<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement Confidential, for Use of the Commission Only
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CFS Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (set forth the
amount on which the filing fee is calculated and state how it
was determined): _____________________________________________
(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: _______________________________________________
<PAGE>
[CFS Bancorp, Inc. Name and Logo]
707 Ridge Road
Munster, Indiana 46321
(219) 836-5500
December 28, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of CFS Bancorp, Inc. The meeting will be held at the Center for Visual and
Performing Arts, located at 1040 Ridge Road, Munster, Indiana, on Wednesday,
February 3, 1999 at 10:00 a.m., Central Time. The matters to be considered by
stockholders at the Special Meeting are described in the accompanying materials.
It is very important that your shares be voted at the Special Meeting
regardless of the number you own or whether you are able to attend the meeting
in person. We urge you to mark, sign, and date your proxy card today and return
it in the envelope provided, even if you plan to attend the Special Meeting.
This will not prevent you from voting in person, but will ensure that your vote
is counted if you are unable to attend.
Your continued support of and interest in CFS Bancorp, Inc. is
sincerely appreciated.
Sincerely,
Thomas F. Prisby
Chairman of the Board and
Chief Executive Officer
<PAGE>
CFS BANCORP, INC.
707 Ridge Road
Munster, Indiana 46321
(219) 836-5500
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on February 3, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("Special
Meeting") of CFS Bancorp, Inc. (the "Company") will be held at the Center for
Visual and Performing Arts, located at 1040 Ridge Road, Munster, Indiana, on
Wednesday, February 3, 1999 at 10:00 a.m., Central Time, for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
(1) To consider and approve the adoption of the 1998 Stock Option
Plan;
(2) To consider and approve the adoption of the 1998 Recognition
and Retention Plan and Trust Agreement; and
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof. Management is not
aware of any other such business.
The Board of Directors has fixed December 18, 1998 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting and at any adjournment thereof. Only those stockholders of
record as of the close of business on that date will be entitled to vote at the
Special Meeting or at any such adjournment.
By Order of the Board of Directors
Monica F. Sullivan
Corporate Secretary
Munster, Indiana
December 28, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>
CFS BANCORP, INC.
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 3, 1999
This Proxy Statement is furnished to holders of common stock, $.01 par
value per share ("Common Stock"), of CFS Bancorp, Inc. (the "Company"), a
Delaware corporation and thrift holding company for Citizens Financial Services,
FSB (the "Bank"). The Company acquired all of the Bank's common stock issued in
connection with the conversion of the Bank from the mutual to stock form (the
"Conversion") and the public offering of the Common Stock (the "Offering") in
May 1998. Proxies are being solicited on behalf of the Board of Directors of the
Company to be used at the Special Meeting of Stockholders ("Special Meeting") to
be held at the Center for Visual and Performing Arts, located at 1040 Ridge
Road, Munster, Indiana, on Wednesday, February 3, 1999 at 10:00 a.m., Central
Time, and at any adjournment thereof for the purposes set forth in the Notice of
Special Meeting of Stockholders. This Proxy Statement is first being mailed to
stockholders on or about December 28, 1998.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for the matters described below and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Any
stockholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing with the Secretary of the Company written notice thereof
(Monica F. Sullivan, Corporate Secretary, CFS Bancorp, Inc., 707 Ridge Road,
Munster, Indiana 46321); (ii) submitting a duly-executed proxy bearing a later
date; or (iii) appearing at the Special Meeting and giving the Secretary notice
of his or her intention to vote in person. Proxies solicited hereby may be
exercised only at the Special Meeting and any adjournment thereof and will not
be used for any other meeting.
VOTING
Only stockholders of record of the Company at the close of business on
December 18, 1998 (the "Voting Record Date") are entitled to notice of and to
vote at the Special Meeting and at any adjournment thereof. On the Voting Record
Date, there were 22,959,251 shares of Common Stock issued and outstanding and
the Company had no other class of equity securities outstanding. Each share of
Common Stock is entitled to one vote at the Special Meeting on all matters
properly presented at the meeting.
The presence in person or by proxy of at least a majority of the issued
and outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of the holders
of a majority of the total votes eligible to be cast in person or by proxy at
the Special Meeting is required for approval of the proposals to approve the
1998 Stock Option Plan (the "Option Plan") and the 1998 Recognition and
Retention Plan and Trust Agreement (the "Recognition Plan"). Under rules
applicable to broker-dealers, the proposals to approve the Option Plan and the
Recognition Plan are considered "non-discretionary" items upon which brokerage
firms may not vote in their discretion on behalf of their clients if such
clients have not furnished voting instructions and for which there may be
"broker non-votes" at the meeting. Because of the required votes, abstentions
and broker non-votes will have the same effect as a vote against the proposals
to approve the Option Plan and the Recognition Plan.
2
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) each person or
entity, including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), who or which was
known to the Company to be the beneficial owner of more than 5% of the issued
and outstanding Common Stock, (ii) the directors of the Company, (iii) certain
executive officers of the Company; and (iv) all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group December 18, 1998(1) Common Stock
------------------ -------------------- ------------
<S> <C> <C>
CFS Bancorp, Inc. 1,428,300(2) 6.22%
Employee Stock Ownership Plan
707 Ridge Road
Munster, Indiana 46321
Thomson Horstmann & Bryant, Inc. 1,262,000 5.50
Park 80 West/Plaza One
Saddle Brook, New Jersey 07663
Directors:
Sally A. Abbott 29,318(3) *
Gregory W. Blaine 10,000 *
Thomas J. Burns 19,717 *
Gene Diamond 46,160 *
James W. Prisby 199,889(3)(4)(5) *
Thomas F. Prisby 102,000(3)(4) *
Daniel P. Ryan 256,808(6) 1.12
Other Executive Officer:
John T. Stephens 65,105(3)(4)(7) *
All Directors and Executive Officers of the
Company as a group (8 persons) 728,997(2) 3.18%
</TABLE>
- -----------------
* Represents less than 1% of the outstanding stock.
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of Common Stock are deemed to be
beneficially owned by a person if he or she directly or indirectly has
or shares (i) voting power, which includes the power to vote or to
direct the voting of the shares, or (ii) investment power, which
includes the power to dispose or to direct the disposition of the
shares. Unless otherwise indicated, the named beneficial owner has
sole voting and dispositive power with respect to the shares.
(2) The CFS Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") was
established by an agreement between the Company and Messrs. James W.
Prisby and John T. Stephens and Ms. Janice S. Dobrinich who act as
trustees of the plan ("Trustees"). Under the terms of the ESOP, the
allocated shares held in the ESOP will be voted in accordance with the
instructions of the participating employees. Unallocated shares held
in the ESOP
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from previous page)
will generally be voted in the same ratio on any matter as those
allocated shares for which instructions are given, subject in each
case to the fiduciary duties of the ESOP trustees and applicable law.
Any allocated shares which either abstain on the proposal or are not
voted will be disregarded in determining the percentage of stock voted
for and against each proposal by the participants and beneficiaries.
As of the Voting Record Date, however, none of the shares held by the
ESOP had been allocated to the accounts of participating employees.
Under the terms of the ESOP, when no shares have been allocated
thereunder, the Trustees are authorized to vote such unallocated
shares in their discretion. The amount of Common Stock beneficially
owned by directors who serve as Trustees of the ESOP and by all
directors and executive officers as a group does not include the
unallocated shares held by the ESOP.
(3) Includes with respect to Ms. Sally Abbott and Messrs. James Prisby,
Thomas Prisby and John Stephens, 9,078, 11,960, 13,927 and 11,919
shares, respectively, held by a trust established by the Company to
fund its obligations with respect to deferred supplemental retirement
benefits. Ms. Abbott and Messrs. Stephens, James Prisby and Thomas
Prisby each disclaim beneficial ownership of such shares except to the
extent of their personal pecuniary interests therein.
(4) Includes with respect to Messrs. James Prisby, Thomas Prisby and
Stephens, 24,429, 27,004 and 20,006 shares held in the Bank's 401(k)
profit sharing plan.
(5) Includes 57,00 shares owned by Mr. James Prisby's children, 60,000
shares held in the James W. Prisby Trust for which Mr. James Prisby is
the trustee and sole beneficiary and 24,000 shares held by Mr. Prisby
as custodian for Phillip Prisby. Also includes 22,500 shares held in
the Donna A. Prisby Trust. Ms. Donna Prisby is the wife of Mr. James
Prisby.
(6) Includes 69,807shares which Mr. Ryan has the right to acquire pursuant
to options granted under the stock option plans assumed in the
acquisition of SuburbFed Financial Corp., 19,749 shares allocated
under the SuburbFed Financial Corp. Employee Stock Option Plan and
34,524 shares held in the Suburban Federal Savings 401(k) profit
sharing plan.
(7) Includes 14,980 shares owned by Mr. Stephens' spouse and daughter.
4
<PAGE>
PROPOSAL TO ADOPT THE 1998 STOCK OPTION PLAN
General
The Board of Directors has adopted the Option Plan which is designed
to attract and retain qualified personnel in key positions, provide directors,
officers and key employees with a proprietary interest in the Company and as an
incentive to contribute to the success of the Company and reward key employees
for outstanding performance. The Option Plan provides for the grant of incentive
stock options intended to comply with the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended ("Code") ("incentive stock options"),
non-qualified or compensatory stock options and stock appreciation rights
(collectively "Awards"). Awards will be available for grant to directors and key
employees of the Company and any of its subsidiaries, except that non-employee
directors will be eligible to receive only awards of non-qualified stock
options. If stockholder approval is obtained, options to acquire shares of
Common Stock will be awarded to officers, key employees and directors of the
Company and the Bank with an exercise price equal to the fair market value of
the Common Stock on the date of grant.
Description of the Option Plan
The following description of the Option Plan is a summary of its terms
and is qualified in its entirety by reference to the Option Plan, a copy of
which is attached hereto as Appendix A.
Administration. The Option Plan will be administered and interpreted
by a committee of the Board of Directors ("Committee") that is comprised solely
of two or more non-employee directors. The members of the Committee will
initially consist of Ms. Abbott and Messrs. Blaine and Diamond.
Stock Options. Under the Option Plan, the Board of Directors or the
Committee will determine which officers, key employees and non-employee
directors will be granted options, whether such options will be incentive or
compensatory options (in the case of options granted to employees), the number
of shares subject to each option, the exercise price of each option and whether
such options may be exercised by delivering other shares of Common Stock. The
per share exercise price of both an incentive stock and a compensatory option
shall at least equal the fair market value of a share of Common Stock on the
date the option is granted (110% of fair market value in the case of incentive
stock options granted to employees who are 5% stockholders).
All options granted to participants under the Option Plan shall become
vested and exercisable at the rate of 20% per year on each annual anniversary of
the date the options were granted, and the right to exercise shall be
cumulative. Notwithstanding the foregoing, no vesting shall occur on or after a
participant's employment or service with the Company is terminated for any
reason other than his death or disability. Unless the Committee or Board of
Directors shall specifically state otherwise at the time an option is granted,
all options granted to participants shall become vested and exercisable in full
on the date an optionee terminates his employment or service with the Company or
a subsidiary company because of his death or disability. In addition, all stock
options will become vested and exercisable in full on the date an optionee
terminates his employment or service with the Company or a subsidiary company
due to retirement or as the result of a change in control of the Company if, as
of such date of retirement or change in control of the Company: (i) such
treatment is either authorized or is not prohibited by applicable laws and
regulations, or (ii) an amendment to the Option Plan providing for such
treatment has been approved by the stockholders of the Company at a meeting of
stockholders held more than one year after the consummation of the Offering.
