<PAGE> 1
SCHEDULE 14A
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 Section 240.14a-11(c) or Section 240.14a-12
- ---
PRINCETON NATIONAL BANCORP, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement,
if other than 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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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Fee paid previously with preliminary materials.
---
Check box if any part of the fee is offset as provided by
---
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously.
Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PRINCETON NATIONAL BANCORP, INC.
NOTICE
of
Annual Meeting of Stockholders To Be Held April 14, 1998
To the Stockholders of
PRINCETON NATIONAL BANCORP, INC.
The Annual Meeting of Stockholders of Princeton National Bancorp, Inc., a
Delaware corporation, will be held at The Galleria, 1659 North Main Street,
Princeton, Illinois, on Tuesday, April 14, 1998 at 10:00 a.m., for the following
purposes:
(1) To elect three directors for a term of three years;
(2) To consider and vote upon the adoption of the Princeton National
Bancorp, Inc. Stock Option Plan; and
(3) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on February 27, 1998 will be
entitled to notice of and to vote at the meeting.
The Company's Annual Report to Stockholders for the year ended December 31, 1997
is enclosed.
IMPORTANT! TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE
SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
No postage is required if the proxy is mailed in the United States.
Lou Ann Birkey
Assistant Vice-President
and Corporate Secretary
Princeton, Illinois
March 6, 1998
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PRINCETON NATIONAL BANCORP, INC.
606 SOUTH MAIN STREET
PRINCETON, ILLINOIS 61356
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by the Board of Directors of
Princeton National Bancorp, Inc. (the "Company"), from holders of the Company's
outstanding shares of common stock, par value $5.00 per share (the "Common
Stock"), for use at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on April 14, 1998 at The Galleria, 1659 North Main Street,
Princeton, Illinois, or at any adjournment thereof, for the purposes set forth
in the accompanying Notice of Meeting and in this Proxy Statement. The Company
will bear the costs of soliciting proxies from its stockholders. In addition to
soliciting proxies by mail, directors, officers and employees of the Company,
without receiving additional compensation therefor, may solicit proxies by
telephone or in person. This Proxy Statement and form of proxy are first being
mailed to the Company's stockholders on or about March 6, 1998.
VOTING AT THE ANNUAL MEETING
The close of business on February 27, 1998, has been fixed as the record date
for the determination of stockholders of the Company entitled to notice of and
to vote at the Annual Meeting. As of the close of business on that date,
2,677,542 shares of Common Stock were outstanding and are entitled to vote at
the Annual Meeting.
Each proxy that is properly signed and received prior to the Annual Meeting
will, unless such proxy has been revoked, be voted in accordance with the
instructions on such proxy. If no instructions are indicated, proxies will be
voted "for" the election of all nominees named in the proxy, "for" adoption of
the Company's Stock Option Plan and in the discretion of the persons named in
the proxy on such other matters as may properly come before the Annual Meeting.
Any stockholder has the right to revoke a proxy at any time prior to its
exercise at the Annual Meeting. A proxy may be revoked by properly executing and
submitting to the Company a later-dated proxy or by mailing written notice of
revocation to Princeton National Bancorp, Inc., 606 South Main Street,
Princeton, Illinois 61356, Attention: Lou Ann Birkey, Assistant Vice-President
and Corporate Secretary. A stockholder may also revoke a proxy by appearing at
the Annual Meeting and voting in person. Proxies are valid only for the meeting
specified therein, or any adjournments of such meeting.
A quorum of stockholders is necessary to take action at the Annual Meeting. A
majority of the outstanding Common Stock, represented in person or by proxy,
shall constitute a quorum for the transaction of business at the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the
judges of election appointed for the meeting. The judges will determine whether
a quorum is present and will treat abstentions as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. Under
certain circumstances, a broker or other nominee may have discretionary
authority to vote shares of Common Stock if instructions have not been received
from the beneficial owner or other person entitled to vote. If a broker or other
nominee indicates on the proxy that it does not have instructions or
discretionary authority to vote certain shares of Common Stock on a particular
matter, those shares will not be considered as present for purposes of
determining whether a quorum is present or whether a matter has been approved.
The three nominees for director who receive the greatest number of votes cast in
person or by proxy at the Annual Meeting shall be elected directors of the
Company. The vote required for the adoption of the Stock Option Plan is the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Annual Meeting. For purposes of determining
stockholder approval of the Stock Option Plan, abstentions will be treated as
being voted against such matter.
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Shares of Common Stock of the Company will be voted as specified. If no
specification is made, shares will be voted FOR the nominees for directors named
below, and FOR approval of the Princeton National Bancorp, Inc. Stock Option
Plan and IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES as to any other matter
which may properly come before the meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Board of Directors is currently composed of ten directors who are
divided into three classes. One class is elected each year for a three-year
term. At the Annual Meeting, Dr. Hutchinson and Messrs. Lasier and Samet will be
nominated to serve in Class III until the Annual Meeting of Stockholders to be
held in 2001 and until their successors have been duly elected and qualified.
All of the nominees are currently serving as directors of the Company. Each of
the nominees has agreed to serve as a director if elected, and the Company has
no reason to believe that any nominee will be unable to serve. In the event of
the refusal or inability of any nominee for director of the Company to serve as
director, the persons named in the accompanying form of proxy shall vote such
proxies for such other person or persons as may be nominated as directors by the
Board of Directors of the Company, unless the number of directors shall have
been reduced by the Board.
The principal occupation of each person nominated for election as a director,
and each director continuing in office, his age, the year in which he first
became a director and the number of shares of Common Stock that such person
beneficially owned as of February 27, 1998 are listed below. Except as set forth
below, the nature of each director's beneficial ownership is sole voting and
investment power. All of the nominees and directors continuing in office, other
than Messrs. Ervin Pietsch and John Ernat, also served on the board of directors
of the Company's wholly owned subsidiary, Citizens First National Bank
("Citizens Bank") during 1997.
The Board of Directors unanimously recommends that stockholders vote "FOR" the
election of the three nominees listed below.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
OF COMMON STOCK
BENEFICIALLY OWNED
PRINCIPAL OCCUPATION DIRECTOR AND NATURE OF
DURING PAST 5 YEARS AGE SINCE BENEFICIAL OWNERSHIP(1)
------------------- --- ----- --------------------
CLASS III NOMINEES FOR THREE-YEAR TERMS
<S> <C> <C> <C> <C>
Dr. Harold C. Hutchinson, Jr. Retired dentist 65 1989 7,4582(2)
Thomas R. Lasier Retired in 1993 as President
and General Manager of
LCN Closers, a division in
Ingersoll-Rand that
manufactures hardware for
more than 5 years prior to
retirement 62 1983 14,0503(3)
Stephen W. Samet President and General
Manager of WZOE, Inc., a
commercial radio
broadcasting company 53 1986 4,1414(4)
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT OF SHARES
OF COMMON STOCK
BENEFICIALLY OWNED
PRINCIPAL OCCUPATION DIRECTOR AND NATURE OF
DURING PAST 5 YEARS AGE SINCE BENEFICIAL OWNERSHIP(1)
------------------- --- ----- --------------------
CLASS I CONTINUING DIRECTORS -- TERM EXPIRES IN 1999
<S> <C> <C> <C> <C>
Craig O. Wesner Manager of Bureau Services
Company, a farm supply 56 1997 4,125
cooperative
Don S. Browning President of Browning Ford,
Inc., a Ford new car and
truck dealer, and President
of Browning Chrysler, Inc.,
a Chrysler new car and truck
dealer 57 1983 8,218
Donald E. Grubb Farmer 57 1991 5,418(5)
Ervin I. Pietsch Vice President, Corporate
Quality, Ideal Electrical
Products 57 1993 3,058
CLASS II CONTINUING DIRECTORS -- TERM EXPIRES IN 2000
John Ernat Farmer 49 1994 3,634
Tony J. Sorcic President and Chief
Executive Officer of the
Company 44 1986 9,024(6)
Thomas M. Longman President of D.B.P. Inc., a
supplier of business forms
and office products 47 1991 4,881(7)
</TABLE>
(1) All directors and executive officers of the Company as a group beneficially
own 70,338 shares of Common Stock, 2.63% of the outstanding Common Stock.
