UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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| Old Second Bancorp, Inc. | ||||
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37 South River StreetAurora, Illinois 60506(630) 892-0202
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of Old Second Bancorp, Inc. The special meeting will be held at 11:00 a.m., local time, on Monday, August 2, 2010 at the main office of Old Second National Bank, 37 South River Street, Aurora, Illinois. At the special meeting, we will seek stockholder approval of (i) an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 60,000,000 and (ii) the issuance of up to 6,000,000 shares of our common stock in exchange for outstanding trust preferred securities issued by Old Second Capital Trust I, and potentially in exchange for outstanding trust preferred securities of Old Second Capital Trust II in a separate private exchange transaction, in accordance with Nasdaq Marketplace Rule 5635.
The board of directors recommends that you vote "FOR" the proposal to amend our Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 60,000,000, "FOR" the proposal to permit us to issue up to 6,000,000 shares of our common stock in accordance with Nasdaq Marketplace Rule 5635 in exchange for outstanding trust preferred securities issued by Old Second Capital Trust I and, potentially, Old Second Capital Trust II, and "FOR" the proposal to permit the board of directors to adjourn, postpone or continue the special meeting, if necessary and appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the proposals set forth above, or if a quorum is not present at the time of the special meeting.
Your vote is important to enable us to enhance our overall capital position, strengthen the composition of our capital base by increasing common equity, maintain regulatory capital in excess of required minimums, and provide us with added flexibility to take advantage of market opportunities and implement our long-term growth strategies. We hope that you will be able to attend this very important special meeting. Whether or not you plan to attend, please review the attached proxy statement and return your proxy to us in the accompanying postpaid return envelope as promptly as possible. This will save us additional expense in soliciting proxies and will ensure that your shares are represented at the meeting.
We look forward to seeing you at the meeting.
 | ||
37 South River StreetAurora, Illinois 60506(630) 892-0202
NOTICE OF SPECIALANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 2, 2010
MAY 17, 2011
TO THE STOCKHOLDERS:
A specialThe annual meeting of stockholders of Old Second Bancorp, Inc., a Delaware corporation, will be held on Monday, August 2, 2010,Tuesday, May 17, 2011 at 11:00 a.m., local time, at the main office of Old Second National Bank, 37 South River Street,Copley Theater, North Island Center, located at 8 East Galena Boulevard, Aurora, Illinois, for the following purposes:
The board of directors is not aware of any other business to come before the special meeting. Only stockholdersStockholders of record at the close of business on JuneMarch 25, 20102011 are the stockholders entitled to notice of, and to vote at the special meeting and any and all adjournments or any adjournmentpostponements of the meeting. In the event there are an insufficient number of votes for a quorum at the time of the annual meeting, the meeting may be adjourned or postponement thereof.postponed in order to permit further solicitation of proxies.
| By order of the board of directors | ||
 | ||
| William B. Skoglund Chairman and Chief Executive Officer |
Aurora, Illinois
April 18, 2011
July 2, 2010
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
Old Second Bancorp, Inc.OLD SECOND BANCORP, INC.
37 South River Street,
Aurora, Illinois 60506
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of Old Second Bancorp, Inc., a Delaware corporation, of proxies to be voted at the specialannual meeting of stockholders. This meeting is to be held at the main office of Old Second National Bank, 37 South River Street,Copley Theater, North Island Center, located at 8 East Galena Boulevard, Aurora, Illinois on August 2, 2010,May 17, 2011 at 11:00 a.m., local time, or at any adjournmentspostponements or postponementsadjournments of the meeting. Old Second conducts full service community banking and trust business through its wholly-owned subsidiary, Old Second National Bank (the "Bank").Bank.
The board has fixedA copy of our annual report for the close of business on June 25,year ended December 31, 2010, as the record date for determining the stockholders entitled to notice of, and to vote at, the special meeting. On the record date, we had 13,911,692 shares of common stock, par value $1.00 per share, outstanding and entitled to vote. The approximate date on which theincludes audited financial statements, is enclosed. This proxy statement and the accompanying proxy arewas first being sentmailed to stockholders is July 2, 2010.
The proposal to approve an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock is referred to herein as the "Common Stock Proposal"; the proposal to approve the issuance of shares of our common stock in accordance with Nasdaq Marketplace Rule 5635 in exchange for outstanding trust preferred securities of Old Second Capital Trust I, and potentially Old Second Capital Trust II, is referred to herein as the "TruPS Exchange Proposal"; and the proposal to grant the board of directors the authority to adjourn, postponeon or continue the special meeting, if necessary, to solicit additional proxies is referred to herein as the "Adjournment Proposal."
The following information regarding the meeting and the voting process is presented in a question and answer format.about April 18, 2011.
Q. Why am I receiving this proxy statement and proxy form?
You are receiving a proxy statement and proxy form from us because on JuneMarch 25, 2010,2011, the record date for the specialannual meeting, you owned shares of our common stock. This proxy statement describes the matters that will be presented for consideration by the stockholders at the specialannual meeting. It also gives you information concerning thethese matters to assist you in making an informed decision.
When you sign the enclosed proxy form, you appoint the proxy holder as your representative at the meeting. The proxy holder will vote your shares as you have instructed in the proxy form, ensuring that your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, you should complete, sign and return your proxy form in advance of the meeting just in case your plans change.
If you have signed and returned the proxy form and an issue comes up for a vote at the meeting that is not identified on the form, the proxy holder will vote your shares, pursuant to your proxy, in accordance with his or her best judgment.
Q. What matters will be voted on at the meeting?
You are being asked to vote onon: (i) the approvalelection of an amendmentthree nominees to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 40,000,000 to 60,000,000 shares, as well as on the approval of the issuance of additional shares of our common stock in exchange for a portion of the outstanding trust preferred securities issued by Old Second Capital Trust I, and potentially for a limited number of outstanding trust preferred securities issued by Old Second Capital Trust II in a separate private exchange transaction (subject, however, to the maximum 6,000,000 shares that we may issue pursuant to the terms of the exchange offer and the potential separate private exchange transaction, in the aggregate). Additionally, you are being asked to grant the board of directorsdirectors; (ii) a non-binding, advisory proposal on executive compensation, or "say-on-pay" proposal; (iii) the ability to adjourn, postpone or continue the special meeting to solicit additional proxies in the event that we have insufficient votes to adopt eitherratification of the other proposals, or if a quorum is not preset at the special meeting.
Q. Why does the Company need to increase the number of authorized shares of common stock?
As a result of the foregoing considerations, we have been exploring the execution of a multi-faceted capital strategy to improve our capital position by increasing common stock as a component of regulatory capital and stockholders' equity and reducing our indebtedness. We believe that successful completion of one or more components of this capital plan will significantly enhance our capital position, strengthen the composition of our capital base by increasing common equity and give us added flexibility to take advantage of market opportunities and implement our long-term growth strategies. Our multi-faceted capital strategy currently contemplates three components: (i) the exchange of shares of our Fixed Rate Cumulative Perpetual Preferred Stock, Series B ("Series B Preferred Stock"), which were issued to the U.S. Department of the Treasury (the "U.S. Treasury") pursuant to the Capital Purchase Program implemented as part of the Troubled Asset Relief Program, for a like amount of trust preferred securities; (ii) the exchange of a portion of the outstanding trust preferred securities issued by Old Second Capital Trust I for shares of our common stock, of which there are currently $31.6 million aggregate liquidation preference outstanding, and the possible exchange of a smaller amount of outstanding trust preferred securities issued by Old Second Capital Trust II in a separate private exchange
transaction (subject, however, to the maximum 6,000,000 shares that we may issue pursuant to the terms of the exchange offer and the potential separate private exchange transaction, in the aggregate); and (iii) a common stock offering when market conditions become favorable for such an offering. As of the date of this proxy statement, however, except in connection with the exchange offer, the terms of which were publicly announced on June 22, 2010, and the potential separate private exchange transaction, we do not have any immediate or definitive plans, understandings, agreements or commitments to issue additional shares of common stock for any purposes.meeting.
The latter two components of our capital strategy, if executed, will require a significant number of authorized but unissued shares of our common stock, and the significant decline in our stock price since our 2010 annual meeting, when stockholders approved an increase in the number of authorized shares of our common stock to 40,000,000, has increased the number of shares that we believe will be necessary to effect our capital strategy. Therefore, we believe it is necessary to take steps now to authorize additional shares of common stock in order to execute each of the components of our capital strategy and to take advantage of favorable market opportunities to grow organically and potentially through acquisitions.
Q. Why do we need to vote on the TruPS Exchange Proposal?
Q. How do I vote?
A form of proxy is enclosed for use at the meeting. If the proxy is executed and returned, it may nevertheless be revoked at any time before the meeting insofar as it has not been exercised. Stockholders attending the meeting may, on request, vote their own shares even though they have previously sent in a proxy. Unless revoked or instructions to the contrary are contained in the proxies, the shares represented by validly executed proxies will be voted at the meeting and will be voted "FOR" the Common Stock Proposal,election of the nominees for director named in this proxy statement, "FOR" the TruPS Exchange Proposalsay-on-pay proposal, and "FOR" the Adjournment Proposal.
Q. What does it mean if I receive more than one proxy form?
It means that you have multiple holdings reflected in our stock transfer records and/or in accounts with stockbrokers. Please sign and returnALL proxy forms to ensure that all your shares are voted.
If I hold shares in the name of a broker, or fiduciary, who votes my shares?
If you received this proxy statement from your broker, or a trustee or other fiduciary who may hold your shares, your broker trustee or fiduciary should have given you instructions for directing how theyyour broker should vote your shares. It will then be theiryour broker's responsibility to vote your shares for you in the manner you direct.
Under the rules of various national and regional securities exchanges, brokers may generally vote on routine matters, such as ratifying the ratificationappointment of an independent auditors,registered public accounting firm, but cannot vote on non-routine matters, such as the adoption or amendment of a stock incentive plan, unless they have received voting instructions from the person for whom they are holding shares. If there is a non-routine matter presented to stockholders at thea meeting and your broker does not receive instructions from you on how to vote on that matter, your broker will return the proxy card to us, indicating that he or she does not have the authority to vote on that matter. This is generally referred to as a "broker non-vote" and may affect the outcome of the voting on those matters.
The Common Stock Proposalelection of directors and the Adjournment Proposalsay-on-pay proposal are both considered routine matters, and therefore should be within your broker's discretion to vote in the absence of instructions from you. However, the TruPS Exchange Proposal is considered a non-routine matter, and not within your broker's discretion to vote in the absence of instructions from you.matters. Therefore, we encourage you to provide directions to your broker as to how you want your shares voted on all matters to be brought before the special2011 annual meeting upon receipt of our proxy materials. You should do this by carefully following the instructions your broker gives you concerning its procedures. This ensures that your shares will be voted at the meeting. If you want to vote in person at the meeting, you will need to arrange to obtain a "legal proxy" from your broker, trustee or fiduciary in order to vote in person at the meeting.
Q. What does it mean if I receive more than one proxy form?
Q. What if I change my mind after I return my proxy?
Old Second Bancorp, Inc.Attn: Corporate Secretary37 South River StreetAurora, Illinois 60506
If you hold your shares in the name of a broker, trustee or fiduciary and desire to revoke your proxy, you will need to contact your broker, trustee or fiduciary to revoke your proxy.
Q. How many votes do we need to hold the specialannual meeting?
A majority of the shares of common stock that arewere outstanding and entitled to vote as of the record date must be present in person or by proxy at the meeting in order to hold the meeting and conduct business. On JuneMarch 25, 2010,2011, the record date, there were 13,911,69214,034,991 shares outstanding. A majority of common stock issued and outstanding. Therefore, at least 6,955,847these shares need tomust be present in person or by proxy at the special meeting for a quorum to exist.
Shares are counted as present at the meeting if the stockholder either either:
Q. What happens if any nominee is unable to stand for re-election?
The board may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter case, shares represented by proxies may be voted for a substitute nominee. Proxies cannot be voted for more than three nominees. The board has no reason to believe any nominee will be unable to stand for re-election.
What options do I have in voting on each of the proposals?
Except with respect to the election of directors, you may vote "for," "against" or "abstain" on each of the matters and on any other proposal that may properly be brought before the meeting.
Q. How many votes may I cast?
Generally, you are entitled to cast one vote for each share of common stock you owned on the record date.date with respect to each of the proposals. The proxy formcard included with this proxy statement indicates the number of shares owned by an account attributable to you.
Q. How many votes are needed for each proposal?
Except with respect to the election of a majority of the outstanding shares of our common stock as of the close of business on June 25, 2010, the record date for the special meeting, must approve the Common Stock Proposal. The TruPS Exchange Offer must receive the affirmative vote of a majority of the votes cast in person or by proxy at the special meeting. Finally, the Adjournment Proposal must receive the affirmative vote ofdirectors, a majority of votes present in person or by proxy at the meeting and entitled to vote whether or notat the meeting will approve each matter that arises at the annual meeting. The directors are elected by a quorum is present.
Abstentions and broker non-votes, if any, will not be counted as entitled to vote, but will count for purposes of determining whether or not a quorum is present. As applicable, the effect ofSo long as a quorum is present, abstentions and broker non-votes will have no effect on eachthe election of directors. Abstentions will have the effect of a vote against the say-on-pay proposal and the ratification of the proposals is discussed in the detailed descriptionappointment of each proposal provided in this proxy statement.our independent registered public accounting firm, while broker non-votes will not affect these votes.
Q. How are votes counted?
Voting results will be tabulated and certified by the election judges.
Q. Where do I find the voting results of the meeting?
If available, we will announce preliminary voting results at the meeting. WeThe voting results will also publish the voting resultsbe disclosed in a Current Report on Form 8-K which we will file within four business days of the meeting date.
Q. Who bears the cost of soliciting proxies?
Important Notice Regarding the Availability of Proxy Material
for the Stockholder Meeting to be Heldheld on August 2, 2010.May 17, 2011.
Full copies of the proxy statement, the proxy formcard and other materials for the specialannual meeting are available on the internet through our website andat www.oldsecond.com under "2010 Special"2011 Annual Meeting Materials." Stockholders will receive a full set of these materials through the mail from us or from the stockholder's broker or fiduciary.your broker.
PROPOSAL 1: THE COMMON STOCK PROPOSAL
PROPOSED AMENDMENT TO THE RESTATED CERTIFICATE
ELECTION OF INCORPORATION TOINCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCKDIRECTORS
OurOld Second's board of directors has unanimously approved, subjectis divided into three classes, approximately equal in number. At the annual meeting to stockholder approval, an amendmentbe held on May 17, 2011, you will be entitled to our Restated Certificate of Incorporationelect three directors for terms expiring in three years, as described herein. We have no knowledge that would increase the authorized number of shares of common stock from 40,000,000 to 60,000,000. Under our existing Restated Certificate of Incorporation, as amended, we are authorized to issue 40,000,000 shares of common stock and 300,000 shares of preferred stock. Asany of the record date, June 25, 2010, 13,911,692 shares of common stock were issued and outstanding. An additional 683,666 shares of common stock are reserved for issuance pursuantnominees will refuse or be unable to issued and outstanding stock options, 245,609 shares are reserved for future issuance pursuant to our stock option plans, 155,487 shares are reserved for non-vested restricted stock units, and 815,339 shares are reserved for issuance pursuant to the warrant issued by us to the U.S. Treasuryserve as partdirectors, but if any of the Capital Purchase Program. Thus, 24,188,207 sharesnominees becomes unavailable for election, the holders of common stock remain available for issuance, and, forproxies reserve the reasons outlined below, our board recommends that stockholders approve the increase in the numberright to substitute another person of authorized shares, which, if approved, would result in 44,188,207 shares of common stock being available for issuance in the future without further stockholder approval.
Proposed Amendment to Our Restated Certificate of Incorporation
If this amendment to our Restated Certificate of Incorporation is approved by our stockholders, the current Paragraph A of Article IV will be replaced in its entirety with the following:
"A: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 60,300,000 shares, which are divided into two classes:
60,000,000 shares of common stock, withtheir choice as a par value of $1.00 per share, and
300,000 shares of preferred stock, with a par value of $1.00 per share."
If the proposed amendment is approved by our stockholders, it will become effective upon the filing of an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which we expect to occur promptly following stockholder approval of the proposal. If the proposal is not approved by our stockholders, no amendment with respect to an increase in the number of authorized shares of common stock will be filed with the Secretary of State of the State of Delaware and the proposal will not be implemented.
Reasons for the Proposed Amendment
At our 2010 annual meeting of our stockholders, our stockholders approved an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 20,000,000 to 40,000,000. The board adopted such proposal early in 2010 and submitted it to our stockholdersnominee when voting at the 2010 annual meeting because it believed the increase in the number of authorized shares of common stock would permit the board to issue stock without further stockholder approval, and thus provide us with maximum flexibility in maintaining or increasing our capital levels, including our regulatory capital, in the event that the bank regulators required us to raise additional capital, structuring capital-raising transactions and acquisitions, and for other corporate purposes. The board also believed the increase in authorized shares of common stock at that time would enable us to respond promptly to, and take advantage of, market conditions and other favorable opportunities without incurring the delay and expense associated with calling a special stockholders' meeting to approve a contemplated stock issuance.meeting.
Since our 2010 annual meeting when our stockholders approved the increase in the authorized numberThe Nominating and Corporate Governance Committee of shares of common stock to 40,000,000, market conditions have changed in such a manner
that we believe the additional shares approved no longer provide us with the level of flexibility originally anticipated. Furthermore, subsequent to the 2010 annual meeting, we began exploring the execution of a multi-faceted capital strategy designed to improve our capital position by increasing common stock as a component of regulatory capital and stockholders' equity and reducing our indebtedness. We believe that successful completion of one or more components of this capital plan will enhance our capital position, strengthen the composition of our capital base by increasing common equity and give us added flexibility to take advantage of market opportunities and implement our long-term growth strategies. As outlined under Proposal 2, one component of our capital strategy is an exchange offer pursuant to which we may issue additional shares of our common stock in exchange for the outstanding trust preferred securities issued by Old Second Capital Trust I. We commenced the exchange offer on June 22, 2010 and we expect the exchange offer to close shortly after the special meeting. We also may seek to exchange a smaller amount of outstanding trust preferred securities issued by Old Second Capital Trust II in a separate private exchange transaction with a limited number of holders of such securities. Additionally, on May 13, 2010, we filed a "shelf" registration statement on Form S-3 with the Securities and Exchange Commission (the "SEC"), which was declared effective on May 26, 2010, pursuant to which we may offer and sell, from time to time, in one or more offerings, up to $150 million of our securities, including shares of our common stock, and we are contemplating conducting a common stock offering when market conditions become more favorable for such an offering. The exchange offer, the potential separate private exchange transaction and any common stock offering, if executed, will require the issuance of a significant number of authorized shares of our common stock. Also, the significant drop in our stock price since our 2010 annual meeting has increased the number of shares that we believe will be necessary to effect our capital strategy. Thus, our board of directors believes that we currently have an insufficient number of authorized but unissued shares available to proactively raise a significant amount of common equity in a timely manner as market conditions permit and believes it is necessary to take steps now to authorize additional shares of common stock in order to have sufficient shares available to effect our capital plan and to take advantage of favorable market opportunities to grow organically and potentially through acquisitions. Our board of directors now believes an additional increase in the number of authorized shares of common stock to 60,000,000 is in the best interests of Old Second and our stockholders.
