<PAGE> 1
As filed with the Securities and Exchange Commission on July 31, 1997
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SUCCESS BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6712 #36-3497644
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Saul D. Binder
President and Chief Executive Officer
Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069
(847) 634-4200
(Name, Address and Telephone Number of Agent for Service)
Please address a copy of all communications to:
<TABLE>
<S> <C>
Michael J. Gamsky Kurt W. Florian, Jr.
Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Lord, Bissell & Brook
200 N. LaSalle Street, Suite 2100 115 S. LaSalle Street
Chicago, Illinois 60601 Chicago, Illinois 60603
Telephone No: (312) 346-3100 Telephone No: (312) 443-1800
Fax No: (312) 621-1750 Fax No: (312) 443-0336
</TABLE>
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED PER UNIT FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($0.001 par value)..... 1,380,000 shares(1) $12.50 $17,250,000 $5,227
===============================================================================================================
</TABLE>
(1) Includes 180,000 shares of Common Stock subject to the over-subscription
option and the over-allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED AUGUST ___, 1997
PROSPECTUS
1,200,000 SHARES
SUCCESS BANCSHARES, INC.
[LOGO]
COMMON STOCK
Success Bancshares, Inc. (the "Company") is offering for sale up to 1,200,000
shares of its Common Stock, $0.001 par value per share (the "Common Stock"), at
a price of $12.50 per share. Of these shares, 600,000 shares are being offered
by the Company on a "best efforts" basis with the assistance of EVEREN
Securities, Inc. (the "Selling Agent") in a Subscription and Community Offering
(as defined herein) and 600,000 shares are being offered concurrently by the
Selling Agent in a Public Offering (as defined herein). The shares being offered
by the Company in the Subscription and Community Offering are being offered on a
priority basis to shareholders of record of the Company as of September ___,
1997 ("Record Date Shareholders"), and to certain customers of Success National
Bank, a majority owned subsidiary of the Company (the "Bank"), as of September
___, 1997 ("Record Date Customers"), in a subscription offering (the
"Subscription Offering"). The highest priority will be given in the Subscription
Offering to Record Date Shareholders placing purchase orders for shares of
Common Stock offered hereby prior to Noon, Central Time, on _____________, 1997.
To the extent shares of Common Stock are available after satisfying purchase
orders in the Subscription Offering, the Company is offering Common Stock for
sale to the general public in a direct community offering (the "Community
Offering") with preference given to residents of the communities served by the
Bank. The Subscription Offering and Community Offering are collectively referred
to herein as the "Subscription and Community Offering." The Company reserves the
right in its sole discretion, regardless of any priorities or preferences, to
accept or reject orders in whole or in part in the Subscription and Community
Offering, which will expire at Noon, Central Time, on _________, 1997 (the
"Expiration Date"). ONCE MADE, SUBSCRIPTIONS ARE IRREVOCABLE. The shares being
offered concurrently by the Selling Agent in a Public Offering are being offered
to the general public in an underwritten public offering (the "Public Offering")
managed by the Selling Agent. The number of shares of Common Stock to be offered
in the Subscription and Community Offering and the Public Offering is subject to
adjustment as described herein. The Subscription and Community Offering and the
Public Offering are referred to collectively herein as the "Offering."
COMPLETION OF THE OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM
NUMBER OF SHARES.
Prior to this Offering there has been no public market for the Common Stock,
and there can be no assurance that such a market will develop after completion
of the Offering or, if developed, that it will be sustained. For information
relating to the determination of the initial public offering price of the Common
Stock, see "Terms of the Offering." The Company has applied to have its Common
Stock approved for quotation on The Nasdaq National Market(SM) under the
symbol "SXNB" subject to the completion of the Offering.
----------
For information on how to subscribe for shares of Common Stock,
please call the Stock Information Office at (___) ___-____ and ask for
an EVEREN Securities, Inc. representative.
----------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE __ OF THIS PROSPECTUS
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, ANY OTHER GOVERNMENTAL AGENCY OR OTHERWISE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SELLING AGENT
COMMISSIONS AND PROCEEDS TO
PRICE TO PUBLIC UNDERWRITING COMPANY(3)
DISCOUNT(1)(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $12.50 $0.6562 $11.8438
- ---------------------------------------------------------------------------------------------------------------
Total(4)................................... $15,000,000 $787,500 $14,212,500
===============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Selling Agent against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Terms of the Offering."
(2) Of the up to 1,200,000 shares being offered, 600,000 shares are being
offered by the Company on a "best efforts" basis with the assistance of the
Selling Agent in a Subscription and Community Offering and 600,000 shares
are being offered concurrently by the Selling Agent in a Public Offering.
The number of shares of Common Stock to be offered in the Subscription and
Community Offering and the Public Offering is subject to adjustment as
described herein. Assumes all 1,200,000 shares are sold on this basis.
Based upon negotiations between the Company and the Selling Agent, the
Company has agreed to pay the Selling Agent a commission equal to 3.5% of
the aggregate price of the shares sold directly by the Company in the
Subscription and Community Offering and to allow the Selling Agent to
purchase the number of shares to be offered in the Public Offering at the
per share price to public less an underwriting discount of 7%.
(3) Before deducting expenses payable by the Company estimated to be
approximately $650,000, including a maximum of $100,000 reimbursable to the
Selling Agent for out-of-pocket expenses.
(4) Assumes no exercise of the over-subscription or over-allotment option and
the sale of 600,000 shares by the Company in the Subscription and Community
Offering and 600,000 shares by the Selling Agent in the Public Offering
(although there is no minimum number of shares required to be sold). The
Company may, in its sole discretion, increase the number of shares of
Common Stock sold by up to an additional 15% of the number of shares sold
in the Subscription and Community Offering to satisfy unfilled purchase
orders (the "over-subscription option") and has granted to the Selling
Agent an option, exercisable within 30 days of the completion date of the
Public Offering, to purchase up to an additional 15% of the number of
shares sold in the Public Offering at the price to public less underwriting
discount for the purpose of covering over-allotments, if any (the
"over-allotment option"). If the Company exercises the over-subscription
option in full and the Selling Agent exercises the over-allotment option in
full, the total price to public, Selling Agent commissions and underwriting
discount, and proceeds to the Company will be $17,250,000, $905,625, and
$16,344,375, respectively. See "Terms of the Offering."
----------
EVEREN SECURITIES, INC.
The date of this Prospectus is _____________, 1997
<PAGE> 3
SUCCESS BANCSHARES, INC.
[LOGO]
[MAP]
CERTAIN PERSONS PARTICIPATING IN THE PUBLIC OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
COMMON STOCK TO COVER THE SYNDICATE SHORT POSITIONS.
IN CONNECTION WITH THE PUBLIC OFFERING, CERTAIN PERSONS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "TERMS OF THE
OFFERING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus (i) assumes no exercise of the
Company's over-subscription option or the Selling Agent's over-allotment option
and (ii) gives effect to a 1.7-for-1 stock split effected on July 30, 1997 (the
"stock split"). Pro forma information gives effect to the reorganization of the
capital structure of the Company consisting of (a) the increase in the
authorized number of shares of Common Stock to 7,500,000, (b) the changing of
the par value of each share of Common Stock to $0.001, (c) the conversion of all
of the outstanding shares of the Company's Series B Preferred Stock into 91,660
shares of Common Stock (post stock split), (d) the conversion of all of the
outstanding shares of the Company's Class A Common Stock into 171,754 shares of
Common Stock (post stock split), (e) the conversion of the aggregate outstanding
principal amount of the Company's 1991 9% Convertible Subordinated Debentures
(the "1991 Debentures") into 234,594 shares of Common Stock (post stock split),
and (f) the conversion of the aggregate outstanding principal amount of the
Company's 1995 15% and 17% Convertible Subordinated Notes (the "1995 Notes")
into 73,060 shares of Common Stock (post stock split) (collectively, the
"Reorganization"). The Reorganization was completed in July, 1997, except for
the conversion of the 1991 Debentures and 1995 Notes which was effected as of
the date of this Prospectus. Prospective investors should carefully consider the
matters set forth in "Risk Factors."
THE COMPANY
Success Bancshares, Inc., a Delaware corporation (the "Company"), is a
bank holding company headquartered in Lincolnshire, Illinois with total assets
of over $300 million at June 30, 1997. Through its majority owned subsidiary,
Success National Bank (the "Bank"), the Company engages in full service
community banking. The Bank is also headquartered in Lincolnshire, Illinois,
located approximately 35 miles north of downtown Chicago, and has seven branch
offices serving individuals and small-to-medium-sized businesses in communities
in the north and northwest suburbs of Chicago and the north side of Chicago.
These banking facilities, all of which have been established since 1991, are
located in Deerfield (2), Libertyville, Lincolnwood, Chicago (Lincoln Park),
Arlington Heights and Northbrook, Illinois.
The Bank was founded in 1973 with an initial equity investment of $3
million. In 1982, an investment group, including Saul D. Binder, the current
President and Chief Executive Officer of the Company and the Bank, purchased
majority control of the Bank, which at that time had one location and $10
million in total assets. In 1986, the Company was organized as a holding company
for the Bank and a majority of the Bank's shareholders exchanged their shares of
Bank capital stock for shares of Company capital stock. The Company currently
owns 100% of the Bank's outstanding preferred stock and 92% of the Bank's
outstanding common stock.
The Company provides community banking services to individuals,
small-to-medium-sized businesses, local governmental units and institutional
clients primarily in the Northern Chicagoland area. These services include
traditional checking, NOW, money market, savings and time deposit accounts, as
well as a number of innovative deposit products targeted to specific market
segments. The Bank offers home equity, home mortgage, commercial real estate,
commercial and consumer loans, safe deposit facilities and other innovative and
traditional services specially tailored to meet the needs of customers in its
target markets. The Company's goal is to continue to offer innovative,
attractive financial products to businesses and individuals in its market area.
In May, 1996, the Bank became one of the first banks in its market area to go
on-line with its own home page on the World Wide Web
(http://www.successbank.com). The Bank's home page enables consumers to access
information regarding branch locations, deposit and loan rates and economic
forecasts. The Bank recently introduced its Success for Seniors account to
compete with the high cost reverse mortgage products of its competitors. This
new product combines a high rate of interest NOW account with a 20 year home
equity line of credit and the added flexibility of a Visa Gold card.
As a community bank, the Bank stresses personalized service, local
decision making, quick customer response and strong relationships with business,
civic and community organizations. Management believes this marketing and
service approach enables the Bank to compete effectively with the money center,
super regional and regional banks that have a presence in its target markets. By
continuing to offer quality service, management expects to be
3
<PAGE> 5
able to expand the Bank's base of core deposits and to expand loan growth among
its commercial and retail customers.
The Company's goal is to continue to grow the assets of the Bank and
increase profitability while maintaining strong credit quality. To achieve this
goal, the Company's strategic plan is to continue to focus on providing a high
level of service to its core customers while expanding its market share in its
target markets. Key elements of the Company's strategic plan include:
- MAINTAINING STRONG LOCAL PRESENCE AND LOCAL DECISION MAKING AUTHORITY.
The Company believes that its local presence and focus on local decision making
provides the Bank with the competitive advantage of being able to tailor
products and services to meet the needs of the customers and communities in its
target markets, to make decisions for customers quickly, and to enjoy the
symbiotic benefits of investing and participating in its community.
- PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES. The Company
intends to compete with larger institutions by providing a high level of
individualized service and responsiveness. To provide this individualized
personal service, the Company emphasizes the recruiting and training of
competent and highly motivated employees who are able to make decisions and
quickly respond to customers' needs.
- POSITIONED FOR CONTROLLED MARKET EXPANSION. The Company will pursue
disciplined growth in its target markets by opening branches in areas where
management believes local residents and small-to-medium-sized businesses would
benefit from a community banking alternative. The Company's strategic plan also
includes selectively acquiring other financial institutions in its target
markets.
- INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company is committed
to maintaining strong credit quality while increasing income as the Company
grows.
- FOCUSING ON CORE CUSTOMERS. The Company believes that focusing on
establishing and maintaining long-term relationships with individuals and
small-to-medium-sized businesses in its target markets will result in growth and
increased profitability.
- CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to continue
developing innovative loan and deposit products. The Company also intends to
continue developing lending niches which generate loan growth and service its
target markets.
The Company's executive offices are located at One Marriott Drive,
Lincolnshire, Illinois 60069, and its telephone number is (847) 634-4200.
4
<PAGE> 6
THE OFFERING
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COMMON STOCK OFFERED BY THE
COMPANY................................... 1,200,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING........................ 2,740,057 shares(1)
PRICE TO PUBLIC................................ $12.50 per share
USE OF PROCEEDS................................ The Company intends to use the net proceeds from the sale of
shares of Common Stock offered hereby to repay all or a portion
of the amount outstanding under the Company's $8 million
revolving line of credit. At July 30, 1997, approximately $7.4
million of indebtedness was outstanding under the line of
credit. The Company intends to contribute any remaining net
proceeds to the capital of the Bank to support continued growth
of the Bank's loan portfolio.
SUBSCRIPTION OFFERING.......................... 600,000 shares of Common Stock are being offered by the Company
on a priority basis to shareholders of record of the Company as
of September __, 1997, and to certain customers of the Bank as
of September __, 1997. The highest priority will be given to
those Record Date Shareholders placing purchase orders prior to
Noon, Central Time, on _____________, 1997.
COMMUNITY OFFERING............................. To the extent shares of Common Stock are available after
satisfying purchase orders in the Subscription Offering, the
Common Stock is being offered by the Company for sale to the
general public in a direct community offering with a preference
given to residents of the communities served by the Bank. For a
description of the communities served by the Company, see
"Business -- Market." Depending on market demand, the Company
and the Selling Agent may determine to increase or decrease the
number of shares of Common Stock to be offered in the
Subscription and Community Offering relative to the Public
Offering. COMPLETION OF THE SUBSCRIPTION AND COMMUNITY OFFERING
IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER OF
SHARES IN THE OFFERING.
SUBSCRIPTION AND COMMUNITY
OFFERING PERIOD........................... The Subscription and Community Offering will terminate at Noon,
Central Time, on _____________, 1997, unless extended by the
Company.
PUBLIC OFFERING................................ 600,000 shares of Common Stock are being offered concurrently by
the Selling Agent to the general public in an underwritten
Public Offering. Depending on market demand, the Company and
the Selling Agent may determine to increase or decrease the
number of shares of Common Stock to be offered in the Public
Offering relative to the Subscription and Community Offering.
Completion of the Public Offering will be subject to the
execution of a public offering acknowledgment (the "Public
Offering Acknowledgment") pursuant to which the Company and the
Selling Agent agree that the Agency
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5
<PAGE> 7
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Agreement will constitute the underwriting agreement between
the Company and the Selling Agent for purposes of the Public
Offering. The Company and the Selling Agent currently
anticipate that the Public Offering Acknowledgment will be
executed simultaneously with the termination of the
Subscription and Community Offering. Whether the Public
Offering Acknowledgment is executed and the Public Offering is
completed will depend upon, among other factors, the market
conditions then prevailing and the then-current financial
condition of the Company. The number of shares of Common Stock
to be sold in the Public Offering will be determined by the
Selling Agent and the Company. COMPLETION OF THE PUBLIC
OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER
OF SHARES IN THE OFFERING.
OVER-SUBSCRIPTION AND OVER-
ALLOTMENT OPTIONS......................... The Company may, in its sole discretion, increase the number of
shares of Common Stock sold by up to an additional 15% of the
number of shares sold in the Subscription and Community
Offering to satisfy unfilled purchase orders (the
"over-subscription option"). In addition, the Company has
granted to the Selling Agent an option, exercisable within 30
days of the completion date of the Public Offering, to purchase
up to an additional 15% of the number of shares sold in the
Public Offering (the "over-allotment option").
PROCEDURES FOR ORDERING SHARES OF
COMMON STOCK IN THE SUBSCRIPTION
AND COMMUNITY OFFERING.................... Record Date Shareholders, Record Date Customers and other
interested investors in the Subscription and Community Offering
must return to the Company the accompanying original Stock
Order Form (facsimile copies and photocopies will not be
accepted) and a fully executed Certification Form, along with
full payment (or appropriate instructions for authorizing a
withdrawal from a deposit account at the Bank) at $12.50 per
share for all shares subscribed for or ordered prior to Noon,
Central Time, on _________, 1997. The minimum subscription for
any investor is 200 shares, or $2,500.
To receive the highest priority in the Subscription Offering,
Record Date Shareholders must place purchase orders prior to
Noon, Central Time, on ____________, 1997. The Company reserves
the right in its sole discretion, regardless of priorities or
preferences, to accept or reject orders in whole or in part in
the Subscription and Community Offering. Subscription proceeds
will be held in a non-interest bearing escrow account at the
Bank pending closing of the Offering. ONCE MADE, SUBSCRIPTIONS
ARE IRREVOCABLE. COMPLETION OF THE SUBSCRIPTION AND COMMUNITY
OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER
OF SHARES IN THE OFFERING. Delivery of certificates evidencing
the shares will be made either directly to purchasers of the
shares or through the facilities of the Depository Trust
Company as soon as practicable following completion of the
Offering. See "Terms
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6
<PAGE> 8
<TABLE>
<S> <C>
of the Offering" for complete instructions for ordering shares
and terms and conditions of the Subscription and Community
Offering.
DIVIDEND POLICY................................ The Company intends to retain future earnings for the operation
and expansion of its business and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future.
See "Dividend Policy."
PROPOSED NASDAQ NATIONAL MARKET(SM)
SYMBOL.................................... SXNB
</TABLE>
- --------------
(1) Assuming 1,200,000 shares of Common Stock are sold in the Offering.
Excludes 170,000 shares of Common Stock reserved for issuance under the
Success Bancshares, Inc. 1995 Stock Option Plan (the "1995 Stock Option
Plan") and 115,090 shares reserved for issuance pursuant to options granted
prior to the implementation of the 1995 Stock Option Plan. There are
currently 153,340 options outstanding, including options outstanding under
the 1995 Stock Option Plan, each of which entitles the holder thereof to
purchase one share of Common Stock. See "Management -- Stock Option Plans."
The weighted average exercise price per share for all of the currently
outstanding options is $5.02. Of the currently outstanding options, 127,840
are currently exercisable at a weighted average price of $4.79 per share.
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial and other data should be read in
conjunction with the Company's Consolidated Financial Statements, including the
accompanying notes, appearing elsewhere in this Prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Results for interim periods are not necessarily indicative of
results to be expected during the remainder of the year or for any future
period.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest income .......................... $ 11,215 $ 9,568 $ 19,850 $ 18,675 $ 14,619 $ 10,960 $ 9,952
Interest expense ......................... 5,725 4,806 10,020 9,886 7,221 5,016 4,794
---------- ---------- ---------- ---------- ----------- -------- --------
Net interest income .................. 5,490 4,762 9,830 8,789 7,398 5,944 5,158
Provision for loan losses ................ 228 128 310 207 250 220 315
---------- ---------- ---------- ---------- ----------- -------- --------
Net interest income after provision for
loan losses ......................... 5,262 4,634 9,520 8,582 7,148 5,724 4,843
Other operating income ................... 3,913 3,299 7,149 6,004 5,007 5,501 4,561
Other operating expenses ................. 8,620 7,481 15,630 13,342 12,016 10,144 8,217
Minority interest in income of
subsidiary bank ..................... 7 13 23 47 58 79 129
---------- ---------- ---------- ---------- ----------- -------- --------
Income before taxes ................... 548 439 1,016 1,197 81 1,002 1,058
Income tax expense (benefit) ............. 188 92 233 260 (182) 176 285
---------- ---------- ---------- ---------- ----------- -------- --------
Net income ............................ $ 360 $ 347 $ 783 $ 937 $ 263 $ 826 $ 773
========== ========== ========== ========== =========== ======== ========
COMMON SHARE DATA(1):
Earnings per common and common
equivalent share
Primary ............................... $ 0.29 $ 0.30 $ 0.66 $ 0.89 $ 0.25 $ 0.87 $ 0.84
Fully diluted ......................... 0.29 0.30 0.66 0.86 0.25 0.84 0.82
Book value(2) ............................ 9.35 8.52 8.99 7.48 5.54 7.27 6.14
Weighted average common and common
equivalent shares outstanding ....... 1,239,388 1,150,971 1,182,286 1,057,461 1,032,253 952,441 923,812
PRO FORMA COMMON SHARE DATA(1)(3):
Earnings per common and common
equivalent share
Primary................................ $ 0.30 $0.63
Fully diluted.......................... 0.30 0.63
Book value................................ 8.96 8.69
Weighted average common and common
equivalent shares outstanding........ 1,603,417 1,566,639
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans, net ................................. $230,075 $176,872 $203,299 $171,135 $137,135 $106,563 $ 84,532
Total assets ............................... 305,955 253,031 276,349 251,338 222,809 190,677 143,695
Deposits ................................... 268,236 222,690 245,105 227,308 204,171 162,676 132,155
Borrowings, including repurchase
agreements ............................... 24,386 19,261 18,975 14,395 11,174 19,644 4,319
Shareholders' equity(4) .................... 9,758 8,823 9,234 7,366 5,325 6,276 5,108
</TABLE>
8
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<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------------------------------
PRO FORMA PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(5) AS ADJUSTED(3)(6)
--------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans, net.................................. $ 230,075 $ 230,075 $ 230,075 $ 230,075
Total assets................................ 305,955 305,955 307,996 315,102
Deposits.................................... 268,236 268,236 268,236 268,236
Borrowings, including repurchase agreements. 24,386 21,219 16,804 16,804
Shareholders' equity........................ 9,758 12,925 19,382 26,488
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE DATA:
Net interest margin(7) ..................... 4.19% 4.26% 4.25% 4.14% 4.14% 4.38% 4.50%
Return on average assets ................... 0.25 0.28 0.31 0.40 0.13 0.53 0.59
Return on average equity(8) ................ 7.58 8.52 9.09 15.78 4.58 14.97 15.35
Loans to deposits .......................... 85.77 79.43 82.94 75.29 67.17 65.51 63.96
ASSET QUALITY RATIOS:
Nonperforming loans to total loans(9) ...... 0.49% 0.22% 0.06% 0.37% 0.28% 1.28% 1.11%
Nonperforming assets to total assets ....... 0.37 0.16 0.04 0.25 0.17 0.72 0.66
Allowance for loan losses to total loans ... 0.70 0.70 0.70 0.70 0.70 0.80 0.76
Nonperforming loans to
allowance for loan losses ............... 70.10 31.75 8.28 53.74 38.10 160.35 146.37
Net loan charge-offs to average loans(10)... 0.02 0.06 0.04 0.01 0.08 0.01 0.25
OTHER:
Branch offices ............................. 7 7 7 7 5 4 2
Full-time equivalent employees ............. 143 139 144 150 120 114 73
</TABLE>
- ----------------
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) Common share data has been restated to reflect the stock split.
(2) Book value per share is calculated using total shareholders' equity plus
stock owned by Employee Stock Ownership Plan ("ESOP") participants, net of
ESOP loan, divided by shares outstanding at end of period.
(3) The pro forma information reflects the completion of the Reorganization.
(4) The decrease in shareholders' equity from $6,276 in 1993 to $5,325 in 1994
is primarily attributable to the implementation of SFAS 115 Accounting for
Certain Investments in Debt and Equity Securities on December 31, 1993. The
unrealized net loss on securities available-for-sale, net of tax declined
$1.7 million during 1994, and was recorded as a reduction in shareholders'
equity.
(5) Adjusted to reflect the Offering (assuming the sale of 600,000 shares and
net proceeds of $6.5 million and assuming no exercise of the
over-subscription option or the over-allotment option) and the application
of $4.4 million of the net proceeds to repay the amount outstanding under
the Company's revolving line of credit. See "Use of Proceeds."
(6) Adjusted to reflect the Offering (assuming the sale of 1,200,000 shares and
net proceeds of $13.6 million and assuming no exercise of the
over-subscription option or the over-allotment option) and the application
of $4.4 million of the net proceeds to repay the amount outstanding under
the Company's revolving line of credit. See "Use of Proceeds."
(7) Net interest income on a tax-equivalent basis divided by average interest
earning assets.
(8) Net income divided by average common equity.
(9) Nonperforming loans consist of non-accrual loans and loans contractually
past due 90 days or more and still accruing.
(10) All interim periods have been annualized.
9
<PAGE> 11
RISK FACTORS
Prospective investors should consider carefully the following factors
associated with the ownership of Common Stock together with the other
information contained in this Prospectus.
IMPACT OF BRANCH OPENINGS AND ACQUISITIONS ON PROFITABILITY
The Company's recent historical results have been impacted by the opening
of its branch banking facilities. Each of the various branch facilities was
newly opened by the Company within the past six years, including the Arlington
Heights branch which opened in September, 1997. While management believes that
the Company has demonstrated significant success to date in deposit generation
and will likely continue to increase its loans-to-deposits ratio as loan
origination activities increase, the level of reported net income and return on
average assets for the Company will in the near term continue to be impacted by
start-up costs associated with these branching operations. Management believes
that new branch facilities typically require 18 to 30 months of operation before
becoming profitable, due to the impact of organizational and overhead expenses,
the start-up phase of generating deposits and the time lag typically involved in
redeploying deposits into attractively priced loans and other higher yielding
earning assets. The Company intends to expand in its target markets by
establishing additional branches. To the extent the Company undertakes
additional branching, the Company is likely to continue to experience the
effects of higher operating expenses relative to operating income from the new
branches, which may limit increases in profitability. The Company's ability to
expand by establishing new branch offices is dependent on its ability to
identify advantageous branch office locations and generate new deposits and
loans from those locations that will create an acceptable level of net income
for the Company. There can be no assurance the Company will be able to
successfully establish additional branches.
Although the Company has expanded through establishing new branch offices
in the past, the Company's strategic plan also includes selectively acquiring
other financial institutions in its target markets. There can be no assurance
that potential acquisitions will be available on terms acceptable to the Company
or that the required regulatory approval of any proposed acquisitions will be
obtained. There can also be no assurance that the Company will be able to
successfully operate and manage any business that it does acquire so as to
maintain or increase profitability.
ADVERSE IMPACT OF ECONOMIC CONDITIONS
Economic conditions beyond the Company's control may have a significant
impact on the Company's operations, including changes in net interest income.
Examples of such conditions include: (i) the strength of credit demand by
customers; (ii) the introduction and growth of new investment instruments and
transaction accounts by non-bank financial competitors; and (iii) changes in the
general levels of interest rates, including changes resulting from Federal
Reserve monetary activities.
Economic growth in the Company's market area is dependent upon the local
economy. Adverse changes in the economy of the Chicago metropolitan area would
likely impair the Bank's ability to gather deposits and could otherwise have a
negative effect on its business, including the demand for new loans, the ability
of customers to repay loans and the value of the collateral pledged to the Bank.
See "Business of the Company - Competition" and "- Market Area."
CREDIT RISK; ALLOWANCE FOR LOAN LOSSES
There are risks inherent in making any loan, including risks with respect
to the period of time over which the loan may be repaid, risks resulting from
changes in economic and industry conditions including those in the Company's
local market area, risks inherent in dealing with individual borrowers and risks
resulting from uncertainties as to the future value of the collateral. The
Company's allowance for loan losses is established in consultation with
management of the Bank and is maintained at a level considered adequate by
management to absorb anticipated loan losses. The Company has not experienced
any significant charge-offs since 1992. The
10
<PAGE> 12
amount of future losses is susceptible to changes in economic, operating and
other conditions, including changes in interest rates, that may be beyond the
Company's control, and such losses may exceed current estimates. Management uses
the best information available to it and draws upon many years of banking
experience in establishing the allowance for loan losses. Although management
believes that the allowance for loan losses is adequate to absorb losses on any
existing loans that may become uncollectible, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses in the future.
EFFECT OF INTEREST RATES
Like most banks, the Bank realizes income primarily from the spread
between interest earned on loans and investments and the interest paid on
deposits and borrowings. It is expected that the Bank, from time to time, will
experience "gaps" in the interest rate sensitivities of its assets and
liabilities, meaning that either its interest-bearing liabilities will be more
sensitive to changes in market interest rates than its interest-earning assets,
or vice versa. In either event, if market interest rates should move contrary to
the Bank's position, the "gap" will work against the Bank and its earnings may
be negatively affected. Management actively monitors the interest rate
sensitivities of the assets and liabilities of the Bank in an effort to prevent
any gaps from approaching imprudent levels.
COMPLIANCE WITH REGULATORY CAPITAL REQUIREMENTS/EFFECT ON GROWTH
The Board of Governors of the Federal Reserve System (the "Federal
Reserve") has established certain minimum risk-based capital standards that
apply to bank holding companies and the Office of the Comptroller of the
Currency (the "OCC") has established certain minimum risk-based capital
standards for national banks. As of June 30, 1997, the Company and the Bank
equaled or exceeded all capital adequacy requirements except that the Company's
actual total capital to risk weighted assets ratio ("Tier 2 Ratio") was below
the minimum ratio established by the Federal Reserve of 8.0%. As of June 30,
1997, the Company's actual Tier 2 Ratio was 7.31% and its total capital was
$15.1 million which was $1.3 million less than the minimum amount required by
the Federal Reserve. The Company's pro forma Tier 2 Ratio, reflecting the
completion of the Reorganization, is 7.95%. As of June 30, 1997, the most recent
notification from the OCC categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. The growth of the Company and
the Bank in the past has been, and may in the future be, constrained by these
capital adequacy requirements. The Offering is being undertaken in part to
ensure that the Company and the Bank meet all applicable capital requirements to
enable the Company to continue its growth. However, there can be no assurance
that after the Offering, the Company and/or the Bank will continue to be in
compliance with all of the applicable regulatory capital requirements. Bank
holding companies and/or banks which are not in compliance with the applicable
capital requirements may be subject to significant operating restrictions
including, among other restrictions, restrictions on the payment of dividends
and incurring additional indebtedness. Any imposition of such operating
restrictions on the Company and/or the Bank could have an adverse effect on the
Company's growth and its financial results. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations - Liquidity and
Capital Resources" and "Supervision and Regulation."
RELIANCE ON KEY PERSONNEL
The Company's success to date has been influenced strongly by its ability
to attract and to retain senior management experienced in providing community
banking services. The Company's ability to retain the management team of the
Bank, and, as the Company grows, to attract and retain qualified additional
senior and middle management will continue to be important to successful
implementation of the Company's strategy. Currently, the Company is the
beneficiary under a key-man life insurance policy on Saul D. Binder, President
and Chief Executive Officer of the Company and the Bank, in the amount of $1.0
million. Mr. Binder has also entered into an employment agreement with the
Company. Steven A. Covert, Executive Vice President and Chief Financial Officer
of the Company, has entered into an Executive Severance Agreement with the
Company. The unexpected loss of services of any key management personnel, or the
inability to recruit and retain qualified personnel in the future, could have an
adverse effect on the Company's business and financial results.
11
<PAGE> 13
NO ASSURANCE THAT THE OFFERING WILL BE COMPLETED
Of the up to 1,200,000 shares, 600,000 shares are being offered by the
Company with the assistance of the Selling Agent on a "best efforts" basis in a
Subscription and Community Offering and 600,000 shares are being offered
concurrently by the Selling Agent in a Public Offering. The number of shares of
Common Stock to be offered in the Subscription and Community Offering and the
Public Offering is subject to adjustment as described herein. Neither completion
of the Subscription and Community Offering nor the Public Offering is
conditioned upon the sale of any minimum number of shares, and the number of
shares actually issued may be substantially less than the maximum 1,200,000
shares offered hereby. If the Company and the Selling Agent determine to
increase the number of shares of Common Stock to be sold in the Public Offering,
the Company would incur increased costs attributable to an increase in the
underwriting discount. See "Terms of the Offering -- Plan of Distribution for
the Subscription, Community and Public Offerings." If the Offering is completed
with a materially fewer number of shares of Common Stock issued and/or the
payment of additional selling costs, the net proceeds would be reduced from the
amounts set forth herein. A lower level of capitalization may limit the
Company's ability to implement elements of its strategic plan.
RISK OF DELAYED OFFERING
Once made, subscriptions are irrevocable. Though the Company anticipates
completing the Offering as soon as practicable following the Expiration Date,
the Company has reserved the right to extend the Offering until ____________,
1997. Accordingly, investors placing purchase orders in the Subscription and
Community Offering, including any extensions thereof, are placed at the risk of
(i) foregoing potential investment income and having subscription funds
unavailable as a result of subscription funds being placed in
noninterest-bearing escrow accounts, and/or (ii) having holds placed on deposit
accounts at the Bank as a result of account withdrawal authorizations used as
payment for shares subscribed.
COMPETITION
The Company is headquartered in Lincolnshire, Illinois, a suburb of
Chicago, which is located in Lake County. The Company currently conducts its
business from its main office and seven branch offices, all of which are located
in the north and northwest suburbs of Chicago and the north side of Chicago. The
Company faces significant competition both in making loans and in attracting
deposits. Most of the Company's mortgage loans are secured by properties located
in Cook and Lake Counties. The Chicago metropolitan area has a high density of
financial institutions, many of which have a state-wide or regional presence,
and, in some cases, a national presence, and all of which are competitors of the
Company to varying degrees. The Company's competition for loans comes
principally from commercial banks, savings banks, savings and loan associations,
credit unions, mortgage banking companies and insurance companies. Many of the
Company's non-bank competitors are not subject to the same degree of regulation
as that imposed on bank holding companies, federally insured banks and national
banks. As a result, such non-bank competitors have advantages over the Company
in providing certain services. The Company's most direct competition for
deposits has historically come from commercial banks, savings banks, savings and
loan associations and credit unions, many of which are significantly larger than
the Company and, therefore, have greater financial and marketing resources than
those of the Company. The Company faces additional competition for deposits from
short-term money market funds, other corporate and government securities funds
and from other financial institutions such as brokerage firms and insurance
companies. Such competition may limit the growth and profitability of the
Company in the future. See "Business -- Market and Competition."
SUBSTANTIAL CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
After the Offering, assuming none of them purchase additional shares in
the Offering, the directors, executive officers and certain key employees of the
Company will in aggregate own approximately 18.4% of the issued and outstanding
shares of Common Stock (assuming 1,200,000 shares are sold in the Offering) and
are likely to continue to exercise substantial control over the Company's
affairs. See "Principal Shareholders."
12
<PAGE> 14
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will be subject to immediate dilution of $2.51 per
share in pro forma net tangible book value. See "Dilution."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of Common Stock in the public
market, whether by purchasers in this Offering or other shareholders of the
Company, could adversely affect the prevailing market price of the Common Stock,
and could impair the Company's future ability to raise capital through an
offering of its equity securities. There will be 2,740,057 shares of Common
Stock outstanding immediately after completion of the Offering (assuming
1,200,000 shares are sold in the Offering), 2,729,936 of which will be freely
tradeable in the public market, subject in certain cases to the volume and other
limitations set forth in Rule 144 promulgated under Securities Act of 1933, as
amended (the "Securities Act"), and certain 180-day lock-up agreements with the
Selling Agent. See "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Certificate of Incorporation"), by-laws (the "By-Laws"), and the Delaware
General Corporation Law ("DGCL") may have the effect of impeding the acquisition
or control of the Company by means of a tender offer, a proxy fight, open-market
purchases or otherwise in a transaction not approved by the board of directors
of the Company (the "Board of Directors"). Certain provisions will also render
the removal of the current Board of Directors or management of the Company more
difficult. Among other provisions, the Company's Certificate of Incorporation
and By-Laws include the authorization of "blank check" preferred stock, a
staggered board of directors, limiting the filling of Board of Directors
vacancies to the Board of Directors, prohibitions on shareholder action by
written consent, requiring advance notice with respect to shareholder proposals
and director nominations and requiring an 80 percent vote of the shareholders to
amend certain anti-takeover provisions in the Certificate of Incorporation and
By-Laws. See "Description of Capital Stock."
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock to date
and does not intend to pay such cash dividends in the foreseeable future. The
Company intends to retain earnings to finance the development and expansion of
its business. The Company is also subject to restrictions on the payment of
dividends under its revolving line of credit agreement. In addition, the
Company's ability to pay dividends in the future is dependent upon its receipt
of dividends paid to it by the Bank. The Bank is subject to certain restrictions
on the amount of dividends that it may declare without prior regulatory
approval. See "Dividend Policy."
SUPERVISION AND REGULATION
Bank holding companies and national banks operate in a highly regulated
environment and are subject to supervision and examination by federal regulatory
agencies. The Company is subject to the Bank Holding Company Act of 1956, as
amended (together with the regulations issued thereunder, the "BHC Act"), and to
regulation and supervision by the Federal Reserve. The Bank, as a national bank
that is a member of the Federal Reserve System and insured by the Federal
Deposit Insurance Corporation (the "FDIC"), is subject to the primary regulation
and supervision of the OCC, and secondarily, of the FDIC. Federal laws and
regulations govern numerous matters including changes in the ownership or
control of banks and bank holding companies, maintenance of adequate capital and
the financial condition of a financial institution, permissible types, amounts
and terms of extensions of credit and investments, permissible non-banking
activities, the level of reserves against deposits, and restrictions on dividend
payments. The OCC and the FDIC possess cease and desist powers to prevent or
remedy unsafe or unsound practices or violations of law by national banks, and
the Federal Reserve possesses similar powers with respect to bank holding
companies. These and other restrictions limit the manner in which the Company
and the Bank may conduct business and obtain financing. Furthermore, the
commercial banking business is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve.
13
<PAGE> 15
Changes in monetary or legislative policies may affect the interest rates the
Bank must offer to attract deposits and the interest rates it must charge on its
loans, as well as the manner in which it offers deposits and makes loans. These
monetary policies have had, and are expected to continue to have, significant
effects on the operating results of commercial banks, including the Bank. See
"Supervision and Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Company has applied to have its Common Stock approved for quotation
on The Nasdaq National Market(SM), subject to the completion of the Offering.
There can be no assurance that an active trading market will develop or, if
developed, will be sustained upon completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The market price of the Common Stock may be subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant contracts, changes in management, announcements of new
products by the Company or its competitors, legislative or regulatory changes,
general trends in the industry and other events or factors. In addition, the
stock market has experienced extreme price and volume fluctuations which have
affected the market price of the common stock of many companies for reasons
frequently unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock. Securities recently issued in an initial public offering are
particularly susceptible to volatility based on the short term trading
strategies of certain investors. See "Terms of the Offering."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,200,000 shares of
Common Stock in this Offering are estimated to be approximately $13.6 million
(assuming (i) 600,000 shares are sold in the Subscription and Community
Offering; (ii) 600,000 shares are sold in the Public Offering; and (iii) no
exercise of the over-subscription option or the over-allotment option) after
deducting estimated offering expenses, Selling Agent commissions and
underwriting discount of approximately $1.4 million. If the Company sells
600,000 shares of Common Stock in this Offering, the net proceeds to the Company
are estimated to be approximately $6.5 million (assuming (i) 300,000 shares are
sold in the Subscription and Community Offering; (ii) 300,000 shares are sold in
the Public Offering; and (iii) no exercise of the over-subscription option or
the over-allotment option) after deducting estimated offering expenses, Selling
Agent commissions and underwriting discount of approximately $1 million.
The Company will use the net proceeds of the Offering to repay all or a
portion of the amount outstanding under the Company's $8 million revolving line
of credit. At July 30, 1997, approximately $7.4 million of indebtedness was
outstanding under the line of credit. Borrowings under the line of credit bear
interest at the lender's prime rate and interest is payable quarterly. The
lender's prime rate was 8.5% at July 30, 1997. The line of credit is secured by
a pledge of the common stock and preferred stock of the Bank owned by the
Company. Loans drawn on the line of credit mature on June 15, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to
contribute any remaining net proceeds of the Offering to the capital of the Bank
to support continued growth of the Bank's loan portfolio.
Once repaid, the unused portion of the revolving line of credit will
remain available and the Company may use the line for future borrowings from
time to time for general corporate purposes, including continued growth of the
Bank, for future branch office openings and for potential future acquisitions of
other financial institutions.
DIVIDEND POLICY
The Company has not previously paid any cash dividends on the Common
Stock. The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company is also subject to
restrictions on the payment of dividends under its revolving line of credit
agreement. In the future, any declaration and payment of dividends on the Common
Stock will depend upon the Company's results of operations, general financial
condition, capital requirements and any regulatory restrictions or restrictions
under credit agreements or other funding sources of the Company existing from
time to time, as well as other factors which the Company's Board of Directors
may consider relevant. The Company's principal source of funds to pay dividends
on the Common Stock will be cash dividends the Company receives from the Bank.
Should the Bank declare a dividend on its Common Stock, a pro rata portion of
such dividend would be required to be paid to the Bank's minority shareholders.
The Bank has in the past and intends to continue to pay dividends only on its
preferred stock, all of which is owned by the Company. The payment of dividends
by the Bank to the Company is subject to certain restrictions imposed by federal
and state banking laws, regulations and authorities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Supervision and Regulation."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization
as of June 30, 1997, (i) on a historical basis; (ii) on a pro forma basis,
giving effect to the Reorganization; (iii) on a pro forma basis, giving effect
to Offering (assuming the sale of 600,000 shares and net proceeds of $6.5
million and assuming no exercise of the over-subscription option or the
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds"; and (iv) on a pro forma basis, giving effect
to the Offering (assuming the sale of 1,200,000 shares and net proceeds of $13.6
million and assuming no exercise of the over-subscription option or the
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds". This data should be read in conjunction with
the financial statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
ACTUAL PRO (600,000 (1,200,000
FORMA(1) SHARES) SHARES)
------------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-Term Debt ................................................ $ 18,140 $ 18,140 $ 13,725 $ 13,725
Long-Term Debt:
Federal Home Loan Bank advances ............................ 3,079 3,079 3,079 3,079
9% Convertible Subordinated Debentures ..................... 2,012 -- -- --
15% and 17% Convertible Subordinated Notes ................. 1,155 -- -- --
-------- -------- -------- -----------
Total Long-Term Debt .................................... 6,246 3,079 3,079 3,079
Minority interest in subsidiary bank ........................... 538 538 538 538
Stock owned by Employee Stock Ownership Plan
("ESOP") participants, net of ESOP loan, Series B
Preferred Stock, $1.00 par value, 100,000 shares
authorized, 53,918 shares issued and outstanding
actual; no shares of preferred stock issued and
outstanding pro forma and pro forma as adjusted;
Common Stock, $0.001 par value, no shares issued
and outstanding actual, 91,660 shares issued and
outstanding pro forma and pro forma as
adjusted ............................................... 800 800 800 800
Shareholders' Equity:
Preferred stock, $25.00 par value, 14,774 shares
authorized, no shares issued and outstanding actual;
$0.001 par value, 1,000,000 shares authorized; no
shares issued and outstanding pro forma and pro forma
as adjusted ............................................ -- -- -- --
Common Stock, $1.00 par value, 1,000,000 shares authorized,
960,282 shares issued and outstanding actual;
$0.001 par value, 7,500,000 shares authorized,
1,439,690 shares issued and outstanding pro forma;
2,039,690 shares issued and outstanding pro forma
as adjusted (600,000 shares); 2,639,690 shares
issued and outstanding pro forma as adjusted
(1,200,000 shares)(2) .................................. 960 2 3 3
Class A Common Stock, $1 par value, 1,000,000 shares
authorized, 115,500 shares issued and outstanding actual;
no shares issued and outstanding pro forma and pro forma
as adjusted ............................................. 116 -- -- --
Additional paid-in capital ..................................... 4,869 9,110 15,566 23,066
Retained earnings .............................................. 4,298 4,298 4,298 4,298
-------- -------- -------- -----------
Total before unrealized loss on securities ................. 10,243 13,410 19,867 27,367
Unrealized loss on securities, net of tax ...................... (485) (485) (485) (485)
-------- -------- -------- -----------
Total shareholders' equity ................................. 9,758 12,925 19,382 26,882
-------- -------- -------- -----------
Total capitalization ........................................... $ 17,342 $ 17,342 $ 23,799 $ 31,299
======== ======== ======== ===========
Capital ratios:
Leverage (4.00% required minimum)(3) ....................... 4.00% 5.09% 7.27% 9.59%
Risk-based capital(4)
Tier 1 (4.00% required minimum) ......................... 5.62% 7.16% 10.23% 13.52%
Tier 2 (8.00% required minimum) ......................... 7.31% 7.95% 11.01% 14.29%
</TABLE>
- -------
(1) The pro forma information reflects the completion of the Reorganization.
(2) Excludes 9,350 shares of Common Stock issued to Directors in July, 1997,
pursuant to the exercise of stock options granted as part of the Company's
Director Stock Option Program. Also excludes 170,000 shares of Common Stock
reserved for issuance under the 1995 Stock Option Plan and 115,090 shares
reserved for issuance pursuant to options granted before the implementation
of the 1995 Stock Option Plan. There are currently outstanding 153,340
options outstanding, including options outstanding under the 1995 Stock
Option Plan, each of which entitles the holder thereof to purchase one
share of Common Stock. See "Management -- Stock Option Plans." The weighted
average exercise price per share for all of the currently outstanding
options is $5.02. Of the currently outstanding options, 127,840 are
currently exercisable at a weighted average price of $4.79.
(3) Leverage ratio is defined as Tier 1 capital (as defined in the regulations)
as a percent of total average assets. See "Supervision and Regulation."
(4) The pro forma risk-based capital ratios have been computed assuming the net
proceeds of this offering, after payment of the Company's indebtedness, are
invested in assets carrying a risk-weight that is equivalent to the
Company's average risk-weight at June 30, 1997. See "Supervision and
Regulation."
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
(after giving effect to the Reorganization) was $13.7 million or approximately
$8.96 per pro forma share of Common Stock. "Pro forma net tangible book value"
is defined as the pro forma total shareholders' equity of the Company less
intangible assets. "Pro forma net tangible book value per share" is determined
by dividing the pro forma net tangible book value of the Company by the number
of outstanding pro forma shares of Common Stock.
After giving effect to the sale of the 1,200,000 shares of Common Stock
offered hereby (after deducting the Selling Agent's commissions, underwriting
discount and estimated offering expenses), the Company's pro forma net tangible
book value as of June 30, 1997, would have been $27.3 million or $9.99 per pro
forma share of Common Stock. This represents an immediate increase in pro forma
net tangible book value of $1.03 per share to the existing shareholders, and an
immediate dilution of $2.51 per share to investors who purchase shares of Common
Stock in the Offering. "Dilution" is the difference between the offering price
per share and the pro forma net tangible book value per share as adjusted for
the Offering.
The following table illustrates this per share dilution as of June 30,
1997, which is determined by subtracting the net tangible book value per share
after the offering from the price paid by a new investor.
<TABLE>
<S> <C> <C>
Initial public offering price per share (1)......................................... $ 12.50
Pro forma net tangible book value per share as of June 30, 1997 (2)............... $ 8.96
Increase in pro forma net tangible book value per share attributable to payments
by new investors (3)........................................................... 1.03
--------
Pro forma net tangible book value per share after offering.......................... 9.99
========
Dilution of pro forma net tangible book value per share to new investors (4)........ $ 2.51
========
</TABLE>
- ------------------
(1) Before deducting the Selling Agent commissions, underwriting discount and
estimated offering expenses.
(2) Based on the number of shares of Common Stock outstanding as of June 30,
1997.
(3) After deducting Selling Agent commissions, underwriting discount and
estimated offering expenses.
(4) After giving effect to the exercise of outstanding options to purchase
153,340 shares of Common Stock, the pro forma net tangible book value per
share after offering would be $9.73 and the dilution of pro forma net
tangible book value per share to new investors would be $2.77.
The following table sets forth on a pro forma basis as of June 30, 1997
(after giving effect to the Reorganization), the number of shares purchased from
the Company, the total consideration paid and the average price per share paid
by: (i) existing shareholders and (ii) investors in the Offering (before
deducting the Selling Agent commissions, underwriting discount and estimated
offering expenses):
<TABLE>
<CAPTION>
NUMBER OF TOTAL AVERAGE PRICE
SHARES PURCHASED CONSIDERATION PER SHARE
----------------- ------------- --------------
<S> <C> <C> <C>
Existing shareholders(1).............................. $ 1,531,350 $ 9,912,000 $ 6.47
New investors......................................... 1,200,000 15,000,000 12.50
</TABLE>
- ------------------
(1) Excludes 9,350 shares of Common Stock issued to Directors in July, 1997,
pursuant to the exercise of stock options granted as part of the Company's
Director Stock Option Program. Also excludes 170,000 shares of Common Stock
reserved for issuance under the 1995 Stock Option Plan and 115,090 shares
reserved for issuance pursuant to options granted before the implementation
of the 1995 Stock Option Plan. There are currently outstanding 153,340
options outstanding, including options outstanding under the 1995 Stock
Option Plan, each of which entitles the holder thereof to purchase one
share of Common Stock. See "Management -- Stock Option Plans." The weighted
average exercise price per share for all of the currently outstanding
options is $5.02. Of the currently outstanding options, 127,840 are
currently exercisable at a weighted average price of $4.79.
17
<PAGE> 19
TERMS OF THE OFFERING
GENERAL
The Company is offering for sale up to 1,200,000 shares of its Common
Stock at a price of $12.50 per share. Of these shares, 600,000 shares are being
offered by the Company with the assistance of the Selling Agent on a "best
efforts" basis in a Subscription and Community Offering and 600,000 shares are
being offered concurrently by the Selling Agent in a Public Offering. The number
of shares of Common Stock to be offered in the Subscription and Community
Offering and the Public Offering is subject to adjustment as described herein.
The Company has entered into an agency agreement (the "Agency Agreement") with
the Selling Agent. Subject to the terms and conditions set forth in the Agency
Agreement, the Selling Agent has agreed to act as the Company's agent and, on a
"best efforts" basis, to assist the Company with the solicitation of purchase
orders for 600,000 shares in the Subscription and Community Offering. The
Selling Agent has also agreed in the Agency Agreement to offer 600,000 shares in
the Public Offering.
SUBSCRIPTION AND COMMUNITY OFFERING
The Subscription Offering. Of the 1,200,000 shares offered, 600,000 shares
are being offered on a priority basis to shareholders of the Company as
September ___, 1997 ("Record Date Shareholders"), and to certain customers of
the Bank as of September ___, 1997 ("Record Date Customers"). The highest
priority will be given to those Record Date Shareholders placing purchase orders
prior to Noon, Central Time, on _______________, 1997.
The Community Offering. While 600,000 shares are being offered on a
priority basis to eligible subscribers in the Subscription Offering, the Common
Stock is also being offered concurrently by the Company for sale to the general
public, with a preference being given to residents of the communities served by
the Bank.
Unless extended by the Company, the Subscription and Community Offering
will terminate at Noon Central Time, on ______________, 1997. Depending on
market demand, the Company and the Selling Agent may determine to increase or
decrease the number of shares of Common Stock to be offered in the Subscription
and Community Offering relative to the Public Offering. The Company reserves the
right in its sole discretion, notwithstanding the priorities described above, to
accept or reject in whole or in part orders in the Subscription and Community
Offering.
Procedures for Subscribing for Common Stock in the Subscription and
Community Offering. The Company will mail, hand deliver, or make available at
its offices Prospectuses and related subscription documents (the "Stock Order
Forms" and the "Certification Forms"). In accordance with Rule 15c2-8 of the
Exchange Act, to ensure that each purchaser receives a Prospectus at least 48
hours prior to the Expiration Date, no Prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date.
Record Date Shareholders, Record Date Customers, and other investors
interested in subscribing for shares of Common Stock in the Subscription and
Community Offering must return to the Company a properly completed original
Stock Order Form (facsimile copies and photocopies will not be accepted) and a
fully executed Certification Form along with full payment (or appropriate
instructions for authorizing a withdrawal from a deposit account at the Bank) at
$12.50 per share for all shares subscribed for or ordered prior to Noon, Central
Time, on ____________, 1997. To receive preference in the Subscription Offering,
Record Date Shareholders must place purchase orders prior to Noon, Central Time,
on ________________, 1997. Original Stock Order Forms and Certification Forms
accompany this Prospectus. In order to ensure that prospective investors are
properly identified as to their stock purchase priorities, Record Date
Shareholders and Record Date Customers must provide the identifying information
requested on the Stock Order Forms. The minimum subscription for any investor is
200 shares, or $2,500.
Payment for shares of Common Stock must be made by check, bank draft or
money order drawn upon a United States bank payable to "Success Bancshares,
Inc." or by withdrawal authorization from a deposit account at the Bank. Wire
transfers will not be accepted. Payment by non-certified personal check will be
considered received only upon clearance, and the Company in its sole discretion
may reject subscriptions for which funds have not
18
<PAGE> 20
cleared at the Expiration Date. Payments made by check, bank draft, or money
order will be placed in a noninterest-bearing escrow account at the Bank until
completion or termination of the Offering. The Stock Order Form contains blanks
to authorize deposit withdrawals as payment for shares subscribed, and such
deposit accounts will be charged on the day the order is received for the amount
of the subscription and proceeds placed in a non-interest-bearing escrow account
at the Bank until completion or termination of the Offering. To the extent
subscription orders are filled, the foregoing escrow accounts will be charged as
of the closing date of the Offering against issuance of certificates evidencing
ownership of the shares of Common Stock. In the event subscription orders are
not filled, or are accepted only in part, or if the Offering is terminated or
extended beyond ______________, unaccepted subscription funds placed in escrow
will be returned to subscribers without interest.
The methods of delivery of Stock Order Forms, Certification Forms and
payment for shares are at the election and risk of Record Date Shareholders,
Record Date Customers, and other prospective investors. The Company recommends
that such parties deliver in person to the Bank or its full-service branch
offices the properly completed original Stock Order Form along with the fully
executed Certification Form and full payment in advance of the Expiration Date.
Alternatively, such parties may mail them in the pre-addressed, postage-prepaid
business reply envelope accompanying the Prospectus, allowing for sufficient
time for delivery of the mail to the Company and the clearance of any
non-certified personal checks prior to the Expiration Date.
Once made, subscriptions are irrevocable. Completion of the Subscription
and Community Offering is not conditioned upon the sale of any minimum number of
shares. See "Risk Factors -- No Assurance that the Offering will be Completed."
All questions concerning the timeliness, validity, form, and eligibility
of Stock Order Forms received will be determined by the Company in its sole
discretion, including the absolute right of the Company to reject any order in
whole or part in the Subscription and Community Offering without assigning any
reason therefor. The Company may, in its sole discretion, permit the correction
of incomplete or improperly executed Stock Order Forms or waive the Expiration
Date receipt deadline but does not represent that it will do so. The Company
assumes no responsibility to provide, nor will it incur any liability for
failure to give, notification of any defect or irregularity in connection with
the submission of Stock Order Forms.
Prospective investors with questions or needing assistance concerning the
procedures for subscribing for shares of Common Stock should call the Stock
Information Office at (___) ___-____ and ask for an EVEREN Securities, Inc.
representative.
Limitations on Purchase of Shares. Record Date Shareholders, Record Date
Customers and other prospective investors in the Subscription and Community
Offering must subscribe for at least 200 shares. In addition, no subscription
orders will be accepted from parties or groups which, when combined with any
current holdings of Common Stock, would cause any undue concentration of
ownership control as determined by the Company in its sole discretion. There can
be no assurance that Common Stock will be available to satisfy all subscription
orders, and the Company reserves the absolute right to allocate available shares
in its sole discretion.
Delivery of Certificates. Purchasers may elect to receive certificates
evidencing ownership of shares purchased in the Subscription and Community
Offering or to have delivery of such shares made in book entry form through the
facilities of The Depository Trust Company ("DTC"), New York, New York. Share
certificates or confirmations of delivery to DTC will be delivered, along with
any refund due, by U.S. mail, postage-prepaid, directly to the purchasers at the
address indicated on the Stock Order Form as soon as practicable following
completion of the Offering. Until share certificates are available and delivered
to purchasers or the delivery to DTC is effected, purchasers may be unable to
sell the shares of Common Stock purchased by them.
THE PUBLIC OFFERING
Concurrently with the Subscription and Community Offering, 600,000 shares
are being offered to the general public in an underwritten Public Offering
managed by the Selling Agent. Depending on market demand, the Company and the
Selling Agent may determine to increase or decrease the number of shares of
Common Stock to be offered in the Public Offering relative to the Subscription
and Community Offering. Completion of the Public Offering will be subject to the
execution of a public offering acknowledgement (the "Public Offering
19
<PAGE> 21
Acknowledgement") pursuant to which the Company and the Selling Agent agree that
the Agency Agreement will constitute the underwriting agreement between the
Company and the Selling Agent for purposes of the Public Offering. The Company
and the Selling Agent currently anticipate that the Public Offering
Acknowledgement will be executed simultaneously with the termination of the
Subscription and Community Offering. Whether the Public Offering Acknowledgement
is executed and the Public Offering is completed will depend upon, among other
factors, the market conditions then prevailing and the then-current financial
condition of the Company. The number of shares of Common Stock to be sold in the
Public Offering will be determined by the Selling Agent and the Company.
PLAN OF DISTRIBUTION
Subscription and Community Offering. The Company, pursuant to the terms of
the Agency Agreement, engaged the Selling Agent as a financial and marketing
adviser in connection with the Offering. The Selling Agent has agreed to use its
"best efforts" to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Subscription and Community
Offering. Pursuant to the Agency Agreement, the Selling Agent will provide the
Company certain financial and marketing advice regarding the structure of the
Offering and sale of the Common Stock; prepare certain marketing documents
ancillary to the Prospectus; establish, staff, and manage a Stock Information
Office to solicit purchase orders for the Common Stock and provide technical and
administrative support; and conduct informational meetings for prospective
investors. The Agency Agreement does not obligate the Selling Agent to take or
purchase any of the shares of Common Stock. As compensation for the foregoing
services, the Company will pay the Selling Agent 3.5% of the aggregate price of
the shares of Common Stock sold directly by the Company in the Subscription and
Community Offering. The Company will also reimburse the Selling Agent for
certain out-of-pocket expenses (including fees and expenses of the Selling
Agent's counsel) up to a maximum of $100,000. The Company has also agreed to
indemnify the Selling Agent against certain liabilities, including civil
liabilities arising under the Securities Act, or to contribute to certain
payments made in respect thereof. The Company may, in its sole discretion,
increase the number of shares of Common Stock sold by up to an additional 15% of
the number of shares sold in the Subscription and Community Offering to satisfy
unfilled purchase orders.
Public Offering. The Company has also retained the Selling Agent to serve
as the underwriter of the Public Offering. Concurrently with the Subscription
and Community Offering, the Selling Agent will commence the Public Offering.
Completion of the Public Offering will be subject to the execution of the Public
Offering Acknowledgement by the Company and the Selling Agent. The Company has
also agreed to indemnify the Selling Agent against certain liabilities,
including civil liabilities arising under the Securities Act, or to contribute
to certain payments made in respect thereof. The Public Offering Acknowledgement
will provide that the Selling Agent will offer a specified number of shares to
the general public at the offering price per share set forth on the cover page
hereof and purchase such shares from the Company at such price less an
underwriting discount of 7.0%. In the Public Offering Acknowledgement, the
Company will also grant the Selling Agent an option, exercisable within 30 days
of the completion of the Public Offering, to purchase up to an additional 15% of
the shares sold in the Public Offering to cover over-allotments, if any, at the
same price as would be paid by the Selling Agent for the other shares purchased
pursuant to the Public Offering Acknowledgement. The Selling Agent will exercise
the option only for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Stock offered in the Public
Offering. It is expected that delivery of the Shares of Common Stock purchased
in the Public Offering will be made through the facilities of DTC within four
business days of the execution of the Public Offering Acknowledgement.
The Company has been advised by the Selling Agent that it may offer the
Common Stock to certain dealers at $12.50 per share, less a concession not in
excess of $0.53 per share of Common Stock. The Selling Agent may allow, and such
dealers may reallow, a concession not in excess of $0.10 per share of Common
Stock to certain other brokers or dealers. After the Public Offering, the price
per share, concession and reallowance to brokers or dealers may be changed by
the Selling Agent. The Selling Agent has informed the Company that it does not
intend to confirm sales to accounts over which it exercises discretionary
authority.
Completion of the Public Offering of the Common Stock is subject to prior
sale, when, as and if issued by the Company and delivered to and accepted by the
Selling Agent and subject to withdrawal, cancellation or
20
<PAGE> 22
modification of the offer without notice. The Selling Agent reserves the right
to reject any order for the purchase of the Common Stock.
DETERMINATION OF INITIAL OFFERING PRICE
The initial offering price of the Common Stock has been determined by the
Company and the Selling Agent based on a number of factors including prevailing
market and economic conditions, revenues and earnings of the Company, estimates
of the business potential and prospects of the Company, the present state of the
Company's business and operations, an assessment of the Company's management,
and the consideration of the foregoing factors in relation to market valuations
of generally comparable companies.
21
<PAGE> 23
BUSINESS
THE COMPANY
The Company provides community banking services to individuals,
small-to-medium-sized businesses, local governmental units and institutional
clients primarily in the Northern Chicagoland area. These services include
traditional checking, NOW, money market, savings and time deposit accounts, as
well as a number of innovative deposit products targeted to specific market
segments. The Bank offers home equity, home mortgage, commercial real estate,
commercial and consumer loans, safe deposit facilities and other innovative and
traditional services specially tailored to meet the needs of customers in its
target markets. The Company's goal is to continue to offer innovative,
attractive financial products to businesses and individuals in its market area.
In May, 1996, the Bank became one of the first banks in its market area to go
on-line with its own home page on the World Wide Web
(http://www.successbank.com). The Bank's home page enables consumers to access
information regarding branch locations, deposit and loan rates and economic
forecasts. The Bank recently introduced its Success for Seniors account to
compete with the high cost reverse mortgage products of its competitors. This
new product combines a high rate of interest NOW account with a 20 year home
equity line of credit and the added flexibility of a Visa Gold card.
As a community bank, the Bank stresses personalized service, local
decision making, quick customer response and strong relationships with business,
civic and community organizations. Management believes this marketing and
service approach enables the Bank to compete effectively with the money center,
super regional and regional banks that have a presence in its target markets. By
continuing to offer quality service, management expects to be able to expand the
Bank's base of core deposits and to expand loan growth among its commercial and
retail customers.
STRATEGY
The Company's goal is to continue to grow the assets of the Bank and
increase profitability while maintaining strong credit quality. To achieve this
goal, the Company's strategic plan is to continue to focus on providing a high
level of service to its core customers while expanding its market share in its
target markets of the north and northwest suburbs of Chicago and the north side
of Chicago. Key elements of the Company's strategic plan include:
- MAINTAIN STRONG LOCAL PRESENCE AND LOCAL DECISION MAKING AUTHORITY. The
Company intends to maintain its strong local presence in the communities it
serves through personal service, local decision making, quick consumer response
and strong relationships with local business, civic and community organizations.
This strong local presence combined with the Company's focus on local decision
making differentiates it from larger financial institutions with national or
regional markets that have branches in the Company's target markets. The Company
believes that its local presence and focus on local decision making provide the
Bank with the competitive advantage of being able to tailor products and
services to meet the needs of the customers and communities within its target
markets, to make decisions for customers quickly and to enjoy the symbiotic
benefits of investing and participating in its community.
- PROVIDING A HIGH LEVEL OF SERVICE THROUGH QUALITY EMPLOYEES. A
cornerstone of the Company's strategy is to provide customers with quality
products and services delivered through traditional and state-of-the-art
systems, while making highly responsive and personalized attention to customer
service the priority in all of its operations. The rapid pace of consolidation
in the financial services industry has led to the disenchantment of many
individuals and small businesses with the perceived lower level of service
offered by the resulting larger institutions. The Company intends to capitalize
on this negative perception by providing a high level of individualized service
and responsiveness. The Company believes that providing this individualized
service depends on competent and highly motivated employees who are able to make
decisions and quickly respond to customers' needs. To ensure professional
servicing of commercial and retail customers of the Bank, the Company emphasizes
the recruiting and training of such employees at all levels of the organization.
The Company expects that a well-trained, motivated and loyal staff will produce
the maximum personal contact needed to understand and meet customer needs and
preferences.
22
<PAGE> 24
- POSITIONED FOR CONTROLLED MARKET EXPANSION. The Company believes that
there are significant opportunities to grow its deposit and loan base in its
target markets. In anticipation of such opportunities, the Company has invested
in structuring an organization that is capable of handling a much larger scope
of operations. New systems and quality personnel have been put in place so that
new branches may be opened in a cost effective manner. Management believes that
opening new branches is an efficient means for the Company to gain market share.
The Company will pursue disciplined growth in its target markets by opening
branches in areas where management believes local residents and
small-to-medium-sized businesses would benefit from a community banking
alternative. Following an industry trend, the Company will continue to pursue
branching opportunities at non-traditional outlets. The Company recently entered
into an agreement with Butera Finer Foods to establish a branch banking facility
in Butera's Golf/Mill store in Niles, Illinois. Although the Company has
expanded through establishing new branch offices in the past, the Company's
strategic plan also includes selectively acquiring other financial institutions
in its target markets.
- INCREASING ITS PORTFOLIO OF HIGH QUALITY LOANS. The Company's policy is
to respond to all creditworthy segments of its target markets as a key to its
long-term success. The Company makes an active effort to determine the credit
needs of the communities in its target markets, including low and moderate
income areas and individuals, and to evaluate the products it offers and the
design of those products to determine whether it is effectively responding to
such communities. The Bank adheres to strict underwriting standards in its loan
origination activities and loans in excess of certain specified lending limits
are subject to approval by the Bank's loan committee or, in certain
circumstances, by the full board of the Bank. The Board of Directors and loan
committee of the Bank, which include a number of persons who also serve as
directors of the Company, review the loan portfolio on a monthly basis to assess
loan quality. In addition to the internal review process, independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities, independent public accountants in connection with their
annual audit, and a loan review performed by an independent consultant engaged
by the audit committee of the Bank's Board of Directors. The Company has
historically had a high quality loan portfolio as exhibited by a loan loss rate
(net charge-offs to average total loans) of 0.04% for the year ended December
31, 1996. The Company is committed to maintaining strong credit quality while
increasing income as the Company grows.
- FOCUSING ON CORE CUSTOMERS. The Company continues to focus on
establishing and maintaining long-term relationships with its core customers.
The Company emphasizes relationships with individuals and small-to-medium-sized
businesses in its target markets and believes that focusing on its core
customers will result in growth and increased profitability.
- CREATING INNOVATIVE AND NICHE PRODUCTS. The Company intends to continue
developing innovative loan and deposit products. The Company believes that its
local presence and focus on local decision making enables the Bank to target and
be more responsive to the needs of its customers by offering these customized
products and services. For instance, the Company developed the SIGMA account
which combines a checking account and credit card with a home equity loan. The
Company also intends to continue to develop lending niches which generate loan
growth and service its target markets. The Company has developed a strong
expertise in real estate loans to small entrepreneurs and in loans to the
long-term health care industry. The Company is also one of the few sources of
loans for co-operative apartments in Chicagoland and provides unique and
flexible home equity loans. The Company intends to continue to market its
products aggressively through creative newspaper and other advertising, special
promotions and frequently sponsored community events. The Bank also emphasizes
business development calling programs and superior servicing of existing
commercial loan customers.
MARKET
The Bank is headquartered and has branch offices in the north and
northwest suburbs of Chicago and the north side of Chicago, including many
affluent communities in the Chicago area. The Company's target markets of Lake
County, and Lincolnwood, Arlington Heights and Lincoln Park in Cook County, have
a unique combination of affluence, population growth and a strong overall
economy. Per capita income for the target markets is high compared to Illinois
and to the United States as a whole. In 1994, Lake County had the highest per
capita income in Illinois ($32,969), and Cook County ranked fourth in Illinois
($24,944). From 1984 to 1994, per capita income grew at an average annual rate
of 6.1% in Lake County and 5.1% in Cook County. (Source: Bureau of Economic
Analysis, U.S. Department of Commerce; "BEA Regional Facts."). Per capita income
for Lake and Cook County is
23
<PAGE> 25
152% and 115% of the national average, respectively. (Source: USDOC/BEA, "Survey
of Current Business, June, 1996"). From 1992 to 1994, total personal income
increased 11.7% in Lake County and 7.9% in Cook County. Earnings (wages and
salaries, other labor income, and proprietor's income) increased on average 8.2%
per year in Lake County and 5.0% per year in Cook County for the period 1984 to
1994. (Source: Bureau of Economic Analysis, U.S. Department of Commerce; "BEA
Regional Facts."). Total bank deposits as of June 30, 1994, were over $5.2
billion in Lake County, and over $78.3 billion in Cook County. Population in
Lake County is steadily growing, increasing 17.27% from 1980 to 1990, and 10.8%
from 1990 to 1995, for a total increase of 30% from 1980 to 1995. (Source: U.S.
Bureau of the Census, U.S. Department of Commerce, USA Counties 1996 CD-ROM).
The economies of the target markets continue to thrive. From 1995 to 1996, State
Sales Tax receipts increased 8.44% for the communities served in Lake County,
and 2.89% for the communities served in Cook County (note: specific data for
Lincoln Park, Lakeview, West Rogers Park, and Peterson Park unavailable).
(Source: State of Illinois Department of Revenue). From 1990 to 1996,
unemployment rates decreased in Lake County from 4.2% to 4.0%, and in Cook
County from 6.7% to 5.5% (Source: Illinois Department of Employment Security,
May, 1997).
Since 1991, the Bank has grown substantially through the addition of seven
branches, which have significantly increased the Bank's service area. The table
below sets forth certain information with respect to the Bank's target markets
and the amount of deposits, as of June 30, 1997, which have been obtained
through this expansion:
<TABLE>
<CAPTION>
AVERAGE
BANK OR COMMUNITIES HOUSEHOLD
BRANCH LOCATION DATE OPENED TOTAL DEPOSITS SERVED POPULATION(1) INCOME(2)
----------------------- --------------------- ----------------- ------------------ --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Lincolnshire March, 1973 $133,134 Lincolnshire 3,955 $123,364
Vernon Hills 18,830 53,722
Lake Forest 18,771 142,688
Lincolnwood February, 1992 76,294 Lincolnwood 12,168 75,654
Skokie 58,980 53,390
Evanston 73,433 56,079
West Rogers Park 65,374 37,975
Peterson Park 16,236 41,463
Lincoln Park April, 1993 18,517 Lincoln Park 61,092 67,158
Lakeview 91,031 44,515
Libertyville March, 1994 14,848 Libertyville 19,757 72,815
Green Oaks 2,416 95,025
Mundelein 23,995 50,466
Mettawa 386 204,615
Northbrook March, 1995 13,604 Northbrook 33,476 107,350
Glencoe 8,705 164,254
Winnetka 12,899 174,957
Glenview 37,836 83,709
Deerfield/Riverwoods December, 1995 9,272 Riverwoods 3,049 169,359
Buffalo Grove 39,806 64,797
Wheeling 30,863 43,976
Deerfield/Downtown April, 1997 2,567 Deerfield 17,822 90,821
Highland Park 29,309 119,892
Bannockburn 1,495 139,510
Arlington Heights September, 1997 newly opened Arlington Heights 77,438 59,692
Mount Prospect 53,605 53,502
Prospect Heights 15,635 50,605
Palatine 39,985 56,951
--------
Total $268,236
========
</TABLE>
- ----------------------
(1) Reflects 1994 census estimates published by Bureau of the Census, U.S.
Department of Commerce.
(2) Provided by Northeastern Illinois Planning Commission derived from 1989
information reported in 1990 U.S. Census Data.
24
<PAGE> 26
The Company's expansion plans include opening branches in the Butera
Golf/Mill store in Niles (second half of 1997) and North Libertyville (1998).
SERVICES
The Company's strategy is to be the primary financial services provider to
its customers by emphasizing a high level of customer service and innovative
products. The Company's history of introducing innovative products has helped it
increase its competitive position within its target markets. The Company
continues to concentrate its efforts on building its business by offering its
customers the following services:
Deposit Services
The Bank offers a variety of traditional and innovative accounts for
depositors designed to attract both short-term and long-term deposits. The
Bank's deposit accounts include certificates of deposit, savings accounts,
checking and NOW accounts and money market accounts. In connection with its
opening of new banking facilities, the Bank has aggressively marketed innovative
deposit products at highly competitive rates to increase its market share in its
target markets. Innovative deposit products offered by the Bank include:
(i) MORE ACCOUNT. Under its new management in 1982, the
Bank became one of the first financial institutions in the
United States to offer a tiered open time account. The More
account is an open time account with its interest rate tied
directly to the 13-week U.S. Treasury bill rate. The account
is structured in such a way that the larger the customer's
balance, the higher the rate of return on the customer's
investment. In essence, the "more" money in the account, the
higher the interest rate on the account.
(ii) BUSINESS MORE II ACCOUNT. The Business More II
Account features a high variable interest rate based on the
13-week U.S. Treasury bill rate compounded monthly which is
earned on open accounts based on various levels of daily
balances. The rate on this money market account is subject to
change weekly and the depositor must maintain a minimum daily
balance in the account each day to earn interest. Like the
More Account, the "more" money in the account the higher the
interest rate on the account.
(iii) CIVIC PLUS ACCOUNT. In addition to providing
commercial and consumer banking services to its customers, the
Company strives to provide services and benefits to all
persons, regardless of race, creed, gender, sexual orientation
or ethnic background. In this spirit, the Company, continually
looking for unique ways to assist its not-for-profit
customers, developed a special account for not-for-profit
organizations. The Civic Plus Account helps not-for-profit
organizations stretch their resources by paying them 5%
interest on average outstanding monthly balances and by
waiving all monthly check processing fees and monthly minimum
balance requirements.
(iv) SURE PAY OVERDRAFT PROGRAM. Sure Pay is another
unique product offered by the Bank. The program insures the
customer against costly errors in check writing and allows the
customer to borrow funds quickly and easily. Basically, Sure
Pay is a pre-approved method of borrowing funds short-term
through a line of credit. Sure Pay covers accidental
overdrafts and cash advances by check and ATM withdrawals. For
current customers, Sure Pay does not require a new account. It
is activated through an existing Bank checking account. Sure
Pay has no minimum usage requirement and is a part of
intelligent cash flow planning. The Company believes that Sure
Pay's annual percentage rate is significantly below the rate
of interest on most credit cards.
Lending Services
The Bank aggressively seeks quality loan relationships. The Bank's loan
portfolio consists of real estate (including residential and commercial),
commercial, home equity and consumer loans. The Bank's management
25
<PAGE> 27
emphasizes sound credit analysis and loan documentation. Management also seeks
to avoid undue concentration of loans in a single industry or secured by a
single type of collateral. The Bank has concentrated its efforts on building its
lending services in the following areas:
(i) COMMERCIAL AND INDUSTRIAL LOANS. These loans are made
to small-to-medium-sized businesses that are sole
proprietorships, partnerships, and corporations. Generally,
these loans are secured with collateral including accounts
receivable, inventory and equipment, and generally require
personal guarantees of the principals. The Bank has developed
a niche making loans secured by accounts receivable to health
care providers and retailers.
