<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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-11(c) or Section 240.14e-12
Northern States Financial Corporation
- --------------------------------------------------------------------------------
(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
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(1)(2) or
Item 22(a)(2) of Schedule 14A.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
NORTHERN STATES FINANCIAL CORPORATION
1601 N. Lewis Avenue
Waukegan, Illinois 60085
Telephone (847) 244-6000
- --------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
NORTHERN STATES FINANCIAL CORPORATION
TO BE HELD ON April 23, 1998
- --------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Northern States Financial Corporation (the "Company") will be
held on Thursday, April 23, 1998, at 4:30 p.m., at the office of the Bank of
Waukegan, 1601 N. Lewis Avenue, Waukegan, Illinois.
A Proxy Statement and Proxy Card for this Annual Meeting are enclosed
herewith. The Annual Meeting is for the purpose of considering and voting on
the following matters:
I. The election of directors to serve terms of one year each;
II. A proposal to amend the Certificate of Incorporation to increase
the number of shares of Common Stock the Company is authorized to issue from
1,750,000 to 6,500,000, and to effect a five-for-one split of the Common Stock;
III. The ratification of the appointment of Crowe, Chizek and Company
LLP as independent auditors of the Company for the year ending December 31,
1998;
IV. Such other business as may properly come before the meeting or any
adjournments thereof.
Note: The Board of Directors is not aware of any other business to come before
the Annual Meeting.
Pursuant to the Bylaws of the Company, the Board of Directors has fixed
March 17, 1998 as the record date for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting. Only holders of record of
Common Stock at the close of business on such date will be entitled to vote at
the Annual Meeting or any adjournments thereof.
EACH STOCKHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE ANNUAL
MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT
DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER
MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY
FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR BY SUBMITTING A
DULY EXECUTED PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE ANNUAL
MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT
BEFORE THE ANNUAL MEETING.
By Order of the Board of Directors:
/s/ Helen Rumsa
----------------------------------------
Helen Rumsa
<PAGE>
Secretary
Waukegan, Illinois
March 23, 1998
NORTHERN STATES FINANCIAL CORPORATION
1601 N. Lewis Avenue
Waukegan, Illinois 60085
Telephone (847) 244-6000
- --------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 23, 1998
- --------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Northern States Financial Corporation, a Delaware
corporation (the "Company" or "Northern States"), of proxies for use at the
Annual Meeting of Stockholders of the Company to be held on April 23, 1998.
This Proxy Statement and the accompanying proxy are being mailed to the
stockholders on or about March 23, 1998. Your proxy is being solicited by the
Board of Directors of the Company. The solicitation of proxies will be made by
mail except for any incidental solicitation on the part of directors and
officers, without additional remuneration, of the Company and of its affiliates
by personal interviews, by telephone, or by telegraph. The Company will bear
the cost of solicitation of proxies and it may reimburse brokers and others for
their expenses in forwarding solicitation material to beneficial owners of the
Company's stock.
Stockholders are urged to specify the way they wish to vote their shares by
marking the appropriate boxes on the enclosed proxy. Any proxy given by the
stockholder may be revoked at any time before it is exercised. A proxy may be
revoked by filing with the Secretary of the Company a written revocation or by
submitting a duly executed proxy bearing a later date. Any stockholder present
at the Annual Meeting may revoke his or her proxy and vote personally on each
matter brought before the Annual Meeting. The shares represented by the
enclosed proxy will be voted as specified by the stockholders. If no choice is
specified, the proxy will be voted FOR the proposals contained in this Proxy
Statement. 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 or more, but less than all, matters will be
treated as shares present for purposes of determining the presence of a quorum
but, except with respect to the proposal to amend the Certificate of
Incorporation where they will be treated as negative votes, will not be treated
as votes cast as to such matters not voted upon.
The 1997 Annual Report of the Company, including the consolidated
financial statements, is being transmitted to stockholders concurrently with
this Proxy Statement.
On March 17, 1998, the record date selected by the Board of Directors for
the determination of stockholders entitled to notice of and to vote at the
Annual Meeting, the Company had 889,373 shares of Common Stock, $2.00 par value,
issued and outstanding. In the election of the Board of Directors, and for all
other matters to be voted upon at the Annual Meeting, each issued and
outstanding share is entitled to one vote.
