UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
0-23235
Commission File Number
Success Bancshares, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 36-34976644
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE MARRIOTT DRIVE
LINCOLNSHIRE, ILLINOIS 60069
(Address of principal executive offices)
(847) 634-4200
Registrant's telephone number, including area code:
COMMON STOCK, $0.001 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was approximately $31.8 million as of March
10, 1999. As of March 10, 1999, the registrant had outstanding 2,959,236
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Shareholders' Report for the year ended
December 31, 1998, are incorporated by reference into Part II hereof and
portions of the Proxy Statement for the registrant's Annual Meeting of
Shareholders to be held on May 26, 1999, are incorporated by reference into
Part III hereof.<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. Business 1 - 14
ITEM 2. Properties 14
ITEM 3. Legal Proceedings 14
ITEM 4. Submission of Matters to Vote of Security Holders 14
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
ITEM 6. Selected Financial Data 15
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk 15
ITEM 8. Financial Statements and Supplementary Data 15
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
PART III
ITEM 10. Directors and Executive Officers of the Registrant 16
ITEM 11. Executive Compensation 16
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 16
ITEM 13. Certain Relationships and Related Transactions 16
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 17 - 19
Signatures 20<PAGE>
PART I
ITEM 1. BUSINESS
Success Bancshares, Inc., a Delaware corporation incorporated in 1984 (the
"Company"), is a bank holding company headquartered in Lincolnshire, Illinois
with total assets of over $470 million at December 31, 1998. The Company's
common stock is quoted on the NASDAQ National Market System under the symbol
"SXNB." Through its wholly-owned subsidiary, Success National Bank which was
founded in 1973 (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, in addition to its
headquarters, has ten additional branch offices. These banking facilities, all
of which have been established since 1992, are located in Deerfield (2),
Libertyville, Lincolnwood (2), Chicago (2) (Lincoln Park and downtown),
Arlington Heights, Skokie and Northbrook.
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 target
markets. 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 following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the accompanying notes, which
appear in the Company's 1998 Annual Report, filed as an exhibit to this Form
10-K.
Securities
The following table sets forth certain information with respect to the
Company's securities portfolio.
December 31,
1998 1997 1996
------------- ------------- --------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(dollars in thousands)
Securities Available-for-sale:
U.S. Treasury $5,201 $5,215 $3,775 $3,792 $748 $754
U.S. government sponsored
entities 4,251 4,276 3,346 3,301 5,846 5,721
States and political subdivisions;
Taxable 1,732 1,881 - - - -
Exempt from Federal income
taxes 12,995 13,191 4,437 4,442 1,565 1,561 <PAGE>
Mortgage-backed securities 10,691 10,788 7,019 7,054 2,568 2,585
SBA guaranteed loan
participation certificates 2,304 2,290 3,221 3,238 4,337 4,290
Other securities 3,141 3,396 182 263 110 236
------- ------- ------- ------- ------- -------
Total $40,315 $41,037 $21,980 $22,090 $15,174 $15,147
======= ======= ======= ======= ======= =======
Securities Held-to-maturity:
U.S. Treasury $ - $ - $ 246 $ 248 $ 242 $ 245
U.S. government sponsored
entities - - 14,754 14,962 15,368 15,403
States and political subdivisions
Taxable - - 1,791 1,899 1,845 1,939
Exempt from Federal income
taxes - - 6,506 6,702 6,906 7,041
Mortgage-backed securities - - 5,148 5,409 5,804 6,037
Other securities - - 3,219 3,219 2,395 2,395
------- ------- ------- ------- ------- -------
Total $ - $ - $31,664 $32,439 $32,560 $33,060
======= ======= ======= ======= ======= =======
Securities of a Single Issuer
There were no securities of any single issuer, other than the U.S. Treasury or
U.S. government sponsored entities, which had a book value in excess of ten
percent of shareholders' equity at December 31, 1998.<PAGE>
Securities, Maturities and Yields
The following table sets forth maturities and the weighted average yields of
the securities at December 31, 1998.
<TABLE>
Maturity
<CAPTION>
Due in One Year Due After One Due After Five Due A
or Less Year Through FiveYears through TenTen Y
Weighted Weighted Weighted We
Average Average Average A
Balance YieldBalance YieldBalance Yield Balance
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Available-for-sale:
U.S. Treasury $4,203 5.20% $1,012 5.38% $ - -% $ -
U.S. government sponsored
entities 1,264 5.89 2,260 5.53 752 6.43 -
State and political
subdivisions <1> 1,948 7.28 5,090 7.02 4,396 7.16 3,638
Mortgage-backed securities <2> 874 6.72 7,657 6.25 1,364 6.46 893
SBA guaranteed loan
participation certificates <2> 19 9.17 693 7.43 451 7.39 1,127
Other securities - - 250 7.38 200 7.41 2,946
------ ------ ------ ------ ------ ------ ------
$8,308 5.96%$16,962 6.40% $7,163 6.97% $8,604
====== ====== ====== ====== ====== ====== ======
<FN>
<1> The yield is reflected on a fully tax equivalent basis utilizing a 34% tax rate.
<2> These securities are presented based on contractual maturities.
</TABLE>
Loan Portfolio
The loan portfolio is the largest category of the Company's interest earning
assets. At December 31, 1998 the ratio of total loans to total assets was
79.7% as compared to a ratio of 76.3% at December 31, 1997.
The following table sets forth the historical composition of the loan portfolio.
TABLE
<PAGE>
<CAPTION>
December 31,
1998 1997 1996 1995 1
Percent of Percent ofPercent of Percent of Perce
AmountPortfolioAmountPortfolioAmountPortfolioAmountPortfolioAmo
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $102,592 27.34%$87,506 30.21% $58,912 28.68%$45,217 26.14%$33,
Real estate -
construction 15,517 4.14 13,409 4.63 12,282 5.98 12,821 7.41 8,
Real estate -
mortgages 168,833 45.00106,120 36.64 84,920 41.34 68,227 39.44 63,
Home equity 78,384 20.89 72,944 25.18 43,193 21.03 37,820 21.86 30,
Installment 9,433 2.51 9,253 3.19 5,615 2.73 8,655 5.00 4,
Credit cards 456 0.12 432 0.15 503 0.24 261 0.15
------- --------------------- ------- -------------- -----------
Total gross loans 375,215 100.00%289,664100.00% 205,425 100.00%173,001 100.00%141,
======= ======= ======= =======
Unearned discount - - (2) (3)
Net deferred loan fees 135 (187) (261) (223) (1
Unaccreted discount
from loss on transfer
of loans from held-
for-sale to portfolio(263) (373) (438) (451) (5
------- ------- ------- ------- ----
Loans, net of unearned
discount and net
deferred loan fees 375,087 289,104 204,724 172,324 140,
Allowance for loan
losses (3,824) (2,079) (1,425) (1,189) (1,0
------- ------- ------- ------- ----
Net loans $371,263 $287,025 $203,299 $171,135 $139,
======= ======= ======= ======= ====
/TABLE
<PAGE>
Commercial Loans: The majority of commercial loans are written with adjustable
interest rates to match variable rate funding sources. Total commercial loans
increased $15.1 million to $102.6 million at December 31, 1998, as the Company
continued to actively pursue commercial loan relationships. Commercial loans
represented 27.3% of the total loan portfolio at December 31, 1998, as compared
to 30.2% of the total loan portfolio at December 31, 1997.
Real Estate Mortgage Loans: Real estate mortgage loans, which consist of
residential and commercial loans secured by real estate, totaled $168.8 million
at December 31, 1998, compared to $106.1 million at December 31, 1997. This
increase is primarily associated with growth during 1998 of $29.8 million or
69.8% in residential mortgage loans to $72.4 million at December 31, 1998 as
compared to December 31, 1997. In addition, commercial mortgage loans
increased $32.9 million to $96.4 million at December 31, 1998 as compared to
$63.5 million at December 31, 1997.
Home Equity Loans: Home equity loans increased $5.4 million, or 7.5%, from
December 31, 1997 and were $78.4 million at December 31, 1998. At December 31,
1997 home equity loans increased $29.8 million or 68.9% to $73.0 million
primarily as a result of the initiation of a promotion in June, 1997. At
December 31, 1998, home equity loans accounted for 20.9% of the total loan
portfolio, compared to 25.2% of the total loan portfolio at December 31, 1997.
The increase in home equity loans is primarily due to the Company's prime
rate-based home equity products, including a promotion featuring a 7.5% fixed
rate for three years, adjusting to prime thereafter. As of December 31, 1998,
the Company had total commitments on all home equity loans of $173.6 million,
with 45.2% or $78.4 million drawn and outstanding. Home equity lines of
credit, when aggregated with 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 of loans to borrowers engaged in the same or
similar industries that exceed 10% of total loans. 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, 1998. Also set forth are the
amounts of such loans due after one year, classified according to sensitivity
to changes in interest rates.
Maturity
Due in OneDue After One Year Due After
Year or LessThrough Five Years Five Years Total
(dollars in thousands)
Floating Floating
Fixed Rate Fixed Rate
Commercial and real estate
construction loans $102,368 $9,095 $3,178 $2,783 $685$118,109
Non-performing Loans<PAGE>
Non-performing loans include: (1) loans accounted for on a non-accrual basis;
(2) accruing loans contractually past due ninety days or more as to interest or
principal payments; 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.
December 31,
1998 1997 1996 1995 1994
(dollars in thousands)
Nonaccrual loans $ 268 $1,479 $ - $ 13 $ 258
Restructured loans - - - - -
Loans 90 days or more past
due, still accruing 81 341 118 626 123
------ ------ ------ ------ ------
Total non-performing loans $ 349 $1,820 $ 118 $ 639 $ 381
------ ------ ------ ------ ------
Non-performing loans to
loans, net of unearned
discount and net deferred
loan fees .09% 0.63% 0.06% 0.37% 0.27%
Non-performing loans to
allowance for loan losses 9.13% 87.54% 8.28% 53.74% 38.10%
Management is aggressively pursuing collection efforts with respect to
non-performing 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, in the judgement of management, the loan is both well-secured and in
the process of collection. Interest accrued and unpaid at the time a loan is
placed on nonaccrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan. Restructured loans include troubled debt restructuring (which
involved forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than the market rate). The Company had no
restructured loans at December 31, 1998.
Potential Problem Loans
In addition to those loans disclosed under "Non-performing 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. 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<PAGE>
loans in this category as of December 31, 1998 and December 31, 1997 were
approximately $812 thousand and $3.7 million, respectively. One loan, a
commercial mortgage totaling $2.9 million, which was repaid during 1998,
contributed to the decrease. At December 31, 1998, there were no significant
loans which were classified by any bank regulatory agency that are not included
above as non-performing or as a potential problem loan.
Other Real Estate Owned
The Bank had two properties, both strip shopping centers in Chicago, Illinois,
totaling $435 thousand in other real estate owned at December 31, 1998. At
December 31, 1997 other real estate owned was comprised of one single family
home in Deerfield, Illinois, with a balance of $290 thousand.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for potential future losses in the Company's loan portfolio. 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 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.
Set forth in the following table is an analysis of the allowance for loan
losses.
Year Ended December 31,
1998 1997 1996 1995 1994
(dollars in thousands)
Allowance at beginning
of period $2,079 $1,425 $1,189 $1,000 $855
Charge-offs:
Commercial 185 71 49 - 88
Real estate - construction - - - - -
Real estate - mortgage - - - - -
Home equity - - - - -
Installment 13 23 20 4 1
Credit cards 9 55 9 15 50
------ ------ ------ ------ ------
Total charge-offs 207 149 78 19 139
------ ------ ------ ------ ------
Recoveries:
Commercial 2 22 - - 31
Real estate - construction - - - - -
Real estate - mortgage - - - - -
Home equity - - - - -
Installment 5 15 3 - 1
Credit cards 2 - 1 1 2
------ ------ ------ ------ ------
Total recoveries 9 37 4 1 34<PAGE>
------ ------ ------ ------ ------
Net charge-offs 198 112 74 18 105
Provision for loan losses 1,943 766 310 207 250
------ ------ ------ ------ ------
Allowance at end of period $3,824 $2,079 $1,425 $1,189 $1,000
====== ====== ====== ====== ======
Allowance to loans, net of
unearned discount and net
deferred loan fees 1.02% 0.72% 0.70% 0.70% 0.71%
Net charge-offs to average
net loans 0.06% 0.05% 0.04% 0.01% 0.08%
The loan loss provision of $1.9 million in 1998 reflects an increase of $1.2
million from the 1997 provision. The increase was necessary to reflect the
increase in commercial lending and commercial real estate lending.<PAGE>
The following table presents management's allocation of the allowance for loan
losses
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995
Percent of Percent of Percent of Percent
loans of loans of loans of loans o
each each each eac
category category category categor
to total to total to total to tota
Amount loans Amount loans Amount loans Amount loan
<S> <C> <C> <C> <C> <C> <C> <C> <C
(dollars in thousands)
Commercial $1,242 27.34% $829 30.21% $597 28.68% $596 26.14
Real estate - construction - 4.14 - 4.63 - 5.98 - 7.4
Real estate - mortgage 64 45.00 118 36.64 59 41.34 37 39.4
Installment 91 2.51 56 3.19 34 2.73 36 5.0
Home equity 635 20.89 387 25.18 224 21.03 190 21.8
Credit cards 10 0.12 5 0.15 12 0.24 7 0.1
Unallocated 1,782 - 684 - 499 - 323
-------------- ------- --------------------- ------- ------
Total $3,824100.00% $2,079 100.00% $1,425100.00% $1,189 100.00
============== ======= ===================== ======= ======
</TABLE>
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 Company's Board of Directors through its members
who serve on the loan committee. In review of the loan portfolio is provided by
the examinations conducted by regulatory independent public accountants in
conjunction with their annual audit, and an independent loan review performed by
an entity engaged by the Board of Directors of the Bank. The amount of
allowance for loan losses, which are charged to earnings through the provision
for 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 Company's
market area. Although management believes the allowance for loan losses is
any potential losses, there can be no assurance that the allowance will prove
sufficient to cover actual loan losses in the future.
Deposits<PAGE>
Average total deposits were $363.9 million for the year ended December 31, 1998,
an increase of 31.5% from 1997. The increase in deposits occurred primarily 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 1997.<PAGE>
The following table sets forth the maturities of certificates of time deposit
of $100,000 or more and other time deposits of $100 thousand or more at
December 31, 1998.
December 31,
1998
(dollars in thousands)
Maturing within three months $ 33,842
After three but within six months 19,157
After six but within twelve months 4,196
After twelve months 1,054
---------
Total $ 58,249
=========
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 Company's net income is dependent on its net interest income. Net interest
income is susceptible to interest rate risk to the degree that interest bearing
liabilities mature or reprice on a different basis than interest earning
assets. When interest bearing liabilities mature or reprice more quickly than
interest earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest earning assets mature or reprice more quickly than interest bearing
liabilities, falling interest rates could result in a decrease in net income.
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of
December 31, 1998.
Time to Maturity or Repricing
0-90 Days91-365 Days1-5 YearsOver 5 Years Total
(dollars in thousands)
Interest Earning Assets:
Net loans(1) $127,142 $20,416 $140,896 $87,639 $376,093
Securities 6,025 11,066 15,279 8,667 41,037
Interest bearing deposits
with financial institutions7,019 - - - 7,019
Federal funds sold 6,900 - - - 6,900
------- ------- ------- ------- -------
Total earning assets $147,086 $31,482 $156,175 $96,306 $431,049
------- ------- ------- ------- -------
Interest Bearing Liabilities:
NOW and money market
accounts $53,615 $29,369 $68,767 $ - $151,751
Savings deposits 810 2,430 12,958 6,488 22,686
Time deposits 82,336 59,468 17,755 11,182 170,741
Borrowings 6,022 2,000 7,802 20,689 36,513<PAGE>
------- ------- ------- ------- -------
Total interest bearing
liabilities $142,783 $93,267 $107,282 $38,359 $381,691
Rate sensitive assets (RSA) $147,086 $178,568 $334,742 $431,049 $431,049
Rate sensitive liabilities
(RSL) $142,783 $236,050 $343,332 $381,691 $381,691
Cumulative gap
(GAP = RSA - RSL) $4,303 $(57,482) $(8,590) $49,358 $49,358
RSA/Total assets 31.26% 37.95% 71.15% 91.62% 91.62%
RSL/Total assets 30.35% 50.17% 72.98% 81.13% 81.13%
GAP/Total assets 0.91% (12.22%) (1.83%) 10.49% 10.49%
GAP/RSA 2.93% (3.49%) (4.43%) 11.45% 11.45%
(1) Includes loans held for sale.
While the gap position illustrated above is a useful tool that management can
assess for general positioning of the Company's balance sheet, 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 100 and 200 basis
points, both upward and downward. The model uses an option-based pricing
approach to estimate the sensitivity of mortgage loans. The most significant
embedded option in these types of assets is the prepayment option of the
borrowers. The model uses various prepayment assumptions depending upon the
type of mortgage instrument (residential mortgages, commercial mortgages,
mortgage-backed securities, etc.). Prepayment rates for mortgage instruments
ranged from 5 to 45 CPR (Constant Prepayment Rate) as of December 31, 1998 and
1997. For administered rate core deposits (e.g. NOW and savings accounts), the
model utilizes interest rate floors equal to 100 basis points below their
current levels.
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 December 31, 1998 and 1997, was as
follows:
Basis Point Change
+200 +100 -100 -200
At December 31, 1998 (9.5%) (4.8%) 3.9% 5.6%
At December 31, 1997 0.9% 0.5% 0.0% (3.5%)
As the above table indicates, the Company's rate-sensitive position has shifted
from a fairly balanced position at December 31, 1997 to a position in which
rate-sensitive liabilities exceed rate sensitive assets at December 31, 1998.
The position at December 31, 1998 would be expected, for example, to result in
a 9.5% decrease in net interest income should interest rates immediately
increase by 200 basis points for a one year period. Conversely, a decline in
interest rates of 200 basis points would result in an increase of 5.6% of net
interest income. The shift in the rate sensitive position of the Company
between December 31, 1998 and December 31, 1997 was primarily due to the use of<PAGE>
shorter-term certificate of deposits to fund fixed rate commercial loans and
real estate loans.
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk. Although such activities may be
permitted with the approval of the Board of Directors of the Bank, the Company
does not intend to engage in such activities in the immediate future.
Interest rate risk is the most significant market risk affecting the Company.
Other types of market risk, such as foreign currency exchange rate risk and
commodity price risk, do not arise in the normal course of the Company's
business activities.
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, 1998, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer. Securities sold
underagreements to repurchase averaged $5.4 million and $5.8 million during
1998 and 1997, respectively, and the maximum amounts outstanding at any
month-end during 1998 and 1997 were $6.4 million and $12.0 million,
respectively. The weighted average rate paid during 1998 and 1997 was 4.15%
and 4.20%, respectively, and the weighted average rate at the end of 1998 and
1997 was 3.92% and 4.54%.
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 growth and financial condition. 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, Office of the Comptroller
of the Currency ("OCC") and Federal Deposit Insurance Corporation ("FDIC")
regulations to ensure capital adequacy require the Company and the Bank to
maintain minimum ratios of Tier 1 capital (as defined in such regulations) to
total average assets (as defined in such regulations) ("leverage ratio") and
minimum ratios of Tier 1 capital and total capital (as defined in such
regulations) to risk weighted assets (as defined in such regulations) ("Tier 1
Ratio" and "Total Risk-Based Capital Ratio," respectively). As of December 31,
1998, the Company and Bank were in compliance with all applicable regulatory
capital requirements. However, there can be no assurance that the Company or
the Bank will continue to be in compliance with such regulatory capital
requirements. See "Supervision and Regulation."<PAGE>
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 Bank's principal sources of funds are deposits, short-term borrowings and
capital contributions by the Company. Borrowings by the Bank from the Federal
Reserve Bank of Chicago and Federal Home Loan Bank of Chicago provide
additional available sources of 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 December 31, 1998 and 1997,
38.96% and 32.02%, respectively, of the Company's total assets were funded by
demand deposits.
Liquid assets refer to money market assets such as cash and due from banks,
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. As of December 31, 1998 and 1997, net
liquid assets totaled approximately $52.7 million and $39.0 million,
respectively.
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 $1.4 million for the year ended December
31, 1998, and $2.9 million for the year ended December 31, 1997. A significant
component in the fluctuation of net cash provided by or used in operating
activities is the timing of the sale of loans held for sale to permanent
investors. Net cash used in investing activities, consisting primarily of loan
and investment funding, was $76.4 million and $93.0 million for the years ended
December 31, 1998 and 1997, respectively. Net cash provided by financing
activities, consisting principally of deposit growth and the issuance of stock,
was $90.0 million and $100.1 million for the years ended December 31, 1998 and
1997, respectively.
Year 2000 Issue
The year 2000 will be the first century date change ever for an automated
society. For years, information systems were designed using a two-digit date
field. This practice has created an environment in which older generation
software programs may not be able to discern the difference between the year
2000 and the year 1900. This problem could result in the failure of computers
and/or information systems. Due to its reliance on both computers and
information systems, in early 1998, the Company began the process of
identifying and assessing the degree to which its hardware and software would
be impacted by the date change.
A committee, comprised of representatives from all major operating areas, was
created to assess whether or not the Company's internal and external systems,
particularly those that are mission-critical, are year 2000 compliant. The
committee has developed and adopted an action plan that addresses the Company's
year 2000 renovation, testing, contingency planning and management review<PAGE>
process. In addition the Company has developed a due diligence process to
monitor and evaluate the efforts of external third party suppliers to achieve
year 2000 readiness. The committee has developed and implemented a written
testing plan for both internal and external mission-critical systems and
finalized substantially all testing of internal mission-critical systems by
December 31, 1998. A business resumption contingency plan that defines
scenarios for mission-critical systems failing to achieve year 2000 readiness
and evaluates the Company's options is in the process of development by the
committee and is expected to be completed by March 31, 1999.
The Company is committed to year 2000 compliance and, as such, has taken steps
to educate its customers in identifying potential year 2000 problems. A year
2000 risk assessment of borrowers with loans in excess of $100 thousand has
been completed. The Company is satisfied that these borrowers represent a low
year 2000 risk; however, the Company has instituted a program to assist in the
management of underwriting risk.
As of December 31, 1998, year 2000 compliance costs incurred are estimated to
be $75 thousand to $100 thousand. It is estimated that the Company will spend
$125 thousand to $150 thousand in total. However, this is a complex issue and
no assurances can be given that compliance will be achieved without any
unplanned outlays that would affect future financial results.
Competition
The Company competes in the commercial banking industry through its subsidiary,
the 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. Factors which
affect competition generally include the general and local economic conditions,
current interest rate levels and volatility in the mortgage markets. 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 other 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 it charges, the efficiency and quality of services it provides to
borrowers and the variety of its 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., BankOne and Bank of
America.
Employees
As of December 31, 1998, the Company had 196 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.<PAGE>
Effects of Inflation
The financial statements and related financial data concerning the Company
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. Inflation
can have a significant effect on the operating results of all industries.
However, the effects of inflation in the local economy and on the Company's
operating results have been relatively modest for the past several years.
Since substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates.
The primary impact of inflation on the operations of the Company is reflected
in increased operating costs. Furthermore, inflation can directly affect the
value of loan collateral in general, and real estate collateral in particular.
These factors are taken into account in the initial underwriting process and
over the life of the loans. The Company believes that it has systems in place
to continue to manage the rates, liquidity and interest rate sensitivity of the
Company's assets and liabilities. See "Asset/Liability Management."
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:
General.
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
Bank Holding Company Act (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.
Investments and Activities.
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<PAGE>
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.
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 demonstrate that such person is not in control of the Company.
Prior regulatory approval will be required 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.
Capital Requirements.
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. 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 and trust preferred stock (both
subject to certain limitations) and minority interest in the common equity
accounts of consolidated subsidiaries, and is reduced by goodwill, certain
other intangible assets and certain investments in other corporations. Tier 2
capital consists of the allowance for loan and lease losses (subject to certain
conditions and limitations), perpetual preferred stock (to the extent not
included in Tier 1 capital), "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.
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. The growth of the Company and the Bank<PAGE>
has been, and may in the future be, constrained by these capital adequacy
requirements.
As of December 31, 1998, the Company had a Tier 1 Ratio of 12.77%, a Total
Risk-Based Capital Ratio of 15.23% and a Tier 1 capital to total average assets
ratio (leverage ratio) of 9.96%.
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.
Bank Regulation:
General.
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. Transactions with Insiders and
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<PAGE>
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.
Pursuant to the National Bank Act, all dividends must be paid out of undivided
profits. 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 without the prior approval of the Federal Reserve. 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 additional 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 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 bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.<PAGE>
Capital Requirements.
The OCC has established the following minimum capital standards for national
banks, such as the Bank: a leverage requirement consisting of a minimum ratio
of Tier 1 capital to total assets of 3% for the most highly-rated banks within
minimum requirements of 4% to 5% for all others, and a risk-based capital
requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
For purposes of these capital standards, Tier 1 capital and total capital
consists of substantially the same components as Tier 1 capital and total
capital under the Federal Reserve's capital guidelines for bank holding
companies. See "-Bank Holding Company Regulation-Capital Requirements."
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
OCC provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
During the year ended December 31, 1998, the Bank was not required by the OCC
to increase its capital to an amount in excess of the minimum regulatory
requirement. As of December 31, 1998, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 8.90% and a risk-based capital
ratio of 11.38%.
In August, 1995, 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 banking agencies also have adopted a joint agency policy statement
providing guidance to banks for managing interest rate risk. This 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<PAGE>
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 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.
During 1998, the Bank was assessed at an average annual rate of [0]% of
deposits. 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 of 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 Savings Association Insurance Fund ("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 did 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
must be maintained against total transaction accounts of $46.5 million or less
plus 10.0% on the remainder. The first $4.9 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<PAGE>
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 rates an institution based on its actual
performance in meeting community needs. In particular, the system focuses 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 is 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 form time to time when management
deems it appropriate from an asset/liability management perspective.
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.
Forward Looking Statements<PAGE>
Statements made about the Company's future economic performance, strategic
plans or objectives, revenues or earnings projections, or other financial items
and similar statements are not guarantees of future performance, but are
forward looking statements. By their nature, these statements are subject to
numerous uncertainties that could cause actual results to differ materially
from those in the statements. Important factors that might cause the Company's
actual results to differ materially include, but are not limited to, the
following:
. Federal and state legislative and regulatory developments;
. The impact of continued loan and deposit promotions on the Company's net
interest margin;
. The impact of opening, staffing and operating new branch facilities;
. Changes in management's estimate of the adequacy of the allowance for loan
losses;
. Changes in the level and direction of loan delinquencies and write-offs;
. Interest rate movements and their impact on customer behavior and the
Company's net interest margin;
. The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
. The Company's ability to adapt successfully to technological changes to
meet customers' needs and developments in the marketplace;
. The Company's ability to access cost effective funding;
. Changes in financial markets and general economic conditions; and
. The Company's ability to achieve year 2000 compliance without incurring
material unplanned expenditures.
ITEM 2. PROPERTIES
The Company and the Bank are headquartered in Lincolnshire, Illinois. In
addition to its headquarters the Bank has ten branch facilities located in
Deerfield (2), Libertyville, Lincolnwood (2), Chicago (Lincoln Park and
downtown), Arlington Heights, Skokie and Northbrook, Illinois.
The table below summarizes the Company's owned and leased facilities.
Approximate
Location Type of Facility Square FootageExpiration Date
Lincolnshire, IL Corporate headquarters
and branch 11,760 Owned
Lincolnwood, IL Branch 8,760 Owned
Lincolnwood/
International, IL Branch 1,900 October 2001
Chicago/Lincoln Park, IL Branch 1,967 April 2003
Libertyville, IL Operations center
and branch 8,100 Owned
Northbrook, IL Branch 1,950 November 1998
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
Chicago/Downtown, IL Branch 7,338 May 2008
Skokie, IL Branch 648 March 2001
ITEM 3. LEGAL PROCEEDINGS<PAGE>
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 16, 1998, the Company issued 8,000 shares of restricted common
stock to Wilbur G. Meinen, Jr., in accordance with the Employment Agreement,
dated as of December 16, 1998, between the Company and Mr. Meinen. Pursuant to
such agreement Mr. Meinen became the new President and Chief Executive Officer
of the Company. This transaction was exempt from registration pursuant to
Section 4(d) of the Securities Act of 1933, as amended. All additional
information required in response to this item is contained in the Annual Report
to Shareholders under the caption "Shareholder Information" and is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required in response to this item is contained in the Annual Report
to Shareholders under the caption "Selected Financial Highlights" and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required in response to this item is contained in the Company's
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and is incorporated
herein by reference. The discussion and analysis of financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and supplementary data contained in the Company's Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest rate risk position is discussed under the heading
"Business-Asset/Liability Management" in Item 1 of this Form 10-K. Other types
of market risk, such as foreign currency exchange risk and commodity price
risk, do not arise in the normal course of the Company's business activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the Annual
Report to Shareholders under the caption "Consolidated Financial Statements,"
and is incorporated herein by reference. Also, refer to Item 14 of this Report
for the Index to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item will be contained in the
Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Shareholders to be held May 26, 1999, under the captions "General
Information-Section 16(a) Beneficial Ownership Reporting Compliance," "Election
of Directors" and "Executive Officers" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the
Company's Proxy Statement under the caption "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item will be contained in the
Company's Proxy Statement under the caption "General Information Security
Ownership of Principal Holders and Management" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in the
Proxy Statement under the caption "Election of Directors - Certain
Relationships and Related Transactions," and is incorporated herein by
reference.<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1., 2. Financial Statements and Schedules
The Consolidated Financial Statements are incorporated by
reference to the following pages from the 1998 Annual Report to
Shareholders, attached hereto as Exhibit 13.1:
Page
Report of Independent Auditors 10
Report of Consolidated Balance Sheets 11
Report of Consolidated Statements of Income 12
Report of Consolidated Statements of Shareholders' Equity 13
Report of Consolidated Statements of Cash Flows 14
Report of Notes to Consolidated Financial Statements 15-30
No financial statement schedules are required to be filed with
this report.
3. Exhibits
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Securities and
Exchange Commission the ("Commission") on July 31, 1997).
3.1.1 Certificate of Designations of Series B Junior Participating
Preferred Stock
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
4.1 Form of Subordinated Indenture relating to the Junior Subordinated
Debentures (incorporated by reference to Exhibit 4.1 of the Form S-1
Registration Statement of the Company's and Success Capital Trust I
("Success Capital") (No. 333-51271 and No. 333-51271-01) filed with
the Commission on April 28, 1998).
4.2 Form of Junior Subordinated Debenture Certificate (included as an
exhibit to Exhibit 4.1).
4.3 Certificate of Trust of Success Capital (incorporated by reference to
Exhibit 4.3 of the Form S-1 Registration Statement of the Company and
Success Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
4.4 Form of Amended and Restated Trust Agreement of Success Capital
(incorporated by reference to Exhibit 4.4 of the Form S-1
Registration Statement of the Company and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on April 28,
1998). <PAGE>
4.5 Form of Trust Preferred Security Certificate of Success Capital
(included as an exhibit to Exhibit 4.4).
4.6 Form of Common Security Certificate of Success Capital (included as
an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of the Company relating to the Trust
Preferred Securities (incorporated by reference to Exhibit 4.7 of the
Form S-1 Registration Statement of the Company and Success Capital
(No. 333-51271 and 333-51271-01) filed with the Commission on April
28, 1998).