(ii) COMMERCIAL REAL ESTATE LOANS. The Bank offers loans
for acquisition, development, and construction of real estate
secured by the real estate involved, in addition to loans
secured by commercial real estate, multi-family residential
properties, and other non-farm, non-residential properties.
The Bank also makes loans to small-to-medium-sized real estate
developers building 10 homes or less per year and rehabbers
doing a small number of projects per year. These loans
typically have 20 to 30 year amortization schedules maturities
with 5-year balloons and are personally guaranteed by the
borrowers.
(iii) RESIDENTIAL REAL ESTATE LOANS. These are loans made
to finance residential units that house from one to four
families. The Company originates only fixed rate residential
real estate loans including 15 year, 30 year, 5/25, 7/23 and 5
year balloon mortgages. A majority of loans originated
pursuant to Fannie Mae and FHLMC guidelines are sold in the
secondary market with servicing retained by the Company. The
Bank is one of a limited number of lending institutions in the
Chicagoland area to offer financing for co-operative
apartments. In addition, the Bank makes non-conforming loans
which are held in its portfolio. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition
- Financial Condition."
(iv) HOME EQUITY LINES OF CREDIT. The Bank has originated
many unique and flexible home equity lines of credit for its
customers. These lines of credit are secured by the borrower's
home and can be drawn on at the discretion of the borrower.
These lines of credit are at variable interest rates. When
made, home equity lines, combined with the outstanding loan
balance of prior mortgage loans, generally do not exceed 80%
of the appraised value of the underlying real estate
collateral. The following accounts demonstrate the Bank's
determination to meet the specific needs of its customer base:
1. SIGMA ACCOUNT. With a SIGMA account, an
interest-bearing checking account, an equity line of
credit secured by a mortgage on the customer's
primary residence, and a Gold Visa/Mastercard are
combined into one convenient account that is
available for a ten year period. Deposits to the
SIGMA checking account are automatically applied
against any amount outstanding under the equity line
of credit thus minimizing interest charges. Where
there is no outstanding balance on the equity line
of credit, the deposits automatically earn interest
at a premium over the rate then being paid by the
Bank on its NOW checking accounts. The SIGMA equity
line of credit is available when the customer needs
funds in excess of the customer's balance in the
SIGMA checking account. The equity line of credit
bears a variable interest rate based upon the prime
rate with a maximum rate below current market rates.
Interest charges incurred by the customer on the
equity line of credit are often tax deductible. The
Gold Visa/Mastercard provides the customer with
purchase flexibility and allows the customer to
avoid incurring any monthly credit card interest
charges by automatically transferring the full
amount of the
26
<PAGE> 28
outstanding balance on the SIGMA Gold
card from the customer's SIGMA checking account and,
when necessary, the customer's SIGMA line of credit.
As a way of thanking its customers for using their
SIGMA accounts, each year SIGMA Gold cardholders
also receive an annual rebate equal to 1% of the
total amount of purchases made with the SIGMA Gold
card during the prior year.
2. SUCCESS PLUS ACCOUNT. The Success Plus account is a
home equity loan which allows the customer to access
the line of credit by writing a check or using a
special Visa Gold Card that makes advances directly
from the line of credit. No minimum draw is
required, repayment is spread over ten years, and
interest is charged based upon the prime rate.
3. SENIOR SUCCESS ACCOUNT. Senior Success is the Bank's
alternative to reverse mortgage products for
individuals over the age of 62. It combines a
primary checking account with a 20 year home equity
line of credit up to 75% of the home's appraised
value which converts into 30-year fixed rate
mortgage at the end of the 20-year term. The product
also offers a Visa Gold Card, and an attractive
interest rate on the first $1,000 in the NOW
account. The total application fee is substantially
less than that charged on most traditional reverse
mortgages.
4. READY ACCESS PROGRAM. The Bank, in conjunction with
the Office of the Illinois State Treasurer, offers a
unique program which enables individuals with
disabilities to obtain low fixed rate financing in
order to purchase transportation modifications and
technical devices to achieve greater mobility and to
enhance their quality of life through a more
independent lifestyle. Under this program, the
Treasurer's Office deposits state funds with
participating financial institutions, such as the
Bank, which then offer low interest Ready Access
loans to individuals with disabilities. The State's
funds earn interest for taxpayers and are fully
protected against loss.
Merchant Credit Card Processing Program
The Bank, through its Merchant Processing Program, provides direct Visa
and Mastercard processing services for its business customers. By eliminating
the middleman, the Bank believes that it not only provides more cost efficient
processing services, but that it also gives the merchant quicker access to
available funds by processing receipts the next business day. In 1996, the Bank
processed transactions for over 1,400 merchant customers throughout the United
states involving in excess of $263 million of transaction volume. In addition,
the Merchant Processing Program generates an additional $7-12 million of demand
deposits from participants in the program.
PROPERTIES
The Company and the Bank are headquartered in Lincolnshire, Illinois. The
Bank has seven branch banking facilities located in Deerfield(2), Libertyville,
Lincolnwood, Chicago (Lincoln Park), Arlington Heights and Northbrook, Illinois.
The table below summarizes the Company's owned and leased facilities.
27
<PAGE> 29
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY APPROX. SQUARE FEET EXPIRATION DATE
- ---------------------------- ------------------------------------- ---------------------------- ----------------------
<S> <C> <C> <C>
Lincolnshire, IL Corporate headquarters and branch 11,760 Owned
Lincolnwood IL Branch 8,760 Owned
Lincolnwood, IL Branch(1) 1,900 October 2001
Lincoln Park, IL Branch 1,967 April 2003
Libertyville, IL Operations center and branch 8,100 Owned
Northbrook, IL Branch 1,950 December 1997
Deerfield/Riverwoods, IL Commercial loan center and branch 4,100 September 1998
Deerfield/Downtown, IL Branch 2,200 Owned
Arlington Heights, IL Branch 1,300 Owned
</TABLE>
- ----------------------
(1) Currently not utilized. This facility may be used in the future as a branch
facility to serve the Asian community.
COMPETITION
The Company competes in the commercial banking industry through its
subsidiary, Success National Bank, in the communities it serves. The commercial
banking industry is highly competitive, and the Bank faces strong direct
competition for deposits, loans, and other financial-related services. The Bank
competes directly in Cook and Lake counties with other commercial banks,
thrifts, credit unions, stockbrokers, and the finance divisions of automobile
companies. Some of these competitors are local, while others are statewide or
nationwide. The Bank has developed a community banking and marketing strategy.
In keeping with this strategy, the Bank provides highly personalized and
responsive service characteristic of locally-owned and managed institutions. As
such, the Bank competes for deposits principally by offering depositors a
variety of deposit programs, convenient office locations, hours and other
services. The Bank competes for loan originations primarily through the interest
rates and loan fees they charge, the efficiency and quality of services they
provide to borrowers and the variety of their loan products. Some of the
financial institutions and financial services organizations with which the Bank
competes are not subject to the same degree of regulation as that imposed on
bank holding companies, and national banking associations. In addition, the
larger banking organizations have significantly greater resources than those
that will be available to the Bank. As a result, such competitors have
advantages over the Bank in providing certain non-deposit services. Currently,
major competitors in certain of the Bank's markets include Harris Trust and
Savings Bank, The Northern Trust Company, LaSalle Bank, N.A., and American
National Bank and Trust Company of Chicago.
LEGAL PROCEEDINGS
The Company and the Bank are from time to time parties in various routine
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Company or the Bank
which, if determined adversely, would materially adversely affect the
consolidated financial position or operations of the Company.
EMPLOYEES
As of June 30, 1997, the Company had 143 full-time equivalent employees.
The employees are not represented by a collective bargaining unit. The Company
considers its relationship with its employees to be good.
28
<PAGE> 30
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial and other
data of the Company. The selected statement of income and statement of balance
sheet data, insofar as they relate to the five years in the five-year period
ended December 31, 1996, have been derived from the Company's audited
consolidated financial statements. The consolidated financial statements for
each of the three years in the period ended December 31, 1996 and as of December
31, 1996 and 1995 are included elsewhere herein. The selected financial data for
the six month periods ended June 30, 1997 and 1996 and as of June 30, 1997 and
1996, are derived from the Company's unaudited interim financial statements.
Such unaudited interim financial statements include all adjustments (consisting
only of normal, recurring accruals) that the Company considers necessary for a
fair presentation of the financial position and the results of operation as of
the dates and for the periods indicated. Information for any interim period is
not necessarily indicative of results that may be anticipated for the full year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ----------- ---------- ----------- -------- --------
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income ............................ $ 11,215 $ 9,568 $ 19,850 $ 18,675 $ 14,619 $ 10,960 $ 9,952
Interest expense ........................... 5,725 4,806 10,020 9,886 7,221 5,016 4,794
---------- ---------- ----------- ---------- ----------- -------- --------
Net interest income .................... 5,490 4,762 9,830 8,789 7,398 5,944 5,158
Provision for loan losses .................. 228 128 310 207 250 220 315
---------- ---------- ----------- ---------- ----------- -------- --------
Net interest income after provision
for loan losses ....................... 5,262 4,634 9,520 8,582 7,148 5,724 4,843
Other operating income
Service charges on deposit accounts ..... 917 624 1,402 1,134 865 687 680
Securities gains, net ................... -- -- -- 25 61 481 500
Gain on sales of loans, net ............. 28 82 109 84 94 1,077 555
Writedown of real estate loans
held-for-sale, transferred to portfolio -- -- (74) -- (572) -- --
Credit card processing income ........... 2,845 2,388 5,334 4,389 4,071 2,960 2,293
Other fees and commissions .............. 123 205 378 372 488 296 533
---------- ---------- ----------- ---------- ----------- -------- --------
Total other operating income .......... 3,913 3,299 7,149 6,004 5,007 5,501 4,561
Other operating expenses
Salaries and employee benefits .......... 2,878 2,738 5,513 4,729 3,986 2,755 2,331
Occupancy and equipment expenses ........ 979 807 1,715 1,388 1,287 934 676
Credit card processing expenses ......... 2,765 2,213 5,013 3,879 3,756 3,290 2,525
Other noninterest expenses .............. 1,998 1,723 3,389 3,346 2,987 3,165 2,685
---------- ---------- ----------- ---------- ----------- -------- --------
Total other operating expenses ........ 8,620 7,481 15,630 13,342 12,016 10,144 8,217
Minority interest in income of
subsidiary bank ....................... 7 13 23 47 58 79 129
---------- ---------- ----------- ---------- ----------- -------- --------
Income before taxes ..................... 548 439 1,016 1,197 81 1,002 1,058
Income tax expense (benefit) ............... 188 92 233 260 (182) 176 285
---------- ---------- ----------- ---------- ----------- -------- --------
Net income .............................. $ 360 $ 347 $ 783 $ 937 $ 263 $ 826 $ 773
========== ========== =========== ========== =========== ======== ========
COMMON SHARE DATA(1):
Earnings per common and common
equivalent share
Primary ................................. $ 0.29 $ 0.30 $ 0.66 $ 0.89 $ 0.25 $ 0.87 $ 0.84
Fully diluted ........................... 0.29 0.30 0.66 0.86 0.25 0.84 0.82
Book value(2) .............................. 9.35 8.52 8.99 7.48 5.54 7.27 6.14
Weighted average common and
common equivalent shares outstanding .. 1,239,388 1,150,971 1,182,286 1,057,461 1,032,253 952,441 923,812
PRO FORMA COMMON SHARE DATA(1)(3):
Earnings per common and common
equivalent share
Primary.................................. $ 0.30 $ 0.63
Fully diluted............................ 0.30 0.63
Book value.................................. 8.96 8.69
Weighted average common and common
equivalent shares outstanding.......... 1,603,417 1,566,639
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- ---------- ---------- -------- --------- --------- ----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 15,817 $ 15,285 $ 13,833 $ 20,559 $ 18,909 $ 8,190 $ 13,765
Securities.................................. 47,083 48,307 47,707 50,732 57,970 58,053 33,790
Real estate loans held for sale............. 291 2,880 117 203 40 11,021 5,760
Loans, net.................................. 230,075 176,872 203,299 171,135 137,135 106,563 84,532
Total assets................................ 305,955 253,031 276,349 251,338 222,809 190,677 143,695
Deposits.................................... 268,236 222,690 245,105 227,308 204,171 162,676 132,155
Borrowings, including repurchase agreements. 24,386 19,261 18,975 14,395 11,174 19,644 4,319
Shareholders' equity(4)..................... 9,758 8,823 9,234 7,366 5,325 6,276 5,108
<CAPTION>
JUNE 30, 1997
----------------------------------------------------------------------------
PRO FORMA PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(5) AS ADJUSTED(3)(6)
--------------- --------------- ------------------ ------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Loans, net.................................. $ 230,075 $ 230,075 $ 230,075 $ 230,075
Total assets................................ 305,955 305,955 307,996 315,102
Deposits.................................... 268,236 268,236 268,236 268,236
Borrowings, including repurchase agreements. 24,386 21,219 16,804 16,804
Shareholders' equity........................ 9,758 12,925 19,382 26,488
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- --------- --------- --------- --------- ------- ---------
PERFORMANCE DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest margin(7) ..................... 4.19% 4.26% 4.25% 4.14% 4.14% 4.38% 4.50%
Return on average assets ................... 0.25 0.28 0.31 0.40 0.13 0.53 0.59
Return on average equity(8) ................ 7.58 8.52 9.09 15.78 4.58 14.97 15.35
Loans to deposits percentage ............... 85.77 79.43 82.94 75.29 67.17 65.51 63.96
ASSET QUALITY RATIOS:
Nonperforming loans to total loans(9) ...... 0.49% 0.22% 0.06% 0.37% 0.28% 1.28% 1.11
Nonperforming assets to total assets ....... 0.37 0.16 0.04 0.25 0.17 0.72 0.66
Allowance for loan losses to total loans ... 0.70 0.70 0.70 0.70 0.70 0.80 0.76
Nonperforming loans to allowance for
loan losses ............................. 70.10 31.75 8.28 53.74 38.10 160.35 146.37
Net loan charge-offs to average loans(10)... 0.02 0.06 0.04 0.01 0.08 0.01 0.25
CAPITAL RATIOS:
Tier 2(11) ................................. 7.31% 8.24% 8.00% 7.53% 7.83% 8.35% 9.60%
Leverage(12) ............................... 4.00 4.36 4.37 3.70 3.52 3.67 6.30
OTHER:
Branch offices ............................. 7 7 7 7 5 4 2
Full-time equivalent employees ............. 143 139 144 150 120 114 73
</TABLE>
(footnotes on following page)
30
<PAGE> 32
- ------------------
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Common share data has been restated to reflect the stock split.
(2) Book value per share is calculated using total shareholders' equity plus
stock owned by Employee Stock Ownership Plan ("ESOP") participants, net of
ESOP loan, divided by shares outstanding at end of period.
(3) The pro forma information reflects the completion of the Reorganization
consisting of (a) the increase in the authorized number of shares of Common
Stock to 7,500,000, (b) the changing of the par value of each share of
Common Stock to $0.001, (c) the conversion of all of the outstanding shares
of the Company's Series B Preferred Stock into 91,660 shares of Common
Stock (post stock split), (d) the conversion of all of the outstanding
shares of the Company's Class A Common Stock into 171,754 shares of Common
Stock (post stock split), (e) the conversion of the aggregate outstanding
principal amount of the 1991 Debentures into 234,594 shares of Common Stock
(post stock split), and (f) the conversion of the aggregate outstanding
principal amount of the 1995 Notes into 73,060 shares of Common Stock (post
stock split).
(4) The decrease in shareholders' equity from $6,276 in 1993 to $5,325 in 1994
is primarily attributable to the implementation of SFAS 115 Accounting for
Certain Investments in Debt and Equity Securities on December 31, 1993. The
unrealized net loss on securities available-for-sale, net of tax declined
$1.7 million during 1994, and was recorded as a reduction in shareholders'
equity.
(5) Adjusted to reflect the Offering (assuming the sale of 600,000 shares and
net proceeds of $6.5 million and assuming no exercise of the
over-subscription option or the over-allotment option) and the application
of $4.4 million of the net proceeds to repay the amount outstanding under
the Company's revolving line of credit. See "Use of Proceeds."
(6) Adjusted to reflect the Offering (assuming the sale of 1,200,000 shares and
net proceeds of $13.6 million and assuming no exercise of the
over-subscription option or the over-allotment option) and the application
of $4.4 million of the net proceeds to repay the amount outstanding under
the Company's revolving line of credit. See "Use of Proceeds."
(7) Net interest income on a tax-equivalent basis divided by average interest
earning assets.
(8) Net income less preferred dividends divided by average common equity.
(9) Nonperforming loans consist of non-accrual loans and loans contractually
past due 90 days or more.
(10) All interim periods have been annualized.
(11) Total capital to risk weighted assets.
(12) Tier 1 capital to total average assets.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and the Company's Consolidated Financial
Statements, including the accompanying notes, each appearing elsewhere in this
Prospectus. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including those
discussed in "Risk Factors" contained elsewhere in this Prospectus.
GENERAL
The Company's principal business is conducted by the Bank and consists of
full service community banking. The profitability of the Company's operations
depends primarily on its net interest income, provision for loan losses, other
operating income, and other operating expenses. Net interest income is the
difference between the income the Company receives on its loan and investment
portfolios and its cost of funds, which consists of interest paid on deposits
and borrowings. The provision for loan losses reflects the cost of credit risk
in the Company's loan portfolio. Other operating income consists of service
charges on deposit accounts, securities gains, gains on sale of loans, credit
card processing income and fees and commissions. Other operating expenses
include salaries and employee benefits as well as occupancy and equipment
expenses, credit card processing expenses, and other non-interest expenses.
Net interest income is dependent on the amounts and yields of interest
earning assets as compared to the amounts of and rates on interest bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and the Company's asset/liability management procedures in coping with
such changes. The provision for loan losses is dependent on increases in the
loan portfolio, management's assessment of the collectibility of the loan
portfolio, as well as economic and market factors. Non-interest expenses are
heavily influenced by the growth of operations, with additional employees
necessary to staff and open new branch facilities and marketing expenses
necessary to promote them. Growth in the number of account relationships
directly affects such expenses as data processing costs, supplies, postage and
other miscellaneous expenses.
OVERVIEW
BACKGROUND
The Company's total assets and total deposits have increased to $306.0
million and $268.2 million, respectively, at June 30, 1997 from $143.7 million
and $132.2 million, respectively at December 31, 1992 primarily as a result of
the Company's addition of seven branch banking facilities. The addition of these
seven branch facilities and corresponding growth in total assets and total
deposits has resulted in increased operating expenses reflected in the increase
in the Company's net operating expense (other operating expense net of other
operating income) to average assets from 2.81% in 1992 to 3.31% in 1996. This
increase is primarily attributable to the relatively young age of the Bank's
branches and an increase in staff levels to improve the Company's operations.
The increase in operating expenses resulted in a $154,000 decrease in the
Company's net income in 1996 to $783,000 from $937,000 in 1995.
Beginning in 1995, the Company began to implement a number of measures to
control operating expenses and position the Company for future growth. These
measures included: (i) adding senior management personnel experienced in
managing growth, controlling operating expenses, improving net interest margin,
and managing mortgage banking operations through hedging strategies; (ii)
enhancing and improving the Company's policies and procedures in the areas of
asset liability management and mortgage banking operations; and (iii) developing
a comprehensive strategic plan to substantially increase core deposits and loans
using the Company's existing facilities, operational systems and personnel. The
Company believes that the improvement in operating results during the first six
months of 1997 compared to the same period in 1996 is a direct result of
implementation of these measures. Net income for the six months ended June 30,
1997, was $360,000, compared with $347,000 for the same period in 1996.
32
<PAGE> 34
CONSOLIDATED RESULTS OF OPERATIONS
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
General. The Company's net income for the six months ended June 30, 1997,
was $360,000 compared to net income of $347,000 for the six months ended June
30, 1996. The $13,000 increase in net income was primarily attributable to an
increase in net interest income and other operating income, partially offset by
increased net operating expenses.
Net interest income. Net interest income increased to $5.5 million for the
six months ended June 30, 1997, from $4.8 million for the comparable period of
1996. This increase in net interest income of $728,000, or 15.3%, was
attributable to a $1.6 million increase in interest income resulting from a
$37.8 million, or 16.5%, increase in average interest earning assets in the
first six months of 1997 compared to the same period in 1996. This increase in
average interest earning assets was primarily attributable to the continued
growth of the Company's loan portfolio. Partially offsetting this increase in
interest income was a $919,000 increase in interest expense for the first six
months of 1997, a 19.1% increase from the comparable period in 1996. The
Company's net interest margin decreased to 4.19% in the first six months of 1997
compared to 4.26% in the comparable period in 1996 as a result of increased
market interest rates in conjunction with the Company's liability sensitivity.
Provision for loan losses. The provision for loan losses increased to
$228,000 in the six months ended June 30, 1997, from $128,000 in the prior year
period primarily due to the growth in the loan portfolio. At June 30, 1997, the
allowance for loan losses represented 0.70% of loans outstanding which
management believed was adequate to cover potential losses in the portfolio.
There can be no assurance that future losses will not exceed the amounts
provided for, thereby affecting future results of operations. The amount of
future additions to the allowance for loan losses will be dependent upon the
economy, changes in real estate values, interest rates, the view of regulatory
agencies toward adequate reserve levels, and past due and non-performing loan
levels.
Other operating income. Total other operating income increased
approximately $614,000, or 18.6%, to $3.9 million for the first six months of
1997, compared to $3.3 million in the same period in 1996. Service charges on
deposit accounts increased by 47.0% to $917,000 for the six months ended June
30, 1997, from $624,000 for the six months ended June 30, 1996. The increase is
primarily attributable to a 13.7% increase in the average balance of deposit
accounts subject to such service charges and 106.6% increase in average
overdrafts outstanding. The majority of service charges on deposit accounts
consist of fees charged for overdrafts and failure to maintain required
balances. Gains on sale of loans decreased to $28,000 for the first six months
of 1997 from $82,000 for the first six months of 1996 primarily due to a
decrease in the number of loans originated attributable to decreased market
demand in 1997. Credit card processing income increased to $2.8 million from
$2.4 million for the six months ended June 30, 1997 and 1996, respectively, due
primarily to a 16.9% increase in the amount of credit card sales processed.
Other operating expenses. Total other operating expenses increased $1.1
million, or 15.2%, to $8.6 million for the first six months of 1997, as compared
to $7.5 million in the same period of 1996. This increase reflects the higher
level of expenditures required to support the Company's growth. Salaries and
employee benefits increased to $2.9 million for the six months ended June 30,
1997, as compared to $2.7 million for the same period of the prior year. The
increase of $140,000 reflects increased staffing to support the growth in
deposit and loan accounts at existing banking locations which are required to
maintain high levels of customer service. Also contributing to the increase in
salaries were normal salary increases. Occupancy and equipment expenses
increased to $979,000 for the six months ended June 30, 1997, from $807,000 for
the first six months of 1996, primarily due to improvements in the Company's
computer systems and the costs associated with the April, 1997, opening of the
Deerfield/Downtown branch location and preparing the Arlington Heights branch
location for opening in September, 1997. Data processing expenses increased to
$488,000, or 67.7%, for the six months ended June 30, 1997, compared to $291,000
for the first six months of 1996, primarily due to substantially higher volume
levels and the costs associated with the conversion of the Company's data
processing provider in March, 1997. Credit card processing expenses increased
$552,000, or 24.9%, to $2.8 million for the six months ended June 30, 1997,
compared to $2.2 million for the first six months of 1996, primarily due to the
16.9% increase in the amount of credit card sales
33
<PAGE> 35
processed. Other non-interest expenses increased by $78,000, or 5.4%, to $1.5
million for the six months ended June 30, 1997, from $1.4 million for the first
six months of 1996, primarily due to a $157,000 increase in legal fees
attributable to increased collection costs and other matters.
Income taxes. The Company recorded income tax expense of $188,000 for the
first six months of 1997, compared to an income tax expense of approximately
$92,000 in the first six months of 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
General. The Company's net income was $783,000 for the year ended December
31, 1996, compared to net income of $937,000 for the year ended December 31,
1995, a decrease of $154,000 or 19.7%. The decrease in net income was primarily
due to increases in interest expense of $134,000, the provision for possible
loan losses of $103,000 and other operating expenses of $2.3 million, offset by
increases in interest income of $1.2 million and other operating income of $1.1
million.
Net interest income. Net interest income increased by $1.0 million, or
11.8%, to $9.8 million in 1996 from $8.8 million in 1995. This increase was
attributable to a $17.8 million increase in average interest earning assets to
$236.4 million in 1996 from $218.6 million in 1995. The Company's net interest
margin in 1996 increased to 4.25% compared to 4.14% in 1995. This increase was
primarily due to the Company's ability to use the increase in demand deposits
and other borrowing to fund higher yielding commercial loans and real estate
mortgage loans.
Provision for loan losses. The provision for loan losses increased to
$310,000 in 1996 from $207,000 in 1995, to provide for the growth in the
Company's loan portfolio. Total loans increased $32.4 million, or 18.7% to
$205.4 million at December 31, 1996, from $173.0 million at December 31, 1995.
At December 31, 1996, the allowance for loan losses represented 0.70% of total
loans, which management believed was adequate to cover potential losses in the
loan portfolio.
Other operating income. Other operating income increased by $1.1 million,
or 19.1%, to $7.1 million in 1996 from $6.0 million in 1995. Contributing to
this increase was an increase in service charges on deposit accounts of $268,000
to $1.4 million in 1996 and an increase in credit card processing income of
$945,000 to $5.3 million in 1996. The increase in service charges on deposit
accounts is directly attributable to the $17.8 million, or 7.8%, increase in
deposits to $245.1 million at December 31, 1996, from $227.3 million at December
31, 1995. The increase in credit card processing income is primarily
attributable to the increase in the number of participating merchants and a
corresponding processing volume increase to $263.2 million at December 31, 1996,
from $214.7 million at December 31, 1995, a 22.6% increase.
Other operating expenses. Other operating expenses increased $2.3 million,
or 17.1%, to $15.6 million in 1996 from $13.3 million in 1995, primarily due to
a $784,000 increase in salaries and employee benefits primarily attributable to
a full year of staffing of two additional branches, adding a number of
experienced senior personnel and additional staff to position the Company for
future growth and normal annual salary and wage increases. Occupancy and
equipment expenses increased $327,000, or 23.6%, to $1.7 million in 1996 from
$1.4 million in 1995 primarily due to a full year of operation of two additional
branch facilities in 1996, one of which was in operation for 10 months in 1995
and the other for less than one month in 1995. Credit card processing expenses
increased by approximately $1.1 million, or 29.2%, to $5.0 million in 1996 from
$3.9 million in 1995, primarily due to the increase in the number of
participating merchants and corresponding processing volume increases.
Income taxes. The Company recorded an income tax expense of $233,000 in
1996 compared to $260,000 in 1995, reflecting the decrease in the Company's net
income before taxes in 1996.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994
General. The Company's net income was $937,000 for the year ended December
31, 1995, compared to net income of $263,000 for the year ended December 31,
1994, an increase of $674,000 or 256.3%. The increase in net
34
<PAGE> 36
income was primarily due to increases in net interest income of $1.4 million and
other operating income of $997,000, offset by a $1.3 million increase in other
operating expenses.
Net interest income. Net interest income increased by $1.4 million, or
18.8%, to $8.8 million in 1995 from $7.4 million in 1994. This increase was
attributable to a $31.9 million increase in average interest earning assets to
$218.6 million in 1995 from $186.7 million in 1994. The Company's net interest
margin in 1995 remained constant at 4.14% compared to 1994 primarily due to a
relatively balanced interest rate gap.
Provision for loan losses. The provision for loan losses decreased to
$207,000 in 1995 from $250,000 in 1994, due to fewer loan charge offs in 1995
compared to 1994. Total loans increased $34.2 million, or 24.7%, to $173.0
million at December 31, 1995, from $138.8 million at December 31, 1994. At
December 31, 1995, the allowance for loan losses represented 0.70% of total
loans, which management believed was adequate to cover potential losses in the
loan portfolio.
Other operating income. Other operating income increased by $997,000, or
19.9%, to $6.0 million in 1995 from $5.0 million in 1994. Contributing to this
increase was an increase in service charges on deposit accounts of $269,000 to
$1.1 million in 1995, an increase in credit card processing income of $318,000
to $4.4 million in 1995 and the writedown of real estate loans held-for-sale in
1994 which reduced other operating income by $572,000. The increase in service
charges on deposit accounts is directly attributable to the $23.1 million, or
11.3%, increase in deposits to $227.3 million at December 31, 1995, from $204.2
million at December 31, 1994. The increase in credit card processing income is
primarily attributable to the increase in the number of participating merchants
and corresponding processing volume increases. The Company took a $572,000
charge to income in 1994 which represented the writedown of real estate loans
which had previously been held for sale but were transferred to the loan
portfolio. The Company transferred these loans to the loan portfolio in an
effort to mitigate the effects of interest rate changes on the value of the
loans and the corresponding effect on earnings. This writedown is being
amortized as a yield adjustment on the loans and will be recovered as payments
are made on the loans.
Other operating expenses. Other operating expenses increased $1.3 million,
or 11.0%, to $13.3 million in 1995 from $12.0 million in 1994, primarily due to
a $743,000 increase in salaries and employee benefits primarily attributable to
the initial staffing of the two branches opened in 1995 and normal annual salary
and wage increases. Occupancy and equipment expenses increased $101,000, or
7.8%, to $1.4 million in 1995 from $1.3 million in 1994 primarily due to the
opening of two branch facilities in 1995. Credit card processing expenses
increased by approximately $123,000, or 3.3%, to $3.9 million in 1995 from $3.8
million in 1994, primarily due to the increase in the number of participating
merchants and corresponding processing volume increases.
Income taxes. The Company recorded an income tax expense of $260,000 in
1995 compared to an income tax benefit of $182,000 in 1994, reflecting the
increase in the Company's net income before taxes in 1995.
35
<PAGE> 37
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
The following tables set forth the average daily balances, net interest
income and expense and average yields and rates for the Company's earning assets
and interest-bearing liabilities for the indicated periods on a tax-equivalent
basis assuming a 34% tax rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------- ------------------------------
1997 1996 1996
---------------------------------------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- -------- -------- -------- --------- --------- ------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1)........................ $214,432 $ 9,691 9.04% $176,506 $8,070 9.14% $182,453 $16,764 9.19%
Taxable investment securities... 39,031 1,179 6.04 40,753 1,198 5.88 40,423 2,397 5.93
Investment securities exempt
from federal income taxes.... 8,252 312 7.56 8,898 337 7.57 8,824 671 7.60
Interest bearing deposits with
financial institutions....... 2,219 58 5.23 1,303 34 5.22 2,189 125 5.71
Federal funds sold.............. 2,887 76 5.26 1,538 42 5.46 2,500 120 4.80
-------- ------- ---- -------- ------ ---- -------- ------- ----
Total interest earnings
assets..................... 266,821 11,316 8.48% 228,998 9,681 8.46% 236,389 $20,077 8.49%
------- ------ -------
Non-interest earning assets.. 22,811 17,873 19,890
-------- -------- --------
Total assets................. $289,632 $246,871 $256,279
======== ======== ========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market
accounts................... $ 81,525 $ 1,367 3.35% $ 74,595 $1,249 3.35% $ 76,127 $ 2,557 3.36%
Savings deposits............. 19,408 325 3.35 18,096 291 3.22 18,329 606 3.31
Time deposits................ 113,437 3,235 5.70 93,149 2,639 5.67 96,308 5,469 5.68
Notes payable................... 4,477 189 8.44 3,125 131 8.38 4,237 355 8.38
Other borrowings................ 18,835 609 6.47 15,806 496 6.28 15,923 1,033 6.49
-------- ------- ---- -------- ------ ---- -------- ------- ----
Total interest bearing
liabilities................ 237,682 5,725 4.82 204,771 4,806 4.69 210,924 10,020 4.75
------- ------ -------
Demand deposits -
non-interest bearing.......... 39,209 31,613 33,922
Other non-interest bearing
liabilities................... 1,878 1,115 1,515
Minority interest in
subsidiary bank............... 530 503 515
Shareholders' equity(2)......... 10,333 8,869 9,403
-------- -------- --------
Total liabilities and
shareholders' equity....... $289,632 $246,871 $256,279
======== ======== ========
Net interest income.......... $5,591 $ 4,875 $10,057
====== ======== =======
Net interest margin.......... 4.19% 4.26% 4.25%
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994
------------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Loans(1)........................ $156,896 $14,965 9.54% $125,607 $11,146 8.87%
Taxable investment securities... 43,515 2,936 6.75 46,058 2,796 6.07
Investment securities exempt
from federal income taxes.... 11,895 825 6.94 13,663 945 6.92
Interest bearing deposits with
financial institutions....... 4,586 108 2.35 885 42 4.75
Federal funds sold.............. 1,744 103 5.91 472 19 4.03
-------- ------- ---- -------- ------- ----
Total interest earnings
assets..................... 218,636 18,937 8.66% 186,685 14,948 8.01%
------- -------
Non-interest earning assets.. 14,846 17,488
-------- --------
Total assets................. $233,482 $204,173
======== ========
INTEREST BEARING LIABILITIES:
Deposits:
NOW and money market accounts $68,574 $ 2,534 3.70% $ 51,116 $ 1,519 2.97%
Savings deposits............. 18,293 589 3.22 22,339 689 3.08
Time deposits................ 96,020 5,648 5.88 84,168 4,224 5.02
Notes payable................... 5,190 499 8.65 5,335 421 7.89
Other borrowings................ 10,746 666 6.20 9,110 368 4.04
-------- ------- ---- -------- ------- ----
Total interest bearing
liabilities................ 198,823 9,886 4.97 172,068 7,221 4.20
------- -------
Demand deposits -
non-interest bearing.......... 26,884 23,765
Other non-interest bearing
liabilities................... 789 1,697
Minority interest in
subsidiary bank............... 513 514
Shareholders' equity(2)......... 6,473 6,129
--------
Total liabilities and
shareholders' equity....... $233,482 $204,173
======== ========
Net interest income.......... $ 9,051 $ 7,727
======= =======
Net interest margin.......... 4.14% 4.14%
</TABLE>
- ---------------
(1) Non-accrual loans are included in average loans.
(2) Includes stock owned by Employee Stock Ownership Plan ("ESOP")
participants, net of ESOP loan.
(3) Interest income on loans includes loan origination and other fees of
$386,000 and $370,000 for the six months ended June 30, 1997 and 1996,
respectively, and $817,000, $819,000 and $703,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
36
<PAGE> 38
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest income
and expense by major categories of interest earning assets and interest bearing
liabilities attributable to changes in volume or rate or both, for the periods
indicated:
37
<PAGE> 39
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995 1995 COMPARED TO 1994
------------------------ ---------------------- ------------------------
Change Change Change Change Change Change
Due to Due to Total Due to Due to Total Due to Due to Total
Volume Rate Change Volume Rate Change Volume Rate Change
-------- ------ ------- ------- ------ ------ ------- ------ --------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loans (1) ........................................... $1,715 $ (94) $ 1,621 $ 2,365 $(566) $ 1,799 $ 2,936 $ 883 $ 3,819
Taxable investment securities ........................... (51) (32) (19) (199) (340) (539) (160) 300 140
Investment securities exempt from federal income taxes(1) (24) (1) (25) (228) 74 (154) (123) 3 (120)
Interest bearing deposits with financial institutions ... 24 -- 24 (78) 95 17 97 (31) 66
Federal funds sold ...................................... 36 (2) 34 39 (22) 17 72 12 84
------ ----- ------- ------- ----- ------- ------- ------ -------
Total increase (decrease) in interest income ........ 1,700 (65) 1,635 1,899 (759) 1,140 2,822 1,167 3,989
------ ----- ------- ------- ----- ------- ------- ------ -------
INTEREST BEARING LIABILITIES:
NOW and money market accounts ........................... 116 2 118 265 (242) 23 593 422 1,015
Savings deposits ........................................ 22 12 34 1 16 17 (129) 29 (100)
Time deposits ........................................... 578 18 596 17 (196) (179) 641 783 1,424
Notes payable ........................................... 57 1 58 (80) (14) (94) (12) 40 28
Other borrowings ........................................ 98 15 113 335 32 367 75 223 298
------ ----- ------- ------- ----- ------- ------- ------ -------
Total increase (decrease) in interest expense ....... 871 48 919 538 (404) 134 1,168 1,497 2,665
====== ===== ======= ======= ===== ======= ======= ====== =======
Increase (decrease) in net interest income .......... $ 829 $(113) $ 716 $ 1,361 $(355) $ 1,006 $ 1,654 $ (330) $ 1,324
====== ===== ======= ======= ===== ======= ======= ====== =======
</TABLE>
- ----------------
(1) Tax-exempt income as reflected on a fully tax equivalent basis utilizing a
34% rate for all periods presented.
38
<PAGE> 40
Volume variances are computed using the change in volume multiplied by the
previous year's rate. Rate variances are computed using the changes in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between the factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
FINANCIAL CONDITION
Securities
The following table sets forth certain information with respect to the
Company's securities portfolio.
39
<PAGE> 41
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------------
1997 1996 1995 1994
----------------- ----------------- ----------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- ----- --------- ----- --------- ----- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury .................................... $ 1,743 $ 1,757 $ 748 $ 754 $ 1,236 $ 1,250 $ 1,171 $ 1,053
U.S. government sponsored entities ............... 5,096 4,997 5,846 5,721 7,845 7,643 8,820 8,181
States and political subdivisions ................ 1,566 1,569 1,565 1,561 1,779 1,769 3,461 3,208
Mortgage-backed securities ....................... 3,332 3,348 2,568 2,585 555 556 237 234
SBA guaranteed loan participation ................ 4,052 4,033 4,337 4,290 4,293 4,359 4,448 4,427
certificates
Other securities ................................. 117 117 110 236 14 99 14 49
------- ------- ------- ------- ------- ------- ------- -------
Total ...................................... $15,906 $15,821 $15,174 $15,147 $15,722 $15,676 $18,151 $17,152
======= ======= ======= ======= ======= ======= ======= =======
SECURITIES HELD TO MATURITY:
U.S. Treasury .................................... $ 244 $ 246 $ 242 $ 245 $ 238 $ 246 $ 235 $ 226
U.S. government sponsored entities ............... 14,933 14,921 15,368 15,403 17,719 17,907 18,965 17,668
States and political subdivisions ................ 8,484 8,771 8,751 8,980 9,019 9,333 10,599 9,954
Mortgage-backed securities ....................... 5,521 5,715 5,804 6,037 6,384 6,768 7,060 6,884
Other securities ................................. 2,080 2,080 2,395 2,395 1,696 1,696 1,643 1,643
------- ------- ------- ------- ------- ------- ------- -------
Total ...................................... $31,262 $31,733 $32,560 $33,060 $35,056 $35,950 $38,462 $36,375
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
40
<PAGE> 42
The fair value of securities available for sale was $15.8 million at June
30, 1997, compared to $15.1 million at December 31, 1996, and $15.7 million at
December 31, 1995.
The book value of securities held to maturity was $31.3 million at June
30, 1997, compared to $32.6 million at December 31, 1996 and $35.1 million at
December 31, 1995.
The overall investment mix did not change significantly for the periods
presented.
The Company manages its investment portfolio to provide both a source of
liquidity and earnings. The Company follows an investment policy which generally
requires the securities in its investment portfolio to be rated, at the date of
purchase, investment grade by a nationally recognized rating agency. In
accordance with the Company's investment policy, no derivative securities may be
purchased without the prior approval of the Board of Directors. As of June 30,
1997, the Company did not hold any derivatives or off-balance sheet derivative
financial instruments such as futures, forwards, swaps or option contracts. As
of June 30, 1997, the Company held no securities with a book value exceeding 10%
of stockholders' equity of a single issuer other than the U.S. Treasury or other
U.S. Government sponsored entities.
Securities Maturities and Yields
The following table sets forth maturities and the weighted average yields
of the securities at June 30, 1997.
41
<PAGE> 43
<TABLE>
<CAPTION>
MATURITY
---------------------------------------------------------------------------------
DUE AFTER ONE DUE AFTER FIVE
DUE IN ONE YEAR THROUGH YEARS THROUGH DUE AFTER
YEAR OR LESS FIVE YEARS TEN YEARS TEN YEARS
----------------- ----------------- ------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD BALANCE YIELD
------- ------- --------- ------- --------- ------- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury ..................... $ -- -- % $ 1,757 6.48% $ -- -- % $ -- -- %
U.S. government sponsored entities 1,838 4.66 1,968 4.97 1,191 5.90 -- --
State and political subdivisions(1) 355 6.68 1,129 6.83 85 7.57 -- --
Mortgage-backed securities(2) ..... -- -- 2,355 6.65 993 7.08 -- --
SBA guaranteed loan participation
certificates(2) ................. -- -- 296 7.89 -- -- 3,737 7.02
Other securities ................ -- -- -- -- -- -- 117 3.04
------ ---- ------- ---- ------- ------ ------ ----
Total ........................... $2,193 4.99% $ 7,505 6.25% $ 2,269 6.48% $3,854 6.90%
====== ==== ======= ==== ======= ====== ====== ====
SECURITIES HELD TO MATURITY:
U.S. Treasury ..................... $ -- -- % $ 244 6.61% $ -- -- % $ -- -- %
U.S. government entities .......... 297 6.83 6,126 5.84 8,052 6.82 458 5.73
State and political subdivisions(1) 185 7.07 3,270 7.39 2,103 7.93 2,926 8.41
Mortgage-backed securities(2) ..... -- -- 910 7.37 3,657 7.41 954 7.39
Other securities .................. -- -- 150 8.25 300 7.32 1,630 7.02
------ ---- ------- ---- ------- ------ ------ ----
Total ........................... $ 482 6.92% $10,700 6.50% $14,112 7.15% $5,968 7.66%
====== ==== ======= ==== ======= ====== ====== ====
</TABLE>
- -----------------
(1) The yield is reflected on a fully tax equivalent basis utilizing a 34%
rate.
(2) These securities are presented based on contractual maturities.
Loan Portfolio
The loan portfolio is the largest category of the Company's interest
earning assets. Since December 31, 1992, total loans as a percentage of total
assets have increased to 75.9% at June 30, 1997, from 59.4%.
The following table sets forth the historical composition of the loan
portfolio.
42
<PAGE> 44
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------------------------
1997 1996 1995 1994
------------------------ ----------------------- --------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
----------- ------------ ----------- ----------- -------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $ 65,474 28.18% $ 58,912 28.68% $ 45,217 26.14% $ 33,640 24.24%
Real estate - construction.... 13,400 5.77 12,282 5.98 12,821 7.41 8,656 6.24
Real estate - mortgage........ 92,605 39.86 84,920 41.34 68,227 39.44 61,177 44.08
Home equity................... 51,920 22.35 43,193 21.03 37,820 21.86 30,810 22.20
Installment................... 8,475 3.65 5,615 2.73 8,655 5.00 4,056 2.92
Credit cards.................. 446 0.19 503 0.24 261 0.15 443 0.32
-------- ------ -------- ------ -------- ------ -------- ------
Total gross loans.......... 232,320 100.00% 205,425 100.00% 173,001 100.00% 138,782 100.00%
====== ====== ====== ======
Unearned discount............. -- (2) (3) (8)
Net deferred loan fees........ (225) (261) (223) (126)
Unaccreted discount from loss
on transfer of loans
from held for sale to
portfolio.................. (391) (438) (451) (513)
-------- -------- -------- --------
Loans, net of unearned
discount and net
deferred loan fees......... 231,704 204,724 172,324 138,135
Allowance for loan losses..... (1,629) (1,425) (1,189) (1,000)
-------- -------- -------- --------
Net loans.................. $230,075 $203,299 $171,135 $137,135
======== ======== ======== ========
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1992
------------------------- --------------------------
PERCENT OF PERCENT OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO
------------ ----------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial.................... $ 34,118 31.72% $32,132 37.67%
Real estate - construction.... 6,697 6.23 2,321 2.72
Real estate - mortgage........ 27,031 25.13 28,946 33.94
Home equity................... 36,366 33.81 19,607 22.35
Installment................... 2,771 2.58 2,332 2.73
Credit cards.................. 562 0.53 499 0.59
-------- ------ ------- ------
Total gross loans.......... 107,545 100.00% 85,297 100.00%
====== ======
Unearned discount............. (18) (49)
Net deferred loan fees........ (108) (69)
Unaccreted discount from loss
on transfer of loans from
held for sale to portfolio.... -- --
-------- -------
Loans, net of unearned
discount and net
deferred loan fees......... 107,419 85,179
Allowance for loan losses..... (855) (647)
-------- -------
Net loans.................. $106,564 $84,532
======== =======
</TABLE>
43
<PAGE> 45
Commercial Loans. Commercial loans are generally written with adjustable
interest rates to match variable rate funding sources. Such loans increased $6.6
million to $65.5 million at June 30, 1997, as the Company actively pursued more
commercial loan relationships. Commercial loans represented 28.2% of the total
loan portfolio at June 30, 1997, as compared to 28.7% of the total loan
portfolio at December 31, 1996.
Real Estate Mortgage Loans. Real estate mortgage loans, which consist of
residential and commercial loans secured by real estate, totaled $92.6 million
at June 30, 1997, compared to $84.9 million at December 31, 1996. This increase
is primarily related to an increased emphasis in commercial real estate lending.
Real estate mortgage loans are typically written with fixed rates of interest.
Home Equity Loans. Home equity loans increased $8.7 million, or 20.2%,
from December 31, 1996 and were $51.9 million at June 30, 1997. At June 30,
1997, home equity loans accounted for 22.4% of the total loan portfolio,
compared to 21.0% of the total loan portfolio at December 31, 1996. The increase
in home equity loans is primarily due to the success of the Company's prime
rate-based home equity products. Home equity lines of credit, in addition to
senior mortgage indebtedness, normally do not exceed 80% of the residential real
estate collateral value. These loan to value ratios help to limit the credit
risk associated with these loans.
The Bank has no concentrations to borrowers engaged in the same or similar
industries that exceed 10% of total loans. The Bank has developed a lending
niche in providing loans to the long-term health care industry. At December 31,
1996, the Bank had $10.2 million of commitments to customers in this industry,
with $2.9 million drawn and outstanding. The Company maintains a policy of
directing its lending activities to the target markets from which its deposits
are drawn.
Loan Maturities
The following table sets forth the maturities of commercial and real
estate construction loans outstanding at December 31, 1996. Also set forth are
the amounts of such loans due after one year, classified according to
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
MATURITY
-----------------------------------------------------------------
DUE IN ONE
YEAR OR DUE AFTER ONE YEAR DUE AFTER
LESS THROUGH FIVE YEARS FIVE YEARS TOTAL
------------ ------------------------ ------------------------ --------
(DOLLARS IN THOUSANDS)
FLOATING FLOATING
FIXED RATE FIXED RATE
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial and real estate
construction loans(1).............. $ 65,342 $ 3,516 $ -- $ 2,336 $ -- $ 71,194
======== ======= ====== ========= ======= ========
</TABLE>
- ----------------------
(1) All commercial loans tied to prime are shown as variable rate loans with
maturities less than or equal to one year.
Non-performing Loans
Non-performing loans include: (1) loans accounted for on a noninterest
accrual basis; (2) accruing loans contractually past due ninety days or more as
to interest or principal payment; and (3) loans whose terms have been
renegotiated to provide a reduction or deferral of interest or principal because
of a deterioration in the financial position of the borrower.
The Bank has a reporting and control system to monitor non-performing
loans. The following table provides certain information on the Bank's
non-performing loans at the dates indicated.
44
<PAGE> 46
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------- -----------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans................................. $ 574 $ -- $ 13 $ 258 $ 852 $ 258
Restructured loans............................... -- -- -- -- -- --
Loans 90 days or more past due, still accruing... 568 118 626 123 519 689
------ ----- ------ ------ ------- -------
Total non-performing loans.................... $ 1,142 $ 118 $ 639 $ 381 $ 1,371 $ 947
====== ===== ====== ====== ======= =======
Non-performing loans to loans, net of unearned
discount and net deferred loan fees........... 0.49% 0.06 % 0.37 % 0.28 % 1.28 % 1.11 %
Non-performing loans to allowance
for loan losses............................... 70.10% 8.28 % 53.74 % 38.10 % 160.35 % 146.37 %
</TABLE>
The increase in nonperforming loans of $1.0 million from December 31, 1996
to June 30, 1997 is primarily attributable to six loans. Of these loans, three
loans (totaling $509,000) are 90 days or more past due but still accruing
interest. Each of these loans is secured by a first lien on residential real
estate or a second lien where the Bank also holds the first lien. Should
management's view of the collectibility of these loans change, they may be
transferred to nonaccrual status. The other three large nonperforming loans are
commercial loans (totaling $525,000) which are classified as nonaccrual. One of
these loans (totaling approximately $75,000) is guaranteed 82% by the Small
Business Administration. Management is aggressively pursuing collection efforts
with respect to each of these nonperforming loans.
Loans with principal or interest payments contractually due but not yet
paid are reviewed by senior management on a weekly basis and are placed on
nonaccrual status when scheduled payments remain unpaid for 90 days or more,
unless the loan is both well-secured and in the process of collection. Interest
income on nonaccrual loans is recorded when actually received in contrast to the
accrual basis, which records income over the period in which it is earned,
regardless of when it is received.
Potential Problem Loans
In addition to those loans disclosed under "Nonperforming Loans," there
are certain loans in the portfolio which management has identified, through its
problem loan identification system which exhibit a higher than normal credit
risk. However, these loans do not represent nonperforming loans to the Company.
Management's review of the total loan portfolio to identify loans where there is
concern that the borrower will not be able to continue to satisfy present loan
repayment terms includes factors such as review of individual loans, recent loss
experience and current economic conditions. Loans in this category include those
with characteristics such as those that have recent adverse operating cash flow
or balance sheet trends, or have general risk characteristics that the loan
officer believes might jeopardize the future timely collection of principal and
interest payments. The principal amount of loans in this category as of June 30,
1997 and December 31, 1996 were approximately $484,000 and $983,000,
respectively. Loans in this category generally include loans that were
classified for regulatory purposes. At June 30, 1997, there were no significant
loans which were classified by any bank regulatory agency that are not included
above as nonperforming or as a potential problem loan.
The Bank had no other real estate owned at December 31, 1996 or June 30,
1997.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate
to provide for potential future losses. The level of the allowance is based upon
management's periodic and comprehensive evaluation of the loan portfolio, as
well as current and projected economic conditions. Reports of examination
furnished by Federal banking authorities are also considered by management in
this regard. These evaluations by management in assessing the adequacy of the
allowance include consideration of past loan loss experience, changes in the
45
<PAGE> 47
composition of the loan portfolio, the volume and condition of loans outstanding
and current market and economic conditions.
Loans are charged to the allowance for loan losses when deemed
uncollectible by management, unless sufficient collateral exists to repay the
loan.
46
<PAGE> 48
Set forth in the following table is an analysis of the allowance for
loan losses.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------------- ------------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Allowance at beginning of
period.............................. $ 1,425 $ 1,189 $ 1,000 $ 855 $ 647 $ 531
Charge-offs:
Commercial.......................... -- 49 -- 88 26 179
Real estate - construction.......... -- -- -- -- -- --
Real estate - mortgage.............. -- -- -- -- -- --
Home equity......................... -- -- -- -- -- --
Installment......................... 2 20 4 1 7 6
Credit cards........................ 53 9 15 50 19 47
-------- ---------- --------- -------- --------- --------
Total charge-offs...................... 55 78 19 139 52 232
-------- ---------- --------- -------- --------- --------
Recoveries:
Commercial.......................... 22 -- -- 31 23 16
Real estate - construction.......... -- -- -- -- -- --
Real estate - mortgage.............. -- -- -- -- -- --
Home equity......................... -- -- -- -- -- --
Installment......................... 9 3 -- 1 -- --
Credit cards........................ -- 1 1 2 17 17
-------- ---------- --------- -------- --------- --------
Total recoveries....................... 31 4 1 34 40 33
-------- ---------- --------- -------- ---------
--------
Net charge-offs........................ 24 74 18 105 12 199
Provision for loan losses.............. 228 310 207 250 220 315
======== ========== ========= ======== ========= ========
Allowance at end of period............. $ 1,629 $ 1,425 $ 1,189 $ 1,000 $ 855 $ 647
======== ========== ========= ======== ========= ========
Allowance to loans, net of
unearned discount and net deferred
loan fees........................... 0.70% 0.70% 0.70% 0.72% 0.80% 0.76%
Net charge-offs to average net loans
(annualized for interim period)..... 0.02% 0.04% 0.01% 0.08% 0.01% 0.25%
</TABLE>
In 1996, the loan loss provision of $310,000 reflects an increase of
$103,660 from the 1995 provision. The increase was necessary to offset an
increase in net charge-offs, and to reflect the increase in commercial real
estate lending. The decline in the ratio of the allowance to loans, net of
unearned discount and net deferred loan fees has occurred as a result of the
increase in the loan portfolio. The decline is, however, mitigated by a decrease
in non-performing loans.
The following table presents the allocation of the allowance for loan
losses.
47
<PAGE> 49
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------------------------------------------
1997 1996 1995 1994
----------------------- ----------------------- -----------------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS OF EACH LOANS OF EACH LOANS OF EACH LOANS OF EACH
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- ----------- ----------- ---------- ---------- ------------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $ 722 28.18% $ 597 28.68% $ 596 26.14% $ 550 24.24%
Real estate - construction.... -- 5.77 -- 5.98 -- 7.41 -- 6.24
Real estate - mortgage........ 50 39.86 59 41.34 37 39.44 27 44.08
Installment................... 47 3.65 34 2.73 36 5.00 35 2.92
Home Equity................... 243 22.35 224 21.03 190 21.86 180 22.20
Credit cards.................. 5 .19 12 0.24 7 0.15 9 .32
Unallocated................... 562 -- 499 -- 323 -- 199 --
========== ======= ======== ====== ======= ====== ======= ========
Total......................... $ 1,629 100.00% $ 1,425 100.00% $ 1,189 100.00% $ 1,000 100.00%
========== ======= ======== ====== ======= ====== ======= ========
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1992
----------------------- -----------------------
PERCENT OF PERCENT OF
LOANS OF EACH LOANS OF EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------- -------- -------------
<S> <C> <C> <C>
Commercial.................... $ 478 31.72% $ 437 37.67%
Real estate - construction.... -- 6.23 -- 2.72
Real estate - mortgage........ 20 25.13 15 33.94
Installment................... 53 2.58 9 2.73
Home Equity................... 163 24.62 71 22.35
Credit cards.................. 34 .53 34 .59
Unallocated................... 107 -- 81 --
======== ======= ======== ========
Total......................... $ 855 100.00% $ 647 100.00%
======== ======= ======== ========
</TABLE>
48
<PAGE> 50
Control of the Company's loan quality is continually monitored by
management and is reviewed by the board of directors and loan committee of the
Bank on a monthly basis, subject to the oversight by the Company's Board of
Directors through its members who serve on the loan committee. Independent
external review of the loan portfolio is provided by the examinations conducted
by regulatory authorities, independent public accountants in conjunction with
their annual audit, and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance for
possible loan losses which are charged to earnings through the provision for
possible loan losses are determined based on a variety of factors, including
actual charge-offs during the year, historical loss experience, delinquent
loans, and an evaluation of current and prospective economic conditions in the
market area. Management believes the allowance for possible loan losses is
adequate to cover any potential losses.
Asset Liability Management
As a continuing part of its financial strategy, the Company attempts to
manage the impact of fluctuations in market interest rates on its net interest
income. This effort entails providing a reasonable balance between interest rate
risk, credit risk, liquidity risk and maintenance of yield. Asset liability
management policies are established and monitored by management in conjunction
with the Board of Directors of the Bank, subject to general oversight by the
Company's Board of Directors. The policies establish guidelines for acceptable
limits on the sensitivity of the market value of assets and liabilities to
changes in interest rates.
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of June
30, 1997. An institution with more assets than liabilities repricing over a
given time frame is considered asset sensitive and will generally benefit from
rising rates.
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
-------------------------------------------------------
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
---- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Net loans(1)........................................... $ 114,177 $ 12,775 $ 68,910 $ 34,504 $230,366
Taxable investment Securities.......................... 13,607 1,470 13,654 18,352 47,083
Interest bearing deposits with financial institutions.. 778 99 -- -- 877
Federal funds sold..................................... 3,200 -- -- -- 3,200
-------- ------- -------- ------- -------
Total earning assets............................... 131,762 14,344 82,564 52,856 281,526
======== ======== ======== ======= =======
INTEREST BEARING LIABILITIES:
NOW and money market accounts.......................... $ 52,740 $ 5,067 $ 28,594 $ 2,338 $ 88,739
Savings deposits....................................... 626 1,907 10,927 5,975 19,435
Time deposits.......................................... 42,140 50,428 24,362 559 117,489
Notes payable.......................................... 4,415 -- -- -- 4,415
Other borrowings....................................... 11,765 2,123 2,084 3,999 19,971
-------- -------- -------- ------- -------
Total interest bearing liabilities................. $ 111,686 $ 59,525 $ 65,967 $ 12,871 $250,049
======== ======== ======== ======= =======
Rate sensitive assets (RSA)............................ 131,762 146,106 228,670 281,526 281,526
Rate sensitive liabilities (RSL)....................... 111,686 171,211 233,178 250,049 250,049
Cumulative gap
(GAP = RSA - RSL).................................. $ 20,076 $ (25,105) $ (8,508) $ 31,477 $ 31,477
RSA/Total assets....................................... 43.07% 47.75% 74.74% 92.02% 92.02%
RSL/Total assets....................................... 36.50% 55.96% 77.52% 81.73% 81.73%
GAP/Total assets....................................... 6.56% (8.21%) (2.78%) 10.29% 10.29%
GAP/RSA................................................ 15.24% (17.18%) (3.72%) 11.18% 11.18%
</TABLE>
- -----------------
(1) Includes loans held for sale.
49
<PAGE> 51
While the gap position illustrated above is a useful tool that management
can assess for general positioning of the Company's and the Bank's balance
sheets, management uses an additional measurement tool to evaluate its
asset/liability sensitivity which determines exposure to changes in interest
rates by measuring the percentage change in net interest income due to changes
in rates over a one-year time horizon. Management measures such percentage
change assuming an instantaneous permanent parallel shift in the yield curve of
200 basis points, both upward and downward. Utilizing this measurement concept,
the interest rate risk of the Company, expressed as a percentage change in net
interest income over a one-year time horizon due to changes in interest rates,
at May 31, 1997, is as follows:
<TABLE>
<CAPTION>
+200 BASIS -200 BASIS
POINTS POINTS
------------------- -------------------
<S> <C> <C>
Percentage change in net interest
income due to an immediate 200
basis point change in interest
over a one-year time horizon....... 0.12% (1.36)%
</TABLE>
Deposits
Average total deposits were $253.6 million for the six months ended June
30, 1997, an increase of 12.9% from 1996. The increase in deposits occurred as a
result of opening new branches, and continued emphasis on deposit growth through
marketing and rate promotions. The composition of deposits has not changed
significantly from 1996. The following table sets forth average deposits for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------
1997 1996 1995 1994
------------------ --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NOW and money market accounts...................... $ 81,525 $ 76,127 $ 68,574 $ 51,116
Savings deposits................................... 19,408 18,329 18,293 22,339
Time deposits...................................... 113,437 96,308 96,020 84,168
Demand deposits - noninterest bearing.............. 39,209 33,922 26,884 23,765
--------- -------- ------- -------
Total........................................... $ 253,579 $ 224,686 $ 209,771 $ 181,388
========= ======== ======= =======
</TABLE>
The following table sets forth the maturities of certificates of deposit
and other time deposits of $100,000 or more at December 31, 1996 and June 30,
1997.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------------------- -------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Maturing within three months................ $ 9,231 $ 6,458
After three but within twelve months........ 17,880 16,017
After twelve months......................... 8,439 7,411
-------- -------
Total.................................... $ 35,550 $29,886
======== =======
</TABLE>
50
<PAGE> 52
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and consist of primarily U.S. government
sponsored entity obligations.
The securities underlying the agreements are book-entry securities. During
the period, the securities were delivered by appropriate entry into a
third-party custodian's account designated by the Bank under a written custodial
agreement that explicitly recognizes the customer's interest in the securities.
At December 31, 1996, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer.
The following table sets forth categories of securities sold under
agreements to repurchase as of the indicated dates or for the indicated periods:
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------------------------------
1997 1996 1995 1994
--------------- ------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance at end of period............................. $ 4,996 $ 4,255 $ 1,868 $1,809
Weighted average interest rate at end of period...... 4.38% 4.23% 4.40% 4.50%
Maximum amount outstanding........................... $ 5,689 $ 4,637 $ 5,330 $2,913
Average amount outstanding........................... $ 5,165 $ 4,115 $ 3,182 $2,240
Weighted average interest rate during period......... 4.30% 4.20% 4.99% 3.94%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements could result in certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. The regulations
require the Company and the Bank to meet specific capital adequacy guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting principles.
The capital classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
Quantitative measures established by Federal Reserve, OCC and FDIC
regulations to ensure capital adequacy require the Company and the Bank to
maintain minimum ratios (set forth in the table below) of Tier 1 capital (as
defined in the regulations) to total average assets (as defined in the
regulations) ("leverage ratio") and minimum ratios of Tier 1 capital and total
capital (as defined in the regulations) to risk-weighted assets (as defined in
the regulations) ("Tier 1 Ratio" and "Tier 2 Ratio", respectively). As of June
30, 1997, the Company's actual total capital to risk-weighted assets ratio (Tier
2) of 7.31% was below the minimum ratio of 8.0% established by the Federal
Reserve. The Company's pro forma total capital to risk-weighted assets ratio
(Tier 2) which reflects the completion of the Reorganization was 7.95%. Failure
by the Company and/or the Bank to meet minimum capital requirements can result
in certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have an adverse effect on the Company's growth and
financial results. The Offering is being undertaken to increase the capital of
the Company and the Bank to enable the Company to continue its growth. As of
June 30, 1997, the most recent notification from the OCC categorized the Bank as
"well capitalized" under the regulatory framework for prompt corrective action.
To be considered well capitalized, under this framework, the Bank must maintain
minimum leverage, Tier 1 and Tier 2 ratios as set forth in the following table.
There are no conditions or events since the notification that management
believes has changed the Bank's category. However,
51
<PAGE> 53
there can be no assurance that after the Offering, the Company or the Bank will
continue to be in compliance with their regulatory capital requirements.
The required ratios and the Company's and Bank's actual and pro forma
ratios at June 30, 1997, are presented below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
PRO ADEQUACY CORRECTIVE ACTION
ACTUAL FORMA(1) PURPOSES PROVISIONS
-------------------- -------------------- ------------------- -------------------
ACTUAL RATIO ACTUAL RATIO ACTUAL RATIO ACTUAL RATIO
---------- --------- ---------- --------- -------- --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Total Capital (to Risk Weighted Assets)
(Tier 2 ratio):
Company............................ $ 15,056 7.31% $ 16,376 7.95% $16,481 8.0% N/A
Bank............................... 20,546 10.00 20,546 10.00 16,441 8.0 $ 20,551 10.0%
Tier 1 Capital (to Risk Weighted Assets)
(Tier 1 ratio):
Company............................ 11,580 5.62 14,747 7.16 8,241 4.0 N/A
Bank............................... 18,917 9.20 18,917 9.20 8,221 4.0 12,331 6.0
Tier 1 Capital (to Total Average Assets)
(leverage ratio):
Company............................ 11,580 4.00 14,747 5.09 11,585 4.0 N/A
Bank............................... 18,917 6.54 18,917 6.54 11,571 4.0 14,464 5.0
</TABLE>
- -----------------
(1) The pro forma information reflects the completion of the Reorganization.
Banking regulations limit the amount of dividends that the Bank may pay
without the prior approval of regulatory authorities. As of June 30, 1997,
approximately $1,003,000 of the Bank's retained earnings were available for
dividends without prior regulatory approval. In addition, the Company's debt
agreement with its lending institution requires the Bank to maintain minimum
capital requirements which serve to limit dividends from the Bank. Under the
debt agreement, the Company and the Bank are required to maintain minimum
capital of $9.0 million and $17 million, respectively, and minimum Tier 1
capital to total average assets ratios of 3% and 6%, respectively. The Company's
and Bank's capital levels exceed these requirements. The debt agreement imposes
a more restrictive dividend limitation on the Bank than the banking regulations.
The debt agreement also requires the Bank to maintain an allowance for loan
losses of at least 7/10ths of 1% of total loans. Nonperforming loans and other
real estate are also limited under the agreement to 20% of the Bank's capital.
The Bank may not declare a dividend, other than for the purpose of the Company's
debt service, without the written consent of its lender. The Company cannot
declare cash dividends or acquire any of its own stock without the written
consent of its lender.
Liquidity management at the Bank involves planning to meet anticipated
funding needs at a reasonable cost. Liquidity management is guided by policies,
formulated and monitored by the Company's senior management and the Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Banks' principal sources of funds are deposits, short-term borrowings and
capital contributions by the Company out of the proceeds of borrowings under the
revolving line of credit. At July 30, 1997, approximately $7.4 million of
indebtedness was outstanding under the Company's $8.0 million revolving line of
credit. Borrowings by the Bank from the Federal Reserve Bank of Chicago and
Federal Home Loan Bank of Chicago provide additional sources of short-term
liquidity.
The Bank's core deposits, the most stable source of liquidity for
community banks due to the nature of long-term relationships generally
established with depositors and the security of deposit insurance provided by
the FDIC, are available to provide long-term liquidity. At June 30, 1997, 68.9%
of the Company's total assets were funded by
52
<PAGE> 54
core deposits with balances less than $100,000, while remaining assets were
funded by other funding sources such as core deposits with balances in excess of
$100,000, public funds, purchased funds, and the capital of the Bank. At
December 31, 1996 and 1995, 69.8% and 71.3% of total assets were funded by core
deposits, respectively.
Liquid assets refer to money market assets such as Federal funds sold and
interest bearing time deposits with financial institutions, as well as
securities available-for-sale and securities held-to-maturity with a remaining
maturity less than one year. Net liquid assets represent the sum of the liquid
asset categories less the amount of assets pledged to secure public funds. At
June 30, 1997, net liquid assets totaled approximately $25.9 million, compared
to approximately $26.3 million at December 31, 1996 and $30.7 million at
December 31, 1995.
The Bank routinely accepts deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. At June 30, 1997, December
31, 1996 and December 31, 1995, the Bank had approximately $11 million, $14
million and $13 million, respectively, of securities collateralizing such public
deposits. Deposits requiring pledged assets are not considered to be core
deposits, and the assets that are pledged as collateral for these deposits are
not deemed to be liquid assets.
The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating activities, consisting
primarily of earnings, was $1.6 million for the six months ended June 30, 1997,
and $1.6 million for the year ended December 31, 1995. Net cash used in
operating activities for the six months ended June 30, 1996 was $2.2 million and
$266,000 for the year ended December 31, 1996. A significant component in the
fluctuation of net cash provided by or used in operating activities is the
timing of the transfer of loans held for sale to permanent investors. Net cash
used in investing activities, consisting primarily of loan and investment
funding, was $28.2 million and $4.6 million for the six months ended June 30,
1997 and 1996, respectively, and $29.9 million and $26.4 million for the years
ended December 31, 1996 and 1995, respectively. Net cash provided by financing
activities, consisting principally of deposit growth, was $28.5 million and $1.4
million for the six month ended June 30, 1997 and 1996, respectively, and $23.5
million and $26.9 million for the years ended December 31, 1996 and 1995,
respectively.
EFFECTS OF INFLATION
Inflation can have a significant effect on the operating results of all
industries. However, management believes that inflationary factors are not as
critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets in the banking
industry. Inflation does, however, have some impact on the Company's growth,
earnings and total assets and on its need to closely monitor its capital levels.
Interest rates are significantly affected by inflation, but it is
difficult to assess the impact, since neither the timing nor the magnitude of
the changes in the various inflation indices coincides with changes in interest
rates. Inflation does impact the economic value of longer-term interest-bearing
assets and liabilities, but the Company attempts to limit its long-term assets
and liabilities, as indicated in the tables set forth under "- Financial
Condition" and "- Asset/Liability Management."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Such forward-looking statements may be
deemed to include, among other things, statements relating to anticipated growth
and increased profitability, as well as statements relating to the Company's
strategic plan, including plans to continue to develop lending niches, to open
new branch offices, and to selectively acquire other financial institutions.
Actual results could differ materially from those addressed in the
forward-looking statements as a result of the factors discussed in "Risk
Factors" and elsewhere in this Prospectus.
53
<PAGE> 55
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and certain other key employees of the
Company, and their respective ages and principal positions as of July 31, 1997,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Saul D. Binder(3)......................... 57 Director, President and Chief Executive Officer of the
Company and President and Chief Executive Officer of
the Bank
Steven A. Covert.......................... 35 Executive Vice President and Chief Financial Officer
of the Company and the Bank
Craig R. Carpenter........................ 61 Senior Vice President and Chief Credit Officer of the
Bank
Ronald W. Tragasz......................... 48 Senior Vice President and Cashier of the Bank
Christa N. Calabrese...................... 48 Senior Vice President and Chief Lending Officer of the
Bank
Sam Moraras............................... 46 Treasurer of the Company and Vice President and
Controller of the Bank
George M. Ohlhausen(3)(4)................. 75 Chairman of the Board of Directors of the Company
Charles G. Freund(1)(5)................... 73 Director
Avrom H. Goldfeder(2)(5).................. 38 Director
Samuel D. Kahan(1)(5)..................... 50 Director
Sherwin Koopmans(2)(4).................... 55 Director
Norman D. Rich(3)(4)...................... 62 Director
</TABLE>
- -------------
(1) Class I Director
(2) Class II Director
(3) Class III Director
(4) Member of the Audit Committee
(5) Member of the Compensation Committee
Saul D. Binder has been President and Chief Executive Officer since
joining the Bank in 1982, and has been President and Chief Executive Officer of
the Company since 1992. Mr. Binder has been a Director of the Bank since 1982
and a Director of the Company since its incorporation in 1986. From March, 1985
to December, 1989, Mr. Binder served as President of the Bank of Bellwood. From
August, 1986 to December, 1989, he served as President of First National Bank of
Wheaton. From August, 1985 to December, 1989, Mr. Binder served as Secretary of
Bellwood Bancorp.
Steven A. Covert was named Executive Vice President and Chief Financial
Officer of the Company and the Bank in September, 1995. From July, 1993 to
December, 1994, Mr. Covert was Senior Vice President and Chief Financial Officer
of Ithaca Bancorp, Inc., a bank holding company located in Ithaca, New York.
From January, 1991 to July, 1993, Mr. Covert was Vice President and Chief
Financial Officer of Center Banks, Incorporated, a bank holding company located
in Skaneateles, New York. Prior to January, 1991, Mr. Covert was employed by
KPMG Peat Marwick LLP as an auditor, where he obtained his license as a
Certified Public Accountant.
54
<PAGE> 56
Craig R. Carpenter joined the Bank as Senior Vice President and Chief
Credit Officer in August, 1995. From 1961 to August, 1995, Mr. Carpenter was
employed by Continental Bank N.A. in various capacities, most recently as Vice
President and Departmental Credit Officer where he oversaw the pre-approval of
all credit relationships for the real estate department, including the energy
and mineral division.
Ronald N. Tragasz joined the Bank in September, 1991, and is currently
Senior Vice President and Cashier of the Bank and Assistant Vice President of
the Company. Prior to September, 1991, Mr. Tragasz was employed by the Bank of
Ravenswood as Cashier and by First National Bank of Chicago as Assistant Vice
President, where he was responsible for bank operating functions and various
branch operations.
Christa N. Calabrese has been Senior Vice President and Chief Lending
Officer of the Bank since 1992. Prior to joining the Bank, Ms. Calabrese was an
Asset Specialist with the Resolution Trust Corporation from 1990 to 1992. From
1969 through 1990, Ms. Calabrese held commercial lending positions with local
community banks.
Sam Moraras has been Treasurer of the Company and Vice President and
Controller of the Bank since August, 1996. From September, 1995, to July, 1996,
Mr. Moraras was employed by Siam Commercial Bank as the Manager of the
Operations Group where he oversaw the general operations of the bank. From
January, 1987, to September, 1995, Mr. Moraras was employed by Peterson Bank
with his last position being Senior Vice President and Controller where he was
in charge of the accounting and investment functions for the bank.
George M. Ohlhausen has been Chairman of the Board of Directors of the
Company since September, 1991. Mr. Ohlhausen was formerly President of George M.
Ohlhausen, Inc., through which he represented a variety of jewelry
manufacturers. He has served as a Director of the Bank since 1982 and of the
Company since 1989.
Charles G. Freund has been Chairman of the Board Emeritus of the Bank
since September, 1991. From August, 1989, to September, 1991, Mr. Freund was
Chairman of the Board of the Bank. Prior to his retirement in 1986, Mr. Freund
was Vice President, Secretary and Treasurer of Mid-Con Corp., a natural gas
transmission company. He currently serves as a Director of Lincoln National
Income Fund, Lincoln National Convertible Securities Fund and the Mathers Fund.
Mr. Freund has been a Director of the Bank since 1978 and of the Company since
1989.
Avrom H. Goldfeder has been a Director of the Company since 1997. Mr.
Goldfeder has been a member-trader of the Chicago Board of Trade (CBOT) since
1986. He is a member of the CBOT Business Conduct Committee and is Vice Chairman
of the CBOT Educational Research Foundation. Mr. Goldfeder was a founding
partner of the Financial Futures Interest Rate Group before joining ING Futures
and Options in October, 1990.
Samuel D. Kahan has been a Director of the Company since 1995. Mr. Kahan is
an economist and since October, 1995, has been President of A.S.K. Financial
Research Ltd., an economic research firm. From 1985 to 1995, Mr. Kahan was the
Chief Economist for Fuji Securities, Inc., a subsidiary of Fuji Bank, Ltd.
Sherwin Koopmans has been a Director of the Company since 1997. Prior to
his retirement in January, 1996, Mr. Koopmans was the Associate Director of the
Division of Depository and Asset Services for the Federal Deposit Insurance
Corporation ("FDIC") from July, 1994 to December, 1995. Prior to working for the
FDIC, Mr. Koopmans was the Regional Director and then the Vice President for
Resolution for the Resolutions Trust Corporation from December, 1991, to July,
1994.
Norman Rich has been a Director of both the Company and the Bank since
1991. Mr. Rich is a principal of the accounting and consulting firm of Veatch,
Rich & Nadler, Chtd., and has been during the last five years. Mr. Rich is a
Certified Public Accountant.
The Company's Board of Directors consists of seven (7) members divided
into three classes of Directors who are elected to hold office for staggered
three-year terms as provided in the Company's By-Laws. Those persons currently
serving as Class I Directors will hold office until the Annual Stockholder
Meeting to be held in 1998;
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<PAGE> 57
Class II Directors will hold office until the Annual Stockholder Meeting to be
held in 1999; and Class III Directors will hold office until the Annual
Stockholder Meeting to be held in 2000.
