[HEMLOCK FEDERAL FINANCIAL CORPORATION LETTERHEAD]
March 31, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Hemlock Federal
Financial Corporation (the "Company"), we cordially invite you to attend the
Annual Meeting of Stockholders of the Company. The meeting will be held at 10:30
a.m., Oak Forest, Illinois time, on April 28, 1999 at the main office of the
Company located at 5700 West 159th Street, Oak Forest, Illinois 60452.
In addition to the election of two directors of the Company, your Board of
Directors is submitting for approval the ratification of the appointment of
Crowe, Chizek and Company LLP as auditors of the Company. The Board of Directors
unanimously recommends that you vote for the election of the Board nominees for
director and for the appointment of Crowe, Chizek and Company LLP.
We encourage you to attend the meeting in person. Whether or not you plan
to attend, please read the enclosed Proxy Statement and then complete, sign and
date the enclosed proxy card and return it in the accompanying postage prepaid
return envelope as promptly as possible. This will save the Company additional
expense in soliciting proxies and will ensure that your shares are represented
at the meeting.
Sincerely,
/s/ Maureen G. Partynski
------------------------------------
Maureen G. Partynski
Chairman of the Board and Chief
Executive Officer
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION
5700 West 159th Street
Oak Forest, Illinois 60452
(708) 687-9400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on April 28, 1999
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Hemlock Federal Financial Corporation (the "Company") will be held
at the main office of the Company located at 5700 West 159th Street, Oak Forest
Illinois, at 10:30 a.m., Oak Forest, Illinois time, on April 28, 1999.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The ratification of the appointment of Crowe, Chizek and Company
LLP as auditors of the Company for the fiscal year ended December
31, 1999;
and such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. Stockholders of record at the close of business on March
15, 1999 are the stockholders entitled to vote at the Meeting and any
adjournments or postponements thereof.
You are requested to complete and sign the enclosed form of proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Maureen G. Partynski
----------------------------------
Maureen G. Partynski
Chairman of the Board and
Chief Executive Officer
Oak Forest, Illinois
March 31,1999
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED
IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
HEMLOCK FEDERAL FINANCIAL CORPORATION
5700 West 159th Street
Oak Forest, Illinois 60452
(708) 687-9400
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be Held on April 28, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Hemlock Federal Financial
Corporation (the "Company") to be used at the Annual Meeting of Stockholders of
the Company (the "Meeting"), to be held at the main office of the Company, 5700
West 159th Street, Oak Forest, Illinois, on April 28, 1999, at 10:30 a.m., Oak
Forest, Illinois, time, and at all adjournments or postponements of the Meeting.
The accompanying Notice of Meeting and this Proxy Statement are first being
mailed to stockholders on or about March 31, 1999. Certain of the information
provided herein relates to Hemlock Federal Bank for Savings (the "Bank"), a
wholly owned subsidiary and the predecessor of the Company.
At the Meeting, the stockholders of the Company are being asked to consider
and vote upon proposals to elect two directors of the Company and to ratify the
appointment of Crowe, Chizek and Company LLP as auditors of the Company for the
fiscal year ending December 31, 1999.
Voting Rights and Proxy Information
All shares of common stock, par value $.01 per share, of the Company (the
"Common Stock") represented at the Meeting by properly executed proxies received
prior to or at the Meeting, and not revoked, will be voted at the Meeting in
accordance with the instructions thereon. If no instructions are indicated,
properly executed proxies will be voted for election of the nominees for
director named below and for the proposals to ratify the appointment of Crowe,
Chizek and Company LLP. The Company does not know of any matters, other than as
described in the Notice of Meeting, that are to come before the Meeting. If any
other matters are properly presented at the Meeting for action, the persons
named in the enclosed form of proxy will have the discretion to vote on such
matters in accordance with their best judgment.
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted by: (i) filing with the Secretary of the Company at or before
the Meeting a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the Meeting, or (iii)
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute revocation of a proxy). Any written notice
revoking a proxy should be delivered to Rosanne Pastorek - Belczak, Secretary,
Hemlock Federal Financial Corporation, 5700 West 159th Street, Oak Forest,
Illinois 60452.
