SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
Cheviot Financial Corp.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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March 26, 2005
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Cheviot Financial Corp. (the "Company"). The Annual Meeting will be held at
Cheviot Savings Bank, 3723 Glenmore Avenue, Cheviot, Ohio 45211 at 3:00 p.m.
(local time) on April 26, 2005.
The enclosed Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted.
The Annual Meeting is being held so that shareholders will be given an
opportunity to elect directors, ratify the selection of Grant Thornton LLP as
the Company's independent auditor's and approve the 2005 Stock-Based Incentive
Plan.
The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interest of the Company and its
shareholders. For the reasons set forth in the proxy statement, the Board of
Directors unanimously recommends a vote "FOR" the proposals presented at the
Annual Meeting.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Annual Meeting. Your vote is important regardless of the number of shares that
you own. Voting by proxy will not prevent you from voting in person but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Thomas J. Linneman
Thomas J. Linneman
President and Chief Executive Officer
CHEVIOT FINANCIAL CORP.
3723 GLENMORE AVENUE
CHEVIOT, OHIO 45211
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On April 26, 2005
To Our Shareholders:
The Annual Meeting of Shareholders of Cheviot Financial Corp. (the
"Company") will be held on Tuesday, April 26, 2005, at 3:00 p.m. Eastern Time at
Cheviot Savings Bank, 3723 Glenmore Avenue, Cheviot, Ohio 45211, for the
following purposes:
1. To elect two directors each to serve a three-year term;
2. To ratify the selection of Grant Thornton LLP as the Company's
independent auditors;
3. To approve the 2005 Stock-Based Incentive Plan; and
4. To consider any other matters that may properly come before the
meeting or any adjournments or postponements of the meeting.
The Board of Directors has established the close of business on March
15, 2005 as the record date (the "Record Date") for determining the shareholders
entitled to notice of, and to vote at, the Annual Meeting or any adjournment or
postponement of the Annual Meeting. Only shareholders of record at the close of
business on the Record Date are entitled to vote on matters to be presented at
the Annual Meeting.
YOUR VOTE IS IMPORTANT. PLEASE READ THE ENCLOSED MATERIAL AND VOTE YOUR
SHARES. YOU CAN VOTE BY MAILING YOUR COMPLETED AND SIGNED PROXY OR VOTING
INSTRUCTION CARD(S) IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ARE THE
SHAREHOLDER OF RECORD FOR YOUR SHARES, YOU CAN ALSO VOTE AT THE ANNUAL MEETING.
Your prompt response will help reduce proxy costs and will help you
avoid receiving follow-up telephone calls or mailings.
We have enclosed the Proxy Statement with this notice of the Annual
Meeting.
By Order of the Board of Directors
/s/ James E. Williamson
James E. Williamson
Executive Secretary
March 26, 2005
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IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITH THE UNITED STATES.
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TABLE OF CONTENTS
PAGE
PROXY STATEMENT................................................................1
PROPOSAL 1 - ELECTION OF DIRECTORS.............................................3
PROPOSAL 2 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR................13
PROPOSAL 3 -- APPROVAL OF 2005 STOCK-BASED INCENTIVE PLAN.....................14
STOCK PERFORMANCE GRAPH.......................................................16
OTHER MATTERS.................................................................18
2005 STOCK-BASED INCENTIVE PLAN .......................................Exhibit A
PROXY STATEMENT
OF
CHEVIOT FINANCIAL CORP.
3723 GLENMORE AVENUE
CHEVIOT, OHIO 45211
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ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2005
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This Proxy Statement and the accompanying proxy or voting instruction
card are furnished to the shareholders of Cheviot Financial Corp. (the
"Company") in connection with the solicitation of proxies by the Board of
Directors for use at the Annual Meeting of Shareholders (the "Annual Meeting").
The Annual Meeting will be held on Tuesday, April 26, 2005, at 3:00 p.m. Eastern
Daylight Savings Time at Cheviot Savings Bank, 3723 Glenmore Avenue, Cheviot,
Ohio 45211. The Notice of Annual Meeting of Shareholders, this Proxy Statement,
the accompanying proxy or voting instruction card, and the Annual Report to
Shareholders of the Company for the year ended December 31, 2004 are first being
mailed on or about March 26, 2005 to the Company's shareholders of record on
March 15, 2005 (the "Record Date").
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REVOCATION OF PROXIES
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A shareholder who delivers a signed proxy pursuant to this solicitation
may revoke it at any time before it is exercised by (i) executing and delivering
a later dated proxy card to the President of the Company prior to the Annual
Meeting, (ii) delivering written notice of revocation of the proxy to the
President of the Company prior to the Annual Meeting, or (iii) attending and
voting in person at the Annual Meeting. Attendance at the Annual Meeting, in and
of itself, will not constitute a revocation of a proxy. Proxies will be voted as
instructed by the shareholder or shareholders granting the proxy. Unless
contrary instructions are specified, if the enclosed proxy is executed and
returned (and not revoked) prior to the Annual Meeting, the shares of common
stock, $0.01 par value per share (the "Common Stock"), of the Company
represented thereby will be voted: (1) FOR the election of the two directors
nominated by the Board of Directors; (2) FOR the ratification of the selection
of independent auditor for fiscal year 2005; (3) FOR the approval of the 2005
Stock-Based Incentive Plan; and (4) in accordance with the best judgment of the
named proxies on any other matters properly brought before the Annual Meeting.
The Company is the parent company of Cheviot Savings Bank (the "Bank").
The Company is the majority-owned subsidiary of Cheviot Mutual Holding Company
("Cheviot Mutual"). Since Cheviot Mutual owns 55.0% of the Company's outstanding
shares of Common Stock, the votes cast by Cheviot Mutual will be determinative
in the voting on Proposal 1 (election of directors) and Proposal 2 (ratification
of selection of independent auditors).
The presence, in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock is required to constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and "broker
non-votes" (shares held by a broker or nominee that does not have the authority,
either express or discretionary, to vote on a particular matter) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business at the Annual Meeting. The two nominees for election to the Board of
Directors who receive the greatest number of affirmative votes cast at the
Annual Meeting will be elected as directors. Approval of the ratification of
auditors requires that the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the proposal. The approval of
the 2005 Stock-Based Incentive Plan requires the affirmative vote of (a) a
majority of the votes eligible to be cast at the Annual Meeting, and (b) a
majority of the votes cast at the annual meeting by shareholders other than
Cheviot Mutual. Abstentions and broker non-votes will not be counted as votes
cast in the election of nominees for director or other proposals. Proxies and
ballots will be received and tabulated by The Registrar and Transfer Company,
the Company's transfer agent for the Annual Meeting.
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REVOCATION OF PROXIES
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As of the Record Date, the Company had 9,918,751 shares of Common Stock
issued and outstanding of which Cheviot Mutual owns 5,455,313 shares. As
provided in the Charter of the Company, for a period of five years from January
5, 2004, the date of the completion of the Company's stock offering, no person,
except Cheviot Mutual, is permitted to beneficially own in excess of 10% of the
Company's outstanding Common Stock (the "Limit"), and any shares acquired in
violation of this Limit are not entitled to any vote. A person or entity is
deemed to own shares owned by an affiliate of, as well as persons acting in
concert with, such person or entity.
The expense of preparing, printing and mailing this Proxy Statement and
the proxies solicited hereby will be borne by the Company. Proxies will be
solicited by mail and may also be solicited by directors, officers and other
employees of the Company, without additional remuneration, in person or by
telephone or facsimile transmission. The Company will also request brokerage
firms, banks, nominees, custodians and fiduciaries to forward proxy materials to
the beneficial owners of shares of Common Stock as of the Record Date and will
reimburse such persons for the cost of forwarding the proxy materials in
accordance with customary practice. Your cooperation in promptly voting your
shares and submitting your proxy by completing and returning the enclosed proxy
card will help to avoid additional expense.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
as of the Record Date by (i) each beneficial owner of more than five percent
(5%) of such outstanding stock, (ii) each director and each executive officer,
and (iii) all directors and executive officers of the Company as a group. Except
as otherwise noted, the beneficial owners, directors and executive officers
listed have sole voting and investment power with respect to shares beneficially
owned by them.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP PERCENT OF CLASS(2)
Cheviot Mutual Holding Company ...................................... 5,455,313 55.0%
Cheviot Financial Corp. Employee Stock Ownership Plan (the "ESOP")... 357,075(3) 3.6%
Gerhard H. Hillmann ................................................. - *
Edward L. Kleemeier ................................................. 11,428(4) *
Thomas J. Linneman .................................................. 28,659(5) *
John T. Smith ....................................................... 15,000(6) *
Robert L. Thomas .................................................... 10,200 *
James E. Williamson ................................................. 7,299(7) *
Kevin M. Kappa ...................................................... 23,138(8) *
Jeffrey J. Lenzer .................................................. 11,055(9) *
Scott T. Smith....................................................... 26,822(10) *
All Directors and Executive Officers as a Group (9 persons).......... 133,601(11) 1.3%
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* Indicates beneficial ownership of less than 1%.
(1) The address of all persons listed is: c/o Cheviot Financial Corp., 3723
Glenmore Avenue, Cheviot, Ohio 45211.
(2) Based on 9,918,751 shares of Common Stock outstanding on March 15, 2005.
As of that date, no options were issued or outstanding.
(3) These shares are held in a suspense account and are allocated among
participants annually on the basis of compensation as the ESOP debt is
repaid. As of the Record Date, 35,708 shares have been allocated to ESOP
participants. Messrs. Thomas J. Linneman and Scott T. Smith have been
appointed to serve as ESOP Administrator for the ESOP. First Bankers
Trust is the ESOP Trustee. The ESOP Committee directs the vote of all
unallocated shares and shares allocated to participants if timely voting
directions are not received for such shares. Messrs. Linneman and Smith
disclaim beneficial ownership for share voted by the ESOP Committee.
(4) These shares include 1,428 shares of Common Stock owned by jointly Mr.
Kleemeier's spouse and a third person for which he does not have voting
or investment power and disclaims beneficial ownership.
(5) These shares include 12,500 shares of Common Stock owned by Mr.
Linneman's spouse for which he does not have voting or investment power
and disclaims beneficial ownership and 3,659 ESOP shares over which Mr.
Linneman has shared voting power, but no investment power.
(6) These shares include (a) 2,500 shares of Common Stock owned by Mr.
Smith's spouse for which he does not have voting or
(Footnotes continued on next page)
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investment power and disclaims beneficial ownership and (b) 12,500
shares of Common Stock held for the benefit of Mr. Smith under the
Hawkstone Retirement Plan.
(7) These shares include 877 shares of Common Stock owned by Mr.
Williamson's spouse for which he does not have voting or investment
power.
(8) These shares include (a) 8,385 shares of Common Stock owned by Mr.
Kappa's spouse for which he does not have voting or investment power and
disclaims beneficial ownership and (b) 2,640 shares of Common Stock
allocated to Mr. Kappa's account under the Cheviot Savings Bank 401(k)
Retirement Savings Plan and (c) 2,253 ESOP shares.
(9) These shares include 4,402 shares of Common Stock owned by Mr. Lenzer's
spouse for which he does not have voting or investment power and
disclaims beneficial ownership and 2,251 ESOP shares.
(10) These shares include 11,750 shares of Common Stock owned by Mr. Smith's
spouse for which he does not have voting or investment power, 1,500
shares owned by Mr. Smith's children and 1,822 ESOP shares.
(11) These shares include shares of Common Stock held directly as well as by
spouses or minor children, in trust and other indirect ownership. In the
aggregate, the directors and executive officers of the Company disclaim
beneficial ownership of and do not have voting or investment power for
43,342 of the shares.
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Company's Charter requires that the Board of Directors be divided
into three classes, as nearly equal in number as possible, each class to serve
for a three-year period, with approximately one-third of the directors elected
each year. The Board of Directors currently consists of six members. Two
directors will be elected at the Annual Meeting, each to serve for a three-year
term expiring in 2008 and until their successors have been elected and
qualified.
The Board has nominated John T. Smith and Robert Thomas, each of whom is
an incumbent director, as directors, to serve until the 2008 Annual Meeting of
Shareholders. Information regarding the business experience of each nominee as
well as each of the other directors is provided below.
