<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
OLD SECOND BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
OLD SECOND BANCORP, INC.
37 South River Street, Aurora, IL. 60507 (630) 892-0202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 18, 2000.
TO THE STOCKHOLDERS OF OLD SECOND BANCORP, INC.
The Annual Meeting of Stockholders of Old Second Bancorp, Inc., will be held on
Tuesday, April 18, 2000, at 11:00 a.m., Central Time, at the Corporation's
premises at 37 South River Street, Aurora, Illinois, for the following purposes:
1. The election of three directors to serve for a term of three years
each; and the election of a director to serve for a term of one year.
The Board of Directors' nominees are listed in the Proxy Statement;
2. The ratification and approval of the selection of Ernst & Young,
L.L.P., as the Corporation's independent accountants for the fiscal
year ending December 31, 2000; and
3. The transaction of such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The Board of Directors of the Corporation has fixed the close of business on
March 1, 2000, as the record date for the determination of stockholders entitled
to notice of and to vote at this meeting and at any and all postponements or
adjournments thereof.
By Order of the Board of Directors
/s/ James Bension
James Benson
Chairman
/s/ William Skoglund
William Skoglund
Chief Executive Officer
and President
Aurora, Illinois
March 14, 2000
YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting in person, please date, sign and return
your proxy in the enclosed envelope. Prompt response is helpful and your
cooperation will be appreciated.
<PAGE>
OLD SECOND BANCORP, INC.
37 South River Street, Aurora, IL. 60507 (630) 892-0202
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Old Second Bancorp, Inc., a Delaware corporation, 37 South
River Street, Aurora, Illinois 60507, of proxies to be used at the Annual
Meeting of Stockholders of the Corporation to be held at the Corporation's
premises at 37 South River Street, Aurora, Illinois on April 18, 2000, at 11:00
a.m., central time, and at any and all postponements or adjournments thereof.
A form of proxy is enclosed for use at the meeting. If the proxy is executed and
returned, it may nevertheless be revoked at any time insofar as it has not been
exercised. Stockholders attending the meeting may, on request, vote their own
shares even though they have previously sent in a proxy. Unless revoked or
instructions to the contrary are contained in the proxies, the shares
represented by validly executed proxies will be voted at the meeting and will be
voted: (i) for the election of the nominees for director named below; (ii) for
the ratification and approval of the selection of Ernst & Young, L.L.P. as the
Corporation's independent accountants for the fiscal year ending December 31,
2000; and (iii) in the discretion of the named proxies upon such other matters
as may properly come before the meeting or at any postponement or adjournment
thereof.
In order to be elected as a director, a nominee must receive a plurality of the
votes cast at the meeting for the election of directors. Since the four nominees
receiving the largest number of affirmative votes will be elected, shares
represented by proxies which are marked "withhold authority" or "abstain" will
have no effect on the outcome of the election. Ratification and approval of the
selection of Ernst & Young, L.L.P. as the Corporation's independent accountants
requires the affirmative vote of at least a majority of the votes cast at the
meeting on such matter. Shares represented by proxies which are marked "abstain"
as to any such matter will be counted as votes cast, which will have the same
effect as a negative vote on such matter. Proxies relating to "street name"
shares which are not voted by brokers on one matter will be treated as shares
present for purposes of determining the presence of a quorum but will not be
treated as votes cast as to such matter not voted upon.
A copy of the Corporation's Annual Report for the fiscal year ended December 31,
1999, which includes audited financial statements is enclosed. This Proxy
Statement was mailed to stockholders on or about March 14, 2000.
2
<PAGE>
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the directors and officers to file reports of ownership and
changes in ownership of the Corporation's Common Stock with the Securities and
Exchange Commission. The Corporation is required to disclose in this proxy
statement any late filings of those reports made by its directors and executive
officers in fiscal 1999. Under the Section 16(a) rules and subject to certain
exceptions, directors and executive officers are required to file a Form 4 on or
before the tenth day after the end of the month in which a change in beneficial
ownership has occurred. There are no delinquent filings to report for the fiscal
year ended December 31, 1999.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of Common Stock of record at the close of business on March 1,
2000, will be entitled to vote at the Annual Meeting of Stockholders. At such
date, the Corporation had outstanding 5,943,326 shares of Common Stock. Each
share of Common Stock entitled the holder to one vote upon each matter to be
voted at the meeting.
To the best of the knowledge of the Corporation, no person, other than the Trust
Department of The Old Second National Bank of Aurora ("Old Second"), owned
beneficially more than 5% of the outstanding voting securities of the
Corporation as of December 31, 1999.