Executive officers are appointed annually by the Board of Directors and
serve at the Board's discretion, subject to any written employment agreements
with the Company. See "Management--Employment Agreements."
DIRECTORS' COMPENSATION
Prior to July, 1997, members of the Board of Directors of the Company did
not receive compensation for their services as directors but were compensated as
members of the Bank's Board of Directors. Beginning August, 1997, members of the
Company's Board of Directors other than executive officers will receive a fee of
$1,000 a month. The Company will reimburse all directors of the Company for all
travel-related expenses incurred in connection with their activities as
directors. George M. Ohlhausen receives an additional $32,500 annually for
serving as Chairman of the Board of Directors of the Company.
Prior to July, 1997, the same people were members of both of the Board of
Directors of the Company and the Bank. As of January 1 of each year, each
director of the Company and the Bank was granted an option to purchase up to
10,000 shares of Common Stock at the book value per share of Common Stock on the
last day of the month prior to the month in which such option was either fully
or partially exercised. Such options expire on December 31 of the year in which
the options were granted. In June, 1997, both the Board of Directors of the
Company and the Bank approved a resolution which reduced the number of shares
for which options granted in 1997 could be exercised to 1,000 shares and changed
the expiration date of the 1997 options to July 23, 1997. Between January 1,
1996 and July 30, 1997, nine Directors exercised options to purchase an
aggregate of 20,405 shares of Common Stock at a weighted average exercise price
of $8.34 per share.
COMMITTEES OF THE BOARD OF DIRECTORS
In connection with the Offering, the Company has formed two new committees
of the Board, the Audit Committee and the Compensation Committee. The members of
the Company's Audit Committee are Messrs. Norman D. Rich, George M. Ohlhausen
and Sherwin Koopmans. The Audit Committee's functions will include recommending
to the Board of Directors the engagement of the Company's independent certified
public accountants, reviewing with such accountants the plan and results of
their audit of the Company's financial statements and determining the
independence of such accountants. The members of the Company's Compensation
Committee are Messrs. Charles G. Freund, Avrom H. Goldfeder and Samuel D. Kahan.
The Compensation Committee will review and make recommendations with respect to
compensation of officers and key employees, including the grant of options under
the 1995 Stock Option Plan.
EXECUTIVE COMPENSATION
The following table shows certain information concerning the compensation
of the Chief Executive Officer during the year ended December 31, 1996. No other
executive officer of the Company had compensation during the year ended December
31, 1996, which exceeded $100,000.
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<PAGE> 58
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY
---------------------------
-------------------- -----------------------
<S> <C> <C>
Saul D. Binder
President and Chief Executive Officer of the
Company and President and Chief Executive
Officer of the Bank....................... 1996 $ 175,000
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table provides information on option exercises in 1996 by
the Chief Executive Officer and the value of such officer's unexercised options
at December 31, 1996. The Company made no option grants in 1996 to the Chief
Executive Officer.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1996(1) DECEMBER 31, 1996(2)
---------------------------------- ----------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Saul D. Binder. -- $0 113,390 -- $894,105 $0
</TABLE>
- ------------------
(1) Future exercisability is subject to vesting and the optionee remaining
employed by the Company.
(2) Value is calculated by subtracting the exercise price from the offering
price of $12.50 per share and multiplying the result by the number of
in-the-money options held. There is no guarantee that if and when these
options are exercised they will have this value.
EMPLOYMENT AGREEMENTS
The Bank has entered into an Employment Agreement dated February 1, 1997,
with Mr. Binder. The Employment Agreement will remain in effect until Mr. Binder
reaches the age of sixty-five, or in the event his employment is terminated for
cause. The annual base salary for Mr. Binder as of the execution of the
Employment Agreement was $175,000. In addition to his salary, Mr. Binder is
entitled to participate in and receive benefits under any employee insurance and
fringe benefits programs that may be established by the Bank for its employees.
The Employment Agreement further provides that upon the sale, transfer or
disposition of the share of stock or assets of the Bank, Mr. Binder will receive
a lump sum payment in the amount of $229,000.
The Company has entered into an Executive Severance Agreement dated August
21, 1995, with Steven A. Covert, Executive Vice President and Chief Financial
Officer of the Company and the Bank, whereby under certain circumstances Mr.
Covert will be paid a specified sum in the event his employment is terminated
except if such employment is terminated for cause.
STOCK OPTION PLANS
The Company adopted the 1995 Stock Option Plan for executive officers and
other key personnel of the Company and the Bank effective October 31, 1995.
Pursuant to the 1995 Stock Option Plan, vesting of the options is determined by
the Board of Directors and typically is over a period not exceeding four years.
Options must be exercised within ten years after the date of grant. At July 31,
1997, there were 153,340 outstanding options to buy Common Stock at a weighted
average price of $5.02 per share.
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<PAGE> 59
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, compensation of the Bank's executive officers has been
established at the Bank level by the Compensation Committee of the Bank's Board
of Directors. Saul D. Binder, President and Chief Executive Officer of the
Company and the Bank, participated in deliberations concerning compensation of
the executive officers during 1996. Mr. Binder's compensation has historically
been determined by the Compensation Committee of the Bank's Board of Directors.
The Company's Compensation Committee will determine the compensation of
executive officers of the Company on a going-forward basis.
CERTAIN TRANSACTIONS
From time to time, the Bank makes loans and extends credit to certain of
the Company's and/or the Bank's officers and directors and to certain companies
affiliated with such persons. In the opinion of the Company, all of such loans
and extensions of credit were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other third parties and
did involve more than the normal risk of collectibility or present other
unfavorable features. At June 30, 1997, an aggregate of $2.5 million of loans
and extensions of credit were outstanding to certain officers and directors of
the Company and/or the Bank and to certain companies affiliated with such
persons.
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<PAGE> 60
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 31, 1997 after
giving effect to the Reorganization and the stock split, and as adjusted to
reflect the issuance by the Company of the shares of Common Stock offered in the
Offering (assuming 1,200,000 shares are sold in the Offering and by: (i) each
person or entity known to the Company to be the beneficial owner of more than 5%
of its outstanding Common Stock, (ii) each Named Executive Officer, (iii) each
director of the Company, and (iv) all directors, executive officers and certain
key employees of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER(1) OWNED(2)(3) SHARES OWNED
- ---------------------------------------------------- -------------- ----------------------------
Before After
Offering Offering
------------- -------------
<S> <C> <C> <C>
Saul D. Binder..................................... 194,447 11.7% 6.8%
Charles G. Freund.................................. 49,912 3.0 1.7
Avrom H. Goldfeder................................. -- -- --
Samuel D. Kahan.................................... 1,700 * *
Sherwin Koopmans................................... -- -- --
George M. Ohlhausen................................ 247,777 14.9 8.6
Norman D. Rich..................................... 18,699 1.1 *
Naschon Draiman(4)................................. 150,327 9.0 5.2
All directors and executive
officers as a group (11 persons)................ 526,985 31.6 18.4
</TABLE>
- --------------------
* Less than 1%.
(1) The address of each of the executive officers and directors, unless noted
otherwise in the footnotes, is c/o Success Bancshares, Inc., One Marriott
Drive, Lincolnshire, Illinois 60069.
(2) The number of shares listed includes 127,840 shares of Common Stock which
may be acquired through the exercise of stock options.
(3) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has custody, voting control, or
power of disposition.
(4) Mr. Draiman's address is 6134 North St. Louis Avenue, Chicago, Illinois
60659.
59
<PAGE> 61
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under federal
and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including the Company and the Bank. However, management is not aware
of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonably likely to have a material effect
on liquidity, capital resources, or operations of the Company or the Bank.
BANK HOLDING COMPANY REGULATION
The Company is registered as a "bank holding company" with the Federal
Reserve and, accordingly, is subject to supervision by the Federal Reserve under
the BHC Act. The Company is required to file with the Federal Reserve periodic
reports and such additional information as the Federal Reserve may require
pursuant to the BHC Act. The Federal Reserve examines the Company and may
examine the Bank.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. Under the BHC Act
and Federal Reserve regulations, the Company and the Bank are prohibited from
engaging in certain tie-in arrangements in connection with an extension of
credit, lease, sale of property, or furnishing of services.
Any person, including associates and affiliates of and groups acting in
concert with such person, who purchases or subscribes for five percent or more
of the Company's Common Stock may be required to obtain prior approval of the
Federal Reserve under the BHC Act. Under the Change in Bank Control Act, any
person who acquires stock of the Company such that its interest exceeds ten
percent of the Company, may be required to obtain the prior regulatory approval
of the OCC, and the Federal Reserve before acquiring the power to directly or
indirectly direct the management, operations or policies of the Company or the
Bank or before acquiring control of 25 percent or more of any class of the
Company's or Bank's outstanding voting stock. In addition, any corporation,
partnership, trust or organized group that acquires a controlling interest in
the Company or the Bank may have to obtain approval of the Federal Reserve to
become a bank holding company and thereafter be subject to regulation as such.
It is the policy of the Federal Reserve that the Company is expected to
act as a source of financial strength to the Bank and to commit resources to
support the Bank. The Federal Reserve takes the position that in implementing
this policy, it may require the Company to provide such support when the Company
otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. The Federal
Reserve's risk-based guidelines apply on a consolidated basis for bank holding
companies with consolidated assets of $150 million or more and on a "bank-only"
basis for bank holding companies with consolidated assets of less than $150
million, subject to certain terms and conditions. Under the Federal Reserve's
risk-based guidelines, capital is classified into two categories. For bank
holding companies, Tier 1 or "core" capital consists of common shareholders'
equity, perpetual preferred stock (subject to certain limitations) and minority
interests in the common equity accounts of consolidated subsidiaries, and is
reduced by goodwill, certain other intangible assets and certain investments in
other corporations ("Tier 1 Capital"). Tier 2 capital consists of the allowance
for loan and lease losses (subject to certain conditions and
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<PAGE> 62
limitations), "hybrid capital instruments," perpetual debt and mandatory
convertible debt securities, and term subordinated debt and intermediate-term
preferred stock.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying capital to risk-weighted
assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 Capital.
The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to
total average assets of 4.0%, except that bank holding companies not rated in
the highest category under the regulatory rating system are required to maintain
a leverage ratio of 1.0% to 2.0% above such minimum. The 4.0% Tier 1 Capital to
total average assets ratio constitutes the minimum leverage standard for bank
holding companies, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In addition,
the Federal Reserve continues to consider the Tier 1 leverage ratio in
evaluating proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that
the foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
As of June 30, 1997, on a pro forma basis, the Company had a Tier 1
capital to risk-weighted assets ratio (Tier 1 Ratio) of 7.2%, total capital to
risk-weighted assets ratio (Tier 2 Ratio) of 7.95% and a Tier 1 capital to total
average assets ratio (leverage ratio) of 4.0% as of June 30, 1997. The Company's
actual Tier 2 Ratio as of June 30, 1997 was below the minimum ratio of 8.0%
established by the Federal Reserve. Failure by the Company to meet minimum
capital requirements can result in certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a adverse
effect on the Company's growth and financial results.
BANK REGULATION
The Bank is subject to supervision and examination by the OCC pursuant to
the National Bank Act and regulations promulgated thereunder. The Bank is a
member of the Federal Reserve and as such is also subject to examination by the
Federal Reserve.
The deposits of the Bank are insured by the Bank Insurance Fund under the
provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Bank is,
therefore, also subject to supervision and examination by the FDIC. The FDIA
requires that the appropriate federal regulatory authority (the OCC, in the case
of the Bank) approve any merger and/or consolidation by or with an insured bank,
as well as the establishment or relocation of any bank or branch office. The
FDIC also supervises compliance with the provisions of federal law and
regulations which place restrictions on loans by FDIC-insured banks to their
directors, executive officers and other controlling persons.
Furthermore, banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
All banks located in Illinois have traditionally been restricted as to the
number and geographic location of branches which they may establish. The
Illinois Banking Act was amended in June 1993, however, to eliminate such
branching restrictions. Accordingly, banks located in Illinois are now permitted
to establish branches anywhere in Illinois without regard to the location of
other banks' main offices or the number of branches previously maintained by the
bank establishing the branch. Under recently enacted federal legislation, banks
are also permitted to establish branches in other states, subject to certain
limitations. See "Interstate Banking and Banking Legislation."
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<PAGE> 63
FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by state
and federal regulatory agencies. Such transactions include loans and other
extensions of credit, purchases of securities and other assets, and payments of
fees or other distributions. In general, these restrictions limit the amount of
transactions between an institution and an affiliate of such institution, as
well as the aggregate amount of transactions between an institution and all of
its affiliates, and require transactions with affiliates to be on terms
comparable to those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, the Company is primarily
dependent upon dividend distributions from the Bank for its income. Federal
statutes and regulations impose restrictions on the payment of dividends by the
Company and the Bank.
Federal Reserve policy provides that a bank holding company should not pay
dividends unless (i) the bank holding company's net income over the prior year
is sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.
Delaware law also places certain limitations on the ability of the Company
to pay dividends. For example, the Company may not pay dividends to its
shareholders if, after giving effect to the dividend, the Company would, not be
able to pay its debts as they become due. Since a major source of the Company's
revenue is dividends the Company receives and expects to receive from the Bank,
the Company's ability to pay dividends is likely to be dependent on the amount
of dividends paid by the Bank. No assurance can be given that the Bank will, in
any circumstances, pay dividends to the Company.
Federal regulations prohibit any Federal Reserve member bank, including
the Bank from declaring dividends in any calendar year in excess of its net
profit for the year plus the retained net profits for the preceding two years.
Furthermore, the OCC may, after notice and opportunity for hearing, prohibit the
payment of a dividend by a national bank if it determines that such payment
would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Company and the Bank to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
The right of the Company, its shareholders and its creditors to participate in
any distribution of the assets or earnings of its subsidiaries is further
subject to the prior claims of creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994 requires the
Federal Reserve, together with the other federal bank regulatory agencies, to
prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The Federal Reserve, the OCC and
the other federal bank regulatory agencies have adopted, effective August 9,
1995, a set of guidelines prescribing safety and soundness standards pursuant to
FDICIA, as amended. The guidelines establish general standards relating to
internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. In general, the guidelines require, among other
things, appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
stockholder. In addition, each of the Federal Reserve and the OCC adopted
regulations that authorize, but do not require, the Federal Reserve or the OCC,
as the case may be, to order an institution that has been given notice by the
Federal Reserve or the OCC, as the case may be, that it is not satisfying any of
such safety and soundness standards to submit a compliance plan. If, after being
so notified, an institution fails to submit an acceptable compliance plan or
fails in any material respect to implement an accepted compliance plan, the
Federal Reserve or the OCC, as the case may be, must issue an order directing
action to correct the deficiency and may issue an order directing other actions
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<PAGE> 64
of the types to which an undercapitalized association is subject under the
"prompt corrective action" provisions of FDICIA. If an institution fails to
comply with such an order, the Federal Reserve or the OCC, as the case may be,
may seek to enforce such order in judicial proceedings and to impose civil money
penalties. The Federal Reserve, the OCC and the other federal bank regulatory
agencies also proposed guidelines for asset quality and earnings standards.
A range of other provisions in FDICIA include requirements applicable to
closure of branches; additional disclosures to depositors with respect to terms
and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In August, 1995, the Federal Reserve, OCC, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC
and the FDIC must explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor in
evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC and
other federal banking agencies also have adopted a joint agency policy statement
providing guidance to banks for managing interest rate risk. The policy
statement emphasizes the importance of adequate oversight by management and a
sound risk management process. The assessment of interest rate risk management
made by the banks' examiners will be incorporated into the banks' overall risk
management rating and used to determine the effectiveness of management.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve, the OCC and the FDIC, to take prompt corrective
action with respect to depository institutions that fall below certain capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions
including, but not limited to, restrictions on growth, investment activities,
capital distributions and affiliate transactions and will be required to submit
a capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (such as the
Company). In other respects, FDICIA provides for enhanced supervisory authority,
including greater authority for the appointment of a conservator or receiver for
under-capitalized institutions. The capital-based prompt corrective action
provisions of FDICIA and their implementing regulations apply to FDIC-insured
depository institutions. However, federal banking agencies have indicated that,
in regulating bank holding companies, the agencies may take appropriate action
at the holding company level based on their assessment of the effectiveness of
supervisory actions imposed upon subsidiary insured depository institutions
pursuant to the prompt corrective action provisions of FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, the Bank is required to pay deposit insurance premiums based on the
risk it poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve certain designated
reserve ratios in the insurance funds and to impose special additional
assessments. The FDIC recently amended the risk-based assessment system and on
December 11, 1995, adopted a new assessment rate schedule for BIF insured
deposits. The new assessment rate schedule, effective with respect to the
semiannual premium assessment beginning January 1, 1996, provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of insured
deposits depending on capital and supervisory factors. Each depository
institution is assigned to one of three capital groups: "well capitalized,"
"adequately capitalized" or "less than adequately capitalized." Within each
capital group, institutions are assigned to one of three supervisory subgroups:
"healthy," "supervisory concern" or "substantial supervisory concern."
Accordingly, there are nine combinations of capital groups and supervisory
subgroups to which varying assessment rates would be applicable. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned.
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<PAGE> 65
During 1996, the Bank was assessed at an average annual rate of the
statutory minimum of $2,000. Deposit insurance may be terminated by the FDIC
upon a finding that an institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know any practice, condition or violation that
might lead to termination of deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted
on September 30, 1996 provides that beginning with semi-annual periods after
December 31, 1996, deposits insured by the Bank Insurance Fund ("BIF") will also
be assessed to pay interest on the bonds (the "FICO Bonds") issued in the late
1980s by the Financing Corporation to recapitalize the now defunct Federal
Savings & Loan Insurance Corporation. For purposes of the assessments to pay
interest on the FICO Bonds, BIF deposits will be assessed at a rate of 20.0% of
the assessment rate applicable to SAIF deposits until December 31, 1999. After
the earlier of December 31, 1999 or the date on which the last savings
association ceases to exist, full pro rata sharing of FICO assessments will
begin. It has been estimated that the rates of assessment for the payment of
interest on the FICO Bonds will be approximately 1.3 basis points for
BIF-assessable deposits and approximately 6.4 basis points for SAIF-assessable
deposits. The payment of the assessment to pay interest on the FICO Bonds should
not materially affect the Bank.
Federal Reserve System. The Bank is subject to Federal Reserve regulations
requiring depository institutions to maintain non-interest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3.0% reserves on
the first $51.3 million of transaction accounts plus 10.0% on the remainder. The
first $4.3 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. The Bank is in
compliance with the foregoing requirements.
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
a financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires each federal
banking agency, in connection with its examination of a financial institution,
to assess and assign one of four ratings to the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by the institution, including applications
for charters, branches and other deposit facilities, relocations, mergers,
consolidations, acquisitions of assets or assumptions of liabilities, and
savings and loan holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings. The Bank received a
"satisfactory" rating from the OCC on its most recent CRA performance
evaluations.
In April 1995, the Federal Reserve, the OCC and other federal banking
agencies adopted amendments revising their CRA regulations. Among other things,
the amended CRA regulations substitute for the prior process-based assessment
factors a new evaluation system that would rate an institution based on its
actual performance in meeting community needs. In particular, the proposed
system would focus on three tests: (i) a lending test, to evaluate the
institution's record of making loans in its assessment areas; (ii) an investment
test, to evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefiting low or moderate income
individuals and businesses; and (iii) a service test, to evaluate the
institution's delivery of services through its branches, ATMs and other offices.
The amended CRA regulations also clarify how an institution's CRA performance
would be considered in the application process.
Brokered Deposits. Well-capitalized institutions are not subject to
limitations on brokered deposits, while an adequately capitalized institution is
able to accept, renew or rollover brokered deposits only with a waiver from the
FDIC and subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits. The
Bank is eligible under the statutory standard to accept brokered deposits and
may use this funding source from time to time when management deems it
appropriate from an asset/liability management perspective.
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Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994, the
Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies will be allowed to
acquire banks across state lines subject to certain limitations. In addition,
under the Interstate Banking Act, beginning on June 1, 1997, banks will be
permitted to merge with one another across state lines and thereby create a main
bank with branches in separate states. After establishing branches in a state
through an interstate merger transaction, a bank could establish and acquire
additional branches at any location in the state where any bank involved in the
interstate merger could have established or acquired branches under applicable
federal and state law.
Under the Interstate Banking Act, states may adopt legislation permitting
interstate mergers before June 1, 1997. Alternatively, states may adopt
legislation before June 1, 1997, subject to certain conditions, opting out of
interstate branching. Illinois adopted legislation, effective September 29,
1995, permitting interstate mergers beginning on June 1, 1997. It is anticipated
that this interstate merger and branching ability will increase competition and
further consolidate the financial institutions industry.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by general
economic conditions and also by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in interest
rates have affected the operating results of all commercial banks in the past
and are expected to do so in the future. The Bank cannot fully predict the
nature or the extent of any effects which fiscal or monetary policies may have
on its business and earnings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 7,500,000 shares, $0.001 par value per
share, of common stock (the "Common Stock") and 1,000,000 shares, $0.001 par
value per share, of preferred stock (the "Preferred Stock"). As of June 30,
1997, there were issued and outstanding 1,540,266 shares of Common Stock, on a
pro forma basis, and no shares of Preferred Stock, with 153,340 additional
shares of Common Stock reserved for issuance upon the exercise of currently
outstanding options, each of which represents the right to purchase one share of
Common Stock. Each share of Common Stock has the same relative rights as, and is
identical in all respects with, each other share of Common Stock. Each share
offered hereby will be (when issued and delivered in accordance with the terms
and conditions of this Offering) duly authorized, fully paid and nonassessable.
COMMON STOCK
Dividends. The holders of Common Stock will be entitled to receive and
share equally in such dividends, if any, declared by the Board of Directors out
of funds legally available therefor. The Company may pay dividends if, as and
when declared by its Board of Directors. The payment of dividends by the Company
is subject to limitations which are imposed by the DGCL. Under these
restrictions, dividends may be paid only out of "surplus" as defined by the
DGCL, or, if there should be no surplus, out of the corporation's net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. See "Dividend Policy". If the Company issues Preferred Stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
Voting Rights. The holders of Common Stock possess voting rights in the
Company. Shareholders elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under the DGCL or the
Company's Certificate of Incorporation or as are otherwise presented to them by
the Board of Directors. Each holder of Common Stock will be entitled to one vote
per share and will not have any right to cumulate votes in the election of
directors. Accordingly, holders of more than fifty percent of the outstanding
shares of Common Stock will be able to elect all of the Directors to be elected
each year. Although there are no present plans to do so, if the Company issues
Preferred Stock, holders of the Preferred Stock may also possess voting rights.
See "Certain Anti-Takeover Effects of the Company's Certificate of Incorporation
and By-Laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding up of
the Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all debts and liabilities of the Company,
all assets of the Company available for distribution. If Preferred Stock is
issued, the holders thereof may have a priority over the holders of the Common
Stock in the event of any liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued by
the Company in the future. The Common Stock is not subject to mandatory
redemption by the Company.
PREFERRED STOCK
The Board of Directors is authorized, pursuant to the Company's
Certificate of Incorporation, to issue one or more series of Preferred Stock
with respect to which the Board, without stockholder approval, may determine
voting, conversion and other rights which could adversely affect the rights of
holders of Common Stock. The rights of the holders of the Common Stock would
generally be subject to the prior rights of the Preferred Stock with respect to
dividends, liquidation preferences and other matters. Among other things,
Preferred Stock could be issued by the Company to raise capital or to finance
acquisitions. The issuance of Preferred Stock under certain circumstances could
have the effect of delaying or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock.
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<PAGE> 68
CERTAIN ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND
BY-LAWS AND DELAWARE LAW
General. Certain provisions of the Company's Certificate of Incorporation,
By-Laws and the DGCL may have the effect of impeding the acquisition of control
of the Company by means of a tender offer, a proxy fight, open-market purchases
or otherwise in a transaction not approved by the Board of Directors.
These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
shareholders may deem to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
As a result, shareholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of the Company more
difficult.
The provisions of the Certificate of Incorporation and By-Laws described
below are designed to reduce, or have the effect of reducing, the vulnerability
of the Company to an unsolicited proposal for the restructuring or sale of all
or substantially all of the assets of the Company or an unsolicited takeover
attempt which is unfair to shareholders.
The following description of certain of the provisions of the Certificate
of Incorporation and By-Laws of the Company is necessarily general and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-Laws of the Company.
Authorized Shares. The Company's Certificate of Incorporation authorizes
the issuance of 7,500,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock. The shares of Common Stock and Preferred Stock have been
authorized in an amount which provides the Board of Directors with as much
flexibility as possible to effect, among other things, transactions, financings,
acquisitions, stock dividends, stock splits, employee stock options and a rights
plan. However, these authorized shares may also be used by the Board of
Directors consistent with its fiduciary duty to deter future attempts to gain
control of the Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result of the
ability to fix voting rights for a series of Preferred Stock, the Board of
directors has the power to the extent consistent with its fiduciary duty to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a merger or other transaction by which a third party seeks
control, and thereby assist the incumbent Board of Directors and management to
retain their respective positions.
Classified Board of Directors, Filling of Board Vacancies. The Board of
Directors is divided into three classes, each of which contains approximately
one-third of the whole number of the members of the Board of Directors. Each
class serves a staggered term, with approximately one-third of the total number
of Directors being elected each year. The Certificate of Incorporation and
By-Laws provide that the size of the Board of directors is determined by a
majority of the Directors. The Certificate of Incorporation and By-Laws also
provide that any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of Directors or resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the Directors then in office. Shareholders may elect Directors
at either an annual or special meeting. The staggered board is intended to
provide for continuity of the Board of Directors and to make it more difficult
and time consuming for a stockholder group to fully use its voting power to gain
control of the Board of Directors without the consent of the incumbent Board of
Directors.
Cumulative Voting; Action by Written Consent and Stockholder Meetings. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. The Certificate of Incorporation and By-Laws also provide that any
action required or permitted to be taken by the shareholders may be taken only
at an annual or special meeting and may be effected by written consent in lieu
of a meeting. Directors also retain the right to postpone any previously
scheduled stockholder meeting and adjourn any stockholder meeting at any time,
whether or not a quorum is present.
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Delaware Business Combination Statute. Section 203 of the DGCL provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) at or subsequent to such time, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of shareholders by the affirmative
vote of at least 66% of the outstanding voting stock which is not owned by
the interested stockholder. Except as otherwise specified in Section 203, an
interested stockholder is defined to include any person that is (x) the owner of
15% or more of the outstanding voting stock of the corporation, or (y) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date of determination; and the
affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. The Company has not
elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring the
Company to negotiate in advance with the Board of Directors of the Company since
the stockholder approval requirement would be avoided if a majority of the
directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested stockholder.
Such provisions also may have the effect of preventing changes in the management
of the Company. It is possible that such provisions could make it more difficult
to accomplish transactions which the Company's shareholders may otherwise deem
to be in their best interests.
Amendment of the Certificate of Incorporation and By-Laws. The Certificate
provides that the affirmative vote of the holders of at least 80% of the voting
stock, voting together as a single class, is required to amend provisions of the
Certificate of Incorporation relating to stockholder action without a meeting;
the calling of special meetings; the number, election and term of the Company's
Directors; the filling of vacancies; and the removal of Directors. The
Certificate of Incorporation further provides that the related By-Laws described
above (including the stockholder Notice Procedure) may be amended only by the
Board of Directors of the Company or by the affirmative vote of the holders of
at least 80% of the voting stock, voting together as a single class.
Certain By-Law Provisions. The By-Laws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to provide advance
notice to the Secretary of the Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Company concerning the nature of the new business, the stockholder and such
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide the Company with
certain information concerning the nominee and such proposing stockholder.
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors.
Attempts to take over corporations have recently become increasingly
common. An unsolicited non-negotiated proposal can seriously disrupt the
business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interests of the
Company and its shareholders to encourage potential acquitors to negotiate
directly with management and that these provisions will encourage such
negotiations and discourage non-negotiated takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at a price that reflects
the true value of the Company and that otherwise is in the best interest of all
shareholders.
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LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation provides that a Director of the Company
will not be personally liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a Director, except, if required by the
DGCL as amended from time to time, for liability (i) for any breach of the
Director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful
payments of dividends, stock purchases or redemptions, or (iv) for any
transaction from which the Director derived an improper personal benefit.
Neither the amendment nor repeal of such provision will eliminate or reduce the
effect of such provision in respect of any matter occurring, or any cause of
action, suit or claim that, but for such provision, would accrue or arise prior
to such amendment or repeal.
While the Certificate of Incorporation provides Directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
recession based on a Director's breach of his or her duty of care.
The Certificate of Incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigate, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of the
Company or is or was serving at the request of the Company as a Director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as agent, will be indemnified and held harmless by the Company
to the fullest extent authorized by the DGCL, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company or provide broader indemnification
rights than said law permitted the Company to provide prior to such amendment),
against all expense, liability and loss reasonably incurred or suffered by such
person in connection therewith. Such rights are not exclusive of any other right
which any person may have or thereafter acquire under any statute, provision of
the Certificate of Incorporation, By-Laws, agreement, vote of shareholders or
disinterested directors or otherwise. No repeal or modification of such
provision will in any way diminish or adversely affect the rights of any
Director, officer, employee or agent of the Company thereunder in respect of any
occurrence or matter arising prior to any such repeal or modification. The
Certificate of Incorporation also specifically authorizes the Company to
maintain insurance and to grant similar indemnification rights to employees or
agents of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or other persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is
__________________________.
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<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
various restrictions lapse could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future. Upon
completion of this Offering, the Company will have 2,740,057 shares of Common
Stock issued and outstanding (2,920,057 if the over-subscription option and the
over-allotment option are exercised in full). The 1,200,000 shares of Common
Stock sold in this Offering (plus any shares sold, as a result of any exercise
of the over-subscription option or over-allotment option) will be freely
tradeable without registration or other restrictions under the Securities Act of
1933, as amended (the "Act"), except for any shares held by an "affiliate" of
the Company (as defined in the Act).
The remaining 1,540,057 shares of Common Stock outstanding upon completion
of this Offering are "restricted securities" as that term is defined in Rule
144. As described below, Rule 144 permits resales of restricted securities
subject to certain restrictions. On the date of this Prospectus, approximately
769,579 shares will be eligible for immediate sale without restriction pursuant
to Rule 144(k) and an additional 760,357 shares will be eligible for immediate
sale under Rule 144, subject to compliance with the provisions of Rule 144;
399,145 of such shares will, however, be subject to the Lock-up Agreements.
After 180 days from the closing date of the Company's Public Offering, these
shares will be eligible for sale in the public market, subject, in certain
cases, to compliance with Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year (including the holding period of any immediate prior owner,
except an affiliate), shares of Common Stock that have not been registered under
the Securities Act or that were acquired from an "affiliate" of the Company (in
a transaction or chain of transactions not involving a public offering) is
entitled to sell in "broker's transactions" or to market makers, within any
three month period commencing 90 days after the closing date of the Company's
Public Offering, a number of shares of Common Stock which does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (approximately 27,400 shares immediately after the Offering) or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the sale. Sales under Rule 144 are generally subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during a 90-day
period preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any immediate
prior owner, except an affiliate), is entitled to sell such shares without
having to comply with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
Pursuant to lock-up agreements entered into between the Company and its
Directors and executive officers and the Selling Agent, the Directors, executive
officers and key employees, who own an aggregate of 526,985 shares as of the
date of this Prospectus, have agreed not to offer, sell or contract to sell any
Common Stock for a period of 180 days from the closing date of the Public
Offering without the prior written consent of the Selling Agent. Upon expiration
of this 180-day period, if applicable, all of these shares, except Restricted
Shares, could be resold by the Directors, executive officers and other persons
who are affiliates of the Company, subject to certain requirements of Rule 144
under the Securities Act.
The Company intends to register 285,090 shares of Common Stock that are
reserved for issuance under its Stock Option Plan. As of July 30, 1997, options
to purchase 153,340 shares were outstanding, each of which entitles the holder
thereof to purchase one share of Common Stock. Once registered, shares issued
upon exercise of options will be generally eligible for immediate resale in the
public market, subject to vesting under the applicable option agreements.
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LEGAL MATTERS
Certain legal matters in connection with this Offering are being passed
upon for the Company by Much Shelist Freed Denenberg Ament Bell & Rubenstein,
P.C., Chicago, Illinois, and for the Selling Agent by Lord, Bissell & Brook,
Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996, and 1995 and for each of the years in the two year period ended December
31, 1996, included in this Prospectus and the Registration Statement of which it
is a part, have been so included in reliance on the report of McGladrey &
Pullen, LLP, independent certified public accountants, given on the authority of
said firm as experts in auditing and accounting. The consolidated financial
statements for the year ended December 31, 1994, included in this Prospectus and
the Registration Statement of which it is part, have been so included in
reliance on the report of Crowe, Chizek and Company LLP, independent certified
public accountants, given on the authority of said firm as experts in accounting
and auditing.
The Company dismissed Crowe, Chizek and Company LLP, its independent
certified public accountants, effective October, 1995. In connection with the
1994 audit and during the interim period prior to the dismissal, there were no
disagreements with the former accountants on any matter or accounting principle
or practice, financial statement disclosure, or auditing scope or procedure. The
former accountant's reports included in the 1994 financial statements was
unqualified. The Company engaged McGladrey & Pullen, LLP as its new independent
public accountants effective with the dismissal of its former accountants.
During the Company's fiscal year and during the interim period prior to
engagement there were no consultations with McGladrey & Pullen, LLP with regard
to either the application of accounting principles as to any specific
transaction, either completed or proposed; the type of audit opinion that would
be rendered on the Company's financial statements or any matter of disagreements
with the former accountants. The Board of Directors approved the Audit
Committee's recommendation to change accountants. In consideration of Crowe,
Chizek and Company LLP consenting to the inclusion of its report and to being
named as experts in the Registration Statement which includes this Prospectus,
the Company agreed to defend, indemnify and hold harmless to the extent
permitted by law Crowe, Chizek and Company LLP and its personnel from any claim
which arises as a result of the use of its report, including attorney's fees and
costs of defense. This indemnification is inoperable if Crowe, Chizek and
Company LLP is held liable for professional malpractice or pays any final or
non-appealable settlement.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission") in
connection with the Common Stock offered by this Prospectus. This Prospectus
omits certain information, exhibits and undertakings set forth in the
Registration Statement which the Company has filed with the Commission. Such
materials may be inspected and copied upon payment of prescribed rates, at the
public reference facilities of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Office of the Commission at the
following locations: Seven World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. This
information is also available on the Internet at the Commission's web site. The
address for the web site is: http://www.sec.gov. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and the exhibits thereto. Statements contained in this Prospectus concerning the
provisions of any contract, agreement or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement
for a full statement of the provisions thereof. Each such statement in this
Prospectus is qualified in all respects by such reference.
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company intends to
furnish its shareholders with annual reports containing financial
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<PAGE> 73
statements audited by its independent certified public accountants and may
furnish either quarterly or semi-annual reports containing unaudited financial
information.
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INDEX TO FINANCIAL STATEMENTS
SUCCESS BANCSHARES, INC.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Balance Sheets at June 30, 1997 (unaudited) and December 31, 1996.........................F-
Consolidated Statements of Income for the six months ended June 30, 1997 and
June 30, 1996 (unaudited)..........................................................................F-
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
June 30, 1996 (unaudited)..........................................................................F-
Notes to Unaudited Consolidated Financial Statements...................................................F-
Report of McGladrey & Pullen, LLP......................................................................F-
Report of Crowe, Chizek & Company LLP..................................................................F-
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995.................................F-
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994.................F-
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994...................................................................F-
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.............F-
Notes to Consolidated Financial Statements.............................................................F-
</TABLE>
F-1
<PAGE> 75
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS (In thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 15,817 $ 13,833
Interest-bearing time deposits with financial institutions 99 99
Securities available-for-sale 15,821 15,147
Securities held-to-maturity (fair value $31,733 and $33,060 in
1997 and 1996, respectively) 31,262 32,560
Real estate loans held-for-sale 291 117
Loans, less allowance for loan losses of $1,629
at 1997 and $1,425 at 1996 230,075 203,299
Premises and equipment, net 8,317 7,049
Interest receivable 2,112 1,761
Other assets 2,161 2,484
- -------------------------------------------------------------------------------------------------------
$305,955 $276,349
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 42,573 $ 42,596
Interest bearing deposits 225,663 202,509
- -------------------------------------------------------------------------------------------------------
Total deposits 268,236 245,105
Note payable 4,415 4,815
Federal Home Loan Bank advances 9,079 5,152
Securities sold under repurchase agreements 4,996 4,255
Demand notes payable to U.S. Government 2,729 1,586
Convertible subordinated debentures 3,167 3,167
Interest payable and other liabilities 2,237 1,645
- -------------------------------------------------------------------------------------------------------
Total liabilities 294,859 265,725
Minority interest in subsidiary bank 538 524
Stock owned by Employee Stock Ownership Plan (ESOP) participants;
53,918 and 54,789 Series B Preferred shares at 1997 and 1996,
respectively, net of ESOP loan of $137 in 1997 and 1996. 800 866
Shareholders' equity
Preferred stock, $25 par value, 14,774 shares authorized,
none issued - -
Common stock, $1 par value, 7,500,000 shares authorized, 960,282 and
953,391 shares issued and outstanding, at 1997 and 1996, respectively. 960 955
Class A common stock, $1 par value, 1,000,000 shares authorized, 115,500
shares issued and outstanding, at 1997 and 1996. 116 116
Additional paid-in capital 4,869 4,372
Retained earnings 4,298 4,370
- -------------------------------------------------------------------------------------------------------
Total before unrealized loss on securities 10,243 9,813
Unrealized loss on securities, net of tax (485) (579)
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,758 9,234
- -------------------------------------------------------------------------------------------------------
$305,955 $276,349
=======================================================================================================
</TABLE>
See accompanying notes to Unaudited Consolidated Financial Statements
F-2
<PAGE> 76
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------------------
(Unaudited)
Interest income (In thousands, except share data)
<S> <C> <C>
Loans (including fee income) $9,688 $8,067
Investment securities 1,393 1,425
Other interest income 134 76
- --------------------------------------------------------------------------------------------------------
11,215 9,568
Interest expense
Deposits 4,927 4,179
Note payable 189 131
Convertible subordinated debentures 185 150
Other borrowings 424 346
- --------------------------------------------------------------------------------------------------------
5,725 4,806
- --------------------------------------------------------------------------------------------------------
Net interest income 5,490 4,762
Provision for loan losses 228 128
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 5,262 4,634
Other operating income
Service charges on deposit accounts 917 624
Gain on sale of loans 28 82
Credit card processing income 2,845 2,388
Other noninterest income 123 205
- --------------------------------------------------------------------------------------------------------
3,913 3,299
Other operating expenses
Salaries and employee benefits 2,878 2,738
Occupancy and equipment expense 979 807
Data processing 488 291
Credit card processing expenses 2,765 2,213
Other noninterest expenses 1,510 1,432
- --------------------------------------------------------------------------------------------------------
8,620 7,481
Minority interest in income of subsidiary bank 7 13
- --------------------------------------------------------------------------------------------------------
Income before income taxes 548 439
Income tax expense 188 92
- --------------------------------------------------------------------------------------------------------
NET INCOME 360 347
Preferred stock dividends 40 27
- --------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 320 $ 320
========================================================================================================
Earnings per common and common equivalent share
Primary (1,239,388 and 1,150,971 shares, respectively) $ 0.29 $ 0.30
Fully diluted (1,239,388 and 1,150,971 shares, respectively) $ 0.29 $ 0.30
</TABLE>
See accompanying notes to Unaudited Consolidated Financial Statements
F-3
<PAGE> 77
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 1,631 $ (2,238)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale securities 1,747 1,168
Purchase of available-for-sale securities (2,479) -
Purchase of held-to-maturity securities - (615)
Proceeds from maturities of held-to-maturity securities 1,134 1,941
Loans made to customers, net (26,895) (5,779)
Premises and equipment expenditures (1,667) (1,283)
Purchase of subsidiary bank stock (1) (40)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (28,161) (4,608)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in non-interest bearing deposits (23) (294)
Increase (decrease) in interest bearing deposits 23,154 (4,324)
Increase (decrease) in demand notes payable to U.S. Government 1,143 (167)
Increase in securities sold under agreements to repurchase 741 1,423
Repayments of notes payable - (1,415)
Proceeds from notes payable (400) 3,000
Net increase in Federal Home Loan Bank advances 3,927 1,271
Issuance of convertible subordinated debentures - 755
Issuance of common stock 62 1,151
Loan to ESOP (50) -
Dividends paid (40) (27)
- ------------------------------------------------------------------------------------
Net cash provided by financing activities 28,514 1,373
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,984 (5,473)
Cash and cash equivalents at beginning of period 13,833 20,559
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,817 $ 15,086
====================================================================================
</TABLE>
F-4
<PAGE> 78
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The financial information of Success Bancshares, Inc. and subsidiaries
included herein is unaudited; however, such information reflects all
adjustments (consisting of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair statement of results
for the interim periods. The results of the interim period ended June
30, 1997 are not necessarily indicative of the results expected for the
year ended December 31, 1997.
NOTE 2. SECURITIES
Amortized costs and fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 1,743 $ 14 $ - $ 1,757
U.S. Government sponsored entities 5,096 1 100 4,997
States and political
sub-divisions exempt from Federal
income taxes 1,566 6 3 1,569
Mortgage-backed securities 3,332 16 - 3,348
SBA guaranteed loan participation 4,052 17 36 4,033
certificates
Other securities 117 - - 117
- -----------------------------------------------------------------------------------------------
$ 15,906 $ 54 $ 139 $ 15,821
===============================================================================================
Securities held-to-maturity
U.S. Treasury $ 244 $ 2 $ - $ 246
U.S. Government sponsored entities 14,933 251 263 14,921
States and political sub-divisions
Taxable 1,846 78 - 1,924
Exempt from Federal income taxes 6,638 216 7 6,847
Mortgage-backed securities 5,521 194 - 5,715
Other securities 2,080 - - 2,080
- -----------------------------------------------------------------------------------------------
$ 31,262 $ 741 $ 270 $ 31,733
===================================================================================================
</TABLE>
F-5
<PAGE> 79
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE 2. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------
(In thousands)
<C> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $ - $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political
sub-divisions exempt from Federal
income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 - 2,585
SBA guaranteed loan participation
certificates 4,337 3 (50) 4,290
Other securities 110 126 - 236
- --------------------------------------------------------------------------------------------
$ 15,174 $ 160 $ (187) $ 15,147
============================================================================================
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $ - $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 - 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 - 6,037
Other securities 2,395 - - 2,395
- --------------------------------------------------------------------------------------------
$ 32,560 $ 756 $ (256) $ 33,060
============================================================================================
</TABLE>
The amortized cost and fair value of securities classified as held-to-maturity
and available-for-sale at June 30, 1997 and December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Therefore, these securities are
not included in the maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------------
Available-for-sale Held-to-maturity
----------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,205 $ 2,193 $ 482 $ 485
Due after one year through five years 4,869 4,854 9,790 9,655
Due after five years through ten years 1,331 1,276 10,455 10,305
Due after ten years 117 117 5,014 5,573
Mortgage-backed securities and SBA
guaranteed loan participation
certificates 7,384 7,381 5,521 5,715
- ----------------------------------------------------------------------------------------
$ 15,906 $ 15,821 $ 31,262 $ 31,733
========================================================================================
</TABLE>
F-6
<PAGE> 80
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE 2. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------
Available-for-sale Held-to-maturity
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,965 $ 2,953 $ 702 $ 703
Due after one year through five years 3,783 3,728 9,987 10,001
Due after five years through ten years 1,411 1,355 10,444 10,605
Due after ten years 110 236 5,623 5,714
Mortgage-backed securities and SBA
guaranteed loan participation
certificates 6,905 6,875 5,804 6,037
- -------------------------------------------------------------------------------------------
$ 15,174 $ 15,147 $ 32,560 $ 33,060
===========================================================================================
</TABLE>
Securities with carrying values of approximately $23.3 million and $24.2 million
at June 30, 1997 and December 31, 1996, respectively, were pledged to secure
public deposits, to secure securities sold under agreements to repurchase and
for other purposes as required or permitted by law.
NOTE 3. LOANS
The major classification of loans follow:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Commercial $ 65,474 $ 58,912
Residential real estate - mortgage 42,074 41,586
Commercial real estate - mortgage 50,531 43,334
Real estate - construction 13,400 12,282
Home equity 51,920 43,193
Other loans 8,921 6,118
- -------------------------------------------------------------------------------
Total loans 232,320 205,425
Less
Unearned discount - (2)
Deferred loan fees (225) (261)
Unaccreted discount resulting from loss on
transfer of loans from held-for-sale to portfolio (391) (438)
Allowance for loan losses (1,629) (1,425)
- -------------------------------------------------------------------------------
Net loans $ 230,075 $ 203,299
===============================================================================
</TABLE>
F-7
<PAGE> 81
Success Bancshares, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
NOTE 4. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
- ------------------------------------------------------------------------
1997 1996
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 1,425 $ 1,189
Provision for loan losses 228 128
Recoveries on loans previously charged-off 31 3
Loans charged-off (55) (54)
- ----------------------------------------------------------------------
Balance at end of period $ 1,629 $ 1,266
========================================================================
</TABLE>
NOTE 5. CONTINGENT LIABILITIES
At June 30, 1997 and December 31, 1996, loan commitments, including
standby letters of credit, were as follows:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
<C> <C> <C>
Financial instruments whose contract amounts represents
credit risk
Unused home equity lines of credit $ 57,882 $45,195
Unused commercial and other consumer lines of credit 42,976 33,531
Standby letters of credit 2,825 1,808
Commitments to make loans 10,313 5,199
</TABLE>
NOTE 6. RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement
No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, which became effective for
transactions occurring after December 31, 1996, except for
transactions relating to secured borrowings and collateral for which
the effective date is December 31, 1997. The Statement does not
permit earlier or retroactive application. The Statement
distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. A transfer of financial assets
in which the transferor surrenders control over those assets is
accounted for as a sale to the extent that consideration other than
beneficial interest in the transferred assets is received in exchange.
The Statement also establishes standards on the initial recognition
and measurement of servicing assets and other retained interest and
servicing liabilities, and their subsequent measurement. The
Statement requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their
obligation to return them in certain circumstances in which the
secured party has taken control of those assets. In addition, the
Statement requires that a liability be derecognized only if the debtor
is relieved of its obligation through payment to the creditor or by
being legally released from being the primary obligor under the
liability either judicially or by the creditors.
The Company adopted the applicable provisions of this Statement as of
January 1, 1997. Management does not believe the application of the
Statement to transactions of the Bank that have been typical in the
past will materially affect the Bank's financial position and results
of operations.
F-8
<PAGE> 82
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE 6. RECENT ACCOUNTING DEVELOPMENTS (CONTINUED)
The FASB has issued Statement No. 128, Earnings per Share, which
supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have common
stock or potential common stock, such as options, warrants and
convertible securities, outstanding that trade in a public market.
Those entities that have only common stock outstanding are required to
present basic earnings per share amounts. All other entities are
required to present basic and diluted per share amounts. Diluted per
share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce a
loss or increase the income per common share from continuing
operations. All entities required to present per share amounts must
initially apply Statement No. 128 for annual and interim periods
ending after December 15, 1997. Earlier application is not permitted.
Because the Company has potential common stock outstanding
(convertible preferred stock and convertible debentures, and stock
options to employees and directors), the Company will be required to
present basic and diluted earnings per share. If the Company had
applied Statement No. 128 in the accompanying financial statements,
the following per share information would have been reported:
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, December 31,
----------------------------------------------
1997 1996 1996 1995 1994
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic earnings per share $ 0.33 $ 0.30 $ 0.74 $ 0.93 $ 0.27
Diluted earnings per share 0.31 0.29 0.70 0.86 0.26
</TABLE>
In June 1997, the FASB issued Statement 130, Reporting Comprehensive
Income. The Statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. The Statement does not address
when transactions are recorded, how they are measured in the financial
statements, or whether they should be included in net income or other
comprehensive income. The Statement is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
Management has not assessed the effect that this statement will have
on its financial statement presentation.
Also in June 1997, the FASB issued Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information. The
Statement establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires that those enterprises report selected
financial information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. Statement No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years
is required to be restated. Management has not assessed the effect
that this statement will have on its financial reporting practices.
NOTE 7. SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. The regulations require the Company and the
Bank to meet specific capital adequacy guidelines that involve
quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
principles. The capital classifications are also subject to
qualitative judgements by the regulators about risk weightings and
other factors.
Quantitative measure established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum ratios
(set forth in the table below) of Tier I capital (as defined in the
regulations) to total average assets (as defined) ("leverage ratio")
and minimum ratios of Tier I capital and total capital (as defined) to
risk-weighted assets (as defined). As of June 30, 1997, the
Company's actual total capital to risk-weighted assets ratio of 7.31%
is below the minimum ratio of 8.0% established by the Federal Reserve.
Failure to meet minimum capital requirements could result in certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
Company's business and financial results. As of June 30, 1997, the
most recent notification from the corresponding regulatory agency
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be considered well
capitalized, under this framework, the Bank must maintain minimum
leverage, Tier I and Tier II ratios as set forth in the following
table. There are no conditions or events since the notification
that management believes has changed the Bank's category.
The required ratios and the Company's and Bank's actual ratios at
June 30, 1997, are presented below:
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------------------ ------------------ ------------------
Actual Ratio Actual Ratio Actual Ratio
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997
Total Capital (to Risk Weighted Assets):
Company........................................ $ 15,056 7.3% $ 16,481 8.0% N/A
Bank........................................... 20,546 10.0 16,441 8.0 $ 20,551 10.0%
Tier I Capital (to Risk Weighted Assets):
Company........................................ 11,580 5.6 8,241 4.0 N/A
Bank........................................... 18,917 9.2 8,221 4.0 12,331 6.0%
Tier I Capital (to Average Assets):
Company........................................ 11,580 4.0 11,585 4.0 N/A
Bank........................................... $ 18,917 6.5% $ 11,571 4.0% $ 14,464 5.0%
</TABLE>
F-9
<PAGE> 83
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE 8. SUBSEQUENT EVENTS
In anticipation of a public offering, the following actions were
approved by the Company's Board of Directors and its shareholders and
become effective as indicated:
- All unexercised director stock options expired on July
18, 1997.
- The par value of the Common stock was changed from
$1.00 per share to $0.001 per share, effective July 24, 1997.
- The number of authorized shares of Common stock was
increased to 7.5 million shares, effective July 24, 1997.
- Each of the 115,500 shares of Class A Common stock was
converted into .8749 shares of Common stock, effective July 24,
1997.
- Each of the 53,918 shares of Series B Preferred stock
was converted into one share of Common stock, effective July 24,
1997.
- A 1.7 to one (1) stock split was effected on July 30,
1997. All references in the accompanying financial statements to
the number of Common shares and per Common share amounts have
been retroactively restated to reflect this transaction.
F-10
<PAGE> 84
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We have audited the accompanying consolidated balance sheets of Success
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Success Bancshares,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Schaumburg, Illinois McGladrey & Pullen, LLP
February 16, 1997 (except for
Note 19 for which the date is
July 23, 1997)
F-11
<PAGE> 85
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We have audited the accompanying consolidated statement of income,
shareholders' equity, and cash flows of Success Bancshares, Inc. and
Subsidiaries for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position and the results of
operations and cash flows of Success Bancshares, Inc. and Subsidiaries for the
year ended December 31, 1994 in conformity with generally accepted accounting
principles.
Oak Brook, Illinois Crowe, Chizek and Company, LLP
February 4, 1995
F-12
<PAGE> 86
Success Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,833 $ 20,559
Interest-bearing time deposits with financial institutions 99 199
Securities available-for-sale 15,147 15,676
Securities held-to-maturity (fair value $33,060 and
$35,950 in 1996 and 1995, respectively) 32,560 35,056
Real estate loans held-for-sale 117 203
Loans, less allowances for loan losses of $1,425 and
$1,189 at 1996 and 1995, respectively 203,299 171,135
Premises and equipment, net 7,049 4,783
Interest receivable 1,761 1,694
Other assets 2,484 2,033
- ---------------------------------------------------------------------------------------------------------
$ 276,349 $ 251,338
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $ 42,596 $ 35,168
Interest bearing deposits 202,509 192,140
- ---------------------------------------------------------------------------------------------------------
Total deposits 245,105 227,308
Note payable 4,815 3,830
Federal Home Loan Bank advances 5,152 5,950
Securities sold under repurchase agreements 4,255 1,868
Demand notes payable to U.S. Government 1,586 335
Convertible subordinated debentures 3,167 2,412
Interest payable and other liabilities 1,645 1,040
- ---------------------------------------------------------------------------------------------------------
Total liabilities 265,725 242,743
Minority interest in subsidiary bank 524 510
Stock owned by Employee Stock Ownership Plan (ESOP)
participants; 54,789 Series B Preferred shares for 1996
and 93,154 common shares for 1995, net of ESOP loan of
$137 in 1996 and $183 in 1995 866 719
Shareholders' equity
Preferred stock, $25 par value, 14,774 shares authorized,
none issued - -
Common stock, $1 par value, 7,500,000 shares authorized,
953,391 and 947,733 shares issued and outstanding,
at 1996 and 1995, respectively, exclusive of shares
retained by ESOP participants 955 949
Class A common stock, $1 par value, 1,000,000 shares
authorized, 115,500 and 40,000 shares issued and
outstanding at 1996 and 1995, respectively 116 40
Additional paid-in capital 4,372 3,317
Retained earnings 4,370 3,769
- ---------------------------------------------------------------------------------------------------------
Total before unrealized loss on securities 9,813 8,075
Unrealized loss on securities, net of tax (579) (709)
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,234 7,366
- ---------------------------------------------------------------------------------------------------------
$ 276,349 $ 251,338
=========================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-13
<PAGE> 87
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C>
Interest income
Loans (including fee income) $ 16,757 $ 14,956 $ 11,136
Investment securities
Taxable 2,397 2,936 2,796
Exempt from federal income tax 451 572 626
Other interest income 245 211 61
- ----------------------------------------------------------------------------------------------------
Total interest income 19,850 18,675 14,619
Interest expense
Deposits 8,632 8,771 6,432
Note payable 355 449 242
Convertible subordinated debentures 339 185 179
Other borrowings 694 481 368
- ----------------------------------------------------------------------------------------------------
Total interest expense 10,020 9,886 7,221
- ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME 9,830 8,789 7,398
Provision for loan losses 310 207 250
- ----------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 9,520 8,582 7,148
Other operating income
Service charges on deposit accounts 1,402 1,134 865
Securities gains, net - 25 61
Gains on sales of loans, net 109 84 94
Writedown of real estate loans held-for-sale,
transferred to portfolio (74) - (572)
Credit card processing income 5,334 4,389 4,071
Other fees and commissions 378 372 488
- ----------------------------------------------------------------------------------------------------
Total other operating income 7,149 6,004 5,007
Other operating expenses
Salaries and employee benefits 5,513 4,729 3,986
Occupancy and equipment expenses 1,715 1,388 1,287
Federal deposit and other insurance 113 350 422
Data processing 633 501 461
Credit card processing expenses 5,013 3,879 3,756
Other noninterest expenses 2,643 2,495 2,104
- ----------------------------------------------------------------------------------------------------
Total other operating expenses 15,630 13,342 12,016
Minority interest in income of subsidiary bank 23 47 58
- ----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,016 1,197 81
Income tax expense (benefit) 233 260 (182)
- ----------------------------------------------------------------------------------------------------
NET INCOME 783 937 263
Preferred stock dividends 81 - -
- ----------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 702 $ 937 $ 263
====================================================================================================
Earnings per common and common equivalent share
Primary (1,182,286, 1,057,461 and 1,032,253 $ .66 $ .89 $ .25
shares, respectively)
Fully diluted (1,182,286, 1,215,366 and $ .66 $ .86 $ .25
1,032,253 shares, respectively)
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-14
<PAGE> 88
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements Of Shareholders' Equity
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Class A Additional Net Gain Total Share-
Common Common Paid-in Retained (Loss) on holders'
Stock Stock Capital Earnings Securities Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Balance at January 1, 1994 $ 864 $ - $ 2,104 $ 2,982 $ 326 $ 6,276
Net income - - - 263 - 263
Issuance of 102,413 shares of
common stock 102 - 559 - - 661
Increase in stock owned by ESOP
participants, 9,478 shares (9) - - (54) - (63)
Net change in the fair value of
stock owned by ESOP participants - - - 109 - 109
Change in unrealized net gain(loss)
on securities, net of taxes - - - - (1,621) (1,621)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 957 - 2,663 3,300 (1,295) 5,625
Net income - - - 937 - 937
Issuance of 16,186 shares of common stock 16 - 94 - - 110
Issuance of 40,000 shares of Class A common - 40 560 - - 600
Increase in stock owned by ESOP
participants, 23,837 shares (24) - - (123) - (147)
Net change in the fair value of stock
owned by ESOP participants - - - (345) - (345)
Change in unrealized net loss on
securities, net of taxes - - - - 586 586
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 949 40 3,317 3,769 (709) 7,366
Net income - - - 783 - 783
Issuance of 5,658 shares of common stock 6 - 39 - - 45
Issuance of 75,500 shares of Class A
common stock - 76 1,016 - - 1,092
Series B Preferred stock dividends - - - (81) - (81)
Net change in the fair value of stock
owned by ESOP Participants - - - (101) - (101)
Change in unrealized net loss on
securities, net of taxes - - - - 130 130
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 955 $ 116 $ 4,372 $ 4,370 $ (579) $ 9,234
=============================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-15
<PAGE> 89
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 783 $ 937 $ 263
Adjustments to reconcile net income to net cash
provided by operating activities
Premium amortization on
securities, net of discount accretion (49) (44) (78)
Provision for loan losses 310 207 250
Depreciation and amortization 623 508 470
Provision for deferred taxes (88) (208) (6)
Minority interest in income of subsidiary bank 23 47 58
Net gains on sales of securities - (25) (61)
Loans originated for sale (5,453) (9,652) (4,173)
Proceeds from sales of loans 3,326 9,438 5,000
Net (gains) losses on sales of loans (109) 51 (94)
Writedown of loans held for sale, transferred to
portfolio 74 - 572
Accretion of loan discount (87) (62) (60)
Deferred loan fees 38 96 18
Net gain on sales of other real estate owned - - (21)
Change in interest receivables and other assets (518) 606 (551)
Change in interest payable and other liabilities 605 25 210
Other 256 (310) (15)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (266) 1,614 1,782
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities - 5,803 4,718
Proceeds from maturities of available-for-sale
securities 3,828 1,231 2,573
Purchase of available-for-sale securities (3,906) (2,272) (3,639)
Proceeds from maturities of held-to-maturity securities 3,171 2,990 4,609
Purchases of held-to-maturity securities - (1,834) (11,061)
Changes in interest-bearing balances with
financial institutions 100 298 464
Loans made to customers, net (30,218) (32,112) (21,105)
Proceeds from sales of other real estate - 366 152
Premises and equipment expenditures (2,889) (800) (943)
Purchase of subsidiary bank common stock (25) (84) (17)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (29,939) (26,414) (24,249)
</TABLE>
(Continued)
F-16
<PAGE> 90
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in non-interest bearing deposits $ 7,428 $ 5,916 $ 5,683
Increase in interest bearing deposits 10,369 17,222 35,812
Increase (decrease) in demand notes payable to US Government 1,251 (249) (2,911)
Increase (decrease) in securities sold under agreements
to repurchase 2,387 59 (330)
Repayments of notes payable (2,015) (1,690) -
Proceeds from notes payable 3,000 1,000 2,000
Proceeds from Federal Home Loan Bank advances 4,000 6,000 5,000
Repayment of Federal Home Loan Bank advances (4,798) (2,300) (8,000)
Decrease in Federal funds purchased - - (4,000)
Issuance of convertible subordinated debentures 755 400 85
Repayment of subordinated debentures - - (315)
Issuance of common stock 1,137 710 661
ESOP loan for common shares purchased by ESOP - (147) (63)
Principal payment on ESOP loan 46 26 28
Dividends paid (81) - -
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 23,479 26,947 33,650
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,726) 2,147 11,183
Cash and cash equivalents at beginning of year 20,559 18,412 7,229
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 13,833 $ 20,559 $ 18,412
==========================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest on deposits $ 8,647 $ 8,784 $ 6,337
Interest on borrowings 1,373 1,144 731
Income taxes 352 121 (10)
Selected noncash investing activities (See Notes 3 and 4)
Other real estate acquired in settlement of loans $ - $ 226 $ -
</TABLE>
See accompanying notes to Consolidated Financial Statements
F-17
<PAGE> 91
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statement
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Success Bancshares, Inc. (the Company), through its subsidiary, Success
National Bank (the Bank), provides a full range of financial services to
customers through eight locations in the Chicagoland metropolitan area.
(a) Basis of Presentation: The consolidated financial statements of Success
Bancshares, Inc. include the accounts of the Company and its
majority-owned subsidiary, Success National Bank, and its wholly-owned
subsidiary, Success Realty Ventures, Inc. ("Success"). The Company owns
100% of the Bank's preferred stock and approximately 92% of the Bank's
common stock. Significant intercompany accounts and transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates which are particularly
susceptible to change in a short period of time include the determination
of the allowance for possible loan losses. Actual results could differ
from those estimates.
(b) Cash and Cash Equivalents: Cash and cash equivalents include cash on
hand, noninterest-bearing amounts due from banks, interest-bearing demand
balances with banks, and federal funds sold. Generally, federal funds are
sold or purchased for one-day periods. Cash flows from loans originated
by the Bank and deposits are reported net.
(c) Securities: Securities classified as held-to-maturity are those debt
securities the Company has both the positive intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are carried at
cost adjusted for amortization of premium and accretion of discount which
are recognized in interest income using the interest method over the
period to maturity. Transfer of debt securities into the held-to-maturity
classification from the available-for-sale classification are made at fair
value on the date of transfer. The unrealized gain or loss on the date of
transfer is retained as a separate component of stockholders' equity and
in the carrying value of the held-to-maturity securities. Such amounts
are amortized over the remaining contractual lives of the securities by
the interest method.
Securities classified as available-for-sale are those debt securities that
the Company intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are carried at
fair value. The difference between fair value and amortized cost results
in an unrealized gain or loss. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis of the cost
of specific securities sold, are included in earnings. Premiums and
discounts are recognized in interest income using the interest method over
their contractual lives.
(d) Real Estate Loans Held-for-Sale: Real estate loans held-for-sale are
carried at the lower of cost, net of loan fees collected, or fair value in
the aggregate. Loans are sold without recourse with servicing retained.
Gains and losses from the sale of loans are determined based upon the net
proceeds and the carrying value of the loans sold after allocating cost to
servicing rights retained. Net unrealized losses are recognized in a
valuation allowance by charges to income.
Transfer of loans held for sale to portfolio are accounted for at fair
value at the date of transfer. The excess of the carrying value over the
fair value as of the transfer date is accreted into interest income over
the remaining estimated lives of the transferred loans. Cost approximated
fair value for loans held for sale as of December 31, 1996 and 1995.
F-18
<PAGE> 92
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff ("portfolio" loans) are
stated net of unearned income, deferred loan fees, unaccreted discounts
and the allowance for loan losses. Interest on loans is accrued over the
term of the loan based on the amount of principal outstanding. For
impaired loans, accrual of interest is discontinued on a loan when
management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection
of interest is doubtful. Interest income is subsequently recognized only
to the extent cash payments are received and the principal is considered
fully collectible. Discounts are accreted into income over the estimated
lives of the loans on a method that approximates the interest method.
Loan origination fees and costs are deferred and recognized over the life
of the loan as a yield adjustment.
Because some loans may not be paid in full, an allowance for loan losses is
recorded. Increases to the allowance are recorded by a provision for loan
losses charged to expense. Estimating the risk of loss and the amount of
loss on any loan is necessarily subjective. Accordingly, the allowance is
maintained at a level considered adequate to cover possible losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial position and collateral values, and other factors and estimates
which are subject to change over time. A loan is charged-off by management
as a loss when deemed uncollectible, although collection efforts continue
and future recoveries may occur.
Commercial loans less than $100,000, residential real estate mortgages,
home equity loans, and installment loans are considered small balance
homogenous loan pools for purposes of impairment. All other loans are
specifically evaluated for impairment. Loans are considered impaired when,
based on current information and events, it is probable that the Company
will not be able to collect all amounts due according to the contractual
terms of the loan agreement. The impairment is measured based on the
present value of expected future cash flows, or alternatively, the
observable market price of the loans or the fair value of the collateral.
However, for those loans that are collateral-dependent and for which
management has determined foreclosure is probable, the measure of
impairment of those loans is to be based on the fair value of the
collateral. The amount of impairment, if any, and any subsequent changes
are included in the allowance for loan losses.
(f) Loan Servicing: The Bank generally retains the right to service mortgage
loans sold to others. The cost allocated to the mortgage servicing rights
retained has been recognized as a separate asset and is being amortized in
proportion to and over the period of estimated net servicing income.
Mortgage servicing rights are periodically evaluated for impairment based
on the fair value of those rights. Fair values are estimated using
discounted cash flows based on current market rates of interest. For
purposes of measuring impairment, the rights must be stratified by one or
more predominant risk characteristics of the underlying loans. The Bank
stratifies its capitalized mortgage servicing rights based on the
origination date and term of the underlying loans. The amount of
impairment recognized is the amount, if any, by which the amortized cost
of the rights for each stratum exceed their fair value.
(g) Premises and Equipment: Buildings, leasehold improvements, furniture,
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on the
straight-line method over estimated useful lives of the related assets.
Maintenance and repairs are expensed as incurred, while major improvements
are capitalized.
F-19
<PAGE> 93
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Income Taxes: The Company files a consolidated income tax return with
its subsidiaries. Its share of the consolidated income tax provision is
computed on a separate return basis.
Deferred taxes are provided using the liability method to recognize
deferred tax assets for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
(i) Fair Value of Financial Instruments: The following methods and
assumptions were used by the Company in estimating the fair value of its
financial instruments.
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and these short-term instruments approximate their fair
values.
Securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are determined using estimated
future cash flows, discounted at the interest rates currently being offered
for loans with similar terms to borrowers with similar credit quality.
Deposit liabilities: The fair value of deposits with no stated maturity,
such as noninterest bearing deposits, savings, NOW accounts, and money
market accounts, is equal to the amount payable on demand (i.e. the
carrying value.) Fair values for fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Borrowed funds: The fair value is estimated using a discounted cash flow
calculation using the rate currently available for similar term borrowings.
Off-balance-sheet instruments: Fair values for the Company's
off-balance-sheet instruments are based on fees currently charged to enter
into similar agreements, taking into account the remaining term of the
agreements and the counterparties' credit standing. There is no material
difference between the notional amount and the estimated fair value of
off-balance sheet items which are primarily comprised of commitments to
extend credit which are generally priced at market at the time of funding.
(j) Earnings Per Common Share: Primary earnings per share are computed by
dividing net income, after deducting any dividends on preferred stock, by
the weighted average number of common shares outstanding. Stock options
and Series B Preferred Stock are regarded as common stock equivalents and
are considered in earnings per share calculations if dilutive. Fully
diluted earnings per share assume that the convertible subordinated debt
is converted into common stock upon issuance or at the beginning of the
year, as applicable, if the debt qualified as common stock equivalents.
If the result of the assumed conversion is dilutive, the interest expense
on the convertible subordinated debentures is eliminated while the number
of common stock shares is increased. In 1996 and 1994, the assumed
conversion of the subordinated debt would have had an antidilutive effect.
F-20
<PAGE> 94
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Current Accounting Development: The Financial Accounting Standards Board
has issued Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, which becomes
effective for transactions occurring after December 31, 1996, except for
transactions relating to secured borrowings and collateral for which the
effective date is December 31, 1997. The Statement does not permit
earlier or retroactive application. The Statement distinguishes transfers
of financial assets that are sales from transfers that are secured
borrowings. A transfer of financial assets in which the transferor
surrenders control over those assets is accounted for as a sale to the
extent that consideration other than beneficial interest in the
transferred assets is received in exchange. The Statement also
establishes standards on the initial recognition and measurement of
servicing assets and other retained interests and servicing liabilities,
and their subsequent measurement. The statement requires that debtors
reclassify financial assets pledged as collateral and that secured parties
recognize those assets and their obligation to return them in certain
circumstances in which the secured party has taken control of those
assets. In addition, the Statement requires that a liability be
derecognized only if the debtor is relieved of its obligation through
payment to the creditor or by being legally released from being the
primary obligor under the liability either judicially or by the creditor.
Management does not believe the application of the Statement to
transactions of the Bank that have been typical in the past will
materially affect the Bank's financial position and results of operations.
(l) Prior Year Reclassifications: Certain reclassifications were made to
make the 1995 and 1994 financial statements comparable with the 1996
presentation.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash and due from banks $ 13,780 $ 16,043
Interest-bearing demand balances with financial 53 3,016
institutions
Federal funds sold - 1,500
- ----------------------------------------------------------------------------------
$ 13,833 $ 20,559
==================================================================================
</TABLE>
At December 31, 1996 and 1995, reserves of $2.5 million and $2.4 million,
respectively, were required to be held as cash or on deposit with the Federal
Reserve Bank of Chicago. These reserves do not earn interest.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 748 $ 6 $ - $ 754
U.S. Government sponsored entities 5,846 2 (127) 5,721
States and political sub-divisions
exempt from Federal income taxes 1,565 6 (10) 1,561
Mortgage-backed securities 2,568 17 - 2,585
SBA guaranteed loan participation certificates 4,337 3 (50) 4,290
Other securities 110 126 - 236
- -------------------------------------------------------------------------------------------------------------------
$15,174 $160 $(187) $15,147
===================================================================================================================
</TABLE>
F-21
<PAGE> 95
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 3 - SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Treasury $ 242 $ 3 $ - $ 245
U.S. Government sponsored entities 15,368 279 (244) 15,403
States and political sub-divisions
Taxable 1,845 94 - 1,939
Exempt from Federal income taxes 6,906 147 (12) 7,041
Mortgage-backed securities 5,804 233 - 6,037
Other securities 2,395 - - 2,395
- --------------------------------------------------------------------------------------------------
$32,560 $756 $(256) $33,060
==================================================================================================
</TABLE>
The amortized cost and fair value of securities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities of mortgage backed
securities and SBA guaranteed loan participation certificates will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Therefore, these
securities are not included in the maturity categories in the following
maturity summary.
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
---------------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 2,965 $ 2,953 $ 702 $ 703
Due after one year through five years 3,783 3,728 9,987 10,001
Due after five years through ten years 1,411 1,355 10,444 10,605
Due after ten years 110 236 5,623 5,714
Mortgage-backed securities and SBA guaranteed
loan participation certificates 6,905 6,875 5,804 6,037
- -----------------------------------------------------------------------------------------------
$15,174 $15,147 $32,560 $33,060
===============================================================================================
</TABLE>
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION> Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $ 1,236 $ 15 $ (1) $ 1,250
U.S. Government sponsored entities 7,845 19 (221) 7,643
States and political sub-divisions
exempt from Federal income taxes 1,779 6 (16) 1,769
Mortgage-backed securities 555 1 - 556
SBA guaranteed loan participation certificates 4,293 66 - 4,359
Other securities 14 85 - 99
- --------------------------------------------------------------------------------------------------------------------
$15,722 $ 192 $(238) $15,676
====================================================================================================================
Securities held-to-maturity
U.S. Treasury $ 238 $ 8 $ - $ 246
U.S. Government sponsored entities 17,719 509 (321) 17,907
States and political sub-divisions
Taxable 1,845 161 - 2,006
Exempt from Federal income taxes 7,174 169 (16) 7,327
Mortgage-backed securities 6,384 384 - 6,768
Other securities 1,696 - - 1,696
- --------------------------------------------------------------------------------------------------------------------
$35,056 $1,231 $(337) $35,950
====================================================================================================================
</TABLE>
F-22
<PAGE> 96
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3 - SECURITIES (CONTINUED)
Proceeds from sales of securities available-for-sale and realized gross gains
and losses in 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------
(In thousands)
<C> <C> <C> <C>
Securities available-for-sale
Proceeds from sales $- $5,803 $4,718
Gross gains $- $ 56 $ 61
Gross losses $- $ 31 $ -
</TABLE>
Securities designated as held-to-maturity with an amortized cost of $2.3
million and with net unrealized gains of $19,000 were transferred to
available-for-sale on December 13, 1995. This was a one-time transfer in
accordance with the transition provision of Statement 115.
During 1994, $32.7 million of securities available-for-sale were transferred to
the held-to-maturity portfolio at their fair value. The securities' amortized
cost exceeded fair value at the date of transfer by $1.5 million. Amortization
of this unrealized loss was $215,000, $223,000, and $91,000 for 1996, 1995, and
1994, respectively.
Securities with a carrying value of approximately $24.2 and $30.3 million at
December 31, 1996 and 1995, respectively, were pledged to secure public
deposits and for other purposes as required or permitted by law.
NOTE 4 - LOANS
Loans at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<C> <C> <C>
Commercial $ 58,912 $ 45,217
Residential real estate - mortgage 41,586 32,880
Commercial real estate - mortgage 43,334 35,347
Real estate - construction 12,282 12,821
Home equity - first lien 21,975 21,485
Home equity - junior lien 21,218 16,335
Other loans 6,118 8,916
- --------------------------------------------------------------------------------
Total loans 205,425 173,001
Less
Unearned discount (2) (3)
Deferred loan fees (261) (223)
Unaccreted discount resulting from loss on transfer of
loans from held for sale to portfolio (438) (451)
Allowance for loan losses (1,425) (1,189)
- --------------------------------------------------------------------------------
Net loans $203,299 $171,135
================================================================================
</TABLE>
In 1996 and 1994, real estate loans held-for-sale with carrying value of
approximately $2.2 million and $9.7 million, respectively, were transferred to
portfolio. Losses of $74,000 and $572,000 were recognized for the difference
between fair value and cost basis on the transferred loans, in 1996 and 1994,
respectively.
F-23
<PAGE> 97
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 4 - LOANS (CONTINUED)
Activity in the allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,189 $1,000 $ 855
Provision for loan losses 310 207 250
Recoveries on loans previously charged-off 4 1 34
Loans charged-off (78) (19) (139)
- ---------------------------------------------------------------------
Balance at end of year $1,425 $1,189 $1,000
=====================================================================
</TABLE>
Impaired loan information as of and for the years ended December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
<C> <C> <C>
Impaired loans for which an allowance has been provided $100 $795
Impaired loans for which no allowance has been provided 350 -
- --------------------------------------------------------------------------------
Total loans determined to be impaired $450 $795
================================================================================
Allowance provided for impaired loans, included in the
allowance for loan losses $ 3 $ 17
================================================================================
Average recorded investment in impaired loans $694 $990
Interest income recognized from impaired loans $101 $118
Cash basis interest income recognized from impaired loans $ 94 $ 81
</TABLE>
As of December 31, 1994, the accrual of interest was discontinued on loans in
the amount of $258,000. If these loans had been current in accordance with
their original terms, additional gross income in the amount of $10,000 would
have been recorded in 1994.