(2) Includes 6,397 shares held in trust for which Dr. Hutchinson is the trustee
and beneficiary.
(3) Includes 750 shares held in trust and 2,250 shares held by his wife.
(4) Includes 300 shares held by his wife and 134 shares held by his son.
(5) Includes 825 shares held by his wife.
(6) Includes 1,598 shares held by his wife and 390 held by or in custody for his
sons.
(7) Includes 700 shares held by his wife.
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BOARD OF DIRECTOR MEETINGS AND COMMITTEES
The Board of Directors held six meetings during 1997. The Board of Directors has
an Executive Committee and an Audit Committee, and the Board as a whole operates
as a committee to nominate directors. Each director of the Company attended at
least 75% of the meetings of the Board of Directors and the Committees on which
he served.
The Executive Committee is authorized, to the extent permitted by law, to act on
behalf of the Board of Directors of the Company in the interim between meetings
of the Board. Directors Thomas R. Lasier, Don S. Browning, Tony J. Sorcic and
Stephen W. Samet are members of the Executive Committee. The Committee did not
meet during 1997.
The Audit Committee has the responsibility for reviewing the scope of internal
and external audit procedures, reviewing the results of internal and external
audits conducted with respect to the Company and Citizens Bank and periodically
reporting on such results to the Board of Directors. Directors Don S. Browning,
Stephen W. Samet and Craig O. Wesner are members of the Audit Committee. The
Committee met four times during 1997.
The Board of Directors of Citizens Bank held 24 meetings during 1997. The Board
of Directors of Citizens Bank has Auditing & Accounting, Trust Auditing &
Accounting, Loan, Trust & Farm Management, Marketing & Sales Management, CRA &
Compliance, Personnel Policy & Salary, Executive and Asset/Liability Management
Committees. The Committees collectively held a total of 55 meetings during 1997.
Each director of Citizens Bank attended at least 75% of the meetings of the
Citizens Bank Board of Directors and the Committees on which he served.
COMPENSATION OF DIRECTORS
Each director of the Company who is not also an employee of the Company or an
employee or director of Citizens Bank received a $250 fee for each Board meeting
attended. Each director of the Company who is also a director of Citizens Bank
and who is not an employee of the Company or Citizens Bank received a $100 fee
for each Board meeting of the Company attended in 1997. Each director of the
Company, other than Messrs. Pietsch and Ernat, is also a director of Citizens
Bank.
During 1997, each director of Citizens Bank who is not also an employee was paid
a retainer ($10,300 per annum) plus a fee for each Board and committee meeting
attended. Each director of Citizens Bank who is not also an employee, other than
the Chairman of the Board, received a $25 fee for each Citizens Bank Board
meeting and committee meeting attended in 1997. After attending five meetings of
the same committee, the director received a $50 fee for each subsequent meeting
of the same committee in 1997. The Chairman of the Board of Citizens Bank
received a $100 fee for each meeting of the Board attended in 1997. In addition,
Citizens Bank paid $1,890 of organization dues on behalf of the Chairman of the
Board of Citizens Bank during 1997.
PROPOSAL 2
APPROVAL OF PRINCETON NATIONAL BANCORP, INC.
STOCK OPTION PLAN
BACKGROUND
The Board of Directors approved the adoption of the Princeton National
Bancorp, Inc. Stock Option Plan (the "Plan") on March 4, 1998 (the effective
date of the Plan), subject to the approval of the Plan by the stockholders at
the Annual Meeting. Stock options may be granted under the Plan on and after the
effective date, provided that the stockholders approve the Plan. Awards of
incentive stock options may not be granted after March
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4, 2008. The discussion which follows is qualified in its entirety by reference
to the Plan, a copy of which is attached to the Proxy Statement as Appendix A.
The aggregate number of shares of the Company's Common Stock that may
be issued and outstanding pursuant to the exercise of options under the Plan
(the "Option Pool") will not exceed 135,000 shares. Shares of the Company's
Common Stock which would have been issued pursuant to the exercise of a stock
option, but are withheld as payment of the option price may be added back into
the Option Pool and reissued. Common shares covered by terminated and expired
options may also be added back to the Option Pool. In the event of any change in
the outstanding common shares of the Company as a result of a merger,
reorganization, stock split, reverse stock split, stock dividend,
recapitalization, combination, reclassification, appropriate proportionate
adjustments will be made to both the terms of the Plan and any awards granted
under the Plan which are determined on a per share basis, including, but not
limited to, the amount of common shares in the Option Pool, the exercise price,
and number of common shares associated with an outstanding option. No such
adjustments will be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of the Company's Common
Stock or securities convertible into or exchangeable for shares of the Company's
Common Stock.
PURPOSE AND ELIGIBILITY
The purpose of the Plan is to advance the interests of the Company and
its stockholders by helping the Company and its subsidiaries attract and retain
the services of highly qualified employees and officers, upon whose judgment,
initiative and efforts the Company is substantially dependent, and to provide
those persons with further incentives to advance the interests of the Company.
The Plan is also established with the objective of encouraging stock ownership
by such employees and officers and aligning their interests with those of
stockholders.
The objectives of the Plan will be accomplished by the granting of
stock option awards to selected key employees and officers. Key employees and
officers selected to participate in the Plan may be eligible for the grant of
incentive stock options ("ISOs")and non-qualified stock options ("NSOs").
Eligible Participants are defined in the Plan to mean employees,
officers or directors of the Company or its subsidiaries. Eligible Participants
may be granted ISOs or NSOs under the Plan if so selected by Citizens Bank's
Directors Personnel Policy and Salary Committee (the "Committee"). Approximately
233 persons qualify as Eligible Participants at this time. The Committee
currently anticipates that up to approximately 22 employees may be awarded stock
option grants under the Plan in 1998. With respect to ISOs only, this definition
does not include persons who have been on leave of absence for greater than 90
days, unless re-employment is guaranteed by law or contract.
ADMINISTRATION
With respect to persons subject to the short-swing profit liability
provisions of Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board will generally administer the Plan. In all other cases, the
Plan shall be administered by the Committee, although the Committee may delegate
its powers or duties to employees of the Company or any of its subsidiaries, as
it deems appropriate. In addition, the Board is authorized to act in all cases
in the place of the Committee. Under the terms of the Plan, the Committee has
full and final authority in its discretion: (i) to select and approve the
persons to whom options will be granted under the Plan from among the Eligible
Participants, including the number of options and the amount of the Company's
Common Stock available for purchase under such option so granted to each person;
(ii) to determine the period or periods of time during which options may be
exercised or become exercisable, the exercise price and the duration of such
options, the date on which options are granted, and any other matters to be
determined by the Committee in connection with specific option grants and option
agreements as specified under the Plan; and (iii) to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, and to
make all other determinations necessary or
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advisable for the operation and administration of the Plan. Operation of the
Plan is intended to avoid giving rise to any potential short-swing profit
liability under Section 16 of the Exchange Act.