<TABLE>
<CAPTION>
- ----------------------------------------- --------------------------------------------------------------
Name & Address Number and Percent of Shares
Beneficially Owned
- ----------------------------------------- --------------------------------------------------------------
<S> <C>
Old Second Bancorp, Inc. 458,936 (7.7%) of the
Profit Sharing Plan & Trust Corporation's Common
37 South River Street Stock
Aurora, Illinois 60507
- ----------------------------------------- --------------------------------------------------------------
</TABLE>
In addition, as of December 31, 1999, Old Second held in its Trust Department,
in various fiduciary capacities (other than as trustee of the Corporation's
Profit sharing Plan and Trust) 651,951 shares of the Corporation's Common Stock,
(10.9% of the total outstanding shares). Old Second had full voting power with
respect to 357,241 of such shares (6.0 % of the total outstanding shares) and no
voting power with respect to the remaining shares. Old Second had full
investment power with respect to 167,070 shares (2.8% of the total outstanding
shares) and shared investment power with respect to 180,995 shares (3.0% of the
total outstanding shares).
The following table sets forth information as of December 31, 1999, with respect
to the ownership of shares of the Corporation's Common Stock held by each
director, director nominee, each executive officer and all directors, and
executive officers of the Corporation as a group based upon information received
from such persons.
3
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORPORATION COMMON STOCK
BENEFICIALLY OWNED (1)
NAME NUMBER OF SHARES PERCENTAGE
- --------------------------------------------------------------------------------
<S> <C> <C>
Walter Alexander 38,784 0.66%
James Benson 116,257 1.96%
Marvin Fagel 8,752 0.15%
William Kane(2) 4,000 0.07%
Kenneth Lindgren 30,900 0.52%
Jesse Maberry 11,810 0.20%
Gary McCarter 1,382 0.03%
D. Chet McKee 10,832 0.19%
William Meyer 20,139 0.34%
Gerald Palmer 1,000 0.02%
James Carl Schmitz(3) 262,820 4.43%
Larry Schuster 27,400 0.47%
William B. Skoglund(4) 33,253 0.56%
George Starmann III(5) 23,276 0.40%
All Directors, Director Nominees
Executive Officers as a group (15 persons) 591,105 9.95%
</TABLE>
1 Includes ownership of securities by spouse (even though any beneficial
interest is disclaimed), and in the Corporation's Profit Sharing Plan and
Trust and the Corporation's Salary Savings Plan.
2 Mr. Kane was appointed by the Board of Directors to fill the unexpired term
of Joanne Hansen, who resigned as of September 14, 1999.
3 The number of shares for Mr. Schmitz includes shares held in the Schmitz
Family Trusts over which Mr. Schmitz has voting control.
4 Includes 16,967 shares issuable pursuant to options held by Mr. Skoglund.
5 Includes 15,500 shares issuable pursuant to options held by Mr. Starmann
III.
4
<PAGE>
ELECTION OF DIRECTORS
Under the Corporation's Restated Certificate of Incorporation, the Board of
Directors is divided into three classes, approximately equal in number. Each
year the stockholders are asked to elect the member of a class for a term of
three years. This year three nominees named below have been recommended for
election as directors for a term ending at the Annual Meeting in 2003 or until
their successors are elected, and one nominee named below has been recommended
for election as a director for a term ending at the Annual Meeting in 2001 or
until his successor is elected. The different terms for the nominees this year
is necessary to have three Director classes approximately equal in number.
The Board of Directors has no reason to believe that any of the nominees will
not be available for election. However, if any such nominees are not available
for election, proxies may be voted for the election of other persons selected by
the Board of Directors.
Mrs. Joanne Hansen resigned from the Board of Directors as of September 14,
1999. Her term as director was to terminate in 2002. At this time, the Board of
Directors has appointed William Kane to take Mrs. Hansen's place on the Board of
Directors. The Corporation acknowledges Mrs. Hansen's years of service and
expresses appreciation for her significant contribution.
DIRECTOR NOMINEES
<TABLE>
<CAPTION>
- -------------------------------- --------- -----------------------------------------------------------------
NAME AGE PRINCIPAL OCCUPATION(1),(2)
- -------------------------------- --------- -----------------------------------------------------------------
<S> <C> <C>
Gary McCarter(3) 63 Retired, Vice President, Farmers Insurance (1988).
D. Chet McKee 60 President and CEO, Rush Copley Medical Center (1978).
Gerald Palmer 54 Vice President/General Manager Caterpillar Inc.,
Construction equipment manufacturer (1998).
James Carl Schmitz 51 Tax Consultant, previously Director of Taxes with H.B. Fuller
Company (1998) and previously tax
specialist with KPMG LLP (1999).
- -------------------------------- --------- -----------------------------------------------------------------
</TABLE>
1. Unless otherwise indicated, each director nominee has been employed in his
principal occupation with the same organization or other responsible
position with the same organization for at least the last five years, or is
retired after having served in responsible positions with the organization
indicated.
