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
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
0-21923
Commission File Number
ILLINOIS 36-3873352
(State of incorporation of organization) (I.R.S. Employer Identification No.)
727 NORTH BANK LANE
LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices)
(847) 615-4096
Registrant's telephone number, including area code:
COMMON STOCK, NO 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. Yes X 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 voting stock held by non-affiliates of the
registrant was approximately $141,197,000 as of March 23, 1999. As of March 23,
1999, the registrant had outstanding 8,158,477 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1998 are incorporated by reference into Parts I and II hereof and portions of
the Proxy Statement for the Company's Annual Meeting of Shareholders to be held
on May 27, 1999 are incorporated by reference into Part III.
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TABLE OF CONTENTS
PART I
Page
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ITEM 1. Business........................................................ 3
ITEM 2. Properties...................................................... 15
ITEM 3. Legal Proceedings............................................... 17
ITEM 4. Submission of Matters to a Vote of Security Holders............. 17
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 17
ITEM 6. Selected Financial Data......................................... 18
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 18
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risks..... 19
ITEM 8. Financial Statements and Supplementary Data..................... 25
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............. 26
ITEM 11. Executive Compensation.......................................... 26
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.. 26
ITEM 13. Certain Relationships and Related Transactions.................. 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 27
Signatures...................................................... 31
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PART I
ITEM 1. BUSINESS
Wintrust Financial Corporation, an Illinois Corporation (the "Company"), is a
financial services holding company headquartered in Lake Forest, Illinois, with
total assets of approximately $1.3 billion at December 31, 1998. The Company
engages in four operating segments: community banking, specialty finance,
indirect auto and trust activities through its operating subsidiaries: Lake
Forest Bank and Trust Company ("Lake Forest Bank"); Hinsdale Bank and Trust
Company ("Hinsdale Bank"); North Shore Community Bank and Trust Company ("North
Shore Bank"); Libertyville Bank and Trust Company ("Libertyville Bank");
Barrington Bank and Trust Company, N.A. ("Barrington Bank"); Crystal Lake Bank &
Trust Company, N.A. ("Crystal Lake Bank"); First Insurance Funding Corporation
("FIFC") (formerly known as First Premium Services, Inc.) and Wintrust Asset
Management Company, N.A. ("WAMC"). FIFC is a wholly-owned subsidiary of Crabtree
Capital Corporation ("Crabtree") which is a wholly-owned subsidiary of Lake
Forest Bank.
Through its banking subsidiaries, Lake Forest Bank, Hinsdale Bank, North Shore
Bank, Libertyville Bank, Barrington Bank and Crystal Lake Bank (collectively,
the "Banks"), the Company provides community-oriented, personal and commercial
banking services in affluent suburbs of Chicago, Illinois. Through Hinsdale
Bank, the Company operates its indirect auto segment, which is in the business
of providing new and used automobile loans through a large network of auto
dealerships within the Chicago metropolitan area. All indireect auto loans are
currently being retained within each of the Banks' loan portfolios. Through
FIFC, on a national basis, the Company is in the business of financing the
payment of commercial insurance premiums ("premium finance receivables"), which
are currently purchased by the Banks and retained in their loan portfolios. On
September 30, 1998, WAMC began operations and provides trust and investment
services at each of the Banks. Previously, the Company provided trust services
through the trust department of the Lake Forest Bank.
Effective September 1, 1996, pursuant to the terms of a reorganization
agreement, the Company completed a merger transaction to combine the separate
activities of the holding companies of each of the Company's operating
subsidiaries (other than Barrington Bank and Crystal Lake Bank which were opened
in December 1996 and December 1997, respectively). As a result of the
transaction, the Company (formerly known as North Shore Community Bancorp, Inc.,
the name of which was changed to Wintrust Financial Corporation in connection
with the reorganization) became the parent holding company of each of the
separate businesses, and the shareholders and warrant holders of each of the
separate holding companies exchanged their shares for Common Stock and their
warrants for a combination of shares of Common Stock and Warrants of the Company
(the "Reorganization"). The Reorganization was accounted for as a
pooling-of-interests transaction and, accordingly, the Company's financial
statements were restated on a combined and consolidated basis to give
retroactive effect to the combined operations throughout the reported historical
periods.
As a larger, combined financial services company, the Company expects to benefit
from greater access to financial and managerial resources while maintaining its
commitment to localized decision-making and to its community banking philosophy.
Management also believes the Company is positioned to compete more effectively
with other larger and more diversified
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banks, bank holding companies and other financial services companies as it
continues its growth strategy through additional branch openings and de novo
bank formations, expansion of trust activities, pursuance of specialized earning
asset niches and potential acquisitions of banks or specialty finance companies.
BANKING
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The Company provides banking and financial services to individuals, small
businesses, local governmental units and institutional clients residing
primarily in the Banks' local service areas. These services include traditional
demand, NOW, money market, savings and time deposit accounts, as well as a
number of unique deposit products targeted to specific market segments. The
Banks offer home equity, home mortgage, consumer, real estate and commercial
loans, safe deposit facilities, ATMs, and other innovative and traditional
services specially tailored to meet the needs of customers in their market
areas. The Hinsdale Bank also operates the indirect auto segment which provides
high quality new and used auto loans through a large network of auto dealerships
within the Chicago metropolitan area. All indirect auto loans are currently
being purchased by the Banks and retained within their loan portfolios.
Each of the Banks was founded as a de novo banking organization (i.e., started
new) within the last eight years. The organizational efforts began in 1991, when
a group of experienced bankers and local business people identified an unfilled
niche in the Chicago metropolitan area retail banking market. As large banks
acquired smaller ones and personal service was subjected to consolidation
strategies, the opportunity increased in affluent suburbs for locally owned and
operated, highly personal service-oriented banks. As a result, Lake Forest Bank
was founded in December 1991 to service the Lake Forest and Lake Bluff
communities. A Lake Bluff branch of this bank was opened in 1994. In 1993,
Hinsdale Bank was opened to service the communities of Hinsdale and Burr Ridge.
Hinsdale Bank established branch facilities in Clarendon Hills and Western
Springs in 1996 and 1997, respectively. In 1994, North Shore Bank was started in
order to service Wilmette and Kenilworth. North Shore Bank opened branch
facilities in Glencoe during 1995 and 1998, and in Winnetka during 1996 to
service Winnetka and Northfield. In 1995, Libertyville Bank was opened to
service Libertyville, Vernon Hills and Mundelein. Libertyville Bank opened a
branch facility in south Libertyville during 1998 to service south Libertyville
and Vernon Hills. In December 1996, Barrington Bank was opened to service the
greater Barrington/Inverness areas. In December 1997, Crystal Lake Bank was
opened to serve the Crystal Lake/Cary communities. All Banks are insured by the
Federal Deposit Insurance Company ("FDIC") and are subject to regulation,
supervision and regular examination by the Illinois State Office of Banks and
Real Estate, the Federal Reserve Bank and/or the Office of the Comptroller of
Currency ("OCC").
PREMIUM FINANCE
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FIFC commenced operations eight years ago and is headquartered in Deerfield,
Illinois. Based on limited industry data available in certain state regulatory
filings and FIFC management's experience in and knowledge of the premium finance
industry, management estimates that, ranked by origination volumes, FIFC is one
of the top five premium finance companies operating in the United States.
Premium finance receivables are originated by
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FIFC's own sales force, working with medium and large insurance agents and
brokers throughout the United States. Insurance premiums are financed primarily
for commercial customers' purchase of property and casualty insurance.
Substantially all premium finance receivables are made to commercial accounts.
FIFC is licensed or otherwise qualified to do business as an insurance premium
finance company in all 50 states and the District of Columbia.
TRUST ACTIVITIES
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With the formation of WAMC, the Company intends to expand the trust and
investment management services previously provided through a trust department of
the Lake Forest Bank. As a separately chartered non-depository bank subsidiary,
the Company is able to offer trust and investment management services to all of
the Banks' communities, which management believes are some of the best trust
markets in Illinois. In addition to offering these services to existing bank
customers at each of the Banks, WAMC intends to target small to mid-size
businesses and newly affluent individuals whose needs command the personalized
attention that will be offered by WAMC and its experienced trust professionals.
Services offered typically include traditional trust products and services, as
well as investment management, financial planning and 401(k) management
services. WAMC is subject to regulation, supervision and regular examination by
the OCC.
COMPETITION
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The Company competes in the commercial banking industry through the Banks in the
communities each serves. The commercial banking industry is highly competitive,
and the Banks face strong direct competition for deposits, loans, and other
financial-related services. The Banks compete directly in Cook, DuPage, Lake and
McHenry counties with other commercial banks, thrifts, credit unions,
stockbrokers, and the finance divisions of automobile companies. Some of these
competitors are local, while others are statewide or nationwide. The Banks have
developed a community banking and marketing strategy. In keeping with this
strategy, the Banks provide highly personalized and responsive service, a
characteristic of locally-owned and managed institutions. As such, the Banks
compete for deposits principally by offering depositors a variety of deposit
programs, convenient office locations, hours and other services, and for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers and the variety of
their loan products. Some of the financial institutions and financial services
organizations with which the Banks compete are not subject to the same degree of
regulation as imposed on bank holding companies, Illinois banking corporations
and national banking associations. In addition, the larger banking organizations
have significantly greater resources than are available to the Banks. As a
result, such competitors have advantages over the Banks in providing certain
non-deposit services.
FIFC encounters intense competition from numerous other firms, including a
number of national commercial premium finance companies, companies affiliated
with insurance carriers, independent insurance brokers who offer premium finance
services, banks and other lending institutions. Some of FIFC's competitors are
larger and have greater financial and other resources and are better known than
FIFC. FIFC competes with these entities by emphasizing a
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high level of knowledge of the insurance industry, flexibility in structuring
financing transactions, and the timely purchase of qualifying contracts. FIFC
believes that its commitment to account service also distinguishes it from its
competitors. It is FIFC's policy to notify the insurance agent when an insured
is in default and to assist in collection, if requested by the agent. To the
extent that affiliates of insurance carriers, banks, and other lending
institutions add greater service and flexibility to their financing practices in
the future, the Company's operations could be adversely affected. There can be
no assurance that FIFC will be able to continue to compete successfully in its
markets.
WAMC's primary competition is with more established trust companies of other
larger bank holding companies. WAMC is also in competition with other trust
companies, brokerage and other financial service companies, stockbrokers and
financial advisors. As a new company, it may be more difficult to successfully
attract new customers than the more established Chicago area trust companies.
However, the Company believes it can successfully compete for trust business by
offering personalized attention and customer service to small to mid-size
businesses and newly affluent individuals. The recent hiring of several
experienced trust professionals from the more established Chicago area trust
companies is also expected to help in attracting new customer relationships.
There can be no assurances, however, that WAMC will be successful in
establishing this new business as a preferred alternative to the larger trust
companies, and as a profitable venture.
EMPLOYEES
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At December 31, 1998, the Company and its subsidiaries employed a total of 329
full-time-equivalent employees. The Company provides its employees with
comprehensive medical and dental benefit plans, life insurance plans, 401(k)
plans and an employee stock purchase plan. The Company considers its
relationship with its employees to be good.
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FORWARD-LOOKING STATEMENTS
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This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of invoking these safe harbor provisions. Such
forward-looking statements may be deemed to include, among other things,
statements relating to anticipated improvements in financial performance and
management's long-term performance goals, as well as statements relating to the
anticipated effects on financial results of condition from expected development
or events, the Company's business and growth strategies, including anticipated
internal growth, plans to form additional de novo banks and to open new branch
offices, and to pursue additional potential development or acquisition of banks
or specialty finance businesses. Actual results could differ materially from
those addressed in the forward-looking statements as a result of numerous
factors, including the following:
o The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank formations, branch
openings, and expanded trust operations. De novo banks may typically
require 13 to 24 months of operations before becoming profitable, due to
the impact of organizational and overhead expenses, the start-up phase of
generating deposits and the time lag typically involved in redeploying
deposits into attractively priced loans and other higher yielding earning
assets. Similarly, the expansion of trust services through the Company's
new trust subsidiary, WAMC, is expected to be in a start-up phase for
approximately the next few years, before becoming profitable.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for possible loan losses is
adequate to absorb losses that may develop in the existing portfolio of
loans and leases, there can be no assurance that the allowance will prove
sufficient to cover actual future loan or lease losses.
o If market interest rates should move contrary to the Company's gap position
on interest earning assets and interest bearing liabilities, the "gap" will
work against the Company and its net interest income may be negatively
affected.
o The financial services business is highly competitive which may affect the
pricing of the Company's loan and deposit products as well as its services.
o The Company's ability to adapt successfully to technological changes to
compete effectively in the marketplace.
o The extent of the Company's success, and that of its outside data
processing providers, software vendors, and customers, in implementing and
testing Year 2000 compliant hardware, software and systems, and the
effectiveness of appropriate contingency plans being developed.
o Changes in the economic environment may influence the growth rate of loans
and deposits, the quality of the loan portfolio and loan and deposit
pricing.
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SUPERVISION AND REGULATION
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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 or 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, the Banks, FIFC and WAMC. 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, the Banks, FIFC
or WAMC.
BANK HOLDING COMPANY REGULATION
The Company is registered as a "bank holding company" with the Federal Reserve
and, accordingly, is subject to supervision by the Federal Reserve under the
Bank Holding Company Act (the Bank Holding Company Act and the regulations
issued thereunder, are collectively 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 Banks, FIFC or WAMC.
The BHC Act requires prior Federal Reserve approval for, among other things, the
acquisition by a bank holding company of direct or indirect ownership or control
of more than five percent of the voting shares or substantially all the assets
of any bank or bank holding company, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions, the
BHC Act prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or bank
holding company and from engaging directly or indirectly in any activity other
than banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined, by regulation or order, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto,
such as owning and operating the premium finance business conducted by FIFC.
Under the BHC Act and Federal Reserve regulations, the Company and the Banks are
prohibited from engaging in certain tie-in arrangements in connection with an
extension of credit, lease, sale of property, or furnishing of services.
Any person, including associates and affiliates of and groups acting in concert
with such person, who purchases or subscribes for five percent or more of the
Company's Common Stock may be required to obtain prior approval of the Illinois
Commissioner and the Federal Reserve. Under the Illinois Banking Act, any person
who thereafter acquires stock of the Company such that its interest exceeds ten
percent of the Company, may be required to obtain the prior approval of the
Illinois Commissioner and under the Change in Bank Control Act, a person may be
required to obtain the prior regulatory approval of the FDIC or OCC, in the case
of Barrington Bank, Crystal Lake Bank, and WAMC, and the Federal Reserve before
acquiring the power to directly or indirectly direct the management, operations
or policies of the Company or the Banks or before acquiring control of 25
percent or more of any class of the Company's or Banks' outstanding voting
stock. In addition, any Company, partnership, trust or organized group that
acquires a controlling interest in the Company or the Banks 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 Banks and WAMC and to commit resources to
support the Banks and WAMC. 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.
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The Federal Reserve has 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 (subject to certain limitations) and minority
interests in the common equity accounts of consolidated subsidiaries, and is
reduced by goodwill, certain other intangible assets and certain investments in
other companies ("Tier 1 Capital"). Tier 2 capital consists of the allowance for
loan and lease losses (subject to certain conditions and limitations), perpetual
preferred stock, "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 assets of 3.0%, except that bank holding companies not rated in the
highest category under the regulatory rating system are required to maintain a
leverage ratio of 1.0% to 2.0% above such minimum. The 3.0% Tier 1 Capital to
total assets ratio constitutes the minimum leverage standard for bank holding
companies, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In addition,
the Federal Reserve continues to consider the Tier 1 leverage ratio in
evaluating proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
BANK REGULATION
Under Illinois law, each of Lake Forest Bank, Hinsdale Bank, North Shore Bank
and Libertyville Bank are subject to supervision and examination by the Illinois
Commissioner. As an affiliate of these Banks, the Company is also subject to
examination by the Illinois Commissioner. Barrington Bank, Crystal Lake Bank and
WAMC are subject to supervision and examination by the OCC pursuant to the
National Bank Act and regulations promulgated thereunder. Each of the Banks and
WAMC are members of the Federal Reserve Bank and, as such, is also subject to
examination by the Federal Reserve.
The deposits of the Banks are insured by the Bank Insurance Fund under the
provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Banks are,
therefore, also subject to supervision and examination by the FDIC. The FDIC
requires that the appropriate federal regulatory authority (the Federal Reserve
Bank and/or the FDIC in the case of Lake Forest Bank, North Shore Bank, Hinsdale
Bank and Libertyville Bank, or the OCC, in the case of Barrington Bank and
Crystal Lake Bank) approve any merger and/or consolidation by or with an
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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.
FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by state
and federal regulatory agencies. Such transactions include loans and other
extensions of credit, purchases of securities and other assets, and payments of
fees or other distributions. In general, these restrictions limit the amount of
transactions between an institution and an affiliate of such institution, as
well as the aggregate amount of transactions between an institution and all of
its affiliates, and require transactions with affiliates to be on terms
comparable to those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, the Company is primarily dependent
upon dividend distributions from its operating subsidiaries for its income.
Federal and state statutes and regulations impose restrictions on the payment of
dividends by the Company, the Banks and WAMC. See Part II, Item 5 for further
discussion of dividend limitations.
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.
Illinois 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 potential source of the
Company's revenue is dividends the Company expects to receive from the Banks,
the Company's ability to pay dividends is likely to be dependent on the amount
of dividends paid by the Banks. No assurance can be given that the Banks will,
in any circumstances, pay dividends to the Company.
As Illinois state-chartered banks, none of Lake Forest Bank, North Shore Bank,
Hinsdale Bank nor Libertyville Bank may pay dividends in an amount greater than
its current net profits after deducting losses and bad debts out of undivided
profits provided that its surplus equals or exceeds its capital. For the purpose
of determining the amount of dividends that an Illinois bank
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may pay, bad debts are defined as debts upon which interest is past due and
unpaid for a period of six months or more unless such debts are well-secured and
in the process of collection. Furthermore, federal regulations also prohibit any
Federal Reserve member bank, including each of the Banks and WAMC, 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. Similarly, as
national associations, Barrington Bank, Crystal Lake Bank and WAMC may not
declare dividends in any year in excess of its net profit for the year plus the
retained net profits for the preceding two years. Furthermore, the OCC may,
after notice and opportunity for hearing, prohibit the payment of a dividend by
a national bank if it determines that such payment would constitute an unsafe or
unsound practice.
In addition to the foregoing, the ability of the Company, the Banks and WAMC 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 Company 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 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 shareholder. 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 Reserve, the OCC and the other federal bank regulatory agencies also
proposed guidelines for asset quality and earnings standards.
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A range of other provisions in FDICIA include requirements applicable to closure
of branches; additional disclosures to depositors with respect to terms and
interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In August, 1995, the Federal Reserve, OCC, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC
and the FDIC must explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor in
evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC and
other federal banking agencies also have adopted a joint agency policy statement
providing guidance to banks for managing interest rate risk. The policy
statement emphasizes the importance of adequate oversight by management and a
sound risk management process. The assessment of interest rate risk management
made by the banks' examiners will be incorporated into the banks' overall risk
management rating and used to determine the effectiveness of management.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve, the OCC and the FDIC, to take prompt corrective
action with respect to depository institutions that fall below certain capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions
including, but not limited to, restrictions on growth, investment activities,
capital distributions and affiliate transactions and will be required to submit
a capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (such as the
Company). In other respects, FDICIA provides for enhanced supervisory authority,
including greater authority for the appointment of a conservator or receiver for
under-capitalized institutions. The capital-based prompt corrective action
provisions of FDICIA and their implementing regulations apply to FDIC-insured
depository institutions. However, federal banking agencies have indicated that,
in regulating bank holding companies, the agencies may take appropriate action
at the holding company level based on their assessment of the effectiveness of
supervisory actions imposed upon subsidiary insured depository institutions
pursuant to the prompt corrective action provisions of FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution,
each of the Banks 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. Each depository institution is assigned to one of three capital
groups: "well
- 12 -
<PAGE>
capitalized," "adequately capitalized" or "less than adequately capitalized."
Within each capital group, institutions are assigned to one of three supervisory
subgroups: "healthy," "supervisory concern" or "substantial supervisory
concern." Accordingly, there are nine combinations of capital groups and
supervisory subgroups to which varying assessment rates would be applicable. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned.
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 each
of the Banks does not know any practice, condition or violation that might lead
to termination of deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted on
September 30, 1996 provides that beginning with semi-annual periods after
December 31, 1996, deposits insured by the Bank Insurance Fund ("BIF") will also
be assessed to pay interest on the bonds (the "FICO Bonds") issued in the late
1980s by the Financing Company to recapitalize the now defunct Federal Savings &
Loan Insurance Company. For purposes of the assessments to pay interest on the
FICO Bonds, BIF deposits will be assessed at a rate of 20.0% of the assessment
rate applicable to SAIF deposits until December 31, 1999. After the earlier of
December 31, 1999 or the date on which the last savings association ceases to
exist, full pro rata sharing of FICO assessments will begin. The payment of the
assessment to pay interest on the FICO Bonds should not materially affect the
Banks.
Federal Reserve System. The Banks are subject to Federal Reserve regulations
requiring depository institutions to maintain non-interest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3.0% reserves on
the first $46.5 million of transaction accounts 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 Banks are
in compliance with the foregoing requirements.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with
- 13 -
<PAGE>
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. Each of the Banks received "satisfactory" ratings from either the
Federal Reserve or OCC on their most recent CRA performance evaluations. As of
the date of this report, Crystal Lake Bank has not undergone a regulatory CRA
performance evaluation.
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 focus is on three
tests: (i) a lending test, to evaluate the institution's record of making loans
in its assessment areas; (ii) an investment test, to evaluate the institution's
record of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses; and (iii)
a service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices. The amended CRA regulations also clarify how
an institution's CRA performance would be considered in the application process.
Brokered Deposits. Well-capitalized institutions are not subject to limitations
on brokered deposits, while an adequately capitalized institution is able to
accept, renew or rollover brokered deposits only with a waiver from the FDIC and
subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.
Each of the Banks is eligible to accept brokered deposits (as a result of it
capital levels or having received a waiver) and may use this funding source from
time to time when management deems it appropriate from an asset/liability
management perspective.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994, the
Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies will be allowed to
acquire banks across state lines subject to certain limitations. In addition,
under
- 14 -
<PAGE>
the Interstate Banking Act, effective June 1, 1997, banks are permitted to merge
with one another across state lines and thereby create a main bank with branches
in separate states. After establishing branches in a state through an interstate
merger transaction, a bank can establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger could
have established or acquired branches under applicable federal and state law.
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 Banks and their respective holding
companies cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on their business and earnings.
SUPPLEMENTAL STATISTICAL DATA
Pages 1, 42 and 43 of the Annual Report to Shareholders and Item 7A of this Form
10-K contain supplemental statistical data as required by The Exchange Act
Industry Guide 3 which is incorporated into Regulation S-K of the Securities and
Exchange Acts. This data should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto, and Management's Discussion
and Analysis which are contained in its 1998 Annual Report to Shareholders filed
herewith as Exhibit 13.1 and incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's executive offices are located in the main bank facility of Lake
Forest Bank. Lake Forest Bank has five physical banking locations. Lake Forest
Bank's main bank facility is located at 727 N. Bank Lane, Lake Forest, Illinois,
and is a three story, 18,000 square foot brick building. In May 1999,
construction is expected to be completed on a 15,200 square foot three story
addition to the main bank facility. The Company's executive offices and staff of
the holding company and Lake Forest Bank will be located on the second and third
floors with first floor retail space to be leased to unrelated third parties.