<PAGE>
Subsidiaries of the Company include the Bank of Waukegan (the "Bank") and
First Federal Bank, FSB, ("First Federal").
DIRECTORS AND EXECUTIVE MANAGEMENT
The Board of Directors of the Company consists of twelve directors. All
current directors are standing for reelection. The following table sets forth
certain information regarding each nominee for the Board of Directors of the
Company. If elected, each director will serve until the next annual meeting and
until a successor is elected and qualified.
<TABLE>
<CAPTION>
Principal
Director Occupation and Positions Held
Name Age (1) Since with the Company During the
Past Five Years.
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fred Abdula . . . . . 72 1984 Chairman of the Board and
President of the Company.
Owner and President of Air Con
Refrigeration and Heating,
Inc. a heating and air
conditioning contracting firm.
Director of Statewide Holding
Corporation, Inc., an insurance
company.
Kenneth W. Balza. . . . .60 1988 Director, Vice President
and Treasurer of the Company.
President, Bank of Waukegan
since 1988.
Helen Rumsa . . . . . 73 1984 Director and Secretary of the
Company.
Secretary of Bertrand Bowling
Lanes, Inc., a bowling establishment
in Waukegan, Illinois.
Jack H. Blumberg. . . . .66 1991 Director.
Managing partner of Blumberg & Co., a
real estate company.
Frank Furlan . . . . . 68 1984 Director.
Owner and President of Northern
Illinois Survey Co.
Harry S. Gaples. . . . . 62 1987 Director.
President of Kleinschmidt Inc.
Kleinschmidt provides car location
message services to shippers and value
added network services for business
documents electronically exchanged.
Laurance A. Guthrie. . . 58 1989 Director.
Vice President and Secretary of Doyle
Distributing Co., Inc. , the Miller beer
products distributor in Lake County,
Illinois.
<PAGE>
<CAPTION>
James A. Hollensteiner. 66 1991 Director.
Owner and President, Hollensteiner &
Associates. Hollensteiner & Associates
is a bank marketing company, which primarily
publishes and sells a newsletter for bank
customers. From 1990 to Feb., 1993, Chairman
of the Board and Chief Executive Officer of
First Federal.
Raymond M. Mota . . . . 48 1996 Director.
Owner and President of Mota Construction
Co., Inc. a general building construction and
contracting firm. Member of the State of
Illinois Capital Development Board.
Frank Ryskiewicz. . . . 71 1984 Director.
Owner and Chairman of the Board of
Bertrand Bowling Lanes, Inc.
Henry G. Tewes. . . . . 66 1984 Director.
Retired as Owner and President of The
Tewes Company in 1986. The Tewes Company
provides fuel oil, excavating and hauling
services to the construction industry.
Arthur J. Wagner. . . . 74 1984 Director.
Retired as President and Chief Executive
Officer of Fansteel, Inc., a metallurgical
manufacturing company in 1988 and served on the
Fansteel, Inc. Board of Directors until December,
1989.
</TABLE>
- --------------------------
(1) At December 31, 1997
Directors are elected by a plurality of the votes cast. Accordingly,
abstentions and broker non-votes will not affect the outcome of the election.
It is the intention of the persons named in the enclosed proxy, unless
authorization to do so is withheld, to vote the proxies received by them for the
election of the nominees named above. If, prior to the Annual Meeting, any
nominee should become unavailable for election, an event which is not
anticipated by the Board, the proxies will be voted for election of such
substitute nominee or nominees as the Board of Directors may propose.
<PAGE>
The Company has no directors who are also directors of any other company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the reporting requirements of Section 15(d)
of that Act or registered as an investment company under the Investment Company
Act of 1940.
Committees of the Board of Directors of the Company
During 1997 the Company's Board of Directors held twelve meetings and each
incumbent director attended 75% or more of the aggregate board and committee
meetings of the Company on which he or she served.
The Company has an Audit Committee comprised of the following directors:
Mr. Furlan (Chairman), Mr. Gaples, Mr. Hollensteiner, Mr. Mota, and Mr. Wagner.
