directors effectuated, each shareholder of record on the date on
which the Proposed Amendment becomes effective (the date of filing Articles of
Amendment with the Secretary of State of the State of Iowa) will be entitled to
receive the distribution of shares resulting from such 3 for 1 split. It is
expected that Articles of Amendment (concerning the proposed amendment, assuming
their approval by the shareholders) will be filed with the Iowa Secretary of
State and become effective on or about April 16, 1996. Each outstanding
certificate representing shares of common stock on the effective date shall
thereafter continue to represent the same number of shares of common stock.
CERTIFICATES REPRESENTING THOSE SHARES WHICH ARE PRESENTLY ISSUED AND
OUTSTANDING WILL NOT BE CANCELLED AND WILL NOT HAVE TO BE SURRENDERED IN
EXCHANGE FOR A NEW CERTIFICATE(S). AS SOON AS PRACTICABLE FOLLOWING THE
EFFECTIVE DATE, THERE WILL BE MAILED TO EACH SHAREHOLDER A NEW CERTIFICATE OR
CERTIFICATES REPRESENTING TWO SHARES OF COMMON STOCK FOR EACH ONE SHARE OF
COMMON STOCK WHICH SUCH SHARE-HOLDER HELD OF RECORD ON THE EFFECTIVE DATE.
The Company has been advised by its tax advisor that the receipt by a
shareholder of the additional shares pursuant to the stock split will not be
subject to federal income tax under existing laws. However, the stock split will
result in an adjustment of the cost or other basis of your shareholdings for
federal income tax purposes, in that the cost or other basis for each share held
by a shareholder as of the effective date will be apportioned one-third to such
share and one-third to each of the additional two shares received in connection
with such stock split. Shareholders should consult their personal tax advisors
concerning any questions that they may have with respect to changes in the basis
of their shareholdings as a result of the stock split.
UNANIMOUS BOARD RECOMMENDATION
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE ADOPTION OF THE
PROPOSED AMENDMENT AND YOUR PROXY IS SOLICITED FOR THAT PURPOSE. SHAREHOLDERS
ARE URGED TO VOTE IN FAVOR OF THE PROPOSED AMENDMENT BY MARKING "FOR" IN THE
APPROPRIATE BOX ON THE ACCOMPANYING PROXY AND EXECUTING AND RETURNING THE PROXY
TO MANAGEMENT. IF NO DIRECTION IS GIVEN, THE PROXY WILL BE VOTED FOR THE
PROPOSED AMENDMENT.
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
The Company has eleven directors with staggered terms of office. Four
directors are to be elected at the 1996 Annual Meeting of Shareholders for a
three year term. The Board of Directors has no reason to believe that any
nominee will be unable to serve as a director, if elected. However, in case any
nominee should become unavailable for election, the proxy will be voted for such
substitute, if any, as the Board of Directors may designate. Effective on April
14, 1997, one of the nominees, William H. Olin, D.D.S. will retire because he
will have reached the mandatory retirement age of 72 established by the Board of
Directors. The Board of Directors has made no determination concerning what
steps, if any, will be taken to fill the vacancy which will exist by reason of
Dr. Olin's retirement.
Each director of the Company also serves as a director of the Company's
wholly-owned subsidiary, Hills Bank and Trust Company (the "Bank"). The Company
anticipates that all nominees and directors will continue to serve as directors
of the Bank, being elected to such positions by the vote of the Company as the
sole shareholder of the Bank.
Set forth below are the names of the four persons nominated by the
Board of Directors for election as directors at the 1996 Annual Meeting along
with certain other information concerning such persons.
Name and Year Positions & Principal Occupation or
First Became Offices Held Employment During
a Director Age With Company the Past Five Years
- ------------- --- ------------ -----------------------
Nominees for Director for a 3 Year Term Expiring at the 1999 Annual Meeting
William H. Olin, D.D.S 72 Director & Dentist-The University
1984-Company Vice-President of Iowa Hospitals and Clinics
1968-Bank
Theodore H. Pacha 47 Director Executive Officer and owner of
1990-Company Hawkeye Medical Supply, Inc.
1990-Bank (medical supplies)
Ann Marie Rhodes 42 Director Vice President for
1993-Company University Relations -
1993-Bank The University of Iowa,
January, 1991 to present;
previously Assistant
Vice President for
Finance and University
Services - The University
of Iowa
Ronald E. Stutsman 56 Director Executive officer and
1984-Company shareholder of Eldon C.