Lake Forest Bank constructed a drive-in, walk-up banking facility on land leased
from the City of Lake Forest on the corner of Bank Lane and Wisconsin Avenue in
Lake Forest, approximately one block north of the main banking facility. Lake
Forest Bank also leases a 1,200 square foot, a full service banking facility at
103 East Scranton Avenue in Lake Bluff, Illinois; a 2,100 square foot, a full
service banking facility on the west side of Lake Forest, Illinois at 810 South
Waukegan Road, and a drive-in and walk-up banking facility at 911 S. Telegraph
Road in the West Lake Forest Train Station. Lake
- 15 -
<PAGE>
Forest Bank also maintains a small office facility at a retirement community
known as Lake Forest Place at 1100 Pembridge Drive in Lake Forest. Lake Forest
Bank maintains automated teller machines at each of its locations except the 810
South Waukegan Road facility. Lake Forest Bank has no offsite automated teller
machines.
Hinsdale Bank currently has four physical banking locations, all of which are
owned. The main bank facility is a two story brick building located at 25 East
First Street in downtown Hinsdale, Illinois. The 1,000 square foot drive-in,
walk-up banking facility at 130 West Chestnut is approximately two blocks west
of the main banking facility. Hinsdale Bank also has full service branches in
Clarendon Hills and Western Springs. The buildings in Clarendon Hills and
Western Springs are partially used for bank purposes, with the remainder being
leased to unrelated parties. Hinsdale Bank maintains 5 ATM machines, one at each
location, with the exception of Clarendon Hills which has two. Hinsdale Bank has
no offsite automated teller machines.
North Shore Bank currently has six physical banking locations. North Shore Bank
owns the main bank facility, a one story brick building that is located at 1145
Wilmette Avenue in downtown Wilmette, Illinois. North Shore Bank also owns a
9,600 square foot drive-in, walk-up banking facility at 720 12th Street,
approximately one block west of the main banking facility. North Shore Bank also
leases a full service banking facility at 362 Park Avenue in Glencoe, Illinois
and a branch banking facility in Winnetka, Illinois where it leases
approximately 4,000 square feet. In 1998, North Shore Bank opened a drive-up and
ATM for the Glencoe branch and a small facility at 4th Street and Linden in
Wilmette. North Shore Bank maintains automated teller machines at each of its
locations, except Winnetka, and has no offsite automated teller machines.
Libertyville Bank currently has three physical banking locations. Libertyville
Bank owns the main bank facility, which is a 13,000 square foot two story brick
building located at 507 North Milwaukee Avenue in downtown Libertyville,
Illinois. Libertyville Bank also owns a 2,500 square foot drive-in, walk-up
banking facility at 201 Hurlburt Court, approximately five blocks southeast of
the main banking facility. A new leased branch facility located at 1167 South
Milwaukee Avenue in south Libertyville was opened in October 1998. Libertyville
Bank maintains automated teller machines at each of its banking locations and at
one offsite location.
Barrington Bank currently has one physical banking location at 201 South Hough
Street in Barrington, Illinois which is a 12,700 square foot, two story frame
construction building that has an attached drive-through facility. Barrington
Bank has two automated teller machines but no offsite automated teller machines.
In September 1998, Crystal Lake Bank moved into its permanent two story, 12,000
square foot main bank facility located at 70 Williams Street in downtown Crystal
Lake, Illinois, and has one automated teller machine. In March 1999, Crystal
Lake Bank also opened a drive-up facility that is located in the downtown area,
near the main bank facility.
FIFC's offices are located at 520 Lake Cook Road, Suite 300, Deerfield,
Illinois. FIFC leases approximately 12,000 square feet of office space under a
contract that expires in the year 2000.
WAMC's executive and operations staff are based in office space leased from Lake
Forest Bank. WAMC also leases office space for its trust professionals at Lake
Forest Bank, Hinsdale Bank, North Shore Bank and Barrington Bank.
See Note 7 to the Consolidated Financial Statements contained in the 1998 Annual
Report to Shareholders filed herewith as Exhibit 13.1 and incorporated herein by
reference.
- 16 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, from time to time, are subject to pending and
threatened legal action and proceedings arising in the ordinary course of
business. Any such litigation currently pending is incidental to the Company's
business and, based on information currently available to management, management
believes the outcome of such actions or proceedings will not have a material
adverse effect on the operations or financial position 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 fourth
quarter of 1998.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Other than certain restricted shares, the majority of the Common Stock is freely
tradable by persons other than those who are currently affiliates of the
Company. Prior to March 13, 1997 the principal market for the Company's Common
Stock was the over-the-counter (OTC) market where bid and asked prices were
quoted on the OTC Bulletin Board. However, on March 13, 1997 the common stock
began trading on The Nasdaq Stock Market(R) under the symbol WTFC. Prior to the
Company's listing on The Nasdaq Stock Market(R) there had not been active
trading in the Common Stock. Prior to the Company's Reorganization in September,
1996, there was no established public market for the shares of the Company's
predecessor companies.
The following table sets forth the high and low per share bid prices
quoted for the Common Stock during 1998 and 1997. Prior to March 13, 1997, the
over-the-counter market quotations reflected inter-dealer prices, without retail
mark-up, mark-down or commission and may not have necessarily represented actual
transactions.
1998 1997
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
Fourth quarter $ 20.13 16.50 20.50 16.50
Third quarter 23.00 17.13 21.13 16.00
Second quarter 20.38 17.38 17.25 14.00
First quarter 18.50 16.50 16.00 15
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
- ---------------------------------------------
As of February 28, 1999 there were 1,656 shareholders of record of
the Company's common stock.
- 17 -
<PAGE>
DIVIDENDS ON COMMON STOCK
- -------------------------
The Company has not previously paid dividends on its common stock but rather has
retained earnings to facilitate growth of the Company. Because the Company's
consolidated net income consists largely of net income of the Banks and FIFC,
the Company's ability to pay dividends depends upon its receipt of dividends
from the Banks and FIFC. The Banks' ability to pay dividends is regulated by
banking statutes. See "Financial Institution Regulation Generally - Dividend
Limitations" on page 9 of this Form 10-K. During 1998, Lake Forest Bank paid
$8.25 million of dividends to the Company. No other subsidiaries paid dividends
to the Company during 1998. No cash dividends were paid to the Company by the
Banks during the years ended December 31, 1997 and 1996.
In addition, both Barrington Bank and Crystal Lake Bank are subject to
additional restrictions prohibiting the payment of dividends by a de novo bank
in its first three years of operations. The de novo periods will end for
Barrington Bank and Crystal Lake Bank in December 1999 and December 2000,
respectively. In addition, the payment of dividends may be restricted under
certain financial covenants in the Company's revolving line of credit.
The declaration of dividends is at the discretion of the Company's Board of
Directors and depends upon earnings, capital requirements, regulatory
limitations, tax considerations, the operating and financial condition of the
Company and other factors. Additionally, the payment of dividends may be
restricted under certain terms of the Company's Trust Preferred Securities
offering. Reference is made to Note 14 to the Consolidated Financial Statements
contained in the 1998 Annual Report to Shareholders, attached hereto as Exhibit
13.1, which is incorporated herein by reference for a description of the
restrictions on the ability of certain subsidiaries to transfer funds to the
Company in the form of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
The Company had no sales of unregistered securities other than those securities
previously disclosed in the Company's quarterly reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997.
ITEM 6. SELECTED FINANCIAL DATA
Certain information required in response to this item is contained in the 1998
Annual Report to Shareholders under the caption "Selected Financial Highlights"
and is incorporated herein by reference. In addition, the Company had no cash
dividends declared during any period during the last five years. Also, the
Company had no Preferred Stock outstanding at December 31, 1998, 1997 and 1996;
however, predecessors of the Company did have $503,000 of Preferred Stock
outstanding at December 31, 1995 and 1994.
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 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition
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<PAGE>
and Results of Operations". This discussion and analysis of financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto contained in the 1998 Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Certain information required in response to this item is contained in the 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset-Liability
Management" and in Notes 15 and 16 to the Consolidated Financial Statements,
which are incorporated herein by reference. This information should be read in
conjunction with the complete Consolidated Financial Statements and notes
thereto contained in the 1998 Annual Report to Shareholders.
SECURITIES PORTFOLIO
Tables presenting the carrying amounts and gross unrealized gains and losses for
securities held-to-maturity and available-for-sale at December 31, 1998 and 1997
are included by reference to Note 2 to the Consolidated Financial Statements
included in the 1998 Annual Report to Shareholders, which is incorporated herein
by reference.
Maturities of securities as of December 31, 1998 by maturity distribution are as
follows (in thousands):
<TABLE>
<CAPTION>
Federal
Within From 1 From 5 to After Agency
1 Year to 5 years 10 years 10 Years Bank Stock Total
-------------- -------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $10,664 - - - N/A 10,664
Federal agency obligations 48,369 - 6,321 - N/A 54,690
Municipal securities 309 195 - - N/A 504
Other 135,635 6,467 - - N/A 142,102
Federal Agency Bank stock * N/A N/A N/A N/A 6,159 6,159
-------------- -------------- -------------- ------------- --------------- --------------
Total $194,977 6,662 6,321 - 6,159 214,119
============== ============== ============== ============= =============== ==============
</TABLE>
The weighted average yield for each range of maturities of securities, on a tax
equivalent basis, is shown below as of December 31, 1998:
<TABLE>
<CAPTION>
Federal
Within From 1 From 5 to After Agency
1 Year to 5 years 10 years 10 Years Bank Stock Total
-------------- -------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations 5.37% - - - - 5.37%
Federal agency obligations 5.36% - 5.57% - - 5.39%
Municipal securities 5.85% 5.69% - - - 5.79%
Other 5.11% 5.62% - - - 5.13%
Federal Agency Bank stock * - - - - 6.34% 6.34%
-------------- -------------- -------------- ------------- --------------- --------------
Total securities 5.19% 5.62% 5.57% - 6.34% 5.25%
============== ============== ============== ============= =============== ==============
<FN>
* - Includes stock of the Federal Reserve Bank and of the Federal Home Loan
Bank.
</FN>
</TABLE>
- 19 -
<PAGE>
Securities of a Single Issuer
- -----------------------------
There were no securities of any single issuer which had book value in excess of
ten percent of shareholders' equity at December 31, 1998.
LOAN PORTFOLIO
Classification of Loans
- -----------------------
The following table shows the Company's loan portfolio by category for the five
previous fiscal years (in thousands):
<TABLE>
<CAPTION>
December 31 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial/commercial real estate $366,229 235,483 182,403 101,271 45,587
Home equity 111,537 116,147 87,303 54,592 26,244
Residential real estate 91,525 61,611 51,673 37,074 26,188
Premium finance 183,165 131,952 59,240 15,703 93,349
Indirect auto 210,137 139,296 91,211 37,323 -
Installment and other 34,650 32,153 23,717 14,032 4,865
------------- ----------- ------------ ------------ -----------
997,243 716,642 495,547 259,995 196,233
Less: Unearned income 5,181 4,011 2,999 1,764 2,251
------------- ----------- ------------ ------------ -----------
Total $992,062 712,631 492,548 258,231 193,982
============= =========== ============ ============ ===========
</TABLE>
Commercial and commercial real estate loans. The commercial loan component is
comprised primarily of commercial real estate loans, lines of credit for working
capital purposes, and term loans for the acquisition of equipment. Commercial
real estate is predominantly owner occupied and secured by a first mortgage lien
and assignment of rents on the property. Equipment loans are generally fully
amortized over 24 to 60 months and secured by titles and/or U.C.C. filings.
Working capital lines are generally renewable annually and supported by business
assets, personal guarantees and oftentimes additional collateral. Commercial
business lending is generally considered to involve a higher degree of risk than
traditional consumer bank lending. The vast majority of commercial loans are
made within the Banks' immediate market areas. The increase can be attributed to
additional banking facilities, an emphasis on business development calling
programs and superior servicing of existing commercial loan customers which has
increased referrals.
In addition to the home mortgages originated by the Banks, the Company
participates in mortgage warehouse lending by providing interim funding to
unaffiliated mortgage brokers to finance residential mortgages originated by
such brokers for sale into the secondary market. The Company's loans to the
mortgage brokers are secured by the business assets of the mortgage companies as
well as the underlying mortgages, the majority of which are
- 20 -
<PAGE>
funded by the Company on a loan-by-loan basis after they have been pre-approved
for purchase by third party end lenders who forward payment directly to the
Company upon their acceptance of final loan documentation. In addition, the
Company may also provide interim financing for packages of mortgage loans on a
bulk basis in circumstances where the mortgage brokers desire to competitively
bid a number of mortgages for sale as a package in the secondary market.
Typically, the Company will serve as sole funding source for its mortgage
warehouse lending customers under short-term revolving credit agreements.
Amounts advanced with respect to any particular mortgages are usually required
to be repaid within 15 days. The Company has developed strong relationships with
a number of mortgage brokers and is seeking to expand its customer base for this
specialty business.
The following table classifies the commercial loan portfolio category at
December 31, 1998 by date at which the loans mature:
<TABLE>
<CAPTION>
FROM ONE
ONE YEAR TO FIVE AFTER
OR LESS YEARS FIVE YEARS TOTAL
------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans and
commercial real estate loans $ 192,077 138,378 35,774 366,229
Premium finance receivables.... 183,165 - - 183,165
</TABLE>
Of those loans maturing after one year, approximately $147.9 million have fixed
rates.
Home equity loans. The Company's home equity loan products are generally
structured as lines of credit secured by first or second position mortgage liens
on the underlying property with loan-to-value ratios not exceeding 80%,
including prior liens, if any. The Banks' home equity loans feature competitive
rate structures and fee arrangements. In addition, the Banks periodically offer
promotional home equity loan products as part of their marketing strategy often
featuring lower introductory rates.
Indirect auto loans. As part of its strategy to pursue specialized earning asset
niches to augment loan generation within the Banks' target markets, the Company
finances fixed rate automobile loans funded indirectly through unaffiliated
automobile dealers. As of December 31, 1998, indirect auto loans comprised over
85% of the Company's consumer loan portfolio. Indirect automobile loans are
secured by new and used automobiles and are generated by a network of automobile
dealers located in the Chicago area with which the Company has established
relationships. These credits generally have an average initial balance of
approximately $15,000 and have an original maturity of 36 to 60 months with the
average actual maturity, as a result of prepayments, estimated to be
approximately 35-40 months. The Company does not currently originate any
significant level of sub-prime loans, which are made to individuals with
impaired credit histories at generally higher interest rates, and accordingly,
with higher levels of credit risk. The risk associated with this portfolio is
diversified amongst many individual borrowers. Management continually monitors
the dealer relationships and the Banks are not dependent on any one dealer as a
source of such loans. Like other consumer loans, the indirect auto loans are
subject to the Banks' stringent credit standards.
- 21 -
<PAGE>
Residential real estate mortgages. The residential real estate category includes
one-to-four family adjustable rate mortgages that have repricing terms generally
from one to three years, construction loans to individuals, bridge financing
loans for qualifying customers and mortgage loans held for sale into the
secondary market. The adjustable rate mortgages are often non-agency conforming,
may have terms based on differing indexes, and relate to properties located
principally in the Chicago metropolitan area or vacation homes owned by local
residents. Adjustable-rate mortgage loans decrease, but do not eliminate, the
risks associated with changes in interest rates. Because periodic and lifetime
caps limit the interest rate adjustments, the value of adjustable-rate mortgage
loans fluctuates inversely with changes in interest rates. In addition, as
interest rates increase, the required payments by the borrower increases, thus
increasing the potential for default. The Company does not generally originate
loans for its own portfolio with long-term fixed rates due to interest rate risk
considerations. However, the Banks do accommodate customer requests for fixed
rate loans by originating and selling these loans into the secondary market, in
connection with which the Company receives fee income. A portion of the loans
sold by the Banks into the secondary market are to the Federal National Mortgage
Association ("FNMA") whereby the servicing of those loans is retained. The
amount of loans serviced for FNMA as of December 31, 1998 and 1997 was $82.1
million and $53.2 million, respectively. All other mortgage loans held for sale
are sold into the secondary market without the retention of servicing rights.
Premium finance receivables. The Company originates premium finance receivables
through FIFC, which, in turn, are sold to the Banks and retained within their
loan portfolios. Prior to October 1996, premium finance receivables were sold
and serviced pursuant to a securitization facility. As of December 31, 1998 and
1997, the Company had no premium finance receivables serviced for others by
FIFC. All premium finance receivables are subject to the Company's stringent
credit standards, and substantially all such loans are made to commercial
customers. The Company rarely finances consumer insurance premiums.
FIFC offers financing of approximately 80% of an insurance premium primarily to
commercial purchasers of property and casualty and liability insurance who
desire to pay insurance premiums on an installment basis. The premium finance
loan allows the insured to spread the cost of the insurance policy over time.
FIFC markets its financial services primarily by establishing and maintaining
relationships with medium and large insurance agents and brokers and by offering
a high degree of service and innovative products. Senior management is
significantly involved in FIFC's marketing efforts, currently focused almost
exclusively on commercial accounts. Loans are originated by FIFC's own sales
force by working with insurance agents and brokers throughout the United States.
As of December 31, 1998, FIFC had the necessary licensing and other regulatory
approvals to do business in all 50 states and the District of Columbia.
In financing insurance premiums, the Company does not assume the risk of loss
normally borne by insurance carriers. Typically, the insured buys an insurance
policy from an independent insurance agent or broker who offers financing
through FIFC. The insured typically makes a down payment of approximately 15% to
25% of the total premium and signs a premium finance agreement for the balance
due, which amount FIFC disburses directly to the insurance carrier or its agents
to satisfy the unpaid premium amount. The average initial balance of premium
- 22 -
<PAGE>
finance loans is approximately $14,000 and the average term of the agreements is
approximately 10 months. As the insurer earns the premium ratably over the life
of the policy, the unearned portion of the premium secures payment of the
balance due to FIFC by the insured. Under the terms of the Company's standard
form of financing contract, the Company has the power to cancel the insurance
policy if there is a default in the payment on the finance contract and to
collect the unearned portion of the premium from the insurance carrier. In the
event of cancellation of a policy, the cash returned in payment of the unearned
premium by the insurer should be sufficient to cover the loan balance and
generally the interest and other charges due as well. The major risks inherent
in this type of lending are (1) the risk of fraud on the part of an insurance
agent whereby the agent fraudulently fails to forward funds to the insurance
carrier or to FIFC, as the case may be; (2) the risk that the insurance carrier
becomes insolvent and is unable to return unearned premiums related to loans in
default; (3) for policies that are subject to an audit by the insurance carrier
(i.e. workers compensation policies where the insurance carrier can audit the
insured actual payroll records), the risk that the initial underwriting of the
policy was such that the premium paid by the insured are not sufficient to cover
the a entire return premium in the event of default; and (4) that the borrower
is unable to ultimately satisfy the debt in the event the returned unearned
premium is insufficient to retire the loan. FIFC has established underwriting
procedures to reduce the potential of loss associated with the aforementioned
risks and has systems in place to continually monitor conditions that would
indicate an increase in risk factors and to act on situations where the
Company's collateral position is in jeopardy.
Installment and Other. Included in the installment and other loan category is a
wide variety of personal and consumer loans to individuals. The Banks have been
originating consumer loans in recent years in order to provide a wider range of
financial services to their customers. Consumer loans generally have shorter
terms and higher interest rates than mortgage loans but generally involve more
credit risk than mortgage loans due to the type and nature of the collateral.
The Company had no loans to businesses or governments of foreign countries at
any time during the reporting periods.
- 23 -
<PAGE>
RISK ELEMENTS IN THE LOAN PORTFOLIO
For analysis and review of the allowance for possible loan losses; non-accrual,
past due and restructured loans; other real estate owned; potential problem
loans; and loan concentrations, reference is made to the "Credit Risk and Asset
Quality" section of the Management's Discussion and Analysis of Financial
Condition and Results of Operations of the 1998 Annual Report to Shareholders
filed herewith as Exhibit 13.1, and incorporated herein by reference.
An allocation of the allowance for possible loan losses by major loan type is
presented below (dollars in thousands):
Allocation of the Allowance for Possible Loan Losses
- ----------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
-------------------------------------------------------------- ----------------------------
% of loans % of loans % of loans
In each in each in each
Category to category to category to
Amount Total loans Amount total loans Amount total loans
--------------- -------------- --------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Residential real estate. . . $ 81 9% $ 43 9% $ 34 10%
Commercial and
Commercial real estate . 2,480 37 1,490 33 996 37
Home equity . . . . . .. . 1,046 11 580 16 402 18
Premium finance. . .. . . 919 18 702 18 288 12
Indirect auto. . . . . . . . 1,205 21 679 19 432 18
Other loans. . . . . . . . . 494 4 218 5 128 5
Unallocated. . . . . . . . . 809 - 1,404 - 1,356 -
--------------- -------------- --------------- --------------- ------------ ---------------
Total. . . . . . . . . . . . $ 7,034 100% $5,116 100% $ 3,636 100%
=============== ============== =============== =============== ============ ===============
</TABLE>
The above allocation is made for analytical purposes. It is not anticipated that
charge-offs during the year ending December 31, 1998 will exceed the amount
allocated to any individual category of loan. For further review of the loan
loss provision and the allowance for possible loan losses reference is made to
the "Credit Risk and Asset Quality" section of the Management's Discussion and
Analysis of Financial Condition and Results of Operations of the 1998 Annual
Report to Shareholders filed herewith as Exhibit 13.1, and incorporated herein
by reference.
Losses incurred during 1997 in the premium finance portfolio exceeded the amount
allocated to that category as of December 31, 1996. When the Company allowed the
securitization facility to unwind in 1997, the losses inherent in the facility
exceeded management's estimates. During 1997, management implemented additional
risk measurement systems to assist in better identifying, addressing and
quantifying potential losses in the premium finance portfolio and believes that
the allocation as of December 31, 1998 is reasonable.
- 24 -
<PAGE>
DEPOSITS
The following table sets forth the scheduled maturities of time deposits in
denominations of $100,000 or more at December 31, 1998 (in thousands):
Maturing within 3 months ................................ $ 186,027
After 3 but within 6 months ............................. 78,640
After 6 but within 12 months ............................ 51,014
After 12 months ......................................... 30,365
---------------
Total ................................................. $ 346,046
===============
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity
and assets:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Return on average total assets 0.53% 0.56% (0.17)%
Return on average common shareholders' equity 8.68% 7.88% (2.33)%
Dividend payout ratio 0.00% 0.00% 0.00%
Average equity to average total assets 6.1% 7.2% 7.4%
Ending total risk based capital ratio 9.7% 9.4% 8.0%
Leverage ratio 7.5% 6.6% 6.4%
</TABLE>
SHORT-TERM BORROWINGS
The information required in connection with Short-Term Borrowings is contained
in the "Analysis of Financial Condition - Short-Term Borrowings and Notes
Payable" section of the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the 1998 Annual Report to Shareholders
filed herewith as Exhibit 13.1, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the 1998
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
- 25 -
<PAGE>
None
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 27, 1999 under the caption "Management"
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
Information with respect to security ownership of certain beneficial owners and
management is incorporated by reference to the section "Principal Shareholders"
in the Proxy Statement for the Annual Meeting of Shareholders to be held on May
27, 1999.
