SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
866450
1057124/SD
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)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
(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:
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
(5) Total fee paid:
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Fee paid previously with preliminary materials.
- - - - - - - - - - - - - - - - - -----
----- Check box if any part of the 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:
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
LOGO
Notice of Annual Meeting of Stockholders to be Held March 9, 1999
To the Stockholders of Old Second Bancorp, Inc.
The Annual Meeting of Stockholders of Old Second Bancorp, Inc., will be held on
Tuesday, March 9, 1999 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
and the election of two directors to serve for a term of one year each, the
Board of Directors' nominees being listed in the Proxy Statement;
2. To consider and act upon a proposed Amendment to the Restated
Certificate of Incorporation of the Corporation as set forth in the accompanying
Proxy Statement.
3. 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, 1999; and
4. 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 1, 1999 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
James Benson
Chairman
William Skoglund
Chief Executive Officer
and President
Aurora, Illinois
February 9, 1999
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 9,
1999 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 proposed Amendment to the Restated Certificate of Incorporation of the
Corporation; (iii) 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, 1999; and (iv) 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 seven
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. Approval of the proposed
Amendment to the Corporation's Restated Certificate of Incorporation requires
the affirmative vote of at least a majority of the outstanding shares of the
Corporation's Common Stock. 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.
2
A copy of the Corporation's Annual Report for the fiscal year ended December 31,
1998, 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 9, 1999.
Compliance With Section 16 (a) of The Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the directors and officers to file reports of ownership and
changes in ownership of the Corporation's Common Stock with the Securities and
Exchange Commission. The Corporation is required to disclose in this proxy
statement any late filings of those reports made by its directors and executive
officers in fiscal 1998. Under the Section 16(a) rules and subject to certain
exceptions, directors and executive officers are required to file a Form 4 on or
before the tenth day after the end of the month in which a change in beneficial
ownership has occurred. Mr. Ronald J. Carlson was delinquent in his filing of
one report during fiscal 1998. A report describing Mr. Carlson's transaction was
subsequently filed.
Voting Securities and Principal Holders Thereof
Only holders of Common Stock of record at the close of business on February 1,
1999 will be entitled to vote at the Annual Meeting of Stockholders. At such
date, the Corporation had outstanding 3,051,181 shares of Common Stock. 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
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, 1998.
- - - - - - - - - - - - - - - - - --------------------------------------------- ---------------------------------
Number and Percent
Name and Address of Shares Beneficially Owned
- - - - - - - - - - - - - - - - - --------------------------------------------- ---------------------------------
Old Second Bancorp, Inc. 248,725 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, 1998, Old Second held in its Trust Department, in various
fiduciary capacities (other than as trustee of the Corporation's Profit Sharing
Plan and Trust) 356,781 shares of the Corporation's Common Stock (11.69% of the
total outstanding shares). Old Second had full voting responsibility with
respect to 196,226 of such shares (6.43% of the total outstanding shares) and no
voting responsibility with respect to the remaining shares. Old Second had full
investment power with respect to 106,294 shares (3.48% of the total outstanding
shares) and shared investment power with respect to 212,645 shares (6.97% of the
total outstanding shares).
3
The following table sets forth information as of December 31, 1998, 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 Percentage1
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
Walter Alexander 18,392 0.60%
James Benson 60,541 1.98%
Ronald J. Carlson2 14,810 0.49%
Marvin Fagel 3,276 0.11%
Joanne Hansen 1,312 0.04%
Kenneth Lindgren 17,450 0.57%
Jesse Maberry 5,505 0.18%
Gary McCarter 691 0.02%
D. Chet McKee 3,416 0.11%
William Meyer 10,007 0.33%
Gerald Palmer 100 0.00%
James Carl Schmitz3 131,360 4.31%
Larry Schuster 13,700 0.45%
William B. Skoglund4 13,327 0.44%
George Starmann III5 8,838 0.29%
All Directors, Director Nominees, and 302,725 9.92%
Executive Officers as a group (15 persons)
- - - - - - - - - - - - - - - - - -------------------------
1 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.
2 Includes 8,750 shares issuable pursuant to options held by Mr. Carlson. Mr.
Carlson resigned from the Board effective 12/16/98.
3 The number of shares for Mr. Schmitz represents voting control over Schmitz
Family Trusts.