The Audit Committee met two times in 1997. The Audit Committee is to oversee
the work of the Company's internal audit staff and to arrange for and to oversee
the annual consolidated audit of the Company, and its subsidiaries, the Bank of
Waukegan and First Federal by independent accountants and to make a written
report of such consolidated audit to the full Board of Directors. Included in
the Audit Committee's responsibilities are to recommend to the Board the
independent accountants to be selected and to review the scope of the audit, the
financial statements, the independent accountants' letter of comments and
management's responses thereto and the fees charged for audits and special
assignments.
The Company has a Compensation and Employee Benefits Committee comprised of
the whole Board of Directors. Mr. Furlan is Chairman of such committee. The
Compensation and Employee Benefits Committee met once in 1997. The principal
function of the Compensation and Employee Benefits Committee is to annually
review the compensation paid to employees of the Company and its subsidiaries,
to establish guidelines for salary increases for such employees and to oversee
and administer the profit sharing plans and welfare benefit plans.
The Company has an Omnibus Incentive Plan Committee comprised of Mr. Furlan
(Chairman), Mr. Abdula, Mr. Gaples, Ms. Rumsa, and Mr. Wagner. Such committee
did not meet during 1997 as no awards were granted. The function of the
committee is to administer the 1992 Omnibus Incentive Plan and to provide
recommendations to the Board of Directors for the granting of awards. Members
of this committee are not eligible to receive awards under the Omnibus Incentive
Plan.
The Company has a formal nominating committee comprised of Mr. Tewes
(Chairman), Mr. Abdula, Ms. Rumsa, Mr. Ryskiewicz, and Mr. Wagner which met once
in 1997. The principal function of the nominating committee is to nominate
persons to the Board of Directors. The nominating committee will consider
nominees to the Board of Directors recommended by the stockholders. Any such
nomination intended to be presented at the 1999 Annual Meeting must be submitted
in writing to the Chairman of the Board of the Company by November 20, 1998, and
should be accompanied by a biography of the nominee.
All Directors serve on the Board of Directors of both the Company and the
Bank of Waukegan. Directors receive no compensation for serving on the Board of
Directors of the Company or for any committee meetings. Directors receive $600
for each meeting of the Bank of Waukegan's Board of Directors with the exception
of Ms. Rumsa who receives $1,000 for each meeting as compensation for
responsibilities for the minutes of each Board and committee meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related transactions,
please refer to the section identified under the "Compensation Committee
Interlocks and Insider Participation" portion of this Proxy Statement.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of March 17, 1998, by (i) each director
nominee, (ii) each executive officer, and (iii) all executive officers and
director nominees as a group. Beneficial ownership means the sole or shared
power to vote or dispose of such securities.
<TABLE>
<CAPTION>
Name of Director Nominee Number of Percent
or Executive Officer shares (1) ownership
<S> <C> <C>
Fred Abdula............................... 166,592 18.7%
Kenneth W. Balza.......................... 5,164 .6%
Jack H. Blumberg.......................... 1,620(2) .2%
Frank Furlan.............................. 6,960 .8%
Harry S. Gaples........................... 9,050 1.0%
Laurance A. Guthrie....................... 19,605 2.2%
James A. Hollensteiner.................... 7,500(3) .8%
Raymond M. Mota........................... 3,415 .4%
Helen Rumsa............................... 13,600 1.5%
Frank Ryskiewicz.......................... 18,392(4) 2.1%
Henry G. Tewes............................ 14,010 1.6%
Arthur J. Wagner.......................... 7,500 .8%
All director nominees and executive office
of the Company........................ 273,408 30.7%
------- -------
------- -------
</TABLE>
- --------------------------------------
(1) Includes shares owned jointly with spouses and shares owned individually by
spouses.
(2) Includes 582 shares issuable pursuant to options granted under the 1992
Omnibus Incentive Plan and exercisable within 60 days of March 17, 1998.
(3) Includes 2,000 shares issuable pursuant to options granted under the 1992
Omnibus Incentive Plan and exercisable within 60 days of March 17, 1998.
(4) Includes 2,400 shares owned jointly with children.
The following table lists persons who beneficially own 5% or more of
the Common Stock as of March 17, 1998. Except for Mr. Abdula, whose interest is
set forth above, to the Company's knowledge there are no persons, other than
those listed, who beneficially own 5% or more of the Common Stock.
