<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[NORTHERN STATES FINANCIAL COPRORATION LOGO]
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 27, 2000
------------------------
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 27, 2000, 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. The ratification of the appointment of Crowe, Chizek and Company LLP
as independent auditors of the Company for the year ending December
31, 2000;
III. 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 23, 2000 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
Secretary
Waukegan, Illinois
March 28, 2000
<PAGE> 3
[NORTHERN STATES FINANCIAL CORPORATION LOGO]
NORTHERN STATES FINANCIAL CORPORATION
1601 N. LEWIS AVENUE
WAUKEGAN, ILLINOIS 60085
TELEPHONE (847) 244-6000
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 2000
------------------------
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 27, 2000. This
Proxy Statement and the accompanying proxy are being mailed to the stockholders
on or about March 28, 2000. 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 will not
be treated as votes cast as to such matters not voted upon.
The 1999 Annual Report of the Company, including the consolidated financial
statements, is being sent to stockholders concurrently with this Proxy
Statement.
On March 23, 2000, the record date selected by the Board of Directors for
the determination of stockholders entitled to vote at the Annual Meeting, the
Company had 4,460,345 shares of Common Stock, $.40 par value, issued and
outstanding. For each matter to be voted upon at the Annual Meeting, each issued
and outstanding share is entitled to one vote.
The Company has one subsidiary: the Bank of Waukegan (the "Bank").
1
<PAGE> 4
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 or
until a successor is elected and qualified.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION AND POSITIONS HELD
NAME AGE(1) SINCE WITH THE COMPANY DURING THE PAST FIVE YEARS.
---- ------ -------- --------------------------------------------
<S> <C> <C> <C>
Fred Abdula.................... 74 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.
Helen Rumsa.................... 75 1984 Director and Secretary of the Company. Secretary
of Bertrand Bowling Lanes, Inc., a bowling
establishment in Waukegan, Illinois.
Kenneth W. Balza............... 62 1988 Director, Retired as President, Bank of Waukegan
in January, 1999. Served as President from 1988
until retirement.
Jack H. Blumberg............... 68 1991 Director. Managing partner of Blumberg & Co., a
real estate company.
Frank Furlan................... 70 1984 Director. Owner and President of Northern Illinois
Survey Co., a civil engineering consulting firm
dealing with land development and municipal
engineering services.
Harry S. Gaples................ 64 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............ 60 1989 Director. Vice President and Secretary of Doyle
Distributing Co., Inc., the Miller beer products
distributor in Lake County, Illinois.
James A. Hollensteiner......... 68 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 February 1993, Chairman of the Board and Chief
Executive Officer of First Federal Bank, fsb.
Raymond M. Mota................ 50 1996 Director. Owner and President of Mota Construction
Co., Inc. a general building construction and
contracting firm. Chairman of the State of
Illinois Capital Development Board.
Frank Ryskiewicz............... 73 1984 Director. Owner and Chairman of the Board of
Bertrand Bowling Lanes, Inc.
Henry G. Tewes................. 68 1984 Director. Retired as Owner and President of the
Tewes Company in 1986. Tewes Company provides fuel
oil, excavating and hauling services to the
construction industry.
Arthur J. Wagner............... 76 1984 Director. Retired as President and Chief Executive
Officer of Fansteel, Inc., a metallurgical
manufacturing company in 1988. He served on the
Fansteel, Inc. Board of Directors until December,
1989.
</TABLE>
- -------------------------
(1) At December 31, 1999
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
2
<PAGE> 5
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.
COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMPANY
During 1999 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. Balza, Mr. Gaples, Mr. Hollensteiner, Mr. Mota, and
Mr. Wagner. The Audit Committee met two times in 1999. 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 subsidiary, the
Bank of Waukegan 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 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 1999. The principal
function of the Compensation and Employee Benefits Committee is to annually
review the compensation paid to employees of the Company and its subsidiary, 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 1999 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 1999. 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 2001 Annual Meeting must be submitted
in writing to the Chairman of the Board of the Company by November 28, 2000, 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 acting as
secretary to the Board of Directors and its various committees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related transactions,
please refer to the section entitled "Compensation Committee Interlocks and
Insider Participation" in this Proxy Statement.
