<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Heritage Financial Services, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Heritage Financial Services, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[HERITAGE LOGO]
17500 Oak Park Ave.
Tinley Park, Illinois 60477
708 - 532 - 8000
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
APRIL 22, 1997
TO THE SHAREHOLDERS OF HERITAGE FINANCIAL SERVICES:
You are cordially invited to attend the Annual Meeting of Shareholders of
Heritage Financial Services, Inc. (the "Company"), which will be held on
Tuesday, April 22, 1997 at 2:00 p.m., local time, at Harris Trust and Savings
Bank, 111 West Monroe Street, Chicago, Illinois, for the following purposes:
1) To elect three Class I Directors; and
2) To consider such other matters as may properly come before the meeting or any
adjournments thereof.
Only shareholders of record at the close of business on February 24, 1997 will
be entitled to notice of and to vote at the Annual Meeting, and at any
adjournment thereof.
Accompanying this notice is a Proxy Statement and Form of Proxy. In addition, a
copy of each of the Summary Annual Report and the Report on Form 10-K for the
Year Ended December 31, 1996 has preceded or accompanies this notice.
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, PLEASE DATE, SIGN AND RETURN
PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO THAT YOUR SHARES MAY BE
VOTED AT THE MEETING.
By Order of the Board of Directors,
Ronald P. Groebe
RONALD P. GROEBE
Secretary
Tinley Park, Illinois
March 6, 1997
<PAGE> 3
[HERITAGE LOGO]
17500 Oak Park Ave.
Tinley Park, Illinois 60477
708 - 532 - 8000
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 1997
This Proxy Statement is furnished in connection with the solicitation of proxies
for use at the Annual Meeting of Shareholders of HERITAGE FINANCIAL SERVICES,
INC., an Illinois corporation (the "Company"), to be held on April 22, 1997, and
at any adjournments thereof. This Proxy Statement and accompanying proxy were
first mailed to shareholders on or about March 6, 1997. The accompanying proxy
is solicited on behalf of the Board of Directors of the Company and is revocable
by the shareholder giving it at any time before it is voted by filing with the
Secretary of the Company a notice of revocation or a duly executed proxy bearing
a later date, or by attending the meeting and voting in person. All shares
represented by each properly executed unrevoked proxy received in time for the
meeting will be voted.
The Board of Directors has fixed the close of business on February 24, 1997 as
the record date for the determination of shareholders entitled to vote at the
meeting and at any adjournments thereof. Each share is entitled to one vote at
the meeting. The presence in person or by proxy of the holders of a majority in
interest of the outstanding shares entitled to vote is required to constitute a
quorum for the transaction of business at the meeting. As of February 10, 1997,
there were outstanding 8,078,921 Common Shares, $.625 par value, of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation shows, as of February 10, 1997 unless otherwise
indicated, the name, address and Common Share ownership for certain shareholders
of the Company including each person known by the Company to be the beneficial
owner of more than five percent of the Company's outstanding Common Shares (the
only class of voting securities outstanding). Information with respect to
beneficial ownership is based on information furnished to the Company by such
shareholders or contained in the records of the Company.
Carl C. Greer has sole voting power over all of the 1,016,790 shares referred to
below under his heading, 771,920 as voting trustee under a Voting Trust
Agreement dated December 31, 1985 ("Voting Trust Agreement") and 244,870 as
President of Martin Marketing Corporation ("Martin Marketing"), the sole general
partner of Martin Oil Marketing, Ltd. ("Martin Oil Marketing") which holds such
shares. Mr. Greer has dispositive power (which may be shared with certain Martin
Marketing officers) over all the 244,870 Martin Oil Marketing shares and, as
beneficial owner, he has sole dispositive power over 260,210 of the 771,920
Voting Trust Agreement shares. Each of the beneficial owners of the remaining
511,710 Voting Trust Agreement shares has sole dispositive power over the shares
indicated below for each. Collectively, such beneficial owners and Mr. Greer
share dispositive power over all the Voting Trust Agreement shares. The term of
the Voting Trust Agreement has been extended and expires December 31, 2005,
subject to possible further extension.
<PAGE> 4
The Midwest Bank Fund II, L.P. ("BF II"), Banc Fund III L.P. and Banc Fund IV
L.P., all Illinois limited partnerships, Bank Fund III Trust and Banc Fund IV
Trust (collectively, the "Banc Funds") own an aggregate of 424,212 of the
Company's outstanding Common Shares. The business of the Banc Funds is to
provide financing to, and acquire equity interests in, banks and other
depository institutions and holding companies controlling such entities. The
Banc Funds are managed either by management companies through intervening
partnerships or by ABN AMRO Chicago Corporation, an investment services firm
registered as a broker/dealer in securities.