AMENDMENT AND TERMINATION
The Committee may amend, and the Board may suspend or discontinue the
Plan at any time, provided that: (i) no such action may, without the approval of
the stockholders of the Company, materially increase (other than by reason of an
adjustment as discussed above) the maximum aggregate number of common shares
issuable under the Plan, or increase the maximum total number of common shares
issuable to an Eligible Participant under the Plan; (ii) no action of the
Committee will cause ISOs granted under this Plan not to comply with Section 422
of the Code unless the Committee specifically declares such action to be made
for that purpose; and, (iii) no action of the Committee shall alter or impair
any option previously granted or awarded under the Plan without the consent of
such affected option holder.
INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS
The Plan authorizes the grant of both ISOs and NSOs, both of which are
exercisable for shares of the Company's Common Stock. The price that an option
holder must pay in order to exercise an option may be stated in terms of a fixed
dollar amount, a percentage of fair market value at the time of the grant, or
such other method as determined by the Committee in its discretion. In no event
shall the option price for an ISO or an NSO be less than the fair market value
per share of the Company's Common Stock on the date of the option grant. In the
case of ISOs granted to persons possessing more than 10 percent of the total
combined voting power or value of all classes of stock of the Company and/or its
subsidiaries, the option price will be no less than 110 percent of the fair
market value per share of the Company's Common Stock on the date of the grant.
The fair market value shall mean the average of the high and low prices reported
for the market in which the common shares are traded on the date of the grant
or, if no trading occurred on that date, on the latest trading date prior to
such date. An option holder may pay all or a portion of the option price, and/or
the tax withholding liability, if applicable, by surrendering common shares
already owned or by withholding common shares to be issued under the option
being exercised. To the extent that common shares are withheld as payment for
all or a portion of the option price of an ISO, the withholding of such common
shares will be treated as a Disqualifying Disposition, thus subjecting the
exercise to immediate tax consequences. See "Certain Federal Income Tax
Consequences" below.
The period during which an option may be exercised shall be determined
by the Committee at the time of the option grant and, for ISOs, may not extend
more than ten years from the date of the grant, except in the case of ISOs
granted to persons possessing more than 10 percent of the total combined voting
power or value of all classes of stock of the Company and/or its subsidiaries in
which case the option period will not exceed five years from the date of grant.
To the extent not previously exercised, each ISO will terminate upon
the expiration of the option period specified in the option agreement provided,
however that, subject to the discretion of the Committee, each ISO will
terminate, if earlier: (i) immediately after the date that the option holder
ceases to be an Eligible Participant for any reason other than death,
disability, or retirement; (ii) three years after the date that the option
holder ceases to be an Eligible Participant by reason of such person's death or
disability; provided, however, that the ISO will convert to an NSO if exercised
more than 12 months after death or disability; or (iii) three years after the
option holder ceases to be an Eligible Participant by reason of such person's
retirement; provided, however, that the ISO will convert to an NSO if exercised
more than 3 months after retirement.
To the extent not previously exercised, each NSO will terminate upon
the expiration of the option period specified in the option agreement provided,
however that, subject to the discretion of the Committee, each NSO will
terminate, if earlier: (i) immediately after the date that the option holder
ceases to be an Eligible Participant for any
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reason other than death, disability, or retirement; or (ii) three years after
the date that the option holder ceases to be an Eligible Participant by reason
of such person's death, disability or retirement.
TRANSFERABILITY; DIVIDEND AND VOTING RIGHTS; WITHHOLDING
The terms of the Plan provide that ISOs are not transferable other than
by will or the laws of descent and distribution. NSOs may not be transferred
other than by will, the laws of descent and distribution, or, at the discretion
of the Committee, by direct gift to a family member or gift to a family trust or
family partnership. Holders of ISOs or NSOs shall have no dividend rights or
voting rights until the options have been exercised.
The Plan provides that recipients of options pay all required local,
state and federal withholding taxes associated with the exercise of such options
in cash unless the Committee, in its discretion, permits the option holder to
pay such withholding liability by surrendering common shares already owned, or
by withholding common shares issued pursuant to the option being exercised.
CHANGE IN CONTROL
In the event of a change in control of the corporation or a liquidation
or dissolution of the corporation, on the effective date of such change in
control, all options shall become fully exercisable.
For purposes of the Plan, a change of control of the Company shall have
occurred:
(i) on the scheduled expiration date of a tender offer by, or
exchange offer by any corporation, person, other entity or
group (other than the Company or any of its wholly-owned
subsidiaries), to acquire voting stock of the Company if:
(1) after giving effect to such offer such corporation,
person, or other entity or group would own 25 percent
or more of the voting stock of the Company;
(2) there shall have been filed documents with the
Securities and Exchange Commission in connection
therewith (or, if no such filing is required, public
evidence that the offer has already commenced); and
(3) such corporation, person, or other entity or group
has secured all required regulatory approvals to own
or control 25 percent or more of the voting stock of
the Company;
(ii) if the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into
another corporation in a transaction in which neither the
Company nor any of its wholly-owned subsidiaries will be the
surviving corporation, or to sell or otherwise dispose of all
or substantially all of the Company's assets to any
corporation, person, other entity or group (other than the
Company or any of its wholly-owned subsidiaries), and such
definitive agreement is consummated;
(iii) if any corporation, person, or other entity or group (other
than the Company or any of its wholly-owned subsidiaries)
becomes the beneficial owner (as defined in the Company's
Articles of Incorporation) of stock representing 25 percent or
more of the voting stock of the Company; or
(iv) if during any period of two consecutive years continuing
directors cease to comprise a majority of the Company's Board
of Directors.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and
not state and local) income tax consequences of awards granted under the Plan.
The summary is general in nature and is not intended to cover all tax
consequences that may apply to a particular employee or to the Company. The
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations thereunder relating to these matters are complicated and their
impact in any one case may depend upon the particular circumstances.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS
INCLUDED FOR INFORMATIONAL PURPOSES ONLY. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING OR PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION. EACH PARTICIPANT IN THE PLAN SHOULD CONSULT HIS OR
HER TAX ADVISOR REGARDING SPECIFIC TAX CONSEQUENCES INCLUDING THE APPLICATION
AND EFFECT OF STATE AND LOCAL TAX LAWS.
Incentive Stock Options. ISOs granted under the Plan are intended to
qualify as incentive stock options under Section 422 of the Code. Pursuant to
Section 422, the grant and exercise of an ISO generally will not result in
taxable income to the option holder (with the possible exception of alternative
minimum tax liability) if the option holder does not dispose of common shares
received upon exercise of such option within one year after the date of exercise
and two years after the date of grant (either type of disposition hereinafter
referred to as a "Disqualifying Disposition"), and if the option holder has
continuously been an Eligible Participant from the date of grant to three months
before the date of exercise (or 12 months in the event of death or disability)
(hereinafter referred to as the "Employment Requirement"). The Company will not
be entitled to a deduction for income tax purposes in connection with the grant
or exercise of an ISO. Additionally, the Company will not be entitled to a
deduction at the time common shares acquired pursuant to an ISO are disposed of,
provided that the option holder has satisfied the Employment Requirement and the
disposition is not a Disqualifying Disposition.