3
<PAGE> 6
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 23, 2000, 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................................................. 856,000 19.1%
Kenneth W. Balza............................................ 25,820 .6%
Jack H. Blumberg............................................ 9,910(2) .2%
Frank Furlan................................................ 34,800 .8%
Harry S. Gaples............................................. 100,000 2.2%
Laurance A. Guthrie......................................... 109,125 2.4%
James A. Hollensteiner...................................... 47,500(3) 1.1%
Raymond M. Mota............................................. 47,175 1.1%
Helen Rumsa................................................. 68,500 1.5%
Frank Ryskiewicz............................................ 91,960(4) 2.1%
Henry G. Tewes.............................................. 72,050 1.6%
Arthur J. Wagner............................................ 37,500 .8%
--------- -----
All director nominees and executive officers of the
Company................................................... 1,500,340 33.5%
========= =====
</TABLE>
- -------------------------
(1) Includes shares owned jointly with spouses and shares owned individually by
spouses.
(2) Includes 1,910 shares issuable pursuant to options granted under the 1992
Omnibus Incentive Plan and exercisable within 60 days of March 23, 2000.
(3) Includes 10,000 shares issuable pursuant to options granted under the 1992
Omnibus Incentive Plan and exercisable within 60 days of March 23, 2000.
(4) Includes 22,000 shares owned jointly with children.
The following table lists persons who beneficially own 5% or more of the
Common Stock as of March 23, 2000. 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........................................... 341,000 7.6%
38875 Blue Spruce Ct
Wadsworth, IL 60083
Thomas R. Bertrand.......................................... 347,500 7.8%
17585 Bridle Trail Rd
Gurnee, IL 60031
</TABLE>
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 1999, all
4
<PAGE> 7
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, 1999, 1998 and 1997
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
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2)
--------------------------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Fred Abdula........................... 1999 $145,500 $45,500 $7,200 $10,164
Chairman of 1998 153,000 45,500 7,200 10,765
the Board 1997 145,500 45,500 7,200 10,756
</TABLE>
- -------------------------
(1) Consists of director fees.
(2) Consists of the Company's contribution to its 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's report documents the components of the Company's executive officer
compensation programs and describes the basis on which 1999 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
SEC. Mr. Abdula is not present and does not vote or participate when discussion
of his compensation plan is 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 him.
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.
5
<PAGE> 8
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.
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 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
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<PAGE> 9
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 1999 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, 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 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 11, 1999. The President, however, requested that the
Committee consider his viewpoint and limit his base salary. The Committee
acknowledged the President's point of view and decreased his salary by $7,500
even though his performance warranted an increase. Therefore, Mr. Abdula's base
salary was decreased to $145,500 for 1999, 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 1999, the Committee's decisions took into consideration that financial
performance, as measured by basic earnings per share, would be above that
achieved for fiscal 1998 and that the Company would achieve the goals
established for 1999. 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 1998 and 1997, although his
performance warranted an increase.
The annual incentive bonus paid to Mr. Abdula for fiscal 1999, determined
as explained above, was $45,500, the same as in 1998 and 1997, which was
approximately 31.3% of his base 1999 salary. Mr. Abdula's total direct
compensation (base salary plus bonus) approximated the mid-point of the
competitive market for 1999.
7
<PAGE> 10
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 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 during 1999,
served on the Compensation and Employee Benefits Committee of Northern States
Financial Corporation for the past fiscal year.
Although Mr. Abdula served on the Compensation and Employee Benefits
Committee, he did not participate in any discussion or decisions regarding his
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 bank to such persons and their
associates were made in the ordinary course of business of the subsidiary bank
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, 1999, loans to executive officers and directors of the
Company totaled $20,000 or .03% of stockholders' equity.
8
<PAGE> 11
COMPANY PERFORMANCE
The following line graph shows a comparison of the cumulative returns for
the for past five years, since December 31, 1994, for the Company, an index of a
new group of peer corporations selected by the Company, an index of the old peer
group used by the Company in last year's proxy statement and the NASDAQ Market
Index.
[LINE GRAPH]
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Northern States $100.00 $111.06 $133.13 $188.76 $204.10 $183.76
New Peer Group 100.00 149.07 186.10 245.82 212.14 172.25
Old Peer Group 100.00 131.11 176.40 241.65 212.13 204.36
NASDAQ Market Index 100.00 129.71 161.18 197.16 278.08 490.46
</TABLE>
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
new peer group, the old peer group and the NASDAQ Market Index is based on the
stock price or composite index on December 31, 1994.
The above graph compares the performance of the Company with that of the
NASDAQ Market Index, and two groups of peer corporations with the investment
weighted on market capitalization. Corporations in the new peer group are
northern Illinois bank holding companies as follows: Corus Bankshares, Inc.,
CoVest Bancshares, Inc., First Oak Brook Bancshares, Inc., MB Financial, Inc.,
Princeton National Bankcorp, Inc., Success Bankshares, Inc., UnionBancorp, Inc.
and Wintrust Financial Corporation. Corporations included in the old peer group
are northern Illinois bank holding companies as follows: Amcore Financial Inc.,
Corus Bankshares, Inc., First Midwest Bancorp, Inc., First Oak Brook Bancshares,
Inc. and Princeton National Bankcorp, Inc. The Pinnacle Bancorp, Inc. was
included in the old peer group last year but was acquired by another financial
institution during the year and, therefore, is not included in the old peer
group.