Vote Required for Approval of Proposals
The presence, in person or by proxy, of at least one-third of the total
number of shares of Common Stock entitled to vote is required to constitute a
quorum at the Meeting. The two nominees for election as directors at the Meeting
who receive the greatest number of votes cast for the election of directors at
the Meeting shall become directors at the conclusion of the tabulation of votes.
Approval of the proposal to ratify the appointment of Crowe, Chizek and Company
LLP requires the affirmative vote of the holders of a majority of the shares
present or represented by proxy and entitled to vote at the Meeting.
Proxies marked as abstaining from, and proxies returned by brokers as
"non-votes" will be treated as present for purposes of determining a quorum at
the Meeting; however, abstaining shares will have the same effect as a vote
1
<PAGE>
against the approval of the proposal to ratify the appointment of auditors while
non-voted shares will have no effect on such proposal. Abstentions and non-voted
shares will have no effect on the election of directors.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on March 15, 1999 (the
"Record Date") will be entitled to one vote for each share then held. As of that
date, the Company had 1,793,941 shares of Common Stock issued and outstanding.
The following table sets forth, as of the Record Date, certain information
as to those persons who were known by management to be beneficial owners of more
than 5% of the Company's outstanding shares of Common Stock and as to the shares
of Common Stock beneficially owned by all directors and executive officers of
the Company and the Association as a group.
Shares Beneficially Owned Percent
Beneficial Owner at March 15, 1999 of Class
- --------------------------------------------------------------------------------
Five Percent Beneficial Owners
- ------------------------------
Tara Enterprises, L.L.C. 178,700 9.9%
John H. Daly, Jr.
Denis J. Daly
900 Jorie Boulevard, Suite 218
Oak Brook, Illinois 60523(1)
Hemlock Federal Financial Corporation
Employee Stock Ownership Plan(2) 166,106 9.3%
5700 West 159th Street
Oak Forest, Illinois 60452
Directors and Named Officers(2)(3)
- ----------------------------------
Maureen G. Partynski, Chairman of the Board 81,323 4.5%
and Chief Executive Officer
Michael R. Stevens, President and Director 78,776 4.4%
Rosanne Belczak, Vice President/Secretary and Director 21,580 1.2%
Frank A. Bucz, Director 7,737 0.4%
Kenneth J. Bazarnik, Director 13,737 0.8%
Charles Gjondla, Director 3,837 0.2%
G. Gerald Schiera, Director 8,637 0.5%
Directors and executive officers of the Company 215,627 12.0%
and the Bank, as a group (9 persons)(2)
(1) The above information regarding beneficial ownership by Tara Enterprises,
L.L.C. ("Tara"), John J. Daly, Jr ("J. Daly") and Denis J. Daly ("D. Daly")
is as reported by them in an amended statement dated February 9, 1999 on
Schedule 13-G under the Securities Exchange Act of 1934, as amended. Tara
reported sole voting and sole dispositive power over 0 shares and shared
voting and shared dispositive power over 71,400 shares. J. Daly reported
sole voting and sole dispositive power over 53,050 shares and shared voting
and shared dispositive power over 71,400 shares. D. Daly reported sole
voting and sole dispositive power over 54,250 shares and shared voting and
ashared dispositive power over 71,400 shares.
(2) The amount reported represents shares held by the Employee Stock Ownership
Plan ("ESOP"), 16,610 of which have been allocated to accounts of
participants. First Bankers Trust, the trustee of the ESOP, may be deemed
to beneficially own the shares held by the ESOP which have not been
allocated to accounts of participants. Participants in the ESOP are
entitled to instruct the trustee as to the voting of shares allocated to
their accounts under the ESOP. Unallocated shares held in the ESOP's
suspense account or allocated shares for which no voting instructions are
received are voted by the trustee in the same proportion as allocated
shares voted by participants.
(3) Amount includes shares held directly, shares held jointly with family
members, shares held in profit sharing plan and retirement accounts, shares
held in a fiduciary capacity or by certain family members, with respect to
which shares the group members may be deemed to have sole voting and/or
investment power. The amounts reported also include 20,763, 20,763, 4,153
and 2,076 shares awarded to Ms. Partynski, Mr. Stevens, Ms. Belczak and
each non-employee director, respectively under the Company's Recognition
and Retention Plan. Such shares vest over a five year period with the first
installment vesting on October 22, 1998. In addition, the amounts reported
include 10,382, 10,382, 2,492 and 1,661
2
<PAGE>
shares subject to exercisable options and excluded 41,526, 41,526, 9,966
and 6,644 shares subject to options which shares are not exercisable within
60 days of March 15, 1999.