As of the date of this proxy statement, except in connection with the exchange offer, which commenced on June 22, 2010, and the potential separate private exchange transaction previously discussed and further outlined in Proposal 2, we do not have any immediate or definitive plans, understandings, agreements or commitments to issue additional shares of common stock for any purposes. However, we also review and evaluate potential capital raising activities, strategic transactions and other corporate actions on an ongoing basis to determine if such actions would be in the best interests of Old Second and our stockholders. The additional shares authorized may be used for these purposes from time to time in the future as our board of directors may deem necessary. It should be noted that, even though our capital strategy contemplates that we may conduct a common stock offering, any such offering will be dependent upon market conditions and other considerations by our board of directors, and there is no guarantee that we will be able to pursue a common stock offering this year. Nevertheless, we have an effective shelf registration statement on file with the SEC, so we are positioned to quickly take advantage of favorable market conditions should they arise.
Effect of the Proposed Amendment
Authorized but unissued shares of our common stock may be issued from time to time upon authorization by our board of directors, at such times, to such persons and for such consideration as the board of directors may determineof Old Second has nominated three persons for election at this annual meeting, all of whom are incumbent directors.
Set forth below is information concerning the nominees for election and for the other directors whose term of office will continue after the meeting, including their age, year first elected or appointed as a director and business experience during the previous five years. The three nominees for director, if elected at the annual meeting, will serve for terms expiring in its discretion and generally without further approval by stockholders, except as may be required for a particular transaction by applicable law, regulation or stock exchange rule.
The additional shares of common stock for which we are seeking authorization would be a part2014. None of the existing classdirectors serve on the boards of our common stock and, if and when issued, would have the same rights and privileges as the sharesany other publicly traded companies besides Old Second.
Marvin Fagel, whose term of common stockelection expires in 2011, informed us that are currently outstanding. The additional shares would not (and the shares of common stock presently outstanding do not) entitle the holders thereof to preemptive or cumulative voting rights. Approval of an amendment authorizing additional shares of common stockhe will not causebe standing for election at the 2011 annual meeting. Mr. Fagel informed us that he desired to pursue other interests and that his retirement was not due to any change or dilutiondisagreement with Old Second. Immediately prior to the rights of existing holders of our common stock, unlessannual meeting, Mr. Fagel's retirement will be effective and until such time as any shares of common stock are actually issued. The degree of any dilution that would occur following the issuance of additional shares of stock would depend upon the number of directors on the board will be reduced from eleven to ten.
Unless authority to vote for the nominees is withheld, the shares of stock that are actually issued inrepresented by the future, which number cannotenclosed proxy card, if executed and returned, will be determined at this time. Issuance of a large number of additional voting shares could have a significant dilutive effect on earnings per share andvoted "FOR" the voting power of our existing stockholders. In lightelection of the challenges being facednominees proposed by many financial institutions, including Old Second, and the need to maintain heightened levels of capital to withstand the continuing economic pressures and satisfy regulatory authorities, a possibility exists that Old Second, like many financial institutions have already done, may consummate one or more transactions involving the issuance of a significant number of shares of common stock that result in significant dilution to existing stockholders.
The issuance of additional shares of common stock could be deemed under certain circumstances to have an anti-takeover effect where, for example, the shares were issued to dilute the equity ownership and corresponding voting power of a stockholder or group of stockholders who may oppose the policies or strategic plan of our existing management. On this basis, the proposed increase in authorized shares could enable the board to render more difficult or discourage an attempt by another person or entity to obtain control of Old Second.
Potential Impact If the Common Stock Proposal Is Not Adopted
If the proposed amendment to our Restated Certificate of Incorporation is not adopted by our stockholders and we are unable to increase our number of authorized shares of common stock, we will have available for future issuance, after taking into account the shares currently outstanding and reserved for other purposes, 24,188,207 shares of our common stock before taking into account the shares of our common stock that may be issued in the trust-preferred-securities-for-common-stock exchange offer that we commenced on June 22, 2010 or the potential separate private exchange transaction. As outlined in Proposal 2, if the TruPS Exchange Proposal is approved by our stockholders, we may issue up to 6,000,000 shares of our common stock pursuant to the exchange offer and the potential separate private exchange transaction, in the aggregate, which could result in us having fewer than 20,000,000 authorized shares of common stock available for future issuance. Based on the most recent trading price for our common stock on the Nasdaq Global Select Market as of the date of this proxy statement, our board of directors believes that this number of available shares could restrict our ability to raise capital to improve our tangible common equity to tangible assets and Tier 1 common equity to risk-weighted assets ratios and to maintain the Bank's heightened capital ratios pursuant to its understanding with the OCC. This limited number of available shares also could inhibit our ability to take advantage of financing techniques that receive favorable treatment from regulatory agencies, participate in acquisitions, including FDIC-assisted acquisitions of troubled institutions, or raise additional capital to begin redeeming the Series B Preferred Stock held by the U.S. Treasury. In short, without sufficient shares of common stock to issue in various financing transactions and acquisitions with little or no delay, we may be unable to take full advantage of changing market conditions that will best position us to maintain a strong capital position while pursuing growth opportunities during these challenging economic conditions.
Stockholder Vote Necessary to Approve the Common Stock Proposal
To be approved by our stockholders, the Common Stock Proposal must receive the affirmative vote of the majority of the outstanding shares of our common stock. Accordingly, abstentions will have the same effect as voting against the proposal.directors.
Board Recommendation
The board of directors recommends that you vote your shares "FOR" each of the Common Stock Proposal.
* * *nominees for director.
PROPOSAL 2: THE TRUPS EXCHANGE PROPOSALNOMINEES
APPROVAL OF THE ISSUANCE OF COMMON STOCK IN THE EXCHANGE OFFER PURSUANT TO NASDAQ MARKETPLACE RULE 5635
Our board of directors has found it to be advisable and in the best interests of Old Second and our stockholders that we pursue an exchange offer (the "Exchange Offer") pursuant to which we may issue and exchange shares of our common stock for a portion of the outstanding trust preferred securities previously issued by our subsidiary, Old Second Capital Trust I, of which there are currently $31.6 million aggregate liquidation preference outstanding, and the possible exchange of a smaller amount of outstanding trust preferred securities issued by Old Second Capital Trust II in a separate private exchange transaction; provided, however, that the maximum number of shares of common stock approved for issuance in the Exchange Offer and the separate private exchange transaction (if any), in the aggregate, is 6,000,000, subject to receipt of stockholder approval of this proposal. Notwithstanding the foregoing, if we do not obtain stockholder approval of this proposal, the maximum number of shares that we may issue in the Exchange Offer and the potential separate private exchange transaction will be reduced to 2,750,000. If we consummate the Exchange Offer, we will issue for each $10.00 liquidation amount of trust preferred securities accepted for exchange a number of shares of common stock having a dollar value of $7.50 (the "Exchange Ratio"). The dollar value per share of common stock used in determining the Exchange Ratio will be the volume weighted average price of one share of common stock for the five consecutive trading days ending on and including the second trading day immediately preceding the expiration of the Exchange Offer. Please note, however, that we have the right, subject to applicable law, to modify the terms of the Exchange Offer at any time prior to the expiration date and may modify such terms if deemed in Old Second's best interests.
The terms of any separate private exchange transaction involving the issuance of shares of our common stock in exchange for outstanding trust preferred securities of Old Second Capital Trust II will be subject to negotiation between the Company and the holders of such securities, and will not necessarily be on the same terms as the Exchange Offer. However, the exchange value in any separate private exchange transaction will not exceed 100% of the liquidation amount of the trust preferred securities exchanged.
The description of the terms of, and reasons for, the Exchange Offer set forth herein is included for informational purposes to stockholders in connection with this proxy solicitation and does not constitute an offer to sell or a solicitation of an offer to buy any securities of Old Second. We cannot guarantee that the Exchange Offer will be completed (or, if so, what the final terms or timing may be) and, accordingly, cannot be certain that we will reacquire and redeem any trust preferred securities. If our board of directors determines that such issuance is in the best interests of Old Second, we could exchange up to a total of 6,000,000 shares of common stock in the Exchange Offer, less the number of shares, if any, issued in the potential separate private exchange transaction.
Name | Served as Old Second Director Since | Principal Occupation | |||
|---|---|---|---|---|---|
(Term expires 2014) | |||||
Barry Finn | 2004 | President and Chief Executive Officer, Rush-Copley Medical Center (2002 - present), Chief Operating Officer and Chief Financial Officer, Rush-Copley Medical Center (1996 - 2002). | |||
William Kane | 1999 | Partner, Label Printers, Inc., a printing company. | |||
John Ladowicz | 2008 | Former Chairman and Chief Executive Officer of HeritageBanc, Inc., and Heritage Bank (1996 - 2008). | |||
Name | Served as Old Second Director Since | Principal Occupation | |||
|---|---|---|---|---|---|
(Term expires 2012) | |||||
J. Douglas Cheatham | 2003 | Executive Vice President and Chief Financial Officer, Old Second Bancorp, Inc. (2007 - present), Secretary, Old Second Bancorp, Inc. (2010 - present), Sr. Vice President, Chief Financial Officer, Chief Accounting Officer, and Assistant Secretary, Old Second Bancorp, Inc. (2003 - 2007). | |||
James Eccher | 2006 | Executive Vice President and Chief Operating Officer, Old Second Bancorp, Inc. (2007 - present), President and Chief Executive Officer, Old Second National Bank (2003 - present), Sr. Vice President and Branch Director, Old Second National Bank (1999 - 2003), President and Chief Executive Officer of Bank of Sugar Grove (1995 - 1999). | |||
Gerald Palmer | 1998 | Retired Vice President/General Manager, Caterpillar, Inc., a construction equipment manufacturer. | |||
James Carl Schmitz | 1999 | Tax Consultant (1999 - present), Director of Taxes with H. B. Fuller Company (1998), tax specialist with KPMG LLP (1999). | |||
Name | Served as Old Second Director Since | Principal Occupation | |||
|---|---|---|---|---|---|
(Term expires 2013) | |||||
Edward Bonifas | 2000 | Vice President, Alarm Detection Systems, Inc., producer and installer of alarm systems, closed circuit video systems and card access control systems. | |||
William Meyer | 1995 | President, William F. Meyer Co., a wholesale plumbing supply company. | |||
William B. Skoglund | 1992 | Chairman and Chief Executive Officer of Old Second Bancorp, Inc., and Chairman of Old Second National Bank. | |||
All directors will hold office for the Exchange Offer
Our board of directors recommends the approvalterms indicated, or until their earlier death, resignation, removal or disqualification, and until their respective successors are duly elected and qualified. There are no arrangements or understandings between any of the issuance of upnominees, directors or executive officers and any other person pursuant to 6,000,000 shareswhich any of our common stock pursuant to the Exchange Offer and the potential separate private exchange transaction because it is an effective method to improve our capital position by increasing common stock as a componentnominees, directors or executive officers have been selected for their respective positions. No nominee, member of regulatory capital and stockholders' equity, and reducing our indebtedness. Although the trust preferred securities currently qualify as Tier 1 capital for regulatory capital purposes, our board believes that increasing the common equity component of regulatory capital is a prudent step in the current market environment and will be viewed favorably by regulators and by market participants. As noted previously in this proxy statement, during the financial crisis of the past several years, analysts and other market participants have focused on additional measures of a financial institution's capital position beyond the regulatory capital ratios, such as tangible common equity to tangible assets and Tier 1 common equity to risk-weighted assets, to assess the financial health and stability of the institution, which also tends to impact the institution's stock price. One strategy identified to improve our tangible common equity and Tier 1 common equity ratios is to offer to exchange shares of our common stock for outstanding trust preferred securities. Such exchange is expected to positively affect our tangible common equity and Tier 1 common equity ratios in two ways. First, the exchange of common stock valued at approximately $7.50 for each outstanding trust preferred security (which are treated as indebtedness for accounting purposes) with a liquidation preference of $10.00 will result in the recognition of a gain for accounting purposes. Second, although trust preferred securities currently qualify for Tier 1 capital for regulatory capital purposes, they do not constitute common equity and thus do not increase the numerator in calculating our tangible common equity and Tier 1 common equity ratios. By replacing trust preferred securities with common stock, we will be replacing common equity for an instrument that does not constitute common equity, and thus will increase the numerator in the calculation of such ratios.
As a more general matter, our board also believes that issuing additional shares of our common stock pursuant to the Exchange Offer, and potentially in a separate private exchange transaction, will enhance our overall capital position and provide us added flexibility to take advantage of market opportunities and implement our long-term growth strategies.
Why You Are Being Asked to Vote on the TruPS Exchange Proposal
Nasdaq Marketplace Rule 5635 requires stockholder approval prior to the sale, issuance or potential issuance of a number of shares of our common stock in a transaction other than a public offering which equals or exceeds 20% of the shares or voting power outstanding before the issuance, if the sale price of such stock is less than the greater of its book value or market value.
Based on the current value of the trust preferred securities we may receive in exchange for each share of common stock issued in the Exchange Offer and the potential separate private exchange transaction, the current trading price for our common stock and the book value per share of our common stock at March 31, 2010, we expect that the implied sales price of each share of our common stock issued in the Exchange Offer will be less than the greater of the book value or market value of the shares. Given the uncertainty in the amount of trust preferred securities that will be tendered in the Exchange Offer, and as a result the number of shares of our common stock to be issued to tendering holders of the trust preferred securities, the Exchange Offer, either alone or when combined with any shares issued in a separate private exchange transaction, could result in the issuance of 20% or more of the outstanding common stock of the Company. Therefore, to comply with Nasdaq Marketplace Rule 5635, we are seeking stockholder approval for the potential issuance of up to 6,000,000 shares of our common stock in the Exchange Offer and the potential separate private exchange transaction so that we will have flexibility to close the Exchange Offer on a timely basis and issue in the Exchange Offer and the potential separate private exchange transaction an amount of shares that exceeds 20% of our outstanding common stock.
The terms of the Exchange Offer as announced on June 22, 2010 are $7.50 per $10.00 liquidation amount of trust preferred securities payable in common stock valued based on the mathematical average of the volume weighted average price per share for the five trading days ending on and including the second trading day immediately preceding the expiration date of the exchange offer, up to a maximum of 6,000,000 shares, less the number of shares, if any, issued in the potential separate private exchange transaction. However, we have the right, subject to applicable law, to modify the terms of the Exchange Offer at any time prior to the expiration date and may modify such terms if deemed in the best interests of the Company. If we were to wait until after deciding to modify the terms of the Exchange Offer before arranging for another special meeting of stockholders to approve the terms as modified, it would delay and possibly jeopardize the consummation of the transaction.
Generally, under published Nasdaq interpretative guidance, general authorizations by the stockholders for purposes of Nasdaq Marketplace Rule 5635 will be effective only if limited to transactions which are completed within three months of the approval. The three month requirement only applies to the initial issuance of the shares of common stock or other securities exercisable for or convertible into common stock. Nasdaq interpretative guidance also requires us to include a maximum potential discount in stockholder proposals such as this one. The price being offered was determined, and any modified price subject to the maximum discount would be determined, by the board of directors or a committee thereof.
Asexecutive officer is related to any other nominee, member of the date of this proxy statement, except as otherwise disclosed in this proxy statement, we do not have any specific plans, arrangements or contracts with any third party, which alone or when aggregated with subsequent transactions, would contemplate or require us to issue shares of common stock or other securities exercisable for or convertible into common stock in excess of 20% of our outstanding common stock or voting power and at a price that would be less than the greater of the book value or market value of our common stock as of such date, or that would result in a change in control of Old Second. If any material plans, arrangements or contracts regarding securities issuances subject to this proposal arise after the date of this proxy statement and prior to the actual vote on this proposal, we will notify stockholders and make revised proxy solicitation materials publicly available in accordance with SEC rules. These materials will include a new proxy card, if necessary.
Effect of the Issuance of Additional Shares of Common Stock Pursuant to the Exchange Offer
Any transaction requiring approval by stockholders under Nasdaq Marketplace Rule 5635 would likely result in a significant increase in the number of shares of common stock outstanding, and current stockholders will own a smaller percentage of our outstanding common stock. Moreover, the shares of common stock exchanged for the trust preferred securities will be freely tradable. If a significant percentage of the outstanding trust preferred securities are tendered in the Exchange Offer, the issuance of common stock in exchange for the tendered trust preferred securities will cause a meaningful reduction in the percentage interests of our current stockholders in the voting power, liquidation value, and book and market value of Old Second, and in our future earnings per share. The sale or resale of these securities could cause the market price of our common stock to decline. In addition to the foregoing, the increase in the number of issued shares of common stock in connection with one or more financings may have an incidental anti-takeover effect in that additional shares may dilute the stock ownership of one or more parties seeking to obtain control of Old Second. The increased number of issued shares could discourage the possibility of, or render more difficult, certain mergers, tender offers, proxy contests or other change of control or ownership. Please also see "Proposal 1: The Common Stock Proposal—Effect of the Proposed Amendment."