4 Includes 5,317 shares issuable pursuant to options held by Mr.
Skoglund.
5 Includes 4,950 shares issuable pursuant to options held by Mr.
Starmann III.
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------
Election of Directors
Under the Corporation's Restated 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. This year five nominees named below have been recommended for
election as directors for a term ending at the Annual Meeting in 2002 or until
their successors are elected, and two nominees named below have been recommended
for election as directors for a term ending at the Annual Meeting in 2000 or
until their successors are elected. The different terms of nominees this year is
necessary to have three Director classes approximately equal in number.
4
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.
Mr. Carlson resigned from the Board as of December 16, 1998. His term as
director was to terminate in 2000. At this time, the Board has nominated James
Carl Schmitz to take Mr. Carlson's place on the Board. The Corporation
acknowledges Mr. Carlson's long years of service and expresses appreciation for
his significant contribution.
Director Nominees
- - - - - - - - - - - - - - - - - ------------------------------------- ------------ -----------------------------------------------
Name Age Principal Occupation1,2
- - - - - - - - - - - - - - - - - ------------------------------------- ------------ -----------------------------------------------
James Benson 68 Chairman of the Board of the Corporation
(1971)
Marvin Fagel 51 President, Aurora Packing Company and
Chairman of the Board and CEO, New City
Packing Company, a meat packing company
(1996)
Joanne Hansen 58 President, Furnas Foundation, Inc., a
charitable foundation (1993)
Kenneth Lindgren 58 President, Daco Incorporated, contract
manufacturer of machined components (1990)
Jesse Maberry 55 Treasurer, Aurora Bearing Company,
manufacturer of rod end and spherical
bearings (1985)
Gerald Palmer3 53 Vice President/General Manager Caterpillar
Inc., construction equipment manufacturer
James Carl Schmitz3 50 Tax Specialist, KPMG Peat Marwick, LLP, an
accounting firm
- - - - - - - - - - - - - - - - - -------------------------------------
1Each 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 with the exception of Mr. Schmitz
who, previous to 1998, was Director of Taxes with H. B. Fuller Company, St.
Paul, Minnesota.
2The 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.
3The term for these two Director nominees will be for one year.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
5
Continuing Directors
- - - - - - - - - - - - - - - - - ------------------------------------- ------------ -----------------------------------------------
Name Age Principal Occupation1,2
- - - - - - - - - - - - - - - - - ------------------------------------- ------------ -----------------------------------------------
Walter Alexander4 64 President, Alexander Lumber Co., lumber and
building material sales (1976)
Gary McCarter3 62 Retired Vice President, Farmers Group, Inc.,
an insurance company (1988)
D. Chet McKee3 59 President and CEO, Rush Copley Medical Center
(1978)
William Meyer4 51 President, William F. Meyer Co., a wholesale
plumbing supply company (1995)
Larry Schuster4 58 Chairman, Westside Mechanical, Inc.,
mechanical contractor (1990)
William B. Skoglund4 48 President and CEO of the Corporation,
President and CEO of Old Second (1992)
George Starmann III4 55 Executive Vice President and Secretary of the
Corporation, Executive Vice President and
Senior Trust Officer of Old Second (1995)
- - - - - - - - - - - - - - - - - -------------------------------------
1Each 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.
2The 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.
3Serves as director until 2000.
4Serves as director until 2001.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
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 Exchange Act. Gerald Palmer, a
director-nominee of the Corporation, is also a director of JLG Industries, a
corporation with a class of securities registered pursuant to Section 12 of the
Exchange Act.
6
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 1998 were Messrs.
Alexander, McCarter, McKee, Fagel and Carlson. 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 six
times during 1998.
The members of the Corporation's Nominating Committee during 1998 were Messrs.
Alexander, Benson, Carlson, Lindgren, Maberry, McKee, 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 1998.
The Board of Directors of the Corporation held 12 meetings during 1998. Actions
taken by any Committee of the Board are reported to the Board of Directors,
usually at its next meeting. During 1998 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.
7
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 1998, 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, 1998, 1997, and 1996, to those persons who
were at December 31, 1998: (i) the chief executive officer and (ii) the other
executive officers of the Corporation whose annual salary exceeded $100,000.