The new peer group was included in this year's performance graph as the
number of members of the old peer group has become limited. Another factor for
including a new peer group in the graph is that some members of the old peer
group have much larger assets than Northern States lessening their
comparability. Both Amcore Financial Inc. and First Midwest Bancorp, Inc., in
the old peer group, have assets exceeding $3 billion and their larger size makes
them less comparable for peer group purposes.
9
<PAGE> 12
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, 2000. 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.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE SELECTION OF CROWE,
CHIZEK AND COMPANY LLP AS INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS
If a stockholder intends to present a proposal at the Company's 2001 Annual
Meeting of Stockholders and desires that the proposal be included in the
Company's Proxy Statement and form of proxy for that meeting, the proposal must
be in compliance with Rule 14a-8 under the Exchange Act and received at the
Company's principal executive offices not later than November 28, 2000. As to
any proposal that a stockholder intends to present to stockholders without
inclusion in the Company's Proxy Statement for the Company's 2001 Annual Meeting
of Stockholders, the proxies named in management's proxy for that meeting will
be entitled to exercise their discretionary authority on that proposal unless
the Company receives notice of the matter to be proposed not later than February
12, 2001. Even if proper notice is received on or prior to February 12, 2001,
the proxies named in management's proxy for that meeting may nevertheless
exercise their discretionary authority with respect to such matter by advising
stockholders of such proposal and how they intend to exercise their discretion
to vote on such matter, unless the stockholder making the proposal solicits
proxies with respect to the proposal to the extent required by Rule 14a-4(c)(2)
under the Exchange Act. 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, 1999 AS FILED WITH THE SEC WILL BE FURNISHED WITHOUT CHARGE TO
STOCKHOLDERS OF RECORD UPON WRITTEN REQUEST TO THOMAS M. NEMETH, VICE PRESIDENT
& TREASURER, NORTHERN STATES FINANCIAL CORPORATION, 1601 N. LEWIS AVENUE,
WAUKEGAN, IL 60085.
By Order of the Board of Directors
/s/ Helen Rumsa
Helen Rumsa
Secretary
Waukegan, Illinois
March 28, 2000
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.
10
<PAGE> 13
NORTHERN STATES FINANCIAL CORPORATION
Annual Meeting of Stockholders, April 27, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Northern States Financial Corporation hereby
appoints Fred Abdula and Henry G. Tewes as Proxies, each with the power to
appoint a substitute and hereby authorizes them to vote all such shares of such
Company as to which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of such Company and at all adjournments thereof, to be
held at the Bank of Waukegan, 1601 N. Lewis Avenue, Waukegan, Illinois on
Thursday, April 27, 2000, at the hours of 4:30 P.M., (Local Time), in accordance
with the following instructions.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THE SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTORS,
FOR THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION AND FOR RATIFICATION
OF CROWE, CHIZEK AND COMPANY LLP AS INDEPENDENT AUDITORS AND, WITH DISCRETIONARY
AUTHORITY, AS TO ANY AND ALL OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
NORTHERN STATES FINANCIAL CORPORATION 2000 ANNUAL MEETING
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS: 1-Fred Abdula 2-Kenneth W. Balza / / FOR all nominees / / WITHHOLD AUTHORITY
3-Jack H. Blumberg 4-Frank Furlan listed to the to vote for all
5-Harry S. Gaples 6-Laurence A. Guthrie left (except as nominees listed
7-James A. Hollensteiner 8-Raymond M. Mota specified below). to the left.
9-Helen Rumsa 10-Frank Ryskiewicz
11-Henry G. Tewes 12-Arthur J. Wagner
(Instructions: To withhold authority to vote for any indicated nominee, -------------------------------------------------
write the number(s) of the nominees(s) in the box provided to the right.)
-------------------------------------------------
2. The ratification of the appointment of Crowe, Chizek and Company LLP as
independent auditors for the Company for the year ending December 31, 2000 / / FOR / / AGAINST / / ABSTAIN
Check appropriate box Date NO. OF SHARES
Indicate changes below: ----------------- -------------------------------------------------
Address Change? / / Name Change? / /
-------------------------------------------------
SIGNATURE(S) IN BOX
Signature of stockholder should correspond exactly
with the name printed hereon. Joint owners should
each sign personally. Executors, administrators,
trustees, etc., should give full title and
authority.
</TABLE>