Disposition of common shares acquired pursuant to an ISO, except in the
case of a Disqualifying Disposition, will result in long-term capital gain or
loss taxation of the option holder on the difference between the amount realized
upon disposition and the option price. An option holder who, in a Disqualifying
Disposition, disposes of common shares acquired pursuant to an ISO, will be
required to notify the Company and will immediately recognize the gain on the
disposition as ordinary income. In the event of a Disqualifying Disposition, the
Company will be entitled to a deduction in the amount of income recognized by
the option holder.
Pursuant to the Code and the terms of the Plan, the Committee will
designate all options granted under the Plan as either ISOs or NSOs. To the
extent that the fair market value of the Company's Common Stock (determined at
the time an option is granted) with respect to which all ISOs are exercisable
for the first time by any individual during any calendar year exceeds $100,000,
such option shall be treated for all purposes under the Plan as an NSO.
Non-Qualified Stock Options. For NSOs, or ISOs which have converted to
NSOs for any reason, the difference between the market value of the Company's
Common Stock on the date of exercise and the option price will constitute
taxable ordinary income to the option holder on the date of exercise. The
Company will be entitled to a deduction in the same year in an amount equal to
the income taxable to the option holder. The option holder's basis in shares of
the Company's Common Stock acquired upon exercise of an option will equal the
option price plus the amount of income taxable at the time of exercise. Any
subsequent disposition of such the Company's Common Stock by the option holder
will be taxed as a capital gain or loss to the option holder, and will be
long-term capital gain or loss if the option holder has held such Company Common
Stock for more than one year at the time of sale.
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Pursuant to the terms of the Plan, the Committee will require any
recipient of common shares upon the exercise of an NSO to pay the Company, in
cash, by surrendering common shares already owned, by withholding common shares
issued pursuant to the option being exercised, or in such other form as the
Committee may determine in its discretion, the amount of any tax or other amount
required by any governmental authority to be withheld and paid by the Company to
such authority for the account of such recipient.
PERFORMANCE-BASED COMPENSATION -- SECTION 162(M) REQUIREMENT
The Plan is intended to preserve the Company's tax deduction for
certain awards made under the Plan by complying with the terms of Section 162(m)
of the Code and regulations relating thereto.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE PLAN.
EXECUTIVE COMPENSATION
SUMMARY
The following table summarizes compensation for services to the Company and
Citizens Bank for the years ended December 31, 1997, 1996 and 1995 paid to or
earned by the Chief Executive Officer of the Company and the other executive
officer of the Company whose salary and bonus exceeded $100,000 for the year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
=======================================================================================================
Name and Principal All Other
Position Year Salary($) Bonus($) Compensation($)(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tony J. Sorcic 1997 157,258 32,104 12,313
President and Chief 1996 148,020 11,000 9,829
Executive Officer 1995 123,420 0 3,965
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
James B. Miller 1997 97,625 20,207 7,622
Executive Vice 1996 90,860 1,500 5,988
President 1995 83,562 0 2,686
=======================================================================================================
</TABLE>
(1) The compensation reported represents Company matching contributions to the
Company 401(k) Plan and Company contributions to the Profit Sharing Plan.
EMPLOYMENT AGREEMENTS
Mr. Sorcic has an employment agreement with the Company which provides for his
full-time employment in his present capacity at a base compensation of $141,700
per year, or such increased amount as the Board of Directors of Citizens Bank
may determine, plus fringe and health and welfare benefits, effective October 1,
1995. His term of employment is continuously extended so as to have a remaining
term of one year, unless terminated sooner as a result of good cause or for good
reason (each as defined in the Agreement).
Upon certain changes in control of the Company or Citizens Bank, Mr. Sorcic
would be entitled to receive a lump sum payment equal to his monthly salary
times the greater of twenty-four and the balance of the term under the Agreement
(the "Severance Period"). Mr. Sorcic also would be entitled to receive all
benefits accrued under any
11
<PAGE> 12
incentive and retirement plan of the Company and, during the Severance Period,
he and his dependents would continue to be covered by all welfare plans of the
Company.
COMPENSATION COMMITTEE REPORT
The Company does not have a Compensation Committee of the Board of Directors.
During 1997, the Board of Directors established the compensation procedures and
policies and determined the compensation of the President and Chief Executive
Officer of the Company. The Chief Executive Officer of the Company is also the
President of Citizens Bank and, as a result, he receives compensation only from
Citizens Bank for services to the Company and Citizens Bank. During 1997, the
Directors' Personnel Policy and Salary Committee of Citizens Bank (the
"Committee") established the compensation procedures and policies for Citizens
Bank and determined the compensation of all of the executive officers of
Citizens Bank. Messrs. Thomas R. Lasier, Stephen W. Samet, Craig O. Wesner and
Tony J. Sorcic were members of the Committee during 1997. All decisions by the
Committee are reviewed and approved by the Board of Directors of Citizens Bank.
The compensation philosophy and objectives of the Company and Citizens Bank
include attracting and retaining the best possible executive talent, motivating
executive officers to achieve the performance objectives of the Company and
Citizens Bank, rewarding individual performance and contributions and linking
executive and stockholder interests.
Executive compensation consists of two components: base salary and bonus, each
of which is intended to complement the other and, taken together, to satisfy the
compensation objectives of the Company and Citizens Bank as the case may be.
With respect to the base salaries of each of the executive officers of the
Company, the Board with respect to the President and Chief Executive Officer,
and the Committee with respect to the executive officers of Citizens Bank,
annually consider the job performance of the officer and the average salaries as
published by the Illinois Bankers Association and the Bank Administrative
Institute of all of those persons holding comparable positions at comparably
sized bank holding companies and banks, as the case may be, in determining each
officer's base salary. The base salaries of the officers are targeted at the
average base salary levels of the comparative compensation group. The banks
included in the Illinois Bankers Association and Bank Administrative Institute
publications are not the same as the banks quoted in The Nasdaq Stock Market.
Bonuses are awarded to the President and Chief Executive Officer of the Company
and the executive officers and branch managers of Citizens Bank based on a point
system established by the Committee. These individuals earn points as a result
of deposit growth, loan growth, and improvements in income, operating expenses,
return on equity and/or return on deposits. The points earned determine the
percentage to be paid as a bonus.
This report is submitted on behalf of the Board of Directors of the Company: Don
S. Browning, John Ernat, Donald E. Grubb, Thomas M. Longman, Dr. Harold C.
Hutchinson, Jr., Thomas R. Lasier, Ervin I. Pietsch, Stephen W. Samet, Tony J.
Sorcic and Craig O. Wesner.
COMMON STOCK PRICE PERFORMANCE GRAPH
The following Common Stock price performance graph compares the monthly change
in the Company's cumulative total stockholder returns on its Common Stock
commencing May 8, 1992, the effective date of the Company's initial public
offering, with the cumulative total return of stock traded on The Nasdaq Stock
Market and all banks traded on The Nasdaq Stock Market. The amounts shown assume
the reinvestment of dividends.
