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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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 (as permitted by
Rule 14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-12
Security Financial Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)
Security Financial Bancorp, Inc.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total Fee paid:
N/A
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|_| 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:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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<PAGE> 2
September 19, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Security Financial Bancorp, Inc. The meeting will be held at Security
Financial's main office located at 9321 Wicker Avenue, St. John, Indiana on
Thursday, October 19, 2000 at 5:00 p.m., local time. This will be the first
annual meeting since Security Federal Bank & Trust converted from the mutual to
stock form of organization on January 5, 2000.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of Crowe,
Chizek and Company LLP, the Company's independent auditors, will be present to
respond to appropriate questions of stockholders.
The Board of Directors of the Company has determined that matters to be
considered at the Annual Meeting are in the best interests of the Company and
its shareholders. FOR THE REASONS SET FORTH IN THE PROXY STATEMENT, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES FOR
DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS, "FOR" THE APPROVAL OF THE
SECURITY FINANCIAL BANCORP, INC. 2000 STOCK-BASED INCENTIVE PLAN AND "FOR" THE
RATIFICATION OF CROWE, CHIZEK AND COMPANY LLP AS INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 2001.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To make sure your shares are represented, we urge you to complete and
mail the enclosed WHITE proxy card. If you attend the meeting, you may vote in
person even if you have previously mailed a proxy card.
IF YOU HAVE ANY QUESTIONS ABOUT VOTING, PLEASE CONTACT OUR
PROXY SOLICITOR, GEORGESON SHAREHOLDER COMMUNICATIONS, INC.,
AT (212) 440-9800.
We look forward to seeing you at the meeting.
Sincerely,
/s/ John P. Hyland
John P. Hyland
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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SECURITY FINANCIAL BANCORP, INC.
9321 WICKER AVENUE
ST. JOHN, INDIANA 46373
(219) 365-4344
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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On Thursday, October 19, 2000, Security Financial Bancorp, Inc. will hold
its annual meeting of stockholders at Security Financial's main office located
at 9321 Wicker Avenue, St. John, Indiana at 5:00 p.m., local time, for the
following purposes:
1. To elect four directors to serve for a term of three years;
2. To consider and vote upon a proposal to approve the Security
Financial Bancorp, Inc. 2000 Stock-Based Incentive Plan;
3. To ratify the appointment of Crowe, Chizek and Company LLP as
independent auditors for the Company for the fiscal year ending June
30, 2001; and
4. To transact any other business that may properly come before the
meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Only stockholders of record at the close of business on September 11, 2000
are entitled to receive notice of the meeting and to vote at the meeting and any
adjournment or postponement of the meeting.
Please complete and sign the enclosed form of WHITE proxy, which is
solicited by the Board of Directors, and mail it promptly in the enclosed
envelope. The proxy will not be used if you attend the meeting and vote in
person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence R. Parducci
Lawrence R. Parducci
CORPORATE SECRETARY
St. John, Indiana
September 19, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
<PAGE> 4
PROXY STATEMENT
OF
SECURITY FINANCIAL BANCORP, INC.
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ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 19, 2000
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Security Financial Bancorp, Inc. ("Security
Financial" or the "Company") to be used at the annual meeting of stockholders of
the Company. The annual meeting will be held at Security Financial's main office
located at 9321 Wicker Avenue, St. John, Indiana on Thursday, October 19, 2000
at 5:00 p.m., local time. This proxy statement and the enclosed WHITE proxy card
are being first mailed to stockholders on or about September 19, 2000.
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VOTING AND PROXY PROCEDURE
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WHO CAN VOTE AT THE MEETING
You are entitled to vote your Security Financial common stock only if the
records of the Company show that you held your shares as of the close of
business on September 11, 2000. As of the close of business on September 11,
2000, a total of 1,938,460 shares of Security Financial common stock were
outstanding. Each share of common stock has one vote. As provided in the
Company's Certificate of Incorporation, record holders of the Company's common
stock who beneficially own, either directly or indirectly, in excess of 10% of
the Company's outstanding shares are not entitled to any vote in respect of the
shares held in excess of the 10% limit.
VOTE REQUIRED
The annual meeting will be held if a majority of the outstanding shares of
common stock entitled to vote is represented at the meeting. If you return valid
proxy instructions or attend the meeting in person, your shares will be counted
for purposes of determining whether there is a quorum, even if you abstain from
voting. Broker non-votes also will be counted for purposes for determining the
existence of a quorum. A broker non- vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner.
In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting. This
means that the nominees receiving the greatest number of votes will be elected.
Votes that are withheld and broker non-votes will have no effect on the outcome
of the election. In voting on the approval of the Security Financial Bancorp,
Inc. 2000 Stock-Based Incentive Plan and the ratification of the appointment of
Crowe, Chizek and Company LLP as independent auditors, you may vote in favor of
the proposal, vote against the proposal or abstain from voting. The adoption of
the plan and the ratification of Crowe, Chizek and Company LLP as independent
auditors will be decided by the affirmative vote of a majority of the votes cast
at the annual meeting. On these matters, abstentions and broker non-votes will
have no effect on the voting.
<PAGE> 5
VOTING BY PROXY
This proxy statement is being sent to you by the Board of Directors of
Security Financial for the purpose of requesting that you allow your shares of
Security Financial common stock to be represented at the annual meeting by the
persons named in the enclosed proxy card. All shares of Security Financial
common stock represented at the annual meeting by properly executed and dated
proxies will be voted according to the instructions indicated on the proxy card.
If you sign, date and return a WHITE proxy card without giving voting
instructions, your shares will be voted as recommended by the Company's Board of
Directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR, FOR APPROVAL OF THE SECURITY FINANCIAL BANCORP, INC. 2000 STOCK-BASED
INCENTIVE PLAN AND FOR RATIFICATION OF CROWE, CHIZEK AND COMPANY LLP AS
INDEPENDENT AUDITORS.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own best judgment to determine how to vote your shares. This includes a
motion to adjourn or postpone the annual meeting in order to solicit additional
proxies. If the annual meeting is postponed or adjourned, your Security
Financial common stock may be voted by the persons named in the proxy card on
the new annual meeting date as well, unless you have revoked your proxy. The
Company does not know of any other matters to be presented at the annual
meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of the
Company in writing before your common stock has been voted at the annual
meeting, deliver a later dated proxy, or attend the meeting and vote your shares
in person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Security Financial common stock is held "in street name," you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Your broker, bank or other nominee
may allow you to deliver your voting instructions via the telephone or the
Internet. Please see the instruction form provided by your broker, bank or other
nominee that accompanies this proxy statement.
IF YOU HAVE ANY QUESTIONS ABOUT VOTING, PLEASE CONTACT OUR PROXY
SOLICITOR, GEORGESON SHAREHOLDER COMMUNICATIONS, INC., AT (212) 440-9800.
PARTICIPANTS IN THE SECURITY FEDERAL BANK & TRUST ESOP AND THE 401(K) PLAN
If you participate in the Security Federal Bank & Trust ("Security
Federal") Employee Stock Ownership Plan (the "ESOP"), or if you hold shares of
Security Financial common stock through Security Federal's 401(k) Plan, you will
receive with this proxy statement along with a voting instruction form for each
plan that reflects all shares you may vote under the plans. Under the terms of
the ESOP, all shares held by the ESOP are voted by the ESOP trustee, but each
participant in the ESOP may direct the trustee how to vote the shares of Company
common stock allocated to his or her account. As of September 11, 2000, no
shares have been allocated to participants' accounts under the ESOP. However,
for the sole purpose of voting on the matters presented at the annual meeting,
each participant will be deemed to have one share allocated to his or her
account. The ESOP trustee, subject to the exercise of its fiduciary duties, will
vote all unallocated shares of common stock held by the ESOP and allocated
shares for which no voting instructions are received in the same proportion as
shares for which it has received timely voting instructions. Under the terms of
the 401(k) Plan, a participant is entitled to direct the trustee as to the
shares in the Security Financial Bancorp, Inc. Stock Fund credited to his or her
account. The trustee will vote all shares for which no directions are given or
for which timely instructions were not received in the same proportion
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as shares for which the trustee received timely voting instructions. The
deadline for returning your voting instructions to each of the plan's trustees
is October 12, 2000.