(4) The address of each Director and Named Officer is the same as that of the
Company.
I. ELECTION OF DIRECTORS
General
The Company's Board of Directors currently consists of seven members. The
Board is divided into three classes, each of which contains approximately
one-third of the Board. Approximately one-third of the directors are elected
annually. Directors of the Company are generally elected to serve for a
three-year period or until their respective successors are elected and
qualified.
The table below sets forth certain information, as of the Record Date,
regarding the composition of the Company's Board of Directors, including their
terms of office. It is intended that the proxies solicited on behalf of the
Board of Directors (other than proxies in which the vote is withheld as to any
nominee) will be voted at the Meeting FOR the election of the nominees
identified below. If any nominee is unable to serve, the shares represented by
all valid proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why any nominee might be unable to serve, if elected. There are no
arrangements or understandings between the nominees and any other person
pursuant to which the nominees were selected.
The following table sets forth certain information regarding the directors
of the Company.
<TABLE>
<S> <C> <C> <C>
Shares of
Common Stock Percent
Position(s) Held Director Term Beneficially of
Name With the Bank Age(1) Since(2) Expires Owned Class
- ----------------------- ----------------------- ------- -------- ------- ------------ -------
NOMINEES
- ----------------------- ----------------------- ------- -------- ------- ------------ -------
Charles Gjondla Director 73 1982 2002 3,837 0.2%
Maureen G. Partynski Chairman of the Board 39 1984 2002 81,323 4.5%
and Chief Executive
Officer
DIRECTORS CONTINUING IN OFFICE
- ----------------------- ----------------------- ------- -------- ------- ------------ -------
Rosanne Pastorek-Belczak Vice-President/Secretary 38 1996 2001 21,580 1.2%
and Director
Frank A. Bucz Auditor/Consultant and 70 1971 2001 7,737 0.4%
Director
G. Gerald Schiera Director 60 1992 2001 8,637 0.5%
Michael R. Stevens President and Director 39 1992 2000 78,776 4.4%
Kenneth J. Bazarnik Director 56 1982 2000 13,737 0.8%
<FN>
(1) At December 31, 199 8.
(2) Includes time serving as director of the Ban k prior to becoming a director
of the Company.
</FN>
</TABLE>
The business experience of each director of the Holding Company and the
Chairman Emeritus of the Bank for at least the past five years is set forth
below.
Charles Gjondla. Mr. Gjondla is a retired worker for Chicago's Midway
Airport.
Maureen G. Partynski. Ms. Partynski is the Chairman of the Board and Chief
Executive Officer of the Bank, a position she has held since 1994. From 1989 to
1994, Ms. Partynski was the President of the Bank, and she served as
3
<PAGE>
Executive Vice-President from 1985 to 1989. She has worked with the Bank since
1982, and she has been a Director of the Bank since 1984. Ms. Partynski received
a Masters in Business Administration from Saint Xaviers University. Ms.
Partynski is the sister-in-law of Michael R. Stevens and the daughter of Joseph.
P. Gavron, a director emeritus of the Bank.
Rosanne Pastorek-Belczak. Ms. Pastorek-Belczak has served in her current
position as Vice President of Marketing and Human Resources of the Bank since
1989 and has acted as corporate secretary since 1996. She previously held the
position of marketing manager from 1982 to 1989.
Frank A. Bucz. Mr. Bucz is a retired data control supervisor of CPC
International. He also previously served as Secretary of the Bank from 1976
until 1996.
G. Gerald Schiera. Mr. Schiera is owner of the G. Gerald Company, which
specializes in aviation and engineering consultation.
Michael R. Stevens. Mr. Stevens has been employed at the Bank since 1984 in
various capacities, including Executive Vice-President and Financial Manager. He
has served as the President of the Bank since 1994, and he has been a Director
since 1992. Mr. Stevens received a Masters in Business Administration from
Northwestern University. He is the brother-in-law of Maureen G. Partynski and
the son-in-law of Joseph P. Gavron.
Kenneth Bazarnik. Mr. Bazarnik is a retired plant engineer and manager for
Foote-Jones/Illinois Gear, where he has worked since 1989.