2. The date shown in parentheses refers to the year originally elected or
appointed to the Board of Directors of Old Second or the Corporation.
Pursuant to reorganization in 1982, Old Second became a wholly-owned
subsidiary of the Corporation. Each director has served continuously since
the date indicated.
3. The term for this Director nominee will be for one year.
5
<PAGE>
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
NAME AGE PRINCIPAL OCCUPATION(1),(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter Alexander (3) 65 President, Alexander Lumber Co., Lumber & building material sales.
(1976)
James Benson (4) 69 Chairman of the Board of the Corporation (1971).
Marvin Fagel (4) 52 President, Aurora Packing Co., Chairman of the Board & CEO New City
Packing Co., a meat packing co. (1996).
William Kane (4) 49 Partner, Label Printers, Inc. a printing company (1999).
Kenneth Lindgren (4) 59 President, Daco Incorporated, contract manufacturer of machined
components. (1990)
Jesse Maberry (4) 56 Treasurer, Aurora Bearing Company, manufacturer of rod end and
spherical bearings (1985).
William Meyer (3) 52 President, William F. Meyer Co., a wholesale plumbing supply
Company, (1995).
Larry Schuster (3) 59 Chairman, Westside Mechanical Inc., mechanical contractor (1990)
William Skoglund (3) 49 President and CEO of the Corporation, President and CEO of Old
Second (1992).
George Starmann III (3) 56 Executive Vice President and Secretary of the Corporation, Executive
Vice President and Senior Trust Officer of Old Second (1995).
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Unless indicated otherwise, each director has been employed in his
principal occupation with the same organization or other responsible
position with the same organization for at least the last five years, or is
retired after having served in responsible positions with the organization
indicated.
2 The date shown in parentheses refers to the year originally elected or
appointed to the Board of Directors of Old Second or the Corporation.
Pursuant to a reorganization in 1982, Old Second became a wholly-owned
subsidiary of the Corporation. Each director has served continuously since
the date indicated.
3 Serves as director until 2001.
4 Serves as director until 2002.
6
<PAGE>
Walter Alexander, a director of the Corporation, is also a director of
Wausau-Mosinee Paper Corporation, a corporation with a class of securities
registered pursuant to Section 12 of the Exchange Act. Gerald Palmer, a
director-nominee of the Corporation, is also a director of JLG Industries, a
corporation with a class of securities registered pursuant to Section 12 of the
Exchange Act.
Upon attaining age 70, an elected director assumes the status of a Senior
Director for a period of three years. Every Senior Director has a right to
attend all Board of Director meetings and Board of Director Committee meetings
to which they are appointed and to participate in all discussions during such
meetings. However, a Senior Director does not have the right to vote on any
matter. Currently there are no Senior Directors on the Board of Directors.
The Board of Directors of the Corporation has established Audit and Nominating
Committees, as well as other committees, to assist in the discharge of its
responsibilities. The principal responsibilities of the Audit and Nominating
Committees are described below. The members of each committee serve on the
respective committees during the period between annual stockholders' meetings.
The Corporation does not have a Compensation Committee, since compensation
levels are determined by the Board of Directors of each subsidiary of the
Corporation. The Corporation's executive officers also are executive officers of
Old Second, and are compensated by Old Second rather than the Corporation;
accordingly, their compensation is determined and approved by the Compensation
Committee and Board of Directors of Old Second.
The members of the Corporation's Audit Committee during 1999 were Messrs.
Alexander, Kane (as of September, 1999), McCarter, McKee, and Fagel. Effective
December 14, 1999, Mr. Fagel became a member of the Trust Committee of the Board
and no longer serves on the Audit Committee. The Audit Committee reviews with
representatives of the independent accountants the auditing arrangements and
scope of the independent accountants' examination of the books, results of those
audits, their fees, and any problems identified by the independent accountants
regarding internal controls and their recommendations. The committee is also
prepared to meet privately at any time at the request of the independent
accountants, the internal auditors, or members of the Corporation's management
to review any special situation arising on any of the above subjects. The
committee met six times during 1999.
The members of the Corporation's Nominating Committee during 1999 were Messrs.
Alexander, Benson, Lindgren, Maberry, McKee, Schuster, Skoglund and Starmann.
The committee reviews the qualifications of, and recommends to the Board,
candidates to fill Board vacancies as they may occur during the year. The
Nominating Committee will consider suggestions from all sources, including
stockholders, regarding possible candidates for director. Such suggestions,
together with appropriate biographical information, should be submitted to the
Corporation. The committee met once during 1999.
7
<PAGE>
The Board of Directors of the Corporation held 12 meetings during 1999. Actions
taken by any committee of the Board are reported to the Board of Directors,
usually at its next meeting. During 1999, all of the directors attended at least
75% of the aggregate of the Corporation's Board of Directors meetings and
meetings of the committees on which they served.