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STOCK OWNERSHIP
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The following table provides information as of September 11, 2000 with
respect to persons known to Security Financial to be the beneficial owners of
more than 5% of the Company's outstanding common stock. A person may be
considered to beneficially own any shares of common stock over which he or she
has, directly or indirectly, sole or shared voting or investing power.
PERCENT OF
NUMBER OF COMMON STOCK
NAME AND ADDRESS SHARES OWNED OUTSTANDING
------------------ --------------- -------------
Paul J. Duggan 186,400(1) 9.62%
53 West Jackson Boulevard
Suite 400
Chicago, Illinois 60604
John Wm. Palmer 178,000(2) 9.18%
Richard J. Lashley
PL Capital, LLC
2015 Spring Road, Suite 290
Oak Brook, Illinois 60523
Security Federal Bank & Trust 155,076(3) 8.00%
Employee Stock Ownership Plan
9321 Wicker Avenue
St. John, Indiana 46373
David M. W. Harvey 100,000(4) 5.20%
P.O. Box 3178
Gardnerville, Nevada 89410
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(1) Paul J. Duggan, Jackson Boulevard Capital Management, Ltd., Jackson
Boulevard Equities, L.P., Jackson Boulevard Investments, L.P., Jackson
Offshore Fund, Ltd. and Jackson Boulevard Partners are deemed to be
beneficial owners of 186,400, 90,600, 43,500, 27,200, 19,900 and 87,800 of
these shares, respectively. Based on information in a Schedule 13D,
Amendment No. 1, filed jointly on May 26, 2000 with the Securities and
Exchange Commission.
(2) Financial Edge Fund. L.P., Financial Edge - Strategic Fund, L.P., PL
Capital, LLC, John Wm. Palmer, Richard J. Lashley and Beth R. Lashley are
deemed to be beneficial owners of 176,900, 176,900, 176,900, 177,000,
177,900 and 1,000 of these shares, respectively. Based on information in a
Schedule 13D, Amendment No. 1, filed jointly on May 22, 2000 with the
Securities and Exchange Commission.
(3) Under the terms of the ESOP, the ESOP trustee will vote shares allocated to
participants' accounts in the manner directed by the participants. Subject
to their fiduciary responsibility, the trustee will vote unallocated shares
and allocated shares for which no timely voting instructions are received
in the same proportion as shares for which they have received voting
instructions from participants. As of September 11, 2000, no shares had
been allocated under the ESOP. Therefore, each ESOP participant is deemed
to have one share of Security Financial common stock in the ESOP allocated
to his or her account for the sole purpose of providing voting instructions
to the trustee.
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(4) Everest Partners Limited Partnership (d.b.a. Everest Partners, L.P.),
Everest Managers, L.L.C. and David M. W. Harvey are deemed to be beneficial
owners of 100,000, 100,000 and 100,000 of these shares, respectively. Based
on information in a Schedule 13D filed jointly on February 18, 2000 with
the Securities and Exchange Commission.
The following table provides information about the shares of Company
common stock that may be considered to be beneficially owned by each nominee for
director nominated by the Board of Directors and by all directors and executive
officers of the Company as a group as of September 11, 2000. A person may be
considered to beneficially own any shares of common stock over which he or she
has, directly or indirectly, sole or shared voting or investment power. Unless
otherwise indicated, each of the named individuals has sole voting power and
sole investment power with respect to the number of shares shown.
NUMBER OF PERCENT OF COMMON STOCK
NAME SHARES OWNED OUTSTANDING(1)
--------------------------- ----------------- ----------------------
Mary Beth Bonaventura 5,100 *
Howard O. Cyrus 1,000 *
Dr. Peter Ferrini 30,100 1.55%
John P. Hyland 3,310 *
Tula Kavadias 500 *
Richard J. Lashley 178,000(2) 9.18%
Robert L. Lauer 4,680(3) *
Lawrence R. Parducci 4,000 *
John Wm. Palmer 178,000(2) 9.18%
Philip T. Rueth 10,000(4) *
Robert A. Vellutini 10,000 *
All directors and executive officers 262,100 13.52%
as a group (16 persons)
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* Less than 1% of shares outstanding.
(1) Based on 1,938,460 shares of Company common stock outstanding and entitled
to vote as of September 11, 2000.
(2) Financial Edge Fund. L.P., Financial Edge - Strategic Fund, L.P., PL
Capital, LLC, John Wm. Palmer, Richard J. Lashley and Beth R. Lashley are
deemed to be beneficial owners of 176,900, 176,900, 176,900, 177,000,
177,900 and 1,000 of these shares, respectively. Based on information in a
Schedule 13D, Amendment No. 1, filed jointly on May 22, 2000 with the
Securities and Exchange Commission.
(3) Includes 1,400 shares owned by Mr. Lauer's spouse's trust.
(4) Includes 5,000 shares owned by Mr. Rueth's spouse's trust.
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INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
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The PL Capital Group, consisting of PL Capital, LLC, Financial Edge Fund,
L.P., Financial Edge- Strategic Fund, L.P., John Palmer, Beth Lashley and
Richard Lashley (collectively the "PL Capital Group and individually a "PL
Capital Group Member"), beneficially owns 178,000 shares, or 9.18%, of Security
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Financial's outstanding common stock. By letter dated May 19, 2000, Mr. Palmer
notified the Company of his intention to nominate himself and Mr. Lashley for
election to the Board of Directors of the Company at its 2000 annual meeting of
shareholders. On August 29, 2000, the PL Capital Group filed preliminary proxy
materials regarding its solicitation of proxies in support of the election of
Messrs. Palmer and Lashley. In consideration of the potential costs of a proxy
fight and the disruptive effect on the Company, the Board of Directors of the
Company determined that it was in the best interests of the Company and its
shareholders to enter into an agreement with the PL Capital Group. On September
6, 2000, the Company and the PL Capital Group entered into an agreement (the
"Agreement") pursuant to which the Company became obligated to, among other
things: (1) increase by two the size of the Boards of Directors of the Company
and the Bank and appoint Messrs. Palmer and Lashley to the Boards of Directors
of the Company and the Bank for terms expiring at the Company's 2000 and 2002
annual meetings, respectively; and (2) nominate Mr. Palmer for re- election at
the Company's 2000 annual meeting of stockholders. As part of the Agreement, the
Company will be required to reimburse the PL Capital Group for expenses incurred
by the PL Capital Group in connection with its efforts to appoint Messrs. Palmer
and Lashley to the Board of Directors.
The Agreement obligates PL Capital Group and each PL Capital Group Member
to, among other things, vote all of the common stock of the Company owned of
record or beneficially by the PL Capital Group Members in favor of all
management nominees and proposals, including the approval of the Security
Financial Bancorp, Inc. 2000 Stock-Based Incentive Plan.
After obtaining shareholder approval, Security Financial and Security
Federal will consider granting to directors, officers and employees of Security
Federal and Security Financial stock options and awards in the form of shares of
common stock under the Security Financial Bancorp, Inc. 2000 Stock-Based
Incentive Plan.
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PROPOSAL 1 -- ELECTION OF DIRECTORS
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The Company's Board of Directors currently consists of eleven members. Ten
directors are independent and one is a member of management. The Board is
divided into three classes with three-year staggered terms, with one-third of
the directors elected each year. The Board of Directors' nominees for election
this year, to serve for a three-year term, or until their respective successors
have been elected and qualified, are John P. Hyland, Tula Kavadias, John Wm.
Palmer and Philip T. Rueth, all of whom are currently directors of Security
Financial and Security Federal.