Joseph P. Gavron. Mr. Gavron served as Chairman and President of the Bank
for 46 years before retiring in 1992. He currently serves as Chairman Emeritus.
He is the father of Maureen Partynski and the father-in-law of Michael R.
Stevens.
Meetings and Compensation of the Board of Directors and Committees
Hemlock Federal Financial Corporation. Meetings of the Company's Board of
Directors are generally held on a quarterly basis. The Board of Directors met
eight times during the fiscal year ended December 31, 1998. During fiscal 1998,
no incumbent director of the Company attended fewer than 75% of the aggregate of
the total number of Board meetings and the total number of meetings held by the
committees of the Board of Directors on which he or she served. Directors of the
Company are not paid a fee for serving on the Company Board.
The Board of Directors of the Company has established the Company's
Executive, Audit and Compensation Committees.
The Company's Executive Committee exercises the powers of the full Board of
Directors between board meetings, except that this Committee does not have the
authority to amend the charter or bylaws, adopt a plan of merger, consolidation,
dissolution, or provide for the disposition of all or substantially all of the
property and assets of the Company. The Executive Committee is composed of
Directors Partynski, Stevens and Belczak. The Executive Committee met 12 times
during the year ended December 31, 1998.
The Audit Committee is responsible for selecting the Company's independent
accountants and meeting with the independent accountants to outline the scope
and review the results of the annual audit. The current members of this
Committee are Directors Bucz, Gjondla and Schiera. This Committee met two times
during the year ended December 31, 1998.
The Compensation Committee recommends employee compensation benefits and
personnel policies to the Board of Directors, as well as salaries and cash bonus
plan distributions concerning executive officers of the Company and the
Association. The current members of this Committee are Directors Bazarnik and
Gjondla. This Committee met two times during the year ended December 31, 1998.
4
<PAGE>
The full Board of Directors of the Company acts as a Nominating Committee
for the annual selection of its nominees for election as directors. Pursuant to
the Company's Bylaws, nominations for directors by stockholders must be made in
writing and delivered to the Secretary of the Company at least 30 days prior to
the meeting and such written nomination must contain certain information as
provided in the Company's Bylaws. While the Board of Directors will consider
nominees recommended by stockholders, it has not actively solicited nominations.
Hemlock Federal Bank for Savings. The Bank's Board of Directors meets
monthly and may have additional special meetings. The Board of Directors met 12
times during the year ended December 31, 1998. During 1998, no incumbent
director of the Bank attended fewer than 75% of the aggregate of the total
number of Board meetings and the total number of meetings held by the committees
of the Board of Directors on which he or she served. During fiscal 1998, each
non-employee director received $675 per month with no additional compensation
paid for special committee meetings. Employee directors do not receive Board
fees. No special committee meetings were held during fiscal 1998.
The directors of the Bank currently receive a fee of $700 as compensation
for service on the Board of the Bank. Chairman Emeritus Joseph P. Gavron
receives $600 per month, and Director Frank Bucz receives an additional $1,250
per month as Audit Consultant. Directors do not receive any additional
compensation for committee meetings attended.
Executive Compensation
The following table sets forth the cash compensation paid or accrued by the
Bank for services rendered during the fiscal year ended December 31, 1998 to the
Bank's Chief Executive Officer and the Bank's President. No other officer made
in excess of $100,000 during fiscal 1998. The Company's officers do not receive
any compensation from the Company for services performed in their capacity as
officers of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
-----------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation Awards
------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Securities
Annual Restricted Underlying All Other
Compensa- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus tion Award(s) SARs Payouts sation
Position Year ($)(1) ($) ($) ($) (#) ($) ($)
- ---------------------------- ---- -------- ------- --------- ------------ ------------ ------- -----------
Maureen G. Partynski, 1998 $118,350 $12,000 (2) --- --- --- $35,671(5)
Chief Executive Officer and 1997 113,100 10,000 (2) 358,162(3) 51,908(4) --- 3,674(5)
Chairman of the Board 1996 106,850 8,000 (2) --- --- --- 20,227(5)
Michael R. Stevens, Presiden 1998 $144,600 $12,000 (2) --- --- --- $40,757(6)
and Director 1997 138,100 10,000 (2) 358,162(3) 51,908(4) --- 5,632(6)
1996 129,350 8,000 (2) --- --- --- 24,031(6)
<FN>
(1) Includes directors fees of $8,100, $8,100, and $8,100 for fiscal years
1998, 1997, and 1996, respectively.