Unless otherwise directed, the persons named in the proxy intend to vote
all proxies FOR the election of Messrs. Smith and Thomas to the Board of
Directors. The nominees have consented to serve as directors of the Company if
elected. If, at the time of the Annual Meeting, any of the nominees is unable or
declines to serve as a director, the discretionary authority provided in the
enclosed proxy will be exercised to vote for a substitute candidate designated
by the Board of Directors. The Board of Directors has no reason to believe any
of the nominees will be unable or will decline to serve as a director.
Each director, including the director nominees, who was a director of
the Bank on the Reorganization Date continued to serve as a director of the Bank
and became a director of each of the Company and Cheviot Mutual as of the
Reorganization Date.
DIRECTOR NOMINEES
(TERMS EXPIRE AT THE 2005 ANNUAL MEETING OF SHAREHOLDERS)
JOHN T. SMITH, 60, is the Secretary/Treasurer of Hawkstone Associates,
Inc. dba Triumph Energy Corp., a gasoline wholesaler and retailer. Mr. Smith is
the father of Scott T. Smith, the Chief Financial Officer of the Company,
Cheviot Mutual and the Bank. Mr. Smith has served as a director of the Bank
since 1995.
ROBERT THOMAS, 62, is the owner/operator of R&R Quality Meats & Catering
in Cheviot, Ohio. Mr. Thomas has served as a director of the Bank since 1989.
DIRECTORS NOT STANDING FOR ELECTION
(TERMS EXPIRE AT THE 2006 ANNUAL MEETING OF SHAREHOLDERS)
GERHARD H. HILLMANN, 69, is the retired Manager of Field Operations for
Fletcher Homes, a Cincinnati, Ohio area home builder. Mr. Hillmann has served as
a director of the Bank since 1994.
THOMAS J. LINNEMAN, 51, is the President and Chief Executive Officer of
the Company and Cheviot Mutual since the Reorganization Date and of the Bank
since 1998. Mr. Linneman has served as a director of the Bank since 1998.
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(TERMS EXPIRE AT THE 2007 ANNUAL MEETING OF SHAREHOLDERS)
EDWARD L. KLEEMEIER, 70, is a retired District Fire Chief for the City
of Cincinnati, Ohio. Mr. Kleemeier has served as a director of the Bank since
1978.
JAMES E. WILLIAMSON, 60, is the District Administrator (Director) of Oak
Hills Local School District in Cincinnati, Ohio since 2000. Mr. Williamson was a
high school principal in Cincinnati, Ohio from 1989-2000. Mr. Williamson also
serves as the Executive Secretary of Cheviot Mutual and the Company. Mr.
Williamson has served as a director of the Bank since 1997.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF MESSRS.
SMITH AND THOMAS TO THE BOARD OF DIRECTORS.
BOARD STRUCTURE AND COMPENSATION
The Company qualifies as a "controlled company" under NASDAQ Marketplace
Rules because more than 50% of our voting power is held by Cheviot Mutual.
Therefore, the Company is exempt from the NASDAQ Marketplace Rules requiring (a)
the Company to have a majority of independent directors on the Board, (b) any
compensation committee and nominating committee to be composed solely of
independent directors, (c) the compensation of executive officers being
determined by a majority of the independent directors or a compensation
committee composed solely of independent directors, and (d) the election or
recommendation of director nominees for the Board's selection, either by a
majority of the independent directors or a nominating committee composed solely
of independent directors.
AFFIRMATIVE DETERMINATIONS REGARDING DIRECTOR INDEPENDENCE AND OTHER MATTERS
Based on information supplied to it by the directors, the Board of
Directors has determined each of the following directors to be an "independent
director" as such term is defined in the NASDAQ Marketplace Rules:
Gerhard H. Hillmann Robert Thomas
Edward L. Kleemeier James E. Williamson
In this proxy statement these four directors are referred to
individually as an "Independent Director" and collectively as the "Independent
Directors." The Independent Directors constitute a majority of the Board of
Directors. Although Mr. Smith is not an employee of the Company or any of its
affiliates, Mr. Smith is determined not to be independent because of a family
relationship; Mr. Smith is the father of Scott T. Smith, the Chief Financial
Officer of the Company, Cheviot Mutual and the Bank.
The Board of Directors has also determined that each member of the Audit
Committee of the Board meets the independence requirements applicable to that
committee prescribed by the NASDAQ Marketplace Rules, the Securities and
Exchange Commission ("SEC") and the Internal Revenue Service.
COMPENSATION OF DIRECTORS
The Board of the Company, Cheviot Mutual and the Bank are comprised of
the same persons. To date, the Bank has compensated its directors for their
services. The Company has not paid any additional compensation to the directors
for this service, though it may choose to do so in the future.
COMPENSATION OF NON-EMPLOYEE DIRECTORS. During the year ended December
31, 2004, directors received a $14,000 annual retainer for board membership (on
the Bank) and an additional $3,000 retainer for membership on a committee.
COMPENSATION OF DIRECTORS WHO ARE ALSO EMPLOYEES. During the year ended
December 31, 2004, Mr. Linneman, the only director who is also an employee of
the Company or the Bank, received $14,000 in
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compensation for board membership (on the Bank). Mr. Linneman did not receive
any compensation for committee membership.
DIRECTORS DEFERRED COMPENSATION PLAN. The Bank adopted, effective March
31, 2003, a directors deferred compensation plan as an additional benefit to its
directors. Each person who was a member of the board on March 31, 2003 became a
participant in the plan on such date. Any subsequent member of the board shall
become a participant in the plan only if he or she is a member of the board of
directors on the last day of the first plan year that ends after the date on
which he or she completes ten years of service, which date is designated as his
or her participation date in the plan. After becoming a participant under the
plan, a person remains a participant until the entire balance of his or her
account under the plan has been paid or forfeited under the terms of the plan.
The plan provides for the payment of benefits to the Bank's directors
upon termination of service with the Bank and vesting in the compensation plan
after ten years of service. The deferred compensation liability reflects the
current value of the plan obligation based on a present value of providing a sum
certain of $11,400 per year to each participant for ten years after retirement.
The present value was determined using an interest rate of 7.00% and the
relative time to retirement for each participant. The Bank recorded expense of
approximately $19,959 for the directors deferred compensation plan for the year
ended December 31, 2004.
A participant shall forfeit the entire balance of his or her account and
any right to future payment of a plan benefit if he or she violates certain
standards of conduct as set forth in the plan.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company currently has six directors and
the following two committees: (1) Audit Committee and (2) Nominating Committee.
The Board of Directors has the responsibility for establishing broad corporate
policies and for the overall performance of the Company, although it is not
involved in the day-to-day operating details. Directors are kept informed of the
Company's business by various reports and documents sent to them, as well as by
operating and financial reports presented at Board and Committee meetings by the
Chief Executive Officer and other officers.
The directors of the Company also serve as the Board of Directors for
the Bank and did so prior to the Reorganization Date. For the year ended
December 31, 2004 the Board of Directors held 26 regular and one special
meeting. No director attended fewer than 75 percent of the total meetings of the
Board of Directors of the Company and committees on which such director served.
AUDIT COMMITTEE. The Audit Committee consists of three of the
Independent Directors, Messrs. Hillmann, Thomas and Williamson. The committee
engages and dismisses the Company's independent auditors, oversees the Company's
financial reporting process, evaluates the adequacy of the Company's internal
controls, reviews the Company's compliance with federal, state and local laws
and regulations, and monitors the legal and ethical conduct of Company
management and employees. In addition, the committee reviews the Company's
financial affairs, including its capital structure, borrowing limits, financing
of corporate acquisitions and the performance of its benefit plans. The Audit
Committee membership meets the audit committee composition requirements of the
NASDAQ Marketplace Rules. The Board of Directors has determined that, at the
present time, it does not have an audit committee financial expert serving on
the audit committee because none of the present committee members meet the
criteria set forth in the SEC rules necessary to qualify as a financial expert.
The Audit Committee also serves as the audit committee for the board of
directors of the Bank.
The Audit Committee of the Company has met 9 times since the
Reorganization Date and the audit committee for the Bank met 4 times in 2003.
Pursuant to applicable regulations, the Audit Committee has adopted a written
charter.
NOMINATING COMMITTEE. The Nominating Committee consists of the entire
Board of Directors, as required by the Company's Bylaws, including both
independent and non-independent directors. As a "controlled company," the
Company is not required to have the Nominating Committee comprised solely of the
Independent Directors. The committee recommends nominees for the election of
directors and officers, monitors the performance of the other Board committees,
and informs the Board of shareholder concerns. The Nominating Committee does not
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operate under a formal written charter. The Company does not pay any third party
a fee to assist it in identifying and evaluating potential nominees. The
Nominating Committee of the Company met one time during 2004.
"COMPENSATION COMMITTEE." The Company's Board of Directors does not have
a Compensation Committee because the Company does not independently compensate
its executive officers, directors or employees. These persons are compensated by
the Bank. As a "controlled company," the Company is not required to adhere to
the NASDAQ Marketplace Rules with respect to the Board's determination of the
compensation of officers.
OTHER BOARD COMMITTEES OF THE BANK. In addition to the committees of the
Board of the Company, the board of directors of the Bank also maintains a loan
committee and a compensation committee. The loan committee has the principal
responsibility of approving certain loans to be provided by the Bank in its
ordinary course of business. Since the Company does not independently compensate
its executive officers, directors or employees, the compensation committee has
the principal responsibility for setting and reviewing the compensation benefits
provided to officers and employees of the Bank, who are also employees of the
Company.
EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
The non-management directors of the Company will meet in executive
session without management present from time to time as deemed necessary by the
non-management directors, but at least two times per year. Shareholders or other
interested parties may communicate with the presiding director or to the
non-management directors as a group.
THE DIRECTOR NOMINATIONS PROCESS
The purpose of the Nominating Committee is to consider both management
and shareholder recommended candidates for possible inclusion in the Company's
recommended slate of director nominees (the "Candidates").
MINIMUM CRITERIA FOR CANDIDATES. At a minimum, each Candidate must (a)
agree to accept the nomination for Board candidacy, (b) meet the standards of
independence established by NASDAQ, and (c) meet all other applicable laws,
rules, and regulations related to service as a Director of the Company.
DESIRABLE QUALITIES AND SKILLS. In addition, the Nominating Committee
will consider the following skills and characteristics of Candidates: (a)
judgment, (b) diversity, (c) experience, (d) skills, (e) accountability and
integrity, (f) financial literacy, (g) industry knowledge, (h) other board
appointments, and (i) independence. In addition, in determining whether an
incumbent director should stand for re-election, the Nominating Committee will
consider the director's attendance at meetings, achievement of satisfactory
performance and other matters determined by the Board.
INTERNAL PROCESS FOR IDENTIFYING CANDIDATES. On a periodic basis, the
Nominating Committee solicits ideas for possible Candidates from a number of
sources - members of the Board; senior level Company executives; individuals
personally known to the members of the Board; and research, including database
and Internet searches.
GENERAL NOMINATION RIGHT OF ALL SHAREHOLDERS. Any shareholder of the
Company may nominate one or more persons for election as a director of the
Company at an annual meeting of shareholders if the shareholder complies with
the notice, information and consent provisions contained in the Company's
Bylaws. The Company has an advance notice bylaw provision. In order for the
director nomination to be timely, a shareholder's notice to the Company's
Executive Secretary must be delivered to the Company's principal executive
offices not less than 30 days nor more than 60 days prior to the date of the
Company's next annual meeting. If a shareholder provides timely notice as
described above, in accordance with Company's Bylaws, the Candidate may be voted
upon in the election of directors at the annual meeting and the Candidate's name
will be included on the ballot for election. If a shareholder fails to provide
timely notice, but still provides written notice to the Company's Executive
Secretary at least five days prior to the annual meeting, the Candidate will be
added to the ballots provided at the annual meeting, but will not be included on
any proxy cards delivered by the Company. Further, the persons named in the
proxy cards will be permitted to exercise discretionary voting authority with
respect to any Candidate submitted by a shareholder less than 30 days before the
date of the annual meeting.
