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2
[LOGO]
Cheviot Financial Corp.
3723 Glenmore Avenue
Cheviot, Ohio 45211
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 2004
To Our Shareholders:
The first Annual Meeting of Shareholders of Cheviot Financial Corp. (the
"Company") will be held on Tuesday, April 27, 2004, at 3:00 p.m. Eastern
Daylight Savings Time at Cheviot Savings Bank, 3723 Glenmore Avenue, Cheviot,
Ohio 45211, for the following purposes:
1. To elect two Class I directors to serve three-year terms ending in 2007;
2. To ratify the selection of Grant Thornton LLP as the Company's
independent auditors; and
3. 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
23, 2004 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 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 29, 2004
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TABLE OF CONTENTS
Page
PROXY STATEMENT .................................................................................... 1
PROPOSAL 1 - ELECTION OF DIRECTORS.................................................................. 2
BOARD STRUCTURE AND COMPENSATION ................................................................... 3
Affirmative Determinations Regarding Director Independence and Other Matters .................. 3
Compensation of Directors ..................................................................... 3
Board and Committee Meetings .................................................................. 4
Executive Sessions of Non-Management Directors ................................................ 5
The Director Nomination Process ............................................................... 5
Audit Committee Report ........................................................................ 6
"Compensation Committee" Report ............................................................... 6
Independent Auditor Fees ...................................................................... 6
Code of Business Conduct and Ethics ........................................................... 7
COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION .................................................. 7
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................................ 8
SUMMARY COMPENSATION TABLE ......................................................................... 9
Grant of Stock Options and Stock Appreciation Rights in Last Fiscal Year ...................... 9
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values .............. 9
Long-Term Incentive Plans - Awards in Last Fiscal Year ........................................ 9
Employment Contracts and Termination of Employment and Change-in-Control Arrangements ......... 9
401(k) Plan ................................................................................... 11
Employee Stock Ownership Plan ("ESOP") ........................................................ 11
Effect of Change in Control on Certain Executive Compensation Plans ........................... 12
Certain Transactions and Compensation Arrangements ............................................ 12
PROPOSAL 2 - RATIFICATION OF SELECTION OF AUDITOR .................................................. 12
STOCK PERFORMANCE GRAPH ............................................................................ 13
OTHER MATTERS ...................................................................................... 13
Section 16(a) Beneficial Ownership Reporting Compliance ....................................... 13
Shareholder Proposals for Next Year's Annual Meeting .......................................... 13
Other Matters to Come Before the Meeting ...................................................... 14
Annual Report to Shareholders ................................................................. 14
Proxy Statements for Shareholders Sharing the Same Household Mailing Address .................. 14
Shareholder Communications with the Board of Directors ........................................ 14
CHEVIOT FINANCIAL CORP.
3723 Glenmore Avenue
Cheviot, Ohio 45211
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held on Tuesday, April 27, 2004
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 first Annual Meeting of Shareholders (the "Annual
Meeting"). The Annual Meeting will be held on Tuesday, April 27, 2004, 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,
2003 are first being mailed on or about March 29, 2004 to the Company's
shareholders of record on March 23, 2004 (the "Record Date").
A shareholder who delivers an executed 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 2004; and (3) in accordance with the best
judgment of the named proxies on any other matters properly brought before the
Annual Meeting.
The trustee of the Cheviot Savings Bank 401(k) Retirement Savings Plan
will vote plan shares as participants direct. The trustee will vote plan shares
for which it receives no direction in the proportion that it votes plan shares
for which voting directions are received. The proxy card serves as the voting
instruction card to provide voting instructions to the trustee.
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. Under federal banking law, if a quorum is
present, 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. If a quorum is present, approval of all other matters that
properly come before the meeting requires that the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on the
proposal. 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 and the inspector of elections for the Annual Meeting.
The Company is the parent company of Cheviot Savings Bank (the "Bank").