All persons who serve as directors of the Corporation also serve as directors of
Old Second. No fees are paid by the Corporation to the directors in their
capacity as directors of the Corporation, and no fees are paid by Old Second to
employee directors in their capacity as directors of Old Second. During 1999,
Old Second paid directors' fees to non-employee directors which consisted of a
$3,500 annual retainer fee, $250 for each Board of Director meeting attended,
and $200 for each committee meeting attended.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation paid for
the fiscal years ended December 31, 1999, 1998, and 1997 to those persons who
were at December 31, 1999: (i) the chief executive officer and (ii) the other
executive officers of the Corporation whose annual salary exceeded $100,000. The
Corporation has adopted a bonus program for its executives in 1999. However,
such bonus payments will not be made until fiscal 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
AWARDS
------
- ------------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY ($)(1) OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION COMPENSATION UNDERLYING COMPENSATION ($)(2)
($)(3) OPTIONS (#)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JAMES BENSON 1999 $108,750 $5,428 -0- $ -0-
Chairman of the Board of the 1998 $115,165 -0- $ -0-
Corporation and Retired 1997 $102,034 -0- $ -0-
Chief Executive Officer of
the Corporation.
WILLIAM B. SKOGLUND 1999 $258,822 $5,332 8,500 $16,511
President & Chief Executive 1998 $227,633 8,000 $14,796
Officer of the Corporation; 1997 $191,235 6,600 $13,145
President & Chief Executive
Officer of Old Second
- ------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (CONTINUED)
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
AWARDS
------
- ------------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY ($)(1) OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL POSITION COMPENSATION UNDERLYING COMPENSATION
($)(3) OPTIONS (#) ($)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
J. DOUGLAS CHEATHAM(4) 1999 $93,750 -0- 2,500 $25,000(5)
Chief Financial Officer of the
Corporation
GEORGE STARMANN III 1999 $208,281 $12,344 5,000 $14,457
Executive Vice President & 1998 $195,325 6,300 $13,476
Secretary of the Corporation; 1997 $173,435 6,300 $11,951
Executive Vice President &
Senior Trust Officer of Old
Second.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1. Salary amounts for Mr. Benson include director fees received from the
Corporation's subsidiaries in the amounts of $28,750, $37,750, and $34,100
for the years 1999, 1998, and 1997 respectively. Salary amounts for Mr.
Skoglund include director fees received from the Corporation's subsidiaries
in the amounts of $16,800 for 1999, $14,950 for 1998, and $1,800 for 1997.
Salary amounts for Mr. Starmann include director fees received from the
Corporation's subsidiary Mortgage Company of $3,600 for 1999.
2. The amounts shown for 1999 represent the contribution to (i) the
Corporation's qualified Profit Sharing Plan and Trust in the amounts of
$8,800.00 each for Messrs. Skoglund and Starmann.; (ii) the Corporation's
Salary Savings Plan in the amount of $3,200 each for Messrs. Skoglund and
Starmann, as vested and accrued during 1999; and (iii) the Corporation's.
nonqualified Supplemental Executive Retirement Plan ("SERP") in the amounts
of $4,511 and $2,457 for Messrs. Skoglund and Starmann, respectively.
3. Included in column "Other Annual Compensation" is a car allowance.
4. J. Douglas Cheatham was named Chief Financial Officer of the Corporation on
May 17, 1999.
5. This amount represents a signing bonus, as part of Mr. Cheatham's
Employment Agreement.
OPTION GRANTS
The following table provides information about stock options granted during
1999 to the Named Executive Officers.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR*
INDIVIDUAL GRANT
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
TOTAL OPTIONS VALUE AT ASSUMED
GRANTED TO ANNUAL RATES OF STOCK
EMPLOYEES IN EXERCISE PRICE APPRECIATION
OPTIONS FISCAL PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED # YEAR ($/SHARE) DATE 5% 10%
- -------------------------- ------------ -------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Douglas Cheatham 2,500 8.16 $27.875 12/08/09 $ 43,826 $111,064
William B. Skoglund 8,500 27.77 $27.875 12/08/09 $149,009 $377,617
George Starmann III 5,000 16.33 $27.875 12/08/09 $ 87,652 $222,128
- -------------------------- ------------ -------------- ------------- ------------- ----------- -------------
</TABLE>
*Messrs. Cheatham, Skoglund and Starmann received the 1999 options on December
14, 1999. One third of the options granted vest and become exercisable on each
of the first three anniversaries of their grant date.
- --------------------------------------------------------------------------------
STOCK OPTION EXERCISES AND HOLDINGS
The following table provides information on shares underlying options
exercisable at the end of 1999 and options exercised during 1999 for the Named
Executive Officers.