1981-Bank Stutsman, Inc.
(fertilizer plant)
INFORMATION CONCERNING DIRECTORS OTHER THAN NOMINEES
The following table sets forth certain information with respect to
directors of the Company who will continue to serve subsequent to the 1996
Annual Meeting and who are not nominees for election at the 1996 Annual Meeting.
Name and Year Positions & Principal Occupation or
First Became Offices Held Employment During
a Director Age With Company the Past Five Years
- ------------- --- ------------ -----------------------
Directors Serving Until the 1997 Annual Meeting
Willis M. Bywater 57 Director Executive officer and
1984-Company shareholder of Economy
1979-Bank Advertising Company
(commercial printing and
sales of advertising
specialties)
Thomas J. Gill, D.D.S. 49 Director Dentist - Private Practice
1993-Company
1993-Bank
Donald H. Gringer 61 Director Executive officer and
1988-Company shareholder of Gringer
1988-Bank Feed and Grain (grain
elevator)
Dwight O. Seegmiller 43 Director & President of the
1986-Company President Company and the Bank
1986-Bank
Directors Serving Until the 1998 Annual Meeting
Richard W. Oberman 60 Director Farmer
1984-Company
1980-Bank
Earlis Rohret 71 Director & Farmer
1984-Company Vice President
1976-Bank
Earl M. Yoder 68 Director Executive officer and
1984-Company owner of Earl Yoder
1984-Bank Construction Co.
None of the nominees or directors serves as a director of another company whose
securities are registered under the Securities Exchange Act of 1934 or a company
registered under the Investment Company Act of 1940.
INFORMATION CONCERNING THE BOARDS OF DIRECTORS
Board of Directors of Company
The Board of Directors of the Company meets on a regularly scheduled
basis. During 1995, the Board of Directors of the Company held an annual meeting
and thirteen regular meetings. The Board of Directors of the Company has
established a committee consisting of the ten non-employee directors (all
directors but Mr. Seegmiller) to administer and grant awards under the Hills
Bancorporation 1993 Incentive Stock Plan (the "Incentive Stock Plan"). During
1995, the Incentive Stock Committee held one meeting. The Board of Directors of
the Company has not established any standing executive, audit, nominating or
compensation committees or committees performing similar functions. During 1995,
all directors of the Company attended at least seventy-five percent of the total
number of meetings of the Board and the Incentive Stock Committee. Except as
noted below, directors are not compensated for attending meetings of the Board
of Directors of the Company or the Incentive Stock Committee.
Upon approval of the Incentive Stock Plan by the Company's shareholders
at the 1993 Annual Meeting, options to purchase up to 685 shares of Company
Common Stock were granted in accordance with the terms of the plan to each
non-employee director of the Company (all directors but Mr. Seegmiller). The
options were immediately exercisable upon grant at an exercise price of $76.00
per share. The options were granted in tandem with dividend equivalents,
enti-tling the holder of the option to receive, upon exercise of the option, a
cash payment equal to the dividends paid with respect to the shares purchased
from the date the option was granted through the date the option is exercised.
The options will expire on the earlier of April 19, 2003 or two years after the
director's term of service on the Board of Directors of the Company ends.
Board of Directors of Bank
The business and affairs of the Bank are managed directly by the Board
of Directors of the Bank, the membership of which is identical to that of the
Board of Directors of the Company. The Board of Directors of the Bank holds
regular monthly meetings. In 1995, the Board had twelve regular meetings and one
special meeting. The Board of Directors of the Bank has established the Trust
Committee, Audit Committee, Loan Committee and Employee Stock Ownership Plan
("ESOP") Committee as standing committees of the Board of Directors. Rhodes and
Rohret serve on the Trust Committee; Gill, Pacha, and Rhodes on the Audit
Committee; Bywater, Gill, Gringer, Rohret, Stutsman, and Yoder on the Loan
Committee; and Mr. Olin serves on the ESOP Committee. The five directors not
appointed to the Loan Committee are invited to attend meetings of that committee
and are compensated at normal rate for each meeting attended. The Bank has
established no standing executive, nominating or compensation committees of the
Board of Directors or committees performing similar functions.