12
<PAGE> 13
<TABLE>
<CAPTION>
==========================================================================================================================
CRSP TOTAL
RETURNS INDEX FOR: 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRINCETON NATIONAL 100.0 136.8 117.3 162.8 183.1 260.7
BANCORP, INC.
- --------------------------------------------------------------------------------------------------------------------------
NASDAQ STOCK 100.0 114.8 112.2 158.7 195.2 239.5
MARKET (US
COMPANIES)
- --------------------------------------------------------------------------------------------------------------------------
NASDAQ BANK 100.0 114.0 113.6 169.2 223.4 377.4
STOCKS SIC 6020-
6029, 6710-6719
US AND FOREIGN
==========================================================================================================================
</TABLE>
As noted above, the Company's Common Stock began trading on The Nasdaq Stock
Market under the symbol PNBC on May 8, 1992. Since that date, the Company's
Common Stock has been lightly traded. On December 31, 1997 and February 27,
1998, the Record Date, the bid prices for the Common Stock as quoted by The
Chicago Corporation were $24.75 and $25.75, respectively.
CERTAIN TRANSACTIONS
Several of the Company's directors and their affiliates, including corporations
and firms of which they are officers or in which they or members of their
families have an ownership interest, are customers of Citizens Bank. These
persons, corporations and firms have had transactions in the ordinary course of
business with Citizens Bank, including borrowings of material amounts, all of
which, in the opinion of management, were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unaffiliated persons and did not involve more than
the normal risk of collectibility or present other unfavorable features. It is
the policy of Citizens Bank not to extend credit to certain designated executive
officers thereof.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of Forms 3, 4 and 5 and any amendment thereto
furnished to the Company pursuant to Rule 16a-3(e) of the Securities Exchange
Act of 1934, as amended, and written representations from the directors and
executive officers that no other reports were required, the Company is not aware
of any director, officer or beneficial holder of 10% of its Common Stock that
failed to file any such reports on a timely basis during 1997, except that Mr.
Samet filed three reports relating to three transactions that were filed late.
These inadvertent oversights were promptly corrected upon being brought to his
attention.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of February 27, 1998 the only persons or groups who are known to the Company
to be the beneficial owners of more than 5% of the Common Stock were:
13
<PAGE> 14
<TABLE>
<CAPTION>
===================================================================================================================
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Citizens Bank's Trust Department
606 South Main Street
Princeton, Illinois 61356 216,905(1) 8.1
- -------------------------------------------------------------------------------------------------------------------
Invista Capital Management, Inc.
699 Walnut - 1500 Hub Tower
Des Moines, Iowa 50309 262,150 9.8
===================================================================================================================
</TABLE>
(1) The trust department holds Common Stock in a fiduciary capacity under the
nominee name of Jesco & Co. The trust department's policy is to pass the power
to vote the shares held by it to the beneficiaries or co-fiduciaries of the
trust accounts, but in certain cases the beneficiaries or co-fiduciaries request
the trust department to vote their Common Stock by proxy.
1999 ANNUAL MEETING
Any stockholder who intends to present a proposal at the 1999 Annual Meeting of
Stockholders must submit the proposal in writing to the Company on or before
November 3, 1998, in order for the proposal to be eligible for inclusion in the
Company's proxy statement and form of proxy for that meeting.
OTHER MATTERS
Management of the Company does not intend to present any other matters for
action at the annual meeting, and the management has not been informed that
other persons intend to present any other matters for action at the meeting.
However, if any other matters should properly come before the meeting, the
persons named in the accompanying proxy intend to vote thereon, pursuant to the
proxy, in accordance with the recommendation of the management of the Company.
By Order of the Board of Directors,
Lou Ann Birkey
Assistant Vice-President
and Corporate Secretary
March 6, 1998
14
<PAGE> 15
Appendix A
PRINCETON NATIONAL BANCORP, INC.
STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN
(a) The purpose of this Plan is to advance the interests of
the Company and its stockholders by helping the Company and its Subsidiaries
attract and retain the services of employees, officers and directors, upon whose
judgment, initiative and efforts the Company is substantially dependent, and to
provide those persons with further incentives to advance the interests of the
Company. The Plan is also established with the objective of encouraging Stock
ownership by such employees, officers and directors and aligning their interests
with those of stockholders.
(b) This Plan will become effective on the date of its
adoption by the Board, provided the Plan is approved by the stockholders of the
Company (excluding holders of shares of Option Stock issued by the Company under
this Plan) within twelve months after that date. If the Plan is not approved by
the stockholders of the Company, any Options granted under this Plan will be
rescinded and void. This Plan will remain in effect until it is terminated by
the Board under Section hereof, except that no Incentive Stock Option will be
granted after the tenth anniversary of the date of this Plan's adoption by the
Board.
2. DEFINITIONS. Unless the context otherwise requires, the
following defined terms (together with other capitalized terms defined
elsewhere in this Plan) will govern the construction of this Plan, and of any
Stock Option Agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either
directly or indirectly by virtue of the ownership
attribution provisions set forth in Section 424(d) of
the Code at the time he or she is granted an Option,
Stock possessing more than ten percent (10%) of the
total combined voting power or value of all classes
of Stock of the Company and/or of its Subsidiaries.
(b) "1934 Act" means the federal Securities Exchange Act
of 1934, as amended.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" of the Company shall have
occurred:
(i) on the scheduled expiration date of a tender
offer by, or exchange offer by any
corporation, person, other entity or group
(other than the Company or any of its wholly
owned Subsidiaries), to acquire Voting Stock
of the Company if:
<PAGE> 16
(1) after giving effect to such offer
such corporation, person, other
entity or group would own 25% or
more of the Voting Stock of the
Company;
(2) there shall have been filed
documents with the Securities and
Exchange Commission in connection
therewith (or, if no such filing is
required, public evidence that the
offer has already commenced); and
(3) such corporation, person, other
entity or group has secured all
required regulatory approvals to own
or control 25% or more of the Voting
Stock of the Company;
(ii) if the shareholders of the Company approve a
definitive agreement to merge or consolidate
the Company with or into another corporation
in a transaction in which neither the
Company nor any of its wholly owned
Subsidiaries will be the surviving
corporation, or to sell or otherwise dispose
of all or substantially all of the Company's
assets to any corporation, person, other
entity or group (other than the Company or
any of its wholly owned Subsidiaries), and
such definitive agreement is consummated;
(iii) if any corporation, person, other entity or
group (other than the Company or any of its
wholly owned Subsidiaries) becomes the
Beneficial Owner (as defined in the
Company's articles of incorporation) of
Stock representing 25% or more of the Voting
Stock of the Company; or
(iv) if during any period of two consecutive
years Continuing Directors cease to comprise
a majority of the Company's Board of
Directors.
(e) "Code" means the Internal Revenue Code of 1986, as
amended (references herein to Sections of the Code
are intended to refer to Sections of the Code as
enacted at the time of this Plan's adoption by the
Board and as subsequently amended, or to any
substantially similar successor provisions of the
Code resulting from recodification, renumbering or
otherwise).
(f) "Committee" means the Directors Personnel, Policy and
Salary Committee of the Board of Directors of
Citizens First National Bank; except that where there
is no Directors Personnel, Policy and Salary
Committee, the term "Committee" shall refer to any
committee of Non-Employee Directors of the Board
designated by the Board.
2
<PAGE> 17
(g) "Company" means the Princeton National Bancorp, Inc.,
an Illinois corporation and its successor or
successors.