Mortgage loans serviced for the Federal Home Loan Mortgage Corporation by the
Company are not included in the accompanying consolidated balance sheets. The
unpaid principal balances of these loans were approximately $53.4 and $55.2
million at December 31, 1996 and 1995, respectively.
Mortgage servicing rights in the amounts of $79,000 and $128,000 were
capitalized during the years ended December 31, 1996 and 1995, respectively.
Amortization of mortgage servicing rights was $101,000 and $21,000 in 1996 and
1995, respectively. As of December 31, 1996 and 1995 the valuation allowance
for mortgage servicing rights was none and $12,000, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
(In thousands)
<C> <C> <C>
Land $ 2,454 $2,154
Building and leasehold improvements 4,458 2,916
Furniture and equipment 3,167 2,121
- --------------------------------------------------------------------------
Total cost 10,079 7,191
Less accumulated depreciation and amortization 3,030 2,408
- --------------------------------------------------------------------------
Net book value $ 7,049 $4,783
==========================================================================
</TABLE>
The Company has agreed to acquire two branch buildings from another financial
institution in 1997 for $1.2 million.
F-24
<PAGE> 98
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 - DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------
(In thousands)
<S> <C> <C>
Demand deposits:
Interest-bearing $ 47,620 $ 43,797
Non-interest-bearing 42,596 35,168
---------------------------------------------------------
Total demand deposits 90,216 78,965
Savings 19,022 17,993
Money market 34,486 33,684
Other deposits 22,696 27,321
Time:
Due within one year 50,477 52,849
Due within one to two years 18,269 6,132
Due within two to three years 5,878 2,764
Due within three to four years 1,479 4,815
Due within four to five years 1,980 1,503
Due thereafter 602 1,282
---------------------------------------------------------
Total time deposits 78,685 69,345
---------------------------------------------------------
Total deposits $245,105 $227,308
=========================================================
</TABLE>
Time deposits in amounts of $100,000 or more were approximately $29.9 million
and $26.0 million at December 31, 1996 and 1995, respectively.
Interest expense on deposits for the years ending December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest-bearing demand $1,200 $1,062 $ 853
Savings 606 589 736
Money market 1,357 1,472 988
Other deposits 1,224 1,561 603
Time 4,245 4,087 3,252
----------------------------------------------------------
$8,632 $8,771 $6,432
==========================================================
</TABLE>
NOTE 7 - BORROWING ARRANGEMENTS
Note payable at December 31, 1996 and 1995 is comprised of a $8.0 million
revolving line of credit with Cole Taylor Bank with interest at the prime rate
(8.25% at December 31, 1996) payable quarterly, maturing June 15, 1997.
Borrowings under the line of credit are limited to 50% of the Bank's
shareholders' equity. Proceeds of borrowings under the line of credit may only
be used to acquire or carry stock of one or more subsidiary banks. The
revolving line of credit is secured by the common and preferred stock of the
Bank owned by the Company.
The Bank can also borrow from the Federal Reserve Bank ("FRB") up to 75% of
loans pledged to the FRB. As of December 31, 1996 and 1995, there were no
loans pledged to the FRB and there were no borrowings outstanding at either
date.
F-25
<PAGE> 99
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
At December 31, 1996 and 1995, advances from the Federal Home Loan Bank of
Chicago ("FHLB") were as follows:
<TABLE>
<CAPTION>
Advance Amount
Maturity Interest Frequency of ----------------
Date Rate Rate Adjustment 1996 1995
- ------------------------------------------------------ --------
(In thousands)
<C> <C> <C> <C> <C>
November, 1996 5.72% Fixed $ - $2,000
November, 1997 5.66% Fixed 2,000 2,000
May, 2002 (1) 6.83% Fixed 1,869 1,950
February, 2003 (1) 5.65% Fixed 1,283 -
- ---------------------------------------------------------------
$5,152 $5,950
===============================================================
</TABLE>
(1) This is a 15 year amortizing advance with a seven year balloon.
The Bank maintains a collateral pledge agreement with the FHLB covering secured
advances. Under this agreement, first mortgages on improved residential
property not more than 90 days delinquent are pledged as collateral. Total
loans pledged to secure advances at December 31, 1996 and 1995 were
approximately $14.6 million and $17.8 million, respectively.
NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are overnight repurchase
agreements with customers of the Bank and consist of primarily U.S. government
sponsored entity obligations.
The securities underlying the agreements are book-entry securities. During the
period, the securities were delivered by appropriate entry into a third-party
custodian's account designated by the Bank under a written custodial agreement
that explicitly recognizes the customer's interest in the securities. At
December 31, 1996, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer. Securities sold under
agreements to repurchase averaged $4.1 million and $3.2 million during 1996 and
1995, respectively, and the maximum amounts outstanding at any month-end during
1996 and 1995 were $4.6 million and $5.3 million, respectively. The weighted
average rate paid during 1996 and 1995 was 4.20% and 4.99%, respectively, and
the weighted average rate at the end of 1996 and 1995 was 4.23% and 4.44%.
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES
In 1992, the Company issued $2.2 million of ten year 9% convertible
subordinated debentures (the debentures). The debentures pay interest
semi-annually. The debentures are convertible at any time prior to maturity
into Class A common stock at $12.75 per share. The Company can redeem the
debentures (a) without paying a premium if the book value per share of the
Company's common stock equals or exceeds the conversion price; or (b) with a
premium of between 10% and 2% depending on the redemption date.
In November 1995, the Company began a private placement of units consisting of
$4,000 principal amount of ten year convertible subordinated notes (the Notes)
and 400 shares of Class A Common Stock. The interest on the notes is payable
semi-annually. The rate on the notes is 15% for notes in denominations less
than $100,000 and 17% for notes of $100,000 or more. The notes are convertible
at any time prior to maturity into Class A common stock at $23.50 per share.
The Company can redeem the notes (a) two years after issuance without paying a
premium if the book value per share of the Company's common stock equals or
exceeds the conversion price; or (b) with a premium of between 5% and 1%
depending on the redemption date.
F-26
<PAGE> 100
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10 - CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
The following table summarizes the debentures and notes outstanding at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------
(In thousands)
<S> <C> <C>
9% Debentures $2,012 $2,012
15% Notes 235 -
17% Notes 920 400
- -------------------------------------
$3,167 $2,412
=====================================
</TABLE>
NOTE 11 - SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS
The preferred stock is cumulative and nonconvertible. Dividends are payable
quarterly based on the average prime rate in effect during the quarter. There
were no shares of preferred stock outstanding at December 31, 1996 or 1995.
The Series B preferred stock is noncumulative and each share is convertible
into one share of common stock. Dividends are payable quarterly at a rate
established by the Company's board of directors. All outstanding shares are
held by the Company's Employee Stock Ownership Plan.
Class A common stock carries a voting power of 1/20th of the original common
stock and requires a dividend of 115% of any dividend paid on the original
common stock.
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting principles.
The capital classifications are also subject to qualitative judgments by the
regulators about risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios (set forth in the
table below) of Tier I capital (as defined in the regulations) to total average
assets (as defined) ("leverage ratio") and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). Management believes
that as of December 31, 1996 the Company and the Bank met all capital adequacy
requirements to which they were subject. As of December 31, 1996, the most
recent notification from the corresponding regulatory agency categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be considered well capitalized, under this framework, the Bank must
maintain minimum leverage, Tier I and Total Capital ratios as set forth in the
following table. There are no conditions or events since the notification that
management believes has changed the Bank's category.
F-27
<PAGE> 101
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 11 - SHAREHOLDERS' EQUITY AND CAPITAL STANDARDS (CONTINUED)
The required ratios and the Company's actual ratios at December 31, 1996, are
presented below:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk Weighted Assets):
Consolidated $14,475 8.0% $14,481 8.0% N/A
Bank 20,207 11.2 14,471 8.0 $18,088 10.0%
Tier 1 Capital (to Risk Weighted
Assets):
Consolidated 11,203 6.2 7,240 4.0 N/A
Bank 18,782 10.4 7,235 4.0 10,853 6.0%
Tier 1 Capital (to Average Assets):
Consolidated 11,203 4.4 7,688 4.0 N/A
Bank $18,782 7.3% $ 7,673 4.0% $12,788 5.0%
</TABLE>
Banking regulations limit the amount of dividends that the Bank may pay without
the prior approval of regulatory authorities. As of December 31, 1996,
approximately $1,003,000 of the Bank's retained earnings were available for
dividends without prior regulatory approval. In addition, the Company's debt
agreement with its lending institution requires the Bank to maintain minimum
capital requirements which serve to limit dividends from the Bank. Under the
debt agreement, the Company and the Bank are required to maintain minimum
capital of $7.5 million and $14 million, respectively, and minimum Tier I
capital to assets ratios of 3% and 6%, respectively. The Company's and Bank's
capital levels exceed these requirements. The debt agreement imposes a more
restrictive dividend limitation on the Bank than the banking regulations. The
debt agreement also requires the Bank to maintain an allowance for loan losses
of at least 7/10ths of 1% of total loans. In addition, the Bank's allowance
for loan losses must be at least 100% of the Bank's nonperforming loans.
Nonperforming loans and other real estate are also limited under the agreement
to 20% of the Bank's capital. The Bank may not declare a dividend, other than
for the purpose of the Company's debt service, without the written consent of
Cole Taylor Bank. The Company cannot declare cash dividends or acquire any of
its own stock without the written consent of Cole Taylor Bank.
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership Plan ("ESOP"), which also has
a 401(k) feature. The ESOP covers substantially all employees of the Bank.
The ESOP is internally leveraged. Loans from the Company to the ESOP to
acquire Company stock are recorded as a reduction of shareholders' equity. At
December 31, 1996 and 1995, the fair value of unearned ("suspense") ESOP shares
is not materially different from the Company's loan to the ESOP. Suspense
shares are released and allocated to participants as the ESOP's debt to the
Company is repaid. Employer contributions, including any matching contribution
for the 401(k) provision, are made at the discretion of the Bank's Board of
Directors. Contributions to the ESOP, which are not materially different from
the fair value of shares allocated to participants, were funded through
dividends on the Series B preferred stock during 1996. The fair value of
dividends paid on suspense shares was not material and was charged to retained
earnings. Preferred dividends of $81,000 were paid in 1996. During 1995 and
1994, contributions of $72,000 and $50,000, respectively, were charged to
compensation expense.
F-28
<PAGE> 102
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
Shares of the Company's stock held by the ESOP as of December 31, 1996 and
1995, are shown in the following table. The allocated and unallocated shares
as of December 31, 1996 are approximations, as the 1996 participant allocation
has not yet been completed.
1996 1995
- --------------------------------------------------------------------------------
Shares allocated to participants 41,881 63,897
Suspense (unallocated) shares 12,908 29,257
- --------------------------------------------------------------------------------
Total ESOP Shares 54,789 93,154
================================================================================
A participant or beneficiary who receives a distribution of Company stock from
the ESOP has the right to require the Company, or the ESOP if the plan
administrator so elects, to purchase the shares at fair value within sixty days
of the distribution.
The Securities and Exchange Commissions Accounting Series No. 268 requires that
to the extent there are conditions (regardless of their probability of
occurrence) whereby holders of equity securities may demand cash in exchange
for their securities, the Company, must reflect the maximum possible cash
requirements related to those securities outside of stockholder's equity.
Accordingly, the Series B preferred stock and common stock owned by ESOP
participants is reflected on the accompanying balance sheet at its fair value.
NOTE 13 - STOCK OPTIONS
In the past, the Company's Board of Directors has granted nonqualified options
to various members of senior management. The outstanding stock options may be
exercised at any time by the respective officers through a period ending three
years after termination of employment with the Bank or the Company. There were
no such options granted during 1996 or 1995.
In 1995, the Company adopted a qualified incentive stock option plan for senior
officers of the Company with options to be granted at the fair value of the
stock as estimated by the Company's Board of Directors at the date of grant.
Under this plan, 170,000 shares of authorized but unissued common stock are
reserved for the granting of options. Vesting of the options is determined by
the Board of Directors and typically is over a period not exceeding four years.
Options must be exercised within ten years after the date of grant. The
following table summarizes data concerning stock options:
<TABLE>
<CAPTION>
Common Shares Option Price Weighted Average
Under Option Per Share Exercise Price
- -------------------------------------------------------------------------------------
<C> <C> <C> <C>
Outstanding, December 31,
1993 & 1994 118,490 $1.82-$6.09 $4.68
- -------------------------------------------------------------------------------------
Granted 38,250 $6.18 $6.18
- -------------------------------------------------------------------------------------
Outstanding, December 31, 1995 156,740 $1.82-$6.18 $5.04
- -------------------------------------------------------------------------------------
Canceled (3,400) $6.09 $6.09
- -------------------------------------------------------------------------------------
Outstanding, December 31, 1996 153,340 $1.82-$6.18 $5.02
- -------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, there are options exercisable for 127,840 shares at a
weighted average price of $4.79.
Grants under the plan are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for incentive stock option grants under the stock option plan. Had
compensation cost for the stock-based compensation plan been determined based
on the grant date fair values of awards, reported income and earnings per
common share would have been reduced to the pro forma amounts shown on the
following page:
F-29
<PAGE> 103
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 13 - STOCK OPTIONS (CONTINUED)
1996 1995 1994
- -------------------------------------------------------------
Net income applicable to common stock:
As reported $ 702 $ 937 $263
Pro Forma $ 702 $ 904 $263
Primary earnings per common share:
As reported $0.66 $0.89 $.25
Pro Forma $0.66 $0.86 $.25
Fully diluted earnings per common share:
As reported $0.66 $0.86 $.25
Pro Forma $0.66 $0.84 $.25
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants during the year ended December 31, 1995; dividend yield of 0% for the
period; expected volatility of 0% for the period; risk free rate of return of
5.88%; and, expected life of 4 years.
Under the provisions of Statement No. 123, pro forma net income reflects only
options granted in 1995. Therefore, the full impact of calculating
compensation cost for stock options under Statement No. 123 is not reflected in
the pro forma net income amounts presented above because compensation cost for
options granted prior to January 1, 1995 is not considered.
The Company's Board of Directors has authorized each director to purchase up to
17,000 shares of the Company's $1 par value common stock per year. The
purchase price of the stock is its book value as of the end of the prior month.
This authorization must be renewed annually, and shares which are not
purchased in any year expire as of December 31 of that year.
NOTE 14 - INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1996 and 1995:
1996 1995
- -------------------------------------------------------------
(In thousands)
Deferred tax assets:
Allowance for loan losses $ 402 $ 311
Securities available for sale 398 488
Deferred loan fees 142 111
Premises and equipment 50 -
Stock options 12 12
Loans 170 175
Alternative minimum tax credit carryforward - 21
- -------------------------------------------------------------
1,174 1,118
- -------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment - 63
State income taxes 27 27
Loans - tax mark to market 159 40
Mortgage servicing rights 33 36
Other 21 16
- -------------------------------------------------------------
240 182
- -------------------------------------------------------------
Net deferred tax assets $ 934 $ 936
=============================================================
F-30
<PAGE> 104
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14 - INCOME TAXES (CONTINUED)
No valuation allowance was considered necessary.
Income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994, consists of the following:
1996 1995 1994
- -------------------------------------------------------------
(In thousands)
Current $ 321 $ 468 $ (176)
Deferred (88) (208) (6)
- -------------------------------------------------------------
$ 233 $ 260 $ (182)
=============================================================
Reconciliations of income tax expense (benefit) computed at the statutory
federal income tax rate to the Company's income tax expense (benefit) for the
years ended December 31, 1996, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense at statutory rate $ 345 $ 407 $ 28
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 21 13 (37)
Nontaxable interest income (net of disallowed expenses) (141) (178) (197)
Other 8 18 24
- ---------------------------------------------------------------------------------------------------------
$ 233 $ 260 $(182)
=========================================================================================================
</TABLE>
NOTE 15 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK
Credit risk: The Company makes loans to, and obtains deposits from, customers
primarily in Lake County, Cook County, DuPage County, and McHenry County,
Illinois and surrounding areas. Most loans are secured by specific items of
collateral, including residential and commercial real estate and other business
and consumer assets. Collateral held varies but may include deposits held in
financial institutions; U.S. Treasury securities; other marketable securities;
income-producing commercial properties, residential real estate; accounts
receivable; and property, plant and equipment. The loan portfolio includes
concentration of loans for the long-term care industry. At December 31, 1996
the Bank had $10.2 million of commitments to customers in the long-term care
industry, with $2.9 million drawn and outstanding. Credit losses arising from
these lending transactions compare favorably with the Bank's credit loss
experience on its portfolio as a whole.
Financial instruments with off-balance sheet risk: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet financing needs of its customers. These financial instruments
include commitments to make loans, standby letters of credit, and unused lines
of credit. The Company's exposure to credit loss in the event of
nonperformance by the other parties is represented by the contractual amounts
of the instruments. The Company uses the same credit policy to make such
commitments as it uses for on-balance-sheet items.
At December 31, 1996 and 1995, the contract amount of these financial
instruments is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Financial instruments whose contract amount represents credit risk
Unused home equity lines of credit $45,195 $39,319
Unused commercial and other consumer lines of credit 33,531 25,780
Standby letters of credit 1,808 1,529
Commitments to make loans 5,199 10,258
</TABLE>
F-31
<PAGE> 105
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
NOTE 15 - COMMITMENTS, CONTINGENCIES AND CREDIT RISK (CONTINUED)
Since many commitments to make loans expire without being used, the amounts
above do not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is determined using management's
credit evaluation of the borrower, and may include commercial and residential
real estate and other business and consumer assets.
Litigation: From time to time, the Company and the Bank are involved in
litigation, both as a defendant and as a plaintiff. Management believes that
the ultimate liability from such actions, if any, will not have a material
effect on the financial condition of the Company or the Bank.
Lease Commitments: The Bank leases branch facilities under noncancelable
operating lease agreements. Rent expense for branch facilities was $322,000,
$246,000, and $112,000 in 1996, 1995 and 1994, respectively, excluding taxes,
insurance and maintenance. The branch facilities are charged for their
proportionate share of taxes, insurance and maintenance costs plus monthly
rent. The minimum rental commitments, not including taxes, insurance and
maintenance, at December 31, 1996 under the leases are summarized below:
1997 $202,170
1998 144,540
1999 98,640
2000 98,640
2001 90,724
2002 and thereafter 59,668
------------------------------
Total $694,382
==============================
NOTE 16 - RELATED PARTY TRANSACTIONS
In the normal course of business, certain executive officers, directors, and
companies with which they are affiliated have borrowed funds from the Bank. In
the opinion of management, these loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated parties. The activities in total
loans during 1996 is as follows:
Balance as of January 1, 1996 $ 1,438
New loans 1,009
Repayments (394)
-----------------------------------------------
Balance as of December 31, 1996 $ 2,053
===============================================
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair value of financial instruments at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 13,833 $ 13,833 $ 20,559 $ 20,559
Investment securities 47,707 48,207 50,732 51,626
Loans held-for-sale 117 117 203 203
Loans 203,416 203,043 171,135 173,219
Financial liabilities:
Deposits $245,105 $245,865 $227,308 $228,127
Borrowed funds 18,975 19,719 14,395 14,087
</TABLE>
F-32
<PAGE> 106
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Loan commitments on which the committed interest rate is less than the current
market rate are insignificant at December 31, 1996.
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However,
borrowers with fixed rate obligations are more likely to prepay in a falling
rate environment and less likely to prepay in a rising rate environment.
Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely to
do so in a falling rate environment. Management monitors rates and maturities
of assets and liabilities and attempts to minimize interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with
terms that mitigate the Company's overall interest rate risk.
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets as of December 31, 1996 and
1995 and statements of income and statements of cash flows for the years ended
December 31, 1996, 1995, and 1994 for Success Bancshares, Inc.:
CONDENSED BALANCE SHEETS
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
ASSETS
Cash on deposit with subsidiary bank $ 388 $ 15
Investment in subsidiaries 17,496 14,052
Other assets 374 487
- --------------------------------------------------------------------------------
$18,258 $14,554
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $ 4,815 $ 3,830
Note payable - Success Realty Ventures, Inc. 105 105
Subordinated convertible debt 3,167 2,412
Other liabilities 71 122
- --------------------------------------------------------------------------------
Total liabilities 8,158 6,469
Stock owned by ESOP participants, net of ESOP loan 866 719
Shareholders' equity 9,234 7,366
- --------------------------------------------------------------------------------
$18,258 $14,554
================================================================================
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating income
Dividends from subsidiary bank $949 $830 $494
Interest and other income 32 47 33
- ---------------------------------------------------------------------------------------------
981 877 527
Operating expenses
Interest 695 640 424
Other expense 126 100 102
- ---------------------------------------------------------------------------------------------
821 740 526
- ---------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES 160 137 1
Income tax benefit 319 263 189
- ---------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES 479 400 190
Equity in undistributed income of subsidiaries 304 537 73
- ---------------------------------------------------------------------------------------------
NET INCOME $783 $937 $263
=============================================================================================
</TABLE>
F-33
<PAGE> 107
SUCCESS BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statement
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 783 $ 937 $ 263
Adjustments to reconcile net income to net cash from
operating activities
Equity in undistributed income of subsidiaries (304) (537) (73)
Change in other assets and liabilities 62 (67) (116)
Other 15 - -
- --------------------------------------------------------------------------------
Net cash provided by operating activities 556 333 74
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary bank stock (3,025) (1,084) (2,032)
- --------------------------------------------------------------------------------
Net cash used in investing activities (3,025) (1,084) (2,032)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in:
Subordinated debt 755 400 (230)
Repayment of note payable (2,015) (1,690) -
Proceeds from note payable 3,000 1,000 -
Notes payable to subsidiary - 105 1,910
(Payment from) loan to ESOP 46 (122) (35)
Dividends on Series B preferred stock (81) - -
Issuance of common stock 1,137 710 661
- --------------------------------------------------------------------------------
Net cash provided by financing activities 2,842 404 2,306
- --------------------------------------------------------------------------------
Increase (decrease) in cash 373 (347) 348
Cash at beginning of year 15 362 14
- --------------------------------------------------------------------------------
CASH AT END OF YEAR $ 388 $ 15 $ 362
================================================================================
</TABLE>
NOTE 19 - SUBSEQUENT EVENTS
On July 23, 1997, the Company approved a 1.7 for 1 stock split effective July
30, 1997, on common shares. All references in the accompanying financial
statements to the number of common shares and per common share amounts have
been retroactively restated to reflect the stock split.
F-34
<PAGE> 108
No person is authorized in connection with any offering made hereby to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or EVEREN Securities, Inc. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
security other than the Securities offered hereby, nor does it constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby to any person in any jurisdiction in which it is unlawful to make such an
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date of this Prospectus
or that the information contained herein is correct as of any date subsequent to
the date of this Prospectus.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary..............................
Risk Factors....................................
Use of Proceeds.................................
Dividend Policy.................................
Capitalization..................................
Dilution........................................
Terms of the Offering...........................
Certain Transactions............................
Business........................................
Selected Consolidated Financial Data............
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................
Management......................................
Principal Shareholders..........................
Supervision and Regulation......................
Description of Capital Stock....................
Shares Eligible for Future Sale.................
Legal Matters...................................
Experts.........................................
Available Information...........................
Financial Statements............................
----------
Until 25 days after the execution of the Public Offering Acknowledgment,
all dealers effecting transactions in the Securities, whether or not
participating in this Offering, may be required to deliver a Prospectus. This in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions
1,200,000 SHARES
[Logo]
COMMON STOCK
----------
PROSPECTUS
----------
EVEREN SECURITIES, INC.
_____________, 1997
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as set forth
in the following table.
<TABLE>
<S> <C>
SEC registration fee............................................................ $ 5,227
NASD filing fee................................................................. 2,250
Nasdaq National Market application fee.......................................... 19,600
Reimbursable Selling Agent Expenses............................................. 100,000
Printing and engraving expenses................................................. 80,000
Accounting fees and expenses.................................................... 65,000
Legal fees and expenses......................................................... 225,000
Registrar and Transfer Agent fees............................................... 2,500
Miscellaneous................................................................... 150,043
--------
Total............................................................. $650,000
========
</TABLE>
- ------------------
All amounts except the SEC registration fee, the NASD filing fee, the
Nasdaq National Market application fee and the Reimbursable Selling Agent
Expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except: (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acting in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer of
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expense that
such officer or director actually and reasonably incurred.
The Company's Certificate of Incorporation limits the personal liability
of directors to the fullest extent permitted by Delaware law. In addition, the
Company's Certificate of Incorporation and By-laws provide that the Company
shall to the fullest extent permitted by Delaware law, indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that he or she is or was a director,
officer, employee or
II-1
<PAGE> 110
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any and all expenses, liabilities or
other matters referred to or covered by Delaware law, which were reasonably
incurred by such person. This indemnification is in addition to any other rights
of indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation, By-laws, any agreement or notice of shareholders
or disinterested directors.
The Company's Certificate of Incorporation and By-laws also permit it to
secure insurance on behalf of any director, officer, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether Delaware law, the Certificate of Incorporation or By-laws would permit
indemnification. The Company does not have any separate indemnification
agreements with its directors or officers.
The description of Delaware law is not intended to be complete. The
description of the Company's Certificate of Incorporation and its By-laws is not
intended to be complete and is respectively qualified in its entirety by such
Certificate and By-laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the three-year period ended August 1, 1997, the Company issued and
sold 39,434 shares of Common Stock at an average exercise price of $7.72 per
share (after giving effect to the stock split) to its Directors pursuant to the
exercise of stock options granted as part of its Director Stock Option Program.
The shares of Common Stock were issued pursuant to the Section 4(2) private
placement exemption from the Securities Act.
During the period beginning in November, 1995, and ended in June, 1996,
the Company issued and sold 288.5 Units at a purchase price of $10,000 per Unit
to 21 purchasers. Each Unit consisted of 400 shares of Class A Common Stock and
$4,000 principal amount of 15% or 17% Convertible Subordinated Notes (365,042
shares of Common Stock after giving effect to the stock split and the
Reorganization). The Units were issued and sold primarily to accredited
investors as well as a limited number of non-accredited investors pursuant to
the Section 4(2) private placement exemption from the Securities Act in
accordance with Regulation D.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index on page E-1 which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered ) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee."
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
II-2
<PAGE> 111
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
(b)Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to Item 14 of this Registrant Statement, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago, State of Illinois, on July 23, 1997.
SUCCESS BANCSHARES, INC.
By: //Saul D. Binder//
-------------------------------------
Saul D. Binder
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on July 23, 1997, by the following
persons in the capacities indicated.
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Saul D. Binder and Steven A. Covert, and
each of them, his/her attorney-in-fact, each with the power of substitution, for
him/her and in his/her, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as (s)he might or could do in person, hereby ratifying and confirming
all that such attorneys-in-fact and agents or any of them, or his/her or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES TITLE
//Saul D. Binder// President
- -------------------------- and
Saul D. Binder Chief Executive Officer
(Principal Executive Officer)
//Steven A. Covert// Executive Vice President and
- -------------------------- Chief Financial Officer
Steven A. Covert (Principal Financial and
Accounting Officer)
//Charles G. Freund// Director
- --------------------------
Charles G. Freund
//Avrom Goldfeder// Director
- --------------------------
Avrom Goldfeder
//Samuel D. Kahan// Director
- --------------------------
Samuel D. Kahan
II-4
<PAGE> 113
//Sherwin Koopmans// Director
- --------------------------
Sherwin Koopmans
//George M. Ohlhausen// Director
- --------------------------
George M. Ohlhausen
//Norman D. Rich// Director
- --------------------------
Norman D. Rich
II-5
<PAGE> 114
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
1.1* Form of Agency Agreement.
3.1 Second Restated Certificate of Incorporation of the Company.
3.2 By-laws of the Company.
5.1* Opinion of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
10.1 $8 million Business Loan Agreement between Success Bancshares, Inc.
and Cole Taylor Bank.
10.2 1995 Success Bancshares, Inc. Employee Stock Option Plan.
10.3 Employment Agreement between the Company and Saul D. Binder.
10.4 Executive Severance Agreement between the Company and Steven A. Covert.
10.5 Lease with respect to Lincolnwood branch banking facility
(October, 1991).
10.6 Lease with respect to Lincoln Park branch banking facility
(April, 1993).
10.7 Lease with respect to Northbrook branch banking facility
(December, 1994).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995).
21.1 Subsidiaries of the Company.
23.1 Consent of McGladrey & Pullen LLP.
23.2 Consent of Crowe, Chizek and Company LLP.
23.3* Consent of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
(included as part of Exhibit 5.1).
24.1 Power of Attorney (included on signature page of the Registration
Statement on Form S-1).
27.1 Financial Data Schedule.
99.1* Subscription and Community Offering Stock Order Form and Certificate
Form.
- -------------------------
*To be filed by amendment.
E-1
<PAGE> 1
Exhibit 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
SUCCESS BANCSHARES, INC.
SUCCESS BANCSHARES, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware
("Corporation"),
DOES HEREBY CERTIFY:
ONE: Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, this Second Restated Certificate of Incorporation amends, restates
and integrates the provisions of the Corporation's Restated Certificate of
Incorporation.
TWO: The name under which the Corporation was originally incorporated was
Lincolnshire Bancshares, Inc. The Corporation's Certificate of Incorporation
was filed in the office of the Secretary of State of Delaware on September 20,
1984, and amendments thereto were filed on each of October 9, 1986, November
26, 1986, and November 25, 1987. The Corporation's Restated Certificate of
Incorporation was filed in the office of the Secretary of State of Delaware on
November 25, 1987, and amendments thereto were filed on each of October 16,
1991, June 11, 1993, December 24, 1996, and July 24, 1997.
THREE: The Second Restated Certificate of Incorporation of the
Corporation was duly adopted by the Board of Directors and the stockholders of
the Corporation in accordance with Section 245 of the Delaware General
Corporation Law, as amended.
FOUR: The text of the Restated Certificate of Incorporation is hereby
amended and restated by striking out Article FOURTH and Articles SIXTH through
TENTH, and by substituting in lieu thereof, a new Article FOURTH and new
Articles SIXTH through TENTH, as set forth below:
FIRST. The name of the corporation is Success Bancshares, Inc. (the
"CORPORATION").
SECOND. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. (a) The total number of shares of stock which the Corporation
shall have authority to issue is Eight Million Five Hundred Thousand
(8,500,000), consisting of Seven Million Five Hundred Thousand (7,500,000)
shares of Common Stock, par value $0.001 per share ("COMMON STOCK") and One
Million (1,000,000) shares of Preferred Stock, par value $0.001 per share
("PREFERRED STOCK").
(b) Shares of Preferred Stock may be issued in one or more series, from
time to time, with each such series to consist of such number of shares and to
have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, as
shall be stated in the resolution or resolutions providing for the issuance of
such series adopted by the Board of Directors of the Corporation (the "BOARD OF
DIRECTORS"), and the Board of Directors is hereby expressly vested with
authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions.
1
<PAGE> 2
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(viii) Any other relative rights, preferences and limitations of that
series.
FIFTH. Unless and except to the extent that the By-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
SIXTH. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
to adopt, alter, amend and repeal the By-laws of the Corporation, subject to
the power of the stockholders of the Corporation to alter or repeal any By-laws
whether adopted by them or otherwise; provided, however, that the affirmative
vote of 80% of the voting power of the capital stock of the Corporation
entitled to vote thereon shall be required for stockholders to adopt, amend,
alter or repeal any provision of the By-laws.
SEVENTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal.
EIGHTH. Action that is required or permitted to be taken by the
stockholders of the Corporation at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders.
2
<PAGE> 3
NINTH. Except as otherwise provided for or fixed by or pursuant to the
provisions of Article FOURTH of this Certificate of Incorporation or any
resolution or resolutions of the Board of Directors providing for the issuance
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the Board of Directors shall consist of not fewer than five (5)
nor more than eleven (11) directors, the exact number of directors within such
limits to be determined solely by the Board of Directors in the manner set
forth in the By-laws of the Corporation. The directors, other than those who
may be elected by the holders of Preferred Stock or any other class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation pursuant to the terms of this Certificate of Incorporation or any
resolution or resolutions providing for the issuance of such class or series of
stock adopted by the Board of Directors, shall be divided into three classes,
as nearly equal in number as possible. The initial Class I Directors shall
serve for a term expiring at the annual meeting of stockholders of the
Corporation in 1998; the initial Class II Directors shall serve for a term
expiring at the annual meeting of stockholders in 1999; and the initial Class
III Directors shall serve for a term expiring at the annual meeting of
stockholders in 2000. Each director in each such class shall hold office until
his or her successor is duly elected and qualified. At each annual meeting of
stockholders beginning with the annual meeting of stockholders in 1998, the
successors of the class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in the third year following the year of their election,
with each director in each such class to hold office until his or her successor
is duly elected and qualified. The affirmative vote of 80% of the voting power
of the capital stock of the Corporation entitled to vote thereon shall be
required to amend, alter or repeal this Article NINTH, or any provision of the
Certificate of Incorporation or By-laws affecting the size of the Board of
Directors or the election of Directors.
TENTH. The Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended are granted subject to the rights
reserved in this article; provided, however, that the affirmative vote of 80%
of the voting power of the capital stock of the Corporation entitled to vote
thereon shall be required to amend, alter or repeal, or adopt any provision
inconsistent with, whether by amendment, merger or otherwise, the provisions of
Articles SIXTH, SEVENTH, EIGHTH, NINTH or TENTH.
IN WITNESS WHEREOF, said SUCCESS BANCSHARES, INC. has caused this
Certificate to be signed by Saul D. Binder, its President this 24th day of
July, 1997.
SUCCESS BANCSHARES, INC.
By:
--------------------------
Saul D. Binder, President
3
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
SUCCESS BANCSHARES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1 DELAWARE OFFICE. The registered office of the Corporation in
the State of Delaware shall be located at 1209 Orange Street, Wilmington,
Delaware 19801, and the name and address of its registered agent is The
Corporation Trust Company,
SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation
may be kept at the Corporation's headquarters in Lincolnshire, Illinois or at
such other locations outside the State of Delaware as may from time to time be
designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed
by resolution of the Board of Directors.
SECTION 2.2 SPECIAL MEETING. Subject to the rights of the holders of any
series of Preferred Stock, par value $0.001 per share, of the Corporation
("PREFERRED STOCK") or any other series or class of Stock as set forth in the
Certificate of Incorporation to elect additional directors under specified
circumstances, special meetings of the stockholders may be called only by the
Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies ("WHOLE BOARD").
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office
of the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be prepared and delivered by the Corporation not less
than ten (10) days nor more than sixty (60) days before the date of the
meeting, either personally, or by mail, to each stockholder of record entitled
to vote at such meeting. If mailed, such
1
<PAGE> 2
notice shall be deemed to be delivered when deposited in the United States mail
with postage thereon prepaid, addressed to the stockholder at his address as it
appears on the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law. Meetings may be held without notice
if all stockholders entitled to vote are present (except as otherwise provided
by law), or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public notice given prior to the time previously scheduled for
such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise provided by law
or by the Certificate of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally
in the election of directors ("VOTING STOCK"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting as a class,
the holders of a majority of the voting power of the shares of such class or
series shall constitute a quorum for the transaction of such business. The
chairman of the meeting or a majority of the shares of Voting Stock so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum (or, in the case of specified business to be voted on by a class
or series, the chairman or a majority of the shares of such class or series so
represented may adjourn the meeting with respect to such specified business).
No notice of the time and place of adjourned meetings need be given except as
required by law. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or as may be permitted by
law, or by his duly authorized attorney-in-fact. Such proxy must be filed with
the Secretary of the Corporation or his representative at or before the time of
the meeting.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 2.4 of these By-laws, (b) by or at the direction of the
Chairman or the Board of Directors or (c) by any stockholder of the Corporation
who is entitled to vote at the meeting, who complied with the notice procedures
set forth in clauses (2) and (3) of this paragraph (A) of this By-law and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-law, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not less than seventy (70) days nor more than ninety (90) days
prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than twenty (20) days, or delayed by more than seventy (70)
days,
2
<PAGE> 3
from such anniversary date, notice by the stockholder to be timely must
be so delivered not earlier than the ninetieth (19th) day prior to such annual
meeting and not later than the close of business on the later of the seventieth
(17th) day prior to such annual meeting or the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended ("EXCHANGE ACT"), including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected; (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the Corporation at least
eighty (80) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this By-law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting pursuant to
Section 2.4 of these By-laws. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this By-law and who is a stockholder of record
at the time such notice is delivered to the Secretary of the Corporation.
Nominations by stockholders of persons for election to the Board of Directors
may he made at such a special meeting of stockholders if the stockholder's
notice as required by paragraph (A)(2) of this By-law shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier
than the ninetieth (19th) day prior to such special meeting and not later than
the close of business on the later of the seventieth (17th) day prior to such
special meeting or the tenth (10th) day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
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commence a new time period for the giving of a stockholder's notice as
described above.
(C) General. (1) Only persons who are nominated in accordance
with the procedures set forth in this By-law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-laws, the chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-law and, if any proposed nomination or business
is not in compliance with this By-law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-law. Nothing in this By-law shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS. Election of directors
at all meetings of the stockholders at which directors are to be elected shall
be by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the right of the holders of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, a plurality of the votes cast thereat
shall elect directors. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by the
affirmative vote of a majority of the voting power of the outstanding Voting
Stock present in person or represented by proxy at the meeting and entitled to
vote thereon.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according
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to the best of his or her ability. The inspectors shall have the duties
prescribed by the General Corporation Law of the State of Delaware.
(B) The chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these By-laws expressly conferred
upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these By-laws required to be exercised or
done by the stockholders.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of
the holders of any series of Preferred Stock, or any other series or class of
Stock as set forth in the Certificate of Incorporation, to elect directors
under specified circumstances, the number of directors shall be fixed from time
to time exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but shall consist of not more than eleven (11) nor less than five (5)
directors.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without notice other than this By-law immediately
after, and at the same place as, each annual meeting of stockholders. The Board
of Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be called at the request of the Chairman of the Board, the President or a
majority of the Board of Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
SECTION 3.5. NOTICE. Notice of any special meeting shall be given to each
director at his business or residence in writing or by telegram or by telephone
communication. If mailed, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon
prepaid, at least five (5) days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-laws as provided under Section 8.1 of Article VIII
hereof. A meeting may be held at any time without notice if all the directors
are present (except
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as otherwise provided by law) or if those not present waive
notice of the meeting in writing, either before or after such meeting.
SECTION 3.6. QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. The directors present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
SECTION 3.7. VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth
in the Certificate of Incorporation, to elect additional directors under
specified circumstances, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have
been elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Whole Board shall shorten the term of any incumbent director.
SECTION 3.8. COMMITTEES. The Board of Directors may by resolution
designate one or more committees of the Board of Directors, which may to the
fullest extent permitted by law exercise such powers and shall have such
responsibilities in the management of the business and affairs of the
Corporation as shall be stated in the designating resolution. The Board shall
have the power at any time to change the membership of any committee, to fill
vacancies in it, to make rules for the conduct of its business, or to dissolve
any such committee. Nothing herein shall be deemed to prevent the Board of
Directors from appointing one or more committees consisting in whole or in part
of persons who are not directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority of the Board of
Directors.
SECTION 3.9. REMOVAL. Subject to the rights of the holders of any series
of Preferred Stock, or any other series or class of stock as set forth in the
Certificate of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause, and only by the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
Voting Stock, voting together as a single class.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem
proper. The Chairman of the
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Board shall be chosen from the directors. All officers chosen by the Board of
Directors shall each have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of this Article IV. Such
officers shall also have powers and duties as from time to time may be
conferred by the Board of Directors or by any committee thereof.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to
Section 4.7 of these By-laws, each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to his
office which may be required by law and all such other duties as are properly
required of him by the Board of Directors. Except where by law the signature of
the President is required, the Chairman of the Board shall possess the same
power as the President to sign all certificates, contracts, and other
instruments of the Corporation which may be authorized by the Board of
Directors. He shall make reports to the Board of Directors and the
stockholders, and shall perform all such other duties as are properly required
of him by the Board of Directors. He shall see that all orders and resolutions
of the Board of Directors and of any committee thereof are carried into effect.
SECTION 4.4. PRESIDENT. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of
Directors. The President may sign, alone or with the Secretary, or an Assistant
Secretary, or any other proper officer of the Corporation authorized by the
Board of Directors, certificates, contracts, and other instruments of the
Corporation as authorized by the Board of Directors.
SECTION 4.5. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and Directors and all other notices
required by law or by these By-laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these By-laws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the President. He shall
have the custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
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SECTION 4.6. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the President,
taking proper vouchers for such disbursements. The Treasurer shall render to
the Chairman of the Board, the President and the Board of Directors,
whenever requested, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board of Directors shall
prescribe.
SECTION 4.7. REMOVAL. Any officer elected by the Board of Directors may
be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
SECTION 4.8. VACANCIES. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS.
(A) The interest of each stockholder of the Corporation shall be evidenced
by certificates for shares of stock in such form as the appropriate officers of
the Corporation may from time to time prescribe. The shares of the stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
(B) The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
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ARTICLE VI
INDEMNIFICATION
SECTION 6.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person ("INDEMNITEE") who was
or is made or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "PROCEEDING"), by reason of the fact that he, or a person for
whom he is the legal representative, is or was a director or officer of the
Corporation or, while a director or officer of the Corporation is serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust, enterprise or
nonprofit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in Section 6.3, the Corporation shall be
required to indemnify an lndemnitee in connection with a proceeding (or part
thereof) commenced by such Indemnitee only if the commencement of such
proceeding (or part thereof) by the Indemnitee was authorized by the Board of
Directors of the Corporation.
SECTION 6.2. PREPAYMENT OF EXPENSE. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an lndemnitee in defending any
proceeding in advance of its final disposition, provided, however, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
SECTION 6.3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article VI is not paid in full within sixty (60) days after
a written claim therefor by the Indemnitee has been received by the
Corporation, the Indemnitee may file suit to recover the unpaid amount of such
claim and, if successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the Corporation shall
have the burden of proving that the Indemnitee is not entitled to the requested
indemnification or payment of expenses under applicable law.
SECTION 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
Indemnitee by this Article VI shall not be exclusive of any other rights which
such Indemnitee may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, these By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 6.5. OTHER SOURCES. The Corporation's obligation, if any, to
indemnify or to advance expenses to any Indemnitee who was or is serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such Indemnitee may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
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SECTION 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any lndemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
SECTION 6.7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This
Article VI shall not limit the right of the Corporation, to the extent and in
the manner permitted by law, to indemnify and to advance expenses to persons
other than Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION. 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January and end on the thirty first day of December of each
year.
SECTION 7.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its
Certificate of Incorporation.
SECTION 7.3. SEAL. The corporate seal shall have inscribed the name of
the Corporation thereon and shall be in such form as may be approved from time
to time by the Board of Directors.
SECTION 7.4. WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board of
Directors need be specified in any waiver of notice of such meeting.
SECTION 7.5. AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
SECTION 7.6. RESIGNATIONS. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President,
or the Secretary or at such later date as is stated therein. No formal action
shall be required of the Board of Directors or the stockholders to make any
such resignation effective.
SECTION 7.7. CONTRACTS. Except as otherwise required by law, the
Certificate of Incorporation or these By-laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or
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officers of the Corporation as the Board of Directors may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board,
the President or any Vice President of the Corporation may delegate contractual
powers to others under his jurisdiction, it being understood, however, that any
such delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.8. PROXIES. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to
cast the votes which the Corporation may be entitled to cast as the holder of
stock or other securities in any other corporation or other entity, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation or other
entity, or to consent in writing in the name of the Corporation as such holder,
to any action by such other corporation or other entity, and may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. These By-laws may be amended, altered, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a
notice given no less than twenty four (24) hours prior to the meeting;
provided, however, that, notwithstanding any other provisions of these By-laws
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the stock required by law, the Certificate of Incorporation or
these By-laws, the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required in order for stockholders to alter, amend or repeal
any provision of these By-laws or to adopt any additional bylaw.
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EXHIBIT 10.1
<TABLE>
<CAPTION>
BUSINESS LOAN AGREEMENT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$8,000,000.00 06-15-1997 06-15-1998 0101 9A0 3210 0015131 010
- ----------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of
this document to any particular loan or item.
- ----------------------------------------------------------------------------------------------
Borrower: Success Bancshares, Inc. Lender: COLE TAYLOR BANK
One Marriott Dr. Correspondent Banking
Lincolnshire, IL 60069-3701 7601 S. Cicero Ave.
Chicago, IL 60852
</TABLE>
===============================================================================
THIS BUSINESS LOAN AGREEMENT between Success Bancshares, Inc. ("Borrower") and
COLE TAYLOR BANK ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commerical loan or loans and other financial
accommondations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement Individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgment and discretion; and (c) all such Loans
shall be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of June 15, 1997, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means Success Bancshares, Inc. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.
DEBT. The word "Debt" means all of the Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section named
"EVENTS OF DEFAULT"
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means COLE TAYLOR BANK, its successor and assigns.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein
or described on any exhibit or schedule attached to this Agreement from time
to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or puchase money security interests upon or in any properly acquired or
held by Borrower in the ordinary course of business to secure Indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
RELATED DOCUMENTS. The words "Related Documents; means and include
without limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
Indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets,
excluing prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the Initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may require.
<PAGE> 2
06-15-1997 BUSINESS LOAN AGREEMENT Page 2
Loan No. 0101 (Continued)
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PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as specified
in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance
a condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the state of
Borrower's incorporation and is validly existing and in good standing in all
states in which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which it
is presently engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized by
all necessary action by Borrower; do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not presently
due and payable, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such properties. All
of Borrower's properties are titled in Borrower's legal name, and Borrower
has not used, or filed a financing statement under, any other name for at
least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there has been
no use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance on, under, about or from the properties by
any prior owners or occupants of any of the properties, or (ii) any actual or
threatened litigation or claims of any kind by any person relating to such
matters. (c) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate, manufacture,
store, treat, dispose of, or release any hazardous waste or substance on,
under, about or from any of the properties; and any such activity shall be
conducted in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests as
Lender may deem appropriate to determine compliance of the properties with
this section of the Agreement. Any inspections or tests made by Lender shall
be at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender to
Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties,
whether or not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the indebtedness and the termination
or expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by foreclosure
or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting
any of the Collateral directly or indirectly securing repayment of Borrower's
Loan and Note, that would be prior or that may in any way be superior to
Lender's Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note and all
of the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives, and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than one
place of business, is located at One Marriott Dr., Lincolnshire, IL
60069-3701. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete
by omitting to state any material fact necessary to make such information not
misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representaions and warranties
shall be continuing in nature and shall remain in full force and effect until
such time as Borrower's indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever is the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing and
all threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could materially
effect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
<PAGE> 3
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as soon
as available, but in no event later than forty five (45) days after the end
of each fiscal quarter, Borrower's balance sheet and profit and loss
statement for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be provided
under this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender
may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios: Except as provided above, all computations made in determine
compliance with the requirements contained in this paragraph shall be made in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Borrower
or any other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans. Borrower will
provide Lender with such loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually). Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for the following specific
purposes: The purchase of common and preferred stock of Success National Bank
f/k/a First National Bank of Lincolnshire and up to $300,000.00 for use by
Borrower's ESOP to repurchase its common stock from ex-employees.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies,
liens and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
intruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
CAPITAL EXPENDITURES. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$1,000,000.00 or incur liability for rentals of property (including both real
and personal property) in an amount which, together with capital
expenditures, shall in any fiscal year exceed such sum.
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay and make estimated income tax payments to
satify their liabilities under federal and state law which arise solely
from their status as Shareholders of a Subchapter S Corporation because of
their ownership of shares of stock of Borrower, or (d) purchase or retire any
of Borrower's outstanding shares or alter or amend Borrower's capital
structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligaion as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse
<PAGE> 4
06-15-97 BUSINESS LOAN AGREEMENT Page 4
Loan No. 0101 (Continued)
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change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; (d) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender
in good faith deems itself insecure, even though no Event of Default shall have
occurred.
ADDITIONAL AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that while this Agreement is in effect. Borrower and Success National Bank
(Bank) will comply with the following financial covenants and ratios:
TANGIBLE EQUITY CAPITAL TO ASSETS RATIO OF BANK. Maintain a minimum ratio of
Tangible Equity Capital to Assets of not less than .06 to 1.00.
TANGIBLE EQUITY CAPITAL OF BANK. Maintain Tangible Equity Capital of not less
than $17,000,000.00.
TANGIBLE EQUITY CAPITAL OF BORROWER. Maintain Tangible Equity Capital of not
less than $9,000,000.00.
Net unrealized gains or losses in security portfolios are not included in
determining compliance with the Tangible Equity Capital ratios and financial
covenants.
NON-PERFORMING ASSETS TO PRIMARY CAPITAL RATIO OF BANK. Maintain a maximum
ratio of Non-Performing Assets to Primary Capital of not more than .20 to 1.00.
LOAN LOSS RESERVE TO LOANS RATIO OF BANK. Maintain a minimum ratio of Loan
Loss Reserves to Loans of not less than .07 to 1.00.
CALL REPORTS. Furnish Lender with the Bank's quarterly Call Reports not later
than forty-five (45) days after the end of each quarter.
FINANCIAL STATEMENTS OF BANK. Furnish Lender with, as soon as available, but
in no event later than one hundred twenty (120) days after the end of each
fiscal year, the annual financial statements of the Bank for the year ended,
audited by a certified public accountant acceptable to Lender.
ADDITIONAL DEFINITIONS.
DEBT. The word "DEBT" means all liabilities.
LOANS. The word "LOANS" means all loans made by "Bank" except loans secured by
cash collateral (i.e., Certificates of Deposit, Savings Accounts, etc.) and any
guaranteed portion of SBA (Small Business Administration) guaranteed loans.
LOAN LOSS RESERVE. The words "LOAN LOSS RESERVE" means a reserve for possible
Loan Losses based on a percentage of outstanding loans and specific anticipated
Loan Losses.
NON-PERFORMING ASSETS. The words "NON-PERFORMING ASSETS" means Loans which are
ninety (90) days or more past due, non-accrual Loans and OREO's (Other Real
Estate Owned).
PRIMARY CAPITAL. The words "PRIMARY CAPITAL" mean Tangible Equity Capital plus
the Loan Loss Reserve.
TANGIBLE EQUITY CAPITAL. The words "TANGIBLE EQUITY CAPITAL" mean total assets
excluding intangible assets (i.e., goodwill, trademarks, patents, copyrights,
organizational expenses, and similar intangible items, but including leaseholds
and leasehold improvements) less total Debt.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure of
Borrower to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's or
any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's accounts, including deposit accounts, with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
AMENDMENTS. This Agreements, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the party
or parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Illinois. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
Cook County, the State of Illinois. Lender and Borrower hereby waive the
right to any jury trial in any action, proceeding, or counterclaim brought by
either Lender or Borrower against the other. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Illinois.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of the
persons signing below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any debts to privacy it may have with
respect to such matters. Borrower additionally waives any
<PAGE> 5
06-15-1997 BUSINESS LOAN AGREEMENT Page 5
Loan No. 0101 (Continued)
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the purchasers of any such participation interests will be considered
as the absolute owners of such interests in the Loans and will have all the
rights granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorney's fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant to
this Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs,
in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the parties address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower
will constitute notice to all Borrowers. For notice purposes, Borrower will
keep Lender informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in
all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or
on behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered to
have been relied upon by Lender and will survive the making of the Loan and
delivery to Lender of the Related Documents, regardless of any investigation
made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essense in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JUNE 15, 1997.
BORROWER:
SUCCESS BANCSHARES, INC.
By: /s/ Saul D. Binder
-----------------------------
Saul D. Binder, President
LENDER:
COLE TAYLOR BANK
By:
-----------------------------
Authorized Officer
================================================================================
<PAGE> 1
EXHIBIT 10.2
SUCCESS BANCSHARES, INC.
1995 STOCK OPTION PLAN
I. DEFINITIONS AND PURPOSES
A. DEFINITIONS
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Plan, have the following meanings:
1. AFFILIATE means a corporation which, for purposes of Section 422 of
the Code, is a parent or subsidiary of the Company, direct or indirect.
2. BOARD means the Board of Directors of the Company.
3. CODE means the Internal Revenue Code of 1986, as amended.
4. COMMITTEE means the committee to which the Board delegates the power
to act under or pursuant to the provisions of the Plan, or the Board if no
committee is selected. If the Board delegates powers to a committee, and
if the Company is or becomes subject to Section 16 of the Securities
Exchange Act, then such committee shall consist of two (2) or more
members of the Board.
5. COMPANY means Success Bancshares, Inc., a Delaware corporation.
6. DISABILITY or DISABLED means permanent and total disability as
defined in Section 72(m)(7) of the Code.
7. INCENTIVE OPTION means an Option which, when granted, is intended to
be an "incentive stock option," as defined in Section 422 of the Code.
8. KEY EMPLOYEE means an employee of the Company or of an Affiliate who
is designated by the Board or the Committee as being eligible to be granted
one or more Options under the Plan.
9. NONSTATUTORY OPTION means an Option which, when granted, is not
intended to be an "incentive stock option," as defined in Section 422 of
the Code.
10. Option means a right or option granted under the Plan.
<PAGE> 2
11. OPTION AGREEMENT means an agreement between the Company and a
Participant executed and delivered pursuant to the Plan.
12. PARTICIPANT means a Key Employee to whom one or more Incentive
Options or Nonstatutory Options are granted under the Plan, and a
non-employee director, consultant, or independent contractor ("Key
Non-Employee") to whom one or more Nonstatutory Options are granted under
the Plan.
13. PLAN means this Stock Option Plan.
14. SHARES means the following shares of the capital stock of the Company
as to which Options have been or may be granted under the Plan: authorized
and unissued common stock, $1.00 par value, or any shares of capital stock
into which the Shares are changed or for which they are exchanged within
the provisions of Article VI of the Plan.
B. PURPOSES OF THE PLAN
The Plan is intended to encourage ownership of Shares by Key Employees
and Key Non-Employees in order to attract such Key Employees to remain in the
employ of the Company or an Affiliate, or to attract such Key Non-Employees to
provide services to the Company or an Affiliate, and to provide additional
incentive for such persons to promote the success of the Company or an
Affiliate.
II. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares as to which Options may be granted from
time to time shall be one hundred thousand (100,000) Shares of the authorized
and unissued common stock, $1.00 par value.
If an Option ceases to be "outstanding," in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options. Any Option shall be treated as "outstanding" until such Option is
exercised in full, or terminates or expires under the provisions of the Plan
or Option Agreement.
The aggregate number of Shares as to which Options may be granted shall
be subject to change only by means of an amendment of the Plan duly adopted by
the Company and approved by the stockholders of the Company within one year
before or after the date of the adoption of any such amendment, subject to the
provisions of Article VI.
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III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board except to the extent the
Board delegates its authority hereunder to the Committee. Subject to the
provisions of the Plan, the Board or if such authority be delegated, the
Committee, is authorized to:
A. Interpret the provisions of the Plan or of any Option or
Option Agreement and to make all rules and determinations which it
deems necessary or advisable for the administration of the Plan;
B. Determine which employees of the Company or of an Affiliate shall
be designated as Key Employees and which of the Key Employees shall be
granted Options;
C. Determine the Key Non-Employees to whom Nonstatutory Options
shall be granted;
D. Determine whether the Option to be granted shall be an Incentive
Option or Nonstatutory Option;
E. Determine the number of Shares for which an Option or Options
shall be granted; and
F. Specify the terms and conditions upon which Options may be
granted;
provided, however, that with respect to Incentive Options, all such
interpretations, rules, determinations, terms, and conditions shall be made
and prescribed in the context of preserving the tax status of the Incentive
Options as incentive stock options within the meaning of Section 422 of the
Code.
All determinations of the Board or the Committee, if applicable, shall be
made by a majority of its members and shall be reduced to writing and signed
by a majority. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option.
IV. ELIGIBILITY FOR PARTICIPATION
Each Participant receiving an Incentive Option must be a Key Employee of
the Company or of an Affiliate at the time an Incentive Option is granted.
The Board or if such authority be delegated, the Committee, may at any
time and from time to time grant one or more Options to one or more Key
Employees or Key Non-Employees and may designate the number of Shares to be
subject to each Option so granted, provided, however, that no Incentive
Options shall be granted after the expiration of ten (10) years from the
earlier of the date of
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the adoption of the Plan by the Company or the approval of the Plan by the
stockholders of the Company, and provided further, that the fair market value
of the Shares (determined at the time the Option is granted) as to which
Incentive Options are exercisable for the first time by any Key Employee
during any single calendar year (under the Plan and under any other Incentive
Option plan of the Company or an Affiliate) shall not exceed $100,000.
Notwithstanding the foregoing, if the Company is or becomes subject to
Section 16 of the Securities Exchange Act, no individual who is a director of
the Company, if the Board administers the Plan, or a member of the Committee,
if the Board has delegated administrative authority, shall be eligible to
receive an Option. If the Company is not subject to Section 16 of the
Securities Exchange Act, then no individual who is a director of the Company
or a member of the Committee shall be eligible to receive an Option under the
Plan unless the granting of such Option shall be approved by the Board or the
Committee, with all of the members voting thereon being disinterested
directors or members. For the purpose of this Article IV, a "disinterested
director or member" shall be any director or member as the case may be who
shall not then be, or at any time within the year prior thereto have been,
granted an Option under the Plan or any other plan of the Company or an
Affiliate.
Notwithstanding any of the foregoing provisions, the Board (or the
Committee if applicable) may authorize the grant of an Incentive Option to a
person not then in the employ of the Company or of an Affiliate, conditioned
upon such person becoming eligible to become a Participant at or prior to the
execution of the Option Agreement evidencing the actual grant of such Option.
V. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be set forth in an Option Agreement, duly executed on
behalf of the Company and by the Participant to whom such Option is granted.
No Option shall be granted and no purported grant of any Option shall be
effective until such Option Agreement shall have been duly executed on behalf
of the Company and by the Participant. Each such Option Agreement shall be
subject to at least the following terms and conditions:
A. OPTION PRICE
The price of each Option granted under the Plan shall be determined by
the Board or the Committee, if such authority is delegated. The Option price
per share of the Shares covered by each Nonstatutory Option shall be at
such amount as may be determined by the Board or the Committee, if
applicable, in its sole discretion on the date of the grant of the Option.
In the case of an Incentive Option, if the optionee owns directly or by
reason of the applicable attribution rules 10% or less of the total combined
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voting power of all classes of share capital of the Company, the Option price
(per share) of the Shares covered by each Incentive Option shall be not less
than the "fair market value" of the Shares on the date of the grant of the
Incentive Option. In all other cases of Incentive Options, the Option price
shall be not less than one hundred ten percent (110%) of the said fair market
value on the date of grant. If the Shares are listed on any national
securities exchange, the fair market value shall be the mean between the high
and low sales prices, if any, on the largest such exchange on the date of the
grant of the Option, or, if none, on the most recent trade date thirty (30)
days or less prior to the date of the grant of the Option. If the Shares are
not then listed on any such exchange, the fair market value of such Shares
shall be the closing sales price if such is reported or otherwise the mean
between the closing "Bid" and the closing "Ask" prices, if any, as reported in
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the date of the grant of the Option, or if none, on the most
recent trade date thirty (30) days or less prior to the date of the grant of
the Option for which such quotations are reported. If the Shares are not then
either listed on any such exchange or quoted in NASDAQ, the fair market value
shall be the mean between the average of the "Bid" and the average of the
"Ask" prices, if any, as reported in the National Daily Quotation Service for
the date of the grant of the Option, or, if none, for the most recent trade
date thirty (30) days or less prior to the date of the grant of the option for
which such quotations are reported. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Board or the Committee, if applicable.
B. NUMBER OF SHARES
Each Option shall state the number of Shares to which it pertains.
C. TERM OF OPTION
Each Incentive Option shall terminate not more than ten (10) years from
the date of the grant thereof, or at such earlier time as the Option Agreement
may provide, and shall be subject to earlier termination as herein provided,
except that if the Option price is required under Paragraph A of this Article
V to be at least 110% of fair market value, each such Incentive Option shall
terminate not more than five (5) years from the date of the grant thereof, and
shall be subject to earlier termination as herein provided.
D. DATE OF EXERCISE
Upon the authorization of the grant of an Option, the Board or the
Committee, if applicable, may, subject to the provisions of Paragraph C of
this Article V, prescribe the date or dates on which
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the Option becomes exercisable, and may provide that the Option rights become
exercisable in installments over a period of years, or upon the attainment of
stated goals.
E. MEDIUM OF PAYMENT
The Option price shall be payable upon the exercise of the Option. It
shall be payable in such form (permitted by Section 422 of the Code in the
case of Incentive Options) as the Board (or the Committee if applicable)
shall, either by rules promulgated pursuant to the provisions of Article III
of the Plan, or in the particular Option Agreement, provide.
F. ACCELERATION
An Option shall become immediately exercisable as to all Shares remaining
subject to the Option and all restrictions set forth in the individual option
agreements shall lapse or terminate on or following a Change of Control. For
purposes of this Plan, the term "Change of Control" means the date when any
entity, person or group (other than the Company, Affiliate or employee benefit
plan for the benefit of the employees of the Company or Affiliate) which
theretofore beneficially owned less than fifty percent (50%) of the Shares
then outstanding acquires Shares in a transaction or series of transactions
that results in such entity, person or group directly or indirectly owning
beneficially fifty percent (50%) or more of the outstanding Shares.
G. TERMINATION OF EMPLOYMENT
1. A Participant who ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate for any reason other than death, Disability, or
termination for cause, may exercise any Option granted to such Participant, to
the extent that the right to purchase Shares thereunder has become
exercisable on the date of such termination, but only within three (3) months
after such date, or, if earlier, within the originally prescribed term of the
Option, and subject to the condition that no Option shall be exercisable after
the expiration of the term of the Option.
2. A Participant who ceases to be an employee or Key Non-Employee for
"cause" shall, upon such termination, cease to have any right to exercise
any Option. For purposes of this Plan, "cause" shall be deemed to include (but
shall not be limited to) wrongful appropriation of funds of the Company or an
Affiliate, divulging confidential information about the Company or an Affiliate
to the public, the commission of a gross misdemeanor or felony, or the
performance of any similar action that the Board or the Committee, in its sole
discretion, may deem to be sufficiently
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<PAGE> 7
injurious to the interests of the Company or an Affiliate to constitute
substantial cause for termination. The determination of the Board or the
Committee as to the existence of cause shall be conclusive on the Participant
and the Company.
3. A Participant who ceases to be an employee or Key Non-Employee of the
Company or an Affiliate because of temporary disability (any disability other
than a permanent and total Disability as defined at paragraph A(6) of Article
I hereof, or who is on leave of absence for any purpose permitted by any
authoritative interpretation (i.e., regulation, ruling, case law, etc.) of
Section 422 of the Code, shall not, during the period of any such absence, be
deemed, by virtue of such absence alone, to have terminated his employment or
relationship with the Company or with an Affiliate, except as the Board (or
the Committee if applicable) may otherwise expressly provide or determine.
4. Paragraph G(1) shall control and fix the rights of a Participant who
ceases to be an employee or Key Non-Employee of the Company or of an Affiliate
for any reason other than death, Disability, or termination for "cause," and
who subsequently becomes Disabled or dies. Nothing in paragraphs H and I of
this Article V shall be applicable in any such case except that, in the event
of such a subsequent Disability or death within the three (3) month period
after the termination of employment or, if earlier, within the originally
prescribed term of the Option, the Participant or the Participant's estate or
personal representative may exercise the Option permitted by this paragraph G
within six (6) months after the date of Disability or death of such Participant
but in no event beyond ten (10) years after the date of the grant of an
Incentive Option.
H. TOTAL AND PERMANENT DISABILITY
A Participant who ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate by reason of Disability may exercise any Option
granted to such Participant (i) to the extent that the right to purchase Shares
thereunder has become exercisable on the date such Participant becomes Disabled
as determined by the Board (or the Committee if applicable), and (ii) if the
Option becomes exercisable periodically under paragraph (D), to the extent of
any additional rights that would have become exercisable had the Participant
not become so Disabled until after the close of business on the next periodic
exercise date.
A Disabled Participant shall exercise such rights, if at all, only within
a period of not more than six (6) months after the date that the Participant
became Disabled as determined by the Board (or the Committee if applicable)
(notwithstanding that the Participant might have been able to exercise the
Option as to some or all of the Shares on a later date if the Participant had
not become
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Disabled) or, if earlier, within the originally prescribed term of the Option.
I. DEATH
In the event that a Participant to whom an Option has been granted
ceases to be an employee or Key Non-Employee of the Company or of an
Affiliate by reason of such Participant's death, such Option, to the extent
that the right is exercisable but not exercised on the date of death, may be
exercised by the Participant's estate or personal representative within six
(6) months after the date of death of such Participant or, if earlier, within
the originally prescribed term of the Option, notwithstanding that the
decedent might have been able to exercise the Option as to some or all of the
Shares on a later date if the Participant were alive and had continued to be
an employee or Key Non-Employee of the Company or of an Affiliate.
J. EXERCISE OF OPTION AND ISSUE OF STOCK
Options shall be exercised by giving written notice to the Company. Such
written notice shall: (1) be signed by the person exercising the Option, (2)
state the number of Shares with respect to which the Option is being exercised,
(3) contain the warranty required by Paragraph N of this Article V, and (4)
specify a date (other than a Saturday, Sunday or legal holiday) not less than
five (5) nor more than ten (10) days after the date of such written notice, as
the date on which the Shares will be purchased. Such tender and conveyance
shall take place at the principal office of the Company during ordinary
business hours, or at such other hour and place agreed upon by the Company and
the person or persons exercising the Option. On the date specified in such
written notice (which date may be extended by the Company in order to comply
with any law or regulation which requires the Company to take any action
with respect to the Option Shares prior to the issuance thereof, whether
pursuant to the provisions of Article VI or otherwise), the Company shall
accept payment for the Option Shares and shall deliver to the person or persons
exercising the Option in exchange therefor an appropriate certificate or
certificates for fully paid non-assessable Shares. In the event of any failure
to take up and pay for the number of Shares specified in such written notice on
the date set forth therein (or on the extended date as above provided), the
exercise of the Option shall terminate with respect to such number of Shares,
but shall continue with respect to the remaining Shares covered by the Option
and not yet acquired pursuant thereto.
K. RIGHTS AS A STOCKHOLDER
No Participant to whom an Option has been granted shall have rights as a
stockholder with respect to any Shares covered by such Option except as to
such Shares as have been issued to or regis-
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tered in the Company's share register in the name of such Participant upon the
due exercise of the Option and tender of the full Option price.
L. ASSIGNABILITY AND TRANSFERABILITY OF OPTION
By its terms, an Option granted to a Participant shall not be
transferable by the Participant and shall be exercisable, during the
Participant's lifetime, only by such Participant. Such Option shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment, or similar
process. Any attempted transfer, assignment, pledge hypothecation or other
disposition of any Option or of any rights granted thereunder contrary to the
provisions of this Paragraph L, or the levy of any attachment or similar
process upon an Option or such rights, shall be null and void.
M. OTHER PROVISIONS
The Option Agreement for an Incentive Option shall contain such
limitations and restrictions upon the exercise of the Option as shall be
necessary in order that such Option can be an "incentive stock option" within
the meaning of Section 422 of the Code. Further, the Option Agreements
authorized under the Plan shall be subject to such other terms and conditions
including, without limitation, restrictions upon the exercise of the Option,
as the Board (or the Committee, if applicable) shall deem advisable and which,
in the case of Incentive Options, are not inconsistent with the requirements
of Section 422 of the Code.
N. PURCHASE FOR INVESTMENT
Unless the Shares to be issued upon the particular exercise of an Option
shall have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled. The persons who exercise such Option shall
warrant to the Company that, at the time of such exercise, such persons are
acquiring their Option Shares for investment and not with a view to, or for
sale in connection with, the distribution of any such Shares. In such event,
the persons acquiring such Shares shall be bound by the provisions of the
following legend (or similar legend) which shall be endorsed upon the
certificate(s) evidencing their Option Shares issued pursuant to such
exercise.
"The shares represented by this certificate have been acquired for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, in the absence of an effective registration
statement for the shares under the Securities Act of 1933 or an opinion
9
<PAGE> 10
of counsel satisfactory to the Company that an exemption from
registration is then available."
"The shares represented by this certificate are subject to all of
the terms, conditions, limitations, and restrictions as set forth in
the Success Bancshares, Inc. 1995 Stock Option Plan (the "Plan"), and a
copy of which is on file with the Company. All terms, conditions,
limitations, and restrictions of the Plan are fully binding upon the
holder of this certificate, his or her successors, estate, heirs,
assigns, personal representative, administrator, executor or guardian, as
the case may be, for all purposes until such time as all terms,
conditions, limitations, and restrictions of the Plan are removed, waived
or otherwise vacated in a manner expressly authorized thereunder."
"The shares represented by this certificate are subject to all of
the terms, conditions, limitations, and restrictions set forth in the
Option Agreement pursuant to which the shares have been acquired. All
terms, conditions, limitations, and restrictions of the Option Agreement
are fully binding upon the holder of this certificate, his or her
successors, estate, heirs, assigns, personal representative,
administrator, executor or guardian as the case may be, for all purposes
until such time as all terms conditions, limitations, and restrictions of
the Option Agreement are removed, waived, or otherwise vacated in a
manner expressly authorized thereunder."
Without limiting the generality of the foregoing, the Company may delay
issuance of the Shares until completion of any action or obtaining any consent
that the Company deems necessary under any applicable law (including without
limitation state securities or "blue sky" laws).
VI. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the outstanding Shares of the Company are changed into
or exchanged for a different number or kind of shares or other securities of
the Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, change in par value, stock
split-up, combination of shares or dividend payable in capital stock, or the
like, appropriate adjustments to prevent dilution or enlargement of the rights
granted to, or available for, Participants shall be made in the manner and
kind of shares for the purchase of which Options may be granted under the
Plan, and, in addition, appropriate adjustment shall be made in the number and
kind of Shares and in the Option price per share subject to outstanding
Options. No such adjustment shall be made which shall, within the meaning of
Section
10
<PAGE> 11
424 of the Code, constitute such a modification, extension, or renewal of an
Option as to cause it to be considered as the grant of a new Option.
VII. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company other than in
connection with a transaction to which the preceding Article VI is applicable,
all Options granted hereunder shall terminate and become null and void;
provided, however, that if the rights of a Participant have not otherwise
terminated and expired, the Participant shall have the right immediately prior
to such dissolution or liquidation to exercise any Option granted hereunder to
the extent that the right to purchase shares thereunder has become exercisable
as of the date immediately prior to such dissolution or liquidation.
VIII. TERMINATION OF THE PLAN
The Plan shall terminate (10) years from the earlier of the date of its
adoption or the date of its approval by the stockholders. The Plan may be
terminated at an earlier date by vote of the stockholders or the Board;
provided, however, that any such earlier termination shall not affect any
Options granted or Option Agreements executed prior to the effective date of
such termination. Notwithstanding anything in this Plan to the contrary, any
Options granted prior to the effective date of the Plan's termination may be
exercised until the earlier of (i) the date set forth in the Option Agreement,
or (ii) ten (10) years from the date the Option is granted.
IX. AMENDMENT OF THE PLAN
The Plan may be amended by the Board and such amendment shall become
effective upon adoption by the Board; provided, however, that any amendment
that increases the numbers of Shares for which Options may be granted, other
than as provided by Article VI, or changes the designation of the class of
employees eligible to receive Incentive Options, or otherwise causes the
Incentive Options to no longer qualify as "incentive stock options" as defined
in Section 422 of the Code, shall nevertheless be subject within one (1) year
either before or after such adoption by the Board to the approval of the
stockholders of the Company.
X. EMPLOYMENT RELATIONSHIP
Nothing herein contained shall be deemed to prevent the Company or an
Affiliate from terminating the employment of a Participant, nor to prevent a
Participant from terminating the Participant's employment with the Company or
an Affiliate.
11
<PAGE> 12
XI. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee (or the
directors if there is no Committee) shall be indemnified by the Company
against all reasonable expenses, including attorneys' fees, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken by them as directors or
members of the Committee and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that the director or
Committee member is liable for gross negligence or willful misconduct in the
performance of his or her duties. To receive such indemnification, a director
or Committee member must first offer in writing to the Company the
opportunity, at its own expense, to defend any such action, suit or
proceeding.
XII. EFFECTIVE DATE
This Plan shall become effective upon adoption by the Board, provided
that within one (1) year before or after such adoption by the Board the Plan
is approved by the stockholders of the Company.
XIII. GOVERNING LAW
This Plan shall be governed by the laws of the State of Delaware and
construed in accordance therewith.
12
<PAGE> 13
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
/s/ Frank L. Baasch
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 14
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
/s/ Aben Caplan
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 15
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
/s/ Charles G. Freund
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 16
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
R E C I T A L S
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
/s/ Saul D. Binder
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
/s/ Milton Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
/s/ George M. Ohlhausen
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 17
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
R E C I T A L S
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
/s/ Glen R. Wherfel
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 18
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
/s/ Norman Fishman
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 19
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
/s/ Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 20
UNANIMOUS WRIT CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
RECITALS
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
/s/ Keevan D. Morgan
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 21
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS OF
SUCCESS BANCSHARES, INC.
The undersigned being all of the directors of SUCCESS BANCSHARES, INC., a
Delaware corporation ("Corporation"), acting pursuant to the Delaware General
Corporation Law, do hereby consent to, approve and adopt the following
resolutions:
R E C I T A L S
WHEREAS, the Corporation wishes to attract and retain the best available
talent and encourage the highest level of performance by employees in order to
serve the best interest of the Corporation and its shareowners; and
WHEREAS, to help attain this objective the Corporation has determined
that it is in its best interest to adopt the SUCCESS BANCSHARES, INC. 1995
STOCK OPTION PLAN ("1995 Stock Option Plan").
NOW, THEREFORE, IT IS HEREBY RESOLVED, that the 1995 Stock Option Plan is
adopted as set forth in the form attached hereto, and that the proper officers
of the Corporation be and are hereby authorized, empowered and directed to
take whatever steps are necessary to implement the 1995 Stock Option Plan.
FURTHER RESOLVED, that this Consent may be executed in several
counterparts and all so executed shall constitute one binding consent,
notwithstanding that all of the parties are not a signatory to the original or
the same counterparts.