The Company was formed as a corporation chartered by the Office of Thrift
Supervision in connection with the Bank's mutual holding company reorganization
that became effective on January 5, 2004 (the "Reorganization Date"), and it 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).
As of the Record Date, the Company had 9,918,751 shares of Common Stock
issued and outstanding. 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.
PROPOSAL 1 - ELECTION OF DIRECTORS
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 2007 and until their successors have been elected and
qualified.
The Board has nominated Edward L. Kleemeier and James E. Williamson,
each of whom is an incumbent director, as Class I directors, to serve until the
2007 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. Kleemeier and Williamson 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.
CLASS I DIRECTORS NOMINEES
(TERMS EXPIRES AT THE 2007 ANNUAL MEETING OF SHAREHOLDERS)
EDWARD L. KLEEMEIER, 69, 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, 59, 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.
CLASS II DIRECTORS
(TERMS EXPIRE AT THE 2005 ANNUAL MEETING OF SHAREHOLDERS)
JOHN T. SMITH, 59, 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, 61, 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.
CLASS III DIRECTORS
(TERMS EXPIRE AT THE 2006 ANNUAL MEETING OF SHAREHOLDERS)
GERHARD H. HILLMANN, 68, 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, 50, 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.
2
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF MESSRS.
KLEEMEIER AND WILLIAMSON 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
Edward L. Kleemeier
Robert Thomas
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 fiscal period from
April 1, 2003 to December 31, 2003, non-employee directors received $10,500 in
compensation for board membership (on the Bank) and $2,250 for committee
membership. During the fiscal year ended March 31, 2003, directors received a
$14,000 annual retainer for board membership (on the Bank) and an additional
$3,000 retainer for membership on a committee, plus a bonus in the amount of
$5,100. The bonus program for directors was terminated on March 31, 2003.
COMPENSATION OF DIRECTORS WHO ARE ALSO EMPLOYEES. During the fiscal
period from April 1, 2003 to December 31, 2003, Mr. Linneman, the only director
who is also an employee of the Company or the Bank, received $10,500 in
compensation for board membership (on the Bank). During the fiscal year ended
March 31, 2003, Mr. Linneman received a $14,000 annual retainer for board
membership (on the Bank) plus a bonus in the amount of $4,200. Mr. Linneman did
not receive any compensation for committee membership. The bonus program for
directors was terminated as of March 31, 2003.
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.
3
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 $56,000 and $229,000 for the directors deferred compensation plan
for the nine months ended December 31, 2003 and the fiscal year ended March 31,
2003, respectively.
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 6 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 period from
January 1, 2003 to December 31, 2003, the Board of Directors of the Bank held 28
regular and special meetings. During the year ended December 31, 2003, no
director attended fewer than 75 percent of the total meetings of the Board of
Directors of the Bank and committees on which such director served.
AUDIT COMMITTEE. The Audit Committee consists of three of the
Independent Directors, Messrs. Hillmann, Kleemeier and Williamson. The committee
engages and dismisses of 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 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 export. 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 two times since the
Reorganization Date and the audit committee for the Bank met four times in 2003.
Pursuant to applicable regulations, the Audit Committee has adopted a
written charter which is attached as Appendix A.
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 process used by the
Nominating Committee in its consideration and nomination of directors for
election is detailed on page 5. The Nominating Committee does not 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 has met one time since the
Reorganization Date. The Bank does not have a separate Nominating Committee.
"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.
4
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 procedures for such communications are
described on page 14.
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.
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.
5
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 2003, 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. A copy of the Audit Committee charter is attached as Appendix
A to this Proxy Statement. 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, 2003 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, 2003 in the Annual
Report to Shareholders for the Company.
Respectfully submitted,
Gerhard H. Hillmann
Robert Thomas
James E. Williamson
"COMPENSATION COMMITTEE" REPORT
In accordance with the rules and interpretations of the SEC, no report
of the Compensation Committee is required to be included in this Proxy Statement
because the Company was not a public company at any time during 2003.