Each stock option or portion thereof shall be exercisable at any time
on or after it vests and is exercisable until the earlier of ten years after its
date of grant or six months after the date on which the optionee's employment
terminates (three years after termination of service in the case of non-employee
directors), unless extended by the Committee or the Board of Directors to a
period not to exceed five years from such termination. Unless stated otherwise
at the time an option is granted, (i) if an optionee terminates his employment
or service with the Company as a result of disability or retirement without
having fully exercised his options, the optionee shall have three years
following his termination
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<PAGE>
due to disability or retirement to exercise such options, and (ii) if an
optionee terminates his employment or service with the Company following a
change in control of the Company without having fully exercised his options, the
optionee shall have the right to exercise such options during the remainder of
the original ten year term of the option. However, failure to exercise incentive
stock options within three months after the date on which the optionee's
employment terminates may result in adverse tax consequences to the optionee. If
an optionee dies while serving as an employee or a non-employee director or
terminates employment or service as a result of disability or retirement and
dies without having fully exercised his options, the optionee's executors,
administrators, legatees or distributees of his estate shall have the right to
exercise such options during the one year period following his death. In no
event shall any option be exercisable more than ten years from the date it was
granted.
Stock options are non-transferable except by will or the laws of
descent and distribution, and during an optionee's lifetime, shall be
exercisable only by such optionee or his guardian or legal representative.
Notwithstanding the foregoing, an optionee who holds non-qualified options may
transfer such options to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Options so transferred may thereafter be transferred only to
the optionee who originally received the grant or to an individual or trust to
whom the optionee could have initially transferred the option. Options which are
so transferred shall be exercisable by the transferee according to the same
terms and conditions as applied to the optionee.
Payment for shares purchased upon the exercise of options may be made
(i) in cash or by check, (ii) by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker to sell the shares
and then to properly deliver to the Company the amount of sale proceeds to pay
the exercise price, all in accordance with applicable laws and regulations or
(iii) if permitted by the Committee or the Board, by delivering shares of Common
Stock (including shares acquired pursuant to the exercise of an option) with a
fair market value equal to the total option price of the shares being acquired
pursuant to the option, by withholding some of the shares of Common Stock which
are being purchased upon exercise of an option, or any combination of the
foregoing. With respect to subclause (iii) in the preceding sentence, the shares
of Common Stock delivered to pay the purchase price must have either been (a)
purchased in open market transactions or (b) issued by the Company pursuant to a
plan thereof, in each case more than six months prior to the exercise date of
the option.
If the fair market value of a share of Common Stock at the time of
exercise is greater than the exercise price per share, this feature would enable
the optionee to acquire a number of shares of Common Stock upon exercise of the
Option, which is greater than the number of shares delivered as payment for the
exercise price. In addition, an optionee can exercise his or her option in whole
or in part and then deliver the shares acquired upon such exercise (if permitted
by the Committee or the Board) as-payment for the exercise price of all or part
of his options. Again, if the fair market value of a share of Common Stock at
the time of exercise is greater than the exercise price per share, this feature
would enable the optionee to either (i) reduce the amount of cash required to
receive a fixed number of shares upon exercise of the option or (ii) receive a
greater number of shares upon exercise of the option for the same amount of cash
that would have otherwise been used. Because options may be exercised in part
from time to time, the ability to deliver Common Stock as payment of the
exercise price could enable the optionee to turn a relatively small number of
shares into a large number of shares. In addition, an optionee can elect, with
the Committee's concurrence, to defer the delivery of the proceeds of the
exercise of any compensatory option not transferred under the terms of the
Option Plan. Such deferral must comply with the provisions of the Option Plan
and other rules and regulations as may be established by the Committee.
Stock Appreciation Rights. Under the Option Plan, the Board of
Directors or the Committee is authorized to grant rights to optionees ("stock
appreciation rights") under which an optionee may surrender any exercisable
incentive stock option or compensatory stock option or part thereof in return
for payment by the Company to the optionee of cash or Common Stock, or a
combination thereof, in an amount equal to the excess of the fair market value
of the shares of Common Stock subject to option at the time over the option
price of such shares. Stock Appreciation Rights may be granted concurrently with
the stock options to which they relate or, with respect to compensatory options,
at any time
6
<PAGE>
thereafter which is prior to the exercise or expiration of such options. The
proceeds of the exercise of a stock appreciation right may also be deferred as
provided by the provisions of the Option Plan.
Number of Shares Covered by the Option Plan. A total of 1,785,375
shares of Common Stock, which is equal to 10% of the Common Stock sold in the
Conversion, has been reserved for future issuance pursuant to the Option Plan.
In the event of a stock split, subdivision, stock dividend or any other capital
adjustment, the number of shares of Common Stock under the Option Plan, the
number of shares to which any Award relates and the exercise price per share
under any option or stock appreciation right shall be adjusted to reflect such
increase or decrease in the total number of shares of Common Stock outstanding
or such capital adjustment. The Option Plan provides that grants to each
employee and non-employee director shall not exceed 25% and 5% of the shares of
Common Stock available under the Option Plan, respectively. Awards made to
non-employee directors in the aggregate may not exceed 30% of the number of
shares available under the Option Plan.
Amendment and Termination of the Option Plan. Unless sooner
terminated, the Option Plan shall continue in effect for a period of ten years
from December 21, 1998, the date the Option Plan was adopted by the Board of
Directors. Termination of the Option Plan shall not affect any previously
granted Awards.
Federal Income Tax Consequences. Under current provisions of the Code,
the federal income tax treatment of incentive stock options and compensatory
stock options is different. As regards incentive stock options, an optionee who
meets certain holding period requirements will not recognize income at the time
the option is granted or at the time the option is exercised, and a federal
income tax deduction generally will not be available to the Company at any time
as a result of such grant or exercise. With respect to compensatory stock
options, the difference between the fair market value on the date of exercise
and the option exercise price generally will be treated as compensation income
upon exercise, and the Company will be entitled to a deduction in the amount of
income so recognized by the optionee. Upon the exercise of a stock appreciation
right, the holder will realize income for federal income tax purposes equal to
the amount received by him, whether in cash, shares of stock or both, and the
Company will be entitled to a deduction for federal income tax purposes in the
same amount.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly-traded
corporation to its chief executive officer and the four other most highly
compensated executive officers ("covered executives"). Certain types of
compensation, including compensation based on performance goals, are excluded
from the $1.0 million deduction limitation. In order for compensation to qualify
for this exception: (i) it must be paid solely on account of the attainment of
one or more preestablished, objective performance goals; (ii) the performance
goal must be established by a compensation committee consisting solely of two or
more outside directors, as defined; (iii) the material terms under which the
compensation is to be paid, including performance goals, must be disclosed to,
and approved by, stockholders in a separate vote prior to payment; and (iv)
prior to payment, the compensation committee must certify that the performance
goals and any other material terms were in fact satisfied (the "Certification
Requirement").
Treasury regulations provide that compensation attributable to a stock
option or stock appreciation right is deemed to satisfy the requirement that
compensation be paid solely on account of the attainment of one or more
performance goals if: (i) the grant is made by a compensation committee
consisting solely of two or more outside directors, as defined; (ii) the plan
under which the option or stock appreciation right is granted states the maximum
number of shares with respect to which options or stock appreciation rights may
be granted during a specified period to any employee; and (iii) under the terms
of the option or stock appreciation right, the amount of compensation the
employee could receive is based solely on an increase in the value of the stock
after the date of grant or award. The Certification Requirement is not necessary
if these other requirements are satisfied.
The Option Plan has been designed to meet the requirements of Section
162(m) of the Code and, as a result, the Company believes that compensation
attributable to stock options and stock appreciation rights granted under the
Option Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code.
7
<PAGE>
If the non-excluded compensation of a covered executive exceeded $1.0 million,
however, compensation attributable to other awards, such as restricted stock,
may not be fully deductible unless the grant or vesting of the award is
contingent on the attainment of a performance goal determined by a compensation
committee meeting specified requirements and disclosed to and approved by the
stockholders of the Company. The Board of Directors believes that the likelihood
of any impact on the Company from the deduction limitation contained in Section
162(m) of the Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
Accounting Treatment. Stock appreciation rights will, in most cases,
require a charge against the earnings of the Company each year representing
appreciation in the value of such rights over periods in which they become
exercisable. Such charge is based on the difference between the exercise price
specified in the related option and the current market price of the Common
Stock. In the event of a decline in the market price of the Common Stock
subsequent to a charge against earnings related to the estimated costs of stock
appreciation rights, a reversal of prior charges is made in the amount of such
decline (but not to exceed aggregate prior charges).
Neither the grant nor the exercise of an incentive stock option or a
non-qualified stock option under the Option Plan currently requires any charge
against earnings under generally accepted accounting principles. In October
1995, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into after December
15, 1995. This Statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. This Statement defines a
fair value method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price of the stock at grant date or other measurement date
over the amount an employee must pay to acquire the stock. The Company
anticipates that it will use the intrinsic value method, in which event pro
forma disclosure will be included in the footnotes to the Company's financial
statements to show what net income and earnings per share would have been if the
fair value method had been utilized. If the Company elects to utilize the fair
value method, its net income and earnings per share may be adversely affected.
Stockholder Approval. No Awards will be granted under the Option Plan
unless the Option Plan is approved by stockholders. Stockholder ratification of
the Option Plan will also satisfy Nasdaq Stock Market ("Nasdaq Stock Market")
listing, federal tax, and requirements of the Office of Thrift Supervision
("OTS").
Awards to be Granted. The Board of Directors of the Company adopted
the Option Plan and the Committee established thereunder intends to grant
options to executive officers, employees and non-employee directors of the
Company and the Bank. However, the timing of any such grants, the individual
recipients and the specific amounts of such grants have not been determined
Regulatory Requirements. The Option Plan and the Recognition Plan (the
"Plans") comply with applicable OTS regulations and are required to be submitted
to the OTS after approval by stockholders. No assurance can be given as to
whether the OTS will raise any objections to the Plans as presented to
stockholders or whether the OTS may require modifications to be made to the
Plans. A vote for approval of the Plans shall be deemed to be a vote for
approval of the Plans as the same may be required to be modified by the OTS,
provided that the change is not material as determined by the Company. The
Company will not make any modification to the Plans which would increase the
level of benefits
8
<PAGE>
from that presented. Non-objection to the Plans by the OTS shall not constitute
approval or endorsement of the Plans by the OTS.
Under OTS regulations, certain stock benefit plans established or
implemented within one year following the completion of a mutual to stock
conversion are required to contain certain restrictions and limitations, which
are contained in the Plans. Specifically, the OTS regulations provide, among
other provisions, that awards begin vesting no earlier than one year from the
date the plans are approved by stockholders, shall not vest at a rate in excess
of 20% per year and shall not provide for accelerated vesting except in the case
of disability or death. Recently, the OTS has authorized the elimination of
these provisions more than one year after a conversion, provided that
stockholder approval of such amendments to the plans is obtained. The Plans
provide that in the event of termination of service following a change in
control of the Company or retirement, vesting of awards would accelerate if, as
of such date: (i) such treatment is either authorized or is not prohibited by
applicable law and regulations, or (ii) amendments to the Plans providing for
such treatment has been approved by the stockholders of the Company at a meeting
of stockholders held more than one year after the consummation of the
Conversion. The Company currently plans to submit amendments to the Plans to
stockholders at its first meeting of stockholders held one year after the
Conversion in order to remove these restrictions and to provide that new awards
granted after such stockholder approval shall vest at the rate determined by the
Board or the Committee at the time of grant and that both existing and new
awards shall accelerate and vest upon termination of service to the Company upon
retirement or following a change in control of the Company.
The Board of Directors recommends that stockholders vote FOR adoption
of the 1998 Stock Option Plan.
PROPOSAL TO ADOPT THE 1998 RECOGNITION
AND RETENTION PLAN AND TRUST AGREEMENT
General
The Board of Directors of the Company has adopted the Recognition
Plan, the objective of which is to enable the Company to provide officers, key
employees and directors with a proprietary interest in the Company and as an
incentive to contribute to its success. Officers, key employees and directors of
the Company and the Bank who are selected by the Board of Directors of the
Company or members of a committee appointed by the Board will be eligible to
receive benefits under the Recognition Plan. If stockholder approval is
obtained, shares will be granted to officers, key employees and directors as
determined by the Committee or the Board of Directors.
Description of the Recognition Plan
The following description of the Recognition Plan is a summary of its
terms and is qualified in its entirety by reference to the Recognition Plan, a
copy of which is attached hereto as Appendix B.