DATED: October 31, 1995
---------------------------
- --------------------------------- ---------------------------------
Frank L. Baasch Saul D. Binder
- --------------------------------- ---------------------------------
Aben Caplan Norman Fishman
- --------------------------------- ---------------------------------
Charles G. Freund Elise Greenbaum Levinson
- --------------------------------- ---------------------------------
Milton Levinson Keevan D. Morgan
/s/ Norman D. Rich
- --------------------------------- ---------------------------------
George M. Ohlhausen Norman Rich
- ---------------------------------
Glen R. Wherfel
BEING ALL OF THE DIRECTORS OF THE CORPORATION
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on the
last date written below, by and between Success National Bank, a national
banking association ("Bank") and Saul D. Binder ("Binder").
Bank and Binder desire to enter into an employment agreement governed by
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the provisions and undertakings set
forth herein, the parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT.
1.1 Employment. Bank hereby retains and employs, and Binder accepts such
retention and employment, to provide services hereunder as President
and Chief Executive Officer of the Bank. Binder shall be accountable
to Bank through its Board of Directors.
1.2 Duties and Obligations. As President and Chief Executive Officer,
Binder shall perform all executive and managerial duties incumbent
upon such position. Binder will devote his full time and attention
and give his best efforts to the performance of such executive and
managerial duties. It is intended that Binder may have other business
investments or directorships and engage in civic, charitable and
other such activities so long as such activities do not interfere
with his duties hereunder.
1.3 Proprietary Property. Binder acknowledges that in the course of his
employment with Bank, Bank will provide Binder with, or access to,
customer lists, memoranda, files, records, trade secrets and such
other proprietary information and property (collectively, the
"Proprietary Property") as is necessary or desirable to assist Binder
in his duties. Binder acknowledges that the Proprietary Property is
the sole and exclusive property of Bank and is not available to the
public at large. Binder agrees that he shall not, while in the employ
of Bank or thereafter, communicate or divulge to, or use for the
benefit of himself or any other person, firm or corporation, without
the prior written consent of Bank, any information relating to the
Proprietary Property. Upon termination of Binder's employment with
Bank, Binder shall thereupon return all Proprietary Property in his
possession or control to Bank.
<PAGE> 2
2. FINANCIAL ARRANGEMENTS.
2.1 Compensation. As Binder's compensation for services provided
hereunder, Bank shall do the following:
(a) Salary. Bank shall pay Binder, pursuant to Bank's payroll
schedule, an annual salary in the amount of $175,000.00 for the
calendar year 1997.
(b) Bonus. The Bank, based upon the sole determination of the Bank's
board of directors, may grant a bonus to Binder in any year in
which it determines that the Bank's performance justifies such a
bonus.
(c) Expenses. Binder shall be reimbursed on a monthly basis for all
reasonable business expenses incurred by him in the performance
of his duties hereunder, to the extent such expenses are
substantiated and are consistent with the general policies of
Bank relative to expense reimbursement.
(d) Automobile Allowance. Binder shall be given full use of a Bank
automobile. Such automobile shall be comparable to that provided
to Binder in the past. In addition, the Bank shall reimburse
Binder fully for the cost of gasoline, maintenance and insurance
on the automobile.
(e) Benefits. In addition to any compensation provided under this
Agreement, Binder shall be entitled to participate in and receive
benefits under any and all pension, profit sharing and other
employee benefit plans, insurance programs and other benefit
programs which are, from time to time, maintained by Bank for its
senior executive officers, in accordance with the provisions of
such plans or programs as from time to time in effect.
(f) Vacations. Binder shall be entitled to paid vacation days in
accordance with the Bank's Associate Handbook, as such may be
amended from time to time. Days on which Binder is not present at
the Bank, but on which he is conducting Bank business, shall not
be considered vacation days. In particular, the Bank understands
and acknowledges that Binder maintains a residence and office in
Hawaii, and that he conducts Bank business from that location.
Accordingly, days on which Binder is at such location shall not
be considered vacation days, provided, however, that days at such
location which are not considered vacation days should not exceed
thirty (30) business days in any calendar year.
2
<PAGE> 3
3. TERM AND TERMINATION.
3.1 Term. This Agreement shall be effective from the date hereof until
Binder reaches the age of 65. Notwithstanding the foregoing, Binder
shall have the option to terminate this Agreement upon giving not
less than 120 days advance written notice to the Bank.
3.2 Termination. This Agreement may be terminated on the first to occur of
any of the following events:
(a) Agreement. Written agreement by both parties to terminate this
Agreement.
(b) Negligence; Misconduct. (i) substantial neglect of his duties
hereunder by Binder, (ii) gross misconduct, (iii) any intentional
act by Binder constituting fraud, misappropriation, embezzlement,
dishonesty or similar act which is injurious to Bank. Prior to
termination of this Agreement under Section 3.2(b)(i) and
3.2(b)(ii) only, Bank shall be required to provide written notice
to Binder of the act or omission complained of, giving reasonably
specific details in describing necessary corrective action, and
Binder shall be given a period of sixty (60) days in which to
cure or correct such act or omission. If such act or omission is
cured or corrected, the right of Bank to terminate this Agreement
under Sections 3.2(b)(i) and 3.2(b)(ii) shall be extinguished.
(c) Breach. Excluding actions or events which may cause termination of
this Agreement as provided in Section 3.2(b), in the event of the
breach of any of the terms and conditions of this Agreement by
either party and the failure of the breaching party to correct
such breach within ten (10) business days after receipt of
written notice of such breach by the breaching party, such other
party may terminate this Agreement immediately upon written
notice of such termination to the breaching party.
(d) Death or Disability. In the event Binder dies or becomes
disabled, to the extent that he is physically or materially
incapacitated for more than six (6) months in the aggregate so
that Binder is unable to perform his essential duties and
functions hereunder, this Agreement may be terminated by Bank
upon written notice to Binder.
(e) Force Majeure. If either party is prevented from performing its
obligations under this Agreement as a result of labor disputes,
fire, war, flood or any other such reason beyond the party's
reasonable control, each
3
<PAGE> 4
party's rights and obligations hereunder shall cease until
written notice of such cessation by either party.
3.3 Effects of Termination. In the event of termination of this Agreement
pursuant to Section 3.2(b) hereof, Bank shall have no continuing
obligation to Binder hereunder. In the event of termination as a
result of Sections 3.2(a), (c), (d) or (e) hereof, Bank shall
continue to pay Binder salary, bonus, if any is due, and benefits for
the duration of the term, subject to Section 3.4.
3.4 Severance. If there are less than eighteen months remaining in the
term after a termination resulting from Sections 3.2(a), (c), (d) or
(e), Bank shall continue to pay Binder his salary, bonus, if any is
due, and benefits for a period of eighteen (18) months after such
termination.
4. CHANGE OF CONTROL, SALE.
4.l Upon the sale, transfer or disposition of the shares of stock or
assets of Bank or its holding company, Success Bancshares, Inc.
("Bancshares"), which would be defined as a "change of control" under
the Change in Bank Control Act (12 USC 1817j), Bank shall pay Binder
the sum of $299,000 in one lump sum payment or, if such payment is
not permissible as a matter of law, then such other maximum payment,
not to exceed $299,000, as is lawful; provided, however, that such
payment shall only be made if (a) Binder is an employee of the Bank
immediately prior to such sale, transfer or disposition; and (b)
within eighteen (18) months following such sale, transfer or
disposition (i) Binder is terminated as an employee of the Bank for
any reason other than one described in Sections 3.2(b)(i), (ii) and
(iii) hereof or (ii) Binder's level of responsibility at the Bank is
substantially reduced.
5. PAYMENT BY HOLDING COMPANY.
5.1 In view of Binder's contribution to Bancshares, any compensation or
benefit provided for herein to Binder may, upon the approval of both
the boards of directors of Bank and Bancshares, be paid by Bancshares.
6. Miscellaneous.
6.1 Assignment. This Agreement and all rights and benefits hereunder are
personal to Binder and to Bank. Accordingly, no rights, interests or
benefits hereunder shall be sold, transferred or assigned without the
prior written consent of the other party.
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<PAGE> 5
6.2 Employment Status of Binder. It is expressly acknowledged that
Binder, in the performance of his services hereunder, is an employee
of Bank. Accordingly, Bank shall deduct from the compensation paid to
Binder any sums for income tax, social security or any other
withholding taxes as are required by law.
6.3 Changes or Modifications. No change or modification of this Agreement
shall be valid unless the same shall be in writing signed by Bank and
Binder. No waiver of any provision hereof shall be valid unless in
writing and signed by the party against whom charged.
6.4 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to the matters set forth herein.
This Agreement supersedes any and all other agreements between the
parties with respect to the subject matter.
6.5 Notices. Notice required herein shall be effective when delivered in
person or sent by United States Certified Mail, postage prepaid and
addressed to:
Bank: Board of Directors
Success National Bank
One Marriott Drive
Lincolnshire, Illinois 60069-3703
Binder: Saul D. Binder
Success National Bank
One Marriott Drive
Lincolnshire, Illinois 60069-3703.
6.6 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the internal laws of Illinois.
6.7 Separability. The inability or unenforceability of any particular
provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted.
6.8 Waiver of Breach. The waiver by either party of a breach or violation
of any provision hereof shall not operate as a waiver of any
subsequent breach of the same or any other provision hereof.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the last date written below.
Bank: Binder:
SUCCESS NATIONAL BANK SAUL D. BINDER
By: /s/ Saul D. Binder
----------------------- -----------------------
Dated: 2/1/97 Dated: 1/25/97
----------------------- -----------------
6
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT, made this 21st day of August, 1995, between Steven Covert
("Executive") and Success National Bank, a national banking association
organized under the laws of the United States of America (the "Bank").
W I T N E S S E T H
WHEREAS, the Bank wishes to assure itself of continuity of management in
the event of any actual or threatened change in the control of the Bank; and
WHEREAS, the Bank believes it is important that Executive be able to
assess and advise the Bank whether supporting a change in control would be in
the best interests of the Bank and its shareholders without being influenced
by the uncertain effect of such a change upon Executive's role with the Bank;
and
WHEREAS, Executive has been employed by the Bank as its Executive Vice
President and Chief Financial Officer;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1. Qualifying Terminations.
In the event
a. Executive's employment is terminated during the period of five (5)
years from the date hereof, either
(1) by the Bank without Cause, or
(2) by Executive for Good Reason,
(each as hereinafter defined), and
b. the conditions of Section 2 hereof have then been satisfied; and
c. in the event
(1) there has been a Change of Control, occurring within six (6)
months of such termination, the Bank shall pay Executive Severance Pay as
provided in Section 4(a) hereof; or
(2) there has not been a Change of Control, but the person who on
this date is the Bank's Chief Executive Officer no longer serves the Bank in
that position, as its Chairman of the Board or as Chairman of the Executive
Committee, the Bank shall pay Executive Severance Pay as provided in Section
4(b) hereof.
<PAGE> 2
2. Other Conditions.
As an additional condition to the payment of any Severance Pay,
Executive's employment must not have been terminated by Executive voluntarily
(except with Good Reason) or by the Bank for Cause prior the effective date of
a qualifying termination set forth in Section 1 hereof. For the purposes of
this Agreement,
a. "Cause" shall mean any act of Executive or failure to act which
constitutes:
(1) gross negligence having a material adverse effect upon the
financial condition or results of operations of the Bank in connection with the
performance by Executive of his duties and responsibilities;
(2) fraud, embezzlement or breach of trust;
(3) conviction of a felony; or
(4) the failure or refusal to perform all or any of Executive's
material duties and responsibilities for the Bank,
b. "Good Reasons" shall mean:
(1) the assignment to Executive of any material duties, authority
or responsibilities inconsistent with Executive's position of Executive Vice
President and Chief Financial Officer (including status, offices, titles and
reporting requirements), or any other action by the Bank which results in a
diminishment in such position, authority, duties or responsibilities, provided
that Executive shall have first given written notice to the Chief Executive
Officer of the Bank of any such action by the Bank, and such action shall not
have been rescinded or otherwise cancelled within fifteen (15) days thereof;
(2) any reduction of Executive's base annual salary or the Bank's
provision of an automobile; or
(3) Executive being required to report to a location, as his
principal place of work, other than in Lake County, Illinois or Cook County,
Illinois.
3. Extension or Renewal.
The parties may subsequently agree to extend the duration of this
Agreement beyond the five (5) year period set forth in Section 1 hereof. In the
event (a) no mutually agreeable extension or renewal agreement has been made by
the date which is four (4) years from the date hereof, (b) Executive's
employment is terminated during the fifth year of such five (5) year period, by
2
<PAGE> 3
Executive or the Bank, without Cause; and (c) a Change of Control occurs
within six (6) months of the termination of Executive's employment, Severance
Pay shall be payable to Executive as set forth in Section 4(a) hereof.
4. Severance Pay.
a. Upon Change of Control. The amount payable by the Bank to
Executive in the event of a qualifying termination as provided in Section
l(c)(1) herein, subject to the limitations of Section 5, shall be a lump sum
equal to 300% of Executive's highest annual base salary in effect at any time
prior to termination of his employment.
b. Without a Chance of Control. The amount payable by the Bank to
Executive in the event of a qualifying termination as provided in Section
l(c)(2) herein, subject to the limitations of Section 5, shall be a lump sum
equal to 200% of Executive's highest annual base salary in effect at any time
prior to termination of his employment.
5. Limitation of Amount.
Notwithstanding any other provision of this Agreement, the payments or
benefits to which Executive will be entitled under this Agreement will be
reduced to the extent necessary so that Executive will not be liable for the
federal excise tax levied on certain "excess parachute payments" under section
4999 of the Internal Revenue Code.
6. Change of Control.
A "Change of Control" shall mean the occurrence of any one of the
following events:
a. any person or entity, including any person as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended ("Exchange Act")
(other than an existing shareholder or any subsidiary or affiliate thereof so
long as such subsidiary or affiliate remains a subsidiary or affiliate, as the
case may be, of such existing shareholder), becoming the beneficial owners, as
defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of fifty
percent (50%) or more of the total combined voting power of all classes of
capital stock of the Bank ordinarily entitled to vote for the election of
directors of the Bank; or
b. the Board of Directors of the Bank or its shareholders approving (in
one transaction or a series of transactions) the sale of all or substantially
all of the property or assets of the Bank; or
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<PAGE> 4
c. the Board of Directors of the Bank or its shareholders approving a
consolidation or merger of the Bank with another corporation, the consummation
of which would result in the occurrence of an event described in clause a.
above; or
d. during any period of twenty-four consecutive months, individuals who
at the beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or nomination
for election by the Bank's stockholders was approved by a vote of at least
two-thirds of the directors then in office) cease for any reason to constitute
at least a majority of the Board of Directors.
7. General Provisions.
a. The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Bank and its successors.
b. The validity, interpretation and effect of this Agreement shall be
governed by the laws of Illinois.
c. No right or interest to or in any payments shall be assignable by
Executive.
d. Beginning on the date of a Change of Control, this Agreement shall
govern Executive's employment and compensation by the Bank and the other
matters referred to herein, and any other employment or severance agreement,
arrangement or policy otherwise applicable to the Executive shall be
superseded by this Agreement.
e. Both parties acknowledge that this Agreement is not intended to
create a promise or contract of employment for any specified period of time,
and the employment relationship between the parties may be terminated by either
party, with or without notice and with or without cause.
f. No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
g. In the event a Change of Control occurs within six months after
Executive's employment has terminated, the Bank shall give Executive written
notice of such Change of Control within 30 days thereof.
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<PAGE> 5
IN WITNESS WHEREOF, Success National Bank and Executive have each caused
this Agreement to be duly executed and delivered as of the date set forth
above.
SUCCESS NATIONAL BANK
By: /s/ Saul D. Binder
--------------------------
--------------------------
Executive
5
<PAGE> 1
EXHIBIT 10.5
LEASE
-----
BY AND BETWEEN
--------------
LINCOLNWOOD ASSOCIATES,
an Illinois General Partnership
AND
[CONFIDENTIAL]
FIRST NATIONAL BANK OF LINCOLNSHIRE
a Corporation of the
United States of America
<PAGE> 2
LINCOLNWOOD TOWN CENTER
LEASE
THIS LEASE made this 9th day of October, 1991, by and between LINCOLNWOOD
ASSOCIATES, an Illinois general partnership, ("Landlord"), and [CONFIDENTIAL];
FIRST NATIONAL BANK OF LINCOLNSHIRE, a Corporation of the United States of
America, ("Tenant").
WITNESSETH THAT, in consideration of the rents, covenants and agreements
hereinafter set forth, such parties enter into the following agreement:
ARTICLE I
EXHIBITS
The exhibits listed below and attached to this lease are incorporated
herein by this reference:
EXHIBIT "A" Legal descripion of real estate to be developed for a
shopping center (hereinafter called "Total Tract")
EXHIBIT "B" Plot Plan of Total Tract, showing existing and proposed
improvements and depicting Landlord's Tract (hereinafter
defined), if different from the Center (Total Tract with
existing and future improvements being hereinafter
alternatively called either "Landlord's Tract" or the
"Center"). Landlord reserves unto itself the unlimited
right to modify the configuration of Landlord's Tract at
any time for the purpose of incorporating additional
department stores and other buildings within the Center.
This Exhibit is provided for informational purposes only,
and shall not be deemed to be a warranty, representation
or agreement by Landlord that the Center or buildings
and/or any stores will be as indicated on the Exhibit, or
that the other tenants which may be drawn on said Exhibit
will be occupants in the Center.
EXHIBIT "C" Lease Plan of the enclosed mall portion of the Center.
This Exhibit is provided for informational purposes only,
and shall not be deemed to be a warranty, representation
or agreement by Landlord that the Center or buildings
and/or any stores will be as indicated on the Exhibit, or
that the other tenants which may be drawn on said Exhibit
will be occupants in the Center.
EXHIBIT "D" Description of Landlord's Work and Tenant's Work.
EXHIBIT "D-2" Tenant's Plans.
EXHIBIT "E" Rules and Regulations applicable to Tenant.
EXHIBIT "F" Sign Criteria applicable to Tenant.
EXHIBIT "G" Tenant Chargebacks.
Notwithstanding Exhibits A, B or C or anything else in this Lease
contained, Lanlord reserves the right to change or modify and add to or
subtract from the size and dimensions of the Center or any part thereof, the
number, location and dimensions of buildings and stores, the size and
configuration of the parking areas, entrances, exits and parking aisle
alignments, dimensions of hallways, malls and corridors, the number of floors
in any building, the location, size and number of tenant spaces and kiosks
which may be erected in or fronting on any mall or otherwise, the identity,
type and location of other stores and tenants, and the size, shape, location and
arrangement of Common Areas (hereinafter defined), and to design and decorate
any portion of the Center as it desires, but the general character of the
Center and the [CONFIDENTIAL] location of the Premises in relation to the major
department stores shall not be substantially changed, NOR SHALL ANY CHANGES BE
MADE WHICH HAVE A MATERIALLY ADVERSE EFFECT UPON THE VIEW OF OR ACCESS TO THE
PREMISES.
ARTICLE II
LEASED PREMISES AND TERM
Section 2.1. Leased Premises.
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the
space in the Center designated as Room D-1b outlined in red on Exhibit "C"
(hereinafter called "the Premises"), irregularly shaped, but measured to the
center line of all party or common walls, to the exterior faces of all other
walls and to the building line where there is no wall, containing approximately
1,136 square feet (the actual number of square feet, when the Premises are
completed, being hereinafter called the "Store Floor Area"). Tenant agrees to
execute and deliver to Landlord a certificate stating the actual Store Floor
Area, when determined, and the parties agree that, in the event of a dispute as
to Store Floor Area, the decision of AN INDEPENDENT ARCHITECT MUTUALLY AGREED
UPON BY THE PARTIES [CONFIDENTIAL] shall be final, binding and conclusive.
- 1 -
<PAGE> 3
Section 2.2. Roof and Walls.
Landlord shall have the exclusive right to use all or any part of the
roof, side and rear walls of the Premises for any purpose, including but not
limited to erecting signs or other structures on or over all or any part of
the same, erecting scaffolds and other aids to the construction and
installation of the same, and installing, maintaining, using, repairing and
replacing pipes, ducts, conduits and wires leading through, to or from the
Premises and serving other parts of the Center in locations which do not
materially interfere with Tenant's use of the Premises. Tenant shall have no
right whatsoever in the exterior of exterior walls or the roof of the Premises
or any portion of the Center outside the Premises, except as provided in
Section 5.2 hereof.
Section 2.3. Lease Term.
The term of this Lease (hereinafter called "Lease Term") shall commence
upon the earlier of (a) the day following the last day allowed herein to
Tenant for completion of Tenant's Work (hereinafter defined) hereinafter
called "Required Completion Date," or (b) the day on which Tenant opens for
business, the applicable date being hereinafter called "Commencement Date."
The term of this Lease shall end on the last day of the tenth (10th) Lease
Year (hereinafter defined) after the Commencement Date unless sooner
terminated as herein provided.
NOTWITHSTANDING THE FOREGOING, THE COMMENCEMENT DATE SHALL NOT OCCUR AND
THE LEASE TERM SHALL NOT COMMENCE UNTIL TENANT HAS OBTAINED THE NECESSARY
CONSENT TO OPERATE ITS BUSINESS IN THE PREMISES FROM THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY PROVIDED TENANT CAN PROVE TO LANDLORD'S REASONABLE
SATISFACTION THAT IT IS DILIGENTLY PURSUING CONSENT FROM THE OFFICER OF THE
COMPTROLLER OF THE CURRENCY, PROVIDED, FURTHER, IF TENANT ELECTS TO OPEN THE
PREMISES FOR BUSINESS PRIOR TO OBTAINING SUCH CONSENT, THE LEASE TERM SHALL
COMMENCE AND THE COMMENCEMENT DATE SHALL OCCUR AS OF THE DATE TENANT OPENS FOR
BUSINESS THEREIN. IF TENANT, AFTER USING DUE DILIGENCE, IS UNABLE TO OBTAIN
THE CONSENT OF THE OFFICER OF THE COMPTROLLER OF THE CURRENCY IN ORDER TO
CONDUCT ITS BUSINESS IN THE PREMISES WITHIN FOUR (4) MONTHS OF THE DATE OF
THIS LEASE AND TENANT ELECTS NOT TO COMMENCE BUSINESS IN THE PREMISES DURING
SAID FOUR (4) MONTH PERIOD, THEN EITHER PARTY MAY THEREAFTER TERMINATE THIS
LEASE BY GIVING WRITTEN NOTICE TO THE OTHER PARTY AT ANY TIME PRIOR TO THE
ISSUANCE OF SUCH CONSENT AND THE PARTIES SHALL THEREAFTER HAVE NO FURTHER
OBLIGATIONS TO EACH OTHER HEREUNDER EFFECTIVE AS OF THE DATE OF SAID NOTICE.
Section 2.4. Lease Year Defined.
"Lease Year" as used herein, means a period of (12) twelve consecutive
months during the Lease Term commencing on February 1 of any calendar year,
the first Lease Year commencing on the first day of the first February
occurring on or after the Commencement Date. "Partial Lease Year" means that
portion of the Lease Term prior to the first Lease Year.
ARTICLE III
LANDLORD'S AND TENANT'S WORK
Section 3.1. Landlord's Work.
Landlord shall at its expense construct the Premises in substantial
accordance with plans and specifications prepared or to be prepared by
Landlord's architect, incorporating in such construction all work described
in Exhibit "D" hereto as being required of Landlord (hereinafter called
"Landlord's Work").
Section 3.2. Tenant's Work.
All work not provided herein to be done by Landlord shall be performed
by Tenant (hereinafter called "Tenant's Work") including but not limited to all
work designated as Tenant's Work in Exhibit "D," and Tenant shall do and
perform at its expense all Tenant's Work diligently and promptly and in
accordance with the following provisions.
Section 3.3. Tenant's Obligations Prior to Commencement Date.
As soon as reasonably possible hereafter, Landlord shall deliver to
Tenant a drawing of the Premises and a copy of the Tenant Criteria Handbook
prepared by Landlord's architect (hereinafter referred to as "Handbook").
Within forty-five (45) days after the date of this Lease, Tenant will submit
to Landlord one (1) reproducible set (sepia) and four (4) copies of plans and
specifications, prepared by a registered architect or engineer, of all
Tenant's Work to be done within the Premises (hereinafter called "Tenant's
Plans"), prepared in conformity with Exhibit "D" and the Handbook. Within
thirty (30) days after receipt of Tenant's Plans, Landlord shall notify Tenant
of any failure of Tenant's Plans to conform to Exhibit "D," the Handbook or
otherwise to meet with Landlord's approval. Tenant shall within fifteen (15)
days after receipt of any such notice cause Tenant's Plans to be revised to
the extent necessary to obtain Landlord's approval and resubmitted for
Landlord's approval. When Landlord has approved the original or revised
Tenant's Plans, Landlord shall initial and return one (1) set of approved
Tenant's Plans to Tenant and the same shall become a part hereof by this
reference as Exhibit "D-2." Approval of plans and specifications by Landlord
shall not constitute the assumption of any responsibility by Landlord for
their accuracy or sufficiency, and Tenant shall be solely responsible for such
plans and specifications. Tenant shall not commence any of Tenant's work until
Landlord has approved Exhibit "D-2", unless prior Landlord approval has been
obtained in writing.
Landlord shall notify Tenant not less than fifteen (15) days in advance
of the time when Tenant can commence Tenant's Work; and Tenant shall commence
such work not later than the date specified in such notice (although landlord
may not have completed Landlord's Work on such date and may be in the Premises
- 2 -
<PAGE> 4
concurrently with Tenant), complete the same in strict accordance with Exhibits
"D" and "D-2," install all store and trade fixtures, equipment, stock in trade,
merchandise and inventory, and open for business therein not later than the
earlier of (i) the (60th) day after the date specified in such notice as the
date when Tenant can commence Tenant's Work or ((b) October 1, 1991, which
applicable day shall be the Required Completion Date. Tenant hereby releases
Landlord and its contractors from any claim whatsoever for damages against
Landlord or its contractors for any delay in the date on which the Premises
shall be ready for delivery to Tenant, PROVIDED, HOWEVER, IF THE DELAY IS DUE
TO THE FAULT OR NEGLIGENCE OF LANDLORD, THEN THE REQUIRED COMPLETION DATE SHALL
BE EXTENDED BY THE NUMBER OF DAYS OF LANDLORD'S DELAY.
Section 3.4. Failure of Tenant to Perform.
Because of the difficulty or impossibility of determining Landlord's
damages resulting from Tenant's failure to open for business fully fixtured,
stocked and staffed on the Commencement Date, including, but not limited to,
damages from loss of [CONFIDENTIAL] Rent (hereinafter defined) from Tenant and
other tenants, diminished saleability, leaseability, mortgageability or
economic value of the Center or Landlord's Tract, if Tenant fails to commence
Tenant's Work within the time provided above and proceed with the same
diligently, or to open for business fully fixtured, stocked and staffed on or
before the Commencement Date or to perform any of its obligations to be
performed prior to the Required Completion Date, Landlord may, without notice
or demand, in addition to the right to exercise any other remedies and rights
herein or at law provided, proceed with Tenant's Work using any contractor
Landlord desires and making any changes or revisions to Landlord's Work
required because of any delay or failure of Tenant to perform its obligations
hereunder, which changes or revisions shall in any event be made at Tenant's
expense, and/or collect rent from the Commencement Date in an amount equal to
the Minimum Annual Rent (hereinafter defined) and other additional rent and
other amounts payable by Tenant hereunder [CONFIDENTIAL] In addition,
Landlord may UPON TEN (10) DAYS NOTICE: (a) do and perform any of the Tenant's
Work or other obligations of Tenant hereunder, at Tenant's expense, preparing
such drawings and doing such things as Landlord deems advisable, collecting all
of Landlord's expenses pursuant to this Section and (b) either in lieu of, or
at any time after proceeding as provided in sub-section (a) above, terminate
this Lease, in which event Landlord shall have the right to recover, as
liquidated damages and not as a penalty, a sum equal to the Minimum Annual
Rent payable for one (1) Lease Year, plus all expenses incurred by Landlord
pursuant to this Section, plus the cost of any alterations or repairs which
Landlord in its sole discretion deems advisable to relet the Premises. In the
event that Tenant fails to make timely submission of Tenant's Plans as provided
in this Lease, then Landlord shall have the right, in addition to its other
rights and remedies as herein provided, to collect from Tenant a sum which
shall be TWENTY-FIVE AND 00/100 DOLLARS ($25.00) per calendar day for each day
that Tenant's Plans are not so submitted. All remedies in this Lease or at law
provided shall be cumulative and not exclusive.
Section 3.5. Condition of Premises.
Tenant's taking possession of the Premises shall be conclusive evidence of
Tenant's acceptance thereof in good order and satisfactory condition
EXCEPT THAT TENANT SHALL HAVE ONE (1) YEAR TO INFORM LANDLORD OF ANY LATENT
DEFECTS. Tenant agrees that it is taking possession of the Premises "as is,"
that Landlord has made no representations as to conformance with applicable laws
respecting the condition of the Premises or the presence or absence of
Hazardous Materials (hereinafter defined) in, at, under, above or abutting the
Premises or the Center. Tenant also agrees that no representations respecting
the condition of the Premises, no warranties or guarantees, expressed or
implied, with respect to workmanship or any defects in material, and no promise
to decorate, alter, repair or improve the Premises either before or after the
execution hereof, have been made by Landlord or its agents to Tenant unless the
same are expressly contained herein.
TENANT SHALL HAVE THE RIGHT WITHIN SIXTY (60) DAYS OF THE DATE TENANT
TAKES POSSESSION OF THE PREMISES FOR COMMENCEMENT OF TENANT'S WORK TO SUBMIT TO
LANDLORD A PUNCH LIST OF INCOMPLETE OR DEFECTIVE CONSTRUCTION WITHIN ITS
PREMISES AND LANDLORD WILL PERFORM SUCH PUNCH LIST TO THE EXTENT THE LISTED
ITEMS WERE LANDLORD'S RESPONSIBILITY UNDER EXHIBIT "D" AND WERE NOT PERFORMED
BY LANDLORD IN ACCORDANCE THEREWITH. LANDLORD SHALL USE ITS BEST EFFORTS TO
COMPLETE SAID PUNCH LIST ITEMS WITHIN THIRTY (30) DAYS FOLLOWING RECEIPT OF
SAID LIST. IN THE EVENT LANDLORD IS UNABLE TO COMPLETE SAID ITEMS WITHIN THIRTY
(30) DAYS, THEN LANDLORD SHALL DILIGENTLY PURSUE SAID WORK TO COMPLETION.
ARTICLE IV
RENT
Section 4.1 Minimum [CONFIDENTIAL] Rent.
Tenant covenants and agrees to pay to Landlord, without notice or
demand, at Landlord's address for notice (Landlord's and Tenant's notice
addresses being the addresses specified in Section 24.7 hereof), as rent
for the Premises:
(i) A Minimum Annual Rent of Twenty Five Thousand and
00/100 Dollars ($25,000.00) per annum, payable in equal
monthly installments, in advance upon the first day of each
and every month commencing upon the Commencement Date and
continuing thereafter through and including the last month of
the third (3rd) Lease year of the Lease Term (such monthly
installment being hereinafter called "Minimum Monthly Rent");
and
- 3 -
<PAGE> 5
A Minimum Annual Rent of Twenty Eight Thousand and
00/100 Dollars ($28,000.00) per annum, payable in equal
monthly installments, in advance upon the first day of each
and every month commencing upon the fourth (4th) Lease Year of
the Lease Term and continuing thereafter through and including
the last month of the seventh (7th) Lease Year of the Lease
Term (such monthly installment being hereinafter called
"Minimum Monthly Rent"); and
A Minimum Annual Rent of Thirty One Thousand and 00/100
Dollars ($31,000.00) per annum, payable in equal monthly
installments, in advance upon the first day of each and every
month commencing upon the eighth (8th) Lease Year of the Lease
Term and continuing thereafter through and including the last
month of the tenth (10th) Lease Year of the Lease Term (such
monthly installment being hereinafter called "Minimum Monthly
Rent"); and
[CONFIDENTIAL]
Section 4.2. Miscellaneous Rent Provisions.
Any rent or other amounts to be paid by Tenant which are not paid WITHIN
FIVE (5) DAYS AFTER NOTICE [CONFIDENTIAL] shall bear interest as of the
first day of the month on which any sum is due and owing [CONFIDENTIAL] at a
rate equal to two percent (2%) over the prime rate announced by Citibank, N.A.
as of the first day of the month on which any sum is due and owing. If the
Commencement Date is other than the first day of a month, Tenant shall pay on
the Commencement Date a prorated partial Minimum Monthly Rent for the period
prior to the first day of the next calendar month, and thereafter Minimum
Monthly Rent Payments shall be made not later than the first day of each
calendar month. Landlord has designed the Center to contain two (2)
department stores. [CONFIDENTIAL]
Section 4.3. Percentage Rent. INTENTIONALLY DELETED
Section 4.4. Gross Sales Defined. INTENTIONALLY DELETED
Section 4.5. Real Estate Taxes.
A. Definition. As used in this Section 4.5 the term "Real Estate Taxes"
shall mean and include all real estate taxes, annual service charges in lieu
of taxes, public and governmental charges and assessments (including all
extraordinary or special assessments), and all sewer and other taxes and
charges that become a lien upon Landlord's Tract during any calendar year
that is wholly or partially within the Lease Term, plus all costs, expenses,
and fees (including but not limited to REASONABLE attorney's fees) incurred
by Landlord in contesting or negotiating with public authorities (Landlord
having the sole authority to conduct such a contest or enter into such
negotiations) as to any of the same, but shall not include taxes on Tenant's
machinery, equipment, inventory or other personal property or assets of
Tenant, Tenant agreeing to pay before delinquency all taxes upon or
attributable to such excluded items without apportionment. Landlord shall pay
or cause all such Real Estate Taxes to be paid. IN THE EVENT ANY SPECIAL
ASSESSMENT IS PAYABLE IN INSTALLMENTS, ONLY THE INSTALLMENTS DUE DURING ANY
YEAR SHALL BE INCLUDED IN REAL ESTATE TAXES FOR THAT YEAR. LANDLORD SHALL
NOT DUPLICATE COLLECTION OF REAL ESTATE TAXES COLLECTED UNDER THIS SECTION
4.5 ELSEWHERE IN THIS LEASE.
B. Tenant's Share. Tenant shall pay to Landlord, as additional rent,
its proportionate share of all Real Estate Taxes, such proportionate share to
be prorated for periods at the beginning and end of the Lease Term which do not
constitute full calendar months or years. Tenant's proportionate share of any
such Real Estate Taxes shall be that portion which bears the same ratio to the
total Real Estate Taxes as the Store Floor Area bears to the rentable floor
area on Landlord's Tract (hereinafter called "Rentable Floor Area") that is
rented or occupied by tenants as of the Commencement Date or the first day of
the calendar year in which such Real Estate Taxes constitute a lien upon
Landlord's Tract. Rentable Floor Area occupied by Department Stores, and
tenants in free standing premises who are obligated to pay real estate taxes
specifically upon specific improvements or a specific parcel of land, and the
real estate taxes paid by them, shall not be included in computing Tenant's
obligations under this Section 4.5. Upon written request by Tenant, Landlord
shall no more than once a year provide Tenant with a copy of its tax bill
together with calculations showing the computation of Tenant's proportionate
share.
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C. Payment by Tenant. Tenant's proportionate share of Real Estate Taxes
shall be paid in monthly installments commencing with the Commencement Date,
in amounts estimated from time to time by Landlord, one such installment being
due on the first day of each full or partial month during the Lease Term. Upon
notice from Landlord, such monthly installments shall increase or decrease
from time to time to reflect the then current estimate of the amount of any
Real Estate Taxes due. When the actual amount of any such Real Estate Taxes is
determined by Landlord, Landlord will notify Tenant of such actual amount and
of any excess or deficiency in the amount theretofore paid by Tenant as its
share of such Real Estate Taxes. Any such excess will be credited to Tenant's
account. Tenant will pay the amount of any deficiency to Landlord within
thirty (30) days following Landlord's notice thereof.
D. Sales Tax. Tenant shall (i) not later than the THIRTIETH (30TH) day after
the close of each calendar month, deliver to Landlord a written statement
certified under oath by Tenant or an officer of Tenant, showing the amount of
State of Illinois sales tax that Tenant will be or has been obligated to pay
for such calendar month; (ii) not later than thirty (30) days after the end of
each Lease Year or Partial Lease Year, deliver to Landlord a statement showing
the amount of State of Illinois sales tax that Tenant will be or has been
obligated to pay for such Lease Year or Partial Lease Year the correctness of
which is certified to by an independent certified public accountant; and (iii)
upon request by either Landlord or the Village of Lincolnwood, Illinois
(hereinafter referred to as the "Village"), disclose and document to the
Village the amount that Tenant pays in annual State of Illinois sales tax
revenue and provide whatever consents may be required as the State of Illinois
for disclosure of such sales tax information to the Village. If Tenant fails
to prepare and deliver any statement reflecting the amount of State of
Illinois sales tax that Tenant will be or has been obligated to pay required
hereunder within the time or times specified above, Landlord may elect to
treat Tenant's failure as a breach of this Lease, entitling Landlord to pursue
the rights and remedies set forth in Article XVIII herein or, in the
alternative, Landlord may elect to conduct an audit of all original books and
records of Tenant as required to be preserved by Tenant under this Section
4.5(D), and prepare the statement or statements which Tenant has failed to
prepare and deliver. The statement or statements shall be prepared by Landlord
or its agents and/or contractors, and shall be conclusive and binding on
Tenant. Tenant shall pay all expenses of such audit and of the preparation of
any such statements.
Tenant will preserve at least three (3) years at Tenant's notice address
all original books and records disclosing the amount of State of Illinois
sales tax that Tenant is or was obligated to pay as the result of Gross Sales
and such other information respecting said sales tax as Landlord requires,
including, but not limited to, cash register tapes, sales slips, sales checks,
gross income and sales tax returns, bank deposit records, sales journals,
Illinois Department of Revenue Form ST-1, Sales and Use Tax Return, Illinois
Department of Revenue Form ST-2 (if required by the Illinois Department of
Revenue) or other comparable tax return and other supporting data. Landlord
and its agents and/or its contractors shall have the right during business
hours to examine and audit such books and records preserved by Tenant. If such
examination or audit discloses an under reporting of State of Illinois sales
taxes three percent (3%) or more than the amount reported by Tenant for any
period or if said sales tax cannot be verified due to the insufficiency or
inadequacy of Tenant's records, Tenant shall promptly pay Landlord the
REASONABLE cost of said audit.
E. Other Taxes. Tenant's proportionate share of any governmental tax or
charge (other than income tax) levied, assessed, or imposed on account of the
payment by Tenant or receipt by Landlord, or based in whole or in part upon,
the rents in this Lease reserved or upon the Center or Landlord's Tract or the
value thereof shall be paid by Tenant.
F. Larger Parcel. If the land under the Center is a part of a larger
parcel of land for assessment purposes (the "Larger Parcel"), the taxes and
assessments allocable to the land in the Center for the purpose of determining
Real Estate Taxes under this Section 4.5(F) shall be deemed a fractional
portion of the taxes and assessments levied against the Larger Parcel, the
numerator of which is the acreage in the Center and the denominator of which
is the acreage in the Larger Parcel. SUCH ASSESSMENT SHALL BE APPLIED TO
TENANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 4.5 ABOVE.
Section 4.6. Additional Rent.
All amounts required or provided to be paid by Tenant under this Lease
other than Minimum Annual/Monthly Rent [CONFIDENTIAL] shall be deemed
additional rent and Minimum Annual/Monthly Rent, [CONFIDENTIAL] and additional
rent shall in all events be deemed rent.
Section 4.7. Sprinkler System.
Landlord has provided, installed on a standard grid, and will maintain
a sprinkler system in the Premises and Tenant shall pay to Landlord as
additional rent thirty (30 cents) per square foot of Store Floor Area per Lease
Year, prorated for Partial Lease Years, in equal monthly installments in
advance on the first day of each full calendar month during the Lease Term,
prorated for partial months.
Section 4.8. Landlord's Expenses.
If Landlord pays any monies or incurs any expense to correct a breach of
this Lease by Tenant or to do anything in this Lease required to be done by
Tenant, or incurs any expense (including, but not limited to, attorneys' fees
and court costs) as a result of Tenant's failure to perform any of Tenant's
obligations under this Lease, all amounts so paid or incurred shall, on notice
to Tenant, be considered additional rent payable by Tenant with the first
Minimum Monthly Rent installment thereafter becoming due and payable, and may
be collected as by law provided in the case of rent.
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IF EITHER PARTY SHALL BRING AN ACTION AGAINST THE OTHER TO ENFORCE OR
INTERPRET THE TERMS OF THIS LEASE OR OTHERWISE ARISING OUT OF THIS LEASE, THE
PREVAILING PARTY IN SUCH ACTION SHALL BE ENTITLED TO ITS COSTS OF SUIT AND
REASONABLE ATTORNEY'S FEES. "PREVAILING PARTY" SHALL BE THE PARTY WHOSE
POSITION IS SUBSTANTIALLY UPHELD IN THE FINAL JUDGMENT RENDERED IN SUCH
ACTION.
ARTICLE V
PARKING AND COMMON AREAS AND FACILITIES
Section 5.1 Common Areas.
All parking areas, access roads and facilities furnished, made
available or maintained by Landlord in or near the Center, including employee
parking areas, truck ways, driveways, loading docks and areas, delivery areas,
multi-story parking facilities (if any), package pickup stations, elevators,
escalators, pedestrian sidewalks, malls, including the enclosed mall portion of
the Center, courts and ramps, landscaped areas, retaining walls, stairways, bus
stops, first-aid and comfort stations, lighting facilities, sanitary systems,
utility lines, water filtration and treatment facilities, and other areas and
improvements provided by Landlord for the general use in common of tenants and
others with the right to use the Common Areas (hereinafter defined) and their
customers in the Center (all herein called "Common Areas") shall at all times
be subject to the exclusive control and management of Landlord, and Landlord
shall have the right, from time to time, to establish, modify and enforce
reasonable rules and regulations with respect to all Common Areas. SUCH RULES
AND REGULATIONS SHALL BE UNIFORMLY APPLIED IN A CONSISTENT MANNER TO SIMILARLY
SITUATED TENANTS. Tenant agrees to comply with all rules and regulations set
forth in Exhibit "E" attached hereto and all reasonable amendments thereto.
EXCEPT AS PROVIDED IN SECTION 24.20 (B), Landlord shall have the right
from time to time to: change or modify and add to or subtract from the sizes,
locations, shapes and arrangements of parking areas, entrances, exits, parking
aisle alignments and other Common Areas, provided, however, that the size of
parking areas on Landlord's Tract shall not be substantially reduced AND
PROVIDED FURTHER THAT SUCH CHANGES SHALL NOT MATERIALLY ADVERSELY AFFECT THE
USE, ACCESS OR VISIBILITY OF THE PREMISES; restrict parking by Tenant's
employees to designated areas; construct surface, sub-surface or elevated
parking areas and facilities; establish and from time to time change the level
or grade of parking surfaces; enforce parking charges (by meters or otherwise)
with appropriate provisions for ticket validation; add to or subtract from the
buildings in the Center; and do and perform such other acts in and to said
Common Areas as Landlord in its sole discretion, reasonably applied, deems
advisable for the use thereof by tenants and their customers. LANDLORD SHALL
NOT REDUCE THE NUMBER OF PARKING SPACES BELOW LOCAL CODE REQUIREMENTS.
Section 5.2 Use of Common Areas.
Tenant and its business invitees, employees and customers shall have
the nonexclusive right, in common with Landlord and all others to whom Landlord
has granted or may hereafter grant rights, to use the Common Areas subject to
such reasonable regulations UNIFORMLY APPLIED as Landlord may from time to time
impose and the rights of Landlord set forth above. [Confidential] Tenant shall
abide by all rules and regulations and cause its [Confidential], officers,
employees AND agents, [Confidential] to abide thereby. Landlord may at any time
temporarily close any Common Areas to make repairs or changes, prevent the
acquisition of public rights therein, discourage noncustomer parking, or for
any other reasonable purpose. IN THE EVENT THAT LANDLORD CLOSED THE COMMON
AREAS FOR MORE THAN TWENTY-FOUR (24) BUSINESS HOURS (SUCH HOURS BEING THOSE SET
FORTH IN SECTION 8.3) WITHIN ANY ONE WEEK AND ACCESS TO THE PREMISES IS
AFFECTED IN A SUBSTANTIALLY ADVERSE MANNER, THEN THE MINIMUM MONTHLY RENT SHALL
ABATE FROM THE TIME FOR SUCH CLOSURE UNTIL ADEQUATE ACCESS IS RESTORED. Tenant
shall furnish Landlord license numbers and descriptions of cars used by Tenant
and its concessionaires, officers and employees. Tenant shall not interfere
with Landlord's or other tenant's rights to use any part of the Common Areas.
ARTICLE VI
COST AND MAINTENANCE OF COMMON AREAS
Section 6.1 Expense of Operating and Maintaining the Common Facilities
Landlord will operate, manage, maintain and repair or cause to be
operated, managed, maintained or repaired the Common Areas of the Center to the
extent the same is not done by any other tenant in the Center or by another
with the right to use the Common Areas. "Landlord's Common Area Costs" shall
mean all costs of operating and maintaining the Common Areas in a manner deemed
by Landlord appropriate for the best interests of tenants and other occupants
in the Center, less contributions, if any, to Landlord's Common Area Costs
received by Landlord from Department Stores in the Center. Included among the
costs and expenses which constitute Landlord's Common Area Costs, but not
limited thereto, shall be, at the option of Landlord, all costs and expenses of
protecting, operating, managing (THE TERM "MANAGING" TO INCLUDE ONLY THE COSTS
AND EXPENSES OF ON-SITE PERSONNEL DIRECTLY ATTRIBUTABLE TO THE MAINTENANCE AND
REPAIR OF THE COMMON AREAS), repairing, repaving, lighting, cleaning, painting,
striping, insuring (including but not limited to fire and extended coverage
insurance on Common Areas, insurance protecting Landlord against liability
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for personal injury, death and property damage and workers' compensation
insurance), removing of snow, ice and debris, police protection, security and
security patrol, fire protection, regulating traffic, inspecting, repairing and
maintaining machinery and equipment used in the operation of the Common Areas,
including heating, ventilating and air conditioning machinery and equipment,
depreciation of machinery and equipment, providing heating, ventilating and
air conditioning for the interior Common Areas, the cost and expense of
inspecting, maintaining and repairing [CONFIDENTIAL] storm and sanitary
drainage systems, sprinkler and other fire protection systems, electrical, gas,
water, telephone and irrigation systems, the cost and expense of maintaining
and repairing [Confidential] the enclosed mall portion of the Center and the
exterior of the buildings on Landlord's Tract, including, but not limited to
floors, roofs, skylights, escalators, elevators, walls, stairs and signs, cost
and expense of [Confidential] maintaining and repairing burglar or fire alarm
systems on Landlord's Tract, if installed, cost and expense of landscaping and
shrubbery, expenses of utilities, and administrative and overhead costs equal
to fifteen percent (15%) of all of the foregoing and all other of Landlord's
Common Area Costs. NOTWITHSTANDING THE FOREGOING, NO CAPITAL EXPENDITURES SHALL
BE INCLUDED IN TENANT'S SHARE OF LANDLORD'S COMMON AREA COSTS EXCEPT TO THE
EXTENT THAT ANY SUCH CAPITAL EXPENDITURES ARE DEPRECIATED BY LANDLORD IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. EXCLUDED FROM
LANDLORD'S COMMON AREA COSTS SHALL BE (A) COSTS RELATING TO TAXES AND INSURANCE
(ON PORTIONS OF THE CENTER OTHER THAN COMMON AREAS), IT BEING UNDERSTOOD THAT
LANDLORD'S COMMON AREA COSTS ARE NOT DUPLICATIVE OF ANY OTHER CHARGE SET FORTH
IN THIS LEASE; (B) BE BROKERAGE AND LEASING COMMISSIONS INCURRED IN LEASING THE
CENTER; (C) COSTS OF CONSTRUCTION IN A PARKING GARAGE, IF ANY, AND (D) COST OF
CONSTRUCTION OF ADDITIONAL BUILDINGS IN THE CENTER IN THE EVENT OF A
RENOVATION.
SECTION 6.2. Tenant to Bear Pro Rata Share of Expenses.
Tenant will pay Landlord, in addition to all other amounts in this Lease
provided, such portion of Landlord's Common Area Costs for each calendar year
during the Lease Term which bears the same ratio to the total of Landlord's
Common Area Costs as the Store Floor Area at the commencement of such calendar
year bears to all Rentable Floor Area rented or occupied by tenants on
Landlord's Tract other than Rentable Floor Area occupied by Department Stores,
tenants or other occupants of the Center who are obligated to maintain
specific areas or a specific parcel of land.
Tenant's share of Landlord's Common Area Costs shall be paid in monthly
installments in amounts estimated from time to time by Landlord, one ( 1 )
such installment being due on the first day of each month of each calendar
year. After the end of each calendar year the total Landlord's Common Area
Costs for such year (and at the end of the Lease Term, the total Landlord's
Common Area Costs for the period since the end of the immediately next
preceding calendar year) shall be determined by Landlord and Tenant's share
paid for such period shall immediately, upon such determination, be adjusted
by credit of any excess or payment of any deficiency PROVIDED, HOWEVER, ANY
INCREASES IN TENANT'S SHARE SHALL BE CAPPED AT TEN PERCENT (10%) PER YEAR.
NOTWITHSTANDING THE FOREGOING TO THE CONTRARY, TENANT'S PROPORTIONATE SHARE OF
LANDLORD'S COMMON AREA COSTS SHALL NOT EXCEED $8.50 PER SQUARE FOOT DURING
CALENDAR YEAR 1991 AND SUCH SHARE SHALL BE PRORATED FOR SUCH PARTIAL CALENDAR
YEAR.
ARTICLE VII
UTILITIES AND SERVICES
Section 7.1. Utilities.
Tenant shall not install any equipment which can exceed the capacity of
any utility facilities and if any equipment installed by Tenant requires
additional utility facilities, the same shall be installed at Tenant's expense
in compliance with all code requirements and plans and specifications which
must be approved in writing by Landlord. Tenant shall be solely responsible
for and promptly pay all charges for use or consumption of sewer, gas,
electricity, water and all other utility services. Landlord will initially
make electrical service available to the Premises as provided in Exhibit "D,"
and so long as Landlord continues to provide such electrical service Tenant
agrees to purchase the same from Landlord and pay landlord for the electrical
service (based upon Landlord's REASONABLE determination from time to time of
Tenant's consumption of electricity), as additional rent, on the first day of
each month in advance (and prorated for partial months), commencing on the
Commencement Date at the same cost as would be charged to tenant from time to
time by the utility company which otherwise would furnish such services to the
premises if it provided such services and metered the same directly to the
premises, but in no event at a cost which is less than the cost landlord must
pay in providing such electrical service. Landlord will initially supply water
and may supply other utilities to the premises, and so long as landlord
continues to provide water or such other utilities tenant shall pay landlord
for same at the same cost as would be charged to Tenant by the utility company
which otherwise would furnish such service to the Premises if it provided such
service and metered the same directly to the Premises, but in no event at a
cost which is less than the cost Landlord must pay in providing such service,
and in no event less than the minimum monthly charge which would have been
charged by the utility company in providing such service. Subject to the
applicable rules and regulations of the Illinois Public Service Commission,
Landlord may Provide a shared tenant telecommunications service to the
Premises and so long as Landlord continues to provide such telecommunications
service Tenant agrees to purchase the same from Landlord and pay Landlord for
the telecommunications service at the same cost as would be charged to Tenant
by the utility company which otherwise would furnish such service to the
Premises if it provided such service directly to the Premises, but in no event
at a cost which is less than the cost Landlord must pay in providing such
telecommunications service.
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Tenant shall operate its heating and air conditioning so that the
temperature in the Premises will be the same as that in the adjoining mall,
and set Tenant's thermostat at the same temperature as that thermostat in the
mall which is nearest the Premises. Tenant shall be responsible for the
installation, maintenance, repair and replacement of air conditioning, heating
and ventilation systems within and specifically for the Premises, including
all components such as air handling units, air distribution systems, motors,
controls, grilles, thermostats, filters and all other components. Tenant shall
operate ventilation so that the relative air pressure in the Premises will be
the same as or less than that in the adjoining mall as required by the
Landlord.
Section 7.2. Air Conditioning of Premises.
Landlord will provide and maintain a central plant and a system of
chilled media to the Premises installed at a point determined by Landlord.
Tenant agrees to purchase the chilled media services from Landlord and pay
Landlord annually therefor, as additional rent, in equal monthly installments,
in advance on the first day of each month the current Adjusted HVAC Plant
Charge (which shall consist of the Minimum Charge of $2.44 per square foot of
Store Floor Area per year, increased in the manner hereinafter provided).
The Adjusted HVAC Plant Charge shall be recalculated from time to time on
dates selected by the Landlord (but no less often than annually, each time the
Landlord's utility costs are changed, and/or each time field verification
indicates that Tenant's use of the system has changed.)
The current Adjusted HVAC Plant Charge shall be calculated by multiplying
the Minimum Charge by a series of adjusting multipliers as follows:
Adjusted HVAC Plant Charge = Minimum Charge x M1x M2 x M3 x M4
(a) M(1) = Capacity Multiplier
The capacity multiplier shall be the greater of 1 or the multiplier
arrived at by applying the following formula:
M(1) = 1 + [0.6[BTUH/33-1]]
The factor "BTUH" shall mean Tenant's BTUH/per Sq. ft. of Store Floor
Area and shall be the calculated peak design total heat gain as determined in
accordance with ASHRAE procedures. Tenant's outdoor air or exhaust that is
derived via the Landlord's system, and total heat gain from the roof, lights,
fan motors and other items, shall be included in calculating the BTUH/per Sq.
Ft. factor of this section for purposes of determining the capacity
multiplier. The peak total heat gain shall be calculated using the same sun
time hour as is used by Landlord in determining the peak building heat gain;
typically 1600 hours.
(b) M(2) = Hours Multiplier
The hours multiplier shall be the greater of 1 or the multiplier arrived
at by applying the following formula:
M(2) = 1 + [Extra Hours/Regular Hours]
The term "Extra Hours" shall mean Tenant's hours use of system during
times other than the originally established regular weekly hours of the
Center. The term "Regular Hours" shall mean originally established regular
weekly hours of the Center.
(c) M(3) = Utility Cost Multiplier
The utility cost multiplier shall be the multiplier arrived at by
applying the following formula:
M(3) = 1 + [0.6[Current Cost/Original Cost- 1]]
The term "Current Cost" shall mean "Utility Cost" based on rates in
effect on the selected date. The term "Original Cost" shall mean Utility Cost
based on rates in effect on January 2, 1985. The term "Utility Cost" shall
mean the cost to Landlord of the utilities necessary for furnishing chilled
media to the Premises, including all charges made to Landlord by the public
utilities furnishing the same and based on the original consumption and
demands estimated for the central HVAC system and building.
(d) M(4) = Maintenance Cost Multiplier
The Maintenance Cost Multiplier shall be the greater of 1 or the
multiplier arrived at by applying the following formula:
M(4) = 1 + [0.1 [Current CPI/Original CPI - 1]]
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The term "Current CPI" shall mean the "Consumer Price Index" on the
selected date. The term "Original CPI" shall mean the "Consumer Price Index"
for December 1, 1990. The term "Consumer Price Index" as used in this Section
7.2 and in Section 14.1 herein shall mean "United States City Average All
Items for All Urban Consumers (CPI-U, 1982-84=100)" published by the Bureau of
Labor Statistics of the U.S. Department of Labor. If the publication of the
Consumer Price Index of the U.S. Bureau of Labor Statistics is discontinued,
comparable statistics on the purchasing power of the consumer dollar published
by a responsible financial periodical selected by Landlord shall be used for
making such computations.
Section 7.3. Enforcement and Termination.
[Confidential]
Landlord shall not be liable to Tenant in damages or otherwise if any
utilities or services, whether or not furnished by Landlord hereunder, are
Interrupted or terminated because of repairs, installation or improvements, or
any cause beyond Landlord's reasonable control, nor shall any such termination
relieve Tenant of any of its obligations under this Lease. IN THE EVENT ANY
UTILITY SERVICE TO THE PREMISES SHALL BE INTERRUPTED DUE TO LANDLORD'S
NEGLIGENCE OF WILLFUL ACTS FOR A PERIOD OF MORE THAN THREE (3) CONSECUTIVE
BUSINESS DAYS AND THE PREMISES ARE RENDERED UNTENANTABLE THEREBY, THEN THE
MINIMUM MONTHLY RENT SHALL ABATE FROM THE TIME OF SUCH INTERRUPTION UNTIL
SERVICE IS RESTORED. Tenant shall operate the Premises in such a way as shall
not waste fuel, energy or natural resources. Landlord may cease to furnish any
one or more of said utilities or services to Tenant without liability for the
same, and no discontinuance of any utilities or services shall constitute a
constructive eviction.
ARTICLE VIII
CONDUCT OF BUSINESS BY TENANT
Section 8.1. Use of Premises.
The Premises shall be occupied and used by Tenant solely for the purpose
of conducting therein the business of the [Confidential] operation of a
full service financial institution, and Tenant shall not use or permit or
suffer the use of the Premises for any other business or purpose.
Section 8.2. Prompt Occupancy and Use.
Tenant will occupy the Premises upon the Commencement Date and thereafter
continuously operate and conduct in 100% of the Premises during each hour of
the entire Lease Term when Tenant is required under this Lease to be open for
business the business permitted under Section 8.1 hereof, with a full staff
and full stock of merchandise, using only such minor portions of the Premises
for storage and office purposes as are reasonably required. The parties agree
that: Landlord has relied upon Tenant's occupancy and operation in accordance
with the foregoing provisions; because of the difficulty or impossibility of
determining Landlord's damages which would result from Tenant's violation of
such provisions, including but not limited to damages from loss of
[Confidential] Rent from Tenant and other tenants, and diminished
saleability, mortgageability and economic value, Landlord shall be entitled to
liquidated damages if it elects to pursue such remedy; therefore for any day
that Tenant does not fully comply with the provisions of this section 8.2 the
Minimum Annual Rent, prorated on a daily basis, shall be increased by 50%,
such increased sum representing the damages which the parties agree Landlord
will suffer by Tenant's noncompliance. In addition to all other remedies,
Landlord shall have the right to obtain specific performance by tenant upon
Tenant's failure to comply with the provisions of this Section 8.2.
Section 8.3. Conduct of Business.
Such business shall be conducted (a) under the name 1ST NATIONAL BANK OF
LINCOLNSHIRE OR SUCH OTHER NAME AS APPROVED BY LANDLORD WHICH APPROVAL SHALL
NOT BE UNREASONABLY WITHHELD [Confidential] and (b) in such manner as shall
assure the TRANSACTION of a maximum volume of business in and at the Premises.
The Premises shall be and remain open for business to the public Monday
through THURSDAY FROM 9:00 A.M. UNTIL 5:00 P.M., FRIDAY FROM 9:00 A.M. UNTIL
6:00 P.M., AND SATURDAY FROM 9:00 A.M. UNTIL 12:00 NOON, [Confidential] The
Center shall be closed, and Tenant shall not be permitted to conduct business
from the Premises on either Thanksgiving Day or Christmas Day.
Section 8.4. Operation by Tenant.
Tenant covenants and agrees that it will: not place or maintain any
merchandise, vending machines or other articles in any vestibule or entry of
the Premises or outside the Premises; store garbage, trash, rubbish and other
refuse in rat-proof and insect-proof containers inside the Premises, and
remove the same frequently and regularly and, if directed by Landlord, by such
means and methods and at such times and intervals as are designated by
Landlord, all at Tenant's cost; not permit any sound system, audible or
objectionable advertising medium visible outside the Premises; keep all
mechanical equipment free of vibration and noise and in good working order and
condition; not commit or permit waste or a nuisance upon the Premises; not
permit or cause odors to emanate or be dispelled from the Premises; not
solicit business in the Common Areas nor distribute advertising matter to, in
or upon any Common Areas; not permit the loading or unloading or the parking
or standing of delivery vehicles outside any area designated therefor, nor
permit any use of vehicles which will interfere with the use of any Common
Areas; comply with all laws, recommendations, ordinances, rules and
regulations of governmental, public, private and other
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authorities and agencies, including those with authority over insurance
rates, with respect to the use or occupancy of the Premises, and including
but not limited to the Williams-Steiger Occupational Safety and Health Act;
light the show windows of the Premises and all signs each night of the year
for not less than one (1) hour after the Premises is permitted to be closed;
not permit any noxious, toxic or corrosive fuel or gas, dust, dirt or fly ash
on the Premises; not place a load on any floor in the Center which exceeds
the floor load per square foot which such floor was designed to carry; and
not permit any game machines (electronic or otherwise) to exist in the
Premises or to be used in the Premises.
Section 8.5. Storage.
Tenant shall store in the Premises only merchandise which Tenant intends
to sell at, in or from the Premises within a reasonable time after receipt
thereof.
Section 8.6. Emissions and Hazardous Materials.
A. Emissions. Tenant shall not, without the prior written
consent of Landlord:
(i) make, or permit to be made, any use of the Premises or
any portion thereof which emits, or permits the emission of an
unreasonable amount of dust, sweepings, dirt, cinders, fumes or
odors into the atmosphere, the ground or any body of water,
whether natural or artificial (including rivers, streams,
lakes, ponds, dams, canals, or flood control channels), or
which emits, or permits the emission of dust, sweepings, dirt,
cinders, fumes or odors into the atmosphere, the ground or any
body of water, whether natural or artificial (including rivers,
streams, lakes, ponds, dams, canals, or flood control CHANNELS)
which is in violation of any federal, state or local law,
ordinance, order, rule, regulation, code or any other
governmental restriction or requirement;
(ii) permit any vehicle on the Premises or the Center which
emits exhaust which is in violation of any federal, state or
local law, ordinance, order, rule, regulation, code or any
other governmental restriction or requirement;
(iii) create, or permit to be created, any sound pressure
level which will interfere with the quiet enjoyment of any real
property by any Tenant or occupant of the Center, or which will
create a nuisance or violate any federal, state or local law,
ordinance, order, rule, regulation, code or and other
governmental restriction or requirement;
(iv) transmit, receive, or permit to be transmitted or
received any electromagnetic, microwave or other radiation
which is harmful or hazardous to any person or property in, on
or about the Premises or the Center, or which interferes with
the operation of any electrical, electronic, telephonic or
other equipment wherever located, whether on the Premises or
the Center;
(v) create, or permit to be created, any ground vibration that
is discernible outside the Premises; or
(vi) produce or permit to be produced any intense glare,
light or heat except within an enclosed or screened area and
then only in such manner that the glare, light or heat shall
not be discernible outside the Premises.
B. Hazardous Material
Tenant shall not, without the prior written consent of Landlord,
cause or permit, knowingly or unknowingly, any Hazardous Material
(hereinafter defined) to be brought or remain upon, kept, used,
discharged, leaked, or emitted in or about, or treated at the Premises
or the Center. As used in this Lease, "Hazardous Material(s)" shall mean
any hazardous, toxic or radioactive substance, material, matter or waste
which is or becomes regulated by any federal, state or local law,
ordinance, order, rule, regulation, code or any other governmental
restriction or requirement, and shall include asbestos, petroleum
products and the terms "Hazardous Substance" and "Hazardous Waste" as
defined in the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), as amended, 42 U.S.C. Section 9601 et seq.,
the Resource Conservation and Recovery Act ("RCRA"), as amended, 42
U.S.C. Section 6901 et seq., the Illinois Environmental Protection Act
("IEPA"), as amended, III. Rev. Stat. ch 111-112, Section 1001 et seq.
To obtain Landlord's consent, Tenant shall prepare an "Environmental
Audit" for Landlord's review. Such Environmental Audit shall list: (1)
the name(s) of each Hazardous Material and a Material Safety Data Sheet
(MSDS) as required by the Occupational Safety and Health Act; (2) the
volume proposed to be used, stored and/or treated at the Premises
(monthly); (3) the purpose of such Hazardous Material; (4) the proposed
on-premises storage location(s); (5) the name(s) of the proposed
off-premises disposal entity; and (6) an emergency preparedness plan in
the event of a release. Additionally, the Environmental Audit shall
include copies of all required federal, state, and local permits
concerning or related to the proposed use, storage, or treatment of any
Hazardous Material(s) at the Premises. Tenant shall submit a new
Environmental Audit whenever it proposes to use, store, or treat a new
Hazardous Material at the premises or when the volume of existing
Hazardous Materials to be used, stored, or treated at the Premises
expands by ten percent (10%) during any thirty (30) day period. If
Landlord in its reasonable judgment finds the Environmental Audit
acceptable, then Landlord shall deliver to Tenant Landlord's written
consent. Notwithstanding such consent, Landlord
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may revoke its consent upon: (1) Tenant's failure to remain in full
compliance with applicable environmental permits and/or any other requirements
under any federal, state, or local law, ordinance, order, rule, regulation,
code or any other governmental restriction or requirement (including but not
limited to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"),as amended, 42 U.S.C Section 9601 et seq., the Resource
Conservation and Recovery Act ("RCRA"), as amended, 42 U.S.C. Section 6901 et
seq., and the Illinois Environmental Protection Act ("IEPA"), as amended, III
Rev. Stat. ch. 111-112, Section 1001 et seq.) related to environmental safety,
human health, or employee safety; (2) the Tenant's business operations pose or
potentially pose a human health risk to other Tenants; or (3) the Tenant
expands its use, storage, or treatment of any Hazardous Material(s) in a manner
inconsistent with the safe operation of a shopping center. Should Landlord
consent in writing to Tenant bringing, using, storing or treating any Hazardous
Material(s) in or upon the Premises or the Center, Tenant shall strictly obey
and adhere to any and all federal, state or local laws, ordinances, orders,
rules, regulations, codes or any other governmental restrictions or
requirements (including but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), as amended, 42 U.S.C
Section 9601 et seq., the Resource Conservation and Recovery Act ("RCRA"), as
amended, 42 U.S.C. Section 6901 et seq., and the Illinois Environmental
Protection Act ("IEPA"), as amended, III. Rev Stat. ch 111-112, Section 1001
et seq.) which in any way regulate, govern or impact Tenant's possession, use,
storage, treatment or disposal of said Hazardous Material(s). In addition,
Tenant represents and warrants to Landlord that (1) Tenant shall apply for and
remain in compliance with any and all federal, state or local permits in regard
to Hazardous Materials; (2) Tenant shall report to any and all applicable
governmental authorities any release of reportable quantities of any Hazardous
Material(s) as required by any and all federal, state or local laws,
ordinances, orders, rules, regulations, codes or any other governmental
restrictions or requirements; (3) Tenant, within five (5) days of receipt,
shall send to Landlord a copy of any notice, order, inspection report, or other
document issued by any governmental authority relevant to the Tenant's
compliance status with environmental or health and safety laws; and, (4) Tenant
shall remove from the Premises all Hazardous Materials at the termination of
this Lease.
In addition to, and in no way limiting, Tenant's duties and obligations
as set forth in Section 11.6 of this Lease, should Tenant breach any of its
duties and obligations as set forth in this Section 8.6 of this Lease, or if
the presence of any Hazardous Material(s) on the Premises results in
contamination of the Premises, the Center, any land other than the Center, the
atmosphere, or any water or waterway (including groundwater), or if
contamination of the Premises or of the Center by any Hazardous Material(s)
otherwise occurs for which Tenant is otherwise legally liable to Landlord for
damages resulting therefrom, Tenant shall indemnify, save harmless and, at
Landlord's option and with attorneys approved in writing by Landlord, defend
Landlord, and its contractors, agents, employees, partners, officers,
directors, and mortgagees, if any, from any and all claims, demands, damages,
expenses, fees, costs, fines, penalties, suits, proceedings, actions, causes of
action, and losses of any and every kind and nature (including, without
limitation, diminution in value of the Premises or the Center, damages for the
loss or restriction on use of the rentable or usable space or of any amenity of
the Premises or the Center, damages arising from any adverse impact on
marketing space in the Center, and sums paid in settlement of claims and for
attorney's fees, consultant fees and expert fees, which may arise during or
after the Lease Term or any extension thereof as a result of such
contamination). This includes, without limitation, costs and expenses, incurred
in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision because the presence of Hazardous
Material(s) on or about the Premises or the Center, or because of the presence
of Hazardous Material(s) anywhere else which came or otherwise emanated from
Tenant or the Premises. Without limiting the foregoing, if the presence of any
Hazardous Material(s) on or about the Premises or the Center caused or
permitted by Tenant results in any contamination of the Premises or the Center,
Tenant shall, at its sole expense, promptly take all actions and expense as are
necessary to return the Premises and/or the Center to the condition existing
prior to the introduction of any such Hazardous Material(s) to the Premises or
the Center; provided, however, that Landlord's approval of such actions shall
first be obtained in writing.
Section 8.7. Painting, Decorating, Displays, Alterations.
Tenant will not paint, decorate or change the architectural treatment
of any part of the exterior of the Premises nor any part of the interior of the
Premises visible from the exterior nor make any structural alterations,
additions or changes In the Premises without Landlord's written approval
thereto WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD, and will promptly
remove any paint, decoration, alteration, addition or changes applied or
installed without Landlord's approval and restore the Premises to an acceptable
condition or take such other action with respect thereto as Landlord directs.
Tenant will install and maintain at all times, subject to the other
provisions of this Section 8.7, merchandise displays in any show windows on the
Premises; the arrangement, style, color and general appearance thereof and of
displays in the interior of the Premises which are visible from the exterior,
including, but not limited to, window displays, advertising matter, signs,
merchandise and store fixtures, shall be maintained in keeping with the
character and standards of the Center.
Section 8.8 Other Operations.
[Confidential]
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[CONFIDENTIAL]
Section 8.9. Sales and Dignified Use.
No public or private auction or any fire, "going out of business,"
bankruptcy or similar sales or auctions shall be conducted in or from the
Premises and the Premises shall not be used except in a dignified and ethical
manner consistent with the general high standards of merchandising in the
Center and not in a disreputable or immoral manner or in violation of
national, state or local laws.
ARTICLE IX
MAINTENANCE OF LEASED PREMISES
Section 9.1. Maintenance by Landlord.
Landlord shall keep or cause to be kept the foundations, roof and
structural portions of the walls of the Premises in good order, repair and
condition except for damage thereto due to the acts or omissions of Tenant,
its agents, employees or invitees. Landlord shall commence required repairs
as soon as reasonably practicable after receiving written notice from Tenant
thereof. This Section 9.1 shall not apply in case of damage or destruction
by fire or other casualty or condemnation or eminent domain, in which events
the obligations of Landlord shall be controlled by Article XVI and XVII.
Except as provided in this Section 9.1 Landlord shall not be obligated to
make repairs, replacements or improvements of any kind upon the Premises, or
to any equipment, merchandise, stock in trade, facilities or fixtures
therein, all of which shall be Tenant's responsibility, but Tenant shall
give Landlord prompt written notice of any accident, casualty, damage or
other similar occurrence in or to the Premises or the Common Areas of which
Tenant has knowledge.
Section 9.2. Maintenance by Tenant.
Tenant shall at all times keep the Premises (including all entrances
and vestibules) and all partitions, window and window frames and mouldings,
glass, store fronts, doors, door openers, fixtures, equipment and
appurtenances thereof (including lighting, heating, electrical, plumbing,
ventilating and air conditioning fixtures and systems and other mechanical
equipment and appurtenances) and all parts of the Premises, and parts of
Tenant's Work not on the Premises, not required herein to be maintained by
Landlord, in good order, condition and repair and clean, orderly, sanitary
and safe, damage by unavoidable casualty excepted (including but not limited
to doing such things as are necessary to cause the Premises to comply with
applicable laws, ordinances, rules, regulations and orders of governmental
and public bodies and agencies, such as but not limited to the
Williams-Steiger Occupational Safety and Health Act). If replacement of
equipment, fixtures and appurtenances hereto is necessary, Tenant shall
replace the same with new or completely reconditioned equipment, fixtures
and appurtenances, and repair all damage done in or by such replacement. If
Tenant fails to perform its obligations hereunder, Landlord, without notice,
may, but shall not be obligated to, perform Tenant's obligations or perform
work resulting from Tenant's acts, actions or omissions and add the cost of
the same to the next installment of Minimum Monthly Rent due hereunder.
Section 9.3. Surrender of Premises
At the expiration of the Lease Term, Tenant shall surrender the
Premises in the same condition as they were required to be in on the
Required Completion Date, reasonable wear and tear and damage by unavoidable
casualty excepted, and deliver all keys for, and all combinations on locks,
safes and vaults in, the Premises to Landlord at Landlord's notice address
as specified in Section 24.7 or, at Landlord's option, to the office of the
Center's general manager.
ARTICLE X
SIGNS, AWNINGS, CANOPIES, FIXTURES ALTERATIONS
Section 10.1.Fixtures.
All fixtures installed by Tenant shall, be new or completely
reconditioned. [CONFIDENTIAL]. Upon the request of Landlord, Tenant shall,
when reasonably required, refurbish all or any portion of the interior of the
Premises so that the furnishings, furniture, flooring, wall fixtures and
coverings, equipment and other appurtenances in the Premises shall be in
keeping with the contemporary decor of the Center.
Section 10.2. Removal and Restoration by Tenant.
All alterations, changes and additions and all improvements, including
leasehold improvements, made by Tenant, or made by Landlord on Tenant's
behalf, whether part of Tenant's Work or not and whether or
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not paid for wholly or in part by Landlord, shall remain Tenant's property for
the Lease Term. Any alterations, changes, additions and improvements shall
immediately upon the termination of this Lease become Landlord's property, be
considered part of the Premises, and not be removed at [CONFIDENTIAL] the
end of the Lease Term without Landlord's written consent unless Landlord
requests Tenant to remove same. If Tenant fails to remove any shelving,
decorations, equipment, trade fixtures or personal property from the Premises
prior to the end of the Lease Term, they shall become Landlord's property and
Tenant shall repair or pay for the repair of any damage done to the Premises
resulting from removing same but not for painting or redecorating the
Premises. TENANT SHALL BE PERMITTED TO REMOVE ITS TRADE FIXTURES, EQUIPMENT
AND VAULT AT THE END OF THE LEASE TERM, PROVIDED, HOWEVER, TENANT SHALL REPAIR
ANY DAMAGE OCCASIONED BY SUCH REMOVAL.
Section 10.3. Tenant's Liens.
A. Tenant shall not suffer any mechanics' or materialmen's lien to be
filed against the Premises or the Center by reason of work, labor, services or
materials performed or furnished to Tenant or anyone holding any part of the
Premises under Tenant. If any such lien shall at any time be filed as
aforesaid, Tenant may contest the same in good faith, but, notwithstanding
such contest, Tenant shall, within 30 days after the filing thereof, cause
such lien to be released of record by payment, bond, order of a court of
competent jurisdiction, or otherwise. In the event of Tenant's failure to
release of record any such lien within the aforesaid period, Landlord may
remove said lien by paying the full amount thereof or by bonding or in any
other manner Landlord deems appropriate, without investigating the validity
thereof, and irrespective of the fact that Tenant may contest the propriety or
the amount thereof, and Tenant, upon demand, shall pay Landlord the amount so
paid out by Landlord in connection with the discharge of said lien, together
with interest thereon at the rate set forth in Section 4.2 herein and
reasonable expenses incurred in connection therewith, including reasonable
attorneys' fees, which amounts are due and payable to Landlord as additional
rent on the first day of the next following month. Nothing contained in this
Lease shall be construed as a consent on the part of Landlord to subject
Landlord's estate in the Premises to any lien or liability under the lien laws
of the State of Illinois. Tenant's obligation to observe and perform any of
the provisions of this Section 10.3 shall survive the expiration of the Lease
Term or the earlier termination of this Lease.