<TABLE>
<CAPTION>
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership Ownership
<S> <C> <C>
Theodore Bertrand................... 68,200 7.7%
4370 Bluebird Ct.
Gurnee, IL 60031
Thomas Bertrand..................... 69,500 7.8%
17585 Bridle Trail Rd.
Gurnee, IL 60031
</TABLE>
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Such officers, directors and ten percent stockholders are also
required by the SEC rules to furnish the Company with copies of such forms that
they file pursuant to Section 16(a). Based solely on its review of the copies
of such forms received by the Company, or on written representations from
certain reporting persons that no other reports were required for such persons,
the Company believes that, during fiscal 1997, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent stockholders
were complied with.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company and its
subsidiaries for services rendered in all capacities including amounts paid in
connection with committees or special assignments as well as directors' fees and
officers' bonuses for each of the years ended December 31, 1997, 1996 and 1995
to each of its executive officers whose total cash compensation during the year
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary Bonus (1) (2)
<S> <C> <C> <C> <C> <C>
Fred Abdula....................... 1997 $145,500 $45,500 $7,200 $10,756
Chairman of 1996 145,000 45,500 7,200 10,296
the Board 1995 145,000 45,500 7,200 7,756
Kenneth W. Balza.................. 1997 $107,000 $19,630 $8,738 $ 8,600
Vice President 1996 104,000 19,093 8,765 8,555
and Treasurer 1995 100,500 18,604 8,897 6,246
</TABLE>
- -------------------------
(1) Consists primarily of the value of personal use of Company automobiles,
director fees and imputed value of Company provided life insurance.
(2) Consists of the contribution to the Company's Profit Sharing Plan.
REPORT OF THE COMPENSATION AND EMPLOYEE BENEFITS COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation and Employee Benefits Committee of the Board of Directors
established the general compensation policies of the Company and establishes the
compensation plans and specific compensation levels for executive officers.
This Committee report documents the components of the
<PAGE>
Company's executive officer compensation programs and describes the basis on
which 1997 compensation determinations were made by the Committee with respect
to the officers of the Company, including the executive officers that are named
in the compensation tables.
The Compensation and Employee Benefits Committee is comprised of the entire
Board of Directors. The Chairman is Mr. Furlan who is an independent,
non-employee director who has no interlocking relationship as defined by the
Securities and Exchange Commission. Mr. Abdula and Mr. Balza are not present
and do not vote or participate when discussion of their respective compensation
plans are presented.
The Committee considers all elements of compensation when determining
individual components of pay. The Committee relies in part on recommendations
from the Chairman and President of the Company, regarding compensation levels
for executive officers excluding himself.
Compensation Philosophy and Overall Objectives of Executive Compensation
Programs
It is the philosophy of the Company to ensure that executive compensation
be directly linked to continuous improvement in corporate financial performance
and increases in stockholder value. The following objectives serve as the
guiding principles for all compensation decisions:
1. Provide a competitive total compensation package that is
externally competitive, internally equitable and that enables
the Company to attract, develop, reward and retain highly
qualified and productive individuals.
2. Support a compensation program that supplements overall Company
compensation amounts based on Company-wide results, team
oriented results, and individual performance.
3. Provide motivation for the executive to enhance stockholder
value.
The Compensation and Employee Benefits Committee believes that the Company's
current executive compensation program has been designed and is administered in
a manner consistent with these objectives.
The Company's compensation opportunities are structured to encourage
initiative, achievement and teamwork. The annual compensation mix provides for
competitive base salaries as well as the ability to receive additional cash
components for performance as measured by specific goals.
The Committee is committed to a strong, positive link between business,
performance, and strategic goals, and compensation and benefit programs.
Compensation Program Components
The Compensation and Employee Benefits Committee regularly reviews the
Company's compensation program to ensure that pay levels and incentive
opportunities are competitive and reflect the performance of the Company. This
entails an evaluation of both the total compensation levels and the individual
components, as weighted relative to one another, of the compensation program for
executive officers including base salary and annual incentives. In determining
competitive levels, the Committee obtains and utilizes information such as
compensation surveys and comparative analyses of compensation data in other
proxy statements, outside compensation consultants and other sources. The
Company's incentive plans are designed to link directly to financial performance
measures; therefore, the actual value of an executive's compensation package
will vary based on the performance of the Company.