Notwithstanding the above, the compensation committee of the Bank was composed
of Messrs. Kleemeier, Linneman and Smith. The Bank's compensation committee has
the responsibility of assuring that the compensation of the executive officers
of the Bank is consistent with the compensation strategy, competitive practices,
the performance of the Bank, and the requirements of appropriate regulatory
agencies. All cash compensation paid to executive officers is paid by the Bank.
The Company does not currently pay any cash compensation to executive officers.
INDEPENDENT AUDITOR FEES
The following table sets forth the aggregate fees billed to the Company
(or the Bank) for fiscal period from April 1, 2003 to December 31, 2003 and the
2002 fiscal year ended March 31, 2003 by Grant Thornton:
2003 2002
---- ----
Audit Fees $ 34,500 $ 38,000
All Other Fees
Audit Related Fees 34,300 -
Tax Fees 8,100 3,100
Stock Offering Related Fees 133,400 -
------------- ------------
Total All Other Fees $ 175,800 $ 3,100
AUDIT-RELATED Fees consist of fees for assurance and related services
that are reasonably related to the performance of
6
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, 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 2004, 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.
COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company does not have a separate
compensation committee. None of the members of the compensation committee of the
Bank's board of directors is or has been an officer or employee of the Company
or the Bank. None of the Company's executive officers serve as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or the
compensation committee of the Bank.
7
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
named in the Summary Compensation Table on page 9, 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 55.00%
Cheviot Financial Corp. Employee Stock Ownership Plan (the 357,075(3) 3.60%
"ESOP")
Gerhard H. Hillmann ............................................ - *
Edward L. Kleemeier ............................................ 11,428(4) *
Thomas J. Linneman ............................................. 25,000(5) *
John T. Smith .................................................. 15,000(6) *
Robert L. Thomas ............................................... 10,200 *
James E. Williamson ............................................ 6,422 *
Kevin M. Kappa ................................................. 20,885(7) *
Jeffrey J. Lenzer ............................................. 8,804(8) *
All Directors and Executive Officers as a Group (9 persons) .... 122,739(9) 1.24%
----------------------------------------------------------------------------------------------------------------------------
* 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 23, 2004.
As of that date, no options were issued and 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, no shares have been allocated to ESOP
participants. Messrs. Thomas J. Linneman and Scott T. Smith have been
appointed to serve as the Trustees and the Committee for the ESOP. 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.
(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 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 (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.
(8) 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.
(9) 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
40,965 of the shares.
8
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 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 $100,000
during the reporting period.
NAME AND PRINCIPAL POSITION YEAR (1) ANNUAL COMPENSATION (2)
------------------------------------------ -------- ----------------------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY($) BONUS($) COMPENSATION ($) COMPENSATION ($)
------------------------------------------ -------- ----------- ------------ -------------------- ------------------
Thomas J. Linneman, 2003 $116,454 $0 - (3) $13,994 (4)
President and CEO 2002 $153,271 $44,793 - (3) $35,777 (4)
Kevin M. Kappa, 2003 $69,849 $0 - (3) $2,095 (5)
Vice President-Compliance of the Bank 2002 $93,109 $26,184 - (3) $8,155 (5)
Jeffrey J. Lenzer, 2003 $69,849 $0 - (3) $2,095 (6)
Vice President-Lending of the Bank 2002 $93,109 $26,184 - (3) $8,149 (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) All compensation set forth in the table was paid for by the Bank prior
to the Reorganization Date.
(3) 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.
(4) The amounts shown include (i) matching contributions by the Bank to the
Bank's 401(k) Plan on behalf of Mr. Linneman of $3,494 and $14,577 for
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 $10,500 and $18,200 for the fiscal stub period of 2003 and fiscal
year 2002 fees, respectively.
(5) The amounts shown include (i) matching contributions by the Bank to the
Bank's 401(k) Plan on behalf of Mr. Kappa of $2,095 and $8,155 for the
fiscal stub period of 2003 and fiscal year 2002, respectively.