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 "Certain Transactions," and is incorporated herein
by reference.
- 26 -
<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 following financial statements of Wintrust Financial Corporation
are filed as part of this document under Item 8. Financial Statements
and Supplementary Data:
Consolidated Statements of Condition as of December 31, 1998 and
1997
Consolidated Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
No schedules are required to be filed with this report.
3. Exhibits (Exhibits marked with a "*" denote management contracts or
compensatory plans or arrangements)
3.1 Amended and Restated Articles of Incorporation of Wintrust
Financial Corporation (incorporated by reference to Exhibit
3.1 of the Company's Form S-1 Registration Statement (No
333-18699) filed with the Securities and Exchange Commission
on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial
Preferred Stock A of Wintrust Financial Corporation.
3.3 Amended By-laws of Wintrust Financial Corporation
(incorporated by reference to Exhibit 3(i) of the Company's
Form 10-Q for the quarter ended June 30, 1998).
4.1 Rights Agreement between Wintrust Financial Corporation and
Illinois Stock Transfer Company, as Rights Agent, dated July
28, 1998 (incorporated by reference to Exhibit 4.1 of the
Company's Form 8-A Registration Statement (No. 000-21923)
filed with the Securities and Exchange Commission on August
28, 1998).
- 27 -
<PAGE>
4.2 Preferred Securities Guarantee Agreement by and between
Wintrust Financial Corporation and Wilmington Trust Company
dated September 29, 1998, relating to the 9.00% Cumulative
Trust Preferred Securities of Wintrust Capital Trust I.
4.3 Indenture by and between Wintrust Financial Corporation and
Wilmington Trust Company dated September 29, 1998, relating to
the 9.00% Subordinated Debentures issued to Wintrust Capital
Trust I.
4.4 Amended and Restated Trust Agreement by and among Wintrust
Financial Corporation, Wilmington Trust Company and the
Administrative Trustees named therein dated September 29,
1998, relating to the 9.00% Cumulative Trust Preferred
Securities of Wintrust Capital Trust I.
4.5 Form of Preferred Security Certificate of Wintrust Capital
Trust I (included as an exhibit to Exhibit 4.4).
4.6 Form of Subordinated Debenture (included as an exhibit to
Exhibit 4.3).
10.1 $25 Million Revolving Loan Agreement between LaSalle National
Bank and Wintrust Financial Corporation, dated September 1,
1996 (incorporated by reference to Exhibit 10.1 of the
Company's Form S-1 Registration Statement (No 333-18699) filed
with the Securities and Exchange Commission on December 24,
1996).
10.2 First Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated March 1, 1997
(incorporated by reference to Exhibit 10.29 to Registrant's
Form 10-K for the year ended December 31, 1996, filed with the
Securities and Exchange Commission on March 28, 1997).
10.3 Second Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated March 1, 1997
(incorporated by reference to Exhibit 10.3 of the Company's
Form 10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 31, 1998).
10.4 Third Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated September 1, 1998
(incorporated by reference to Exhibit 10 of the Company's Form
10-Q for the quarter ended September 30, 1998, filed with the
Securities and Exchange Commission on November 13, 1998).
10.5 Form of Wintrust Financial Corporation Warrant Agreement
(incorporated by reference to Exhibit 10.29 to Amendment No. 1
to Registrant's Form S-4 Registration Statement (No.
333-4645), filed with the Securities and Exchange Commission
on July 22, 1996).*
10.6 Lake Forest Bank & Trust Company Lease for drive-up facility
located at the corner of Bank Lane & Wisconsin Avenue, Lake
Forest, Illinois, dated December 11, 1992 (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's
Form S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).
10.7 Lake Forest Bank & Trust Company Lease for banking facility
located at 810 South Waukegan Road, Lake Forest, Illinois
(incorporated by reference to Exhibit 10.6 to Amendment No. 1
to Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
- 28 -
<PAGE>
10.8 Lake Forest Bank & Trust Company Lease for banking facility
located at 666 North Western Avenue, Lake Forest, Illinois,
dated July 19, 1991 and Amendment (incorporated by reference
to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4
Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).
10.9 Lake Forest Bank & Trust Company Lease for banking facility
located at 103 East Scranton Avenue, Lake Bluff, Illinois,
dated November 1, 1994 (incorporated by reference to Exhibit
10.6 to Amendment No. 1 to Registrant's Form S-4 Registration
Statement (No. 333-4645) filed with the Securities and
Exchange Commission on July 22, 1996).
10.10 North Shore Bank & Trust Company Lease for banking facility
located at 362 Park Avenue, Glencoe, Illinois, dated July 27,
1995 (incorporated by reference to Exhibit 10.6 to Amendment
No. 1 to Registrant's Form S-4 Registration Statement (No.
333-4645) filed with the Securities and Exchange Commission on
July 22, 1996).
10.11 North Shore Bank & Trust Company Lease for banking facility
located at 794 Oak Street, Winnetka, Illinois, dated June 16,
1995 (incorporated by reference to Exhibit 10.6 to Amendment
No. 1 to Registrant's Form S-4 Registration Statement (No.
333-4645) filed with the Securities and Exchange Commission on
July 22, 1996).
10.12 Barrington Bank and Trust Company Lease for property located
at 202A South Cook Street, Barrington, Illinois, dated
December 29, 1995 (incorporated by reference to Exhibit 10.24
of the Company's Form S-1 Registration Statement (No
333-18699) filed with the Securities and Exchange Commission
on December 24, 1996).
10.13 Real Estate Contract by and between Wolfhoya Investments, Inc.
and Amoco Oil Company, dated March 25, 1996, and amended as of
__________, 1996, relating to the purchase of property located
at 201 South Hough, Barrington, Illinois (incorporated by
reference to Exhibit 10.25 of the Company's Form S-1
Registration Statement (No 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
10.14 Form of Employment Agreement entered into between the Company
and Howard D. Adams, former Chairman and Chief Executive
Officer (incorporated by reference to Exhibit 10.26 of the
Company's Form S-1 Registration Statement (No 333-18699) filed
with the Securities and Exchange Commission on December 24,
1996). *
- 29 -
<PAGE>
10.15 Form of Employment Agreement (entered into between the Company
and Edward J. Wehmer, President and Chief Executive Officer).
The Company entered into Employment Agreements with David A.
Dykstra, Executive Vice President and Chief Financial Officer,
Robert F. Key, Executive Vice President-Marketing, Lloyd M.
Bowden, Executive Vice President-Technology and Randolph M.
Hibben, Executive Vice President-Investments during 1998 in
substantially identical form to this exhibit. *
10.16 First Premium Services, Inc. Lease, as amended, for corporate
offices located at Lake Cook Road, Deerfield, Illinois
(incorporated by reference to Exhibit 10.27 to Amendment No. 1
of the Company's Form S-1 Registration Statement (No
333-18699) filed with the Securities and Exchange Commission
on January 24, 1997).
10.17 Lake Forest Bank & Trust Company Lease for drive-up and
walk-up facility located at 911 South Telegraph Road, Lake
Forest, Illinois, dated November 7, 1996 (incorporated by
reference to Exhibit 10.28 to Amendment No. 1 of the Company's
Form S-1 Registration Statement (No 333-18699) filed with the
Securities and Exchange Commission on January 24, 1997).
10.18 Wintrust Financial Corporation 1997 Stock Incentive Plan
(incorporated by reference to Appendix A of the Proxy
Statement relating to the May 22, 1997 Annual Meeting of
Shareholders of the Company). *
10.19 Wintrust Financial Corporation Employee Stock Purchase Plan
(incorporated by reference to Appendix B of the Proxy
Statement relating to the May 22, 1997 Annual Meeting of
Shareholders of the Company). *
13.1 1998 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
- 30 -
<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.
WINTRUST FINANCIAL CORPORATION
EDWARD J. WEHMER EDWARD J. WEHMER March 26, 1999
------------------------------------
President and Chief Executive Officer
DAVID A. DYKSTRA DAVID A. DYKSTRA March 26, 1999
------------------------------------
Executive Vice President & Chief
Financial Officer
(Principal Financial Officer)
TODD A. GUSTAFSON TODD A. GUSTAFSON March 26, 1999
------------------------------------
Vice President - Finance
(Principal Accounting 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.
JOHN S. LILLARD JOHN S. LILLARD March 26, 1999
------------------------------------
Chairman of the Board of Directors
EDWARD J. WEHMER EDWARD J. WEHMER March 26, 1999
------------------------------------
President and CEO and Director
JOSEPH ALAIMO JOSEPH ALAIMO March 26, 1999
------------------------------------
Director
PETER CRIST PETER CRIST March 26, 1999
------------------------------------
Director
BRUCE K. CROWTHER BRUCE K. CROWTHER March 26, 1999
------------------------------------
Director
MAURICE F. DUNNE, Jr. MAURICE F. DUNNE, JR. March 26, 1999
------------------------------------
Director
WILLIAM C. GRAFT WILLIAM GRAFT March 26, 1999
------------------------------------
Director
KATHLEEN R. HORNE KATHLEEN R. HORNE March 26, 1999
------------------------------------
Director
JAMES E. MAHONEY JAMES E. MAHONEY March 26, 1999
------------------------------------
Director
- 31 -
<PAGE>
JAMES B. MCCARTHY JAMES B. MCCARTHY March 26, 1999
------------------------------------
Director
MARQUERITE SAVARD MARQUERITE SAVARD MCKENNA March 26, 1999
MCKENNA ------------------------------------
Director
ALBIN F. MOSCHNER ALBIN F. MOSCHNER March 26, 1999
------------------------------------
Director
THOMAS J. NEIS THOMAS J. NEIS March 26, 1999
------------------------------------
Director
HOLLIS W. RADEMACHER HOLLIS W. RADEMACHER March 26, 1999
------------------------------------
Director
J. CHRISTOPHER REYES J. CHRISTOPHER REYES March 26, 1999
------------------------------------
Director
PETER RUSIN PETER RUSIN March 26, 1999
------------------------------------
Director
JOHN N. SCHAPER JOHN N. SCHAPER March 26, 1999
------------------------------------
Director
JOHN J. SCHORNACK JOHN J. SCHORNACK March 26, 1999
------------------------------------
Director
INGRID S. STAFFORD INGRID S. STAFFORD March 26, 1999
------------------------------------
Director
JANE R. STEIN JANE R. STEIN March 26, 1999
------------------------------------
Director
KATHARINE V. SYLVESTER KATHARINE V. SYLVESTER March 26, 1999
-----------------------------------
Director
LEMUEL H. TATE, JR. LEMUEL H. TATE, JR. March 26, 1999
------------------------------------
Director
LARRY WRIGHT LARRY WRIGHT March 26, 1999
------------------------------------
Director
- 32 -
<PAGE>
Exhibit 3.2
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF
JUNIOR SERIAL PREFERRED STOCK A
of
WINTRUST FINANCIAL CORPORATION
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with the provisions of its Articles of
Incorporation, as amended and restated, a series of Serial Preferred Stock A,
without par value, of the Company (such preferred stock being herein referred to
as "Preferred Stock," which term shall include any additional shares of
preferred stock of the same class heretofore or hereafter authorized to be
issued by the Company), consisting of 100,000 shares is hereby created, and the
voting powers, preferences and relative rights, and the qualifications,
limitations or restrictions thereof, are as follows:
Section (1) Designation and Amount. There shall be a series of
------------------------
Preferred Stock of the Company which shall be designated as "Junior Serial
Preferred Stock A," without par value (hereinafter called "Junior Serial
Preferred Stock A"), and the number of shares constituting such series shall be
100,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors and by the filing of a certificate pursuant to the
provisions of the Illinois Business Corporation Act stating that such increase
or reduction has been so authorized; provided, however, that no decrease shall
reduce the number of shares of Junior Serial Preferred Stock A to a number less
than that of the shares then outstanding plus the number of shares of Junior
Serial Preferred Stock A issuable upon exercise of outstanding rights, options
or warrants or upon conversion of outstanding securities issued by the Company.
Section (2) Dividends and Distributions.
---------------------------
(a) The holders of shares of Junior Serial Preferred Stock A shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash to
holders of record on the first business day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Junior Serial
Preferred Stock A, in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $42.50 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock (hereinafter defined) or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, without par value, of the
<PAGE>
Company (the "Common Stock") since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Junior Serial
Preferred Stock A. In the event the Company shall at any time following July 28,
1998, (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Junior Serial Preferred Stock A were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying each such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on the Junior
Serial Preferred Stock A as provided in paragraph (A) above at the time it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(c) No dividend or distribution (other than a dividend payable in
shares of Common Stock) shall be paid or payable to the holders of shares of
Common Stock unless, at the same time as such payment is made with respect to
the Common Stock or prior thereto, all accrued but unpaid dividends to the date
of such dividend or distribution shall have been paid to the holders of shares
of Junior Serial Preferred Stock A.
(d) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Serial Preferred Stock A from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Junior Serial Preferred
Stock A, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Junior Serial
Preferred Stock A entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Junior Serial Preferred Stock A in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Junior Serial Preferred Stock A entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 30 days prior to the date fixed for the payment thereof.
Section (3) Voting Rights. Each share of Junior Serial Preferred Stock
-------------
A shall entitle the holder thereof to 100 votes on all matters submitted to a
vote of the shareholders of the Company. Except as otherwise provided herein or
by law, the holders of shares of Junior Serial Preferred Stock A and the holders
of Common Stock shall vote together as one class on all matters submitted to a
vote of shareholders of the Company.
- 2 -
<PAGE>
Section (4) Certain Restrictions.
--------------------
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Serial Preferred Stock A as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Serial Preferred
Stock A outstanding shall have been paid in full, the Company shall not:
(1) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Serial Preferred
Stock A;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Junior Serial Preferred Stock A, except dividends paid ratably on the
Junior Serial Preferred Stock A and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Junior Serial Preferred Stock A, provided that the Company may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Company ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Junior Serial Preferred Stock A; or
(iv) purchase or otherwise acquire for consideration any
shares of Junior Serial Preferred Stock A, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section, purchase
or otherwise acquire such shares at such time and in such manner.
Section (5) Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Serial Preferred Stock A unless, prior
thereto, the holders of whole shares of Junior Serial Preferred Stock A shall
- 3 -
<PAGE>
have received $8,500 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Junior Serial A Liquidation Preference").
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Junior Serial A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Junior Serial Preferred Stock A,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences.
Section (6) Consolidation, Merger, etc. In case the Company shall enter
--------------------------
into any consolidation, merger, share exchange, combination or other transaction
in which the shares of Common Stock are exchanged for or converted into other
stock or securities, cash and/or any other property, then in any such case the
shares of Junior Serial Preferred Stock A shall at the same time be similarly
exchanged or converted in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is converted or
exchanged. In the event the Company shall at any time (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or conversion of shares of
Junior Serial Preferred Stock A shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section (7) Redemption. The shares of a Junior Serial Preferred Stock A
----------
shall not be redeemable by the Company. The preceding sentence shall not limit
the ability of the Company to purchase or otherwise deal in such shares of stock
to the extent permitted by law.
Section (8) Fractional Shares. Junior Serial Preferred Stock A may be
------------------
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Junior Serial Preferred Stock A.
- 4 -
<PAGE>
Exhibit 4.2
PREFERRED SECURITIES GUARANTEE AGREEMENT
by and between
WINTRUST FINANCIAL CORPORATION
and
WILMINGTON TRUST COMPANY
Dated as of September 29, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE I
DEFINITIONS AND INTERPRETATION........................................1
Section 1.1. Definitions and Interpretation..........................1
ARTICLE II
TRUST INDENTURE ACT............................................................5
Section 2.1. Trust Indenture Act; Application........................5
Section 2.2. Lists of Holders of Securities..........................5
Section 2.3. Reports by the Preferred Guarantee Trustee..............5
Section 2.4. Periodic Reports to Preferred Guarantee Trustee.........6
Section 2.5. Evidence of Compliance with Conditions Precedent........6
Section 2.6. Events of Default; Waiver...............................6
Section 2.7. Event of Default; Notice................................6
Section 2.8. Conflicting Interests...................................7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE..............7
Section 3.1. Powers and Duties of the Preferred Guarantee Trustee....7
Section 3.2. Certain Rights of Preferred Guarantee Trustee...........8
Section 3.3. Not Responsible for Recitals or Issuance of Guarantee..10
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE..........................................10
Section 4.1. Preferred Guarantee Trustee; Eligibility...............10
Section 4.2. Appointment, Removal and Resignation of
Preferred Guarantee Trustees................................11
ARTICLE V
GUARANTEE............................................................12
Section 5.1. Guarantee..............................................12
Section 5.2. Waiver of Notice and Demand............................12
Section 5.3. Obligations not Affected...............................12
Section 5.4. Rights of Holders......................................13
Section 5.5. Guarantee of Payment...................................14
Section 5.6. Subrogation............................................14
Section 5.7. Independent Obligations................................14
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION............................14
Section 6.1. Limitation of Transactions.............................14
Section 6.2 Ranking.................................................15
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ARTICLE VII
TERMINATION..........................................................15
Section 7.1. Termination............................................15
ARTICLE VIII
INDEMNIFICATION......................................................15
Section 8.1. Exculpation............................................15
Section 8.2. Indemnification........................................16
ARTICLE IX
MISCELLANEOUS........................................................16
Section 9.1. Successors and Assigns.................................16
Section 9.2. Amendments.............................................16
Section 9.3. Notices................................................16
Section 9.4. Benefit................................................17
Section 9.5. Governing Law..........................................17
ii
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CROSS REFERENCE TABLE
Section of Trust Section of
Indenture Act of Guarantee
1939, as amended Agreement
---------------- ---------
310(a) 4.1(a)
310(b) 4.1(c), 2.8
310(c) Not Applicable
311(a) 2.2(b)
311(b) 2.2(b)
311(c) Not Applicable
312(a) 2.2(a)
312(b) 2.2(b)
313 2.3
314(a) 2.4
314(b) Not Applicable
314(c) 2.5
314(d) Not Applicable
314(e) 1.1, 2.5, 3.2
314(f) 2.1, 3.2
315(a) 3.1(d)
315(b) 2.7
315(c) 3.1
315(d) 3.1(d)
316(a) 1.1, 2.6, 5.4
316(b) 5.3
317(a) 3.1
317(b) Not Applicable
318(a) 2.1(a)
318(b) 2.1
318(c) 2.1(b)
Note: This Cross-Reference Table does not constitute part of
this Agreement and shall not affect the interpretation of any of
its terms or provisions.
iii
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PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred
Securities Guarantee"), dated as of September 29, 1998, is executed and
delivered by WINTRUST FINANCIAL CORPORATION, an Illinois corporation (the
"Guarantor"), and WILMINGTON TRUST COMPANY, a Delaware banking corporation
organized under the laws of the State of Delaware, as trustee (the "Preferred
Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Preferred Securities (as defined herein) of Wintrust Capital
Trust I, a Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of September 29, 1998, among the trustees of the
Trust named therein, the Guarantor, as sponsor, and the holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust is
issuing on the date hereof up to 1,242,000 preferred securities, having an
aggregate liquidation amount of $31,050,000, designated the 9.00% Cumulative
Trust Preferred Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders of the Preferred Securities the Guarantee Payments (as defined herein)
and to make certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) capitalized terms used in this Preferred Securities Guarantee but
not defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of
this Preferred Securities Guarantee have the same meaning when used in this
Preferred Securities Guarantee, unless otherwise defined in this Preferred
Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee has
the same meaning throughout;
<PAGE>
(d) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles
and Sections are to Articles and Sections of this Preferred Securities
Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday, Sunday, a day on
which federal or state banking institutions in New York, New York are authorized
or required by law, executive order or regulation to close or a day on which the
Corporate Trust Office of the Preferred Guarantee Trustee is closed for
business.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the 9.00% Subordinated Debentures due September 30,
2028, of the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means Wintrust Financial Corporation, issuer of the
Debentures under the Indenture.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Preferred Securities Guarantee.
"Guarantor" means Wintrust Financial Corporation, an Illinois
corporation.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined
in the Trust Agreement) that are required to be paid on such Preferred
Securities, to the extent the Trust shall have funds available therefor, (ii)
the redemption price, including all accrued and unpaid Distributions to the date
of redemption (the "Redemption
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Price"), to the extent the Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by the Trust, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Debentures to the Holders in
exchange for Preferred Securities as provided in the Trust Agreement), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions on the Preferred Securities to the date of payment, to the extent
the Trust shall have funds available therefor (the "Liquidation Distribution"),
and (b) the amount of assets of the Trust remaining available for distribution
to Holders in liquidation of the Trust.
"Holder" shall mean any holder, as registered on the books and records
of the Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Preferred Guarantee Trustee or any of their
respective Affiliates.
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of September 29, 1998, among
the Debenture Issuer and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which certain subordinated debt securities of
the Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Liquidation Amount" means the stated value of $25 per Preferred
Security.
"Liquidation Distribution" has the meaning provided therefor in the
definition of Guarantee Payments.
"Majority in liquidation amount of the Preferred Securities" means the
holders of more than 50% of the Liquidation Amount of all of the Preferred
Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two authorized officers of such Person, at least one of
whom shall be the principal executive officer, principal financial officer,
principal accounting officer, treasurer or any vice president of such Person.
Any Officers' Certificate delivered with respect to compliance with a condition
or covenant provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
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<PAGE>
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means Wilmington Trust Company, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition
of Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee with direct responsibility for the administration of this
Preferred Securities Guarantee, including any vice-president, any assistant
vice-president, any assistant secretary or other officer or assistant officer of
the Preferred Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.
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<PAGE>
(b) If and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
SECTION 2.2. LISTS OF HOLDERS OF SECURITIES.
(a) In the event the Preferred Guarantee Trustee is not also acting in
the capacity of the Property Trustee under the Trust Agreement, the Guarantor
shall cause to be provided to the Preferred Guarantee Trustee with a list, in
such form as the Preferred Guarantee Trustee may reasonably require, of the
names and addresses of the Holders of the Preferred Securities ("List of
Holders") as of the date (i) within 1 Business Day after March 15, June 15,
September 15 and December 15, and (ii) at any other time within 30 days of
receipt by the Guarantor of a written request for a List of Holders as of a date
no more than 15 days before such List of Holders is given to the Preferred
Guarantee Trustee; provided, that the Guarantor shall not be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders caused to have been given to the Preferred
Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy
any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
On or before July 15 of each year, the Preferred Guarantee Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by Section 313 of the Trust Indenture Act. The Preferred
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
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<PAGE>
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, waive
any past Event of Default and its consequences. Upon such waiver, any such Event
of Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such notice;
provided, that, except in the case of a default by Guarantor on any of its
payment obligations, the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Preferred
Guarantee Trustee in good faith determines that the withholding of such notice
is in the interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or of which a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Trust Agreement shall
have obtained actual knowledge.