B. Tenant shall not create or suffer to be created a security interest or
other lien against any improvements, additions or other construction made by
Tenant in or to the Premises or against any equipment or fixtures installed by
Tenant therein (other than Tenant's property), and should any security
interest be created in breach of the foregoing, Landlord shall be entitled to
discharge the same by exercising the rights and remedies afforded it under the
penultimate sentence of paragraph A of this Section.
Section 10.4. Signs, Awnings and Canopies.
Tenant will not place or permit on any exterior door or window or any
wall of the Premises or otherwise, any sign, awning, canopy, advertising
matter, decoration, lettering or other thing of any kind which does not comply
with the Sign Criteria set forth in Exhibit "F" attached hereto.
NOTWITHSTANDING THE FOREGOING TO THE CONTRARY, SUBJECT TO LOCAL GOVERNING
AUTHORITY APPROVAL, TENANT SHALL BE PERMITTED TO PLACE ONE (1) EXTERIOR SIGN
ON THE EXTERIOR ENTRANCE TO THE PREMISES.
ARTICLE XI
INSURANCE
Section 11.1. By Landlord.
Landlord shall carry public liability insurance on those portions of
the Common Areas included in Landlord's Tract providing coverage of not less
than $3,000,000.00 against liability for bodily injury including death and
personal injury for any one (1) occurrence and $1,000,000.00 property damage
insurance, or combined single limit insurance in the amount of
$3,000,000.00.
Landlord shall also carry insurance for fire, extended coverage,
vandalism, malicious mischief and other endorsements deemed advisable by
Landlord, insuring all improvements on Landlord's Tract, including the
Premises and all leasehold improvements thereon and appurtenances thereto
(excluding Tenant's merchandise, trade fixtures, furnishings, equipment,
personal property and excluding plate glass) for the full insurable value
thereof, with such deductibles as Landlord deems advisable, such insurance
coverage to include improvements provided by Tenant as set forth in Exhibit
"D" and "D-2" as Tenant's Work (excluding wall covering, floor covering,
carpeting and drapes) and Landlord's Work as defined in Exhibit "D"; Tenant
agrees to pay Landlord, as additional rent, thirty cents ($.30) per year for
each square foot of Store Floor Area payable in equal installments on the
first day of every calendar month during the Lease Term, as Tenant's share
of the cost of the premiums for such insurance described above in this
sentence. At the end of the first Partial Lease Year and each Lease Year
thereafter, the amount thus to be paid by Tenant shall be adjusted upward or
downward (but shall never be less than the above amount) in direct ratio to
the increase or decrease in the cost of the premiums paid by Landlord for
such insurance coverage.
Section 11.2. By Tenant.
Tenant agrees to carry public liability insurance on the Premises
during the Lease Term, covering the Tenant and naming the Landlord as an
additional named insured with terms and companies satisfactory to Landlord,
for limits of not less than $l,000,000.00 for bodily injury, including
death, and personal injury for, any one (1) occurrence, $500,000.00 property
damage insurance or a combined single limit of $1,000,000.00 Tenant's
insurance will include contractual liability coverage recognizing this
Lease, products and completed
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operations liability and providing that Landlord and Tenant shall be given a
minimum of THIRTY (30) days written notice by the insurance company prior to
cancellation, termination or change in such insurance. Tenant also agrees to
carry insurance against fire and such other risks as are from time to time
required by Landlord, including, but not limited to, a standard "All-Risk"
policy of property insurance protecting against all risk of physical loss or
damage, including without limitation, sprinkler leakage coverage and plate
glass insurance covering all plate glass in the Premises (including store
fronts), in amounts not less than the actual replacement cost, covering all of
Tenant's merchandise, trade fixtures, furnishing, wall covering, floor
covering, carpeting, drapes, equipment and all items of personal property of
Tenant located on or within the Premises. Tenant shall provide Landlord with
certificates or, at Landlord's request, copies of the policies, evidencing
that such insurance is in full force and effect and stating the terms thereof.
The minimum limits of the comprehensive general liability policy of insurance
shall in no way limit or diminish Tenant's liability under Section 11.6
hereof and shall be subject to increase at any time, and from time to time,
after the commencement of fifth (5th) year of the Lease Term if Landlord in
the exercise of its reasonable judgment shall deem same necessary for adequate
protection. Within thirty (30) days after demand therefor by Landlord, Tenant
shall furnish Landlord with evidence that it has complied with such demand.
Notwithstanding the above mentioned public liability insurance policy
limit for Tenant, if Tenant does or intends to bring, possess, use, store,
treat or dispose any Hazardous Material (herein defined) in or upon the
Premises or Center, Landlord shall have the right to require Tenant to
purchase additional public liability insurance, and supply Landlord with
certificates of insurance reflecting the additional insurance, with coverage
of no less than Five Million and 00/100 Dollars ($5,000,000.00) and to
purchase environmental impairment liability insurance with coverage of no less
than Five Million and 00/l00 Dollars ($5,000,000.00) with a deductible of no
greater than Fifty Thousand and 00/l00 Dollars ($50,000.00) to insure that
anything contaminated with or by the Hazardous Material be removed from the
Premises and/or the Center, and that the Premises and/or the Center be
restored to a clean, neat, attractive, healthy, sanitary and noncontaminated
condition.
Section 11.3. Mutual Waiver of Subrogation Rights.
Landlord and Tenant and all parties claiming under them mutually release
and discharge each other from all claims and liabilities arising from or
caused by any casualty or hazard covered or required hereunder to be covered
in whole or in part by insurance on the Premises or in connection with
property on or activities conducted on the Premises, and waive any right of
subrogation which might otherwise exist in or accrue to any person on account
thereof and evidence such waiver by endorsement to the required insurance
policies, provided that such release shall not operate in any case where the
effect is to invalidate or increase the cost of such insurance coverage
(provided, that in the case of increased cost, the other party shall have the
right, within thirty (30) days following written notice, to pay such increased
cost, thereby keeping such release and waiver in full force and effect).
Section 11.4. Waiver.
UNLESS CAUSED BY THE NEGLIGENCE OF LANDLORD, ITS AGENTS OR EMPLOYEES,
Landlord, its contractors, agents and employees, shall not be liable for, and
Tenant waives all claims for, damage, including but not limited to
consequential damages, to person, property or otherwise, sustained by Tenant
or any person claiming through Tenant resulting from any accident or
occurrence in or upon any part of the Center including, but not limited to,
claims for damage resulting from: (a)any equipment or appurtenances becoming
out of repair; (b)Landlord's failure to keep any part of the Center in
repair; (c)injury done or caused by wind, water, or other natural element;
(d)any defect in or failure of plumbing, heating or air conditioning
equipment, electric wiring or installation thereof, gas, water, and steam
pipes, stairs, porches, railings or walks; (e)broken glass; (f)the backing up
of any sewer pipe or downspout; (g)the bursting, leaking or running of any
tank, tub, washstand, water closet, waste pipe, drain or any other pipe or
tank in, upon or about the Premises; (h)the escape of steam or hot water; (i)
water, snow or ice upon the Premises; (j)the falling of any fixture, plaster
or stucco; (k)damage to or loss by theft or otherwise of property of Tenant
or others; (l)acts or omissions of persons in the Premises, other tenants in
the Center, occupants of nearby properties, or any other persons; and (m)any
act or omission of owners of adjacent or contiguous property, or of Landlord,
its agents or employees. All property of Tenant kept in the Premises shall be
so kept at Tenant's risk only and Tenant shall save Landlord harmless from
claims arising out of damage to the same, including subrogation claims by
Tenant's insurance carrier.
Section 11.5. Insurance - Tenant's Operation.
Tenant will not do or suffer to be done anything which will contravene
Landlord's insurance policies or prevent Landlord from procuring such
policies in amounts and companies selected by Landlord. If anything done,
omitted to be done or suffered to be done by Tenant in, upon or about the
Premises shall cause the rates of any insurance effected or carried by
Landlord on the Premises or other property to be increased beyond the regular
rate from time to time applicable to the Premises for use for the purpose
permitted under this Lease, or such other property for the use or uses made
thereof, Tenant will pay the amount of such increase promptly upon Landlord's
demand and Landlord shall have the right to correct any such condition at
Tenant's expense In the event that his Lease so permits and Tenant engages in
the preparation of food or packaged foods or engages in the use, sale or
storage of inflammable or combustible material, Tenant shall install chemical
extinguishing devices (such as ansul) approved by Underwriters Laboratories
and Factory Mutual Insurance Company and the installation thereof must be
approved by the appropriate local authority. Tenant shall keep such devices
under service as required by such organizations. if gas Is used in the
Premises, Tenant shall install gas cut-off devices (manual and automatic).
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Section 11.6. Indemnification.
Tenant shall save harmless, indemnify, and at Landlord's option, defend
Landlord, its contractors, agents and employees, and mortgagee, if any, from
and against any and all liability, liens, claims, demands, damages, expenses,
fees, costs, fines, penalties, suits, proceedings, actions and causes of
action of any and every kind and nature arising or growing out of or in any
way connected with Tenant's use, occupancy, management or control of the
Premises or Tenant's operations, conduct or activities in the Center.
EXCEPT IN THE CASE OF CLAIMS WAIVED BY TENANT PURSUANT TO SECTION 11.4
ABOVE, LANDLORD SHALL INDEMNIFY AND SAVE HARMLESS TENANT FROM AND AGAINST ANY
AND ALL LIABILITY, LIENS, CLAIMS, DEMANDS, DAMAGES, EXPENSES, FEES, COSTS,
FINES, PENALTIES, SUITS, PROCEEDINGS, ACTIONS AND CAUSES OF ACTION OF ANY AND
EVERY KIND AND NATURE ARISING OR GROWING OUT OF OR IN ANY WAY CONNECTED WITH
LANDLORD'S USE, OCCUPANCY, MANAGEMENT OR CONTROL OF THE CENTER.
ARTICLE XII
OFFSET STATEMENT, ATTORNMENT, SUBORDINATION
Section 12.1. Offset Statement.
Within TWENTY-ONE (21) days after Landlord's written request Tenant shall
deliver, executed in recordable form a declaration to any person designated by
Landlord (a) ratifying this Lease; (b)stating the commencement and termination
dates; and (c) certifying (i) that this Lease is in full force and effect
and has not been assigned, modified, supplemented or amended (except by such
writings as shall be stated), (ii) that all conditions under this Lease to be
performed by Landlord have been satisfied (stating exceptions, if any), (iii)
that no defenses or offsets against the enforcement of this Lease by Landlord
exist (or stating those claimed): (iv) as to advance rent, if any, paid by
Tenant, (v) the date to which rent has been paid, (vi) as to the amount of
security deposited with Landlord, and such other information as Landlord
reasonably requires. Persons receiving such statements shall be entitled to
rely upon them.
Section 12.2. Attornment.
Tenant shall, in the event of a sale or assignment of Landlord's interest
in the Premises or the building in which the Premises is located or this Lease
or Landlord's Tract, or if the Premises or such building comes into the hands
of a mortgagee, ground lessor or any other person whether because of a mortgage
foreclosure, exercise of a power of sale under a mortgage, termination of the
ground lease, or otherwise, attorn to the purchaser or such mortgagee or other
person and recognize the same as Landlord hereunder. Tenant shall execute,
at Landlord's request, any attornment agreement required by any mortgagee,
ground lessor or other such person to be executed, containing such provisions
as such mortgagee, ground lessor or other person requires PROVIDED THAT SUCH
AGREEMENT (ANY ATTORNMENT) SHALL NEITHER DIMINISH TENANT'S RIGHTS OR INCREASE
TENANT'S LIABILITIES (OBLIGATIONS) HEREUNDER.
Section 12.3. Subordination.
A. Mortgage. This Lease shall be secondary, junior and inferior at all
times to the lien of any mortgage and to the lien of any deed of trust or other
method of financing or refinancing (hereinafter collectively referred to as
"mortgage") now or hereafter existing against all or a part of Landlord's
Tract, and to all renewals, modifications, replacements, consolidations and
extensions thereof, and Tenant shall execute and deliver all documents
requested by any mortgagee or security holder to effect such subordination. If
Tenant fails to execute and deliver any such document requested by a mortgagee
or security holder to effect such subordination, Landlord is hereby
authorized to execute such documents and take such other steps as are necessary
to effect such subordination on behalf of Tenant as Tenant's duly authorized
irrevocable agent and attorney-in-fact. UPON TENANT'S REQUEST, LANDLORD SHALL
USE ITS BEST EFFORTS TO OBTAIN FROM SUCH FIRST MORTGAGEE AN AGREEMENT IN
WRITING THAT IF LANDLORD DEFAULTS UNDER THE FIRST MORTGAGE, SAID FIRST
MORTGAGEE SHALL NOT DISTURB TENANT'S POSSESSION WHILE TENANT IS NOT IN DEFAULT
HEREUNDER.
B. Construction, Operation and Reciprocal Easement Agreements. This Lease
is subject and subordinate to one (1) or more construction, operation,
reciprocal easement or similar agreements and to one (1) or more declaration of
covenants, conditions, restrictions, rights and easements (hereinafter referred
to as "Operating Agreements") entered into or hereafter to be entered into
between Landlord and other owners or lessees of real estate (including but not
limited to owners and operators of Department Stores) within or near the Center
(which Operating Agreements have been or will be recorded in the official
records of the County wherein the Center is located) and to any and all
easements and easement agreements which may be or have been entered into with
or granted to any persons heretofore or hereafter, whether such persons are
located within or upon the Center or not, and Tenant shall execute such
instruments as Landlord requests to evidence such subordination. In addition,
this Lease is subject to all applicable ordinances of the Village of
Lincolnwood, Illinois.
SECTION 12.4 FAILURE TO EXECUTE INSTRUMENTS
[CONFIDENTIAL]
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ARTICLE XIII
ASSIGNMENT, SUBLETTING AND CONCESSIONS
Section 13.1. Consent Required.
Tenant shall not sell, assign, mortgage, pledge or in any manner
transfer this Lease or any interest therein, nor sublet all or any part of
the Premises, nor license concessions nor lease departments therein, without
Landlord's prior written consent in each instance WHICH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED SO LONG AS TENANT AND ITS PROPOSES TRANSFEREE
COMPLY WITH CONDITIONS 1-6 BELOW. Consent by Landlord to any assignment or
subletting shall not waive the necessity for consent to any subsequent
assignment or subletting. This prohibition shall include a prohibition against
any subletting or assignment by operation of law. If this Lease is assigned or
the Premises or any part sublet or occupied by anybody other than Tenant,
Landlord may collect rent from the assignee, subtenant or occupant and apply
the same to the rent herein reserved, but no such assignment, subletting,
occupancy or collection of rent shall be deemed a waiver of any restrictive
covenant contained in this Section 13.1 or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Tenant from the performance
by Tenant of any covenants on the part of Tenant herein contained. Any
assignment (a) as to which Landlord has consented; or (b) which is required by
reason of a final nonappealable order of a court of competent jurisdiction; or
(c) which is made by reason of and in accordance with the provisions of any
law or statute, including, without limitation, the laws governing bankruptcy,
insolvency or receivership shall be subject to all terms and conditions of
this Lease, and shall not be effective or deemed valid unless, at the time of
such assignment:
1. Each assignee or sublessee shall agree, in a written agreement
satisfactory to Landlord, to assume and abide by all of the terms
and provisions of this Lease, including those which govern the
permitted uses of the Premises described in Article VIII herein;
and
2. Each assignee or sublessee has submitted a current financial
statement, audited by a certified public accountant, showing a net
worth and working capital AT LEAST EQUAL TO OR in amounts
determined by Landlord to be sufficient to assure the future
performance by such assignee or sublessee of Tenant's obligations
hereunder; and
3. Each assignee or sublessee has submitted, in writing, evidence
satisfactory to Landlord of substantial retailing experience in
shopping centers of comparable size to the Center and in the sale
of merchandise and services permitted under Article VIII of this
Lease; and
4. The business reputation of each assignee or sublessee shall meet
or exceed generally acceptable commercial standards; and
5. The use of the Premises by each assignee or sublessee shall not
violate, or create any potential violation of applicable laws,
codes or ordinances, nor violate any other agreements affecting the
Premises, Landlord or other tenants in the Center.
6. Tenant shall pay Landlord the sum of One Thousand and 00/100
Dollars ($1,000.00) as reimbursement to Landlord for
administrative and legal expenses incurred by Landlord in
connection with any such assignment or subletting
In the event of any assignment or subletting as provided above, there
shall be paid to Landlord, in addition to the Minimum Annual Rent and other
charges due Landlord pursuant to this Lease, such additional consideration as
shall be attributable to the right of use and occupancy of the Premises,
whenever the same is receivable by Tenant, together with, as additional rent,
[CONFIDENTIAL] the excess, if any, of the rent and other charges payable by
the assignee or sublessee over the Minimum Annual Rent and other charges
payable under the Lease to Landlord by Tenant pursuant to this Lease.
[CONFIDENTIAL] Such additional rent shall be paid to Landlord concurrently
with the payments of Minimum Annual Rent required under this Lease, and
Tenant shall remain primarily liable for such payments. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN THIS ARTICLE XIII, TENANT SHALL HAVE
THE RIGHT, WITHOUT LANDLORD'S CONSENT, TO ASSIGN THIS LEASE SO ANY WHOLLY
OWNED SUBSIDIARY OR HOLDING COMPANY HOLDING TENANT'S STOCK PROVIDED THAT
TENANT SHALL REMAIN FULLY LIABLE ON THIS LEASE AND FOR THE PERFORMANCE OF ALL
TERMS, COVENANTS END PROVISIONS OF THIS LEASE. Notwithstanding any assignment
or subletting, Tenant shall remain fully liable on this Lease and for the
performance of all terms, covenants and provisions of this Lease.
Section 13 2. Change In Ownership.
If Tenant or the guarantor of this Lease, if any, is a corporation the
stock of which is not traded on any national securities exchange (as defined
in the Securities Exchange Act of 1934, as amended), then the following shall
constitute an assignment of this Lease for all purposes of this Article XIII:
(i) the merger, consolidation or reorganization of such corporation; and/or
(ii) the sale, issuance, or transfer, cumulatively or in one transaction, of
any voting stock, by Tenant or the guarantor of this Lease or the stockholders
of record of either as of the date of this Lease, which results in a change in
the voting control of Tenant or the guarantor of this Lease, except any such
transfer by inheritance or testamentary disposition. If Tenant or the guarantor
of this Lease, if any, is a joint venture, partnership or other association,
then for all purposes of this Article XIII, the sale issuance or transfer,
cumulatively or in one transaction, of either voting control or of a
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twenty-five percent (25%) interest, or the termination of any joint venture,
partnership or other association, shall constitute an assignment, except any
such transfer by inheritance or testamentary disposition.
ARTICLE XIV
PROMOTIONAL FUND AND ADVERTISING
Section 14.1. Provisions Relating to Promotional Advertising
Landlord may, at its option, create and maintain an advertising and
promotional fund (hereinafter referred to as the "Fund"), the primary purpose
of which is to provide sums necessary for professional advertising and
promotional services which benefit the tenants in the Center. In the event
Landlord does create and maintain the Fund, Tenant agrees to contribute to
such Fund, beginning upon the later to occur of (a) the Commencement Date, or
(b) the date the Fund is created, the greater of (a) $2.00 per square foot of
Store Floor Area, or (b) $2,000.00 during each calendar year of the Lease Term
(hereinafter referred to as "Fixed Contribution") payable in equal monthly
installments, in advance, on the first day of each and every month (pro rated
for partial months). Landlord shall contribute an amount equal to 1/4 of the
monies collected from all tenants in the Center during each calendar year,
which sum may be paid in whole or in part by Landlord, at its option, by
providing the services of a Marketing Director or other person or persons
under Landlord's exclusive control to help organize and implement advertising
and promotional programs using assets from the Fund. Any overpayment or
underpayment of such amount by Landlord shall be adjusted annually. The Fixed
Contribution shall be increased annually commencing with the creation of the
Fund based upon the increase of the Consumer Price Index (as defined in
Section 7.2 above) during the preceding twelve (12) month period. In addition
to its other obligations contained herein, Tenant agrees that it shall
participate and cooperate in all special sales and promotions sponsored by the
Fund. The failure of any other tenant or any Department Store to contribute to
the Fund shall not affect Tenant's obligations hereunder.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS SECTION 14.1,
TENANT SHALL HAVE NO OBLIGATION TO CONTRIBUTE TO THE PROMOTIONAL FUND, ANY
TIME IN WHICH LESS THAN EIGHTY PERCENT (80%) OF ALL OTHER TENANTS (EXCLUDING
DEPARTMENT STORES) IN THE CENTER ALSO ARE OBLIGATED TO CONTRIBUTE TO SAID
PROMOTIONAL FUND.
Section 14.2.Advertising.
[CONFIDENTIAL]
Section 14.3. Media Fund
Landlord may, at its option, create and maintain a Media Fund, the
exclusive purpose of which shall be to pay all costs and expenses associated
with the purchase of electronic, print or outdoor advertising for the
promotion of the Center. In the event Landlord does create and maintain the
Media Fund, Tenant agrees to contribute to such Fund, beginning upon the later
to occur of (a) the Commencement Date or (b) the date the Media Fund is
created, a sum equal to the greater of (a) $2.00 per square foot of Store
Floor Area or (b) $1,000.00, during each calendar year of the Lease Term
(hereinafter referred to as "Media Fund Charge"), payable in equal monthly
installments, in advance, on the first day of each and every month (pro rated
for partial months).
The Media Fund Charge shall be adjusted annually by a percentage equal to
the percentage increase or decrease in the electronic, print and outdoor
advertising rates of the media used for advertising and promotions in the
preceding calendar year in the media market in which the Center is located,
provided, however that said charge shall not be less than as originally set
forth herein. Within ninety (90) days following the close of each calendar
year, Landlord shall furnish Tenant a statement for the preceding calendar
year showing the amounts expended by Landlord for media advertising. Tenant
hereby authorizes Landlord to use Tenant's trade name and a brief description
of Tenant's business in connection with any media advertising purchased
pursuant to this Section.
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ARTICLE XV
SECURITY DEPOSIT
Section 15.1. Amount of Deposit.
Tenant herewith has deposited with Landlord $2,000.00, which shall be
held by Landlord and, at Landlord's option, commingled with other funds,
without liability for interest, as security for the faithful performance by
Tenant of all the terms, covenants and conditions of this Lease.
If Tenant commits a default hereunder, Landlord at its option may apply
said deposit, or any part thereof, to compensate Landlord for loss, cost,
damage or expense sustained due to such default. Upon Landlord's request,
Tenant shall forthwith remit to Landlord cash sufficient to restore said sum
to the original sum deposited; Tenant's failure to do so within five days
after receipt of a demand therefor shall be a default under this Lease. If at
the end of the THIRTY SIXTH (36TH) MONTH OF THE Lease Term Tenant HAS NOT PAID
ANY PAYMENT OF MINIMUM RENT, ADDITIONAL RENT OR ANY OTHER AMOUNTS DUE
HEREUNDER PAST ITS DUE DATE, THEN [CONFIDENTIAL], the balance of such security
deposit shall be returned to Tenant.
Landlord may deliver the funds deposited hereunder to any purchaser of or
successor to Landlord's interest in this lease or the Premises, and thereupon
Landlord shall be discharged from all liability with respect to such deposit.
ARTICLE XVI
DAMAGE AND DESTRUCTION
If the Premises are hereafter damaged or destroyed or rendered partially
untenantable for their accustomed use by fire or other casualty insured under
the coverage which Landlord is obligated to carry pursuant to Section 11.1
hereof, Landlord shall promptly repair the same to substantially the condition
which they were in immediately prior to the happening of such casualty
(excluding stock in trade, fixtures, furniture, furnishings, carpeting, floor
covering, wall covering, drapes and equipment), and from the date of such
casualty until the Premises are so repaired and restored, the Minimum Monthly
Rent payments payable hereunder shall abate in such proportion as the part of
said Premises thus destroyed or rendered untenantable bears to the total
Premises; provided, however, that Landlord shall not be obligated to repair and
restore if such casualty is not covered by the insurance which Landlord is
obligated to carry pursuant to Section 11.1 hereof [CONFIDENTIAL], and
provided, further, that Landlord shall not be obligated to expend for any
repair or restoration an amount in excess of the insurance proceeds recovered
therefor, and provided, further, that if the Premises be damaged, destroyed or
rendered untenantable for their accustomed uses by fire or other casualty to
the extent of more than fifty percent (50%) of the cost to replace the Premises
during the last [CONFIDENTIAL] year of the Lease Term, then Landlord OR TENANT
shall have the right to terminate this Lease effective as of the date of such
casualty by giving to THE OTHER PARTY [CONFIDENTIAL], within sixty (60) days
after the happening of such casualty, written notice of such termination. If
such notice be given, this Lease shall terminate and Landlord shall promptly
repay to Tenant any rent theretofore paid in advance which was not earned at
the date of such casualty. Any time that Landlord repairs or restores the
Premises after damage or destruction, then Tenant shall promptly repair or
replace its stock in trade, fixtures, furnishings, furniture, carpeting, wall
covering, floor covering, drapes and equipment to the same condition as they
were in immediately prior to the casualty, and if Tenant has closed its
business, Tenant shall promptly reopen for business upon the completion of
such repairs.
Notwithstanding anything to the contrary set forth herein, in the event
all or any portion of the Center shall be damaged or destroyed by fire or
other cause (notwithstanding that the Premises may be unaffected thereby),
to the extent the cost of restoration thereof would exceed TWENTY-FIVE
PERCENT (25%) of the amount it would have cost to replace the Center in its
entirety at the time such damage or destruction occurred, then Landlord may
terminate this Lease by giving Tenant thirty (30) days prior notice of
Landlord's election to do so, which notice shall be given, if at all, within
ninety (90) days following the date of such occurrence. In the event of the
termination of this Lease as aforesaid, this Lease shall cease thirty (30)
days after such notice is given, and the rent and other charges hereunder
shall be adjusted as of that date.
ARTICLE XVII
EMINENT DOMAIN
Section 17.1. Condemnation.
If ten percent (10%) or more of the Store Floor Area or fifteen percent
(15%) or more of the Center shall be acquired or condemned by right of eminent
domain for any public or quasi public use or purpose, or if an Operating
Agreement is terminated as a result of such an acquisition or condemnation,
then Landlord at its election may terminate this Lease by giving notice to
Tenant of its election, and in such event rentals shall be apportioned and
adjusted as of the date of termination. If the Lease shall not be terminated as
aforesaid, then it shall continue in full force and effect, and Landlord shall
within a reasonable time after possession is physically taken (subject to
delays due to shortage of labor, materials or equipment, labor difficulties,
breakdown of equipment, government restrictions, fires, other casualties or
other causes beyond the
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reasonable control of Landlord) repair or rebuild what remains of the Premises
for Tenant's occupancy; and a just proportion of the Minimum Annual Rent shall
be abated, according to the nature and extent of the injury to the Premises
until such repairs and rebuilding are completed, and thereafter for the balance
of the Lease Term. IF ANY PORTION OF THE PREMISES SHALL BE ACQUIRED OR
CONDEMNED BY RIGHT OF EMINENT DOMAIN FOR ANY PUBLIC OR QUASI PUBLIC USE OR
PURPOSE, TENANT MAY TERMINATE THIS LEASE BY GIVING NOTICE TO LANDLORD WITHIN
SIXTY (60) DAYS OF THE TAKING, AND IN SUCH EVENT RENTALS SHALL BE APPORTIONED
AND ADJUSTED AS OF THE DATE OF SUCH TAKING.
Section 17.2. Damages.
Landlord reserves, and Tenant assigns to Landlord, all rights to damages
on account of any taking or condemnation or any act of any public or quasi
public authority for which damages are payable. Tenant shall execute such
instruments of assignment as Landlord requires, join with Landlord in any
action for the recovery of damages, if requested by Landlord, and turn over to
Landlord any damages recovered in any proceeding. If Tenant fails to execute
instruments required by Landlord, or undertake such other steps as requested,
Landlord shall be deemed the duly authorized irrevocable agent and
attorney-in-fact of Tenant to execute such instruments and undertake such
steps on behalf of Tenant. However, Landlord does not reserve any damages
payable for trade fixtures installed by Tenant at its own cost which are not
part of the realty. TENANT SHALL HAVE THE RIGHT TO PURSUE, BY SEPARATE
PROCEEDING, AN AWARD FOR LOSSES IT HAS INCURRED DUE TO SUCH TAKING PROVIDED
SAID RECOVERY DOES NOT DIMINISH THE AWARD OTHERWISE PAYABLE TO LANDLORD OR ITS
MORTGAGEE.
ARTICLE XVIII
DEFAULT BY TENANT
Section 18.1. Right to Re-Enter.
The following shall be considered for all purposes to be defaults under
and breaches of this Lease: (a) any failure of Tenant to pay any rent or other
amount WITHIN TEN (10) DAYS AFTER NOTICE THAT SAME IS OVERDUE [CONFIDENTIAL] (b)
any failure by Tenant to perform or observe any other of the terms, provisions,
conditions and covenants of this Lease for more than THIRTY (30) days after
written notice of such failure; (c) a determination by Landlord that Tenant has
submitted any false report required to be furnished hereunder; (d) anything
done by Tenant upon or in connection with the Premises or the construction of
any part thereof which directly [CONFIDENTIAL] interferes in any way with, or
results in a work stoppage in connection with, construction of any part of the
Center or any other tenant's space; (e) the bankruptcy or insolvency of Tenant
or the filing by or against Tenant of a petition in bankruptcy or for
reorganization or arrangement or for the appointment of a receiver or trustee
of all or a portion of Tenant's property, or Tenant's assignment for the
benefit of creditors; (f) Tenant abandoning or vacating or failing to do
business in the Premises or (g) this Lease or Tenant's interest herein or in
the Premises or any improvements thereon or any property of Tenant are executed
upon or attached; or (h) the Premises come into the hands of any person other
than expressly permitted under this Lease. In any such event, and without
FURTHER grace period, demand or notice (the same being hereby waived by
Tenant), Landlord, in addition to all other rights or remedies it may have,
shall have the right thereupon or at any time thereafter to terminate this
Lease by giving notice to Tenant stating the date upon which such termination
shall be effective, and shall have the right, either before or after any such
termination, to re-enter and take possession of the Premises, remove all
persons and property from the Premises, store such property at Tenant's
expense, and sell such property if necessary to satisfy any deficiency in
payments by Tenant as required hereunder, all without FURTHER notice or resort
to legal process and without being deemed guilty of trespass or becoming liable
for any loss or damage occasioned thereby. Nothing herein shall be construed to
require Landlord to give any notice before exercising any of its rights and
remedies provided for in Section 3.4 of this Lease. Notwithstanding anything to
the contrary herein contained, if Tenant commits any default hereunder for or
precedent to which or with respect to which notice is herein required, and
commits such defaults within twelve (12) months thereafter, no notice shall
thereafter be required to be given by Landlord as to or precedent to any such
subsequent default during such twelve (12) month period (as Tenant hereby
waiving the same) before exercising any or all remedies available to Landlord.
Section 18.2. Right to Relet.
If Landlord re-enters the Premises as above provided, or if it takes
possession pursuant to legal proceedings or otherwise, it may either
terminate this Lease or it may, from time to time, without terminating this
Lease, make such alterations and repairs as it deems advisable to relet the
Premises, and relet the Premises or any part thereof for such term or terms
(which may extend beyond the Lease Term) and at such rentals and upon such
other terms and conditions as Landlord in its sole discretion deems advisable;
upon each such reletting all rentals received by Landlord therefrom shall be
applied, first, to any indebtedness other than rent due hereunder from Tenant
to Landlord; second, to pay any costs and expenses of reletting, including
brokers and attorneys' fees and costs of alterations and repairs; third, to
rent due hereunder, and the residue, if any, shall be held by Landlord and
applied in payment of future rent as it becomes due hereunder. LANDLORD SHALL
USE REASONABLE EFFORTS TO MITIGATE ITS DAMAGES HEREUNDER.
If rentals received from such reletting during any month are less than
that to be paid during that month by Tenant hereunder, Tenant shall
immediately pay any such deficiency to Landlord. No re-entry or taking
possession of the Premises by Landlord shall be construed as an election to
terminate this Lease unless a written notice of such termination is given by
Landlord.
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Notwithstanding any such reletting without Termination, Landlord may at
any time thereafter terminate this Lease for any prior breach or default. If
Landlord terminates this Lease for any breach, or otherwise takes any action on
account of Tenant's breach or default hereunder, in addition to any other
remedies it may have, it may recover from Tenant all damages incurred by reason
of such breach or default, including REASONABLE attorneys' fees, all REASONABLE
costs of retaking the Premises and including the excess, if any, of the total
rent and charges reserved in this Lease for the remainder of the Lease Term over
the then reasonable rental value of the Premises for the remainder of the Lease
Term, all of which shall be immediately due and payable by Tenant to Landlord.
In determining the rent payable by Tenant hereunder subsequent to default, the
Minimum Annual Rent for each year of the unexpired portion of the Lease Term
shall equal the average Minimum Annual [CONFIDENTIAL] Rent which Tenant
was obligated to pay from the commencement of the Lease Term to the time of
default, or during the preceding three (3) full calendar years, whichever
period is shorter.
Section 18.3. Counterclaim.
If Landlord commences any proceedings for non-payment of rent (Minimum
Annual Rent, [CONFIDENTIAL] or additional rent), Tenant will not interpose
any NON-COMPULSORY counterclaim of any nature or description in such
proceedings. This shall not, however, be construed as a waiver of Tenant's
right to assert such claims in a separate action brought by Tenant. The
covenants to pay rent and other amounts hereunder are independent covenants and
Tenant shall have no right to hold back, offset or fail to pay any such amounts
for default by Landlord or any other reason whatsoever.
Section 18.4. Waiver of Rights of Redemption.
To the extent permitted by law, Tenant waives any and all rights of
redemption granted by or under any present or future laws if Tenant is evicted
or dispossessed for any cause, or if Landlord obtains possession of the
Premises due to Tenant's default hereunder or otherwise.
Section 18.5. Bankruptcy
A. Assumption of Lease. In the event Tenant shall become a Debtor under
Chapter 7 of the Bankruptcy Code ("Code") or a petition for reorganization or
adjustment of debts is filed concerning Tenant under Chapters 11 or 13 of the
Code, or a proceeding is filed under Chapter 7 and is transferred to Chapters
11 or 13, the Trustee or Tenant, as Debtor and as Debtor-In-Possession, may not
elect to assume this Lease unless, at the time of such assumption, the Trustee
or Tenant has:
1. Cured or provided Landlord "Adequate Assurance" (as defined below)
that:
(a) Within ten (10) days from the date of such assumption the Trustee
or Tenant will cure all monetary defaults under this Lease
and compensate Landlord for any actual pecuniary loss resulting
from any existing default, including without limitation,
Landlord's reasonable costs, expenses, accrued interest as set
forth in Section 4.2 of the Lease, and attorneys' fees incurred as
a result of the default;
(b) Within thirty (30) days from the date of such assumption the
Trustee or Tenant will cure all non-monetary defaults under this
Lease; and
(c) The assumption will be subject to all of the provisions of this
Lease.
2. For purposes of this Section 18.5, Landlord and Tenant acknowledge
that, in the context of a bankruptcy proceeding of Tenant, at a minimum
"Adequate Assurance" shall mean:
(a) The Trustee or Tenant has and will continue to have
sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure
Landlord that the Trustee or Tenant will have sufficient
funds to fulfill the obligations of Tenant under this Lease,
and to keep the Premises stocked with merchandise and
properly staffed with sufficient employees to conduct a fully
operational, actively promoted business in the Premises; and
(b) The Bankruptcy Court shall have entered an Order segregating
sufficient cash payable to Landlord and/or the Trustee or
Tenant shall have granted a valid and perfected first lien
and security interest and/or mortgage in property of Trustee
or Tenant acceptable as to value and kind to Landlord, to
secure to Landlord the obligation of the Trustee or Tenant to
cure the monetary and/or non-monetary defaults under this
Lease within the time periods set forth above; and
(c) The Trustee or Tenant at the very least shall deposit a sum
equal to one (1) month's rent to be held by Landlord (without
any allowance for interest thereon) to secure Tenant's future
performance under the Lease.
B. Assignment of Lease. If the Trustee or Tenant has assumed the Lease
pursuant to the provisions of this Section 18.5 for the purpose of assigning
Tenant's interest hereunder to any other person or entity, such interest may be
assigned only after the Trustee, Tenant or the proposed assignee have complied
with all of the terms, covenants and conditions of Section 13.1 herein,
including, without limitation, those with respect to additional rent and the
use of the Premises only as permitted in Article VIII herein; Landlord and
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Tenant acknowledging that such terms, covenants and conditions are commercially
reasonable in the context of a bankruptcy proceeding of Tenant. Any person or
entity to which this Lease is assigned pursuant to the provisions of the Code
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall upon request execute and deliver to Landlord an
instrument confirming such assignment.
C. Adequate Protection. Upon the filing of a petition by or against
Tenant under the Code, Tenant, as Debtor and as Debtor-in-Possession, and any
Trustee who may be appointed agree to adequately protect Landlord as follows:
(1) To perform each and every obligation of Tenant under this Lease
until such time as this Lease is either rejected or assumed by
Order of the Bankruptcy Court; and
(2) To pay all monetary obligations required under this Lease,
including without limitation, the payment of Minimum Monthly Rent,
and such other additional rent charges payable hereunder which is
considered reasonable compensation for the use and occupancy of the
Premises; and
(3) Provide Landlord a minimum 30 days prior written notice, unless a
shorter period is agreed to in writing by the parties, of any
proceeding relating to any assumption of this Lease or any intent
to abandon the Premises, which abandonment shall be deemed a
rejection of this Lease; and
(4) To perform to the benefit of Landlord otherwise required under the
Code.
The failure of Tenant to comply with the above shall result in an
automatic rejection of this Lease.
D. Accumulative Rights. The rights, remedies and liabilities of Landlord
and Tenant set forth in this Section 18.5 shall be in addition to those which
may now or hereafter be accorded, or imposed upon, Landlord and Tenant by the
Code.
ARTICLE XIX
DEFAULT BY LANDLORD
Section 19.1. Default Defined, Notice.
Landlord shall in no event be charged with default in any of its
obligations hereunder unless and until Landlord shall have failed to perform
such obligations within thirty (30) days (or such additional time as is
reasonably required to correct any such default) after written notice to
Landlord by Tenant, specifically describing such failure.
Section 19.2. Notice to First Mortgagee.
If the holder of the first mortgage covering the Premises shall have
given written notice to Tenant of the address to which notices to such holder
are to be sent, Tenant shall give such holder written notice simultaneously
with any notice given to Landlord of any default of Landlord, and if Landlord
fails to cure any default asserted in said notice within the time provided
above, Tenant shall notify such holder in writing of the failure to cure, and
said holder shall have the right but not the obligation, within thirty (30)
days after receipt of such second notice, to cure such default before Tenant
may take any action by reason of such default.
ARTICLE XX
TENANT'S PROPERTY
Section 20.1. Taxes on Leasehold.
Tenant shall be responsible for and shall pay before delinquent all
municipal, county, federal or state taxes coming due during or after the Lease
Term against Tenant's interest in this Lease or against personal property of
any kind owned or placed in, upon or about the Premises by Tenant.
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Section 20 2. Assets of Tenant.
[CONFIDENTIAL]
ARTICLE XXI
ACCESS BY LANDLORD
Section 21.1. Right of Entry.
Landlord, its agents and employees shall have the right to enter the
Premises UPON REASONABLE PRIOR NOTICE from time to time at reasonable times to
examine the same, show them to prospective purchasers and other persons, and
make such repairs, alterations, improvements or additions as Landlord deems
desirable. Rent shall not abate while any such repairs, alterations,
improvements, or additions are being made UNLESS TENANT IS REASONABLY PREVENTED
FROM OPERATING ITS BUSINESS ON THE PREMISES FOR MORE THAN FORTY-EIGHT (48)
CONSECUTIVE HOURS. During the last six (6) months of the Lease Term, Landlord
may exhibit the Premises to prospective tenants and maintain upon the Premises
notices deemed advisable by Landlord. In addition, during any apparent
emergency, Landlord or its agents may enter the Premises forcibly without
liability therefor and without in any manner affecting Tenant's obligations
under this Lease. Nothing herein contained, however, shall be deemed to impose
upon Landlord any obligation, responsibility or liability whatsoever, for any
care, maintenance or repair except as otherwise herein expressly provided.
ARTICLE XXII
HOLDING OVER, SUCCESSORS
Section 22.1. Holdinq Over.
If Tenant holds over or occupies the Premises beyond the Lease Term (it
being agreed there shall be no such holding over or occupancy without
Landlord's written consent), Tenant shall pay Landlord for each day of such
holding over a sum equal to [CONFIDENTIAL] Minimum Annual Rent [CONFIDENTIAL]
prorated for the number of days of such holding over, plus, [CONFIDENTIAL], a
prorata portion of all other amounts which Tenant would have been required to
pay hereunder had this Lease been in effect. If Tenant holds over with or
without Landlord's written consent Tenant shall occupy the Premises on a tenancy
from month to month and all other terms and provisions of this Lease shall be
applicable to such period.
Section 22.2. Successors.
All rights and liabilities herein given to or imposed upon the respective
parties hereto shall bind and inure to the several respective heirs,
successors, administrators, executors and assigns of the parties and if Tenant
is more than one (1) person, they shall be bound jointly and severally by this
Lease except that no rights shall inure to the benefit of any assignee or
subtenant of Tenant unless the assignment or sublease was approved by Landlord
in writing as provided in Section 13.1 hereof. Landlord, at any time and from
time to time, may make an assignment of its interest in this Lease and, in the
event of such assignment, Landlord and its successors and assigns (other than
the assignee of Landlord's interest in this Lease) shall be released from any
and all liability thereafter accruing hereunder.
ARTICLE XXIII
QUIET ENJOYMENT
Section 23.1 Landlord's Covenant.
If Tenant pays the rents and other amounts herein provided, observes and
performs all the covenants, terms and conditions hereof, Tenant shall peaceably
and quietly hold and enjoy the Premises for the Lease Term without interruption
by Landlord or any person or persons claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease.
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<PAGE> 24
ARTICLE XXIV
MISCELLANEOUS
Section 24.1. Waiver.
No waiver by Landlord or Tenant of any breach of any term, covenant or
condition hereof shall be deemed a waiver of the same or any subsequent breach
of the same or any other term, covenant or condition. The acceptance of rent
by Landlord shall not be deemed a waiver of any earlier breach by Tenant of
any term, covenant or condition hereof, regardless of Landlord's knowledge of
such breach when such rent is accepted. No covenant, term or condition of this
Lease shall be deemed waived by Landlord or Tenant unless waived in writing.
Section 24.2. Accord and Satisfaction.
Landlord is entitled to accept, receive and cash or deposit any payment
made by Tenant for any reason or purpose or in any amount whatsoever, and
apply the same at Landlord's option to any obligation of Tenant and the same
shall not constitute payment of any amount owed except that to which Landlord
has applied the same. No endorsement or statement on any check or letter of
Tenant shall be deemed an accord and satisfaction or otherwise recognized for
any purpose whatsoever. The acceptance of any such check or payment shall be
without prejudice to Landlord's right to recover any and all amounts owed by
Tenant hereunder and Landlord's right to pursue any other available remedy.
Section 24.3. Entire Agreement.
There are no representations, covenants, warranties, promises,
agreements, conditions or undertakings, oral or written, between Landlord and
Tenant other than herein set forth. Except as herein otherwise provided, no
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless in writing and signed by them.
Section 24.4. No Partnership.
Landlord does not, in any way or for any purpose, become a partner,
employer, principal, master, agent or joint venturer of or with Tenant.
Section 24.5. Force Majeure.
If either party hereto shall be delayed or hindered in or prevented from
the performance of any act required hereunder by reason of strikes, lockouts,
labor troubles, inability to procure material, failure of power, restrictive
governmental laws or regulations, riots, insurrection, war, environmental
remediation work whether ordered by any governmental body or voluntarily
initiated or other reason of a like nature not the fault of the party delayed
in performing work or doing acts required under this Lease, the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay. Notwithstanding the foregoing, the provisions of this
Section 24.5 shall at no time operate to excuse Tenant from the obligation to
open for business on the Commencement Date, except in the event of an industry
wide strike, nor any obligations for payment of Minimum Annual Rent,
[CONFIDENTIAL], additional rent or any other payments required by the terms of
this Lease when the same are due, and all such amounts shall be paid when due.
Section 24.6. Submission of Lease.
Submission of this Lease to Tenant does not constitute an offer to lease;
this Lease shall become effective only upon execution and delivery thereof by
Landlord and Tenant. Upon execution of this Lease by Tenant, Landlord is
granted an irrevocable option for FIFTEEN (15) days to execute this Lease
within said period and thereafter return a fully executed copy to Tenant. The
effective date of this Lease shall be the date filled in on Page 1 hereof by
Landlord, which shall be the date of execution by the last of the parties to
execute the Lease.
Section 24.7. Notices
All notices from Tenant to Landlord required or permitted by any provision
of this agreement shall be directed to Landlord as follows:
LINCOLNWOOD ASSOCIATES
c/o M.S. Management Associates Inc.
One Merchants Plaza, Suite 1500
P.O. Box 7033
Indianapolis, Indiana 46207
Prior to the Commencement Date such notices shall only be effective if
given to Landlord at the address shown above and to Landlord at the address
shown below:
LINCOLNWOOD ASSOCIATES
c/o M.S. Management Associates Inc.
Construction Department
One Merchants Plaza, Suite 1500
P.O. Box 7033
Indianapolis, Indiana 46207
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<PAGE> 25
All notices from Landlord to Tenant required or permitted hereunder shall
be directed as follows, namely:
FIRST NATIONAL BANK OF LINCOLNSHIRE
[CONFIDENTIAL]
One Marriott Drive
Lincolnshire, Illinois 60069-3703
ATTN: PRESIDENT
All notices to be given hereunder by either party shall be written and
sent by registered or certified mail, return receipt requested, postage
pre-paid or by an express mail delivery service, addressed to the party
intended to be notified at the address set forth above. Either party may, at
any time, or from time to time, notify the other in writing of a substitute
address for that above set forth, and thereafter notices shall be directed to
such substitute address. Notice given as aforesaid shall be sufficient service
thereof and shall be deemed given as of the date received, as evidenced by the
return receipt of the registered or certified mail or the express mail delivery
receipt, as the case may be. A duplicate copy of all notices from Tenant shall
be sent to any mortgagee as provided for in Section 19.2.
Section 24.8. Captions and Section Numbers.
This Lease shall be construed without reference to titles of Articles and
Sections, which are inserted only for convenience of reference.
Section 24.9. Number and Gender.
The use herein of a singular term shall include the plural and use of the
masculine, feminine or neuter genders shall include all others.
Section 24.10. Objection to Statements.
Tenant's failure to object to any statement, invoice or billing rendered
by Landlord within a period of ONE HUNDRED EIGHTY (180) days after receipt
thereof shall constitute Tenant's acquiescence with respect thereto and shall
render such statement, invoice or billing an account stated between Landlord
and Tenant.
Section 24.11. Representation by Corporate Tenant.
If Tenant is or will be a corporation, the persons executing this Lease on
behalf of Tenant hereby covenant and warrant that Tenant is a duly qualified
corporation authorized to do business in the State of Illinois, that all
franchise and corporate taxes have been paid to date and all future forms,
reports, fees and other documents necessary to comply with applicable laws will
be filed when due, and the person signing this Lease on behalf of the
corporation is an officer of Tenant, and is duly authorized to sign and execute
this Lease.
Section 24.12. Joint and Several Liability.
If Tenant is a partnership or other business organization the members of
which are subject to personal liability, the liability of each such member
shall be deemed to be joint and several.
Section 24.13. Limitation of Liability.
Anything to the contrary herein contained notwithstanding, there shall be
absolutely no personal liability on persons, firms or entities who constitute
Landlord with respect to any of the terms, covenants, conditions and provisions
of this Lease, and Tenant shall, subject to the rights of any first mortgagee,
look solely to the interest of Landlord, its successors and assigns, in
Landlord's Tract for the satisfaction of each and every remedy of Tenant in the
event of default by Landlord hereunder; such exculpation of personal
liability is absolute and without any exception whatsoever.
Section 24.14. Broker's Commission.
Each party represents and warrants that it has caused or incurred no
claims for brokerage commissions or finder's fees in connection with the
execution of this Lease, and each party shall indemnify and hold the other
harmless against and from all liabilities arising from any such claims caused
or incurred by it (including without limitation, the cost of attorneys' fees
in connection therewith).
Section 24.15. Partial Invalidity.
If any provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
Section 24.16. Recording.
The parties agree not to place this Lease of record but each party shall,
at the request of the other, execute and acknowledge so that the same may be
recorded a Short Form Lease or Memorandum of Lease, indicating the Lease Term,
but omitting rent and other terms and an Agreement specifying the date of
commencement and termination of the Lease Term; provided, however, that the
failure to record said Short Form Lease, Memorandum of Lease or Agreement shall
not affect or impair the validity and effectiveness of this Lease. THE
REQUESTING PARTY [CONFIDENTIAL] shall pay all costs, taxes, fees and other
expenses in connection with or prerequisite to recording.
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<PAGE> 26
Section 24.17 Applicable Law.
This Lease shall be construed under the laws of the State of Illinois.
Section 24.18 Mortgagee's Approval.
[CONFIDENTIAL]
Section 24.19 Special Construction Provision; Waiver of Tenant Construction
Chargebacks.
Notwithstanding anything herein in this Lease, any exhibits attached
hereto or any other documents incorporated herein, Tenant shall not be required
to pay or reimburse Landlord for any work performed by Landlord at Tenant's
expense (commonly referred to as "Construction Chargebacks") and Landlord
hereby waives all Construction Chargebacks therefor except for the following:
(i) temporary utility services used by Tenant during Tenant's construction
period; (ii) removal of construction rubbish and debris resulting from Tenant's
Work in the event Tenant fails to remove the same and Landlord removes such
construction rubbish on Tenant's behalf; (iii) purchase of mall floor tile and
base; (iv) damage deposit, (v) the cost of Tenant's electrical connection to
Landlord's switchgear; (vi) a temporary storefront or barricade if Tenant fails
to install the same as required by Exhibit "D"; (vi) any roof cuts or roof
openings required to be made by Landlord's roofing contractor; (viii) any
structural changes to the Premises or the Center necessitated by Tenant's Work;
(ix) any upgrade in Landlord's standard work if such upgrade is requested by
Tenant or required by Tenant's approved plans and specifications; and (x)
any work performed by Landlord or Landlord's contractor at Tenant's request
which work is not part of Landlord's standard work in the Premises or the
Center.
Section 24.20 Additional Provisions
A. During the Lease Term, Landlord agrees, so long as Tenant is fully
performing all of its obligations under this Lease, not to lease or to permit
the use of any space available for lease of the interior enclosed Common Areas
of Landlord's Tract to any tenant whose primary use is that of the business of
a financial institution providing consumer loans and accepting deposits
(hereinafter referred to as "competing use") provided, however, that this
restriction shall not apply to: (a) any outlot parcels (except for any outlot
transactions between Landlord and Tenant), (b) to any so-called anchor tenants,
(c) to any tenants which are permitted to offer said competing use on the date
of this Lease, and (d) to any automatic teller machines located in the Center
utilizing the same ATM carrier service as Tenant provided that Tenant has
failed to exercise its rights pursuant to Paragraph E of this Section 24.20
(the term "ATM Carrier Service" shall mean the vendor providing network service
to Tenant such as Cirrus). In the event that Landlord is deemed to be in
violation of this Section, Tenant's sole remedy (unless Tenant is not fully
performing its obligations hereunder) shall be to (a) terminate this Lease upon
sixty (60) days written notice to Landlord provided that said notice is given
within one hundred twenty (120) days following the date that said competing use
is offered in the interior enclosed mall Common Areas of Landlord's Tract, or
(b) the Minimum Rent provided herein shall be reduced by twenty-five percent
(25%) until such time that the competing use is no longer offered for business
in the Center.
B. Subject to local governing authority, and Department Store approval,
and further, subject to applicable laws, codes and ordinances, Tenant shall be
permitted during the term of this Lease, to use four (4) parking spaces
adjacent to the lower level handicapped spaces located nearest the Premises for
short term parking for the convenience of its customers. Tenant must provide
and install the signage, poles and all other appurtenances for the spaces, and
said space design shall be approved in writing by Landlord prior to
installation. Any installations shall be at Tenant's sole expense. In the event
that local governing authority elects to terminate its approval of short term
parking or fails to renew any such approval, then this paragraph shall be of no
further force and effect Landlord shall notify Tenant of any local governing
authority failure to renew or termination of said approval.
C. During the first twelve (12) months of the Lease Term, Landlord shall
not enter into a lease for Lot LL-03 in the Center with another entity without
first offering Tenant an opportunity to Lease such space on the same terms and
conditions. Landlord shall notify Tenant of the proposed terms and conditions
thereof. If Landlord has not received Tenant's written election to lease such
space upon such terms and conditions with fifteen (15) days after Landlord's
notice to Tenant, then Landlord shall be free to execute the proposed lease
with another party. In the event that Landlord and Tenant enter into a Lease
for Lot LL-03 in the Center, then this Lease shall terminate upon the
Commencement Date of Tenant's Lease for Lot LL-03.
D. In the event that less than seventy percent (70%) of the Gross
Leaseable Area of the "small shop tenants" in the enclosed mall portion of the
Center (hereinafter called "Minimum Occupancy Level") fail to continuously
open and operate and Landlord fails to restore the said Gross Leaseable Area to
greater
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<PAGE> 27
than the Minimum Occupancy Level within sixty (60) days following the
date that Landlord failed to maintain said Minimum Occupancy Level, then the
Minimum Annual Rent hereunder shall be reduced by thirty percent (30%)
commencing upon the 61st day following Landlord's failure to maintain the
Minimum Occupancy Level until said date that greater than the Minimum Occupancy
Level is achieved in the enclosed mall portion of the Center. For purposes of
this Section, a "small shop tenant" shall be defined as a single tenant
occupying less than 25,000 square feet of Store Floor Area in one (1) single
contiguous space.
E. Landlord agrees that prior to the leasing of space in the Center for the
purpose of an automatic teller machine, Landlord shall give Tenant notice in
writing of its intention to lease such premises. Said Notice shall specify the
economic terms upon which Landlord intends to lease the Premises. Tenant shall
have ten (10) days from and after receipt of the Notice to exercise a right of
first refusal to lease the Premises by written notice to Landlord. If Tenant
does not exercise its right of first refusal to lease the Premises, then
Landlord shall be free to execute the proposed Lease with another party. The
foregoing right of first refusal shall be effective only for the first notice
from Landlord to Tenant and if Tenant does not exercise its right of first
refusal upon Landlord's first notice to Tenant, then the provisions contained
in this Paragraph E shall be null and void and of no further force and effect.
Section 24.21 Tenant's Right to Terminate.
- ------------------------------------------
Notwithstanding anything to the contrary contained herein, so long as
Tenant is not in default hereunder Tenant shall have the right to terminate
this Lease effective at the conclusion of the fourth (4th) Lease Year of the
Lease Term upon giving not less than six (6) months notice to Landlord and
provided that such notice is given not later than the 60th day following the
expiration of the fourth (4th) Lease Year of the Lease Term. In the event that
Tenant exercises its right pursuant to this Section, Tenant agree to pay to
Landlord the sum of Fifty Thousand and 00/100 Dollars ($50,000.00) as
consideration for such termination.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this
Lease as of the day and year first above written.
(LANDLORD) LINCOLNWOOD ASSOCIATES, an Illinois General
Partnership
By: SIMON LINCOLNWOOD DEVELOPERS LIMITED
PARTNERSHIP, an Indiana Limited
Partnership, its General Partner
By: SIMON-LINCOLNWOOD, INC., an Indiana
Corporation, its General Partner
By: /s/Herbert Simon
-----------------------------------------
Herbert Simon, President
(TENANT)
FIRST NATIONAL BANK OF LINCOLNSHIRE, a
Corporation of the United States of America
By: /s/Herbert Simon
------------------------------------------
President
Attest:
--------------------------------------
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<PAGE> 28
Lot 5 in Lincolnwood Town Center Subdivision, being a part of the North
Half of Section 35, Township 41 North, Range 13 East of the Third Principal
Meridian, in cook County, Illinois
Exhibit A
Legal Description of Landlord's Tract
<PAGE> 29
[ MAP OF PARKING FACILITY ]
EXHIBIT "B"
<PAGE> 30
[ UPPER LEVEL PLAN ]
EXHIBIT "C"
<PAGE> 31
[LOWER LEVEL PLAN]
EXHIBIT "C"
<PAGE> 32
DESCRIPTION OF LANDLORD'S WORK AND OF TENANT'S WORK
---------------------------------------------------
I. LANDLORD'S WORK - The following work is to be performed exclusively by
Landlord and, except where otherwise indicated, shall be at Landlord's
sole expense:
A. COMMON AREA
1. Parking Areas, Roads and Sidewalks.
Landlord will provide paved, drained and lighted parking areas,
together with access roads, sidewalks, directions signs, and markers.
2. Utilities: Subject to the provisions of Article VII of the Lease to
which this Exhibit is attached:
a. Sanitary Sewer, Domestic Water - Landlord will install sanitary
sewer and domestic water to the Premises at a point to be
determined by Landlord. Landlord may, at its option, require
Tenant to meter its water service.
b. Electrical Service - Landlord will install, [CONFIDENTIAL],
electrical conduit or tray (without wiring) to the Premises at a
point determined by Landlord. Any disconnect without fuses will
also be installed by Landlord at Tenant's expense. Electrical
service shall be 277/480 volt, three phase, four wire, for Tenant's
combined power and lighting requirement. Conduit shall be sized to
accommodate a service of 7 watts per square foot of floor area of
the Premises, except that in the case of food court tenants the
conduit shall be sized to accommodate a service of 40 watts per
square foot of Store Floor Area Of The Premises. Landlord may, at
its option, install an "all-electric" system.
c. Gas - Gas service will be available for process loads and only for
second floor food court tenants.
d. Sprinkler System - Landlord will install, [CONFIDENTIAL], an
automatic fire sprinkler system throughout the Premises in
compliance with the requirements of Factory Mutual Engineering, and
state and local agencies. Such sprinkler system will be based on a
standard grid and spacing using 130 square feet of Store Floor Area
per sprinkler head. Wherever possible, Landlord will not begin
installation of the sprinkler system without reference to Tenant's
Plans, but where the sprinkler system or some portion thereof has
been installed prior to approval of Tenant's Plans, the cost to
Tenant of modifying the sprinkler system will include, but not be
limited to, the cost of relocating, re-sizing or adding sprinkler
mains or heads.
e. Central System - Landlord will provide and maintain a central
plant and a system of chilled air to the Premises installed
at a point determined by Landlord. Tenant agrees to adapt to
Landlord's central system and provide a complete air distribution
system connected to the air volume control unit. The air volume
control unit and thermostat will be furnished and installed by
Landlord [CONFIDENTIAL] and sized to accommodate the design
conditions as defined in Paragraph I.A.2.f.(1), or upgrade design
conditions if the same are required by Tenant's Plans.
(1) Central System Design - Landlord's central plant and system of
chilled air supply will be designed to provide the following
capacities per square foot of Store Floor Area.
a. Design Total Cooling 30 BTU/Hr.Sq.Ft.
b. Design Air Delivery 0.70 CFM/Sq. Ft.
c. Available Air Pressure
(Downstream of Air Volume
Control Unit) 0.25 Inches of Water
d. Air Supply Temperature:
Summer 54 degrees F DB &
53.5 degrees FWB
Winter 57 degrees F DB
(2) Operation - Landlord will make chilled air available to the
Premises at such times and days as the Center is normally
open for business to the public
EXHIBIT "D"
Page -1-
<PAGE> 33
3. Public Spaces
a. Malls and Courts - The Enclosed Mall shall be hard surfaced,
lighted, heated and cooled.
b. Doors to Service Courts and Corridors - At Landlord's discretion,
a door, 3'-0" in width, with hardware, shall be provided by
Landlord, [CONFIDENTIAL] between the Premises and the service
courts, between the Premises and a public corridor or mall leading
to the service courts, or between the Premises and the exterior of
the Center.
c. Public Spaces and Facilities - The following public spaces and
facilities shall be provided by Landlord:
(1) Where possible, access from the Premises to the service court.
(2) Public toilet facilities shall be located outside of the
Premises at such locations as Landlord shall determine.
B. BUILDINGS
1. Structure
a. Frame, etc. - The structural frame, columns, beams, second level
floor slab (installed at Tenant's expense in accordance with the
terms of this Exhibit "D") and roof deck shall be constructed of
non-combustible and/or wood framing, and the floor slabs shall be
designed to carry live and dead loads in accordance with the
governing building codes.
b. Space Heights - The minimum clear heights, measured between the
floor slab and the ceiling when finished as hereinafter provided,
shall be not less than 9'-0" nor more than 12'-0", depending on
the store size
c. Roof - The roof shall be built-up asphalt, gravel and insulation
to provide a "U" factor of 0.08 maximum.
d. Exterior Walls - Exterior walls shall be of non-combustible
construction, and shall have a finish of suitable nature and of
appropriate materials having a finished appearance and decorative
quality designed by Landlord's architect. Landlord will install,
[CONFIDENTIAL], insulation on exterior walls of the Premises.
e. Partitions - Partitions shall be provided between the Premises and
other areas, as well as between public spaces and the Premises.
These partitions shall extend from finished floor to the underside
of the roof or ceiling (whichever is applicable), shall be, at
Landlord's option, of exposed masonry or exposed stud.
[CONFIDENTIAL]
f. Floor Tile and Base - Landlord will furnish (at Tenant's expense),
but Tenant will install floor tile and base along the storefront
of the Premises, the width of which shall be determined by
Landlord. In the case of food court tenants, Landlord will install
floor tile and base, at Tenant's expense, at the Enclosed Mall
side of Tenant's counter.
g. Fill - Landlord will provide to ground floor tenants,
[CONFIDENTIAL] granular fill material on which Tenant shall
install a polyethalene moisture barrier and pour its floor slab.
h. Neutral Pier - A vertical neutral pier will be installed by
Landlord, [CONFIDENTIAL], at the storefront line between adjoining
stores. The center line of said pier shall coincide with the line
defining the Premises.
EXHIBIT "D"
PAGE -2-
<PAGE> 34
2. Ventilation
A plumbing vent stub and toilet exhaust stub will be installed, to a
point determined by Landlord. [CONFIDENTIAL]
3. Telecommunication Service
Landlord shall provide telecommunication services to the Premises
at a point determined by Landlord. Said service shall
consist of three (3) pairs of telephone lines. [CONFIDENTIAL] Any
modification to the telecommunication system to be provided by
Landlord that is required by Tenant shall be performed by
Landlord's contractor at Tenant's expense.
4. General
a. Landlord, Landlord's agent, an independent contractor, or an
authorized utility company, as the case may be, shall have the
right, subject to Landlord's written approval, to run utility
lines, pipes, wiring, conduits or duct work, where necessary
or desirable, through attic space or other parts of the Premises,
and to repair, alter, replace or remove the same, all in a manner
which does not unnecessarily interfere with Tenant's use thereof.
b. Tenant will be responsible for removal of construction rubbish
resulting from Tenant's Work. In the event Tenant does not remove
such rubbish, it shall be removed by Landlord at Tenant's expense.
c. If the Premises are located on an upper level, the floor slab
shall be installed by Landlord. [CONFIDENTIAL]
d. Any roof cuts or openings required to be made pursuant to
Tenant's Plans shall be performed by Landlord's contractor at
Tenant's expense. In addition, all cant strips, base furnishings
and other work necessary to complete permanent weather proofing of
Landlord's roof as a result of roof cuts or openings required by
Tenant shall be performed by Landlord's contractor at Tenant's
expense.
e. The temporary storefront or barricade shielding the interior of
the Premises from the Enclosed Mall shall be provided by Landlord
at Tenant's expense.
f. Any temporary services required by Tenant during its construction
period, including heat, water and electrical service, shall be
secured from Landlord or Landlord's contractor, as the case may be,
at Tenant's expense.
g. Any additional structural support necessitated by Tenant's
equipment, fixtures or inventory shall be provided by Landlord at
Tenant's expense. If any such additional structural support is
necessary, Tenant must submit its plans for structural review by
Landlord's structural engineer. The cost of any such review shall
be at Tenant's expense, reimbursable to Landlord.
h. Landlord shall provide, [CONFIDENTIAL], a fire damper in Tenant's
demising partitions.
i. Landlord, at its option, may install, [CONFIDENTIAL], an eight (8)
foot grey neutral plane at Tenant's storefront.
j. Food court tenants shall reimburse Landlord for: (i) foot court
tile wall cap; (ii) Tenant's own food court signage; and (iii)
floor tile to Tenant's counter.
Page -3-
<PAGE> 35
II. TENANT'S WORK - The following work required to complete and place the
Premises in finished condition ready to open for business is to be
performed by Tenant at the Tenant's own expense, and shall be in addition
to any work described in the Criteria Information Handbook and Landlord's
Construction Regulations. In the event there is any conflict between the
provisions of this Exhibit "D" and the Criteria Information Handbook and
Landlord's Construction Regulations Handbook, the provisions of the
Criteria Information Handbook shall control. Tenant's Work includes, but is
not limited to, the following:
A. GENERAL PROVISIONS
All work done by Tenant shall be governed in all respects by, and be
subject to, the following:
1. Landlord shall have the right to require Tenant to furnish payment
and performance bonds or other security in form satisfactory to
Landlord for the prompt and faithful performance of Tenant's Work,
assuring completion of Tenant's Work and conditioned that Landlord
will be held harmless from payment of any claim either by way of
damages or liens on account of bills for labor or material in
connection with Tenant's Work. Tenant's Work shall at all times be
conducted in such manner so that Tenant shall not be in violation of
Section 18.1 of the Lease.
2. It is understood and agreed between Landlord and Tenant that
costs incurred by Landlord, if any, as a result of Tenant's failure
or delay in providing the information as required in this Exhibit and
in the Lease to which this Exhibit is attached, shall be the sole
responsibility of Tenant, and Tenant shall pay such costs, if any,
promptly upon Landlord's demand.
3. All Tenant's Work shall conform to applicable statutes,
ordinances, regulations and codes and the requirements of Factory
Mutual Insurance Company and all rating bureaus and the Criteria
Information Handbook which contains the basic architectural,
electrical and mechanical information necessary for the preparation
of Tenant's Plans, and which by this reference is incorporated into
and made a part of this Lease. Tenant shall obtain and convey to
Landlord all approvals with respect to electrical, water, sewer,
heating, cooling and telephone work, all as may be required by any
agency or utility company.
4. No approval by Landlord shall be deemed valid unless in writing and
signed by Landlord.
5. Prior to commencement of Tenant's Work and until completion
thereof, or commencement of the Lease Term, whichever is the last to
occur, Tenant shall effect and maintain Builder's Risk Insurance
covering Landlord, Landlord's general contractor, Tenant, Tenant's
contractors and Tenant's subcontractors, as their interest may
appear, against loss or damage by fire, vandalism and malicious
mischief and such other risks as are customarily covered by a
standard "All Risk" policy of insurance protecting against all risk
of physical loss or damage to all Tenant's Work in place and all
materials stored at the site of Tenant's Work, and all materials,
equipment, supplies and temporary structures of all kinds incidental
to Tenant's Work, and equipment, all while forming a part of or
contained in such improvements or temporary structures, or while on
the Premises or within the Total Tract, all to the actual replacement
cost thereof at all times on a completed value basis. In addition,
Tenant agrees to indemnify and hold Landlord harmless against any and
all claims for injury to persons or damage to property by reason of
the use of the Premises for the performance of Tenant's Work, and
claims, fines, and penalties arising out of any failure of Tenant or
its agents, contractors and employees to comply with any law,
ordinance, code requirement, regulations or other requirement
applicable to Tenant's Work, and Tenant agrees to require all
contractors and subcontractors engaged in the performance of Tenant's
Work to effect and maintain and deliver to Tenant and Landlord
certificates evidencing the existence of, and covering Landlord,
Tenant and Tenant's contractors, prior to commencement of Tenant's
Work and until completion thereof, the following insurance coverages:
a. Workmen's Compensation and Occupational Disease Insurance in
accordance with the laws of the state in which the property is
located, including Employer's Insurance to the limit of $100,000.
b. Comprehensive General Liability Insurance, (excluding
"Automobile Liability" against bodily injury), including
independent contractors, contractual and completed operations,
including death resulting therefrom, and personal injury in the
limits of $3,000,000 for any one occurrence and property damage in
the limits of $1,000,000 for any one occurrence or a combined
single limit policy of $3,000,000 per occurrence.
c. Comprehensive Automobile Insurance, including "non-owned"
automobiles, against bodily injury, including death resulting
therefrom, in the limits of
EXHIBIT "D"
Page -4-
<PAGE> 36
$1,000,000 for any one occurrence and $250,000 property damage or
a combined single limit of $1,000,000.
d. Owners and contractors protective liability coverage for an
amount not less than $3,000,000.
B. FLOOR SLAB
1. Lower level - Lower level Tenants shall install a 4" reinforced
concrete floor slab. Concrete to be 3000 PSI concrete with
6 x 6 10/10 wire mesh reinforcement. Tenant shall recompact all
excavated underslab material disturbed due to installation of
Tenant's underslab items. Compaction to be 95% Modified Proctor dry
density as measured by ASTM test D1557-78. Tenant shall be required
to install 6 x 6 10/10 welded wire fabric reinforcement in slab and a
vapor barrier beneath the slab.
2. Upper level - No penetrations shall be allowed for electrical
outlets in upper level floor slabs. All upper level tenants with
restroom facilities or food preparation areas shall install a floor
slab waterproofing membrane in the Premises. All floor penetrations
must be sleeved and waterproofed.
C. SECURITY SCREEN OR MALL FRONTAGE
1. At least 80% of the mall frontage of the premises shall be
visually transparent (i.e. a combination of open entryway and glass).
No Tenant store front shall have any continuous single area of open
store front in excess of the lesser of eight (8) in width or thirty
percent (30%) of the storefront width of the Premises. Store closures
shall be by means of anodized aluminum roll up grilles or anodized
aluminum sliding and/or sliding glass doors or frameless glass doors
on pivots. No mall frontage shall be constructed without the written
approval of Landlord.
2. All materials employed in the construction of mall frontage shall be
as approved by Landlord and as defined by applicable building codes.
3. Mall Frontage Colors - It is the desire of the Landlord to give
Tenant the greatest practicable freedom in the choice of Enclosed Mall
frontage colors; but:
a. Colors must harmonize with the color scheme of the Center itself.
b. Colors must harmonize with the color scheme of the surrounding
stores. To assist Tenant, a general color range will be developed,
with a sufficiently large selection to permit a reasonable
latitude for individual expression.
4. All swinging entrance doors must be recessed in such a manner that
the door, when open, will not project beyond the lease line.
5. Tenants with exterior glazing must have show windows.
D. CEILING
1. All finished ceilings and coves, the height of which shall not be
less than nine (9) feet above the finished floor (unless approved in
advance by Landlord).
2. Tenant's ceilings shall be one hour fire rated acoustic tile,
gypsum board and/or plaster, suspended by adequate suspension systems
to conform to final requirements of governing authorities and
Landlord.
3. Tenant shall provide ceiling access panels in the ceiling of the
Premises as required by Landlord to service VAV Box(es).
4. The space above the ceiling line which is not occupied or
allotted to Landlord's Work (structural members, duct work, piping,
etc.) may be used for the installation of suspended ceiling, recessed
lighting fixtures and duct work. Under no circumstances will Tenant's
Work be hung or suspended from non-structural construction. Any
Tenant Work involving the hanging or suspension of construction shall
be accomplished only by methods, in locations and by use of assemblies
approved by Landlord.
E. WALLS
All interior walls and curtain walls within the Premises, including all
interior lath plastering and gypsum board thereon, and including lath
plastering, and/or drywall on Landlord's exposed masonry or stud
demising partitions. Demising walls between tenant spaces shall meet
applicable code requirements and continuous from floor to the underside
of the roof or floor.
EXHIBIT "D"
Page -5-
<PAGE> 37
deck. Tenant shall provide and install bracing or blocking as
necessary to support wall mounted fixtures. Cracks, joints and openings
in walls shall be filled with appropriate fire resistant materials.
Return air openings shall be provided in the demising walls between
tenant spaces as required for proper air movement.
F. INTERIOR PAINTING
All interior painting and decoration.
G. FLOOR COVERINGS
1. All mall flooring from the lease line of the Premises to the
threshold in sizes to match mall and/or court installation.
2. All floor finishes. It is Tenant's responsibility to join neatly
and flush with the mall finish floor provided by Landlord. No
recesses shall be permitted in the second floor slab.
H. SHOW WINDOW
All show window backgrounds, show windows, show window floors and
ceilings, and show window lighting installations.
1. FURNITURE, FIXTURES AND SIGNS
All furnishings, trade fixtures, signs, and related parts, including
installation. Location and design of all signs subject to prior
written consent of Landlord.
J. PLUMBING
All plumbing and plumbing fixtures as required by applicable codes
except utility service to the area, including a properly sized water
meter if the same is required by Landlord, in which latter event Tenant
shall make any required utility deposits.
K. HOT WATER HEATER
Domestic electric hot water heater, where required, including final
connections.
L. TOILET ROOM FIXTURES
Furnishing and installation of wiring, lighting fixtures, mechanical
toilet exhaust systems, towel cabinets, soap dishes, hand dryers,
deodorizers, mirrors and other similar items in toilet rooms within the
Premises or as additionally required by applicable codes.
M. HEATING, VENTILATING AND AIR CONDITIONING
1. A complete HVAC Systems shall be designed, furnished and installed
within the Premises by Tenant. The HVAC systems, calculations,
designs and installations shall be as recommended in ASHRAE
Publications and Landlord's Tenant Finish Design Criteria. Tenant's
systems and ventilation shall meet all applicable codes and ASHRAE
standards. Tenant shall furnish Landlord with complete load
calculations including information as to Tenant's lighting load in
watts and Tenant's estimated store population (employees and
customers).
2. Tenant's cooling system shall be adequate for cooling the Premises
to 75 degrees F DB and 50% RH based on the latest ASHRAE guide
outdoor design dry bulb and design wet bulb temperatures for the area
as tabulated in the 2-1/2% columns, with a rise of not more than 3
degrees F DB during peak periods.