Administration. A committee of the Board of Directors of the Company
will administer the Recognition Plan, which shall consist of two or more members
of the Board, each of whom shall be a non-employee director of the Company. The
members of the Committee will initially consist of Ms. Abbott and Messrs. Blaine
and Diamond, who will also serve as trustees of the trust established pursuant
to the Recognition Plan ("Trust"). The trustees will have the responsibility to
invest all funds contributed by the Company to the Trust.
Upon stockholder approval of the Recognition Plan, the Company will
contribute sufficient funds to the Trust so that the Trust can purchase a number
of shares of Common Stock equal to 4% of the Common Stock sold in the
Conversion, or 714,150 shares. It is currently anticipated that these shares
will be acquired through open market purchases to the extent available, although
the Company reserves the right to issue previously unissued shares or treasury
shares to the Recognition Plan. The issuance of new shares by the Company would
be dilutive to the voting rights of existing stockholders and to the Company's
book value per share and earnings per share.
9
<PAGE>
Grants. Shares of Common Stock granted pursuant to the Recognition
Plan will be in the form of restricted stock payable over a five-year period at
a rate of 20% per year, beginning one year from the anniversary date of the
grant. A recipient will be entitled to all voting and other stockholder rights
with respect to shares which have been earned and allocated under the
Recognition Plan. In addition, recipients of shares of restricted stock that
have been granted pursuant to the Recognition Plan that have not yet been earned
and distributed (other than shares granted pursuant to Performance Share Awards
(as defined below)) are entitled to direct the trustees of the Trust as to the
voting of such shares on the recipients behalf. However, until such shares have
been earned and allocated, they may not be sold, assigned, pledged or otherwise
disposed of and are required to be held in the Trust. In addition, any cash
dividends or stock dividends declared in respect of unvested share awards will
be held by the Trust for the benefit of the recipients and such dividends,
including any interest thereon, will be paid out proportionately by the Trust to
the recipients thereof as soon as practicable after the share awards become
earned.
If a recipient terminates employment or service with the Company for
reasons other than death, disability or retirement, the recipient will forfeit
all rights to the allocated shares under restriction. All shares subject to an
award held by a recipient whose employment or service with the Company or any
subsidiary terminates due to death or disability shall be deemed earned as of
the recipient's last day of employment or service with the Company or any
subsidiary and shall be distributed as soon as practicable thereafter. In
addition, in the event that a recipient's employment or service with the Company
or any subsidiary terminates due to retirement or following a change in control
of the Company all shares subject to an award held by a recipient shall be
deemed earned as of the recipient's last day of employment with or service to
the Company or any subsidiary and shall be distributed as soon as practicable
thereafter, provided that as of the date of such retirement or change in
control: (i) such treatment is either authorized or is not prohibited by
applicable laws and regulations, or (ii) an amendment to the Recognition Plan
providing for such treatment has been approved by the stockholders of the
Company at a meeting of stockholders held more than one year after the
consummation of the Offering.
Performance Share Awards. The Recognition Plan provides the Committee
with the ability to condition or restrict the vesting or exercisability of any
Recognition Plan award upon the achievement of performance targets or goals as
set forth under the Recognition Plan. Any Recognition Plan award subject to such
conditions or restrictions is considered to be a "Performance Share Award."
Subject to the express provisions of the Recognition Plan and as discussed in
this paragraph, the Committee has discretion to determine the terms of any
Performance Share Award, including the amount of the award, or a formula for
determining such, the performance criteria and level of achievement related to
these criteria which determine the amount of the award granted, issued,
retainable and/or vested, the period as to which performance shall be measured
for determining achievement of performance (a "performance period"), the timing
of delivery of any awards earned, forfeiture provisions, the effect of
termination of timing of delivery of any awards earned, forfeiture provisions,
the effect of termination of employment for various reasons, and such further
terms and conditions, in each case not inconsistent with the Recognition Plan,
as may be determined from time to time by the Committee. Each Performance Share
Award shall be granted and administered to comply with the requirements of
Section 162(m) of the Code. Accordingly, the performance criteria upon which
Performance Share Awards are granted, issued, retained and/or vested shall be a
measure based on one or more Performance Goals (as defined below).
Notwithstanding satisfaction of any Performance Goals, the number of shares
granted, issued, retainable and/or vested under a Performance Share Award may be
reduced or eliminated, but not increased, by the Committee on the basis of such
further considerations as the Committee in its sole discretion shall determine.
Subject to stockholder approval of the Plan, the Performance Goals for
any Performance Share Award shall be based upon any one or more of the following
performance criteria, either individually, alternatively or any combination,
applied to either the Company as a whole or to a business unit or subsidiary,
either individually, alternatively or in any combination, and measured either on
an absolute basis or relative to a pre-established target, to previous years'
results or to a designated comparison group, in each case as preestablished by
the Committee under the terms of the Performance Share Award: net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on average equity; return on average assets; assets;
stock price; total stockholder return; capital; net interest income; market
share; cost control or efficiency ratio; and asset growth. The Committee is
considering engaging outside compensation consultants to assist it in
establishing such performance-based targets.
10
<PAGE>
Federal Income Tax Consequences. Pursuant to Section 83 of the Code,
recipients of Recognition Plan awards will recognize ordinary income in an
amount equal to the fair market value of the shares of Common Stock granted to
them at the time that the shares vest and become transferable. A recipient of a
Recognition Plan award may also elect, however, to accelerate the recognition of
income with respect to his or her grant to the time when shares of Common Stock
are first transferred to him or her, notwithstanding the vesting schedule of
such awards. The Company will be entitled to deduct as a compensation expense
for tax purposes the same amounts recognized as income by recipients of
Recognition Plan awards in the year in which such amounts are included in
income.
Section 162(m) of the Code generally limits the deduction for certain
compensation in excess of $1.0 million per year paid by a publicly-traded
corporation to its covered executives. Certain types of compensation, including
compensation based on performance goals, are excluded from the $1.0 million
deduction limitation. In order for compensation to qualify for this exception:
(i) it must be paid solely on account of the attainment of one or more
preestablished, objective performance goals; (ii) the performance goal must be
established by a compensation committee consisting solely of two or more outside
directors, as defined; (iii) the material terms under which the compensation is
to be paid, including performance goals, must be disclosed to and approved by
stockholders in a separate vote prior to payment; and (iv) prior to payment, the
compensation committee must certify that the performance goals and any other
material terms were in fact satisfied.
The Recognition Plan has been designed to meet the requirements of
Section 162(m) of the Code and, as a result, the Company believes that
compensation attributable to Performance Share Awards granted under the
Recognition Plan in accordance with the foregoing requirements will be fully
deductible under Section 162(m) of the Code. The Board of Directors believes
that the likelihood of any impact on the Company from the deduction limitation
contained in Section 162(m) of the Code is remote at this time.
The above description of tax consequences under federal law is
necessarily general in nature and does not purport to be complete. Moreover,
statutory provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws.
Accounting Treatment. For a discussion of SFAS No. 123, see "Proposal
to Adopt the 1998 Stock Option Plan Description of Option Plan - Accounting
Treatment." Under the intrinsic value method, the Company will also recognize a
compensation expense as shares of Common Stock granted pursuant to the
Recognition Plan vest. The amount of compensation expense recognized for
accounting purposes is based upon the fair market value of the Common Stock at
the date of grant to recipients, rather than the fair market value at the time
of vesting for tax purposes. The vesting of plan share awards will have the
effect of increasing the Company's compensation expense.
Stockholder Approval. No shares will be granted under the Recognition
Plan unless the Recognition Plan is approved by stockholders.
Shares to be Granted. The Board of Directors of the Company adopted
the Recognition Plan and the Committee established thereunder intends to grant
shares to executive officers, key employees and non-employee directors of the
Company and the Bank. The Recognition Plan provides that grants to each employee
and each non-employee director shall not exceed 25% and 5% of the shares of
Common Stock available under the Recognition Plan, respectively. Awards made to
non-employee directors in the aggregate may not exceed 30% of the number of
shares available under the Recognition Plan. However, the timing of any such
grants, the individual recipients and the specific amounts of such grants have
not been determined.
Regulatory Requirements. For a discussion of OTS requirements related
to the Recognition Plan see "Proposal to Adopt the 1998 Stock Option Plan -
Description of the Option Plan - Regulatory Requirements."
The Board of Directors recommends that stockholders vote FOR adoption
of the 1998 Recognition and Retention Plan and Trust Agreement.
11
<PAGE>
MANAGEMENT COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information
concerning the compensation paid by the Bank (including amounts deferred to
future periods by the officers) for services rendered in all capacities during
the year ended December 31, 1997 to the Chairman and Chief Executive Officer of
the Bank and the two other officers of the Bank whose compensation exceeded
$100,000.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------- -----------------------------------
Awards Payouts
-------------------------- -------
Other Securities
Name and Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation(1) Stock Options Payouts Compensation(2)
------------------ ----- -------- ------- --------------- ----------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas F. Prisby
Chairman and Chief
Executive Officer 1997 $333,600 $53,206 $113,036 -- -- -- $9,500
James W. Prisby
President and Chief
Operating Officer 1997 $294,680 $46,688 $93,849 -- -- -- $9,500
John T. Stephens
Executive Vice
President and Chief
Financial Officer 1997 $216,840 $33,482 $42,237 -- -- -- $9,500
</TABLE>
- ---------------
(1) Does not include amounts attributable to miscellaneous benefits
received by the named executive officers. The costs to the Bank of
providing such benefits to the named executive officers during the
year ended December 31, 1997 did not exceed the lesser of $50,000 or
10% of the total of annual salary and bonus reported for each
individual. Includes a payment of $113,036, $93,849 and $42,237 in
supplemental retirement benefits to Messrs. Thomas F. Prisby, James W.
Prisby and John T. Stephens, respectively, which is an amount equal to
the difference between the benefits that would be payable under the
Bank's retirement plans but for the limitation set forth in the Code
with respect to includable compensation and the maximum benefit
payable under the Bank's retirement plans.
(2) Consists of the Bank's contributions to the Bank's 401(k) profit
sharing plan to the account of the named executive officers.
Employment Agreements
In connection with the Conversion, the Company and the Bank (the
"Employers") entered into employment agreements with each of Messrs. Thomas F.
Prisby, James W. Prisby and John T. Stephens (the "Executives"), which
agreements superseded existing employment agreements with such persons. The
Employers have agreed to employ the executives for a term of three years, in
each case in their current respective positions. The agreements with the
Executives are at their current salary levels. The Executives' compensation and
expenses shall be paid by the Company and the Bank in the same proportion as the
time and services actually expended by the Executives on behalf of each
respective Employer. With respect to the Executives, the employment agreements
will be reviewed annually by the Boards of Directors of the Employers. The term
of the Executives' employment agreements shall be extended daily for a
successive additional one-day period unless the Company and the Bank provide
notice not less than 60 days prior to such date, not to extend the employment
term.
12
<PAGE>
Each of the employment agreements is terminable with or without cause
by the Employers. The Executives have no right to compensation or other benefits
pursuant to the employment agreements for any period after voluntary termination
or termination by the Employers for cause, disability, retirement or death. In
the event that (i) the Executive terminates his employment because of failure to
comply with any material provision of the employment agreement by the Employers
or the Employers change the Executive's title or duties or (ii) the employment
agreement is terminated by the Employers other than for cause, disability,
retirement or death or by the executive as a result of certain adverse actions
which are taken with respect to the executive's employment following a change in
control of the Company, as defined, the Executive will be entitled to a cash
severance amount equal to three times their average annual compensation, as
defined, plus an amount to reimburse the Executive for certain tax obligations.
A change in control is generally defined in the employment agreements
to include any change in control of the Company required to be reported under
the federal securities laws, as well as (i) the acquisition by any person of 20%
or more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any three-year period without
the approval of at least two-thirds of the persons who were directors of the
Company at the beginning of such period.
Although the above-described employment agreements could increase the
cost of any acquisition of control of the Company, management of the Company
does not believe that the terms thereof would have a significant anti-takeover
effect. The Company and/or the Bank may determine to enter into similar
employment agreements with other officers of the Company and/or the Bank in the
future.
Directors' Compensation
Members of the Bank's Board of Directors, except for Messrs. Thomas F.