The following table illustrates potential dilution to our existing stockholders resulting from the issuance of shares of our common stock in the Exchange Offer under both a low participation scenario, in which only 25% of the outstanding trust preferred securities are tendered in the Exchange Offer, and a high participation scenario, in which 75% of the outstanding trust preferred securities are
tendered in the Exchange Offer, at various potential exchange ratios. The percentages shown below reflect the number of shares issued in the Exchange Offer as a percentage of total pro forma shares outstanding following the Exchange Offer. The information in the following table assumes that the Exchange Offer occurs on the terms announced on June 22, 2010, including the term limiting the aggregate number of shares that may be issued in the Exchange Offer to 6,000,000 less the number of shares, if any, that are issued in the potential separate private exchange transaction. Because we have not entered into any agreements in furtherance of the potential separate private exchange transaction, the following table does not reflect any shares that may issued in such transaction.
| | No. of Shares Issued if 25% Tender(2) | No. of Shares Issued if 75% Tender(2) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Relevant Price(1) | Shares Issued(3) | % of Total Outstanding(4) | Shares Issued(3) | % of Total Outstanding(4) | |||||||||
$4.50 | 1,317,708 | 8.65 | % | 3,953,125 | 22.13 | % | |||||||
$4.25 | 1,395,221 | 9.11 | % | 4,185,662 | 23.13 | % | |||||||
$4.00 | 1,482,422 | 9.63 | % | 4,447,266 | 24.22 | % | |||||||
$3.75 | 1,581,250 | 10.21 | % | 4,743,750 | 25.43 | % | |||||||
$3.50 | 1,694,196 | 10.86 | % | 5,082,589 | 26.76 | % | |||||||
$3.25 | 1,824,519 | 11.59 | % | 5,473,558 | 28.24 | % | |||||||
$3.00 | 1,976,563 | 12.44 | % | 5,929,688 | 29.89 | % | |||||||
$2.75 | 2,156,250 | 13.42 | % | 6,000,000 | 30.13 | % | |||||||
$2.50 | 2,371,875 | 14.57 | % | 6,000,000 | 30.13 | % | |||||||
$2.25 | 2,635,417 | 15.93 | % | 6,000,000 | 30.13 | % | |||||||
$2.00 | 2,964,844 | 17.57 | % | 6,000,000 | 30.13 | % | |||||||
Potential Impact if the TruPS Exchange Proposal Is Not Approved
If stockholders do not approve this proposal, the number of shares we may issue pursuant to the Exchange Offer would be limited to less than 20% of the shares of our common stock issued and outstanding immediately prior to the issuance of such shares. The terms of the Exchange Offer as announced on June 22, 2010 include a provision stating that, if this proposal is not approved, the maximum aggregate number of shares that may be issued in the Exchange Offer, together with any shares issued in the potential separate private exchange transaction, will be limited to 2,750,000, which is less than 20% of our outstanding shares. Depending on the amount of trust preferred securities tendered for exchange and market conditions at the time of the Exchange Offer, this limitation on the number of shares available for exchange may have a material adverse impact on the Exchange Offer's benefit to us.
Pro Forma Financial Information
Selected unaudited pro forma financial information giving effect to the Exchange Offer is set forth in the attached Annex I. Stockholders are urged to read the pro forma information carefully. The inclusion of the Exchange Offer in the pro forma financial information does not necessarily indicate that such transaction is likely to be consummated, as we have the right to terminate the Exchange Offer in our discretion. Because we have not entered into any agreements in furtherance of the potential separate private exchange transaction, the pro forma financial information does not reflect any shares that may be issued in such transaction.
Stockholder Vote Necessary to Approve the TruPS Exchange Proposal
Approval of the TruPS Exchange Proposal requires the affirmative vote of a majority of the votes cast in person or by proxy at the special meeting. Accordingly, abstentions and broker non-votes with respect to this proposal will not affect whether this proposal is approved.
Board Recommendation
The board of directors recommends that you vote your shares "FOR" the TruPS Exchange Proposal, for purposes of complying with Nasdaq Marketplace Rule 5635, to authorize the Company to issue shares of our common stock in exchange for a portion of the outstanding trust preferred securities of Old Second Capital Trust I upon such terms as the board of directors shall deemor executive officer.
Director Qualifications
We have established minimum criteria that we believe each director should possess to be an effective member of our board. Those criteria are discussed in more detail on page 9 of this proxy statement. The particular experience, qualifications, attributes or skills that led the board to conclude that each member is qualified to serve on the board and any committee he or she serves on is as follows:
Mr. Bonifas: We consider Mr. Bonifas to be a qualified candidate for service on the board, the Audit Committee and the Compensation Committee due to his skills and expertise acquired as a leader of a successful business and his prominence in the best interestscommunity.
Mr. Cheatham: We consider Mr. Cheatham to be a qualified candidate for service on the board due to his experience in the financial services industry and the familiarity with Old Second's operations he has acquired as Chief Financial Officer of the Company, provided that: (i) not more than 6,000,000 shares of common stock maycompany.
Mr. Eccher: We consider Mr. Eccher to be issueda qualified candidate for service on the board due to his experience in the Exchange Offerfinancial services industry and the potential separate private exchange transaction,familiarity with Old Second's operations he has acquired as Chief Operating Officer of the company.
Mr. Finn: We consider Mr. Finn to be a qualified candidate for service on the board and the Nominating and Corporate Governance Committee due to his business and financial expertise acquired as an executive at a successful local medical center, as well as his prominence in the aggregate; (ii)community.
Mr. Kane: We consider Mr. Kane to be a qualified candidate for service on the Company will issue for each $10.00 liquidation amount of trust preferred securities accepted for exchangeboard and the Compensation Committee due to his experience as a partner at a successful local business, his general experience in business and his prominence in the Exchange Offercommunity.
Mr. Ladowicz: We consider Mr. Ladowicz to be a number of shares of common stock havingqualified candidate for service on the board, the Audit Committee and the Nominating and Corporate Governance Committee due to his previous experience as a dollar value that is not more than $10.00 and not less than $7.50; (iii)chief executive officer in the exchange value in any separate private exchange transaction will not exceed 100%financial services industry, as well as his extensive knowledge of the liquidation amountmarket areas we entered through the acquisition of HeritageBanc, Inc. in 2008.
Mr. Meyer: We consider Mr. Meyer to be a qualified candidate for service on the board, the Compensation Committee, and the Nominating and Corporate Governance Committee due to his skills and expertise acquired as president of a well-established local business and his prominence in the local business community.
Mr. Palmer: We consider Mr. Palmer to be a qualified candidate for service on the board, the Compensation Committee, and the Nominating and Corporate Governance Committee due to his skills and expertise acquired as vice president of a successful publicly traded company, his experience in the industrial manufacturing industry, and his knowledge of the trust preferred securities exchanged; (iv)business community in the dollar value per share of common stock used in determining the Exchange Ratio willmarkets we serve.
Mr. Schmitz: We consider Mr. Schmitz to be the volume weighted average price of one share of common stocka qualified candidate for the five-trading-day period endingservice on the second business day precedingboard and the expiration date;Audit Committee due to his skills and (v)expertise in tax consulting and his familiarity with our local market areas.
Mr. Skoglund: We consider Mr. Skoglund to be a qualified candidate for service on the issuanceboard due to his skills and experience in the financial services industry and the intimate familiarity with Old Second's operations he has acquired as Chief Executive Officer of shares of common stock pursuant to the Exchange Offer and any separate private exchange transaction shall occur not later than the date three months after the date of the approval of the TruPS Exchange Proposal by our stockholders.Old Second.
* * *
PROPOSAL 3: ADJOURNMENT PROPOSALAUTHORITY TO ADJOURN, POSTPONE OR CONTINUECORPORATE GOVERNANCE AND THE SPECIAL MEETINGBOARD OF DIRECTORS
A quorumGeneral
Currently, the board of directors is made up of eleven directors who are elected every three years to serve staggered terms. As discussed above, the board anticipates voting to reduce the number of shares that must be present,seats from eleven to ten as a result of Mr. Fagel's departure immediately prior to the annual meeting. Generally, the board oversees our business and monitors the performance of our management. In accordance with our corporate governance procedures, the board does not involve itself in person orthe day-to-day operations of Old Second, which is monitored by proxy, in order for business to be transacted at the special meeting. Holders representing a majorityour executive officers and management. Our directors fulfill their duties and responsibilities by attending regular meetings of the outstanding shares of our common stock, present in person or by proxy, are necessary to constitute a quorum. Therefore, at the special meeting, the presence, in person or by proxy,board and through committee membership, which is discussed below. The board has determined that all of the holders of at least 6,955,847 shares of common stock, will be required to establish a quorum. Stockholders of record whodirectors and nominees are present at the special meeting in person or by proxy and who abstain are considered stockholders who are present and entitled to vote, and will count towards the establishment of a quorum. As referenced earlier, broker non-votes, if any, will be included for purposes of determining whether or not a quorum exists.
If a quorum is not present at the special meeting or if the number of shares of common stock present in person or represented by proxy and voting in favor of the Common Stock Proposal or the TruPS Exchange Proposal is insufficient to approve such proposal, our board of directors may move to adjourn, postpone or continue the special meeting in order to enable the board to continue to solicit additional proxies in favor of such proposals; however, the special meeting may not be adjourned, postponed or continued to a date later than September 1, 2010. In that event, you will be asked to vote only upon the Adjournment Proposal and any other proposal described in this proxy statement for which, at such time, we have received sufficient votes for approval.
If you submit a proxy form without giving specific voting instructions, the proxies will vote the shares"independent" as recommendeddefined by the board. However, any proxy form whichNasdaq Stock Market, with the exception of Messrs. Skoglund, Cheatham and Eccher, each of whom is signed and specifically marked to vote against the Common Stock Proposal or the TruPS Exchange Proposal will not be voted in favor of the Adjournment Proposal unless the proxy is specifically marked in favor of the Adjournment Proposal.
Stockholder Vote Necessary to Approve of the Adjournment Proposalan executive officer.
Approval of the Adjournment Proposal requires the affirmative vote of a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal, whether or not a quorum is present.
Board Recommendation
The board of directors recommendsheld twelve regular and one special meeting during 2010. All of the directors attended at least 75% of these meetings and the meetings of the committees on which they served. We typically schedule a board meeting in conjunction with our annual meeting and expect that you vote your shares "FOR" the Adjournment Proposal to grant theour directors will attend our annual meeting. Last year, all directors attended our annual meeting.
The board of directors believes that it is important to encourage the discretionary authorityhighest level of corporate ethics and responsibility. Among other things, the board adopted a Code of Business Conduct and Ethics, which applies to adjourn, postponeall of our directors, officers and employees, as well as a procedure for allowing employees to anonymously report any problems they may detect with respect to our financial reporting. The Code of Business Conduct and Ethics, as well as other information pertaining to our committees, corporate governance and reporting with the Securities and Exchange Commission, can be found on our website at www.oldsecond.com.
The board of directors has standing Audit, Nominating and Corporate Governance and Compensation Committees, each of which is made up solely of directors who are deemed to be "independent" under the rules of Nasdaq. Nasdaq's independence rules include certain instances that will preclude a director from being deemed independent and the board reviews those requirements each year to determine a director's status as an independent director.
During the review of Mr. Finn's status as an independent board member, the board considered Mr. Finn's roles as President and Chief Executive Officer at Rush-Copley Medical Center and Mr. Skoglund's position as the Vice Chairman of Rush-Copley's board of directors. Our board determined that this does not preclude a finding that Mr. Finn is independent under Nasdaq's rules because Mr. Skoglund does not serve on Rush-Copley's compensation committee and has recused himself from any discussions or continuevotes that involve Mr. Finn's salary.
Actions taken by each committee of the special meetingboard are reported to a date not later than September 1, 2010.
* * *the full board, usually at its next meeting. The principal responsibilities of each of the committees are described below.
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Audit Committee
The following table sets forth certain information with respect toAudit Committee assists the beneficial ownershipboard in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit Committee is solely responsible for the pre-approval of our common stock at June 25, 2010, by each person known by usall audit and non-audit services to be the beneficial owner of more than 5% of the outstanding common stock,provided by each director, by each named executive officer,our independent registered public accounting firm and by all directors and executive officers of Old Second as a group. Beneficial ownership has been determined for this purposeexercises its authority to do so in accordance with Rule 13d-3 undera policy that it has adopted. Additionally, the Securities Exchange ActAudit Committee reviews and approves all related party transactions between Old Second and related parties in accordance with Nasdaq's rules and regulations.
The members of 1934,our Audit Committee during 2010 were Messrs. Finn, (who served as amended, under which a personChairman), Bonifas, Fagel, Ladowicz, and Schmitz, each of whom is deemed to be the beneficial owner of securities if he or she has or shares voting power or investment power with respect to such securities or has the right to acquirean independent director under
beneficial ownershipNasdaq's rules. Except for Mr. Fagel, we expect that these members will continue to serve on the committee in 2011. Mr. Finn was appointed as chairman of securities within 60 daysthe Audit Committee in 2008. Mr. Schmitz will serve as chairman of June 25,the Audit Committee at any meeting Mr. Finn is unable to attend or if Mr. Finn is otherwise unable to carry out the duties of Audit Committee chairman. The Audit Committee met six times in 2010. Unless otherwise noted,
The board has designated Mr. Finn, who is currently Chairman, President and Chief Executive Officer of Rush-Copley Medical Center and previously served as its Chief Operating Officer and Chief Financial Officer, as the address"audit committee financial expert," as such term is defined by the regulations of the SEC. The board's determination was based upon Mr. Finn's level of knowledge and experience regarding financial matters and his experience overseeing and managing the audit of an organization, which he has gained both from his formal education and from his professional experience as the Chief Financial Officer of a regional hospital organization. The board believes that each 5% stockholderof the other members of the Audit Committee possesses knowledge and experience sufficient to understand the complexities of the financial statements of Old Second. Mr. Finn, or another member of the Audit Committee, met individually on a quarterly basis during 2010 with our independent registered public accounting firm.
The committee's duties, responsibilities and functions are further described in its charter, which is available on our website at www.oldsecond.com. You can request a copy of the committee's charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60506.60506, or by sending an e-mail requesting same to corporatesecretary@oldsecond.com.
Compensation Committee
The Compensation Committee reviews the performance of Old Second's executive officers and establishes their compensation levels. The committee's duties, responsibilities and functions are further described in its charter, which is available on our website at www.oldsecond.com. You can request a copy of the committee's charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60506, or by sending an e-mail requesting same to corporatesecretary@oldsecond.com. The Compensation Committee met five times during 2010.
The members of the Compensation Committee in 2010 were Messrs. Bonifas, Fagel, Kane, Meyer and Palmer (who served as Chairman), each of whom is an "independent" director as defined by Nasdaq, an "outside" director pursuant to Section 162(m) of the Internal Revenue Code and a "non-employee" director under Section 16 of the Securities Exchange Act of 1934. Except for Mr. Fagel, it is anticipated that the general composition of the Compensation Committee will be the same throughout 2011 as it was in 2010.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee reviews the qualifications of, and recommends to the board for nomination, candidates to stand for election at each annual meeting or to fill vacancies on the board as they may occur during the year. The committee also reviews on a periodic basis whether each director is "independent" under the rules of Nasdaq. Additionally, the Nominating and Corporate Governance Committee is responsible for reviewing our policies, procedures and structure as they relate to corporate governance. The committee's duties, responsibilities and functions are further described in its charter, which is available on our website at www.oldsecond.com. You can request a copy of the committee's charter by sending a written request to the Corporate Secretary at 37 South River Street, Aurora, Illinois 60506, or by sending an e-mail requesting same to corporatesecretary@oldsecond.com. The Nominating and Corporate Governance Committee did not meet in 2010. However, the full board met to discuss nomination and corporate governance matters in
2010, and the Nominating and Corporate Governance Committee met twice in early 2011 to discuss director nominations for the 2011 annual meeting.
The members of the Nominating and Corporate Governance Committee in 2010 were Messrs. Finn, Ladowicz, Meyer and Palmer (who served as Chairman), each of whom is deemed to be an independent director under Nasdaq's rules. It is anticipated that the Nominating and Corporate Governance Committee will consist of Messrs. Finn, Ladowicz, Meyer and Palmer throughout 2011. Mr. Palmer is expected to remain as Chairman of the committee in 2011.
Capital Committee
On April 20, 2010, the board of directors created a special Capital Committee of the board for the purpose of reviewing and evaluating Old Second's capital and strategic alternatives. The members of the Capital Committee in 2010 were Messrs. Finn, Ladowicz, Meyer, Palmer, Skoglund, Eccher and Cheatham. The Capital Committee met nine times in 2010. The board of directors has not adopted a written charter for the Capital Committee.
Director Nominations and Qualifications
In making its nominations for persons to be elected to the board of directors and included in our proxy statement, the Nominating and Corporate Governance Committee evaluates incumbent directors, board nominees and persons nominated by stockholders, if any. The committee reviews each candidate in light of the criteria that we believe each director should possess. Included in the criteria are whether each nominee: meets the minimum requirements for service on the board of directors contained in our bylaws; is under the age of 70 at the time of his or her election, pursuant to our certificate of incorporation; possesses the highest personal and professional ethics, integrity and values; has in the committee's opinion a sufficient educational and professional background and relevant past and current employment affiliations, board affiliations and experience for service on the board; has demonstrated effective leadership and sound judgment in his or her professional life; has a strong sense of service to the communities in which we serve; has exemplary management and communication skills; is free of conflicts of interest that would prevent him or her from serving on the board; will ensure that other existing and future commitments do not materially interfere with his or her service as a director; will review and agree to meet the standards and duties set forth in the company's Code of Business Conduct and Ethics; is willing to devote sufficient time to carrying out their duties and responsibilities effectively and is committed to serve on the board for an extended period of time. While we do not have a separate diversity policy, the committee does consider the diversity of its directors and nominees in terms of knowledge, experience, skills, expertise, and other demographics which may contribute to the board. The committee also evaluates potential nominees to determine if they have any conflicts of interest that may interfere with their ability to serve as effective board members and to determine whether they are "independent" in accordance with Nasdaq requirements (to ensure that at least a majority of the directors will, at all times, be independent).
The committee, when considering potential board members, will look at all of the foregoing criteria and arrive at the candidate that best meets the items set forth. The various qualifications and criteria are normally considered by the committee in connection with its evaluation of who the committee will recommend as the Company's nominees. Generally, each incumbent director standing for re-election should have and will have, at a minimum, attended at least 75% of board meetings during the past year and attended a majority of committee meetings of which he or she is a member. The committee retains the ability to make exceptions to this attendance requirement as individual circumstances warrant.
All of the nominees for election as directors for the 2011 annual meeting were nominated by the committee. The committee did not receive any formal stockholder nominations for directors.