Summary Compensation Table
- - - - - - - - - - - - - - - - - ------------------------------ ---------- ----------------- ------------------ ----------------------
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($)1 Options (#) Compensation ($)2
- - - - - - - - - - - - - - - - - ------------------------------ ---------- ----------------- ------------------ ----------------------
James Benson3 1998 $115,165 -- $ 0
Chairman of the Board 1997 96,410 -- 0
of the Corporation and 1996 102,034 -- 0
Retired Chief Executive
Officer of the Corporation
Ronald J. Carlson4 1998 $136,175 -- $ 8,313
Retired President, 1997 243,525 3,450 14,284
Chief Operating Officer, 1996 222,555 2,300 13,584
Chief Financial Officer,
and Secretary
of the Corporation
William B. Skoglund 1998 $227,633 4,000 $ 14,796
President and Chief 1997 191,235 3,300 13,145
Executive Officer 1996 172,550 2,200 12,490
of the Corporation
and President and Chief
Executive Officer
of Old Second
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
8
Summary Compensation Table (continued)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
Annual Long-Term
Compensation Compensation
Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($)1 Options (#) Compensation ($)2
- - - - - - - - - - - - - - - - - ----------------------------- ----------- ----------------- ------------------ ----------------------
George Starmann III 1998 $195,325 3,150 $ 13,476
Executive Vice 1997 173,435 3,150 11,951
President and Secretary 1996 160,615 2,100 11,834
of the Corporation
Executive Vice
President and Senior
Trust Officer
of Old Second
- - - - - - - - - - - - - - - - - -----------------------------
1Salary amounts for Mr. Benson include director fees received from the
Corporation's subsidiaries in the amounts of $37,750, $34,100, and $28,150 for
the years 1998, 1997, and 1996, respectively. Salary amounts for Mr. Carlson
include director fees received from the Corporation's subsidiaries other than
Old Second in the amounts of $18,675, $21,000, and $17,400, for the years 1998,
1997, and 1996, respectively. Salary amounts for Mr. Skoglund include director
fees received from the Corporation's subsidiaries in the amounts of $14,950 for
1998 and $1,800 for 1997. Salary amounts for Mr. Starmann include director fees
received from the Corporation's subsidiary Mortgage company of $3,000 for 1998.
2The amounts shown for 1998 represent the contribution to (i) the Corporation's
qualified Profit Sharing Plan and Trust in the amount of $8,800 each for
Messrs. Skoglund and Starmann and $6,463 for Mr. Carlson; (ii) the
Corporation's Salary Savings Plan in the amounts of $2,350, $3,200, and $3,200
for Messrs. Carlson, Skoglund, and Starmann, respectively, as vested and
accrued during 1998; and (iii) the Corporation's nonqualified Supplemental
Executive Retirement Plan ("SERP") in the amounts of $2,796 and $1,470 for
Messrs. Skoglund and Starmann, respectively.
3In June 1998, Mr. Benson retired as Chief Executive Officer of the Corporation.
4In June 1998, Mr. Carlson retired as the President, Chief Operating Officer,
Chief Financial Officer and Secretary of the Corporation.
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------
9
Option Grants
The following table provides information about stock options granted during 1998
to the Named Executive Officers other than Messrs. Benson and Carlson, to whom
no stock options were granted during the year.
Option Grants in Last Fiscal Year*
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------
Individual Grant
---------------------------------------------------------- Potential Realizable
Percent of Value at Assumed Annual
Total Options Rates of Stock Price
Granted to Exercise Appreciation
Options Employees in Price Expiration for Option Term
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
- - - - - - - - - - - - - - - - - ------------------------- -------------- ----------------- ----------- ------------- -------------------------
William B. Skoglund 4,000 34.78% $52.00 12/08/08 $130,810 $331,498
George Starmann III 3,150 27.39% $52.00 12/08/08 103,013 261,055
- - - - - - - - - - - - - - - - - -------------------------
*Messrs. Skoglund and Starmann received the 1998 options on December 8, 1998.
One-third of the options granted vest and become exercisable on each of the
first three anniversaries of their grant date.
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------
Stock Option Exercises and Holdings
The following table provides information on shares underlying options
exercisable at the end of 1998 and options exercised during 1998 for the Named
Executive Officers.