SECTION 2.8. CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in
this Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, and such vesting and cessation of
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<PAGE>
title shall be effective whether or not conveyancing documents have been
executed and delivered pursuant to the appointment of such Successor Preferred
Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the express provisions of this
Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Preferred Securities Guarantee, and no implied
covenants or obligations shall be read into this Preferred Securities Guarantee
against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to the Preferred
Guarantee Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a
duty to examine the same to determine whether or not they conform to the
requirements of this Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of the
Preferred Guarantee Trustee, unless it shall be proved that the Preferred
Guarantee Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
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<PAGE>
(iii) the Preferred Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a Majority in
liquidation amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the Preferred
Guarantee Trustee shall have reasonable grounds for believing that the repayment
of such funds or liability is not reasonably assured to it under the terms of
this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the
Preferred Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and
shall be fully protected in acting or refraining from acting upon, any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties;
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently evidenced by an
Officers' Certificate;
(iii) whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon receipt
of such request, shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see
to any recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel,
and the written advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in accordance with
such advice or opinion. Such counsel may be counsel to the Guarantor or any of
its Affiliates and may include any of its employees. The Preferred Guarantee
Trustee shall have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction;
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(vi) the Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Preferred Securities Guarantee at the request or direction of any Holder, unless
such Holder shall have provided to the Preferred Guarantee Trustee such security
and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses and the
expenses of the Preferred Guarantee Trustee's agents, nominees or custodians)
and liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Preferred Guarantee Trustee; provided that, nothing contained in this Section
3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights and
powers vested in it by this Preferred Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Preferred Guarantee Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit;
(viii) the Preferred Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly or by
or through agents, nominees, custodians or attorneys, and the Preferred
Guarantee Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Preferred Securities, and the
signature of the Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred Guarantee Trustee to so
act or as to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be conclusively evidenced by
the Preferred Guarantee Trustee's or its agent's taking such action;
(x) whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or right or taking any
other action hereunder, the Preferred Guarantee Trustee (i) may request
instructions from the Holders of a Majority in liquidation amount of the
Preferred Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and (iii) shall
be protected in conclusively relying on or acting in accordance with such
instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed
to impose any duty or obligation on the Preferred Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it shall be illegal, or in which the
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power,
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<PAGE>
duty or obligation. No permissive power or authority available to the Preferred
Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Preferred Guarantee Trustee does not assume
any responsibility for their correctness. The Preferred Guarantee Trustee makes
no representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
Section 4.1. Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, and subject to supervision
or examination by Federal, State, Territorial or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining authority referred
to above, then, for the purposes of this Section 4.1(a)(ii), the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
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SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance
with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of resignation, the
resigning Preferred Guarantee Trustee may petition any court of competent
jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal
or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2,
the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts theretofore
paid by the Trust), as and when due, regardless of any defense, right of set-off
or counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
- 11 -
<PAGE>
SECTION 5.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Trust or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.
SECTION 5.3. OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) any failure or omission to receive any regulatory approval or
consent required in connection with the Preferred Securities (or the common
equity securities issued by the Trust), including the failure to receive any
approval of the Board of Governors of the Federal Reserve System required for
the redemption of the Preferred Securities;
- 12 -
<PAGE>
(g) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4. RIGHTS OF HOLDERS.
(a) Subject to Section 5.4(b), the Holders of a Majority in liquidation
amount of the Preferred Securities have the right to direct the time, method and
place of conducting of any proceeding for any remedy available to the Preferred
Guarantee Trustee in respect of this Preferred Securities Guarantee or
exercising any trust or power conferred upon the Preferred Guarantee Trustee
under this Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may institute and prosecute a
legal proceeding directly against the Guarantor to enforce its rights under this
Preferred Securities Guarantee, without first instituting a legal proceeding
against the Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5. GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and
not of collection.
SECTION 5.6. SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
of Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.
- 13 -
<PAGE>
SECTION 5.7. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to in
subsections (a) through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. LIMITATION OF TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if there shall
have occurred an Event of Default under this Preferred Securities Guarantee, an
event of default under the Trust Agreement or during an Extended Interest
Payment Period (as defined in the Indenture), then (a) the Guarantor shall not
declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock (other than as a result of a reclassification of its capital
stock for another class of its capital stock) and (b) the Guarantor shall not
make any payment of interest or principal on or repay, repurchase or redeem any
debt securities issued by the Guarantor which rank pari passu with or junior to
the Debentures.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations,
as defined in the Indenture, of the Guarantor, to the extent and in the manner
set forth in the Indenture, and the applicable provisions of the Indenture will
apply, in all relevant respects, to the obligations of the Guarantor hereunder.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full
payment of the Redemption Price of all Preferred Securities, (ii) upon full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust, or (iii) upon distribution of the Debentures to the
Holders of the Preferred Securities. Notwithstanding the foregoing, this
Preferred Securities Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any Holder of Preferred
Securities must restore payment of any sums paid under the Preferred Securities
or under this Preferred Securities Guarantee.
- 14 -
<PAGE>
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2. INDEMNIFICATION.
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding.
- 15 -
<PAGE>
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Preferred Securities Guarantee may only be amended with the
prior approval of the Holders of at least a Majority in Liquidation Amount of
the Preferred Securities. The provisions of Article VI of the Trust Agreement
with respect to meetings of Holders of the Preferred Securities apply to the
giving of such approval.
SECTION 9.3. NOTICES.
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administrator
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Wintrust Financial Corporation
727 North Bank Lane
Lake Forest, Illinois 60045
Attention: David A. Dykstra, Chief Financial Officer
(c) If given to any Holder of Preferred Securities, at the address set
forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
- 16 -
<PAGE>
SECTION 9.4. BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
SECTION 9.5. GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
This Preferred Securities Guarantee is executed as of the day and year
first above written.
WINTRUST FINANCIAL CORPORATION,
as Guarantor
By:_______________________________________
Its:______________________________________
WILMINGTON TRUST COMPANY
as Preferred Guarantee Trustee
By:_______________________________________
Its:______________________________________
<PAGE>
Exhibit 4.3
WINTRUST FINANCIAL CORPORATION
AND
WILMINGTON TRUST COMPANY,
AS INDENTURE TRUSTEE
INDENTURE
9.00% SUBORDINATED DEBENTURES DUE 2028
Dated as of September 29, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS...........................................................2
Section 1.1 Definitions of Terms.................................2
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONSREGISTRATION AND EXCHANGE
OF THE DEBENTURES...................................10
Section 2.1 Designation and Principal Amount....................10
Section 2.2 Maturity............................................10
Section 2.3 Form and Payment....................................11
Section 2.4 [Intentionally Left Blank]..........................12
Section 2.5 Interest............................................12
Section 2.6 Execution and Authentications.......................12
Section 2.7 Registration of Transfer and Exchange...............13
Section 2.8 Temporary Debentures................................14
Section 2.9 Mutilated, Destroyed, Lost or Stolen Debentures.....15
Section 2.10 Cancellation........................................16
Section 2.11 Benefit of Indenture................................16
Section 2.12 Authentication Agent................................16
ARTICLE III
REDEMPTION OF DEBENTURES.............................................17
Section 3.1 Redemption..........................................17
Section 3.2 Special Event Redemption............................17
Section 3.3 Optional Redemption by Company......................17
Section 3.4 Notice of Redemption................................18
Section 3.5 Payment Upon Redemption.............................19
Section 3.6 No Sinking Fund.....................................19
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD.................................20
Section 4.1 Extension of Interest Payment Period................20
Section 4.2 Notice of Extension.................................20
Section 4.3 Limitation on Transactions..........................21
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY..................................21
Section 5.1 Payment of Principal and Interest...................21
Section 5.2 Maintenance of Agency...............................21
Section 5.3 Paying Agents.......................................22
Section 5.4 Appointment to Fill Vacancy in Office of Trustee....23
ii
<PAGE>
Section 5.5 Compliance with Consolidation Provisions............23
Section 5.6 Limitation on Transactions..........................23
Section 5.7 Covenants as to the Trust...........................24
Section 5.8 Covenants as to Purchases...........................24
Section 5.9 Waiver of Usury, Stay or Extension Laws.............24
ARTICLE VI
DEBENTUREHOLDERS'LISTS AND REPORTSBY THE COMPANY AND THE TRUSTEE.....25
Section 6.1 Company to Furnish Trustee Names and Addresses
of Debentureholders.................................25
Section 6.2 Preservation of Information Communications with
Debentureholders....................................25
Section 6.3 Reports by the Company..............................25
Section 6.4 Reports by the Trustee..............................26
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERSON EVENT OF DEFAULT......26
Section 7.1 Events of Default...................................26
Section 7.2 Collection of Indebtedness and Suits for
Enforcement by Trustee..............................28
Section 7.3 Application of Moneys Collected.....................29
Section 7.4 Limitation on Suits.................................30
Section 7.5 Rights and Remedies Cumulative; Delay or
Omission not Waiver.................................31
Section 7.6 Control by Debentureholders.........................31
Section 7.7 Undertaking to Pay Costs............................32
Section 7.8 Direct Action; Right of Set-Off.....................32
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE.................................32
Section 8.1 Form of Debenture...................................32
Section 8.2 Original Issue of Debentures........................33
ARTICLE IX
CONCERNING THE TRUSTEE...............................................33
Section 9.1 Certain Duties and Responsibilities of the Trustee..33
Section 9.2 Notice of Defaults..................................34
Section 9.3 Certain Rights of Trustee...........................35
Section 9.4 Trustee Not Responsible for Recitals, etc...........36
Section 9.5 May Hold Debentures.................................36
Section 9.6 Moneys Held in Trust................................36
Section 9.7 Compensation and Reimbursement......................36
Section 9.8 Reliance on Officers'Certificate....................37
Section 9.9 Disqualification: Conflicting Interests............37
Section 9.10 Corporate Trustee Required; Eligibility.............37
iii
<PAGE>
Section 9.11 Resignation and Removal; Appointment of Successor...38
Section 9.12 Acceptance of Appointment by Successor..............39
Section 9.13 Merger, Conversion, Consolidation or Succession
to Business.........................................40
Section 9.14 Preferential Collection of Claims Against
the Company.........................................40
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS......................................40
Section 10.1 Evidence of Action by Holders.......................40
Section 10.2 Proof of Execution by Debentureholders..............41
Section 10.3 Who May be Deemed Owners............................41
Section 10.4 Certain Debentures Owned by Company Disregarded.....41
Section 10.5 Actions Binding on Future Debentureholders..........42
ARTICLE XI
SUPPLEMENTAL INDENTURES..............................................42
Section 11.1 Supplemental Indentures Without the Consent
of Debentureholders.................................42
Section 11.2 Supplemental Indentures with Consent of
Debentureholders....................................43
Section 11.3 Effect of Supplemental Indentures...................44
Section 11.4 Debentures Affected by Supplemental Indentures......44
Section 11.5 Execution of Supplemental Indentures................44
ARTICLE XII
SUCCESSOR CORPORATION................................................45
Section 12.1 Company May Consolidate, etc........................45
Section 12.2 Successor Corporation Substituted...................45
Section 12.3 Evidence of Consolidation, etc. to Trustee..........46
ARTICLE XIII
SATISFACTION AND DISCHARGE...........................................46
Section 13.1 Satisfaction and Discharge of Indenture.............46
Section 13.2 Discharge of Obligations............................47
Section 13.3 Deposited Moneys to be Held in Trust................47
Section 13.4 Payment of Monies Held by Paying Agents.............47
Section 13.5 Repayment to Company................................47
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERSAND DIRECTORS.......48
Section 14.1 No Recourse.........................................48
iv
<PAGE>
ARTICLE XV
MISCELLANEOUS PROVISIONS.............................................48
Section 15.1 Effect on Successors and Assigns....................48
Section 15.2 Actions by Successor................................48
Section 15.3 Surrender of Company Powers.........................49
Section 15.4 Notices.............................................49
Section 15.5 Governing Law.......................................49
Section 15.6 Treatment of Debentures as Debt.....................49
Section 15.7 Compliance Certificates and Opinions................49
Section 15.8 Payments on Business Days...........................50
Section 15.9 Conflict with Trust Indenture Act...................50
Section 15.10 Counterparts........................................50
Section 15.11 Separability........................................50
Section 15.12 Assignment..........................................50
Section 15.13 Acknowledgment of Rights............................51
ARTICLE XVI
SUBORDINATION OF DEBENTURES..........................................51
Section 16.1 Agreement to Subordinate............................51
Section 16.2 Default on Senior Debt, Subordinated Debt
or Additional Senior Obligations....................51
Section 16.3 Liquidation; Dissolution; Bankruptcy................52
Section 16.4 Subrogation.........................................53
Section 16.5 Trustee to Effectuate Subordination.................54
Section 16.6 Notice by the Company...............................54
Section 16.7 Rights of the Trustee; Holders of Senior
Indebtedness........................................55
Section 16.8 Subordination may not be Impaired...................55
v
<PAGE>
CROSS-REFERENCE TABLE
SECTION OF
TRUST INDENTURE ACT SECTION OF
OF 1939, AS AMENDED INDENTURE
- ------------------- ---------
310(a)......................................................................9.10
310(b).......................................................................9.9
.....................................................................9.11
310(c)............................................................Not Applicable
311(a)......................................................................9.14
311(b)......................................................................9.14
311(c)............................................................Not Applicable
312(a).......................................................................6.1
....................................................................6.2(a)
312(b)....................................................................6.2(c)
312(c)....................................................................6.2(c)
313(a)....................................................................6.4(a)
313(b)....................................................................6.4(b)
313(c)....................................................................6.4(a)
...................................................................6.4(b)
313(d)....................................................................6.4(c)
314(a)....................................................................6.3(a)
314(b)............................................................Not Applicable
314(c)......................................................................15.7
314(d)............................................................Not Applicable
314(e)......................................................................15.7
314(f)............................................................Not Applicable
315(a)....................................................................9.1(a)
......................................................................9.3
315(b).......................................................................9.2
315(c)....................................................................9.1(a)
315(d)....................................................................9.1(b)
315(e).......................................................................7.7
316(a).......................................................................1.1
......................................................................7.6
316(b)....................................................................7.4(b)
316(c)...................................................................10.1(b)
317(a).......................................................................7.2
317(b).......................................................................5.3
318(a)......................................................................15.9
Note: This reconciliation and tie sheet shall not, for any purpose,
be deemed to be a part of the Indenture
vi
<PAGE>
INDENTURE
INDENTURE, dated as of September 29, 1998, between WINTRUST FINANCIAL
CORPORATION, an Illinois corporation (the "Company") and Wilmington Trust
Company, a Delaware banking corporation duly organized and existing under the
laws of the State of Delaware as trustee (the "Trustee");
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of securities to be known as its 9.00% Subordinated Debentures due 2028
(hereinafter referred to as the "Debentures"), the form and substance of such
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in this Indenture;
WHEREAS, Wintrust Capital Trust I, a Delaware statutory business trust
(the "Trust"), has offered to the public up to $31,050,000 aggregate liquidation
amount of its Preferred Securities (as defined herein) and proposes to invest
the proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of up to $960,310 aggregate liquidation amount
of its Common Securities (as defined herein), in up to $32,010,310 aggregate
principal amount of the Debentures;
WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture;
WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects;
WHEREAS, to provide the terms and conditions upon which the Debentures
are to be authenticated, issued and delivered, the Company has duly authorized
the execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of
the Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture
otherwise expressly provided or unless the context otherwise requires) for all
purposes of this Indenture and of any indenture supplemental hereto shall have
the respective meanings specified in this Section 1.1 and shall include the
plural as well as the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act, or that are by reference in the Trust
Indenture Act defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in the Trust Indenture Act and in the Securities
Act as in force at the date of the execution of this instrument. All accounting
terms used herein and not expressly defined shall have the meanings assigned to
such terms in accordance with Generally Accepted Accounting Principles.
"Accelerated Maturity Date" means if the Company elects to accelerate
the Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after September
30, 2003.
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations does not include claims in
respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
Debentures or to rank pari passu in right of payment with the Debentures. For
purposes of this definition, "claim" shall have the meaning assigned thereto in
Section 101(4) of the United States Bankruptcy Code of 1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.
- 2 -
<PAGE>
"Authenticating Agent" means an authenticating agent with respect to
the Debentures appointed by the Trustee pursuant to Section 2.12.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board or any other duly designated officers of
the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" means, with respect to the Debentures, any day other
than a Saturday or a Sunday or a day on which federal or state banking
institutions in the Borough of Manhattan, The City of New York, are authorized
or required by law, executive order or regulation to close, or a day on which
the Corporate Trust Office of the Trustee or the Property Trustee is closed for
business.
"Capital Treatment Event" means the receipt by the Company and the
Trust of an Opinion of Counsel, rendered by a law firm having a recognized
national bank regulatory practice, to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or which pronouncement or
decision is announced on or after the date of issuance of the Preferred
Securities under the Trust Agreement, there is more than an insubstantial risk
of impairment of the Company's ability to treat the Preferred Securities (or any
substantial portion thereof) as Tier 1 capital (or the then equivalent thereof),
for purposes of the capital adequacy guidelines of the Federal Reserve, as then
in effect and applicable to the Company; provided, however, that the Trust or
the Company shall have requested and received such an Opinion of Counsel with
regard to such matters within a reasonable period of time after the Trust or the
Company shall have become aware of the possible occurrence of any such event.
"Certificate" means a certificate signed by the principal executive
officer, the principal financial officer, the principal accounting officer, the
treasurer or any vice president of the Company. The Certificate need not comply
with the provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
- 3 -
<PAGE>
"Commission" means the Securities and Exchange Commission.
"Common Securities" means undivided beneficial interests in the assets
of the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence of an Event of Default, the rights of holders
of Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights of holders
of Preferred Securities.
"Company" means Wintrust Financial Corporation, a corporation duly
organized and existing under the laws of the State of Illinois, and, subject to
the provisions of Article XII, shall also include its successors and assigns.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or
other similar term, means the Person or Persons in whose name or names a
particular Debenture shall be registered on the books of the Company or the
Trustee kept for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section
2.7(b).
"Debt" means with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) and every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
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"Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.
"Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.
"Exchange Act," means the Securities Exchange Act of 1934, as amended,
as in effect at the date of execution of this instrument.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Extended Maturity Date" means if the Company elects to extend the
Maturity Date in accordance with Section 2.2(b), the date selected by the
Company which is after the Scheduled Maturity Date but before September 30,
2047.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System.
"Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.
"Governmental Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
"Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into in accordance with the terms hereof.
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"Interest Payment Date," when used with respect to any installment of
interest on the Debentures, means the date specified in the Debenture or in an
indenture supplemental hereto with respect to the Debentures as the fixed date
on which an installment of interest with respect to the Debentures is due and
payable.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the
Company of an Opinion of Counsel, rendered by a law firm having a recognized
national tax and securities law practice, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
shall be considered an "investment company" that is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Preferred Securities under the
Trust Agreement; provided, however, that the Trust or the Company shall have
requested and received such an Opinion of Counsel with regard to such matters
within a reasonable period of time after the Trust or the Company shall have
become aware of the possible occurrence of any such event.
"Maturity Date" means the date on which the Debentures mature and on
which the principal shall be due and payable together with all accrued and
unpaid interest thereon including Compounded Interest and Additional Interest,
if any.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or
an Executive Vice President and by the Treasurer or an Assistant Treasurer or
the Vice President--Finance or the Secretary or an Assistant Secretary of the
Company that is delivered to the Trustee in accordance with the terms hereof.
Each such certificate shall include the statements provided for in Section 15.7,
if and to the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of independent,
outside legal counsel for the Company that is delivered to the Trustee in
accordance with the terms hereof. Each such opinion shall include the statements
provided for in Section 15.7, if and to the extent required by the provisions
thereof.
"Outstanding," when used with reference to the Debentures, means,
subject to the provisions of Section 10.4, as of any particular time, all
Debentures theretofore authenticated and delivered by the Trustee under this
Indenture, except (a) Debentures theretofore canceled by the Trustee or any
paying agent, or delivered to the Trustee or any paying agent for cancellation
or that have previously been canceled; (b) Debentures or portions thereof for
the payment or redemption of which moneys or Governmental Obligations in the
necessary amount shall have been deposited in trust with the Trustee or with any
paying agent (other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as its own paying
agent); provided,
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however, that if such Debentures or portions of such Debentures are to be
redeemed prior to the maturity thereof, notice of such redemption shall have
been given as in Article III provided, or provision satisfactory to the Trustee
shall have been made for giving such notice; and (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.7; provided, however, that in
determining whether the holders of the requisite percentage of Debentures have
given any request, notice, consent or waiver hereunder, Debentures held by the
Company or any Affiliate of the Company shall not be included; provided,
further, that the Trustee shall be protected in acting upon any request, notice,
consent or waiver unless a Responsible Officer of the Trustee shall have actual
knowledge that the holder of such Debenture is the Company or an Affiliate
thereof.
"Person" means any individual, corporation, partnership, joint-venture,
joint-stock company, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Debenture" means every previous Debenture evidencing all
or a portion of the same debt as that evidenced by such particular Debenture;
and, for the purposes of this definition, any Debenture authenticated and
delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture
shall be deemed to evidence the same debt as the lost, destroyed or stolen
Debenture.
"Preferred Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Common Securities issued by the
Trust; provided, however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of distributions
and payments upon liquidation, redemption and otherwise are subordinated to the
rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that the Company
may enter into with the Trustee or other Persons that operate directly or
indirectly for the benefit of holders of Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Redemption Price" shall have the meaning set forth in Section 3.2.
"Responsible Officer" when used with respect to the Trustee means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture, including any vice
president, any assistant vice president, any assistant secretary or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the Persons who at the time shall be such
officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means September 30, 2028.
"Securities Act," means the Securities Act of 1933, as amended, as in
effect at the date of execution of this instrument.
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"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under section 1111(b) of the United
States Bankruptcy Code of 1978, as amended, was without recourse to the Company;
(ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any
employee of the Company; (iv) Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
holders of the Debentures as a result of the subordination provisions of this
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject;
and (v) Debt which constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.2.
"Special Event" means a Tax Event, an Investment Company Event or a
Capital Treatment Event.
"Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture or thereafter
incurred, which is by its terms expressly provided to be junior and subordinate
to Senior Debt of the Company (other than the Debentures); provided, however,
that Subordinated Debt will not be deemed to include (i) any Debt of the Company
which when incurred and without respect to any election under section 1111(b) of
the United States Bankruptcy Code of 1978, as amended, was without recourse to
the Company, (ii) any Debt of the Company to any of its subsidiaries, (iii) any
Debt to any employee of the Company, (iv) any Debt which by its terms is
subordinated to trade accounts payable or accrued liabilities arising in the
ordinary course of business to the extent that payments made to the holders of
such Debt by the holders of the Subordinated Debentures as a result of the
subordination provisions of the Indenture would be greater than they otherwise
would have been as a result of any obligation of such holders to pay amounts
over to the obligees on such trade accounts payable or accrued liabilities
arising in the ordinary course of business as a result of subordination
provisions to which such Debt is subject, (v) Debt which constitutes Senior Debt
and (vi) any Debt of the Company under debt securities (and guarantees in
respect of these debt securities) initially issued to any trust, or a trustee of
a trust, partnership or other entity affiliated with the Company that is,
directly or indirectly, a financing vehicle of the Company in connection with
the issuance by that entity of preferred securities or other securities which
are intended to qualify for Tier 1 capital treatment.