(h) "Continuing Director" means:
(i) any member of the Board of Directors of the
Company at the beginning of any period of
two consecutive years; and
(ii) any person who subsequently becomes a member
of the Board of Directors of the Company; if
(iii) such person's nomination for election or
election to the Board of Directors of the
Company is recommended or approved by
resolution of a majority of the Continuing
Directors; or
(iv) such person is included as a nominee in a
proxy statement of the Company distributed
when a majority of the Board of Directors of
the Company consists of Continuing
Directors.
(i) "Disability" has the same meaning as "permanent and
total disability," as defined in Section 22(e)(3) of
the Code.
(j) "Disqualifying Disposition" means a disposition, as
defined in Section 424(c)(1) of the Code, of Option
Stock acquired pursuant to an ISO, which occurs
either:
(i) within two years after the underlying Option
is granted; or
(ii) within one year after the underlying Option
is exercised.
Under Section 424(c)(1) of the Code, the term
"disposition" includes a sale, exchange, gift, or a
transfer of legal title, but does not include (A) a
transfer from a decedent to an estate or a transfer
by bequest or inheritance, (B) an exchange to which
Section 354, 355, 356, or 1036 (or so much of Section
1031 as relates to Section 1036) applies, or (C) a
mere pledge or hypothecation.
(k) "Eligible Participants" means persons who, at a
particular time, are employees, officers or directors
of the Company or its Subsidiaries. With respect to
ISOs only, this definition does not include persons
who have been on leave of absence for greater than 90
days, unless re-employment is guaranteed by law or
contract.
3
<PAGE> 18
(l) "Fair Market Value" means, with respect to Option
Stock and as of the date in question, the market
price per share of such Stock determined by the
Committee, consistent with the requirements of
Section 422 of the Code and to the extent consistent
therewith:
(i) if the Stock was traded on a national stock
exchange as of the date in question, then
the Fair Market Value will be equal to the
average of the high and low prices reported
by the applicable composite transactions
report for such date or, if no trading
occurred on the applicable exchange for that
date, for the latest trading date prior to
such date.
(ii) if the Stock was traded on any other
established market as of the date in
question, then the Fair Market Value will be
equal to the average of the high and low
prices reported for such date or, if no
trading occurred on the applicable exchange
for that date, for the latest trading date
prior to such date; or
(iii) if neither of the foregoing provisions is
applicable, then the Fair Market Value will
be determined by the Committee on good faith
on such basis as it deems appropriate.
(m) "ISO" or "Incentive Stock Option" means an Option,
which is subject to certain holding requirements and
tax benefits, and which qualifies as an "incentive
stock option," as defined in Section 422 of the Code.
(n) "Non-Employee Director" means a director who:
(i) is not currently an officer of the Company
or its Subsidiaries, or otherwise currently
employed by the Company or its Subsidiaries;
(ii) does not receive compensation, either
directly or indirectly, from the Company or
its Subsidiaries, for services rendered as a
consultant or in any capacity other than as
a director, except for an amount that does
not exceed the dollar amount for which
disclosure would be required in the
Company's proxy statement;
(iii) does not possess an interest in any other
transaction for which disclosure would be
required in the Company's proxy statement;
and
(iv) is not engaged in a business relationship
for which disclosure would be required in
the Company's proxy statement.
4
<PAGE> 19
(o) "NSO" means any Option granted under this Plan
whether designated by the Committee as a
"non-qualified stock option," a "non-statutory stock
option" or otherwise, other than an Option designated
by the Committee as an ISO. The term "NSO" also
includes any Option designated by the Committee as an
ISO but which, for any reason, fails to qualify as an
ISO pursuant to Section 422 of the Code and the rules
and regulations thereunder.
(p) "Option" means a right granted pursuant to this Plan
entitling the Optionee to acquire shares of Stock
issued by the Company.
(q) "Option Agreement" means an agreement between the
Company and an Eligible Participant to evidence the
terms and conditions of the issuance of Options
hereunder.
(r) "Option Price" with respect to any particular Option
means the exercise price at which the Optionee may
acquire each share of the Option Stock called for
under such Option.
(s) "Option Stock" means Stock issued or issuable by the
Company pursuant to the valid exercise of an Option.
(t) "Optionee" means an Eligible Participant to whom an
Option is granted hereunder, and any transferee of
such Option received pursuant to a Transfer
authorized under this Plan.
(u) "Plan" means this Princeton National Bancorp, Inc.,
Stock Option Plan.
(v) "Retirement" means (i) in the case of an employee or
officer, termination of employment with the Company
or a Subsidiary on or after the date on which the
employee would be able to commence receiving a
monthly benefit from the Citizens First National Bank
401k and Profit Sharing Plan; and (ii) in the case of
a director, the termination of service as a director
after the attainment of age 70 1/2.
(w) "Stock" means shares of the Company's common stock.
(x) "Subsidiary" has the same meaning as "Subsidiary
Corporation" as defined in Section 424(f) of the
Code.
(y) "Transfer," with respect to Option Stock, includes,
without limitation, a voluntary or involuntary sale,
assignment, transfer, conveyance, pledge,
hypothecation, encumbrance, disposal, loan, gift,
attachment or levy of such Stock, including without
limitation an assignment for the benefit of
5
<PAGE> 20
creditors of the Optionee, a transfer by operation of
law, such as a transfer by will or under the laws of
descent and distribution, an execution of judgment
against the Option Stock or the acquisition of record
or beneficial ownership thereof by a lender or
creditor, a transfer pursuant to any decree of
divorce, dissolution or separate maintenance, any
property settlement, any separation agreement or any
other agreement with a spouse (except for estate
planning purposes) under which a part or all of the
shares of Option Stock are transferred or awarded to
the spouse of the Optionee or are required to be
sold, or a transfer resulting from the filing by the
Optionee of a petition for relief, or the filing of
an involuntary petition against such Optionee, under
the bankruptcy laws of the United States or of any
other nation.
(z) "Voting Stock" shall mean those shares of the Company
Stock entitled to vote generally in the election of
directors.
3. ELIGIBILITY. Options may be granted under this Plan only to
persons who are Eligible Participants as of the time of such grant.
4. ADMINISTRATION
(a) Administration by the Committee. Except where the
Committee is comprised solely of Non-Employee Directors, with respect to persons
subject to the short-swing profit liability provisions of Section 16 of the 1934
Act, the Board of Directors will administer this Plan. In all other cases, the
Committee will administer this Plan, but may delegate such powers or duties to
employees of the Company or its Subsidiaries, as it deems appropriate.
(b) Authority and Discretion of Committee. The Committee
will have full and final authority in its discretion, at any time subject only
to the express terms, conditions and other provisions of the Company's articles
of incorporation, bylaws and this Plan, and the specific limitations on such
discretion set forth herein:
(i) to select and approve the persons to whom
Options will be granted under this Plan from
among the Eligible Participants, including
the number of Options and the amount of
Option Stock available for purchase under
such Options so granted to each person;
(ii) to determine the period or periods of time
during which Options may be exercised or
become exercisable, the Option Price and the
duration of such Options, the date on which
Options are granted, and other matters to be
determined by the Committee in connection
with specific Option grants and Option
Agreements as specified under this Plan; and
6
<PAGE> 21
(iii) to interpret this Plan, to prescribe, amend
and rescind rules and regulations relating
to this Plan, and to make all other
determinations necessary or advisable for
the operation and administration of this
Plan.