Name of Individual and Number of Persons in Group | Amount and Nature of Beneficial Ownership(1) | Percent of Class | ||||||
|---|---|---|---|---|---|---|---|---|
5% Stockholders: | ||||||||
Old Second Bancorp, Inc.(2) | 1,340,353 | 9.6 | % | |||||
Profit Sharing Plan & Trust | ||||||||
Dimensional Fund Advisors LP(3) | 1,132,137 | 8.1 | % | |||||
Building One, 6300 Bee Cave Road | ||||||||
Austin, Texas 78746 | ||||||||
Columbia Pacific Opportunity Fund, L.P.(4) | 914,159 | 6.6 | % | |||||
1910 Fairview Avenue East | ||||||||
Suite 500 | ||||||||
Seattle, Washington 98102 | ||||||||
Directors: | ||||||||
Edward Bonifas(11) | 31,530 | * | ||||||
J. Douglas Cheatham(5) | 140,370 | 1.0 | % | |||||
James Eccher(6) | 124,876 | * | ||||||
Marvin Fagel(11) | 71,175 | * | ||||||
Barry Finn(11) | 22,000 | * | ||||||
William Kane(11) | 28,000 | * | ||||||
John Ladowicz(7) | 311,517 | 2.2 | % | |||||
William Meyer(11) | 90,018 | * | ||||||
Gerald Palmer(11) | 48,666 | * | ||||||
J. Carl Schmitz(8)(11) | 107,996 | * | ||||||
William B. Skoglund(9) | 368,615 | 2.6 | % | |||||
Current Other Named Executive Officer: | ||||||||
Rodney Sloan(10) | 26,225 | * | ||||||
All directors and named executive officers as a group (12 persons) | 1,370,988 | 9.53 | % | |||||
Common Stock Ownership and Retention Guidelines for Directors
In January of 2010, the Compensation Committee established guidelines to further align the interests of board members and stockholders by requiring all directors to develop a significant equity stake in the organization they oversee. The Compensation Committee will be responsible for monitoring compliance with these stock ownership ofand retention guidelines.
Non-employee directors are expected to acquire and hold during their service as board members, shares of Old Second Bancorp, Inc. common stock equal in value to at least three times the annual cash retainer for non-employee directors. Non-employee directors have three years from their initial election to the board to meet the target stock ownership guidelines. They are expected to continuously own sufficient shares to meet the guidelines, once the guidelines are attained. The stock ownership goal will be determined by using the value of their retainers as of January 1 of each year and the average closing stock price for our common stock over the prior twelve months.
Shares that count toward meeting the stock ownership guidelines include: shares owned, which include shares obtained upon exercise of options or shares purchased in the open market; shared ownership, which includes shares owned or held in trust by spouse (even though any beneficial interest is disclaimed)immediate family; and restricted stock units. Unexercised stock options do not count toward meeting the stock ownership guidelines. Until such time as the director reaches his or her target stock ownership, the director will be required to hold 50% of the shares of common stock received upon lapse of the restrictions, and upon exercise of stock options. In the rare instance in our profit sharing planwhich these guidelines would place a severe hardship on a director, the Compensation Committee may decide to allow an alternative stock ownership guideline that reflects the intentions of these overall guidelines and trustthe directors' own personal circumstances.
Board Leadership Structure
The positions of Chairman of the Board and our salary savings plan.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton LLP served as our independent registered public accounting firm from 2006 through March 16, 2010, when we filed our Annual Report on Form 10-K for the fiscal year ending December 31, 2009. At our annual meeting of stockholders held on April 20, 2010, our stockholders ratified the appointment of Plante & Moran PLLC as our independent registered public accounting firm for the fiscal year ending December 31, 2010. A representative of Grant Thornton is not expected to be present at the special meeting; however, a representative of Plante & Moran is expected to be present at the special meeting and willregularly have the opportunity to make a statement if hemeet in executive session without management or she desires to do so and will be available to respond to appropriate questions.
OTHER BUSINESS
any non-independent directors in attendance.
As ofIn 2010, the date hereof, there is no business to be transacted at the special meeting other than that referred toindependent directors met six times in the Notice of Special Meeting of Stockholders and it is not anticipated that other matters will be brought before the special meeting. If, however, other matters should properly be brought before the special meeting, it is intended that the proxy holders may vote or act in accordance withexecutive session. In 2004, the board of directors' recommendationdirectors created the position of a "lead" independent director, currently filled by Mr. Palmer. The Nominating and Corporate Governance Committee reviews this appointment annually and the full board has the opportunity to ratify the committee's selection. The lead independent director assists the board in assuring effective corporate governance and serves as chairman of the independent director sessions.
Board's Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including general economic risks, credit risks, regulatory risks, audit risks, reputational risks and others, such as the impact of competition. Management is responsible for the day-to-day management of risks the company faces, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk
management processes designed and implemented by management are adequate and functioning as designed.
While the full board of directors is charged with ultimate oversight responsibility for risk management, various committees of the board and members of management also have responsibilities with respect to our risk oversight. In particular, the Audit Committee plays a large role in monitoring and assessing our financial, legal, and organizational risks, and receives regular reports from the management team's senior risk officer regarding comprehensive organizational risk as well as particular areas of concern. The board's Compensation Committee monitors and assesses the various risks associated with compensation policies, and oversees incentives that encourage a level of risk-taking consistent with our overall strategy. Additionally, our chief credit officer and loan review staff are directly responsible for overseeing our credit risk.
We believe that establishing the right "tone at the top" and providing for full and open communication between management and the board of directors are essential for effective risk management and oversight. Our executive management meets regularly with our other senior officers to discuss strategy and risks facing the company. Senior officers attend many of the board meetings, or, if not in attendance, are available to address any questions or concerns raised by the board on suchrisk management-related and any other matters. Additionally, each of our board-level committees provides regular reports to the full board and apprises the board of our comprehensive risk profile and any areas of concern.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD; NOMINATION AND PROPOSAL PROCEDURES
Stockholder Communications with the Board; Nomination and Proposal Procedures
Stockholder Communications with Directors. Stockholders of Old Second may contact any member of the board of directors, or the board as a whole, through the Corporate Secretary either in person, in writing via phone at (630) 906-5480,by mail, or by emaile-mail at rhodgson@oldsecond.com.corporatesecretary@oldsecond.com. Any such communication should indicate whether the sender is an Old Second stockholder. The address for submitting communications to the board by mail is 37 South River Street, Aurora, Illinois 60506. Any communication will be forwarded promptly to the board as a group or to the attention of a specified director per your request, except for communications that are primarily commercial in nature or related to an improper or irrelevant topic.
Nominations of Directors. In order for a stockholder nominee to be considered by the Nominating and Corporate Governance Committee to be its nominee and included in our 2011 proxy statement, the nominating stockholder must file a written notice of the proposed director nomination with our Corporate Secretary, at the above address, by November 24, 2010.at least 120 days prior to the date on which the previous year's proxy statement was mailed to stockholders. Nominations must include the full name and address of the proposed nominee and a brief description of the proposed nominee's business experience for at least the previous five years and, as to the stockholder giving the notice, his or her name and address, and the class and number of shares of our capital stock owned by that stockholder. All submissions must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. The committee may request additional information in order to make a determination as to whether to nominate the person for director.
In accordance with our bylaws,Certificate of Incorporation, a stockholder may otherwise nominate a director for election to the board at an annual meeting of stockholders by giving timely notice in writing to our Corporate Secretary, at the address provided above. To be timely, stockholder nominations must be made in writing, delivered or mailed by first class United States mail, postage prepaid, to our Corporate Secretary not fewer than 14 days nor more than 60 days prior to any meeting of stockholders called for the election of directors. However, if notice of the meeting is given to stockholders less than 21 days prior to the date of the meeting, written nominations must be delivered or mailed to our Corporate Secretary not later than the close of business on the seventh day
following the day on which notice of the meeting was mailed to stockholders. Each written nomination must set forth the name, age, business address and, if known, residence address of each nominee; the principal occupation or employment of each such nominee for the past five years; and the number of shares of stock of Old Second beneficially owned by each such nominee and by the nominating stockholder. No directors are expected to be elected at the special meeting scheduled for August 2, 2010.
Other Stockholder Proposals. To be considered for inclusion in our proxy statement and form of proxy relating to our 20112012 annual meeting of stockholders, the proposing stockholder must file a written notice of the proposal with our Corporate Secretary, at the above address, by November 24, 2010,December 20, 2011, and must otherwise comply with the rules and regulations set forth by the Securities and Exchange Commission.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act, which means we are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
INCORPORATION BY REFERENCESECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The SEC allowsfollowing table sets forth certain information with respect to the beneficial ownership of our common stock at February 28, 2011, by each person known by us to "incorporatebe the beneficial owner of more than 5% of the outstanding common stock, by reference" intoeach director or nominee, by each executive officer named in the Summary Compensation Table (which can be found later in this proxy statement documents we filestatement), and by all directors and executive officers of Old Second as a group. Beneficial ownership has been determined for this purpose in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), under which a person is deemed to be the beneficial owner of securities if he or she has or shares voting power or investment power with respect to such securities or has the right to acquire beneficial ownership of securities within 60 days of February 28, 2011. Unless otherwise noted, the address of each 5% stockholder is 37 South River Street, Aurora, Illinois 60506.
Name of Individual and Number of Persons in Group | Amount and Nature of Beneficial Ownership(1) | Percent of Class | |||
|---|---|---|---|---|---|
5% Stockholders: | |||||
Old Second Bancorp, Inc.(2) | 1,145,360 | 8.2% | |||
Dimensional Fund Advisors LP(4) | 1,053,321 | 7.5% | |||
Directors: | |||||
Edward Bonifas(10) | 32,030 | * | |||
J. Douglas Cheatham(5) | 107,662 | * | |||
James Eccher(6) | 88,359 | * | |||
Marvin Fagel(10) | 72,675 | * | |||
Barry Finn(10) | 23,000 | * | |||
William Kane(10) | 29,000 | * | |||
John Ladowicz(7) | 312,431 | 2.2% | |||
William Meyer(10) | 91,018 | * | |||
Gerald Palmer(10) | 49,666 | * | |||
J. Carl Schmitz(8)(10) | 57,200 | * | |||
William B. Skoglund(9) | 293,444 | 2.1% | |||
All directors and executive officers as a group (11 persons) | 1,156,485 | 8.2% | |||
SECURITY 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our directors, executive officers and ten percent stockholders file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are also required to furnish us with copies of all Section 16(a) forms they file. No person failed to comply with the filing requirements of Section 16(a) during 2010 and there are no late filings to report.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis describes Old Second's compensation philosophy and policies for 2010 and 2011 as amended):applicable to the executive officers named in the Summary Compensation Table on page 26. This section explains the structure and rationale associated with each material element of the executive's compensation, and it provides important context for the more detailed disclosure tables and specific compensation amounts provided following the section. It is important to note that Old Second and Old Second National Bank share an executive management team, the members of which are compensated by the bank rather than the holding company. The compensation packages of the named executive officers are determined and approved by our Compensation Committee based upon their performances and roles for both Old Second and Old Second National Bank.
The Compensation Committee has overall responsibility for evaluating the compensation plans, policies and programs relating to the executive officers of Old Second. Further, as required by the rules established by the U.S. Department of the Treasury, guidance issued by the Federal Reserve and other financial institution regulatory agencies, and the SEC's guidance regarding risk associated with compensation arrangements (each as described more fully below), the Compensation Committee is also responsible for a more expansive risk review with respect to most of the compensation plans, policies and programs maintained for employees of Old Second. The Compensation Committee relies upon the input of management, particularly Mr. Skoglund, when carrying out its responsibilities in establishing executive compensation. Management provides the committee with evaluations as to employee performance, guidance on establishing performance targets and objectives and recommends salary levels and equity awards. The committee also consults with management on matters that are relative to executive compensation and benefit plans where board or stockholder action is expected, including the adoption of new plans or the amendment of existing plans. Finally, the committee consults with management, specifically Old Second's senior risk officer, in completing the risk review with respect to employee compensation plans. No executive officer participates in any recommendation or decision regarding his or her own compensation.
The Compensation Committee's charter gives it the authority to hire outside consultants to further its objectives and responsibilities. While the committee did not engage any outside consultant during 2010, the committee did review a number of surveys and other reference materials from other independent sources regarding the compensation levels and programs at other financial institutions. The committee considered, generally, the information contained within those reference materials when making compensation decisions for 2010 and 2011.
During 2010, the Compensation Committee convened in January, February and August. Mr. Palmer, Chairman of the committee, also met as needed with internal staff members to assimilate compensation information for this proxy statement. The Compensation Committee also met in January 2011 to approve salaries for 2011. Restricted stock and restricted stock units were granted in January 2010 and 2011 as part of our executive incentive plan.
Regulatory Environment
In order to more fully understand the Compensation Committee's decisions with respect to compensation during 2010 and 2011, the committee believes it is beneficial to understand the regulatory context in which these decisions were made.
Troubled Asset Relief Program
As noted in our 2010 proxy, Old Second participates in the Treasury's Troubled Asset Relief Program ("TARP"). As a result of its participation in TARP, Old Second and certain of its employees have been and will continue to be subject to compensation related limitations and restrictions for the period that the company continues to participate in TARP. The TARP compensation limitations and restrictions include the following:
In addition to the foregoing limitations and restrictions, the TARP rules and regulations have required the Compensation Committee to undertake a semi-annual risk assessment with respect to certain of the compensation plans, programs and arrangements maintained by Old Second, regardless of whether the individual employee(s) covered by the plan, program or arrangement is a named executive officer. The risk assessments are performed by the senior risk officer and the committee. The senior risk officer and the committee review all compensation plans and arrangements to ensure that risks are identified and mitigated. The intent of these risk assessments is to minimize the opportunity that any employee will be incentivized to take unacceptable risks in order to maximize his or her compensation under such plans and arrangements.
Federal Reserve Guidance on Sound Incentive Compensation Policies
In June 2010, the Federal Reserve, along with the FDIC, Office of the Comptroller of the Currency and the Office of Thrift Supervision, jointly issued final "Guidance on Sound Incentive Compensation Policies" or Final Guidance. The Final Guidance sets forth a framework to be used in compensation decisions by financial institutions to assess the soundness of incentive compensation plans, programs and arrangements. The Final Guidance applies to all financial institutions, and it is designed to help ensure that incentive compensation policies do not encourage excessive risk-taking and are consistent with the safety and soundness of the organization by requiring financial institutions to adhere to three guiding principles of a sound incentive compensation system. The three principles of the Final Guidance require the Compensation Committee to ensure that:
The Final Guidance applies to incentive compensation arrangements for executive and non-executive personnel who have the ability to expose Old Second to material risk, including arrangements for:
The Compensation Committee will make use of the framework set forth in the Final Guidance as it moves forward with its compensation actions and decisions. Based on its on-going risk assessment of compensation arrangements in connection with its TARP obligations, the committee does not believe that any of our compensation plans or arrangements incent the taking of inappropriate risks.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act similarly requires financial institutions to avoid inappropriate risks in connection with their compensation plans and arrangements. On February 7, 7A, 82011, the Agencies that signed on to the Final Guidance described above, issued proposed guidance under the Dodd-Frank Act's risk assessment provisions. The Compensation Committee will continue to monitor this proposed guidance and 9will take necessary steps to work toward compliance with the requirements as they may be finally set forth when the proposed guidance is finalized.
SEC Risk Assessment Requirement
The SEC also requires a company to assess compensation policies and practices in order to determine if any such policies or practices have the potential to have a materially adverse effect on Old Second. We believe our risk assessment under the Final Guidance satisfies this requirement of the SEC.
Compensation Philosophy and Objectives
Our philosophy is intended to align the interests of management with those of our stockholders without creating undue risk to the company. The executive compensation program is designed in a manner in which the committee believes does not provide our executives with incentives to engage in business activities or other behavior that would threaten the value of Old Second or the investments of our stockholders.
The executive compensation program is intended to accomplish the following objectives:
Compensation Components
General. In years past, we have included four major components in our named executive officers' compensation program: base salary, annual cash bonus, equity awards and additional benefits. However, because the TARP compensation limitations and restrictions generally prohibit us from paying cash bonuses to certain of our named executive officers while we are participating in the TARP program, we have excluded the annual cash bonus component for those of our named executive officers who are subject to the TARP bonus prohibition.
The Compensation Committee's decisions regarding each of the components for the named executive officers are based in part on the committee's subjective judgment and take into account qualitative and quantitative factors, as will be set forth in the discussion below. In reviewing an executive officer's compensation, the committee considers and evaluates all components of the officer's total compensation package. This involves reviewing base salary, bonus, incentive stock awards, perquisites, participation in our non-qualified executive plans, participation in our 401(k) plan, and any other payments, awards or benefits that an officer earns (to the extent each is permitted under the TARP compensation limitations and restrictions). Additionally, the committee takes into consideration any amounts an executive officer is entitled to upon retirement, termination or a change-in-control event, including the impact of the TARP compensation limitations and restrictions on these amounts. In this regard, in establishing compensation for 2010 and 2011, the committee utilized tally sheets summarizing these aggregated amounts.
Base Compensation—Salary. The Compensation Committee believes that base compensation should offer security to each executive sufficient to maintain a stable management team and environment. Because of the need to provide stability, salaries make up the largest portion of the executives' compensation. In establishing a senior executive officer's initial base salary the committee considers, among other things, the executive's level of responsibility, prior experience, breadth of knowledge, the competitive salary practices at peer companies, internal performance objectives, education, internal pay equity, potential bonus and equity awards, level of benefits and perquisites and the tax deductibility of base salary.
The committee reviews salaries of the named executive officers on an annual basis. As with all of its decisions regarding compensation levels, when reviewing salaries the committee considers the levels of all aspects and components of the officer's compensation, including the individual's potential bonus and equity awards as well as the level of benefits and perquisites offered. All of these factors are considered on a subjective basis in the aggregate, and none of the factors is accorded a specific weight.
Because of the prevailing effects of the economic turbulence on Old Second during the past several years, the committee has not raised base compensation for any of the named executive officers above the levels established in 2008. In January 2011, the committee again decided not to raise base compensation for the coming year.
Cash Incentive Awards—Bonus. The executive compensation restrictions contained in the TARP rules prohibit Old Second from paying or accruing cash bonuses on behalf of the top five most highly paid employees (as determined on an annual basis) during the TARP period. Messers. Skoglund, Cheatham and Eccher were subject to the bonus prohibition during 2010 and will be subject to it again during 2011. Mr. Sloan was not subject to the TARP bonus prohibition during 2010 and, as such, was eligible to receive an annual cash bonus, although he did not receive any such bonus for 2010.