The Board of Directors intends that the proxies solicited by it will be
voted for the election of the nominees named above. If any nominee is unable to
serve, the persons named in the proxy card would vote your shares to approve the
election of any substitute proposed by the Board of Directors. Alternatively,
the Board of Directors may adopt a resolution to reduce the size of the Board.
At this time, the Board of Directors knows of no reason why any nominee might be
unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL OF THE
NOMINEES NOMINATED BY THE BOARD OF DIRECTORS NAMED IN THIS PROXY STATEMENT.
Information regarding the Board of Directors' nominees and the directors
continuing in office is provided below. Unless otherwise stated, each individual
has held his or her current occupation for the last
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five years. The age indicated for each individual is as of June 30, 2000. The
indicated period of service as a director includes the period of service as a
director of Security Federal.
BOARD NOMINEES
JOHN P. HYLAND has served as President and Chief Executive Officer of
Security Financial and Security Federal since September 1999 and October 1998,
respectively. Prior to joining Security Federal, Mr. Hyland served as Director,
President and Chief Executive Officer of Southwest Financial Bank and Trust,
Orland Park, Illinois, and as Director and Vice President for Southwest
Financial Corporation, the holding company for Southwest Financial Bank and
Trust. Age 49. Director since 1999.
TULA KAVADIAS is an attorney admitted to the Bar of the State of Indiana.
Ms. Kavadias is the sole proprietor of the law firm of Tula Kavadias &
Associates. Age 43. Director since 1997.
JOHN WM. PALMER is an investment manager, primarily as Managing Member of
PL Capital, LLC. Age 40. Director since 2000.
PHILIP T. RUETH is a certified public accountant for Steiber, Rueth & Co.,
a certified public accounting firm. Mr. Rueth is also a registered
representative for Terra Securities Corporation, a broker dealer. Age 54.
Director since 1997.
DIRECTORS CONTINUING IN OFFICE
The following directors have terms ending in 2001:
MARY BETH BONAVENTURA is a Senior Judge of the Lake Superior Court,
Juvenile Division. Ms. Bonaventura was elected as Chief Judge of the Lake
Superior Courts for the 1997-1998 term. Age 46. Director since 1992.
LAWRENCE R. PARDUCCI is a pharmacist, consultant and pharmacy insurance
solicitor for Fagen Pharmacy, a 20-store pharmacy chain. Age 69. Director since
1988.
ROBERT A. VELLUTINI is a Vice President of Investments for A.G. Edwards &
Sons, Inc., a financial services and brokerage firm. Mr. Vellutini is the first
cousin of Dr. Ferrini. Age 55. Director since 1999.
The following directors have terms ending in 2002:
HOWARD O. CYRUS, SR. is the owner of and real estate broker for Cyrus
Realtors, Inc., a corporation specializing in the sales, leasing, appraisals and
management of commercial/industrial properties. Age 62. Director since 1996.
DR. PETER FERRINI is a retired oral surgeon. Dr. Ferrini is the uncle of
Mr. Lauer and is the first cousin of Mr. Vellutini. Age 76. Director since 1977.
RICHARD J. LASHLEY is an investment manager, primarily as Managing Member
of PL Capital, LLC. Mr. Lashley is also a director of Haven Bancorp, Inc.,
Westbury, New York. Age 42. Director since 2000.
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ROBERT L. LAUER is a Vice President of Investments and Assistant Branch
Manager for A.G. Edwards & Sons, Inc. a financial services and brokerage firm.
Mr. Lauer is the nephew of Dr. Ferrini. Age 45. Director since 1998.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company and Security Federal is conducted through
meetings and activities of their Boards of Directors and their committees.
During the year ended June 30, 2000, the Board of Directors of the Company held
seven meetings and the Board of Directors of Security Federal held 12 regular
meetings and six special meetings. No director attended fewer than 75% of the
total meetings of the Boards of Directors and committees on which he or she
served.
The Audit Committee, consisting of Ms. Bonaventura, Ms. Kavadias, Mr.
Rueth and Mr. Vellutini, receives and reviews all reports prepared by the
Company's independent auditors. This committee met one time during the year
ended June 30, 2000.
The Compensation Committee of the Company, consisting of Ms. Bonaventura,
Mr. Hyland, Mr. Lauer and Mr. Parducci, and the Compensation Committee of the
Bank, consisting of Ms. Bonaventura, Ms. Kavadias, Mr. Parducci and Mr. Rueth,
are responsible for all matters regarding the Company's and the Bank's employee
compensation and benefit programs. These committees met four times during the
year ended June 30, 2000.
The Nominating Committee, consisting of the full Board of Directors,
selects annually the nominees for election as directors. This committee met on
August 3, 2000 to select management's nominees for election as directors at this
annual meeting. In addition, when the Board resolved to increase the Board from
nine to eleven members and appoint Messrs. Palmer and Lashley to the Board, the
Board also chose to include Mr. Palmer as a nominee for election as director at
this annual meeting. The Company's Bylaws provide for shareholder nominations of
directors. These provisions require such nominations to be made pursuant to
timely notice in writing to the Secretary of the Company. The shareholder's
notice of nomination must contain all information relating to the nominee which
is required to be disclosed by the Company's Bylaws. See "STOCKHOLDER
PROPOSALS."
DIRECTORS' COMPENSATION
MEETING FEES. Security Federal pays a fee to each of its non-management
directors for attendance at each board meeting and each meeting of a committee
of which they are members. The following table sets forth the meeting fees in
effect for the fiscal year ended June 30, 2000:
FEES
------
Regular Board Meetings
Chairman...................... $2,000
Vice-Chairman................. $1,600
Director...................... $1,000
Special Board Meetings........... $500
Committee Meetings............... $250
Security Financial pays an annual retainer of $2,500 for service on its
Board of Directors.
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DIRECTOR'S RETIREMENT PLAN. Security Federal maintains a retirement
program for incumbent nonemployee directors to provide a retirement income
supplement for directors. Current directors who attain the normal retirement age
of 65 have the option upon retirement to receive a benefit of approximately
$1,000 for each year of service payable either a) in a lump sum payment or b) in
a payment with 50% of such sum being paid upon retirement and the balance being
paid in two equal annual installments for the two years immediately following
retirement. If a director dies while still serving on the Board of Directors,
the director's estate will receive an amount equal to $1,000 for each year of
service payable in a lump sum.
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EXECUTIVE COMPENSATION
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SUMMARY COMPENSATION TABLE
The following information is furnished for John P. Hyland. No other
executive officer of Security Financial or Security Federal received salary and
bonus of $100,000 or more during the year ended June 30, 2000.
ANNUAL
COMPENSATION (1)(2)
-----------------------
ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION(3)
-------------- ---- -------- -------- ---------------
John P. Hyland 2000 $176,346 $18,365 $15,250
President and Chief 1999 134,778 -- --
Executive Officer
--------------------------------
(1)Compensation information for 1998 has been omitted because Security Financial
was not a public company nor a subsidiary of a public company at that time.
(2)Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary and
bonus reported.
(3)Represents director fees.
EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENTS. Effective January 5, 2000, Security Federal and
Security Financial entered into three-year employment agreements with Mr.
Hyland. Under the employment agreements, the current salary level for Mr. Hyland
is $176,346. On the anniversary of the commencement date of the employment
agreements, the term of the employment agreements may be extended for an
additional year at the discretion of the Board of Directors. The agreements are
terminable by the employers at any time or by Mr. Hyland if he is assigned
duties inconsistent with his initial position, duties, responsibilities and
status, or upon the occurrence of certain events specified by applicable
regulations. If Mr. Hyland's employment is terminated without cause or upon his
voluntary termination following the occurrence of an event described in the
preceding sentence, Security Federal or Security Financial would be required to
honor the terms of the agreement through the expiration of the current term,
including payment of current cash compensation and continuation of employee
benefits.
The employment agreements also provide for a severance payment and other
benefits in the event of involuntary termination of employment in connection
with any change in control of Security Federal or
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Security Financial. A severance payment also will be provided on a similar basis
in connection with a voluntary termination of employment where, after a change
in control, Mr. Hyland is assigned duties inconsistent with his position,
duties, responsibilities and status immediately before such change in control.