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"Subsidiary" means, with respect to any Person, (i) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (ii) any general
partnership, joint venture or similar entity, at least a majority of whose
outstanding partnership or similar interests shall at the time be owned by such
Person, or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries; and (iii) any limited partnership of which such Person or
any of its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Company and the Trust of an
Opinion of Counsel, rendered by a law firm having a recognized national tax and
securities practice, to the effect that, as a result of any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or shall be within 90 days after the
date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Debentures; (ii) interest
payable by the Company on the Debentures is not, or within 90 days after the
date of such Opinion of Counsel, shall not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes; or (iii) the
Trust is, or shall be within 90 days after the date of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties, assessments or
other governmental charges; provided, however, that the Trust or the Company
shall have requested and received such an Opinion of Counsel with regard to such
matters within a reasonable period of time after the Trust or the Company shall
have become aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Trust" means Wintrust Capital Trust I, a Delaware statutory business
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
September 29, 1998, of the Trust.
"Trustee" means Wilmington Trust Company and, subject to the provisions
of Article IX, shall also include its successors and assigns, and, if at any
time there is more than one Person acting in such capacity hereunder, "Trustee"
shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939, as
amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in
effect at the date of execution of this instrument.
"Trust Securities" means the Common Securities and Preferred
Securities, collectively.
"Voting Stock," as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than
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shares, interests, participations or other equivalents having such power only by
reason of the occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, CONDITIONS
REGISTRATION AND EXCHANGE OF THE DEBENTURES
SECTION 1.2 DESIGNATION AND PRINCIPAL AMOUNT.
There is hereby authorized Debentures designated the "9.00%
Subordinated Debentures due 2028," limited in aggregate principal amount to
$32,010,310, which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.6.
SECTION 1.3 MATURITY.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to extend the Maturity Date beyond
the Scheduled Maturity Date in accordance with Section 2.2(b), the
Extended Maturity Date; or
(iii) if the Company elects to accelerate the Maturity Date to
be a date prior to the Scheduled Maturity Date in accordance with
Section 2.2(c), the Accelerated Maturity Date.
(b) the Company may at any time before the day which is 90 days before
the Scheduled Maturity Date, elect to extend the Maturity Date only once to the
Extended Maturity Date, provided that the Company has received the prior
approval of the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve and further provided
that the following conditions in this Section 2.2(b) are satisfied both at the
date the Company gives notice in accordance with Section 2.2(d) of its election
to extend the Maturity Date and at the Scheduled Maturity Date:
(i) the Company is not in bankruptcy, otherwise insolvent or
in liquidation;
(ii) the Company is not in default in the payment of interest
or principal on the Debentures; and
(iii) the Trust is not in arrears on payments of Distributions
on the Trust Preferred Securities issued by it and no deferred
Distributions are accumulated.
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(c) the Company may at any time before the day which is 90 days before
the Scheduled Maturity Date and after September 30, 2003, elect to shorten the
Maturity Date only once to the Accelerated Maturity Date provided that the
Company has received the prior approval of the Federal Reserve if then required
under applicable capital guidelines, policies or regulations of the Federal
Reserve.
(d) if the Company elects to extend the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the Trustee and the Trust
(unless the Trust is not the holder of the Debentures, in which case the Trustee
will give notice to the holders of the Debentures) of the extension of the
Maturity Date and the Extended Maturity Date at least 90 days and no more than
180 days before the Scheduled Maturity Date.
(e) if the Company elects to accelerate the Maturity Date in accordance
with Section 2.2(c), the Company shall give notice to the Trustee and the Trust
(unless the Trust is not the holder of the Debentures, in which case the Trustee
will give notice to the holders of the Debentures) of the extension of the
Maturity Date and the Accelerated Maturity Date at least 90 days and no more
than 180 days before the Accelerated Maturity Date.
SECTION 2.3 FORM AND PAYMENT.
The Debentures shall be issued in fully registered certificated form
without interest coupons. Principal and interest on the Debentures issued in
certificated form shall be payable, the transfer of such Debentures shall be
registrable and such Debentures shall be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the holder at such address as shall appear in the Debenture
Register or by wire transfer to an account maintained by the holder as specified
in the Debenture Register, provided that the holder provides proper transfer
instructions by the regular record date. Notwithstanding the foregoing, so long
as the holder of any Debentures is the Property Trustee, the payment of
principal of and interest (including Compounded Interest and Additional
Interest, if any) on such Debentures held by the Property Trustee shall be made
at such place and to such account as may be designated by the Property Trustee.
SECTION 2.4 [INTENTIONALLY LEFT BLANK].
SECTION 2.5 INTEREST.
(a) Each Debenture shall bear interest at the rate of 9.00% per annum
(the "Coupon Rate") from the original date of issuance until the principal
thereof becomes due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article IV) quarterly in arrears on March
31, June 30, September 30 and December 31 of each year (each, an "Interest
Payment Date"), commencing on December 31, 1998 to the Person in whose name such
Debenture or any Predecessor Debenture is registered, at the close of business
on the regular record date for such interest installment, which shall be the
fifteenth day of the last month of the calendar quarter.
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(b) The amount of interest payable for any period shall be computed on
the basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed, shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of
interest payable on such date shall be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any such
delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day (and
without any reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as if made on the
date such payment was originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other government charges been imposed.
SECTION 2.6 EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its
President or one of its Vice Presidents, under its corporate seal attested by
its Secretary or one of its Assistant Secretaries. Signatures may be in the form
of a manual or facsimile signature. The Company may use the facsimile signature
of any Person who shall have been a President or Vice President thereof, or of
any Person who shall have been a Secretary or Assistant Secretary thereof,
notwithstanding the fact that at the time the Debentures shall be authenticated
and delivered or disposed of such Person shall have ceased to be the President
or a Vice President, or the Secretary or an Assistant Secretary, of the Company
(and any such signature shall be binding on the Company). The seal of the
Company may be in the form of a facsimile of such seal and may be impressed,
affixed, imprinted or otherwise reproduced on the Debentures. The Debentures may
contain such notations, legends or endorsements required by law, stock exchange
rule or usage. Each Debenture shall be dated the date of its authentication by
the Trustee.
(b) A Debenture shall not be valid until authenticated manually by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication, together with a written order of the Company for
the authentication and delivery of such Debentures
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signed by its Chairman, President or any Vice President and its Treasurer or any
Assistant Treasurer, and the Trustee in accordance with such written order shall
authenticate and deliver such Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture.
(e) The Trustee shall not be required to authenticate such Debentures
if the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.
SECTION 2.7 REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the office
or agency of the Company designated for such purpose in the Borough of
Manhattan, The City of New York, or at the office of the Debenture Registrar,
for other Debentures and for a like aggregate principal amount in denominations
of integral multiples of $25, upon payment of a sum sufficient to cover any tax
or other governmental charge in relation thereto, all as provided in this
Section 2.7. In respect of any Debentures so surrendered for exchange, the
Company shall execute, the Trustee shall authenticate and such office or agency
shall deliver in exchange therefor the Debenture or Debentures that the
Debentureholder making the exchange shall be entitled to receive, bearing
numbers not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at its office or
agency designated for such purpose in the Borough of Manhattan, The City of New
York, or at the office of the Debenture Registrar or such other location
designated by the Company a register or registers (herein referred to as the
"Debenture Register") in which, subject to such reasonable regulations as it may
prescribe, the Company shall register the Debentures and the transfers of
Debentures as in this Article II provided and which at all reasonable times
shall be open for inspection by the Trustee. The registrar for the purpose of
registering Debentures and transfer of Debentures as herein provided shall
initially be the Trustee and thereafter as may be appointed by the Company as
authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for
transfer of any Debenture at the office or agency of the Company designated for
such purpose, the Company shall execute, the Trustee shall authenticate and such
office or agency shall deliver in the name of the transferee or transferees a
new Debenture or Debentures for a like aggregate principal amount. All
Debentures presented or surrendered for exchange or registration of transfer, as
provided in this Section 2.7, shall be accompanied (if so required by the
Company or the Debenture Registrar) by a written instrument or instruments of
transfer, in form satisfactory to the Company or the Debenture Registrar, duly
executed by the registered holder or by such holder's duly authorized attorney
in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, other
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than exchanges pursuant to Section 2.8, the second paragraph of Section 3.5 and
Section 11.4 not involving any transfer.
(d) The Company shall not be required (i) to issue, exchange or
register the transfer of any Debentures during a period beginning at the opening
of business 15 days before the day of the mailing of a notice of redemption of
less than all the Outstanding Debentures and ending at the close of business on
the day of such mailing; nor (ii) to register the transfer of or exchange any
Debentures or portions thereof called for redemption.
(e) Debentures may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Indenture. Any
transfer or purported transfer of any Debenture not made in accordance with this
Indenture shall be null and void.
SECTION 2.8 TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Debentures
(printed, lithographed, or typewritten). Such temporary Debentures shall be
substantially in the form of the definitive Debentures in lieu of which they are
issued, but with such omissions, insertions and variations as may be appropriate
for temporary Debentures, all as may be determined by the Company. Every
temporary Debenture shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Debentures. Without unnecessary delay the Company
shall execute and shall furnish definitive Debentures and thereupon any or all
temporary Debentures may be surrendered in exchange therefor (without charge to
the holders), at the office or agency of the Company designated for the purpose
in the Borough of Manhattan, The City of New York, and the Trustee shall
authenticate and such office or agency shall deliver in exchange for such
temporary Debentures an equal aggregate principal amount of definitive
Debentures, unless the Company advises the Trustee to the effect that definitive
Debentures need not be executed and furnished until further notice from the
Company. Until so exchanged, the temporary Debentures shall be entitled to the
same benefits under this Indenture as definitive Debentures authenticated and
delivered hereunder.
SECTION 2.9 MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become
mutilated or be destroyed, lost or stolen, the Company (subject to the next
succeeding sentence) shall execute, and upon the Company's request the Trustee
(subject as aforesaid) shall authenticate and deliver, a new Debenture bearing a
number not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture so
destroyed, lost, stolen or mutilated. In every case the applicant for a
substituted Debenture shall furnish to the Company and the Trustee such security
or indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and the Trustee evidence to their satisfaction of the destruction,
loss or theft of the applicant's Debenture and of the ownership thereof. The
Trustee may authenticate any such substituted Debenture and deliver the same
upon the written request or authorization of the
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Chairman, President or any Vice President and the Treasurer or any Assistant
Treasurer of the Company. Upon the issuance of any substituted Debenture, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
In case any Debenture that has matured or is about to mature shall become
mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a
substitute Debenture, pay or authorize the payment of the same (without
surrender thereof except in the case of a mutilated Debenture) if the applicant
for such payment shall furnish to the Company and the Trustee such security or
indemnity as they may require to save them harmless, and, in case of
destruction, loss or theft, evidence to the satisfaction of the Company and the
Trustee of the destruction, loss or theft of such Debenture and of the ownership
thereof.
(b) Every replacement Debenture issued pursuant to the provisions of
this Section 2.9 shall constitute an additional contractual obligation of the
Company whether or not the mutilated, destroyed, lost or stolen Debenture shall
be found at any time, or be enforceable by anyone, and shall be entitled to all
the benefits of this Indenture equally and proportionately with any and all
other Debentures duly issued hereunder. All Debentures shall be held and owned
upon the express condition that the foregoing provisions are exclusive with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.10 CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption,
exchange or registration of transfer shall, if surrendered to the Company or any
paying agent, be delivered to the Trustee for cancellation, or, if surrendered
to the Trustee, shall be canceled by it, and no Debentures shall be issued in
lieu thereof except as expressly required or permitted by any of the provisions
of this Indenture. On request of the Company at the time of such surrender, the
Trustee shall deliver to the Company canceled Debentures held by the Trustee. In
the absence of such request the Trustee may dispose of canceled Debentures in
accordance with its standard procedures and deliver a certificate of disposition
to the Company. If the Company shall otherwise acquire any of the Debentures,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.11 BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied,
shall give or be construed to give to any Person, other than the parties hereto
and the holders of the Debentures (and, with respect to the provisions of
Article XVI, the holders of Senior Indebtedness) any legal or equitable right,
remedy or claim under or in respect of this Indenture, or under any covenant,
condition or provision herein contained; all such covenants, conditions and
provisions being for the sole benefit
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of the parties hereto and of the holders of the Debentures (and, with respect to
the provisions of Article XVI, the holders of Senior Indebtedness).
SECTION 2.12 AUTHENTICATION AGENT.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to act
on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. All references in
this Indenture to the authentication of Debentures by the Trustee shall be
deemed to include authentication by an Authenticating Agent. Each Authenticating
Agent shall be acceptable to the Company and shall be a corporation that has a
combined capital and surplus, as most recently reported or determined by it,
sufficient under the laws of any jurisdiction under which it is organized or in
which it is doing business to conduct a trust business, and that is otherwise
authorized under such laws to conduct such business and is subject to
supervision or examination by federal or state authorities. If at any time any
Authenticating Agent shall cease to be eligible in accordance with these
provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1 REDEMPTION.
Subject to the Company having received prior approval of the Federal
Reserve, if then required under the applicable capital guidelines, policies or
regulations of the Federal Reserve, the Company may redeem the Debentures issued
hereunder on and after the dates set forth in and in accordance with the terms
of this Article III.
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SECTION 3.2 SPECIAL EVENT REDEMPTION.
Subject to the Company having received the prior approval of the
Federal Reserve, if then required under the applicable capital guidelines,
policies or regulations of the Federal Reserve, if a Special Event has occurred
and is continuing, then, notwithstanding Section 3.3(a) but subject to Section
3.3(b), the Company shall have the right upon not less than 30 days nor more
than 60 days notice to the holders of the Debentures to redeem the Debentures,
in whole but not in part, for cash within 180 days following the occurrence of
such Special Event (the "180-Day Period") at a redemption price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest thereon
to the date of such redemption (the "Redemption Price"), provided that if at the
time there is available to the Company the opportunity to eliminate, within the
180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Company, the Trust
or the holders of the Trust Securities issued by the Trust, the Company shall
pursue such Ministerial Action in lieu of redemption. The Redemption Price shall
be paid prior to 12:00 noon, New York time, on the date of such redemption or
such earlier time as the Company determines, provided that the Company shall
deposit with the Trustee an amount sufficient to pay the Redemption Price by
10:00 a.m., New York time, on the date such Redemption Price is to be paid.
SECTION 3.3 OPTIONAL REDEMPTION BY COMPANY.
(a) Subject to the provisions of Section 3.3(b), except as otherwise
may be specified in this Indenture, the Company shall have the right to redeem
the Debentures, in whole or in part, from time to time, on or after September
30, 2003, at a Redemption Price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest thereon to the date of such
redemption. Any redemption pursuant to this Section 3.3(a) shall be made upon
not less than 30 days nor more than 60 days notice to the holder of the
Debentures, at the Redemption Price. If the Debentures are only partially
redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata
or by lot or in such other manner as the Trustee shall deem appropriate and fair
in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New
York time, on the date of such redemption or at such earlier time as the Company
determines provided that the Company shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.
(b) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities issued by the Trust from The Nasdaq
National Market_ or any national securities exchange or other organization on
which the Preferred Securities are then listed, the Company shall not be
permitted to effect such partial redemption and may only redeem the Debentures
in whole.
SECTION 3.4 NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to redeem
all or, as the case may be, a portion of the Debentures in accordance with the
right reserved so to do, the Company shall, or shall cause the Trustee to upon
receipt of 45 days' written notice from the Company (which notice shall, in the
event of a partial redemption, include a representation to the effect that such
partial redemption will not result in the delisting of the Preferred Securities
as described in Section 3.3(b) above), give notice of such redemption to holders
of the Debentures to be redeemed by mailing, first class postage prepaid, a
notice of such redemption not less than 30 days and not more than 60 days before
the date fixed for redemption to such holders at their last addresses as they
shall appear upon the Debenture Register unless a shorter period is specified in
the Debentures to be redeemed. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the registered holder receives the notice. In any case, failure duly to give
such notice to the holder of any Debenture designated for redemption in whole or
in part, or any defect in the notice, shall not affect the validity of the
proceedings for the redemption of any other Debentures. In the case of any
redemption of Debentures prior to the expiration of any restriction on such
redemption provided in the terms of such Debentures or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction. Each such notice of redemption
shall specify the date fixed for redemption and the Redemption Price and shall
state that payment of the Redemption Price shall be made at the office or agency
of the Company in the Borough of Manhattan, The City of New York or at the
Corporate Trust Office, upon presentation and surrender of such Debentures, that
interest accrued to the date fixed for redemption shall be paid as specified in
said notice and that from and after said date interest shall cease to accrue. If
less than all the Debentures are to be redeemed, the notice to the holders of
the Debentures shall specify the particular Debentures to be redeemed. If the
Debentures are to be redeemed in part only, the notice shall state the portion
of the principal amount thereof to be redeemed and shall state that on and after
the redemption date, upon surrender of such Debenture, a new Debenture or
Debentures in principal amount equal to the unredeemed portion thereof shall be
issued.
(b) If less than all the Debentures are to be redeemed, the Company
shall give the Trustee at least 45 days' notice in advance of the date fixed for
redemption as to the aggregate principal amount of Debentures to be redeemed,
and thereupon the Trustee shall select, pro rata or by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion or
portions (equal to $25 or any integral multiple thereof) of the Debentures to be
redeemed and shall thereafter promptly notify the Company in writing of the
numbers of the Debentures to be redeemed, in whole or in part. The Company may,
if and whenever it shall so elect pursuant to the terms hereof, by delivery of
instructions signed on its behalf by its Chairman, its President or any Vice
President, instruct the Trustee or any paying agent to call all or any part of
the Debentures for redemption and to give notice of redemption in the manner set
forth in this Section 3.4, such notice to be in the name of the Company or its
own name as the Trustee or such paying agent may deem advisable. In any case in
which notice of redemption is to be given by the Trustee or any such paying
agent, the Company shall deliver or cause to be delivered to, or permit to
remain with, the Trustee or such paying agent, as the case may be, such
Debenture Register, transfer books or other records, or
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suitable copies or extracts therefrom, sufficient to enable the Trustee or such
paying agent to give any notice by mail that may be required under the
provisions of this Section 3.4.
SECTION 3.5 PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed as
above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become due and payable on the date and at the
place stated in such notice at the applicable Redemption Price, and interest on
such Debentures or portions of Debentures shall cease to accrue on and after the
date fixed for redemption, unless the Company shall default in the payment of
such Redemption Price with respect to any such Debenture or portion thereof. On
presentation and surrender of such Debentures on or after the date fixed for
redemption at the place of payment specified in the notice, said Debentures
shall be paid and redeemed at the Redemption Price (but if the date fixed for
redemption is an interest payment date, the interest installment payable on such
date shall be payable to the registered holder at the close of business on the
applicable record date pursuant to Section 3.3).
(b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall deliver to the holder
thereof, at the expense of the Company, a new Debenture of authorized
denomination in principal amount equal to the unredeemed portion of the
Debenture so presented.
SECTION 3.6 NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 EXTENSION OF INTEREST PAYMENT PERIOD.
The Company shall have the right, at any time and from time to time
during the term of the Debentures so long as no Event of Default has occurred
and is continuing, to defer payments of interest by extending the interest
payment period of such Debentures for a period not exceeding 20 consecutive
quarters (the "Extended Interest Payment Period"), during which Extended
Interest Payment Period no interest shall be due and payable; provided that no
Extended Interest Payment Period may extend beyond the Maturity Date or end on a
date other than an Interest Payment Date. To the extent permitted by applicable
law, interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the Coupon Rate compounded quarterly for each quarter of the Extended
Interest Payment Period ("Compounded Interest"). At the end of the Extended
Interest Payment Period, the Company shall calculate (and deliver such
calculation to the Trustee) and pay all interest accrued and unpaid on the
Debentures, including any Additional Interest and Compounded Interest (together,
"Deferred
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Interest") that shall be payable to the holders of the Debentures in whose names
the Debentures are registered in the Debenture Register on the first record date
after the end of the Extended Interest Payment Period. Before the termination of
any Extended Interest Payment Period, the Company may further extend such period
so long as no Event of Default has occurred and is continuing, provided that
such period together with all such further extensions thereof shall not exceed
20 consecutive quarters, or extend beyond the Maturity Date of the Debentures or
end on a date other than an Interest Payment Date. Upon the termination of any
Extended Interest Payment Period and upon the payment of all Deferred Interest
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extended Interest Payment Period.
SECTION 4.2 NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Administrative Trustees, the
Property Trustee and the Trustee of its selection of such Extended Interest
Payment Period two Business Days before the earlier of (i) the next succeeding
date on which Distributions on the Trust Securities issued by the Trust are
payable; or (ii) the date the Trust is required to give notice of the record
date, or the date such Distributions are payable, to The Nasdaq National Market_
or other applicable self-regulatory organization or to holders of the Preferred
Securities issued by the Trust, but in any event at least one Business Day
before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extended Interest Payment Period, the Company
shall give the holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period at least two Business Days
before the earlier of (i) the next succeeding Interest Payment Date; or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to The Nasdaq National Market_ or other applicable
self-regulatory organization or to holders of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a)
or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted
in the maximum Extended Interest Payment Period permitted under Section 4.1.
SECTION 4.3 LIMITATION ON TRANSACTIONS.
If (i) the Company shall exercise its right to defer payment of
interest as provided in Section 4.1; or (ii) there shall have occurred and be
continuing any Event of Default, then (a) the Company shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than as a result of a reclassification of its capital stock for another
class of its capital stock); (b) the Company shall not make any payment of
interest, principal or premium, if any, or repay, repurchase or redeem any debt
securities issued by the Company which rank pari passu with or
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junior to the Debentures or make any guarantee payment with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with or junior to the Debentures; provided,
however, that notwithstanding the foregoing the Company may make payments
pursuant to its obligations under the Preferred Securities Guarantee; and (c)
the Company shall not redeem, purchase or acquire less than all of the
outstanding Debentures or any of the Preferred Securities.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the
principal of and interest on the Debentures at the time and place and in the
manner provided herein.
SECTION 5.2 MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain, or shall cause to be maintained, an office or agency in the Borough of
Manhattan, The City of New York, and at such other location or locations as may
be designated as provided in this Section 5.2, where (i) Debentures may be
presented for payment; (ii) Debentures may be presented as hereinabove
authorized for registration of transfer and exchange; and (iii) notices and
demands to or upon the Company in respect of the Debentures and this Indenture
may be given or served, such designation to continue with respect to such office
or agency until the Company shall, by written notice signed by its President or
an Executive Vice President and delivered to the Trustee, designate some other
office or agency for such purposes or any of them. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, notices and demands. In addition to any such office or agency,
the Company may from time to time designate one or more offices or agencies
outside of the Borough of Manhattan, The City of New York, where the Debentures
may be presented for registration or transfer and for exchange in the manner
provided herein, and the Company may from time to time rescind such designation
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain any such office or agency in the Borough of Manhattan,
The City of New York, for the purposes above mentioned. The Company shall give
the Trustee prompt written notice of any such designation or rescission thereof.
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SECTION 5.3 PAYING AGENTS.
(a) The Company shall be the initial paying agent. If the Company shall
appoint one or more paying agents for the Debentures, other than the Trustee,
the Company shall cause each such paying agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for
the payment of the principal of or interest on the Debentures (whether
such sums have been paid to it by the Company or by any other obligor
of such Debentures) in trust for the benefit of the Persons entitled
thereto;
(ii) that it shall give the Trustee notice of any failure by
the Company (or by any other obligor of such Debentures) to make any
payment of the principal of or interest on the Debentures when the same
shall be due and payable;
(iii) that it shall, at any time during the continuance of any
failure referred to in the preceding paragraph (a)(ii) above, upon the
written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such paying agent; and
(iv) that it shall perform all other duties of paying agent as
set forth in this Indenture.