The Trust Committee is responsible for overseeing and annually
reviewing the status of all trusts for which the Bank acts in a fiduciary
capacity. The Trust Committee met twelve times during 1995. The Audit Committee
held four meet-ings during 1995 and is responsible for coordinating the audit
service with McGladrey & Pullen and addressing internal audit functions. The
Loan Committee held twelve meetings during 1995 and is responsible for review
and oversight of the loan activities of the Bank. The ESOP Committee, which is
responsible for overseeing the ESOP in connection with which the Bank serves as
trustee, had two meetings during 1995. During 1995, all of the directors of the
Bank attended at least 75% of the total number of meetings of the Board of
Directors and the committees to which each director was appointed.
Directors of the Bank who are not employees of the Bank (all directors
but Mr. Seegmiller) receive a retainer of $3,500 per year and $250 for each
meeting of the Board of Directors attended. William H. Olin, the Chairman of the
Board of the Bank, receives an additional $1,200 per year as a retainer fee.
Directors of the Bank who are not employees of the Bank are compensated for
serving on the various Bank committees at the rate of $150 per meeting attended.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Set forth in the following table is certain information on each person
who is known to the Board of Directors to be the beneficial owner as of February
29, 1996 of more than 5% of the Company's Common Stock, which is the only class
of equity securities which the Company has outstanding.
Amount and Nature of Beneficial Ownership
Total Shares Sole Voting Shared Voting
Name & Address of Beneficially and Investment and Investment Percent
Beneficital Owner Owned Power Power Class
- ----------------- ------------ -------------- -------------- -------
Hills Bank and Trust 52,711 0 52,7111 10.64%
Company, as trustee
of the Hills Bank and
Trust Company
Employee Stock
Ownership Plan
131 Main Street
Hills, Iowa 522235
NOTE:
1 Consists of shares of Company Common Stock allocated to the accounts of
employees of the Bank eligible to participate in the Hills Bank and Trust
Company Employee Stock Ownership Plan. Employees are entitled to direct the
trustee how to vote shares allocated to their accounts.
The following table sets forth certain information as of February 29,
1996 as to the number of shares of the Company's Common Stock beneficially owned
by each director, nominee for director, executive officer and by the executive
officers and directors as a group.
Amount and Nature of Beneficial Ownership
--------------------------------------------------------
Total Shares Sole Voting Shared Voting
Beneficially and Investment and Investment Percent of
Name Owned Power Power Class
- ---- ------------ -------------- -------------- ----------
Willis M. Bywater ...................... 8,855(1) 5,135 3,720 1.79%
Thomas J. Gill, D.D.S .................. 685(1) 685 0 .14%
Donald H. Gringer ...................... 893(1) 893 0 .18%
Richard W. Oberman ..................... 5,085(1) 1,425 3,660 1.03%
William H. Olin, D.D.S ................. 3,637(1) 1,370 2,267 .73%
Theodore H. Pacha ...................... 885(1) 885 0 .18%
Ann Marie Rhodes ....................... 685(1) 685 0 .14%
Earlis Rohret .......................... 6,685(1) 3,685 3,000 1.35%
Dwight O. Seegmiller ................... 10,411(2) 10,011 400 2.10%
Ronald E. Stutsman ..................... 4,962(1) 4,899 63 1.00%
Earl M. Yoder .......................... 5,388(1) 5,388 0 1.09%
Non-Director Executive Officers
Thomas J. Cilek ........................ 4,277(2) 2,737 1,540 .86%
James G. Pratt ......................... 5,062(2) 3,422 1,640 1.02%
All Directors and Executive 57,510(3) 41,220 16,290 11.59%
Officers as a group (13 persons)
<FN>
NOTES:
1 This figure includes 685 shares subject to currently exercisable stock
options granted in 1993 to the director of the Company pursuant to the
Hills Bancorporation 1993 Incentive Stock Plan.
2 This figure includes shares held by the Hills Bank and Trust Company
Employee Stock Ownership Plan which have been allocated to the executive
officer for voting purposes. The following number of shares have been
allocated under the ESOP to the executive officers for voting purposes:
Mr. Seegmiller - 4,331; Mr. Cilek - 2,737; Mr. Pratt - 3,422; all executive
officers as a group -10,490.
3 Includes shares subject to currently exercisable options and shares held by
the Hills Bank and Trust Company Employee Stock Ownership Plan as noted in
Notes 1 and 2.