(6) The amounts shown include (i) matching contributions by the Bank to the
Bank's 401(k) Plan on behalf of Mr. Lenzer of $2,095 and $8,149 for the
fiscal stub period of 2003 and fiscal year 2002, respectively.
GRANTS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted in 2003.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No stock options were exercised in 2003 and no stock options were
outstanding as of December 31, 2003.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
No awards were granted under any long-term incentive plan in 2003.
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
9
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 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
10
may be extended for an additional one-year period beyond the then 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 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 will be held in a
suspense account for allocation among participants as the loan is repaid.
11
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be allocated
among employee stock ownership plan participants on the basis of compensation in
the year of allocation. Benefits under the plan will become 100% vested upon
completion of five years of credited service. A participant's interest in his or
her account under the plan will 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 will be
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, 2003, there were a total of 15 loans to directors/officers of
the Bank with a total balance of approximately $1.1 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 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, 2004. Grant Thornton audited the
financial statements of the Bank for the fiscal stub period of April 1, 2003 to
December 31, 2003 and for the 2002 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.
12
STOCK PERFORMANCE GRAPH
The graph below shows the bi-weekly cumulative total shareholder return
assuming the investment of $100 on the date specified (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 March 16, 2004. Based upon the initial offering price
of $10 per share (where $10 equals 100%), the percentage value of the Common
Stock on March 16, 2004 was 136.50% of its initial public offering price.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON JANUARY 6, 2004
WITH DIVIDENDS REINVESTED
[PERFORMANCE GRAPH]
------------------------------------------------------------------------------------------------------------------------------------
January 6, 2004 January 20, 2004 February 3, 2004 February 17, 2004 March 2, 2004 March 16, 2004
------------------------------------------------------------------------------------------------------------------------------------
Cheviot Financial Corp. $ 100.00 $ 98.95 $ 99.85 $ 101.43 $ 99.92 $ 102.48
NASDAQ Composite Index $ 100.00 $ 104.40 $ 100.43 $ 101.12 $ 99.14 $ 94.45
SNL MHC Index $ 100.00 $ 102.65 $ 109.74 $ 111.12 $ 110.20 $ 108.33
Source: SNL Financial LC, Charlottesville, Virginia (C)2004.
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 March 15, 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 29,
2004. 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 2005 annual meeting of shareholders without
inclusion of such proposal in the Company's proxy statement must inform the
Company no later than March 28, 2005. If notice is not provided by that date,
the persons named in the Company's proxy for the 2005 annual meeting will be
allowed to exercise their discretionary authority to
13
vote upon any such proposal without the matter having been discussed in the
proxy statement for the 2005 annual meeting. All shareholder proposals and
notices must also meet all requirements set forth in the Company's Charter and
Bylaws.
Shareholders may propose director candidates for consideration by the
Nominating Committee of the Board of Directors. See page 5 for special rules and
procedures. Any such recommendations should be directed to the Executive
Secretary, Cheviot Financial Corp., 3723 Glenmore Avenue, Cheviot, Ohio 45211
and must be received no later than March 28, 2005 for the 2005 annual meeting.
OTHER MATTERS TO COME BEFORE THE MEETING
At the time this Proxy Statement was released for printing on March 23,
2004, 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.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report to Shareholders for the Company for the year ended
December 31, 2003, 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 THE 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 EXHBITS TO THE COMPANY'S FORM 10-K WILL BE FURNISHED FOR A FEE THAT
REASONABLY RELATED TO THE COMPANY'S EXPENSES TO FURNISH SUCH ITEMS.
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 29, 2004
14
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
CHEVIOT FINANCIAL CORP.
The Board of Directors of Cheviot Financial Corp. (the "Corporation")
hereby establishes its Audit Committee. The members of the Audit Committee shall
be elected annually by the Board of Directors in connection with the annual
meeting of the Board or by unanimous written consent of the Board of Directors
in lieu thereof.