Aggregated Option Exercises and Year-End Value for 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------
Securities Underlying Value of Unexercised
Unexercised Options Held In-the-Money Options Held
at Fiscal Year-End at Fiscal Year-End1
---------------------------- ---------------------------
Shares Acquired Value
Name on Exercise Realized1 Exercisable Unexercisable Exercisable Unexercisable
- - - - - - - - - - - - - - - - - --------------------- ------------------ ---------- ------------ ---------------- ------------ --------------
James Benson2 3,250 $ 58,500 0 0 $ 0 $ 0
Ronald J. Carlson3 0 $ 0 8,750 0 $84,888 $ 0
William B. Skoglund 0 $ 0 5,317 6,933 $70,033 $12,892
George Starmann III 0 $ 0 4,950 5,950 $64,475 $11,638
- - - - - - - - - - - - - - - - - ---------------------
1 Value is calculated based on the difference between the option exercise price
and the closing market price of the Common Stock on
the date of exercise or the end of fiscal year multiplied by the applicable
number of shares.
2 Options exercised as they were about to expire.
3 3,067 unexercisable options vested at retirement and expiration date is within
three years of retirement.
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------
10
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 and 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 1998 were Messrs. Alexander,
Fagel, McCarter and 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:
o 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.
o 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.
o 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.
11
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.
In June 1998, Mr. Benson retired as Chief Executive Officer of the Corporation
and Mr. Carlson retired as President. They were succeeded by Mr. Skoglund as
President and Chief Executive Officer of the Corporation. Mr. Benson will
continue on as Chairman of the Board for the Corporation for 1999. In
determining Mr. Benson's salary in 1998, the Compensation Committee considered
Mr. Benson's continuing advisory role and his individual performance and
contributions. Accordingly, Mr. Benson's base salary was increased by 19.5% from
his 1997 base salary. As the new President and Chief Executive Officer of the
Corporation, Mr. Skoglund's salary increased by 12.3% to reflect a salary
commensurate with his new role and responsibilities. In determining Mr.
Skoglund's salary in 1998, the Compensation Committee also considered Mr.
Skoglund's individual performance and his long-term contributions to the success
of the Corporation. Overall, salary increases for the other senior executives
were at a rate comparable to the increases provided to similar executives at
other banks, as shown by survey data.
(b) Stock Options
To establish a link between compensation and management's performance in
creating value for stockholders, top level management employees were granted
stock options during 1998 pursuant to the Company's Long-Term Incentive Plan as
approved by stockholders 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.
12
In 1998, Mr. Benson and Mr. Carlson 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.
13
Compensation Committee of the Board of Directors of Old Second
Mr. Walter Alexander
Mr. Gary McCarter
Mr. Marvin Fagel
Mr. William Meyer
Employment Agreements
Effective January 2, 1996, Mr. Benson retired as Chief Executive Officer of Old
Second. However, during 1996, 1997, and 1998, Mr. Benson continued in his
position as Chairman of the Board of the Corporation and retained the title of
Chief Executive Officer of the Corporation until June 1998 when Mr. Skoglund was
named President and Chief Executive Officer of the Corporation. As determined at
the Board of Directors meeting on December 8, 1998, Mr. Benson will continue in
his position as Chairman of the Board of the Corporation for 1999. As in 1996,
1997, and 1998, Mr. Benson will continue to serve on the Board Committees of the
mortgage company and 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 1999, Mr. Benson will receive a fee of $80,000.
On January 1, 1997, Messrs. 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.
14
Comparison of Five-Year Cumulative Total Return*
Old Second Bancorp, Inc.; S&P 500; and Custom Peer Group
Performance Chart Here
- - - - - - - - - - - - - - - - - ---------------------------- ----------------------- ---------------------- -----------------------
Date Old Second S&P 500 Custom Peer Group
- - - - - - - - - - - - - - - - - ---------------------------- ----------------------- ---------------------- -----------------------
December 1993 $100.00 $100.00 $100.00
December 1994 $104.86 $101.36 $100.75
December 1995 $120.73 $139.32 $121.56
December 1996 $139.66 $171.23 $127.70
December 1997 $216.14 $228.27 $214.72
December 1998 $187.79 $293.04 $206.33
- - - - - - - - - - - - - - - - - ---------------------------- ----------------------- ---------------------- -----------------------
*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.;
Merchants Bancorp Inc.; Northern States Financial Corporation; Pinnacle Banc
Group Inc.; and Princeton National Bancorp Inc. Heritage Financial Services Inc.
is not included since it was acquired by another bank in 1998.