4.8 Form of Rights Agreement, dated as of August 1, 1998, between the
Company and Harris Trust and Savings Bank, which includes as Exhibit
B thereto the Form of Right Certificate (incorporated by reference to
Exhibit 1 of the Company's Form 8-A Registration Statement (File No.
001-14381) filed with the Commission on August 6, 1998)
10.1 $10 Million Business Loan Agreement, dated January 13, 1997, between
the Company and Cole Taylor Bank (incorporated by reference to
Exhibit 10.1 of the Company's 1997 Annual Report on Form 10-K filed
with the Commission on March 31, 1998).
(1)10.2 Success Bancshares, Inc. 1995 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.2 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
(1)10.3 Employment Agreement between the Company and Saul D. Binder
(incorporated by reference to Exhibit 10.3 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
(1)(2)10.4 Success Bancshares, Inc. 1999 Stock Option Plan
10.5 Lease with respect to Lincolnwood branch banking facility (October,
1991) (incorporated by reference to Exhibit 10.5 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Securities and Exchange Commission on July 31, 1997).
10.6 Lease with respect to Lincoln Park branch banking facility (April,
1993) (incorporated by reference to Exhibit 10.6 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.7 Lease with respect to Northbrook branch banking facility (December,
1994) (incorporated by reference to Exhibit 10.7 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995) (incorporated by reference to Exhibit 10.8 of the
Company's Form S-1 Registration Statement (No. 333-32561) filed with
the Commission on July 31, 1997).
(1)10.9 Employment Agreement between the Bank and Christa N. Calabrese dated
as of August 1, 1998, as amended (incorporated by reference to<PAGE>
Exhibit 10.9 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.10 Employment Agreement between the Bank and Kurt C. Felde dated as of
August 1, 1998, as amended (incorporated by reference to Exhibit
10.10 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.11 Employment Agreement between the Bank and Ronald W. Tragasz dated as
of August 1,1 998, as amended (incorporated by reference to Exhibit
10.11 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.12 Employment Agreement between the Bank and Marlene Sachs dated as of
August 1, 1998 (incorporated by reference to Exhibit 10.12 of the
Company's Form 10-Q filed with the Commission on November 13, 1998).
(1)10.13 Stock Option Agreement dated as of September 23, 1998 between the
Company and Christa N. Calabrese (incorporated by reference to
Exhibit 10.13 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.14 Stock Option Agreement dated as of June 25, 1998 between the Company
and Kurt C. Felde (incorporated by reference to Exhibit 10.14 of the
Company's Form 10-Q filed with the Commission on November 13, 1998).
(1)10.15 Stock Option Agreement dated as of September 23, 1998 between the
Company and Ronald W. Tragasz (incorporated by reference to Exhibit
10.15 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.16 Stock Option Agreement dated as of September 23, 1998 between the
Company and Marlene Sachs (incorporated by reference to Exhibit 10.16
of the Company's Form 10-Q filed with the Commission on November 13,
1998).
(1)10.17 Stock Option Agreement dated as of August 26, 1998 between the
Company and Sherwin Koopmans (incorporated by reference to Exhibit
10.17 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.18 Stock Option Agreement dated as of August 26, 1998 between the
Company and George M. Ohlhausen (incorporated by reference to Exhibit
10.18 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.19 Stock Option Agreement dated as of August 26, 1998 between the
Company and Charles G. Freund (incorporated by reference to Exhibit
10.19 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.20 Stock Option Agreement dated as of August 26, 1998 between the
Company and Norman D. Rich (incorporated by reference to Exhibit
10.20 of the Company's Form 10-Q filed with the Commission on
November 13, 1998). <PAGE>
(1) (2)10.21 Amendment No. 1 to Employment Agreement dated as of August 1, 1998
between the Bank and Marlene Sachs.
(1)10.22 Stock Option Agreement dated as of August 26, 1998 between the
Company and Avrom H. Goldfeder (incorporated by reference to Exhibit
10.22 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.23 Stock Option Agreement dated as of August 26, 1998 between the
Company and Glen Wherfel (incorporated by reference to Exhibit 10.23
of the Company's Form 10-Q filed with the Commission on November 13,
1998).
(1) (2)10.24 Employment Agreement dated as of December 16, 1998 between the
Bank and Wilbur G. Meinen.
(1) (2)10.25 Stock Option Agreement dated as of December 16, 1998 between the
Company and Kurt C. Felde.
(1) (2)10.26 Stock Option Agreement dated as of December 16, 1998 between the
Company and Wilbur G. Meinen.
(1) (2)10.27 Stock Option Agreement dated as of January 27, 1999 between the
Company and Wilbur G. Meinen.
(1) (2)10.28 Success Bancshares, Inc. 1998 Employee Stock Purchase Plan.
(1) (2)10.29 Amendment No. 1 to 1995 Stock Option Plan.
(1) (2)10.30 Restricted Stock Agreement dated as of December 16, 1998 between
the Company and Wilbur G. Meinen.
(2)10.31 Lease with respect to Chicago downtown branch banking facility (May,
1998).
13.1 1998 Annual Report to Shareholders.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 of the Company's Form S-1 Registration Statement (No. 333-32561)
filed with the Securities and Exchange Commission on July 31, 1997).
(1)23.1 Consent of McGladrey & Pullen, LLP
(1)27.1 Financial Data Schedule
(1) Management contract or compensatory plan or arrangement.
(2) Filed herewith
(b) Reports on Form 8-K
A report on Form 8-K dated December 7, 1998 was filed with the Securities and
Exchange Commission on December 23, 1998. The report was filed to announce the
Company's appointment of Wilbur G. Meinen as President and Chief Executive
Officer of both the Company and the Bank. Mr. Meinen replaces Saul D. Binder,
who died suddenly on July 12, 1998.<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Success Bancshares, Inc.
By: Wilbur G. Meinen /s/ Wilbur G. Meinen March 26, 1999
President /Chief Executive Officer (Dated)
Kurt C. Felde /s/ Kurt C. Felde March 26, 1999
Senior Vice President / (Dated)
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Wilbur G. Meinen /s/ Wilbur G. Meinen March 26, 1999
Director (Dated)
Charles G. Freund /s/ Charles G. Freund March 26, 1999
Director (Dated)
Avrom H. Goldfeder /s/ Avrom H. Goldfeder March 26, 1999
Director (Dated)
Glen R. Wherfel /s/ Glen R. Wherfel March 26, 1999
Director (Dated)
Sherwin Koopmans /s/ Sherwin Koopmans March 26, 1999
Director (Dated)
George M. Ohlhausen /s/ George M. Ohlhausen March 26, 1999
Director (Dated)
Norman D. Rich /s/ Norman D. Rich March 26, 1999
Director (Dated)<PAGE>
EXHIBIT INDEX
3. Exhibits
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Securities and
Exchange Commission the ("Commission") on July 31, 1997).
3.1.1 Certificate of Designations of Series B Junior Participating
Preferred Stock
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 of
the Company's Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
4.1 Form of Subordinated Indenture relating to the Junior Subordinated
Debentures (incorporated by reference to Exhibit 4.1 of the Form S-1
Registration Statement of the Company's and Success Capital Trust I
("Success Capital") (No. 333-51271 and No. 333-51271-01) filed with
the Commission on April 28, 1998).
4.2 Form of Junior Subordinated Debenture Certificate (included as an
exhibit to Exhibit 4.1).
4.3 Certificate of Trust of Success Capital (incorporated by reference to
Exhibit 4.3 of the Form S-1 Registration Statement of the Company and
Success Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
4.4 Form of Amended and Restated Trust Agreement of Success Capital
(incorporated by reference to Exhibit 4.4 of the Form S-1
Registration Statement of the Company and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on April 28,
1998).
4.5 Form of Trust Preferred Security Certificate of Success Capital
(included as an exhibit to Exhibit 4.4).
4.6 Form of Common Security Certificate of Success Capital (included as
an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of the Company relating to the Trust
Preferred Securities (incorporated by reference to Exhibit 4.7 of the
Form S-1 Registration Statement of the Company and Success Capital
(No. 333-51271 and 333-51271-01) filed with the Commission on April
28, 1998).
4.8 Form of Rights Agreement, dated as of August 1, 1998, between the
Company and Harris Trust and Savings Bank, which includes as Exhibit
B thereto the Form of Right Certificate (incorporated by reference to
Exhibit 1 of the Company's Form 8-A Registration Statement (File No.
001-14381) filed with the Commission on August 6, 1998)
10.1 $10 Million Business Loan Agreement, dated January 13, 1997, between
the Company and Cole Taylor Bank (incorporated by reference to
Exhibit 10.1 of the Company's 1997 Annual Report on Form 10-K filed
with the Commission on March 31, 1998). <PAGE>
(1)10.2 Success Bancshares, Inc. 1995 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.2 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
(1)10.3 Employment Agreement between the Company and Saul D. Binder
(incorporated by reference to Exhibit 10.3 of the Company's Form S-1
Registration Statement (No. 333-32561) filed with the Commission on
July 31, 1997).
(1)(2)10.4 Success Bancshares, Inc. 1999 Stock Option Plan
10.5 Lease with respect to Lincolnwood branch banking facility (October,
1991) (incorporated by reference to Exhibit 10.5 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Securities and Exchange Commission on July 31, 1997).
10.6 Lease with respect to Lincoln Park branch banking facility (April,
1993) (incorporated by reference to Exhibit 10.6 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.7 Lease with respect to Northbrook branch banking facility (December,
1994) (incorporated by reference to Exhibit 10.7 of the Company's
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995) (incorporated by reference to Exhibit 10.8 of the
Company's Form S-1 Registration Statement (No. 333-32561) filed with
the Commission on July 31, 1997).
(1)10.9 Employment Agreement between the Bank and Christa N. Calabrese dated
as of August 1, 1998, as amended (incorporated by reference to
Exhibit 10.9 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.10 Employment Agreement between the Bank and Kurt C. Felde dated as of
August 1, 1998, as amended (incorporated by reference to Exhibit
10.10 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.11 Employment Agreement between the Bank and Ronald W. Tragasz dated as
of August 1,1 998, as amended (incorporated by reference to Exhibit
10.11 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.12 Employment Agreement between the Bank and Marlene Sachs dated as of
August 1, 1998 (incorporated by reference to Exhibit 10.12 of the
Company's Form 10-Q filed with the Commission on November 13, 1998).
(1)10.13 Stock Option Agreement dated as of September 23, 1998 between the
Company and Christa N. Calabrese (incorporated by reference to
Exhibit 10.13 of the Company's Form 10-Q filed with the Commission on
November 13, 1998). <PAGE>
(1)10.14 Stock Option Agreement dated as of June 25, 1998 between the Company
and Kurt C. Felde (incorporated by reference to Exhibit 10.14 of the
Company's Form 10-Q filed with the Commission on November 13, 1998).
(1)10.15 Stock Option Agreement dated as of September 23, 1998 between the
Company and Ronald W. Tragasz (incorporated by reference to Exhibit
10.15 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.16 Stock Option Agreement dated as of September 23, 1998 between the
Company and Marlene Sachs (incorporated by reference to Exhibit 10.16
of the Company's Form 10-Q filed with the Commission on November 13,
1998).
(1)10.17 Stock Option Agreement dated as of August 26, 1998 between the
Company and Sherwin Koopmans (incorporated by reference to Exhibit
10.17 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.18 Stock Option Agreement dated as of August 26, 1998 between the
Company and George M. Ohlhausen (incorporated by reference to Exhibit
10.18 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.19 Stock Option Agreement dated as of August 26, 1998 between the
Company and Charles G. Freund (incorporated by reference to Exhibit
10.19 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.20 Stock Option Agreement dated as of August 26, 1998 between the
Company and Norman D. Rich (incorporated by reference to Exhibit
10.20 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1) (2)10.21 Amendment No. 1 to Employment Agreement dated as of August 1, 1998
between the Bank and Marlene Sachs.
(1)10.22 Stock Option Agreement dated as of August 26, 1998 between the
Company and Avrom H. Goldfeder (incorporated by reference to Exhibit
10.22 of the Company's Form 10-Q filed with the Commission on
November 13, 1998).
(1)10.23 Stock Option Agreement dated as of August 26, 1998 between the
Company and Glen Wherfel (incorporated by reference to Exhibit 10.23
of the Company's Form 10-Q filed with the Commission on November 13,
1998).
(1) (2)10.24 Employment Agreement dated as of December 16, 1998 between the
Bank and Wilbur G. Meinen.
(1) (2)10.25 Stock Option Agreement dated as of December 16, 1998 between the
Company and Kurt C. Felde.
(1) (2)10.26 Stock Option Agreement dated as of December 16, 1998 between the
Company and Wilbur G. Meinen. <PAGE>
(1) (2)10.27 Stock Option Agreement dated as of January 27, 1999 between the
Company and Wilbur G. Meinen.
(1) (2)10.28 Success Bancshares, Inc. 1998 Employee Stock Purchase Plan.
(1) (2)10.29 Amendment No. 1 to 1995 Stock Option Plan.
(1) (2)10.30 Restricted Stock Agreement dated as of December 16, 1998 between
the Company and Wilbur G. Meinen.
(2)10.31 Lease with respect to Chicago downtown branch banking facility (May,
1998).
13.1 1998 Annual Report to Shareholders.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 of the Company's Form S-1 Registration Statement (No. 333-32561)
filed with the Securities and Exchange Commission on July 31, 1997).
(1)23.1 Consent of McGladrey & Pullen, LLP
(1)27.1 Financial Data Schedule<PAGE>
Exhibit 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Success Bancshares, Inc. of our report dated February 12, 1999 included in
the 1998 Annual Report to Shareholders of Success Bancshares, Inc. We also
consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-42615) pertaining to the Success Bancshares, Inc. Employee Stock
Ownership Plan, 1990, 1992 and 1993 Executive Officer Stock Option Agreements
and the 1995 Employee Stock Option Plan of our report dated February 12, 1999,
with respect to the consolidated financial statements incorporated herein by
reference.
/s/ McGladrey & Pullen, LLP
Schaumburg, Illinois
March 25, 1999 <PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment (this "Amendment") is made and entered into as of August 1,
1998, by and between Success National Bank, a national banking organization
("Employer"), and Marlene Sachs ("Employee").
WHEREAS, Employer and Employee have entered into an Employment Agreement
dated as of August 1, 1998 (the "Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend the Employment Agreement as
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. AMENDMENT. Section 2.1 of the Employment Agreement is hereby amended by
adding the following subsection thereto:
"(f) Automobile Allowance. Employee shall be entitled to the use of an
automobile provided by Employer and Employer shall be responsible, and shall
not be entitled to reimbursement for, any and all reasonable costs and expenses
relating to the use and maintenance of such automobile to the extent such costs
and expenses are substantiated by Employee."
2. MISCELLANEOUS
2.1 Sole Amendment. The Employment Agreement shall not be amended except
as expressly set forth herein.
2.2 Governing Law. This Amendment shall be interpreted, construed and
enforced in accordance with the internal laws of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the last date written below.
EMPLOYER
SUCCESS NATIONAL BANK
By: /s/ Christa N. Calabrese
Name: Christa N. Calabrese
Title: Executive Vice President
EMPLOYEE:
/s/ Marlene Sachs
Name: Marlene Sachs<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as of
December 16, 1998, by and between Success National Bank, a national banking
organization ("Employer"), and Wilbur G. Meinen ("Employee").
WHEREAS, Employer and Employee 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. Employer hereby retains and employs, and Employee
accepts such retention and employment, to provide services hereunder as
President and Chief Executive Officer of Employer and its parent company,
Success Bancshares, Inc. ("Bancshares"). Employee shall be accountable to
Employer through the Boards of Directors of Employer and Bancshares.
1.2 Duties and Obligations. As President and Chief Executive Officer,
Employee shall perform all executive and managerial duties incumbent upon such
position. Employee 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 Employee 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. Employer shall not
relocate Employee from the present three main locations of Employer in the
Chicago metropolitan area.
1.3 Proprietary Property. Employee acknowledges that in the course of
his employment with Employer, Employer will provide Employee 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 Employee in his duties. Employee
acknowledges that the Proprietary Property is the sole and exclusive property
of Employer and is not available to the public at large. Employee agrees that
he shall not, while in the employ of Employer 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 Employer, any information
relating to the Proprietary Property except as required by law. Upon
termination of Employee's employment with Employer, Employee shall thereupon
return all Proprietary Property in his possession or control to Employer.
2. FINANCIAL ARRANGEMENTS.
2.1 Compensation. As Employee's compensation for services provided
hereunder, Employer shall do the following:
(a) Salary. Employer shall pay Employee, pursuant to Employer's payroll
schedule, an annual salary in the amount of $187,250 during the term of this
Agreement, subject to annual review and increase, but not decrease, by the
Board of Directors of Employer.
(b) Bonus. Employer shall pay Employee a one-time bonus on or about
January 4, 1999 in the amount of $50,000 and, in addition to any bonus<PAGE>
permitted by Section 2.2 hereof, based upon the sole determination of
Employer's Board of Directors, may grant a bonus to Employee in any year in
which it determines that Employer's performance justifies such a bonus.
(c) Expenses. Employee 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 Employer relative to expense reimbursement.
(d) Benefits. In addition to any compensation provided under this
Agreement, Employee 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 Employer for its senior executive officers, in accordance with
the provisions of such plans or programs as from time to time in effect,
provided, however, that Employee and his eligible dependents shall, to the
extent allowable under the policy, be covered by Employer's health insurance as
soon as possible following effectiveness of this Agreement. Employer shall pay
the cost of any health insurance for Employee and his family prior to the
effectiveness of such Employer health insurance coverage.
(e) Vacations. Employee shall be entitled to four (4) weeks paid
vacation each year during the full term of his employment.
(f) Automobile Allowance. Employee shall be entitled to the use of an
automobile and Employer shall be responsible, and shall not be entitled to
reimbursement for, any and all reasonable costs and expenses relating to the
use and maintenance of such automobile to the extent such costs and expenses
are substantiated by Employee. As of the date hereof, Employee leases an
Oldsmobile Aurora pursuant to the terms of a Vehicle Leasing Agreement dated
June 4, 1998 between Employee as Lessee or Customer and Mister Leasing
Corporation, an Illinois corporation, as Lessor, a copy of which will be
provided to Employer (the "Auto Lease"). In furtherance of its obligations
under this Section 2.1(f), so long as Employee remains in the employ of
Employer, Employer agrees to be responsible for and indemnify Employee against,
all obligations of Employee under the Auto Lease, including without limitation
all monthly lease payments as provided therein.
2.2 Incentive Bonus Arrangement. In addition to the compensation payable
to Employee pursuant to the terms of Section 2.1 above, Employee shall be
entitled to performance-based bonus payments. Within one hundred twenty (120)
days following the commencement of the term of this Agreement, Employee and the
Compensation Committee of the Board of Directors of Employer shall agree upon
an incentive program for Employee pursuant to which Employee shall be entitled
to receive annual performance-based bonuses.
2.3 Equity-Based Compensation. In addition to all other compensation
payable to Employee pursuant to this Agreement, Employee shall also be entitled
to receive the equity-based compensation described in Exhibit A attached hereto
and made a part hereof.
3. TERM AND TERMINATION.
3.1 Term. This Agreement shall be effective for a period of three (3)
years from the date hereof. <PAGE>
3.2 Termination. This Agreement may also 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. This Agreement may be terminated by Employer
upon: (i) gross neglect of his duties hereunder by Employee, (ii) gross
misconduct which would constitute a felony under Illinois criminal law or (iii)
any intentional act by Employee constituting fraud, misappropriation, or
embezzlement. Prior to termination of this Agreement under Section 3.2(b)(i)
and 3.2(b)(ii) only, Employer shall be required to provide written notice to
Employee of any reasonable correctable act or omission complained of, giving
reasonably specific details in describing necessary corrective action, and
Employee shall be given a period of twenty (20) days in which to cure or
correct such act or omission. If such act or omission is cured or corrected,
the right of Employer to terminate this Agreement under Sections 3.2(b)(i) and
3.2(b)(ii) for such act shall be extinguished.
(c) Breach. This Agreement may be terminated by Employee in the event of
the breach of any of the material terms and conditions of this Agreement by
Employer and the failure of Employer to take reasonable corrective action to
correct such breach within twenty (20) business days after receipt of written
notice of such breach by Employee.
(d) Death or Disability. In the event Employee dies or becomes disabled,
to the extent that he is physically or mentally incapacitated for more than six
(6) months in the aggregate over a period of twenty-four (24) months so that
Employee is unable to perform his essential duties and functions hereunder,
this Agreement may be terminated by Employer upon written notice to Employee.
3.3 Effects of Termination. In the event of termination of this
Agreement pursuant to Sections 3.1, 3.2(a), 3.2(b) or 3.2(d) hereof, Employer
shall have no continuing obligation to Employee hereunder. In the event of
termination by Employee pursuant to Section 3.2(c) hereof or termination by
Employer for any reason not set forth in Section 3.1 or 3.2 hereof, Employer
shall continue to pay Employee salary, bonus, if any has been earned and is
due, and benefits for the duration of the term.
4. CHANGE OF CONTROL, SALE.
4.1 Payment Upon Termination. Upon a Change of Control (as defined
herein) of Employer or Bancshares, Employer shall pay Employee the sum of two
times Employee's base salary 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
two times Employee's base salary, as is lawful; provided, however, that such
payment shall only be made if Employee is an employee of the Employer
immediately prior to such Change of Control and either (a) within three hundred
sixty (360) days following such Change of Control Employee is terminated by
Employer as an employee of the Employer for any reason or (b) within one
hundred eighty (180) days following such Change of Control Employee terminates
his employment with the Employer as a result of his determination in his
reasonable discretion that he is not comfortable continuing to work for
Employer.
4.2 Change of Control Defined. For purposes of this Agreement, a "Change
of Control" shall be deemed to have occurred upon any of the following events:<PAGE>
(a) The consummation of any of the following transactions: (i) a merger,
recapitalization or other business combination of Employer or Bancshares with
or into another corporation pursuant to which Employer or Bancshares,
respectively, is not the continuing or surviving corporation or pursuant to
which shares of the Common Stock of Employer or Bancshares, as the case may be,
are converted into cash, securities of another corporation or other entity or
other property, other than a transaction in which the holders of the Common
Stock immediately prior to such transaction (including any preliminary or other
transaction relating to such transaction) will continue to own at least
fifty-five (55%) percent of the total voting power of the then-outstanding
securities of the surviving or continuing corporation immediately after such
transaction or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Employer or Bancshares.
(b) A transaction in which any person (including any "person" as defined
in Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), corporation or other entity (other than Employer
or Bancshares, an affiliate thereof or any profit-sharing, employee ownership
or other employee benefit or similar plan sponsored by Employer or Bancshares
or any subsidiaries thereof, or any trustee of or fiduciary with respect to any
such plan when acting in such capacity, or any group comprised solely of such
entities): shall become, through purchase or otherwise, the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly (in one transaction or a series of related transactions), of
securities of Employer or Bancshares, as the case may be, representing
forty-five (45%) percent or more of the total voting power of the
then-outstanding securities of Employer or Bancshares, respectively, ordinarily
(and apart from the rights accruing under special circumstances) having the
right to vote in the election of the directors of Employer or Bancshares,
respectively.
(c) If, during any period of two (2) consecutive years, individuals who
at the beginning of such period constituted the entire Board and any new
director whose election by the Board or nomination for election by the
stockholders of Employer or Bancshares, as the case may be, was approved by a
vote of eighty (80%) percent of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election by the stockholders was previously so approved, cease for any
reason to constitute a majority thereof.
4.3 Survival. The provisions of this Section 4 shall survive the
expiration of this Agreement until such time as Employee shall no longer be an
employee of the Employer.
5. PAYMENT BY HOLDING COMPANY
In view of Employee's contribution to Bancshares, any compensation or
benefit provided for herein to Employee may, upon the approval of both the
Boards of Directors of Employer and Bancshares, be paid by Bancshares.
6. NON-SOLICITATION/NON-COMPETITION
6.1 Non-Solicitation. Employee shall not, during the term of Employee's
employment with Employer and for a period of twelve (12) months after the
termination or expiration thereof, directly or indirectly, hire, offer to hire,<PAGE>
divert, entice away, solicit or in any other manner persuade or attempt to
persuade ("Solicitation") any person who is, or was, at any time within the
twelve (12) months prior to such Solicitation, an officer, director, employee,
customer, supplier or shareholder of Employer or Bancshares to discontinue,
cease or alter his, her or its relationship with Employer or Bancshares.
6.2 Non-Competition. Employee shall not, during the term of Employee's
employment with Employer and for a period of six (6) months after the
termination or expiration thereof, except in the event that (a) such
termination occurs upon a Change of Control and otherwise as set forth in
Section 4.1 of this Agreement or (b) Employee is terminated by Employer as an
employee of the Employer for any reason other than one described in Sections
3.2(a), 3.2(b)(i), (ii) or (iii) or 3.2(c), directly or indirectly, within ten
(10) miles of any of the three (3) largest then-existing offices of Employer
with the exception of a downtown Chicago location: (i) engage in any business
or activity that competes with the business of Employer or Bancshares; (ii)
enter the employ of any person engaged in any business or activity that
competes with the business of Employer or Bancshares or render any services to
any person for use in competing with the business of Employer or Bancshares; or
(iii) have an interest in any person engaged in any business or activity that
competes with the business of Employer or Bancshares, directly or indirectly,
in any capacity, including, without limitation, as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee, creditor
or consultant or any other relationship or capacity.
6.3 Remedies Upon Breach. Employee acknowledges and agrees that (a)
Employer shall be irreparably injured in the event of a breach by Employee of
any of Employee's obligations under this Section 6.3; (b) monetary damages
shall not be an adequate remedy for any such breach; (c) Employer shall be
entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach; and (d) the existence of any claims
which Employee may have against Employer, whether under this Agreement or
otherwise, shall not be a defense to the enforcement by Employer of any of its
rights under this Section 6.3.
6.4 Enforcement. The covenants and obligations of Employee contained in
this Section 6 shall be in addition to, and not in lieu of, any covenants and
obligations which Employee may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such covenants and
obligations, and their enforceability, shall survive the termination of this
Agreement.
6.5 Survival. The provisions of this Section 6 shall survive: (a) with
respect to Section 6.1, until the later of twelve (12) months following the
expiration of this Agreement, or twelve (12) months following the termination
of Employee's employment with Employer; and (b) with respect to Section 6.2,
until the later of six (6) months following the expiration of this Agreement,
or six (6) months following the termination of Employee's employment with
Employer.
7. MISCELLANEOUS
7.1 Assignment. This Agreement and all rights and benefits hereunder are
personal to Employee. No rights, interests or benefits hereunder shall be
sold, transferred or assigned by Employee without the prior written consent of
Employer.<PAGE>
7.2 Employment Status of Employee. It is expressly acknowledged that
Employee, in the performance of his services hereunder, is an employee of
Employer. Accordingly, Employer shall deduct from the compensation paid to
Employee any sums for income tax, social security or any other withholding
taxes as are required by law.
7.3 Changes or Modifications. No change or modification of this
Agreement shall be valid unless the same shall be in writing signed by Employer
and Employee. No waiver of any provision hereof shall be valid unless in
writing and signed by the party against whom charged.
7.4 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.
7.5 Notices. Notice required herein shall be effective when delivered in
person or sent by United States Certified Mail, postage prepaid and addressed
to:
Employer: Board of Directors
Success National Bank
One Marriott Drive
Lincolnshire, Illinois 60069-3703
Employee: Wilbur G. Meinen
Success National Bank
One Marriott Drive
Lincolnshire, Illinois 60069-3703.
7.6 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the internal laws of Illinois.
7.7 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.
7.8 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the last date written below.
EMPLOYER
SUCCESS NATIONAL BANK
By: /s/ Christa N. Calabrese
Name: Christa N. Calabrese
Title: Executive Vice President
EMPLOYEE:
/s/ Wilbur G. Meinen
Name: Wilbur G. Meinen<PAGE>
EXHIBIT A
Equity-Based Compensation
1. Eight thousand (8,000) shares of Success Bancshares, Inc. common stock
will be issued promptly, subject to the restriction that Employee shall forfeit
if Employee is not a full-time Employee of Employer because of his voluntary
termination or termination pursuant to Section 3 of this Agreement
(collectively a "Rights Termination"): all of such shares on December 31, 1999;
two-third (2/3) of such shares if Employee is not a full-time Employee of
Employer because of a Rights Termination on December 31, 2000; and one-third
(1/3) of such shares if Employee is not a full-time Employee of Employer
because of a Rights Termination on December 31, 2001.
2. Twenty-five thousand (25,000) stock options (to the extent possible,
incentive stock options) granted pursuant to the Employer's approved Stock
Option Plan. Twelve thousand five hundred (12,500) to be granted at the
closing price per share on December 16, 1998 and twelve thousand five hundred
(12,500) to be granted at the closing price per share on the date of the first
Employer Board of Directors meeting in January, 1999. 4<PAGE>
SUCCESS BANCSHARES, INC.
STOCK OPTION AGREEMENT
(NON-TRANSFERABLE)
Success Bancshares, Inc., a Delaware corporation (the "Company"), hereby
grants to Kurt C. Felde (the "Optionee") an option to purchase a total of 3,000
shares of Common Stock (the "Shares") of the Company, at the price set forth
herein, and in all respects subject to the terms and provisions of the
Company's 1995 Stock Option Plan (the "Plan") applicable to stock options which
terms and provisions are hereby incorporated by reference herein. Unless
otherwise defined or the context herein otherwise requires, the capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1 NATURE OF THE OPTION. This Option is intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to the extent permitted by the Code.
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of December
16, 1998, and it may not be exercised later than December 16, 2008.
3. OPTION EXERCISE PRICE. The Option exercise price is $11.50 per Share,
which price is not less than the fair market value thereof on the date this
Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. The total number of Shares subject to this Option
is 3,000. Subject to the foregoing and the limitations contained herein and in
the Plan, this Option shall vest and be exercisable, cumulatively, as follows:
Number of Shares Exercisable First Date Option is Exercisable
750 December 16, 1999
750 December 16, 2000
750 December 16, 2001
750 December 16, 2002
; provided, however, that, upon any Change of Control (as defined in the Plan),
this Option shall become immediately exercisable as to all Shares remaining
subject to this Option and all restrictions on vesting shall terminate.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised, such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price. The
exercise price may be paid: (i) in cash; (ii) by check; (iii) by delivering
certificates of other shares of Common Stock of the Company; (iv) by
transferring shares of Common Stock of the Company to the Company's transfer
agent for delivery to the Company provided that the written notice of exercise
is accompanied by a written acknowledgement by the Optionee that the Optionee<PAGE>
has instructed his broker dealer to transfer such shares and such transfer is
confirmed by a letter from such broker dealer acknowledging that the Optionee
has directed such broker dealer to transfer such shares; (v) by Optionee
simultaneously exercising this Option and selling the Shares thereby acquired
pursuant to a brokerage or similar arrangement approved in advance by the Board
(which approval shall not be unreasonably withheld) and to use the proceeds
from such sale to pay the exercise price and any federal, state and local taxes
required to be withheld as a result of such exercise; or (vi) by any other
method of payment approved by the Company's Board of Directors. For purposes
of clauses (iii) and (iv) the value of the shares of Common Stock of the
Company delivered, or to be delivered, as payment of the exercise price shall
be the closing price per share of the Company's Common Stock on the last
business day prior to the date the written notice is actually received and
acknowledged as received by the Company. Upon receipt of payment, the Company
shall deliver to Optionee or the person exercising this Option for Optionee, an
appropriate certificate or certificates for fully paid nonassessable Shares.