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A shareholder entitled to vote may propose a Candidate from the floor at
the annual meeting itself only if the Nominating Committee has failed to
nominate a slate of candidates at least 20 days before the date of the annual
meeting. If the Nominating Committee recommends a slate of Candidates at least
20 days before the date of the annual meeting, no votes will be allowed for
Candidates who are proposed from the floor during the annual meeting.
EVALUATION OF CANDIDATES. The Nominating Committee will consider all
Candidates identified through the processes described above and will evaluate
each of them, including incumbents, based on the same criteria. If, based on the
Nominating Committee's initial evaluation, a Candidate continues to be of
interest to the Nominating Committee, a member of the Nominating Committee will
interview the Candidate and communicate such member's evaluation to the other
Nominating Committee members. Later reviews will be conducted by other members
of the Nominating Committee and the executive officers of the Company.
Ultimately, background and reference checks will be conducted and the Nominating
Committee will meet to finalize its list of recommended Candidates for the
Board's consideration.
TIMING OF THE IDENTIFICATION AND EVALUATION PROCESS. The Company's
fiscal year ends on December 31. The Nominating Committee usually meets in
February or March to consider and determine, among other things, Candidates to
be included in the Company's recommended slate of director nominees for election
by shareholders at the annual meeting.
AUDIT COMMITTEE REPORT
During 2004, Messrs. Hillmann, Thomas and Williamson served on the Audit
Committee of the Bank and have served on the Audit Committee of the Company
since the Reorganization Date, with Mr. Williamson serving as Chair. The Audit
Committee operates pursuant to a written charter, which complies with the
applicable provisions of the Sarbanes-Oxley Act of 2002 and related rules of the
SEC and the NASD. The Audit Committee is responsible for overseeing the
Company's accounting and financial reporting processes, including the quarterly
review and the annual audit of the Company's consolidated financial statements
by Grant Thornton LLP ("Grant Thornton"), the independent auditor of the Company
and the Bank. As part of fulfilling its responsibilities, the Audit Committee
reviewed and discussed the audited consolidated financial statements for the
year ended December 31, 2004 with management and Grant Thornton and discussed
those matters required by Statement on Auditing Standards No. 61 (Communication
with Audit Committees), as amended, with Grant Thornton. The Audit Committee
received the written disclosures and the letter required by Independent
Standards Board Statement No. 1 (Independence Discussions with Audit Committee)
from Grant Thornton and discussed that firm's independence with representatives
of the firm.
Based upon the Audit Committee's review of the audited consolidated
financial statements and its discussions with management, the internal audit
function and the independent auditor of the Company and the Bank, the Audit
Committee recommended that the Board of Directors include the audited financial
statements of the Bank for the period ended December 31, 2004 in the Annual
Report to Shareholders for the Company.
Respectfully submitted,
Gerhard H. Hillmann
Robert Thomas
James E. Williamson
"COMPENSATION COMMITTEE" REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company does not have a separate
compensation committee. The members of the Compensation Committee of the Bank
are directors Thomas J. Linneman, John T. Smith and Edward L. Kleemeier, and Mr.
Kleemeier is independent. The committee is responsible for reviewing all
compensation matters
7
related to non-executive positions and executive positions. The Compensation
Committee met twice during the year ended December 31, 2004.
REPORT OF THE EXECUTIVE COMPENSATION AND BENEFITS COMMITTEE
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits provided to
the Company's Chief Executive Officer and other executive officers of the
Company. The disclosure requirements for the Chief Executive Officer and other
executive officers include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfillment of this requirement, the
Compensation Committee, at the direction of the Board of Directors, has prepared
the following report for inclusion in this proxy statement.
The Compensation Committee is delegated the responsibility of assuring
that the compensation of the Chief Executive Officer and other executive
officers is consistent with the compensation strategy, competitive practices,
the performance of the Bank, and the requirements of appropriate regulatory
agencies. Independent directors sit on the Compensation Committee and
participate in executive compensation decision-making.
The primary goal of the Compensation Committee is to provide an adequate
level of compensation and benefits in order to attract and retain key
executives. The performance of each officer is reviewed annually to determine
his or her contribution to the overall success of the Bank. The Board of
Directors determines the raises and bonuses of executive officers. Thomas J.
Linneman is not present at the portion of the Board Meeting relating to the
review of executive salaries.
Compensation of senior management is reviewed annually. In general, the
purpose of the annual compensation review is to ensure that base salary levels
are competitive with financial institutions similar in size, geographic market
and business profile in order to attract and retain persons of high quality. In
this regard, the Compensation Committee considers information received from
America's Community Bankers compensation analysis regarding executive
compensation, and information regarding the average salary increases and bonuses
paid by other financial institutions. In addition, the Compensation Committee
considers each executive officer's contribution to the Association when making
its decision.
The Board of Directors approved a base salary for the Chief Executive
Officer of $160,707 for 2004, which represented an increase from the Chief
Executive Officer's base salary of $155,272 in 2003. The 2004 base salary was
based upon the Chief Executive Officer's performance and industry standards.
This report has been provided by the Compensation Committee:
Directors Smith, Linneman and Kleemeier
INDEPENDENT AUDITOR FEES
The following table sets forth the aggregate fees billed to the Company
(or the Bank) for the years ended December 31, 2003 and 2004 by Grant Thornton:
2003 2004
---- ----
Audit Fees............................ $ 34,500 $ 38,000
All Other Fees:
Audit Related Fees.................. 34,300 19,905
Tax Fees............................ 8,100 3,100
Stock Offering Related Fees......... 133,400 5,100
----------- -----------
Total All Other Fees.............. $ 175,800 $ 28,105
AUDIT-RELATED FEES consist of fees for assurance and related services
that are reasonably related to the performance of the audit or review of the
financial statements of the Bank and the Company. This category includes fees
related to audit and attest services not required by statute or regulations, due
diligence related to mergers,
8
acquisitions and investments, and consultations concerning financial accounting
and reporting standards.
TAX FEES consist of fees for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding
federal, state and international tax compliance, return preparation, tax audits
and customs and duties.
STOCK OFFERING RELATED FEES consist of fees for professional services
provided in connection with the initial public offering of the Company's Common
Stock arising out of the reorganization of the Bank from mutual to stock form.
These services include assistance regarding the preparation of pro-forma
financial statements and registration statement disclosures and the provision of
tax advice.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining the independence of Grant Thornton and
has concluded that it is.
For the fiscal year 2005, the Audit Committee has selected Grant
Thornton as its principal outside accountant.
Representatives of Grant Thornton are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and are expected to be available to respond to appropriate questions.
PRE-APPROVAL POLICIES AND PROCEDURES. In accordance with rules adopted
by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002
and the Audit Committee's charter, all audit and audit-related services and all
permitted non-audit work performed by the independent accountants, Grant
Thornton, must be pre-approved by the Audit Committee, including the proposed
fees for such work. The Audit Committee has adopted policies and procedures
pursuant to which audit, audit-related and tax services, and all permissible
non-audit services, are pre-approved, and is informed of each service actually
rendered that was approved through its pre-approval process.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics (the "Code
of Ethics") that applies to the Company's directors, executive officers and
employees, including the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or other persons
performing similar functions. The Code of Ethics requires the Company's
directors, executive officers and employees to avoid conflicts of interest,
comply with all laws and other legal requirements, conduct business in an honest
and ethical manner and otherwise act with integrity and in the Company's best
interest. Under the terms of the Code of Ethics, directors, executive officers
and employees are required to report any conduct that they believe in good faith
to be an actual or apparent violation of the Code.
9
SUMMARY COMPENSATION TABLE
The following table shows the compensation of the Chief Executive
Officer and certain other highly compensated executive officers of the Company
or any of its subsidiaries for services to the Company or any of its
subsidiaries during the year ended December 31, 2004, the fiscal period from
April 1, 2003 to December 31, 2003, as well as their compensation for the 2002
fiscal year ended March 31, 2003. No other officer received total annual salary
and bonus in excess of $100,000 during the reporting period.
====================================================================================================================================
SUMMARY COMPENSATION TABLE
====================================================================================================================================
ANNUAL COMPENSATION(2) LONG-TERM
COMPENSATION AWARDS
------------------------------------------------------------------------------ ------------------------------------ ----------------
OTHER
YEAR ENDED ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND DECEMBER SALARY BONUS COMPENSATION STOCK SARs COMPENSATION
PRINCIPAL POSITION 31,(1) ($) ($) ($)(2) AWARD(S) ($) (#) PAYOUTS ($)
----------------------- -------------- ----------- ----------- --------------- ------------- ------------- -------- ----------------
Thomas J. Linneman, 2004 $ 163,403 $ 46,615 $ -- -- -- -- $ 31,008(3)
President and Chief 2003 116,454 -- -- -- -- -- 13,994(3)
Executive Officer 2002 153,271 44,793 -- -- -- -- 32,777(3)
----------------------- -------------- ----------- ----------- --------------- ------------- ------------- -------- ----------------
Kevin M. Kappa, 2004 $ 98,010 $ 27,966 $ -- -- -- -- $ 9,689(4)
Vice President-- 2003 69,849 -- -- -- -- -- 2,095(4)
Compliance 2002 93,109 26,184 -- -- -- -- 8,155(4)
of the Bank
----------------------- -------------- ----------- ----------- --------------- ------------- ------------- -------- ----------------
Jeffrey J. Lenzer, 2004 $ 98,010 $ 27,939 $ -- -- -- -- $ 9,678(5)
Vice President-- 2003 69,849 -- -- -- -- -- 2,095(5)
Lending of the Bank 2002 93,109 26,184 -- -- -- -- 8,149(5)
----------------------- -------------- ----------- ----------- --------------- ------------- ------------- -------- ----------------
Scott T. Smith, 2004 $ 84,213 $ 17,809 $ -- -- -- -- $ 7,326(6)
Chief Financial 2003 60,021 -- -- -- -- -- 1,653(6)
Officer of the Bank 2002 67,092 14,320 -- -- -- -- 6,893(6)
======================= ============== =========== =========== =============== ============= ============= ======== ================
--------------------------------
(1) In connection with the reorganization of the Bank, in 2003 the
Bank changed its fiscal year end from March 31 to December 31.
The information reported in the above table for Year 2003 covers
the stub fiscal period of the Bank from April 1, 2003 to
December 31, 2003 and for the Year 2002 covers the fiscal year
of the Bank from April 1, 2002 to March 31, 2003.
(2) Does not include the value of perquisites and other personal
benefits because the total amount of such compensation, if any,
does not exceed the lesser of $50,000 or 10% of the total amount
of the annual salary and bonus for the individual for the year.
(3) The amounts shown include (i) matching contributions by the Bank
to the Bank's 401(k) Plan on behalf of Mr. Linneman of $17,008,
$3,494 and $14,577 for the year ended December 31, 2004, the
fiscal stub period of 2003 and fiscal year 2002, respectively,
and (ii) payment of annual retainers and bonuses for service as
a director of $14,000, $10,500 and $18,200 for the for the year
ended December 31, 2004, the fiscal stub period of 2003 and
fiscal year 2002 fees, respectively.
(4) The amounts shown include matching contributions by the Bank to
the Bank's 401(k) Plan on behalf of Mr. Kappa of $9,689, $2,095
and $8,155 for the year ended December 31, 2004, for the fiscal
stub period of 2003 and fiscal year 2002, respectively.
(5) The amounts shown include matching contributions by the Bank to
the Bank's 401(k) Plan on behalf of Mr. Lenzer of $9,678, $2,095
and $8,149 for the year ended December 31, 2004, the fiscal stub
period of 2003 and fiscal year 2002, respectively.