</FN>
EXECUTIVE COMPENSATION AND BENEFITS
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company and the Bank for the last three
fiscal years with respect to Mr. Seegmiller, as President of the Company, and to
the other two executive officers of the Company:
Long Term
Annual Compensation Compensation
------------------------------------ ------------------
Name and Awards
Name and ------------------
Principal Securities All Other
Position Year Salary ($) Bonus ($)(1) Underlying Options Compensation ($)(2)
- --------- ---- ---------- ------------ ------------------ -------------------
Dwight O. Seegmiller ........................ 1995 180,500 13,986 0 19,500
President of Company ........................ 1994 167,550 5,000 0 22,500
and Bank .................................... 1993 157,550 5,000 2,962 24,382
Thomas J. Cilek ............................. 1995 151,500 6,390 0 19,500
Secretary of Company ........................ 1994 142,550 5,000 0 22,133
Senior Vice President ....................... 1993 135,550 5,000 2,561 21,082
of Bank
James G. Pratt .............................. 1995 151,500 5,726 0 19,500
Treasurer of Company; ....................... 1994 137,550 5,000 0 21,383
Senior Vice President ....................... 1993 130,550 5,000 2,465 20,332
Controller of Bank
<FN>
NOTE:
1 Consists of a $5,000 cash bonus and additional compensation that represents
the contributions, which were limited due to statutory and administrative
rules, for the Hills Bank and Trust Company Employee Stock Ownership Plan
and Profit Sharing Plan.
2 Consists solely of contributions made by the Bank to the Hills Bank and
Trust Company Employee Stock Ownership Plan and Profit Sharing Plan for the
named executive officer for the specified year.
</FN>
Unexercised Stock Options
The following table contains information concerning unexercised stock
options which were granted prior to the last fiscal year to the named executive
officers under the Company's 1993 Incentive Stock Plan:
Number of
Securities Underlying Value of Unexercised
Unexercisable Options In-the-Money Options
at FY-End (#) at FY-End($)
Exercisable/ Exercisable/
Unexercisable(1)(2) Unexercisable(3)
--------------------- --------------------
Dwight O. Seegmiller -0-/2,962 $-0-/$63,683
Thomas J. Cilek -0-/2,561 $-0-/$55,062
James G. Pratt -0-/2,465 $-0-/$52,998
NOTES:
1 Options were granted in tandem with dividend equivalents. Dividend
equivalents entitle the holder of the option to receive, upon exercise of
the option, a cash payment equal to the dividends paid with respect to the
shares purchased from the date the option was granted through the date the
option was exercised.
2 All options granted are subject to a five-year vesting requirement and no
options may be exercised before July 13, 1998. All options will be
forfeited if the holder ceases to be employed by the Bank prior to
satisfying the five-year vesting requirement. The options may, in the
discretion of the Board of Directors, vest immediately upon a change in the
control of the Company.
3 These dollar values were calculated by determining the difference between
the fair market value of the securities underlying the options and the
exercise or base price of the options at fiscal year-end. Options were
granted at an exercise price equal to the then fair market value of the
underlying stock which was determined by the Incentive Stock Committee of
the Board of Directors to be equal to the then book value per share
($78.50) of the stock. The fair market value of stock as of December 31,
1995 is $100.00 per share. Since no established trading market exists for
the Company's common stock the price of $100.00 is based on the last known
selling price in December, 1995. The book value per share of the stock as
of December 31,1995 is $98.90 com-puted on the same method as the $78.50
book value used at the date the options were granted.
Employee Stock Ownership Plan
The Bank sponsors a tax-qualified income plan for its employees known
as the Hills Bank and Trust Company Employee Stock Ownership Plan (the "ESOP").
The ESOP is described in and operated in accordance with the provisions of the
written plan document. The Bank is the trustee of the ESOP assets. The ESOP is a
defined contribution plan designed primarily to reward eligible employees for
long and loyal service by providing them with retirement benefits. The ESOP is
designed and intended to invest primarily in Common Stock issued by the Company
and, in so doing, to provide for employee participation in the equity ownership
of the Company. The ESOP may also provide benefits in the event of death,
disability or other termination of employment prior to retirement. Any benefits
payable under the ESOP will be based solely upon the amounts contributed for the
benefit of a participant and any changes in the value of those contributions
while they are held in the ESOP. The total number of participants in the ESOP as
of January 1, 1996, was 147.