For purposes of clause (iv), should any Optionee fail to have the number of
shares required to pay the exercise price delivered to the Company's transfer
agent within 90 days, this Option, with respect to the number of shares stated
in the written notice, will terminate and be deemed to be forfeited by the
Optionee. The certificate or certificates for the Shares as to which the Option
shall be exercised shall be registered in the name of the Optionee and shall be
legended as set forth in the Plan and/or as required under applicable law. This
Option may not be exercised for a fraction of a share.
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require the Optionee
to make such representations and warranties to the Company as may be required
by any applicable law or regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights as a
shareholder shall exist with respect to the Shares subject to the Option as a
result of the grant of the Option. Such rights shall exist only after issuance
of a stock certificate in accordance with Article V, Section J of the Plan
following the exercise of the Option as provided in this Agreement and the
Plan.
(e) TERMINATION OF EMPLOYMENT. In the event that the Optionee ceases to
be an employee of the Company or an Affiliate, the exercisability of the Option
is subject to the provisions of Article V, Section G of the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of
this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares, for investment for his own account,
not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship with
the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to evaluate the merits and risks of purchasing
Common Stock of the Company and to make an informed investment decision with<PAGE>
respect thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares.
6. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee, any taxes required to be withheld by
federal, state or local law as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon exercise of this
Option; and, if such compensation or consideration is insufficient, the Company
may require Optionee to pay to the Company an amount sufficient to cover such
withholding tax liability.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred,
assigned, pledged or hypothecated or otherwise disposed of in any way (whether
by operation of law or otherwise) and is not subject to execution, attachment
or similar process. Any attempted transfer, assignment, pledge, hypothecation
or other disposition of this Option or of any rights granted hereunder, or the
levy of any attachment or similar process upon this Option or such rights, will
be null and void. This Option may be exercised during the lifetime of the
Optionee only by such Optionee or his or her legal guardian. Subject to the
foregoing and the terms of the Plan, the terms of this Option shall be binding
upon the executors, administrators, heirs, successors and permitted assigns of
the Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither the Plan nor this Option shall
(a) confer upon the Optionee any right whatsoever to continue in the employment
of the Company or any Affiliate or (b) limit or restrict in any respect the
rights of the Company, which rights are hereby expressly reserved, to terminate
the Optionee's employment and compensation at any time for any reason
whatsoever, with or without cause, in the Company's sole discretion and with or
without notice.
9. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without
his consent, of this Option or any rights hereunder. Pursuant to the Plan, the
Board is authorized to adopt rules and regulations not inconsistent with the
Plan as it shall deem appropriate and proper. A copy of the Plan in its present
form is available for inspection at the Company's principal office during
business hours by the Optionee or the persons entitled to exercise this Option.
10. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
SUCCESS BANCSHARES, INC., a Delaware corporation
Dated as of: December 16, 1998 By: /s/ Wilbur G. Meinen
Name: Wilbur G. Meinen
Title: Chief Executive Officer<PAGE>
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that he has read and is familiar with the
terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
the Plan.
Dated as of: December 16, 1998 /s/ Kurt C. Felde
Signature of Optionee
c/o Success Bancshares, Inc.
One Marriott Drive
Address
Lincolnshire Illinois 60069
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. <PAGE>
SUCCESS BANCSHARES, INC.
STOCK OPTION AGREEMENT
(NON-TRANSFERABLE)
Success Bancshares, Inc., a Delaware corporation (the "Company"), hereby
grants to Wilbur G. Meinen (the "Optionee") an option to purchase a total of
12,500 shares of Common Stock (the "Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1995 Stock Option Plan (the "Plan") applicable to stock options which
terms and provisions are hereby incorporated by reference herein. Unless
otherwise defined or the context herein otherwise requires, the capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1 NATURE OF THE OPTION. This Option is intended to be, to the extent
permitted by law, an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of December
16, 1998, and it may not be exercised later than December 16, 2008.
3. OPTION EXERCISE PRICE. The Option exercise price is $11.50 per Share,
which price is not less than the fair market value thereof on the date this
Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. The total number of Shares subject to this Option
is 12,500. Subject to the foregoing and the limitations contained herein and in
the Plan, this Option shall vest and be exercisable, cumulatively, as follows:
Number of Shares Exercisable First Date Option is Exercisable
3,125 December 16, 1999
3,125 December 16, 2000
3,125 December 16, 2001
3,125 December 16, 2002
; provided, however, that, upon any Change of Control (as defined in the Plan),
this Option shall become immediately exercisable as to all Shares remaining
subject to this Option and all restrictions on vesting shall terminate.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised, and such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price. The
exercise price may be paid: (i) in cash; (ii) by check; (iii) by delivering
certificates of other shares of Common Stock of the Company; (iv) by
transferring shares of Common Stock of the Company to the Company's transfer
agent for delivery to the Company provided that the written notice of exercise<PAGE>
is accompanied by a written acknowledgment by the Optionee that the Optionee
has instructed her broker dealer to transfer such shares and such transfer is
confirmed by a letter from such broker dealer acknowledging that the Optionee
has directed such broker dealer to transfer such shares; (v) by Optionee
simultaneously exercising this Option and selling the Shares thereby acquired
pursuant to a brokerage or similar arrangement approved in advance by the Board
(which approval shall not be unreasonably withheld) and to use the proceeds
from such sale to pay the exercise price and any federal, state and local taxes
required to be withheld as a result of such exercise; or (vi) by any other
method of payment approved by the Company's Board of Directors. For purposes
of clauses (iii) and (iv), the value of the shares of Common Stock of the
Company delivered, or to be delivered, as payment of the exercise price shall
be the closing price per share of the Company's Common Stock on the last
business day prior to the date the written notice is actually received and
acknowledged as received by the Company. Upon receipt of payment, the Company
shall deliver to Optionee or the person exercising this Option for Optionee, an
appropriate certificate or certificates for fully paid nonassessable Shares.
For purposes of clause (iv), should any Optionee fail to have the number of
shares required to pay the exercise price delivered to the Company's transfer
agent within 90 days, this Option, with respect to the number of shares stated
in the written notice, will terminate and be deemed to be forfeited by the
Optionee. The certificate or certificates for the Shares as to which the Option
shall be exercised shall be registered in the name of the Optionee and shall be
legended as set forth in the Plan and/or as required under applicable law. This
Option may not be exercised for a fraction of a share.
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require the Optionee
to make such representations and warranties to the Company as may be required
by any applicable law or regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights as a
shareholder shall exist with respect to the Shares subject to the Option as a
result of the grant of the Option. Such rights shall exist only after issuance
of a stock certificate in accordance with Article V, Section J of the Plan
following the exercise of the Option as provided in this Agreement and the
Plan.
(e) TERMINATION OF EMPLOYMENT. In the event that the Optionee ceases to
be an employee of the Company or an Affiliate, the exercisability of the Option
is subject to the provisions of Article V, Section G of the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of
this Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares, for investment for his own account,
not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship with
the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to evaluate the merits and risks of purchasing
Common Stock of the Company and to make an informed investment decision with<PAGE>
respect thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares.
6. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee, any taxes required to be withheld by
federal, state or local law as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon exercise of this
Option; and, if such compensation or consideration is insufficient, the Company
may require Optionee to pay to the Company an amount sufficient to cover such
withholding tax liability.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred,
assigned, pledged or hypothecated or otherwise disposed of in any way (whether
by operation of law or otherwise) and is not subject to execution, attachment
or similar process. Any attempted transfer, assignment, pledge, hypothecation
or other disposition of this Option or of any rights granted hereunder, or the
levy of any attachment or similar process upon this Option or such rights, will
be null and void. This Option may be exercised during the lifetime of the
Optionee only by such Optionee or his legal guardian. Subject to the foregoing
and the terms of the Plan, the terms of this Option shall be binding upon the
executors, administrators, heirs, successors and permitted assigns of the
Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither the Plan nor this Option shall
(a) confer upon the Optionee any right whatsoever to continue in the employment
of the Company or any Affiliate or (b) limit or restrict in any respect the
rights of the Company, which rights are hereby expressly reserved, to terminate
the Optionee's employment and compensation at any time for any reason
whatsoever, with or without cause, in the Company's sole discretion and with or
without notice.
9. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without
his consent, of this Option or any rights hereunder. Pursuant to the Plan, the
Board is authorized to adopt rules and regulations not inconsistent with the
Plan as it shall deem appropriate and proper. A copy of the Plan in its present
form is available for inspection at the Company's principal office during
business hours by the Optionee or the persons entitled to exercise this Option.
10. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
SUCCESS BANCSHARES, INC., a Delaware corporation
Dated as of: December 16, 1998 By: /s/ Christa N. Calabrese
Name: Christa N. Calabrese
Title: Executive Vice President<PAGE>
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that he has read and is familiar with the
terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
the Plan.
Dated as of: December 16, 1998 /s/ Wilbur G. Meinen
Signature of Optionee
c/o Success Bancshares, Inc,
One Marriott Drive
Address
Lincolnshire Illinois 60069
City Stat Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. <PAGE>
SUCCESS BANCSHARES, INC.
STOCK OPTION AGREEMENT
(NON-TRANSFERABLE)
Success Bancshares, Inc., a Delaware corporation (the "Company"), hereby
grants to Wilbur G. Meinen (the "Optionee") an option to purchase a total of
12,500 shares of Common Stock (the "Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1995 Stock Option Plan (the "Plan") applicable to stock options which
terms and provisions are hereby incorporated by reference herein. Unless
otherwise defined or the context herein otherwise requires, the capitalized
terms used herein shall have the same meanings ascribed to them in the Plan.
1 NATURE OF THE OPTION. This Option is intended to be, to the extent
permitted by law, an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. This Option is granted as of January
27, 1999, and it may not be exercised later than January 27, 2009.
3. OPTION EXERCISE PRICE. The Option exercise price is $11.50 per Share,
which price is not less than the fair market value thereof on the date this
Option was granted.
4. EXERCISE OF OPTION. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) RIGHT TO EXERCISE. The total number of Shares subject to this Option
is 12,500. Subject to the foregoing and the limitations contained herein and in
the Plan, this Option shall vest and be exercisable, cumulatively, as follows:
Number of Shares Exercisable First Date Option is Exercisable
3,125 January 27, 2000
3,125 January 27, 2001
3,125 January 27, 2002
3,125 January 27, 2003
; provided, however, that, upon any Change of Control (as defined in the Plan),
this Option shall become immediately exercisable as to all Shares remaining
subject to this Option and all restrictions on vesting shall terminate.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised, and such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the exercise price. The
exercise price may be paid: (i) in cash; (ii) by check; (iii) by delivering
certificates of other shares of Common Stock of the Company; (iv) by
transferring shares of Common Stock of the Company to the Company's transfer
agent for delivery to the Company provided that the written notice of exercise
is accompanied by a written acknowledgment by the Optionee that the Optionee
has instructed her broker dealer to transfer such shares and such transfer is<PAGE>
confirmed by a letter from such broker dealer acknowledging that the Optionee
has directed such broker dealer to transfer such shares; (v) by Optionee
simultaneously exercising this Option and selling the Shares thereby acquired
pursuant to a brokerage or similar arrangement approved in advance by the Board
(which approval shall not be unreasonably withheld) and to use the proceeds
from such sale to pay the exercise price and any federal, state and local taxes
required to be withheld as a result of such exercise; or (vi) by any other
method of payment approved by the Company's Board of Directors. For purposes
of clauses (iii) and (iv), the value of the shares of Common Stock of the
Company delivered, or to be delivered, as payment of the exercise price shall
be the closing price per share of the Company's Common Stock on the last
business day prior to the date the written notice is actually received and
acknowledged as received by the Company. Upon receipt of payment, the Company
shall deliver to Optionee or the person exercising this Option for Optionee, an
appropriate certificate or certificates for fully paid nonassessable Shares.
For purposes of clause (iv), should any Optionee fail to have the number of
shares required to pay the exercise price delivered to the Company's transfer
agent within 90 days, this Option, with respect to the number of shares stated
in the written notice, will terminate and be deemed to be forfeited by the
Optionee. The certificate or certificates for the Shares as to which the Option
shall be exercised shall be registered in the name of the Optionee and shall be
legended as set forth in the Plan and/or as required under applicable law. This
Option may not be exercised for a fraction of a share.
(c) RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require the Optionee
to make such representations and warranties to the Company as may be required
by any applicable law or regulation.
(d) NO SHAREHOLDER RIGHTS BEFORE EXERCISE AND ISSUANCE. No rights as a
shareholder shall exist with respect to the Shares subject to the Option as a
result of the grant of the Option. Such rights shall exist only after issuance
of a stock certificate in accordance with Article V, Section J of the Plan
following the exercise of the Option as provided in this Agreement and the
Plan.
(e) TERMINATION OF EMPLOYMENT. In the event that the Optionee ceases to
be an employee of the Company or an Affiliate, the exercisability of the Option
is subject to the provisions of Article V, Section G of the Plan.
5. INVESTMENT REPRESENTATIONS. In connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares, for investment for his own account,
not as a nominee or agent, and not with a view to, or for resale in connection
with, any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship with
the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to evaluate the merits and risks of purchasing
Common Stock of the Company and to make an informed investment decision with
respect thereto and to protect Optionee's interests in connection with the
acquisition of this Option and the Shares. <PAGE>
6. WITHHOLDING. The Company reserves the right to withhold, in
accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee, any taxes required to be withheld by
federal, state or local law as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon exercise of this
Option; and, if such compensation or consideration is insufficient, the Company
may require Optionee to pay to the Company an amount sufficient to cover such
withholding tax liability.
7. NONTRANSFERABILITY OF OPTION. This Option may not be transferred,
assigned, pledged or hypothecated or otherwise disposed of in any way (whether
by operation of law or otherwise) and is not subject to execution, attachment
or similar process. Any attempted transfer, assignment, pledge, hypothecation
or other disposition of this Option or of any rights granted hereunder, or the
levy of any attachment or similar process upon this Option or such rights, will
be null and void. This Option may be exercised during the lifetime of the
Optionee only by such Optionee or his legal guardian. Subject to the foregoing
and the terms of the Plan, the terms of this Option shall be binding upon the
executors, administrators, heirs, successors and permitted assigns of the
Optionee.
8. CONTINUATION OF EMPLOYMENT. Neither the Plan nor this Option shall
(a) confer upon the Optionee any right whatsoever to continue in the employment
of the Company or any Affiliate or (b) limit or restrict in any respect the
rights of the Company, which rights are hereby expressly reserved, to terminate
the Optionee's employment and compensation at any time for any reason
whatsoever, with or without cause, in the Company's sole discretion and with or
without notice.
9. THE PLAN. This Option is subject to, and the Company and the Optionee
agree to be bound by, all the terms and conditions of the Company's Plan as
such Plan may be amended from time to time in accordance with the terms
thereof, provided that no such amendment shall deprive the Optionee, without
his consent, of this Option or any rights hereunder. Pursuant to the Plan, the
Board is authorized to adopt rules and regulations not inconsistent with the
Plan as it shall deem appropriate and proper. A copy of the Plan in its present
form is available for inspection at the Company's principal office during
business hours by the Optionee or the persons entitled to exercise this Option.
10. ENTIRE AGREEMENT. The terms of this Agreement and the Plan
constitute the entire agreement between the Company and the Optionee with
respect to the subject matter hereof and supersede any and all previous
agreements between the Company and the Optionee.
SUCCESS BANCSHARES, INC., a Delaware corporation
Dated as of: January 27, 1999 By: /s/ Christa N. Calabrese
Name: Christa N. Calabrese
Title: Executive Vice President<PAGE>
The Optionee hereby acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that he has read and is familiar with the
terms and provisions thereof and of this Agreement, and hereby accepts this
Option subject to all of the terms and provisions thereof and of this
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Board upon any questions arising under
the Plan.
Dated as of: January 27, 1999 /s/ Wilbur G. Meinen
Signature of Optionee
c/o Success Bancshares, Inc.
One Marriott Drive
Address
Lincolnshire Illinois 60069
City State Zip Code
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE, TRANSFER OR
DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. <PAGE>
SUCCESS BANCSHARES, INC.
1998 Employee Stock Purchase Plan
SECTION 1. ESTABLISHMENT; PURPOSE; SCOPE.
Success Bancshares, Inc. hereby establishes the Success Bancshares, Inc.
1998 Employee Stock Purchase Plan to encourage and facilitate the purchase of
Common Shares of the Company by eligible employees. The Plan is intended to
provide a further incentive for eligible employees to promote the best
interests of the Company and an additional opportunity to participate in its
economic progress. It is the intention of the Company to have the Plan qualify
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code and provisions of the Plan shall be construed in a manner consistent with
the Code.
SECTION 2. DEFINITIONS; CONSTRUCTION.
As used in the Plan, as of any time of reference, and unless the context
otherwise required:
(a) "Affiliate" means any trade or business entity which is a member of a
controlled group with the Company (as described in Section 414(b) and (c) of
the Code) or is a member of an affiliated service group with the Company (as
described in Section 414(m) of the Code) and any other entity required to be
aggregated with the Company pursuant to final regulations under Section 414(o)
of the Code).
(b) "Board" means the Board of Directors of the Company as from time to
time constituted.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" has the meaning set forth in Section 3 hereof.
(e) "Common Shares" means the common shares, par value $0.001 per share,
of the Company.
(f) "Company" means Success Bancshares, Inc., a Delaware corporation, and
any successor thereto.
(g) "Controlled Group" means the Company and its Subsidiaries.
(h) "Effective Date" means December 1, 1998.
(i) "Employee Stock Purchase Plan Account" has the meaning set forth in
Section 8 hereof.
(j) "Employer" means the Company and any corporation that is a member of
the Controlled Group that adopts the Plan with the prior approval of the
Company, as evidenced by a resolution of the Board.
(k) "Fair Market Value" means the average closing price of a Common Share
on the NASDAQ Stock Market on the twenty business days preceding the date of
reference.
(l) "Offering Price" means eighty-five percent (85%) of the Fair Market
Value of a Common Share on the first day of the Purchase Period. <PAGE>
(m) "Participant" means any employee of an Employer who meets the
eligibility requirements of Section 4 hereof and who has accepted an offer made
by the Committee pursuant to Section 6(b) hereof.
(n) "Plan" means the Success Bancshares, Inc. 1998 Employee Stock
Purchase Plan herein set forth and any amendment or supplement thereto.
(o) "Purchase Date" means June 30 or December 31 of each year during the
term of the Plan.
(p) "Subsidiary" means a corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50 percent or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(q) "Termination Date" means November 30, 2003, or earlier at the
discretion of the Board.
(r) "Withholding" has the meaning set forth in Section 6(b) hereof.
The masculine gender, when appearing in the Plan, shall be deemed to include
the feminine gender unless the context clearly indicates to the contrary. The
words "hereof," "herein," and "hereunder," and other similar compounds of the
word "here," shall mean and refer to the entire Plan and not to any particular
provision or section of this document.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the 1998 Employee Stock Purchase Plan
committee (hereinafter referred to as the "Committee"), the members of which
shall be two individuals selected by the Board who do not satisfy the
eligibility requirements of Section 4 hereunder. Subject to the express
provisions hereof, the Committee shall have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it and
to make all other determinations necessary or advisable for the administration
of the Plan. The Committee's determinations on the matters referred to in this
paragraph shall be conclusive. No member of the Committee shall be personally
liable for any decision or determination made in good faith under the Plan.
SECTION 4. ELIGIBILITY.
(a) Any employee of an Employer shall be eligible to participate in the
Plan, provided he (i) is employed by Employer on December 31, 1998 or (ii) has
at least six (6) months of continuous service with an Employer, except for
those employees (a) whose customary employment is less 20 hours or less per
week, (b) whose customary employment is not for more than 5 months in any
calendar year or (c) who are covered by a union collective bargaining
agreement. For the sole purpose of calculating length of service under the
Plan, employees shall be credited for service with an Employer immediately
prior to the Company's acquisition of such Employer or other member of the
Controlled Group, or any Affiliate thereof. No eligibility provision hereof
shall permit or deny participation in the Plan in a manner contrary to the
applicable requirements of the Code and the regulations promulgated thereunder.<PAGE>
(b) Notwithstanding anything herein to the contrary, no employee shall be
entitled to participate in the Plan if such employee, immediately after the
grant of an option, would own shares (including shares which may be purchased
under the Plan) possessing five percent or more of the total combined voting
power of value of all classes of stock of the Company or its Subsidiaries,
actually issued and outstanding immediately after such grant. For the
foregoing purposes, the rules of stock attribution set forth in Section 424(d)
of the Code shall apply in determining share ownership.
SECTION 5. PURCHASE PRICE.
The purchase price shall be the lesser of (i) the Offering Price or (ii)
85 percent of the Fair Market Value of a Common Share on the last day of such
Purchase Period; in all instances adjusted to the nearest 1/8 point.
SECTION 6. NUMBER OF COMMON SHARES OFFERED.
(a) The maximum number of shares which shall be available for purchase
under the Plan shall be 200,000 Common Shares of the Company, subject to
adjustment as provided in Section 13. The Common Shares to be sold under the
Plan may at the election of the Company be either treasury shares or shares
originally issued for such purpose.
(b) A Participant shall be entitled to elect to have withheld from his
payroll any amount from a minimum of 2 percent up to a maximum of 12 percent of
his compensation ("Withholding"). Subject to the reductions as provided in
Section 6(c) below, the total amount of Withholding shall be used to purchase
Common Shares. For purposes of this Section 6(b), "compensation" means: (i)
for any hourly employee, the hourly rate in effect as of January 1 of each year
(or such rate or salary in effect at the time the employee becomes eligible to
participate in the Plan, if later) multiplied by the number of regular hours in
a work year and (ii) for any salaried employee, the annual salary in effect at
January 1 of each year (or such rate or salary in effect at the time the
employee becomes eligible to participate in the Plan, if later). Amounts which
are not included in an employee's income for federal income tax purposes due to
Section 125 or 402(e)(3) of the Code shall be included in determining
compensation for purposes of items (i) and (ii) above. For purposes of this
Section 6, the number of shares to be purchased equal to 2 percent of the
Participant's compensation shall be called the "Base Shares," and any number of
additional shares to be purchased in excess of the Base Shares shall be called
the "Additional Shares."
(c) No Participant may elect to purchase shares under the Plan that would
result in the Participant's purchase of shares in any calendar year (under the
Plan and other employee stock purchase plans within the meaning of Section 423
of the Code) of the Company and its Subsidiaries with an aggregate fair market
value (determined at the time such election is exercisable) in excess of
$25,000.
(d) In the event that Participants elect to purchase more shares than are
available under the Section 6(a) above, the maximum amount of Common Shares
that any Participant shall be permitted to purchase shall be reduced until the
total number of shares that all Participants, in the aggregate, have elected to
purchase pursuant to Section 6(b) above equals the number of shares available
under Section 6(a) above, first reducing proportionately the number of
Additional Shares elected by each Participant; and second, reducing
proportionately the number of Base Shares elected by each Participant.<PAGE>
Notwithstanding the preceding sentences of this Section 6(d), no Participant
may purchase fewer than ten shares.
SECTION 7. ENROLLMENT PERIOD; EMPLOYEE'S ELECTION TO PARTICIPATE
(a) The Committee shall establish an enrollment period during which an
eligible employee may elect to purchase shares by executing and delivering to
the Company an enrollment and payroll deduction authorization form.
(b) An election to purchase shall not constitute a contract to purchase.
Such an election shall merely notify the Company of the amount of the payroll
deduction authorized by the Participant for the Purchase Period and each
succeeding Purchase Period until the next Purchase Date.
SECTION 8. PURCHASE PERIOD; PAYMENT FOR SHARES.
(a) The "Purchase Period" shall commence on December 31, 1998 and shall
end on the earliest of the following dates: (i) the Termination Date, (ii) the
Purchase Date effective with which the Participant elects to stop his payroll
deductions, and (iii) the date the Participant terminates service with the
Employer, subject to the provisions of Section 11 hereof.
(b) Concurrently with his election, the Participant shall authorize a
payroll deduction during each Purchase Period, which election shall continue
until the Participant changes his election in writing before the Purchase Date
of a future Purchase Period.
(c) All payroll deductions held by the Company under the Plan shall be
held without interest.
(d) The Company shall purchase Common Shares on behalf of each
Participant pursuant to Section 9 hereof as soon as administratively
practicable after each Purchase Date.
(e) All payroll deductions in the possession of the Company shall be
segregated from the general funds of the Company in an account established to
hold such payroll deductions (hereinafter referred to as the "Employee Stock
Purchase Plan Account"). The Employee Stock Purchase Plan Account shall be
restricted to the uses provided herein until such time as the Company issues
certificates to Participants purchasing Common Shares under the Plan. The
Committee shall have custody of such account.
SECTION 9. ISSUANCE AND DELIVERY OF STOCK CERTIFICATES; REGISTRATION.
(a) Certificates for Common Shares shall be issued and delivered to each
Participant for the number of Common Shares paid for in full as soon as
administratively practicable after each Purchase Date. No fractional shares
will be issued at any time.
(b) As and whenever the Common Shares are issued to Participants pursuant
to this Section 9, the Committee shall remit to the Company for its general
purposes, out of the Employee Stock Purchase Plan Account, cash in an amount
equal to the purchase price under the Plan of the Common Shares so issued.
When all Common Shares purchasable under the Plan have been issued, any payroll
deductions that have not been used to purchase Common Shares shall be returned
to each participant.<PAGE>
(c) Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant or, if the Participant so directs by
written notice to the Company prior to the issuance thereof, in the names of
the Participant and one other person as the Participant may designate, as joint
tenants with right of survivorship.
SECTION 10. PARTICIPANT'S RIGHT TO STOP PAYROLL WITHHOLDING.
At any time during the term of the Plan a Participant may elect, effective
on the next succeeding Purchase Date, to stop the payroll withholding upon
prior written notice to the Company.
SECTION 11. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
(a) Retirement or Death. Upon termination of employment because of
retirement or death, the number of Common Shares paid for in full by the
Participant upon the application of all accumulated payroll deductions,
including from compensation due and owing, shall be purchased for the
Participant (or, in the case of the Participant's death, the beneficiary
designated by the Participant in accordance with procedures prescribed by the
Committee, or if no such beneficiary designation is in effect with respect to
such Participant, the Participant's estate), unless the Participant (or, in the
case of the Participant's death, his designated beneficiary or estate, as the
case may be) elects to abandon all or any such number of the Common Shares then
purchasable, pursuant to any rules or regulations the Committee shall make.
(b) Other Termination of Employment. Upon termination of employment with
an Employer for any reason other than as a result of retirement or death as
described in Section 11(a) above, the amount withheld from the Participant's
pay pursuant to Section 8 which has not already been used to purchase Common
Shares shall be returned to him as soon as administratively practicable.
SECTION 12. RIGHTS NOT TRANSFERABLE.
The right to purchase Common Shares under this Plan shall not be
transferable by any Participant or exercisable, during his lifetime, by any
person other than the Participant.
SECTION 13. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of the Plan shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock that
affects the Common Shares or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) If, during the term of the Plan, the Company shall effect (i) a
distribution or payment of a dividend on its Common Shares in shares of the
Company, (ii) a subdivision of its outstanding Common Shares by a stock split
or otherwise, (iii) a combination of the outstanding Common Shares into a
smaller number of shares by a reverse stock split or otherwise, or (iv) an
issuance by reclassification or other reorganization of its Common Shares
(other than by merger or consolidation) of any shares of the Company, then each<PAGE>
Participant shall be entitled to receive upon the purchase of shares pursuant
to this Plan such shares of the Company which the Participant would have owned
or would have been entitled to receive after the happening of such event had
the Participant purchased Common Shares pursuant to the Plan immediately prior
to the happening of such event. If any other event shall occur that, in the
judgment of the Board, necessitates adjusting the Offering Price, the number of
Common Shares offered or other terms of the Plan, the Board shall take any
action that in its judgment shall be necessary to preserve each Participant's
rights substantially proportionate to the rights existing prior to such event.
To the extent that any event or action pursuant to this Section 13(b) shall
entitle Participants to purchase additional Common Shares or other shares of
the Company, the shares available under Section 6 shall be deemed to include
such additional Common Shares or such other shares of the Company.
(c) In the event of a merger of one or more corporations into the
Company, or a consolidation of the Company and one or more corporations in
which the Company shall be the surviving corporation, each Participant in the
Plan shall, at no additional cost, be entitled, upon his payment for all or
part of the Common Shares purchasable by him under the Plan, to receive
(subject to any required action by shareholders) in lieu of the number of
Common Shares which he was entitled to purchase, the number and class of shares
of stock or other securities to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of the number of Common Shares equal to the number of shares
paid for by the Participant.
(d) If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company sells or otherwise disposes of substantially all
of its assets to another corporation during the term of the Plan: (i) subject
to the provisions of clause (ii) below, after the effective date of such
merger, consolidation or sale, as the case may be, each holder of a right to
purchase shall be entitled to receive, upon his payment for all or part of the
Common Shares purchasable by him under the Plan, in lieu of Common Shares,
shares of such stock or other securities as the holders of Common Shares
received pursuant to the terms of the merger, consolidation or sale; and (ii)
all outstanding rights to purchase may be canceled by the Board as of the
effective date of any such merger, consolidation or sale, provided that (A)
notice of such cancellation shall be given to each Participant and (B) each
such Participant shall have the right to purchase, during a 30-day period
preceding the effective date of such merger, consolidation or sale, all or any
part of the shares which would be allocated to him under the terms of the Plan
if the Purchase Price were set 30 days preceding said effective date.
(e) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Common Shares then available for purchase under the Plan.
SECTION 14. SHAREHOLDER APPROVAL.<PAGE>
The Plan is subject to the approval of a majority of the votes cast on the
matter by the shareholders of the Company within 12 months before or after its
adoption by the Board.
SECTION 15. RIGHTS OF A SHAREHOLDER.
No Participant shall have rights or privileges of a shareholder of the
Company with respect to shares purchasable under the Plan unless and until the
Participant shall become the holder of record of one or more Common Shares.
SECTION 16. NO REPURCHASE OF COMMON SHARES BY COMPANY.
The Company is not obligated to repurchase from any Participant Common
Shares he has acquired under the Plan.
SECTION 17. AMENDMENT OF THE PLAN.
The Board may at any time, and from time to time, amend the Plan in any
respect, except that, without the approval of the shareholders of the Company,
no amendment may be made that changes the number of shares to be reserved under
the Plan (other than as provided in Section 13) or the designation of
Subsidiaries whose employees may be offered options under the Plan.
SECTION 18. TERMINATION OF THE PLAN.
While it is intended that the Plan remain in effect for the term of the
Plan, the Board may terminate the Plan at any time in its discretion. Upon
termination of the Plan, the Committee shall terminate payroll deductions and,
unless the Participant elects to abandon his shares, shall issue and deliver to
each Participant certificates for the number of Common Shares paid for in full.
A Participant may elect, upon termination of the Plan, to abandon all or any
number of the Common Shares then purchasable by and not yet issued to him,
provided that a Participant may not retain the right to purchase fewer than 20
Common Shares. The Committee shall refund to the Participant any amount in the
Employee Stock Purchase Plan Account contributed by the Participant that
exceeds the amount necessary to purchase the number of Common Shares the
Participant elects to purchase and not abandon. If the Participant retains no
right to purchase Common Shares, the Committee shall refund to the Participant
any amount in the Employee Stock Purchase Plan Account contributed by the
Participant. Any contributions remaining in the Employee Stock Purchase Plan
Account shall be refunded to the Participants making such contributions as soon
as administratively practicable after termination of the Plan.
SECTION 19. COMPLIANCE WITH STATUTES AND REGULATIONS.