(6) The amounts shown include contributions by the Bank to the
Bank's 401(k) Plan on behalf of Mr. Smith of $7,326, $1,653 and
$6,893 for the year ended December 31, 2004, the fiscal stub
period of 2003 and fiscal year 2002, respectively.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH MR. LINNEMAN. Effective January 5, 2004, the
Bank entered into an employment agreement with Mr. Linneman which provided for
the employment and retention of Mr. Linneman for a three-year term. Commencing
on the first anniversary date of the employment agreement and continuing on each
anniversary thereafter, the disinterested members of the board of directors of
the Bank may extend the employment agreement an additional year such that the
remaining term of the agreement shall be 36 months, unless Mr. Linneman elects
not to extend the term by giving written notice to the board of directors. The
employment agreement provides that the executive's base salary will be reviewed
annually and may be increased but not decreased. The base salary that will be
effective for such employment agreement will be $155,271. The Bank will also
provide a bonus program to Mr. Linneman which will provide him with the
opportunity to earn up to 50% of his base salary, on an annual basis, the amount
of which shall be determined by specific performance standards and a formula to
be agreed to by Mr. Linneman and the Bank's board of directors annually.
Performance standards shall be measured on a calendar year, and no bonus shall
be payable if Mr. Linneman is not employed on December 31 of
10
the pertinent year. Mr. Linneman shall be entitled to participate in such life
insurance, medical, dental, 401(k), profit-sharing and Stock-Based compensation
plans and other programs and arrangements as may be approved from time to time
by the Bank for the benefit of its employees. In addition, the Bank shall
provide Mr. Linneman with a supplemental life insurance policy with a death
benefit of not less than $200,000.
Under the employment agreement, if Mr. Linneman dies, retires or is
terminated "for cause" or if he voluntarily terminates his employment without
good reason (as defined in the employment agreement), Mr. Linneman (or his
estate) shall be entitled to receive the compensation due him through the last
day of the calendar month in which his death, retirement or termination
occurred. In the event of Mr. Linneman's disability, the Bank will pay him, as
disability pay, pursuant to the long-term disability policy then in effect. Such
payments shall be reduced by the amount of any short- or long-term disability
benefits payable to him under any other disability programs sponsored by the
Bank. In addition, during any period of his disability, he and his dependents
shall, to the greatest extent possible, continue to be covered under all benefit
plans including, without limitation, retirement plans and medical, dental and
life insurance plans of the Bank on the same terms as if he were actively
employed by the Bank.
Under the employment agreement, if the employment of Mr. Linneman is
terminated by the Bank without cause or Mr. Linneman terminates his employment
with good reason (as defined in the employment agreement), Mr. Linneman would be
entitled to a severance payment equal to the base salary (determined by
reference to his base salary on the termination date) and bonuses (determined by
reference to his average bonus over the three years preceding his termination
date) that would otherwise have been payable over the remaining term of the
agreement. Such amounts shall be paid in one lump sum within ten calendar days
of such termination. In addition, Mr. Linneman shall, for the remaining term of
the employment agreement, receive the benefits he would have received during the
remaining term of the employment agreement under any retirement programs in
which he participated prior to his termination and continue to participate in
any benefit plans of the Bank that provide health (including medical and
dental), life, or similar coverage upon terms no less favorable than the most
favorable terms provided to senior executives of the Bank during such period.
If, within the period ending two years after a change in control (as
defined in the employment agreement), the Bank shall terminate Mr. Linneman's
employment without good cause or Mr. Linneman terminates his employment with
good reason, Cheviot Savings Bank shall, within ten calendar days of termination
of his employment, make a lump sum cash payment to him equal to 2.99 times the
executive's average annual compensation over the five most recently completed
calendar years ending with the year immediately preceding the effective date of
the change in control. In such event, Mr. Linneman shall for a 36-month period
following his termination of employment continue to receive the benefits he
would have received over such period under any retirement plans in which he
participated prior to this termination and shall continue to participate in any
benefit plans that provide health (including medical and dental), life or
similar coverage upon terms no less favorable than the most favorable terms
provided to senior executives during such period. Section 280G of the Internal
Revenue Code provides that severance payments that equal or exceed three times
the individual's base amount are deemed to be "excess parachute payments" if
they are contingent upon a change in control. Individuals receiving excess
parachute payments are required to pay a 20% excise tax on the amount of the
payment in excess of the base amount, and the employer is not entitled to deduct
such amount.
Upon termination of Mr. Linneman for any reason, he must adhere to a
two-year non-competition covenant.
All reasonable costs and legal fees paid or incurred by Mr. Linneman in
any dispute or question of interpretation relating to the employment agreement
will be paid by the Bank, if Mr. Linneman is successful on the merits in a legal
judgment, arbitration or settlement. The employment agreement also provides that
the Bank will indemnify the executive for certain liabilities and expenses as
provided therein.
CHANGE-IN-CONTROL SEVERANCE AGREEMENTS WITH MESSRS. KAPPA AND LENZER.
Effective January 5, 2004, the Bank entered into change in control severance
agreements with each of Messrs. Lenzer and Kappa to provide benefits to each of
them upon a change in control of either the Bank or the Company. Each severance
agreement provides for a three-year term. Additionally, on or before each
anniversary date of the effective date of the severance agreement, the term of
the agreement may be extended for an additional one-year period beyond the then
11
effective expiration date upon a determination and resolution of the board of
directors that the performance of the employee has met the requirements and
standards of the board and that the term of the agreement should be extended.
Under the severance agreement, if a change in control of the Bank or the Company
occurs, Messrs. Lenzer and Kappa, if terminated or if each terminates his
employment upon the occurrence of certain events specified in the severance
agreement within 12 months after any change in control, will be entitled to
receive an amount equal to two times the prior calendar year's cash compensation
paid to such executive by the Bank. Such sum will be paid at the option of the
executive either in one lump sum not later than the date of such termination of
employment or in periodic payments over the next 24 months after such
termination of employment.
401(K) PLAN
The Bank maintains the Cheviot Savings Bank 401(k) Retirement Savings
Plan (the "401(k) Plan") which is a qualified, tax-exempt profit sharing plan
with a salary deferral feature under Section 401(k) of the Code. Employees who
have attained age 21 and have completed one year of employment are eligible to
participate. Employees are entitled to enter the 401(k) Plan on the first
January 1 or July 1 occurring after the employee becomes eligible to participate
in the 401(k) Plan.
Under the 401(k) Plan participants may elect to defer a percentage of
their compensation each year instead of receiving that amount in cash equal to
the lesser of (i) a maximum percentage of compensation as indicated in a notice
received from the 401(k) Plan administrator or (ii) an indexed dollar amount set
by the Internal Revenue Service, which is $13,000 for 2004. In addition, for
participants that are age 50 or older by the end of any taxable year, the
participant may elect to defer additional amounts (called "catch-up
contributions") to the 401(k) Plan. The additional amounts may be deferred
regardless of any other limitations on the amount that a participant may defer
to the 401(k) Plan. The maximum "catch-up contribution" that a participant can
make in 2004 is $3,000.
Each plan year (a calendar year), the Bank will contribute to the 401(k)
Plan the following amounts: (a) the total amount of the salary reduction a
participant elected to defer; (b) in the discretion of the Bank, a matching
contribution equal to a percentage of the amount of the salary reduction a
participant elected to defer; and (c) an amount equal to 3% of a participant's
plan compensation (generally the sum of a participant's Form W-2 wages and other
compensation for the year plus a participant's before-tax contributions to the
401(k) Plan and any other benefit plans of the Bank, up to a legal limit (which
is $205,000 for 2004)) for the year plus 3% of a participant's plan compensation
for the year in excess of 50% of the Social Security Taxable Wage Base for
old-age retirement benefits for the year ($43,950 for 2004) plus any additional
amount that does not match a participant's salary reduction and that is
determined by the Bank in its discretion.
The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options, including the opportunity to
invest in a "Cheviot Financial Corp. Stock Fund." Each participant who directs
the trustee to invest all or part of his or her account in the Cheviot Financial
Corp. Stock Fund will have assets in his or her account applied to the purchase
of shares of Common Stock. Participants will be entitled to direct the trustee
as to how to vote his or her allocable shares of Common Stock.
Plan benefits will be paid to each participant in the form of a single
cash payment at normal retirement age unless earlier payment is selected. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. Normal retirement age under the 401(k) Plan is age 65. Early retirement age
is age 55.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (THE "ESOP")
In January 2004, the Company implemented the Cheviot Financial Corp.
Employee Stock Ownership Plan in connection with the reorganization and stock
offering. Employees who are at least 21 years old, who have at least one year of
employment with the Bank or an affiliated corporation and who have completed at
least 1,000 hours of service, are eligible to participate. As part of the
reorganization and stock offering, the ESOP borrowed funds from the Company and
used those funds to purchase 357,075 shares of Common Stock. Collateral for the
loan is the
12
Common Stock purchased by the ESOP. The loan will be repaid principally from the
participating employers' discretionary contributions to the ESOP over a period
of up to 10 years. The loan bears interest at an annual percentage rate fixed at
4.0%. Shares purchased by the ESOP are held in a suspense account for allocation
among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan are allocated among
employee stock ownership plan participants on the basis of compensation in the
year of allocation. Benefits under the plan 100% vested upon completion of five
years of credited service. A participant's interest in his or her account under
the plan also fully vest in the event of termination of service due to a
participant's early or normal retirement, death, disability, or upon a change in
control (as defined in the plan). Vested benefits are payable in the form of
Common Stock and/or cash. Contributions to the employee stock ownership plan are
discretionary, subject to the loan terms and tax law limits. Therefore, benefits
payable under the ESOP cannot be estimated. Under generally accepted accounting
principles, a participating employer will be required to record compensation
expense each year in an amount equal to the fair market value of the shares
released from the suspense account
EFFECT OF CHANGE IN CONTROL ON CERTAIN EXECUTIVE COMPENSATION PLANS
In the event of a change in control, the ESOP will terminate and
participants will become fully vested in their account balances, which will be
paid to them.
CERTAIN TRANSACTIONS AND COMPENSATION ARRANGEMENTS
The Bank's current policy is that no loans are to be extended to
directors or executive officers of the Bank without the approval of the Bank's
board of directors. Current directors, officers and employees are eligible for
any type of credit offered by the Bank. Federal regulations permit executive
officers and directors to participate in loan programs that are available to
other employees, as long as the director or executive officer is not given
preferential treatment compared to other participating employees. Loans made to
directors or executive officers, including any modification of such loans, must
be approved by a majority of disinterested members of the board of directors. As
of December 31, 2004, there were a total of 13 loans to directors/officers of
the Bank with a total balance of approximately $1.2 million. The loans made to
directors and executive officers were made in the ordinary course of business
and did not involve more than a normal risk of collectibility. Any future loans
made to any directors, executive officers, officers or employees of the Bank
will be made under the same terms and conditions.
Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits a
company from extending credit, arranging for the extension of credit or renewing
an extension of credit in the form of a personal loan to an officer or director
of the Company. There are several exceptions to this general prohibition,
including loans made by an FDIC insured depository institution that is subject
to the insider lending restrictions of the Federal Reserve Act. All loans to the
Company's directors and officers comply with the Federal Reserve Act and the
Federal Reserve Board's Regulation O and, therefore, are excepted from the
prohibitions of Section 402.
--------------------------------------------------------------------------------
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
--------------------------------------------------------------------------------
The Audit Committee requests that shareholders ratify the Audit
Committee's selection of Grant Thornton to serve as the Company's independent
auditor for fiscal year ending December 31, 2005. Grant Thornton audited the
consolidated financial statements of the Company for the year ended December 31,
2004, the fiscal stub period of April 1, 2003 to December 31, 2003 and for the
fiscal year ended March 31, 2003. As noted herein, the Bank changed its fiscal
year to correspond with that of the Company in connection with the
reorganization of the Bank. Representatives of Grant Thornton will be present at
the Annual Meeting and will have an opportunity to make a statement if they so
desire and to respond to questions by shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF GRANT THORNTON AS THE INDEPENDENT AUDITOR OF THE COMPANY.
13
--------------------------------------------------------------------------------
PROPOSAL 3 - APPROVAL OF 2005 STOCK-BASED INCENTIVE PLAN
--------------------------------------------------------------------------------
The Board of Directors has adopted, subject to stockholder approval, the
2005 Stock-Based Incentive Plan ("2005 Plan"), to provide officers, employees
and directors of the Company or the Bank with additional incentives to share in
the growth and performance of the Company. The following is a summary of the
material features of the 2005 Plan, which is qualified in its entirety by
reference to the provisions of the 2005 Plan attached hereto as Exhibit A.