The executive officers and directors of the management companies are the same
and are composed of senior officers of ABN AMRO Chicago Corporation and the
individual manager of the Banc Funds. The sole stockholder of the management
companies and ABN AMRO Chicago Corporation is ABN AMRO Capital Markets Holding,
Inc. Investment decisions by BF II require the approval of its Investment
Committee, composed of James F. Ackerman, 8910 Purdue Road, Indianapolis, IN
46268, Richard A. Heise, 440 S. LaSalle St., Chicago, IL 60605, and Paul R.
Judy, 14 Country Lane, Northfield, IL 60093.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
COMMON SHARES COMMON
BENEFICIALLY SHARES
NAMES AND ADDRESSES OF BENEFICIAL OWNER OWNED OUTSTANDING
--------------------------------------- ------------- -----------
<S> <C> <C>
SHARES AS TO WHICH CARL C. GREER HAS SOLE VOTING POWER(1):
Carl C. Greer............................................... 381,420 4.7%
Mary W. Buschek............................................. 1,590(2) *
Martin Marketing Corporation................................ 2,450(3) *
Herbert A. Vance, Jr. ...................................... 11,458(4) *
Trusts/Trust Funds under the Will of Harold T. Martin,
deceased.................................................. 619,872(5) 7.7%(5)
--------- ----
Total....................................................... 1,016,790(6) 12.6%(6)
========= ====
THE MIDWEST BANK FUND II, L.P., BANC FUND III L.P., BANC
FUND IV L.P., BANK FUND III TRUST AND BANC FUND IV
TRUST (7)................................................. 424,212 5.3%
HERITAGE FINANCIAL SERVICES PROFIT SHARING TRUST (8)........ 446,333 5.7%
</TABLE>
- ------------
* Not greater than 1%
(1) The address for each of the five persons listed under the Greer heading in
the table is P.O. Box 298, Blue Island, Illinois 60406. The nature of their
beneficial ownership is sole voting and investment power, except as
described above and set forth in the footnotes below.
(2) All such shares are held of record by Mr. Greer as voting trustee under the
Voting Trust Agreement.
(3) All such shares are held by Martin Oil Marketing.
(4) Of such 11,458 shares, 9,260 are held of record by Mr. Greer as voting
trustee under the Voting Trust Agreement and 2,198 of such shares are held
by Martin Oil Marketing.
(5) Of such 619,872 shares, 500,860 are held of record by Mr. Greer as voting
trustee under the Voting Trust Agreement and 119,012 of such shares are held
by Martin Oil Marketing.
(6) Mr. Greer has sole voting power over such 1,016,790 shares, 771,920 as
voting trustee under the Voting Trust Agreement and 244,870 as President of
Martin Marketing. The testamentary trusts created under the Will of Harold
T. Martin, deceased, may be deemed the beneficial owner of approximately
619,872 of such 1,016,790 shares, or 7.7% of the shares of the Company. The
trustees of such testamentary trusts are E.W. Martin, M.E. Buschek, J.M.
Brown and M.M. Sullivan.
(7) The address of the Banc Funds, their management and ABN AMRO Chicago
Corporation is 208 S. LaSalle Street, Chicago, IL 60604. The Banc Funds have
the sole power to vote or to direct the vote, and the sole power to dispose
or to direct the disposition of, all of the shares beneficially owned by
them as set forth opposite their names above.
(8) As of December 31, 1996. The address for the Trust is 17500 S. Oak Park
Avenue, Tinley Park, Illinois 60477. The nature of beneficial ownership is
sole voting power, with no investment power. The shares are voted by Messrs.
Wojcik, Sampias, Groebe, Barry and another bank officer as trustees.