3. Tenant's heating method shall be adequate for heating the Premises
to 55 degrees F DB during times other than regular business hours
based on the latest ASHRAE guide outdoor design temperature for the
area as tabulated in the 99% column. The Tenant's heating method
shall be independent of the central cooling system. The Tenant's
lighting system shall be used to heat the sales area during regular
business hours in the heating season. The Tenant's lighting system
may be used to maintain the required sales area minimum temperature
level during other then regular business hours in the heating season.
EXHIBIT "D"
Page -6-
<PAGE> 38
4. Tenant's exhaust systems shall provide the required exhaust air
capacities and shall be independent of the central cooling system.
The Tenant's exhaust systems shall be inoperative during other than
regular business hours. Replacement air for the Tenant's exhaust
will be provided through the Tenant's air supply system up to the
design air supply quantity. Any additional replacement air required
will be drawn from the Enclosed Mall. Independent air make-up air
systems shall not be installed by the Tenant.
5. Tenant's HVAC systems shall be complete with air distribution
systems, ventilating systems, control systems, insulation and
all other components required to make a complete system. Tenant's
systems shall be specifically designed to coordinate with variable
air volume cooling temperature control. [CONFIDENTIAL]
Tenant's HVAC system components shall be installed in locations as
designated by the Landlord.
6. Tenant shall provide fire dampers in accordance with all
applicable codes, and where Tenant's ductwork passes through service
corridor walls, Tenant shall provide other fire separations in
demising partitions, if required by any applicable codes. Tenant
shall provide access by means of an access panel to all valves,
dampers and similar service devices (including Landlord's) required
for testing, balancing and servicing.
7. Tenant shall connect to Landlord's central cooling system and
shall use Landlord's Design Criteria in designing systems and
controls. Alterations to the Landlord's central system required due
to Tenant's design shall be done by Landlord at Tenant's sole expense.
8. If directed to do so by Landlord, Tenant shall paint and/or screen
from ground level view by parapet walls or other appropriate
screening, all of Tenant's outdoor equipment. Any such painting or
screening must be done at Tenant's sole expense and approved in
advance by Landlord.
9. If Landlord so desires, Landlord will design, provide and install
within the premises or other location designated by Landlord,
the necessary equipment to adequately heat and air condition the
premises for Tenant's normal requirements. Tenant will reimburse
Landlord for its costs in amortizing, operating and maintaining the
heating and air conditioning system. Landlord may, at its option,
install a central system and/or a Total Energy System.
N. GAS
Gas will be available only for process loads and only for second level
food court tenants.
O. MECHANICAL EQUIPMENT
All mechanical equipment including dumb-waiters, elevators, escalators,
freight elevators, conveyors, and their shafts and doors, located within
the Premises, including electrical work for these items. Locations, size
and design of roof vents, HVAC equipment, units, hoods and caps shall be
approved by Landlord. No equipment may be placed on any part of the roof
of the Center without Landlord's prior approval. Tenant shall install
equipment at locations where structural reinforcements are provided. All
roof openings or changes in structural design caused by Tenant's
equipment shall be made by Landlord and paid for by Tenant.
P. ELECTRICAL
1. All interior distribution panels, lighting panels, power panels,
conduits, outlet boxes, switches, outlets and wires within the
premises. Tenant shall provide electric conduit and boxes in the
concrete floor slab, ceiling and walls, including all electrical
service panels, pull boxes and equipment, as required to permit
Landlord to complete Landlord's Work.
2. All electrical fixtures, including lighting fixtures and
equipment, and installation thereof. Lighting systems (except
security and emergency lighting) must be controlled by lighting
contactors. The lighting contactors will be inter-locked with the
Landlord's Energy Management System for automatic control during
other than regular business hours.
EXHIBIT "D"
Page -7-
<PAGE> 39
3. All systems, where required for intercommunication, music antenna,
material handling or conveyor, burglar alarm, vault wiring, fire
protection alarm, time clock and demand control.
4. All conduit, as required by the utility company supplying the
services for necessary telephone wires in the premises.
5. Feeder conductors from Landlord's facilities to the Premises,
including the connections to Tenant's equipment.
Q. SUBSEQUENT REPAIRS AND ALTERATIONS
Landlord reserves the right to require changes in Tenant's Work when
necessary by reason of code requirements.
R. SIGNS
In order to assure orderly and aesthetically coordinated signage, plans
for all Tenant's signs must conform to Exhibit "F" attached hereto and,
prior to installation, must be approved by Landlord's architect. No
permission is granted, expressed or implied to permit Tenant to erect an
exterior sign of any type.
S. DOORS AND EXITING REQUIREMENTS
1. Tenant will be responsible for adherence to exiting codes.
2. Tenant will maintain a clear exiting path through its stockroom to
Tenant's rear door.
T. CONSTRUCTION ACTIVITIES
1. If the Premises contain a rear door, Tenant shall use the rear
door for moving materials in and out of the Premises during
construction of the interior of the Premises.
2. All curbs, supports, blocking and temporary waterproof flashing
required to accommodate Tenant's roof cuts and/or penetrations shall
be provided and installed by Tenant at its own expense.
EXHIBIT "D"
Page -8-
<PAGE> 40
RULES AND REGULATIONS
1. Tenant shall advise and cause its vendors to deliver all merchandise before
noon on Mondays through Fridays, not at other times.
2. All deliveries are to be made to designated service or receiving areas and
Tenant shall request delivery trucks to approach their service or receiving
areas by designated service routes and drives.
3. Tractor trailers which must be unhooked or parked must use steel plates
under dolly wheels to prevent damage to the asphalt paving surface. In
addition, wheel blocking must be available for use. Tractor trailers are to
be removed from the loading areas after unloading. No parking or storing of
such trailers will be permitted in the Center.
4. Except for small parcel packages, no deliveries will be permitted through
the malls unless Tenant does not have a rear service door. In such event,
prior arrangements must be made with the Resident Mall Supervisor for
delivery. Merchandise being received shall immediately be moved into
Tenant's Premises and not be left in the service or receiving areas.
5. Tenant is responsible for storage and removal of its trash, refuse and
garbage. Tenant shall not dispose of the following items in sinks or
commodes: plastic products (plastic bags, straws, boxes); sanitary napkins;
tea bags; cooking fats, cooking oils; any meat scraps or cutting residue;
petroleum products (gasoline, naptha, kerosene, lubricating oils); paint
products (thinner, brushes); or any other item which the same are not
designed to receive. All Store Floor Area of Tenant, including vestibules,
entrances and returns, doors, fixtures, windows and plate glass, shall be
maintained in a safe, neat and clean condition.
6. Other than as permitted under the provisions of Section 10.4 or Exhibit
"F," Tenant shall not permit or suffer any advertising medium to be placed
on mall walls, on Tenant's mall or exterior windows, on standards in the
mall, on the sidewalks or on the parking lot areas or light poles. No
permission, expressed or implied, is granted to exhibit or display any
banner, pennant, sign, and trade or seasonal decoration of any size, style
or material within the Center, outside the Premises.
7. Tenant shall not permit or suffer the use of any advertising medium
which can be heard or experienced outside of the Premises, including,
without limiting the generality of the foregoing, flashing lights,
searchlights, loud speakers, phonographs, radios or television. No radio,
television, or other communication antenna equipment or device is to be
mounted, attached, or secured to any part of the roof, exterior surface, or
anywhere outside the Premises, unless Landlord has previously given its
written consent.
8. Tenant shall not permit or suffer merchandise of any kind at any time
to be placed, exhibited or displayed outside its Premises, nor shall Tenant
use the exterior sidewalks or exterior walkways of its Premises to display,
store or place any merchandise. No sale of merchandise by tent sale, truck
load sale or the like, shall be permitted on the parking lot or other
common areas.
9. Tenant shall not permit or suffer any portion of the Premises to be used
for lodging purposes.
10. Tenant shall not, in or on any part of the Common Area:
(a) Vend, peddle or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet or other
matter whatsoever.
(b) Exhibit any sign, placard, banner, notice or other written material,
except for activities as approved in writing by Landlord.
(c) Distribute any circular, booklet, handbill, placard or other material,
except for activities as approved in writing by Landlord.
(d) Solicit membership in any organization, group or association or
contribution for any purpose.
(e) Create a nuisance.
(f) Use any Common Areas (including the Enclosed Mall) for any purpose
when none of the other retail establishments within the Center is
open for business or employment, except for activities as approved in
writing by Landlord.
(g) Throw, discard or deposit any paper, glass or extraneous matter of any
kind except in designated receptacles, or create litter or hazards
of any kind.
(h) Deface, damage or demolish any sign, light standard or fixture,
landscaping materials or other improvement within the center or the
property of customers, business invitees or employees situated within
the Center.
EXHIBIT "E"
Page -1-
<PAGE> 41
Landlord shall apply said rules and regulations uniformly and in a
non-discriminatory manner.
EXHIBIT "E"
Page -2-
<PAGE> 42
SIGN CRITERIA
-------------
Tenant will not erect any signs except in conformity with the
following policy:
(a) Wording on large scale signs shall be limited to store or trade name
only. Each party's customary signature or logo, hallmark, insignia. or
other trade identification will be respected.
(b) Signs with exposed neon tubing or exposed lamps and signs of the
flashing, blinking, rotating, moving, or animated types or audible type
signs are not permitted.
(c) Except as otherwise noted herein, there are no signbands, no restrictions
on letter sizes or typefaces. (Except as otherwise limited by codes and
ordinances having jurisdiction over the project.)
The entire storefront is the sign field. Signs are to be reviewed on the
bases of how well they are integrated with the architectural storefront
elements into an attractive composition. Poorly designed signs, or signs
which are poorly organized within the storefront are not allowed.
If a signband is desired, it must occur not less than 8'0" from the
finished floor.
No tenant sign shall be allowed on the neutral bulkhead or demising
piers.
No tenant sign will be allowed to project more than five inches beyond
the lease line.
(d) Painted or printed signs on the exterior surface of any building
shall be prohibited, except small scale signs relative to store name and
stating store hours which are neatly lettered on the glass of the
storefront but subject to Landlord's written approval and in addition, any
non-customer door for receiving merchandise may have in 2-inch block
letters, the name of Tenant.
(e) Public safety decals or artwork on glass in minimum sizes to comply
with applicable Code, subject to the approval of Landlord, may be used, as
required by building codes or other governmental regulations.
(f) Paper signs, stickers, banners or flags are prohibited.
(g) No exposed raceways, ballast boxes or electrical transformers will be
permitted except as required by Code.
(h) Sign company names or stamps shall be concealed (Code permitting).
(i) Except as otherwise approved in writing by Landlord, only one (1)
sign for Tenant will be permitted within the enclosed mall areas, except
the corner tenants may have 2 such signs.
(j) Sign letters may be back-lighted with lamps or tubes entirely concealed
within the depth of the letter or may be opaque or translucent plastic
face with no visible openings. Maximum brightness allowed for interior
(enclosed mall) signs will be 100 foot lamberts taken at the letter
face and must comply with all building and electrical codes.
(k) Exposed sign illumination or illuminated sign cabinets nets or modules are
not permitted.
(l) Signs and identifying marks shall be placed entirely within the
boundaries of Tenant's Premises with no part higher than 12 feet above the
finished floor line, nor shall any projecting sign be located closer than 8
feet to the finished floor line, but in no event shall such a sign extend
above the wall or parapet upon which it is mounted.
(m) Signs which are under building canopies may be installed at right
angles to the mall storefront provided that they are wholly contained
within the lease line of Tenant's Premises and otherwise conform to the
provisions of these regulations and criteria. Said signs may not exceed
50 inches in width and 18 inches in height.
(n) Tenant shall not install any roof top signs.
(o) Tenant shall install no pylon signs, except only at the locations shown
therefor on the site plan and they shall be subject to the written
approval of Landlord as to the design and size.
(p) No signs will be permitted at the rear of any building, except in the case
of stores with customer entrances opening directly on to the parking
areas.
(q) All signs shall be lighted and subject to the Landlord's written approval
before fabrication.
(r) Three (3) complete sets of sign drawings must be submitted to the Landlord
for written approval before fabrication. Tenant's sign drawings must
include the following:
EXHIBIT "F"
Page -1-
<PAGE> 43
1. Elevation view of storefront showing sign (drawn to accurate scale)
with dimensions of height of letters and length of sign.
2. Color sample of sign panel.
3. Color sample of sign letters (unless they are to be WHITE).
4. Cross section view through sign letter and sign panel showing location
of sign relative to the storefront line and showing the dimensioned
projection of the face of the letter from the face of the sign panel.
The Landlord shall not be responsible for the cost of refabrication of signs
fabricated, ordered or constructed, that do not conform to the sign
criteria.
EXHIBIT "F"
Page -2-
<PAGE> 44
MELVIN SIMON AND ASSOCIATES, INC.
LINCOLNWOOD TOWN CENTER
LINCOLNWOOD, ILLINOIS
<TABLE>
<CAPTION>
RETAIL TENANT UNIT PRICE CHARGE-BACK LIST
<S> <C> <C>
1. Granular Fill 4"...................................... $ .35 S.F.
2. CONCRETE Floor Slab .................................. $ 3.00 S.F.
3. Neutral Pier ......................................... $ 500.00 EACH
4. Gray Neutral Plane 8" ................................ $ 3.25 L.F.
5. Demising Wall Studs 6" @ 24" O.C. .................... $ 21.00 L.F.
6. Temporary Storefront Barricade ....................... $ 25.00 L.F.
7. Food Court Tile Wall & Pedestal w/Column ............. $1,545.00 EACH
8. Rear Door with hardware, Exterior .................... $3,556.00 EACH
(Interior rear door by Tenant)
9. Telephone lines,3 pair ............................... $ 500.00 EACH
MECHANICAL
11. Toilet Exhaust Stub .................................. $ 730.00 EACH
12. Plumbing Vent Stub ................................... $1,375 00 EACH
13. VAV Box with thermostat, installed.
a) 1200 CFM .......................................... $ 775.00 EACH
b) 2000 CFM .......................................... $ 785.00 EACH
c) 3000 CFM .......................................... $ 874 00 EACH
d) 4000 CFM .......................................... $ 958.00 EACH
FIRE PROTECTION
14. a) Chrome Pendant or Upright Brass Head............... $ 115.00 EACH
b) Chrome w/fusible link (flush) ..................... $ 114.00 EACH
c) Recessed Head ..................................... $ 95.00 EACH
d) Relocate Sprinkler Head............................ $ 105.00 EACH
e) Raise or Lower Head ............................... $ 65.00 EACH
f) Drain System Down ................................. $ 150.00 EACH
g) Plug .............................................. $ 75.00 EACH
h) System Test ....................................... $ 320.00 L.S.
i) Smoke Detector .................................... $ 85.00 EACH
ELECTRICAL
15. Electrical Disconnect (fuses supplied by Tenant)
a) 60 AMP Plus Socket ............................... $ 510.00 EACH
b) 100 AMP Plus Socket ............................... $ 711.00 EACH
c) 200 AMP Plus Socket ............................... $ 845.00 EACH
16. Electrical Conduit - E.M.T.
a) 1 1/4" ............................................ $ 6.09 L.F.
b) 1 1/2" ............................................ $ 7.37 L.F.
a) 2" ................................................ $ 8.99 L.F.
</TABLE>
EXHIBIT "G"
Page 1
<PAGE> 1
EXHIBIT 10.6
2424 NORTH CLARK STREET BUILDING
LEASE
SUCCESS NATIONAL BANK,
A National Banking Association
2424 North Clark Street
Chicago, Illinois 60614
<PAGE> 2
2424 NORTH CLARK STREET BUILDING LEASE SCHEDULE
-----------------------------------------------
WATER TOWER REALTY MANAGEMENT CO., LTD. ("Landlord") and the Tenant
named below, in accordance with the following terms and conditions, the
payment and performance of which are guaranteed by the Guarantor(s), if any,
named below:
<TABLE>
<CAPTION>
<S> <C>
A. THE BUILDING: 2424 North Clark Street
Chicago, Illinois 60614
B. PLACE OF PAYMENT OF RENT: Water Tower Realty Management
Company
415 North LaSalle Street, Suite 704
Chicago, Illinois 60610
C. TENANT AND CURRENT ADDRESS: Success National Bank, a National
Banking Association
c/o Success National Bank at
Lincolnshire
One Marriott Drive
Lincolnshire, Illinois 60089
D. GUARANTOR(S) AND ADDRESS: N/A
E. PREMISES: Certain space on the First (1st) Floor (as
set forth in the Floor Plan attached as
Exhibit A).
F. DATE OF LEASE EXECUTION: April 15, 1993
G. LEASE YEAR: Twelve (12) consecutive month period
commencing on the Commencement
Date and each anniversary thereof. The
first or last Lease Year may contain more
or less than twelve (12) months as set
forth under Base Rent Schedule.
H. COMMENCEMENT DATE: April 26, 1993
I. COMMENCEMENT DATE OF
BASE RENT: Commencement Date.
J. TERMINATION DATE: Expiration of ten (10) years after the
Commencement Date.
</TABLE>
-i-
<PAGE> 3
2424 NORTH CLARK STREET BUILDING LEASE SCHEDULE ____ Continued
--------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
J-1. OWNER: Amalgamated Trust and Savings Bank,
as Trustee under Trust Agreement dated
August 1, 1968 and known as Trust
No. 2078
K. RENTABLE AREA OF THE
PREMISES: Approximately 1,967 square feet.
L. TENANT'S PROPORTIONATE SHARE: Three and 03/100 Per Cent (3.03%)
premised on Premises of 1,967 square
feet.
M. SECURITY DEPOSIT: N/A
N. BASE YEAR: 1993
O. LANDLORD: Water Tower Realty Management
Company, as Agent for the Beneficiary of
Amalgamated Trust and Savings Bank,
as Trustee under Trust Agreement dated
August 1, 1968 and known as Trust
No. 2078
415 North LaSalle Street, Suite 704
Chicago, Illinois 60610
P. PERMITTED USE: Branch Bank Facility
Q. LEASING BROKER: None
R. WORK LETTER: See Rider B attached hereto.
S. RENTABLE AREA OF THE BUILDING: Approximately ________ square feet.
</TABLE>
-ii-
<PAGE> 4
2424 NORTH CLARK STREET BUILDING LEASE SCHEDULE ______ Continued
----------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
T. BASE RENT:
Lease Years 1-2: Fifty-One Thousand One Hundred Forty-
One and 96/100 Dollars ($51,141.96)
per year.
Twenty-Six and 00/100 Dollars ($26.00)
per rentable square foot.
Four Thousand Two Hundred Sixty-One
and 83/100 Dollars ($4,261.83) per
month.
Lease Years 3-10: Same as for Lease Years 1-2, but
increased by the CPI for each year, as
set forth in Section 1.
</TABLE>
-iii-
<PAGE> 5
The foregoing Schedule is an integral part of this Lease and is hereinafter
referred to as the "Lease Schedule" and the terms set forth above whenever
used in this Lease, shall have the same meanings as set forth in the Lease.
LANDLORD:
WATER TOWER REALTY MANAGEMENT
COMPANY
BY: /s/ ???????????/////
-----------------------------------------
Its:
-----------------------------------------
(Title)
TENANT:
SUCCESS NATIONAL BANK, A National
Banking Association
BY: /s/ ???????????
-----------------------------------------
Its: President
-----------------------------------------
(Title)
ATTEST:
BY:
-----------------------------------------
Its:
-----------------------------------------
(Title)
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
1. Rent................................................................ 1
2. Additional Rent..................................................... 2
A. Definitions...................................................... 2
(i) "Calendar Year"............................................. 3
(ii) "Taxes"..................................................... 3
B. Expense Adjustment............................................... 3
3. Service............................................................. 4
A. Reserved......................................................... 4
B. Mechanical Equipment............................................. 5
C. Water............................................................ 5
D. Electricity...................................................... 5
4. Landlord's Title.................................................... 6
5. Certain Rights Reserved to Landlord................................. 6
6. Default Under Other Lease........................................... 6
7. Waiver of Claims.................................................... 7
8. Holding Over........................................................ 7
9. Assignment and Subletting........................................... 8
10. Condition of Premises............................................... 8
11. Alterations......................................................... 9
12. Use of Premises..................................................... 10
13. Repairs............................................................. 13
14. Untenantability..................................................... 15
15. Eminent Domain...................................................... 15
16. Landlord's Remedies................................................. 16
</TABLE>
-v-
<PAGE> 7
TABLE OF CONTENTS -- CONTINUED
---------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
17. Insurance.......................................................... 19
18. Subordination of Lease............................................. 21
19. Sale of Premises by Landlord....................................... 21
20. Estoppel Certificate............................................... 21
21. Notices............................................................ 21
22. Miscellaneous...................................................... 22
23. Reserved........................................................... 23
24. Brokers............................................................ 23
25. Reserved........................................................... 24
26. Reserved........................................................... 24
27. Reserved........................................................... 24
28. Reserved........................................................... 24
29. Continuous Operation............................................... 24
30. Parking............................................................ 24
Rider A--Rules and Regulations..................................... A-1
to
A-3
Rider B--Option.................................................... B-1
Rider C--Cancellation Option....................................... C-1
Exhibit A--Floor Plan..............................................
Exhibit B--Tenant's Financial Statement............................
</TABLE>
-vi-
<PAGE> 8
2424 NORTH CLARK STREET BUILDING
--------------------------------
BANK LEASE
This Agreement to Lease (the "Leased") is made and entered into as of
this ____ day of____, 1993, by and between Landlord, Tenant and Guarantor(s)
(if any) set forth in the Lease Schedule on the terms set forth below whereby
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the term beginning on the Commencement Date and ending on the
Termination Date, as set forth on the Lease Schedule (the "Term" or "Lease
Term"), unless sooner terminated as provided herein, to be used for the
Permitted Use set forth in the Lease Schedule and none other. The Lease
Schedule attached hereto is hereby incorporated herein by reference (and
hereinbefore and hereinafter referred to as "Lease Schedule") and the terms set
forth in the Lease Schedule, whenever used in this Lease, shall have the same
meanings as set forth in the Lease Schedule.
1. Rent. Tenant shall pay to Landlord at the Place of Payment of Rent
or at such other place as Landlord or the Agent for Owner may designate,
the Base Rent as shown on the Lease Schedule in equal monthly
installments, each without any set-off or deduction whatsoever, in advance
on the first day of each and every calendar month during the Term and at
the then current rate for the month immediately prior or subsequent, as
the case may be) for fractions of a month if the Term shall commence on
any day other than the first day of any month or be terminated on any day
other than the last day of any month; provided however, Tenant shall pay
the first full monthly installment of Base Rent at the time of execution
of this Lease, which shall be prorated from the Commencement Date to the
last day of the month in which the Commencement Date occurs. Unpaid Rent
not paid within ten (10) days after the due date shall bear interest at
the lesser of (i) the then current prime rate of interest plus two per
cent (2%) per annum established by The First National Bank of Chicago, or
its successor, or (ii) the maximum rate permitted by law, from the date
due until paid. Base Rent for each Lease Year subsequent to the second
(2nd) Lease Year, payable monthly in advance, shall be determined as
follows: On the first day of each Lease Year, commencing with the third
(3rd) Lease Year, each installment of Monthly Base Rent for such Lease
Year shall be increased by an amount equal to the product of the Monthly
Base Rent then in effect for the prior Lease Year multiplied by the
percentage increase by which the CPI on the first day of each such Lease
Year exceeds the CPI for the first day of the immediately preceding Lease
Year.
This Lease and the obligations of the parties hereunder are subject to
the condition that the Tenant close the purchase of the assets of Belmont
National
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Bank located at the Premises, and if same does not occur by April 26, 1993,
this Lease shall be deemed terminated without liability on either party.
"Consumer Price Index" ("CPI") means the Consumer's Price Index for all
Urban Consumers National Average for all items and commodity groups
(1982-84 = 100). In the event the indices shall be converted to a
different standard reference base or otherwise revised, the determination
of the Rent adjustment (as hereinafter defined) shall be made by using the
adjustment ((as hereinafter defined) shall be made by using the conversion
factor, formula or table for converting the indices as may be published by
the Bureau of Labor Statistics or, if said Bureau shall not publish same,
the determination shall be made by using the conversion factor, formula,
or table published by any other governmental agency, or if no such
conversion factor, formula or table is so published, then a comparable
conversion factor, formula or table published by a major bank, other
financial institution, university or recognized financial publication
selected by Landlord. If the CPI becomes unavailable to the public because
publication is discontinued, or otherwise, Landlord shall substitute
therefor, a comparable index based upon changes in the cost of living or
purchasing power of the consumer dollar published by any other
governmental agency or, if no such index is available, then a comparable
index published by a major bank, other financial institution, university
or recognized financial publication.
2. Additional Rent. In addition to paying the Base Rent specified in
Section 1 hereof, subsequent to the fourth (4th) Lease Year, Tenant shall
pay as additional rent (the "Additional Rent") the amount determined under
this Section 2. The Base Rent and the Additional Rent are sometimes
herein collectively referred to as the "Rent". All amounts due under this
section as Additional Rent shall be payable for the same periods and in
the same manner, time and place as the Base Rent, however, without any
abatement or deferral as may be provided for Base Rent. Without limitation
on other obligations of Tenant which shall survive the expiration of the
Term, the obligations of Tenant to pay the Additional Rent provided for in
this Section 2 shall survive the expiration of the Term. For any partial
Calendar Year (hereinafter defined), Tenant shall be obligated to pay only
a pro rata share of the Additional Rent, based on the number of days of
the Term falling within such Calendar Year. Tenant's covenant and
obligation to pay Rent shall be independent of any covenant or obligation
of Landlord, except to the extent specifically set forth in this Lease.
A. Definitions. In addition to the terms defined in the Lease
Schedule and elsewhere in this Lease, the following terms shall have
the meanings ascribed to them:
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(i) "Calendar Year" shall mean each calendar year (i.e., January 1
through December 31) in which any part of the Term falls, through and
including the year in which the Term expires;
(ii) "Taxes" means all state and local governmental real estate
taxes, assessments, fees and charges (including, without limitation,
special assessments for public improvements) of any kind or nature,
whether general, special, ordinary or extraordinary, which Landlord
or its agents or beneficiaries shall pay or become obligated to pay
because of or in connection with the ownership of the Building (which
term shall include the parcel or parcels of land used in connection
with the Building). The amount of real estate taxes included in Taxes
for any Calendar Year shall be the amount indicated by the tax bills
due or payable for that Calendar Year. There shall be deducted from
Taxes as determined for any Calendar Year, the net amount of any
refund of taxes received by Landlord during such Calendar Year. There
shall be included in Taxes for any Calendar Year the amount of all
fees, costs and expenses (including, without limitation, attorneys'
fees) paid by Landlord or its beneficiaries in seeking or obtaining
any refund or reduction of Taxes but in no event shall such fees
exceed the reduction obtained. If a special assessment payable in
installments is levied against the Building, or any part thereof,
Taxes for any Calendar Year shall include only the installments of
such assessment, and any interest (excluding interest charges for
late payment), payable in such Calendar Year. Taxes shall not include
any federal or state franchise, capital stock, inheritance, income or
estate taxes, except that if a change occurs in the method of
taxation resulting in the substitution or addition of any such taxes,
assessments, fees or other charges for any Taxes or increases in
Taxes, as hereinabove defined, such substituted or additional taxes,
assessments, fees or other charges shall be included in Taxes,
including, without limitation, any commercial lease tax or tax,
assessment, fee or charge imposed upon Landlord or the Agent of Owner
measured in whole or in part upon the rents or other income of the
Building or with respect to the use of sewers, water or other
utilities serving the Building or with respect to any business
conducted on the Building.
B. Expense Adiustment. Tenant shall pay, as Additional Rent, to Landlord
on the first day of each and every calendar month during each Lease Year
subsequent to the fourth (4th) Lease Year, an amount equal to one-twelfth
(1/12th) of the Tenant's Proportionate Share of the amount by which Taxes
for such Calendar Year exceed the amount of Taxes for the Base Year;
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provided however, if the Lease Year does not commence on
January 1st, Additional Rent for the first and last Lease Years
shall be prorated.
For purposes of calculating such Additional Rent for any
Calendar Year, Landlord may make reasonable estimates or projections
premised on the most recently ascertainable bill (collectively, the
"Projections") of Taxes for such Calendar Year. Not more than thirty
(30) days after the beginning of each Calendar Year, Landlord shall
deliver to Tenant a written statement (the "Projection Statement")
(a) setting forth the Projections of Taxes for that Calendar Year,
and (b) setting forth the Additional Rent payable in such Calendar
Year based on the Projections; provided however, that the failure by
Landlord to provide a Projection Statement shall not relieve Tenant
from its obligation to continue to pay Base Rent or Additional Rent
at the rate then in effect under this Lease, and if and when Tenant
receives a Projection Statement from Landlord, Tenant shall pay the
full amount of any increases in Additional Rent reflected thereby,
effective retroactively to the beginning of the Calendar Year and pay
the Additional Rent required by the Projection Statement beginning on
the first day of the following calendar month.
As soon as practicable after each Calendar Year, Landlord shall
notify Tenant, in writing, of the actual amount of Taxes for such
Calendar Year (the "Adjustment Statement"). If such actual amounts
exceed the Projections for such Calendar Year, then Tenant shall,
within thirty (30) days after the date of the Adjustment Statement,
pay to Landlord an amount equal to the difference between the amount
of the Additional Rent based on the Projection Statement and the
amount of the Additional Rent based on the Adjustment Statement. The
obligation to make such payment shall survive the expiration or
earlier termination of the Term. If the amount paid by Tenant
pursuant to the Projection Statement during such Calendar Year
exceeds the amount thereon payable for such year based upon actual
Taxes for such Calendar Year, then Landlord shall credit such excess
to Additional Rent payable after the date of Landlord's notice until
such excess has been exhausted, or if this Lease shall expire prior
to full application of such excess, Landlord shall pay to Tenant the
balance thereof not theretofore applied against Rent. No interest or
penalties shall accrue on any amounts which Landlord is obligated to
credit or pay to Tenant by reason of this subparagraph.
3. Service. Landlord shall provide:
A. Mechanical Equipment. Mechanical Equipment to the Premises
necessary to supply heated and cooled air to the Premises. The cost
of operating and maintaining the system for providing cooled and
heated air, and
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distributing same within the Premises, shall be paid by and be the
responsibility of Tenant. Said payment shall be made directly to the
utility company supplying said service if the metering and system so
provides, otherwise said payment shall be made to Landlord at the cost
thereof to Landlord within ten (10) days after receipt of Landlord's
invoices therefor. Tenant may at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract with a
maintenance contractor for servicing all heating and air conditioning
systems and equipment serving the Premises. If Tenant fails to cause same
to be kept in good condition and repair, Tenant shall permit entry by
Landlord, its agents or employees, into the Premises to make such repairs,
alterations, replacements or improvements to said systems, which in the
judgment of Landlord are desirable, or necessary by reason of accident or
emergency, until said repairs, alterations, replacements or improvements
shall have been completed and all sums so expended by Landlord shall be
deemed to be Additional Rent hereunder and payable to landlord upon
demand.
B. Water. Hot and cold water to the Premises connected to the source
of supply. The cost of maintaining and operating the system and
distributing same within the Premises shall be the responsibility of
Landlord. The utility cost therefor shall be Landlord's liability.
C. Electricity. Electric wiring system to the Premises connected with
the source of alternating current. The cost of maintaining the system and
the cost of distributing same within the Premises shall be the
responsibility of the Tenant. Tenant shall pay for all electrical current
consumed on, or in connection with the use, operation and maintenance of,
the Premises. Landlord, or Tenant may install a separate meter for the
Premises. The utility cost shall be paid by Tenant directly to the utility
company supplying said service if the metering and system so provides,
otherwise said payment shall be made to Landlord at the cost thereof to
Landlord within ten (10) days after receipt of Landlord's invoices
therefor.
Interruptions of any service referred to in Section 3 above, in whole
or in part, caused by acts of God or an enemy, strikes, lockouts, labor
controversies, insurrections, picketing (whether legal or illegal),
laws, orders or regulations of any federal, state, county or municipal
authorities, accidents or casualties whatsoever, inability of Landlord
to obtain electricity, fuel, water or supplies, or by the act or
default of Tenant or any person other than Landlord, or by any other
cause or causes beyond the reasonable control of Landlord, shall not be
deemed an eviction or disturbance of Tenant's use and possession of the
Premises or any part thereof, or render Landlord liable for damages by
abatement of rent or otherwise or relieve Tenant from the payment and
performance of Tenant's obligations under this Lease.
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The parties hereto agree that compliance with any mandatory energy
conservation measures or requirements instituted by any appropriate
governmental authority having jurisdiction over the Premises shall not be
considered a violation of any terms of this Lease and shall not entitle
Tenant or Landlord to terminate this Lease or to an abatement of rent
hereunder.
Landlord shall in no event be obligated to furnish any services or
utilities, other than those specified above in this Section 3. If Landlord
elects to furnish services or utilities requested by Tenant in addition to
those specified above, Tenant shall pay to Landlord Landlord's then
prevailing rates for such services and utilities within ten (10) days
after receipt of Landlord's invoices therefor. If Tenant shall fail to
make any such payment, Landlord may, after notice to Tenant, as otherwise
provided herein, and in addition to Landlord's other remedies under this
Lease, discontinue any or all of the additional services. No
discontinuance of any additional service furnished pursuant to this
Section 3 shall result in any liability of Landlord to Tenant, or be
deemed to be a constructive eviction or a disturbance of Tenant's use of
the Premises or relieve Tenant from the payment and performance of
Tenant's obligations under the Lease.
4. Landlord's Title. Landlord's title is and always shall be
paramount to the title of Tenant, and nothing herein contained shall
empower Tenant to do any act which can, shall or may encumber the title of
Landlord.
5. Certain Rights Reserved to Landlord. Landlord reserves the following
rights: (a) to change the name or street address of the Building without
notice or liability of Landlord to Tenant; (b) to install and maintain a
sign or signs on the exterior of the Building; (e) during the last ninety
(90) days of the Term or any part thereof, if during or prior to that time
Tenant vacates the Premises, to decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy; (d) to constantly have
pass keys to the Premises; (e) to grant to anyone the exclusive right to
conduct any particular business or undertaking in the Building, provided
same shall not preclude the Permitted Use, and provided same shall not
include a banking facility competing with Tenant's business on the
Premises; (f) to take any and all measures, including inspections,
repairs, alterations, additions and improvements to the Building, or
inspections and repairs to the Premises, as may be necessary for the
safety, protection or preservation of the Premises or the Building or
Landlord's interests, or as may be necessary in the operation of the
Building; provided however, Landlord shall use its reasonable best efforts
not to interfere with the operation of Tenant's business on the Premises
or compete with Tenant's business thereon.
6. Default Under Other Lease. If the term of any lease, other than
this Lease, made by Tenant for any premises in the Building shall be
terminated or terminable after the making of this Lease because of any
default by Tenant under such other
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lease, then Landlord shall have the option to declare Tenant in default
under this Lease and Landlord shall be entitled to exercise all its rights
as otherwise provided in this Lease upon Tenant's default.
7. Waiver of Claims. To the extent permitted by Law, each party ("Obligee")
releases the other party ("Obligor"), and their agents and employees from
and waives all claims for damage to person or property sustained by
Obligee or any occupant of the Building or Premises or by any other
person, resulting from the Building or Premises or any part of either or
any equipment or appurtenance becoming out of repair, or resulting from
any accident in or about the Building or resulting directly or indirectly
from any act or neglect of any tenant or occupant of the Building or of
any other person. This Section 7 shall apply especially, but not
exclusively, to the flooding of basements or other sub-surface areas, and
to damage caused by refrigerators, sprinkling devices, air conditioning
apparatus, water, snow, frost, steam, excessive heat or cold, falling
plaster, broken glass, sewage, gas, odors or noise, or the bursting or
leaking of pipes or plumbing fixtures, and shall apply equally whether any
such damage results from the act or neglect of other tenants, occupants or
servants in the Building or of any person, and whether such damage be
caused or result from any thing or circumstance above mentioned or
referred to or any other thing or circumstance whether of a like nature or
of a wholly different nature. If any such damage whether to the Premises
or to the Building or any part thereof, personal property located in the
Premises or the Building, or whether to Obligee or to other tenants in the
Building, results from any gross act or willful misconduct of Obligor,
Obligee may, at Obligee's option and after not less than thirty (30) days
notice to Obligor and Obligor not having repaired said damage within such
thirty (30) day period or such extended time as may be reasonably
necessary, provided repairs are commenced within the thirty (30) day
period and are diligently and continuously pursued), repair such damage
and Obligor shall, upon demand by Obligee, reimburse Obligee forthwith for
the total cost of such repairs. Obligor shall not be liable for any
damages caused by its act or negligence if Obligee or a tenant has
recovered the full amount of the damages from insurance and the insurance
company has waived in writing its right of subrogation against Obligor.
All property belonging to Tenant or any occupant of the Premises that is
in the Building or the Premises shall be there at the risk of Tenant or
such other person only, and Landlord shall not be liable for damage
thereto or theft or misappropriation thereof.
8. Holding Over. Subject to the regulations of the Office of the Comptroller
of Currency and the Federal Deposit Insurance Corporation, if Tenant
retains possession of the Premises or any part thereof after the
termination of the Term by lapse of time or otherwise, Tenant shall pay
Landlord rent at double the Rent (including Additional Rent) due for the
month immediately prior thereto as specified in Sections 1 and 2 for the
months (or any part of a month in which
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event Rent for the entire month shall be paid) Tenant thus remains in
possession, and in addition thereto, shall pay Landlord all damages
sustained by reason of Tenant's retention of possession. If Tenant remains
in possession of the Premises, or any part thereof, after the termination
of the Term by lapse of time or otherwise, such holding over shall, at the
election of Landlord expressed in a written notice to Tenant and not
otherwise constitute (a) renewal of this Lease for one (1) year; or (b) a
month-to-month tenancy; or (c) a tenancy at Landlord's will; or (d) a
trespass upon Landlord's property, all at the Rent stated hereinabove. If
no such notice is given, said tenancy shall be deemed a tenancy at
Landlord's will. The provisions of this section do not waive Landlord's
rights of reentry or any other right hereunder.
9. Assignment and Subletting. Unless Tenant shall have first procured
Landlord's written consent, which consent shall not be unreasonably
withheld, Tenant shall not (a) assign or convey this Lease or any interest
under it; (b) allow any transfer hereof or any lien upon Tenant's interest
by operation of law; (c) sublet the Premises or any part thereof; or (d)
permit the use or occupancy of the Premises or any part thereof by anyone
other than Tenant. The consent by Landlord to any transfer, assignment or
subletting shall not constitute a waiver of the necessity of Landlord's
consent to any subsequent attempted transfer, assignment or subletting.
Tenant shall pay Landlord's reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with the processing of
any request for Landlord's consent to an assignment or subletting. If
Tenant is a partnership, a withdrawal or change, whether voluntary,
involuntary or by operation of law, of partners owning a controlling
interest in Tenant shall be deemed a voluntary assignment of this Lease
and subject to the provisions of this paragraph. If Tenant is a
corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or the sale or transfer of or issuance of stock
constituting a controlling interest of the capital stock of Tenant shall
be deemed a voluntary assignment of this Lease and subject to the
provisions of this paragraph. However, the preceding sentence shall not
apply to corporations, the stock of which is traded through a national or
regional exchange or over-the-counter.
10. Condition of Premises. No promise of Landlord to alter, remodel or improve
the Premises or the Building and no representation respecting the
condition of the Premises or the Building have been made by Landlord to
Tenant, unless the same is contained herein, or made a part hereof. This
Lease does not grant any rights to light or air over property, except over
public streets kept open by public authority; provided however, Tenant
shall have the right to place and maintain signs in the windows of the
Premises. At the termination of this Lease by lapse of time or otherwise,
Tenant shall return the Premises in as good condition as when Tenant took
possession, ordinary wear and loss by fire excepted, failing which
Landlord may restore the Premises to such condition and Tenant shall pay
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the cost thereof. Tenant may remove any floor covering laid by Tenant,
provided (a) Tenant also removes all nails, tacks, paper, glue, bases and
other vestiges of the floor covering, and restores the floor surface to
the condition existing before such floor covering was laid, or (b) Tenant
pays to Landlord, upon request, the cost of restoring the floor surface to
such condition. If Tenant does not remove Tenant's floor coverings or any
other fixtures, property or leasehold improvements from the Premises prior
to the termination of the Term or Tenant's right to possession, Tenant
shall be conclusively presumed to have abandoned the same and title
thereto shall thereby and thereupon pass to Landlord without payment or
credit by Landlord to Tenant.
Tenant shall comply with all laws, statutes, ordinances, rules,
regulations and orders of any federal, state, municipality or agency
thereof having jurisdiction over and relating to the use, condition and
occupancy of the Premises, including but not limited to the Americans With
Disabilities Act.
11. Alterations. Tenant shall not make any alterations in, or additions to,
the Premises without Landlord's advance written consent, which consent
shall not be unreasonably withheld, in each and every instance. If
Landlord consents to such alterations or additions, before commencement of
the work or delivery of any materials onto the Premises or into the
Building, Tenant shall furnish Landlord with plans and specifications,
names and addresses of contractors, copies of contracts, necessary permits
and indemnification in form and amount satisfactory to Landlord and
waivers of lien against any and all claims, costs, damages, liabilities
and expenses which may arise in connection with the alterations or
additions. All additions and alterations shall be installed in a good,
workmanlike manner and only new, high-grade materials shall be used.
Whether Tenant furnishes Landlord the foregoing or not, Tenant hereby
agrees to defend and hold Landlord harmless from any and all liabilities
of every kind and description which may arise out of or be connected in
any way with said alterations or additions. Before commencing any work in
connection with alteration or additions, Tenant shall furnish Landlord
with certificates of insurance from all contractors performing labor or
furnishing materials, insuring Landlord against any and all liabilities
which may arise out of or be connected in any way with said additions or
alterations. Tenant shall pay the cost of all such alterations and
additions and also the cost of decorating the Premises occasioned by such
alterations and additions. Upon completing any alterations or additions,
Tenant shall furnish Landlord with contractors' affidavits and full and
final waivers of lien and receipted bills covering all labor and materials
expended and used. All alterations and additions shall comply with all
insurance requirements and with all ordinances and regulations of the City
of Chicago or any department or agency thereof and with the requirements
of all statutes and regulations of the State of Illinois and the United
States or of any department or agency thereof. Tenant shall permit
Landlord to supervise construction operations in connection with
alterations or additions if
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Landlord requests to do so. All additions, hardware, non-trade fixtures
and all improvements, temporary or permanent, in or upon the Premises,
whether placed there by Tenant or by Landlord, shall, unless Landlord
requests their removal, become Landlord's property and shall remain upon
the Premises at the termination of this Lease by lapse of time or
otherwise without compensation or allowance or credit to Tenant. If upon
Landlord's request, Tenant does not remove said additions, hardware,
non-trade fixtures and improvements, Landlord may remove the same and
Tenant shall pay the cost of such removal to Landlord upon demand. Tenant
shall remove Tenant's furniture, machinery, safe or safes, trade fixtures
and other items of personal property of every kind and description from
the Premises prior to the end of the Term, or its right to possession,
however, ended. If not so removed, Landlord may request their removal, and
if Tenant does not remove them, Landlord may do so and Tenant shall pay
the cost of such removal to Landlord upon demand. If Landlord does not
request their removal, all such items shall be conclusively presumed to
have been thereupon conveyed by Tenant to Landlord under this Lease as a
bill of sale without further payment or credit by Landlord to Tenant.
12. Use of Premises.
A. Tenant may use the Premises only for the operation of a branch
bank facility and the uses incident thereto which, for purposes of
this Lease, shall mean a facility used primarily for the provision of
banking and related financial services.
B. Tenant shall be responsible for maintaining scavenger service for
prompt removal of refuse and waste from the Premises. All refuse and
waste shall be stored in plastic garbage bags in the Premises until
being removed by the scavenger, but shall not be stored over-night,
or shall be placed in containers maintained by Tenant as designated
by the Landlord. Notwithstanding the foregoing, Tenant may use the
scavenger bins provided for the Building by Landlord.
C. Tenant shall be responsible for providing regular exterminating of
insects and rodents in the Premises, which exterminating shall be
subject to Landlord's satisfaction and approval and which shall cause
the Premises to remain free from insect and rodent infestation.
D. Reserved
E. Tenant shall occupy and use the Premises during the term for the
Permitted Use above specified and for no other purposes.
F. Reserved.
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G. Tenant will not make or permit to be made any use of the Premises
which, directly or indirectly, is forbidden by public law, ordinance
or governmental regulation or which may be dangerous to life, limb or
property.
H. Tenant shall not display, inscribe, print, paint, maintain or affix
on any place in or about the Building exclusive of the Premises any
sign, notice, legend, direction, figure or advertisement, except as
designated by Landlord and then only such name or names and matter,
and in such color, size, style, place and material, as shall first
have been approved by Landlord in writing, which approval shall not
unreasonably be withheld.
I. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Building in any manner which violates the
letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such business, profession
or activities, and shall not use the name of the Building for any
purposes other than that of the business address of Tenant, and shall
never use any picture or likeness of the Building in any circulars,
notices, advertisements or correspondence without Landlord's
expressed consent in writing.
J. Tenant shall not obstruct, or use for storage, or any purpose other
than ingress and egress, the sidewalks, elevators, passages, courts,
corridors, vestibules, halls, elevators and stairways of the
Building.
K. No bicycle or other vehicle and no dog or other animal or bird shall
be brought or permitted to be in the Building or any part thereof.
L. Tenant shall not make or permit any noise or odor that is
objectionable to other occupants of the Building to emanate from the
Premises, and shall not create or maintain a nuisance therein, and
shall not disturb, solicit or canvass any occupant of the Building,
and shall not do any act tending to injure the reputation of the
Building.
M. Tenant shall not install any piano, phonograph, or musical
instrument, or radio or television set in the Building, or any
antennae, aerial wires or other equipment inside or outside the
Building, without, in each and every instance, prior approval, in
writing by Landlord. The use thereof shall be subject to control by
Landlord to the end that others shall not be disturbed or annoyed.
N. Tenant shall not place or permit to be placed any article of any kind
on the window ledges or on the exterior walls, and shall not throw or
permit to be thrown or dropped any article from any window of the
Building.
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O. Upon termination of this Lease or of Tenant's possession, Tenant
shall surrender all keys of the premises and shall make known to
landlord the explanation of all combination locks on safes, cabinets
and vaults.
P. Tenant shall be responsible for the locking of doors and the closing
of transoms and windows in and to the Premises.
Q. If Tenant desires telegraphic, telephonic, burglar alarm or signal
service, Landlord will, upon request, direct where and how
connections and all wiring for such services shall be introduced and
run. Without such directions, no boring, cutting or installation of
wires or cables is permitted. Landlord's approval hereof will not be
unreasonably withheld or delayed
R. If Tenant desires, and if Landlord permits, blinds, shades, awnings,
or other form of inside or outside window covering, or window
ventilators or similar devices, shall be furnished, installed and
maintained at the expense of Tenant and must be of such shape, color,
material and make as approved by Landlord.
S. Tenant shall not overload any floor.
T. Unless Landlord gives advance written consent in each and every
instance, Tenant shall not install or operate any steam or internal
combustion engine, boiler, machinery, refrigerating or heating device
or air conditioning apparatus in or about the Premises, or carry on
any mechanical business therein, or use the Premises for housing
accommodations or lodging or sleeping purposes, or use any
illumination other than electric light, or use or permit to be
brought into the Building any inflammable oils or fluids such as
gasoline, kerosene, naphtha and benzine, or any explosives or other
articles deemed extra hazardous to life, limb or property, or sell or
distribute any alcoholic beverages unless insurance coverage
reasonably acceptable, in form and substance, to Landlord is
obtained.
U. Tenant shall not place or allow anything to be against or near the
glass or partitions or doors of the Premises which may diminish the
light in, or be unsightly from, halls or corridors.
V. Tenant shall not install in the Premises any equipment which uses a
substantial amount of electricity without the advance written consent
of Landlord. Tenant shall ascertain from Landlord the maximum amount
of electrical current which can safely be used in the Premises,
taking into account the capacity of the electric wiring in the
Building and the Premises and the needs of other tenants in the
Building and shall not use more than such safe capacity. Landlord's
consent to the installation of electric
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<PAGE> 20
equipment shall not relieve Tenant from the obligation not to use
more electricity than such safe capacity.
W. In addition to all other liabilities for breach of any covenant of
this Section 12, Tenant shall pay to Landlord all damages directly
caused by such breach and shall also pay to Landlord an amount equal
to any increase in insurance premium or premiums caused by such
breach. The violation of any covenant of this Section 12, in addition
to any other remedies available to Landlord for default of a covenant
of this Lease, may be restrained by injunction.
X. Tenant shall be liable and responsible for installing and maintaining
any and all telephone and computer lines in the building serving the
premises. Tenant shall be liable for and hereby agrees to indemnify
and hold Landlord harmless from any liability or damage to any other
telephone or computer lines or Building systems damaged or interfered
with as a result of Tenant's installation or maintenance of its
telephone or computer lines.
13. Repairs. Subject to the provisions of Section 11, Tenant shall, at its
sole cost and expense, make all needed maintenance, repairs to the
Premises in a prompt, good and workmanlike manner, including but not
limited to (i) the heating, ventilating, and air conditioning systems
serving the Premises (unless Landlord, in its reasonable discretion, has
notified Tenant of Landlord's desire to maintain, repair and replace such
systems, in which case the cost and expense of such services shall be
payable by Tenant to Landlord upon demand); (ii) the exterior and interior
portion of all doors, windows, window frames, plate glass, door closures
and other hardware, door frames and store fronts; (iii) all plumbing and
sewage facilities within or serving the Premises, up to the connection to
the main water or sewer line; (iv) all fixtures and equipment within or
serving the Premises; (v) all electrical and gas systems within the
Premises up to the connection with the main service; (vi) all sprinkler
and central station reporting systems within the Premises; (vii) all
interior walls, floors, ceilings and coverings thereof; (viii) any of
Tenant's improvements; (ix) all repairs, replacements or alterations
required by any governmental authority; (x) interior plastering, painting
and water-proofing; (xi) wall and ceiling treatment; (xii) replacement of
broken glass and plate glass; and (xiii) all necessary repairs and
replacements of Tenant's trade fixtures required for the proper conduct
and operation of Tenant's business. If Tenant shall fail to make any
maintenance, repairs or replacements in and to the Premises as required in
this Lease, Landlord shall have the right, but not the obligation, to
enter the Premises and to make the same for and on behalf of Tenant, and
all sums so expended by Landlord shall be deemed to be additional rent
hereunder and payable to Landlord upon demand.
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<PAGE> 21
Landlord shall not be liable to Tenant for any interruption of Tenant's
business or inconvenience caused Tenant or Tenant's assigns, sublessees,
customers, invitees, employees, licensees or concessionaires in the
premises on account of Landlord's performance of any repair, maintenance
or replacement in the Premises, any other work therein or in the Building
pursuant to Landlord's rights or obligations under this Lease so long as
such work is being conducted by Landlord in accordance with the terms of
this Lease and without gross negligence or gross disregard for Tenant's
business operations. There shall be no abatement of Rent and no liability
of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or
to fixtures, appurtenances and equipment therein.
This Lease does not grant any rights to light or air over property, except
over public streets kept open by public authority and signage maintained
by Tenant on the exterior of the Building, which signage shall be subject
to and maintained by Tenant in accordance with all governmental codes and
regulations. At the termination of this Lease by lapse of time or
otherwise, Tenant shall return the Premises and all fixtures and equipment
therein in as good condition as when Tenant took possession, ordinary wear
excepted, failing which Landlord may restore the Premises to such
condition and Tenant shall pay the cost thereof. Any and all fixtures and
leasehold improvements installed in the Premises by or on behalf of Tenant
and all personal property, fixtures and leasehold improvements owned by
Tenant shall be removed from the Premises upon the termination of the Term
or Tenant's right to possession.
Landlord shall keep the foundation and the structural soundness of the
exterior walls and roof of the Premises in good repair except that
Landlord shall not be required to make any repairs occasioned by the act
or neglect of Tenant, its assignees, sublessees, servants, agents,
employees, invitees, licensees, customers or concessionaires, or any
damage caused by or as a result of Tenant's occupancy of the Premises, or
any damage caused by break-in, burglary, or other similar acts in or to
the Premises. In the event that maintenance, repairs or replacements to
any part of the Building (including exterior walls and roof of Building)
are necessitated in whole or in part by the act, neglect, fault or
omission of any duty by Tenant, its agents, servants, employees, invitees,
concessionaires or customers, and such maintenance, repair or replacements
are not reimbursed by insurance, Tenant shall pay to Landlord the cost of
such maintenance, repairs and replacements. If the Premises should become
in need of repairs required to be made by Landlord hereunder, Tenant shall
give immediate written notice thereof to Landlord.
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<PAGE> 22
14. Untenantability. Tenant shall give prompt notice to Landlord in case of
any fire or other damage to the premises. If (a) the premises shall be
damaged to the extent of thirty per cent (30%) or more of the cost of
replacement thereof during the last two (2) years of the Term or (b) the
Building shall be damaged to the extent of fifty per cent (50%) or more of
the cost of replacement thereof whether or not the Premises shall be
damaged, then in either of such events, Landlord shall have the right and
option to cancel this Lease by written notice within ninety (90) days
after the date of such occurrence, and thereupon this Lease shall cease
and terminate with the same force and effect as though such date were the
date fixed for the expiration of the Term. In such case, Tenant shall
vacate and surrender the Premises to Landlord. Tenant's liability for the
Rents and other charges reserved hereunder, excluding indemnity
obligations of Tenant, shall cease as of the date of such damage or
destruction and landlord shall make an equitable refund of any Rents or
other charges paid by Tenant in advance and not earned or accrued.
Landlord shall not be liable to repair and replace leasehold improvements
unless same are covered pursuant to this Lease, by insurance and then only
to the extent of the insurance proceeds received by Landlord therefor.
Unless this Lease is terminated by Landlord as aforesaid, this Lease shall
remain in full force and effect and the parties waive the provisions of
any law to the contrary, and Landlord and Tenant agree that the Premises
shall be repaired and restored with due diligence to substantially the
condition thereof immediately prior to such damage or destruction. In no
event shall Landlord be required to replace or restore additions,
improvements or alterations to the Premises made by or at the expense of
Tenant (including construction work in excess of the established standards
for the Building) unless Landlord shall have received the proceeds of the
insurance policies mentioned under Section 17(B)(i), and in such event,
Landlord's obligation shall be limited to the amount of such proceeds
actually received by Landlord. Landlord shall have no obligation to
replace or restore office furniture or equipment, trade fixtures,
merchandise, samples, supplies or any other items of Tenant's property in
the Premises or the Building. If by reason of such fire or other casualty
the Premises are rendered wholly untenantable, the Rent shall be abated,
or if only partially damaged, the Rent shall be abated proportionately as
to that portion of the Premises rendered untenantable; in either event,
until thirty (30) days after notice by Landlord to Tenant that the
Premises have been substantially repaired and restored or until Tenant's
operations are substantially restored in the entire Premises, whichever
shall occur sooner.
15. Eminent Domain. If the Building, or any portion thereof which includes a
substantial part of the Premises, or which prevents the operation of the
Building, shall be taken or condemned by any competent authority for any
public use or purpose or sold in lieu thereof, the Term of this Lease
shall end upon, and not before, the date when the possession of the part
so taken shall be required for such use or purpose, and without
apportionment of the condemnation award.
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<PAGE> 23
Current Rent shall be apportioned as of the date of such termination. If
any condemnation proceeding shall be instituted in which it is sought to
take or damage any part of the building, or the land under it or used in
its operation, or if the grade of any street or alley adjacent to the
Building is changed by any competent authority and such change of grade
makes it necessary or desirable to remodel the Building to conform to the
changed grade, Landlord shall have the right to cancel this Lease upon not
less than ninety (90) days notice prior to the date of cancellation
designated in the notice. No money or other consideration shall be payable
by Landlord to Tenant for the right of cancellation. Nothing contained in
this Section 15 shall be deemed to preclude Tenant's right to pursue any
claim it may have against the condemning authority for damages or an award
in the amount of relocation or other expenses or any other right afforded
Tenant by the condemning authority.
16. Landlord's Remedies. All rights and remedies of Landlord herein enumerated
shall be cumulative, shall be subject to the regulations of the Office of
the Comptroller of Currency and the Federal Deposit Insurance Corporation,
and none shall exclude any other right or remedy allowed by law.
A. If a petition in a bankruptcy or insolvency, or for the
reorganization, or for the appointment of a receiver or trustee of
all or a portion of the property of Tenant or any Guarantor shall be
filed against Tenant or any Guarantor in any court, pursuant to any
statute, either of the United States or of any State, and if, within
thirty (30) days thereafter, Tenant or any Guarantor fails to secure
a discharge thereof, or if Tenant or any Guarantor shall voluntarily
file any such petition or make an assignment for the benefit of
creditors or petition for or enter into an arrangement, or if this
Lease is taken under writ of execution (herein called "Act of
Bankruptcy"), then Tenant shall be deemed in breach and default of
this Lease and Landlord, in its discretion and at its election, may,
to the extent permitted by law, elect to cancel and terminate this
Lease. Upon the cancellation and termination of this Lease pursuant
to the provisions of this Subsection 16(A), Landlord, in addition to
all the remedies provided by law, shall be entitled to the remedies
provided in this Section 16. If this Lease is assumed or assigned by
a trustee pursuant to the provisions of the Bankruptcy Reform Act of
1978 ("Bankruptcy Act") (11 U.S.C. Section 101 et. seq.), then the
trustee shall cure any default under this Lease and shall provide
such adequate assurances of future performance of this Lease as are
required by the Bankruptcy Act (including, but not limited to, the
requirements of Section 365(b)(1)). If the trustee does not cure such
defaults and provide such adequate assurances under the Bankruptcy
Act, then this Lease shall be deemed rejected and Landlord shall have
the right to immediate possession of the Premises and shall be
entitled to all
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<PAGE> 24
remedies provided by the Bankruptcy Act for damages for breach and/or
termination of this Lease.
B. If (1) Tenant defaults in the payment of Rent as the same shall
become due and such default is not cured within ten (10) days after
written notice from Landlord; (2) the leasehold interest of Tenant be
levied upon under execution or be attached by law; (3) Tenant or any
Guarantor suffers or commits an Act of Bankruptcy; (4) a receiver be
appointed for any property of Tenant; (5) Tenant abandons the
Premises; or (6) Tenant defaults in the prompt and full performance
of any other provision of this Lease, and Tenant does not cure the
default under this sub-section (6) within ten (10) days (forthwith if
the default involves a hazardous condition) after written demand by
Landlord that the default be cured (unless the default involves a
hazardous condition, which shall be cured forthwith upon Landlord's
demand); then and in any such event, Landlord may, if Landlord so
elects but not otherwise, and with or without notice of such election
and with or without any demand whatsoever, forthwith terminate this
Lease or Tenant's right to possession of the Premises. Upon any such
termination of this Lease, and as determined by Landlord, Landlord
shall immediately be entitled to recover damages in an amount equal
to the then present value of the Rent specified in Sections 1 and 2
of this Lease for the residue of the stated term hereof.
C. Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession
without termination of the Lease, Tenant shall surrender possession
and vacate the Premises immediately, and deliver possession thereof
to Landlord. Tenant hereby grants to Landlord full and free license
to enter into and upon the Premises in the event of such termination,
with or without process of law, and to take possession of the
Premises. Landlord may expel or remove Tenant and any others who may
be occupying the Premises. Landlord may remove any and all property
from the Premises, using such force as may be necessary, without
being deemed in any manner guilty of trespass, eviction or forcible
entry or detainer. The exercise by Landlord of any of the remedies
reserved under this Section 16(C) shall not constitute a waiver or
election by Landlord with respect to Landlord's rights to Rent or any
other right given to Landlord elsewhere in this Lease or by operation
of law.
D. If Tenant abandons the Premises or otherwise entitles Landlord so to
elect, and Landlord elects to terminate Tenant's right to possession
only, without terminating the Lease, Landlord may, at Landlord's
option, enter into the Premises, remove Tenant's signs or other
evidence of tenancy, and take and hold possession thereof as in
Paragraph (C) of this Section 16, provided, without such entry and
possession terminating the Lease or
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<PAGE> 25
releasing Tenant, in whole or in part, from Tenant's obligation to
pay the Rent hereunder for the full Term, and in any case Tenant
shall pay forthwith to Landlord, if Landlord so elects, a sum equal
to the entire amount of the Rent specified in Sections 1 and 2 of
this Lease for the residue of the stated Term plus any other sums
then due hereunder. Upon and after entry into possession without
termination of the Lease, Landlord may, but need not, relet the
Premises or any part thereof for the account of Tenant to any person,
firm or corporation other than Tenant for such rent, for such time
and upon such terms as Landlord, in Landlord's sole discretion, shall
determine, and Landlord shall not be required to accept any tenant
offered by Tenant or to observe any instructions given by Tenant
about such reletting. In any case, Landlord may make repairs,
alterations and additions in or to the Premises, and redecorate the
same to the extent deemed by Landlord necessary or desirable, and
Tenant shall, upon demand, pay the cost thereof (to the extent
necessary to return the Premises to the condition as existed on the
Commencement Date, ordinary wear and tear excepted), together with
Landlord's expenses of the reletting, including but not limited to
leasing commissions. If the consideration collected by Landlord upon
any such reletting for Tenant's account is not sufficient pay monthly
the full amount of the Rent reserved in this Lease, together with the
costs of repairs, alterations, additions, redecorating and Landlord's
expenses, Tenant shall pay to Landlord the amount of each monthly
deficiency upon demand; and if the consideration so collected from
any such reletting is more than sufficient to pay the full amount of
the Rent reserved herein, together with the costs and expenses of
Landlord, Landlord, at the end of the stated Term of the Lease, shall
account for the surplus to Tenant.
E. Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of this Lease or of law, to which
Tenant is or may be entitled, may be handled, removed or stored by
Landlord at the risk, cost and expense of Tenant, and Landlord shall
in no event be responsible for the value, preservation or safekeeping
thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against
such property so long as the same shall be in Landlord's possession
or under Landlord's control. Any such property of tenant not removed
from the Premises, not otherwise transferred to Landlord hereunder,
or retaken from storage by Tenant within thirty (30) days after the
end of the Term, however, terminated, shall be presumed to have been
conveyed by Tenant to Landlord under this Lease as a bill of sale
without further payment or credit by Landlord to Tenant.
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<PAGE> 26
F. Tenant shall pay upon demand all Landlord's reasonable costs, charges
and expenses, including the fees of counsel, agents and others
retained by Landlord, incurred in enforcing Tenant's obligations
hereunder or incurred by Landlord in any litigation, negotiation or
transaction in which Tenant causes Landlord, without Landlord's
fault, to become involved or concerned.
17. Insurance.
A. Landlord and Tenant hereby waive any rights each may have against the
other on account of any loss or damage occasioned by Landlord or
Tenant, as the case may be, their respective property, the Premises,
or its contents or to other portions of the Building, arising from
any risk to be covered by fire and extended coverage insurance
policies required hereunder. The parties each, on behalf of their
respective insurance companies insuring the property of either
Landlord or Tenant against such loss, and to the extent same is
permitted pursuant to said policies, waive any right of subrogation
that such companies may have against Landlord or Tenant, as the case
may be. Landlord and Tenant covenant with each other that, to the
extent such insurance endorsement is reasonably available, they will
each obtain for the benefit of the other a waiver of any right of
subrogation from their respective insurance companies.
B. Tenant further covenants and agrees that from and after the date of
delivery of the Premises from Landlord to Tenant, Tenant will carry
and maintain, at its sole cost and expense, the following types of
insurance, in the amounts specified and in the form hereinafter
provided for:
(i) Insurance covering all additions, improvements and alterations
to the Premises made for, by or at the expense of the Tenant
and all office furniture and equipment, trade fixtures,
merchandise and other items of Tenant's property or any other
property in the Premises and leasehold improvements, against
all loss or damage by fire and such other hazards as may be
insured by the form of extended coverage in effect
(specifically including, but not limited to, water damage,
vandalism and malicious mischief in an amount equal to 100% of
the full replacement value of such property.
(ii) Comprehensive public liability insurance (and dram shop
insurance in the event alcoholic beverages are sold on the
Premises) against claims for bodily injury, death and property
damage occurring in or about the Premises (or the Building in
the event of injury or damage to person or property in the
Building for the benefit of or on account of the Tenant), to
afford protection to the limits of not less than
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<PAGE> 27
$2,000,000.00 with respect to bodily injury or death to any
number of persons from any one accident or occurrence, and not
less than $1,000,000.00 for property damage; provided however,
Landlord may require Tenant to obtain increases on aforesaid
limits of liability if Landlord determines such increases are
necessary and provided same are commercially reasonable.
(iii) Extended coverage insurance insuring plate glass.
All such insurance shall be effected under valid and enforceable
policies issued by insurers of recognized responsibility which are
licensed to do business in the State of Illinois and shall name as
additional insured Landlord and its beneficiaries and agents as their
interests may appear. Tenant shall, prior to the commencement of the
Term of this Lease, furnish to Landlord certificates evidencing such
coverage, and showing the interests of Landlord, owner of the
Building and Landlord's mortgagee, if any, which certificates shall
state that such insurance may not be changed or cancelled without
thirty (30) days prior written notice to Tenant and Landlord (and, if
required, Landlord's mortgagee) and thereafter certificates of
renewal shall be delivered to Landlord not less than thirty (30) days
prior to the expiration of the original policies or the preceding
renewals.
C. To the extent not expressly prohibited by law, Tenant agrees to
indemnify, save, protect and hold forever harmless Landlord, its
agents and employees (collectively "Landlord's indemnitees") from and
against all losses, damages, costs, claims and liabilities, including
without limitation, court costs and attorneys' fees and expenses,
which Landlord's indemnitees, or any of them, may suffer, incur or
sustain or for which Landlord's indemnitees, or any of them, may
become liable or obligated by reason of, resulting from, or in
connection with: (1) any injury to or death of persons and damage to
or theft, misappropriation or loss of property occurring in or about
the Premises arising from Tenant's use and occupancy of the Premises
or the conduct of its business; (2) any activity, work or thing done,
permitted or suffered by Tenant in or about the Premises, including
all liabilities of every kind and description which may arise out of
or in connection with the Work; and (3) any breach or default on the
part of Tenant in the payment or performance of any covenant,
agreement or obligation on the part of Tenant to be paid or performed
pursuant to the terms of this Lease or any other act or omission of
Tenant, its agents or employees. In case of any action or proceeding
brought against Landlord's indemnitees, or any of them, by reason of
any such claims, Tenant covenants to defend such action or proceeding
by counsel reasonably satisfactory to Landlord.
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<PAGE> 28
18. Subordination of Lease. The rights of Tenant under this Lease shall be
and are subject and subordinate at all times to the lien of any mortgage,
mortgages, ground or underlying lease, trust deed or trust deeds, now or
hereafter in force against the Building or the underlying leasehold
estate, if any, and to all advances made or hereafter to be made upon the
security thereof, and Tenant shall execute such further instruments
subordinating this Lease to the lien or liens of any such mortgage,
mortgages, ground or underlying lease, trust deed or trust deeds, as
shall be required by Landlord; provided however, such lender shall agree
not to disturb Tenant's rights pursuant to this Lease provided Tenant is
not in default under the terms of this Lease.
19. Sale of Premises by Landlord. Any sale or exchange by Landlord of its
interest in the Premises shall be subject to this Lease and the rights and
obligations of Tenant hereunder; and Tenant shall attorn to Landlord's
grantee or transferee. Upon any such sale or exchange and the assignment
by Landlord of this Lease, Landlord shall be and is hereby entirely freed
and relieved of all liability under any and all of its covenants and
obligations contained in or derived from this Lease arising out of any
act, occurrence or omission relating to the Premises or this Lease
occurring after the consummation of such sale or exchange and assignment.
20. Estoppel Certificate. In the event of sale, refinance or upon reasonable
request of Landlord's lender, Tenant shall from time to time, upon not
less than ten (10) days prior written request by Landlord, deliver to
Landlord a statement in writing certifying (to the extent applicable):
A. That this Lease is unmodified and in full force and effect or, if
there have been modifications, that the Lease as modified is in full
force and effect;
B. The dates to which Rent and other charges have been paid; and
C. That Landlord is not in default under any provision of this Lease or,
if in default, a detailed description thereof.
If Tenant shall fail to execute and deliver such statement within said
ten (10) days, then Tenant hereby authorizes Landlord, as its agent and
attorney-in-fact, to execute such statement on Tenant's behalf.
21. Notices. In every instance where it shall be necessary or desirable for
Landlord to serve any notice or demand upon Tenant, it shall be sufficient
(a) to deliver or cause to be delivered to Tenant a written copy thereof,
in which event same shall be deemed to have been served when received by
Tenant or an agent or employee thereof, or (b) to send a written copy
thereof by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises, in
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<PAGE> 29
which event, notice or demand shall be deemed to have been served two (2)
business days after the date the copy is posted. All notices or demands
shall be signed by or on behalf of Landlord. Any notice or demand from
Tenant to Landlord shall be in writing and deemed served when received by
Landlord or the Agent for Owner at the Office of the Building or two (2)
business days after mailing if mailed by United States certified or
registered mail, postage prepaid, addressed to Landlord at the Office of
the Building, or at such other or additional addresses as Landlord shall
specify by notice to Tenant.
22. Miscellaneous.
A. No receipt of money by Landlord from Tenant after the termination of
this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of
the Premises shall renew, reinstate, continue or extend the Term of
this Lease or affect any such notice demand or suit.
B. No waiver of any default of Tenant hereunder shall be implied from
any omission by Landlord to take any action on account of such
default if such default persists or be repeated, and no express
waiver shall affect any default other than the default specified in
the express waiver and that only for the time and to the extent
therein stated. The invalidity or unenforceability of any provision
hereof shall not affect or impair any other provision.
C. The words "Landlord" and "Tenant", wherever used in this Lease, shall
be construed to mean "Landlords" or "Tenants" in all cases where
there is more than one lessor or lessee, and the necessary
grammatical changes required to make the provisions hereof apply
either to corporation or individuals, men or women, shall in all
cases be assumed as though in each case fully expressed.
D. Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of Landlord and Tenant and
their respective heirs, legal representatives and successors, and
assigns in the event this Lease has been assigned with the consent of
Landlord as herein provided.
E. The headings of sections are for convenience only and do not limit or
construe the contents of the sections.
F. Submission of this instrument for examination does not constitute a
reservation of or option for the Premises. The instrument becomes
effective as a lease upon execution and delivery by both Landlord and
Tenant.
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<PAGE> 30
G. All amounts (other than Base Rent and Additional Rent) owed by the
Tenant to Landlord hereunder shall be paid within ten (10) days from
the date Landlord renders a statement of account therefor and shall
bear interest at the rate of the lesser of (i) the then current prime
rate of interest established by The First National Bank of Chicago,
or its successor, or (ii) the maximum rate permitted by law
thereafter until paid.
H. Provisions typed on the face of this Lease and signed by Landlord and
Tenant, and all Riders attached to this Lease and signed by Landlord
and Tenant, are hereby made a part of this Lease as though inserted
at length in this Lease.
I. If Tenant shall occupy the Premises prior to the beginning of the
stated Term of this Lease with Landlord's consent, all the provisions
of this Lease shall be in full force and effect as soon as Tenant
occupies the Premises and Rent for any such period prior to the
beginning of the stated Term of this Lease shall be paid by Tenant on
the basis of the pro rated portion of the Rent set forth in Sections
1 and 2. In the event Landlord is unable to deliver possession of the
Premises on the Commencement Date by reason of the holding over or
retention of possession by any tenant or occupant, this Lease shall
nevertheless continue in full force and effect, but Rent shall abate
until the Landlord is able to deliver possession, and Landlord shall
have no other liability whatsoever on account hereof.
J. This Lease is the entire understanding of the parties and the terms
and provisions of this Lease shall only be modified or amended in
writing.
K. If this Lease is executed by more than one individual, corporation,
partnership, association or other entity as Tenant, the obligations
of each of said parties shall be joint and several.
23.
Reserved
24. Brokers. Tenant represents and warrants to Landlord that neither Tenant
nor its officers or agents nor anyone acting on Tenant's behalf has dealt
with any real estate brokers to whom any commissions due shall be paid by
Landlord. Tenant agrees to indemnify, defend and hold harmless Landlord
(which, for the purposes of this Section 24, shall be deemed to include
Water Tower Realty Management Company, its agents and employees) and the
owner of the Building from the claim or claims of a broker or brokers
claiming to have interested Tenant in the
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<PAGE> 31
Building or the Premises or claiming to have caused Tenant to enter into
this Lease.
25.
Reserved
26.
Reserved
27.
Reserved
28.
Reserved
29. Continuous Operation. Tenant acknowledges that the continuous operation
of the business at the Premises is a material element of the consideration
to be derived by Landlord. Accordingly, Tenant shall, during the entire
Term, continuously use the Leased Premises for the purpose stated in this
Lease, carrying on therein Tenant's business undertaking diligently,
assiduously and energetically. Tenant shall keep the Premises open and
available for business activity therein during all usual days and hours
for such business in the Chicago metropolitan area. Tenant will conduct
its business and control its agents, employees and invitees in such a
manner as not to create any nuisance, nor interfere with, annoy, or
disturb other tenants or Landlord in the management of the Premises, and
shall strictly observe any rules Landlord shall prescribe.
30. Parking. Landlord agrees to use its reasonable efforts to provide Tenant
with eight (8) parking spaces in the lot located behind the Building for
customer or employee use during normal business hours. Said parking
spaces, if available, shall be provided on a monthly basis, at a cost to
Tenant of Ninety-Five and 00/100 Dollars ($95.00) per space per month,
which sum shall be deemed Additional Rent due and payable at the same time
as Monthly Base Rent. In addition, each of the parking spaces, if
available, shall be marked in such a fashion, acceptable to Landlord, to
indicate that they are for the sole use of Tenant, its employees and/or
its customers. Any such markings or signage, and any wiring required
therefor, shall be provided and maintained at the sole cost
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<PAGE> 32
and expense of Tenant and shall, in all events, be subject to the prior
approval of Landlord and shall not in any manner interfere with the
ingress and egress to and from the parking lot.
LANDLORD: TENANT:
WATER TOWER REALTY SUCCESS NATIONAL BANK, A
MANAGEMENT COMPANY National Banking Association
BY: /s/______________________ BY: /s/_______________________
Its:_________________________ Its: President
(Title) (Title)
ATTEST:
BY:
___________________________
Its:
___________________________
(Title)
This Lease consists of the Lease Schedule, Pages 1 through 25 hereof,
Riders A and B, and Exhibits A and B.
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<PAGE> 33
RIDER A
RULES AND REGULATIONS
1. PROTECTING PREMISES.
Before leaving the Premises unattended, Tenant shall close and securely
lock all doors or other means of entry to the Premises and shut off all
utilities in the Premises. Any damage resulting from the neglect of this
rule shall be paid by Tenant.