(2) Pursuant to SEC rules, the table above excludes perquisites and other
personal benefits which do not exceed the lesser of $50,000 or 10% of
salary and bonus.
(3) Pursuant to the RRP, on October 22, 1997 the Company granted to grant to
Ms. Partynski and Mr. Stevens 20,763 and 20,763 shares of restricted stock,
respectively.
(4) Pursuant to the Stock Option Plan, the Company granted to Ms. Partynski and
Mr. Stevens options to purchase 51,908 and 51,908 shares of restricted
stock, respectively, at an exercise price equal to the market value per
share of the Common Stock on the date of grant ($17.25).
(5) Includes $0, $3,674, and $11,535 received through the Profit Sharing Plan
contribution for fiscal years 1998, 1997, and 1996, respectively, $0, $0,
and $8,692 received through the Bank's Money Purchase Pension Plan for
fiscal years 1998, 1997, and 1996, respectively, and $35,671, $0 and $0
representing the market value of shares allocated to Ms. Partynski's
account pursuant to the ESOP for fiscal years 1998, 1997, and 1996,
respectively.
(6) Includes $0, $5,632, and $13,704 received through the Bank's Profit Sharing
Plan for fiscal years 1998, 1997, and 1996, respectively, $0, $0, and
$10,327 received through the Bank's Money Purchase Pension Plan for fiscal
years 1998, 1997, and 1996, respectively, and $40,757, $0 and $0
representing the market value of shares allocated to Mr. Stevens' account
pursuant to the ESOP for fiscal years 1998, 1997, and 1996, respectively.
</FN>
</TABLE>
5
<PAGE>
The following table provides information as to the value of the options held
by the Company's Chief Executive Officer and President on December 31, 1998,
none of which have been exercised. No stock appreciation rights were granted as
of such date.
Aggregated Option/SAR Exercises in Last Fiscal Year and Year-end Option/SAR
Values
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Options/SARs at Options/SARs at
on Value FY-End (#) FY-End ($)
Exercise Realized =============================== ================================
Name (#) ($) Exercisable Unexercisable(1) Exercisable Unexercisable(2)
======================== ========= ======= =========== ================ =========== ================
<S> <C> <C> <C> <C>
Maureen G. Partynski --- --- 10,382 41,526 $--- $ ---
Michael R. Stevens --- --- 10,382 41,526 --- ---
<FN>
(1) Represents options to purchase Common Stock awarded to the Company's Chief
Executive Officer and President. The options vest in five equal annual
installments. The first installment vested on October 22, 1998, with the
remaining installments to vest equally on October 22, 1999, 2000, 2001 and
2002.
(2) As of December 31, 1998, the options were not in-the-money.
</FN>
</TABLE>
Employment Agreements
The Bank has entered into employment agreements with Chairman Partynski and
President Stevens providing for initial terms of three years. The employment
agreements provide for annual base salaries in amounts not less than the
individuals' current salaries and provide for annual extensions subject to the
performance of annual formal evaluations by disinterested members of the Board
of Directors of the Bank. The agreements also provide for termination upon the
employee's death, for cause or in certain events specified by OTS regulations.
The employment agreements are also terminable by the employee upon 90 days'
notice to the Bank.
The employment agreements provide for payment to Chairman Partynski and
President Stevens of an amount equal to 299% of their five-year annual average
base compensation, in the event there is a "change in control" of the Bank where
employment involuntarily terminates in connection with such change in control or
within twelve months thereafter. For the purposes of the employment agreements,
a "change in control" is defined as any event which would require the filing of
an application for acquisition of control or notice of change in control
pursuant to 12 C.F.R. ss. 574.3 or 4. Such events are generally triggered by the
acquisition or control of 10% of the Company's common stock. If the employment
of Chairman/CEO Partynski or President Stevens had been terminated as of
December 31, 1998 under circumstances entitling them to severance pay as
described above, they would have been entitled to receive lump sum cash payments
of approximately $291,973and $360,445, respectively. The agreements also provide
for the continued payment to Chairman/CEO Partynski and President Stevens of
health benefits for the remainder of the term of their contracts in the event
such individual is involuntarily terminated in the event of change in control.