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation shows the Common Share ownership (including exercisable
options) for each Director and nominee for Director, each of the executive
officers named in the Summary Compensation Table and all Directors and executive
officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
COMMON SHARES OUTSTANDING
BENEFICIALLY COMMON SHARES
OWNED OWNED
(INCLUDING (INCLUDING
EXERCISABLE EXERCISABLE
NAME OF BENEFICIAL OWNER OPTIONS)(1) OPTIONS)
------------------------ ------------- -------------
<S> <C> <C>
Richard T. Wojcik........................................... 331,578(2) 4.1%
Frederick J. Sampias........................................ 209,777(3) 2.6%
Ronald P. Groebe............................................ 154,236(4) 1.9%
John J. Gallagher........................................... 74,050 *
Lael W. Mathis.............................................. 90,150(5) 1.1%
Jack Payan.................................................. 9,570(6) *
Arthur E. Sieloff........................................... 10,750(7) *
John L. Sterling............................................ 113,894(8) 1.4%
Chester Stranczek........................................... 330,600(9) 4.1%
Arthur G. Tichenor.......................................... 374,403 4.6%
Dominick J. Velo............................................ 43,764(10) *
John E. Barry............................................... 95,785(11) 1.2%
Paul A. Eckroth............................................. 79,750(12) *
All Directors and executive officers as a group (14 persons) 2,004,181(13) 24.8%
</TABLE>
- ------------
* Not greater than 1%
(1) As of February 10, 1997, except as otherwise indicated. The nature of
beneficial ownership is sole voting and investment power, except as set
forth in the footnotes below. Information with respect to beneficial
ownership is based on information furnished to the Company by the
shareholders or contained in the records of the Company. Fractional shares
subject to options are not reflected.
(2) Includes 18,958 shares held in a self-directed IRA trust and Keogh trust
for the benefit of Mr. Wojcik, 172,563 shares held in trust by Mr. Wojcik
and 101,450 shares which may be acquired upon the exercise of stock
options. Includes 38,606 shares held for the benefit of Mr. Wojcik in the
Company's Profit Sharing Trust as of December 31, 1996 but excludes the
other shares referred to in footnote 13 below.
(3) Includes 82,432 shares held in trust by Mr. Sampias, 5,576 shares held in
custody for the benefit of Mr. Sampias, 2,648 shares held in trust for the
benefit of Mr. Sampias, 86,550 shares which may be acquired upon the
exercise of stock options, 2,654 shares held in trust for the benefit of
his wife, 1,500 shares held by his wife as custodian for their son and 300
shares held by their son. Includes 28,116 shares held for the benefit of
Mr. Sampias in the Company's Profit Sharing Trust as of December 31, 1996
but excludes the other shares referred to in footnote 13 below.
(4) Includes 13,463 shares held in a self-directed IRA trust and Keogh Plan for
the benefit of Mr. Groebe, 1,364 shares held in trust for the benefit of
his wife and 62,425 shares which may be acquired upon the exercise of stock
options. Includes 26,680 shares held for the benefit of Mr. Groebe in the
Company's Profit Sharing Trust as of December 31, 1996 but excludes the
other shares referred to in footnote 13 below.
(5) Includes 43,850 shares held in trust by Mr. Mathis and 46,300 shares held
in trust by his wife.
(6) Includes 2,820 shares held in trust by Mr. Payan, 5,750 shares held in
trust by his wife and 1,000 shares held by a corporation owned by Mr. Payan
and his wife.
(7) Includes 10,000 shares held in joint tenancy with Mr. Sieloff's wife.
(8) Includes 8,000 shares held in joint tenancy with his wife, 21,552 shares
held as custodian for Mr. Sterling's children, 81,842 shares held in trust
for the benefit of Mr. Sterling and his wife and 2,300 shares held by Mr.
Sterling's son.
3
<PAGE> 6
(9) Includes 253,000 shares held in trust by Mr. Stranczek, 72,100 shares held
in trust for the benefit of Mr. Stranczek and 5,000 shares held by Mr.
Stranczek's wife as trustee for a relative.
(10) Includes 36,764 shares held by the D.J. Velo & Company Profit Sharing Trust
of which Heritage Trust Company is the Trustee and Mr. Velo is one of the
beneficiaries, 5,000 shares held in joint tenancy with his wife and 2,000
shares held by Mr. Velo's wife in joint tenancy with another relative.
(11) Includes 53,575 shares which may be acquired upon the exercise of stock
options and 10,940 shares held for the benefit of Mr. Barry in the
Company's Profit Sharing Trust as of December 31, 1996 but excludes the
other shares referred to in footnote 13 below.
(12) Includes 36,500 shares held by Mr. Eckroth in joint tenancy with his wife
and 43,250 shares which may be acquired upon the exercise of stock options.
(13) Excludes 446,333 shares as of December 31, 1996 voted by Messrs. Wojcik,
Sampias, Groebe, Barry and another bank officer as the trustees of the
Heritage Financial Services Profit Sharing Trust, except to the extent held
for such named officers' individual benefit and hence included as indicated
in the foregoing footnotes. Includes 48,600 shares which may be acquired
upon the exercise of stock options by, and 9,274 shares held as of December
31, 1996 in the Company's Profit Sharing Trust for the benefit of, an
executive officer not named above.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board of Directors of
the Company shall be divided into three classes, such classes to be as nearly
equal in number as possible, and that each year the shareholders shall elect the
members of one of the three classes to three-year terms of office.