Early in 2010, the Compensation Committee established a new Officers Incentive Plan covering officers of the company including, to the extent permitted under the TARP compensation limitations and restrictions, our named executive officers. However, shortly thereafter, the committee made the decision to suspend the participation in the plan of our named executive officers. As such, none of our named executive officers were eligible to receive, nor did they receive, a cash bonus with respect to Old Second's performance or their own individual performance during 2010. Further, no other officer of Old Second was eligible to receive, nor did they receive, a cash bonus with respect to Old Second's performance or their own individual performance during 2010 as a result of that plan.
Although the committee ultimately decided to suspend the Officers Incentive Plan with respect to our named executive officers, we believe it is important to understand how we determined the initial goals and bonus targets for our executives. For 2010, the named executive officers' delineated goals all related to corporate performance, namely net income, asset quality and cost containment. The committee established the target amount that each officer may earn upon meeting the separate target goals. However, even though the committee set these targets, the bonuses were ultimately discretionary, and the potential payout amount could be increased or decreased by the committee if there were special circumstances that year.
Net Income Component. The committee believes that net income is an appropriate measure because it focuses on the financial performance of Old Second. It should be understood that the committee considered the net income targets to be thresholds for any bonus to be paid to a named executive officer. As such, if minimum net income (prior to the TARP dividend) did not exceed $8.0 million, no bonus would be paid to any named executive officer. Similarly, if we achieved a net income (prior to the TARP dividend) of $10.0 million, the named executive officers would be eligible for an aggregate bonus equal to 75% of the maximum allowable. The net income thresholds for 2010 were as follows:
Net income prior to TARP dividend | Percentage of eligible bonus for corporate performance | |||
|---|---|---|---|---|
$8.0 million | 50 | % | ||
$10.0 million | 75 | % | ||
$12.0 million | 100 | % | ||
$16.0 million | 125 | % | ||
Asset Quality Component. For 2010, the committee used measurements related to our asset quality to determine a portion of an officer's eligible performance measures under the plan. The committee believes asset quality is an essential measure to guard against risks that could hurt the value of Old Second. For 2010, the asset quality component was achieved if non-performing loans were equal to $100 million or less, and the ratio of non-performing assets to total assets was equal to 8% or less. The asset quality component would have been achieved in full only if both of these components were met.
Cost Containment Component. For 2010, the committee focused on cost containment. The committee believes cost containment is an essential measure in these difficult economic times, especially given the particular impact of the recent financial crisis on financial institutions. The cost containment measure would be achieved if Old Second's efficiency ratio was 60% or lower during 2010.
Long-Term Incentive Awards—Equity Awards. The board and the Compensation Committee believe in senior management ownership of our common stock as an effective means to align the interests of senior management with those of the stockholders. Our current long-term incentive plan (the "Incentive Plan"), which was approved by stockholders at the 2008 annual meeting, is intended to promote equity ownership in Old Second by the directors and selected officers and employees, focus the management team on increasing value to stockholders, increase their proprietary interest in the success of Old Second and encourage them to remain in the employ of Old Second or its subsidiaries for a long period of time. The current equity incentive plan authorizes the issuance of up to 575,000 shares of Old Second's common stock, including the granting of qualified stock options, non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights.
All awards are at the discretion of the committee and are generally subjective in nature. In determining the number of equity awards to be granted to executive officers, the committee considers individual and corporate performance and whether the respective goals were obtained, the person's position and ability to affect profits and stockholder value, as well as the level of awards granted to individuals with similar positions at our peer organizations. Because of the nature of equity awards, the committee also evaluates the prior awards of stock options and restricted stock and takes into account the overall wealth accumulation of a given executive officer through such awards.
Pursuant to a formal equity compensation policy, all equity grants are finalized in the beginning of each calendar year. This allows for a more complete review of the full prior year when making equity awards as well as coordinating the granting of equity awards to a time when there is less likelihood of there existing material, non-public information, as the grants will normally be made after the public release of the company's financial information for the prior year.
Historically, we have granted stock options to the named executive officers and to other senior management while awarding restricted stock to other officers and employees. However, the TARP rules effectively serve to prohibit the granting of equity awards, other than restricted stock or restricted stock units, to our five most highly compensated employees. Therefore, for 2010 and 2011, the committee decided to grant restricted stock or restricted stock units, in accordance with the TARP compensation limitations and restrictions, to the named executive officers. The committee believes that restricted stock units and restricted stock are appropriate employee retention tools. The number of equity awards to different levels of officers are relatively uniform throughout each level of officer and the value awarded is generally based upon a percentage of that officer's or employee's base salary. Typically, and outside of the restrictions imposed by the TARP compensation limitations and restrictions, all restricted stock and restricted stock units have a three-year cliff-vesting period and are subject to forfeiture until that three-year vesting period has passed. Those awards subject to the TARP compensation limitations and restrictions have a two-year vesting period, but are subject to additional rules with respect to transferability and settlement as described below. Restricted stock and restricted stock unit awards are typically finalized at the beginning of each year, with the issuance effective as of the date of the Compensation Committee meeting.
All Other Compensation. We provide general and customary benefit programs to executive officers and other employees. Benefits offered to executives are intended to serve a different purpose than base salary, bonus and equity awards. While the benefits offered are competitive with the marketplace and help attract and retain executives, the benefits also provide financial security for employees for retirement as well as in the event of illness, disability, or death. Benefits offered to executive officers are generally those offered to other employees with some variation to promote tax efficiency and
replacement of benefit opportunities lost to regulatory limits, although there are some additional perquisites that may only be offered to executive officers. Because of the nature of the benefits offered, the committee normally does not adjust the level of benefits offered on a year-to-year basis. Old Second will continue to offer benefits, the amount of which shall be determined from time-to-time in the sole discretion of the committee, provided that such benefits are not in the future determined to be limited or prohibited by the TARP rules.
In October 2010, Old Second entered into a retention bonus agreement with Mr. Sloan. The committee believed this to be an appropriate incentive for Mr. Sloan given the increased competition in the market for services of senior risk officers. The agreement provided that, had he continued in employment with the company through mid-January 2011, Mr. Sloan would have been entitled to an additional lump sum payment of $20,000. In addition, Mr. Sloan was awarded a retention grant of 10,000 restricted stock units that were subject to a three-year cliff-vesting provision. Effective January 14, 2011, Mr. Sloan resigned as Executive Vice President and Chief Risk Officer of Old Second and, as such, forfeited any right to any part of the retention bonus and the additional restricted stock units.
The following table summarizes the benefits and perquisites we do and do not provide as well as identifies those employees that may be eligible to receive them:
| Executive Officers | Other Officers/Mgrs. | Full-Time Employees | ||||
|---|---|---|---|---|---|---|
Health Plans: | ||||||
Life & Disability Insurance | X | X | X | |||
Medical/Dental/Vision Plans | X | X | X | |||
Retirement Plans: | ||||||
401(k) Plan/Profit-Sharing | X | X | X | |||
Deferred Compensation Plan | X | X | Not Offered | |||
Perquisites: | ||||||
Automobile Allowance | X | Not Offered | Not Offered | |||
Country Club Membership | X | X | Not Offered |
Old Second Bancorp, Inc. Employees 401(k) Savings Plan and Trust. Old Second sponsors a tax-qualified 401(k) savings plan and trust qualifying under Section 401(k) of the Internal Revenue Code. Virtually all employees are eligible to participate after meeting certain age and service requirements. Eligible employees are permitted to contribute up to a dollar limit set by law. Since Old Second terminated its defined-benefit plan as of the end of 2005, the 401(k) plan became the primary retirement vehicle provided by Old Second for the officers and employees. Participants can choose between several different investment options under the 401(k) plan, including shares of Old Second's common stock.
During 2010, Old Second maintained a "safe harbor" matching contribution which provides for an aggregate available matching contribution of 4% of each participant's salary.
There is also a profit-sharing portion of the 401(k) plan which provides for an annual discretionary contribution to the retirement account of each employee based in part on our profitability in a given year and on each participant's annual compensation. The contribution amount granted each year is on a discretionary basis and there is no set formula used by the committee. No discretionary contribution was provided to employees based on 2010 financial performance of Old Second.
Old Second Bancorp, Inc. Amended and Restated Voluntary Deferred Compensation Plan for Executives. Old Second sponsors an executive deferred compensation plan, which provides a means for certain executives to voluntarily defer all or a portion of their salary and/or bonus, if any, without regard to the statutory limitations applicable to tax-qualified plans, such as our 401(k) plan. The deferred
compensation plan provides for participant deferrals, company matching contributions and discretionary employer profit-sharing contributions. A company matching contribution is credited to the plan on behalf of a participant when the participant elects to defer the maximum amount permitted under the 401(k) plan (including catch-up contributions, if applicable) and keeps that level of deferral for the entire plan year. The company matching contribution is an amount up to 3%, provided at least a 6% deferral was met, of the participant's combined base salary and bonuses, less any matching contribution paid to the 401(k) plan on the participant's behalf. The determination of whether a profit-sharing contribution is made and in what amount is entirely at the committee's discretion and there is no set formula. For years during the TARP period after 2009, Old Second has suspended the matching contribution under the plan as well because that matching contribution may be prevented by the TARP bonus prohibition. Participants will continue to have the opportunity to make elective deferrals to the plan during the TARP period, unless there are further changes to the TARP rules. Participants are permitted to make hypothetical investment decisions with respect to the deferrals and company contributions credited to their accounts under the plan in a mutual fund-like investment pool managed by an independent third party. Participants may elect to receive their plan balance in a lump sum or in up to 20 annual installments following retirement. Participants are not permitted to make a withdrawal from the plan during their employment, except in the event of hardship as approved by the plan's administrator. The plan is administered through an independent service provider.
Other Perquisites. It is our belief that perquisites for executive officers should be very limited in scope and value. Due to this philosophy, Old Second has generally provided very nominal benefits to executives that are not available to full-time employees and we plan to continue this approach in the future. We do provide country club memberships to certain executives and managers in the ordinary course of business to give them the opportunity to bring in and recruit new business opportunities. These individuals are eligible to use the club membership for their own personal use. Additionally, we provide each of Mr. Skoglund, Mr. Eccher, and Mr. Sloan with an automobile allowance to enable them to visit our banking locations on a regular basis as well as to call on our customers. We have disclosed the value of all perquisites to named executive officers in the Summary Compensation Table even if they fall below the disclosure thresholds under the SEC rules. Old Second will continue to offer perquisites, the amount of which shall be determined from time-to-time in the sole discretion of the committee, provided that such perquisites are not in the future determined to be limited or restricted by the TARP rules.
Compensation Decisions
This section describes the decisions made by the committee with respect to the compensation for the named executive officers for 2010 and 2011. As noted above, the TARP rules have served to limit or prohibit, and we expect that they will continue to do so for the remainder of the TARP period, certain forms of compensation for our named executive officers.
The following is a brief summary of the compensation decisions the committee effected for 2010 and 2011:
Base Salary. We annually review the base salaries of the named executive officers to determine whether or not they will be adjusted, as described above. The salaries for 2010, determined by the Compensation Committee at the beginning of 2010, which are the same as have been in effect since the beginning of 2008, are set forth in the Summary Compensation Table on page 26. In determining these salary levels, we considered the following:
No specific weighting was applied to these factors, although our performance in 2009 was a key factor in setting salaries for 2010, as personal performance is rewarded more heavily in cash incentives and long-term incentive awards.
In early 2011, the committee determined the base salaries for the executive officers for 2011. The base salaries for 2010 and 2011 are as follows:
Name | Position | 2010 Base Salary | 2011 Base Salary | ||||||
|---|---|---|---|---|---|---|---|---|---|
| William B. Skoglund | Chairman, Chief Executive Officer of Old Second | $ | 495,000 | $ | 495,000 | ||||
| J. Douglas Cheatham | Chief Financial Officer of Old Second | $ | 247,000 | $ | 247,000 | ||||
| James Eccher | Chief Executive Officer of Old Second National Bank | $ | 290,000 | $ | 290,000 | ||||
| Rodney Sloan(1) | Chief Risk Officer of Old Second and Senior Vice President/Commercial Lending of Old Second National Bank | $ | 200,000 | $ | 200,000 | ||||
In determining the base salaries for 2011, we considered the same general factors discussed above including the continuing general slowdown in the economy and growth of our earnings, return on average assets and overall assets.
Bonus. As described above, in spring 2010, the Compensation Committee decided to suspend our named executive officers participation in the Officers Incentive Plan. As such, none of our named executive officers were eligible to receive, nor did they receive, a cash bonus with respect to Old Second's performance or their own individual performance during 2010. Further, no other officer of Old Second was eligible to receive, nor did they receive, a cash bonus with respect to Old Second's performance or their own individual performance during 2010 as a result of that plan.
The committee has decided that the suspension of participation of our named executive officers will remain in effect for 2011.
Equity Awards. The Compensation Committee typically acts to award equity grants at the beginning of each year, specifically in the months of January and February. In early 2010 the committee granted to the named executive officers, who are subject to the TARP bonus prohibition, restricted stock that complied with the requirements of the TARP rules. Mr. Skoglund received 39,900 shares of restricted stock, Mr. Eccher received 25,000 shares of restricted stock and Mr. Cheatham received 20,200 shares of restricted stock. Mr. Sloan received a grant of 10,000 restricted stock units. In October 2010, Mr. Sloan received another grant of 10,000 restricted stock units. In February 2011, Messrs. Skoglund, Cheatham and Eccher were each awarded 35,330 shares of restricted stock. In setting grant levels for equity awards, the committee typically considers our compensation philosophy, the position and level of responsibility of each officer, our belief that equity awards should be a significant part of the total mix of executive compensation, the number of other equity awards currently held by each officer and the level of awards granted to them in prior years.
The restricted stock granted in 2010 and 2011 to Messrs. Skoglund, Cheatham and Eccher is subject to the requirements set forth in the TARP compensation limitations and restrictions. As such, the awards will vest two years from the date of grant, but will not be transferable (other than to satisfy tax withholding obligations) until Old Second repays its TARP financial assistance. As each 25% of TARP assistance is repaid, 25% of the underlying awards become transferable. The grants of restricted stock units made to Mr. Sloan during 2010 were each subject to three-year cliff-vesting provisions. Effective January 14, 2011, Mr. Sloan resigned as Executive Vice President and Chief Risk Officer of Old Second. As such, he forfeited his right to all restricted stock units granted to him during 2010.
All Other Compensation. While the committee reviews and monitors the level of other compensation offered to the named executive officers, the committee typically does not adjust the level of benefits offered on an annual basis. The committee does consider the benefits and perquisites offered to the named executive officers in its evaluation of the total compensation received by each. The perquisites received by the named executive officers in 2010 are reported in the Summary Compensation Table on page 26. The benefits offered in 2010 to the named executive officers are expected to continue for 2011, unless otherwise limited or prohibited by the TARP rules.
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in Old Second's Annual Report on Form 10-K for the year ended December 31, 2009; and
Section 111(b)(2)(A) of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.
We will provide youEmergency Economic Stabilization Act requires the Compensation Committee to conduct, in conjunction with a copysenior risk officer of the Company, a review of the incentive compensation arrangements in place between the Company and its employees.
The Compensation Committee certifies that, at least once every six months during the year ended December 31, 2010 (a) it has reviewed with the senior risk officer of Old Second the senior executive officer ("SEO") compensation plans and has made all reasonable efforts to ensure that these plans do not encourage SEOs to take unnecessary and excessive risks that threaten the value of Old Second; (b) it has reviewed with the senior risk officer the employee compensation plans and has made reasonable efforts to limit any unnecessary risks these plans pose to Old Second; and, (c) it has reviewed the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of Old Second to enhance the compensation of any information that we incorporate by reference into this proxy statement, at no cost, by writing or calling us. Requests for such materials should be directedemployee ((a), (b) and (c) being collectively referred to as the "TARP Risk Assessment").
In the course of conducting its TARP Risk Assessment, the Compensation Committee considered the overall business and risk environment confronting Old Second Bancorp, Inc.Attention: Corporate Secretary37 South River StreetAurora, Illinois 60506Telephone number: (630) 906-5480and how the SEO compensation plans and employee compensation plans serve to motivate employee behavior when operating within that environment. In particular, the Compensation Committee's TARP Risk Assessment focused on the following compensation plans (* denotes plans in which SEOs participate):
• Amended and Restated Voluntary Deferred Compensation Plan for Executives* | • Loan Administration Plan | |
• Base Salary* | • Officers Incentive Plan* | |
• Commercial Interest Rate Swap Plan | • Residential Lending Commission Plan | |
• Compensation and Benefits Assurance Agreements* | • Residential Lending Override Plan | |
• Customer Service/Support Center Plan | • Retail Banking Plan | |
• Employees 401(k) Savings Plan and Trust* | • Special Recognition Awards Program | |
• 2008 Equity Incentive Plan* | • Wealth Management Commission Plan |
With the exception of individual bonus goals designated under the Officers Incentive Plan, Old Second does not maintain any compensation plans in which only SEOs participate. For purposes of this discussion, references to "SEO compensation plans" mean the portion of an employee plan in which the SEOs participate.
With respect to the SEO compensation plans, the Compensation Committee believes that such plans do not encourage Old Second's SEOs to take unnecessary or excessive risks that could harm the value of the company. The Compensation Committee believes this to be true because, as is more fully described in the Compensation Discussion and Analysis, the Compensation Committee strives to provide a balanced aggregate compensation package to our SEOs that serves to incentivize our SEOs to manage the business of Old Second in a way that will result in company-wide financial success and value growth for our shareholders.
We believe it is appropriate for our executives to focus certain of their efforts on near-term goals that have importance to the company; however, we also acknowledge that near-term focus should not be to the detriment of a focus on the long-term health and success of Old Second. In practice, providing base salary to any employee provides the most immediate reward for job performance. The Compensation Committee engages in an annual process, as is described in the Compensation Discussion and Analysis, to set base salary. We believe our process for establishing base salary is relatively free from risk to the company, as we do not typically make significant adjustments to base salary based on a single year's performance. The committee believes it is appropriate to reward our executives' focus on near-term goals, when such goals correspond to the overall company or operating division goals and direction set by our board of directors. To reward the executives for such focus, the Compensation Committee maintains an annual cash incentive plan (i.e., Officers Incentive Plan) for our executives. In establishing our annual cash incentive plan, we try to provide an adequate level of incentive for the achievement of company, operating division and individual goals, while also limiting the maximum amount that may be earned so that executives do not feel the need to strive for attainment of unreasonable or unrealistic levels of performance. In this way, we believe the design of the annual cash incentive plan does not encourage our executives to take unnecessary or excessive risks that could harm the value of Old Second.