GENERAL
The 2005 Plan will remain in effect for a period of ten years following
adoption by stockholders. The 2005 Plan authorizes the issuance of up to 680,426
shares of Company common stock pursuant to grants of incentive and non-statutory
stock options, reload options or restricted stock awards, provided that no more
than 194,408 shares may be issued as restricted stock awards, and no more than
486,018 shares may be issued pursuant to exercise of stock options.
The 2005 Plan will be administered by a committee (the "Committee)
consisting of the Board of Directors which will include two or more
disinterested directors of the Company who must be "non-employee directors," as
such term is defined for purposes of Rule 16(b) of the Securities Exchange Act
of 1934. The Committee has full and exclusive power within the limitations set
forth in the 2005 Plan to make all decisions and determinations regarding the
selection of participants and the granting of awards; establishing the terms and
conditions relating to each award; adopting rules, regulations and guidelines
for carrying out the 2005 Plan's purposes; and interpreting and otherwise
construing the 2005 Plan. The 2005 Plan also permits the Board of Directors or
the Committee to delegate to one or more officers of the Company the Committee's
power to (i) designate officers and employees who will receive awards, and (ii)
determine the number of awards to be received by them. Each award shall be on
such terms and conditions, consistent with the 2005 Plan and applicable Office
of Thrift Supervision ("OTS") regulations, as the Committee administering the
2005 Plan may determine. Unless otherwise permitted by the OTS, the awards will
vest no more rapidly than 20% per year over at least a five year period, the
vesting of awards will not accelerate solely because of retirement. The Company
has requested a waiver of the foregoing restrictions from the OTS, but there is
no assurance that such waiver will be granted in whole or in part. In addition,
no key employee will receive stock options or stock awards greater than 25% of
those available under the 2005 Plan, no individual non-employee director may
receive stock options or stock awards greater than 5% of these available under
the 2005 Plan, and non-employee directors, in the aggregate, may not receive
stock options or stock awards in excess of 30% of those available under the 2005
Plan. The 2005 Plan is consistent with OTS regulations. The OTS does not endorse
or approve the Stock Option Plan in any manner.
ELIGIBILITY
Employees and outside directors of the Company or its subsidiaries are
eligible to receive awards under the 2005 Plan.
TYPES OF AWARDS
The Committee may determine the type and terms and conditions of awards
under the 2005 Plan. Awards may be granted in a combination of incentive and
non-statutory stock options, reload options or restricted stock awards. Awards
may include the following:
STOCK OPTIONS. A stock option gives the recipient or "optionee" the
right to purchase shares of common stock at a specified price for a specified
period of time. The exercise price shall not be less than the fair market value
on the date the stock option is granted. Fair market value for purposes of the
2005 Plan means the average of the high and low quoted sales prices of the
common stock on the Nasdaq Stock Market) on the day the option is granted or, if
the common stock is not traded on the date of grant, the fair market value shall
be determined by the Committee in good faith on an appropriate basis.
14
Stock options are either "incentive" stock options or "non-qualified"
stock options. Incentive stock options have certain tax advantages and must
comply with the requirements of Section 422 of the Internal Revenue Code. Only
employees are eligible to receive incentive stock options. Shares of common
stock purchased upon the exercise of a stock option must be paid for in full at
the time of exercise (i) either in cash or with stock of the Company which was
owned by the participant for at least six months prior to delivery, or (ii) by
reduction in the number of shares deliverable pursuant to the stock option, or
(iii) subject to a "cashless exercise" through a third party. Cash may be paid
in lieu of any fractional shares under the 2005 Plan and generally no fewer than
100 shares may be purchased on exercise of an award unless the total number of
shares available for purchase or exercise pursuant to an award is less than 100
shares. Stock options are subject to vesting conditions and restrictions as
determined by the Committee.
RELOAD OPTIONS. Reload options entitle the holder, who has delivered
shares that he or she owns as payment of the exercise price for option stock, to
a new option to acquire additional shares equal in amount to the shares he or
she has traded. Reload options may also be granted to replace option shares
retained by the employer for payment of the option holder's withholding tax. The
option price at which additional shares of stock can be purchased by the option
holder through the exercise of a reload option is equal to the market value of
the shares on the date the original option is exercised. The option period
during which the reload option may be exercised expires at the same time as that
of the original option that the holder has exercised. Reload options issued on
the exercise of incentive stock options may be incentive stock options or
non-statutory stock options.
STOCK AWARDS. Stock awards under the 2005 Plan will be granted only in
whole shares of common stock. Stock awards will be subject to conditions
established by the Committee which are set forth in the award agreement. Any
stock award granted under the 2005 Plan will be subject to vesting as determined
by the Committee. Awards will be evidenced by agreements approved by the
Committee which set forth the terms and conditions of each award.
TRANSFERABILITY OF AWARDS. Generally, all awards, except non-statutory
stock options, granted under the 2005 Plan will be nontransferable except by
will or in accordance with the laws of intestate succession. Stock awards may be
transferable pursuant to a qualified domestic relations order. At the
Committee's sole discretion, non-statutory stock options may be transferred for
valid estate planning purposes that are permitted by the Code and the Exchange
Act. During the life of the participant, awards can only be exercised by the
participant. The Committee may permit a participant to designate a beneficiary
to exercise or receive any rights that may exist under the 2005 Plan upon the
participant's death.
CHANGE IN CONTROL. Upon the occurrence of an event constituting a change
in control of the Company as defined in the 2005 Plan, all stock options will
become fully vested, and all stock awards then outstanding shall vest free of
restrictions.
EFFECT OF TERMINATION OF SERVICE. Unless the Committee specifies
otherwise at the time an award is granted, upon the occurrence of the
participant's termination of service due to death or disability, all unvested
stock options and stock awards made to the participant will become fully vested.
Subject to OTS regulations and policy (or the receipt of any required waivers
from the OTS), and unless the Committee specifies otherwise at the time an award
is granted, in the event of normal retirement of a participant any unvested
award of stock options and/or restricted stock shall become fully vested in the
participant. Unless the Committee specifies otherwise, a person who is a member
of the Board of Directors shall not be deemed to have retired until service as a
director or director emeritus has ceased.
TAX CONSEQUENCES
The following are the material federal tax consequences generally
arising with respect to awards granted under the 2005 Plan. The grant of an
option will create no tax consequences for an optionee or the Company. The
optionee will have no taxable income upon exercising an incentive stock option
and the Company will receive no deduction when an incentive stock option is
exercised. An optionee exercising a non-statutory stock option must recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the stock on the date of exercise, and the Company will be
entitled to a deduction for the same amount. The tax treatment for an optionee
on a disposition of shares acquired through the exercise of an option depends on
how long the shares
15
have been held and whether such shares were acquired by exercising an incentive
stock option or a non-statutory stock option. Generally, there will be no tax
consequences to the Company in connection with the disposition of shares
acquired pursuant to an option, except that the Company may be entitled to a
deduction if shares acquired pursuant to an incentive stock option are sold
before the required holding periods have been satisfied.
With respect to other awards granted under the 2005 Plan that are
settled either in cash or in stock, the participant must recognize ordinary
income equal to the cash or the fair market value of shares or other property
received and the Company will be entitled to a deduction for the same amount.
With respect to awards that are settled in stock, the participant must recognize
ordinary income equal to the fair market value of the shares received at the
time the shares became transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier. The Company will be entitled to a
deduction for the same amount.
There are five non-employee directors of the Company and 49 employees
eligible to participate in the 2005 Plan.
STOCK PERFORMANCE GRAPH
The graph below shows the cumulative total shareholder return assuming
the investment of $100 on January 6, 2004 (and the reinvestment of dividends
thereafter) in each of (i) the Company's Common Stock (ii) the NASDAQ Composite
Index, and (iii) the SNL MHC Index (an industry index prepared by SNL Financial
LC). The Company's Common Stock was first publicly traded on January 6, 2004.
The information presented below is for the period beginning with the closing
price of the Company's Common Stock on January 6, 2004, its first trading day,
and ending on December 31, 2004. Based upon the initial offering price of $10
per share (where $10 equals 100%), the percentage value of the Common Stock on
December 31, 2004 was $12.60 or 126% of its initial public offering price.
CHEVIOT FINANCIAL CORP.
[PERFORMANCE GRAPH]
PERIOD ENDING
--------------------------------------------------------------
INDEX 01/06/04 03/31/04 06/30/04 09/30/04 12/31/04
-------------------------------------------------------------------------------------------------
Cheviot Financial Corp. 100.00 132.59 106.39 115.49 128.14
NASDAQ Composite 100.00 97.50 100.23 92.98 106.80
SNL MHC Thrift Index 100.00 109.03 97.30 105.36 114.35
Note: Cheviot Financial Corp. data based upon original $10.00 IPO price.
Note: NASDAQ Composite and SNL MHC Thrift Index values based upon closing values on 1/5/04.
16
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership with the SEC. Directors, executive officers and greater than 10%
shareholders are required by regulations of the SEC to furnish the Company with
copies of all Section 16(a) reports they file. Such reports are filed on Forms
3, 4 and 5 under the Exchange Act. Based solely on its review of the copies of
such forms received by it, the Company believes that, during the period
commencing January 5, 2004, the date of the Company's initial public offering,
and ending December 31, 2004, all such persons complied on a timely basis with
the filing requirements of Section 16(a).
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
Shareholder proposals intended for inclusion in next year's Proxy
Statement should be sent to the Executive Secretary, Cheviot Financial Corp.,
3723 Glenmore Avenue, Cheviot, Ohio 45211 and must be received by November 26,
2005. Any such proposal must comply with Rule 14a-8 promulgated by the SEC
pursuant to the Exchange Act. Any shareholder who intends to propose any other
matter to be acted upon at the 2006 annual meeting of shareholders without
inclusion of such proposal in the Company's proxy statement must inform the
Company no later than March 26, 2006. If notice is not provided by that date,
the persons named in the Company's proxy for the 2006 annual meeting will be
allowed to exercise their discretionary authority to vote upon any such proposal
without the matter having been discussed in the proxy statement for the 2006
annual meeting. All shareholder proposals and notices must also meet all
requirements set forth in the Company's Charter and Bylaws.
OTHER MATTERS TO COME BEFORE THE MEETING
At the time this Proxy Statement was released for printing on March 26,
2005, the Company knew of no other matters that might be presented for action at
the meeting. If any other matters properly come before the meeting, it is
intended that the voting shares represented by proxies will be voted with
respect thereto in accordance with the judgment of the persons voting them.
MISCELLANEOUS/FINANCIAL STATEMENTS
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Company common stock. The Company has engaged
Georgeson Shareholder Communications Inc. to assist in the solicitation of
proxies. Georgeson Shareholder Communications Inc. will receive up to $6,500 for
its services, not including reimbursement for expenses incurred on behalf of the
Company. No expenditures to date have been incurred. The entire expense of the
solicitation is expected to be $10,000. It is expected that Georgeson
Shareholder Communications Inc. will use up to three employees for this
solicitation. In addition to solicitations by Georgeson Shareholder
Communications Inc. and by mail, directors, officers and regular employees of
the Company may solicit proxies personally or by telegraph or telephone without
additional compensation.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to Shareholders for the Company for the year ended
December 31, 2004, has been mailed to shareholders concurrently with this
mailing of this Proxy Statement, but is not incorporated into this Proxy
Statement and is not to be considered a part of these proxy solicitation
materials. IF YOU WOULD LIKE AN ADDITIONAL COPY OF THE ANNUAL REPORT TO
SHAREHOLDERS OR A COPY OF THE COMPANY'S FORM 10-K THAT HAS BEEN FILED WITH THE
SEC, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, PLEASE WRITE TO KIMBERLY
SIENER, INVESTOR RELATIONS, CHEVIOT FINANCIAL CORP., 3723 GLENMORE AVENUE,
CHEVIOT, OHIO 45211, AND THE COMPANY WILL SEND COPIES OF EACH TO YOU FREE OF
CHARGE. THE EXHIBITS TO THE COMPANY'S FORM 10-K WILL BE FURNISHED FOR A FEE THAT
IS REASONABLY RELATED TO THE COMPANY'S EXPENSES TO FURNISH SUCH ITEMS.