The Board of Directors currently consists of 11 Directors, three in Class I
(whose terms of office will expire at the 1997 annual meeting), four in Class II
(whose terms of office will expire at the 1998 annual meeting) and four in Class
III (whose terms will expire at the 1999 annual meeting). Accordingly, three
Class I Directors will be elected by the shareholders at the 1997 annual
meeting, each for terms of three years (until the 2000 annual meeting) and until
such Director's successor is elected and qualified or until such Director's
earlier death, resignation or removal.
The Board of Directors proposes the election of Ronald P. Groebe, John L.
Sterling and Chester Stranczek as Class I Directors, each of whom is an
incumbent Class I Director. It is intended that shares represented by the
proxies will be voted for the election of Messrs. Groebe, Sterling and Stranczek
as Class I Directors of the Company. The affirmative vote of a majority of the
shares represented and entitled to vote at the meeting is necessary to elect
each nominee. In the event that any such nominee becomes unavailable for
election for any reason, which is not anticipated, the shares represented by the
proxies will be voted for any substitute nominee designated by the Board of
Directors of the Company, unless the Board reduces the number of Directors. As
indicated in the accompanying proxy, the authority to vote for the election of
Directors or for any individual nominee or nominees may be withheld by the
shareholder giving the proxy. Unless authority to vote is so withheld, the proxy
will be voted for the election of the nominees as Directors. Proxies will not be
voted for a greater number of persons than the number of nominees named below.
Management knows of no business to be transacted at the meeting other than that
set forth in this Proxy Statement, but if other matters requiring a vote of the
shareholders arise, the persons designated as proxies will vote the shares
represented by the proxies in accordance with their judgment on such matters.
Each nominee for Class I Director named below was elected a Director of the
Company at the 1994 Annual Meeting of Shareholders; each Class II Director named
below was elected a Director at the 1995 Annual Meeting;
4
<PAGE> 7
and each Class III Director named below was elected a Director at the 1996
Annual Meeting. Such individuals, and certain information concerning them as
furnished by them, are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME (AGE) AND POSITIONS WITH THE COMPANY
---------- --------------------------------------------------------
<S> <C>
CLASS I (NOMINEES FOR ELECTION FOR TERMS OF OFFICE
EXPIRING AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS)
Ronald P. Groebe (57)........................... Senior Executive Vice President and Secretary of
Heritage Bank and the Company
John L. Sterling (53)........................... President, Sterling Lumber Company
Chester Stranczek (67).......................... Chairman, Cresco Lines, Inc.
CLASS II (INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE WILL
EXPIRE AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS)
Frederick J. Sampias (49)....................... President of Heritage Bank and the Company
John J. Gallagher (70).......................... Chairman, Gallagher Asphalt Corporation
Lael W. Mathis (62)............................. President, G.E. Mathis Company
Arthur E. Sieloff (74).......................... Senior Vice President and Partner, Wm. C. Groebe & Co.
CLASS III (INCUMBENT DIRECTORS WHOSE TERMS OF OFFICE WILL
EXPIRE AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS)
Richard T. Wojcik (58).......................... Chairman and Chief Executive Officer of Heritage Bank
and the Company
Jack Payan (66)................................. Senior Executive, Payan, Alberts & Thompson, Ltd.
Arthur G. Tichenor (83)......................... Chairman of the Board, California Amforge Corporation
Dominick J. Velo (79)........................... Chairman, D.J. Velo & Company
</TABLE>
Each of the nominees and other incumbent Directors has been a Director of the
Company, including its predecessor by merger, since its incorporation in 1981,
except Mr. Stranczek, who became a Director in 1983, Mr. Groebe, who became a
Director in 1984 and Messrs. Payan and Sieloff, who became Directors in 1995.
Each also has been a Director of Heritage Bank, a subsidiary of the Company, for
more than the past five years. Messrs. Wojcik, Sampias and Groebe are also
directors of the Company's other subsidiaries, the First National Bank of
Lockport and Heritage Trust Company.
Mr. Wojcik has been Chairman of the Board and Chief Executive Officer of the
Company and Heritage Bank and Chairman of the Board and President of Heritage
Trust Company for more than the past five years. He currently serves as Chairman
of the Board and a Director of the First National Bank of Lockport and served in
such positions for Heritage Bank Country Club Hills from January 1992 until that
bank's merger into Heritage Bank in October 1992, Heritage Bank Alsip from
December 1992 until that bank's merger into Heritage Bank in April 1993 and
Heritage Bank Midlothian from July 1994 until that bank's merger into Heritage
Bank in October 1994.