<PAGE>
Following is a description of the elements of Northern States' executive
compensation and how each relates to the objective and policy outline above:
Base Salary
The Compensation and Employee Benefits Committee reviews each executive
officer's salary annually. In determining appropriate salary levels, the
Committee considers level and scope of responsibility, experience, a subjective
evaluation of overall Company performance, individual performance, return on
equity, as well as pay practices of other banking companies relating to
executives of similar responsibility. No specific weightings are assigned to
these criteria.
Actual salaries are based on individual performance contributions relative to
competitive salary range, for each position, that the Committee considers to be
reasonable and necessary. Other factors, including background, experience and
scope of accountability, can influence the determination of the appropriate
salary level for an executive officer. The Committee approves all salary changes
for the Company's officers, and bases individual salary changes on a combination
of factors such as the performance, salary level relative to the competitive
market, the salary increase budget for the Company and recommendation of the
Company's Chairman of the Board and President.
By design, the Compensation and Employee Benefits Committee strives to pay
executive salaries in line with competitive market levels. In defining the
competitive market, the Committee includes companies in the financial
institutions industry with an average size and location comparable to the
Company.
Annual Incentives
The Compensation and Employee Benefits Committee believes maximum
performance can be encouraged through the use of an appropriate bonus program.
Each year an Officer Bonus Plan is considered prior to the beginning of the
new fiscal year and, if recommended by the Committee, is submitted to the Board
of Directors for adoption, along with a recommendation of those employees
eligible for participation. The Committee administers the bonus program with
respect to all participants.
The Company's officers are eligible to participate in an annual bonus program
based primarily on the attainment of certain return on equity goals. The
objective of this program is to deliver competitive levels of compensation for
the attainment of financial objectives and operating results that the Committee
believes are primary determinants of share price over time. In particular, the
program aims to focus corporate behavior on consistent and steady earnings
growth as measured by return on assets, return on equity and basic earnings per
share.
The bonus program is designed to encourage initiative and creativity in the
achievement of annual corporate and personal goals and to foster effective
teamwork. It also enables the Company, without inflating base salaries, to
retain highly skilled managers and competitively reward them with performance
measured cash compensation.
All participants, except for Mr. Abdula, are assigned weightings for various
performance elements consisting of at least one or more operational and/or
personal goals which can vary from year to year and are unique to each
individual participant, and for teamwork effectiveness. Weights for these
elements are based on an individual's accountability and impact on overall
operations. The program adopted for 1997 had various incentive levels based on
the participant's accountability and impact on Company operations, with target
award opportunities ranging from 3% to 15% of base salary.
In rating the performance and in determining the amount of annual incentive
payments for Mr. Abdula,
<PAGE>
the Committee considers the overall effectiveness of Mr. Abdula in guiding the
affairs of the Company as evaluated by corporate performance for the year and by
progress toward long-range objectives and strategies.
Rationale for Chief Executive Officer's Compensation
Mr. Abdula became Chairman of the Board of the Bank of Waukegan in June,
1982. When the Northern States Financial Corporation was formed in 1984 for
becoming the parent bank holding company of the Bank of Waukegan, Mr. Abdula
became Chairman and President of Northern States. His compensation package has
been designed to encourage short and long-term Company performance in line with
the interests of the stockholders. A portion of his compensation is at risk, in
the form of the annual incentive bonus.
Annually, the Compensation and Employee Benefits Committee receives an
analysis on all aspects of the President's remuneration and the relationship of
the President's compensation to comparative survey data. During its review, the
Committee primarily considers the Company's overall performance (earnings
growth, asset growth and total stockholder return), adherence to the Company's
strategic plan and the development of sound management practices. No weighting
is assigned to these factors; they are considered to have the same relative
importance. Therefore, although there is necessarily some subjectivity in
setting the President's salary, major elements of the compensation package are
directly tied to Company performance. Additionally, in its review of management
performance and compensation, the Committee has also taken into account the
President's consistent commitment to the long-term success of the Company.