The Committee shall be composed of a minimum of three Directors,
including a Chairperson. Each of the Committee members shall meet the
independence requirements of the Nasdaq Stock Market, Inc. In accordance with
Nasdaq requirements, all members of the Committee upon appointment or within a
reasonable time after appointment to the Committee shall be "financially
literate," i.e., able to read and understand fundamental financial statements,
including the Corporation's balance sheet, income statement and cash flow
statement, and at least one member of the Committee shall have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, including a current or
past position as a chief executive or financial officer or other senior officer
with financial oversight responsibilities.
The Committee shall meet four times per year or more frequently as
circumstances require. The Committee may ask members of Management or others to
attend meetings and provide pertinent information as necessary. The Committee
shall keep written minutes of its meetings.
The purpose of the Audit Committee shall be to provide assistance to the
Board of Directors of Cheviot Financial Corp. in fulfilling their responsibility
to the shareholders with respect to oversight of the accounting and financial
reporting practices, the quality and integrity of the financial reports, the
adequacy of the systems of internal controls, and the performance of the
independent auditor of the Corporation and its subsidiaries.
The Audit Committee possesses and is hereby granted the power and
authority of the Board of Directors over the foregoing and over the
Corporation's Financial Matters to the extent necessary to allow the Committee
to carry out its purposes. The matters over which the Audit Committee has
oversight authority include the following (collectively, referred to herein as
"Financial Matters"):
o The quality, accuracy and integrity of the Corporation's annual
and quarterly financial statements, including footnotes and
related disclosures.
o The quality, scope and procedures of the independent auditors'
audits of the Corporation's financial statements.
o The quality, appropriateness and implementation of the
Corporation's significant accounting policies.
o Audit conclusions respecting significant estimates and
adjustments.
o The disclosure, treatment or resolution of any material weakness
in financial reporting or controls or reportable conditions
identified by Management or the independent auditors.
o The quality, adequacy and appropriateness of the Corporation's
internal financial control structures, including any
circumstances in which such controls may be overridden or
compromised.
o Disagreements among Management or the independent auditors.
o The assessment of material risks or contingencies that may
affect the Corporation's financial reporting including the risk
of liability associated with litigation or noncompliance with
law.
o Such other matters affecting the quality, integrity or accuracy
of the Corporation's financial reporting as the
15
Committee deems relevant to any of the foregoing matters.
AUTHORITY RESPECTING INDEPENDENT AUDITORS
The independent auditors shall ultimately be accountable to the Audit
Committee, as representatives of the shareholders and the Corporation's other
constituencies. The Corporation shall not engage or dismiss its independent
auditors without the action of the Audit Committee.
The Audit Committee shall take such action as it deems appropriate to
ensure that the Corporation receives annually from the independent auditors a
formal written statement, consistent with Independence Standards Board Standard
1, delineating all relationships between the auditors and the Corporation that
may be deemed to affect the independence of the independent auditors, including
any management consulting services provided, or proposed to be provided, by the
independent auditors for the Corporation or any of its affiliates and the fees
paid or proposed to be paid for such services. The Audit Committee shall meet at
least annually with the independent auditors to engage in a dialogue with the
auditors with respect to any disclosed relationships or services that may affect
the objectivity and independence of the auditors.
The Audit Committee has the following specific authority respecting the
independent auditors:
(a) To direct the engagement or dismissal of the independent auditors.
(b) To assess any matter that may affect the independence of the
independent auditors and the appearance of propriety of any such
matter.
(c) To direct the independent auditors to meet with the Audit Committee
or the Board of Directors from time to time, separately or in the
presence of Management or others, to discuss Financial Matters or to
prepare and submit reports to the Committee respecting Financial
Matters.
(d) To take action to resolve any disagreement respecting accounting
principles, the implementation or application of such principles or
Financial Matters between Management and the independent auditors.