Change in Control Severance Agreements
The Bank has entered into change in control severance agreements with
Officers Rosanne Pastorek-Belczak, Jean Thornton and Neil Christensen. The
agreements provide for initial terms of 24 months. The agreements provide for
extensions of one year, on each anniversary of the effective date of the
agreements, subject to a formal performance evaluation performed by
disinterested members of the Board of Directors of the Bank. The agreement
provides for termination for cause or in certain events specified by OTS
regulations.
6
<PAGE>
The agreements provide for lump sum payments to the employee of 200% of
their annual base compensation and the continued payment for the remaining term
of the contract of life and health insurance coverage maintained by the Bank in
the event there is a "change in control" of the Bank where employment terminates
involuntarily within 12 months of such change in control. This termination
payment is subject to reduction to the extent non-deductible for federal income
tax purposes. For the purposes of the agreements, a "change in control" is
defined as any event which would require the filing of an application for
acquisition of control or notice of change in control pursuant to 12 C.F.R. ss.
574.3 or 4 or any successor regulation. Such events are generally triggered upon
the acquisition of control of 10% of the Company's Common Stock.
Benefit Plans
General. The Bank currently provides insurance benefits to its employees,
including health and life insurance, subject to certain deductibles and
copayments. The Bank also maintains a profit sharing plan for the benefit of its
employees.
Profit Sharing Plan. The Bank maintains a tax-exempt profit sharing plan
and trust (the "Profit Sharing Plan"). All salaried employees are eligible to
participate subject to certain vesting and other qualifying factors. The Bank
did not make a contribution in 1998 and anticipates that profit sharing
contributions over the next several years may be somewhat lower than those of
the immediately preceding years in order to offset, in part, the expense of the
ESOP.
Employee Stock Ownership Plan. The Bank and the Company have adopted an
ESOP for the benefit of full-time employees of the Bank. The ESOP is designed to
meet the requirements of an employee stock ownership plan as described at
Section 4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and, as such, the ESOP is
empowered to borrow in order to finance purchases of the Company's Common Stock.
The ESOP was funded with a loan from the Company. The proceeds from this
loan were used by the ESOP to purchase 8% of the Common Stock issued in the
Conversion. The interest rate paid on this loan is the Internal Revenue Service
("IRS") prescribed applicable federal rate at the time of origination. The ESOP
will repay the loan through periodic tax-deductible contributions from the Bank
over a 10-year period. As a qualified employee pension plan under Section 401(a)
of the Code, the ESOP is in the form of a stock bonus plan and provides for
contributions, predominantly in the form of either the Company's Common Stock or
cash, which will be used within a reasonable period after the date of
contributions primarily to purchase the Company Common Stock. The maximum
tax-deductible contribution by the Bank in any year is an amount equal to the
maximum amount that may be deducted by the Bank under Section 404 of the Code,
subject to reduction based on contributions to other tax-qualified employee
plans. Additionally, the Bank will not make contributions if such contributions
would cause the Bank to violate its regulatory capital requirements. The assets
of the ESOP are invested primarily in the Company's Common Stock. The Bank will
receive a tax deduction equal to the amount it contributes to the ESOP.
From time to time, the ESOP may purchase additional shares of Common Stock
for the benefit of plan participants through purchases of outstanding shares in
the market, upon the original issuance of additional shares by the Company or
upon the sale of shares held in treasury by the Company. Such purchases, which
are not currently contemplated, would be subject to then-applicable laws,
regulations and market conditions.
All full-time salaried employees of the Bank are eligible to participate in
the ESOP after they attain age 21 and complete one year of service during which
they work at least 1,000 hours. Employees will be credited for years of service
to the Bank prior to the adoption of the ESOP for participation and vesting
purposes. The Bank's contribution to the ESOP is allocated among participants on
the basis of compensation. Each participant's account will be credited with cash
and shares of Company Common Stock based upon compensation earned during the
year with respect to which the contribution is made. A participant will become
fully vested in his or her ESOP account after completing five years of service.
ESOP participants are entitled to receive distributions from their ESOP accounts
only upon termination of service. Distribution will be made in cash and in whole
shares of the Company's Common Stock. Fractional shares will be paid in cash.