The sale and delivery of Common Shares under the Plan shall be in
compliance with relevant statutes and regulations of governmental authorities,
including state securities laws and regulations, and with the regulations of
applicable stock exchanges.
SECTION 20. GOVERNING LAW.
This Plan and all determinations made hereunder and action taken pursuant
hereto shall be governed by the laws of the State of Delaware and construed in
accordance therewith.<PAGE>
AMENDMENT NO. 1 TO
SUCCESS BANCSHARES, INC.
1995 STOCK OPTION PLAN
Article IV of the Plan is hereby amended in its entirety to read as
follows:
"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 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 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."<PAGE>
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement") is made and entered
into as of December 16, 1998, by and between Success Bancshares, Inc., a
Delaware corporation (the "Company"), and Wilbur G. Meinen ("Meinen").
WHEREAS, Success National Bank, a subsidiary of the Company (the "Bank"),
and Meinen have entered into an Employment Agreement dated as of December 16,
1998 (the "Employment Agreement") pursuant to which Meinen is entitled to
receive 8,000 shares (the "Restricted Shares") of the Company's common stock,
par value $0.001 per share (the "Common Stock") subject to certain
restrictions; and
WHEREAS, the Company desires to grant to Meinen the Restricted Shares on
the terms and subject to the conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the provisions and undertakings set
forth herein, the parties, intending to be legally bound, hereby agree as
follows:
1. GRANT OF RESTRICTED SHARES. The Company hereby grants to Meinen a
total of 8,000 Restricted Shares on the terms and subject to the conditions set
forth in this Agreement.
2. VESTING OF RESTRICTED STOCK. Subject to the terms and provisions of
this Agreement, 2,667 of the Restricted Shares shall vest on December 31, 1999,
2,667 of the Restricted Shares shall vest on December 31, 2000 and 2,666 of the
Restricted Shares shall vest on December 31, 2001. Subject to the provisions
of Section 5 hereof, the Restricted Shares are transferable at any time and
from time to time after vesting, but only to the extent then vested, in
accordance with the vesting schedule set forth above.
3. TERMINATION AND FORFEITURE OF RESTRICTED SHARES. Meinen agrees that,
in the event that he is not a full-time employee of the Company or the Bank as
a result of (a) his voluntary termination of employment or (b) termination by
the Bank pursuant to Section 3 of the Employment Agreement (collectively a
"Rights Termination"), he shall forfeit to the Company: (i) all of the
Restricted Shares, if such termination occurs on or before December 31, 1999;
(ii) 5,334 of the Restricted Shares if such termination occurs between December
31, 1999 and December 31, 2000; and (iii) 2,667 of the Restricted Shares if
such termination occurs between December 31, 2000 and December 31, 2001.
4. NONTRANSFERABILITY OF RESTRICTED SHARES
4.1 General. No Restricted Shares shall be transferable by Meinen other
than by will or the laws of descent and distribution until such Restricted
Shares have vested. The Restricted Shares shall not otherwise be transferred,
assigned, pledged or hypothecated for any purpose whatsoever, and are not
subject, in whole or in part, to execution, attachment or similar process. Any
attempted assignment, transfer, pledge or hypothecation or other disposition of
the Restricted Shares, other than in accordance with the terms set forth
herein, shall be void and of no effect.
4.2 Securities Act of 1933. Meinen understands and acknowledges that the
Restricted Shares have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), and that such Shares are not freely tradeable and<PAGE>
must be held indefinitely unless such Shares are either registered under the
1933 Act or an exemption from such registration is available.
4.3 Investment Intent. Unless a registration statement is in effect with
respect to the sale and issuance of the Restricted Shares to Meinen hereunder:
(a) Meinen is purchasing the Restricted Shares for his own account and not with
a view to distribution within the meaning of the 1933 Act, other than as may be
effected in compliance with the 1933 Act and the rules and regulations
promulgated thereunder, (b) no other individual or entity shall have any
beneficial interest in the Restricted Shares and (c) Meinen has no present
intention of disposing of the Restricted Shares at any particular time.
4.4 Stock Certificates. Certificates representing the Restricted Shares
issued pursuant to this Agreement shall bear all legends required by law and
necessary to effectuate the provisions of this Agreement. The Company may
place a "stop transfer" order against the Restricted Shares until all
restrictions and conditions set forth in this Agreement and in the legends
referred to in this Section 4.4 have been complied with.
5. VOTING RIGHTS OF RESTRICTED SHARES. Meinen shall have full voting rights
with respect to each of the Restricted Shares granted to him pursuant to
Section 1 hereof to the extent that such Restricted Shares have not been
forfeited in accordance with Section 3 hereof.
6. MISCELLANEOUS
6.1 Assignment. This Agreement and all rights and benefits hereunder are
personal to and shall be binding upon Meinen and his executors, administrators,
heirs, successors and permitted assigns.
6.2 Continuation of Employment. This Agreement shall not (a) confer upon
Meinen any right whatsoever to continue to serve as an employee of the Company
or the Bank or (b) limit or restrict in any respect the rights of the Company
and the Bank, which rights are hereby expressly reserved, to terminate Meinen's
service as an employee and any compensation being paid to Meinen at any time
for any reason whatsoever, with or without cause, in the Company's and the
Bank's sole discretion and with or without notice.
6.3 Changes or Modifications. No change or modification of this
Agreement shall be valid unless the same shall be in writing signed by the
Company and Meinen. 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 hereof.
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:
Employer: Success Bancshares, Inc.
One Marriott Drive
Lincolnshire, Illinois 60069-3703
Employee: Wilbur G. Meinen<PAGE>
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 the State 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the last date written below.
SUCCESS BANCSHARES, INC.
By: /s/ Christa N. Calabrese
Name: Christa N. Calabrese
Title: Executive Vice President
/s/ Wilbur G. Meinen
Wilbur G. Meinen<PAGE>
* * * * * * * * * * * * * * * * * * * *
Lease
230 West Monroe Chicago, Illinois
* * * * * * * * * * * * * * * * * * * *
Between
Success National Bank (Tenant)
and
Teachers Insurance and Annuity
Association of America
(Landlord)<PAGE>
Page
1. TENANT 1
2. PREMISES 1
3. RENTABLE SQUARE FEET OF THE PREMISES 1
4. TENANT'S PROPORTIONATE SHARE 1
5. RENT ABATEMENT 1
6. SECURITY DEPOSIT 1
7. TENANT'S ADDRESS FOR NOTICES BEFORE POSSESSION DATE 1
8. TENANT'S REAL ESTATE BROKER FOR THIS LEASE 1
9. TENANT IMPROVEMENTS 1
10. COMMENCEMENT DATE 1
11. TERMINATION DATE/TERM 1
12. BASE YEAR 1
13. BASE RENT 1
14. ?
15. GUARANTOR 2
1. LEASE AGREEMENT 2
2. RENT 2
A. Types of Rent 2
(1) Base Rent 2
(2) Operating Cost share Rent 2
(3) Tax Share Rent 2
(4) Additional Rent 2
(5) Rent 2
B. Payment of Operating Cost Share Rent and Tax Share Rent 2
(1) Payment of Estimated Operating Cost Share Rent
and Tax Share Rent 2
(2) Correction of Operating Cost Share Rent 3
(3) Correction of Tax Share Rent 3
C. Definitions 3
(1) Taxes 3
(2) Operating Costs 3
(3) Lease Year 4
(4) Fiscal Year 4
D. Computation of Base Rent and Rent Adjustments 4
1. Prorations 4
2. Default Interest 4
3. Rent Adjustments 4
4. Books and Records 4
5. Miscellaneous 5
Page <PAGE>
3. PREPARATION AND CONDITION OF PREMISES; POSSESSION AND SURRENDER
OF PREMISES 5
A. Condition of Premises 5
B. Tenant's Possession 5
C. Maintenance 5
D. Ownership of Improvements 5
E. Removal at Termination 5
4. PROJECT SERVICES 5
A. Heating and Air Conditioning 6
B. (Intentionally Omitted) 6
C. Electricity 6
D. Water 6
E. (Intentionally Omitted) 6
F. Window Washing 6
G. Telephone Service 6
H. Interruption of Services 6
5. ALTERATIONS AND REPAIRS 7
A. Landlord's Consent and Conditions 7
B. Electronic Systems 7
C. Damage to Systems 8
D. No Liens 8
6. USES OF PREMISES 8
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES 8
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE 8
A. Waiver of Claims 8
B. Indemnification 8
C. Insurance Coverage 9
D. Insurance Certificates 9
9. FIRE AND OTHER CASUALTY 9
A. Termination 9
B. Restoration 9
10. EMINENT DOMAIN 9
11. RIGHTS RESERVED TO LANDLORD 10
A. Name 10
B. Signs 10
C. Window Treatments 10
D. Service Contracts 10
E. Keys 10
F. Access 10
G. Preparation for Reoccupancy 10
H. Heavy Articles 10
I. Show Premises 11
J. Restrict Access 11
K. (Intentionally Omitted) 11
L. Use of Lockbox 11
M. Repairs and Alterations 11
N. Landlord's Agents 11
O. Building Services 11
P. Other Actions 11
12. TENANT'S DEFAULT 11
A. Rent Default 11
B. Assignment/Sublease or Hazardous Substances Default 11
C. Other Performance Default 11
D. Cross-Default 11
E. Credit Default 12
Page <PAGE>
13. LANDLORD REMEDIES 12
A. Termination of Lease or Possession 12
B. Lease Termination Damages 12
C. Possession Termination Damages 12
D. Landlord's Remedies Cumulative 12
E. Waiver of Trial by Jury 12
F. Litigation Costs 13
14. SURRENDER 13
15. HOLDOVER 13
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES 13
A. Subordination 13
B. Termination of Ground Lease or Foreclosure of Mortgages 13
C. Security Deposit 13
D. Notice and Right to Cure 13
E. Definitions 14
17. ASSIGNEMNT AND SUBLEASE 14
A. Consent Required 14
B. Procedure 14
C. Change of Management or Ownership 14
D. Excess Payments 14
18. CONVEYANCE BY LANDLORD 14
19. (Intentionally Omitted) 15
20. ESTOPPEL CERTIFICATE 15
21. (Intentionally Omitted) 15
22. FORCE MAJEURE 15
23. (Intentionally Omitted) 15
24. NOTICES 15
A. Landlord 15
B. Tenant 15
25. QUIET POSSESSION 15
26. REAL ESTATE BROKER 15
27. MISCELLANEOUS 16
A. Successors and Assigns 16
B. Date Payments are Due 16
C. Meaning of "Landlord", "Re-entry", "Including" and "Affiliate" 16
D. Time of the Essence 16
E. No Option 16
F. Severability 16
G. Governing Law 16
H. Lease Modification 16
I. No Oral Modification 16
Page
J. Landlord's Right to Cure 16
K. Captions 16
L. Authority 16
M. Landlord's Enforcement of Remedies 16
N. Entire Agreement 16
O. Landlord's Title 16
P. Light and Air Rights 16
Q. Consents 17
R. Singular and Plural 17
S. No Recording by Tenant 17
T. Exclusivity 17
U. No Construction Against Drafting Party 17
V. Survival 17
W. Rent Not Based on Income 17 <PAGE>
X. Building Manager and Service Providers 17
Y. Interest on Late Payments 17
28. UNRELATED BUSINESS INCOME 17
29. HAZARDOUS SUBSTANCES 17
30. EXCULPATION 18
31. EXTENSION 18
APPENDIX A - PLAN OF THE PREMISES
APPENDIX B - (INTENTIONALLY DELETED)
APPENDIX C - RULES AND REGULATIONS
APPENDIX D - MORTGAGES CURRENTLY AFFECTING THE PROJECT<PAGE>
Lease
230 West Monroe
Chicago, Illinois
THIS LEASE (the "Lease") IS MADE AS OF May 8, 1998 between Teachers
Insurance and Annuity Association of America, a New York corporation (the
"Landlord") and the Tenant as named in the Schedule below. The term "Project"
means the building (the "Building") known as "230 West Monroe" and the land
(the "Land") located at the northeast corner of Monroe and Franklin Streets,
Chicago, Illinois. "Premises" means that part of the Project leased to Tenant
described in the Schedule and outlined on appendix A.
The following schedule (the "Schedule") is an integral part of this Lease.
Terms defined in this Schedule shall have the same meaning throughout the
Lease.
SCHEDULE
1. Tenant: Success National Bank, a national banking association.
2. Premises: Approximately 4,200 square feet on the ground floor, and
approximately 873 square feet on the second floor.
3. Rentable Square Feet of the premises: 5,073
4. Tenant's Proportionate share: .8845% (based upon a total of 573,550
rentable square feet in the Building).
5. Rent Abatement, if any: None
6. Security Deposit: None
7. Tenant's address for notices before possession date: One Marriott Drive,
Lincolnshire, Illinois 60069.
8. Tenant's Real Estate Broker for this Lease: Broderick Consultants, Inc., 39
south LaSalle Street, Suite 1013, Chicago, Illinois 60603.
9. Tenant Improvements: none
10. Commencement Date: The earlier of Tenant's opening for business or June 1,
1998.
11. Termination Date/Term: The later of (i) June 1, 2008, and (ii) ten (10)
years after the Commencement Date (or if the Commencement Date is not the first
day of a month, then after the first day of the following month).
12. Base Year: 1998.
13. Base Rent:
Period Annual Base Rent Monthly Base Rent
First Lease Year $207,993.00 ($41.00 per rentable square
foot x 5,073 rentable square feet) $17,332.75
Second Lease Year $212,152.86 ($41.82 per rentable square
foot x 5,073 rentable square feet) $17,679.41
Third Lease Year $216,414.18 ($42.66 per rentable square
foot x 5,073 rentable square feet) $18,034.52
Fourth Lease Year $220,726.23 ($43.51 per rentable square
foot x 5,073 rentable square feet) $18,393.85
Fifth Lease Year $225,139.74 ($44.38 per rentable square
foot x 5,073 rentable square feet) $18,761.65
Sixth Lease Year $229,654.71 ($45.27 per rentable square
foot x 5,073 rentable square feet) $19,137.89
Seventh Lease Year $234,220.41 ($46.17 per rentable square
foot x 5,073 rentable square feet) $19,518.37
Eighth Lease Year $238,939.30 ($47.10 per rentable square
foot x 5,073 rentable square feet) $19,911.53 <PAGE>
Ninth Lease Year $243,706.92 ($48.04 per rentable square
foot x 5,073 rentable square feet) $20,308.91
Tenth Lease Year $248,577.00 ($49.00 per rentable square
foot x 5,073 rentable square feet) $20,714.75
14. Guarantor: None
1. LEASE AGREEMENT. On the terms stated in this Lease, Landlord leases the
Premises to Tenant, and Tenant leases the Premises from Landlord, for the Term
beginning on the Commencement date and ending on the Termination Date unless
extended or sooner terminated pursuant to this Lease.
2. RENT
A. Type of Rent. Tenant shall pay the following Rent in the form of a
check to Landlord's building manager at the office of the Building, or in such
other manner as the Landlord may notify Tenant:
(1) Base Rent in monthly installments in advance on or before the
first day of the Lease and the First day of each month of the Term thereafter
in the amount set forth on the Schedule.
(2) Operating Cost Share Rent in an amount equal to the Tenant's
Proportionate Share of the increase in Operating Costs for the applicable
Fiscal Year of the Lease (the "Excess Operation Costs") over Operating Costs
incurred in the Base Year, paid monthly in advance in an estimated amount.
Definitions of Operating Costs and Tenant's Proportionate Share, and the method
for billing and payment of Operating Cost Share Rent are set forth in Sections
2B, 2C and 2D.
(3) Tax Share Rent in an amount equal to the Tenant's Proportionate
Share of the increase in Taxes for the applicable Fiscal Year of this Lease
(the "Excess Taxes") over the Taxes incurred in the Base Year, paid monthly in
advance in an estimated amount. A definition of Taxes and the method for
billing and payment of Tax Share Rent are set forth in Sections 2B, 2C and 2D.
(4) Additional Rent in the amount of all costs, expenses,
liabilities, and amounts which Tenant is required to pay under this Lease,
excluding Base Rent, Operating Cost Share Rent, and Tax Share Rent, but
including any interest for late payment of any item of Rent.
(5) Rent as used in this Lease means Base Rent, Operating Cost Share
Rent, Tax Share Rent and Additional Rent. Tenant's agreement to pay Rent is an
independent covenant, with no right of setoff, deduction or counterclaim of any
kind.
B. Payment of Operating Cost Share Rent and Tax Share Rent
(1) Payment of Operating Cost Share Rent and Tax Share Rent.
Landlord shall estimate the Operating Costs and Taxes of the Project each
Fiscal Year, generally after the beginning of the year. Landlord may revise
these estimates whenever it obtains more accurate information, such as the
final real estate tax assessment or tax rate for the Project.
Within ten (10) days after notice from Landlord setting forth (a) an
estimate of Operating Costs for a particular Fiscal Year and (b) Landlord's
estimate of the amount by which Operating Costs for such Fiscal Year exceed
those for the Base Year ("Excess Operating Costs"), Tenant shall pay Landlord<PAGE>
an amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of such
estimated Excess Operating Costs for such Fiscal Year, multiplied by the number
of months that have elapsed in the applicable Fiscal Year to the date of such
payment including the current month, minus payments previously made by Tenant
for the months elapsed. Thereafter on the first day of each month, Tenant
shall pay monthly until a new estimate of Operating Costs is applicable,
one-twelfth (1/12th) of Tenant's Proportionate Share of the estimated Excess
Operating Costs.
Within ten (10) days after notice from landlord setting forth (a) an
estimate of Taxes for a particular Fiscal year and (b) Landlord's estimate of
the amount by which Taxes for such Fiscal Year exceed those for the Base Year
("Excess Taxes"), Tenant shall pay Landlord an amount equal to one-twelfth
(1/12th) of Tenant's Proportionate Share of such estimated Excess Taxes,
multiplied by the number of months that have elapsed in the applicable Fiscal
Year to the date of such payment, including the current month, minus payments
previously made by Tenant for the months elapsed. Thereafter on the first day
of each month, Tenant shall pay monthly until a new estimate of Taxes is
applicable, one-twelfth (1/12th) of Tenant's Proportionate Share of the
estimated Excess Taxes.
(2) Correction of Operating Cost Share Rent. As soon as reasonably
possible after the end of each Fiscal Year, Landlord shall deliver to Tenant a
report for such year (the "Operating Cost Report") setting forth (a) the actual
Operating Costs incurred for the applicable Fiscal Year and the Base Year, (b)
the amount of Operating Cost Share Rent due from Tenant and (c) the amount of
Operating Cost Share Rent paid by Tenant. Within Twenty (20) days after such
delivery, Tenant shall pay to Landlord the amount due minus the amount paid.
If the amount paid exceeds the amount due, Landlord shall apply the excess to
Tenant's next month's payment of Operating Cost Share Rent, refunding any
overage directly to Tenant.
(3) Correction of Tax Share Rent. As soon as reasonably possible
after the end of each Fiscal Year, Landlord shall deliver to Tenant a report
for such Fiscal Year (the "Tax Report") setting forth (a) the actual Taxes
incurred for the applicable Fiscal Year and the Base Year, (b) the amount of
Tax Share Rent due from Tenant, and (c) the amount of Tax Share Rent paid by
Tenant. Within twenty (20) days after such delivery, Tenant shall pay to
Landlord the amount due from Tenant minus the amount paid by Tenant. If the
amount paid exceeds the amount due, Landlord shall apply any the excess as a
credit against Tenant's next month's payment of Tax Share Rent, refunding any
overage to Tenant.
C. Definitions
(1) Taxes. "Taxes" means any and all taxes, assessments and charges
of any kind, general or special, ordinary or extraordinary, levied by any
governmental entity, which Landlord shall pay or become obligated to pay in
connection with the ownership, leasing, renting, management, control or
operation of the Project or of the personal property, fixtures, machinery,
equipment, systems and apparatus used in connection therewith. Taxes shall
include real estate taxes, personal property taxes, sewer rents, water rents,
special or general assessments, transit taxes, ad valorem taxes, and any tax
levied on the rents hereunder or the interest of Landlord under this Lease (the
"Rent Tax"). Taxes shall also include all legal fees and other costs and
expenses paid by Landlord in seeking a refund or reduction of any Taxes,
whether or not the Landlord is ultimately successful. <PAGE>
For any year, the amount to be included in Taxes (a) from taxes or
assessments payable in installments, shall be the amount of the installments
(with any interest) due and payable during such year, and (b) from all other
Taxes, shall at Landlord's election be the amount accrued, assessed, or
otherwise imposed for such year or the amount due and payable in such year.
Any refund or other adjustment to any Taxes by the taxing authority shall apply
during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital,
stock, succession, transfer, franchise, gift, estate or inheritance tax, except
to the extent that such tax shall be imposed in Lieu of any portion of Taxes.
(2) Operating Costs. "Operating Costs" means any expenses, costs and
disbursements of any kind other than Taxes, paid or incurred by Landlord in
connection with the ownership, leasing management, maintenance, operation and
repair of any part of the Project and of the personal property, fixtures,
machinery, equipment, systems and apparatus used in connection therewith,
including the cost of providing those services required to be furnished by
Landlord under this Lease. Operating Costs shall not include (a) costs of
alterations of tenant premises; (b) costs of capital improvements, except those
intended to reduce Operating Costs, and those made to keep the Project in
compliance with governmental requirements applicable from time to time,
amortized by Landlord in accordance with sound accounting and management
principles; (c) interest and principal payments on mortgages or any other debt
costs, or rental payments on any ground lease of the Project ("Ground Lease");
(d) real estate brokers' leasing commissions; ()e) any cost or expenditure for
which Landlord is reimbursed, by insurance proceeds or otherwise, except by
Operating Cost Share Rent; and (f) the cost of any service furnished to any
office tenant of the Project which Landlord does not make available to Tenant.
In addition, and with respect to the Premises only, Operating Costs shall not
include any costs associated with the sue and maintenance of the elevators of
the Building or the costs associated with providing the janitorial services to
the other tenants in the Building.
If the Project is not fully leased during any portion of any Fiscal Year,
Landlord may adjust (an "Equitable Adjustment") Operating Costs to equal what
would have been incurred by Landlord had the Project been fully leased. For
example, assume (i) the Building has ten floors; (ii) the Tenant occupies one
floor and Tenant's Proportionate Share is ten percent (10%); (iii) the other
nine floors are vacant; (iv) the cost of providing a particular service for
Tenant's floor is $1,000. If Tenant paid Tenant's Proportionate Share of that
cost, Tenant would pay $100. Instead, Landlord shall estimate the cost of such
service for the Building if it were one hundred percent (100%) leased.
Landlord would take into account any economies of scale; for example, the cost
for the entire Building might be $9,000. The Landlord's estimate ($9,000)
minus the actual cost incurred by the Landlord ($1000) equals the Equitable
Adjustment ($8000). The Equitable Adjustment is added to the actual cost and
Tenant pays Tenant's Proportionate Share of the total; in this example, Tenant
would pay $9,000 times 10% or $900. This equitable Adjustment shall apply only
to Operating Costs which are variable and therefore increase as leasing of the
Project increases. Landlord may incorporate the Equitable Adjustment in its
estimate of Operating Costs.
If Landlord does not furnish any particular service whose cost would have
constituted an Operating Cost to a tenant who has undertaken to perform such
service itself, Operating Costs shall be increased by the amount which landlord<PAGE>
would have incurred if it had furnished the service to such tenant, unless
Landlord shall have previously consented to the performance of such service by
such tenant.
(3) Lease Year. "Lease Year" means each consecutive twelve-month period
beginning with the Commencement Date, except that if the Commencement Date is
not the first day of a calendar month, then the first Lease Year shall be the
period from the commencement Date through the final day of the twelve months
after the first day of the following month, and each subsequent Lease Year
shall be the twelve months following the prior Lease Year.
(4) Fiscal Year. "Fiscal Year" means the calendar year, except that the
first fiscal year and the last fiscal year of the Term may be a partial
calendar year.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If this Lease begins on a day other than the first day of
a month, the Base Rent, Operating Cost Share Rent and Tax Share Rent shall be
prorated for such partial month. If this Lease begins on a day other than the
first day, or ends on a day other than the last day, of the Fiscal year,
Operating Cost Share Rent and Tax Share Rent shall be prorated for the
applicable Fiscal Year.
(2) Default Interest. Any sum due from Tenant to Landlord not paid when
due shall bear interest from the date due until paid at the annual rate equal
to the greater of: (i) twelve percent (12%), or five percent (5%) plus the
"Corporate Base Rate" at the time of such nonpayment. "Corporate Base Rate"
means the rate of interest most recently announced by the First National Bank
of Chicago, or its successor (the "First") as its corporate base rate. If the
First ceases to use the term corporate base rate, then the Corporate Base Rate
shall be the rate used by the First as a base rate of interest for commercial
loans, however this rate is designated by the First. A certificate by an
officer of the First stating the corporate base rate (or such designated rate)
in effect shall be conclusive evidence thereof.
(3) Rent Adjustments. If the number of rentable square feet in either the
Premises or the Building shall be changed, Tenant'' Proportionate Share shall
be appropriately recalculated as of the date of the change. If any Operating
Costs paid in one Fiscal Year relates to more than one Fiscal Year, Landlord
may proportionately allocate such Operating Cost among the related Fiscal
Years.
(4) Books and Records. Landlord shall maintain books and records
reflecting the Operating Costs and Taxes in accordance with sound accounting
and management practices. Tenant, and its agents and representatives, may
inspect Landlord's records at Landlord's office upon one day's prior notice
during normal business hours during the sixty (60) days following delivery of
either the Operating Cost Report or the Tax Report. Tenant and any agent or
representative must agree, in their contract for such services, that the
results of any such inspection shall be kept entirely confidential and shall
specifically not be made available to any other tenant of the Building. Unless
Tenant sends to Landlord any written exception to either such report within
said sixty (60) day period, such report shall be deemed final and accepted by
Tenant. Tenant shall pay the amount shown on both reports in the manner
prescribed in this Lease, whether or not Tenant takes any such written
exception, without any prejudice to such exception. If Tenant makes a timely<PAGE>
exception, Landlord shall cause its independent certified public accountant to
issue a final and conclusive resolution of Tenant's exception. Tenant shall
pay the cost of such certification unless Landlord's original determination of
annual Operating Costs or Taxes was in error by amore than five percent (5%).
(5) Miscellaneous. So long as Tenant is in default of any obligation
under this Lease, Tenant shall not be entitled to any refund of any amount from
Landlord. If this Lease is terminated for any reason prior to the annual
determination of Operating Cost Share Rent or Tax Share Rent, either party
shall pay the full amount due to the other within fifteen (15) days after
Landlord's notice to Tenant of the amount when it is determined. Landlord may
commingle any payments made with respect to Operating Cost Share Rent or Tax
Share Rent, without payment of interest.
3. PREPARATION AND CONDITION OF PREMISE; POSSESSION AND SURRENDER OF PREMISES.
A. Condition of Premises. Except to the extent of the Tenant Improvements
item on the Schedule, Landlord is leasing the Premises to Tenant "as is,"
without any representations or warranties, including any express or implied
warranties of merchantability, fitness or habitability, and without any
obligation to alter, remodel, improve, repair, decorate or clean any part of
the Premises.
B. Tenant's Possession. Tenant's taking possession of any portion of the
Premises shall be conclusive evidence that such portion was in good order,
repair and condition. Landlord shall permit Tenant to enter the Premises
beginning on the latest day of execution of this Lease by Landlord and Tenant
(the "Execution Date") for non-business purposes, unless, as of the Execution
Date, Talman Home Federal Savings and Loan Association of Illinois has not
both: (i) vacated the Premises (the "Talman Exit") and (ii) executed a lease
termination agreement with Landlord (the "Talman Termination"), in which event
Landlord shall permit Tenant to enter the Premises as of the latest date on
which both the Talman Exit and Talman Termination have occurred. All terms of
this Lease shall apply to such pre-Term possession, except Tenant's obligation
to pay Base Rent, Operating Cost Share Rent and Tax Share Rent.
C. Maintenance. Throughout the Term, Tenant shall maintain the Premises
in their condition as of the Completion Date, loss or damage caused by the
elements, ordinary wear, and fire and other casualty excepted, and at the
termination of this Lease, or Tenant's right to possession, Tenant shall return
the Premises to Landlord in broom-clean condition. To the extent Tenant fails
to perform either obligation, Landlord may, but need not, restore the Premises
to such condition and Tenant shall pay the cost thereof.
D. Ownership of Improvements. All Work as defined in Section 5,
partitions, hardware, and all fixtures except trade fixtures, constructed in
the Premises by either Landlord or Tenant, shall become Landlord's property
upon installation without compensation to Tenant, unless Landlord consents
otherwise in writing, or requires Tenant to remove any such item at the
termination of the Lease or of Tenant's right to possession.
E. Removal at Termination. Tenant shall remove its trade fixtures,
furniture, moveable equipment and other personal property from the Premises
upon the termination of this Lease or Tenant's right of possession. If Tenant
does not, then Tenant shall be conclusively presumed to have, at Landlord's
election (i) conveyed such property to Landlord without compensation or (ii)
abandoned such property, and Landlord may dispose of any part thereof in any<PAGE>
manner without liability to Tenant or any other person. Landlord shall have no
duty to be a bailee of any such personal property. If Landlord elects
abandonment, Tenant shall pay to Landlord, upon demand, any expenses incurred
for disposition.
4. PROJECT SERVICES
Landlord shall furnish services as follows:
A. Heating and Air Conditioning. During the normal business hours of 8:00
a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, Landlord shall furnish heating and air conditioning to provide a
comfortable temperature, in Landlord's judgment, for normal business
operations, except to the extent Tenant installs equipment which adversely
affects the temperature maintained by the air conditioning system. If Tenant
installs such equipment, Landlord may install supplementary air conditioning
units in the Premises, and Tenant shall pay to Landlord upon demand as
Additional Rent the cost of installation, operation and maintenance thereof.
Landlord shall furnish heating and air conditioning after business hours
if Tenant provides Landlord at least twenty-four (24) hours' notice and pays
Landlord a fee of $75 per hour for such additional heating or air conditioning
(the "After Hours Fee"). The After Hours Fee may be increased by Landlord as
reasonably determined from time to timed on actual increases in Landlord's
costs for such service. Tenant shall pay the After Hours Fee as Additional
Rent on or before the first day of the month following the date on which the
after hours heating and air conditioning services were rendered.
B. (Intentionally Omitted.)
C. Electricity. All the electricity used in the Premises shall be
supplied through a separate meter and be paid for Tenant, Provided that
Landlord shall pay for the electricity required for the operation of the
heating and air conditioning systems in the Premises during the hours specified
in Paragraph 4A above, and shall include such payment in Operating Costs. Any
decrease or discontinuance of electric service shall not affect the parties'
rights and obligations under this Lease. Tenant shall not sue electricity at a
rate which causes the use by all tenants to exceed the capacity of the Building
or the risers or wiring to the Premises. Landlord shall at Tenant's expense
maintain the light fixtures and install lamps, bulbs, ballasts and starters in
the premises.
Tenant shall pay for all electricity required for alterations and repairs
to the Premises, and for the operation of any supplementary air conditioning or
ventilating system required for its equipment.
D. Water. Landlord shall furnish cold water for drinking and toilet
purposes, and cold and hot water for lavatory purposes. Tenant shall pay
Landlord for water furnished for any other purpose as Additional Rent at rates
fixed by Landlord. Tenant shall not permit water to be wasted.