Mr. Sampias has been President and a Director of the Company and Heritage Bank
and Vice Chairman and a Director of Heritage Trust Company for more than the
past five years. He currently serves as President and a Director of the First
National Bank of Lockport and served in such positions for Heritage Bank Country
Club Hills from January 1992 until that bank's merger into Heritage Bank in
October 1992, Heritage Bank Alsip from December 1992 until that bank's merger
into Heritage Bank in April 1993 and Heritage Bank Midlothian from July 1994
until that bank's merger into Heritage Bank in October 1994.
Mr. Groebe has been a Director of the Company, Heritage Bank and Heritage Trust
Company for more than the past five years. He has been the Senior Executive Vice
President of the Company and Heritage Bank since April, 1993 and prior to that
was the Executive Vice President of the Company and the Bank for more than the
past five years. Mr. Groebe served as Executive Vice President, Secretary and a
Director of Heritage Bank Country Club Hills from January 1992 until that bank's
merger into Heritage Bank in October 1992 and of Heritage Bank Alsip
5
<PAGE> 8
from December 1992 until that bank's merger into Heritage Bank in April 1993. He
currently serves as Senior Executive Vice President, Secretary and a Director of
the First National Bank of Lockport and served in such positions for Heritage
Bank Midlothian from July 1994 until that bank's merger into Heritage Bank in
October 1994.
Mr. Gallagher has been Chairman or President of Gallagher Asphalt Corporation,
asphalt paving contractors, for more than the past five years.
Mr. Mathis has been President of G. E. Mathis Company, a steel fabricator, for
more than the past five years.
Mr. Payan has been a Senior Executive of Payan, Alberts & Thompson, Ltd., an
independent insurance agency, for more than the past five years.
Mr. Sieloff has been Senior Vice President and Partner or Vice President of Wm.
C. Groebe & Co., a real estate company, for more than the past five years.
Mr. Sterling has been President of and has owned and operated Sterling Lumber
Company for more than the past five years. He served as a Director of Heritage
Bank Country Club Hills from January 1992 until that bank's merger into Heritage
Bank in October 1992, of Heritage Bank Alsip from December 1992 until that
bank's merger into Heritage Bank in April 1993 and of Heritage Bank Midlothian
from July 1994 until that bank's merger into Heritage Bank in October 1994.
Mr. Stranczek has been Chairman or President of Cresco Lines, Inc., a trucking
company, for more than the past five years.
Mr. Tichenor has been Chairman of the Board of California Amforge Corporation, a
manufacturer of forgings, for more than the past five years.
Mr. Velo has been Chairman of D.J. Velo & Company, a general contractor, for
more than the past five years. He served as a Director of Heritage Bank Country
Club Hills from January 1992 until that bank's merger into Heritage Bank in
October 1992, of Heritage Bank Alsip from December 1992 until that bank's merger
into Heritage Bank in April 1993 and of Heritage Bank Midlothian from July 1994
until that bank's merger into Heritage Bank in October 1994.
CONCERNING THE BOARD OF DIRECTORS
During the year ended December 31, 1996, the Board of Directors held 13
meetings. In 1996, each of the current Directors, except Messrs. Gallagher,
Mathis and Stranczek, attended 75% or more of the total of meetings held by the
Board and the committees of which he was a member.
The Board of Directors has an Audit Committee comprised of Messrs. Payan,
Sterling and Tichenor. The principal duties of the committee include
recommending independent public accountants; reviewing the scope and findings of
the independent public accountants' annual audit; and overseeing the internal
audit function. In the year ended December 31, 1996, the Audit Committee held
three meetings. The Board of Directors of the Company does not have a standing
nominating committee. It has a Compensation Committee which held three meetings
in 1996. The committee's functions and the names of its members are set forth
below in its report.
Currently, each Director of the Company receives an annual fee of $8,000 for
these services. Each is also a Director of Heritage Bank and receives an annual
fee of $8,000 for these services, which is paid by Heritage Bank. In addition,
Directors receive a $500 fee for attendance at certain meetings of committees of
the Boards of the Company and Heritage Bank.
Directors and executive officers of the Company and their associates and
families were customers of, and had transactions with, Heritage Bank during
1996, and, at December 31, 1996, were indebted to Heritage Bank in the aggregate
amount of $9,056,000. All such outstanding loans, commitments to make loans,
transactions in repurchase agreements and certificates of deposit and depository
relationships, in the opinion of management, were made in the ordinary course of
business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the
6
<PAGE> 9
normal risk of collectibility or present other unfavorable features. Additional
transactions may be expected to take place in the future.