Participants will not incur a tax liability until a distribution is made.
7
<PAGE>
Participating employees are entitled to instruct the trustee of the ESOP as
to how to vote the shares of Company Common Stock held in their accounts. The
trustee, who has dispositive power over the shares in the Plan, is not
affiliated with the Company or Hemlock Federal. The ESOP may be amended by the
Board of Directors of the Company, except that no amendment may be made which
would reduce the interest of any participant in the ESOP trust fund or divert
any of the assets of the ESOP trust fund for purposes other than the benefit of
participants or their beneficiaries.
Compensation Committee report on Executive Compensation
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain information and data regarding the
compensation and benefits given to the Company's executive officers, including
the Chief Executive Officer, and the President. The disclosure requirements
include the use of tables and a report explaining the considerations and
rationale that led to the fundamental executive compensation decisions for those
individuals. To fulfill this requirement, at the direction of the Board of
Directors, the Compensation Committee has prepared the following report for
inclusion in this proxy statement.
General. The Board of Directors of the Bank has delegated the authority and
responsibility to the Compensation Committee to oversee the general compensation
policies of the Bank, to establish compensation plans and salary levels for
executive officers, and review the recommendations of management on compensation
for other officers and employees of the Bank. The members of the Compensation
Committee are outside directors, Kenneth Bazarnik and Charles Gjondla.
When the Bank converted from the mutual to the stock form of organization
and simultaneously formed a public company to own 100% of the shares of the
Bank, the Compensation Committee developed an executive compensation plan
designed to (i) attract, motivate, reward and retain executive officers who are
key to the long-term success of the Bank; and (ii) encourage decision making
that maximized shareholder value. The Committee's ongoing compensation objective
is to ensure that such compensation reflects the achievement of both long-term
and short-term goals as they relate to the Company's overall strategic planning
process.
Executive Compensation Policy. The compensation package given to executive
officers of the Bank is comprised of a base salary and annual incentive bonus.
Executive officers are also provided with other benefits puruant to benefit
plans available to all eligible employees, including the Employee Stock
Ownership Plan ("ESOP"). The Compensation Committee reviews the compensation
plan elements available to executive officers periodically as they relate to the
policies described above. The Committee met two times in fiscal 1998 to review
general compensation and benefit levels for the Bank and to review and recommend
base salary and bonuses of the Chief Executive Officer and the President.
Base Salary. It is the policy of the Compensation Committee to annually
review executive compensation packages, including base salaries paid or proposed
to be paid, using information derived primarily from third party sources that
provided compensation data and analysis from publicly held companies in the
Company's market area. Using this and taking into account asset size, the
Committee compares the positions under consideration with similar jobs in other
financial institutions. Specific factors considered include the level of
responsibility delegated to a particular officer, the complexity of the job
being evaluated, the position's impact on both short- and long-term corporate
objectives, the expertise and skill level of the individual under consideration,
the degree to which the officer has achieved his or her management objectives
for the plan year, and the officer's overall performance in managing his or her
area of responsibility. The Compensation Committee's decisions are
discretionary, and no quantifiable formula is used in arriving at a decision.
Benefit Plans. The Compensation Committee believes that a competitive
benefits package is essential to attract and maintain highly qualified
employees. The Compensation Committee's policy in regards to employee benefit
plans is to provide competitive benefits to the employees of the Bank, including
executive officers. The ESOP will provide executive officers and employees with
an additional equity-based incentive to maximize long-term shareholder value.
8
<PAGE>
Chief Executive Officer. Total compensation paid to the Chief Executive
Officer for 1998 (including bonus and director's fees) was $130,350. In
determining total compensation paid to the Chief Executive Officer, the
Compensation Committee considered factors relating to the performance of the
Bank including the successful conversion of the Bank from mutual to stock form,
the opening of the new Lemont facility, the level of profits from operations,
and goals relating to loan volume, asset quality, and Bank compliance.
President. Total compensation paid to the President for 1998 (including
bonus and director's fees) was $156,600. In determining the total compensation
paid to the President, the Compensation Committee considered factors relating to
the performance of the Bank, including the level of operating profit, the
opening of the new Lemont branch, goals relating to efficiency ratios, fee
income, loan volume, asset quality, and the Bank's operating structure.