E. (Intentionally Omitted.)
F. Window Washing. Landlord shall furnish window washing, not less than
three (3) times during each Lease Year (weather permitting) and at intervals
determined by Landlord in its sold discretion, only with respect to the
exterior surface of those windows of the Premises which are located on the<PAGE>
exterior of the Building and which face the street. The actual costs of such
window washing shall be included in Tenant's Operating Costs.
G. Telephone Services. Tenant shall arrange for telephone service in the
Premises directly with the telephone company. Tenant shall pay the cost of all
charges for installation and service.
H. Interruption of Services. No interruption of services caused by
repairs, replacements, or alterations to the service system, or by any other
cause beyond the reasonable control of Landlord, shall be deemed an eviction or
disturbance of Tenant's possession of any part of the Premises, or render
Landlord liable to Tenant for damages, or otherwise affect the rights and
obligations of Landlord and Tenant under this Lease; except as provided below:
The Rent otherwise payable under this Lease shall abate in the manner
described in the last sentence of this paragraph if all of the following
conditions are met: (i) Landlord ceases to furnish any service in the Building
as a result of a condition which affects only the Building (i.e. which does not
affect office building in general in the vicinity of the Building); (ii)
Tenant notifies Landlord in writing within one (1) business days after such
cessation; (iii) such cessation is not caused by Force Majeure (as defined in
Section 21 below); (iv) such cessation is not the result of an act or omission
of Tenant; and (v) the Premises (or a material portion thereof) is rendered
untenantable (meaning that Tenant is unable to use such space in the normal
course of its business) and Tenant in fact ceases to use such space as a result
of such cessation. As Tenant's sole3 and exclusive remedy for such cessation,
on the sixth day after all of the foregoing conditions have been met, the Rent
payable hereunder shall be equitably abated based upon the percentage of the
space in the Premises so rendered untenantable and not being so used by Tenant,
and such abatement shall continue until the date the Premises become fully
tenantable again.
5. ALTERATIONS AND REPAIRS.
A. Landlord's Consent and Conditions. Tenant shall not make any
improvements or alterations in or additions, changes or installations to the
Premises which (i) impact the base structural components or the heating, air
conditioning, ventilation, electrical, plumbing or mechanical systems
(collectively, the "Systems") of the Building, or (ii) impact any other
tenant's premises (collectively, the "Systems/Structure Work"), without
submitting plans and specifications to Landlord and obtaining landlord's prior
written consent (which consent Landlord may withhold in its sole discretion).
Tenant shall not make any improvements or alterations in or additions, changes
or installations to the Premises which are not deemed Systems/Structure Work,
without submitting planned and specifications to Landlord and obtaining
Landlord's prior written consent (which consent shall not be unreasonable
withheld), if (a) the cost thereof is in excess of $5,000.00, or (b) such
improvements, alterations, additions, changes or installations are visible from
outside the Premises (collectively, the "Non-Systems Work"). Tenant shall be
allowed to make any improvements or alterations in or additions, changes or
installations to the Premises which are not deemed Systems/Structure Work of
Non-Systems Work without Landlord's consent (coll3ectively, the "Non-Consent
Work"). Systems/Structure Work, Non-0Systems Work and Non-Consent Work are
sometimes collectively referred to herein as the "Work." Landlord shall inform
Tenant of its approval or disapproval of any such Systems/Structure Work or
Non-Systems Work within fifteen (15) days after receipt of a complete set of
plans and specifications therefor. Tenant shall pay Landlord's standard charge<PAGE>
for review of the plans and all other items submitted by Tenant. Tenant shall
pay for the cost of all Work. All Work shall become the property of Landlord
upon its installation, except for Tenant's trade fixtures and for items which
Landlord requires Tenant to remove at Tenant's cost at the termination of the
Lease. The following requirements shall apply to all Work:
(1) Prior to commencement, Tenant shall furnish to Landlord building
permits, certificates of insurance satisfactory to Landlord, and, at Landlord's
request, security for payment of all costs.
(2) Tenant shall perform all Work so as to maintain peach and harmony
among other contractors serving the Project and shall avoid interference with
other work to be performed or services to be rendered in the Project.
(3) The Work shall be performed in a good and workmanlike manner,
meeting the standard for construction and quality of materials in the Building,
and shall comply with all insurance requirements and all applicable laws,
ordinances and regulations.
(4) Tenant shall permit Landlord to supervise all Work. Landlord may
charge a supervisory fee not to exceed fifteen percent (15%) of labor,
material, and all other costs of the Work, if Tenant's employees or contractors
perform the Work.
(5) Upon completion, Tenant shall furnish Landlord with contractor's
affidavits and full and final statutory waivers of liens, as-built plans and
specifications, and receipted bills covering all labor and materials.
B. Electronic Systems. If Tenant notifies Landlord that Tenant requires
additional electrical or cable capacity for telegraph, telephone, burglar
alarm, security camera, computer, or signal service, Landlord shall direct how
the installation shall be done. Tenant shall make no installation of any kind
except in accordance with landlord's direction. At Landlord's election,
Landlord may make the installation itself. Tenant shall pay for the entire
cost of both the installation and the service.
C. Damage to Systems. If any part of the mechanical, electrical or other
systems in the Premises shall be damaged, Tenant shall promptly notify
Landlord, and Landlord shall repair such damage. Landlord may also at any
reasonable time make any repairs or alterations which Landlord deems necessary
for the safety or protections of the Project, or which Landlord is required to
make by any court or other governmental authority. Tenant shall at its expense
make all other repairs necessary to keep Premises, and Tenant's fixtures and
personal property, in good order, condition and repair; to the extent Tenant
fails to do so,, Landlord may make such repairs itself. The cost of any
repairs made by Landlord on account of Tenant's default, or on account of the
misuse or neglect by Tenant or its invitees, contractors or agents anywhere in
the Project, shall become Additional Rent payable on demand by Tenant.
D. No Liens. Tenant has no authority to cause or permit any lien or
encumbrance of any kind to affect Landlord's interest in the Project; any such
lien or encumbrance shall attach to Tenant's interest only. If any mechanic's
lien shall be filed or claim of lien made for work or materials furnished to
Tenant, then Tenant shall at its expense within ten (10) days thereafter either
discharge or contest the lien or claim. If Tenant contests the lien or claim,
then Tenant shall (i) within such ten (10) day period, provide Landlord
adequate security for the lien or claim, (ii) contest the lien or claim in good<PAGE>
faith by appropriate proceedings that operate to stay its enforcement, and
(iii) pay promptly any final adverse judgment entered in any such proceeding.
If Tenant does not comply with these requirements, Landlord may discharge the
lien or claim, and the amount paid, as well as reasonable attorney's fees and
other expenses incurred by Landlord, shall become Additional Rent payable on
demand by Tenant.
6. USES OF PREMISES. Tenant shall use the Premises only for general office
purposes and the conduct of a general banking business, in which conduct Tenant
may engage in any lawful activity reasonably related to a general banking
business, including, but not limited to, receiving deposits, making loans,
providing safe deposit services, billing services, computer and data services,
bookkeeping services, storage, leasing, investing or providing trust department
services. Any activity in which Tenant is required or permitted to engage by
any regulatory agency have authority over Tenant's banking business activities
shall be deemed a permitted use of the Premises, provided that such activity is
in accordance with the other terms and provisions of this Lease.
Notwithstanding the foregoing, Tenant shall not allow any use of the Premises
which will negatively affect the cost of coverage of Landlord's insurance on
the Project. Tenant shall not allow any inflammable or explosive liquids or
materials to be kept on the Premises. Tenant shall not allow any use of the
Premises which would cause the value or utility of any part of the Premises to
diminish or would interfere with any other Tenant or with the operation of the
Project by Landlord. Tenant shall not permit any nuisance or waste upon the
Premises, or allow any offensive noise or order in or around the Premises.
Tenant shall not place vending or dispensing machines of any kind in the
Premises, except those use exclusively by Tenant's employees.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Tenant shall comply with all
governmental laws or regulations applying to its use of the Premises. Tenant
shall also comply with all rules established for the Project from time to time
by Landlord. The present rules are contained in Appendix C. Failure by
another tenant to comply with the rules or failure by Landlord to enforce them
shall not relieve Tenant of its obligation to comply with the rules or make
Landlord responsible to Tenant in any way.
8. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. Waiver of Claims. (1) To the extent permitted by law, Tenant waives
any claims it may have against the Landlord or its officers, directors, agents,
contractors or employees for business interruption, damage to property, or any
other loss sustained by Tenant as the result of any accident or occurrence in
the Project or of any part of the Building becoming in disrepair.
(2) To the extent permitted by law, Landlord waives any claims it may
have against the Tenant or its officers, directors, agents, contractors or
employees for rent loss, damage to property, or any other loss sustained by
Landlord as the result of any accident or occurrence in the Premises or Project
of any part of the Premises becoming in disrepair.
B. Indemnification. (1) Tenant shall indemnify, defend and hold harmless
Landlord, the property manager of the Project and their respective directors,
officers, employees, agents and contractors against any claims by any third
party for injury to any person or damage to or loss of any property occurring
in the Project and arising from the use of the Premises or from any other act
or omission of Tenant or any of Tenant's employees, agents, invitees or
contractors. <PAGE>
(2) Landlord shall indemnify, defend and hold harmless Tenant and
its officers, directors, servants, agents and employees against any claims or
liability for damage to person or property (or for loss or misappropriation of
property) occurring in the PREMISES OR Project, proximately caused by the
intentional misconduct or sole negligence of Landlord or of any employee,
agent, servant, invitee or contractor of Landlord occurring during the Term,
and from any costs relating thereto (including, without limitation, attorneys'
fees), but only to the extent of the sum of (i) Landlord's deductibles under
the insurance policy required to be obtained by Landlord hereunder, and (ii)
amounts of insurance proceeds recoverable under such insurance policy.
C. Insurance Coverage. Tenant shall maintain insurance customary for an
office tenant, with such terms, coverages and insurers, as Landlord shall
reasonably require from time to time. Initially, such insurance shall include:
(1) Commercial General Liability Insurance, with (a) Contractual
Liability including the indemnification provisions contained in this Lease, (b)
a severability of interest endorsement, (c) limits of not less than One Million
Dollars ($1,000,000) combined single limit per occurrence for bodily injury,
sickness or death, and property damage, and umbrella coverage of not less than
Five Million Dollars ($5,000,000), and (d) Landlord and Landlord's building
manager named as additional insureds.
(2) Insurance against "All Risks" of physical loss covering the
replacement cost of all of tenant's fixtures and personal property. Tenant's
property insurance shall include a waiver of subrogation. Tenant's insurance
shall be primary and not contributory.
D. Insurance Certificates. Tenant shall deliver to Landlord certificates
and endorsements evidencing all required insurance no later than five (5) days
prior to the Commencement Date and each renewal date. Each Certificate will
provide for the thirty (30) days prior written notice of cancellation to
Landlord and Tenant.
9. FIRE AND OTHER CASUALTY.
A. Termination. If a fire or other casualty causes substantial damage to
the Building or the Premises, Landlord shall engage a registered architect to
certify within one (1) month of the casualty to both Landlord and Tenant, the
amount of time needed to restore the Building and the Premises to
tenantability, using standard working methods. If the time needed exceeds
twelve (12) months from the beginning of the restoration, or two (2) months
therefrom if the restoration would begin during the last twelve (12) months of
the Lease, then in the case of the Premises, either Landlord or Tenant may
terminate this lease, and in the case of the Building, Landlord may terminate
this Lease, by notice to the other party within ten (10) days after the
notifying party's receipt of the architect's certificate. The termination
shall be effective thirty (30) days from the date of the notice and Rent shall
be paid by Tenant to that date, within an abatement for any portion of the
space which has been untenantable after the casualty..
B. Restoration. If a casualty causes damage to the Building or the
Premises but this Lease is not terminated for any reason, then subject to the
rights of any mortgagees or ground lessors, Landlord shall obtain the
applicable insurance proceeds and diligently restore the Building and the
Premises subject to current governmental requirements. Tenant shall replace<PAGE>
its damaged personal property and fixtures. Rent shall be abated on a per diem
basis during the restoration for any portion of the Premises which is
untenantable, except to the extent that Tenant's negligence caused the casualty
and Landlord's rent loss insurance would not provide coverage if the Rent were
abated.
10. EMINENT DOMAIN. If a part of the Project is taken by eminent domain or
deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Tenant for the operation of its business, then either
party may terminate this Lease effective as of the date of the taking. If any
substantial portion of this Project is taken without affecting the Premises,
then Landlord may terminate this Lease as of the date of such taking. Rent
shall abate from the date of the taking in proportion to any part of the
Premises taken. The entire award for taking of any kind shall be paid to
Landlord, and Tenant shall have no right to share in the aware; provided, that
Tenant may pursue a separate award in connection with the condemnation or
taking as long as no such recover reduces the award otherwise payable to
Landlord. All obligations accrued to date of the taking shall be performed by
each party.
11. RIGHTS RESERVED TO LANDLORD. Landlord may exercise at any time any of the
following rights respecting the operation of the Project without liability to
the Tenant of any Kind:
A. Name. To change the name or street address of the Building or the
suite numbers of the Premises.
B. Signs. To install and maintain any signs on the exterior and in the
interior of the Building, and to approve at its discretion prior to
installation any of the Tenant's signs in the Premises visible from the common
areas or the exterior of the Building; provided, however, that Tenant may
install and maintain (i) five (5) electrical exterior signs on the ground level
of the Building located under the Building overhand, (ii) one (1) electrical
sign located in proximity to the revolving door entrance to the Building and
installed on the southerly perimeter glass wall of the Premises and (iii) one
(1) non-electrical sign located in proximity to the sliding-glass doors in the
Premises on the westerly perimeter glass wall of the Premises, in each case, in
locations and in size, material, content, design, color, wording and method of
installation as approved by Landlord, which approval shall not be unreasonably
withheld ("Signage"). The Signage shall in all cases be of the same quality
and appearance as signage of comparable banks in comparable downtown Chicago
office buildings. Tenant, at its sold cost and expense shall prior to
installation obtain all permits required from governmental authorities for the
Signage. Tenant shall install and maintain the Signage (i) in compliance with
all applicable governmental and quasi-governmental laws, rules and regulations;
(ii) in good condition and repair; and (iii) shall remove the Signage at the
end of the term of this Lease and repair any damage caused by such removal. No
alterations or changes shall be made to such Signage without landlord's prior
written consent, which consent shall not be unreasonably withheld.
C. Window Treatments. To approve, at its discretion, prior to
installation any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of the Building.
D. Service Contracts. To enter into service contracts with all providers
furnishing toilet supplies or other services to the Premises, provided that the<PAGE>
rates charged are reasonably competitive for office buildings in the Chicago
area.
E. Keys. To retain and use at any time passkeys to enter the Premises or
any door within the Premises, upon twenty-four (24) hours' prior notice to
Tenant (except in the event of emergency). Tenant shall not alter or add any
lock or bolt without the prior consent of Landlord, which consent shall not be
unreasonably withheld or delayed.
F. Access. To have access to inspect the Premises, and to perform its
obligations, or make repairs, alterations, additions or improvements, as
permitted by this lease.
G. Preparation for Reoccupancy. To decorate, remodel, repair, alter or
otherwise prepare the Premises for reoccupancy at any time after Tenant
abandons the Premises, without relieving Tenant of any obligation to pay Rent.
H. Heavy Articles. To approve the weight, size, placement and time and
manner of movement within the Building of any safe or other heavy article of
Tenant's property. Tenant shall move its property entirely at its own risk.
I. Show Premises. To show the Premises to prospective purchasers or
brokers at any reasonable time, and to prospective tenants during the final
year of the Term, provided that Landlord gives prior notice to Tenant and does
not materially interfere with Tenant's use of the Premises.
J. Restrict Access. To restrict access to the Project during such hours
as Landlord shall determine, so long as Landlord shall admit Tenant at all
times, subject to appropriate regulation by Landlord.
K. (Intentionally Omitted.)
L. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Landlord. In that case, the date of payment if Rent
or other sums shall be the date of the agent's receipt of such payment or the
date of actual collection if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment. However, if Tenant is in
default under this Lease, Landlord may reject any payment for all purposes as
of the date of receipt or actual collection by mailing to Tenant within 21 days
after such receipt or collection a check equal to the amount sent by Tenant.
M. Repairs and Alterations. To make repairs or alterations to the Project
and in doing so transport any required material through the Premises, to close
entrances, doors, corridors, elevators and other facilities in the Project, to
open any ceiling in the Premises, or to temporarily suspend services or use of
common areas in the Building. In exercising its rights under this Section 11M,
Landlord shall: (i) provide Tenant with reasonable prior oral notice of
repairs or alterations in non-emergency situations, and (ii) use commercially
reasonable efforts to minimize any interference with Tenant's business.
Landlord may perform any such repairs or alterations during ordinary business
hours, except that Tenant may require any Work in the Premises to be done after
business hours if Tenant pays Landlord for overtime and any other expenses
incurred. Landlord may do or permit any work on any nearby building, land,
street, alley or way.
N. Landlord's Agents. If Tenant is in default under this Lease,
possession of Tenant's funds or negotiation of Tenant's negotiable instrument<PAGE>
by any of Landlord's agents shall not waive any breach by Tenant or any
remedies of Landlord under this Lease.
O. Building Services. To install, use and maintain through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such
installation, use and maintenance does not unreasonably interfere with Tenant's
use of the Premises.
P. Other Actions. To take any other action which Landlord deems
reasonable in connection with the operation, maintenance or preservation of the
Building.
12. TENANT'S DEFAULT
Any of the following shall constitute a default by Tenant:
A. Rent Default. Tenant fails to pay any Rent when dues, and, in the case
of only the first such failure in any 12 consecutive months, this failure
continues for 5 days after written notice from Landlord;
B. Assignment/Sublease or Hazardous Substances Default. Tenant defaults
in its obligations under Section 17 Assignment and Sublease or Section 28
Hazardous Substances;
C. Other Performance Default. Tenant fails to perform any other
obligation to Landlord under this Lease, and, in the case of only the first
such failure in any twelve consecutive months, this failure continues for seven
days after written notice from Landlord, except that if Tenant begins to cure
its failure within the seven day period but cannot reasonably complete its cure
within such period, then the seven-day period shall be extended to ninety days,
or such lesser period as is reasonably necessary to complete the cure;
D. Cross-Default. Tenant is in default under that certain Lease between
Landlord and Tenant dated as of _____, 1998 relating to Suite ____ in the
Building.
E. Credit Default. One of the following credit defaults occurs:
(1) Tenant commences any proceeding under any law relating to
bankruptcy, insolvency, reorganization or relief of debts, or seeks appointment
of a receiver, trustee, custodian or other similar official for the Tenant or
for any substantial part of its property, or any such proceeding is commenced
against Tenant and either remains undismissed for a period of thirty days or
results in the entry of an order for relief against Tenant which is not fully
stayed within seven days after entry;
(2) Tenant becomes insolvent or bankrupt, does not generally pay its
debts as they become due, or admits in writing its inability to pay its debts,
or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under process of law
against tenant's leasehold interest.
13. LANDLORD REMEDIES
A. Termination of Lease or Possession. If Tenant defaults, Landlord may
elect by notice to Tenant either to terminate this Lease or to terminate
Tenant's possession of the Premises without terminating this Lease. In either<PAGE>
case, Tenant shall immediately vacate the Premises and deliver possession to
Landlord, and Landlord may repossess the Premises and may remove any of
Tenant's signs and any of its other property, without relinquishing its right
to receive Rent or any other right against Tenant.
B. Lease Termination Damages. If Landlord terminates the Lease, Tenant
shall pay to Landlord all Rent due on or before the date of termination, plus
Landlord's reasonable estimate of the aggregate Rent that would have been
payable from the date of termination through the Termination Date, reduced by
the rental value of the Premises calculated as of the date of termination for
the same period, taking into accounting reletting expenses and market
concessions, both discounted to present value at the rate of five percent (5%)
per annum. If Landlord shall relet any part of the Premises for any part of
such period before such present value amount shall have been paid by Tenant or
finally determined by a court, then the amount of Rent payable pursuant to such
reletting shall be deemed to be the reasonable rental value for that portion of
the Premises relet during the period of the reletting.
C. Possession Termination Damages. If Landlord terminates Tenant's right
to possession without terminating the Lease and Landlord takes possession of
the Premises itself, Landlord shall use commercially reasonable efforts to
relet any part of the Premises for such Rent, for such time, and upon such
terms as Landlord in its sole discretion shall determine, without any
obligation to do so prior to renting other vacant areas in the Building. Any
proceeds from reletting the Premises shall first be applied to the expenses of
reletting, including redecoration, repair, alteration, advertising, brokerage,
legal, and other reasonably necessary expenses. If the reletting proceeds
after payment of expenses are insufficient to pay the full amount of Rent under
this Lease, Tenant shall pay such deficiency to Landlord monthly upon demand as
it becomes due. Any excess proceeds shall be retained by Landlord.
D. Landlord's Remedies Cumulative. All of Landlord's remedies under this
Lease shall be in addition to all other remedies Landlord may have at law or in
equity. Waiver by Landlord of any breach of an obligation by Tenant shall be
effective only if it is in writing, and shall not be deemed a waiver of any
other breach, or any subsequent breach of the same obligation. Landlord's
acceptance of payment by Tenant shall not constitute a waiver of any breach by
Tenant, and if the acceptance occurs after Landlord's notice to Tenant, or
termination of the Lease or of Tenant's right to possession, the acceptance
shall not affect such notice or termination. Acceptance of payment by Landlord
after commencement of a legal proceeding or final judgment shall not affect
such proceeding or judgement.
E. Waiver of Trial by Jury. Each party waives trial by jury in the event
of any legal proceeding brought by the other in connection with this Lease.
Each party shall bring any action against the other in connection with this
Lease in a federal or state courts located in Chicago, Illinois, consents to
the jurisdiction of such courts, and waives any right to have any proceeding
transferred from such courts on the ground of improper venue or inconvenient
forum.
F. Litigation Costs. The non-prevailing party in any lawsuit to enforce
this Lease shall pay the reasonable attorneys' fees and other costs of the
prevailing party.
14. SURRENDER. Upon termination of this Lease or Tenant's right to possession,
Tenant shall return the Premises to Landlord in good order and condition,<PAGE>
ordinary wear and casualty damage excepted. If Landlord requires Tenant to
remove any alterations, then Tenant shall remove the alterations in a good and
workmanlike manner and restore the Premises to its condition prior to their
installation.
15. HOLDOVER. If Tenant retains possession of any part of the Premises after
the Term, Tenant shall become a month-to-month tenant upon all of the terms of
this Lease as might be applicable to such month-to-month tenancy, except that
Tenant shall pay Base Rent at 150% of the rate in effect immediately prior to
such holdover, computer on a monthly basis for each full or partial month
Tenant remains in possession. If Tenant holds over for more than sixty (60)
days, Tenant shall also pay Landlord all of Landlord's direct and consequential
damages, and in addition, if Landlord so elects by notice to Tenant, such
holdover shall constitute a renewal of this Lease for one year at the then
current market rate as determined by Landlord but in no event less than the
Rent payable immediately prior to such holdover. No acceptance of Rent or
other payments by Landlord under these holdover provisions shall operate as a
waiver of Landlord's right to regain possession or any other of Landlord's
remedies.
16. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. This Lease shall be subordinate to any present or
future ground lease or mortgage respecting the Project, and any amendments to
such ground lease or mortgage, at the election of the ground lessor or
mortgagee as the case may be, effected by notice to Tenant in the manner
provided in this Lease. The subordination shall be effective upon such notice,
but at the request of Landlord or ground lessor or mortgagee, Tenant shall
within ten (10) days of the request, execute and deliver to the requesting
party any reasonable documents provided to evidence the subordination. At any
time that any ground lease or mortgage is put in effect on the Project,
Landlord shall use reasonable efforts to cause the mortgagee or ground lessor
to deliver to Tenant a non-disturbance agreement, in form and substance
reasonably acceptable to Tenant, which agreement shall provide that so long as
Tenant is not in default under this Lease (after the expiration of any
applicable notice and cure periods), Tenant shall have the right to remain in
possession of the Premises and to exercise all of its option and rights on the
terms and conditions set forth herein, even if there is a default under any
such ground lease or if any such mortgagee forecloses its mortgage or accepts a
deed in lieu of foreclosure. At such time as any additional ground leases or
mortgages are placed on the Project, Landlord shall use reasonable efforts to
cause the additional ground lessor and/or mortgagee to deliver a
non-disturbance agreement to Tenant.
B. Termination of Ground Lease or Foreclosure of Mortgage. If any ground
lease is terminated or mortgage foreclosed or deed in lieu of foreclosure given
and the ground lessor, mortgagee, or purchaser at a foreclosure sale shall
thereby become the owner of the Project, Tenant shall attorn to such ground
lessor or mortgagee or purchaser without any deduction or setoff by Tenant, and
this Lease shall continue in effect as a direct lease between Tenant and such
ground lessor, mortgagee or purchaser. The ground Lessor or mortgagee or
purchaser is the owner of the Project. At the request of Landlord, ground
lessor or mortgagee, Tenant shall execute and deliver within ten (10) days of
the request any document furnished by the requesting party to evidence Tenant's
agreement to attorn. <PAGE>
C. Security Deposit. Any ground lessor or mortgagee shall be responsible
for the return of any security deposit by Tenant only to the extent the
security deposit is received by such ground lessor or mortgagee.
D. Notice and Right to Cure. The Project is subject to any ground lease
and mortgage identified with name and address of ground lessor or mortgagee in
any Appendix to this Lease. Tenant agrees to send by registered or certified
mail to any ground lessor or mortgagee identified either in such Appendix or in
any later notice from Landlord to Tenant a copy of any notice of default sent
by Tenant to Landlord. If Landlord fails to cure such default within the
required time period under this Lease, but ground lessor or mortgagee begins to
cure within ten (10) days after such period and proceeds diligently to complete
such cure, then ground lessor or mortgagee shall have such additional time as
is necessary to complete such cure, including any time necessary to obtain
possession if possession is necessary to cure, and Tenant shall not begin to
enforce its remedies so long as the cure is being diligently pursued.
E. Definitions. As used in this Section 16, "mortgage" shall include
"trust deed" and "mortgagee" shall include "trustee", "mortgagee" shall include
the mortgagee of any ground lessee, and "ground lessor", "mortgagee", and
"purchaser at a foreclosure sale" shall include, in each case, all of its
successors and assigns, however remote.
17. ASSIGNMENT AND SUBLEASE.
A. Consent Required. Tenant shall not, without the prior consent of
Landlord in each case, (i) make or allow any assignment or transfer, by
operation of law or otherwise, of any part of Tenant's interest in this Lease,
(ii) grant or allow any lien or encumbrance, by operation of law or otherwise,
upon any part of Tenant's interest in this Lease, (iii) sublet any part of the
Premises, or (iv) permit anyone other than Tenant and its employees to occupy
any part of the Premises. Landlord may withhold its consent to the assignment
or sublease if Tenant is in default under this Lease, if the proposed assignee
or sublease is a tenant in the Project or an affiliate of such a tenant, or if
the financial responsibility, nature of business, and character of the proposed
assignee or subtenant are not all reasonably satisfactory to Landlord.
Landlord will not otherwise unreasonably withhold its consent on any other
basis to such an assignment or subletting. No consent granted by Landlord
shall relieve Tenant of any of its obligations under this Lease, nor shall it
be deemed to be a consent to any subsequent assignment or transfer, lien or
encumbrance, sublease or occupancy. Tenant shall pay all of Landlord's
reasonable attorney's fees and other expenses incurred in connection with any
consent requested by Tenant or in reviewing any proposed assignment or
subletting. Any assignment or transfer, grant of lien or encumbrance, or
sublease or occupancy without Landlord's prior written consent shall be void.
Provided no default has occurred and is continuing under this Lease, upon ten
(10) business days prior written notice to Landlord (which notice shall also
included detailed information as to the net worth immediately prior to such
assignment of both the proposed assignee or successor entity and the Tenant),
Tenant may, without Landlord's prior written consent, assign this Lease to an
entity into which Tenant is merged or consolidated or to an entity to which
substantially all of Tenant's assets are transferred, provided the assignee or
success entity (a "Related Assignee") has a net worth at least equal to the net
worth of Tenant immediately prior to such merger, consolidation or transfer.
The rights of Tenant shall inure to the benefit of a Related Assignee. <PAGE>
B. Procedure. Except as provided in Paragraph A above, Tenant shall
notify Landlord of any proposed assignment or sublease at least sixty (60) days
prior to its proposed effective date. The notice shall include the name and
address of the proposed assignee or subtenant, its corporate affiliates in the
case of a corporation and its partners in a case of a partnership, an execution
copy of the proposed assignment or sublease, and sufficient information to
permit Landlord to determine the financial responsibility and character of the
proposed assignee or subtenant. As a condition to any effective assignment of
this Lease, the Assignee shall execute and deliver in form satisfactory to
Landlord at least fifteen (15) days prior to the effective date of the
assignment, an assumption of all of the obligations of Tenant under this Lease.
As a condition to any effective sublease, subtenant shall execute and deliver
in form satisfactory to Landlord at least fifteen (15) days prior to the
effective date of the sublease, an agreement to comply with all of Tenant's
obligations under this Lease, and at Landlord's option, an agreement (except
for the economic obligations which subtenant will undertake directly to Tenant)
to attorn to Landlord under the terms of the sublease in the event this Lease
terminates before the sublease expires.
C. Change of Management or Ownership. Any transfer of the direct or
indirect power to affect the management or policies of Tenant or direct or
indirect change in twenty-five percent (25%) or more of the ownership interest
in Tenant shall constitute an assignment of this Lease; provided, however, that
the direct or indirect change in twenty-five percent (25%) or more of the
ownership interest in Tenant shall not constitute an assignment of this Lease
so long as Tenant remains a publicly-held company.
D. Excess Payments. If Tenant shall assign this Lease or sublet any part
of the Premises for consideration in excess of the pro-rata portion of Rent
applicable to the space subject to the assignment or sublet, then Tenant shall
pay to Landlord as Additional Rent 50% of any such excess immediately upon
receipt.
18. CONVEYANCE BY LANDLORD. If Landlord shall at any time transfer its
interest in the Project or this Lease, Landlord shall be released of any
obligations occurring after such transfer, except the obligation to return to
Tenant any security deposit not delivered to its transferee, and Tenant shall
look solely to Landlord's successors for performance of such obligations. This
Lease shall not be affected by any such transfer.
19. (Intentionally Omitted.)
20. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of receiving
a request from the other party, execute, acknowledge in recordable form, and
deliver to the other party or its designee a certificate stating, subject to a
specific statement of any applicable exceptions, that the Lease as amended to
date is in full force and effect, that the Tenant is paying Rent and other
charges on a current basis, and that to the best of the knowledge of the
certifying party, the other party has committee no uncured defaults and has no
offsets or claims. The certifying party may also be required to state the date
of commencement of payment of Rent, the Commencement Date, the Termination
Date, and Base Rent, the current Operating Cost Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by Landlord,
and such other matters as may be reasonably requested. Failure to deliver such
statement within the time required shall be conclusive evidence against the
non-certifying party that this Lease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured<PAGE>
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, and that the non-certifying party has no claims or offsets
against the requesting party.
21. (Intentionally Omitted.)
22. FORCE MAJEURE. Landlord shall not be in default under this Lease to the
extend Landlord is unable to perform any of its obligations on account of any
strike or labor problem, energy shortage, governmental pre-emption or
prescription, national emergency, or any other cause of any kind beyond the
reasonable control of Landlord ("Force Majeure".