In accordance with the Committee's established procedure and policies noted
above, the Committee considered a base salary increase for the President at its
meeting of December 13, 1997. The President, however, requested that the
Committee consider his viewpoint to limit any proposed increase in his base
salary. The Committee acknowledged the President's point of view and limited
the increase to his base salary to $500 even though his performance warranted a
greater increase. Therefore, Mr. Abdula's base salary increased to $145,500 for
1997, and approximates the mid-point of the competitive market.
In consideration of the annual bonus incentive, the President's program is
based primarily on improved financial performance and return to stockholders.
For 1997, the Committee's decisions took into consideration that financial
performance, as measured by basic earnings per share, was above that achieved
for fiscal 1996 and that the Company would achieve the goals established for
1997. The President however, requested that the Committee consider his
viewpoint to limit any proposed increase to his annual bonus incentive. The
Committee acknowledged the President's point of view and kept his annual bonus
at the same level as it had been in 1996 and 1995, although his performance
warranted an increase.
The annual incentive bonus paid to Mr. Abdula for fiscal 1997, determined
as explained above, was $45,500, the same as in 1996 and 1995, which was
approximately 31.3% of his base 1997 salary. Mr. Abdula's total direct
compensation (base salary plus bonus) approximated the mid-point of the
competitive market for 1997.
Conclusion
After its review of all existing components, the Compensation and Employee
Benefits Committee concluded that the total compensation program for executives
of the Company is competitive with the compensation programs provided by other
corporations with which the Company compares.
The Board of Directors' Compensation and Employee Benefits Committee Report
on Executive Compensation shall not be deemed incorporated by reference by any
general statement incorporating by
<PAGE>
reference this proxy statement into any filing under the Securities Act of 1933
and the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporated this information by reference, and shall not otherwise
be deemed filed under such Acts.
The foregoing report has been furnished by Messrs. Abdula, Balza, Blumberg,
Furlan, Gaples, Guthrie, Hollensteiner, Mota, Ryskiewicz, Tewes, Wagner and Ms.
Rumsa.
COMPENSATION AND COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Mr. Abdula, Chairman of the Board and President of the Company, and Mr.
Balza, Vice President and Treasurer of the Company, served on the Compensation
and Employee Benefits Committee of Northern States Financial Corporation for the
past fiscal year.
Although Mr. Abdula and Mr. Balza served on the Compensation and Employee
Benefits Committee, they did not participate in any discussion or decisions
regarding their own compensation as an executive officer.
The directors and executive officers of the Company and their associates are,
as they have been in the past, customers of, and have had transactions with, the
subsidiaries of the Company, and additional transactions may be expected to take
place in the future between such persons and subsidiaries. All outstanding
loans from the Company's subsidiary banks to such persons and their associates
were made in the ordinary course of business of the subsidiary banks on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than normal risk of collectibility or present other unfavorable
features. Any future transactions, including loans, between the Company
(including its subsidiaries) and its officers, directors and affiliates will be
approved by a majority of disinterested directors and will be on terms no less
favorable to the Company than could be obtained from unaffiliated parties.
At December 31, 1997, loans to executive officers and directors of the
Company totaled $4,000 or .01% of stockholders' equity.
COMPANY PERFORMANCE
The following line graph shows a comparison of the cumulative returns for the
Company, the Nasdaq Market Value Index and an index of peer corporations
selected by the Company, for the past five years since December 31, 1992.
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
- ------------------------------- FISCAL YEAR ENDING -----------------------------
COMPANY 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
NORTHERN STATES FIN CP 100.00 134.32 163.48 181.57 217.63 308.59
PEER GROUP 100.00 117.50 112.82 144.49 183.23 267.13
BROAD MARKET 100.00 119.95 125.94 163.35 202.99 248.30
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The total cumulative return on investment (change in the year-end stock
price plus reinvested dividends) for each of the periods for the Company, the
Nasdaq Market Value Index and the peer group is based on the stock price or
composite index on December 31, 1992.
The above graph compares the performance of the Company with that of the
Nasdaq Market Value Index, and a group of peer corporations with the investment
weighted on market capitalization. Corporations in the peer group are northern
Illinois multibank financial institutions as follows: Amcore Financial Inc.,
Corus Bankshares, Inc., First Midwest Bancorp, Inc., First Oak Brook Bankshares,
Heritage Financial Services, Pinnacle Bancorp, Inc., and Princeton National
Bankcorp, Inc.