Even though both Security Federal and Security Financial employment
agreements provide for a severance payment if a change in control occurs, Mr.
Hyland would only be entitled to receive a severance payment under one
agreement. Mr. Hyland would also be entitled to receive an additional tax
indemnification payment if payments under the employment agreements or any other
payments triggered liability under the Internal Revenue Code as an excise tax
constituting "excess parachute payments." Under applicable law, the excise tax
is triggered by change in control-related payments which equal or exceed three
times Mr. Hyland's average annual compensation over the five years preceding the
change in control. The excise tax equals 20% of the amount of the payment in
excess of one times Mr. Hyland's average compensation over the preceding
five-year period.
Payments to Mr. Hyland under Security Federal's employment agreement will
be guaranteed by Security Financial if payments or benefits are not paid by
Security Federal. Payment under Security Financial' employment agreement would
be made by Security Financial. The employment agreements also provide that
Security Federal and Security Financial will indemnify Mr. Hyland to the fullest
extent legally allowable.
The employment agreements restrict Mr. Hyland from competing against
Security Financial or Security Federal for a period of one year from the date of
termination of the agreement if Mr. Hyland is terminated without cause, except
if such termination occurs after a change in control.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Security Federal has implemented a
plan to provide for supplemental benefits with respect to the tax-qualified
retirement plan benefits otherwise limited by certain provisions of the Internal
Revenue Code. Specifically, the supplemental executive retirement plan will
provide benefits to eligible individuals (designated by the Board of Directors
of Security Federal or its affiliates) that cannot be provided under the
tax-qualified plans as a result of the limitations imposed by the Internal
Revenue Code, but that would have been provided under these plans but for such
limitations. The supplemental executive retirement plan also provides eligible
individuals with a supplemental benefit upon a change in control before the
complete scheduled repayment of the employee stock ownership plan loan. This
benefit is intended to provide the eligible individual with the employee stock
ownership benefit that would have otherwise been provided during the loan
repayment period, but for the change in control. An individual's benefits under
the supplemental executive retirement plan will generally become payable at the
same time benefits become payable under the tax-qualified plans.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
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Based solely on the Company's review of copies of the reports it has
received and written representations provided to it from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in Security Financial common stock during the year ended June 30,
2000, except that the following transactions by the following individuals were
not reported on a timely basis on Form 4 due to administrative error: one report
containing two purchase transactions by Dr. Ferrini. These transactions were
subsequently reported on a Form 4.
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TRANSACTIONS WITH MANAGEMENT
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LOANS AND EXTENSIONS OF CREDIT
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, must not involve more than the normal risk of repayment or present
other unfavorable features. Security Federal currently does make new loans and
extensions of credit to Security Federal's executive officers, directors and
employees at different rates or terms than those offered to the general public;
however, Security Federal does not give preference to any director or officer
over any other employee, and such loans do not involve more than the normal risk
of repayment or present other unfavorable features. In addition, loans made to a
director or executive officer in an amount that, when aggregated with the amount
of all other loans to the person and his or her related interests, are in excess
of the greater of $500,000 or 5% of Security Federal's capital and surplus, up
to a maximum of $3.0 million, must be approved in advance by a majority of the
disinterested members of the Board of Directors. No directors or executive
officers had aggregate indebtedness to Security Financial or Security Federal
based on preferential terms is excess of $60,000 during fiscal 2000.
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PROPOSAL 2 -- APPROVAL OF THE SECURITY FINANCIAL BANCORP, INC.
2000 STOCK-BASED INCENTIVE PLAN
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The Board of Directors of the Company is presenting for stockholder
approval the Security Financial Bancorp, Inc. 2000 Stock-Based Incentive Plan,
in the form attached to this proxy statement as Appendix A. The purpose of the
plan is to attract and retain qualified personnel in key positions, provide
officers, employees and non-employee directors of the Company and Security
Federal, with a proprietary interest in the Company as an incentive to
contribute to the success of the Company, promote the attention of management to
other stockholder's concerns, and reward employees for outstanding performance.
The following is a summary of the material terms of the plan which is qualified
in its entirety by the complete text of the plan.
GENERAL
The plan authorizes both the grant of options to purchase common stock of
the Company and the award of restricted shares of common stock. Subject to
certain adjustments to prevent dilution of awards
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<PAGE> 14
to participants, the number of shares of common stock reserved for awards under
the plan is 271,384 shares, consisting of 193,846 shares reserved for options
and 77,538 shares reserved for restricted stock awards. All employees and
non-employee directors of the Company and its affiliates are eligible to receive
awards under the plan. The plan will be administered by a committee (the
"Committee") consisting of members of the Board of Directors who are not
employees of the Company or its affiliates. Authorized but unissued shares or
shares previously issued and reacquired by the Company may be used to satisfy
awards under the plan. If authorized but unissued shares are used to satisfy
restricted stock awards and the exercise of options granted under the plan, the
number of outstanding shares will increase and will have a dilutive effect on
the holdings of existing stockholders. Security Financial may establish a trust
under which the trustee will purchase, with contributions from the Company or
Security Federal, previously issued shares to fund the Company's obligation for
restricted stock awards. As of the date of this proxy statement, no awards have
been granted under the plan.
TYPES OF AWARDS
GENERAL. The plan authorizes the grant of awards in the form of: (1)
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code (options which provide certain tax benefits to the
recipients upon compliance with applicable requirements, but which do not result
in tax deductions to the Company); (2) options that do not so qualify (options
which do not provide the same income tax benefits to recipients, but which may
provide tax deductions to the Company), referred to as "non-statutory stock
options"; and (3) grants of restricted shares of common stock. Each type of
award may be subject to certain vesting or service requirements or other
conditions imposed by the Committee.
OPTIONS. Subject to the terms of the plan, the Committee has the authority
to determine the amount of options granted to any individual and the date or
dates on which each option will become exercisable and any other conditions
applicable to an option. The exercise price of all options will be determined by
the Committee but will be at least 100% of the fair market value of the
underlying common stock at the time of grant. The exercise price of any option
may be paid in cash, common stock, or any other form permitted by the Committee
at its discretion. See "ALTERNATE OPTION PAYMENTS" below. The term of options
will be determined by the Committee, but in no event will an option be
exercisable more than ten years from the date of grant (or five years from date
of grant for a 10% owner with respect to incentive stock options).
All options granted under the plan to officers and employees may, at the
discretion of the Committee, qualify as incentive stock options to the extent
permitted under Section 422 of the Internal Revenue Code. Under certain
circumstances, incentive stock options may be converted into non-statutory stock
options. In order to qualify as incentive stock options under Section 422 of the
Internal Revenue Code, the option must generally be granted only to an employee,
must not be transferable (other than by will or the laws of descent and
distribution), the exercise price must not be less than 100% of the fair market
value of the common stock on the date of grant, the term of the option may not
exceed ten years from the date of grant, and no more than $100,000 of options
may become exercisable for the first time in any calendar year. Notwithstanding
the foregoing requirements, incentive stock options granted to any person who is
the beneficial owner of more than 10% of the outstanding voting stock of the
Company may be exercised only for a period of five years from the date of grant
and the exercise price must be at least equal to 110% of the fair market value
of the underlying common stock on the date of grant. Each non-employee director
of the Company or its affiliates, as well as employees, will be eligible to
receive non-statutory stock options.