17
PROXY STATEMENTS FOR SHAREHOLDERS SHARING THE SAME HOUSEHOLD MAILING ADDRESS
If shareholders residing at the same household mailing address are
currently receiving multiple copies of Company communications but would like to
receive only one in the future, please send written notice to The Registrar and
Transfer Company at the below address. In the written notice please indicate the
names of all accounts in your household and The Registrar and Transfer Company
will forward the appropriate forms for completion.
THE REGISTRAR AND TRANSFER COMPANY
10 COMMERCE DRIVE
CRANFORD, NEW JERSEY 07016-3506
Any shareholders participating in the householding program will,
however, continue to receive a separate proxy card or voting instruction card
for each account.
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders who wish to communicate with the Board, specified
individual directors and non-management directors should send any communications
to the Executive Secretary, Cheviot Financial Corp., 3723 Glenmore Avenue,
Cheviot, Ohio 45211 and identify the intended recipient. All communications
addressed will be forwarded to the identified person or persons.
By Order of the Board of Directors
/s/ James E. Williamson
James E. Williamson
Executive Secretary
March 26, 2005
18
EXHIBIT A
CHEVIOT FINANCIAL CORP.
2005 STOCK-BASED INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purposes of this 2005 Stock-Based Incentive Plan are to provide
incentives and rewards to employees and directors who are largely responsible
for the success and growth of Cheviot Financial Corp. and its Affiliates, and to
assist all such entities in attracting and retaining experienced and qualified
directors, executives and other key employees.
2. DEFINITIONS.
(a) "Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Sections 424(e) and
424(f) of the Code.
(b) "Award" means one or more of the following: Restricted Stock
Awards, Stock Options and other types of Awards, as set forth in Section 6 of
the Plan.
(c) "Award Agreement" means the agreement between the Company or an
Affiliate and a Participant evidencing an Award under the Plan.
(d) "Bank" means Cheviot Savings Bank, or a successor bank.
(e) "Board of Directors" means the board of directors of the
Company.
(f) "Change in Control" means a change in control of a nature that:
(i) would be required to be reported in response to Item
5.01 of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or
(ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners' Loan Act,
as amended ("HOLA"), and applicable rules and
regulations promulgated thereunder, as in effect at the
time of the Change in Control; or
(iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as: (a) any
"person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of
Company's outstanding securities except for any
securities purchased by the Bank's employee stock
ownership plan or trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this
clause (b), considered as though he were a member of the
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Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all
the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the
surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by
someone other than the current management of the
Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company
or similar transaction with one or more corporations as
a result of which shares of the Company are exchanged
for or converted into cash or property or securities not
issued by the Company pursuant to such plan of
reorganization or merger; or (e) a tender offer is made
for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record
25% or more of the outstanding securities of the Company
have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been
accepted by the tender offeror. Notwithstanding anything
in this subsection to the contrary, a Change in Control
shall not be deemed to have occurred upon the conversion
of the Company's mutual holding company parent to stock
form, or in connection with any reorganization used to
effect such a conversion.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated, pursuant to Section
3 of the Plan, to administer the Plan.
(i) "Common Stock" means the common stock of the Company, par value
$0.01 per share.
(j) "Company" means Cheviot Financial Corp., the stock holding
company of the Bank, and any entity that succeeds to the business of Cheviot
Financial Corp.
(k) "Disability" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which lasted or can be
expected to last for a continuous period of not less than 12 months. An
individual shall not be considered to be permanently and totally disabled unless
he furnishes proof of the existence thereof in such form and manner, and at such
times, as the Secretary of the Treasury may require, in accordance with Section
22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an
Affiliate. Directors who are also employed by the Company or an Affiliate shall
be considered Employees under the Plan.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Exercise Price" means the price at which an individual may
purchase a share of Common Stock pursuant to an Option.
(o) "Fair Market Value" means, when used in connection with the
Common Stock on a certain date, the final sales price of the Common Stock as
reported on the Nasdaq stock market (or over-the-counter market) on such date,
or if the Common Stock was not traded on such date, then on the day prior to
such date or on the next preceding day on which the Common Stock was traded, and
without regard to after hours trading activity; provided, however, that if the
Common Stock is not reported on the Nasdaq stock market (or over the counter
market), Fair Market Value shall mean the average sale price of all shares of
Common Stock sold during the 30-day period immediately preceding the date on
which such stock option was granted, and if no shares of stock have been sold
within such 30-day period, the
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average sale price of the last three sales of Common Stock sold during the
90-day period immediately preceding the date on which such stock option was
granted. In the event Fair Market Value cannot be determined in the manner
described above, then Fair Market Value shall be determined by the Committee.
The Committee is authorized, but is not required, to obtain an independent
appraisal to determine the Fair Market Value of the Common Stock.
(p) "Incentive Stock Option" means a Stock Option granted under the
Plan, that is intended to meet the requirements of Section 422 of the Code.
(q) "Non-Statutory Stock Option" means a Stock Option granted to an
individual under the Plan that is not intended to be and is not identified as an
Incentive Stock Option, or an Option granted under the Plan that is intended to
be and is identified as an Incentive Stock Option, but that does not meet the
requirements of Section 422 of the Code.
(r) "OTS" means the Office of Thrift Supervision.
(s) "Option" or "Stock Option" means an Incentive Stock Option or a
Non-Statutory Stock Option, as applicable.
(t) "Outside Director" means a member of the Board(s) of Directors
of the Company or an Affiliate who is not also an Employee.
(u) "Participant" means an Employee or Outside Director who is
granted an Award pursuant to the terms of the Plan.
(v) "Plan" means this 2005 Stock-Based Incentive Plan.
(w) "Reload Option" means an option to acquire shares of Common
Stock equivalent to the number of shares (i) used by a Participant to pay for an
Option, or (ii) deducted from any distribution in order to satisfy income tax
required to be withheld, based upon the terms set forth in Section 6.1(a)(v) of
the Plan.
(x) "Restricted Stock" means shares of Common Stock that may be
granted under the Plan that are subject to forfeiture until satisfaction of the
conditions of their grant.
(y) "Restricted Stock Award" means an Award of shares of Restricted
Stock granted to an individual pursuant to Section 6.1(b) of the Plan.
(z) "Retirement" means retirement from employment with the Company
or an Affiliate on or after the Employee's attainment of age 65; provided,
however, that unless the Committee specifies otherwise, an Employee who is also
a member of the Board of Directors, shall not be deemed to have retired until
both service as an Employee and as a member of the Board of Directors has
ceased. "Retirement" with respect to an Outside Director means termination of
service on the board(s) of directors of the Company or any Affiliate in
accordance with applicable Company policy following the provision of written
notice to such board(s) of directors of the Outside Director's intention to
retire. Notwithstanding the foregoing, unless the Committee specifies otherwise,
a director shall not be deemed to have retired if such director becomes a
director emeritus following his termination of service as a director.
(aa) "Stock Appreciation Right" means the right, as defined in
Section (b), that may be granted to a Participant in tandem with the grant of a
Stock Option.
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3. ADMINISTRATION.
(a) The Committee shall administer the Plan. The Committee shall
consist of the entire Board of Directors or two or more disinterested directors
of the Company who shall be appointed by the Board of Directors. A member of the
Board of Directors shall be deemed to be disinterested only if he or she
satisfies: (i) such requirements as the Securities and Exchange Commission may
establish for non-employee directors administering plans intended to qualify for
exemption under Rule 16b-3 (or its successor) of the Exchange Act; and (ii) if,
considered appropriate by the Board of Directors in its sole discretion, such
requirements as the Internal Revenue Service may establish for outside directors
acting under plans intended to qualify for exemption under Section 162(m)(4)(C)
of the Code. The Board of Directors or the Committee may also delegate, to the
extent permitted by applicable law and not inconsistent with Rule 16b-3, to one
or more officers of the Company, its powers under this Plan to (a) designate the
officers and employees of the Company who will receive Awards and (b) determine
the number of Awards to be received by them, pursuant to a resolution that
specifies the total number of rights or options that may be granted under the
delegation, provided that no officer may be delegated the power to designate
himself or herself as a recipient of such options or rights.
(b) Subject to paragraph (a) of this Section 3, the Committee shall:
(i) select the individuals who are to receive grants of
Awards under the Plan;
(ii) determine the type, number, vesting requirements and
other features and conditions of Awards made under the
Plan;
(iii) interpret the Plan and Award Agreements (as defined
below); and
(iv) make all other decisions related to the operation of the
Plan.
(v) Notwithstanding anything herein to the contrary, the
following provisions shall apply to all Awards made
under this Plan if required by OTS regulations: no
individual officer shall be granted Awards with respect
to more than 25% of the total Stock Options or more than
25% of the total Restricted Stock subject to the Plan;
no Outside Director shall be granted Awards of more than
5% of the total Stock Options or 5% of the total
Restricted Stock subject to the Plan; all Outside
Directors in the aggregate may not be granted Awards
with respect to more than 30% of the total Stock Options
or 30% of the total Restricted Stock subject to the
Plan; no Awards shall begin vesting earlier that one
year from the date the Plan is approved by stockholders
of the Company; and, no Awards shall vest at a rate in
excess of 20% per year beginning one year from the date
of grant.
(c) Each Award granted under the Plan shall be evidenced by a
written agreement (i.e., an "Award Agreement"). Each Award Agreement shall
constitute a binding contract between the Company or an Affiliate and the
Participant, and every Participant, upon acceptance of an Award Agreement, shall
be bound by the terms and restrictions of the Plan and the Award Agreement. The
terms of each Award Agreement shall be set in accordance with the Plan, but each
Award Agreement may also include any additional provisions and restrictions
determined by the Committee. In particular, and at a minimum, the Committee
shall set forth in each Award Agreement:
(i) the type of Award granted;
(ii) the Exercise Price for any Option;
(iii) the number of shares or rights subject to the Award;
(iv) the expiration date of the Award;
A-4
(v) the manner, time and rate (cumulative or otherwise) of
exercise or vesting of the Award; and
(vi) the restrictions, if any, placed on the Award, or upon
shares which may be issued upon the exercise or vesting
of the Award.
The Chairman of the Committee and such other directors and employees as
shall be designated by the Committee are hereby authorized to execute Award
Agreements on behalf of the Company or an Affiliate and to cause them to be
delivered to the recipients of Awards granted under the Plan.
4. ELIGIBILITY.
Subject to the terms of the Plan, Employees and Outside Directors, as
the Committee shall determine from time to time, shall be eligible to
participate in the Plan.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS.
(a) SHARES AVAILABLE. Subject to the provisions of Section 0, the
capital stock that may be delivered under this Plan shall be shares of the
Company's Common Stock, which may be issued directly by the Company from
authorized but unissued shares or treasury shares or shares purchased by the
Plan in the open market.
(b) SHARE LIMITS. Subject to adjustments, if any, provided in
Section 0 (and except for shares awarded pursuant to the exercise of a Reload
Option) the maximum number of shares of Common Stock that may be delivered
pursuant to Awards granted under this Plan (the "Share Limit") equals 680,426
shares. The following limits also apply with respect to Awards granted under
this Plan:
(i) The maximum number of shares of Common Stock that may be
delivered pursuant to Stock Options granted under this
Plan is 486,018 shares. The maximum aggregate number of
shares of Common Stock that may be issued pursuant to
the exercise of Incentive Stock Options is 486,018. For
these purposes, only the net number of shares issued
pursuant to the exercise of an Incentive Stock Option
are counted against the maximum number of shares.
(ii) The maximum number of shares of Common Stock that may be
delivered pursuant to Restricted Stock Awards granted
under this Plan is 194,408 shares.
(c) REISSUE OF AWARDS AND SHARES. Shares that are subject to or
underlie Awards which expire or for any reason are cancelled or terminated, are
forfeited, fail to vest, or for any other reason are not paid or delivered under
this Plan shall again be available for subsequent Awards under this Plan. Shares
that are exchanged by a Participant or withheld by the Company as full or
partial payment in connection with any Award under the Plan, as well as any
shares exchanged by a Participant or withheld by the Company to satisfy the tax
withholding obligations related to any Award under the Plan, shall be available
for subsequent Awards under this Plan.