The other incentive compensation elements offered to our SEOs, with the exception of perquisites, are intended to reward performance over the long-term or are intended to focus our executives' attention on the long-term performance of the company. We feel there is little, if any, risk associated with our Employees 401(k) Savings Plan and Trust as it is a tax-qualified retirement plan that is subject to and maintained in accordance with the mandates of the Internal Revenue Code and the Employee Retirement Income Security Act. We believe our 2008 Equity Incentive Plan helps to tie our executives' interest more closely to those of our shareholders by giving them an equity interest in the company. We feel this equity interest in Old Second promotes a long-term focus among our executives on the financial success of the company. Finally, the Compensation Committee believes the deferred compensation arrangements (i.e., Amended and Restated Voluntary Deferred Compensation Plan for Executives, Compensation and Benefits Assurance Agreements) in place with respect to our SEOs encourage our executives to consider the long-term health of the company because, pursuant to the rules under the Internal Revenue Code and applicable guidance, those arrangements must be unfunded, unsecured promises to pay a benefit in the future. In the case of insolvency of the company, the executives participating in those arrangements would be treated as general unsecured creditors of Old Second, thus encouraging the executives to ensure a healthy organization remains after their tenure concluded.
With respect to the employee compensation plans, the TARP Risk Assessment has not resulted in a determination by the Compensation Committee that changes were necessary to bring such plans into compliance with the TARP rules. We believe the Company has adequate policies and procedures in place to balance and control any risk-taking that may be incentivized by the employee compensation plans. The committee further believes that such policies and procedures will work to limit the risk that any employee would manipulate reporting earnings in an effort to enhance his or her compensation.
The committee intends to continue, in accordance with its obligations under TARP, to periodically review and assess the SEO compensation plans and employee compensation plans to ensure that the risk-taking behavior incentivized by such plans is kept to an appropriate level. The committee will, as necessary, amend or discontinue any plan or revise any company policy or procedure to meet its obligations under TARP.
Submitted by:
Mr. Gerald Palmer, Chairman
Mr. Edward Bonifas
Mr. Marvin Fagel
Mr. William Kane
Mr. William Meyer
Members of the Compensation Committee
Summary Compensation Table
The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and our other most highly compensated officers who are considered executive officers and who served in such capacities during 2010:
Name and principal position (a) | Year (b) | Salary (c) | Bonus (d) | Stock awards(1) (e) | Option awards(2) (f) | Non-equity incentive plan compensation (g) | All other compensation(3) (i) | Total ($) (j) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
William B. Skoglund | 2010 | $ | 495,000 | — | $ | 279,300 | — | — | $ | 31,430 | $ | 805,730 | ||||||||||||||
Chairman and Chief | 2009 | 495,000 | — | 64,997 | — | — | 21,400 | 681,397 | ||||||||||||||||||
Executive Officer—Old Second; Chairman of Old Second National Bank | 2008 | 495,000 | — | — | — | — | 65,570 | 560,570 | ||||||||||||||||||
J. Douglas Cheatham | 2010 | $ | 247,000 | — | $ | 141,400 | — | — | $ | 20,634 | $ | 409,034 | ||||||||||||||
Chief Financial Officer | 2009 | 247,000 | — | 82,330 | — | — | 10,590 | 339,920 | ||||||||||||||||||
| 2008 | 247,000 | — | — | — | — | 35,840 | 282,840 | |||||||||||||||||||
James Eccher | 2010 | $ | 290,000 | — | $ | 175,000 | — | — | $ | 31,430 | $ | 496,430 | ||||||||||||||
Chief Executive Officer— | 2009 | 290,000 | — | 96,665 | — | — | 21,400 | 408,064 | ||||||||||||||||||
Old Second National Bank | 2008 | 290,000 | — | — | — | — | 41,752 | 331,751 | ||||||||||||||||||
Rodney Sloan(4) | 2010 | $ | 200,000 | — | $ | 90,200 | — | — | $ | 19,922 | $ | 340,122 | ||||||||||||||
Former Chief Risk Officer | 2009 | 200,000 | $ | 62,200 | 45,996 | — | — | 21,240 | 329,435 | |||||||||||||||||
of Old Second and Executive Vice President / Commercial Lending of Old Second National Bank | 2008 | 200,000 | — | 48,141 | — | $ | 62,200 | 31,632 | 341,972 | |||||||||||||||||
| | Mr. Skoglund | Mr. Cheatham | Mr. Eccher | Mr. Sloan | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
401(k) match | $ | 9,800 | $ | 9,800 | $ | 9,800 | $ | 8,450 | ||||||
Life insurance | 840 | 830 | 840 | 672 | ||||||||||
Automobile allowance | 10,800 | — | 10,800 | 10,800 | ||||||||||
Country club dues | 9,990 | 10,004 | 9,990 | — | ||||||||||
Total | $ | 31,430 | $ | 20,634 | $ | 31,430 | $ | 19,922 | ||||||
Grants of Plan-Based Awards
| | | | | | All Other Stock Awards; Number of Shares of Stock or Units | | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Estimated Future Payouts Under Non-equity Incentive Plan Awards(2) | Grant Date Fair Value of Stock and Option Awards | |||||||||||||||||
Name | Grant date | Threshold | Target | Maximum | ||||||||||||||||
William B. Skoglund | ||||||||||||||||||||
Cash Bonus Plan | $ | 111,375 | $ | 222,750 | $ | 278,437 | ||||||||||||||
Restricted Stock Award | 1/19/10 | 39,900 | (3) | $ | 279,300 | |||||||||||||||
J. Douglas Cheatham | ||||||||||||||||||||
Cash Bonus Plan | $ | 43,225 | $ | 86,450 | $ | 108,062 | ||||||||||||||
Restricted Stock Award | 1/19/10 | 20,200 | (3) | $ | 141,400 | |||||||||||||||
James Eccher | ||||||||||||||||||||
Cash Bonus Plan | $ | 58,000 | $ | 116,000 | $ | 145,000 | ||||||||||||||
Restricted Stock Award | 1/19/10 | 25,000 | (3) | $ | 175,000 | |||||||||||||||
Rodney Sloan(1) | ||||||||||||||||||||
Cash Bonus Plan | $ | 35,000 | $ | 70,000 | $ | 87,500 | ||||||||||||||
Restricted Stock Unit Award | 1/19/10 | 10,000 | (4) | $ | 20,200 | |||||||||||||||
Restricted Stock Unit Award | 9/21/10 | 10,000 | (4) | $ | 70,000 | |||||||||||||||
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning the exercisable and unexercisable stock options at December 31, 2010 held by the individuals named in the Summary Compensation Table:
| | Option Awards | Stock Awards | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name (a) | Number of securities underlying unexercised options (#) Exercisable(1) (b) | Number of securities underlying unexercised options (#) Unexercisable(1) (c) | Option exercise Price ($) (e) | Option expiration date (f) | Number of shares or units of stock that have not vested (#)(2) (g) | Market value of shares or units of stock that have not vested ($)(3) (h) | |||||||||||||
William B. Skoglund | 32,000 | 14.74 | 12/18/2011 | ||||||||||||||||
| 32,000 | 18.81 | 12/17/2012 | |||||||||||||||||
| 32,000 | 25.08 | 12/16/2013 | |||||||||||||||||
| 32,000 | 32.59 | 12/21/2014 | |||||||||||||||||
| 32,000 | 31.34 | 12/20/2015 | |||||||||||||||||
| 32,000 | 29.20 | 12/19/2016 | |||||||||||||||||
| 40,000 | 27.75 | 12/18/2017 | |||||||||||||||||
| 61,929 | $ | 105,279 | |||||||||||||||||
J. Douglas Cheatham | 12,000 | 14.74 | 12/18/2011 | ||||||||||||||||
| 12,000 | 18.81 | 12/17/2012 | |||||||||||||||||
| 12,000 | 25.08 | 12/16/2013 | |||||||||||||||||
| 12,000 | 32.59 | 12/21/2014 | |||||||||||||||||
| 12,000 | 31.34 | 12/20/2015 | |||||||||||||||||
| 12,000 | 29.20 | 12/19/2016 | |||||||||||||||||
| 15,000 | 27.75 | 12/18/2017 | |||||||||||||||||
| 31,192 | $ | 53,026 | |||||||||||||||||
James Eccher | 6,666 | 14.74 | 12/18/2011 | ||||||||||||||||
| 7,000 | 18.81 | 12/17/2012 | |||||||||||||||||
| 8,000 | 25.08 | 12/16/2013 | |||||||||||||||||
| 12,000 | 32.59 | 12/21/2014 | |||||||||||||||||
| 12,000 | 31.34 | 12/20/2015 | |||||||||||||||||
| 12,000 | 29.20 | 12/19/2016 | |||||||||||||||||
| 20,000 | 27.75 | 12/18/2017 | |||||||||||||||||
| 37,906 | $ | 64,440 | |||||||||||||||||
Rodney Sloan(4) | 7,000 | $ | 25.08 | 12/16/2013 | |||||||||||||||
| 7,000 | 32.59 | 12/21/2014 | |||||||||||||||||
| 1,946 | $ | 3,308 | |||||||||||||||||
| 26,141 | 44,440 | ||||||||||||||||||
Nonqualified Deferred Compensation
Name | Executive contributions in last FY ($) | Registrant contributions in last FY ($) | Aggregate earnings in last FY ($) | Aggregate withdrawals/ distributions ($) | Aggregate balance at last FYE ($) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
William B. Skoglund | $ | — | $ | — | $ | 29,980 | $ | — | $ | 448,151 | ||||||
J. Douglas Cheatham | — | — | 12,307 | — | 144,172 | |||||||||||
James Eccher | — | — | 13,010 | 45,666 | 75,062 | |||||||||||
Rodney Sloan(1) | — | — | 203 | 14,896 | — | |||||||||||
As described in the Compensation and Discussion Analysis section, we sponsor an executive deferred compensation plan, which is a means by which certain executives may voluntarily defer all or a portion of their salary and/or bonus without regard to the statutory limitations under tax qualified plans. The plan is funded by participant deferrals, company matching contributions and discretionary employer profit sharing contributions. Participants may invest their deferrals and the company contributions, if made, to the plan on their behalf in a mutual fund-like investment pool managed by an independent third party. Participants may elect to receive their plan balance in a lump sum or in up to 20 annual installments following retirement. Participants are not permitted to make a withdrawal from the plan during their employment, except in the event of hardship as approved by the plan's administrator.
Potential Payments Upon Termination or Change in Control
The TARP rules will prohibit Old Second from making "any payment" to the named executive officers "for departure from the company for any reason, except for payments for services performed or benefits accrued." Except in the case of an officer's death or disability, the TARP rules will generally prohibit the payment of any severance amounts and will also serve to restrict the ability of Old Second to accelerate the vesting of any compensation and/or benefits upon a termination of employment or a change in control.
The committee believes that, even though the TARP rules will prohibit such payments if a change in control or other termination of employment occurs during the TARP period, it is beneficial to understand the terms of the arrangements that would apply except for such TARP rules. Each of Mssrs. Skoglund, Cheatham, Eccher and Sloan entered into Compensation and Benefits Assurance Agreements with Old Second (each, an "Assurance Agreement"), which provide for payments and benefits to a terminating executive following a change in control of Old Second. In addition, our Cash Incentive Plan provides for termination related benefits. Other than the benefits provided by the Assurance Agreements and pursuant to the Cash Incentive Plan, none of our named executive officers will be entitled to any payments or benefits as a result of the occurrence of a change in control or as a result of a termination of employment in connection with a change in control. As noted above, effective January 14, 2011, Mr. Sloan resigned as Executive Vice President and Chief Risk Officer of Old Second. He did not receive any benefits pursuant to his Assurance Agreement as a result of his resignation.
Assurance Agreements. Other than as is provided in the Assurance Agreements, and except as is provided in accordance with the terms of our equity incentive plan and our cash incentive plan for executive officers, no named executive officer will be entitled to any payments or benefits as a result of the occurrence of a change in control or as a result of a termination of employment in connection with a change in control. The Assurance Agreements have an initial term of one-year and, unless earlier terminated by either party, will automatically renew for successive one-year periods. Upon the occurrence of a change in control, the terms of the Assurance Agreements shall automatically renew for a two-year period (three-year period, in the case of Mr. Skoglund) and terminate following such extended period. The Assurance Agreements provide that, in the case of: (i) a termination of employment by the company without "cause" within six months prior to, or 24 months (36 months, in the case of Mr. Skoglund) immediately following, a change in control, (ii) a termination of employment by an executive for "good reason" within 24 months (36 months, in the case of Mr. Skoglund) following a change in control, or (iii) a material breach by Old Second (or any successor) of a provision of the Assurance Agreement, an executive officer will be entitled to:
In exchange for the payments and benefits provided under the Assurance Agreements, the executive officers agree to be bound by a 24 month (36 month, in the case of Mr. Skoglund) restrictive
covenant. The restrictive covenant will prohibit the executive officers from using, attempting to use, disclosing or otherwise making known to any person or entity (other than Old Second's board of directors) confidential or proprietary knowledge or information which the executive officers may acquire in the course of their employment.
The Assurance Agreements define certain relevant terms, generally, as follows:
In exchange for the payments and benefits provided under the Assurance Agreements, the executive officers agree to be bound by confidentiality, non-competition and non-disclosure provisions.
Except for payments and benefits provided by the Assurance Agreements, all other payments and benefits provided to any NEO upon termination of his or her employment are the same as the payments and benefits provided to other eligible employees of Old Second.
The TARP rules do not prohibit payments made to a named executive officer (or his estate) where the officer's employment terminates as a result of his death or disability. Our Cash Incentive Plan provides for the payment of a pro rata cash bonus to be paid in the case of death or disability. Since no cash bonus was paid for 2010, there would have been no pro rata bonus as of December 31, 2010.
Retirement, Death and Disability. Generally speaking, a termination of employment due to retirement, death or disability does not entitle the named executive officers to any payments or benefits
that are not available to other employees. Following a termination due to death or disability, an employee (or his or her estate) shall be entitled to the following:
Also, it should be noted that, pursuant to existing agreements, as of the time of a termination of employment due to retirement, all unvested stock options shall become immediately 100% vested; however, this acceleration of vesting will not be true in the case of a retirement during the TARP period.
Acceleration of Vesting Upon a Change in Control. All employees, including the named executive officers, who receive stock options or restricted stock under our equity incentive plan will immediately vest in any unvested stock options and restricted stock held by such employees upon the occurrence of a change in control. Note, however, that this acceleration of vesting will not be true in the case of a retirement during the TARP period.
Each director of Old Second also serves as a director of Old Second National Bank. In 2009 and 2010, non-employee directors received $1,000 for every board meeting and $500 for every committee meeting attended if there were no other bank-level meetings held that day. Non-employee directors of Old Second National Bank received a $13,000 annual retainer. Due to increased responsibilities associated with mandates from Sarbanes-Oxley, the Lead Director and Compensation Committee Chairman, Mr. Palmer, received an $18,000 retainer in 2010 and the Audit Committee Chairman, Mr. Finn, received a $20,000 annual retainer in 2010, due to increased meetings and increased time spent on behalf of the Audit Committee. From 2005-2009, we annually awarded each non-employee director of Old Second Bancorp options to purchase 1,500 shares of our common stock, for a total of 7,500 in options. No additional options were granted in 2010. Additionally, in February 2009, we awarded 596 restricted stock units to each non-employee director and in January 2010, we awarded 1,200 restricted stock units to each non-employee director. Mr. Skoglund, the President and Chief Executive Officer of Old Second did not receive any board fees for his service on the holding company board, nor did he receive board fees for his service on the board of the Old Second National Bank. The following table sets forth the fees earned by each non-employee director and senior director in 2010:
Name | Fees earned or paid in cash ($)(1) | Stock awards ($)(2) | Option awards ($)(3) | Total ($) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Edward Bonifas | $ | 36,500 | $ | 8,400 | — | $ | 44,900 | ||||||
Marvin Fagel | 41,500 | 8,400 | — | 49,900 | |||||||||
Barry Finn | 49,000 | 8,400 | — | 57,400 | |||||||||
William Kane | 34,000 | 8,400 | — | 42,400 | |||||||||
John Ladowicz | 45,000 | 8,400 | — | 53,400 | |||||||||
William Meyer | 41,500 | 8,400 | — | 49,900 | |||||||||
Gerald Palmer | 47,000 | 8,400 | — | 55,400 | |||||||||
James C. Schmitz | 43,500 | 8,400 | — | 51,900 | |||||||||
Compensation Committee Interlocks and Insider Participation
During 2010, the members of the Compensation Committee were Messrs. Fagel, Kane, Meyer and Palmer. None of these individuals was an officer or employee of Old Second or its subsidiaries in 2010, and none of these individuals is a former officer or employee of either organization. In addition, during 2010, no executive officer served on the board of directors or compensation committee of any other corporation with respect to which any member of our Compensation Committee was engaged as an executive officer.
Transactions with Management
Our directors and executive officers and their associates were customers of, and had transactions with, Old Second and our subsidiaries in the ordinary course of business during 2010. Additional transactions may be expected to take place in the future. All outstanding loans, commitments to loan, transactions in repurchase agreements, certificates of deposit and depository relationships, in the opinion of management, were in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender. All such loans are approved by the subsidiary bank's board of directors in accordance with the bank regulatory requirements. Additionally, the Audit Committee considers other non-lending transactions between a director and Old Second, including its subsidiaries, to ensure that such transactions do not affect a director's independence.
Edward Bonifas, one of our directors, is the Vice President of Alarm Detection Systems, Inc., a firm providing electronic security and monitoring services to Old Second. In 2010, Old Second was billed $256,789.00 for the services provided by Alarm Detection Systems. Pursuant to its policies on such related-party transactions, the Audit Committee has reviewed and approved Old Second's transactions with Alarm Detection Systems, and the board has further determined that such transactions do not affect Mr. Bonifas's status as an independent director pursuant to the rules of the NASDAQ Stock Market.
PROPOSAL 2:
ADVISORY (NON-BINDING) VOTE ON EXECUTIVE COMPENSATION
Section 14A of the Securities Exchange Act of 1934, as created by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and the rules and regulations promulgated thereunder, require publicly traded companies, such as Old Second, to conduct a separate stockholder advisory vote to approve the compensation of certain executive officers, as disclosed pursuant to the Securities and Exchange Commission's compensation disclosure rules, commonly referred to as a "say-on-pay" vote. In addition, the American Recovery and Reinvestment Act of 2009 ("ARRA") includes a provision requiring participants in the TARP Capital Purchase Program, such as Old Second, to provide such say-on-pay votes so long as any obligation arising under the program remains outstanding.