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<PAGE> 15
Unless the Committee determines otherwise, upon termination of an option
holder's services for any reason other than death, disability, retirement,
change in control or termination for cause, all then exercisable options will
remain exercisable for three months following termination, or if sooner, the
expiration of the term of the option. If an option holder dies or becomes
disabled all unexercisable options will become exercisable and remain
exercisable for one year, or if sooner, the expiration of the term of the
option. In the event of termination for cause, all exercisable and unexercisable
options held by the option holder will be canceled. If an option holder retires,
all unvested options will be canceled and all vested options will remain
exercisable for one year following retirement. However, the Committee may permit
all unvested stock options to continue to vest provided the option holder
remains employed by Security Financial or Security Federal as a consultant or
advisor or continues to serve Security Financial or Security Federal as a
director, advisory director or director emeritus. In the event an option holder
is terminated in connection with a change in control of Security Financial or
Security Federal, the option holder may exercise only those options that are
immediately exercisable as of the option holder's date of termination of service
for a period of one (1) year following his or her termination date. Incentive
stock options exercised more than three months after an option holder has
terminated service in connection with a change in control or retirement will be
treated as non-statutory stock options for tax purposes.
Under generally accepted accounting principles, compensation expense is
generally not recognized with respect to the award of stock options.
RESTRICTED STOCK AWARDS. Subject to the terms of the plan and applicable
regulation, the Committee has the authority to determine the amounts of
restricted stock awards granted to any individual and the dates on which
restricted stock awards granted will vest or any other conditions which must be
satisfied before vesting. Stock award recipients may also receive amounts equal
to accumulated cash and stock dividends or other distributions (if any) with
respect to shares awarded in the form of restricted stock. In addition, before
vesting, recipients of restricted stock awards may also direct the voting of
shares of common stock granted to them.
Unless the Committee determines otherwise, upon termination of the
services of a holder of a stock award for any reason other than death,
disability or retirement, all the holder's rights in unvested restricted stock
awards will be canceled. If the holder of the stock award dies or becomes
disabled, all unvested restricted stock awards held by such individual will
become fully vested. If the holder of a stock award retires, all unvested
restricted stock awards held by such individual will be canceled. However, the
Committee may permit all unvested stock awards to continue to vest provided the
holder of a stock award remains employed by Security Financial or Security
Federal as a consultant or advisor or continues to serve Security Financial or
Security Federal as a director, advisory director or director emeritus.
FEDERAL INCOME TAX TREATMENT
OPTIONS. An option holder will generally not be deemed to have recognized
taxable income upon grant or exercise of any incentive stock option, provided
that shares transferred in connection with the exercise are not disposed of by
the optionee for at least one year after the date the shares are transferred in
connection with the exercise of the option and two years after the date of grant
of the option. If these holding periods are satisfied, upon disposal of the
shares, the aggregate difference between the per share option exercise price and
the fair market value of the common stock is recognized as income taxable at
capital gains rates. No compensation deduction may be taken by the Company as a
result of the grant or exercise of incentive stock options, assuming these
holding periods are met.
12
<PAGE> 16
In the case of the exercise of a non-statutory stock option, an option
holder will be deemed to have received ordinary income upon exercise of the
option in an amount equal to the aggregate amount by which the fair market value
of the common stock exceeds the exercise price of the option. If shares received
through the exercise of an incentive stock option are disposed of before the
satisfaction of the holding periods (a "disqualifying disposition"), the
exercise of the option will essentially be treated as the exercise of a
non-statutory stock option, except that the option holder will recognize the
ordinary income for the year in which the disqualifying disposition occurs. The
amount of any ordinary income recognized by an optionee upon the exercise of a
non-statutory stock option or due to a disqualifying disposition will be a
deductible expense of the Company for federal income tax purposes.
RESTRICTED STOCK AWARDS. A participant who has been awarded restricted
stock under the plan and does not make an election under Section 83(b) of the
Internal Revenue Code will not recognize taxable income at the time of the
award. At the time any transfer or forfeiture restrictions applicable to the
restricted stock award lapse, the recipient will recognize ordinary income and
the Company will be entitled to a corresponding deduction equal to the excess of
the fair market value of such stock at such time over the amount paid, if any,
therefor. Any dividend paid to the recipient on the restricted stock at or
before such time will be ordinary compensation income to the recipient and
deductible as such by the Company.
A recipient of a restricted stock award who makes an election under
Section 83(b) of the Code will recognize ordinary income at the time of the
award and the Company will be entitled to a corresponding deduction equal to the
fair market value of such stock at such time over the amount paid, if any,
therefor. Any dividends subsequently paid to the recipient on the restricted
stock will be dividend income to the recipient and not deductible by the
Company. If the recipient makes a Section 83(b) election, there are no federal
income tax consequences either to the recipient or the Company at the time any
transfer or forfeiture restrictions applicable to the restricted stock award
lapse.
ALTERNATE OPTION PAYMENTS
Subject to the terms of the plan, the Committee has discretion to
determine the form of payment for the exercise of an option. The Committee may
indicate acceptable forms in the award agreement covering such options or may
reserve its decision to the time of exercise. An option will not be considered
exercised until payment in full is accepted by the Committee. Any shares of
common stock tendered in payment of the exercise price of an option will be
valued at the fair market value of the common stock on the date before the date
of exercise.
AMENDMENTS
Subject to certain restrictions contained in the plan, the Board of
Directors or the Committee may amend the plan in any respect, at any time,
provided that no amendment may affect the rights of the holder of an award
without his or her permission and such amendment must comply with applicable law
and regulation.
13
<PAGE> 17
ADJUSTMENTS
If there is any change in the outstanding shares of common stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or if an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted awards, to prevent dilution, diminution or enlargement of the rights of
the holder; provided, however, that in the case of an extraordinary dividend,
the Committee may be required to obtain approval of the Office of Thrift
Supervision before any such adjustment. All awards under the plan will be
binding upon any successors or assigns of the Company.
NONTRANSFERABILITY
Unless the Committee determines otherwise, awards under the plan will not
be transferable by the recipient other than by will or the laws of intestate
succession or according to a domestic relations order. With the consent of the
Committee, a recipient may permit transferability or assignment for valid estate
planning purposes of a non-statutory stock option as permitted under the
Internal Revenue Code or federal securities laws and a participant may designate
a person or his or her estate as beneficiary of any award to which the recipient
would then be entitled, if the participant dies.
STOCKHOLDER APPROVAL, EFFECTIVE DATE OF PLAN AND REGULATORY COMPLIANCE
The plan provides that it shall become effective on January 6, 2001,
subject to prior approval of the plan by the Company's stockholders. The
effective date has been delayed until January 6, 2001 to ensure compliance with
federal regulations that would otherwise limit the terms of awards under the
plan and, specifically, the circumstances in which the vesting of outstanding
awards may be accelerated. Accordingly, assuming stockholder approval, the plan
may not be implemented and no awards may be made before January 6, 2001.
Implementation of the plan is subject to the regulations of the Office of Thrift
Supervision. The Office of Thrift Supervision has not endorsed or approved the
plan.
NEW PLAN BENEFITS
As of the date of this proxy statement, no decisions have been made
regarding the granting of any options or stock awards under the plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
SECURITY FINANCIAL BANCORP, INC. 2000 STOCK-BASED INCENTIVE PLAN.
--------------------------------------------------------------------------------
PROPOSAL 3 -- RATIFICATION OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Board of Directors has appointed Crowe, Chizek and Company LLP to be
its independent auditors for the 2001 fiscal year, subject to the ratification
by stockholders. A representative of Crowe, Chizek and Company LLP is expected
to be present at the annual meeting to respond to appropriate questions from
stockholders and will have the opportunity to make a statement should he or she
desire to do so.
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<PAGE> 18
If the ratification of the appointment of the independent auditors is not
approved by a majority of the votes cast by stockholders at the annual meeting,
the Board of Directors may consider other independent auditors. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS.
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STOCKHOLDER PROPOSALS AND NOMINATIONS
--------------------------------------------------------------------------------
Proposals that stockholders seek to have included in the proxy statement
for the Company's next annual meeting must be received by the Company no later
than May 22, 2001. If next years annual meeting is held on a date more than 30
calendar days from October 19, 2001, a stockholder proposal must be received by
a reasonable time before the proxy solicitation for such annual meeting is made.
Any stockholder proposals will be subject to the requirements of the proxy rules
adopted by the Securities and Exchange Commission.