(d) RESERVATION OF SHARES; NO FRACTIONAL SHARES; MINIMUM ISSUE. The
Company shall at all times reserve a number of shares of Common Stock sufficient
to cover the Company's obligations and contingent obligations to deliver shares
with respect to Awards then outstanding under this Plan. No fractional shares
shall be delivered under this Plan. The Committee may pay cash in lieu of any
fractional shares in settlements of Awards under this Plan. No fewer than 100
shares may be purchased on exercise of any Award unless the total number
purchased or exercised is the total number at the time available for purchase or
exercise under the Award.
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6. AWARDS.
The Committee shall determine the type or types of Award(s) to be made
to each selected eligible individual. Awards may be granted singly, in
combination or in tandem. Awards also may be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for grants
or rights under any other employee or compensation plan of the Company. The
types of Awards that may be granted under this Plan are:
(a) STOCK OPTIONS. The Committee may, subject to the limitations of
this Plan and the availability of shares of Common Stock reserved but not
previously awarded under the Plan, grant Stock Options to Employees and Outside
Directors, subject to terms and conditions as it may determine, to the extent
that such terms and conditions are consistent with the following provisions:
(i) EXERCISE PRICE. The Exercise Price shall not be less
than one hundred percent (100%) of the Fair Market Value
of the Common Stock on the date of grant.
(ii) TERMS OF OPTIONS. In no event may an individual exercise
an Option, in whole or in part, more than ten (10) years
from the date of grant.
(iii) NON-TRANSFERABILITY. Unless otherwise determined by the
Committee, an individual may not transfer, assign,
hypothecate, or dispose of an Option in any manner,
other than by will or the laws of intestate succession.
The Committee may, however, in its sole discretion,
permit the transfer or assignment of a Non Statutory
Stock Option, if it determines that the transfer or
assignment is for valid estate planning purposes and is
permitted under the Code and Rule 16b-3 of the Exchange
Act. For purposes of this Section 6(a), a transfer for
valid estate planning purposes includes, but is not
limited to, transfers:
(1) to a revocable inter vivos trust, as to which an
individual is both settlor and trustee;
(2) for no consideration to: (a) any member of the
individual's Immediate Family; (b) a trust
solely for the benefit of members of the
individual's Immediate Family; (c) any
partnership whose only partners are members of
the individual's Immediate Family; or (d) any
limited liability corporation or other corporate
entity whose only members or equity owners are
members of the individual's Immediate Family.
(3) For purposes of this Section, "Immediate Family"
includes, but is not necessarily limited to, a
Participant's parents, grandparents, spouse,
children, grandchildren, siblings (including
half brothers and sisters), and individuals who
are family members by adoption. Nothing
contained in this Section shall be construed to
require the Committee to give its approval to
any transfer or assignment of any Non-Statutory
Stock Option or portion thereof, and approval to
transfer or assign any Non-Statutory Stock
Option or portion thereof does not mean that
such approval will be given with respect to any
other Non-Statutory Stock Option or portion
thereof. The transferee or assignee of any
Non-Statutory Stock Option shall be subject to
all of the terms and conditions
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applicable to such Non-Statutory Stock Option
immediately prior to the transfer or assignment
and shall be subject to any other conditions
prescribed by the Committee with respect to such
Non-Statutory Stock Option.
(iv) SPECIAL RULES FOR INCENTIVE STOCK OPTIONS.
Notwithstanding the foregoing provisions, the following
rules shall further apply to grants of Incentive Stock
Options:
(1) If an Employee owns or is treated as owning, for
purposes of Section 422 of the Code, Common
Stock representing more than ten percent (10%)
of the total combined voting securities of the
Company at the time the Committee grants the
Incentive Stock Option (a "10% Owner"), the
Exercise Price shall not be less than one
hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date of grant.
(2) An Incentive Stock Option granted to a 10% Owner
shall not be exercisable more than five (5)
years from the date of grant.
(3) To the extent the aggregate Fair Market Value of
shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the
first time during any calendar year under the
Plan or any other stock option plan of the
Company, exceeds $100,000, or such higher value
as may be permitted under Section 422 of the
Code, Incentive Stock Options in excess of the
$100,000 limit shall be treated as Non-Statutory
Stock Options. Fair Market Value shall be
determined as of the date of grant for each
Incentive Stock Option.
(4) Each Award Agreement for an Incentive Stock
Option shall require the individual to notify
the Committee within ten (10) days of any
disposition of shares of Common Stock under the
circumstances described in Section 421(b) of the
Code (relating to certain disqualifying
dispositions).
(b) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the
right to receive a payment in Common Stock equal to the excess of the Fair
Market Value of a specified number of shares of Common Stock on the date the
Stock Appreciation Right is exercised over the Fair Market Value of the Common
Stock on the date of grant of the Stock Appreciation Right as set forth in the
applicable award agreement. No Stock Appreciation Right shall be granted unless
(i) the Common Stock is publicly traded, (ii) the Stock Appreciation Right is
settled solely in publicly traded Common Stock of the Company and (iii) there is
no opportunity to further defer the income received on the exercise of the Stock
Appreciation Right.
(c) RELOAD OPTIONS. Simultaneously with the grant of any Option to a
Participant, the Committee may grant the Participant the right to receive a
Reload Option with respect to all or some of the shares covered by such Option.
The right to receive a Reload Option may be granted to a Participant who
satisfies all or part of the exercise price of the Option with shares of Common
Stock; provided, however, that the right (if any) to receive a Reload Option
upon the exercise of an Option shall expire upon the termination of employment
or service. The Reload Option represents an additional Option to acquire the
same number of shares of Common Stock as is used by the Participant to pay for
the original Option or to replace Common Stock withheld by the Bank for payment
of a Participant's withholding tax under Section 10(e). A Reload Option is
subject to all of the same terms and conditions as the original
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Option, including the remaining Option exercise term, except that (i) the
exercise price of the shares of Common Stock subject to the Reload Option will
be determined at the time the original Option is exercised, (ii) such Reload
Option will conform to all provisions of the Plan at the time the original
Option is exercised, and (iii) a Reload Option issued on the exercise of an
Incentive Stock Option may be an Incentive Stock Option or a Non-statutory Stock
Option, subject to the application of the limitation set forth in Code Section
422(d). Once a Reload Option is issued on the exercise of an Option, no further
reload will be permitted on the exercise of such Reload Option.
(d) RESTRICTED STOCK AWARDS. The Committee may make grants of
Restricted Stock Awards, which shall consist of the grant of some number of
shares of Common Stock to an individual upon such terms and conditions as it may
determine, to the extent such terms and conditions are consistent with the
following provisions:
(i) GRANTS OF STOCK. Restricted Stock Awards may only be
granted in whole shares of Common Stock.
(ii) NON-TRANSFERABILITY. Except to the extent permitted by
the Code, the rules promulgated under Section 16(b) of
the Exchange Act or any successor statutes or rules:
(1) The recipient of a Restricted Stock Award grant
shall not sell, transfer, assign, pledge, or
otherwise encumber shares subject to the grant
until full vesting of such shares has occurred.
For purposes of this section, the separation of
beneficial ownership and legal title through the
use of any "swap" transaction is deemed to be a
prohibited encumbrance.
(2) Unless otherwise determined by the Committee,
and except in the event of the Participant's
death or pursuant to a qualified domestic
relations order, a Restricted Stock Award grant
is not transferable and may be earned only by
the individual to whom it is granted during his
or her lifetime. Upon the death of a
Participant, a Restricted Stock Award is
transferable by will or the laws of descent and
distribution. The designation of a beneficiary
shall not constitute a transfer.
(3) If the recipient of a Restricted Stock Award is
subject to the provisions of Section 16 of the
Exchange Act, shares of Common Stock subject to
the grant may not, without the written consent
of the Committee (which consent may be given in
the Award Agreement), be sold or otherwise
disposed of within six (6) months following the
date of grant.
(iii) ISSUANCE OF CERTIFICATES. The Company shall cause to be
issued a stock certificate evidencing such shares,
registered in the name of the Participant to whom the
Restricted Stock Award was granted; provided, however,
that the Company may not cause a stock certificate to be
issued unless it has received a stock power duly
endorsed in blank with respect to such shares. Each
stock certificate shall bear the following legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject
to the restrictions, terms and conditions
(including forfeiture provisions and
restrictions against transfer) contained in the
Cheviot Financial Corp. 2005 Stock-Based
Incentive Plan and the related Award Agreement
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entered into between the registered owner of
such shares and Cheviot Financial Corp. or its
Affiliates. A copy of the Plan and Award
Agreement is on file in the office of the
Corporate Secretary of Cheviot Financial Corp.
This legend shall not be removed until the individual
becomes vested in such shares pursuant to the terms of
the Plan and Award Agreement. Each certificate issued
pursuant to this Section 0(d) shall be held by the
Company or its Affiliates, unless the Committee
determines otherwise.
(iv) TREATMENT OF DIVIDENDS. Participants are entitled to all
dividends and other distributions declared and paid on
all shares of Common Stock subject to a Restricted Stock
Award, from and after the date such shares are awarded
or from and after such later date as may be specified by
the Committee in the Award Agreement, and the
Participant shall not be required to return any such
dividends or other distributions to the Company in the
event of forfeiture of the Restricted Stock Award.
(v) VOTING OF RESTRICTED STOCK AWARDS. Participants who are
granted Restricted Stock Awards may vote all unvested
shares of Common Stock subject to their Restricted Stock
Awards.
7. PAYMENTS; CONSIDERATION FOR AWARDS.
(a) PAYMENTS. Payment by the Company or the Bank for Awards may be
made in the form of cash, Common Stock, or combinations thereof as the Committee
shall determine, subject to Section 0 hereof, and with such restrictions as it
may impose.
(b) CONSIDERATION FOR AWARDS. The Exercise Price for any Award
granted under this Plan or the Common Stock to be delivered pursuant to an
Award, as applicable, may be paid by means of any lawful consideration as
determined by the Committee, including, without limitation, one or a combination
of the following methods:
(i) cash, check payable to the order of the Company, or
electronic funds transfer;
(ii) the delivery of previously owned shares of Common Stock;
(iii) reduction in the number of shares otherwise deliverable
pursuant to the Award; or
(iv) subject to such procedures as the Committee may adopt,
pursuant to a "cashless exercise" with a third party who
provides financing for the purposes of (or who otherwise
facilitates) the purchase or exercise of Awards.
In no event shall any shares newly issued by the Company be issued for
less than the minimum lawful consideration for such shares or for consideration
other than consideration permitted by applicable state law. In the event that
the Committee allows a Participant to exercise an Award by delivering shares of
Common Stock previously owned by such Participant and unless otherwise expressly
provided by the Committee, any shares delivered which were initially acquired by
the Participant from the Company (upon exercise of a stock option or otherwise)
must have been owned by the Participant at least six
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months as of the date of delivery. Shares of Common Stock used to satisfy the
Exercise Price of an Option shall be valued at their Fair Market Value on the
date of exercise. The Company will not be obligated to deliver any shares unless
and until it receives full payment of the Exercise Price and any related
withholding obligations under Section (e), or until any other conditions
applicable to exercise or purchase have been satisfied. Unless expressly
provided otherwise in the applicable Award Agreement, the Committee may at any
time eliminate or limit a Participant's ability to pay the purchase or Exercise
Price of any Award or shares by any method other than cash payment to the
Company.
8. EFFECT OF TERMINATION OF SERVICE ON AWARDS.
(a) GENERAL. The Committee shall establish the effect of a
termination of employment or service on the continuation of rights and benefits
available under an Award or this Plan and, in so doing, may make distinctions
based upon, among other things, the cause of termination and type of Award.
Unless the Committee shall specifically state otherwise at the time an Award is
granted, all Awards to an Employee or Outside Director shall vest immediately
upon such individual's death, Disability or Retirement.