AGGREGATED OPTION EXERCISES AND YEAR-END VALUE FOR 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS HELD AT MONEY OPTIONS HELD AT FISCAL
FISCAL YEAR-END YEAR-END1
- ---------------------------------------------------------------------------------------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J. Douglas Cheatham 0 0 0 2,500 $0 $0
William B. Skoglund 0 0 16,967 16,033 $67,243 $0
George Starmann III 0 0 15,500 11,300 $62,107 $0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1 Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on December 31, 1999
multiplied by the applicable number of shares.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Old Second has furnished
the following report on executive compensation.
10
<PAGE>
The Corporation's executive officers are also executive officers of Old Second
and are compensated by Old Second and not the Corporation. Accordingly, their
compensation is determined and approved by the Compensation Committee and Board
of Directors of Old Second. The members of the Compensation Committee and Board
of Directors of Old Second are directors of both the Corporation and Old Second.
The members of the Compensation Committee during 1999 were Messrs. Alexander,
Fagel, McCarter and Meyer. Although the executive officers are compensated by
Old Second and their compensation is determined by the Compensation Committee of
Old Second their scope of authority for management of the Corporation, as well
as of Old Second, is an important consideration by the Committee when
establishing compensation.
COMPENSATION PHILOSOPHY AND OVERALL OBJECTIVES
The Corporation's mission is to maximize stockholder value over the long term.
To accomplish this mission, the Corporation has developed a comprehensive
business strategy that emphasizes superior financial products and customer
services. The Corporation believes its executive compensation program should
motivate its executives to both individually and collectively take actions that
support the attainment of this mission.
The program of executive compensation is intended to reflect the following
stated executive compensation policies:
* The program of executive compensation should strengthen the relationship
between pay and performance by providing compensation that is dependent
upon the level of success in meeting specified corporate goals.
* Compensation opportunities should enhance the Corporation's ability to
attract, retain, and encourage the development of exceptionally
knowledgeable and experienced executives upon whom, in large part, the
successful operation and management of the Corporation depends.
* Each program element should target compensation levels at rates that are
reflective of current market practices. Offering market-comparable pay
opportunities should allow the Corporation to maintain a stable, successful
management team.
Competitive market data is provided by an independent compensation consultant.
The data provided compares Old Second's compensation practices to banking
institutions with similar asset size and employment levels.
The competitive market data used for compensation purposes differs from the
companies that comprise the Custom Peer Group in the Performance Graph included
in this proxy statement. The Compensation Committee believes that the
Corporation's most direct competitors for executive talent reflects a broader
group of companies than those included in the Custom Peer Group established for
comparing shareholder returns.
11
<PAGE>
ELEMENTS OF EXECUTIVE COMPENSATION
(a) BASE SALARIES
Annually, the Compensation Committee reviews each executive's base salary. It is
the Corporation's philosophy that base salaries offer security to executives and
allow the Corporation to attract competent executive talent and maintain a
stable management team. The Compensation Committee of Old Second targets base
salaries at market levels, though compensation may be adjusted above or below
the median based on company performance. Initially, base salaries are determined
by evaluating an executive's level of responsibility, prior experience,
education, breadth of knowledge, internal performance objectives, and
competitive compensation programs for senior executives at comparable banks.
Adjustments to base salaries are driven primarily by corporate performance
measured primarily in terms of earnings per share, return on equity and assets,
and enhancement of book value per share. When measuring individual performance,
the Compensation Committee considers the executive's efforts in achieving
established financial and business objectives, managing and developing
employees, and enhancing long-term relationships with customers.
Mr. Benson will continue as Chairman of the Board for the Corporation during
fiscal 2000. In determining Mr. Benson's salary in 1999, the Compensation
Committee considered Mr. Benson's continuing advisory role and his individual
performance and contributions. Accordingly, Mr. Benson's base salary was
increased by 7.5% from his 1998 base salary. As the President and Chief
Executive Officer of the Corporation, Mr. Skoglund's salary increased by 11.63%
to reflect a salary commensurate with his role and responsibilities. In
determining Mr. Skoglund's salary in 1999, the Compensation Committee also
considered Mr. Skoglund's individual performance and his long-term contributions
to the success of the Corporation. Overall, salary increases for the other
senior executives were at a rate comparable to the increases provided to similar
executives at other banks, as shown by survey data.
(b) STOCK OPTIONS
To establish a link between compensation and management's performance in
creating value for stockholders, top level management employees were granted
stock options during 1999 pursuant to the Corporation's Long-Term Incentive Plan
as approved by stockholders in 1994. To reinforce the Corporation's long-term
perspective and to help retain valued executives, these options vest ratably
over the three-year period following grant. Options are issued at the market
value of Corporation Common Shares on the date of grant, thus providing reward
only for future stock price appreciation. Future grants of option awards are
expected to be reviewed on an annual basis.