The Company's Bylaws provides that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a stockholder must deliver notice of such
nominations and/or proposals to the Secretary not less than 90 days before the
date of the annual meeting; provided that if less than 100 days' notice or prior
public disclosure of the date of the annual meeting is given to stockholders,
such notice must be delivered not later than the close of the tenth day
following the day on which notice of the date of the annual meeting was mailed
to stockholders or prior public disclosure of the meeting date was made. A copy
of the Bylaws may be obtained from the Company.
--------------------------------------------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
The Company will pay the cost of this proxy solicitation. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Security Financial common stock. In addition to soliciting
proxies by mail, directors, officers and regular employees of the Company may
solicit proxies personally or by telephone without receiving additional
compensation. The Company has retained Georgeson Shareholder Communication, Inc.
to assist in soliciting proxies for a fee of $4,000, plus reimbursable expenses.
The Company's Annual Report to Stockholders has been mailed to
stockholders as of the close of business on September 19, 2000. Any stockholder
who has not received a copy of the Annual Report may obtain a copy by writing to
the Secretary of the Company. The Annual Report is not to be treated as part of
the proxy solicitation material or as having been incorporated in this proxy
statement by reference.
A COPY OF THE COMPANY'S FORM 10-KSB, WITHOUT EXHIBITS, FOR THE FISCAL YEAR
ENDED JUNE 30, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL
BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE CLOSE OF BUSINESS ON
SEPTEMBER 11, 2000 UPON WRITTEN REQUEST TO LAWRENCE R. PARDUCCI, CORPORATE
SECRETARY, SECURITY FINANCIAL BANCORP, INC., 9321 WICKER AVENUE, ST. JOHN,
INDIANA 46373.
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<PAGE> 19
Whether or not you plan to attend the annual meeting, please vote by
marking, signing, dating and promptly returning the enclosed WHITE proxy card in
the enclosed WHITE envelope.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lawrence R. Parducci
Lawrence R. Parducci
CORPORATE SECRETARY
St. John, Indiana
September 19, 2000
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<PAGE> 20
PROPOSED SECURITY FINANCIAL BANCORP, INC.
2000 STOCK-BASED INCENTIVE PLAN
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such terms are defined in Sections 424(e) and 424(f)
of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options and Stock Awards.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means Security Federal Bank & Trust, a federally-chartered
savings bank.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" of the Bank or the Holding Company shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Institution or
the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, the Federal Deposit Insurance Act, and the Rules and Regulations
promulgated by the Office of Thrift Supervision (or its predecessor agency), as
in effect on the date hereof (provided, that in applying the definition of
change in control as set forth under the rules and regulations of the OTS, the
Board shall substitute its judgment for that of the OTS); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the 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 voting securities of the
Institution or the Holding Company representing 20% or more of the Institution's
or the Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution purchased by the
Holding Company and any voting securities purchased by any employee benefit plan
of the Holding Company or its Subsidiaries, or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by a
Nominating Committee solely composed of members which are Incumbent Board
members, shall be, for purposes of this clause (B), considered as though he were
a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Institution or
the Holding Company or similar transaction occurs or is effectuated in which the
Institution or Holding Company is not the resulting entity; provided, however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required federal regulatory approvals not
including the lapse of any statutory waiting periods, or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations
A-1
<PAGE> 21
as a result of which the outstanding shares of the class of securities then
subject to such plan or transaction are exchanged for or converted into cash or
property or securities not issued by the Institution or the Holding Company
shall be distributed, or (E) a tender offer is made for 20% or more of the
voting securities of the Institution or Holding Company then outstanding.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the common stock of the Holding Company, par
value $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his or her duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means the earlier of the date that Plan is approved
by shareholders or January 5, 2001.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market, then the Fair Market Value shall be equal
to the closing price reported for such date;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite
transactions report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair
Market Value by the
A-2
<PAGE> 22
Committee shall be based on the prices reported in The Wall
Street Journal. The Committee's determination of Fair Market
Value shall be conclusive and binding on all persons.
(q) "Holding Company" means Security Financial Bancorp, Inc., a Delaware
corporation.
(r) "Incentive Stock Option" means a stock option granted to a
Participant, pursuant to Section 7 of the Plan, that is intended to meet the
requirements of Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock
Option.
(u) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
(w) "Performance Award" means an Award granted to a Participant pursuant
to Section 9 of the Plan.
(x) "Plan" means this Security Financial Bancorp, Inc. 2000 Stock-Based
Incentive Plan.
(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the then current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the board(s) of directors
of the Holding Company and any Affiliate following written notice to such
board(s) of directors of the Outside Director's intention to retire.
(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(aa) "Termination for Cause" means termination because of a Participant'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 material breach of any provision of any employment
agreement between the Holding Company and/or any subsidiary of the Holding
Company and a Participant.
(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.
(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.
A-3
<PAGE> 23
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he or she satisfies: (i) such requirements
as the Securities and Exchange Commission may establish for non-employee
directors administering plans intended to qualify for exemption under Rule 16b-3
(or its successor) under the Exchange Act and (ii) such requirements as the
Internal Revenue Service may establish for outside directors acting under plans
intended to qualify for exemption under Section 162(m)(4)(C) of the Code. The
Board of Directors may also appoint one or more separate committees of the Board
of Directors, each composed of one or more directors of the Holding Company or
an Affiliate who need not be disinterested, that may grant Awards and administer
the Plan with respect to Employees, Outside Directors, and other individuals who
are not considered officers or directors of the Holding Company under Section 16
of the Exchange Act or for whom Awards are not intended to satisfy the
provisions of Section 162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and Award Agreements in all respects and (iv) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be required by the Plan and
otherwise approved by the Committee. Each Award Agreement shall constitute a
binding contract between the Holding Company or an Affiliate and the
Participant, and every Participant, upon acceptance of an Award Agreement, shall
be bound by the terms and restrictions of the Plan and the Award Agreement. The
terms of each Award Agreement shall be in accordance with the Plan, but each
Award Agreement may include any additional provisions and restrictions
determined by the Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan. In
particular and at a minimum, the Committee shall set forth in each Award
Agreement: (i) the type of Award granted; (ii) the Exercise Price of any Option;
(iii) the number of shares subject to the Award; (iv) the expiration date of the
Award; (v) the manner, time, and rate (cumulative or otherwise) of exercise or
vesting of such Award; and (vi) the restrictions, if any, placed upon such
Award, or upon shares which may be issued upon exercise of such Award. The
Chairman of the Committee and such other directors and officers as shall be
designated by the Committee is hereby authorized to execute Award Agreements on
behalf of the Company or an Affiliate and to cause them to be delivered to the
recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
A-4
<PAGE> 24
3. TYPES OF AWARDS.
---------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(a) Stock Awards.
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 13 of the Plan, the number of
shares reserved for Awards under the Plan is 271,384. Subject to adjustment as
provided in Section 13 of the Plan, the number of shares reserved hereby for
purchase pursuant to the exercise of Options granted under the Plan is 193,846.
The number of the shares reserved for Stock Awards is 77,538. The shares of
Common Stock issued under the Plan may be either authorized but unissued shares
or authorized shares previously issued and acquired or reacquired by the Trustee
or the Holding Company, respectively. To the extent that Options and Stock
Awards are granted under the Plan, the shares underlying such Awards will be
unavailable for any other use including future grants under the Plan except
that, to the extent that Stock Awards or Options terminate, expire or are
forfeited without having vested or without having been exercised, new Awards may
be made with respect to these shares.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, all Employees and Outside Directors
shall be eligible to receive Awards under the Plan. In addition, the Committee
may grant eligibility to consultants and advisors of the Holding Company or an
Affiliate, as it sees fit.
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-Statutory Stock Options. The Committee shall determine
--------------------------------------
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-Statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non- Statutory Stock Option.
The shares of Common Stock underlying each Non-Statutory Stock Option may be
purchased in whole or in part by the Participant at any time during the term of
such Non-Statutory Stock Option, or any portion thereof, once the Non-Statutory
Stock Option becomes exercisable.