(b) EVENTS NOT DEEMED TERMINATIONS OF EMPLOYMENT OR SERVICE. Unless
Company policy or the Committee provides otherwise, the employment relationship
shall not be considered terminated in the case of (a) sick leave, (b) military
leave, or (c) any other leave of absence authorized by the Company or the
Committee; provided that, unless reemployment upon the expiration of such leave
is guaranteed by contract or law, such leave is for a period of not more than 90
days. In the case of any Employee on an approved leave of absence, continued
vesting of the Award while on leave may be suspended until the Employee returns
to service, unless the Committee otherwise provides or applicable law otherwise
requires. In no event shall an Award be exercised after the expiration of the
term set forth in the Award Agreement.
(c) EFFECT OF CHANGE OF AFFILIATE STATUS. For purposes of this Plan
and any Award, if an entity ceases to be an Affiliate of the Company, a
termination of employment or service shall be deemed to have occurred with
respect to each individual who does not continue as an Employee or Outside
Director with another entity within the Company after giving effect to the
Affiliate's change in status.
9. ADJUSTMENTS; ACCELERATION UPON A CHANGE IN CONTROL.
(a) ADJUSTMENTS. Upon, or in contemplation of, any reclassification,
recapitalization, stock split (including a stock split in the form of a stock
dividend) or reverse stock split ("stock split"); any merger, combination,
consolidation, or other reorganization; any spin-off, split-up, or similar
extraordinary dividend distribution with respect to the Common Stock (whether in
the form of securities or property); any exchange of Common Stock or other
securities of the Company, or any similar, unusual or extraordinary corporate
transaction affecting the Common Stock; or a sale of all or substantially all
the business or assets of the Company in its entirety; then the Committee shall,
in such manner, to such extent (if any) and at such times as it deems
appropriate and equitable under the circumstances:
(i) proportionately adjust any or all of: (1) the number and
type of shares of Common Stock (or other securities)
that thereafter may be made the subject of Awards
(including the specific Share Limits, maximums and
numbers of shares set forth elsewhere in this Plan); (2)
the number, amount and type of shares of Common Stock
(or other securities or property) subject to any or all
outstanding Awards; (3) the grant, purchase, or Exercise
Price of any or all outstanding
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Awards; (4) the securities, cash or other property
deliverable upon exercise or payment of any outstanding
Awards; or (5) the performance standards applicable to
any outstanding Awards; or
(ii) make provision for a cash payment or for the assumption,
substitution or exchange of any or all outstanding
Awards, based upon the distribution or consideration
payable to holders of the Common Stock.
(b) The Committee may adopt such valuation methodologies for
outstanding Awards as it deems reasonable in the event of a cash or property
settlement and, in the case of Options, may base such settlement solely upon the
excess if any of the per share amount payable upon or in respect of such event
over the Exercise Price or base price of the Award. With respect to any Award of
an Incentive Stock Option, the Committee may not make an adjustment that causes
the Option to cease to qualify as an Incentive Stock Option without the consent
of the affected Participant.
(c) Upon any of the events set forth in Section 0(a), the Committee
may take such action prior to such event to the extent that the Committee deems
the action necessary to permit the Participant to realize the benefits intended
to be conveyed with respect to the Awards in the same manner as is or will be
available to stockholders of the Company generally. In the case of any stock
split or reverse stock split, if no action is taken by the Committee, the
proportionate adjustments contemplated by Section 0(a)(i) above shall
nevertheless be made.
(d) AUTOMATIC ACCELERATION OF AWARDS. Upon a Change in Control of
the Company, each Option then outstanding shall become fully vested and all
Restricted Stock Awards then outstanding shall fully vest free of restrictions.
10. MISCELLANEOUS PROVISIONS.
(a) COMPLIANCE WITH LAWS. This Plan, the granting and vesting of
Awards under this Plan, the offer, issuance and delivery of shares of Common
Stock, the acceptance of promissory notes and/or the payment of money under this
Plan or under Awards are subject to all applicable federal and state laws, rules
and regulations (including, but not limited to, state and federal securities
laws) and to such approvals by any listing, regulatory or governmental authority
as may, in the opinion of securities law counsel for the Company, be necessary
or advisable in connection therewith. The person acquiring any securities under
this Plan will, if requested by the Company, provide such assurances and
representations to the Company as may be deemed necessary or desirable to assure
compliance with all applicable legal and accounting requirements.
(b) CLAIMS. No person shall have any claim or rights to an Award (or
additional Awards, as the case may be) under this Plan, subject to any express
contractual rights to the contrary (set forth in a document other than this
Plan).
(c) NO EMPLOYMENT/SERVICE CONTRACT. Nothing contained in this Plan
(or in any other documents under this Plan or in any Award Agreement) shall
confer upon any Participant any right to continue in the employ or other service
of the Company, constitute any contract or agreement of employment or other
service or affect an Employee's status as an employee-at-will, nor interfere in
any way with the right of the Company to change a Participant's compensation or
other benefits, or terminate his or her employment or other service, with or
without cause. Nothing in this Section 0(c), however, is intended to adversely
affect any express independent right of such Participant under a separate
employment or service contract other than an Award Agreement.
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(d) PLAN NOT FUNDED. Awards payable under this Plan shall be payable
in shares of Common Stock or from the general assets of the Company. No
Participant, beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock, except
as expressly provided otherwise) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
beneficiary or other person. To the extent that a Participant, beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
(e) TAX WITHHOLDING. Upon any exercise, vesting, or payment of any
Award, or upon the disposition of shares of Common Stock acquired pursuant to
the exercise of an Incentive Stock Option prior to satisfaction of the holding
period requirements of Section 422 of the Code, the Company shall have the
right, at its option, to:
(i) require the Participant (or the Participant's personal
representative or beneficiary, as the case may be) to
pay or provide for payment of at least the minimum
amount of any taxes which the Company may be required to
withhold with respect to such Award or payment; or
(ii) deduct from any amount otherwise payable in cash to the
Participant (or the Participant's personal
representative or beneficiary, as the case may be) the
minimum amount of any taxes which the Company may be
required to withhold with respect to such cash payment.
In any case where a tax is required to be withheld in connection with
the delivery of shares of Common Stock under this Plan, the Committee may, in
its sole discretion (subject to Section 9.1) grant (either at the time of the
Award or thereafter) to the Participant the right to elect, pursuant to such
rules and subject to such conditions as the Committee may establish, to have the
Company reduce the number of shares to be delivered by (or otherwise reacquire)
the appropriate number of shares, valued in a consistent manner at their Fair
Market Value or at the sales price, in accordance with authorized procedures for
cashless exercises, necessary to satisfy the minimum applicable withholding
obligation on exercise, vesting or payment. In no event shall the shares
withheld exceed the minimum whole number of shares required for tax withholding
under applicable law. The Company may, with the Committee's approval, accept one
or more promissory notes from any Participant in connection with taxes required
to be withheld upon the exercise, vesting or payment of any Award under this
Plan; provided, however, that any such note shall be subject to terms and
conditions established by the Committee and the requirements of applicable law.
(f) EFFECTIVE DATE, TERMINATION AND SUSPENSION, AMENDMENTS. This
Plan is effective upon receipt of shareholder approval. Unless earlier
terminated by the Board, this Plan shall terminate at the close of business on
the day before the tenth anniversary of the effective date. After the
termination of this Plan either upon such stated expiration date or its earlier
termination by the Board, no additional Awards may be granted under this Plan,
but previously granted Awards (and the authority of the Committee with respect
thereto, including the authority to amend such Awards) shall remain outstanding
in accordance with their applicable terms and conditions and the terms and
conditions of this Plan.
(i) TERMINATION; AMENDMENT. Subject to applicable laws and
regulations, the Board of Directors may, at any time,
terminate or, from time to time, amend, modify or
suspend this Plan, in whole or in part; provided,
however, that no amendment may have the effect of
repricing Options. No Awards may be granted during any
A-12
period that the Board of Directors suspends this Plan.
(ii) STOCKHOLDER APPROVAL. Any amendment to this Plan shall
be subject to stockholder approval to the extent then
required by applicable law or any applicable listing
agency or required under Sections 162, 422 or 424 of the
Code to preserve the intended tax consequences of this
Plan, or deemed necessary or advisable by the Board.
(iii) LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No
amendment, suspension or termination of this Plan or
change affecting any outstanding Award shall, without
the written consent of the Participant, affect in any
manner materially adverse to the Participant any rights
or benefits of the Participant or obligations of the
Company under any Award granted under this Plan prior to
the effective date of such change. Changes, settlements
and other actions contemplated by Section 0 shall not be
deemed to constitute changes or amendments for purposes
of this Section 0(f).
(g) GOVERNING LAW; COMPLIANCE WITH REGULATIONS; CONSTRUCTION;
SEVERABILITY.
(i) GOVERNING LAW. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall
be governed by, and construed in accordance with, the
laws of the State of Ohio, except to the extent that
federal law shall apply.
(ii) FEDERAL REGULATIONS. This Plan is subject to the
requirements of 12 C.F.R. Part 575. Notwithstanding any
other provision in this Plan, no shares of Common Stock
shall be issued with respect to any Award to the extent
that such issuance would cause the Company's mutual
holding company to fail to qualify as a mutual holding
company under applicable federal regulations.
(iii) SEVERABILITY. If a court of competent jurisdiction holds
any provision invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.
(iv) PLAN CONSTRUCTION; RULE 16B-3. It is the intent of the
Company that the Awards and transactions permitted by
Awards be interpreted in a manner that, in the case of
Participants who are or may be subject to Section 16 of
the Exchange Act, qualify, to the maximum extent
compatible with the express terms of the Award, for
exemption from matching liability under Rule 16b-3
promulgated under the Exchange Act. Notwithstanding the
foregoing, the Company shall have no liability to any
Participant for Section 16 consequences of Awards or
events affecting Awards if an Award or event does not so
qualify.
(h) CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.
(i) NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board of Directors or the Committee to
grant Awards or authorize any other compensation, with or without reference to
the Common Stock, under any other plan or authority.
A-13
IN WITNESS WHEREOF, Cheviot Financial Corp. has caused the Plan to be
executed by its duly authorized officers and the corporate seal to be affixed
and duly attested as of the __________ day of ___________________, 2005.
Date Approved by Stockholders:___________________________
Effective Date:__________________________________
ATTEST: CHEVIOT FINANCIAL CORP.
__________________________ ____________________________________
Secretary
A-14
REVOCABLE PROXY
CHEVIOT FINANCIAL CORP.
ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2005
The undersigned hereby appoints the official proxy committee consisting
of the Board of Directors of Cheviot Financial Corp. (the "Company") with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of Common Stock of the Company which the undersigned is entitled
to vote at the Annual Meeting of Shareholders ("Annual Meeting") to be held at
the Company's main office at 3723 Glenmore Avenue, Cheviot, Ohio 45211, on April
26, 2005, at 3:00 p.m., Eastern Time. The official proxy committee is authorized
to cast all votes to which the undersigned is entitled as follows:
FOR WITHHELD
1. The election as Directors of the nominees [ ] [ ]
listed below each to serve for a three-year
term.
John T. Smith
Robert Thomas
INSTRUCTION: To withhold your vote for one or more
nominees, write the name of the
nominee(s) on the line(s) below.
__________________________________
__________________________________
FOR WITHHELD ABSTAIN
2. The ratification of the appointment of Grant [ ] [ ] [ ]
Thornton LLP as the Company's independent auditor
for the fiscal year ending December 31, 2005.
FOR WITHHELD ABSTAIN
3. To approve the 2005 Stock-Based Incentive Plan [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSALS.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NOMINEE STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THE
MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual
Meeting or at any adjournment thereof and after notification to the Secretary of
the Company at the Annual Meeting of the shareholder's decision to terminate
this proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect. This proxy may also be revoked by
sending written notice to the Secretary of the Company at the address set forth
on the Notice of Annual Meeting of Stockholders, or by the filing of a later
proxy prior to a vote being taken on a particular proposal at the Annual
Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of notice of the Annual Meeting, a proxy statement dated
March 26, 2005 and audited financial statements.
Dated: ___________________________ [ ] Check Box if You Plan
to Attend Annual Meeting
_________________________________ _________________________________
PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
_________________________________ _________________________________
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title.
PLEASE COMPLETE AND DATE THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.