15
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 Compensation Years of Service
-------------------------------------------------------------------------
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 5,513 7,351 9,188 11,026 12,250 14,000
50,000 8,753 11,671 14,588 17,506 18,756 20,006
75,000 14,637 19,516 24,395 29,274 31,149 33,024
100,000 20,887 27,849 34,812 41,774 44,274 46,774
125,000 27,137 36,183 45,228 54,274 57,399 60,524
150,000 33,387 44,516 55,645 66,774 70,524 74,274
175,000 39,637 52,849 66,062 79,274 83,649 88,024
200,000 45,887 61,183 76,478 91,774 96,774 101,774
225,000 52,137 69,516 86,895 104,274 109,899 115,524
250,000 58,387 77,849 97,312 116,774 123,024 129,274
275,000 64,637 86,183 107,728 129,274 136,149 143,024
300,000 70,887 94,516 118,145 141,774 149,274 156,774
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
16
Covered compensation under the qualified and nonqualified pension formulas and
the respective years of credited service as of December 31, 1998 for the
executive officers named in the cash compensation table are as follows: James
Benson, $250,000 (38 years); Ronald J. Carlson, $222,525 (20 years); William B.
Skoglund, $212,684 (26 years); and George Starmann III, $192,358 (5 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 1998. 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.
Proposal 2:
Amendment to the Restated Certificate of Incorporation
This proposed amendment to Article IV of the Corporation's Restated Certificate
of Incorporation would (i) increase the number of shares of Common Stock which
the Corporation is authorized to issue from 6,000,000 to 10,000,000 and (ii)
change the par value of the Common Stock to $1.00 par value per share from no
par value. The text of such proposed amendment is attached to this Proxy
Statement as Annex A.
As of February 1, 1999, 3,051,181 shares of Common Stock were issued with an
additional 120,884 shares reserved for issuance under the Old Second Bancorp,
Inc. Long-term Incentive Plan. The additional shares of Common Stock for which
authorization is sought would be a part of the existing class of Common Stock
and, if and when issued, would have the same rights and privileges as the shares
of Common Stock presently outstanding.
The Board of Directors of the Corporation has determined that it is in the best
interests of the Corporation to have additional shares of Common Stock
authorized and available for issuance as the need arises for possible future
financing transactions, acquisitions, asset purchases, stock dividends or
splits, issuances under employee benefit plans, and for other general corporate
purposes. Such shares will be issuable by the Corporation generally without
further authorization by the stockholders on such terms as the Board of
Directors may lawfully determine. The effect of the authorization and issuance
of additional shares of Common Stock (other than on a pro rata basis among
holders of Common Stock) would be to dilute the present voting power of the
holders of Common Stock. Stockholders presently do not have preemptive rights.
Although it is not intended to be an anti-takeover measure, the increase in
authorized shares of Common Stock with a subsequent issuance of such shares
could impede a potential take over by, among other things, (1) diluting the
stock ownership of persons attempting to gain control of the Corporation and
17
(2) issuing securities to individuals or entities favorable to management. The
designations, preferences, relative rights, limitations, or restrictions of the
authorized Common Stock of the Corporation will remain unchanged.
At the date of the Proxy Statement, the Corporation has no plans, arrangements
or understandings with respect to the issuance of the shares of Common Stock to
be authorized.
The Corporation's Restated Certificate of Incorporation also authorizes the
issuance of up to 300,000 shares of Preferred Stock with such rights,
preferences and limitations as may be determined by the Board of Directors. The
Preferred Stock has been previously authorized. Such Preferred Stock could be
issued with terms which might make more difficult a change in control of the
Corporation. The Corporation is not aware of any pending or threatened efforts
to obtain control of the Corporation.
The proposed change to the par value per share of the Corporation's Common Stock
to $1.00 per share allows the Corporation to possibly save state franchise
taxes. The proposed change in par value will not result in any material changes
to stockholders' holdings.
The proposed amendment to the Corporation's Restated Certificate of
Incorporation increasing the number of shares of Common Stock authorized for
issuance and increasing the par value per share of the Common Stock must be
approved by the holders of a majority of the outstanding shares of Common Stock
of the Corporation.