2. LARGE ARTICLES.
All damage done to the Building by moving or maintaining furniture,
freight or articles shall be repaired at the expense of Tenant.
3. SIGNS.
Tenant shall not paint, display, inscribe, maintain or affix any sign,
placard, picture, advertisement, name, notice, lettering or direction on
any part of the outside of the Premises, other than the signs described in
the Lease without the prior written consent of Landlord, and then only
such name or names or matter and in such color, size, style, character and
material as may be first approved by Landlord in writing, such approval
not to be unreasonably withheld. Landlord acknowledges that Tenant is
purchasing the existing Belmont National Bank sign on the exterior of the
Premises, waives any interest it may have therein and consents to Tenant's
use thereof, provided Tenant maintains and uses same in accordance with
all governmental regulations.
4. ADVERTISlNG
Tenant shall not in any manner use the name of the Building for any
purpose other than that of the business address of Tenant, or use any
picture or likeness of the Building in any letterheads, envelopes,
circulars, notices, advertisements, containers, wrapping material or other
fashion without Landlord's express consent in writing. Tenant shall not
advertise the business, profession or activities of Tenant in any manner
that violates the letter or spirit of any code of ethics adopted by any
recognized association or organization pertaining to such business,
profession or activities.
5. DEFACING PREMISES AND OVERLOADING.
Tenant shall not place anything or allow anything to be placed in the
Premises near the glass of any door, partition, wall or window which may
be unsightly from
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<PAGE> 34
outside the Premises, and Tenant shall not place or permit to be placed
any article of any kind on any window ledge or on the exterior walls.
Window coverings shall not be placed in or about the outside windows in
the Premises except to the extent, if any, that the character, shape,
color, material and make thereof is approved by Landlord, and Tenant shall
not do any painting or decorating in the Premises or make, paint, cut, or
drill into, drive nails, screws or other fasteners into or in any way
deface any part of the premises or the building without the written
consent of Landlord.
6. COMMUNICATION, ALARM OR UTILITY CONNECTIONS.
If Tenant desires signal, communication, alarm or other utility or similar
service connections installed or changed, Tenant shall not install or
change the same without the approval of Landlord, and then only under
direction of Landlord and at Tenant's expense. Tenant shall not install in
the Premises any equipment which requires a substantial amount of
electrical current without the written consent of Landlord, and Tenant
shall ascertain from Landlord the maximum amount of load or demand for or
use of electrical current which can safely be permitted in the Premises,
taking into account the capacity of the electric wiring in the Building
and the Premises and the needs of other tenants of the Building and shall
not in any event connect a greater load than such safe capacity.
7. TOILET ROOMS.
The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be
thrown therein and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
who, or whose employees or invitees, shall have caused it.
8. INTOXICATION.
Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord is intoxicated or under the
influence of liquor or drugs or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
9. VENDING MACHINES.
No vending machines of any description shall be installed, maintained or
operated in the Premises without the prior written consent of Landlord,
not to be unreasonably withheld.
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<PAGE> 35
10. NUISANCES AND CERTAIN OTHER PROHIBITED USES.
Tenant shall not (i) install or operate any internal combustion engine,
boiler or machinery in or about the Premises, (ii) carry on any mechanical
business in or about the Premises without the written permission of
Landlord, (iii) exhibit, sell or offer for sale, use, rent or exchange in
the Premises or the Building any article, thing or service except those
ordinarily embraced within the Permitted Use of the Premises specified in
Section 12, or use the Premises for housing, lodging or sleeping purposes,
(iv) Reserved, (v) place any radio or television antennae on the roof or
in any part of the inside or outside of the Building other than the inside
of the Premises; (vi) operate or permit to be operated any musical or
sound-producing instrument or device inside or outside the Premises which
may be heard outside the Premises, (vii) use any illumination or power for
the operation of any equipment or device other than electricity, (viii)
operate any electrical device from which may emanate electrical waves
which may interfere with or impair radio or television broadcasting or
reception from or in the Building or elsewhere, (ix) make or permit any
objectionable noise or odor to emanate from the Premises, (x) disturb,
solicit or canvass any occupant of the Building, (xi) do any act tending
to injure the reputation of the Building, or (xii) throw or permit to be
thrown or dropped any article from any window or other opening in the
Building.
11. WALL COVERINGS.
Any wallpaper or vinyl fabric materials which Tenant may install on
painted walls shall be applied with a strippable adhesive. The use of
nonstrippable adhesives will cause damage to the walls when materials are
removed, and repairs made necessary thereby shall be made by Landlord at
Tenant's expense.
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<PAGE> 36
RIDER B
-------
OPTION
------
Tenant shall have the option to renew this Lease for two (2) terms of five
(5) years each (the "Renewal Term" individually or "Renewal Terms"
collectively), the term of the first of which shall commence on the tenth
(10th) anniversary of the Commencement Date and terminate five (5) years
Thereafter. There shall be no further options to renew. Such option shall be
exercisable by Tenant, if at all, by written notice of Tenant's desire to
exercise such option given to Landlord not less than nine (9) months prior to
the expiration of the initial Term of this Lease for the first Renewal Term or
the expiration of the prior Renewal Term for the subsequent Renewal Terms. The
Renewal Terms shall be on the same terms, covenants and conditions as contained
in this Lease; provided however, the Base Rent for the first Lease Year of the
respective Renewal Terms shall be the greater of the Base Rent for the
immediately preceding Lease Year or the "Market Rate" at the commencement of
the respective Renewal Terms and shall, in any event, continue to be escalated
by increases in the CPI as provided in Section 1 of the Lease as if the Terms
were continuous. Market Rate is defined as those terms and that rate (including
escalation factors for subsequent years during the Renewal Term) then being
charged for similar space, under similar circumstances, in comparable buildings
in the geographical area in which the Building is situated. Said rate shall be
reasonably determined and established by the Landlord and disclosed to Tenant
within thirty (30) days after the delivery of Tenant's notice of exercise of
the Option. In the event Tenant disagrees with such determination, the Market
Rate dispute shall be submitted to binding arbitration in Chicago, Illinois
pursuant to the rules of the American Arbitration Association and until such
time, the rate for Base Rent shall be equal to the Base Rent for the Lease Year
immediately preceding the first month of the applicable Renewal Term, with the
Tenant being required to cure any deficiency therein if the Market Rate is
greater than such Base Rent. Notwithstanding anything to the contrary contained
herein, it shall be a condition precedent to Tenant's option right hereunder,
that at the time of exercising same and at the commencement of each of the
Renewal Terms, this Lease be in full force and effect and there be no existing
and unremedied default on the part of the Tenant to be performed under any of
the terms, covenants or conditions of the Lease as to which Landlord shall have
served notice upon Tenant. Any cancellation or termination of this Lease or
Tenant's right to possession of the Premises shall terminate the option
hereunder. Tenant's option to renew, as set forth above, shall be conditioned
upon Tenant having made due and timely exercise of same option.
- B-1 -
<PAGE> 37
RIDER C
-------
OPTION
------
CANCELLATION OPTION
-------------------
Tenant may cancel the Lease effective as of the end of the fifth (5th)
Lease Year during the Term, upon not less than six (6) months prior written
notice to Landlord; provided however, the right of Landlord to recover any
monetary obligations thereunder shall not be extinguished by the termination of
said Lease. Failure to timely deliver said notice shall void Tenant's
cancellation right hereunder granted.
- C-1 -
<PAGE> 1
EXHIBIT 10.7
THIS LEASE made and entered into this 21 day of
December, 1994, between LA SALLE BANK NORTHBROOK, TRUST NO.
001666-00, hereinafter called LESSOR, party of the first
part, and SUCCESS NATIONAL BANK, a national banking
corporation, hereinafter called LESSEE, party of the second
part.
WITNESSETH
That LESSOR for and in consideration of the covenants
and agreements hereinafter set forth to be kept and
performed by the LESSEE, demises and leases to the LESSEE,
and the LESSEE does hereby take, accept and rent from the
LESSOR, the premises hereinafter described for the period at
the rental and upon the terms and conditions hereinafter set
forth.
DEMISED 1. The premises demised and leased hereunder is
PREMISES designated 1368 Shermer Road, Northbrook, Illinois 60062,
and consists of a store on the first floor of demised
premises approximately 1950 square feet on the first floor
and a 30 to 40 car parking lot to be shared by the various
tenants in the building containing demised premises. The
front vestibule which provides access to the balance of the
first floor and to the second floor apartments is not part
of demised premises.
TERM OF LEASE; 2. The term of this lease shall commence as set forth
OPTION TO in Rider hereto and shall expire on November 30, 1997,
RENEW unless sooner terminated as hereinafter provided, subject
to the renewal option per Paragraph 12 of Rider hereto.
LEASE 3. The term "Lease Year" means a period of twelve (12)
YEAR full consecutive calendar months commencing on the date set
forth in Paragraph 2 above. Subsequent Lease Years shall run
consecutively, each commencing upon an anniversary of the
commencement of the first Lease Year.
PAYMENT 4. LESSEE hereby covenants and agrees to pay rent to
OF LESSOR, which said rent shall be in the form of "fixed
RENT minimum rent" as hereinafter provided. The payment of said
fixed minimum rent shall begin as set forth in Rider hereto.
Said rent shall be paid to the order of JOHN S. CLARK, JR.
at 1271 Estate Lane, Lake Forest, Illinois 60045, or at such
other place or to such other person as LESSOR may from time
to time in writing designate.
FIXED 5. LESSEE shall pay to LESSOR a fixed minimum rent for
MINIMUM the initial term of this Lease in the amount of $2,700.00
RENT per month, due and payable in advance on the first day of
TWO (2) each and every calendar month of each Lease Year, or for any
MONTHS fractional Lease Year during such Lease term, or for any
FREE fractional calendar month therein; the fixed minimum rent
RENT herein provided for a full Lease Year or for the installment
for each full calendar month shall be payable in advance and
on a proportionate basis.
(a) Said $2,700.00 per month fixed minimum rent shall
not be due and/or payable for a period of two (2) months
from the date LESSEE begins construction per paragraph 2
and/or 6 of Rider hereto.
<PAGE> 2
CONDITION 6. Except with respect to the matters set forth in
OF Paragraph 7 of the Rider hereto, LESSOR or LESSOR'S agents
PREMISES have made no representation or promises with respect to the
demised premises, the equipment therein or the building of
which demised premises form a part except as herein
expressly set forth. The taking possession of the demised
premises by LESSEE shall be conclusive evidence as against
LESSEE, that the LESSEE accepts same "as is" and that said
premises, equipment and that portion of said building in
which demised premises are located were in good and
satisfactory condition as of the time of such possession.
USE OF 7. The demised premises shall be used and occupied by
PREMISES LESSEE for its banking business and for no other purpose and
such use and occupancy shall be in compliance with all
applicable laws, ordinances and governmental regulations.
LESSEE agrees to open for business on the day set forth
herein and to operate 100% of the leased premises during the
term of this Lease, during regular and customary hours for
such type of business and on all business days, unless
prevented from doing so by causes beyond LESSEE'S control,
such as strikes, fire or casualty, and to conduct its
business at all times in a reputable manner, which agreement
shall have no force or effect upon or modify the above
definition of a Lease Year.
LESSEE shall not use the sidewalks adjacent to the
leased premises, or other parts of the common areas, for
business purposes except ingress and egress without the
written consent of LESSOR. The leased premises shall not be
used in any manner that is not in accordance with any
requirement of law or of any public authority. No auction,
fire, bankruptcy or closing-out sales shall be conducted in
the leased premises without the advance written consent of
the LESSOR. LESSEE will not use or permit the use of the
premises in any such manner that will tend to create a
nuisance or tend to unnecessarily disturb other tenants or
occupants of the property containing demised premises.
CARE OF 8. LESSEE shall, at its expense, keep the leased
PREMISES; premises, including, but not limited to, the glass interior
PLATE GLASS windows of demised premises and signs used by it in a clean,
INSURANCE safe and sanitary condition; keep sidewalks free from waste
and debris; conform to applicable laws, ordinances,
regulations and codes; store in rat-proof receptacles and
remove daily all trash, waste, sewage and garbage; and, on
LESSOR'S request remove any encroachments maintained or
authorized by it on any common area without LESSOR'S written
consent. Without such written consent, which shall not be
unreasonably withheld, LESSEE shall not mark, paint, drill,
deface, injure, waste, damage or alter the leased premises;
conduct business so as to constitute a nuisance to other
LESSEES or occupants; burn trash or garbage within the
center; sweep any sweepings into the parking lot or other
common area; display merchandise on or about the common area
or the premises of other LESSEES or occupants; overload any
floor or facility; make any structural alterations except as
provided in this Lease; throw foreign substances in plumbing
facilities or
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<PAGE> 3
use the same for any purpose other than for which
constructed.
LESSEE agrees to replace all of aforesaid interior
glass that is broken in any manner whatsoever, the LESSEE
assuming all responsibility for the glass in the premises
herein demised, and to cause such liability to be protected
by plate glass insurance policy or certificate showing such
insurance in force with LESSOR as an additional insured
thereunder during the term of this LEASE.
REPAIRS; 9.(a) The leased premises shall at all times be kept by
MAINTENANCE; LESSEE at its own expense in good order, condition and
SERVICE repair and in accordance with all laws, directions, rules
CONTRACTS and regulations of regulatory bodies or officials having
jurisdiction in that regard. LESSEE'S obligations to keep
the premises in good repair shall include, but not be
limited to, repair, maintenance and servicing of the
plumbing, sewage, heating, air conditioning and ventilating
systems (subject to the provisions of the Rider hereto
pertaining to the HVAC system), electrical systems, fixtures
and equipment, and interior walls, exterior doors and door
closures and hardware, meters, flues and flue pipes, ceiling
and floor covering in the leased premises, irrespective of
the ownership of any of these items of equipment. If LESSEE
refuses or neglects to commence repairs within ten (10) days
after written demand, or adequately to complete such repairs
within a reasonable time thereafter, LESSOR may make the
repairs without liability to LESSEE for any loss or damage
that may accrue to LESSEE'S stock or business by reason
thereof, and if LESSOR makes such repairs, LESSEE shall pay
to LESSOR, on demand, as additional rent, the costs thereof.
(b) LESSEE shall enter into contracts with contractors
approved by LESSOR for the servicing each Spring and Fall of
the air conditioning, ventilating and heating systems, which
approval shall not be unreasonably withheld, and shall
furnish LESSOR with reasonably adequate reports that
inspections have been made by such contractor and that
LESSEE has complied with the recommendations in such reports
contained. Should LESSEE fail to comply with the
requirements of this provision, LESSOR may undertake the
obligations and if LESSOR does so, LESSEE shall pay to
LESSOR on demand, as additional rent, the costs thereof.
(c) In the event that the costs of the repairs to the
heating, ventilating and air conditioning systems (HVAC)
exceeds the amounts for which LESSEE is responsible and
liable under Paragraph 8 of the Rider hereto, then and in
that event, LESSOR shall be responsible and liable for the
payment of said excess amount and to cause the repairs to be
completed within a reasonable period of time. In the event
that LESSEE must cause said repairs to be completed at its
own expense either because LESSOR does not comply herewith
or because of an emergency, then and in either of said
events, LESSEE shall be entitled to repayment from LESSOR
for aforesaid excess amount.
- 3 -
<PAGE> 4
LIABILITY; 10. LESSEE shall not carry any stock of goods or do
INSURANCE anything in or about the leased premises which will in any
way impair or invalidate the obligation of any policy of
insurance on or in reference to the leased premises or the
building in which the leased premises are situated. LESSEE
shall keep in full force and effect at its expense a policy
or policies of public liability insurance with respect to
the leased premises and the business of the LESSEE written
by an insurance company or companies acceptable to LESSOR,
on terms approved in writing by LESSOR, in which both LESSOR
and LESSEE shall be named insureds and in which both LESSEE
and LESSOR shall be adequately covered under reasonable
limits of liability not less than $1,000,000.00 for injury
or death to any one person; and $2,000,000.00 for injury or
death to more than one person; and $1,000,000.00 with
respect to damage to property. Said policies shall contain
provisions prohibiting cancellation without at least thirty
(30) days' written notice to LESSOR. LESSEE shall furnish
LESSOR with certificates or other acceptable evidence that
such insurance is in effect and containing appropriate
provisions respecting notice of cancellation. Said liability
policies shall cover specifically any and all contractural
liability undertaken by LESSEE as in the within Lease set
forth.
LESSEE agrees that it will at all times during the
leased term maintain in force on all of its fixtures and
equipment in the premises a policy or policies of fire
insurance with a standard extended coverage endorsement
attached to the extent of at least eighty percent (80%) of
their insurable value, the proceeds of which will, so long
as this Lease is in effect, be used for the repair or
replacement of the fixtures and equipment so insured. It is
understood that LESSOR shall have no interest in the
insurance upon LESSEE'S equipment and fixtures, and will
sign all documents necessary or proper in connection with
the settlement of any claim or loss by LESSEE. LESSEE shall
provide LESSOR with copies or certificates of all said
policies.
COVENANTS 11. LESSEE shall indemnify and hold LESSOR harmless
TO HOLD from and against any expense or liability arising from
HARMLESS; damage to any person or property in or upon the leased
LIENS premises, sidewalks adjoining same designated for LESSEE'S
use, including, but not limited to, the person and property
of LESSEE, its employees and all persons in the building at
its or their invitation. All property kept, stored or
maintained in the leased premises shall be so kept, stored
or maintained at the sole risk of the LESSEE. LESSEE agrees
to pay all sums of money in respect of any labor, services,
materials, supplies or equipment furnished or alleged to
have been furnished to LESSEE in or about the leased
premises and do all that is necessary to avoid any
mechanic's, materialman's or other liens against the leased
premises or against the LESSOR'S interest therein. LESSEE
shall furnish LESSOR with contractors' affidavits and full
and final waivers of liens and receipted bills covering all
labor and materials expended and used in or about the leased
premises by or at the request of LESSEE as set forth in
Rider hereto. If so requested by LESSOR, LESSEE shall
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<PAGE> 5
furnish a letter of credit written by an independent banking
or lending institution which is not a subsidiary of,
directly affiliated with or a part of LESSEE, in an amount
sufficient to protect LESSOR against any mechanics' lien
claims for any labor, services, materials, supplies or
equipment furnished or alleged to have been furnished to
LESSEE in or about the leased premises. LESSOR shall have the
right to post and maintain on the leased premises notices of
non-responsibility as may be permitted by State law.
DELIVERIES 12. All loading and unloading and all removal of
garbage and refuse shall be made through the rear of demised
premises.
ASSIGNMENT 13. LESSEE agrees not to sell, assign, mortgage,
OR pledge, or in any manner transfer this Lease or any estate
SUBLETTING or interest thereunder and not to sublet the leased premises
or any part or parts thereof and not to permit any licensee
or concessionaire therein without the previous written
consent of LESSOR in each instance, which consent shall not
be unreasonably withheld. Consent by LESSOR to one
assignment of this Lease or to one subletting of the leased
premises shall not be a waiver of LESSOR'S rights under this
article as to any subsequent assignment or subletting.
LESSOR'S rights to assign this Lease are and shall remain
unqualified.
In addition, LESSEE shall not allow or permit any
transfer of this Lease or any interest under it, or any lien
upon LESSEE'S interest by operation of law, without first
obtaining written consent of LESSOR, which consent shall not
be unreasonably withheld, and any such transfer, lien,
assignment or subletting not so consented to by LESSOR at
LESSOR'S option shall be invalid and of no force or effect
whatsoever.
Any such subleasing or assignment, even with the
approval of the LESSOR, shall not relieve LESSEE from
liability for payment of the rental herein provided or from
the obligation to keep and be bound by the terms, conditions
and covenants of this Lease. The acceptance of rent from any
other person shall not be deemed to have waived any of the
provisions of this article or to be a consent to the
assignment of this Lease or subletting of the demised
premises. This paragraph shall be binding upon the
executors, administrators and personal representatives of
LESSEE.
RIGHT TO 14. LESSOR reserves the right to enter upon the leased
INSPECT premises at reasonable hours to inspect the same, or to make
PREMISES repairs, additions or alterations to the leased premises or
other property, or to exhibit the premises to prospective
tenants, purchasers, or others, to enter at any time in the
event of an emergency and to display during the last ninety
(90) days of the term, without hindrance or molestation by
LESSEE, "For Rent" or similar signs on windows or doors in
the leased premises.
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<PAGE> 6
QUIET 15. LESSOR covenants that LESSEE, upon paying the fixed
POSSESSION minimum rents and real estate taxes (see provisions in Rider
re "tax stop"), provided for herein and upon performing the
covenants and agreement of Lease to be performed by said
LESSEE, will have, hold and enjoy quiet possession of the
demised premises, subject to the rights of the holders of
any mortgages to which this Lease may be subordinate.
NOTICES 16. All notices under this Lease shall be deemed to
have been properly served if delivered in writing personally
or by registered mail to the LESSOR at c/o John S. Clark,
Jr., 1271 Estate Lane, Lake Forest, Illinois 60045 or such
other place or places as it may designate in writing from
time to time, or to the LESSEE personally in writing or by
certified mail at One Marriott Drive, Lincolnshire, Illinois
60069, or such other place as it may designate in writing
from time to time. Date of service of the notice by mail
shall be the date on which the notice is mailed.
SUBORD- 17. At any time and from time to time, LESSEE agrees,
INATION upon request in writing from LESSOR, to execute, acknowledge
AND and deliver to LESSOR a statement in writing certifying, to
ESTOPPEL the extent true, that this Lease is unmodified and in full
force and effect (or if there have been modifications, that
the same is in full force and effect as modified and stating
the modifications) as of the dates to which the fixed
minimum rent, real estate taxes, and other charges have been
paid, and making such other accurate certifications as
LESSOR'S mortgagee may require.
UTILITIES 18. LESSEE agrees to pay from time to time upon demand
all charges or bills for gas, electricity and other utility
services used on demised premises, or based upon
availability, even though not used after the occupancy date
(herein defined as the date a building permit issues to
LESSEE from the Village of Northbrook), during the term of
this Lease and any renewal thereof. LESSEE shall not be
responsible for any prorata share of common area lighting or
water unless the usage is for the sole benefit of LESSEE.
DISCON- 19. LESSOR reserves the right in addition to all other
TINUANCE available remedies, upon written notice to LESSEE and
AND LESSEE'S failure to cure same within a reasonable period of
INTER- time after receipt of said notice, to cut off and
RUPTION discontinue gas, water, electricity, air conditioning,
OF heating, ventilating, antenna service and any or all other
SERVICE service, without liability to LESSOR, whenever and during
any period for which bills for same or for rent are not
promptly paid by LESSEE and where necessary to make repairs
or alterations. No such action by LESSOR, or notice thereof,
shall be construed as an eviction or disturbance of
possession or an election by LESSOR to terminate this Lease.
LESSOR shall not be liable in damages or otherwise if
the furnishing by LESSOR, or by any other supplier, of any
utility service or other service to the leased premises
shall be interrupted or impaired by fire, accident, riot,
strike, act of God, the making of necessary repairs or
improvements or by any causes beyond the control of LESSOR.
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<PAGE> 7
DESTRUCTION 20. If the demised premises shall be partially damaged
by fire or other cause, the damage shall be repaired at the
expense of LESSOR within a reasonable period of time, not to
exceed ninety (90)days, but without prejudice to the rights
of subrogation, if any, of LESSOR'S insurer. If such partial
damage is not due to fault or neglect of LESSEE, the rent
shall abate in proportion to the portion of the premises not
usable by LESSEE. If damage or destruction is due to fault
or neglect of LESSEE, there shall be no abatement of rent
and debris shall be removed by and at the expense of LESSEE.
If LESSOR fails to repair within said ninety (90)days,
LESSEE may cancel and terminate this Lease. If the premises
are rendered wholly untenantable by fire or other cause, and
if LESSOR shall decide not to restore the premises, or if
the building shall be so damaged that LESSOR shall decide to
demolish it, or to rebuild to LESSOR'S specifications
(whether or not the demised premises have been damaged),
LESSOR may within ninety (90 days after such fire or other
cause give written notice to LESSEE of such decision,
whereupon LESSEE may retain this Lease upon written notice
to LESSOR within three (3) days after receipt of LESSOR'S
aforesaid notice.
SURRENDER 21. On the last day of the term demised (as same may be
extended), or upon the sooner termination thereof, LESSEE
shall peaceably surrender the leased premises in good order,
condition and repair, broom-clean, reasonable wear and tear
only excepted. LESSEE shall at its expense remove its trade
fixtures, signs and carpeting from the leased premises and
any property not removed shall be deemed abandoned. LESSEE
shall promptly repair at its expense any damage occasioned
by removal of its trade fixtures, signs and carpeting.
LESSOR at its option, shall have the right to require LESSEE
to effect removal of same and, in addition, to effect
removal of any alterations, additions, improvements and
fixtures (other than said trade fixtures, signs and
carpeting) and floors as were installed by LESSEE, and to
restore the premises to at least as good condition as same
were in as of the date of commencement of the term of this
Lease. LESSEE'S obligations under this paragraph shall
survive the expiration or other termination of the term of
this Lease. If the leased premises be not surrendered at the
end of term or the sooner termination thereof, LESSEE shall
and does hereby indemnify LESSOR against loss or liability
resulting from the delay by LESSEE in so surrendering the
premises, including, without limitation, claims made by a
succeeding tenant founded on such delay. LESSEE shall
promptly surrender all keys for the leased premises to
LESSOR at the place then fixed for payment of rent and shall
inform LESSOR of combinations on any locks and safes on the
leased premises.
BANKRUPTCY 22. Neither this Lease, nor any interest therein nor
any estate thereby created shall pass to any trustee or
receiver or assignee for the benefit
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<PAGE> 8
of creditors or otherwise by operation of law. In the event
the estate created thereby shall be taken in execution or by
other process of law, or if LESSEE shall be adjudicated
insolvent or bankrupt pursuant to the provisions of any
State or Federal insolvency or bankruptcy act, or if a
receiver or trustee of the property of LESSEE shall be
appointed by reason of LESSEE'S insolvency or inability to
pay its debts, or if any assignment shall be made of
LESSEE'S property for the benefit of creditors, then and in
any such events LESSOR may, at its option, in addition to
the remedies provided in Article 23, terminate this Lease
and all rights of LESSEE herein, by giving to LESSEE notice
in writing of the election of LESSOR so to terminate.
DEFAULT 23. If LESSEE vacates or abandons the premises or
permits the same to remain vacant or unoccupied for a period
of ten (10) days, or if the rent, or any part thereof, shall
be unpaid for ten (10) days, or if default shall be made in
the prompt and full performance of any covenant, condition
or agreement in this Lease to be kept or performed by
LESSEE, and such default or breach of performance shall
continue for more than five (5) days after notice thereof to
LESSEE, specifying such default or breach of performance,
then LESSOR may treat the occurrence of any one or more of
the foregoing events as a breach of this Lease and
thereupon, at its option, shall have, in addition to all
other legal or equitable remedies, the following described
remedies:
(a) Provided that LESSEE does not cure such default
or breach of performance within a reasonable time after
receipt of aforesaid written notice from LESSOR to cure
same, LESSOR may elect to terminate this Lease and term
created hereby in which event LESSOR forthwith may repossess
the premises immediately, and by force, if necessary, and
remove all persons and their property therefrom and use such
force and assistance in effecting and perfecting such
removal as the LESSOR may deem advisable to recover at once
full and exclusive possession of all of said demised
premises, whether said demised premises be in possession of
the LESSEE or of third persons, or whether the demised
premises be vacant, and LESSEE shall pay at once to LESSOR
as liquidated damages a sum of money equal to the rentals
provided herein to be paid by LESSEE to LESSOR for the
balance of the stated term of this Lease less the obtainable
fair rental value of the premises for said period.
(b) LESSOR may elect to terminate LESSEE'S right of
possession without termination of this Lease by filing a
forcible entry and detainer action in which event LESSEE
agrees to surrender possession and vacate the premises
immediately and deliver possession thereof to LESSOR, and
LESSEE hereby grants to LESSOR full and free license to
enter into and upon the premises, in whole or in part, with
or without process of law, and to
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<PAGE> 9
repossess LESSOR of the premises or any part thereof
and to expel or remove LESSEE and any other person, firm or
corporation who may be occupying or is within the premises
or any part thereof and remove any and all property
therefrom, using such force as may be necessary without
terminating the Lease or releasing LESSEE in whole or in
part from LESSEE'S obligation to pay rent and perform any of
the covenants, conditions and agreements to be performed by
LESSEE as provided in this Lease without being in any manner
guilty of trespass, eviction or forcible entry or detainer
and without relinquishing LESSOR'S right to rental or any
right of LESSOR in this Lease or by operation of law.
Upon and after entry into possession without
terminating the Lease, LESSOR shall attempt to mitigate
LESSEE'S damages via attempting to relet all or any part of
the premises for the account of LESSEE for such rent and upon
such terms and to such person, firm or corporation and for
such period or periods as LESSOR in its sole discretion
shall determine. LESSOR may make repairs to the premises as
are necessary. If the consideration collected by LESSOR upon
any such reletting for LESSEE'S accounting is not sufficient
to pay the rental reserved in this Lease and the cost of
said repairs, LESSEE agrees to pay to LESSOR the deficiency
upon demand.
HOLDING 24. If LESSEE holds possession of the demised premises
OVER after the termination of this Lease, whether by lapse of
time or otherwise, it shall pay as rent for the whole time
during which possession is so withheld an amount equal to
four times the prorata fixed minimum rent for a period of
time equal to the period during which possession is so
withheld. Neither the provisions of this clause nor the
acceptance of such liquidated damages by LESSOR shall
constitute a waiver of LESSOR'S right to reenter the demised
premises or terminate this Lease as herein provided, nor
shall any other act or omission to act in apparent
affirmance of the tenancy operate as a waiver of the right
to terminate this Lease or any renewal thereof or of any
other right of LESSOR under the provisions of this Lease or
provided by law.
NON- 25. LESSOR and LESSOR'S agents and employees shall not
LIABILITY be liable for damage to persons or property sustained by
AND LESSEE, or any person claiming through LESSEE, resulting
LIABILITY from any accident or occurrence in or upon the premises or
OF LESSOR building of which they shall be a part, which is not
attributable
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<PAGE> 10
to the negligence of LESSOR or LESSOR'S agents and
employees, including but not limited to, such claims for
damage resulting from (a) any equipment or appurtenances
becoming out of repair; (b) injury done or occasioned by
wind; (c) any defect in or failure of plumbing, heating, or
air-conditioning equipment, electric wiring or installation
thereof, or gas, water and steam pipes, or walks; (d) broken
glass; the backing up of any sewer pipe or downspout; the
bursting, leaking or running of any tank, washstand , water
closet, waste pipe, drain or any other pipe or tank in, upon
or about such building or premises; the escape of steam or
hot water, it being agreed that all same are under the
control of LESSEE: (e) the falling of any fixture; and, (g)
any act, omission or negligence of co-tenants, or of other
persons or occupants of building containing demised
premises.
NON-DIS- 26. THE LESSEE ACKNOWLEDGES THAT THE BUSINESS OF THE
CRIMINATION LESSOR AND OF THE OTHER LESSEES IN THE PROPERTY OF WHICH THE
SUBJECT PREMISES FORM A PART WILL BE SUBSTANTIALLY IMPAIRED
IF ANY FORM OF RACIAL DISCRIMINATION IS PRACTICED BY THE
LESSEE. Accordingly, the LESSEE covenants that it will not
refuse to serve any customer or employ any person who but
for his race, color or creed would be served or employed,
nor shall the quality or nature of the service to customers,
or the conditions of employment be in any respect
differentiated by reason of the race, color or creed of the
customer or employee.
DEFAULT BY 27. Except with respect to the matters set forth in
LESSOR; paragraph 9 of this Lease, LESSOR shall in no event be
CONSEQUENTIAL charged with default in the performance of any of their
DAMAGES obligations hereunder unless and until LESSOR shall have
failed to perform such obligations within thirty (30) days
(or such additional time as is reasonably required to
correct any such default) after written notice by LESSEE to
LESSOR properly specifying wherein LESSOR has failed to
perform any such alleged obligation.
Notwithstanding anything in the Lease herein to the
contrary, LESSOR shall in no event be charged with or be
liable for any consequential damages suffered by LESSEE as a
result of LESSOR'S failure to perform any of their
obligations under this Lease.
REAL 28. In addition to the monthly rental as provided
ESTATE herein, during the term of this Lease, including option
TAX STOP periods, LESSEE shall pay to LESSOR thirty-four percent
(34%) of any increases in real estate taxes levied against
the realty containing demised premises that were due and
payable in 1994, being the 1993 general real estate taxes in
the amount of $15,863.79. Said real estate tax payments to
LESSOR shall be due within ten (10) days after LESSOR
submits evidence of said increases to LESSEE. LESSEE'S
obligation hereunder for 1994 shall be on a prorata basis
and shall be abated for the two (2) months for which LESSEE
need not pay the fixed minimum rent as per paragraph 5 (a)
herein.
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<PAGE> 11
ADDITIONAL 29. LESSOR hereby reserves the right at any time to
CONSTRUCTION make alterations or additions to and build additional stores
or apartments on the building in which the premises are
contained.
INTEREST 30. In addition to any other remedies LESSOR may have
IF LATE at law and/or under this Lease, if LESSEE shall fail to pay
PAYMENT when the same is due and payable any rent or any additional
charges which it is liable to pay under this Lease such
unpaid amounts shall bear interest from the date thereof to
the date of payment at the rate of 15% per annum.
GENERAL 31. This Lease does not create the relationship of
principal and agent or of partnership or of joint venture or
of any association between LESSOR and LESSEE, the sole
relationship between LESSOR and LESSEE being that of
Landlord and Tenant. No waiver of any default of LESSEE
hereunder shall be implied from any omission by LESSOR to
take any action on account of such default and that only for
the time and to the extent therein stated. The consent to or
approval by LESSOR of any act by LESSEE requiring LESSOR'S
consent or approval shall not waive or render unnecessary
LESSOR'S consent to or approval of any subsequent similar
act by LESSEE. Each term and each provision of this Lease
performable by LESSEE shall be construed to be both a
covenant and a condition. No action required or permitted to
be taken by or on behalf of LESSOR under the terms or
provisions of this Lease shall be deemed to constitute an
eviction or disturbance of LESSEE'S possession of the leased
premises. The submission of this Lease or a summary of some
or all of its provisions for examination does not constitute
a reservation of or option for the leased premises and this
Lease becomes effective as a Lease only upon execution and
delivery thereof by LESSOR and LESSEE. The marginal or
topical headings of the several articles, paragraphs or
clauses are for convenience only and do not define, limit or
construe the contents of such articles, paragraphs or
clauses. All preliminary negotiations are merged into and
incorporated in this Lease.
The necessary grammatical changes to make the
provisions of this Lease apply in the plural sense where
there is more than one LESSEE and to either corporations,
associations, partnerships or individuals, males or females,
shall in all instances be assumed as though in each case
fully expressed.
DEFINITION 32. The term "LESSOR" as used herein means only the
OF LESSOR owner of the land and building which the demised premises
form a part, so that in the event of any conveyance or
conveyances of said land and building or of said Lease, or
in the event of a Lease of said building or of the land and
building, the said LESSOR shall be and hereby is entirely
freed and relieved of any covenants and obligations of
LESSOR hereunder, and it shall be deemed and construed
without further agreement between the parties or their
successors in interest, or between the parties and the
grantee, assignee or LESSOR, as the case may be, that the
grantee or assignee or LESSOR has assumed and agreed to
carry out any and all covenants and obligations of LESSOR
hereunder:
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<PAGE> 12
CERTIFICATE 33. LESSEE will at no time use or occupy the premises
OF in violation of the Certificate of Occupancy issued for the
OCCUPANCY building. The statement in this Lease of the nature of the
business to be conducted by LESSEE shall not be deemed to
constitute a representation or guaranty by LESSOR that such
use is lawful or permissible in the premises under the
Certificate of Occupancy for the building. LESSEE hereby
agrees to obtain all necessary licenses from any
governmental authority requiring same at its sole instance
and expense.
JURY 34. LESSOR and LESSEE hereby waive trail by jury in any
WAIVER action, proceeding or counterclaim involving any matter
whatsoever arising out of or in any way connected with this
Lease, the relationship of LESSOR and LESSEE, LESSEE'S use
or occupancy of the premises, the right to any statutory
relief or remedy or any claim of injury or damage.
EFFECT OF 35. If LESSEE fails to exercise its Rights of First
CONVEYANCE Refusal as provided in Rider hereto, if the building
containing the premises shall be sold, LESSEE shall not be
relieved of any obligations hereunder, and it shall be
assumed that the purchaser/LESSOR of the building has agreed
to perform all obligations of LESSOR hereunder.
CONVENANT 36. It is agreed that the provisions, covenants and
TO BIND conditions of this Lease shall be binding upon and inure to
SUCCESSORS the benefit of the legal representatives, successors and
assigns of the respective parties hereto.
RECORDING 37. LESSEE shall not record this Lease without the
OF LEASE written consent of the LESSOR.
COST OF 38. It is agreed that if either party hereto is
SUIT involuntarily made a party defendant to any litigation
concerning this Lease or the demised premises or the
premises of which the demised premises are a part by reason
of any act or omission of the other party, then the other
party shall hold harmless the party made a defendant from
all liability by reason thereof, including, but not limited
to, reasonable attorney's fees incurred by the party made
defendant in such litigation and all court costs. If legal
action shall be brought by either of the parties hereto for
the unlawful detainer of the premises, for the recovery of
any rent or charges due under the provisions of this Lease,
or because of the breach of any term, covenant or provisions
hereof, the party prevailing in said action (LESSOR OR
LESSEE as the case may be) shall be entitled to recover from
the party not prevailing the costs of suit and a reasonable
attorney's fee which shall be fixed by the judge of the
court.
MUTUAL 39. Whenever (a) any loss, cost, damage or expense
WAIVER OF resulting from fire, explosion or any other casualty or
SUB- occurrence is incurred by either of the parties to this
ROGATION Lease or anyone claiming by, through or under it in
RIGHTS connection with the leased premises, and (b) such party is
then either covered in whole
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<PAGE> 13
or in part by insurance with respect to such loss, cost,
damage or expense, or required under this Lease to be so
insured, then the party so insured (or so required) hereby
releases the other party from any liability that said other
party may have on account of such loss, cost, damage or
expense to the extent of any amount recovered by reason of
such insurance (or which could have been recovered, had
insurance been carried as so required) and waives any right
of subrogation which might otherwise exist in or accrue to
any person or account thereof, provided that such release of
liability and waiver of the right of subrogation shall not
be operative in any case where the effect thereof is to
invalidate such insurance coverage or increase the cost
thereof (provided that in the case of increased cost the
other party shall have the right, within (30) days following
written notice, to pay such increased cost thereupon keeping
such release and waiver in full force and effect).
MISCELLANEOUS 40. (a) If any term, covenant or condition of this
Lease or the application thereof to any person or
circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons
or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby and
each term, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by
law.
(b) The laws of the State of Illinois shall govern
the validity, performance and enforcement of this Lease. The
invalidity and unenforceability of any provision of this
Lease shall not affect or impair any other provisions
thereof.
RIDER 41. RIDER ATTACHED HERETO IS HEREBY MADE A PART HEREOF
AND INCORPORATED HEREIN.
LA SALLE BANK NORTHBROOK SUCCESS NATIONAL BANK, a national
TRUST #001666-00 (LESSOR) banking corporation (LESSEE)
BY: BY:
------------------------ -----------------------------
JOHN S. CLARK, JR., SAUL D. BINDER (President)
Beneficiary
ATTEST:
-------------------------
(Secretary)
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<PAGE> 14
RIDER ATTACHED TO, MADE A PART OF AND INCORPORATED INTO
LEASE DATED_______________, 1994 BY AND BETWEEN LA SALLE
BANK NORTHBROOK, TRUST NO. 001666-00 BY JOHN S. CLARK, JR.,
BENEFICIARY (LESSOR) AND SUCCESS NATIONAL BANK, A NATIONAL
BANKING CORPORATION (LESSEE) COVERING STORE UNIT DESIGNATED
AS 1368 SHERMER ROAD, NORTHBROOK, ILLINOIS 60062
------------------------------------------------------------
------------------------------------------------------------
RENTAL 1. LESSOR hereby acknowledges receipt of $2,700.00 from
DURING LESSEE in accordance with a Memorandum of Agreement
PRELIMINARY heretofore entered into between the parties hereto on
PERIODS; 9-22-94 covering rent for the period of August 15, 1994
LIQUIDATED through September 15, 1994. Additional rent of $2,700.00
DAMAGES per month thereafter shall be paid during the time LESSEE
awaits the necessary authority from the Office of the
Comptroller of Currency and LESSEE begins construction as
per paragraphs 2 and 6 of this Rider. (a) In the event
that such authority is not received by LESSEE within sixty
(60) days from the date of aforesaid Memorandum of
Agreement, LESSEE may cancel this Lease and aforesaid
Memorandum of Agreement, or if said authority is denied
LESSEE, LESSEE may cancel same at the time of said denial,
wherein, in either of said events, LESSEE shall suffer no
further loss or expense other than the rent due and
payable as aforesaid, which rent shall be treated as
liquidated damages. (b) In the event that LESSEE does not
receive a building permit from the Village of Northbrook
on or before December 1, 1994, LESSEE may cancel this
Lease and aforesaid Memorandum of Agreement at no further
loss or expense other than the rent due and payable as
aforesaid, which rent shall be treated as liquidated
damages. (c) In the event written notice of the denial of
the authority per (a) above is not delivered to LESSOR on
or before the sixty (60) days set forth therein, or
written notice of LESSEE'S inability to receive the
building permit per (b) above is not delivered to LESSOR
on or before December 1, 1994, it shall be conclusively
presumed that the "authority" was given and/or the
"building permit" was received.
LESSEE'S 2. Except as otherwise stated herein and in the Lease, LESSEE
RESPONSIBILITY shall be solely responsible and liable for the payment of
FOR any and all costs and expenses in connection with any and
REMODELING, ETC. all remodeling, including, but not limited to, build-outs,
partitioning, fixtures, changes in the configuration of
the parking lot, structures and supports as are required
to support a cash vault and other matters and items
customarily required in a banking operation, installation
of two (2) washroom facilities meeting the requirements of
The Americans
<PAGE> 15
With Disabilities Act, installation of a night depository
drop, drive-up automatic teller machine and/or drive-up
windows, a pylon sign (for LESSEE'S exclusive use and
which LESSEE may remove upon the termination of the Lease
term), and related matters to meet LESSEE'S requirements
therefor.
WAIVERS OF 3. (a) LESSOR hereby reserves the right, upon reasonable
LIENS; notice, to have LESSEE submit evidence of the payment of
NO MECHANICS' the costs and expenses and/or proper waivers of liens
LIENS; covering the costs and expenses per paragraph 2 above and
HOLD-HARMLESS a contractor's sworn statement covering same. In any
AGREEMENT; event, LESSEE hereby guarantees that all of said costs and
WORKMEN'S expenses will be paid when due and that no mechanics liens
COMPENSATION will be filed against demised premises and/or the premises
AND LIABILITY containing demised premises by virtue thereof. LESSEE
INSURANCE DURING hereby holds LESSOR harmless from any and all costs,
CONSTRUCTION expenses, claims and/or damages arising out of the work
done by LESSEE as stated herein. LESSOR shall have the
right to post and maintain on the demised premises notices
of non-responsibility as may be permitted by law.
(b) Before LESSEE begins construction as per paragraphs 2
and 6 of Rider hereto, LESSEE shall submit to LESSOR
evidence of the following, covering the period of said
construction, to wit:
(1) Workmen's Compensation Insurance pursuant to
applicable Illinois' laws.
(2) Contractors' general liability insurance
written by an insurance company or companies
acceptable to LESSOR, on terms approved in
writing by LESSOR, in which both LESSOR and
LESSEE shall be named as insureds and in which
both LESSOR and LESSEE shall be adequately
covered under reasonable limits of liability not
less than $1,000,000.00 for injury or death to
any one person; $2,000,000.00 for injury or death
to more than one person; and $1,000,000.00 with
respect to damage to property. Said Policy(ies)
shall contain provisions prohibiting cancellation
without written notice to LESSOR. LESSEE shall
furnish LESSOR with certificates or other
acceptable evidence that such insurance is in
effect and containing appropriate provisions
respecting notice of cancellation. Said liability
policy(ies) shall cover specifically any and all
contractural liability undertaken by LESSEE as in
the written Lease and/or this Rider set forth.
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<PAGE> 16
LESSOR'S 4. LESSOR hereby reserves the right to approve any and all
APPROVAL changes in the configuration of the parking lot and of the
REQUIRED installation by LESSEE of a night depository drop,
drive-up automatic teller machine and/or drive-up windows,
which approval shall not be unreasonably withheld.
COMPLIANCE 5. All remodeling and work done by LESSEE per Paragraphs 2 &
WITH LAWS, 6 herein, and wherever set forth in this Lease and Rider
ORDINANCES, AND thereto, shall be done in full compliance with all laws,
REGULATIONS ordinances and regulations of the Village of Northbrook,
Illinois, and any and all governmental and regulatory
bodies having jurisdiction thereof.
AMERICANS 6. LESSEE hereby agrees to comply with the provisions of The
WITH Americans With Disabilities Act insofar as same applies
DISABILITIES toward providing access to demised premises. LESSOR hereby
ACT; ACCESS agrees to pay the lesser of $3,017.50 or one-half (1/2) of
TO DEMISED the cost to comply therewith; LESSEE hereby agrees to pay
PREMISES the balance thereof.
FIRE & 7. If required by the Village of Northbrook, Illinois, LESSOR
SAFETY shall, at LESSOR'S sole instance and expense, install such
fire and other safety equipment in demised premises and
the building containing demised premises, as is so
required, including, but not limited to, additional exit
signs and emergency lighting which are not needed in
LESSEE'S operation, per se.
HVAC 8. Supplemental to the provisions of Paragraph 9 of the
SYSTEMS Lease, LESSEE shall, at all times during the duration of
this Lease, including any option periods, be responsible
and liable for all repairs to the heating, ventilating and
air conditioning systems (HVAC) on demised premises, at
LESSEE'S sole instance and expense, in maximum amounts of
$500.00 per occurrence, or $1,250.00 per year.
LESSOR'S 9. (a) LESSOR shall, at all times during the duration of this
OBLIGATIONS Lease, including any option periods, be responsible and
liable for all exterior maintenance of the property
containing demised premises and all appurtenances thereto
(except for appurtenances installed by LESSEE), payment of
real estate taxes and fire and extended coverage insurance
on said property.
(b) LESSOR shall keep, or cause to be kept, the common
areas in a neat, clean and orderly condition, properly
lighted and landscaped, and shall repair any damage to
the facilities thereof within a reasonable time.
(c) Within the bounds of reasonableness and propriety,
LESSOR shall provide LESSEE with such assistance as may be
necessary to complete LESSEE'S program of rehabilitation
of demised premises and implementation and opening of a
branch banking facility.
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<PAGE> 17
RIGHT OF 10. In the event LESSOR desires to sell the property
FIRST containing demised premises, or any part thereof, anytime
REFUSAL during the duration of the lease, including any option
RE SALE periods, to a bona-fide purchaser other than a member of
LESSOR'S family, then and in that event, LESSOR shall
first offer same for sale to LESSEE. If LESSOR and LESSEE
cannot agree on a sales price and/or terms thereof
within thirty (30) days, then said property can be offered
to other prospective purchaser(s) for sale subject to the
first refusal right of LESSEE herein to purchase same upon
the same, or substantially the same sales price and terms
as agreed upon between LESSOR and a prospective purchaser,
which "right of first refusal" shall be exerciseable by
LESSEE via delivering a signed offer and earnest money to
LESSOR within five (5) days after receipt of written
notice from LESSOR of said agreement between LESSOR and
said prospective purchasers accompanied by a copy of said
agreement.
RIGHT OF 11. In the event additional space in the property containing
FIRST demised premises becomes available for rental and/or
REFUSAL leasing and LESSOR desires to rent and/or lease same to a
RE LEASING prospective tenant other than a member of LESSOR'S family,
then and in that event, LESSOR shall first offer same for
rent and/or lease to LESSEE. If LESSOR and LESSEE cannot
agree on a rental amount and/or terms of a lease or other
tenancy within ten (10)days, then said space can be rented
to other prospective tenant(s) subject to the first
refusal right of LESSEE herein to rent same upon the same,
or substantially the same, rental amount and terms as
agreed upon between LESSOR and a prospective tenant, which
"right of first refusal" shall be exerciseable by LESSEE
via written notice to LESSOR within five (5) days after
receipt of written notice from LESSOR of said agreement
between LESSOR and a prospective tenant accompanied by a
copy of said agreement.
OPTIONS 12. Provided that LESSEE is not in default at the times
TO RENEW mentioned herein, LESSOR hereby grants to LESSEE two (2)
options of five (5) years each to renew the term of this
Lease at a rental of $2,700.00 per month plus annual
increases, beginning with the first month of the first
option year, commensurate with increases, if any, in the
Consumer Price Index for all Urban Consumers, U.S. City
Average (with a Base of 1982-84 =100), published by the
Bureau of Labor Statistics of the United States Department
of Labor or by any successor agency of the U.S.Government.
In no event shall the rent be less than $2,700.00 per
month. All other terms and provisions of the Lease shall
apply during the option periods. To exercise the option to
renew, LESSEE must serve written notice thereof on LESSOR
no later than six (6) months prior to the expiration of
the preceding term of the Lease.
CONFLICTS 13. Should there by any conflicts and/or ambiguities between
AND/OR the provisions of this Rider and the Lease to which it is
AMBIGUITIES attached, made a part of and incorporated into, the
provisions of this Rider shall govern.
INDING: 14. The terms and provisions of the Lease and this Rider
INURING; thereto shall be binding upon and inure to the benefit of
HEIRS, ETC. the parties' heirs,
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<PAGE> 18
legatees, devisees, Executors, Administrators, personal
representatives, assigns, transferees or other
successors-in-interest.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the day and year first above written.
LA SALLE BANK NORTHBROOK SUCCESS NATIONAL BANK, a National
TRUST #001666-00 (LESSOR) Banking Corporation (LESSEE)
By: /s/ John S. Clark By: /s/ Saul D. Binder
--------------------- -----------------------------
JOHN S. CLARK, JR. SAUL D. BINDER (President)
(Beneficiary)
Attest: /s/ Ronald D. ?
-------------------------
(Secretary)
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<PAGE> 1
EXHIBIT 10.8
OFFICE LEASE
THIS LEASE, made as of this 5TH day of SEPTEMBER, 1995, between DUKE
PARTNERS (hereafter known as "Landlord"), and SUCCESS NATIONAL BANK (hereafter
known as "Tenant");
THAT Landlord hereby leases to Tenant, and Tenant accepts the demised
premises (hereinafter known as "demised premises" or "Premises"), being office
#155 in the building (hereinafter known as "Building"), known as DEERFIELD
EXECUTIVE CENTER, for the term of 3 YEARS, unless sooner terminated as provided
herein, commencing OCTOBER 1, 1995, and ending SEPTEMBER 30, 1998, to be
occupied and used by the Tenant for general offices and no other purpose,
subject to the agreements herein contained.
IN CONSIDERATION THEREOF, THE PARTIES COVENANT AND AGREE:
Tenant shall pay to DUKE PARTNERS (Landlord), in coin or currency, which, at
the time or times of payment, is legal tender for public and private debts in
the United States of America, at 1020 Milwaukee Avenue, Deerfield, Illinois,
or as directed from time to time by the Landlord's notice, the sum ("Base
Rent") of:
YEAR 1 10/1/95 TO 9/30/96 $60,000.00 **SEE ATTACHED ADDENDUM**
- --------------------------------------------------
YEAR 2 10/1/96 TO 9/30/97 $60,000.00
- --------------------------------------------------
YEAR 3 10/1/97 TO 9/30/98 $61,200.00
- --------------------------------------------------
In installments as follows:
Total monthly rent for the period OCTOBER 1, 1995 to SEPTEMBER 30, 1996 is
$5,000.00, each installment being payable in advance promptly on the first day
of every calendar month of the term and at the then current rate for fractions
of a month if the term shall begin or be terminated on any day other than the
last day of any month.
Unpaid rent (or so much as may remain unpaid from time to time) shall incur a
penalty of 5% of the monthly rental rate if not paid by the 5th day of the
month. An additional 2% penalty may be charged to the Tenant, by the Landlord,
if said rent is not paid by the 15th day of the month. An additional penalty
of 3% of the monthly rental rate may be charged if the rent remains unpaid 30
days from the initial due date. Landlord's right to receive such penalty
charges shall not, in any way, limit any of Landlord's other remedies under
this lease or at law or equity.
RENT THE BASE RENT shall be adjusted (Rent Adjustment) in accordance
with the provisions of this section. Tenant agrees to pay as
ADJUSTMENT additional rent hereunder in each calendar year, based on the
previous calendar year's "Total Operating Expense", its
proportionate share of any increase in "Total Operating Expenses"
in excess of $4.50 per square foot. For calendar year 1995, the
parties agree and stipulate that the "Total Operating Expenses"
are $6.50 per squre foot.
(1) "Rentable Area of the Premises", as used herein shall be
defined to mean 4,087 square feet.
(2) "Rental Area of the Building" as used herein shall be
defined to mean 55,806 square feet. Accordingly, the
Tenant's proportionate share for all purposes of this lease
shall be 7.32 per cent.
(3) "Total Operating Expenses" are Taxes and Operating Expenses
(defined later in this section).
(4) "TAXES" shall mean:
(a) The term "Taxes" shall mean real estate taxes,
assessments, sewer tests, rate and charges, transit
taxes, taxes based upon the receipt of rent and any
other federal, state or local governmental charge,
general, special, ordinary or extraordinary (but not
including income or franchise taxes or any other taxes
imposed in lieu of real estate taxes and other ad
valorem taxes), which may now or hereafter be levied or
assessed against the land upon which the Building
stands and upon the Building, hereinafter collectively
known as "Real Property", in case of special Taxes or
assessments which may be payable in installments, only
the amount of each installment paid during a calendar
year shall be included in Taxes for that year. Taxes
shall also include any personal property taxes
(attributable to the year in which paid) imposed upon
the furniture, fixtures, machinery, equipment,
apparatus, systems and appurtenances, used in
connection with said Real Property for the operation
thereof.
(b) If the tax year for real estate taxes shall be
changed by the applicable governmental authority
resulting in the payment by the Landlord in one
calendar year of taxes which relate to more than one
calendar year, then notwithstanding anything to the
contrary contained in this Lease, for purposes of
determining the current year taxes for such calendar
year, such amount of taxes paid shall be adjusted to an
amount which is equivalent to a one-year payment of
taxes.
"RENT ADJUSTMENT CLAUSE DOES NOT APPLY TO THE PERIOD
FROM OCTOBER 1995 THROUGH SEPTEMBER 1996, OR ANY LEASE
EXTENSION THROUGH THE YEAR 2008."
<PAGE> 2
(5) The term "Operating Expenses" as used herein shall mean:
(a) all direct costs of operation, maintenance and
management of the building and parking area as
determined by standard accounting principles
consistently applied, and shall include the following
by way of illustration and not limitation: heat, water,
electricity and other utility charges, insurance
premiums, licenses, permit and inspection fees,
personal property taxes and the cost of all labor,
contracted or otherwise, materials and other services
paid or incurred by Landlord in the operation and
maintenance of the building during the lease term all
as determined by the certified public accountant
employed by the Landlord for the applicable calendar
year and,
(b) the cost as reasonably amortized by Landlord of
any capital improvement made to the building after the
year 1989.
Operating Expenses shall not include (a) any interest expense
on any loans secured by mortgages placed upon the building and
underlying land, (b) franchise or income taxes imposed upon
Landlord, or (c) the cost of any work or service performed in any
instance for any Tenant (including Tenant) at the cost of such
Tenant.
Under this Rent Adjustment clause, Tenant shall pay an
additional $2.00 per square foot, which amounts to -0- per month,
for the year N/A. All succeeding Rent Adjustments, regardless of
lease date, shall be implemented on February 1 of each calendar
year beginning with the year 1996. Landlord will provide written
notice to Tenant of any increases under this clause. Tenant
shall have the right to review income and expense statements of
Landlord upon request.
SECURITY Tenant agrees to deposit with Landlord, upon the execution of
this Lease, the sum of $ -0- as security for the full and
faithful performance by Tenant of each and every term, provision,
covenant and condition of this Lease. If Tenant defaults in
respect to any of the terms, provisions, covenants and conditions
of this Lease including but not limited to payment of the Base
Rent and Rent Adjustments, Landlord may use, apply or retain the
whole or any part of the security so deposited for the payment of
any such rent in default, or for any other sum in which the
Landlord may expend or be required to expend by reason of
Tenant's default including, without limitation, any damages or
deficiency in the reletting of the demised premises, whether such
damages or deficiency shall have accrued before or after any
re-entry by Landlord. If any of the security shall be so used,
applied or retained by Landlord at any time or from time to time,
Tenant shall promptly, in each such instance, on written demand
therefore by Landlord, pay to Landlord such additional sum as may
be necessary to restore the security to the original amount set
forth in the first sentence of this paragraph. If Tenant shall
fully and faithfully comply with all the terms, provisions,
covenants, and conditions of this Lease, the security, or any
balance thereof, shall be returned to Tenant after the following:
(a) the time fixed as the expiration of the term of this
lease;
(b) the removal of Tenant from the demised premises;
(c) the surrender of the demised premises by Tenant to
Landlord in accordance with this Lease; and
(d) the time required for the escalation charges due
pursuant to the Lease to have been computed by Landlord
and paid by Tenant.
Except as otherwise required by law, Tenant shall not be
entitled to any interest on the aforesaid security. In the
absence of evidence satisfactory to Landlord of an assignment of
the right to receive the security or the remaining balance
thereof, Landlord may return the security to the original Tenant,
regardless of one or more assignments of this Lease.
HEAT & AIR Landlord shall provide heat and air conditioning (HVAC) from
CONDITIONING 8:00 a.m. to 6:00 p.m. weekdays, and from 8:00 a.m. to 1:00 p.m.
Saturdays as part of the base rent. At other times, Landlord
shall provide air conditioning or heat (HVAC) at Tenant's request
based on the following schedule:
First request in any month is free; Each request thereafter for
Air Conditioning -$25 fee plus $10 per hour for each hour after
initial four hours;
Heat - $15 fee plus $10 per hour for each hour after initial
four hours. Any HVAC charges will be payable with the next
month's rent. If Tenant requires supplementary air conditioning
service or units due to the presence of heat generating machinery
or equipment, Tenant shall pay the installation and operating
costs of said service.
UTILITIES Tenant shall pay directly to Commonwealth Edison charges for
"lights and outlet use" utilized in its own office space. All
other utility charges are paid by Landlord and are included in
the calculation of Total Operating Expenses.
COMMON AREAS Landlord will cause the halls, corridors, restrooms and other
parts of the Building to be lighted, cleaned and generally cared
for, accidents and unavoidable delays excepted.
RULES AND The rules and regulations at the end of this Lease constitute a
REGULATIONS part of this Lease. Tenant shall observe and comply with them,
and also with such further reasonable rules and regulations as
may be later required by Landlord, as would be customary for a
Professional Office Building.
ASSIGNMENT, Tenant shall neither sublet the Premises or any part thereof
SUBLETTING nor assign this Lease nor permit by any act or default any
transfer of Tenant's interest by operation of law, nor offer the
Premises or any part thereof for lease or sublease, nor permit
the use thereof for any purpose other than as above mentioned,
without in each case the written consent of Landlord.
<PAGE> 3
SURRENDER Tenant shall quit and surrender the Premises at the end of the
OF PREMISES term in as good condition as the reasonable use thereof will
permit, with all keys thereto, and shall not make any alterations
in the Premises without the written consent of Landlord; and all
alterations which may be made by either party hereto upon the
Premises, except movable furniture and fixtures put in at the
expense of Tenant, shall be the property of the Landlord, and
shall remain upon and be surrendered with the Premises as a part
thereof at the termination of this Lease.
NO MISUSE Tenant shall return the Premises to Landlord with glass, doors
and fixtures as originally leased, entire and unbroken, as is now
therein. Tenant will pay Landlord for any damage caused by
misuse of the Premises.
TERMINATION, At the termination of this lease, by lapse of time or
ABANDONMENT, otherwise, Tenant agrees to yield up immediate and peaceable
RE-ENTRY, possession to Landlord, and falling so to do, to pay as
RELETTING liquidated damages, for the whole time such possession is
withheld, the sum of $200.00 Dollars per day, and it shall be
lawful for the Landlord or his legal representative at any time
thereafter, without notice, to re-enter the Premises or any part
thereof, either with or (to the extent permitted by law) without
process of law, and to expel, remove and put out the tenant or
any person or persons occupying the same, using such force as may
be necessary to do so, and to repossess and enjoy the Premises
again as before this lease, without prejudice to any remedies
which might otherwise be used for arrears of rent or preceding
breach of covenants; or in case the Premises shall be abandoned,
deserted, or vacated and remain unoccupied five days
consecutively, the Tenant hereby authorizes and requests the
Landlord as Tenant's agent to re-enter the Premises and remove
all articles found therein, place them in some regular warehouse
or other suitable storage place, at the cost and expense of the
Tenant, and proceed to re-rent the Premises at Landlord's option
and discretion and apply all money so received after paying the
expenses of such removal toward the rent accruing under this
lease. This request shall not in any way be construed as
requiring any compliance therewith on the part of the Landlord,
except as required by Illinois statute. If the Tenant shall fail
to pay the rent at the times, place, and in the manner above
provided, and the same shall remain unpaid five days after the
day whereon the same should be paid, the Landlord by reason
thereof shall be authorized to declare the term ended, and the
Tenant hereby expressly waives all right or rights to any notice
or demand under any statute of the state relative to forcible
entry or detainer or Landlord and Tenant, and agrees that the
Landlord, his agents or assigns may begin suit for possession or
rent without notice or demand.
REMOVED In the event of re-entry and removal of articles found on the
PROPERTY Premises as hereinbefore provided, the Tenant hereby authorizes
and requests the Landlord to sell the same at public or private
sale with or without notice, and the proceeds thereof, after
paying the expenses of removal, storage and sale to apply towards
the rent reserved herein, rendering the overplus, if any to
Tenent upon demand.
LANDLORD Except as provided by Illinois statute, the Landlord shall not
NOT be liable for any loss of property or defects in the Building or
LIABLE in the Premises, or any accidental damages to the person or
property of the Tenant in or about the Building or the Premises,
from water, rain or snow which may leak into, issue or flow from
any part of the Building or the Premises or from the pipes or
plumbing works of the same. The tenant hereby covenants and
agrees to make no claim for any such loss or damage at any time.
The Landlord shall not be liable for any loss or damage of or to
any property placed in any storeroom or storage place in the
Building, such storeroom or storage place being furnished
gratuitously, and no part of the obligations of this Lease.
PLURALS; The words "Landlord" and "Tenant" wherever used in this Lease
SUCCESSORS shall be construed to mean Landlords or Tenants in all cases
where there is more than one Landlord or Tenant, and to apply to
individuals, male or female, or to firms or to corporations, as
the same may be described as Landlord or Tenant herein, and the
necessary grammatical changes shall be assumed in each case as
though fully expressed. All covenants, premises, representations
and agreements herein contained shall be binding upon, apply and
inure to the benefit of Landlord and Tenant and their respective
heirs, legal representatives, successors and assigns.
WITNESS the hands and seals of the parties hereto as of the
Date of the Lease stated above.
(SEAL) /s/ ? (SEAL)
----------------------------- --------------------------------
WITNESS AGENT FOR DUKE PARTNERS
(SEAL) /s/ ? (SEAL)
----------------------------- --------------------------------
WITNESS SUCCESS NATIONAL BANK
Tax I.D. # _____________________
This Office Lease is contingent upon the Lessee obtaining by October 15, 1995,
the necessary authority to operate at the subject premises from the Office of
the Comptroller of Currency. In the event that the Lessee does not obtain said
authority, then, and in that event, Lessee may terminate this Office Lease by
written notice to the Landlord.
<PAGE> 4
RULES AND REGULATIONS
1. The Deerfield Executive Center is a NON-SMOKING facility. There is NO
SMOKING ALLOWED in the building. Thank you in advance for cooperating with
this policy.
2. All tenants are required to use chair mats at the desk area in order to
protect the carpet from abuse. If any portion of the carpet is damaged or
destroyed from not using a chair mat, the security deposit will be
immediately forfeited.
3. No sign, advertisement or notice shall be inscribed, painted or affixed
on any part of the outside or inside of Building, except on the glass of
the doors and windows of the room leased and on the directory board, and
then only of such color, size, style and material as shall be first
specified by the Landlord in writing, endorsed on this lease. No showcase
shall be placed in front of Building by Tenant, without the written consent
of Landlord endorsed on this lease. The Landlord reserves the right to
remove all other signs and showcases without notice to the Tenant, at the
expense of the Tenant. At the expiration of the term Tenant is to remove
all his signs from such windows, doors and directory board.
4. Tenant shall not put up or operate any steam engine, boiler, machinery
or stove upon the Premises, or carry on any mechanical business on
Premises, or use or store inflammable fluids in the Premises without the
written consent of the Landord first had and endorsed on this lease, and
all stoves which may be allowed in the Premises shall be placed and set up
according to the city ordinance.
5. No additional locks shall be placed upon any doors of said room without
the written consent of the Landlord first had and endorsed upon this lease;
and the Tenant will not permit any duplicate keys to be made (all necessary
keys to be furnished by the Landlord) and upon the termination of this
Lease, Tenant will surrender all keys of Premises and Building.
6. All safes shall be carried up or into Premises at such times and in
such a manner as shall be specified by the Landlord; the Landlord shall in
all cases retain the power to prescribe the proper position of such safes,
and any damage done to the Building by taking in or putting out a safe, or
from overloading the floor with any safe, shall be paid by the Tenant.
Furniture boxes or other bulky articles belonging to Tenant shall be
carried up in the freight compartment of the elevators of the Building;
packages which can be carried by one person and not exceeding fifty pounds
in weight, may however, be carried down by the passenger elevator, at such
times as may be allowed by the management.
7. The Premises leased shall not be used for the purpose of lodging or
sleeping rooms or any immoral and illegal purpose.
8. The rent of an office will include occupancy of office, water to
Landlord's standard fixtures, heat, and elevator service during reasonable
working hours; but Landlord shall not be liable for any damages from the
stoppage of water, heat or elevator service.
9. If Tenant desires Venetian or other awnings or shades over and outside
of the windows, to be erected at Tenant's expense, they must be of such
shape, color, material and make as may be prescribed by the Landlord in
writing on this lease.
10. The light through the transoms opening into the hall shall not be
obstructed by the Tenant. Birds, dogs or other animals shall not be
allowed in the Buildings. All tenants and occupants must observe strict
care not to leave their windows open when it rains or snows, and for any
default or carelessness in these respects, or any of them, shall make good
all injuries sustained by other tenants, and also all damage to the
Building resulting from such default or carelessness.
11. No packages, merchandise or other effects shall be allowed to remain in
the halls at any time.
12. The Landlord reserves the right to make such other and further reasonable
rules and regulations as in his judgement may from time to time be needful
for the safety, care and cleanliness of the Premises and for the
preservation of good order therein.
13. It is understood and agreed between the Tenant and the Landlord that no
assent or consent to change in or waiver of any part of this lease has been
or can be made unless done in writing and endorsed hereon by the Landlord;
and in such case it shall operate only for the time and purpose in such
lease expressly stated.
<PAGE> 5
D U K E
---------------
P A R T N E R S
---------------
LEASE ADDENDUM
1) Tenant shall have the option to renew this lease for two (2) additional
(5) year periods. Tenant shall notify Landlord 30 days prior to the
expiration of the lease to exercise these options to renew. The rent for
each one of the option years is specified below:
Option Year(s) 1: $5,450 per month
2: $5,625 per month
3: $5,825 per month
4: $6,025 per month
5: $6,250 per month
6: $6,450 per month
7: $6,675 per month
8: $6,925 per month
9: $7,150 per month
10: $7,400 per month
2) (a) The space will be delivered to the Bank in its current condition
"As is". Any alterations or new construction will be paid for by Tenant
(Bank).
(b) Any alterations or new construction must be approved by the Lake
County Building Department and Landlord. Any plans for construction must
be submitted to Landlord 15 days prior to the expected start date of work
so Landlord's architect can review the scope of work and make any
necessary modifications to comply with the Lake County Building Codes
and/or Building standards.
Before the start of any work on Bank premises, a special inspection
must be scheduled through the Lake County Building Department as part of
the building permit process.
3) (a) All existing equipment is owned by Duke Partners, and will be made
available to the Bank as part of the lease agreement. This includes
exterior signage, the drive through facility, and any equipment currently
on the premises.
(b) Structural repairs to the exterior signage and drive through
facility will be paid for by Landlord. The Bank will be responsible for
normal maintenance (lighting, etc.) of the signs and drive through
facility.
4) Landlord will provide six (6) Reserved parking Spaces designated as
visitor parking for Bank Customers.
DEERFIELD EXECUTIVE CENTER - 1020 Milwaukee Avenue - Suite 110
Deerfield, Illinois 60015 - (708) 459-1010 - Fax (708) 459-8737
(800) 606-7733
<PAGE> 6
D U K E
---------------
P A R T N E R S
---------------
ADDENDUM TO LEASE AGREEMENT
BETWEEN
DUKE PARTNERS
AND
TENANT: Success National Bank
---------------------------------------------
TENANT HEREBY AGREES TO AN EXTENSION OF THE LEASE ON:
SUITE: 140 and 145 (3,385 rentable square feet combined)
AT THE
DEERFIELD EXECUTIVE CENTER
1020 MILWAUKEE AVENUE
DEERFIELD, ILLINOIS 60015
FOR A PERIOD OF: Nineteen Months
---------------------------------------------
COMMENCING: March 1, 1997*
---------------------------------------------
ENDING: September 30, 1998
---------------------------------------------
RENT FOR THE PERIOD SHALL BE $4,480 PER MONTH.
------
TENANT'S PROPORTIONATE SHARE OF THE COMMON AREAS SHALL BE 0%
-
ALL TERMS AND CONDITIONS OF THE ORIGINAL LEASE DATED ON Sept. 5, 1995 for Suite
-----------------------
155 SHALL APPLY TO THIS EXTENSION.
- ---
/s/ ?
- ----------------------------- -----------------------------
As Agent for Duke Partners Tenant
1/15/97
-----------------------------
Date
*Rent to be pro rated if occupancy date is before or after March 1 at
approximately $149 per day.
DEERFIELD EXECUTIVE CENTER - 1020 Milwaukee Avenue - Suite 310
Deerfield, Illinois 60015 - (847) 459-1010 - Fax (847) 459-8737
<PAGE> 7
LEASE ADDENDUM
1) Tenant shall have the option to renew this lease for two (2) additional
(5) year periods. Tenant shall provide written notice at least thirty
(30) days prior to the expiration of any lease term to exercise the option
to renew the lease.
Option Year(s) 1: $4625 per month
2: $4765 per month
3: $4905 per month
4: $5070 per month
5: $5230 per month
6: $5415 per month
7: $5575 per month
8: $5775 per month
9: $5945 per month
10: $6150 per month
2) The space will be delivered to the Bank in its current condition "As
is." Any alterations or new construction will be paid for by Tenant
(Bank). Landlord (at its expense) will remove certain interior walls if
directed by Tenant. Tenant will reimburse Landlord for any reasonable
repairs (trim, wallpaper, etc.) made after the removal of walls (requested
by tenant).
/s/ ? 1/15/97
- -----------------------------------
Tenant Date
- -----------------------------------
Landlord Date
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SUCCESS BANCSHARES, INC.
- - Success National Bank
- - Success Realty Ventures, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report, dated February 16, 1997, with
respect to the consolidated balance sheets of Success Bancshares, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended included in this Registration Statement on Form S-1 and related
prospectus of Success Bancshares, Inc. for the offering of 1,200,000 shares of
common stock. We also consent to the reference to our Firm under the caption
"Experts."
McGladrey & Pullen, LLP
Schaumburg, Illinois
July 31, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Success Bancshares, Inc.
Lincolnshire, Illinois
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated February 4, 1995 on our audit of the consolidated statements of
income, shareholders' equity, and cash flows of Success Bancshares, Inc. for
the year ended December 31, 1994.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
July 30, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,519
<INT-BEARING-DEPOSITS> 3,197
<FED-FUNDS-SOLD> 3,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,821
<INVESTMENTS-CARRYING> 31,262
<INVESTMENTS-MARKET> 31,733
<LOANS> 232,320
<ALLOWANCE> 1,629
<TOTAL-ASSETS> 305,955
<DEPOSITS> 268,236
<SHORT-TERM> 18,140
<LIABILITIES-OTHER> 2,237
<LONG-TERM> 6,246
0
0
<COMMON> 1,076
<OTHER-SE> 9,167
<TOTAL-LIABILITIES-AND-EQUITY> 305,955
<INTEREST-LOAN> 9,688
<INTEREST-INVEST> 1,393
<INTEREST-OTHER> 134
<INTEREST-TOTAL> 11,215
<INTEREST-DEPOSIT> 4,927
<INTEREST-EXPENSE> 5,725
<INTEREST-INCOME-NET> 5,490
<LOAN-LOSSES> 228
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,620
<INCOME-PRETAX> 548
<INCOME-PRE-EXTRAORDINARY> 548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
<YIELD-ACTUAL> 4.19
<LOANS-NON> 574
<LOANS-PAST> 568
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 484
<ALLOWANCE-OPEN> 1,425
<CHARGE-OFFS> 55
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 1,629
<ALLOWANCE-DOMESTIC> 1,067
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 562
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,780
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,147
<INVESTMENTS-CARRYING> 32,560
<INVESTMENTS-MARKET> 33,060
<LOANS> 205,425
<ALLOWANCE> 1,425
<TOTAL-ASSETS> 276,349
<DEPOSITS> 245,105
<SHORT-TERM> 12,656
<LIABILITIES-OTHER> 1,645
<LONG-TERM> 6,319
0
0
<COMMON> 1,071
<OTHER-SE> 8,172
<TOTAL-LIABILITIES-AND-EQUITY> 276,349
<INTEREST-LOAN> 16,757
<INTEREST-INVEST> 2,848
<INTEREST-OTHER> 245
<INTEREST-TOTAL> 19,850
<INTEREST-DEPOSIT> 8,632
<INTEREST-EXPENSE> 10,020
<INTEREST-INCOME-NET> 9,830
<LOAN-LOSSES> 310
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,630
<INCOME-PRETAX> 1,016
<INCOME-PRE-EXTRAORDINARY> 1,016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 783
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 4.25
<LOANS-NON> 0
<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 983
<ALLOWANCE-OPEN> 1,189
<CHARGE-OFFS> 78
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1,425
<ALLOWANCE-DOMESTIC> 926
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 499
</TABLE>