Named Executive Officers received stock option grants comparable to the
long-term incentive opportunity granted to individuals with the same or similar
position at various banks of similar size. The grants are similar in size to the
options that were granted in the previous fiscal year. The Compensation
Committee has determined that the
12
<PAGE>
compensation opportunities should reflect overall corporate and individual
achievement, as well as competitive compensation practices.
(c) BENEFITS, QUALIFIED SERVICE PLANS, AND PERQUISITES
Benefits offered to key executives serve a different purpose than does base
salary and other elements of compensation. In general, they provide a safety net
of protection against financial catastrophes that can result from illness,
disability, or death. Benefits offered to key executives are generally those
offered to the general employee population with some variation to promote tax
efficiency and replacement of benefit opportunities lost to regulatory limits.
The Corporation offers eligible employees three tax-qualified retirement plans:
a 401(k) savings plan, a profit sharing plan, and a pension plan. The pension
plan targets a 50% pay replacement, integrated with the participant's social
security benefits, at normal retirement age following a full career of service.
The 401(k) savings program authorizes a maximum voluntary salary deferral of up
to 10% (with a partial company match), subject to statutory limitations. The
profit sharing arrangement provides an annual discretionary contribution to the
retirement account of each employee based in part on the bank's profitability in
a given year, and on each participant's annual compensation. Excluding employees
of non-banking subsidiaries who participate in the 401(k) plan only,
participation in these plans is likewise offered to the general employee
population of full-time salaried and regular part-time employees. Benefits under
these plans, taken as a whole, are competitive with comparable banks and bank
holding companies.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT
Section 162(m) of the Internal Revenue Code generally limits the corporate
deduction for compensation paid to executive officers named in the proxy to $1
million, unless certain requirements are met. The Compensation Committee has
carefully considered the impact of this tax code provision and has determined
that it is unlikely to affect the deductibility of compensation paid to
executive officers.
CONCLUSION
The Compensation Committee believes these executive compensation policies and
programs effectively serve the interests of stockholders and the Corporation.
The Compensation Committee believes these policies motivate executives to
contribute to the Corporation's overall future successes, thereby enhancing the
value of the Corporation for the stockholders' benefit.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF OLD SECOND
Mr. Walter Alexander
Mr. Gary McCarter
Mr. Marvin Fagel
Mr. William Meyer
13
<PAGE>
EMPLOYMENT AGREEMENTS
Effective January 2, 1996, Mr. Benson retired as Chief Executive Officer of Old
Second. However, during 1996, 1997, 1998, and 1999, Mr. Benson continued in his
position as Chairman of the Board of the Corporation and retained the title of
Chief Executive Officer of the Corporation until June 1998 when Mr. Skoglund was
named President and Chief Executive Officer of the Corporation. As determined at
the Board of Directors meeting on December 14, 1999, Mr. Benson will continue in
his position as Chairman of the Board of the Corporation during fiscal 2000. As
he has since 1996, Mr. Benson will continue to serve on the Board of Directors
of the mortgage company, the various bank Boards of Directors in the holding
company, various committees of the banks Board of Directors, will participate in
exit interviews with regulatory examiners, and will be available to bank
management as a consultant. In exchange for these and other services to be
performed during fiscal 2000, Mr. Benson will receive a fee of $86,000.00.
On January 1, 1997, Messrs. Skoglund and Starmann entered into Compensation and
Benefits Assurance Agreements (the "agreements") with the Corporation. The
initial terms of the agreements were for one year, through December 31, 1997,
but are automatically extended for successive one-year periods, unless earlier
terminated by either the executive or the Corporation, in accordance with the
applicable provisions thereof. The agreements provide for lump-sum payments of
severance benefits in the amount of three times base salary for Mr. Skoglund and
two times base salary for Mr. Starmann in the event of a "Change in Control" (as
defined in the agreements) of the Corporation or Old Second and a qualifying
termination includes an involuntary termination without cause or a constructive
termination. Messrs. Skoglund and Starmann would also receive three and two
years continuation, respectively, of welfare benefits, one year of outplacement
services, accelerated vesting of stock options or other incentive awards, plus
any additional payment necessary to make the executive whole for any excise
taxes that may be imposed.
Mr. Cheatham, Chief Financial Officer of the Corporation, entered into a Benefit
Assurance Agreement with the Corporation on May 17, 1999. The initial term of
his Agreement is through December 31, 2000 but is automatically extended for
successive one-year periods, unless earlier terminated by him or the Corporation
in accordance with the terms of the agreement. This agreement provides for
lump-sum severance benefits in the amount of two times base salary in the event
of a "Change in Control" (as defined in the agreement) of the Corporation or Old
Second and a qualifying termination includes an involuntary termination without
cause or a constructive termination. He would receive two years continuation of
welfare benefits, one year of outplacement services, accelerated vesting of
stock options or other incentive awards, plus any additional payment necessary
to make him whole for any excise tax that may be imposed. The agreement further
provides for a one-time signing bonus in the amount of $25,000.