Participating employees are entitled to direct the trustee of the ESOP
how to vote the Common Stock of the Company held for their benefit and allocated
to their accounts under the ESOP. The trustee of the ESOP will have voting
discretion with regard to all other Common Stock of the Company owned by the
ESOP, if any. All common stock owned by the ESOP has been allocated to
participating employees.
Each calendar year the Bank, as plan sponsor, contributes to the ESOP
such amount as may be determined by the Board of Directors of the Bank or as may
be required to make any payments of principal and interest due on any loan made
to the Trustee of the ESOP. The ESOP does not require or allow contributions by
participating employees. Distributions of benefits from the ESOP to plan
participants or their beneficiaries can be made either in cash or in Common
Stock of the Company. In recent years, distributions have been made partly in
cash and partly in Common Stock of the Company. Subject to certain exceptions,
contributions to the ESOP are fully vested after seven (7) years of service with
the Bank.
The following table indicates the amount accrued pursuant to the ESOP
for each named executive officer or group during 1995:
Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- ------------------ ------------- -------
Dwight O. Seegmiller Director and President of the $3,000
Company; Director and President
of the Bank
Thomas J. Cilek Secretary of the Company; $3,000
Senior Vice President of the Bank
James G. Pratt Treasurer of the Company; $3,000
Senior Vice President and
Controller of the Bank
All Executive Officers
as a Group (3 person) $9,000
All Other Participating
Employees (144 persons) $67,233
Profit Sharing Plan
The Bank began sponsoring a new profit sharing plan in December, 1994.
The Bank is the trustee of the Hills Bank and Trust Company Profit Sharing Plan
(the "Profit Sharing Plan"). The Profit Sharing Plan will be operated in
accordance with the provisions of the written plan document. The Profit Sharing
Plan, like the ESOP, is designed primarily to reward eligible employees for long
and loyal service by providing them with retirement benefits. The Profit Sharing
Plan is a defined contribution plan and will be invested in assets other than
equity securities of the Company. Any benefits payable under the Profit Sharing
Plan will be based solely upon the amounts contributed for the benefit of a
participant and any changes in the value of those contributions while they are
held in the Profit Sharing Plan. The Profit Sharing Plan does not require or
allow contributions by participating employees. Subject to certain exceptions,
contributions to the Profit Sharing Plan are fully vested after seven (7) years
of service with the Bank.
The following table indicates the amount accrued pursuant to the Profit
Sharing Plan for each named executive officer or group during 1995:
Name of Individual Capacities in Amounts
or Number in Group Which Served Accrued
- ------------------ ------------- --------
Dwight O. Seegmiller Director and President of the
Company; Director and President
of the Bank $ 16,500
Thomas J. Cilek Secretary of the Company;
Senior Vice President of the Bank $ 16,500
James G. Pratt Treasurer of the Company;
Senior Vice President and
Controller of the Bank $ 16,500
All Executive Officers
as a Group (3 persons) $ 49,500
All Other Participating
Employees (144 persons) $369,779
Performance Graph
The graphical presentation omitted herein provides information
regarding cumulative, five year shareholder returns on an indexed basis of the
Company's Common Stock as compared with NASDAQ Market Index and the West North
Central Bank Index prepared by Media General Financial Services of Richmond,
Virginia. The latter index reflects the performance of thirty-eight bank holding
companies operating principally in the upper Midwest as selected by Media
General Financial Services. The indexes assume the investment of $100 on
December 31, 1990 in Company Common Stock, the NASDAQ Index and the West North
Central Bank Index, with all dividends reinvested.
The following data points were utilized in preparation of the omitted graph.
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ -----
Hills Bancorporation ........ 100.00 113.98 129.50 147.39 170.46 186.36
West North Central Bank Index 100.00 171.08 216.40 241.23 248.24 364.81
NASDAQ Market Index ......... 100.00 128.38 129.64 155.50 163.26 211.77
Compensation Committee Interlocks and Insider Participation
Except as otherwise noted below, all compensation decisions affecting
the executive officers of the Company and the Bank are made by the Board of
Directors of the Bank, as the executive officers are employees of the Bank. The
Board of Directors of the Bank has not established a compensation committee. Mr.