(c) Designation of Options. Except as otherwise provided
herein, the Committee will designate any Option granted hereunder either as an
ISO or as an NSO. To the extent that the Fair Market Value of Stock, determined
at the time the Option is granted, with respect to which all ISOs are
exercisable for the first time by any individual during any calendar year
(pursuant to this Plan and all other plans of the Company and/or its
Subsidiaries) exceeds $100,000, such Option will be treated as an NSO.
(d) Option Agreements. Options will be deemed granted
hereunder only upon the execution and delivery of an Option Agreement by the
Optionee and a duly authorized officer of the Company. Options will not be
deemed granted hereunder merely upon the authorization of such grant by the
Committee.
5. SHARES RESERVED FOR OPTIONS. Subject to Sections and of this
Plan, the aggregate number of shares of Option Stock that may be issued and
outstanding pursuant to the exercise of Options under this Plan (the "Option
Pool") will not exceed 135,000 shares. Shares of Option Stock withheld as
payment of an Option Price as described in subsection 6.(e) by the Company may
be added back into the Option Pool and reissued. Shares of Option Stock
that would have been issuable pursuant to Options, but that are no longer
issuable because all or part of those Options have terminated or expired may
also be added back into the Option Pool to be available for issuance.
6. TERMS OF STOCK OPTION AGREEMENTS. Each Option granted
pursuant to this Plan will be evidenced by an Option Agreement between the
Company and the Eligible Participant to whom such Option is granted, in form
and substance satisfactory to the Committee in its sole discretion, consistent
with this Plan. Without limiting the foregoing, the following terms and
conditions will be considered a part of each Option Agreement (unless otherwise
stated therein):
(a) Covenants of Optionee. Nothing contained in this
Plan, any Option Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer upon any Optionee
any right with respect to the continuation of his or her status as an employee,
officer or director of the Company or its Subsidiaries.
(b) Option Vesting Periods. Except as otherwise provided
herein, each Option Agreement will specify the period or periods of time within
which each Option or portion thereof will first become exercisable (the "Option
Vesting Period"). Such Option Vesting Periods will be determined by the
Committee in its discretion, and may be accelerated or shortened by the
Committee in its discretion.
(c) Exercise of the Option.
7
<PAGE> 22
(i) Mechanics and Notice. Options may be
exercised to the extent exercisable by
giving written notice to the Company
specifying the number of Options to be
exercised, the date of the grant of the
Option or Options to be exercised, the
Option Price, the desired effective date of
the exercise, the number of full shares of
Option Stock to be retained by the Optionee
after exercise, and the method of payment.
Once written notice complying with the
requirements of this subsection is received,
the Committee or its designee shall promptly
notify the Optionee of the amount of the
Option Price and withholding taxes due, if
either or both is applicable. Payment of any
amounts owing shall be due immediately upon
receipt of such notice.
(ii) Withholding Taxes. As a condition to the
issuance of shares of Option Stock upon
exercise of an Option granted under this
Plan, the Optionee will pay to the Company
in cash, through cashless exercise as
described in subsection 6.(e), or in such
other form as the Committee may
determine in its discretion, the amount of
the Company's tax withholding liability, if
any, associated with such exercise. The
Committee may prescribe a specific method
of payment of such withholding, in its
discretion. For purposes of this subsection
6.(c)(ii), "tax withholding liability" will
mean all federal and state income taxes,
social security tax, medicare tax and any
other taxes applicable to the income
arising from the transaction required by
applicable law to be withheld by the
Company.
(d) Payment of Option Price. Each Option Agreement will
specify the Option Price, with respect to the exercise of Option Stock granted
thereunder, which may be stated in terms of a fixed dollar amount, a percentage
of Fair Market Value at the time of the grant, or such other method as
determined by the Committee in its discretion. In no event will the Option Price
for an ISO or NSO granted hereunder be less than the Fair Market Value (or,
where an ISO Optionee is a 10% Stockholder, one hundred ten percent (110%) of
such Fair Market Value) of the Option Stock at the time such ISO or NSO is
granted. The Option Price will be payable to the Company in United States
dollars in cash or by check or, such other legal consideration as may be
approved by the Committee, in its discretion.
(e) Cashless Exercise. Optionee may pay all or a portion
of the Option Price, and/or the tax withholding liability set forth in
subsection 6.(c)(ii) above, if applicable, with respect to the exercise of an
Option either by surrendering shares of Stock already owned by such Optionee or
by withholding shares of Option Stock, provided that the Fair Market Value of
such surrendered Stock or withheld Option Stock is equal to the corresponding
portion of such Option Price and/or tax withholding liability, as the case may
be, to be paid for therewith. To the extent that shares of Option Stock are
withheld as payment of all or a portion of the Option
8
<PAGE> 23
Price of an ISO, the withholding of such shares will be treated as a
Disqualifying Disposition, and subject to Section 421(b) of the Code.
(f) Notice of Disqualifying Disposition. In the event of
a Disqualifying Disposition, the Optionee will promptly give written notice to
the Company of such disposition including information regarding the number of
shares involved, the exercise price of the underlying Option through which the
shares were acquired and the date of the Disqualifying Disposition.
(g) Termination of the Option. Except as otherwise
provided herein, each Option Agreement will specify the period of time, to be
determined by the Committee in its discretion, during which the Option granted
therein will be exercisable, not to exceed ten years from the date of grant
(the "Option Period"); provided that the Option Period will not exceed five
years from the date of grant in the case of an ISO granted to a 10% Stockholder.
(i) ISOs. To the extent not previously
exercised, each ISO will terminate upon
the expiration of the Option Period
specified in the Option Agreement; provided,
however, that, subject to the discretion of
the Committee, each ISO will terminate, if
earlier: (a) immediately after the date that
the Optionee ceases to be an Eligible
Participant for any reason other than death,
Disability, or Retirement; (b) three years
after the date that the Optionee ceases to
be an Eligible Participant by reason of such
person's death or Disability; provided,
however, that the ISO will convert to an NSO
if exercised more than twelve months after
death or Disability; or (c) three years
after the Optionee ceases to be an Eligible
Participant by reason of such person's
Retirement; provided, however, that the ISO
will convert to an NSO if exercised more
than three months after Retirement.
(ii) NSOs. To the extent not previously
exercised, each NSO will terminate upon
the expiration of the Option Period
specified in the Option Agreement; provided,
however, that, subject to the discretion of
the Committee, each NSO will terminate, if
earlier: (a) immediately after the date that
the Optionee ceases to be an Eligible
Participant for any reason, other than
death, Disability, or Retirement; or (b)
three years after the date the Optionee
ceases to be an Eligible Participant by
reason of such person's death, Disability or
Retirement.
(iii) Effect of Change in Control. Notwithstanding
any other provision of this Plan, each
Option will become fully exercisable upon
the effective date of a Change in Control of
the Company or a liquidation or dissolution
of the Company.
9
<PAGE> 24
(h) Transferability of Options. ISOs will be subject to
Transfer by the Optionee only by will or the laws of descent and distribution.