The Board of Directors recommends that the stockholders vote FOR ratification
and approval of the amendment to the Corporation's Restated Certificate of
Incorporation as set forth in Proposal 2.
Proposal 3:
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, 1999. 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 Proposal 3.
18
Stockholder Proposals
If a stockholder intends to present a proposal at the Corporation's 2000 Annual
Meeting of Stockholders and desires that the proposal be included in the
Corporation's Proxy Statement and form of proxy for that meeting, the proposal
must be in compliance with Rule 14a-8 under the Securities Exchange Act of 1934
and received at the Company's principal executive offices not later than October
12, 1999. As to any proposal that a stockholder intends to present to
stockholders without inclusion in the Corporation's Proxy Statement for the
Corporation's 2000 Annual Meeting of Stockholders, the proxies named in
management's proxy for that meeting will be entitled to exercise their
discretionary authority on that proposal unless the Corporation receives notice
of the matter to be proposed not later than December 24, 1999. Even if proper
notice is received on or prior to December 24, 1999, the proxies named in
management's proxy for that meeting may nevertheless exercise their
discretionary authority with respect to such matter by advising stockholders of
such proposal and how they intend to exercise their discretion to vote on such
matter, unless the stockholder making the proposal solicits proxies with respect
to the proposal to the extent required by Rule 14a-4(c)(2) under the Securities
Exchange Act of 1934.
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
James Benson
Chairman
William Skoglund
Chief Executive Officer
and President
Aurora, Illinois
February 9, 1999
19
Annex A:
CERTIFICATE OF AMENDMENT TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
OLD SECOND BANCORP, INC.
FIRST: That the Board of Directors of said corporation at a meeting
duly convened and held adopted the following resolutions:
RESOLVED, that this Board proposes, and hereby declares its
advisability, that Paragraph A of Article IV of this Corporation's
Restated Certificate of Incorporation, as previously amended, be
further amended to read in its entirety as follows:
"A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 10,300,000
shares, which shall be divided into two classes as follows:
10,000,000 shares of Common Stock with a par value of $1.00
per share, and
300,000 shares of Preferred Stock with a par value of $1.00
per share."
FURTHER RESOLVED, that this amendment shall become effective as of
the date (the "Effective Date") that a Certificate of Amendment as
to this amendment is duly filed with the Office of the Secretary
of State of the State of Delaware; and
FURTHER RESOLVED, that the stated capital of the Corporation
immediately preceding the Effective Date, being $15,844,000, shall
remain the stated capital of the Corporation as of the Effective
Date; and
FURTHER RESOLVED, that until surrendered, each outstanding
certificate for shares of the Corporation's Common Stock of no par
value and the Corporation's Preferred Stock of no par value shall
be deemed for all purposes as representing shares of Common Stock
of $1.00 par value and shares of Preferred Stock of $1.00 par
value, respectively; and
FURTHER RESOLVED, that the proposed amendment to this
Corporation's Restated Certificate of Incorporation as set forth
above be considered at the next annual meting of stockholders to
be held on March 9, 1999.
SECOND: That the said amendment was submitted to the stockholders of
the Corporation at the duly convened annual meeting of the stockholders held on
March 9, 1999, and at such meeting the said amendment was approved by the
20
affirmative vote of the holders of shares having a majority of the voting power
of all of the outstanding capital stock of the Corporation entitled to vote
thereon.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
21
Proxy for Annual Meeting of Stockholders
On March 9, 1999
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 9th day of March 1999, 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 |_| WITHHOLD AUTHORITY |_| ABSTAIN
(except as marked to the to vote for all
contrary) nominees listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
James Benson, Marvin Fagel, Joanne Hansen, Kenneth Lindgren, Jesse Maberry,
Gerald Palmer, James Carl Schmitz
(2) The proposed Amendment to the Restated Certificate of Incorporation of
the Corporation as set forth in the accompanying Proxy Statement.
|_| FOR |_| AGAINST |_| ABSTAIN
(3) Ratification and approval of the selection of Ernst & Young, L.L.P. as
the Corporation's independent accountants.
|_| FOR |_| AGAINST |_| ABSTAIN
(4) 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, FOR
THE PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION 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