Prisby, James W. Prisby, John T. Stephens and Daniel P. Ryan, receive $1,800 per
meeting attended of the Board, $350 per Compensation Committee meeting, $250 per
Executive Committee meeting, $200 per Audit Committee meeting, $175 per Asset
Liability Management Committee meeting and $100 per Trust Committee meeting
attended. Board fees are subject to periodic adjustment by the Board of
Directors.
Retirement Plan. The Bank maintains a non-contributory, tax-qualified
defined benefit pension plan (the "Retirement Plan") for eligible employees. All
salaried employees at least age 21 who have completed at least one year of
service are eligible to participate in the Retirement Plan. The Retirement Plan
provides for a benefit for each participant, including executive officers named
in the Executive Compensation Table above, equal to 2% of the participant's
final average compensation (highest average annual compensation during 60
consecutive calendar months) multiplied by the participant's years (and any
fraction thereof) of eligible employment. A participant is fully vested in his
or her benefit under the Retirement Plan after five years of service. The
Retirement Plan is funded by the Bank on an actuarial basis and all assets are
held in trust by the Retirement Plan trustee.
13
<PAGE>
The following table illustrates the annual benefit payable upon normal
retirement at age 65 (in single life annuity amounts with no offset for Social
Security benefits) at various levels of compensation and years of service under
the Retirement Plan.
<TABLE>
<CAPTION>
Years of Service(1)
-----------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------------- --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$125,000 $37,500 $50,000 $62,500 $75,000 $ 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000(2) 48,000 64,000 80,000 96,000 112,000
200,000(2) 48,000 64,000 80,000 96,000 112,000
225,000(2) 48,000 64,000 80,000 96,000 112,000
250,000(2) 48,000 64,000 80,000 96,000 112,000
300,000(2) 48,000 64,000 80,000 96,000 112,000
400,000(2) 48,000 64,000 80,000 96,000 112,000
450,000(2) 48,000 64,000 80,000 96,000 112,000
</TABLE>
- ------------
(1) The annual retirement benefits shown in the table do not reflect a
deduction for Social Security benefits and there are no other offsets
to benefits.
(2) For the fiscal year of the Retirement Plan beginning on January 1,
1998, the average final compensation for computing benefits under the
Retirement Plan cannot exceed $160,000 (as adjusted for subsequent
years pursuant to Code provisions). Benefits in excess of the
limitation are provided through cash payments made annually to each
officer affected by such limitation. For the fiscal year of the
Retirement Plan beginning on January 1, 1998, the maximum annual
benefit payable under the Retirement Plan cannot exceed $130,000 (as
adjusted for subsequent years pursuant to Code provisions).
The following table sets forth the years of credited service and the
average annual earnings (as defined above) determined as of June 30, 1998, the
end of the 1998 plan year, for each of the individuals named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
Years of Credited Average Annual
Service Earnings(1)
------------------- -------------------
<S> <C> <C>
Thomas F. Prisby.......................... 15 $154,000
James W. Prisby........................... 23 154,000
John T. Stephens.......................... 14 154,000
</TABLE>
- -----------
(1) Reflects effect of limitation of compensation that may be used in
calculating benefits under the provisions of the Code.
Supplemental Executive Retirement Plan. The Bank is considering
adopting a supplemental executive retirement plan ("SERP") to provide for
eligible employees benefits that would be due under the ESOP if such benefits
were not limited under the Code. The Board of Directors also provided that the
SERP will provide eligible employees with benefits that would be due under the
Retirement Plan and the 401(k) Plan if such benefits were not limited under the
Code.
14
<PAGE>
Transactions With Certain Related Persons
In accordance with applicable federal laws and regulations, the Bank
offers mortgage loans to its directors, officers and employees as well as
members of their immediate families for the financing of their primary
residences and certain other loans. These loans are generally made on
substantially the same terms as those prevailing at the time for comparable
transactions with non-affiliated persons. It is the belief of management that
these loans neither involve more than the normal risk of collectibility nor
present other unfavorable features.
Section 22(h) of the Federal Reserve Act generally provides that any
credit extended by a savings institution, such as the Savings Bank, to its
executive officers, directors and, to the extent otherwise permitted, principal
stockholder(s), or any related interest of the foregoing, must be on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions by the savings institution
with non-affiliated parties; unless the loans are made pursuant to a benefit or
compensation program that (i) is widely available to employees of the
institution and (ii) does not give preference to any director, executive officer
or principal stockholder, or certain affiliated interests of either, over other
employees of the savings institution, and must not involve more than the normal
risk of repayment or present other unfavorable features.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the first annual meeting of stockholders of
the Company, which is scheduled to be held on May 4, 1999, must have been
received at the principal executive offices of the Company, 707 Ridge Road,
Munster, Indiana 46321, Attention: Monica F. Sullivan, Corporate Secretary, no
later than December 12, 1998. If such proposal is in compliance with all
applicable requirements, including those found in Rule 14a-8 under the Exchange
Act, it will be included in the proxy statement and set forth on the form of
proxy issued for such annual meeting of stockholders. It is urged that any such
proposals be sent certified mail, return receipt requested.
Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to Section 2.14 of the Company's
Bylaws, which provides that business at an annual meeting of stockholders must
be (a) properly brought before the meeting by or at the direction of the Board
of Directors, or (b) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely with respect to the Company's first
annual meeting of stockholders, a stockholder's notice must have been delivered
to or mailed and received at the principal executive offices of the Company no
later than November 30, 1998. A stockholder's notice to the Secretary must set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Company's books,
of the stockholder proposing such business, (c) the class and number of shares
of the Company which are beneficially owned by the stockholder, (d) the
identification of any person retained or to be compensated by the stockholder
submitting the proposal, or any person acting on his or her behalf, to make
solicitations or recommendations to stockholders for the purpose of assisting in
the passage of such proposal and a brief description of the terms of such
employment, retainer or arrangement for compensation and (e) any material
interest of the stockholder in such business.
OTHER MATTERS
Management is not aware of any business to come before the Special
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 the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by the Company.
The Company has retained Kissel Blake Inc., a professional proxy solicitation
firm, to assist in the solicitation of proxies. Such firm will be paid a fee of
$6,500, plus reimbursement for reasonable out-of-pocket expenses. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending the proxy materials to the
beneficial owners of the Common Stock. In addition to solicitations by mail,
directors, officers and employees of the Company may solicit proxies personally
or by telephone without additional compensation.
15
<PAGE>
APPENDIX A
CFS BANCORP, INC.
1998 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
CFS Bancorp, Inc. (the "Corporation") hereby establishes this 1998
Stock Option Plan (the "Plan") upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of
the Corporation and its Subsidiary Companies by providing Employees and
Non-Employee Directors with a proprietary interest in the Corporation as an
incentive to contribute to the success of the Corporation and its Subsidiary
Companies, and rewarding Employees and Non-Employee Directors for outstanding
performance. All Incentive Stock Options issued under this Plan are intended to
comply with the requirements of Section 422 of the Code, and the regulations
thereunder, and all provisions hereunder shall be read, interpreted and applied
with that purpose in mind. Each recipient of an Award hereunder is advised to
consult with his or her personal tax advisor with respect to the tax
consequences under federal, state, local and other tax laws of the receipt
and/or exercise of an Award hereunder.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted
pursuant to the terms of this Plan.
3.02 "Bank" means Citizens Financial Services, FSB, the wholly owned
subsidiary of the Corporation.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the occurrence
of any of the following: (i) the acquisition of control of the Corporation as
defined in 12 C.F.R. Section 574.4, unless a presumption of control is
successfully rebutted or unless the transaction is exempted by 12 C.F.R.
Section 574.3(c)(vii), or any successor to such sections; (ii) an event that
would be required to be reported in response to Item 1(a)of Form 8-K or Item
6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange Act, or any
successor thereto, whether or not any class of securities of the Corporation is
registered under the Exchange Act; (iii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities except
for any securities purchased by the Corporation or the Bank; or (iv) during any
period of thirty-six consecutive months during the term of an Option,
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means a committee of two or more directors appointed
by the Board pursuant to Article IV hereof each of whom shall be a Non-Employee
Director as defined in Rule 16b-3(b)(3)(i) of the Exchange Act or
<PAGE>
any successor thereto and within the meaning of Section 162(m) of the Code and
the regulations promulgated thereunder.
3.07 "Common Stock" means shares of the common stock, par value $.01
per share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company, or, if no
such plan applies, which would qualify such individual for disability benefits
under the long-term disability plan maintained by the Corporation, if such
individual were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation,
the Bank or any Subsidiary Company, or is an Officer of the Corporation, the
Bank or any Subsidiary Company, but not including directors who are not also
Officers of or otherwise employed by the Corporation, the Bank or any Subsidiary
Company.
3.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.12 "Fair Market Value" shall be equal to the fair market value per
share of the Corporation's Common Stock on the date an Award is granted. For
purposes hereof, the Fair Market Value of a share of Common Stock shall be the
closing sale price of a share of Common Stock on the date in question (or, if
such day is not a trading day in the U.S. markets, on the nearest preceding
trading day), as reported with respect to the principal market (or the composite
of the markets, if more than one) or national quotation system in which such
shares are then traded, or if no such closing prices are reported, the mean
between the high bid and low asked prices that day on the principal market or
national quotation system then in use, or if no such quotations are available,
the price furnished by a professional securities dealer making a market in such
shares selected by the Committee.
3.13 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.14 "Non-Employee Director" means a member of the Board of the
Corporation or Board of Directors of the Bank or any successor thereto,
including an Advisory Director or a Director Emeritus of the Boards of the
Corporation and/or the Bank, who is not an Officer or Employee of the
Corporation, the Bank or any Subsidiary Company.
3.15 "Non-Qualified Option" means any Option granted under this Plan
which is not an Incentive Stock Option.
3.16 "Offering" means the offering of Common Stock to the public in
connection with the conversion of the Bank to the stock form of organization and
the issuance of the capital stock of the Bank to the Corporation.
3.17 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
3.19 "Optionee" means an Employee or Non-Employee Director or former
Employee or Non-Employee Director to whom an Option is granted under the Plan.
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3.20 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Corporation, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan. With respect to
Non-Employee Directors, retirement means retirement from service on the Board of
Directors of the Corporation or the Bank or any successor thereto (including
service as an Director Emeritus) after attaining the age of 70.
3.21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Corporation in cash and/or Common Stock, as
provided in the discretion of the Board or the Committee in accordance with
Section 8.10.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporations" set forth in Section 424(f) of the Code, at the time of granting
of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority to adopt, amend
and rescind such rules, regulations and procedures as, in its opinion, may be
advisable in the administration of the Plan, including, without limitation,
rules, regulations and procedures which (i) deal with satisfaction of an
Optionee's tax withholding obligation pursuant to Section 12.02 hereof, (ii)
include arrangements to facilitate the Optionee's ability to borrow funds for
payment of the exercise or purchase price of an Award, if applicable, from
securities brokers and dealers, (iii) establish the method and arrangements by
which an optionee may defer a Non-Qualified Option or Stock Appreciation Right
pursuant to Article XIII hereof, and (iv) include arrangements which provide for
the payment of some or all of such exercise or purchase price by delivery of
previously-owned shares of Common Stock or other property and/or by withholding
some of the shares of Common Stock which are being acquired. The interpretation
and construction by the Committee of any provisions of the Plan, any rule,
regulation or procedure adopted by it pursuant thereto or of any Award shall be
final and binding in the absence of action by the Board.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, each of whom shall be a Non-Employee Director, as defined
in Rule 16b-3(b)(3)(i) of the Exchange Act or any successor thereto. In
addition, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m) of the Code and regulations thereunder at such times
as is required under such regulations. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express provisions
and limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. It may
appoint one of its members to be chairman and any person, whether or not a
member, to be its secretary or agent. The Committee shall report its actions and
decisions to the Board at appropriate times but in no event less than one time
per calendar year.
4.03 Revocation for Misconduct. The Board or the Committee may by
resolution immediately revoke, rescind and terminate any Option, or portion
thereof, to the extent not yet vested, or any Stock Appreciation Right, to the
extent not yet exercised, previously granted or awarded under this Plan to an
Employee who is discharged from the employ of the Corporation or a Subsidiary
Company for cause, which, for purposes hereof, shall mean termination because of
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. Options granted
to a Non-Employee Director who is removed for cause pursuant to the
Corporation's Certificate of Incorporation and Bylaws or the Bank's Charter and
Bylaws shall terminate as of the effective date of such removal.