Seegmiller, President of the Bank, serves on the Board of Directors of the Bank,
but doesn't participate in deliberations or voting on decisions concerning
compensation of executive officers. Although Mr. Seegmiller does make a
recommendation to the Board of Directors regarding the compensation of Mr. Cilek
and Mr. Pratt, no recommendation is made by Mr. Seegmiller regarding his own
compensation. After making such recommendations, Mr. Seegmiller is excused from
the meeting and the Board of Directors deliberates and votes upon the
compensation to be paid to each of the three executive officers. Decisions
regarding the award of stock options to the three executive officers pursuant to
the Company's Incentive Stock Plan are made by a committee of the Board of
Directors of the Company consisting of the ten non-employee directors (all
directors but Mr. Seegmiller).
Willis M. Bywater and Theodore H. Pacha, both members of the Board of
Directors of the Bank and the Incentive Stock Committee, participated in
deliberations concerning executive compensation matters during 1995. Under rules
of the Securities and Exchange Commission, the Bank is required to disclose that
it has had certain business relationships during 1995 with Economy Advertising
Company, a commercial printing and specialty advertising firm and Hawkeye
Medical Supply, a medical and office supply store. Mr. Bywater is an executive
officer and principal shareholder of Economy Advertising Company and Mr. Pacha
is an executive officer and owner of Hawkeye Medical Supply. During 1995, the
Bank paid the sum of $172,046 to Economy Advertising Company for commercial
printing services and for the purchase of calendars and other specialty
advertising items and $60,070 to Hawkeye Medical Supply for office equipment and
supplies. The Bank contemplates that it will purchase a similar amount of goods
and services from Economy Advertising Company and Hawkeye Medical Supply during
1996. Such business relationships have been entered into in the ordinary course
of business of the Bank and, in the opinion of management, the prices charged
for the goods and services provided by Economy Advertising Company and Hawkeye
Medical Supply Company are at least as favorable to the Bank as prices generally
charged by similar businesses in the area for such goods and services. The Board
of Directors of the Bank does not believe that the participation by Mr. Bywater
and Mr. Pacha in the deliberations concerning executive compensation has
provided the executive officers of the Bank with more favorable compensation
arrangements than would have been the case absent their participation.
REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to Dwight Seegmiller, as President of the
Company and the Bank, and the other two executive officers of the Company and
the Bank. The disclosure requirements for these three individuals (the
"executive officers") include information set forth in various compensation
tables contained in this Proxy Statement and a report explaining the rationale
and matters considered in making fundamental executive compensation decisions
affecting those individuals. Decisions regarding executive officer
salaries,bonuses and contributions to the ESOP and, beginning in 1994, the
Profit Sharing Plan are made by the Board of Directors of the Bank, with Mr.
Seegmiller abstaining from deliberations and voting on such matters. Decisions
regarding the grant of awards to executive officers pursuant to the Incentive
Stock Plan are made by the Incentive Stock Committee of the Board of Directors
of the Company, consisting of the ten non-employee directors (all directors but
Mr. Seegmiller). In fulfillment of the disclosure requirements, the Board of
Directors of the Bank and the Incentive Stock Committee of the Company have
prepared the following report.
Compensation Policy
This report describes the current compensation policy as endorsed by
the Board of Directors of the Bank and the Incentive Stock Committee and the
resulting actions taken in arriving at 1995 compensation as reported in the
various compensation tables. The executive compensation program of the Bank has
been designed to:
o provide a pay for performance policy that differentiates compensation
amounts based upon corporate and individual performance;
o provide compensation opportunities which are comparable to those offered by
other Iowa-based financial institutions, thus allowing the Bank to compete
for and retain talented executives who are essential to the long-term
success of the Company and the Bank; and
o align the interest of the executive officers with the long-term interest of
the Company's shareholders through the ownership of Company Common Stock.
The executive compensation program is comprised of salary,
opportunities for annual cash bonuses, participation in the ESOP and
opportunities for long-term incentives pursuant to awards granted under the
Incentive Stock Plan and, beginning in 1994, participation in the Profit Sharing
Plan. An executive officer's salary is based on a number of factors, including
the Bank's performance as compared to internally established goals for the most
recently ended fiscal year and to the performance of other Iowa-based financial
institutions, the individual officer's level of responsibility within the Bank
and comparisons to salaries paid to officers holding similar positions in other
Iowa-based financial institutions. The award of an annual cash bonus is made in
the discretion of the Board of Directors and not pursuant to any formal plan or
formula. A bonus, if granted, is based on the individual performance of the
executive officer and the achievement of financial performance goals of the
Bank, as established in the Bank's annual budget and business plan. The Bank, as
plan sponsor of the ESOP, makes an annual ESOP contribution which is allocated
among all participating employees of the Bank, including the executive officers,
based on their annual salaries. In 1995, the Bank, as sponsor of the Profit
Sharing Plan, made a Profit Sharing Plan contribution which was allocated among
all participating employees of the Bank, including the executive officers, based
on their annual salaries. The amount of the ESOP contribution and the amount of
the Profit Sharing Plan contribution are determined in the discretion of the
Board of Directors and are based on the achievement of financial performance
goals of the Bank as established in the Bank's annual budget and business plan.