14
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
OLD SECOND BANCORP INC; S & P 500; AND CUSTOM PEER GROUP
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
DATE OLD SECOND BANCORP S&P 500 CUSTOM PEER GROUP
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 1994 $100.00 $100.00 $100.00
December 1995 $115.13 $137.45 $125.01
December 1996 $133.19 $168.93 $143.94
December 1997 $206.12 $225.21 $247.98
December 1998 $179.09 $289.43 $232.53
December 1999 $176.15 $350.26 $220.03
</TABLE>
*Total return assumes reinvestment of dividends on a quarterly basis.
The above graph represents the five-year cumulative total stockholder return for
the Corporation, the S&P 500 Composite Index, and the Custom Peer Group. The
companies in the Custom Peer Group are: First Oakbrook Bancshares Inc.;
Merchants Bancorp Inc.; Northern States Financial Corporation; and Princeton
National Bancorp Inc.
PENSION PLAN
Excluding employees of non-banking subsidiaries, all full-time salaried and
regular part-time employees who have completed one year of service are eligible
for participation in the Corporation's Pension Plan and the remuneration
credited each participant includes all direct salaries and wages paid. Generally
speaking, retirement benefits are based on final average monthly earnings during
the highest five consecutive years of employment during the last ten years
before retirement and integrates with a portion of the Primary Social Security
Benefit payable to the participant. A participant receives monthly the amount
calculated under the following formula: the monthly average of the 60 highest
paid consecutive months out of the final ten years of employment times the sum
of (i) 1-2/3% times the number of years of credited service up to a maximum of
30, and (ii) 1/2% times each year of credited service over 30 years; less
one-half the Primary Social Security Benefit payable to the participant.
15
<PAGE>
The following table illustrates the annual amount of retirement income available
under both the Corporation's Pension Plan and SERP (after deducting 1/2 of the
social security benefit, but without limiting the retirement benefits for the
single plan defined benefit limit of Section 415(c), for the combined plan
Section 415 limits, and for the includable compensation limitation of Section
401(a)(17) of the Internal Revenue Code (the "Code")) from such plan for a
person 65 years of age in specified average earnings and years of service
classification. The SERP restores benefits lost under the Pension Plan due to
the limits imposed under Sections 401(a)(17) and 415 of the Code. The objective
of the SERP is to permit those employees who are affected by the limitations of
Code Sections 401(a)(17) and 415 to receive the same benefit they would have
received under the Pension Plan but for the limitations imposed by the Code.
In certain cases, a participant's actual benefit may be less than that provided
below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS OF SERVICE
COVERED --------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 15,000 $2,250 $3,000 $3,750 $4,500 $5,250 $6,000
$ 25,000 $3,750 $5,000 $6,250 $7,500 $8,750 $10,000
$ 35,000 $5,510 $7,347 $9,183 $11,020 $12,250 $14,000
$ 50,000 $8,663 $11,551 $14,438 $17,326 $18,576 $20,000
$ 75,000 $14,478 $19,304 $24,130 $28,956 $30,831 $32,706
$100,000 $20,701 $27,601 $34,502 $41,402 $43,902 $46,402
$125,000 $26,951 $35,935 $44,918 $53,902 $57,027 $60,152
$150,000 $33,201 $44,268 $55,335 $66,402 $70,152 $73,902
$175,000 $39,451 $52,601 $65,732 $78,902 $83,277 $87,652
$200,000 $45,701 $60,935 $76,168 $91,402 $96,402 $101,402
$225,000 $51,951 $69,268 $86,585 $103,902 $109,527 $115,152
$250,000 $58,201 $77,601 $97,002 $116,402 $122,652 $128,902
$275,000 $64,451 $85,935 $107,418 $128,902 $135,777 $142,652
$300,000 $70,701 $94,268 $117,835 $141,402 $148,902 $156,402
</TABLE>
Covered compensation under the qualified and nonqualified pension formulas and
the respective years of credited service as of December 31, 1999 for the
executive officers named in the cash compensation table are as follows: William
B. Skoglund, $242,022 (27 years); George Starmann III, $204,681 (6 years); and
J. Douglas Cheatham, $118,750 (6-1/2 months).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors, director nominees, and executive officers of the Corporation and
their associates were customers of, and had transactions with, the Corporation
and its subsidiaries in the ordinary course of business during 1999. Additional
transactions
16
<PAGE>
may be expected to take place in the future. All outstanding loans, commitments
to loans, transactions in repurchase agreements and certificates of deposit, and
depository relationships, in the opinion of management, were made on
substantially the same terms, including interest rates, collateral, and
repayment terms on extensions of credit, as those prevailing at the time for
comparable transactions with other persons and in the ordinary course of
business and did not involve more than the normal risk of collectibility or
present other unfavorable features. The total debt for all affiliated
individuals as named in the foregoing, including all loans, with The Old Second
National Bank represents 18.59% of stockholders' equity as of December 31, 1999.