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4.04 Limitation on Liability. Neither the members of the Board nor any
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan, any rule, regulation or procedure adopted
by it pursuant thereto or any Awards granted under it. If a member of the Board
or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and its Subsidiary Companies and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
4.05 Compliance with Law and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Corporation shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of or obtaining of consents or approvals with respect to such
shares under any federal or state law or any rule or regulation of any
government body, which the Corporation shall, in its sole discretion, determine
to be necessary or advisable. Moreover, no Option or Stock Appreciation Right
may be exercised if such exercise would be contrary to applicable laws and
regulations.
4.06 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares acquired pursuant to an Award granted
hereunder noting that the transfer of such shares may be restricted by
applicable laws and regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees and Non-Employee Directors of
the Corporation and its Subsidiary Companies as may be designated from time to
time by the Board or the Committee. Awards may not be granted to individuals who
are not Employees or Non-Employee Directors of either the Corporation or its
Subsidiary Companies. Non-Employee Directors shall be eligible to receive only
Awards of Non-Qualified Options pursuant to this Plan.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock
which may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 1,785,375, which is equal to 10% of the shares of Common
Stock issued in the Offering. None of such shares shall be the subject of more
than one Award at any time, but if an Option as to any shares is surrendered
before exercise, or expires or terminates for any reason without having been
exercised in full, or for any other reason ceases to be exercisable, the number
of shares covered thereby shall again become available for grant under the Plan
as if no Awards had been previously granted with respect to such shares.
Notwithstanding the foregoing, if an Option is surrendered in connection with
the exercise of a Stock Appreciation Right, the number of shares covered thereby
shall not be available for grant under the Plan. During the time this Plan
remains in effect, grants to each Employee and each Non-Employee Director shall
not exceed 25% and 5% of the shares of Common Stock available under the Plan,
respectively. Awards made to Non-Employee Directors in the aggregate may not
exceed 30% of the number of shares available under this Plan.
6.02 Source of Shares. The shares of Common Stock issued under the Plan
may be authorized but unissued shares, treasury shares or shares purchased by
the Corporation on the open market or from private sources for use under the
Plan.
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ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Board or the Committee shall, in its discretion, determine from
time to time which Employees and Non- Employee Directors will be granted Awards
under the Plan, the number of shares of Common Stock subject to each Award,
whether each Option will be an Incentive Stock Option or a Non-Qualified Stock
Option (in the case of Employees) and the exercise price of an Option. In making
all such determinations there shall be taken into account the duties,
responsibilities and performance of each respective Employee and Non-Employee
Director, his present and potential contributions to the growth and success of
the Corporation, his salary and such other factors deemed relevant to
accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the
Corporation and each Optionee shall execute a Stock Option Agreement which shall
set forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Board or the Committee in each instance shall deem appropriate, provided they
are not inconsistent with the terms, conditions and provisions of this Plan.
Each Optionee shall receive a copy of his executed Stock Option Agreement.
8.02 Option Exercise Price.
(a) Incentive Stock Options. The per share price at which the
subject Common Stock may be purchased upon exercise of an Incentive Stock Option
shall be no less than one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Incentive Stock Option is granted, except
as provided in Section 8.09(b).
(b) Non-Qualified Options. The per share price at which the
subject Common Stock may be purchased upon exercise of a Non-Qualified Option
shall be established by the Committee at the time of grant, but in no event
shall be less than the one hundred percent (100%) of the Fair Market Value of a
share of Common Stock at the time such Non-Qualified Option is granted.
8.03 Vesting and Exercise of Options.
(a) General Rules. Incentive Stock Options and Non-Qualified
Options granted to Optionees shall become vested and exercisable at the rate of
20% per year over five years, commencing one year from the date of grant and an
additional 20% shall vest on each successive anniversary of the date the Option
was granted, and the right to exercise shall be cumulative. Notwithstanding the
foregoing, except as provided in Section 8.03(b) hereof, no vesting shall occur
on or after an Optionee's employment or service as a Non-Employee Director with
the Corporation and all Subsidiary Companies is terminated for any reason other
than his death or Disability. In determining the number of shares of Common
Stock with respect to which Options are vested and/or exercisable, fractional
shares will be rounded up to the nearest whole number if the fraction is 0.5 or
higher, and down if it is less.
(b) Accelerated Vesting. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted, all Options
granted under this Plan shall become vested and exercisable in full on the date
an Optionee terminates his employment with the Corporation or a Subsidiary
Company or service as a Non- Employee Director because of his death or
Disability. All Options hereunder shall become immediately vested and
exercisable in full on the date an Optionee terminates his employment with the
Corporation or a Subsidiary Corporation
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due to Retirement if as of the date of such Retirement (i) such treatment is
either authorized or is not prohibited by applicable laws and regulations, or
(ii) an amendment to the Plan providing for such treatment has been approved by
the stockholders of the Corporation at a meeting of stockholders held more than
one year after the consummation of the Offering. In addition, all Options
hereunder shall become immediately vested and exercisable in full as of the
effective date of a Change in Control of the Corporation if as of the date of
such Change in Control of the Corporation (i) such treatment is either
authorized or is not prohibited by applicable laws and regulations or (ii) an
amendment to the Plan providing for such treatment has been approved by the
stockholders of the Corporation at a meeting of stockholders held more than one
year after consummation of the Offering.
8.04 Duration of Options.
(a) General Rule. Except as provided in Sections 8.04(b) and 8.09,
each Option or portion thereof granted to an Employee shall be exercisable at
any time on or after it vests and becomes exercisable until the earlier of (i)
ten (10) years after its date of grant or (ii) six (6) months after the date on
which the Employee ceases to be employed by the Corporation and all Subsidiary
Companies, unless the Board or the Committee in its discretion decides at the
time of grant or thereafter to extend such period of exercise upon termination
of employment to a period not exceeding five (5) years.
Except as provided in Section 8.04(b), each Option or portion thereof
granted to a Non-Employee Director shall be exercisable at any time on or after
it vests and becomes exercisable until the earlier of (i) ten (10) years after
its date of grant or (ii) three (3) years after the date on which the
Non-Employee Director ceases to serve as a director of the Corporation and all
Subsidiary Companies, unless the Board or the Committee in its discretion
decides at the time of grant or thereafter to extend such period of exercise
upon termination of service to a period not exceeding five (5) years.
(b) Exceptions. Unless the Board or the Committee shall
specifically state otherwise at the time an Option is granted: (i) if an
Employee terminates his employment with the Corporation or a Subsidiary Company
as a result of Disability or Retirement without having fully exercised his
Options, the Employee shall have the right, during the three (3) year period
following his termination due to Disability or Retirement, to exercise such
Options, and (ii) if a Non-Employee Director terminates his service as a
director with the Corporation or a Subsidiary Company as a result of Disability
or Retirement without having fully exercised his Options, the Non-Employee
Director shall have the right, during the three (3) year period following his
termination due to Disability or Retirement, to exercise such Options.
Unless the Board or the Committee shall specifically state otherwise at
the time an Option is granted, if an Employee or Non-Employee Director
terminates his employment or service with the Corporation or a Subsidiary
Company following a Change in Control of the Corporation without having fully
exercised his Options, the Optionee shall have the right to exercise such
Options during the remainder of the original ten (10) year term of the Option
from the date of grant.
If an Optionee dies while in the employ or service of the Corporation
or a Subsidiary Company or terminates employment or service with the Corporation
or a Subsidiary Company as a result of Disability or Retirement and dies without
having fully exercised his Options, the executors, administrators, legatees or
distributees of his estate shall have the right, during the one (1) year period
following his death, to exercise such Options.
In no event, however, shall any Option be exercisable more than ten
(10) years from the date it was granted.
8.05 Nonassignability. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative. Notwithstanding the foregoing, or any other provision
of this Plan, an Optionee who holds Non-Qualified Options may transfer such
Options to his or her spouse, lineal ascendants, lineal descendants, or to a
duly established trust for the benefit of one or more of these individuals.
Options so transferred may thereafter be transferred only to the Optionee who
originally received the grant or to an individual or trust to whom the Optionee
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could have initially transferred the Option pursuant to this Section 8.05.
Options which are transferred pursuant to this Section 8.05 shall be exercisable
by the transferee according to the same terms and conditions as applied to the
Optionee.
8.06 Manner of Exercise. Options may be exercised in part or in whole
and at one time or from time to time. The procedures for exercise shall be set
forth in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 Payment for Shares. Payment in full of the purchase price for
shares of Common Stock purchased pursuant to the exercise of any Option shall be
made to the Corporation upon exercise of the Option. All shares sold under the
Plan shall be fully paid and nonassessable. Payment for shares may be made by
the Optionee (i) in cash or by check, (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker to sell the
shares and then to properly deliver to the Corporation the amount of sale
proceeds to pay the exercise price, all in accordance with applicable laws and
regulations, or (iii) at the discretion of the Committee, by delivering shares
of Common Stock (including shares acquired pursuant to the exercise of an
Option) equal in Fair Market Value to the purchase price of the shares to be
acquired pursuant to the Option, by withholding some of the shares of Common
Stock which are being purchased upon exercise of an Option, or any combination
of the foregoing. With respect to subclause (iii) hereof, the shares of Common
Stock delivered to pay the purchase price must have either been (x) purchased in
open market transactions or (y) issued by the Corporation pursuant to a plan
thereof, in each case more than six months prior to the exercise date of the
Option.
8.08 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Corporation's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 Additional Terms Applicable to Incentive Stock Options. All
Options issued under the Plan as Incentive Stock Options will be subject, in
addition to the terms detailed in Sections 8.01 to 8.08 above, to those
contained in this Section 8.09.
(a) Notwithstanding any contrary provisions contained elsewhere in
this Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted, of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under this Plan, and
stock options that satisfy the requirements of Section 422 of the Code under any
other stock option plan or plans maintained by the Corporation (or any parent or
Subsidiary Company), shall not exceed $100,000.
(b) Limitation on Ten Percent Stockholders. The price at which
shares of Common Stock may be purchased upon exercise of an Incentive Stock
Option granted to an individual who, at the time such Incentive Stock Option is
granted, owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of stock issued to stockholders of the
Corporation or any Subsidiary Company, shall be no less than one hundred and ten
percent (110%) of the Fair Market Value of a share of the Common Stock of the
Corporation at the time of grant, and such Incentive Stock Option shall by its
terms not be exercisable after the earlier of the date determined under Section
8.03 or the expiration of five (5) years from the date such Incentive Stock
Option is granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee shall
immediately notify the Corporation in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Corporation shall be entitled to withhold from any compensation
or other payments then or thereafter due to the Optionee such amounts as may be
necessary to satisfy any
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withholding requirements of federal or state law or regulation and, further, to
collect from the Optionee any additional amounts which may be required for such
purpose. The Committee or the Board may, in its discretion, require shares of
Common Stock acquired by an Optionee upon exercise of an Incentive Stock Option
to be held in an escrow arrangement for the purpose of enabling compliance with
the provisions of this Section 8.09(c).
8.10 Stock Appreciation Rights.
(a) General Terms and Conditions. The Board or the Committee may,
but shall not be obligated to, authorize the Corporation, on such terms and
conditions as it deems appropriate in each case, to grant rights to Optionees to
surrender an exercisable Option, or any portion thereof, in consideration for
the payment by the Corporation of an amount equal to the excess of the Fair
Market Value of the shares of Common Stock subject to the Option, or portion
thereof, surrendered over the exercise price of the Option with respect to such
shares (any such authorized surrender and payment being hereinafter referred to
as a "Stock Appreciation Right"). Such payment, at the discretion of the Board
or the Committee, may be made in shares of Common Stock valued at the then Fair
Market Value thereof, or in cash, or partly in cash and partly in shares of
Common Stock.