23. (Intentionally Omitted)
24. NOTICES. All notices, consents, approvals and similar communications to be
given by one party to the other under this Lease, shall be given in writing,
mailed or personally delivered as follows: A. Landlord. To Landlord as
follows: Teachers Insurance and Annuity Teachers Insurance and Annuity
Association of America Association of America C/o Office of the Building
Manager 730 Third Avenue 230 West Monroe Street New York, NY 10017 Chicago,
Illinois 60606 Attn: Vice President Or to such other persons at such other
address as Landlord may designate by notice to Tenant.
B. Tenant. To Tenant at the address stated in the Schedule until Tenant
takes possession of the Premises, and thereafter at the Premises or such other
address as Tenant may designate by notice to Landlord. Mailed notices shall be
sent by United States certified or registered mail, or by a reputable national
overnight courier service, postage prepaid. Mailed notices shall be deemed to
have been given upon posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
25. QUIET POSSESSION. So long as Tenant shall perform all of its obligations
under this Lease, Tenant shall enjoy peaceful and quiet possession of the
Premises against any party claiming through the Landlord.
26. REAL ESTATE BROKER. Tenant represents to landlord that Tenant has not
dealt with any real estate broker with respect to this Lease except for
Miglin-Beitler Management Corp[oration and any broker listed in the Schedule,
and no other broker is in any way entitled to any broker's fee or other payment
in connection with this Lease. Tenant shall indemnify and defend Landlord
against any claims by any other broker or third party for any payment of any
kind in connection with this Lease.
27. MISCELLANEOUS.
A. Successors and Assigns. Subject tot he limits on Tenant's assignment
contained in Section 14, the provisions of this Lease shall be binding upon and
inure to the benefit of all successors and assigns of Landlord and Tenant.
B. Date Payments Are Due. Except for payments to be made by Tenant under
this Lease which are due upon demand, Tenant shall pay to Landlord any amount
for which Landlord renders a statement of account within ten days of Tenant's
receipt of Landlord's statement.
C. Meaning of "Landlord", "Re-Entry", "including" and "Affiliate". The
terms "Landlord" means only the owner of the Project and the lessor's interest<PAGE>
in this Lease from time to time. The words "re-entry" and "re-enter" are not
restricted to their technical legal meaning. The words "including" and similar
words shall mean "without limitation." The word "affiliate" shall mean a
person or entity controlling, controlled by or under common control with the
applicable entity. "Control" shall mean the power directly or indirectly, by
contract or otherwise, to direct the management and policies of the applicable
entity.
D. Time of the Essence. Time is of the essence of each provision of this
Lease.
E. No Option. This document shall not be effective for any purpose until
it has been executed and delivered by both parties; execution and delivery by
one party shall not create any option or other right in the other party.
F. Severability. The unenforceability of any provision of this Lease
shall not affect any other provision.
G. Governing Law. This Lease shall be governed in all respects by the
laws of Illinois, without regard to the principles of conflicts of laws.
H. Lease Modification. Tenant agrees to modify this Lease in any way
requested by a mortgagee which does not cause increased expense to Tenant or
otherwise materially adversely affect Tenant's interest under this Lease.
I. No Oral Modification. No modification of this Lease shall be effective
unless it is a written modification signed by both parties.
J. Landlord's Right to Cure. If Landlord breaches any of its obligations
under this Lease, Tenant shall notify Landlord and shall take no action
respecting such breach so long as Landlord immediately begins to cure the
breach and diligently pursues such cure to its completion. Landlord may cure
any default by Tenant; any expenses incurred shall become Additional Rent due
from Tenant on demand by Landlord.
K. Captions. The captions used in this Lease shall have no effect on the
construction of this Lease.
L. Authority. Landlord and Tenant each represents to the other that it
has full power and authority to execute and perform this Lease.
M. Landlord's Enforcement of Remedies. Landlord may enforce any of its
remedies under this Lease either in its own name or through an agent.
N. Entire Agreement. This Lease, together with all Appendices,
constitutes the entire agreement between the parties. No representations or
agreements of any kind have been made by either party which are not contained
in this Lease.
O. Landlord's Title. Landlord's title shall always be paramount to the
interest of the Tenant, and nothing in this Lease shall empower Tenant to do
anything which might in any way impair Landlord's title.
P. Light and Air Rights. Landlord does not grant in this Lease any rights
to light and air in connection with Project. Landlord reserves to itself, the
Land, the Building below the improved floor of each floor of the Premises, the
Building above the ceiling of each floor of the Premises, the exterior of the<PAGE>
Premises and the areas on the same floor outside the Premises, along with the
areas within the Premises required for the installation and repair of utility
lines and other items required to serve other tenants of the Building.
Q. Consents. Neither party shall unreasonably withhold or delay any
consent or approval required under this Lease, except as specifically permitted
in this Lease.
R. Singular and Plural. Wherever appropriate in this Lease, a singular
term shall be construed to mean the plural where necessary, and a plural term
the singular. For example, if at any time two parties shall constitute
Landlord or Tenant, then the relevant term shall refer to both parties
together.
S. No Recording by Tenant. Tenant shall not record in any public records
and memorandum or any portion of this Lease.
T. Exclusivity. So long as Tenant shall not be in default under this
Lease and Tenant is actively engaged in the use and operation of the Premises
for retail banking purposes (the "Exclusive Use"), Tenant shall have the
exclusive right to operate a retail banking business on the ground floor and a
limited portion of the second floor (described in the Schedule) of the Building
for the Exclusive Use and Landlord shall not grant to any other tenant of the
Building the right to engage in the Exclusive Use on the ground floor or said
portion of the second floor of the Building. The foregoing restrictions shall
not apply to the use and operation of its premises for the Exclusive Use by
other tenants of the Building that is incidental to such tenants' primary
business.
The violation by another tenant of the Building of any restriction
contained in its lease with Landlord with respect to the Exclusive Use shall
not constitute a violation hereunder if Landlord uses commercially reasonable
efforts to remedy such breach, including, without limitation, pursuing such
remedies that are available at law or in equity.
U. No Construction Against Drafting Party. The rule of construction that
ambiguities are resolved against the drafting party shall not apply to this
Lease.
V. Survival. All obligations of Landlord and Tenant under this Lease
shall survive the termination of this Lease.
W. Rent Not Based on Income. No rent or other payment in respect of the
Premises shall be based in any way upon net income or profits from the
Premises. Tenant may not enter into or permit any sublease or license or other
agreement in connection with the Premises which provides for a rental or other
payment based on net income or profit.
X. Building Manager and Service Providers. Landlord may perform any of
its obligations under this Lease through its employees, the building manager of
the Project, or third parties hired by the Landlord or the building manager.
Upon the request of Landlord, Tenant shall enter into a contract approved by
Landlord as to form and content with the building manager of the Project or
third parties designated by landlord for the furnishing of such services,
provided that no such contract shall require Tenant to make more payments or
accept fewer services than Tenant is entitled to under this Lease. <PAGE>
Y. Interest on Late Payments. Interest shall be paid by Tenant to
Landlord on any late payments of Rent from the date due until paid at the rate
provided in Section 2D (2).
28. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel at any
time that any part of the payments by Tenant to Landlord under this Lease may
be characterized as unrelated business income under the United States Internal
Revenue Code and its regulations, then Tenant shall enter into any amendment
proposed by Landlord to avoid such income, so long as the amendment does not
require Tenant to make more payments or accept fewer services from Landlord,
than this Lease provides.
29. HAZARDOUS SUBSTANCES. Tenant shall not cause or permit any Hazardous
Substances to be brought upon, produced, stored, used, discharged or disposed
of in or near the Project unless Landlord has consented to such storage or use
in its sole discretion. "Hazardous Substances" include those hazardous
substances described in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recover Act, as amended, 42 U.S.C. Section 6901 et
seq., any other applicable federal, state or local law, and the regulations
adopted under these laws. If any lender or governmental agency shall require
testing for Hazardous Substances in the Premises, Tenant shall pay for such
testing.
30. EXCULPATION. Landlord shall have no personal liability under this Lease;
its liability shall be limited to its interest in the Project, and shall not
extend to any other property or assets of the Landlord.
31. EXTENSION. Subject to Sections 31B and 31C below, the Term of this Lease
may be extended, at the option of Tenant, for one additional period of five (5)
years (the "Renewal Term"). The Renewal Term shall be upon the same terms,
covenants and conditions contained in this Lease, except for the amount of Base
Rent payable during the Renewal Term, and any reference in the Lease to the
"Term" of the Lease shall be deemed to include the Renewal Term and apply
thereto, unless it is expressly provided otherwise. Tenant shall have no
extension option beyond the aforesaid five-year extension option. Any
termination of this Lease during the initial Term of this Lease shall terminate
all rights under this Section 31.
A. The initial Base Rent during the Renewal Term for any space then
constituting a portion of the Premises shall be at a rate equal to the greater
of (i) the Base Rent (as escalated pursuant to Section 2A above) applicable to
the tenth Lease Year, and (ii) the then prevailing market rate for fully
creditworthy tenants for comparable space in the Building and other comparable
office building in the vicinity of the Building as reasonably determined by
Landlord. Tenant's obligation to pay Operating Cost Share Rent and Tax Share
Rent pursuant to Section 2A of the Lease shall continue during the Renewal
Term.
B. Such option to extend shall be exercised by Tenant delivering an
initial non-binding written notice to Landlord not less than nine (9) full
calendar months prior to the expiration of the initial Term of this Lease.
Thereafter, Landlord shall calculate the prevailing market rate for the
Premises, which calculation shall reflect the market rate that would be payable
per annum for a term commencing on the first day of the Renewal Term, provided
that such calculation shall be final and shall not be recalculated at the
actual commencement of the Renewal Term (if any). Tenant shall give Landlord<PAGE>
final binding written notice of intent to exercise its option to extend, if at
all, no later than six (6) months prior to the expiration of the initial Term.
C. Tenant's right to exercise its option to extend this Lease pursuant to
this Section 31, is subject to the following conditions: (i) that on the date
that Tenant delivers its final binding written notice of its election to
exercise its option to extend, Tenant is not in default under any of the terms,
convenants or conditions of the Lease, after the expiration of any applicable
notice and cure periods, (ii) that Tenant shall not have assigned the Lease or
sublet the Premises at any time during the period commencing with the date that
Tenant delivers its final binding written notice to Landlord of its exercise of
such option to extend and ending on the commencement date of the Renewal Term,
or at any time prior to such period, if such assignment or sublease extends
into such period, and (iii) that Tenant also exercises its option to extend
contained in Section 30 of that certain Lease between Landlord and Tenant dated
as of ___________, 1998.
D. If Tenant fails to give its initial non-binding written notice of
intent or its final binding written notice of intent to exercise its option to
extend when due as provided in this Section 31, Tenant will be deemed to have
waived such option to extend.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA,
A New York corporation
By: ________________________________
Print Name: _________________________
Print Title: __________________________
TENANT:
Success national bank, a _________
By: ________________________________
Print Name: _________________________
Print Title: __________________________<PAGE>
APPENDIX A
PLAN OF THE PREMISES
(attach floor plan depicting the premises)
APPENDIX A Page 1 of 1 <PAGE>
APPENDIX B
(INTENTIONALLY OMITTED)
APPENDIX B
Page 1 of 1 <PAGE>
APPENDIX C
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near the
glass of any window, door, partition or wall which may, in Landlord's judgment,
appear unsightly from outside of the Project.
2. The Project directory shall be available to Tenant solely to display names
and their location in the Project, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by Tenant for any purposes other than
for ingress to and egress from the Premises. Tenant shall lend its full
cooperation to keep such areas free from all obstruction and in a clean and
slightly condition and shall move all supplies, furniture and equipment as soon
as received directly to the Premises and move all such items and waste being
taken from the Premises (other than waste customarily removed by employees of
the Building) directly to the shipping platform at or about the time arranged
for removal therefrom. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Landlord shall, in all cases, retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord, reasonably
exercised, shall be prejudicial to the safety, character, reputation and
interest of the Project. Neither Tenant nor any employee or invitee of Tenant
shall go upon the roof of the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall not be
used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extend caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
6. Tenant shall not install or operate any refrigerating, heating or air
conditioning apparatus, or carry on any mechanical business without the prior
written consent of Landlord; use the Premises for housing, lodging or sleeping
purposes; or permit preparation or warming of food in the Premises (warming of
coffee and individual meals with employees and guests excepted). Tenant shall
not occupy or use the Premises or permit the Premises to be occupied or used
for any purpose, act or thing which is in violation of any public law,
ordinance or governmental regulation or which may be dangerous to persons or
property.
7. Tenant shall not bring upon, use or keep in the Premises or the Project any
kerosene, gasoline or inflammable or combustible fluid or material, or any
other articles deemed hazardous to persons or property, or use any method of
heating or air conditioning other than that supplied by Landlord.
8. Landlord shall have sole power to direct electricians as to where and how
telephone and other wires are to be introduced. No boring or cutting for wires
is to be allowed without the consent of Landlord. The location of telephones,<PAGE>
call boxes and other office equipment affixed to the Premises shall be subject
to the approval of Landlord.
9. Without the prior consent of Landlord, which consent shall not be
unreasonably withheld or delayed, no additional locks shall be placed upon any
doors, windows or transoms in or to the Premises, and Tenant shall not change
existing locks or the mechanism thereof. Upon termination of the lease, Tenant
shall deliver to Landlord all keys and passes for offices, rooms, parking lot
and toilet rooms which shall have been furnished Tenant and shall make known to
Landlord the combination of all locks then remaining on the Premises. In the
event if the loss of keys so furnished, Tenant shall pay Landlord therefor.
Tenant shall not make, or cause to be made, any such keys and shall order all
such keys solely from Landlord and shall pay Landlord for any keys in addition
to the two sets of keys originally furnished by Landlord for each lock.
10. Tenant shall not install linoleum, tile, carpet or other floor covering so
that the same shall be affixed to the floor of the Premises in any manner
except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be received
in the Project or carried up or down in the freight elevator, except between
such hours and in such freight elevators as shall be designated by Landlord.
Tenant shall not take or permit to be taken in or out of other entrances of the
Building, or take or permit on other elevators, any item normally taken in our
out through the trucking concourse or service doors or in or on freight
elevators.
12. Tenant shall cause all doors to the Premises to be closed and securely
locked and shall turn off all utilities, lights and machines before leaving the
Project at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not use the
name of the Project or any picture of the Project in connection with, or in
promoting or advertising the business of, Tenant, except Tenant may use the
address of the Project as the address of its business.
14. Tenant shall cooperate fully with landlord to assure the most effective
operation of the Premises' or the Project's heating and air conditioning, and
shall refrain from attempting to adjust any controls, other than room
thermostats installed for Tenant's use. Tenant shall keep corridor doors
closed.
15. Tenant assumes full responsibility for protecting the Premises from theft,
robbery and pilferage which includes keeping doors locked and other means of
entry to the Premises closed and secured.
16. Peddlers, solicitors and beggars shall be reported to the office of the
Project or as Landlord otherwise requests.
17. Tenant shall not advertise the business,, profession or activities of
Tenant conducted in the Project in any manner which violates the letter or
spirit of any code of ethics adopted by an recognized association or
organization pertaining to such business, profession or activities.
18. No bicycle or other vehicle and no animals or pets shall be allowed in the
Premises, halls, freight docks, or any other parts of the Building except that
blind persons may be accompanied by "seeing eye" dogs. Tenant shall not make<PAGE>
or permit any noise, vibration or odor to emanate from the Premises, or do
anything therein tending to create, or maintain, a nuisance, or do any act
tending to injure the reputation of the Building.
19. Tenant acknowledges that Building security problems may occur which may
require the employment of extreme security measures in the day-to-day operation
of the Project.
(a) Landlord may, at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or its agents, in
their sold discretion, require that persons entering or leaving the Project or
the Property identify themselves to watchmen or other employees designated by
Landlord, by registration, identification or otherwise.
(b) Tenant agrees that it and its employees will cooperate fully with
Project employees in the implementation of any and all security procedures.
(c) Such security measures shall be the sold responsibility of Landlord,
and Tenant shall have no liability for any action taken by Landlord in
connection therewith.
20. Tenant shall not do or permit the manufacture, sale, purchase, use or gift
of any fermented, intoxicating or alcoholic beverages without obtaining written
consent of Landlord.
21. Tenant shall not disturb the quiet enjoyment of any other tenant.
22. Landlord may retain a pass key to the Premises and be allowed admittance
thereto at all times, upon twenty-four (24) hours' prior notice to Tenant
(except in the event of emergency), to enable its representatives to examine
the Premises from time to time and to exhibit the same and Landlord may place
and keep on the windows and doors of the Premises at any time signs advertising
the Premises for Rent.
23. No equipment, mechanical ventilators, awnings, special shades or other
forms of window covering shall be permitted either inside or outside the
windows of the Premises without the prior written consent of Landlord, and then
only at the expense and risk of Tenant, and they shall be of such shape, color,
material, quality, design and make as may be approved by Landlord.
24. Tenant shall not during the term of this Lease canvas or solicit other
tenants of the Building for any purpose.
25. Tenant shall not install or operate any phonograph, musical or
sound-producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device in the Building, nor install or
operate any antenna, aerial, wires or other equipment inside or outside the
Building, nor 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, without in each instance the
prior written approval of Landlord. The use thereof, if permitted, shall be
subject to control by Landlord to the end that others shall not be disturbed.
26. Tenant shall promptly remove all rubbish and waste from the Premises.
27. Tenant shall not exhibit, sell or offer for sale, Rent or exchange in the
Premises or at the Project any article, thing or service, except those<PAGE>
ordinarily embraced within the use of the Premises specified in Section 6 o
this Lease, without the prior written consent of Landlord.
28. Tenant shall list all furniture, equipment and similar articles Tenant
desires to remove from the Premises or the Building and deliver a copy of such
list to Landlord and procure a removal permit from the Office of the Building
authorizing Building employees to permit such articles to be removed.
29. Tenant shall not overload any floors in the Premises or any public
corridors or elevators in the Building.
30. Tenant shall not do any painting in the Premises, or mark, paint, cut or
drill into, drive nails or screws into, or in any way deface any part of the
Premises or the Building, outside or inside, without the prior written consent
of Landlord.
31. Whenever Landlord's consent, approval or satisfaction is required under
these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's sole discretion, and Landlord's satisfaction
shall be determined in its sole judgment.
32. Tenant and its employees shall cooperate in all fire drills conducted by
Landlord in the Building.<PAGE>
APPENDIX D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
None
APPENDIX D
Page 1 of 1<PAGE>
SUCCESS BANCSHARES, INC.
1999 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Success Bancshares, Inc. 1999 Stock Option Plan (the "Plan")
is to enhance the long-term stockholder value of Success Bancshares, Inc., a
Delaware corporation (the "Company"), by offering opportunities to employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its wholly owned subsidiary, Success National Bank, N.A., an
Illinois banking corporation ("Subsidiary"), to participate in the Company's
growth and success, and to encourage them to remain in the service of the
Company and its Subsidiary and to acquire and maintain stock ownership in the
Company.
SECTION 2. DEFINITIONS
For purpose of the Plan, the following terms shall be defined as set forth
below:
2.1 BOARD
"Board" means the Board of Directors of the Company.
2.2 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
2.3 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 COMMON STOCK
"Common Stock" means the common stock, no par value, of the Company.
2.5 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in which
the Company is not the continuing or surviving corporation, or pursuant to
which shares of the Common Stock are converted into cash, securities or other
property (other than a merger of the Company in which the holders of Common
Stock immediately prior to the merger have the same proportionate ownership of
capital stock of the surviving corporation immediately after the merger);
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation" is
defined in Section 8.3) of the Company; or <PAGE>
(c) Approval by the holders of the Common Stock of any plan or proposal
for the liquidation or dissolution of the Company.
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d) (1) (i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.6 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.7 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.8 FAIR MARKET VALUE
The "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price
on the last preceding date for which such price exists shall be determinative
of the Fair Market Value.
2.9 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution. If, however, the Plan Administrator designates in a resolution a
later date as the date an Option is to be granted, then such later date shall
be the "Grant Date."
2.10 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.11 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.12 OPTION
"Option" means the right to purchase Common Stock granted under Section 7.
2.13 OPTIONEE
"Optionee" means (i) the person to whom an Option is granted; (ii) for an
Optionee who has died, the personal representative of the Optionee's estate,
the person(s) to whom the Optionee's rights under the Option have passed by<PAGE>
will or by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 9; or (iii) person(s) to whom an Option
has been transferred in accordance with Section 9.
2.14 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.15 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended. SECTION 3.
ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a)
"outside directors" as contemplated by Section 162(m) of the Code and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of one or more members of the Board, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the number
of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the
Plan Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 10.1, a
maximum of 200,000 shares of Common Stock shall be available for issuance under
the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company as
treasury shares. <PAGE>
4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise of the
Option to the extent it is exercised for shares) shall again be available for
issuance in connection with future grants of Options under the Plan; provided,
however, that for purposes of Section 4.2, any such shares shall be counted in
accordance with the requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Options may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiary as the Plan Administrator from time
to time selects. Options may also be granted to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiary.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF OPTIONS
The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of awards to be made under the Plan. Such awards
may consist of Incentive Stock Options and/or Nonqualified Stock Options.
Options may be granted singly or in combination.
6.2 ACQUIRED COMPANY OPTION AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Options under the Plan in substitution for awards
issued under other plans, or assume under the Plan awards issued under other
plans, if the other plans are or were plans of other acquired entities
("Acquired Entities") (or the parent of an Acquired Entity) and the new Option
is substituted, or the old award is assumed, by reason of a merger,
consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is
approved by the Board and said agreement sets forth the terms and conditions of
the substitution for or assumption of outstanding awards of the Acquired
Entity, said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such awards shall be deemed to be Optionees.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified
Stock Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the<PAGE>
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE AND VESTING OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time (provided, however, that no
Option may become exercisable until at least six months from the Grant Date).
If not so established in the instrument evidencing the Option, the Option will
become exercisable and the shares subject to the Option will vest according to
the following schedule, which may be waived or modified by the Plan
Administrator at any time:
Period of Optionee's Continuous
Employment or Service with the
Company or Its Subsidiary From Percent of Total Option
the Grant Date that is Vested
After 2 years 25%
After 3 years 50%
After 4 years 75%
After 5 years 100%
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5.
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any)
and one or both of the following alternative forms: (a) tendering (either
actually or, if and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act, by attestation) Common Stock already owned
by the Optionee for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price or by transferring shares of Common Stock
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price to the Company's transfer agent for delivery to
the Company provided that the written notice of exercise is accompanied by a
written acknowledgment by the Optionee that the Optionee has instructed his
broker dealer to transfer such shares and such transfer is confirmed by a
letter from a broker dealer acknowledging that the Optionee has directed such<PAGE>
broker dealer to transfer such shares; or (b) if and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Exchange Act, delivery
of a properly executed exercise notice, together with irrevocable instructions,
to (i) a brokerage firm designated by the Company to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Option
exercise price and any withholding tax obligations that may arise in connection
with the exercise and (ii) the Company to deliver the certificates for such
purchased shares directly to such brokerage firm, all in accordance with the
regulations of the Federal Reserve Board. In addition, the exercise price for
shares purchased under an Option may be paid, either singly or in combination
with one or more of the alternative forms of payment authorized by this Section
7.5, by such other consideration as the Plan Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable,
and the terms and conditions of such exercise, if an Optionee ceases to be
employed by, or to provide services to, the Company or its Subsidiary, which
provisions may be waived or modified by the Plan Administrator at any time. If
not so established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be
waived or modified by the Plan Administrator at any time.
In case of termination of the Optionee's employment or services other than
by reason of death or Cause, the Option shall be exercisable, to the extent of
the number of shares vested at the date of such termination, only (a) within
six months (twelve months for non-employee Directors) of such termination if
the termination of the Optionee's employment or services is coincident with
Disability or (b) within three months (twelve months for non-employee
Directors) after the date the Optionee ceases to be an employee, director,
officer, consultant, agent, advisor or independent contractor of the Company or
its Subsidiary, but in no event later than the remaining term of the Option.
Any Option exercisable at the time of the Optionee's death may be exercised, to
the extent of the number of shares vested at the date of the Optionee's death,
by the personal representative of the Optionee's estate, the person(s) to whom
the Optionee's rights under the Option have passed by will or the applicable
laws of descent and distribution or the beneficiary designated pursuant to
Section 9 at any time or from time to time within six months (twelve months for
non-employee Directors) after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not vested on
the date of termination of the Optionee's employment or services shall
terminate on such date, unless the Plan Administrator determines otherwise. In
case of termination of the Optionee's employment or services for Cause, the
Option shall automatically terminate upon first notification to the Optionee of
such termination, unless the Plan Administrator determines otherwise. If an
Optionee's employment or services with the Company are suspended pending an
investigation of whether the Optionee shall be terminated for Cause, all the
Optionee's rights under any Option likewise shall be suspended during the
period of investigation.
With respect to employees, unless the Plan Administrator at any time
determines otherwise, "termination of the Optionee's employment or services"
for purposes of the Plan (including without limitation this Section 7), shall
mean any reduction in the Optionee's regular hours of employment to less than
thirty (30) hours per week. A transfer of employment or services between or
among the Company and its Subsidiary shall not be considered a termination of<PAGE>
employment or services. The effect of a Company-approved leave of absence on
the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be subject to delayed exercisability or treated as a
Nonqualified Stock Option as set forth by the Plan Administrator in the
agreement(s) evidencing the Option. In the event the Optionee holds two or more
such Options that become exercisable for the first time in the same calendar
year, such limitation shall be applied on the basis of the order in which such
Options are granted.
8.2 10% STOCKHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or its subsidiary
corporation may not be granted Incentive Stock Options. For purposes of this
Section 8.3, "subsidiary corporation" shall have the meaning attributed to that
term in Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the
case of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Optionee's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or
physical impairment of the Optionee that is expected to result in death or that
has lasted or is expected to last for a continuous period of 12 months or more
and that causes the Optionee to be unable, in the opinion of the Company, to
perform his or her duties for the Company or its Subsidiary and to be engaged
in any substantial gainful activity. Total disability shall be deemed to have<PAGE>
occurred on the first day after the Company or its Subsidiary has furnished its
opinion of total disability to the Plan Administrator.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Optionee must hold the shares issued
upon the exercise of an Incentive Stock Option for two years after the Grant
Date of the Incentive Stock Option and one year from the date of exercise. An
Optionee may be subject to the alternative minimum tax at the time of exercise
of an Incentive Stock Option. The Plan Administrator may require an Optionee to
give the Company prompt notice of any disposition of shares acquired by the
exercise of an Incentive Stock Option prior to the expiration of such holding
periods.
SECTION 9. ASSIGNABILITY
No Option granted under the Plan may be assigned, pledged or transferred
by the Optionee other than by will or by the applicable laws of descent and
distribution, and, during the Optionee's lifetime, such Option may be exercised
only by the Optionee or a permitted assignee or transferee of the Optionee (as
provided below). Notwithstanding the foregoing, and to the extent permitted by
Section 422 of the Code, the Plan Administrator, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit an Optionee
to designate a beneficiary who may exercise the Option after the Optionee's
death; provided, however, that any Option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Option.
SECTION 10. ADJUSTMENTS
10.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1, (ii) the
maximum number and kind of securities that may be made subject to options to
any individual as set forth in Section 4.2, and (iii) the number and kind of
securities that are subject to any outstanding Option and the per share price
of such securities, without any change in the aggregate price to be paid
therefor. The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.
10.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the Option,
in the event of a Corporate Transaction, the Plan Administrator shall determine
whether provision will be made in connection with the Corporate Transaction for
an appropriate assumption of the Options theretofore granted under the Plan<PAGE>
(which assumption may be effected by means of a payment to each Optionee (by
the Company or any other person or entity involved in the Corporate
Transaction), in exchange for the cancellation of the Options held by such
Optionee, of the difference between the then Fair Market Value of the aggregate
number of shares of Common Stock then subject to such Options and the aggregate
exercise price that would have to be paid to acquire such shares) or for
substitution of appropriate new options covering stock of a successor
corporation to the Company or stock of an affiliate of such successor
corporation. If the Plan Administrator determines that such an assumption or
substitution will be made, the Plan Administrator shall give notice of such
determination to the Optionees, and the provisions of such assumption or
substitution, and any adjustments made (i) to the number and kind of shares
subject to the outstanding Options (or to the options in substitution
therefor), (ii) to the exercise prices, and/or (iii) to the terms and
conditions of the stock options, shall be binding on the Optionees. Any such
determination shall be made in the sole discretion of the Plan Administrator
and shall be final, conclusive and binding on all Optionees. If the Plan
Administrator, in its sole discretion, determines that no such assumption or
substitution will be made, each Option that is exercisable but not exercised
and each Option that is not exercisable prior to the specified effective date
for the Corporate Transaction, shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the successor corporation or an affiliate thereof.
10.3 FURTHER ADJUSTMENT OF OPTIONS
Subject to Section 10.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Optionees, with respect to Options. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Options so as to provide for earlier, later, extended or additional time
for exercise and other modifications, and the Plan Administrator may take such
actions with respect to all Optionees, to certain categories of Optionees or
only to individual Optionees. The Plan Administrator may take such action
before or after granting Options to which the action relates and before or
after any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
10.4 LIMITATIONS
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 11. WITHHOLDING
The Company may require the Optionee to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant or exercise of any Option. Subject to the Plan and applicable law,
the Plan Administrator may, in its sole discretion, permit the Optionee to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring<PAGE>
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any shares of Common Stock issuable pursuant to an
Option or from any cash amounts otherwise due or to become due from the Company
to the Optionee an amount equal to such taxes. The Company may also deduct from
any Option any other amounts due from the Optionee to the Company or its
Subsidiary.
SECTION 12. AMENDMENT AND TERMINATION OF PLAN
12.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall
deem advisable; however, to the extent required for compliance with Section 422
of the Code or any applicable law or regulation, stockholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require stockholder approval
under any applicable law or regulation.
12.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the stockholders.
12.3 CONSENT OF OPTIONEE
The amendment or termination of the Plan shall not, without the consent of
the Optionee, impair or diminish any rights or obligations under any Option
theretofore granted under the Plan.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Optionee, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to
fail to continue to qualify as an Incentive Stock Option.
SECTION 13. GENERAL
13.1 OPTION AGREEMENTS
Options granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
13.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN OPTIONS
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
13.3 REGISTRATION <PAGE>
The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if
made. The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of
an exemption from registration for the issuance and sale of any shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite authority shall
not have been obtained.
As a condition to the exercise of an Option, the Company may require the
Optionee to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Optionee's own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the
Company, a stop-transfer order against any such shares may be placed on the
official stock books and records of the Company, and a legend indicating that
such shares may not be pledged, sold or otherwise transferred, unless an
opinion of counsel is provided (concurred in by counsel for the Company)
stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates to ensure exemption from
registration. The Plan Administrator may also require such other action or
agreement by the Optionee as may from time to time be necessary to comply with
the federal and state securities laws.
13.4 NO RIGHTS AS A STOCKHOLDER
No Option shall entitle the Optionee to any dividend, voting or other
right of a stockholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
13.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Optionees who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Optionees. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
13.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or<PAGE>
shares of Common Stock, or to create any trusts, or to make any special
deposits for any immediate or deferred amounts payable to any Optionee, and no
Optionee shall have any rights that are greater than those of a general
unsecured creditor of the Company.
13.7 SEVERABILITY
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform
to applicable laws, or, if it cannot be so construed or deemed amended without,
in the Plan Administrator's determination, materially altering the intent of
the Plan or the Option, such provision shall be stricken as to such
jurisdiction, person or Option, and the remainder of the Plan and any such
Option shall remain in full force and effect.