(b) If the Company shall act as its own paying agent with respect to
the Debentures, it shall on or before each due date of the principal of or
interest on such Debentures, set aside, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay such principal
or interest so becoming due on Debentures until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and shall promptly notify
the Trustee of such action, or any failure (by it or any other obligor on such
Debentures) to take such action. Whenever the Company shall have one or more
paying agents for the Debentures, it shall, prior to each due date of the
principal of or interest on any Debentures, deposit with the paying agent a sum
sufficient to pay the principal or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal or interest,
and (unless such paying agent is the Trustee) the Company shall promptly notify
the Trustee of this action or failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i)
the agreement to hold sums in trust as provided in this Section 5.3 is subject
to the provisions of Section 13.3 and 13.4; and (ii) the Company may at any
time, for the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, pay, or direct any paying agent to pay, to
the Trustee all sums held in trust by the Company or such paying agent, such
sums to be held by the Trustee upon the same terms and conditions as those upon
which such sums were held by the Company or such paying agent; and, upon such
payment by any paying agent to the Trustee, such paying agent shall be released
from all further liability with respect to such money.
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SECTION 5.4 APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the
office of Trustee, shall appoint, in the manner provided in Section 9.10, a
Trustee, so that there shall at all times be a Trustee hereunder.
SECTION 5.5 COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to any other company unless the provisions of
Article XII hereof are complied with.
SECTION 5.6 LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a Trustee of the Trust in
connection with the issuance of Trust Securities by the Trust and (i) there
shall have occurred any event that would constitute an Event of Default; (ii)
the Company shall be in default with respect to any of its obligations under the
Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall
have given notice of its election to defer payments of interest on such
Debentures by extending the interest payment period as provided in this
Indenture and such period, or any extension thereof, shall be continuing, then
(a) the Company shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than as a result of a
reclassification of its capital stock); and (b) the Company shall not make any
payment of interest, principal or premium, if any, or repay, repurchase or
redeem any debt securities issued by the Company which rank pari passu with or
junior to the Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with or junior in interest to the Debentures;
provided, however, that the Company may make payments pursuant to its
obligations under the Preferred Securities Guarantee; and (c) the Company shall
not redeem, purchase or acquire less than all of the outstanding Debentures or
any of the Preferred Securities.
SECTION 5.7 COVENANTS AS TO THE TRUST.
For so long as such Trust Securities of the Trust remain outstanding,
the Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities; (ii) not voluntarily terminate, wind up or liquidate the
Trust, except upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines, policies or regulations of the Federal
Reserve and use its reasonable efforts to cause the Trust (a) to remain a
business trust (and to avoid involuntary termination, winding up or
liquidation), except in connection with a distribution of Debentures, the
redemption of all of the Trust Securities of the Trust or certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement; and
(b) to otherwise continue not to be treated as an association taxable as a
corporation or partnership for United States federal income tax purposes; and
(iii) use its reasonable efforts to cause each holder of Trust Securities to be
treated as owning an individual
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beneficial interest in the Debentures. In connection with the distribution of
the Debentures to the holders of the Preferred Securities issued by the Trust
upon a Dissolution Event, the Company shall use its best efforts to list such
Debentures on The Nasdaq National Market_ or on such other exchange as the
Preferred Securities are then listed.
SECTION 5.8 COVENANTS AS TO PURCHASES.
Prior to September 30, 2003, the Company shall not purchase any
Debentures, in whole or in part, from the Trust.
SECTION 5.9 WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company shall not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any usury, stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performances of this Indenture, and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS.
The Company shall furnish or cause to be furnished to the Trustee (a)
on a monthly basis on each regular record date (as described in Section 2.5) a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of such regular record date,
provided that the Company shall not be obligated to furnish or cause to furnish
such list at any time that the list shall not differ in any respect from the
most recent list furnished to the Trustee by the Company (in the event the
Company fails to provide such list on a monthly basis, the Trustee shall be
entitled to rely on the most recent list provided by the Company); and (b) at
such other times as the Trustee may request in writing within 30 days after the
receipt by the Company of any such request, a list of similar form and content
as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that, in either case, no such list need be furnished if the
Trustee shall be the Debenture Registrar.
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SECTION 6.2 PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as registrar for the Debentures (if acting in
such capacity).
(b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of
the Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.
SECTION 6.3 REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) that the Company may be
required to file with the Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of such sections, then to file with the
Trustee and the Commission, in accordance with the rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic information, documents and reports that may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and registered on
a national securities exchange as may be prescribed from time to time in such
rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from to time
by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable over-night delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within 30 days after the filing thereof with
the Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to subsections (a) and (b) of this Section
6.3 as may be required by rules and regulations prescribed from time to time by
the Commission.
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SECTION 6.4 REPORTS BY THE TRUSTEE.
(a) On or before July 15 in each year in which any of the Debentures
are Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Debentureholders, as their names and addresses appear upon the
Debenture Register, a brief report dated as of the preceding May 15, if and to
the extent required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the
Trust Indenture Act.
(c) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Debentures are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on any stock exchange.
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and is
continuing:
(i) the Company defaults in the payment of any installment of
interest upon any of the Debentures, as and when the same shall become
due and payable, and continuance of such default for a period of 30
days; provided, however, that a valid extension of an interest payment
period by the Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this
purpose;
(ii) the Company defaults in the payment of the principal on
the Debentures as and when the same shall become due and payable
whether at maturity, upon redemption, by declaration or otherwise;
provided, however, that a valid extension of the maturity of such
Debentures in accordance with the terms of this Indenture shall not
constitute a default in the payment of principal;
(iii) the Company fails to observe or perform any other of its
covenants or agreements with respect to the Debentures for a period of
90 days after the date on which written notice of such failure,
requiring the same to be remedied and stating that such notice is a
"Notice of Default" hereunder, shall have been given to the Company by
the Trustee, by registered or certified mail, or to the Company and the
Trustee by the holders of at least 25% in principal amount of the
Debentures at the time Outstanding;
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(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case; (ii) consents to the
entry of an order for relief against it in an involuntary case; (iii)
consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (iv) makes a general assignment
for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under
any Bankruptcy Law that (i) is for relief against the Company in an
involuntary case; (ii) appoints a Custodian of the Company for all or
substantially all of its property; or (iii) orders the liquidation of
the Company, and the order or decree remains unstayed and in effect for
90 days; or
(vi) the Trust shall have voluntarily or involuntarily
dissolved, wound-up its business or otherwise terminated its existence
except in connection with (i) the distribution of Debentures to holders
of Trust Securities in liquidation of their interests in the Trust;
(ii) the redemption of all of the outstanding Trust Securities of the
Trust; or (iii) certain mergers, consolidations or amalgamations, each
as permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then Outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been
so declared due and payable, and before any judgment or decree for the payment
of the moneys due shall have been obtained or entered as hereinafter provided,
the holders of a majority in aggregate principal amount of the Debentures then
Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Debentures and the principal of any and
all Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal, and, to the extent that such payment is
enforceable under applicable law, upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 9.6; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 7.6. No such rescission and
annulment shall extend to or shall affect any subsequent default or impair any
right consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored
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respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Company and the Trustee shall continue as though no
such proceedings had been taken.
SECTION 7.2 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (1) in case it shall default in the
payment of any installment of interest on any of the Debentures, and such
default shall have continued for a period of 90 Business Days; or (2) in case it
shall default in the payment of the principal of any of the Debentures when the
same shall have become due and payable, whether upon maturity of the Debentures
or upon redemption or upon declaration or otherwise, then, upon demand of the
Trustee, the Company shall pay to the Trustee, for the benefit of the holders of
the Debentures, the whole amount that then shall have been become due and
payable on all such Debentures for principal or interest, or both, as the case
may be, with interest upon the overdue principal and (to the extent that payment
of such interest is enforceable under applicable law and, if the Debentures are
held by the Trust or a trustee of the Trust, without duplication of any other
amounts paid by the Trust or trustee in respect thereof) upon overdue
installments of interest at the rate per annum expressed in the Debentures; and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, and the amount payable to the Trustee under
Section 9.7.
(b) If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or other obligor upon the
Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or other obligor upon
the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company or the creditors or property of either, the Trustee shall
have power to intervene in such proceedings and take any action therein that may
be permitted by the court and shall (except as may be otherwise provided by law)
be entitled to file such proofs of claim and other papers and documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed for the entire amount due and payable by the
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee under Section 9.7; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
9.7.
(d) All rights of action and of asserting claims under this Indenture,
or under any of the terms established with respect to Debentures, may be
enforced by the Trustee without the possession of any of such Debentures, or the
production thereof at any trial or other proceeding relative thereto,
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and any such suit or proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for payment to the Trustee of any amounts due under Section 9.7,
be for the ratable benefit of the holders of the Debentures. In case of an Event
of Default hereunder, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law. Nothing contained herein shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Debentureholder any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Debentureholder in
any such proceeding.
SECTION 7.3 APPLICATION OF MONEYS COLLECTED.
Any moneys or other assets collected by the Trustee pursuant to this
Article VII with respect to the Debentures shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such moneys or other assets on account of principal or interest,
upon presentation of the Debentures, and notation thereon the payment, if only
partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection and of all
amounts payable to the Trustee under Section 9.6;
SECOND: To the payment of all Senior Indebtedness of the Company if and
to the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the
Debentures for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Debentures for principal and interest, respectively.
SECTION 7.4 LIMITATION ON SUITS.
(a) Except as set forth herein, no holder of any Debenture shall have
any right by virtue or by availing of any provision of this Indenture to
institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless (i) such holder previously shall have
given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than 25% in
aggregate principal amount of the Debentures then Outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; (iv) the
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Trustee for 60 days after its receipt of such notice, request and offer of
indemnity, shall have failed to institute any such action, suit or proceeding;
and (v) during such 60 day period, the holders of a majority in principal amount
of the Debentures do not give the Trustee a direction inconsistent with the
request.
(b) Notwithstanding anything contained herein to the contrary or any
other provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. For the protection and enforcement
of the provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
SECTION 7.5 RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.9, all powers and
remedies given by this Article VII to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or on acquiescence
therein; and, subject to the provisions of Section 7.4, every power and remedy
given by this Article VII or by law to the Trustee or the Debentureholders may
be exercised from time to time, and as often as shall be deemed expedient, by
the Trustee or by the Debentureholders.
SECTION 7.6 CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding, determined in accordance with Section 10.4,
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee; provided, however, that such direction shall not
be in conflict with any rule of law or with this Indenture. Subject to the
provisions of
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Section 9.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability. The holders of a majority in aggregate
principal amount of the Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.4, may on behalf of the holders of all
of the Debentures waive any past default in the performance of any of the
covenants contained herein and its consequences, except (i) a default in the
payment of the principal of or interest on, any of the Debentures as and when
the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the consent of the
holder of each Outstanding Debenture is required, such waiver shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such waiver. Upon any such waiver, the default covered thereby
shall be deemed to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Debentures shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 7.7 UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures
by such holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
SECTION 7.8 DIRECT ACTION; RIGHT OF SET-OFF
In the event that an Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest on
or principal of the Debentures on the payment date on which such payment is due
and payable, then a holder of Preferred Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such Debentures having a principal
amount equal to the aggregate
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Liquidation Amount of the Preferred Securities of such holders (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under this Indenture to the extent of any payment made by the Company
to such holder of the Preferred Securities with respect to such Direct Action.
ARTICLE VIII
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1 FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms contained as Exhibit A to
this Indenture, attached hereto and incorporated herein by reference.
SECTION 8.2 ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of $28,350,516 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. If the Underwriters exercise their Option and there
is an Option Closing Date (as such terms are defined in the Underwriting
Agreement, dated September 24, 1998, by and among the Company, the Trust, EVEREN
Securities, Inc., ABN AMRO Incorporated and Piper Jaffray Inc., then, on such
Option Closing Date, Debentures in the additional aggregate principal amount of
up to $3,659,794 may be executed by the Company and delivered to the Trustee for
authentication. The Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company, signed by its President,
or any Vice President and its Treasurer or an Assistant Treasurer, without any
further action by the Company.
ARTICLE IX
CONCERNING THE TRUSTEE
SECTION 9.1 CERTAIN DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, shall
undertake to perform with respect to the Debentures such duties and only such
duties as are specifically set forth in this Indenture, and no implied covenants
shall be read into this Indenture against the Trustee. In case an Event of
Default has occurred that has not been cured or waived, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent Person would
exercise or use under the circumstances in the conduct of its own affairs.
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(b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(1) the duties and obligations of the Trustee shall
with respect to the Debentures be determined solely by the
express provisions of this Indenture, and the Trustee shall
not be liable with respect to the Debentures except for the
performance of such duties and obligations as are specifically
set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on the part of the
Trustee, the Trustee may with respect to the Debentures
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance
with the direction of the holders of not less than a majority in
principal amount of the Debentures at the time Outstanding relating to
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred
upon the Trustee under this Indenture with respect to the Debentures;
and
(iv) none of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers, if there is reasonable
ground for believing that the repayment of such funds or liability is
not reasonably assured to it under the terms of this Indenture or
adequate indemnity against such risk is not reasonably assured to it.
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SECTION 9.2 NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities, the Trustee shall transmit by mail to all holders of the Debentures,
as their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case default in the payment of the principal or interest
(including any Additional Interest) on any Debenture, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of the directors and/or Responsible
Officers of the Trustee determines in good faith that the withholding of such
notice is in the interests of the holders of such Debentures; and provided,
further, that in the case of any default of the character specified in Section
7.1(a)(3), no such notice to holders of Debentures need be sent until at least
30 days after the occurrence thereof. For the purposes of this Section 9.2, the
term "default" means any event which is, or after notice or lapse of time or
both, would become, an Event of Default with respect to the Debentures.
SECTION 9.3 CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(a) The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, security or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by its President or any Vice President and by
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer thereof (unless other evidence in respect thereof is specifically
prescribed herein);
(c) The Trustee shall not be deemed to have knowledge of a default or
an Event of Default, other than an Event of Default specified in Section
7.1(a)(i); or (ii), unless and until it receives written notification of such
Event of Default from the Company or by holders of at least 25% of the aggregate
principal amount of the Debentures at the time Outstanding;
(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby; nothing contained herein shall,
however, relieve the Trustee of the obligation,
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upon the occurrence of an Event of Default (that has not been cured or waived)
to exercise with respect to the Debentures such of the rights and powers vested
in it by this Indenture, and to use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, unless requested in writing so to do by the holders
of not less than a majority in principal amount of the Outstanding Debentures
(determined as provided in Section 10.4); provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a condition
to so proceeding. The reasonable expense of every such examination shall be paid
by the Company or, if paid by the Trustee, shall be repaid by the Company upon
demand; and
(h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 9.4 TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
the correctness of the same.
(b) The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by
the Company of any of the Debentures or of the proceeds of such Debentures, or
for the use or application of any moneys paid over by the Trustee in accordance
with any provision of this Indenture, or for the use or application of any
moneys received by any paying agent other than the Trustee.
SECTION 9.5 MAY HOLD DEBENTURES.
The Trustee or any paying agent or registrar for the Debentures, in its
individual or any other capacity, may become the owner or pledgee of Debentures
with the same rights it would have if it were not Trustee, paying agent or
Debenture Registrar.
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SECTION 9.6 MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
SECTION 9.7 COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such compensation (which shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust), as the Company and the Trustee may from time to time agree in writing,
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee, and, except as otherwise expressly provided herein, the Company
shall pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all Persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence or bad faith. The Company also covenants to indemnify
the Trustee (and its officers, agents, directors and employees) for, and to hold
it harmless against, any loss, liability or expense incurred without negligence
or bad faith on the part of the Trustee and arising out of or in connection with
the acceptance or administration of this trust, including the costs and expenses
of defending itself against any claim of liability in the premises. (1)
(b) The obligations of the Company under this Section 9.7 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.
SECTION 9.8 RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting to take any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officers' Certificate delivered to the
Trustee and such certificate, in the absence of negligence or bad faith on the
part of the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted to be taken by it under the provisions of this Indenture
upon the faith thereof.
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SECTION 9.9 DISQUALIFICATION: CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within
the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures
issued hereunder which shall at all times be a corporation organized and doing
business under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or other
Person permitted to act as trustee by the Commission, authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, and subject to supervision or examination by federal, state,
territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.10, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.11.
SECTION 9.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee with respect to Debentures by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee with respect to
Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, subject to the provisions
of Section 9.9, on behalf of himself and all others similarly situated, petition
any such court for the appointment of a successor trustee. Such court may
thereupon after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(b) In case at any time any one of the following shall occur
(i) the Trustee shall fail to comply with the provisions of
Section 9.9 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six months; or
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(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.10 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy
proceeding, or a receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case,
the Company may remove the Trustee with respect to all Debentures and
appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee, or, subject to the provisions of Section 9.9,
unless the Trustee's duty to resign is stayed as provided herein, any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six months may, on behalf of that holder and
all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any,
as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the consent of the Company.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 9.12.
(e) Any successor trustee appointed pursuant to this Section 9.11 may
be appointed with respect to the Debentures, and at any time there shall be only
one Trustee with respect to the Debentures.
SECTION 9.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.
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(b) Upon request of any successor trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor trustee all such rights, powers and trusts referred to in
paragraph (a) of this Section 9.12.
(c) No successor trustee shall accept its appointment unless at the
time of such acceptance such successor trustee shall be qualified and eligible
under this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided
in this Section 9.12, the Company shall transmit notice of the succession of
such trustee hereunder by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. If the Company fails to transmit such notice within ten days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be transmitted at the expense of the Company.
SECTION 9.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified under the provisions of Section 9.9 and eligible under the provisions
of Section 9.10, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding. In case any Debentures shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Debentures so authenticated with the same effect as if such
successor Trustee had itself authenticated such Debentures.
SECTION 9.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship described in Section 311(b) of the
Trust Indenture Act. A Trustee who has resigned or been removed shall be subject
to Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X
CONCERNING THE DEBENTUREHOLDERS
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SECTION 10.1 EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of a
majority or specified percentage in aggregate principal amount of the Debentures
may take any action (including the making of any demand or request, the giving
of any notice, consent or waiver or the taking of any other action), the fact
that at the time of taking any such action the holders of such majority or
specified percentage have joined therein may be evidenced by any instrument or
any number of instruments of similar tenor executed by such holders of
Debentures in Person or by agent or proxy appointed in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Debentureholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Debentureholders of record at the close of business on the record date shall
be deemed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of Outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
SECTION 10.2 PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture
Register of such Debentures or by a certificate of the Debenture Registrar
thereof.
(c) The Trustee may require such additional proof of any matter
referred to in this Section 10.2 as it shall deem necessary.
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SECTION 10.3 WHO MAY BE DEEMED OWNERS.
Prior to the due presentment for registration of transfer of any
Debenture, the Company, the Trustee, any paying agent, any Authenticating Agent
and any Debenture Registrar may deem and treat the Person in whose name such
Debenture shall be registered upon the books of the Company as the absolute
owner of such Debenture (whether or not such Debenture shall be overdue and
notwithstanding any notice of ownership or writing thereon made by anyone other
than the Debenture Registrar) for the purpose of receiving payment of or on
account of the principal of and interest on such Debenture (subject to Section
2.3) and for all other purposes; and neither the Company nor the Trustee nor any
paying agent nor any Authenticating Agent nor any Debenture Registrar shall be
affected by any notice to the contrary.
SECTION 10.4 CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling or
controlled by or under common control with the Company or any other obligor on
the Debentures shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver, only Debentures that the Trustee actually knows are so owned shall be
so disregarded. The Debentures so owned that have been pledged in good faith may
be regarded as Outstanding for the purposes of this Section 10.4, if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Debentures and that the pledgee is not a Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In case of a dispute as to
such right, any decision by the Trustee taken upon the advice of counsel shall
be full protection to the Trustee.
SECTION 10.5 ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures specified
in this Indenture in connection with such action, any holder of a Debenture that
is shown by the evidence to be included in the Debentures the holders of which
have consented to such action may, by filing written notice with the Trustee,
and upon proof of holding as provided in Section 10.2, revoke such action so far
as concerns such Debenture. Except as aforesaid any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor, on registration of transfer thereof or in place
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action shall be conclusively binding upon the
Company, the Trustee and the holders of all the Debentures.
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ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1 SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place
of certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the
holders of all or any of the Debentures or to surrender any right or power
herein conferred upon the Company; (1)
(e) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, only as herein set forth;
(f) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
(g) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures; or
(h) qualify or maintain the qualification of this Indenture under the
Trust Indenture Act.
The Trustee is hereby authorized to join with the Company in the execution of
any such supplemental indenture, and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 11.1 may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time Outstanding, notwithstanding any of the
provisions of Section 11.2.
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SECTION 11.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders
of not less than a majority in aggregate principal amount of the Debentures at
the time Outstanding, the Company, when authorized by Board Resolutions, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the provisions of the
Trust Indenture Act as then in effect) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of any supplemental indenture or of modifying in any manner not
covered by Section 11.1 the rights of the holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall without
the consent of the holders of each Debenture then Outstanding and affected
thereby, (i) extend the fixed maturity of any Debentures, reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, without the consent of the holder of each Debenture so affected; or
(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture; provided further, that
if the Debentures are held by the Trust or a trustee of the Trust, such
supplemental indenture shall not be effective until the holders of a majority in
liquidation preference of Trust Securities of the Trust shall have consented to
such supplemental indenture; provided further, that if the consent of the holder
of each Outstanding Debenture is required, such supplemental indenture shall not
be effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.
SECTION 11.3 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article XI, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitations of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Company and the holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 11.4 DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
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SECTION 11.5 EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by their Board
Resolutions authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion but
shall not be obligated to enter into such supplemental indenture. The Trustee,
subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant to this
Article XI is authorized or permitted by, and conforms to, the terms of this
Article XI and that it is proper for the Trustee under the provisions of this
Article XI to join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE XII
SUCCESSOR CORPORATION
SECTION 12.1 COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, the
Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the
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successor Person is organized under the laws of the United States or any state
or the District of Columbia; and (iii) immediately after giving effect thereto,
an Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be continuing.
SECTION 12.2 SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of, in the case of the Company, the due
and punctual payment of the principal of and interest on all of the Debentures
Outstanding and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, as the case may be,
such successor corporation shall succeed to and be substituted for the Company,
with the same effect as if it had been named as the Company herein, and
thereupon the predecessor corporation shall be relieved of all obligations and
covenants under this Indenture and the Debentures.
(b) In case of any such consolidation, merger, sale, conveyance,
transfer or other disposition such changes in phraseology and form (but not in
substance) may be made in the Debentures thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures
shall prevent the Company from merging into itself or acquiring by purchase or
otherwise all or any part of the property of any other Person (whether or not
affiliated with the Company).