Section 14A and the rules promulgated thereunder also require public companies to provide a separate stockholder vote regarding the frequency with which such say-on-pay votes should occur: every year, every two years, or every three years. However, companies subject to ARRA, such as Old Second, are required to provide a say-on-pay vote at any annual meeting of stockholders for which proxies are solicited for the election of directors (or a special meeting in lieu of such annual meeting), and are therefore exempt from the requirement to provide stockholders with a frequency vote for so long as they remain subject to ARRA.
In accordance with these requirements, we are providing stockholders with an advisory vote on the compensation of our executive officers, but no vote regarding the frequency of future such say-on-pay votes is required at this time.
As described in more detail in the Compensation Discussion and Analysis section of this proxy statement, the overall objectives of Old Second's compensation programs have been to align executive officer compensation with the success of meeting long-term strategic operating and financial goals. Stockholders are urged to read the Compensation Discussion and Analysis section of this proxy statement, as well as the Summary Compensation Table and other related compensation tables and narrative disclosure that describe the compensation of our named executive officers in 2010. The Compensation Committee and the board of directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis section are effective in implementing our compensation philosophy and achieving its goals, and that the compensation of our executive officers in fiscal 2010 reflects and supports these compensation policies and procedures.
The following resolution is submitted for stockholder approval:
"RESOLVED, that Old Second Bancorp, Inc.'s stockholders approve, on an advisory basis, its executive compensation as described in the section captioned 'Compensation Discussion and Analysis' and the tabular disclosure regarding named executive officer compensation under 'Executive Compensation' contained in the Company's proxy statement dated April 18, 2011."
Approval of this resolution requires the affirmative vote of holders of a majority of the shares of stock having voting power and present in person or represented by proxy at the annual meeting. While this say-on-pay vote is required, as provided in both the ARRA and Section 14A of the Securities Exchange Act, it is not binding on our board of directors and may not be construed as overruling any decision by the board. However, the Compensation Committee will take into account the outcome of the vote when considering future compensation arrangements.
The board of directors recommends stockholders vote to approve the overall compensation of our named executive officers by voting "FOR" this proposal. Proxies properly signed and returned will be voted "FOR" this proposal unless stockholders specify otherwise.
PROPOSAL 3:
RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
General
Stockholders are also being asked to adopt a resolution to ratify the appointment of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, 2011. If the stockholders do not ratify the selection of Plante & Moran, PLLC at the annual meeting, the Audit Committee will consider selecting another firm of independent public accountants. Representatives from Plante & Moran, PLLC are expected to be present at the annual meeting and will have an opportunity to make a statement, if they so desire, as well as to respond to appropriate questions that may be asked by stockholders.
Board Recommendation
The board of directors recommends that you vote your shares "FOR" the ratification of Plante & Moran, PLLC as our independent registered public accounting firm for the year ending December 31, 2011.
Change in Principal Accountants
Grant Thornton LLP served as our independent registered public accounting firm from 2006 through the completion of the audit of our fiscal year 2009 financial statements, auditing our financial statements and the report on such financial statements appearing in our Annual Report on Form 10-K for each fiscal year ending during that period. During 2009, the Audit Committee sought competitive proposals for audit services from a group of independent registered public accounting firms and the process resulted in a change in our independent registered public accounting firm for 2010 to Plante & Moran.
Grant Thornton's reports on our consolidated financial statements for fiscal years ending December 31, 2008 and 2009 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the 2009 and 2008 fiscal years, and through the date of Grant Thornton's dismissed as our independent registered public accounting firm, there were no reportable events described in Item 304(a)(1)(v) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Additionally, there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference thereto in its reports on our financial statements for such years.
We provided Grant Thornton with a copy of the foregoing disclosures set forth above and requested that Grant Thornton review such disclosures and furnish a letter addressed to the Securities and Exchange Commission stating whether or not Grant Thornton agrees with such statements. The response letter from Grant Thornton was attached as an Exhibit to the Form 8-K filed on March 8, 2010.
During the fiscal years ended December 31, 2008 and 2009, we did not consult Plante & Moran, PLLC with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or regarding any other matters or reportable events described under Item 304(a)(2) of Regulation S-K.
Accountant Fees
Audit Fees. The aggregate fees and expenses billed by Plante & Moran PLLC in connection with the audit of our annual financial statements and the related securities filings were $256,282 for 2010. The aggregate fees and expenses billed by Grant Thornton LLP in connection with the audit of our annual financial statements and the required securities filings were $343,000 for 2009.
Audit Related Fees. Audit related fees billed by Plante & Moran PLLC for 2010 were $14,500 and audit related fees billed by Grant Thornton LLP for 2009 were $27,300.
Tax Fees. There were no amounts for tax related services billed by Plante & Moran, PLLC for 2010 or by Grant Thornton LLP for 2009.
All Other Fees. There were no aggregate fees or pre-approved expenses billed by Plante & Moran, PLLC or Grant Thornton LLP for all other services rendered to us during the years ended December 31, 2010 and 2009.
The Audit Committee is solely responsible for the pre-approval of all audit and non-audit services to be provided by the independent accountants and the committee exercises its authority to do so in accordance with a policy that it has adopted. All services provided by Plante & Moran, PLLC or Grant Thornton LLP were approved pursuant to the pre-approval policy. The pre-approval policy is available on our website at www.oldsecond.com.
The Audit Committee assists the board in carrying out its oversight responsibilities for our financial reporting process, audit process and internal controls. The Audit Committee also reviews the audited financial statements and recommends to the board that they be included in our annual report on Form 10-K. The committee is comprised solely of directors who are independent under the rules of the Nasdaq Stock Market.
The Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2010 with our management and Plante & Moran, PLLC, the independent registered public accounting firm that audited our financial statements for that period. The committee has discussed with Plante & Moran, PLLC the matters required to be discussed by SAS 114 (The Auditor's Communication With Those Charged With Governance) and received and discussed the written disclosures and the letter from Plante & Moran, PLLC required by Public Company Accounting Oversight Board Rule 3526 (Communication with Audit Committees Concerning Independence). Based on the review and discussions with management and Plante & Moran, PLLC, the committee has recommended to the board that the audited financial statements be included in our annual report on Form 10-K for the fiscal year ending December 31, 2010 for filing with the Securities and Exchange Commission.
Respectfully,
Barry Finn, Chairman
Ed Bonifas
Marvin Fagel
John Ladowicz
James Schmitz
We will bear the cost of this proxy solicitation. Solicitation will be made primarily through the use of the mail, but our officers, directors or employees may solicit proxies personally or by telephone or telegraph without additional remuneration for such activity. In addition, we will reimburse brokerage houses and other custodians, nominees or fiduciaries for their reasonable expenses in forwarding proxy materials to the beneficial owner of such shares.
As of the date of this proxy statement, we do not know of any other matters to be brought before the annual meeting. However, if any other matters should properly come before the meeting, it is the intention of the persons named in the enclosed proxy to vote thereon in accordance with their best judgment.
By order of the board of directors  | ||
William B. Skoglund Chairman and Chief Executive Officer |
July 2, 2010Aurora, Illinois
April 18, 2011
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAIL THEIR PROXIES PROMPTLY
2011 ANNUAL MEETING LOCATION
Copley Theatre
Aurora Civic Center
8 East Galena Boulevard
Aurora, Illinois 60506
Complimentary self-parking is available at any of The Old Second National Bank's parking lots located off of River Street in downtown Aurora. The Civic Center is located approximately two blocks to the East of the Bank. Further parking sites are located on Galena Boulevard in the Hollywood parking garage.
General Directions
ANNEX IPRO FORMA FINANCIAL INFORMATION
From Chicago on 294 South
The following selected unaudited pro forma financial information has been presentedTake I 88 (West) to give effectLake Street exit (Route #31). Turn right, heading south on Lake Street. Turn left on Galena Blvd. after approximately 5 miles. Two blocks to Civic Center or one block to public parking garage, or one half block to Bank's parking lot.
From Aurora and show the pro forma impact of the offer to holders of the 7.80% trust preferred securitiesoutlying communities
From north, take Lake Street (Route #31), south, turn left on Galena Blvd., Civic Center 2 blocks east of Old Second Capital Trust INational Bank.
From south, take Lake Street (Route #31) north, turn right on Galena Boulevard, Civic Center 2 blocks to exchange shareseast of our common stock for such trust preferred securities on our balance sheet as of March 31, 2010 and also describes the pro forma impact of the Exchange Offer on our earnings for the fiscal year ended December 31, 2009 and the three-month period ended March 31, 2010.Old Second National Bank.
The unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily indicate the financial position or results of operations that would have been realized had the Exchange Offer been completed as of the dates indicated or that will be realized in the future if the Exchange Offer is consummated. The selected unaudited pro forma financial information has been derived from, and should be read in conjunction with, our historical consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2010 filed with the SEC, each of which is incorporated by reference into this proxy statement.
Our unaudited pro forma consolidated balance sheets as of March 31, 2010 have been presented as if the Exchange Offer had been completed on March 31, 2010 and our pro forma consolidated statements of income have been presented as if the Exchange Offer had been completed on January 1, 2009.
For purposes of the pro forma presentations for the year ended December 31, 2009 and the period ended and as of March 31, 2010, we have assumed that, for purposes of the Exchange Offer, the volume weighted average price of our common shares is $3.7989, which we determined assuming the pricing date for the determination of such price ended on and included June 18, 2010. We have also assumed that our stockholders will approve the TruPS Exchange Proposal such that we will not be limited in the number of shares that we may issue in the Exchange Offer to 2,750,000.
We have shown the pro forma impact of a "High Participation Scenario" and a "Low Participation Scenario" with respect to the Exchange Offer. The High Participation Scenario assumes the tender of 75% of the trust preferred securities and exchange of such securities for shares of our common stock. The Low Participation Scenario assumes the tender of 25% of the trust preferred securities and exchange of such securities for shares of our common stock. We assumed participation rates of 75% and 25% for the High Participation Scenario and Low Participation Scenario, respectively, based on the results of concluded similar exchange offers by similarly situated issuers. The inclusion of the Exchange Offer in the pro forma financial information does not necessarily indicate that such transaction is likely to occur.
We have further assumed that the Exchange Offer will occur on the terms announced on June 22, 2010, including the term limiting the aggregate number of shares that may be issued in the Exchange Offer to 6,000,000.
There can be no assurances that the foregoing assumptions will be realized in the future, including as to the amounts of trust preferred securities that will be tendered in the Exchange Offer.
OLD SECOND BANCORP, INC.PRO FORMA CONSOLIDATED BALANCE SHEETS(UNAUDITED)
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | ||||||||||||
ASSETS | |||||||||||||||||
Cash and due from banks | $ | 32,626 | $ | — | $ | 32,626 | $ | — | $ | 32,626 | |||||||
Interest bearing deposits with financial institutions | 63,977 | — | 63,977 | — | 63,977 | ||||||||||||
Federal funds sold | 1,077 | — | 1,077 | — | 1,077 | ||||||||||||
Short-term securities available-for-sale | — | — | — | — | — | ||||||||||||
Cash and cash equivalents | 97,680 | — | 97,680 | — | 97,680 | ||||||||||||
Securities available for sale | 210,542 | — | 210,542 | — | 210,542 | ||||||||||||
FHLB and Federal Reserve Bank stock | 13,044 | — | 13,044 | — | 13,044 | ||||||||||||
Loans held-for-sale | 8,958 | — | 8,958 | — | 8,958 | ||||||||||||
Loans (net) | 1,891,288 | — | 1,891,288 | — | 1,891,288 | ||||||||||||
Premises and equipment (net) | 57,294 | — | 57,294 | — | 57,294 | ||||||||||||
Other real estate owned | 49,855 | — | 49,855 | — | 49,855 | ||||||||||||
Mortgage servicing rights (net) | 2,821 | — | 2,821 | — | 2,821 | ||||||||||||
Goodwill | — | — | — | — | — | ||||||||||||
Core deposit and other intangible assets (net) | 6,372 | — | 6,372 | — | 6,372 | ||||||||||||
Bank-owned life insurance | 50,614 | — | 50,614 | — | 50,614 | ||||||||||||
Accrued interest and other assets | 109,217 | (831) | (1) | 108,386 | (277) | (1) | 108,940 | ||||||||||
TOTAL ASSETS | $ | 2,497,685 | $ | (831 | ) | $ | 2,496,854 | $ | (277 | ) | $ | 2,497,408 | |||||
LIABILITIES AND EQUITY CAPITAL | |||||||||||||||||
Liabilities | |||||||||||||||||
Non-interest bearing demand deposits | $ | 316,240 | $ | — | $ | 316,240 | $ | — | $ | 316,240 | |||||||
Interest bearing deposits | 1,848,222 | — | 1,848,222 | — | 1,848,222 | ||||||||||||
Total deposits | 2,164,462 | — | 2,164,462 | — | 2,164,462 | ||||||||||||
Securities sold under repurchase agreements | 21,319 | — | 21,319 | — | 21,319 | ||||||||||||
Federal funds purchased | — | — | — | — | — | ||||||||||||
Other short-term borrowings | 4,390 | — | 4,390 | — | 4,390 | ||||||||||||
Junior subordinated debentures | 58,378 | (23,700) | (2) | 34,678 | (7,900) | (2) | 50,478 | ||||||||||
Subordinated debt | 45,000 | — | 45,000 | — | 45,000 | ||||||||||||
Notes payable and other borrowings | 500 | — | 500 | — | 500 | ||||||||||||
Accured interest and other liabilities | 15,896 | 2,482 | (3) | 18,378 | 827 | (3) | 16,723 | ||||||||||
Total Liabilities | $ | 2,309,945 | $ | (21,218 | ) | $ | 2,288,727 | $ | (7,073 | ) | $ | 2,302,872 | |||||
Stockholders' Equity | |||||||||||||||||
Preferred stock | $ | 69,254 | $ | — | $ | 69,254 | $ | — | $ | 69,254 | |||||||
Common stock | 18,495 | 4,679 | (4) | 23,174 | 1,560 | (4) | 20,055 | ||||||||||
Additional paid-in capital | 64,315 | 13,096 | (5) | 77,411 | 4,365 | (5) | 68,680 | ||||||||||
Retained earnings | 132,436 | 2,612 | (6) | 135,048 | 871 | (6) | 133,307 | ||||||||||
Accumulated other comprehensive income (loss) | (1,916 | ) | — | (1,916 | ) | — | (1,916 | ) | |||||||||
Treasury stock | (94,844 | ) | — | (94,844 | ) | — | (94,844 | ) | |||||||||
Other equity capital components | — | — | — | — | — | ||||||||||||
Total Equity Capital | $ | 187,740 | $ | 20,387 | $ | 208,127 | $ | 6,796 | $ | 194,536 | |||||||
TOTAL LIABILITIES AND EQUITY CAPITAL | $ | 2,497,685 | $ | (831 | ) | $ | 2,496,854 | $ | (277 | ) | $ | 2,497,408 | |||||
Tier 1 leverage ratio | 7.88 | % | 7.75 | % | 7.84 | % | |||||||||||
Tier 1 capital to risk-weighted assets | 9.47 | % | 9.32 | % | 9.42 | % | |||||||||||
Total capital to risk-weighted assets | 12.93 | % | 12.77 | % | 12.88 | % | |||||||||||
Tangible common equity to tangible assets | 4.50 | % | 5.32 | % | 4.77 | % | |||||||||||
Tier 1 common equity to risk-weighted assets | 3.37 | % | 4.36 | % | 3.70 | % | |||||||||||
Footnotes
The following presents the pro forma impact of the Exchange Offer on certain statement of income items and earnings per share for the fiscal year ended December 31, 2009 and the three-month period ended March 31, 2010 as if the Exchange Offer had been completed on January 1, 2009 under the "High Participation Scenario" and "Low Participation Scenario."