SECTION 14. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's stockholders at any time within 12
months of such adoption. Adopted by the Board on ________ __, 1999 and approved
by the Company's stockholders on ________ __, 1999.<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
Date of Adoption/Amendment Date of Stockholder
Adjustment Section Effect of Amendment Approval<PAGE>
Success Bancshares, Inc.
1998 Annual Report<PAGE>
Success Bancshares, Inc. and Subsidiaries
Success Bancshares, Inc., is the bank holding company for Success National
Bank. Headquartered in Lincolnshire, Illinois, Success National Bank is a
locally-owned community bank with a strong focus on customer value.
During our First 20 years of business we were known as First National Bank of
Lincolnshire. The Bank's name was changed in 1992 - at the time we opened our
first branch office - in recognition of our growth and broader market area.
Today, Success National Bank is a full-service community bank with eleven
locations offering a broad range of financial services to consumers and
businesses in the Northern Chicagoland area.
(Insert Map) Retail Banking Offices
Arlington Heights
360 Northwest Highway.Arlington Heights, IL 60005
Phone: (847) 279-9000 . Fax: (847) 279-9246
Chicago Downtown
230 W. Monroe . Chicago, IL 60606
Phone: (847) 279-9000 . Fax: (312) 279-9929
Deerfield Downtown
630 Waukegan Road . Deerfield, IL 60015-4345
Phone: (847) 279-9000 . Fax: (847) 279-9225
Deerfield/Riverwoods
1020 Milwaukee Avenue . Deerfield, IL 60015-3548
Phone: (847) 279-9000 . Fax: (847) 279-0580
International Office*
3333 West Touhy Avenue.Lincolnwood, IL 60645-2721
Phone: (847) 279-9000 . Fax: (847) 279-9842
Libertyville
(Includes Accounting, Bookkeeping and Merchant
Processing Departments)
1123 S. Milwaukee Ave.Libertyville, IL 60048-3270
Phone: (847) 279-9000 . Fax: (847) 279-9161
Lincoln Park
2424 North Clark Street . Chicago, IL 60614-2718
Phone: (847) 279-9000 . Fax: (847) 279-9906
Lincolnwood
3443 Wet Touhy Avenue .Lincolnwood, IL 60069-3703
Phone: (847) 279-9000 . Fax: (847) 279-9847
Lincolnshire
(Includes Executive Offices)
One Marriott Drive . Lincolnshire, IL 60069-3703
Phone: (847) 279-9000 . Fax: (847) 279-9050
Northbrook
1368 Shermer Road . Northbrook, IL 60062-4599
Phone: (847) 279-9000 . Fax: (847) 279-9276<PAGE>
Skokie
4028 Oakton Street . Skokie, IL 60076
Phone: (847) 279-9000 . Fax: (847) 279-9869
* Located inside the Lincolnwood Town Center Mall, the International Office
caters to the extensive pan-Asian community in the North Chicagoland area. The
staff in this office can provide service in the Chinese, Thai and Malaysian
languages as well as in English.<PAGE>
Success Bancshares, Inc. and Subsidiaries
Table of Contents<PAGE>
Success Bancshares, Inc. and Subsidiaries
Mission Statement<PAGE>
Success Bancshares, Inc. and Subsidiaries
President's Message<PAGE>
Success Bancshares, Inc. and Subsidiaries
Selected Financial Highlights
Year Ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands, except share data)
Statement of Income Data:
Interest income $32,459 $24,912 $19,850 $18,675 $14,619
Interest expense 17,184 12,861 10,020 9,886 7,221
------- ------- ------- ------- -------
Net interest income 15,275 12,051 9,830 8,789 7,398
Provision for loan losses 1,943 766 310 207 250
Other income 3,275 2,650 2,136 2,125 1,251
Other expenses 15,690 12,349 10,640 9,510 8,318
------- ------- ------- ------- -------
Net income before taxes 917 1,586 1,016 1,197 81
Income tax expense (benefit) (287) 499 233 260 (182)
------- ------- ------- ------- -------
Net income $1,204 $1,087 $783 $937 $263
====== ====== ====== ====== ======
Common Share Data:
Earnings per common share:
Basic $0.41 $0.68 $0.66 $0.93 $0.27
Diluted $0.40 $0.65 $0.63 $0.86 $0.26
Book value per common share $10.95 $10.30 $8.99 $7.48 $5.83
Weighted average common
shares outstanding 2,938 1,531 1,061 1,011 990
Balance Sheet Data:
Cash and cash equivalents $38,824 $23,901 $13,833 $20,559 $18,909
Securities 41,037 53,754 47,707 55,614 55,393
Loans, net 371,263 287,025 203,299 171,135 139,491
Total assets 470,478 378,719 276,349 251,338 222,809
Deposits 398,735 329,424 245,105 227,308 204,171
Borrowings, including
repurchase agreements 21,513 16,163 18,975 14,395 11,174
Company obligated mandatory
redeemable preferred
securities of subsidiary
trust holding solely junior
subordinated debentures 15,000 - - - -
Shareholders' equity $32,324 $30,070 $10,100 $8,085 $5,973
Performance Data:
Net interest margin 3.95% 4.17% 4.25% 4.14% 4.38%
Return on average assets 0.28% 0.34% 0.31% 0.40% 0.13%
Return on average equity 3.80% 7.76% 8.33% 14.48% 4.29%
Loans to deposits 93.11% 87.13% 82.94% 75.29% 68.32%
Asset Quality Ratios:
Nonperforming loans to
total loans (1) 0.09% 0.63% 0.06% 0.37% 0.27%
Nonperforming assets to
total assets 0.17% 0.56% 0.04% 0.25% 0.17% <PAGE>
Allowance for loan losses
to total loans 1.02% 0.72% 0.70% 0.70% 0.71%
Nonperforming loans to
allowance for loan losses 9.13% 87.54% 8.28% 53.74% 38.10%
Net loan charge-offs to
average loans 0.06% 0.05% 0.04% 0.01% 0.08%
Capital Ratios:
Risk-based capital 15.23% 12.37% 8.00% 7.53% 7.83%
Leverage capital (2) 9.96% 9.69% 4.37% 3.70% 3.52%
Other:
Branch offices
(including headquarters) 11 9 7 7 5
Full-time equivalent employees 196 162 144 150 120
___________
(1) Nonperforming loans consist of non-accrual loans and loans contractually
past due 90 days or more.
(2) The leverage ratio is defined as the ratio of Tier 1 risk-based capital to
adjusted total assets.
<PAGE>
Success Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The following discussion is intended to assist in understanding the financial
condition and results of operation of the Company. The information contained
in this section should be read in conjunction with the Financial Statements and
the accompanying Notes to Financial Statements and the other sections contained
in this annual report.
The Company's principal business is conducted by its wholly-owned subsidiary,
Success National Bank (the "Bank"), and consists of full service community
banking. The Company's results of operations depend primarily on its net
interest income, which is the difference between the income the Company
receives on its loan and investment portfolios and the Company's cost of funds
or interest paid on deposits and borrowings. The Company's results of
operations also are affected by the provision for loan losses, the level of its
noninterest income and expenses, and income tax expense.
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. Noninterest expenses are heavily influenced by
the growth of the Company, 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 expenses such as
data processing costs, supplies, postage and other miscellaneous expenses.<PAGE>
Interest Earning Assets and Interest Bearing Liabilities
The following table sets forth the average daily balances, net interest income
and expense and average yields and rates for the Company's interest earning
assets and interest bearing liabilities for the indicated years on a tax-
equivalent basis assuming a 34% tax rate.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
Average Yield/Average Yield/Average
BalanceInterest Rate BalanceInterest RateBalance
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans <1> & <2> $331,878 $28,970 8.73%$239,084$21,755 9.10%$182,45
Taxable investment securities 40,130 2,317 5.77 38,801 2,318 5.97 40,423
Investment securities exempt from
Federal income taxes <1> 12,798 939 7.34 8,214 613 7.46 8,824
Interest bearing deposits with
financial institutions 5,349 283 5.29 4,032 215 5.33 2,189
Other interest earning assets 5,398 301 5.58 3,576 208 5.82 2,500
------- ------- -------------- ---------------------
Total interest earning assets 395,553 $32,810 8.29%293,707 $25,109 8.55%236,389
Non-interest earning assets 31,685 25,335 19,890
Total assets $427,238 $319,042 $256,279
Liabilities & Shareholders' Equity
Deposits:
NOW & money market accounts $131,681 $5,976 4.54%$88,652 $3,114 3.51%$76,127
Savings deposits 21,104 667 3.16 19,946 640 3.21 18,329
Time deposits 163,139 8,622 5.29127,236 7,436 5.84 96,308
Notes payable - - - 4,249 363 8.54 4,237
Other borrowings 28,873 1,919 6.65 20,978 1,308 6.24 15,923
Total interest bearing
liabilities 344,797 17,184 4.98261,061 12,861 4.93210,924
Demand deposits -
non-interest bearing 48,044 40,868 33,922
Other non-interest bearing
liabilities 2,674 2,560 1,515<PAGE>
Minority interest in
subsidiary bank - 544 515
Shareholders' equity 31,723 14,009 9,403
Total liabilities &
shareholder's equity $427,238 $319,042 $256,27
Net interest income $15,626 $12,248 $10,057
Net interest margin 3.95% 4.17%
<FN>
<1> Tax-exempt income as reflected on a fully tax equivalent basis utilizing a 34% r
presented.
<2> Non-accrual loans are included in average loans. The increase in average interes
$101.8 million to $395.6 million for the year ended December 31, 1998, is primarily a
Company's loan growth. The average balance of loans during 1998 was $331.9 million,
$239.1 million for 1997, an increase of $92.8 million or 38.8%.
</TABLE>
The increase in the loan portfolio during this period was due to increased loan
demand primarily in one-to-four family residential loans and, to a lesser
extent, commercial mortgage loans and other commercial loans. At December 31,
1998 residential real estate mortgages increased $29.8 million to $72.4
million, or 69.8%, from December 31, 1997.
The Company's loan growth was funded primarily with interest bearing deposits
and borrowings. Interest bearing deposits at December 31, 1998 increased $69.3
million to $345.2 million, or 21.0%, from December 31, 1997. Borrowings at
December 31, 1998, including a $15.0 million trust preferred securities
issuance in May 1998, increased $20.4 million to $36.5 million, or 125.9%,
over December 31, 1997.<PAGE>
Rate/Volume Analysis
The following table sets forth the affects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate) and (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume). Changes in
rate/volume (change in rate multiplied by change in volume) have been allocated
to the rate and volume categories in proportion to the relationship of the
absolute dollar amounts of the change in each.
Year Ended December 31,
1998 over 1997 1997 over 1996
Change due to Total Change due to Total
Volume Rate Change Volume Rate Change
(dollars in thousands)
Interest earning assets:
Net loans (1) $8,133 $(918) $7,215 $5,155 $(164) $4,991
Taxable investment securities 78 (79) (1) (97) 18 (79)
Investment securities exempt
from Federal income taxes (1) 337 (11) 326 (46) (12) (58)
Interest bearing deposits
with financial institutions 70 (2) 68 99 (9) 90
Other interest earning assets 102 (9) 93 59 29 88
Total increase (decrease)
in interest income 8,720 (1,019) 7,701 5,170 (138) 5,032
Interest bearing liabilities:
NOW & money market accounts $1,787 $1,075 $2,862 $435 $122 $557
Savings deposits 37 (10) 27 52 (18) 34
Time deposits 1,948 (762) 1,186 1,804 163 1,967
Notes payable (181) (182) (363) 1 7 8
Other borrowings 520 91 611 317 (42) 275
Total increase (decrease)
in interest expense 4,111 212 4,323 2,609 232 2,841
Increase (decrease) in net
interest income $4,609$(1,231) $3,378 $2,561 $(370) $2,191
(1) Tax-exempt income is reflected on a fully tax equivalent basis utilizing a
34% rate for all periods presented.
Consolidated Results of Operations
Comparison of Results of Operations for the Years Ended December 31, 1998 and
December 31, 1997
General
The Company reported net income of $1.2 million for the year ended December 31,
1998 compared to net income of $1.1 million for the year ended December 31,
1997, an increase of $117 thousand or 10.8%. For the year, the loan loss
provision increased by $1.2 million and total other operating expenses
increased by $3.3 million. These increases were offset by an increase in net
interest income of $3.2 million, an increase in other operating income of $625
thousand and a decrease in the provision for income taxes of $786 thousand.
These and other significant fluctuations in the Company's results of operation
are discussed below.<PAGE>
Net interest income
Net interest income increased to $15.3 million for the year ended December 31,
1998 from $12.1 million for 1997. This increase in net interest income of $3.2
million, or 26.8%, was attributable to a $7.5 million increase in interest
income resulting from the 34.7% increase in average interest earning assets in
the year ended December 31, 1998 compared to the year ended December 31, 1997.
Partially offsetting this increase in interest income was a $4.3 million
increase in interest expense for the year ended December 31, 1998, a 33.6%
increase from 1997. The Company's net interest margin decreased to 3.95% for
1998 compared to 4.17% in 1997 as a result of the impact of promotional home
equity loan growth and market competition for high quality loan customers.
Provision for loan losses
The provision for loan losses increased to $1.9 million in 1998, from $766
thousand in the prior year, necessitated by the growth in the loan portfolio.
At December 31, 1998, the allowance for loan losses represented 1.02% 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 $625 thousand, or 23.6%,
to $3.3 million for 1998, compared to $2.7 million in 1997. Service charges on
deposit accounts increased by 8.2% to $2.0 million for the year ended December
31, 1998, from $1.9 million in 1997. The increase is primarily attributable to
a 22.2% increase in the average balance of deposit accounts subject to such
service charges. The majority of service charges on deposit accounts consisted
of fees charged for overdrafts and failure to maintain required balances. Net
credit card processing income decreased to $71 thousand from $446 thousand for
the years ended December 31, 1998 and 1997, respectively, primarily as a result
of competitive pressures to reduce transaction charges for volume customers.
In 1998, a loss of $200 thousand on the sale of the Company's $3.0 million
structured note portfolio was partially offset by gains from the sale of loans
in the secondary market in the amount of $159 thousand. In 1998, the Company
included in other noninterest income $1.0 million of life insurance proceeds
related to the death of Company President and CEO, Saul D. Binder.
Other operating expenses
Total other operating expenses increased $3.3 million, or 27.1%, to $15.7
million for 1998, as compared to $12.3 million in 1997. This increase reflects
the higher level of expenditures required to support the Company's growth.
Salaries and employee benefits increased to $8.2 million for the year ended
December 31, 1998, as compared to $6.2 million for the prior year. The
increase of $2.0 million reflects increased staffing to support new locations
and thegrowth 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 and the contractual
compensation expenses of approximately $350 thousand incurred in connection<PAGE>
with the unexpected death of Mr. Binder. Occupancy and equipment expenses
increased to $2.7 million for 1998, from $2.0 million for 1997, primarily due
to improvements in the Company's computer systems and the costs associated with
the May, 1998, opening of the downtown Chicago branch location and August, 1998
opening of the Skokie/Oakton Street branch location. Data processing expense
decreased to $739 thousand for the year ended December 31, 1998, compared to
$889 thousand for 1997, primarily due to the inclusion in 1997 of the costs
associated with the conversion of the Company's data processing provider.
Other noninterest expenses increased by $852 thousand, or 26.3%, to $4.1
million for the year ended December 31, 1998, from $3.2 million for 1997,
primarily due to a $246 thousand increase of costs related to the carry and
revaluation of other real estate owned, a $119 thousand increase in legal fees
and an increase of $119 thousand in consulting fees attributable to branch
architectural services.
Income taxes
The Company recorded income tax benefit of $287 thousand for 1998, compared to
an income tax expense of approximately $499 thousand in 1997. The decrease is
attributable to both a decrease in net income before tax and to an increase in
income not subject to federal tax. In 1998, the Company received $1.0 million
of life insurance proceeds related to the death of Company President and CEO,
Saul D. Binder, which are exempt from tax.
Comparison of Results of Operations for the Years Ended December 31, 1997 and
December 31, 1996
General
The Company's net income for the year ended December 31, 1997 was $1.1 million
compared to net income of $783 thousand for the year ended December 31, 1996.
The $304 thousand 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 $12.1 million for the year ended December 31,
1997 from $9.8 million for 1996. This increase in net interest income of $2.2
million, or 22.6% was attributable to a $5.1 million increase in interest
income resulting from the 24.2% increase in average interest earning assets in
the year ended December 31, 1997 compared to the year ended December 31, 1996.
Partially offsetting this increase in interest income was a $2.8 million
increase in interest expense for the year ended December 31, 1997, a 28.4%
increase from 1996. The Company's net interest margin decreased to 4.17% for
1997 compared to 4.25% in 1996 as a result of the impact of promotional home
equity loan growth and market competition for high quality loan customers.
Provision for loan losses
The provision for loan losses increased to $766 thousand in 1997, from $310
thousand in the prior year, primarily due to the growth in the loan portfolio.
At December 31, 1997, the allowance for loan losses represented 0.72% 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<PAGE>
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 $514 thousand, or 24.1%,
to $2.7 million for 1997, compared to $2.1 million in 1996. Service charges on
deposit accounts increased by 34.0% to $1.9 million for the year ended December
31, 1997, from $1.4 million in 1996. The increase is primarily attributable to
a 15.0% increase in the average balance of deposit accounts subject to such
service charges and a 102.5% increase in average overdrafts outstanding. The
majority of service charges on deposit accounts consisted of fees charged for
overdrafts and failure to maintain required balances. Net credit card
processing income increased to $446 thousand from $321 thousand for the years
ended December 31, 1997 and 1996, respectively, due primarily to a 10.3%
increase in the amount of credit card sales processed and an increase in rates
charged merchants. Total processing volume increased to $290.3 million for the
year ended December 31, 1997, from $263.2 million in 1996.
Other operating expenses
Total other operating expenses increased $1.8 million, or 16.1%, to $12.3
million for 1997, as compared to $10.6 million in 1996. This increase reflects
the higher level of expenditures required to support the Company's growth.
Salaries and employee benefits increased to $6.2 million for the year ended
December 31, 1997, as compared to $5.5 million for the prior year. The
increase of $664 thousand reflects increased staffing to support new locations
and 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 $2.0 million for 1997, from $1.7 million for 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 September, 1997 opening of the Arlington Heights branch location.
Data processing expense increased to $889 thousand, (40.4%), for the year ended
December 31, 1997, compared to $633 thousand for 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. Other non-interest
expenses increased by $460 thousand, or 16.6%, to $3.2 million for the year
ended December 31, 1997, from $2.8 million for 1996, primarily due to a $321
thousand increase in legal fees attributable to increased collection costs and
other matters.
Income taxes
The Company recorded income tax expense of $499 thousand for 1997, compared to
an income tax expense of approximately $233 thousand in 1996, which increase is
attributable to the increase in net income before tax.
Quantitative and Qualitative Disclosures About Market Rates
See Note 18 - Fair Values of Financial Instruments to the Company's
Consolidated Financial Statements for a description of the Company's market
risk.
Forward Looking Statements<PAGE>
Statements made about the Company's future economic performance, strategic
plans or objectives, revenues or earnings projections, or other financial items
and similar statements are not guarantees of future performance, but are
forward looking statements. By their nature, these statements are subject to
numerous uncertainties that could cause actual results to differ materially
from those in the statements. Important factors that might cause the Company's
actual results to differ materially include, but are not limited to, the
following:
. Federal and state legislative and regulatory developments;
. The impact of continued loan and deposit promotions on the Company's net
interest margin;
. The impact of opening, staffing and operating new branch facilities;
. Changes in management's estimate of the adequacy of the allowance for loan
losses;
. Changes in the level and direction of loan delinquencies and write-offs;
. Interest rate movements and their impact on customer behavior and the
Company's net interest margin;
. The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
. The Company's ability to adapt successfully to technological changes to
meet customers' needs and developments in the marketplace;
. The Company's ability to access cost effective funding;
. Changes in financial markets and general economic conditions; and
. The Company's ability to achieve year 2000 compliance without incurring
material, unplanned expenditures.<PAGE>
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, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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 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 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998.
/s/ McGladrey & Pullen, LLP
Schaumburg, Illinois
February 12, 1999<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
(In thousands, except share data)
ASSETS
Cash and cash equivalents $ 38,824 $23,901
Securities available-for-sale 41,037 22,090
Securities held-to-maturity (fair value $32,439 in 1997) - 31,664
Real estate loans held-for-sale 1,006 65
Loans, less allowances for loan losses of $3,824
at 1998 and $2,079 in 1997. 371,263 287,025
Premises and equipment, net 11,362 8,786
Interest receivable 2,699 2,507
Other real estate owned 435 290
Other assets 3,852 2,391
------- -------
Total assets $470,478 $78,719
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $53,557 $45,225
Interest bearing deposits 345,178 284,199
------- -------
Total deposits 398,735 329,424
Federal Home Loan Bank advances 15,491 10,720
Securities sold under repurchase agreements 5,136 3,814
Demand notes payable to U.S. Government 886 1,429
Convertible subordinated debentures - 200
Interest payable and other liabilities 2,906 2,482
------- -------
Total liabilities 423,154 348,069
Minority interest in subsidiary bank - 580
Company obligated mandatory redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures 15,000 -
Shareholders' equity
Preferred stock, $0.001 par value,
1,000,000 shares authorized, none issued - -
Common stock, $0.001 par value 7,500,000
shares authorized, 2,959,236 and 2,918,324
shares issued and outstanding, at 1998 and
1997, respectively 3 3
Additional paid-in capital 24,528 24,151
Retained earnings 7,556 6,352
Unearned compensation (92) -
Loan to Employee Stock Ownership Plan (113) (158)
Accumulated other comprehensive income 442 (278)
------- -------
Total shareholders' equity 32,324 30,070
------- -------<PAGE>
Total liabilities and shareholders' equity $470,478 $378,719
======= =======
See accompanying notes to Consolidated Financial Statements<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
1998 1997 1996
(In thousands, except per share data)
Interest income
Loans (including fee income) $28,938 $21,746 $16,757
Investment securities
Taxable 2,317 2,318 2,397
Exempt from federal income tax 620 425 451
Other interest income 584 423 245
------- ------- -------
Total interest income 32,459 24,912 19,850
Interest expense
Deposits 15,265 11,190 8,632
Note payable - 363 355
Convertible subordinated debentures 8 303 339
Other borrowings 1,911 1,005 694
------- ------- -------
Total interest expense 17,184 12,861 10,020
Net interest income 15,275 12,051 9,830
Provision for loan losses 1,943 766 310
------- ------- -------
Net interest income after provision for loan losses13,332 11,285 9,520
Other operating income
Service charges on deposit accounts 2,033 1,879 1,402
Gains on sales of loans 159 61 109
Loss on sale of securities, net (200) - -
Net credit card processing income 71 446 321
Life insurance proceeds 1,000 - -
Other noninterest income 212 264 304
------- ------- -------
Total other operating income 3,275 2,650 2,136
Other operating expenses
Salaries and employee benefits 8,172 6,177 5,513
Occupancy and equipment expenses 2,688 2,044 1,715
Data processing 739 889 633
Other noninterest expenses 4,091 3,239 2,779
------- ------- -------
Total other operating expenses 15,690 12,349 10,640
------- ------- -------
Income before income taxes 917 1,586 1,016
Income tax expense (credit) (287) 499 233
------- ------- -------
Net income 1,204 1,087 783
Preferred stock dividends - 40 81
------- ------- -------
Net income applicable to common stock 1,204 1,047 702
======= ======= =======
Basic earnings per share $0.41 $0.68 $0.66
Diluted earnings per share $0.40 $0.65 $0.63 <PAGE>
See accompanying notes to Consolidated Financial Statements<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements Of Shareholders' Equity
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Series B Class AAdditional OtherUnearne
Preferred Common CommonPaid-inRetainedComprehensive
Stock StockStock CapitalEarnings IncomeCompens
<S> <C> <C> <C> <C> <C> <C> <C>
Unearned Compensation
ESOP Loan
Total Shareholders' Equity
(In thousands)
Balance at January 1, 1996 $0 $1,041 $40 $3,293 $4,603 $(709)
Comprehensive Income:
Net income - - - - 783 -
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale arising
during the period, net of taxes
of $82
----- ------ ------ ------ ------ ------ -----
Total comprehensive Income
Issuance of 5,658 shares of
common stock - 6 - 39 - -
Issuance of 75,500 shares of
Class A common - - 76 1,016 - -
Conversion of common stock to
Series B preferred 94 (94) - - - -
Series B preferred stock dividends - - - - (81) -
Repayment of ESOP loan - - - - - -
----- ------ ------ ------ ------ ------ -----
Balance at December 31, 1996 94 953 116 4,348 5,305 (579)
Comprehensive Income:
Net income - - - - 1,087 -
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale arising
during the period, net of taxes<PAGE>
of $190
----- ------ ------ ------ ------ ------ -----
Total comprehensive Income
Issuance of 16,461 shares of
common stock, through option
exercise - 16 - 140 - -
Change in par value per
common share from $1.00 to $0.001 - (1,061) 1,061 - -
Series B preferred stock dividends (40)
Conversion of Class A common
stock into common stock (116) 116
Conversion of Series B preferred
stock into common stock (94) 94
Issuance of 1,380,000 shares
through initial public offering,
net of expenses 1 15,539 -
Conversion of subordinated
debentures into common stock - - - 2,917 -
Loan to ESOP - - - - - -
ESOP shares released 30
----- ------ ------ ------ ------ ------ -----
Balance at December 31, 1997 0 3 0 24,151 6,352 (278)
Net income - - - - 1,204 -
Other comprehensive income,
net of tax:
Unrealized gains on securities
available for sale arising during
the period, net of taxes of $533
Reclassification adjustment,
net of tax benefit of $78
----- ------ ------ ------ ------ ------ -----
Other comprehensive income,
net of tax 720
Total comprehensive Income
Issuance of 21,250 shares of
common stock, through option
exercise - - - 131 - -
Issuance of restricted
common stock 92 (92
Conversion of subordinated
debentures into common stock - - - 100 - -<PAGE>
ESOP shares released - - - 54 -
----- ------ ------ ------ ------ ------ -----
Balance at December 31, 1998 $ - $ 3 $ -$24,528 $7,556 $442 $(92
===== ====== ====== ====== ====== ====== =====
</TABLE>
See accompanying notes to Consolidated Financial Statements<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1998 1997 1996
(In thousands)
Cash flows from operating activities
Net income $1,204 $1,087 $ 783
Adjustments to reconcile net income to net cash
provided by operating activities
Premium amortization on securities,
net of discount accretion 122 (43) (49)
Provision for loan losses 1,943 766 310
Depreciation and amortization 1,191 878 623
Provision for deferred taxes (737) (279) (88)
Net losses on sales of securities 200 - -
Loans originated for sale (10,569) (3,373) (5,453)
Proceeds from sales of loans 9,787 3,486 3,326
Net gains on sales of loans (159) (61) (109)
Net losses on sale of other real estate owned 76 - -
Accretion of loan discount (110) (65) (87)
Deferred loan fees (322) (74) 38
Change in interest receivables and other assets (1,419) (374) (518)
Change in interest payable and other liabilities 14 837 605
Other 151 146 353
------- ------- -------
Net cash provided by (used) in operating
activities 1,372 2,931 (266)
Cash flows from investing activities
Proceeds from sales of available-for-sale
securities $ 35 $ - $ -
Proceeds from sales of held-to-maturity
securities 2,835 - -
Proceeds from maturities of available-for-sale
securities 14,571 8,856 3,828
Purchases of available-for-sale securities (11,902) (15,651) (3,906)
Proceeds from maturities of held-to-maturity
securities 11,333 1,381 3,171
Purchases of held-to-maturity securities (3,000) (374) -
Changes in interest-bearing balances with
financial institutions - 99 100
Loans made to customers, net (86,178) (84,643) (30,218)
Purchase of other real estate owned (1,430) - -
Proceeds from sales of other real estate 1,638 - -
Premises and equipment expenditures (3,762) (2,615) (2,889)
Purchase of subsidiary bank common stock (580) (5) (25)
------- ------- -------
Net cash used in investing activities (76,440) (92,952) (29,939)
Cash flows from financing activities
Increase in non-interest bearing deposits $8,332 $ 2,629 $ 7,428
Increase in interest bearing deposits 60,979 81,690 10,369
Increase (decrease) in demand notes payable
to US Government (543) (157) 1,251
Increase (decrease) in securities sold
under agreements to repurchase 1,322 (441) 2,387 <PAGE>
Repayments of notes payable - (7,815) (2,015)
Proceeds from notes payable - 3,000 3,000
Proceeds from Federal Home Loan Bank advances 9,000 11,750 4,000
Repayment of Federal Home Loan Bank advances (4,229) (6,182) (4,798)
Issuance of convertible subordinated debentures - - 755
Repayment of convertible subordinated debentures (100) - -
Issuance of Trust Preferred securities 15,000 - -
Issuance of common stock 185 15,676 1,137
ESOP loan for common shares purchased by ESOP - (50) -
Principal payment on ESOP loan 45 29 46
Dividends paid - (40) (81)
------- ------- -------
Net cash provided by financing activities 89,991 100,089 23,479
------- ------- -------
Increase (decrease) in cash and cash equivalents 14,923 10,068 (6,726)
Cash and cash equivalents at beginning of year 23,901 13,833 20,559
------- ------- -------
Cash and cash equivalents at end of year $38,824 $23,901 $13,833
======= ======= =======
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $15,208 $11,002 $8,647
Interest on borrowings 1,877 1,708 1,373
Income taxes 627 570 352
Selected noncash investing activities
Other real estate acquired in settlement of loans $ 671 $ 290 $ -
See accompanying notes to Consolidated Financial Statements<PAGE>
Success Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 locations in the Chicago metropolitan area.
(a) Basis of Presentation: The consolidated financial statements of Success
Bancshares, Inc. include the accounts of the Company and its wholly-owned
subsidiaries: Success National Bank, Success Realty Ventures, Inc.
("Success"), and Success Capital Trust I ("Trust"). 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.
In June 1997, the FASB issued SFAS No. 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. SFAS No. 130
requires unrealized gains and losses on the Company's available for sale
portfolio, which prior to adoption were reported separately in stockholders'
equity, to be included in Comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". The Statement established 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 established 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. Based upon the Company's approach to
decision making, management has concluded that its business is comprised of a
single segment and that SFAS No. 131 therefore, has no impact on its
consolidated financial statements.
(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,
deposits, securities sold under agreements to repurchase and demand notes
payable to U.S. Government are reported net.<PAGE>
(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 the lower of
cost or 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, 1998 and 1997.
(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. Additionally,
interest income is reduced for any amounts previously accrued. 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 are being deferred in accordance with
SFAS No. 91 "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases." This
statement requires that loan origination fees and direct loan origination costs<PAGE>
for a completed loan be netted and then deferred and amortized into interest
income as an adjustment of yield over the contractual life of the loan.
The Company has adopted the provisions of SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." These statements
apply to all loans that are identified for evaluation except for large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment. Commercial loans less than $100,000, residential real estate
mortgages, home equity loans, and installment loans are considered small
balance homogenous loan pools and are not evaluated 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.
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.
(f) 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.