SECTION 12.3 EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.1 SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any Debentures
that shall have been destroyed, lost or stolen and that shall have been replaced
or paid as provided in Section 2.9) and Debentures for whose payment money or
Governmental Obligations have theretofore been deposited in trust or segregated
and held in trust by the Company (and thereupon repaid to the Company or
discharged from such trust, as provided in Section 13.5); or (b) all such
Debentures not theretofore delivered to the Trustee for cancellation shall have
become
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due and payable, or are by their terms to become due and payable within one year
or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations sufficient or a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; then this Indenture shall
thereupon cease to be of further effect except for the provisions of Sections
2.3, 2.7, 2.9, 5.1, 5.2, 5.3 and 9.7, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.7 and 13.5, that
shall survive to such date and thereafter, and the Trustee, on demand of the
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
SECTION 13.2 DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee
for cancellation or that have not become due and payable as described in Section
13.1 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient in the opinion of a nationally recognized certified public accounting
firm to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Company shall also pay or cause to be paid all other
sums payable hereunder by the Company, then after the date such moneys or
Governmental Obligations, as the case may be, are deposited with the Trustee,
the obligations of the Company under this Indenture shall cease to be of further
effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6,
9.7 and 13.5 hereof that shall survive until such Debentures shall mature and be
paid. Thereafter, Sections 9.7 and 13.5 shall survive.
SECTION 13.3 DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee
pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available
for payment as due, either directly or through any paying agent (including the
Company acting as its own paying agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
SECTION 13.4 PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture,
all moneys or Governmental Obligations then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
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SECTION 13.5 REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any paying agent
or the Trustee, or then held by the Company in trust, for payment of principal
of or interest on the Debentures that are not applied but remain unclaimed by
the holders of such Debentures for at least two years after the date upon which
the principal of or interest on such Debentures shall have respectively become
due and payable, shall be repaid to the Company, as the case may be, on May 31
of each year or (if then held by the Company) shall be discharged from such
trust; and thereupon the paying agent and the Trustee shall be released from all
further liability with respect to such moneys or Governmental Obligations, and
the holder of any of the Debentures entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 14.1 NO RECOURSE.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
corporation, either directly or through the Company or any such predecessor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the incorporators, stockholders, officers or
directors as such, of the Company or of any predecessor corporation, or any of
them, because of the creation of the indebtedness hereby authorized, or under or
by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Debentures or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issuance of such Debentures.
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ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this
Indenture contained by or on behalf of the Company shall bind their respective
successors and assigns, whether so expressed or not.
SECTION 15.2 ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 15.3 SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority
of its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
SECTION 15.4 NOTICES.
Except as otherwise expressly provided herein any notice or demand that
by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures to or on the Company may
be given or served by being deposited first class postage prepaid in a
post-office letterbox addressed (until another address is filed in writing by
the Company with the Trustee), as follows: Wintrust Capital Trust I, 727 North
Bank Lane, Lake Forest, Illinois 60045, Attention: David A. Dykstra. Any notice,
election, request or demand by the Company or any Debentureholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 15.5 GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of the State of Illinois and for all purposes shall be
construed in accordance with the laws of said State.
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SECTION 15.5 TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness and
not as equity for federal income tax purposes. The provisions of this Indenture
shall be interpreted to further this intention.
SECTION 15.7 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to
take any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of such
Person, he has made such examination or investigation as, in the opinion of such
Person, is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement as
to whether or not, in the opinion of such Person, such condition or covenant has
been complied with; provided, however, that each such certificate shall comply
with the provisions of Section 314 of the Trust Indenture Act.
SECTION 15.8 PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may be made on the next succeeding
Business Day with the same force and effect as if made on the nominal date of
maturity or redemption, and no interest shall accrue for the period after such
nominal date.
SECTION 15.9 CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
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SECTION 15.10 COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
SECTION 15.1 SEPARABILITY.
In case any one or more of the provisions contained in this Indenture
or in the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12 ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company shall remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
SECTION 15.13 ACKNOWLEDGMENT OF RIGHTS.
The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest or principal on
the Debentures on the date such interest or principal is otherwise payable (or
in the case of redemption, on the redemption date), the Company acknowledges
that a holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Debentures.
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ARTICLE XVI
SUBORDINATION OF DEBENTURES
SECTION 16.1 AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on all
Debentures issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations
(collectively, "Senior Indebtedness") to the extent provided herein, whether
outstanding at the date of this Indenture or thereafter incurred. No provision
of this Article XVI shall prevent the occurrence of any default or Event of
Default hereunder.
SECTION 16.2 DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR
OBLIGATIONS.
In the event and during the continuation of any default by the Company
in the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received
by the Trustee when such payment is prohibited by the preceding sentence of this
Section 16.2, such payment shall be held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that the holders of the
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Trustee in writing within 90 days of such payment of the amounts then
due and owing on the Senior Indebtedness and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3 LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment thereof provided for in
money in accordance with its terms, before any payment is made by the Company on
account of the principal or interest on the Debentures; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Debentures
or
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the Trustee would be entitled to receive from the Company, except for the
provisions of this Article XVI, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the holders of the Debentures or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior Indebtedness of the
Company, as the case may be, remaining unpaid to the extent necessary to pay
such Senior Indebtedness in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, as
the case may be, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment; and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.
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SECTION 16.4 SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XVI
are and are intended solely for the purposes of defining the relative rights of
the holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness of the
Company), and the holders of the Debentures, the obligation of the Company,
which is absolute and unconditional, to pay to the holders of the Debentures the
principal of and interest on the Debentures as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the holders of the Debentures and creditors of the
Company, as the case may be, other than the holders of Senior Indebtedness of
the Company, as the case may be, nor shall anything herein or therein prevent
the Trustee or the holder of any Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XVI of the holders of such Senior
Indebtedness in respect of cash, property or securities of the Company, as the
case may be, received upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company referred
to in this Article XVI, the Trustee, subject to the provisions of Article IX,
and the holders of the Debentures shall be entitled to conclusively rely upon
any order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the holders of the Debentures, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.
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SECTION 16.5 TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof
authorizes and directs the Trustee on such holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article XVI and appoints the Trustee such holder's attorney-in-fact for any
and all such purposes.
SECTION 16.6 NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible
Officer of the Trustee of any fact known to the Company that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI. Notwithstanding the
provisions of this Article XVI or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment of monies to or by the Trustee in
respect of the Debentures pursuant to the provisions of this Article XVI, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a holder or holders of Senior Indebtedness or
from any trustee therefor; and before the receipt of any such written notice,
the Trustee, subject to the provisions of Section 9.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the Company
(or a trustee on behalf of such holder) to establish that such notice has been
given by a holder of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XVI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XVI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
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SECTION 16.7 RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and reimbursement
of expenses as set forth in Section 9.7 shall not be subject to the
subordination provisions of the Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XVI, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 9.1, the Trustee shall not be liable to any
holder of such Senior Indebtedness if it shall pay over or deliver to holders of
Debentures, the Company or any other Person money or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.
SECTION 16.8 SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness
of the Company to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee or the
holders of the Debentures, without incurring responsibility to the holders of
the Debentures and without impairing or releasing the subordination provided in
this Article XVI or the obligations hereunder of the holders of the Debentures
to the holders of such Senior Indebtedness, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Senior Indebtedness, or otherwise amend or
supplement in any manner such Senior Indebtedness or any instrument evidencing
the same or any agreement under which such Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing such Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of such Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
WINTRUST FINANCIAL CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
WILMINGTON TRUST COMPANY, AS TRUSTEE
By:_________________________________________
Name:_______________________________________
Title:______________________________________
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STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the __th day of ____, 1998, before me personally came
____________________to me known, who, being by me duly sworn, did depose and say
that he is the ______________________ of Company, one of the corporations
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal affixed to the said instrument
is such corporation seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
Notary Public, _________________________
[seal] My Commission expires: _________________
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EXHIBIT A
(FORM OF FACE OF DEBENTURE)
WINTRUST FINANCIAL CORPORATION
9.00% SUBORDINATED DEBENTURE
DUE SEPTEMBER 30, 2028
No. ___ $___________
CUSIP No. 97650W AA 6
Wintrust Financial Corporation, an Illinois corporation (the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to, _______________ or
registered assigns, the principal sum of _________________________
($___________) on September 30, 2028 (the "Stated Maturity"), and to pay
interest on said principal sum from September 29, 1998, or from the most recent
interest payment date (each such date, an "Interest Payment Date") to which
interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March, June, September and December of each year
commencing December 31, 1998, at the rate of 9.00% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest at the
same rate per annum compounded quarterly. The amount of interest payable on any
Interest Payment Date shall be computed on the basis of a 360-day year of twelve
30-day months. The amount of interest for any partial period shall be computed
on the basis of the number of days elapsed in a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on this
Debenture is not a business day, then payment of interest payable on such date
shall be made on the next succeeding day that is a business day (and without any
interest or other payment in respect of any such delay) except that, if such
business day is in the next succeeding calendar year, payment of such interest
will be made on the immediately preceding business day, in each case, with the
same force and effect as if made on such date. The interest installment so
payable, and punctually paid or duly provided for, on any Interest Payment Date
shall, as provided in the Indenture, be paid to the person in whose name this
Debenture (or one or more Predecessor Debentures, as defined in said Indenture)
is registered at the close of business on the regular record date for such
interest installment, which shall be the close of business on the business day
next preceding such Interest Payment Date unless otherwise provided in the
Indenture. Any such interest installment not punctually paid or duly provided
for shall forthwith cease to be payable to the registered holders on such
regular record date and may be paid to the Person in whose name this Debenture
(or one or more Predecessor Debentures) is registered at the close of business
on a special record date to be fixed by the Trustee for the payment of such
defaulted interest, notice
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whereof shall be given to the registered holders of the Debentures not less than
10 days prior to such special record date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture. The
principal of and the interest on this Debenture shall be payable at the office
or agency of the Trustee maintained for that purpose in any coin or currency of
the United States of America that at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
may be made at the option of the Company by check mailed to the registered
holder at such address as shall appear in the Debenture Register.
Notwithstanding the foregoing, so long as the holder of this Debenture is the
Property Trustee, the payment of the principal of and interest on this Debenture
shall be made at such place and to such account as may be designated by the
Trustee.
The Stated Maturity may be shortened at any time by the Company to any
date not earlier than September 30, 2003, subject to the Company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve. Such date may also
be extended at any time at the election of the Company for one or more periods,
but in no event to a date later than September 30, 2047, subject to certain
limitations described in the Indenture.
The indebtedness evidenced by this Debenture is, to the extent provided
in the Indenture, subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued subject
to the provisions of the Indenture with respect thereto. Each holder of this
Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions; (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided; and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated September 29, 1998.
WINTRUST FINANCIAL CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Attest:
By:_________________________________________
Name:_______________________________________
Title:______________________________________
A-3
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
Dated: September 29, 1998
Wilmington Trust Company, ___________________________________
as Trustee or Authentication Agent
By__________________________________ By___________________________
Authorized Signatory
A-4
<PAGE>
[FORM OF REVERSE OF DEBENTURE]
9.00% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), specified in the Indenture,
all issued or to be issued under and pursuant to an Indenture dated as of
September 29, 1998 (the "Indenture") duly executed and delivered between the
Company and Wilmington Trust Company, as Trustee (the "Trustee"), to which
Indenture reference is hereby made for a description of the rights, limitations
of rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders of the Debentures. The Debentures are limited in
aggregate principal amount as specified in the Indenture.
Because of the occurrence and continuation of a Special Event, in
certain circumstances, this Debenture may become due and payable at the
principal amount together with any interest accrued thereon (the "Redemption
Price"). The Redemption Price shall be paid prior to 12:00 noon, Eastern
Standard Time, time, on the date of such redemption or at such earlier time as
the Company determines. The Company shall have the right to redeem this
Debenture at the option of the Company, without premium or penalty, in whole or
in part at any time on or after September 30, 2003 (an "Optional Redemption"),
or at any time in certain circumstances upon the occurrence of a Special Event,
at a Redemption Price equal to 100% of the principal amount plus any accrued but
unpaid interest, to the date of such redemption. Any redemption pursuant to this
paragraph shall be made upon not less than 30 days nor more than 60 days notice,
at the Redemption Price. If the Debentures are only partially redeemed by the
Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro
rata or by lot or by any other method utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures for the unredeemed portion hereof shall be issued in the
name of the holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, as defined
in the Indenture, to execute supplemental indentures for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of any supplemental indenture or of modifying in any manner
the rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of the Debentures
except as provided in the Indenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, without the
consent of the holder of each Debenture so affected; or (ii) reduce the
aforesaid percentage of Debentures, the
A-5
<PAGE>
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of each Debenture then outstanding and
affected thereby. The Indenture also contains provisions permitting the holders
of a majority in aggregate principal amount of the Debentures at the time
outstanding, on behalf of all of the holders of the Debentures, to waive any
past default in the performance of any of the covenants contained in the
Indenture, or established pursuant to the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any of the
Debentures. Any such consent or waiver by the registered holder of this
Debenture (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such holder and upon all future holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal and interest on this
Debenture at the time and place and at the rate and in the money herein
prescribed.
Provided certain conditions are met, the Company shall have the right
at any time during the term of the Debentures and from time to time to extend
the interest payment period of such Debentures for up to 20 consecutive quarters
(each, an "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Debentures to the extent that payment of
such interest is enforceable under applicable law). Before the termination of
any such Extended Interest Payment Period, so long as no Event of Default shall
have occurred and be continuing, the Company may further extend such Extended
Interest Payment Period, provided that such Extended Interest Payment Period
together with all such further extensions thereof shall not exceed 20
consecutive quarters, extend beyond the Stated Maturity or end on a date other
than an Interest Payment Date. At the termination of any such Extended Interest
Payment Period and upon the payment of all accrued and unpaid interest and any
additional amounts then due and subject to the foregoing conditions, the Company
may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount shall be
issued to the designated transferee or transferees. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and the Debenture
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon made by anyone other than the Debenture
A-6
<PAGE>
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any Debenture Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Debentures are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof.
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
A-7
<PAGE>
Exhibit 4.4
WINTRUST CAPITAL TRUST I
AMENDED AND RESTATED
TRUST AGREEMENT
among
WINTRUST FINANCIAL CORPORATION, as Depositor,
WILMINGTON TRUST COMPANY, as Property Trustee,
WILMINGTON TRUST COMPANY, as Delaware Trustee,
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
Dated as of September 29, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINED TERMS.........................................................2
Section 101. Definitions..............................................2
ARTICLE II
ESTABLISHMENT OF THE TRUST...........................................10
Section 201. Name....................................................10
Section 202. Office of the Delaware Trustee; Principal Place
of Business...........................................11
Section 203. Initial Contribution of Trust Property;
Organizational Expenses...............................11
Section 204. Issuance of the Preferred Securities....................11
Section 205. Issuance of the Common Securities; Subscription and
Purchase of Debentures.............................11
Section 206. Declaration of Trust....................................12
Section 207. Authorization to Enter into Certain Transactions........12
Section 208. Assets of Trust.........................................16
Section 209. Title to Trust Property.................................16
ARTICLE III
PAYMENT ACCOUNT......................................................17
Section 301. Payment Account.........................................17
ARTICLE IV
DISTRIBUTIONS; REDEMPTION............................................17
Section 401. Distributions...........................................17
Section 402. Redemption..............................................18
Section 403. Subordination of Common Securities......................20
Section 404. Payment Procedures......................................21
Section 405. Tax Returns and Reports.................................21
Section 406. Payment of Taxes, Duties, etc. of the Trust.............21
Section 407. Payments Under Indenture................................21
ARTICLE V
TRUST SECURITIES CERTIFICATES........................................22
Section 501. Initial Ownership.......................................22
Section 502. The Trust Securities Certificates.......................22
Section 503. Execution, Authentication and Delivery of
Trust Securities Certificates......................22
Section 503A.Global Preferred Security...............................23
Section 504. Registration of Transfer and Exchange of
Preferred Securities Certificates..................24
Section 505. Mutilated, Destroyed, Lost or Stolen Trust
Securities Certificates............................25
i
<PAGE>
Section 506. Persons Deemed Securityholders..........................26
Section 507. Access to List of Securityholders' Names and Addresses..26
Section 508. Maintenance of Office or Agency.........................26
Section 509. Appointment of Paying Agent.............................26
Section 510. Ownership of Common Securities by Depositor.............27
Section 511. Trust Securities Certificates...........................27
Section 512. Notices to Clearing Agency..............................28
Section 513. Rights of Securityholders...............................28
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING............................29
Section 601. Limitations on Voting Rights............................29
Section 602. Notice of Meetings......................................30
Section 603. Meetings of Preferred Securityholders...................30
Section 604. Voting Rights...........................................30
Section 605. Proxies, etc............................................31
Section 606. Securityholder Action by Written Consent................31
Section 607. Record Date for Voting and Other Purposes...............31
Section 608. Acts of Securityholders.................................31
Section 609. Inspection of Records...................................32
ARTICLE VII
REPRESENTATIONS AND WARRANTIES.......................................33
Section 701. Representations and Warranties of the Bank
and the Property Trustee...........................33
Section 702. Representations and Warranties of the Delaware
Bank and the Delaware Trustee......................34
Section 703. Representations and Warranties of Depositor.............35
ARTICLE VIII
TRUSTEES.............................................................35
Section 801. Certain Duties and Responsibilities.....................35
Section 802. Certain Notices.........................................37
Section 803. Certain Rights of Property Trustee......................37
Section 804. Not Responsible for Recitals or Issuance of Securities..39
Section 805. May Hold Securities.....................................39
Section 806. Compensation; Indemnity; Fees...........................40
Section 807. Corporate Property Trustee Required; Eligibility
of Trustees........................................40
Section 808. Conflicting Interests...................................41
Section 809. Co-Trustees and Separate Trustee........................41
Section 810. Resignation and Removal; Appointment of Successor.......43
Section 811. Acceptance of Appointment by Successor..................44
Section 812. Merger, Conversion, Consolidation or
Succession to Business.............................45
Section 813. Preferential Collection of Claims Against
Depositor or Trust.................................45
Section 814. Reports by Property Trustee.............................45
Section 815. Reports to the Property Trustee.........................46
ii
<PAGE>
Section 816. Evidence of Compliance with Conditions Precedent........46
Section 817. Number of Trustees......................................46
Section 818. Delegation of Power.....................................46
Section 819. Voting..................................................47
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER..................................47
Section 901. Termination Upon Expiration Date........................47
Section 902. Early Termination.......................................47
Section 903. Termination.............................................47
Section 904. Liquidation.............................................48
Section 905. Mergers, Consolidations, Amalgamations or
Replacements of the Trust..........................49
ARTICLE X
MISCELLANEOUS PROVISIONS.............................................50
Section 1001.Limitation of Rights of Securityholders.................50
Section 1002.Amendment...............................................50
Section 1003.Separability............................................52
Section 1004.Governing law...........................................52
Section 1005.Payments Due on Non-Business Day........................52
Section 1006.Successors..............................................52
Section 1007.Headings................................................52
Section 1008.Reports, Notices and Demands............................52
Section 1009.Agreement Not to Petition...............................53
Section 1010.Trust Indenture Act; Conflict with Trust Indenture Act..53
Section 1011.Acceptance of Terms of Trust Agreement,
Guarantee and Indenture.....................................54
EXHIBITS
- --------
Exhibit A Certificate of Trust
Exhibit B Form of Common Securities Certificate
Exhibit C Form of Expense Agreement
Exhibit D Form of Preferred Securities Certificate
Exhibit E Form of Preferred Securities Certificate of Authentication
Exhibit F Certificate of Depositary Agreement
iii
<PAGE>
CROSS-REFERENCE TABLE
Section of
Trust Indenture Act Section of
of 1939, as amended Amended and Restated Trust Agreement
- ------------------- ------------------------------------
310(a)(1)....................................................................807
310(a)(2)....................................................................807
310(a)(3)....................................................................807
310(a)(4).............................................................207(a)(ii)
310(b).......................................................................808
311(a).......................................................................813
311(b).......................................................................813
312(a).......................................................................507
312(b).......................................................................507
312(c).......................................................................507
313(a)....................................................................814(a)
313(a)(4).................................................................814(b)
313(b)....................................................................814(b)
313(c)......................................................................1008
313(d)....................................................................814(c)
314(a).......................................................................815
314(b)............................................................Not Applicable
314(c)(1)....................................................................816
314(c)(2)....................................................................816
314(c)(3).........................................................Not Applicable
314(d)............................................................Not Applicable
314(e) 101, 816
315(a)............................................................801(a), 803(a)
315(b).................................................................802, 1008
315(c)....................................................................801(a)
315(d)..................................................................801, 803
316(a)(2).........................................................Not Applicable
316(b)............................................................Not Applicable
316(c).......................................................................607
317(a)(1).........................................................Not Applicable
317(a)(2).........................................................Not Applicable
317(b).......................................................................509
318(a)......................................................................1010
Note: This Cross-Reference Table does not constitute part of this Agreement
and shall not affect the interpretation of any of its terms or
provisions.
iv
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of September 29, 1998,
among (i) WINTRUST FINANCIAL CORPORATION, an Illinois corporation (including any
successors or assigns, the "Depositor"), (ii) Wilmington Trust Company, a
Delaware banking corporation duly organized and existing under the laws of the
State of Delaware, as property trustee (the "Property Trustee" and, in its
separate corporate capacity and not in its capacity as Property Trustee, the
"Bank"), (iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly
organized and existing under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee," and, in its separate corporate capacity and not
in its capacity as Delaware Trustee, the "Delaware Bank") (iv) EDWARD J. WEHMER,
an individual, DAVID A. DYKSTRA, an individual, and RANDOLPH M. HIBBEN, an
individual, each of whose address is c/o Company (each an "Administrative
Trustee" and collectively the "Administrative Trustees") (the Property Trustee,
the Delaware Trustee and the Administrative Trustees referred to collectively as
the "Trustees"), and (v) the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and Edward J. Wehmer,
David A. Dykstra and Randolph M. Hibben, each as an Administrative Trustee, have
heretofore duly declared and established a business trust pursuant to the
Delaware Business Trust Act by the entering into of that certain Trust
Agreement, dated as of August 14, 1998 (the "Original Trust Agreement"), and by
the execution and filing by the Delaware Trustee, the Depositor and the
Administrative Trustees with the Secretary of State of the State of Delaware of
the Certificate of Trust, filed on August 14, 1998, the form of which is
attached as Exhibit A; and
---------
WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and
the Administrative Trustees desire to amend and restate the Original Trust
Agreement in its entirety as set forth herein to provide for, among other
things, (i) the issuance of the Common Securities (as defined herein) by the
Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the
Preferred Securities (as defined herein) by the Trust pursuant to the
Underwriting Agreement (as defined herein); (iii) the acquisition by the Trust
from the Depositor of all of the right, title and interest in the Debentures (as
defined herein); and (iv) the appointment of the Trustees;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein),
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows:
<PAGE>
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to
them in this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an
"Article" or a "Section" refers to an Article or a Section, as the case may be,
of this Trust Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Trust Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of Edward J. Wehmer, David A.
Dykstra and Randolph M. Hibben, solely in his or her capacity as Administrative
Trustee of the Trust formed and continued hereunder and not in his or her
individual capacity, or such Administrative Trustee's successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, any Person 10% or more of whose outstanding voting securities
or other ownership interests are directly or indirectly owned, controlled or
held with power to vote by the specified Person; (b) any Person directly or
indirectly controlling, controlled by, or under common control with the
specified Person; (c) a partnership in which the specified Person is a general
partner; (d) any officer or director of the specified Person; and (e) if the
specified Person is an individual, any entity of which the specified Person is
an officer, director or general partner.