Mr. Payan is employed by Payan, Alberts & Thompson, Ltd. ("P,A&T"), which is
owned in part by three of his sons and which provides services as insurance
agent to the Company. In 1996 the Company paid P,A&T approximately $314,000,
including premiums, for business insurance coverage. In addition, P,A&T served
as agent with respect to the Company's employee group insurance coverage, for
which approximately $931,000 was paid directly to the insurers in 1996. As
agent, P,A&T solicits competitive bids for all of the business and employee
group insurance coverage.
The Company has an indemnification agreement with each Director of the Company
which provides that the Company shall indemnify the Director against certain
claims which may be asserted against the Director by reason of serving on the
Board.
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Company's Common Shares ("Company Index") for the last five years with the
cumulative total returns for the CRSP NASDAQ Stock Market (U.S. Companies) index
("Market Index") and the CRSP NASDAQ Holding Offices index (1) ("Peer Index")
over the same period. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS(2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD COMPANY MARKET PEER
(FISCAL YEAR COVERED) INDEX INDEX INDEX
<S> <C> <C> <C>
12/31/91 100 100 100
12/31/92 133 116 145
12/31/93 163 134 163
12/30/94 172 131 162
12/29/95 206 185 241
12/31/96 233 227 318
</TABLE>
- ------------
(1) The Holding Offices peer index represents NASDAQ U.S. companies which are
primarily engaged in holding or owning the securities of banks or other
financial companies.
(2) The indices, as well as the graph data, were prepared by the Center for
Research in Security Prices ("CRSP") of the University of Chicago Graduate
School of Business. The graph amounts represent year-end index levels
derived from compounded daily returns that include all dividends. The graph
assumes that the value of the investment in the Company's Common Shares (and
in each of the other indices) was $100 on December 31, 1991.
7
<PAGE> 10
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") is comprised of Messrs. Mathis,
Sieloff, Sterling and Velo, all of whom are Directors of the Company and its
principal subsidiary, Heritage Bank (the "Bank"), and none of whom is a former
or current officer or employee of the Company or any of its subsidiaries. The
Committee is responsible for administering, setting and approving annual
compensation and incentive awards affecting the Company's executive officers (as
disclosed in the Summary Compensation Table below) as well as other elected
officers of the Bank. It does not itself determine awards under the Company's
1990 Executive Equity Incentive Plan ("Stock Incentive Plan"), which are made by
the stock option committee described below.
In general the Company's compensation programs, which affect executive officers
and other elected officers, are balanced to provide competitive salaries
combined with incentive compensation which is substantially contingent upon the
annual earnings and growth performance of the Company. To promote long term
performance, awards of stock options have been made to certain employees under
the Stock Incentive Plan and its predecessor stock option plan. The Company's
Board of Directors believes that stock options align the interests of
shareholders and employees through the appreciation in the value of the
Company's Common Shares.
The Committee reviewed and set 1996 salaries for Messrs. Wojcik, Sampias,
Groebe, Barry and another executive officer and reviewed and approved 1996
salary recommendations made by management regarding Mr. Eckroth and the other
elected officers of the Bank. The 1996 base salaries of executive officers,
including Mr. Wojcik, Chairman and CEO, and the salaries of the other elected
officers of the Bank have been established primarily based on surveys of
competitive salaries being paid to officers with similar responsibilities in
peer group banks. To a lesser extent, increases in base salaries of executive
officers and other elected officers have also been adjusted to recognize the
Company's growth and corresponding increase in officers' responsibilities.
The Committee also approved the incentive compensation paid to executive
officers and other elected officers based upon the achievement of annual Company
net income and growth goals and accomplishment of individual management
objectives established at the beginning of the year. The amount of incentive
compensation is based upon an officer's level of responsibility and contribution
to the Company's achievement of its financial performance goals. For executive
officers, incentive compensation, as a percentage of base salary, can range from
0% to a maximum of approximately 50%. The incentive compensation paid to Mr.
Wojcik for 1996 was based solely upon the financial performance of the Company
and represented approximately 50% of his base salary.
All Directors of the Company, except those who are officers/employees, serve as
a stock option committee which administers and approves awards under the Stock
Incentive Plan. On an annual basis the stock option committee determines which
employees receive grants of stock options and accompanying limited stock
appreciation rights ("LSARs") under the Stock Incentive Plan and the number of
shares subject to each award. In 1996 the committee made no stock option or LSAR
awards.