The Incentive Stock Committee uses the award of stock options to executive
officers (as well as the award of restricted stock to other Bank employees) to
align their interests with those of the shareholders; however, significant
vesting periods are also used to encourage retention as employees. The amount of
options granted is determined by reviewing the practices of other financial
institutions based on information provided by an outside consultant to the Board
of Directors.
In 1993, Section 162(m) of the Internal Revenue Code was amended to
place limits on the deductibility of compensation in excess of $1 million paid
to executive officers of publicly held companies. The Board of Directors of the
Bank does not believe, however, that the amendment has had or will have any
impact on the compensation policies followed by the Board.
President's Compensation
Mr. Seegmiller's base salary was increased from $167,550 to $180,500
effective January 1, 1995. This increase reflected consideration of (i) an
assessment of the Bank's performance during 1994 as compared to goals set in the
Bank's annual budget and business plan for 1994, (ii) a comparison of the Bank's
performance as compared with that of other Iowa-based financial institutions,
and (iii) compensation data provided by comparative industry surveys. Each year,
management of the Bank prepares, and the Board of Directors approves, an annual
budget and business plan con-taining financial performance goals measured
primarily in terms of earnings per share, asset quality, return on assets and
return on stockholder's equity. In setting Mr. Seegmiller's salary for 1995, the
Board reviewed the goals established for 1994 and determined that such goals had
been achieved by the Bank. The Board also reviewed the Bank's performance as
compared to that of other Iowa-based financial institutions of similar asset
size. Compensation data for other Iowa- based financial institutions of similar
asset size is also provided through surveys independently prepared by the Iowa
Bankers Association. The survey reviewed by the Board in setting 1995 salary
contained information on salaries paid during 1994 to the chief executive
officers of all of the 19 Iowa-based banks with deposits in excess of $225
million. While the foregoing factors are not specifically weighted in the
decision-making process, primary emphasis is placed on the Bank's performance
during the previous year as compared to the internally-established goals. Review
of comparable compensation data is used primarily as a check to ensure that the
salary established is within the range of salaries paid to other chief executive
officers of Iowa-based financial institutions. Although the Board reviewed a
number of objective factors as described above in setting Mr. Seegmiller's
salary for 1995, the amount of the increase was based on a subjec-tive
determination by the Board.
Mr. Seegmiller was awarded a cash bonus in 1995 in the amount of $5,000
based on a determination by the Board of Directors that the Bank had
accomplished certain goals as established in the budget and business plan for
1994. Those goals were measured primarily in terms of earnings per share, asset
quality, return on assets and return on stockholders' equity. The amount of the
bonus was based on a subjective determination by the Board. In addition to the
cash bonus, Mr. Seegmiller received additional compensation that represents the
contributions, which were limited due to statutory and administrative rules, for
the Hills Bank and Trust Company Employee Stock Ownership Plan and Profit
Sharing Plan.
A contribution of $19,500 was made to Mr. Seegmiller's ESOP and profit
sharing accounts during 1995. The size of the contribution was determined as a
function of Mr. Seegmiller's 1994 salary (not including bonus) and the size of
the contribution made by the Bank, as plan sponsors, to the ESOP and profit
sharing plan for the benefit of all employees of the Bank eligible to
participate in the ESOP and profit sharing plans limited to a maximum of 15% of
$150,000 or $22,500 established by the Internal Revenue Service. For 1994, the
ESOP and profit sharing plan contributions made by the Bank amounted to 13% of
the aggregate salaries paid to all Bank employees eligible to participate in the
plans. The size of the ESOP and profit sharing contributions are determined by
the Board of Directors in its discretion based on its assessment of whether the
Bank achieved the goals established in the annual budget and business plan for
1995. Once the size of the ESOP and profit sharing contributions were
determined, such contributions were allocated among the ESOP and profit sharing
accounts of all eligible employees of the Bank, including Mr. Seegmiller, based
on their annual salaries for 1995.