OLD SECOND BANCORP, INC.PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | ||||||||||||
Interest and Dividend Income | |||||||||||||||||
Loans, including fees | $ | 26,632 | $ | — | $ | 26,632 | $ | — | $ | 26,632 | |||||||
Loans held-for-sale | 72 | — | 72 | — | 72 | ||||||||||||
Securities (taxable) | 1,238 | — | 1,238 | — | 1,238 | ||||||||||||
Securities (tax-exempt) | 745 | — | 745 | — | 745 | ||||||||||||
Dividends from Federal Reserve Bank and FHLB stock | 56 | — | 56 | — | 56 | ||||||||||||
Federal funds sold | — | — | — | — | — | ||||||||||||
Interest bearing deposits with financial institutions | 16 | — | 16 | — | 16 | ||||||||||||
Total interest and dividend income | 28,759 | 28,759 | 28,759 | ||||||||||||||
Interest Expense | |||||||||||||||||
Savings, NOW and money market deposits | 1,385 | — | 1,385 | — | 1,385 | ||||||||||||
Time deposits | 5,097 | — | 5,097 | — | 5,097 | ||||||||||||
Securities sold under repurchase agreements | 10 | — | 10 | — | 10 | ||||||||||||
Federal funds purchased | — | — | — | — | — | ||||||||||||
Other short-term borrowings | 18 | — | 18 | — | 18 | ||||||||||||
Junior subordinated debentures | 1,072 | (477) | (1) | 595 | (159) | (1) | 913 | ||||||||||
Subordinated debt | 195 | — | 195 | — | 195 | ||||||||||||
Notes payable and other borrowings | 1 | — | 1 | — | 1 | ||||||||||||
Total interest expense | 7,778 | (477 | ) | 7,301 | (159 | ) | 7,619 | ||||||||||
Net interest and dividend income | 20,981 | 477 | 21,458 | 159 | 21,140 | ||||||||||||
Provision for loan losses | 19,220 | — | 19,220 | — | 19,220 | ||||||||||||
Net interest and dividend income after provision | 1,761 | 477 | 2,238 | 159 | 1,920 | ||||||||||||
Noninterest Income | |||||||||||||||||
Trust income | 1,657 | — | 1,657 | — | 1,657 | ||||||||||||
Service charges on deposits | 2,018 | — | 2,018 | — | 2,018 | ||||||||||||
Secondary mortgage fees | 223 | — | 223 | — | 223 | ||||||||||||
Mortgage servicing income | 163 | — | 163 | — | 163 | ||||||||||||
Net gain on sales of mortgage loans | 1,157 | — | 1,157 | — | 1,157 | ||||||||||||
Securities losses (net) | (2 | ) | — | (2 | ) | — | (2 | ) | |||||||||
Increase in cash surrender value of BOLI | 429 | — | 429 | — | 429 | ||||||||||||
Debit card interchange income | 663 | — | 663 | — | 663 | ||||||||||||
Net interest rate swap gains and fees | 190 | — | 190 | — | 190 | ||||||||||||
Lease revenue from other real estate owned | 518 | — | 518 | — | 518 | ||||||||||||
Net gain (loss) on sale of other real estate owned | 151 | — | 151 | — | 151 | ||||||||||||
Other income | 1,100 | — | 1,100 | — | 1,100 | ||||||||||||
Total noninterest income | 8,267 | — | (2) | 8,267 | — | (2) | 8,267 | ||||||||||
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | ||||||||||||
Noninterest Expense | |||||||||||||||||
Salaries and employee benefits | $ | 9,025 | $ | — | $ | 9,025 | $ | — | $ | 9,025 | |||||||
Occupancy expense (net) | 1,525 | — | 1,525 | — | 1,525 | ||||||||||||
Furniture and equipment expense (net) | 1,639 | — | 1,639 | — | 1,639 | ||||||||||||
FDIC insurance | 1,428 | — | 1,428 | — | 1,428 | ||||||||||||
Amortization of core deposit and other intangible assets | 282 | — | 282 | — | 282 | ||||||||||||
Advertising expense | 256 | — | 256 | — | 256 | ||||||||||||
Legal fees | 559 | — | 559 | — | 559 | ||||||||||||
Other real estate expense | 6,428 | — | 6,428 | — | 6,428 | ||||||||||||
Other expense | 3,607 | — | 3,607 | — | 3,607 | ||||||||||||
Total noninterest income | 24,749 | — | 24,749 | — | 24,749 | ||||||||||||
(Loss) income before taxes | (14,721 | ) | 477 | (14,244 | ) | 159 | (14,562 | ) | |||||||||
Benefit for income taxes | (6,167 | ) | 200 | (3) | (5,967 | ) | 67 | (3) | (6,100 | ) | |||||||
Net (loss) income | (8,554 | ) | 277 | (8,277 | ) | 92 | (8,462 | ) | |||||||||
Preferred stock dividends | 1,128 | — | 1,128 | — | 1,128 | ||||||||||||
Net (loss) income available to comon shareholders | (9,682 | ) | 277 | (9,405 | ) | 92 | (9,590 | ) | |||||||||
Basic (loss) earnings per share | $ | (0.69 | ) | $ | (0.19 | ) | $ | (0.50 | ) | $ | (0.08 | ) | $ | (0.61 | ) | ||
Diluted (loss) earnings per share | $ | (0.69 | ) | $ | (0.19 | ) | $ | (0.50 | ) | $ | (0.08 | ) | $ | (0.61 | ) | ||
Average number of shares outstanding | 13,916,650 | 4,678,986 | 18,595,636 | 1,559,662 | 15,476,312 | ||||||||||||
Diluted average number of shares outstanding | 14,197,223 | 4,678,986 | 18,876,209 | 1,559,662 | 15,756,885 | ||||||||||||
Footnotes
OLD SECOND BANCORP, INC.PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Dec. 31, 2009 | Adjustments for Exchange Offer | Pro Forma Dec. 31, 2009 | Adjustments for Exchange Offer | Pro Forma Dec. 31, 2009 | ||||||||||||
Interest and Dividend Income | |||||||||||||||||
Loans, including fees | $ | 117,666 | $ | — | $ | 117,666 | $ | — | $ | 117,666 | |||||||
Loans held-for-sale | 947 | — | 947 | — | 947 | ||||||||||||
Securities (taxable) | 8,526 | — | 8,526 | — | 8,526 | ||||||||||||
Securities (tax-exempt) | 5,230 | — | 5,230 | — | 5,230 | ||||||||||||
Dividends from Federal Reserve Bank and FHLB stock | 225 | — | 225 | — | 225 | ||||||||||||
Federal funds sold | 17 | — | 17 | — | 17 | ||||||||||||
Interest bearing deposits with financial institutions | 39 | — | 39 | — | 39 | ||||||||||||
Total interest and dividend income | 132,650 | 132,650 | 132,650 | ||||||||||||||
Interest Expense | |||||||||||||||||
Savings, NOW and money market deposits | 6,459 | — | 6,459 | — | 6,459 | ||||||||||||
Time deposits | 32,886 | — | 32,886 | — | 32,886 | ||||||||||||
Securities sold under repurchase agreements | 140 | — | 140 | — | 140 | ||||||||||||
Federal funds purchased | 78 | — | 78 | — | 78 | ||||||||||||
Other short-term borrowings | 296 | — | 296 | — | 296 | ||||||||||||
Junior subordinated debentures | 4,287 | (1,907) | (1) | 2,380 | (636) | (1) | 3,651 | ||||||||||
Subordinated debt | 1,245 | — | 1,245 | — | 1,245 | ||||||||||||
Notes payable and other borrowings | 122 | — | 122 | — | 122 | ||||||||||||
Total interest expense | 45,513 | (1,907 | ) | 43,606 | (636 | ) | 44,877 | ||||||||||
Net interest and dividend income | 87,137 | 1,907 | 89,044 | 636 | 87,773 | ||||||||||||
Provision for loan losses | 96,715 | — | 96,715 | — | 96,715 | ||||||||||||
Net interest and dividend income after provision | (9,578 | ) | 1,907 | (7,671 | ) | 636 | (8,942 | ) | |||||||||
Noninterest Income | |||||||||||||||||
Trust income | 7,743 | — | 7,743 | — | 7,743 | ||||||||||||
Service charges on deposits | 8,779 | — | 8,779 | — | 8,779 | ||||||||||||
Secondary mortgage fees | 1,431 | — | 1,431 | — | 1,431 | ||||||||||||
Mortgage servicing income | 535 | — | 535 | — | 535 | ||||||||||||
Net gain on sales of mortgage loans | 9,824 | — | 9,824 | — | 9,824 | ||||||||||||
Securities gains (net) | 3,754 | — | 3,754 | — | 3,754 | ||||||||||||
Increase in cash surrender value of BOLI | 1,431 | — | 1,431 | — | 1,431 | ||||||||||||
Debit card interchange income | 2,522 | — | 2,522 | — | 2,522 | ||||||||||||
Net interest rate swap gains and fees | 1,058 | — | 1,058 | — | 1,058 | ||||||||||||
Lease revenue from other real estate owned | 393 | — | 393 | — | 393 | ||||||||||||
Net gain (loss) on sale of other real estate owned | 893 | — | 893 | — | 893 | ||||||||||||
Other income | 4,684 | — | 4,684 | — | 4,684 | ||||||||||||
Total noninterest income | 43,047 | — | (2) | 43,047 | — | (2) | 43,047 | ||||||||||
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Dec. 31, 2009 | Adjustments for Exchange Offer | Pro Forma Dec. 31, 2009 | Adjustments for Exchange Offer | Pro Forma Dec. 31, 2009 | ||||||||||||
Noninterest Expense | |||||||||||||||||
Salaries and employee benefits | $ | 39,577 | $ | — | $ | 39,577 | $ | — | $ | 39,577 | |||||||
Occupancy expense (net) | 6,068 | — | 6,068 | — | 6,068 | ||||||||||||
Furniture and equipment expense (net) | 6,929 | — | 6,929 | — | 6,929 | ||||||||||||
FDIC insurance | 5,387 | — | 5,387 | — | 5,387 | ||||||||||||
Amortization of core deposit and other intangible assets | 1,167 | — | 1,167 | — | 1,167 | ||||||||||||
Advertising expense | 1,256 | — | 1,256 | — | 1,256 | ||||||||||||
Impairment of goodwill | 57,579 | — | 57,579 | — | 57,579 | ||||||||||||
Other real estate expense | 8,835 | — | 8,835 | — | 8,835 | ||||||||||||
Other expense | 17,832 | — | 17,832 | — | 17,832 | ||||||||||||
Total noninterest income | 144,630 | — | 144,630 | — | 144,630 | ||||||||||||
(Loss) income before taxes | (111,161 | ) | 1,907 | (109,254 | ) | 636 | (110,525 | ) | |||||||||
Benefit for income taxes | (45,573 | ) | 782 | (3) | (44,791 | ) | 261 | (3) | (45,312 | ) | |||||||
Net (loss) income | (65,588 | ) | 1,125 | (64,463 | ) | 375 | (65,213 | ) | |||||||||
Preferred stock dividends | 4,281 | — | 4,281 | — | 4,281 | ||||||||||||
Net (loss) income available to comon shareholders | (69,869 | ) | 1,125 | (68,744 | ) | 375 | (69,494 | ) | |||||||||
Basic (loss) earnings per share | $ | (5.04 | ) | $ | (1.33 | ) | $ | (3.71 | ) | $ | (0.54 | ) | $ | (4.50 | ) | ||
Diluted (loss) earnings per share | $ | (5.04 | ) | $ | (1.33 | ) | $ | (3.71 | ) | $ | (0.54 | ) | $ | (4.50 | ) | ||
Average number of shares outstanding | 13,815,965 | 4,678,986 | 18,494,951 | 1,559,662 | 15,375,627 | ||||||||||||
Diluted average number of shares outstanding | 13,912,916 | 4,678,986 | 18,591,902 | 1,559,662 | 15,472,578 | ||||||||||||
Footnotes
Non-GAAP Financial Measures
We and investors often use the ratio of tangible common equity to tangible assets and the ratio of Tier 1 common equity to risk-weighted assets to assess capital and the quality of capital. In addition, our banking regulators use Tier l leverage ratio, Tier 1 capital to risk-weighted assets and total capital to risk-weighted assets to assess capital adequacy and safety and soundness. The foregoing ratios are not GAAP measures and, in the case of tangible common equity to tangible assets and Tier 1 common equity to risk-weighted assets, are not necessarily comparable to similar capital measures that may be presented by other companies.
The limitations associated with these measures are the risks that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to GAAP. The information provided reconciles GAAP measures and the ratios of Tier 1 capital, total capital, tangible common equity or Tier 1 common equity, as applicable, to average total assets, risk-weighted assets or tangible assets, as applicable.
OLD SECOND BANCORP, INC.NON-GAAP RECONCILIATIONS(UNAUDITED)
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
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| (in thousands of dollars) | Actual Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | ||||||||||||
Tier 1 capital | |||||||||||||||||
Total equity | $ | 187,740 | $ | 20,387 | $ | 208,127 | $ | 6,796 | $ | 194,536 | |||||||
Tier 1 adjustments: | |||||||||||||||||
Trust preferred securities | 56,625 | (23,700 | ) | 32,925 | (7,900 | ) | 48,725 | ||||||||||
Cumulative other comprehensive income | 1,916 | — | 1,916 | — | 1,916 | ||||||||||||
Goodwill and intangible assets | (6,372 | ) | — | (6,372 | ) | — | (6,372 | ) | |||||||||
Disallowed deferred tax assets | (44,221 | ) | — | (44,221 | ) | — | (44,221 | ) | |||||||||
Other | (282 | ) | — | (282 | ) | — | (282 | ) | |||||||||
Tier 1 capital | $ | 195,406 | $ | (3,313 | ) | $ | 192,093 | $ | (1,104 | ) | $ | 194,302 | |||||
Total regulatory capital | |||||||||||||||||
Tier 1 capital | $ | 195,406 | $ | (3,313 | ) | $ | 192,093 | $ | (1,104 | ) | $ | 194,302 | |||||
Tier 2 additions: | |||||||||||||||||
Allowable portion of allowance for loan losses | 26,292 | (11 | ) | 26,281 | (4 | ) | 26,288 | ||||||||||
Subordinated debt | 45,000 | — | 45,000 | — | 45,000 | ||||||||||||
Other Tier 2 capital components | (8 | ) | — | (8 | ) | — | (8 | ) | |||||||||
Total regulatory capital | $ | 266,690 | $ | (3,324 | ) | $ | 263,366 | $ | (1,108 | ) | $ | 265,582 | |||||
Tangible common equity | |||||||||||||||||
Total equity | $ | 187,740 | $ | 20,387 | $ | 208,127 | $ | 6,796 | $ | 194,536 | |||||||
Less: Preferred equity | 69,254 | — | 69,254 | — | 69,254 | ||||||||||||
Goodwill and intangible assets | 6,372 | — | 6,372 | — | 6,372 | ||||||||||||
Tangible common equity | $ | 112,114 | $ | 20,387 | $ | 132,501 | $ | 6,796 | $ | 118,910 | |||||||
| | | HIGH PARTICIPATION (75%) | LOW PARTICIPATION (25%) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands of dollars) | Actual Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | Adjustments for Exchange Offer | Pro Forma Mar. 31, 2010 | ||||||||||||
Tier 1 common equity | |||||||||||||||||
Tangible common equity | $ | 112,114 | $ | 20,387 | $ | 132,501 | $ | 6,796 | $ | 118,910 | |||||||
Tier 1 adjustments: | — | ||||||||||||||||
Cumulative other comprehensive income | 1,916 | — | 1,916 | — | 1,916 | ||||||||||||
Deferred tax liabilities on intangible assets | — | — | — | — | — | ||||||||||||
Other | (44,503 | ) | — | (44,503 | ) | — | (44,503 | ) | |||||||||
Tier 1 common equity | $ | 69,527 | $ | 20,387 | $ | 89,914 | $ | 6,796 | $ | 76,323 | |||||||
Tangible assets | |||||||||||||||||
Total assets | $ | 2,497,685 | $ | (831 | ) | $ | 2,496,854 | $ | (277 | ) | $ | 2,497,408 | |||||
Less: Goodwill and intangible assets | 6,372 | — | 6,372 | — | 6,372 | ||||||||||||
Tangible assets | $ | 2,491,313 | $ | (831 | ) | $ | 2,490,482 | $ | (277 | ) | $ | 2,491,036 | |||||
Total risk-weighted assets | |||||||||||||||||
On balance sheet | $ | 1,995,403 | $ | (841 | ) | $ | 1,994,562 | $ | (281 | ) | $ | 1,995,122 | |||||
Off balance sheet | 67,424 | — | 67,424 | — | 67,424 | ||||||||||||
Total risk-weighted assets | $ | 2,062,827 | $ | (841 | ) | $ | 2,061,986 | $ | (281 | ) | $ | 2,062,546 | |||||
Average assets | |||||||||||||||||
Total average assets | $ | 2,479,067 | $ | (831 | ) | $ | 2,478,236 | $ | (277 | ) | $ | 2,478,790 | |||||
Tier 1 leverage ratio | 7.88 | % | 7.75 | % | 7.84 | % | |||||||||||
Tier 1 capital to risk-weighted assets | 9.47 | % | 9.32 | % | 9.42 | % | |||||||||||
Total capital to risk-weighted assets | 12.93 | % | 12.77 | % | 12.88 | % | |||||||||||
Tangible common equity to tangible assets | 4.50 | % | 5.32 | % | 4.77 | % | |||||||||||
Tier 1 common equity to risk-weighted assets | 3.37 | % | 4.36 | % | 3.70 | % | |||||||||||
PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE SPECIALANNUAL MEETING OF STOCKHOLDERS OF
OLD SECOND BANCORP, INC. TO BE HELD ON AUGUST 2, 2010MAY 17, 2011
The undersigned hereby appoints Barry Finn, Townsend Way, Jr.William Meyer, Gerald Palmer, and James E. Benson,C. Schmitz, or any two of them acting in the absence of the other, the undersigned’s attorneys and proxies, with full power of substitution, to vote all shares of common stock of Old Second Bancorp, Inc., which the undersigned is entitled to vote, as fully as the undersigned could do if personally present, at the SpecialAnnual Meeting of Stockholders to be held at the main office of Old Second National Bank, 37 South River Street,Copley Theatre, North Island Center, 8 East Galena Boulevard, Aurora, Illinois on the 217ndth day of August, 2010,May, 2011 at 11:00 a.m., localcentral time, and at any and all adjournmentspostponements or postponementsadjournments of the meeting.Unless a contrary instruction is provided, this proxy when properly executed will be voted FOR each of the proposals set forth below.
1.To approve an amendment to Old Second Bancorp, Inc.’s Restated CertificateElection of Incorporation to increase the number of authorized shares of common stock from 40,000,000 to 60,000,000.Directors:
FOR all nominees listed below (except as marked to the contrary below) | WITHHOLD AUTHORITY |
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(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NOMINEE’S NAME IN THE LIST BELOW.)
(Term Expires 2014)
Barry Finn, William Kane, John Ladowicz
2. To approveApproval, in a non-binding, advisory vote, of our executive compensation disclosed in the issuance of up to 6,000,000 shares of Old Second Bancorp, Inc.’s, common stock in exchangeProxy Statement for the outstanding trust preferred securitiesAnnual Meeting of Old Second Capital Trust I and Old Second Capital Trust II, in accordance with Nasdaq Marketplace Rule 5635.Stockholders.
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3. To approve a proposal to grantRatification and approval of the boardselection of directors authority to adjourn, postpone or continuePlante & Moran, PLLC as our independent registered public accountants for the special meeting.fiscal year ending December 31, 2011.
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4. In accordance with their discretion, upon all other matters that may properly come before said meeting and any adjournmentspostponements or postponementsadjournments of the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATIONNOMINEES LISTED UNDER PROPOSAL 1, FOR THE ISSUANCEAPPROVAL OF UP TO 6,000,000 SHARES OF COMMON STOCKOUR EXECUTIVE COMPENSATION IN EXCHANGE FOR OUTSTANDING TRUST PREFERRED SECURITIES UNDER PROPOSAL 2 AND FOR THE GRANTRATIFICATION OF AUTHORITY TO THE BOARD OF DIRECTORS TO ADJOURN, POSTPONE OR CONTINUE THE SPECIAL MEETING.AUDITORS IN PROPOSAL 3.
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NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ABOVE. ALL JOINT OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE ENCLOSED ENVELOPE.
(over)
PLEASE INDICATE WHETHER YOU WILL BE ATTENDING THE SPECIALANNUAL MEETING TO BE HELD ONAUGUST 2, 2010: MAY 17, 2011:
The meeting will be held at the main officeCopley Theatre, Aurora Civic Center, 8 East Galena Boulevard, Aurora, Illinois. (Please see the last page of Old Second National Bank, 37 South River Street, Aurora, Illinois 60506, at 11:00 a.m. on August 2, 2010.the Proxy Statement for directions to the meeting).
o Yes, I plan to attend the meeting.
o No, I do not plan to attend the meeting.
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