The terms and conditions with respect to a Stock Appreciation Right may
include (without limitation), subject to other provisions of this Section 8.10
and the Plan: the period during which, date by which or event upon which the
Stock Appreciation Right may be exercised; the method for valuing shares of
Common Stock for purposes of this Section 8.10; a ceiling on the amount of
consideration which the Corporation may pay in connection with exercise and
cancellation of the Stock Appreciation Right; and arrangements for income tax
withholding. The Board or the Committee shall have complete discretion to
determine whether, when and to whom Stock Appreciation Rights may be granted.
(b) Time Limitations. If a holder of a Stock Appreciation Right
terminates service with the Corporation as an Officer or Employee, the Stock
Appreciation Right may be exercised only within the period, if any, within which
the Option to which it relates may be exercised.
(c) Effects of Exercise of Stock Appreciation Rights or Options.
Upon the exercise of a Stock Appreciation Right, the number of shares of Common
Stock available under the Option to which it relates shall decrease by a number
equal to the number of shares for which the Stock Appreciation Right was
exercised. Upon the exercise of an Option, any related Stock Appreciation Right
shall terminate as to any number of shares of Common Stock subject to the Stock
Appreciation Right that exceeds the total number of shares for which the Option
remains unexercised.
(d) Time of Grant. A Stock Appreciation Right granted in
connection with an Incentive Stock Option must be granted concurrently with the
Option to which it relates, while a Stock Appreciation Right granted in
connection with a Non-Qualified Option may be granted concurrently with the
Option to which it relates or at any time thereafter prior to the exercise or
expiration of such Option.
(e) Non-Transferable. The holder of a Stock Appreciation Right may
not transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance
under this Plan, the number of shares to which any outstanding Award relates,
the maximum number of shares that can be covered by Award to each Employee and
each Non-Employee Director and the exercise price per share of Common Stock
under any outstanding Option shall be proportionately adjusted for any increase
or decrease in the total number of outstanding shares of Common Stock issued
subsequent to the effective date of this Plan resulting from a split,
subdivision or consolidation
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of shares or any other capital adjustment, the payment of a stock dividend, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation. If, upon a merger, consolidation,
reorganization, liquidation, recapitalization or the like of the Corporation,
the shares of the Corporation's Common Stock shall be exchanged for other
securities of the Corporation or of another corporation, each recipient of an
Award shall be entitled, subject to the conditions herein stated, to purchase or
acquire such number of shares of Common Stock or amount of other securities of
the Corporation or such other corporation as were exchangeable for the number of
shares of Common Stock of the Corporation which such optionees would have been
entitled to purchase or acquire except for such action, and appropriate
adjustments shall be made to the per share exercise price of outstanding
Options. Notwithstanding any provision to the contrary herein and to the extent
permitted by applicable laws and regulations and interpretations thereof, the
exercise price of shares subject to outstanding Awards may be proportionately
adjusted upon the payment of a special large and nonrecurring dividend that has
the effect of a return of capital to the stockholders, providing that the
adjustment to the per share exercise price shall satisfy the criteria set forth
in Emerging Issues Task Force 90-9 (or any successor thereto) so that the
adjustments do not result in compensation expense, and provided further that if
such adjustment with respect to incentive stock options would be treated as a
modification of the outstanding incentive stock options with the effect that,
for purposes of Sections 422 and 425(h) of the Code, and the rules and
regulations promulgated thereunder, new Incentive Stock Options would be deemed
to be granted hereunder, then no adjustment to the per share exercise price of
outstanding stock options shall be made.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan
with respect to any shares of Common Stock as to which Awards have not been
granted, subject to any required stockholder approval or any stockholder
approval which the Board may deem to be advisable for any reason, such as for
the purpose of obtaining or retaining any statutory or regulatory benefits under
tax, securities or other laws or satisfying any applicable stock exchange
listing requirements. The Board may not, without the consent of the holder of an
Award, alter or impair any Award previously granted or awarded under this Plan
except as specifically authorized herein.
ARTICLE XI
EMPLOYMENT AND SERVICE RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action
taken by the Committee or the Board in connection with the Plan shall create any
right on the part of any Employee or Non-Employee Director to continue in such
capacity.
ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Corporation may withhold from any cash
payment made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash payment is
insufficient, the Corporation may require the Optionee to pay to the Corporation
the amount required to be withheld as a condition to delivering the shares
acquired pursuant to an Award. The Corporation also may withhold or collect
amounts with respect to a disqualifying disposition of shares of Common Stock
acquired pursuant to exercise of an Incentive Stock Option, as provided in
Section 8.09(c).
12.02 Methods of Tax Withholding. The Board or the Committee is
authorized to adopt rules, regulations or procedures which provide for the
satisfaction of an Optionee's tax withholding obligation by the retention of
shares of Common Stock to which the Employee would otherwise be entitled
pursuant to an Award and/or by the Optionee's delivery of previously owned
shares of Common Stock or other property.
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ARTICLE XIII
DEFERRED PAYMENTS
13.01 Deferral of Options and Stock Appreciation Rights.
Notwithstanding any other provision of this Plan, any Optionee may elect, with
the concurrence of the Committee and consistent with any rules and regulations
established by the Committee, to defer the delivery of the proceeds of the
exercise of any Non-Qualified Option not transferred under the provisions of
Section 8.05 hereof and Stock Appreciation Rights.
13.02 Timing of Election. The election to defer the delivery of the
proceeds from any eligible NonQualified Option or Stock Appreciation Right must
be made at least six (6) months prior to the date such Option or Stock
Appreciation Right is exercised or at such other time as the Committee may
specify. Deferrals of eligible NonQualified Options or Stock Appreciation Rights
shall only be allowed for exercises of Options and Stock Appreciation Rights
that occur while the Participant is in active service with the Corporation or
one of its Subsidiary Companies. Any election to defer the proceeds from an
eligible Non-Qualified Option or Stock Appreciation Right shall be irrevocable
as long as the Optionee remains an Employee or an Non-Employee Director of the
Corporation or one of its Subsidiary Companies.
13.03 Stock Option Deferral. The deferral of the proceeds of
Non-Qualified Options may be elected by an Optionee subject to the rules and
regulations established by the Committee. The proceeds from such an exercise
shall be credited to a deferred stock option account established for the
Optionee (which may be part of an existing deferred compensation trust account).
The proceeds shall be credited to the deferred stock option account as a number
of deferred shares or share units equivalent in value to those proceeds.
Deferred share units shall be valued at the Fair Market Value on the date of
exercise. Subsequent to exercise, the deferred shares or share units shall be
valued at the Fair Market Value of Common Stock. Deferred share units shall
accrue dividends at the rate paid upon the Common Stock credited in the form of
additional deferred share units. Deferred shares or share units shall be
distributed in shares of Common Stock or cash, at the discretion of the
Committee, upon the Optionee's termination of employment or at such other date,
as may be approved by the Committee, over a period of no more than ten (10)
years.
13.04 Stock Appreciation Right Deferral. The deferral of the proceeds
of Stock Appreciation Rights may be made by an Optionee subject to the rules and
regulations established by the Committee. Upon exercise, the Committee will
credit the Optionee's deferred stock option account with a number of deferred
shares or share units equivalent in value to the difference between the Fair
Market Value of a share of Common Stock on the exercise date and the Exercise
Price of the Stock Appreciation Right multiplied by the number of shares
exercised. Deferred shares or share units shall be valued at the Fair Market
Value on the date of exercise. Subsequent to exercise, the deferred shares or
share units shall be valued at the Fair Market Value of Common Stock. Deferred
shares or share units shall accrue dividends at the rate paid upon the Common
Stock credited in the form of additional deferred shares or share units.
Deferred shares or share units shall be distributed in shares of Common Stock or
cash, at the discretion of the Committee, upon the Participant's termination of
service or at such other date, as may be approved by the Committee, over a
period of no more than ten (10) years.
13.05 Accelerated Distributions. The Committee may, at its sole
discretion, allow for the early payment of an Optionee's deferred stock option
account in the event of an "unforeseeable emergency" or in the event of the
death or Disability of the Optionee. An "unforeseeable emergency" means an
unanticipated emergency caused by an event beyond the control of the Optionee
that would result in severe financial hardship if the distribution were not
permitted. Such distributions shall be limited to the amount necessary to
sufficiently address the financial hardship. Any distributions under this
provision, shall be consistent with the Code and the regulations promulgated
thereunder. Additionally, the Committee may use its discretion to cause stock
option deferral accounts to be distributed when continuing the program is no
longer in the best interest of the Corporation or one of its Subsidiary
Companies.
13.06 Assignability. No rights to deferred stock option accounts may be
assigned or subject to any encumbrance, pledge or charge of any nature except
that an Optionee may designate a beneficiary pursuant to any rules established
by the Committee.
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13.07 Unfunded Status. No Optionee or other person shall have any
interest in any fund or in any specific asset of the Corporation or one of its
Subsidiary Companies by reason of any amount credited pursuant to the provisions
hereof. Any amounts payable pursuant to the provisions hereof shall be paid from
the general assets of the Corporation or one of its Subsidiary Companies and no
Optionee or other person shall have any rights to such assets beyond the rights
afforded general creditors of the Corporation or one of its Subsidiary
Companies. However, the Corporation or one of its Subsidiary Companies shall
have the right to establish a reserve, trust or make any investment for the
purpose of satisfying the obligations created under this Article XIII of the
Plan; provided, however, that no Optionee or other person shall have any
interest in such reserve, trust or investment.
ARTICLE XIV
EFFECTIVE DATE OF THE PLAN; TERM
14.01 Effective Date of the Plan. This Plan shall become effective on
the Effective Date, and Awards may be granted hereunder no earlier than the date
that this Plan is approved by stockholders of the Corporation and prior to the
termination of the Plan, provided that this Plan is approved by stockholders of
the Corporation pursuant to Article XV hereof.
14.02 Term of the Plan. Unless sooner terminated, this Plan shall
remain in effect for a period of ten (10) years ending on the tenth anniversary
of the Effective Date. Termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been fully exercised or earned, are surrendered or by their terms expire or
are forfeited.
ARTICLE XV
STOCKHOLDER APPROVAL
The Corporation shall submit this Plan to stockholders for approval at
a meeting of stockholders of the Corporation held within twelve (12) months
following the Effective Date in order to meet the requirements of (i) Section
422 of the Code and regulations thereunder, (ii) Section 162(m) of the Code and
regulations thereunder, (iii) the Nasdaq Stock Market for continued quotation of
the Common Stock on the Nasdaq Stock Market and (iv) the regulations of the
Office of Thrift Supervision.
ARTICLE XVI
MISCELLANEOUS
16.01 Governing Law. To the extent not governed by federal law, this
Plan shall be construed under the laws of the State of Delaware.
16.02 Pronouns. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun, and the singular shall include the plural.
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APPENDIX B
CFS BANCORP, INC.
1998 RECOGNITION AND RETENTION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 CFS Bancorp, Inc. (the "Corporation") hereby establishes the 1998
Recognition and Retention Plan (the "Plan") and Trust (the "Trust") upon the
terms and conditions hereinafter stated in this 1998 Recognition and Retention
Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees and Non-Employee Directors with
a proprietary interest in the Corporation and its Subsidiary Companies as
compensation for their contributions to the Corporation and its Subsidiary
Companies and as an incentive to make such contributions in the future. Each
Recipient of a Plan Share Award hereunder is advised to consult with his or her
personal tax advisor with respect to the tax consequences under federal, state,
local and other tax laws of the receipt of a Plan Share Award hereunder.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter, unless the context clearly indicates otherwise, shall
have the meanings set forth below. Wherever appropriate, the masculine pronouns
shall include the feminine pronouns and the singular shall include the plural.
3.01 "Bank" means Citizens Financial Services, FSB, the wholly owned
subsidiary of the Corporation.
3.02 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the Board of Directors of the Corporation.
3.04 "Change in Control of the Corporation" shall mean the occurrence
of any of the following: (i) the acquisition of control of the Corporation as
defined in 12 C.F.R. Section574.4, unless a presumption of control is
successfully rebutted or unless the transaction is exempted by 12 C.F.R.