Financial Services, Inc. and Today's Bancorp were included in last year's
peer group and were acquired by other financial institutions during the year
and, therefore, are no longer included in the peer group.
PROPOSAL TO AMEND ARTICLE FOURTH OF
THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK TO 6,500,000
AND TO EFFECT A FIVE-FOR-ONE SPLIT OF THE COMMON STOCK
The Board of Directors recommends approval of an amendment to Article
Fourth of the Company's Certificate of Incorporation (the "Certificate") to
increase the number of authorized shares of Common Stock from 1,750,000 to
6,500,000, and to effect a five-for-one split by reclassifying and changing
each share of the Company's Common Stock outstanding immediately prior to the
Effective Time (as defined below) of the amendment into five shares of Common
Stock. The proposed amendment to the Certificate adopted by the Board of
Directors on February 17, 1998, is set forth in Exhibit A to the Proxy
Statement.
If the proposal is adopted by the stockholders, it is expected that the
amendment and stock split will become effective at 11:59 P.M., Eastern
Daylight Time, on May 5, 1998 (the "Effective Time") and on or about May 15,
1998 there will be mailed to each stockholder of record immediately prior to
the Effective Time four additional shares of Common Stock for each share
held. All new certificates issued will have a par value of $0.40 per share.
Each certificate currently outstanding with a par value of $2.00 per share
shall thereafter be deemed to represent the same number of shares with a par
value of $0.40 each. It will not be necessary for stockholders to surrender
outstanding stock certificates.
The Company is advised by Crowe, Chizek and Company LLP that the change in
par value and the receipt of additional shares to be distributed pursuant to the
stock split will not be subject to federal income tax under existing laws. The
stock split will require an allocation of the tax basis of each share among the
five shares held as a result of the stock split, and the holding period for the
new shares will include the holding period of the share with respect to which it
was issued.
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The purpose of the proposed stock split is to lower the per share market
price of the Company's outstanding Common Stock. As of March 17, 1998, 889,373
shares of Common Stock, $2.00 par value, were issued and outstanding. Assuming
the increase in the number of authorized shares of Common Stock and the stock
split were effective on such date, 4,446,865 shares would be issued and
outstanding, and 2,053,135 shares would be authorized and available for issuance
by the Company.
In addition to the proposed stock split, the Board of Directors of the
Company has determined that it is in the best interests of the Company to have
additional shares of Common Stock authorized and available for issuance as the
need arises for possible future financing transactions, acquisitions, asset
purchases, stock dividends or splits, issuances under employee benefit plans and
for general corporate purposes. Such shares will be issuable by the Company
generally without further authorization by the stockholders on such terms as the
Board of Directors may lawfully determine. The effect of the authorization and
issuance of additional shares of Common Stock (other than on a pro rata basis
among holders of Common Stock) would be to dilute the present voting power of
the stockholders of Common Stock.
Certain Anti-Takeover Effects of the Proposed Amendment
Under certain circumstances the Board of Directors could create impediments
to, or delay persons seeking to effect, a takeover or transfer of control of the
Company by causing such additional authorized shares to be issued to a holder or
holders who might side with the Board in opposing a takeover bid that the Board
of Directors determines is not in the best interest of the Company and its
stockholders. Such an issuance could diminish the voting power of existing
stockholders who favor a change in control and the ability to issue the shares
could discourage an attempt to acquire control of the Company. Management does
not currently intend to propose additional anti-takeover measures in the
foreseeable future.
Under certain circumstances the Company could use additional shares of
Common Stock to create voting impediments or to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company by increasing the
number of shares necessary to gain control of the Company, or the Company could
privately place such shares with purchasers who might side with the Board in
opposing a hostile takeover bid. The effect of any such action, may be to
enhance the continuity and stability of management by making it more difficult
to remove or change incumbent members of the Board of Directors and by making
the Company a less attractive target for an unfriendly acquisition by an
outsider. The Company is not aware of any pending or threatened efforts to
obtain control of the Company and at the date of this Proxy Statement, the
Company has no agreements, commitments or plans with respect to the issuances of
additional shares of Common Stock, except in connection with the five-for-one
split of the Common Stock and employee benefit plans of the Company.