Lael W. Mathis Arthur E. Sieloff John L. Sterling Dominick J.Velo
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<PAGE> 11
SUMMARY COMPENSATION TABLE
The following table sets forth the indicated compensation with respect to each
of the last three fiscal years for the Company's Chief Executive Officer and its
four other most highly compensated executive officers:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- -------
---------------------------------- SECURITIES
INCENTIVE UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OTHER(1) OPTIONS LTIP COMPENSATION(2)
--------------------------- ---- -------- ------------ -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard T. Wojcik............................ 1996 $246,000 $125,000 $64,629 -- -- $17,994
Chairman and Chief 1995 240,000 120,000 72,682 -- -- 19,560
Executive Officer 1994 225,000 120,000 50,391 13,000 -- 22,500
Frederick J. Sampias......................... 1996 205,000 100,000 11,620 -- -- 17,994
President 1995 200,000 94,000 13,609 -- -- 19,560
1994 188,000 89,000 5,592 11,000 -- 22,500
Ronald P. Groebe............................. 1996 149,000 58,000 11,641 -- -- 17,994
Senior Executive Vice 1995 145,000 55,000 13,438 -- -- 19,560
President and Secretary 1994 135,000 55,000 6,596 7,900 -- 22,500
John E. Barry................................ 1996 139,000 55,000 -- -- -- 17,994
Executive Vice President 1995 135,000 52,000 -- -- -- 19,560
1994 127,000 47,000 -- 7,300 -- 22,500
Paul A. Eckroth.............................. 1996 111,000 50,000 -- -- -- 17,994
Executive Vice President 1995 105,000 38,000 -- -- -- 18,345
and Treasurer 1994 99,000 36,000 -- 5,400 -- 19,931
</TABLE>
- ------------
(1) Amounts shown for certain officers include that portion of income earned on
deferred compensation accounts above 120% of the applicable federal
long-term rate.
(2) Amounts shown in this column represent contributions allocated to each
officer under the Company's profit sharing plan.
OPTION EXERCISES AND YEAR-END VALUE TABLE
For each of the executive officers named in the Summary Compensation Table
above, the following table sets forth the number of shares acquired and value
realized on exercise of stock options and the indicated year-end 1996 value and
number of unexercised options.
<TABLE>
<CAPTION>
EXERCISE OF OPTIONS # OF SECURITIES VALUE OF UNEXERCISED
IN 1996 UNDERLYING UNEXERCISED IN-THE-MONEY
---------------------- OPTIONS AT OPTIONS AT
# OF DECEMBER 31, 1996 DECEMBER 31, 1996(1)
SHARES VALUE --------------------------- ---------------------------
NAME ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Wojcik............................ 9,250 $122,444 162,675 10,275 $2,151,169 $61,756
Frederick J. Sampias......................... 4,500 58,838 146,100 8,700 1,950,625 52,300
Ronald P. Groebe............................. 4,923 71,516 102,840 6,250 1,365,974 37,575
John E. Barry................................ 6,000 78,450 78,375 5,775 1,013,344 34,719
Paul A. Eckroth.............................. 2,275 33,571 68,825 4,250 916,783 25,513
</TABLE>
- ------------
(1) Based on the Common Share closing price of $21.25 at December 31, 1996.
EMPLOYMENT AND TERMINATION BENEFITS AGREEMENTS
The Company has an Employment Agreement with each of Messrs. Wojcik, Sampias,
Groebe and Eckroth. The Agreements provide for salaries and other compensation
as may be authorized by the Board of Directors, subject to specified salary
minimums. The current term under the Agreements expires December 31, 1999. The
Agreements may be terminated by the Company with or without cause or upon the
disability of the employee. Upon termination without cause (including,
generally, within two to three years after a change in control of the Company),
the Company is obligated to pay the employee his base compensation for a three
year period beginning on the date of termination. Base compensation generally
represents the average of the last five years' compensation. In the event of
termination upon disability, the Company is obligated to pay the employee, at an
annual rate equal to one and one-half times his base compensation, less
Company-provided disability insurance benefits, for the lesser of two years or
the remainder of the term. The Company has an Employment Termination Benefits
Agreement with Mr. Barry which provides that, upon his termination (other than
for cause, disability or death) generally within two years after
9
<PAGE> 12
a change in control of the Company, the Company is obligated to pay his base
compensation for a two year period beginning on the date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As indicated above, Directors, including Messrs. Mathis, Sieloff, Sterling and
Velo, who are members of the Compensation Committee, and their associates and
families, were indebted to Heritage Bank during 1996. All such outstanding
loans, commitments to make loans, transactions in repurchase agreements and
certificates of deposit and depository relationships, in the opinion of
management, were made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and regulations thereunder
require directors and certain officers of the Company and persons who
beneficially own more than 10% of the Company's stock to file initial reports of
ownership and reports of changes in ownership of the Company's stock with the
Securities and Exchange Commission and to furnish the Company with copies of
such reports. Based solely upon a review of copies of such reports furnished to
the Company and representations of reporting persons, all such persons filed on
a timely basis reports required by Section 16(a) during the most recent fiscal
year.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountants for 1997, 1996 and 1995 are Arthur
Andersen LLP, who were engaged as the independent public accountants for the
Company and its subsidiaries on February 15, 1995. A representative of Arthur
Andersen LLP is expected to be present at the meeting, with the opportunity to
make a statement if the representative desires to do so, and will be available
to respond to questions.