AUTHORITY OVER MANAGEMENT ACTIVITIES RELATING TO FINANCIAL MATTERS
The Audit Committee has the following specific authority over the
activities of Management in Financial Matters:
(a) To direct the Chief Financial Officer or other members of Management
to meet with the Audit Committee or the Board of Directors from time
to time, separately or in the presence of the independent auditors,
or others, to discuss Financial Matters or to prepare and submit
reports to the Committee respecting Financial Matters.
(b) To assess the quality, adequacy and appropriateness of the
accounting principles and policies implemented and applied by the
Corporation and the quality, integrity and accuracy of the
Corporation's financial reporting, and, in the Committee's
discretion, from time to time or upon request, to approve or
disapprove such principles or policies or to approve, disapprove or
mandate any changes therein.
INVESTIGATIONS AND OBTAINING ADVICE
The Audit Committee has the authority to require investigations and to
obtain advice respecting the Corporation's Financial Matters and the Committee's
ability to exercise its authority, as the Committee deems necessary or
appropriate. Without limiting the foregoing, the Committee has authority to
direct Management, including the Corporation's legal counsel, or the independent
auditors to investigate any Financial Matters and related issues and to provide
reports to the Committee respecting such investigation. The Committee has
authority to meet with the Corporation's external general counsel, to obtain
advice respecting the exercise of the Committee's authority and to direct such
external counsel to investigate such legal issues relating to Financial Matters
and to report to the Committee as the Committee deems necessary or appropriate.
The Committee has authority to direct Management, on behalf of the Corporation,
to engage independent advisors whom the Committee may designate to provide
advice and guidance to the Committee respecting the exercise of its authority
and issues relating to Financial Matters as the Committee deems necessary or
appropriate, including, without limitation, independent legal counsel, and
independent financial advisors which may include investment banking firms or
accounting firms, other than the independent auditors. The Committee has
authority to meet separately with, and to receive private and, where
appropriate, privileged, written or oral communications from any of such
advisors.
16
CHEVIOT FINANCIAL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 27, 2004
The undersigned hereby appoints Thomas J. Linneman, James E. Williamson and Scott T. Smith,
and each or any of them, proxies, with full power of substitution, to represent and to vote
all common shares of Cheviot Financial Corp. held of record by the undersigned on March 23,
2004, at the annual meeting of shareholders to be held on April 27, 2004, at 3:00 p.m.
Eastern Daylight Savings Time at Cheviot Savings Bank, 3723 Glenmore Avenue, Cheviot, Ohio,
45211, and at any adjournment thereof, notice of which meeting together with the related
proxy statement has been received. The proxies are directed to vote the shares the
undersigned would be entitled to vote if personally present.
ITEM 1 Authority to vote for the FOR / / WITHHELD / /
election of Class I directors ALL NOMINEES LISTED AUTHORITY TO VOTE
whose terms expire in 2004. (EXCEPT AS MARKED TO
THE CONTRARY BELOW
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST BELOW:
James E. Williamson Edward L. Kleemeier
ITEM 2 To ratify the selection of Grant FOR / / AGAINST / / ABSTAIN / /
Thornton LLP as independent
auditors to examine the financial
statements of the Company for the
year 2004.
ITEM 3 To transact such other business as may be properly brought before the meeting.
(CONTINUED ON REVERSE SIDE)
CHEVIOT FINANCIAL CORP.
3723 Glenmore Avenue
Cheviot, Ohio 45211
FOLD AND DETACH HERE
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Please vote, date and sign below and return this proxy form promptly in the
enclosed envelope. If you attend the meeting and wish to change your vote, you
may do so automatically by casting your vote at the meeting. This proxy form,
when properly executed, will be voted in accordance with the directions given by
the shareholder. If no directions are given hereon, the proxy form will be voted
FOR the election of directors and FOR the approval of the independent
accountants. This proxy delegates discretionary authority with respect to any
other matters which may come before the meeting.
Dated ______________________________________, 2004
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SIGNATURE
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SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears opposite.
Executors, trustees, administrators and other fiduciaries
should so indicate.