PROPOSAL 2:
INDEPENDENT ACCOUNTANTS
Ernst & Young, L.L.P. ("Ernst & Young") has been selected by the Corporation to
be the Corporation's independent accountants for the fiscal year ending December
31, 2000. The Board of Directors will propose the adoption of a resolution at
the Annual Meeting ratifying and approving the selection of Ernst & Young.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting with the opportunity to make a statement, if they desire to do so, and
to be available to respond to the appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL 2.
STOCKHOLDER PROPOSALS
If a stockholder intends to present a proposal at the Corporation's 2001 Annual
Meeting of Stockholders and desires that the proposal be included in the
Corporation's Proxy Statement and form of proxy for that meeting, the proposal
must be in compliance with Rule 14a-8 under the Securities Exchange Act of 1934
and received at the Company's principal executive offices not later than October
25, 2000. As to any proposal that a stockholder intends to present to
stockholders without inclusion in the Corporation's Proxy Statement for the
Corporation's 2001 Annual Meeting of Stockholders, the proxies named in
management's proxy for that meeting will be entitled to exercise their
discretionary authority on that proposal unless the Corporation receives notice
of the matter to be proposed not later than January 28, 2001. Even if proper
notice is received on or prior to January 28, 2001, the proxies named in
management's proxy for that meeting may nevertheless exercise their
discretionary authority with respect to such matter by advising stockholders of
such proposal and how they intend to exercise their discretion to vote on such
matter, unless the stockholder making the proposal solicits proxies with respect
to the proposal to the extent required by Rule 14a-4(c)(2) under the Securities
Exchange Act of 1934.
17
<PAGE>
GENERAL
The cost of this proxy solicitation will be borne by the Corporation.
Solicitation will be made primarily through the use of the mail, but officers,
directors, or regular employees of the Corporation may solicit proxies
personally or by telephone or telegraph without additional remuneration for such
activity. In addition, the Corporation will reimburse brokerage houses and other
custodians, nominees, or fiduciaries for their reasonable expense in forwarding
proxies and proxy material to the beneficial owner of such shares.
As of the date of this Proxy Statement, management knows of no other matters to
be brought before the Annual Meeting. However, if any other matters should
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy to vote thereon in accordance with their best judgment.
By Order of the Board of Directors
/s/ James Benson
-----------------------
James Benson
Chairman
/s/ William Skoglund
-----------------------
William Skoglund
Chief Executive Officer
and President
Aurora, Illinois
March 14, 2000
18
<PAGE>
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
ON APRIL 18, 2000
OLD SECOND BANCORP, INC.,
AURORA, ILLINOIS
The undersigned hereby appoints Jesse Maberry, Townsend Way Jr., and Philip C.
Ruddy, or any one of them, the undersigned's attorneys and proxies, with full
power of substitution, to vote all shares of Common Stock of Old Second Bancorp,
Inc., which the undersigned is entitled to vote, as fully as the undersigned
could do if personally present, at the Annual Meeting of Stockholders of said
Corporation to be held at the Corporation's premises at 37 South River Street,
Aurora, Illinois on the 18th day of April, 2000, at 11:00 a.m., central time,
and at any and all postponements or adjournments thereof:
Election of Directors.
|_| For all nominees listed |_| Withhold Authority |_| Abstain
below (except as marked to to vote for all nominees
the contrary). listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW)
Gary McCarter (for a one-year term), D. Chet McKee (for a three-year
term), Gerald Palmer (for a three-year term), James Carl Schmitz (for
a three-year term)
(2) Ratification and approval of the selection of Ernst & Young, L.L.P. as the
Corporation's independent accountants for the fiscal year ending December
31, 2000.
|_| FOR |_| AGAINST |_| ABSTAIN
(3) In their discretion on such other matters as may properly come before the
meeting or at any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS
PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED FOR DIRECTORS AND FOR THE RATIFICATION AND APPROVAL OF THE
SELECTION OF ERNST & YOUNG, L.L.P. AS INDEPENDENT ACCOUNTANTS.
Dated_______________ -----------------------------------------------------
-----------------------------------------------------
Stockholder's signature - please sign name exactly as
imprinted below. (Do not print.) PLEASE INDICATE ANY
CHANGE OF ADDRESS
NOTE: Executors, administrators, trustees, and other signing in a representative
capacity should indicate the capacity in which they sign. If shares are held
jointly, EACH holder should sign.
PLEASE DATE, SIGN, AND RETURN THIS PROXY.