A-5
<PAGE> 25
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, or (b) a transfer for no
consideration to: (i) any member of the Participant's Immediate Family, (ii) any
trust solely for the benefit of members of the Participant's Immediate Family,
(iii) any partnership whose only partners are members of the Participant's
Immediate Family, and (iv) any limited liability corporation or corporate entity
whose only members or equity owners are members of the Participant's Immediate
Family. For purposes of this Section 6(c), "Immediate Family" includes, but is
not necessarily limited to, a Participant's parents, grandparents, spouse,
children, grandchildren, siblings (including half brothers and sisters), and
individuals who are family members by adoption. Nothing contained in this
Section 6(c) shall be construed to require the Committee to give its approval to
any transfer or assignment of any Non-Statutory Stock Option or portion thereof,
and approval to transfer or assign any Non-Statutory Stock Option or portion
thereof does not mean that such approval will be given with respect to any other
Non-Statutory Stock Option or portion thereof. The transferee or assignee of any
Non-Statutory Stock Option shall be subject to all of the terms and conditions
applicable to such Non-Statutory Stock Option immediately prior to the transfer
or assignment and shall be subject to any other conditions prescribed by the
Committee with respect to such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, a
Change in Control, or Termination for Cause, the Participant may exercise only
those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination, or, if sooner, until the
expiration of the term of the Option.
(e) Termination of Employment or Service (Retirement). In the event of a
--------------------------------------------------
Participant's Retirement, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of Retirement and only for a period of one (1) year from the date of Retirement
or, if sooner, until the expiration of the term of the Option; PROVIDED HOWEVER,
that upon the Participant's Retirement, the Committee, in its discretion, may
determine that all unvested Options shall continue to vest in accordance with
the Award Agreement if the Participant is immediately engaged by the Holding
Company or an Affiliate as a consultant or advisor or continues to serve the
Holding Company or an Affiliate as a director, advisory director or director
emeritus.
(f) Termination of Employment or Service (Disability or Death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all
Non-Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination, or, if sooner, until the expiration of the term of the
Option.
(g) Termination of Employment or Service (Change in Control). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to a Change
A-6
<PAGE> 26
in Control, whether such termination is actual, constructive, or otherwise, the
Participant may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of such termination and
only for a period of one (1) year following the date of such termination.
(h) Termination of Employment or Service (Termination for Cause). Unless
-------------------------------------------------------------
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's
Non-Statutory Stock Options shall expire immediately upon the effective date of
such Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a
-------
Non-Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Non- Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60-month period.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
PROVIDED, HOWEVER, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
-----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
---------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; PROVIDED, HOWEVER, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may
A-7
<PAGE> 27
be purchased in whole or in part at any time during the term of such Incentive
Stock Option after such Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his or her lifetime, only by the Employee to whom the Committee grants
the Incentive Stock Option. The designation of a beneficiary does not constitute
a transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, a Change in
Control, or Termination for Cause, the Participant may exercise only those
Incentive Stock Options that were immediately exercisable by the Participant at
the date of such termination and only for a period of three (3) months following
the date of such termination, or, if sooner, until the expiration of the term of
the Option.
(f) Termination of Employment (Retirement). In the event of a
-------------------------------------------
Participant's Retirement, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of Retirement and only for a period of one (1) year from the date of Retirement
or, if sooner, until the expiration of the term of the Option; PROVIDED HOWEVER,
that upon the Participant's Retirement, the Committee, in its discretion, may
determine that all unvested Options shall continue to vest in accordance with
the Award Agreement if the Participant is immediately engaged by the Holding
Company or an Affiliate as a consultant or advisor or continues to serve the
Holding Company or an Affiliate as a director, advisory director or director
emeritus. Any Option originally designated as an Incentive Stock Option shall be
treated as a Non-Statutory Stock Option to the extent the Option does not
otherwise qualify as an Incentive Stock Option pursuant to Section 422 of the
Code.
(g) Termination of Employment (Disability or Death). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination,
or, if sooner, until the expiration of the term of the Option.
(h) Termination of Employment (Change in Control). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or service due to a Change in Control, the Participant may exercise
only those Incentive Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of one (1)
year following the date of such termination.
(i) Termination of Employment (Termination for Cause). Unless otherwise
---------------------------------------------------
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Disqualifying Dispositions. Each Award Agreement with respect to an
---------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock
A-8
<PAGE> 28
issued pursuant to the exercise of such Option under the circumstances described
in Section 421(b) of the Code (relating to certain disqualifying dispositions)
within 10 days of such disposition.
(l) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60-month period.
8. STOCK AWARDS.
------------
The Committee may make grants of Stock Awards, which shall consist of the
grant of some number of shares of Common Stock, to a Participant upon such terms
and conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
---------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, a Change
in Control, or Termination for Cause, any Stock Awards in which the Participant
has not become vested as of the date of such termination shall be forfeited and
any rights the Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). In the event of a
--------------------------------------------------
Participant's Retirement, any Stock Awards in which the Participant has not
become vested as of the date of Retirement shall be forfeited and any rights the
Participant had to such unvested Stock Awards shall become null and void;
PROVIDED HOWEVER, that upon the Participant's Retirement, the Committee, in its
discretion, may determine that all unvested Stock Awards shall continue to vest
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director, advisory director,
or director emeritus.
(e) Termination of Employment or Service (Disability or Death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Termination of Employment or Service (Change in Control). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to a Change in Control any Stock Awards in which the
Participant has not become vested as of the date of such termination shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void.
A-9
<PAGE> 29
(g) Termination of Employment or Service (Termination for Cause). Unless
-------------------------------------------------------------
otherwise determined by the Committee, in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.
(h) Maximum Individual Award. No individual Employee shall be granted an
-------------------------
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60-month period.
(i) Issuance of Certificates. Unless otherwise held in Trust and
--------------------------
registered in the name of the Trustee, reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Security Financial Bancorp, Inc. 2000
Stock-Based Incentive Plan and Award Agreement entered into between
the registered owner of such shares and Security Financial Bancorp,
Inc. or its Affiliates. A copy of the Plan and Award Agreement is on
file in the office of the Corporate Secretary of Security Financial
Bancorp, Inc., 9321 Wicker Avenue, St. John, Indiana 46373
Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8(h), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.
(j) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer,
assign, pledge, or otherwise encumber shares subject to the
Stock Award until full vesting of such shares has occurred.
For purposes of this section, the separation of beneficial
ownership and legal title through the use of any "swap"
transaction is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his or her lifetime only by the Participant to whom
it is granted. Upon the death of a Participant, a Stock Award
is transferable by will or the laws of descent and
distribution. The designation of a beneficiary shall not
constitute a transfer.
A-10
<PAGE> 30
(iii) If a recipient of a Stock Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock
subject to such Stock Award may not, without the written
consent of the Committee (which consent may be given in the
Award Agreement), be sold or otherwise disposed of within six
(6) months following the date of grant of the Stock Award.
(k) Treatment of Dividends. Whenever shares of Common Stock underlying a
----------------------
Stock Award are distributed to a Participant or beneficiary thereof under the
Plan (or at such other time as the Committee may determine with respect to a
Participant), such Participant or beneficiary shall also be entitled to receive,
with respect to each such share distributed, a payment equal to any cash
dividends or other distributions and the number of shares of Common Stock equal
to any stock dividends, declared and paid with respect to a share of the Common
Stock if the record date for determining shareholders entitled to receive such
dividends or other distributions falls between the date the relevant Stock Award
was granted and the date the relevant Stock Award or installment thereof is
issued. There shall also be distributed an appropriate amount of net earnings,
if any, of the Trust with respect to any dividends paid out on the shares
related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but for
-----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
9. PERFORMANCE AWARDS.
------------------
(a) The Committee may determine to make any Award under the Plan
contingent upon the satisfaction of any conditions related to the performance of
the Holding Company or an Affiliate. Each Performance Award shall be evidenced
in the Award Agreement, which shall set forth the applicable conditions, the
maximum amounts payable and such other terms and conditions as are applicable to
the Performance Award. Unless otherwise determined by the Committee, each
Performance Award shall be granted and administered to comply with the
requirements of Section 162(m) of the Code and subject to the following
provisions:
(i) Any Performance Award shall be made not later than 90 days
after the start of the period for which the Performance Award
relates and shall be made prior to the completion of 25% of
such period. All determinations regarding the achievement of
any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a
Performance Award that would otherwise be payable upon
satisfaction of the conditions but may reduce or eliminate the
payments as provided for in the Award Agreement.