The Company's independent accountant until February 15, 1995, when the Company
changed accountants, was Deloitte & Touche LLP, which had been the Company's
independent accountant for 1994 and prior years since 1985. In connection with
the audits of the fiscal years ended December 31, 1994 and 1993 neither of the
principal accountant's reports on the financial statements contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to uncertainty,
audit scope, or accounting principles. During the Company's two most recent
fiscal years and any subsequent interim period preceding the change in
accountants, there were no disagreements with the former accountant on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The decision to change accountants was recommended
by the Audit Committee and approved by the Board of Directors of the Company.
SHAREHOLDER PROPOSALS
Shareholders who desire to submit proposals for inclusion in the proxy statement
of the Board of Directors to be utilized in connection with the 1998 Annual
Meeting of Shareholders must submit such proposals to the Secretary of the
Company no later than November 6, 1997.
GENERAL
The cost of soliciting proxies will be borne by the Company. In addition to the
use of the mails, proxies may be solicited by personal interview, telephone,
telecopy, telex and telegraph, and by Directors, officers and regular employees
of the Company without special compensation therefor. The Company will also
arrange for the forwarding of proxy materials to the beneficial owners of Common
Shares held of record on the record date by banks, brokers, dealers and other
nominees, whose reasonable expenses in handling proxy material with beneficial
owners will be reimbursed by the Company. Harris Trust and Savings Bank, the
Company's Transfer Agent, will perform certain of the above services. Management
knows of no other business other than that set forth above to be
10
<PAGE> 13
transacted at the meeting, but if other matters requiring a vote of the
shareholders arise, the persons designated as proxies will vote the shares
represented by the proxies in accordance with their judgment on such matters.
By Order of the Board of Directors,
Ronald P. Groebe
RONALD P. GROEBE,
Secretary
Tinley Park, Illinois
March 6, 1997
[HERITAGE LOGO]
11
<PAGE> 14
PROXY
(logo)
HERITAGE FINANCIAL SERVICES
Proxy for Annual Meeting of Shareholders to be held April 22, 1997
Solicited on Behalf of the Board of Directors
The undersigned, a shareholder of Heritage Financial Services, Inc., an
Illinois corporation (the "Company"), does hereby constitute and appoint
Richard T. Wojcik, Frederick J. Sampias and Ronald P. Groebe, or any of them,
as attorneys and proxies of the undersigned, with power of substitution, acting
by a majority of those present and voting, or if only one is present and
voting, then that one, to vote the common shares of the Company which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held at Harris Trust and Savings Bank, 111 West Monroe Street, Chicago,
Illinois on Tuesday, April 22, 1997 at 2:00 p.m. local time, and at any
adjournment thereof, with all powers the undersigned would possess if present,
hereby revoking any proxy heretofore given:
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
(Please date and sign on reverse side.)
<PAGE> 15
HERITAGE FINANCIAL SERVICES
Please mark vote in oval in the following manner using dark ink only.
1. Election of Directors -- For Withhold For All
Nominees: Class I (term to expire 2000): All All Except*
R.P. Groebe, J.L. Sterling, C. Stranczek / / / / / /
__________________________________________
*(Except nominee(s) written above.)
The Board of Directors recommends a vote FOR all proposals.
2. In their discretion, upon such other matters as may properly come before
the meeting or any adjournments thereof.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted "FOR" Item Number 1 above.
Please date, sign and return this proxy promptly.
Dated: _________________________________, 1997
Signature(s) _____________________________________________________________
_________________________________________________________________________
Please date and sign exactly as your name appears. Joint owners should each
sign. Where applicable, indicate your official position or
representative capacity.