NSOs will be subject to Transfer by the Optionee only by will or the laws of
descent and distribution or, at the discretion of the Committee, by direct gift
to a family member, or gift to a family trust or family partnership. The terms
"family member," "family trust" and "family partnership" shall have meanings
consistent with Section 704 of the Code. Options will be exercisable only by the
Optionee during his or her lifetime, or, with respect to an NSO, by any of the
recipients of the Transfers specifically permitted by this subsection 6.(h).
(i) Compliance with Law. Notwithstanding any other provision
of this Plan, Options may be granted pursuant to this Plan, and Option Stock may
be issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state tax and securities laws.
The right to exercise an Option will be further subject to the requirement that
if at any time the Committee determines, in its discretion, that the listing,
registration or qualification of the shares of Option Stock called for by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory authority, is necessary or desirable as
a condition of or in connection with the granting of such Option or the purchase
of shares of Option Stock, the Option may not be exercised, in whole or in part,
unless and until such listing, registration, qualification, consent or approval
is effected or obtained free of any conditions not acceptable to the Committee,
in its discretion.
(j) Stock Certificates. Certificates representing the Option
Stock issued pursuant to the exercise of Options will bear all legends required
by law and necessary to effectuate this Plan's provisions. The Company may place
a "stop transfer" order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan and in the legends referred
to in this subsection 6.(j) have been complied with.
(k) Other Provisions. The Option Agreement may contain such
other terms, provisions and conditions, including such special forfeiture
conditions, rights of repurchase, rights of first refusal and other restrictions
on Transfer of Option Stock issued upon exercise of any Options granted
hereunder, not inconsistent with this Plan, as may be determined by the
Committee in its sole discretion.
7. ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change
in the outstanding Stock of the Company as a result of a merger,
reorganization, stock split, reverse stock split, stock dividend,
recapitalization, combination or reclassification, appropriate proportionate
adjustments will be made:
(a) in the aggregate number of shares of Option Stock in the Option
Pool;
(b) in the Option Price and the number of shares of Option Stock that
may be purchased pursuant to an outstanding Option granted hereunder;
10
<PAGE> 25
(c) in the exercise price of any rights of repurchase or of first
refusal under this Plan; and
(d) with respect to other rights and matters determined on a per share
basis under this Plan or any associated Option Agreement.
Any such adjustments will be made only by the Committee, and when so
made will be effective, conclusive and binding for all purposes with respect to
this Plan and all Options then outstanding. No such adjustments will be required
by reason of the issuance or sale by the Company for cash or other consideration
of additional shares of its Stock or securities convertible into or exchangeable
for shares of its Stock.
8. PROCEEDS FROM SALE OF OPTION STOCK. Cash proceeds from the
sale of shares of Option Stock issued from time to time upon the exercise of
Options granted pursuant to this Plan will be added to the general funds of the
Company and as such will be used from time to time for general corporate
purposes.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of this Plan, the Committee may
modify, extend or renew outstanding Options granted under this Plan, but in no
event may the Committee change the Option Price as stated in the Option
Agreement, if expressed as a fixed dollar amount, or the manner in which the
Option Price is to be calculated as stated in the Option Agreement, if expressed
as a percentage of Fair Market Value at the time of the grant or otherwise.
Notwithstanding the foregoing, no modification of any Option will, without the
consent of the holder of the Option, alter or impair any rights or obligations
under any Option previously granted under this Plan.
10. AMENDMENT AND DISCONTINUANCE. The Committee may amend, and the
Board may suspend or discontinue, this Plan at any time, provided that:
(a) No such action may, without the approval of the
stockholders of the Company, increase the maximum total number of shares of
Option Stock that may be granted to an individual over the term of this Plan, or
materially increase (other than by reason of an adjustment pursuant to Section
7 hereof) the aggregate number of shares of Option Stock in the Option
Pool that may be granted pursuant to this Plan;
(b) No action of the Committee will cause ISOs granted
under this Plan not to comply with Section 422 of the Code unless the Committee
specifically declares such action to be made for that purpose;
(c) No action of the Committee shall alter or impair any
Option previously granted under this Plan without the consent of such affected
Optionee.
11
<PAGE> 26
11. PLAN BINDING UPON SUCCESSORS. This Plan shall be binding upon
and inure to the benefit of the Company, its Subsidiaries, and their respective
successors and assigns, and Eligible Participants and their respective assigns,
personal representatives, heirs, legatees and beneficiaries.
12. COMPLIANCE WITH RULE 16B-3. With respect to persons subject to
Section 16 of the 1934 Act, transactions under this Plan are intended to be
exempt from short-swing profit liability. To the extent that any transaction
made pursuant to the Plan may give rise to short-swing profit liability, the
Committee may deem such transaction to be null and void, to the extent permitted
by law and deemed advisable by the Committee.
13. NOTICES. Any notice to be given to the Company under the terms
of an Option Agreement will be addressed to Princeton National Bancorp, Inc.,
606 S. Main Street, Princeton, Illinois 61356, Attention: President, or at such
other address as the Company may designate in writing. Any notice to be given to
an Optionee will be addressed to the Optionee at the address provided to the
Company by the Optionee. Any such notice will be deemed to be given when
deposited in the United States mail at a post office or branch post office
regularly maintained by the United States Postal Service, with postage fully
prepaid, enclosed in a properly sealed envelope, and addressed as required under
this Section.
14. GOVERNING LAW. This Plan will be governed by, and construed in
accordance with, the laws of the State of Illinois.
15. COPIES OF PLAN. A copy of this Plan will be delivered to each
Optionee at or before the time he or she executes an Option Agreement.
* * *
p
Date Plan Adopted by Board of Directors: March 4, 1998
Date Plan Approved by Stockholders:
---------------------
12
<PAGE> 27
PRINCETON NATIONAL BANCORP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
April 14, 1998
- Please sign and return immediately -
The undersigned hereby appoints Lawrence DeVore, Roger Swan and John Isaacson or
any of them as the attorneys and proxies of the undersigned, with full power of
substitution, to represent and vote all shares of common stock of Princeton
National Bancorp, Inc. (the "Company"), standing in the name of the undersigned
at the close of business on February 27, 1998, at the Annual Meeting of
Stockholders of the Company to be held at The Galleria, 1659 North Main Street,
Princeton, Illinois, at 10 a.m., on Tuesday, April 14, 1998 or at any
adjournment or postponement thereof, with all the powers that the undersigned
would possess if personally present on all matters coming before said meeting,
as follows:
(1) Election of directors. ___ WITHHOLD AUTHORITY to vote for all
___ FOR all nominees listed below nominees listed below
(other than any nominee whose
name has been lined out)
CLASS III (2001)
Dr. Harold C. Hutchinson, Jr.
Thomas R. Lasier
Stephen W. Samet
YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY OF THE ABOVE NAMED NOMINEES BY LINING
OUT THAT NOMINEE'S NAME.
(To be signed and dated on the reverse side)
<PAGE> 28
(2) Approval of the Princeton National Bancorp, Inc. Stock Option Plan
____FOR ____AGAINST ____ABSTAIN
(3) In their discretion, upon such other matters as may properly come before the
Annual Meeting.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR election of directors and
FOR Proposal 2.
Please fill in, date and sign this proxy and return it in the enclosed envelope.
When signing as an executor, administrator, trustee, guardian, custodian,
corporate officer or in any capacity other than individually, give your full
title as such. If stock is held jointly, each joint owner should sign this
proxy.
Date:______________________
___________________________
(Stockholder's Signature)
___________________________
(Stockholder's Signature)
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