(g) Other Real Estate Owned: Other real estate owned (OREO) represents
properties acquired through foreclosure or other proceedings and is initially
recorded at fair value at the date of foreclosure, which establishes a new
cost. After foreclosure, OREO is held for sale and is carried at the lower of
cost or fair value less estimated costs of disposal. Any write-down to fair
value at the time of transfer to OREO is charged to the allowance for loan
losses. Property is evaluated regularly to ensure the recorded amount is
supported by its current fair value and valuation allowances to reduce the
carrying amount to fair value less estimated costs to dispose are recorded as
necessary. Revenue and expense from the operations of OREO and changes in the
valuation allowance are included in the results of operations.
(h) Income Taxes: The Company files a consolidated income tax return with its
subsidiaries. The Company's 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<PAGE>
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) Earnings Per Share: The Company computes its earnings per share (EPS) in
accordance with SFAS No. 128, "Earnings per Share." This statement simplifies
the standards for computing EPS preisouly found in Accounting Principles Board
Opinion No. 5, "Earnings per Share" and makes them comparable to international
EPS standards. It replaces the presentation of primary EPS with a presentation
of basic EPS and fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity.
(j) Recent Accounting Developments: During 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and for Hedging Activities" which
establishes new standards for reporting information about derivatives and
hedging. It is effective for periods beginning after June 15, 1999 and will be
adopted by the Company as of January 1, 2000. The Company has not yet
quantified the impact of adopting Statement No. 133 on its financial statements
and has not determined the timing or method of its adoption of Statement No.
133, if any.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" which is effective for the first fiscal quarter
after December 15, 1998. This statement amends SFAS No. 65 "Accounting for
Certain Mortgage Banking Activities." This statement revises the accounting
for retained securities and beneficial interests. Management does not believe
that adoption of SFAS No. 134 will have a material impact on the Company's
consolidated financial condition or results of operations.
(k) Prior Year Reclassifications: Certain reclassifications were made to make
the 1997 and 1996 financial statements comparable with the 1998 presentation.
Cash and cash equivalents are comprised of the following at December 31:
1998 1997
(In thousands)
Cash and due from banks $ 24,905 $ 16,337
Interest-bearing demand balances with banks 7,019 564
Federal funds sold 6,900 7,000
------- -------
$ 38,824 $ 23,901
======= =======
At December 31, 1998 and 1997, reserves of $9.9 million and $7.2 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.<PAGE>
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
Securities available-for-sale
U.S. Treasury $5,201 $ 19 $ (5) $5,215
U.S. Government sponsored entities 4,251 30 (5) 4,276
States and political subdivisions
Taxable 1,732 149 - 1,881
Exempt from Federal income taxes 12,995 233 (37) 13,191
Mortgage-backed securities 10,691 97 - 10,788
SBA guaranteed loan participation
certificates 2,304 1 (15) 2,290
Other securities 3,141 267 (12) 3,396
------- ------- ------- -------
$40,315 $ 796 $ (74) $41,037
======= ======= ======= =======
The amortized cost and fair value of securities at December 31, 1998, 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.
Available-for-sale
Amortized Fair
Cost Value
(In thousands)
Due in one year or less $7,727 $7,765
Due after one year through five years 8,341 8,463
Due after five years through ten years 5,049 5,149
Due after ten years 3,676 3,811
Mortgage-backed securities and SBA guaranteed
loan participation certificates 15,522 15,849
------- -------
$40,315 $41,037
======= =======
NOTE 3 - SECURITIES (continued)
The amortized cost, gross unrealized gains and losses, and fair values of
securities at December 31, 1997 are as follows:
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses
Fair Value
(In thousands)
Securities available-for-sale
U.S. Treasury $3,775 $ 17 $ - $3,792<PAGE>
U.S. Government sponsored entities 3,346 1 (46) 3,301
States and political subdivisions
exempt from Federal income taxes 4,437 5 - 4,442
Mortgage-backed securities 7,019 35 - 7,054
SBA guaranteed loan participation
certificates 3,221 28 (11) 3,238
Other securities 182 84 (3) 263
------- ------- ------- -------
$21,980 $ 170 $ (60) $22,090
======= ======= ======= =======
Securities held-to-maturity
U.S. Treasury $ 246 $ 2 $ - $ 48
U.S. Government sponsored entities 14,754 362 (154) 14,962
States and political subdivisions
Taxable 1,791 108 - 1,899
Exempt from Federal income taxes 6,506 196 - 6,702
Mortgage-backed securities 5,148 261 - 5,409
Other securities 3,219 - - 3,219
------- ------- ------- -------
$31,664 $ 929 $ (154) $32,439
======= ======= ======= =======
Proceeds from sales of securities available-for-sale and realized gross gains
and losses in 1998, 1997 and 1996 are as follows:
1998 1997 1996
(In thousands)
Securities available-for-sale
Proceeds from sales $2,835 $ - $ -
Gross gains 20 - -
Gross losses (220) - -
Securities with a carrying value of approximately $27.2 and $32.2 million at
December 31, 1998 and 1997, respectively, were pledged to secure public
deposits and for other purposes as required or permitted by law.
In 1998 the Company sold held-to-maturity securities with an amortized cost of
$3.0 million and realized a net loss of $200 thousand. Additionally, the
Company transferred its remaining held-to-maturity securities portfolio with an
amortized cost of $26.5 million to available-for-sale and recorded as a
component of equity, an unrealized gain of $525 thousand, net of $332 thousand
deferred taxes. In accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," these securities are accounted for
at fair value, and any unrealized gain or loss net of deferred tax effect is
reflected in accumulated other comprehensive income.
NOTE 4 - LOANS
Loans at December 31, 1998 and 1997 consisted of the following:
1998 1997
(In thousands)
Commercial $102,592 $87,506
Residential real estate-mortgage 72,420 42,651
Commercial real estate-mortgage 96,413 63,469
Real estate - construction 15,517 13,409
Home equity 78,384 72,944
Installment 9,889 9,685<PAGE>
-------- --------
Total gross loans $375,215 $289,664
-------- --------
Net deferred loan fees 135 (187)
Unaccreted discount resulting from loss on
transfer of loans from held for sale to portfolio (263) (373)
Allowance for loan losses (3,824) (2,079)
-------- --------
Net loans $371,263 $287,025
======== ========
Activity in the allowance for loan losses is summarized below:
1998 1997 1996
(In thousands)
Balance at beginning of year $2,079 $1,425 $1,189
Provision for loan losses 1,943 766 310
Recoveries on loans previously charged-off 9 37 4
Loans charged-off (207) (149) (78)
------- ------- -------
Balance at end of year $3,824 $2,079 $1,425
======= ======= =======
Impaired loan information as of and for the years ended December 31, 1998 and
1997 is as follows:
1998 1997
(In thousands)
Impaired loans for which no allowance has been provided $ 268 $1,479
Impaired loans for which an allowance has been provided -
------- -------
Total loans determined to be impaired $ 268 $1,479
======= =======
Allowance provided for impaired loans,
included in the allowance for loan losses $ - $ -
======= =======
Average recorded investment in impaired loans $ 324 $1,869
Interest income recognized from impaired loans $ 5 $ 231
Cash basis interest income recognized from
impaired loans $ - $ 79
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 $45.7 and $50.1
million at December 31, 1998 and 1997, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31, 1998 and
1997:
1998 1997
(In thousands)
Land $2,904 $2,904
Building and leasehold improvements 7,571 5,444
Furniture and equipment 5,859 4,232
------- -------
Total cost 16,334 12,580
Less accumulated depreciation and amortization 4,972 3,794<PAGE>
------- -------
Net book value $11,362 $8,786
======= =======
NOTE 6 - DEPOSITS
Deposits at December 31, 1998 and 1997 are summarized as follows:
1998 1997
(In thousands)
Demand deposits:
Non-interest-bearing $53,557 $45,225
Interest-bearing 129,730 76,058
------- -------
Total demand deposit 183,287 121,283
Savings 22,686 19,389
Money market 36,691 32,940
Other deposits 17,239 17,015
Time:
Due within one year 118,321 91,444
Due within one to two years 14,994 40,262
Due within two to three years 2,844 3,020
Due within three to four years 1,756 2,417
Due thereafter 917 1,654
------- -------
Total time deposits 138,832 138,797
------- -------
Total deposits $398,735 $329,424
======= =======
NOTE 6 - DEPOSITS (continued)
Time deposits in amounts of $100,000 or more were approximately $58.2 million
and $48.0 million at December 31, 1998 and 1997, respectively.
Interest expense on deposits for the years ending December 31 is summarized as
follows:
1998 1997 1996
(In thousands)
Interest-bearing demand $ 3,211 $ 1,658 $ 1,200
Savings 667 640 606
Money market 1,934 1,456 1,357
Other deposits 831 973 1,224
Time 8,622 6,463 4,245
------- ------- -------
$ 15,265 $ 11,190 $ 8,632
======= ======= =======
NOTE 7 - BORROWING ARRANGEMENTS
The Bank is permitted to borrow from the Federal Reserve Bank ("FRB") up to 75%
of loans pledged to the FRB. As of December 31, 1998 and 1997, there were no
loans pledged to the FRB and there were no borrowings outstanding at either
date.
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES<PAGE>
At December 31, 1998 and 1997, advances from the Federal Home Loan Bank of
Chicago ("FHLB") were as follows:
Maturity Interest Frequency of Advance Amount
Date Rate Rate Adjustment 1998 1997
(In thousands)
August, 1998 5.98% Fixed $ - $4,000
July, 1999 6.30% Fixed 2,000 2,000
October, 2001 4.75% Fixed 5,000 -
May, 2002 (1) 6.83% Fixed 1,643 1,782
February, 2003 (1) 5.65% Fixed 1,159 1,223
July, 2004 (1) 6.38% Fixed 1,689 1,715
April, 2008 (2) 4.80% Fixed 4,000 -
------- -------
$15,491 $10,720
(1) 15 year amortizing advance with a seven year balloon.
(2) Callable at end of one year
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, 1998 and 1997 were
approximately $28.2 million and $39.5 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, 1998, no material amount of agreements to repurchase securities
sold were outstanding with any individual customer. Securities sold
underagreements to repurchase averaged $5.4 million and $5.8 million during
1998 and 1997, respectively, and the maximum amounts outstanding at any
month-end during 1998 and 1997 were $6.4 million and $12.0 million,
respectively. The weighted average rate paid during 1998 and 1997 was 4.15%
and 4.20%, respectively, and the weighted average rate at the end of 1998 and
1997 was 3.92% and 4.54%.
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 common stock at $8.57 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. All but $200,000 of these
debentures were converted to common stock in October 1997. In June 1998 $100
thousand of the remaining debentures were converted to Common Stock and $100
thousand were redeemed.<PAGE>
NOTE 11 - 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 Company's and the Bank's capital amounts and 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, 1998 the Company and the Bank met all capital adequacy
requirements to which they were subject. As of December 31, 1998, 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.
The required ratios and the Company's actual ratios at December 31, 1998 and
1997, are presented below:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
As of December 31, 1998
Total Capital (to Risk Weighted Assets):
Consolidated $50,706 15.23% $26,628 8.0% Not Applicable
Bank 36,379 10.99% 26,486 8.0% $33,108 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 42,509 12.77% 13,314 4.0% Not Applicable
Bank 32,555 9.83% 13,243 4.0% 19,865 6.0%
Tier 1 Capital (to Average Assets):
Consolidated 42,509 9.96% 17,073 4.0%Not Applicable
Bank 32,555 7.66% 17,004 4.0% 21,255 5.0%
As of December 31, 1997
Total Capital (to Risk Weighted Assets):
Consolidated $33,124 12.37% $21,425 8.0%Not Applicable
Bank 30,425 11.38% 21,388 8.0% $26,734 10.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated 30,928 11.55% 10,713 4.0%Not Applicable
Bank 28,346 10.60% 10,694 4.0% 16,041 6.0%
Tier 1 Capital (to Average Assets):<PAGE>
Consolidated 30,928 9.69% 12,762 4.0%Not Applicable
Bank 28,346 8.90% 12,739 4.0% 15,924 5.0%
The Bank may not declare or pay cash dividends on any of its shares of common
stock if the effect thereof would cause stockholders' equity to be reduced
below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.
Unlike the Bank, the Company is not subject to these regulatory restrictions on
the payment of dividends to its stockholders. However, the Company's source of
funds for future dividends may depend upon dividends received by the Company
from the Bank.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Stock Ownership Plan ("ESOP"), which also has
a 401(k) feature. The ESOP, which is internally leveraged, covers
substantially all employees of the Bank. Loans from the Company to the ESOP to
acquire Company stock are recorded as a reduction of shareholders' equity. At
December 31, 1998 and 1997, the fair value of unearned ("suspense") ESOP shares
was approximately $175,000 and $255,000, respectively. 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 partially funded with $40,000
of dividends on the Series B preferred stock during 1997. For the year ended
December 31, 1998, the Company recorded $55,000 of 401(k) expense and $99,000
of ESOP expense. During 1997 the Company recorded $45,000 of 401(k) expense
and $59,000 of ESOP expense.
Shares of the Company's stock held by the ESOP as of December 31, 1998 and
1997, are shown in the following table. The allocated and unallocated common
shares as of December 31, 1998 are approximations, as the 1998 participant
allocation has not yet been completed.
1998 1997
Shares allocated to participants 72,953 72,527
Suspense (unallocated) shares 15,211 18,577
------- -------
Total ESOP Shares 88,164 91,104
======= =======
NOTE 13 - STOCK OPTIONS AND RESTRICTED STOCK AWARD
Prior to adopting the 1995 Incentive Stock Plan, 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.
The Company implemented SFAS No. 123 "Accounting for Stock-Based Compensation"
during the year ended December 31, 1997. The Company will retain its current
accounting method for its stock-based compensation plans. This statement will
only result in additional disclosures for the Company, and as such, its
adoption did not, nor is it expected to have, a material impact on the
Company's financial condition or its results of operation.<PAGE>
In 1995, the Company adopted a qualified incentive stock option plan for senior
officers and directors of the Company with options to be granted at the fair
value of the stock 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:
Common Weighted
Shares Under Option Price Average
Option Per Share Exercise Price
Outstanding at December 31, 1995 156,740 $1.82 - $ 6.18 $ 5.04
Cancelled (3,400) $6.09 $6.09
---------------------------------------
Outstanding at December 31, 1996
and 1997 153,340 $1.82 - $6.18 $5.02
Exercised (21,250)$6.18 - $10.50 $7.04
Cancelled (17,000) $6.18 $6.18
Issued 116,500 $11.50 - $14.50 $13.91
---------------------------------------
Outstanding at December 31, 1998 231,590 $1.82 - $14.50 $9.22
=======================================
At December 31, 1998, there are options exercisable for 115,090 shares at a
weighted average price of $4.63.
Grants under the plan are accounted for following Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," 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 below:
1998 1997 1996
Net income applicable to common stock (in thousands):
As reported $1,204 $1,047 $702
Pro forma $1,094 $1,047 $702
Basic earnings per common share:
As reported $0.41 $0.68 $0.66
Pro forma $0.37 $0.68 $0.66
Diluted earnings per common share:
As reported $0.40 $0.65 $0.63
Pro forma $0.36 $0.65 $0.63
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, 1998: dividend yield of 0% for the
period; expected volatility of 0% for the period; risk free rate of return of
4.50%; and expected life of 9.5 years.
In December 1998 the Company granted its President, Wilbur G. Meinen, a total
of 8,000 restricted shares of Company stock. Under terms of the grant, 2,667
shares of the restricted stock will vest on December 31, 1999, 2,667 will vest
on December 31, 2000 and 2,666 will vest on December 31, 2001. Unearned<PAGE>
compensation of $92 thousand has been recognized at December 31, 1998 and will
be amortized to compensation expense over the vesting period.
NOTE 14 - INCOME TAXES
The deferred tax assets and liabilities consist of the following components as
of December 31, 1998 and 1997:
1998 1997
(In thousands)
Deferred tax assets:
Allowance for loan losses $1,416 $656
Securities available for sale - 224
Deferred loan fees 6 113
Premises and equipment 124 121
Writedown of other real estate owned 39 -
Alternative minimum tax credit carry forward 144 -
Loans 109 145
------- -------
1,838 1,259
Deferred tax liabilities:
State income taxes $93 $68
Securities available for sale 279 -
Loans - tax mark to market - 24
Mortgage servicing rights 70 38
Other 63 30
------- -------
505 160
------- -------
Net deferred tax assets $1,333 $1,099
======= =======
No valuation allowance was considered necessary.
Income tax expense for the years ended December 31, 1998, 1997 and 1996,
consists of the following:
1998 1997 1996
(In thousands)
Current $450 $778 $321
Deferred (737) (279) (88)
------- ------- -------
$(287) $499 $233
======= ======= =======
Reconciliations of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended December 31,
1998, 1997, and 1996, are as follows:
1998 1997 1996
(In thousands)
Income tax expense at statutory rate $312 $539 $345
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit (28) 82 21
Nontaxable interest income (net of
disallowed expenses) (195) (155) (141)
Officer's life insurance proceeds (340) - -
Other (36) 33 8
------- ------- -------<PAGE>
$(287) $499 $233
======= ======= =======<PAGE>
NOTE 15 - COMPUTATION OF EARNINGS PER SHARE
The table following summarizes the computation of earnings per share for the
years indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1998 1997 1996
Income Share Per-ShareIncome SharePer-ShareIncome
(Numerator)(Denominator)Amount(Numerator)(Denominator)
Amount(Numerator)(Denominator)Amount
(In thousands, except per share amoun
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $1,204 $1,087 $783
Less: Preferred stock dividends (40) (81)
Basic EPS
Income available to
common stockholders $1,204 2,938 $ 0.41 1,047 1,531 $ 0.68 702
Effect of Dilutive Securities
Options 88 76
Diluted EPS
Income available to common stockholders
+ assumed conversions $1,204 3,026 $ 0.40 $1,047 1,607 $ 0.65 $702
</TABLE>
In 1998, 1997 and 1996, the assumed conversion of the convertible subordinated
debt would have had an antidilutive effect and as such, was not included in
diluted EPS for those years. Additionally, the convertible Series B Preferred
Stock would have had an antidilutive effect in 1997 and 1996, and as such, was
not included in diluted EPS for these years.<PAGE>
NOTE 16 - 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.
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, 1998 and 1997, the contract amount of these financial
instruments is summarized as follows:
1998 1997
(In thousands)
Financial instruments whose contract amount
represents credit risk
Unused home equity lines of credit $95,112 $75,588
Unused commercial and other consumer lines of credit 8,690 14,676
Standby letters of credit 3,214 2,041
Commitments to make loans 12,595 20,765
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 $434
thousand, $285 thousand, and $322 thousand in 1998, 1997 and 1996,
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, 1998 under the
leases are summarized below (in thousands):
1999 $515
2000 427
2001 355
2002 325<PAGE>
2003 276
2004 and thereafter 1,111
-------
Total $3,009
=======
NOTE 17 - 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 1998 is as follows (in thousands):
Balance as of January 1, 1998 $2,849
New loans 214
Repayments (1,595)
-------
Balance as of December 31, 1998 $1,468
=======
NOTE 18 - FAIR VALUES 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.
Accrued interest receivable and payable: The carrying amounts reported in the
balance sheet approximate their fair values. 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<PAGE>
commitments to extend credit which are generally priced at market at the time
of funding.
The carrying amount and estimated fair value of financial instruments at
December 31, 1998 and 1997, are as follows:
1998 1997
Carrying Carrying
Amount Fair Value Amount Fair Value
(In thousands)
Financial assets:
Cash and cash equivalents $38,824 $38,824 $23,901 $23,901
Investment securities 41,037 41,037 53,754 54,529
Loans held-for-sale 1,006 1,006 65 65
Loans 371,263 377,548 287,025 292,219
Accrued interest receivable 2,699 2,699 2,507 2,507
Financial liabilities:
Deposits $398,735 $399,904 $329,424 $332,121
Borrowed funds 21,513 21,332 16,163 16,469
Accrued interest payable 633 633 510 510
Loan commitments on which the committed interest rate is less than the current
market rate are insignificant at December 31, 1998.
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 19 - 8.95% CUMULATIVE TRUST PREFERRED SECURITIES
On May 19, 1998, the Company issued $15 million of Trust Preferred Securities
("Securities") through Success Capital Trust I ("Trust"), a statutory business
trust and wholly-owned subsidiary of the Company. The Securities pay
cumulative cash distributions quarterly at an annual rate of 8.95%. Proceeds
from the sale of the Securities were invested by the Trust in 8.95% Junior
Subordinated Deferrable Interest Debentures issued by the Company which
represents all of the assets of the Trust. The Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at the stated maturity or their earlier redemption, in
each case at a redemption price equal to the aggregate liquidation preference
of the Securities plus any accumulated and unpaid distributions thereon to the
date of redemption. Prior redemption is permitted under certain circumstances
such as changes in tax and investment company regulations. The Company fully
and unconditionally guarantees the Securities through the combined operation of
the debentures and other related documents. The Company's obligations under<PAGE>
the guarantee are unsecured and subordinate to senior and subordinated
indebtedness of the Bank.
NOTE 20 - PARENT COMPANY FINANCIAL INFORMATION
Presented below are the condensed balance sheets as of December 31, 1998 and
1997 and statements of income and statements of cash flows for the years ended
December 31, 1998, 1997, and 1996 for Success Bancshares, Inc.:
CONDENSED BALANCE SHEETS
1998 1997
(In thousands)
ASSETS
Cash on deposit with subsidiary bank $13,281 $800
Securities available-for-sale 175 2,293
Investment in subsidiaries 32,989 27,289
Other assets 2,171 425
------- -------
$48,616 $30,807
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable - Success Realty Ventures, Inc. $105 $105
Subordinated convertible debt - 200
Jr. subordinated debentures 15,464 -
Other liabilities 723 432
------- -------
Total liabilities 16,292 737
Shareholders' equity 32,324 30,070
------- -------
$48,616 $30,807
======= =======
CONDENSED STATEMENTS OF INCOME
1998 1997 1996
(In thousands) Operating income
Dividends from subsidiary bank $1,776 $1,187 $ 949
Interest and other income 1,561 53 32
------- ------- -------
3,337 1,240 981
Operating expenses
Interest 872 686 695
Other expense 1,043 340 126
------- ------- -------
1,915 1,026 821
------- ------- -------
Income before income taxes and
equity in undistributed income of subsidiaries 1,422 214 160
Income tax benefit 536 387 319
------- ------- -------
Income before equity in undistributed
income of subsidiaries 1,958 601 479
Equity in undistributed income of subsidiaries (754) 486 304
------- ------- -------
Net income $1,204 $1,087 $ 783
======= ======= =======<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
1998 1997 1996
Cash flows from operating activities
Net income $1,204 $1,087 $783
Adjustments to reconcile net income to
net cash from operating activities
Equity in undistributed income of subsidiaries 754 (486) (304)
Change in other assets and liabilities (1,455) 310 62
Other 404 (82) 15
------- ------- -------
Net cash provided by operating activities 907 829 556
Cash flows from investing activities
Proceeds from maturities of
available-for-sale securities 2,000 - -
Purchase of available-for-sale securities - (2,212) -
Purchase of subsidiary bank stock (5,557) (9,005) (3,025)
------- ------- -------
Net cash used in investing activities (3,556) (11,217) (3,025)
Cash flows from financing activities
Net change in:
Subordinated debt (200) - 755
Repayment of note payable - (7,815) (2,015)
Proceeds from note payable - 3,000 3,000
Issuance of Jr. subordinated debentures 15,000 - -
Payment from (loan to) ESOP, net 45 (21) 46
Dividends on Series B preferred stock - (40) (81)
Issuance of common stock 285 15,676 1,137
------- ------- -------
Net cash provided by financing activities 15,130 10,800 2,842
------- ------- -------
Increase (decrease) in cash 12,481 412 373
Cash at beginning of year 800 388 15
------- ------- -------
Cash at end of year $13,281 $800 $388
======= ======= =======<PAGE>
Success Bancshares, Inc. and Subsidiaries
Directors and Officers
DIRECTORS OF Success Bancshares, Inc.
Wilbur G. Meinen, Jr., President
Success Bancshares, Inc. and Success National Bank
Charles G. Freund, Retired Vice President
Mid-Con Corp.
Avrom H. Goldfeder, Senior Vice President
I.N.O. Securities Futures & Options
Sherwin Koopmans, Retired Associate Director
Federal Deposit Insurance Corporation
George M. Ohlhausen, Chairman of the Board
Success Bancshares, Inc.
Norman D. Rich, C.P.A., Partner
Veatch, Rich & Nadler, Chtd.
Glen R. Wherfel, C.P.A.
Wherfel and Associates
DIRECTORS OF Success National Bank
Frank L. Baasch, Past President
BDL Inc.
Aben S. Caplan, Retired
Caplan, Taub, Levin & Pollack
Norman W. Fishman, Chairman of the Board
Success National Bank
President, Nationwide Assessment Advisors, Inc.
Avrom Goldfeder, Senior Vice President
I.N.O. Securities Futures & Options
Ray Hartstein, Founding Chairman
Oakton Community College
Milton Levinson, Retired President
U.S. Machinery Movers, Inc.
Wilber G. Meinen, Jr., President
Success Bancshares, Inc. and Success National Bank
Keevan Morgan, Attorney at Law
Morgan & Bley
George M. Ohlhausen
Investments
Norman D. Rich, C.P.A., Partner
Veatch, Rich & Nadler, Chtd.
Glen R. Wherfel, C.P.A.
Wherfel and Associates
OFFICERS OF Success Bancshares, Inc.
Wilbur G. Meinen, Jr., President and Chief Executive Officer
Kurt C. Felde, Senior Vice President and Chief Financial Officer
Marlene Sachs, Secretary
Ronald W. Tragasz, Assistant Secretary & Assistant Treasurer
OFFICERS OF Success National Bank
Wilbur G. Meinen, Jr., President and Chief Executive Officer
Christa N. Calabrese, Executive Vice President and Chief Lending Officer <PAGE>
Kurt C. Felde, Senior Vice President and Chief Financial Officer
Ronald W. Tragasz, Senior Vice President and Cashier
Joseph Bauer, First Vice President-Consumer/Mortgage Loans
Walter Adreani, Vice President Commercial Loans
Janis A. Anderson, Vice President/Manager Mortgage and Consumer Loans
Susan J. Cherf, Vice President and Controller
Kevin M. Cook, Vice President Commercial Loans
Candy S. LoGiurato, Vice President, Commercial Loans
Anna Long, Vice President and Manager Credit Card Services
Barbara M. Mankowski, Vice President and Auditor
Chiwin Nilapant, Vice President, International
Mary Purcell, Vice President/CRA and Compliance Officer
Marlene Sachs, Vice President and Secretary to the Board of Directors
Tana J. Shea, Vice President, Branch Administration
Jai Cai, Assistant Vice President, International
Robert Hamilton, Assistant Vice President, Business Development
Regina Hirn, Assistant Vice President, Commercial Loans
William M. Marquardsen, Assistant Vice President, Commercial Loans
Vicki Peloquin, Assistant Vice President, Electronic Banking Officer
Ron Williams, Assistant Vice President and Facilities Director
Larry D. Young, Assistant Vice President, Commercial Loans
Equal Opportunity Employer
It is the policy of Success National Bank to provide equal opportunity
employment to all employees and applicants without regard to race, age,
religion, color, sex, national origin, sexual orientation or physical
disability, judging each individual solely on functional qualifications for the
position or task to be assigned. This policy includes all facets of
employment, work relationships, and work conditions including, but not
restricted to hiring, recruitment, placement, compensation, promotion and
employee benefits.
Member FDIC Equal Housing Lender<PAGE>
Success Bancshares, Inc. and Subsidiaries
Shareholder Information
CORPORATE OFFICE
One Marriott Drive
Lincolnshire, IL 60069-3703
(847) 279-9000 . FAX (847) 279-9050
ANNUAL REPORT ON FORM 10-K
A copy of Success Bancshares, Inc.'s Annual Report on Form 10-K as filed with
the Securities and Exchange Commission may be obtained without charge upon
written request to Kurt C. Felde, Senior Vice President and Chief Financial
Officer, Success Bancshares, Inc., 1123 S. Milwaukee Avenue, Libertyville, IL
60048-3270, or by calling (847) 549-5900 ext. 1410.
REGISTRAR/TRANSFER AGENT Communications regarding change of address, transfer
of stock and lost certificates should be sent to:
Harris Trust & Savings Bank
311 West Monroe Street, Floor 14
Chicago, IL 60606
(312) 461-5245
CORPORATE COUNSEL
Much Shelist Freed Denenberg Ament Bell & Rubenstein
200 N. LaSalle Street
#2100
Chicago, IL 60603
ACCOUNTANTS
McGladrey & Pullen, LLP
1699 East Woodfield Road
#300
Schaumburg, IL 60173
DIVIDENDS The Company has not paid, and does not intend to pay in the
foreseeable future, any dividends on common stock. The Board of Directors
will consider the payment of future cash dividends, dependent on the results of
operations and financial condition of the Company, tax considerations, industry
standards, economic conditions, regulatory restrictions, general business
practices and other factors. The Company's ability to pay dividends may be
dependent on the dividend payments it receives from its subsidiary, Success
National Bank, which are subject to regulations and the Bank's continued
compliance with all regulatory capital requirements. See Note 11 of the Notes
to the Consolidated Financial Statements for information regarding limitations
of the ability of Success National Bank to pay dividends to the Company.
STOCK LISTING Success Bancshares, Inc.'s common stock is traded over the
counter and is listed on the Nasdaq National Market System under the symbol
"SXNB." At March 10, 1999, there were 2,959,236 shares of Success Bancshares,
Inc. common stock issued and outstanding and there were approximately 529
holders of record. The table below shows the high and low bid price on the
common stock for each quarter since the common stock began trading on October
21, 1997. These prices do not represent actual transactions and do not include
retail markups, mark-downs or commissions.<PAGE>
Bid
Quarter Ended High Low
December 31, 1997 $15.13 $13.50
March 31, 1998 $14.00 $13.00
June 30, 1998 $14.88 $13.38
September 30, 1998 $16.38 $12.75
December 31, 1998 $13.13 $10.50
The stock price information set forth in the table above was provided by the
National Association of Securities Dealers, Inc. High, low and closing prices
and daily trading volume are reported in most major newspapers.
MARKET MAKERS
EVEREN Securities, Inc.
Herzog, Heine, Geduld, Inc.
Tucker Anthony, Inc.
Friedman Billings Ramsey & Co. <PAGE>
(Back Cover)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extract4ed from the
quarterly unaudited financial statements of Success Bancshares, Inc. for the
year ended December 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0001009569
<NAME> SUCCESS BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 24,905
<INT-BEARING-DEPOSITS> 7,019
<FED-FUNDS-SOLD> 6,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,037
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 375,087
<ALLOWANCE> 3,824
<TOTAL-ASSETS> 470,478
<DEPOSITS> 398,735
<SHORT-TERM> 8,022
<LIABILITIES-OTHER> 2,906
<LONG-TERM> 13,491
15,000
0
<COMMON> 24,531
<OTHER-SE> 7,793
<TOTAL-LIABILITIES-AND-EQUITY> 470,478
<INTEREST-LOAN> 28,938
<INTEREST-INVEST> 2,937
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<INTEREST-TOTAL> 32,459
<INTEREST-DEPOSIT> 15,265
<INTEREST-EXPENSE> 17,184
<INTEREST-INCOME-NET> 15,275
<LOAN-LOSSES> 1,943
<SECURITIES-GAINS> (200)
<EXPENSE-OTHER> 15,690
<INCOME-PRETAX> 917
<INCOME-PRE-EXTRAORDINARY> 917
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,204
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 8.29
<LOANS-NON> 268
<LOANS-PAST> 81
<LOANS-TROUBLED> 0
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<ALLOWANCE-UNALLOCATED> 1,782
</TABLE>