Kenneth Bazarnik
Charles Gjondla
Comparative Stock Performance Presentation
Set forth below is a line graph comparing the cumulative total return on
the company's Common Stock to the cumulative total return of the Nasdaq Market
Index and the media General Savings and Loan Index for each annual period
beginning on April 2, 1997 (the date the Company's Common Stock first reported
on the Nasdaq Stock Market) though December 31, 1998. The presentation assumes
$100 was invested on April 2, 1997.
4/2/97 12/31/97 12/31/98
------------- -------------- -----------
Hemlock 100 134.00 108.53
S&L Index 100 158.08 138.53
NASDAQ Index 100 129.24 182.28
Certain Transactions
The Bank has followed a policy of granting consumer loans and loans secured
by the borrower's personal residence to officers, directors and employees. Loans
to executive officers and directors are made in the ordinary course of business,
on substantially the same terms including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons, and
do not involve more than the normal risk of collectibility or present other
unfavorable features. All loans by the Bank to its directors and executive
officers are subject to federal regulations restricting loan and other
transactions with affiliated persons of the Bank. Loans outstanding to all
directors and executive officers and their associates totaled $390,479 at
December 31, 1998, which was 1.4% of the Bank's stockholders' equity at December
31, 1998. As of December 31, 1998, all such loans are performing in accordance
with their repayment terms.
9
<PAGE>
II. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has renewed the Company's arrangement for Crowe,
Chizek and Company LLP to be its auditors for the 1999 fiscal year, subject to
the ratification of the appointment by the Company's stockholders. A
representative of Crowe, Chizek and Company LLP is expected to attend the Annual
Meeting to respond to appropriate questions and will have an opportunity to make
a statement if he or she so desires.
The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of Crowe, Chizek and Company LLP as the
Company's auditors for the fiscal year ending December 31, 1999.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive offices, 5700
West 159th Street, Oak Forest, Illinois 60459, no later than December 3, 1999.
Any such proposal shall be subject to the requirements of the proxy rules
adopted under the Exchange Act of 1934, as amended. Otherwise, any stockholder
proposal to take action at such meeting must be received at the Company's main
office located at 5700 West 159th Street, Oak Forest, Illinois 60459 by February
18, 2000; provided, however, that in the event that the date of the annual
meeting is held before April 7, 2000 or after June 27, 2000, the stockholder
proposal must be received not later than the close of business on the later of
the 60th day prior to such annual meeting or the tenth day following the day on
which notice of the date of the annual meeting was mailed or public announcement
of the date of such meeting was first made. All stockholder proposals must also
comply with the Company's by-laws and Delaware law.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in this Proxy Statement. However,
if any other matters should properly come before the Meeting, it is intended
that holders of the proxies will act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Company Common Stock. In addition to solicitation by
mail, directors and officers of the Company and regular employees of the
Association may solicit proxies personally or by telegraph or telephone, without
additional compensation.
By Order of the Board of Directors
Rosanne Pastorek-Belczak
Oak Forest, Illinois
March 31, 1999
10
<PAGE>
REVOCABLE PROXY
HEMLOCK FEDERAL FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
April 28, 1999
The undersigned hereby appoints the Board of Directors of Hemlock Federal
Financial Corporation (the "Company"), and its survivor, with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting"), to be held on April 28,
1999 at the Company's main office, located at 5700 West 159th Street, Oak
Forest, Illinois, at 10:30 a.m.. local time, and at any and all adjournments
thereof, as follows:
I. The election of the following
directors for the terms specified:
FOR WITHHELD
CHARLES GJONDLA ----- ----------
MAUREEN G. PARTYNSKI ----- ----------
II. The ratification of the appointment of Crowe, Chizek and Company
LLP, independent auditors for the Company for the fiscal year
ending December 31, 1999
FOR AGAINST ABSTAIN
----- ---------- ----------
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" the listed proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS PRESENTED
AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR
BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy may be revoked at any time before it is voted by: (i) filing with the
Secretary of the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy; (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of the Company at
or before the Meeting; or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). If this proxy is properly revoked as described above,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from the Company, prior to the execution of
this Proxy, of a Notice of the Annual Meeting, a Proxy Statement and the
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1998.
Dated: ----------------------------
----------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
----------------------------------- -----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears above on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
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