Section574.3(c)(vii), or any successor to such sections; (ii) an event that
would be required to be reported in response to Item 1(a) of Form 8-K or Item
6(e) of Schedule 14A of Regulation 14A pursuant to the Exchange Act or any
successor thereto, whether or not any class of securities of the Corporation is
registered under the Exchange Act; (iii) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined
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voting power of the Corporation's then outstanding securities except for any
securities purchased by the Corporation or the Bank; or (iv) during any period
of thirty-six consecutive months during the term of a Plan Share Award,
individuals who at the beginning of such period constitute the Board of
Directors of the Corporation cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
3.05 "Code" means the Internal Revenue Code of 1986, as amended.
3.06 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof.
3.07 "Common Stock" means shares of the common stock, $.01 par value
per share, of the Corporation.
3.08 "Disability" means any physical or mental impairment which
qualifies an individual for disability benefits under the applicable long-term
disability plan maintained by the Corporation or a Subsidiary Company or, if no
such plan applies, which would qualify such individual for disability benefits
under the long-term disability plan maintained by the Corporation, if such
individual were covered by that plan.
3.09 "Effective Date" means the day upon which the Board approves this
Plan.
3.10 "Employee" means any person who is employed by the Corporation,
the Bank, or any Subsidiary Company, or is an Officer of the Corporation, the
Bank, or any Subsidiary Company, but not including directors who are not also
Officers of or otherwise employed by the Corporation, the Bank or a Subsidiary
Company.
3.11 "Employer Group" means the Corporation and any Subsidiary which,
with the consent of the Board, agree to participate in the Plan.
3.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.13 "Non-Employee Director" means a member of the Board of the
Corporation or the Board of Directors of the Bank or any successor thereto,
including an Advisory Director or a Director Emeritus of the Boards of the
Corporation and/or the Bank, who is not an Officer or Employee of the
Corporation, the Bank or any Subsidiary Company.
3.14 "Offering" means the offering of Common Stock to the public in
connection with the conversion of the Bank to the stock form of organization and
the issuance of the capital stock of the Bank to the Corporation.
3.15 "Officer" means an Employee whose position in the Corporation or a
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.16 "Performance Share Award" means a Plan Share Award granted to a
Recipient pursuant to Section 7.05 of the Plan.
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3.17 "Performance Goal" means an objective for the Corporation or any
Subsidiary Company or any unit thereof or any Employee of the foregoing that may
be established by the Committee for a Performance Share Award to become vested,
earned or exercisable. The establishment of Performance Goals are intended to
make the applicable Performance Share Awards "performance-based" compensation
within the meaning of Section 162(m) of the Code, and the Performance Goals
shall be based on one or more of the following criteria:
(i) net income, as adjusted for non-recurring items;
(ii) cash earnings;
(iii) earnings per share;
(iv) cash earnings per share;
(v) return on average equity;
(vi) return on average assets;
(vii) assets;
(viii) stock price;
(ix) total stockholder return;
(x) capital;
(xi) net interest income;
(xii) market share;
(xiii) cost control or efficiency ratio; and
(xiv) asset growth.
3.18 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
3.19 "Plan Share Award" or "Award" means a right granted under this
Plan to receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII, and includes Performance Share Awards.
3.20 "Recipient" means an Employee or Non-Employee Director who
receives a Plan Share Award or Performance Share Award under the Plan.
3.21 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Corporation or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement" under the Corporation's pension benefit
plan, if such individual were a participant in that plan. With respect to
Non-Employee Directors, retirement means retirement from service on the Board of
Directors of the Corporation or the Bank or any successor thereto (including
service as an Director Emeritus) after attaining the age of 70.
3.22 "Subsidiary Companies" means those subsidiaries of the
Corporation, including the Bank, which meet the definition of "subsidiary
corporation" set forth in Section 424(f) of the Code, at the time of the
granting of the Plan Share Award in question.
3.23 "Trustee" means such firm, entity or persons approved by the Board
to hold legal title to the Plan and the Plan assets for the purposes set forth
herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of two or more members of the
Board, each of whom shall be a Non-Employee Director, as defined in Rule
16b-3(b)(3)(i) of the Exchange Act. In addition, each member of the Committee
shall be an "outside director"
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within the meaning of Section 162(m) of the Code and the regulations thereunder
at such times as is required under such regulations. The Committee shall have
all of the powers allocated to it in this and other Sections of the Plan. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding in the
absence of action by the Board. The Committee shall act by vote or written
consent of a majority of its members. Subject to the express provisions and
limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. The Committee
shall report its actions and decisions with respect to the Plan to the Board at
appropriate times, but in no event less than once per calendar year.
4.02 Role of the Board. The members of the Committee and the Trustee
shall be appointed or approved by, and will serve at the pleasure of, the Board.
The Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove or replace the Trustee, provided that
any directors who are selected as members of the Committee shall be Non-Employee
Directors.
4.03 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Corporation
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Corporation and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.04 Compliance with Laws and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency or stockholders as
may be required.
4.05 Restrictions on Transfer. The Corporation may place a legend upon
any certificate representing shares issued pursuant to a Plan Share Award noting
that such shares may be restricted by applicable laws and regulations.
ARTICLE V
CONTRIBUTIONS
5.01 Amount and Timing of Contributions. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Corporation and any Subsidiaries to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall be
paid to the Trust at the designated time of contribution. No contributions by
Employees or Non-Employee Directors shall be permitted.
5.02 Investment of Trust Assets; Number of Plan Shares. Subject to
Section 8.02 hereof, the Trustee shall invest all of the Trust's assets
primarily in Common Stock. The aggregate number of Plan Shares available for
distribution pursuant to this Plan shall be 714,150 shares of Common Stock,
subject to adjustment as provided in Section 10.01 hereof, which shares shall be
purchased (from the Corporation and/or, if permitted by applicable regulations,
from stockholders thereof) by the Trust with funds contributed by the
Corporation. During the time this Plan remains in effect, Awards to each
Employee and each Non-Employee Director shall not exceed 25% and 5% of the
shares of Common Stock available under the Plan, respectively. Plan Share Awards
to Non-Employee Directors in the aggregate shall not exceed 30% of the number of
shares available under this Plan.
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ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Awards. Plan Share Awards and Performance Share Awards may be made
to such Employees and Non-Employee Directors as may be selected by the Board or
the Committee. In selecting those Employees to whom Plan Share Awards and/or
Performance Share Awards may be granted and the number of Shares covered by such
Awards, the Board or the Committee shall consider the duties, responsibilities
and performance of each respective Employee and Non-Employee Director, his
present and potential contributions to the growth and success of the
Corporation, his salary and such other factors as deemed relevant to
accomplishing the purposes of the Plan. The Board or the Committee may but shall
not be required to request the written recommendation of the Chief Executive
Officer of the Corporation other than with respect to Plan Share Awards and/or
Performance Share Awards to be granted to him.
6.02 Form of Allocation. As promptly as practicable after an allocation
pursuant to Sections 6.01 that a Plan Share Award or a Performance Share Award
is to be issued, the Board or the Committee shall notify the Recipient in
writing of the grant of the Award, the number of Plan Shares covered by the
Award, and the terms upon which the Plan Shares subject to the Award shall be
distributed to the Recipient. The date on which the Board or the Committee so
notifies the Recipient shall be considered the date of grant of the Plan Share
Award or the Performance Share Award. The Board or the Committee shall maintain
records as to all grants of Plan Share Awards or Performance Share Awards under
the Plan.
6.03 Allocations Not Required to any Specific Employee or Non-Employee
Director. No Employee or Non-Employee Director shall have any right or
entitlement to receive a Plan Share Award hereunder, such Awards being at the
total discretion of the Board or the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Subject to the terms hereof, Plan Share
Awards granted shall be earned by a Recipient at the rate of twenty percent
(20%) of the aggregate number of Shares covered by the Award as of each annual
anniversary of the date of grant of the Award. If the employment of an Employee
or service as a Non- Employee Director is terminated prior to the fifth (5th)
annual anniversary of the date of grant of a Plan Share Award for any reason
(except as specifically provided in subsections (b), (c) and (d) below), the
Recipient shall forfeit the right to any Shares subject to the Award which have
not theretofore been earned. In the event of a forfeiture of the right to any
Shares subject to an Award, such forfeited Shares shall become available for
allocation pursuant to Section 6.01 hereof as if no Award had been previously
granted with respect to such Shares. No fractional shares shall be distributed
pursuant to this Plan.
(b) Exception for Terminations Due to Death, Disability or
Retirement. Notwithstanding the general rule contained in Section 7.01(a), all
Plan Shares subject to a Plan Share Award held by a Recipient whose employment
with the Corporation or any Subsidiary or service as a Non-Employee Director
terminates due to death or Disability shall be deemed earned as of the
Recipient's last day of employment with or service to the Corporation or any
Subsidiary Company (provided, however, no such accelerated vesting shall occur
if a Recipient remains employed by at least one member of the Employer Group)
and shall be distributed as soon as practicable thereafter. All Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with the
Corporation or any Subsidiary Company or service as a Non-Employee Director
terminates due to Retirement shall be deemed earned as of the Recipient's last
day of employment with or service to the Corporation or any Subsidiary Company
(provided, however, no such accelerated vesting shall occur if a Recipient
remains employed by at least one member of the Employer Group) and shall be
distributed as soon as practicable thereafter if as of the date of such
Retirement
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(i) such treatment is either authorized or is not prohibited by applicable laws
and regulations, or (ii) such provision has been approved by stockholders of the
Corporation at a meeting of stockholders held more than one (1) year after the
consummation of the Offering.
(c) Exception for a Change in Control of the Corporation.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient shall be deemed to be earned
as of the effective date of a Change in Control of the Corporation if, as of the
date of such Change in Control of the Corporation (i) such treatment is either
authorized or is not prohibited by applicable laws and regulations, or (ii) an
amendment to the Plan providing for such treatment has been approved by
stockholders of the Corporation at a meeting of the stockholders held more than
one (1) year after the consummation of the Offering.
(d) Revocation for Misconduct. Notwithstanding anything
hereinafter to the contrary, the Board may by resolution immediately revoke,
rescind and terminate any Plan Share Award or Performance Share Award or portion
thereof, previously awarded under this Plan, to the extent Plan Shares have not
been distributed hereunder to the Recipient, whether or not yet earned, in the
case of an Employee who is discharged from the employ of the Corporation or any
Subsidiary Company for cause (as hereinafter defined). Termination for cause
shall mean termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order. Plan Share Awards granted to a Non-Employee
Director who is removed for cause pursuant to the Corporation's Certificate of
Incorporation and Bylaws or the Bank's Charter and Bylaws shall terminate as of
the effective date of such removal.
7.02 Distribution of Dividends. Any cash dividends (including special
large and nonrecurring dividends including any that has the effect of a return
of capital to the Corporation's stockholders) or stock dividends declared in
respect of each unvested Plan Share Award (including a Performance Share Award)
will be held by the Trust for the benefit of the Recipient on whose behalf such
Plan Share Award (including a Performance Share Award) is then held by the Trust
and such dividends, including any interest thereon, will be paid out
proportionately by the Trust to the Recipient thereof as soon as practicable
after the Plan Share Awards become earned. Any cash dividends or stock dividends
declared in respect of each vested Plan Share held by the Trust will be paid by
the Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Subject to the
provisions of Section 7.05 hereof, Plan Shares shall be distributed to the
Recipient or his Beneficiary, as the case may be, as soon as practicable after
they have been earned.
(b) Form of Distributions. All Plan Shares, together with any
Shares representing stock dividends, shall be distributed in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) Withholding. The Trustee may withhold from any cash
payment or Common Stock distribution made under this Plan sufficient amounts to
cover any applicable withholding and employment taxes, and if the amount of a
cash payment is insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the
Corporation or any Subsidiary Company which employs or employed such Recipient
any such amount withheld from or paid by the Recipient or Beneficiary.
(d) Restrictions on Selling of Plan Shares. Plan Share Awards
may not be sold, assigned, pledged or otherwise disposed of prior to the time
that they are earned and distributed pursuant to the terms of this Plan. Upon
distribution, the Board or the Committee may require the Recipient or his
Beneficiary, as the case may be, to agree not to sell or otherwise dispose of
his distributed Plan Shares except in accordance with all then applicable
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federal and state securities laws, and the Board or the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Board or the Committee,
upon the advice of counsel, may deem appropriate.