The Board of Directors unanimously recommends a vote "For" this proposal.
An affirmative vote of the holders of a majority of the outstanding stock is
necessary for the adoption thereof.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Crowe, Chizek and Company LLP as
independent auditors for the Company for the year ending December 31, 1998. The
Board recommends ratification of this action.
Representatives of Crowe, Chizek and Company LLP are expected to be present
at the meeting and will be given the opportunity to make a statement if they
desire to do so. It is also expected that they will be available to respond to
appropriate questions from stockholders at the meeting.
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The Board of Directors recommends ratification of the selection of Crowe,
Chizek and Company LLP as independent auditors.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be present at the 1999 Annual Meeting
must be received by the Company by November 20, 1998, to be considered for
inclusion in the Company's Proxy Statement and form of proxy relating to that
meeting. Such proposals should be addressed to Helen Rumsa, Secretary, Northern
States Financial Corporation, 1601 N. Lewis Avenue, Waukegan, IL 60085.
OTHER BUSINESS
At this date, management knows of no business to be presented at the
meeting which has not been described above. If, however, some other matter
should be presented, it is intended that the enclosed proxy will be voted in
accordance with the judgment of the person or persons voting the proxy.
A COPY OF COMPANY'S ANNUAL REPORT ON THE FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS OF RECORD UPON WRITTEN REQUEST TO
THOMAS M. NEMETH, ASSISTANT VICE PRESIDENT, NORTHERN STATES FINANCIAL
CORPORATION, 1601 N. LEWIS AVENUE, WAUKEGAN, IL 60085.
By Order of the Board of Directors
/s/ Helen Rumsa
-------------------------------------
Helen Rumsa
Secretary
Waukgean, Illinois
March 23, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS.
ALTHOUGH YOU MAY PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOU EXECUTE,
DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU
MAY REVOKE YOUR PROXY EITHER IN WRITING OR IN PERSON AT THE ANNUAL MEETING PRIOR
TO ITS BEING VOTED.
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EXHIBIT A
RESOLVED, That it is hereby declared advisable by this Board of Directors
that (a) the number and par value of the shares of Common Stock which this
Corporation shall have authority to issue be changed from 1,750,000 shares, of
the par value of $2.00 per share, to 6,500,000 shares, of the par value of $0.40
per share, and (b) each issued share of the Corporation's Common Stock, of the
par value of $2.00 per share, be reclassified by changing and subdividing the
same into five shares of Common Stock, of the par value of $0.40 per share, such
changes to be effected by amendments (the "Amendments") to the Corporation's
Certificate of Incorporation as follows
(i) Article Fourth of the Certificate of Incorporation of the
Corporation shall be amended in its entirety to read as follows:
"FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is Six Million
Five Hundred Thousand (6,500,000) shares, all of one
class, designated Common Stock, of the par value of $0.40
per share."
(ii) At the time when the Amendments become effective pursuant to
the Delaware General Corporation Law (the "Effective Time"), each share of
Common Stock of the Corporation, of the par value of $2.00 per share, which is
issued immediately prior to the Effective Time (whether then outstanding or held
in the Corporation's treasury), shall be changed and subdivided into five issued
shares of Common Stock of the Corporation, of the par value of $0.40 per share,
each of which shall for all purposes be deemed to be fully paid and
<PAGE>
nonassessable.
(iii) Each certificate which immediately prior to the Effective
Time represented issued shares of Common Stock of the Corporation, of the par
value of $2.00 per share, shall continue at and after the Effective Time to
represent the same number of issued shares of Common Stock of the Corporation,
of the value of $0.40 per share.
(iv) Each holder of shares of Common Stock of the Corporation,
of the par value of $2.00 per share, of record immediately prior to the
Effective Time, shall be entitled to receive as soon as practicable thereafter,
without surrender of the certificate or certificates representing such shares,
a certificate representing four additional shares of Common Stock of the
Corporation, of the par value of $0.40 per share, for each share held of record
immediately prior to the Effective Time.
RESOLVED FURTHER, That the Amendments shall not result in any change in (a)
the capital of the Corporation as determined pursuant to the Delaware General
Corporation Law or (b) the paid-in capital of the Corporation as determined
pursuant to the Illinois Business Corporation Act.