Compensation for Other Executive Officers
Effective January 1, 1995, the Board of Directors increased the
salaries paid to the two other executive officers of the Bank as reflected in
the compensation table appearing herein. The Board of Directors also awarded a
cash bonus of $5,000 to each of the other two executive officers in 1995 and
bonuses as discussed for Mr. Seegmiller and appearing on the compensation table.
The salary increases and bonus awards were based on the same considerations as
the compensation decisions for the President of the Bank. Additionally,
contributions were made to the ESOP accounts and the Profit Sharing Plan
accounts of the other two executive officers, the size of which were determined
in accordance with the same procedure as used for all employees of the Bank.
BOARD OF DIRECTORS
HILLS BANK AND TRUST COMPANY
INCENTIVE STOCK COMMITTEE
HILLS BANCORPORATION
Willis M. Bywater Theodore H. Pacha
Thomas J. Gill, D.D.S. Earlis Rohret
Donald H. Gringer Ann Marie Rhodes
Richard W. Oberman Ronald E. Stutsman
William H. Olin, D.D.S. Earl M. Yoder
LOANS TO AND CERTAIN OTHER TRANSACTIONS WITH
EXECUTIVE OFFICERS AND DIRECTORS
Certain of the officers and directors of the Company, their associates
or members of their families, were customers of, and have had transactions with,
the Bank from time to time in the ordinary course of business, and additional
transactions may be expected to take place in the ordinary course of business in
the future. All loans and commitments included in such transactions have been
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons.
In the opinion of management of the Bank, such loan transactions do not involve
more than the normal risk of collectibility or present other unfavorable
features.
During the past year, the Bank and the Company have maintained business
relationships with certain companies partially owned or operated by members of
the Board of Directors of the Company through the purchase of varying amounts of
goods and services from such companies. All such business relationships have
been entered into in the ordinary course of business of the Bank and the Company
and, in the opinion of management, the prices charged for such goods and
services have been at least as favorable to the Bank and the Company as prices
generally charged by similar businesses in the area for such goods and services.
Management of the Company anticipates that the Bank and the Company will
continue to maintain such business relationships on a similar basis to the
extent that such goods and services are required by the Bank and the Company in
the future.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP, Certified Public Accountants, provided
accounting services to the Company during the Company's fiscal year ended
December 31, 1995. The Board of Directors of the Company has selected McGladrey
& Pullen, LLP to provide accounting services to the Company for the fiscal year
ending December 31, 1996. A representative of McGladrey & Pullen is expected to
be present at the Annual Meeting with the opportunity to make a statement if he
desires to do so and he is also expected to be available to respond to
appropriate questions.
PROPOSALS BY SHAREHOLDERS
Shareholder proposals intended to be presented at the Annual Meeting of
Shareholders to be held in 1997 must be received by the Company no later than
December 2, 1996 for inclusion in the Company's proxy statement and form of
proxy relating to that meeting. Proposals should be submitted to the Company at
its principal executive offices at 131 Main Street, Hills, Iowa 52235.
AVAILABILITY OF FORM 10-K REPORT
Copies of the Company's Annual Report to the Securities and Exchange
Commission (Form 10-K) including the financial statements and schedules thereto
for the fiscal year of the Company ended December 31, 1995, will be mailed when
available without charge (except for exhibits) to a holder of shares of the
Common Stock of the Company upon written request to James G. Pratt, Treasurer,
Hills Bancorporation, 131 Main Street, Hills, Iowa 52235.
OTHER MATTERS
Management of the Company knows of no other matters which will be
presented for consideration at the Annual Meeting of Shareholders other than
those stated in the Notice of Annual Meeting which is part of this Proxy
Statement, and management does not intend itself to present any such other
business. If any other matters do properly come before the meeting, it is
intended that the persons named in the accompanying proxy will vote thereon in
accordance with their judgment. The proxy will also have the power to vote for
the adjournment of the meeting from time to time.
A copy of the Annual Report of the Company for the year ended December
31, 1995, is mailed to shareholders together with this Proxy Statement. Such
report is not incorporated in this Proxy Statement and is not to be considered a
part of the proxy soliciting material.
By Order of the Board of Directors
/s/ Dwight O. Seegmiller
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Dwight O. Seegmiller
President
March 25, 1996
Hills, Iowa