7.04 Voting of Plan Shares. After a Plan Share Award (other than a
Performance Share Award) has been made, the Recipient shall be entitled to
direct the Trustee as to the voting of the Plan Shares which are covered by the
Plan Share Award and which have not yet been earned and distributed to him
pursuant to Section 7.03, subject to rules and procedures adopted by the
Committee for this purpose. All shares of Common Stock held by the Trust which
have not been awarded under a Plan Share Award, shares subject to Performance
Share Awards which have not yet vested and shares which have been awarded as to
which Recipients have not directed the voting shall be voted by the Trustee in
its discretion.
7.05 Performance Awards
(a) Designation of Performance Share Awards. The Committee may
determine to make any Plan Share Award a Performance Share Award by making such
Plan Share Award contingent upon the achievement of a Performance Goal or any
combination of Performance Goals. Each Performance Share Award shall be
evidenced by a written agreement ("Award Agreement"), which shall set forth the
Performance Goals applicable to the Performance Share Award, the maximum amounts
payable and such other terms and conditions as are applicable to the Performance
Share Award. Each Performance Share Award shall be granted and administered to
comply with the requirements of Section 162(m) of the Code.
(b) Timing of Grants. Any Performance Share Award shall be
made not later than 90 days after the start of the period for which the
Performance Share Award relates and shall be made prior to the completion of 25%
of such period. All determinations regarding the achievement of any Performance
Goals will be made by the Committee. The Committee may not increase during a
year the amount of a Performance Share Award that would otherwise be payable
upon achievement of the Performance Goals but may reduce or eliminate the
payments as provided for in the Award Agreement.
(c) Restrictions on Grants. Nothing contained in the Plan will
be deemed in any way to limit or restrict the Committee from making any Award or
payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
(d) Rights of Recipients. Notwithstanding anything to the
contrary herein, a Participant who receives a Performance Share Award payable in
Common Stock shall have no rights as a stockholder until the Common Stock is
issued pursuant to the terms of the Award Agreement.
(e) Transferability. A Participant's interest in a Performance
Share Award may not be sold, assigned, transferred, pledged, or otherwise
encumbered.
(f) Distribution. No Performance Share Award or portion
thereof that is subject to the attainment or satisfaction of a condition of a
Performance Goal shall be distributed or considered to be earned or vested until
the Committee certifies in writing that the conditions or Performance Goal to
which the distribution, earning or vesting of such Award is subject have been
achieved.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
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8.02 Management of Trust. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
arrangement, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust in Common Stock to the fullest extent
practicable, except to the extent that the Trustee determines that the holding
of monies in cash or cash equivalents is necessary to meet the obligations of
the Trust. In performing their duties, the Trustee shall have the power to do
all things and execute such instruments as may be deemed necessary or proper,
including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust
assets in Common Stock without regard to any law now or hereafter in force
limiting investments for trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and in making
such investment, the Trustee are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased may be
outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in
accordance with (a) above, in such deposit accounts, and certificates of
deposit, obligations of the United States Government or its agencies or such
other investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at
any time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be
registered in the name of a nominee, without the addition of words indicating
that such security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in
the opinion of the Trustee be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their
rights, duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to
be distributed to a Recipient or his Beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in common
with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Board or the Committee.
8.04 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Corporation or, in the
discretion of the Corporation, the Trust.
8.05 Indemnification. Subject to the requirements of applicable laws
and regulations, the Corporation shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
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ARTICLE IX
DEFERRED PAYMENTS
9.01 Deferral of Plan Share Award. Notwithstanding any other provision
of this Plan, any Recipient may elect, with the concurrence of the Committee and
consistent with any rules and regulations established by the Committee, to defer
Plan Share Awards granted hereunder.
9.02 Timing of Election. The election to defer the delivery of any Plan
Share Award must be made no later than the last day of the calendar year
preceding the calendar year in which the Recipient would otherwise have an
unrestricted right to receive such Award. Deferrals of eligible Plan Share
Awards shall only be allowed for Plan Share Awards for which all applicable
restrictions lapse while the Recipient is in active service with the Corporation
or one of its Subsidiary Companies. Any election to defer the proceeds from an
eligible Plan Share Award shall be irrevocable as long as the Recipient remains
an Employee or an Non-Employee Director of the Corporation or one of its
Subsidiary Companies.
9.03 Plan Share Award Deferral. The deferral of Plan Share Awards may
be elected by a Recipient subject to the rules and regulations established by
the Committee. Upon the lapsing of restrictions on such a Plan Share Award, the
Committee shall credit to a deferred stock award account established for the
Recipient (which may be part of an existing deferred compensation trust account)
a number of deferred shares or share units equivalent in value to the number of
deferred Plan Share Awards multiplied by the Fair Market Value of Common Stock.
Deferred shares or share units shall be valued at the Fair Market Value on the
date all restrictions on the Stock Award lapse or are waived. Subsequent to the
lapsing of all restrictions, the deferred shares or share units shall be valued
at the Fair Market Value of Common Stock. Deferred shares or share units shall
accrue dividends at the rate paid upon the Common Stock credited in the form of
additional deferred share units. Deferred share units shall be distributed in
shares of Common Stock or cash, at the discretion of the Committee, upon the
Recipient's termination of service or at such other date, as may be approved by
the Committee, over a period of no more than ten (10) years.
9.04 Accelerated Distributions. The Committee may, at its sole
discretion, allow for the early payment of an Recipient's deferred stock award
account in the event of an "unforeseeable emergency" or in the event of the
death or Disability of the Recipient. An "unforeseeable emergency" means an
unanticipated emergency caused by an event beyond the control of the Recipient
that would result in severe financial hardship if the distribution were not
permitted. Such distributions shall be limited to the amount necessary to
sufficiently address the financial hardship. Any distributions under this
provision, shall be consistent with the Code and the regulations promulgated
thereunder. Additionally, the Committee may use its discretion to cause stock
award accounts to be distributed when continuing the program is no longer in the
best interest of the Corporation or one of its Subsidiary Companies.
9.05 Assignability. No rights to deferred stock award accounts may be
assigned or subject to any encumbrance, pledge or charge of any nature except
that an Recipient may designate a beneficiary pursuant to any rules established
by the Committee.
9.06 Unfunded Status. No Recipient or other person shall have any
interest in any fund or in any specific asset of the Corporation or one of its
Subsidiary Companies by reason of any amount credited pursuant to the provisions
hereof. Any amounts payable pursuant to the provisions hereof shall be paid from
the general assets of the Corporation or one of its Subsidiary Companies and no
Recipient or other person shall have any rights to such assets beyond the rights
afforded general creditors of the Corporation or one of its Subsidiary
Companies. However, the Corporation or one of its Subsidiary Companies shall
have the right to establish a reserve, trust or make any investment for the
purpose of satisfying the obligations created under this Article IX of the Plan;
provided, however, that no Recipient or other person shall have any interest in
such reserve, trust or investment.
B-9
<PAGE>
ARTICLE X
MISCELLANEOUS
10.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for distribution pursuant to the Plan Share Awards and the
number of Shares to which any unvested Plan Share Award relates shall be
proportionately adjusted for any increase or decrease in the total number of
outstanding shares of Common Stock issued subsequent to the effective date of
the Plan resulting from any split, subdivision or consolidation of shares or
other capital adjustment, the payment of a stock dividend or other increase or
decrease in such shares effected without receipt or payment of consideration by
the Corporation. If, upon a merger, consolidation, reorganization, liquidation,
recapitalization or the like of the Corporation or of another corporation, each
recipient of a Plan Share Award shall be entitled, subject to the conditions
herein stated, to receive such number of shares of Common Stock or amount of
other securities of the Corporation or such other corporation as were
exchangeable for the number of shares of Common Stock of the Corporation which
such Recipients would have been entitled to receive except for such action.
10.02 Amendment and Termination of Plan. The Board may, by resolution,
at any time amend or terminate the Plan, subject to any required stockholder
approval or any stockholder approval which the Board may deem to be advisable
for any reason, such as for the purpose of obtaining or retaining any statutory
or regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The Board may not, without the
consent of the Recipient, alter or impair his Plan Share Award except as
specifically authorized herein. Upon termination of the Plan, the Recipient's
Plan Share Awards shall be distributed to the Recipient regardless of whether or
not such Plan Share Award had otherwise been earned under the service
requirements set forth in Article VII. Notwithstanding any other provision of
the Plan, this Plan may not be terminated until such time as all Plan shares
held by the Trust have been awarded to Plan Recipients and shall be deemed to be
earned prior to the time of termination.
10.03 Nontransferable. Plan Share Awards and Performance Share Awards
and rights to Plan Shares shall not be transferable by a Recipient, and during
the lifetime of the Recipient, Plan Shares may only be earned by and paid to a
Recipient who was notified in writing of an Award by the Committee pursuant to
Section 6.02. No Recipient or Beneficiary shall have any right in or claim to
any assets of the Plan or Trust, nor shall the Corporation or any Subsidiary be
subject to any claim for benefits hereunder.
10.04 Employment or Service Rights. Neither the Plan nor any grant of a
Plan Share Award, Performance Share Award or Plan Shares hereunder nor any
action taken by the Trustee, the Committee or the Board in connection with the
Plan shall create any right on the part of any Employee or Non-Employee Director
to continue in such capacity.
10.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award or Performance Share Award, except as expressly
provided in Sections 7.02, 7.04 and 7.05 above, prior to the time said Plan
Shares are actually earned and distributed to him.
10.06 Governing Law. To the extent not governed by federal law, the
Plan and Trust shall be governed by the laws of the State of Delaware.
10.07 Effective Date. This Plan shall be effective as of the Effective
Date, and Awards may be granted hereunder no earlier than the date this Plan is
approved by the stockholders of the Corporation and prior to the termination of
the Plan. Notwithstanding the foregoing or anything to the contrary in this
Plan, the implementation of this Plan is subject to the approval of the
Corporation's stockholders.
10.08 Term of Plan. This Plan shall remain in effect until the earlier
of (1) ten (10) years from the Effective Date, (2) termination by the Board, or
(3) the distribution to Recipients and Beneficiaries of all the assets of the
Trust.
B-10
<PAGE>
10.09 Tax Status of Trust. It is intended that the trust established
hereby be treated as a Grantor Trust of the Corporation under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested, and the initial Trustees of the Trust established pursuant
hereto have duly and validly executed this Agreement, all on this __th day of
_______, 1998.
CFS BANCORP, INC.
By:
----------------------------
Chairman of the Board and
Chief Executive Officer
ATTEST: TRUSTEES:
- --------------------- -------------------------------
Secretary
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B-11
<PAGE>
FORM OF
REVOCABLE PROXY
CFS BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CFS BANCORP,
INC. FOR USE AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 3,
1999 AND AT ANY ADJOURNMENT THEREOF.
The undersigned hereby appoints the Board of Directors of CFS Bancorp,
Inc. (the "Company"), or any successors thereto, as proxies with full powers of
substitution, to represent and vote, as designated below, all the shares of
Common Stock of the Company held of record by the undersigned on December 18,
1998 at the Special Meeting of Stockholders to be held at the Center for Visual
and Performing Arts, located at 1040 Ridge Road, Munster, Indiana on Wednesday,
February 3, 1999, at 10:00 a.m., Central Time, and any adjournment thereof.
The Board of Directors Recommends a Vote in Favor of Proposals 1 and 2 below.
1. PROPOSAL to adopt the 1998 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
2. PROPOSAL to adopt the 1998 Recognition and Retention Plan and Trust.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued on reverse side)
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES OF THE
COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS TO ADOPT THE 1998 STOCK OPTION PLAN
AND THE 1998 RECOGNITION AND RETENTION PLAN AND TRUST AND OTHERWISE AT THE
DISCRETION OF THE PROXIES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE
TIME IT IS VOTED AT THE SPECIAL MEETING.
Dated: , 1999
----------------------------------
Signatures
Please sign this proxy exactly as your names(s) appear(s) on this proxy. When
signing in a representative capacity, please give title. When shares are held
jointly, only one holder need sign.
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PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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