(ii) 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.
A-11
<PAGE> 31
(iii) A Participant who receives a Performance Award payable in
Common Stock shall have no rights as a shareholder until the
Company Stock is issued pursuant to the terms of the Award
Agreement. The Common Stock may be issued without cash
consideration.
(iv) A Participant's interest in a Performance Award may not be
sold, assigned, transferred, pledged, hypothecated, or
otherwise encumbered.
(v) No Award or portion thereof that is subject to the
satisfaction of any condition shall be distributed or
considered to be earned or vested until the Committee
certifies in writing that the conditions to which the
distribution, earning or vesting of such Award are subject to
have been achieved.
10. DEFERRED PAYMENTS.
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any payment under the Plan otherwise due
upon exercise of an Option. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
11. METHOD OF EXERCISE OF OPTIONS.
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms permitted by the
Committee, including, without limitation, payment by delivery of cash, Common
Stock or other consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the day immediately preceding
the exercise date equal to the total Exercise Price, or by any combination of
cash, shares of Common Stock and other consideration, including exercise by
means of a cashless exercise arrangement with a qualifying broker-dealer, as the
Committee may specify in the applicable Award Agreement.
12. RIGHTS OF PARTICIPANTS.
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
13. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
A-12
<PAGE> 32
14. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock or other securities that may underlie future Awards under the
Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock or other securities underlying Awards already made under the
Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-Statutory Stock Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
15. TAXES.
-----
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing; PROVIDED, HOWEVER,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan. Furthermore, Participants may direct the Committee to instruct the
Trustee to sell shares of Common Stock to be delivered upon the payment of an
Award to satisfy tax obligations.
(b) If any disqualifying disposition described in Section 7(k) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 16 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; PROVIDED THAT, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
A-13
<PAGE> 33
16. NOTIFICATION UNDER SECTION 83(b).
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code, such
Participant shall notify the Committee of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
17. AMENDMENT OF THE PLAN AND AWARDS.
--------------------------------
(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; PROVIDED, HOWEVER, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by law, regulation or otherwise. Failure to
ratify or approve amendments or modifications by shareholders shall be effective
only as to the specific amendment or modification requiring such ratification or
approval. Other provisions of this Plan will remain in full force and effect. No
such termination, modification or amendment may adversely affect the rights of a
Participant under an outstanding Award without the written permission of such
Participant.
(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; PROVIDED,
HOWEVER, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
(i) Allowing any Option to be granted with an Exercise Price below
the Fair Market Value of the Common Stock on the Date of
Grant.
(ii) Allowing the Exercise Price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award or right so that pooling of interest accounting
is available.
A-14
<PAGE> 34
18. EFFECTIVE DATE OF PLAN.
----------------------
The Incentive Plan shall become effective: (i) immediately upon the
affirmative vote of a majority of the votes eligible to be cast at the Company's
annual meeting; or (ii) on January 5, 2001 provided the Incentive Plan is
approved only by a majority of the votes cast at the annual meeting.
19. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; or (ii) the issuance of a
number of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards is equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4 hereof. The Board of Directors
has the right to suspend or terminate the Plan at any time, provided that no
such action will, without the consent of a Participant, adversely affect a
Participant's vested rights under a previously granted Award.
20. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the State of
Delaware to the extent not pre-empted by applicable federal law.
21. TREATMENT OF UNVESTED, UNEXERCISED, OR NON-EXERCISABLE AWARDS UPON
------------------------------------------------------------------
A CHANGE IN CONTROL.
--------------------
In the event of a Change in Control where the Holding Company or the Bank
is not the surviving entity, the Board of Directors of the Holding Company
and/or the Bank, as applicable, shall require that the successor entity take one
of the following actions with respect to all Awards held by Participants at the
date of the Change in Control:
(a) Assume the Awards with the same terms and conditions as granted to the
Participant under this Plan;
(b) Replace the Awards with comparable Awards, subject to the same or more
favorable terms and conditions as the Awards granted to the Participant under
this Plan, whereby the Participant will be granted common stock or the option to
purchase common stock of the successor entity; or
(c) Replace the Awards with an immediate cash payment of equivalent value.
22. COMPLIANCE WITH CONVERSION REGULATIONS.
--------------------------------------
Notwithstanding any other provision contained in this Plan:
(a) Unless the Plan is approved by a majority vote of the outstanding
shares of the Holding Company eligible to be cast at a meeting of
stockholders to consider the Plan, as determined by Delaware law,
the Plan and any Awards under the Plan shall not become effective or
implemented prior to January 5, 2001;
A-15
<PAGE> 35
(b) No Options or Stock Awards granted to any individual Employee prior
to the first anniversary of the Bank's conversion from the mutual to
stock form ("Conversion") or January 5, 2001, may exceed 25% of the
total amount of Options or Stock Awards, as applicable, which may be
granted under the Plan;
(c) No Options or Stock Awards granted to any individual Outside
Director prior to the first anniversary of the Bank's Conversion or
January 5, 2001, may exceed 5% of the total amount of Options or
Stock Awards, as applicable, which may be granted under the Plan;
(d) The aggregate amount of Options or Stock Awards granted to all
Outside Directors prior to the first anniversary of the Bank's
Conversion or January 5, 2001, may not exceed 30% of the total
amount of Options or Stock Awards, as applicable, which may be
granted under the Plan; and
(e) No Option granted prior to the first anniversary of the Bank's
Conversion or January 5, 2001, may be granted with an exercise price
which is less than the Fair Market Value of the Common Stock
underlying the Option on the Date of Grant.
A-16
<PAGE> 36
REVOCABLE PROXY
SECURITY FINANCIAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 19, 2000
5:00 P.M., LOCAL TIME
-------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints the official proxy committee of Security
Financial Bancorp, Inc. (the "Company") with full power of substitution, to act
as proxy for the undersigned, and to vote all shares of common stock of the
Company which the undersigned is entitled to vote only at the annual meeting of
stockholders, to be held on October 19, 2000, at 5:00 p.m., local time, at the
Company's main office located at 9321 Wicker Avenue, St. John, Indiana and at
any and all adjournments thereof, with all of the powers the undersigned would
possess if personally present at such meeting as follows:
1. The election as Directors of all nominees listed (unless the "FOR ALL
EXCEPT" box is marked and the instructions below are complied with).
John P. Hyland, Tula Kavadias, John Wm. Palmer and Philip T. Rueth
FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- ------
|_| |_| |_|
INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name on the line provided below.
--------------------------------------------------------------------------------
2. The approval of the Security Financial Bancorp, Inc. 2000 Stock-Based
Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The ratification of the appointment of Crowe, Chizek and Company LLP
as independent auditors of Security Financial Bancorp, Inc. for the
fiscal year ending June 30, 2001.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSALS.
<PAGE> 37
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THE PROXIES
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. THIS PROXY ALSO CONFERS
DISCRETIONARY AUTHORITY ON THE BOARD OF DIRECTORS TO VOTE WITH RESPECT TO THE
ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEES ARE UNABLE TO SERVE OR FOR
GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE CONDUCT OF THE MEETING.
Dated:________________________________
-------------------------------------
SIGNATURE OF STOCKHOLDER
-------------------------------------
SIGNATURE OF CO-HOLDER (IF ANY)
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and of a
Proxy Statement dated September 19, 2000 and of the Annual Report to
Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
-----------------------------
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS WHITE PROXY IN THE
ENCLOSED POSTAGE-PAID WHITE ENVELOPE.