"Authenticating Agent" means an authenticating agent with respect to
the Preferred Securities appointed by the Property Trustee pursuant to Section
503.
- 2 -
<PAGE>
"Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in
the premises adjudging such Person a bankrupt or insolvent, or approving as
properly filed a petition seeking liquidation or reorganization of or in respect
of such Person under the United States Bankruptcy Code of 1978, as amended, or
any other similar applicable federal or state law, and the continuance of any
such decree or order unvacated and unstayed for a period of 90 days; or the
commencement of an involuntary case under the United States Bankruptcy Code of
1978, as amended, in respect of such Person, which shall continue undismissed
for a period of 90 days or entry of an order for relief in such case; or the
entry of a decree or order of a court having jurisdiction in the premises for
the appointment on the ground of insolvency or bankruptcy of a receiver,
custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such
Person or of its property, or for the winding up or liquidation of its affairs,
and such decree or order shall have remained in force unvacated and unstayed for
a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States Bankruptcy
Code of 1978, as amended, or other similar applicable Federal or State law, or
the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or custodian
or liquidator or trustee or assignee in bankruptcy or insolvency of such Person
or of its property, or shall make a general assignment for the benefit of
creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the
Secretary of the Depositor to have been duly adopted by the Depositor's Board of
Directors, or such committee of the Board of Directors or officers of the
Depositor to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on
which banking institutions in The City of New York are authorized or required by
law, executive order or regulation to remain closed, or a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Certificate of Depositary Agreement" means the agreement among
Depositor, Trust and DTC, as the initial Clearing Agency, dated as of the
Closing Date, substantially in the form attached as Exhibit F as the same may be
---------
amended and supplemented from time to time.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
- 3 -
<PAGE>
"Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC shall be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank or other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing
ownership of Common Securities, substantially in the form attached as Exhibit C.
---------
"Company" means Wintrust Financial Corporation.
"Corporate Trust Office" means the office at which, at any particular
time, the corporate trust business of the Property Trustee or the Debenture
Trustee, as the case may be, shall be principally administered, which office at
the date hereof, in each such case, is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust
Administration.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as specified in Section 1.1
of the Indenture.
- 4 -
<PAGE>
"Debenture Trustee" means Wilmington Trust Company, a state chartered
trust company organized under the laws of the State of Delaware and any
successor thereto, as trustee under the Indenture.
"Debentures" means the $32,010,310 aggregate principal amount of the
Depositor's 9.00% Subordinated Debentures due 2028, issued pursuant to the
Indenture.
"Definitive Preferred Securities Certificates" means Preferred
Securities Certificates issued in certified, fully registered form as provided
in Section 513.
"Delaware Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from
time to time.
"Delaware Trustee" means the commercial bank or trust company
identified as the "Delaware Trustee" in the Preamble to this Trust Agreement
solely in its capacity as Delaware Trustee of the Trust formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor trustee appointed as herein provided.
"Depositary" means DTC or any successor thereto.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 401.
"DTC" means The Depository Trust Company.
"Event of Default" means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period of 30
days; or
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
- 5 -
<PAGE>
(d) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate liquidation preference of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit C, as amended from time to time.
- ---------
"Expiration Date" has the meaning specified in Section 901.
"Extended Interest Payment Period" has the meaning specified in Section
4.1 of the Indenture.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership
and transfer of which shall be made through book entries by a Clearing Agency as
described herein.
"Guarantee" means the Preferred Securities Guarantee Agreement executed
and delivered by the Depositor and Wilmington Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the holders of the Preferred Securities, as amended from time to
time.
"Indenture" means the Indenture, dated as of September 29, 1998,
between the Depositor and the Debenture Trustee, as trustee, as amended or
supplemented from time to time.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust and the
Depositor of an Opinion of Counsel, rendered by a law firm having a recognized
national tax and securities law practice, to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
shall be considered an
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"investment company" that is required to be registered under the Investment
Company Act, which Change in 1940 Act Law becomes effective on or after the date
of original issuance of the Preferred Securities under this Trust Agreement,
provided, however, that the Depositor or the Trust shall have requested and
received such an Opinion of Counsel with regard to such matters within a
reasonable period of time after the Depositor or the Trust shall have become
aware of the possible occurrence of any such event.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust
Securities, Trust Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of Debentures to be contemporaneously redeemed in
accordance with the Indenture and the proceeds of which shall be used to pay the
Redemption Price of such Trust Securities; and (b) with respect to a
distribution of Debentures to Holders of Trust Securities in connection with a
termination or liquidation of the Trust, Debentures having a principal amount
equal to the Liquidation Amount of the Trust Securities of the Holder to whom
such Debentures are distributed. Each Debenture distributed pursuant to clause
(b) above shall carry with it accrued interest in an amount equal to the accrued
and unpaid interest then due on such Debentures.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be
distributed to Holders of Trust Securities in connection with a termination and
liquidation of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the President or
an Executive Vice President and by the Treasurer or the Vice PresidentCFinance
or the Secretary, of the Depositor, and delivered to the appropriate Trustee.
One of the officers signing an Officers' Certificate given pursuant to Section
816 shall be the principal executive, financial or accounting officer of the
Depositor. Any Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
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(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of independent,
outside legal counsel for the Trust, the Property Trustee, the Delaware Trustee
or the Depositor, who shall be reasonably acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in the Recitals to
this Trust Agreement.
"Outstanding", when used with respect to Preferred Securities, means,
as of the date of determination, all Preferred Securities theretofore executed
and delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee
or delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in
lieu of which other Preferred Securities have been executed and delivered
pursuant to Sections 504, 505, 511 and 513; provided, however, that in
determining whether the Holders of the requisite Liquidation Amount of the
Outstanding Preferred Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Preferred Securities owned by
the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Preferred Securities that such Trustee knows to be so owned shall be so
disregarded; and (b) the foregoing shall not apply at any time when all of the
outstanding Preferred Securities are owned by the Depositor, one or more of the
Trustees and/or any such Affiliate. Preferred Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees the pledgee's
right so to the Depositor or any Affiliate of the Depositor.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee with the Bank in its trust
department for the benefit of the Securityholders in which all amounts paid in
respect of the Debentures shall be held and from which the Property Trustee
shall make payments to the Securityholders in accordance with Sections 401 and
402.
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"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the
assets of the Trust, having a Liquidation Amount of $25 and having the rights
provided therefor in this Trust Agreement, including the right to receive
Distributions and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing
ownership of Preferred Securities, substantially in the form attached as Exhibit
-------
D.
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"Property Trustee" means the commercial bank or trust company
identified as the "Property Trustee," in the Preamble to this Trust Agreement
solely in its capacity as Property Trustee of the Trust heretofore formed and
continued hereunder and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust Security to be
redeemed, the date fixed for such redemption by or pursuant to this Trust
Agreement; provided that each Debenture Redemption Date and the stated maturity
of the Debentures shall be a Redemption Date for a Like Amount of Trust
Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 504.
"Securityholder" or "Holder" means a Person in whose name a Trust
Security or Trust Securities is registered in the Securities Register; any such
Person is a beneficial owner within the meaning of the Delaware Business Trust
Act.
"Trust" means the Delaware business trust created and continued hereby
and identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as
the same may be modified, amended or supplemented in accordance with the
applicable provisions hereof, including all exhibits hereto, including, for all
purposes of this Trust Agreement and any such modification, amendment or
supplement, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Trust Agreement and any such modification, amendment or
supplement, respectively.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939, as
amended, is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) the rights of the
Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to,
the Payment Account; and (d) all proceeds and rights in respect of the foregoing
and any other property and assets for the time being held or deemed to be held
by the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the
Preferred Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware
Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
September 24, 1998, among the Trust, the Depositor and the Underwriters named
therein.
ARTICLE I
ESTABLISHMENT OF THE TRUST
SECTION I1. NAME.
The Trust continued hereby shall be known as "Wintrust Capital Trust
I," as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees may engage in the transactions
contemplated hereby, make and execute contracts and other instruments on behalf
of the Trust and sue and be sued.
SECTION 201. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attn: Corporate Trust Administration, or such
other address in the State of Delaware as the Delaware Trustee may designate by
written notice to the Securityholders and the Depositor. The principal executive
office of the Trust is c/o Wintrust Financial Corporation, 727 North Bank Lane,
Lake Forest, Illinois 60045.
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SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL
EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request of any Trustee,
promptly reimburse such Trustee for any such expenses paid by such Trustee. The
Depositor shall make no claim upon the Trust Property for the payment of such
expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
On September 24, 1998, the Depositor and an Administrative Trustee, on
behalf of the Trust and pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, an Administrative Trustee, on behalf of the
Trust, shall execute in accordance with Section 502 and deliver in accordance
with the Underwriting Agreement, Preferred Securities Certificates, registered
in the name of Persons entitled thereto in an aggregate amount of 1,100,000
Preferred Securities having an aggregate Liquidation Amount of $27,500,000
against receipt of the aggregate purchase price of such Preferred Securities of
$27,500,000, which amount such Administrative Trustee shall promptly deliver to
the Property Trustee. If the underwriters exercise their over-allotment option
and there is an Option Closing Date (as such term is defined in the Underwriting
Agreement), then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and deliver in accordance with the
Underwriting Agreement, Preferred Securities Certificates, registered in the
name of the Persons entitled thereto in an aggregate amount of up to 142,000
Preferred Securities having an aggregate Liquidation Amount of up to $3,550,000
against receipt of the aggregate purchase price of such Preferred Securities of
up to $3,550,000, which amount such Administrative Trustee shall promptly
deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND
PURCHASE OF DEBENTURES.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
Common Securities having an aggregate Liquidation Amount of $850,516 against
payment by the Depositor of such amount. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor Debentures, registered in the name of the Property Trustee on
behalf of the Trust and having an aggregate principal amount equal to
$28,350,516, and, in satisfaction of the purchase price for such Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $28,350,516.
(b) If the underwriters exercise the Option and there is an Option
Closing Date, then an Administrative Trustee, on behalf of the Trust, shall
execute in accordance with Section 502 and deliver to the Depositor, Common
Securities Certificates, registered in the name of the Depositor, in an
additional aggregate amount of Common Securities having an aggregate Liquidation
Amount
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of up to $109,794 against payment by the Depositor of such amount.
Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust,
shall subscribe to and purchase from the Depositor, additional Debentures,
registered in the name of the Trust and having an aggregate principal amount of
up to $3,659,794, and, in satisfaction of the purchase price of such Debentures,
the Property Trustee, on behalf of the Trust, shall deliver to the Depositor up
to $3,659,794, such aggregate amount to be equal to the sum of the amounts
received from the Depositor pursuant to Section 205(b) and from one of the
Administrative Trustees pursuant to the last sentence of Section 204.
SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Trust Securities and use the proceeds from such sale to acquire the
Debentures; and (b) to engage in those activities necessary, advisable or
incidental thereto. The Depositor hereby appoints the Trustees as trustees of
the Trust, to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The Property Trustee
hereby declares that it shall hold the Trust Property in trust upon and subject
to the conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance
with the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207 and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the acts set forth in the following provision (i) and the Property
Trustee shall have the authority to act, each as set forth below:
(i) As among the Trustees, each Administrative Trustee,
acting singly or jointly, shall have the power and
authority to act on behalf of the Trust with respect
to the following matters:
(A) the issuance and sale of the Trust
Securities and the compliance with the
Underwriting Agreement in connection
therewith;
(B) to cause the Trust to enter into, and to
execute, deliver and perform on behalf of
the Trust, the Expense Agreement and such
other
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agreements or documents as may be necessary
or desirable in connection with the purposes
and function of the Trust;
(C) assisting in the registration of the
Preferred Securities under the Securities
Act of 1933, as amended, and under state
securities or blue sky laws, and the
qualification of this Trust Agreement as a
trust indenture under the Trust Indenture
Act;
(D) assisting in the listing of the Preferred
Securities upon The Nasdaq National MarketK
or such securities exchange or exchanges as
shall be determined by the Depositor, the
registration of the Preferred Securities
under the Exchange Act, the compliance with
the listing requirements of The Nasdaq
National MarketSM or the applicable
securities exchange and the preparation and
filing of all periodic and other reports and
other documents pursuant to the foregoing;
(E) the sending of notices (other than notices
of default) and other information regarding
the Trust Securities and the Debentures to
the Securityholders in accordance with this
Trust Agreement;
(F) the appointment of a Paying Agent,
authenticating agent and Securities
Registrar in accordance with this Trust
Agreement;
(G) to the extent provided in this Trust
Agreement, the winding up of the affairs of
and liquidation of the Trust and the
preparation, execution and filing of the
certificate of cancellation with the
Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or
appropriate for the preservation and the
continuation of the Trust's valid existence,
rights, franchises and privileges as a
statutory business trust under the laws of
the State of Delaware and of each other
jurisdiction in which such existence is
necessary to protect the limited liability
of the Holders of the Preferred Securities
or to enable the Trust to effect the
purposes for which the Trust was created;
and
(I) the taking of any action incidental to the
foregoing as the Administrative Trustees may
from time to time determine is necessary or
advisable to give effect to the terms of
this Trust Agreement for the benefit of the
Securityholders (without consideration of
the effect of any such action on any
particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall
have the power, duty and authority to act on behalf
of the Trust with respect to the following matters:
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(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and
any other payments made in respect of the
Debentures in the Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust
Securities in accordance with the terms of
this Trust Agreement;
(E) the exercise of all of the rights, powers
and privileges of a holder of the
Debentures;
(F) the sending of notices of default and other
information regarding the Trust Securities
and the Debentures to the Securityholders in
accordance with this Trust Agreement;
(G) the distribution of the Trust Property in
accordance with the terms of this Trust
Agreement;
(H) to the extent provided in this Trust
Agreement, the winding up of the affairs of
and liquidation of the Trust;
(I) after an Event of Default, the taking of any
action incidental to the foregoing as the
Property Trustee may from time to time
determine is necessary or advisable to give
effect to the terms of this Trust Agreement
and protect and conserve the Trust Property
for the benefit of the Securityholders
(without consideration of the effect of any
such action on any particular
Securityholder);
(J) registering transfers of the Trust
Securities in accordance with this Trust
Agreement; and
(K) except as otherwise provided in this Section
207(a)(ii), the Property Trustee shall have
none of the duties, liabilities, powers or
the authority of the Administrative Trustees
set forth in Section 207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or
the Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein; (iii) take any
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action that would cause the Trust to fail or cease to qualify as a "grantor
trust" for United States federal income tax purposes; (iv) incur any
indebtedness for borrowed money or issue any other debt; or (v) take or consent
to any action that would result in the placement of a Lien on any of the Trust
Property. The Administrative Trustees shall defend all claims and demands of all
Persons at any time claiming any Lien on any of the Trust Property adverse to
the interest of the Trust or the Securityholders in their capacity as
Securityholders.
(c) In connection with the issue and sale of the Preferred Securities,
the Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust
of a registration statement on the appropriate form
in relation to the Preferred Securities, the
Debentures, and the Guarantee, including any
amendments thereto;
(ii) the determination of the states in which to take
appropriate action to qualify or, register for sale
all or part of the Preferred Securities and to do any
and all such acts, other than actions which must be
taken by or on behalf of the Trust, and advise the
Trustees of actions they must take on behalf of the
Trust, and prepare for execution and filing any
documents to be executed and filed by the Trust or on
behalf of the Trust, as the Depositor deems necessary
or advisable in order to comply with the applicable
laws of any such States;
(iii) the preparation for filing by the Trust and execution
on behalf of the Trust of an application to The
Nasdaq National MarketK or a national stock exchange
or other organizations for listing upon notice of
issuance of any Preferred Securities and to file or
cause an Administrative Trustee to file thereafter
with such exchange or organization such notifications
and documents as may be necessary from time to time;
(iv) the preparation for filing by the Trust with the
Commission and the execution on behalf of the Trust
of a registration statement on Form 8-A relating to
the registration of the Preferred Securities under
Section 12(b) or 12(g) of the Exchange Act, including
any amendments thereto;
(v) the negotiation of the terms of, and the execution
and delivery of, the Underwriting Agreement providing
for the sale of the Preferred Securities; and
(vi) the taking of any other actions necessary or
desirable to carry out any of the foregoing
activities.
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(d) Notwithstanding anything herein to the contrary, the Trustees are
authorized and directed to conduct the affairs of the Trust and to operate the
Trust so that the Trust shall not be deemed to be an "investment company"
required to be registered under the Investment Company Act, shall be classified
as a "grantor trust" and not as an association taxable as a corporation for
United States federal income tax purposes and so that the Debentures shall be
treated as indebtedness of the Depositor for United States federal income tax
purposes. In this connection, subject to Section 1002, the Depositor and the
Trustees are authorized to take any action, not inconsistent with applicable law
or this Trust Agreement, that each of the Depositor and the Trustees determines
in their discretion to be necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE II
PAYMENT ACCOUNT
SECTION II1. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall
establish the Payment Account. The Property Trustee and any agent of the
Property Trustee shall have exclusive control and sole right of withdrawal with
respect to the Payment Account for the purpose of making deposits and
withdrawals from the Payment Account in accordance with this Trust Agreement.
All monies and other property deposited or held from time to time in the Payment
Account shall be held by the Property Trustee in the Payment Account for the
exclusive benefit of the Securityholders and for distribution as herein
provided, including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
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ARTICLE III
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and
shall accumulate whether or not there are funds of the Trust available for the
payment of Distributions. Distributions shall accumulate from September 29,
1998, and, except during any Extended Interest Payment Period with respect to
the Debentures, shall be payable quarterly in arrears on the last calendar day
of March, June, September and December of each year, commencing on December 31,
1998. If any date on which a Distribution is otherwise payable on the Trust
Securities is not a Business Day, then the payment of such Distribution shall be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day (and without any reduction of interest or any
other payment in respect of any such acceleration), in each case with the same
force and effect as if made on such date (each date on which distributions are
payable in accordance with this Section 401(a), a "Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in
the Trust Property, and, as a practical matter, the Distributions on the Trust
Securities shall be payable at a rate of 9.00% per annum of the Liquidation
Amount of the Trust Securities. The amount of Distributions payable for any full
period shall be computed on the basis of a 360-day year of twelve 30-day months.
The amount of Distributions for any partial period shall be computed on the
basis of the number of days elapsed in a 360-day year of twelve 30-day months.
During any Extended Interest Payment Period with respect to the Debentures,
Distributions on the Preferred Securities shall be deferred for a period equal
to the Extended Interest Payment Period. The amount of Distributions payable for
any period shall include the Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds on hand and
immediately available by 12:30 p.m. on each Distribution Date in the Payment
Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution Date shall be payable to the record holders thereof as they appear
on the Securities Register for the Trust Securities on the relevant record date,
which shall be the 15th day of March, June, September or December for
Distributions payable on the last calendar day of the respective month.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date and on the maturity of the
Debentures, the Trust shall be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the Redemption Date to each
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Holder of Trust Securities to be redeemed, at such Holder's address appearing in
the Securities Register. The Property Trustee shall have no responsibility for
the accuracy of any CUSIP number contained in such notice. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are
to be redeemed, the identification and the aggregate
Liquidation Amount of the particular Trust Securities
to be redeemed;
(v) that, on the Redemption Date, the Redemption Price
shall become due and payable upon each such Trust
Security to be redeemed and that Distributions
thereon shall cease to accumulate on and after said
date, except as provided in Section 4.2(d); and
(vi) the place or places at which Trust Securities are to
be surrendered for the payment of the Redemption
Price; and
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be payable on each Redemption Date only to the extent
that the Trust has immediately available funds then on hand and available in the
Payment Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of
any Preferred Securities, then, by 12:00 noon, New York City time, on the
Redemption Date, subject to Section 402(c), the Property Trustee, subject to
Section 402(c), shall, with respect to Preferred Securities held in global form,
deposit with the Clearing Agency for such Preferred Securities, to the extent
available therefor, funds sufficient to pay the applicable Redemption Price and
will give such Clearing Agency irrevocable instructions and authority to pay the
Redemption Price to the Holders of the Preferred Securities. With respect to
Trust Securities that are not held in global form, the Property Trustee, subject
to Section 402(c), shall deposit with the Paying Agent funds sufficient to pay
the applicable Redemption Price and shall give the Paying Agent irrevocable
instructions and authority to pay the Redemption Price to the record holders
thereof upon surrender of their Preferred Securities Certificates.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Securities called for redemption shall be payable
to the Holders of such Trust Securities as they appear on the Register for the
Trust Securities on the relevant record dates for the related Distribution
Dates. If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, (i) all rights of Securityholders
holding Trust Securities so called for redemption shall cease, except the right
of such Securityholders to receive the Redemption Price, (ii) such Securities
shall cease to be Outstanding, (iii) the Clearing
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Agency for the Preferred Securities or its nominee, as the registered Holder of
the Global Preferred Securities Certificate, shall receive a registered global
certificate or certificates representing the Debentures to be delivered upon
such distribution with respect to Preferred Securities held by the Clearing
Agency or its nominee, and (iv) any Trust Securities Certificates not held by
the Clearing Agency for the Preferred Securities or its nominee as specified in
clause (iii) above will be deemed to represent Debentures having a principal
amount equal to the stated Liquidation Amount of the Trust Securities
represented thereby and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on such Trust Securities until such
certificates are presented to the Securities Registrar for transfer or
reissuance. In the event that any date on which any Redemption Price is payable
is not a Business Day, then payment of the Redemption Price payable on such date
shall be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay) except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day (and without any reduction of interest
or any other payment in respect of any such acceleration), in each case with the
same force and effect as if made on such date. In the event that payment of the
Redemption Price in respect of any Trust Securities called for redemption is
improperly withheld or refused and not paid either by the Trust or by the
Depositor pursuant to the Guarantee, Distributions on such Trust Securities
shall continue to accumulate, at the then applicable rate, from the Redemption
Date originally established by the Trust for such Trust Securities to the date
such Redemption Price is actually paid, in which case the actual payment date
shall be the date fixed for redemption for purposes of calculating the
Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be
made to the record holders thereof as they appear on the Securities Register for
the Trust Securities on the relevant record date, which shall be the date 15
days prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $25 or an integral multiple of
$25 in excess thereof) of the Liquidation Amount of Preferred Securities of a
denomination larger than $25. The Property Trustee shall promptly notify the
Securities Registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part, to the portion
of the Liquidation Amount of Preferred Securities which has been or is to be
redeemed.
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SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if
applicable) on, and the Redemption Price of, the Trust Securities, as
applicable, shall be made, subject to Section 402(f), pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all Outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all Outstanding
Preferred Securities then called for redemption, shall have been made or
provided for, and all funds immediately available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions (including
Additional Amounts, if applicable) on, or the Redemption Price of, Preferred
Securities then due and payable.
(b) In the case of the occurrence of any Event of Default resulting
from a Debenture Event of Default, the record holder of Common Securities, the
Depositor, shall be deemed to have waived any right to act with respect to any
such Event of Default under this Trust Agreement until the effect of all such
Events of Default with respect to the Preferred Securities shall have been
cured, waived or otherwise eliminated. Until any such Event of Default under
this Trust Agreement with respect to the Preferred Securities shall have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the record holders of the Preferred Securities and not the record
holder of the Common Securities, and only the Holders of the Preferred
Securities shall have the right to direct the Property Trustee to act on their
behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if applicable)
in respect of the Preferred Securities shall be made by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Securities Register or, if the Preferred Securities are held by a Clearing
Agency, such Distributions shall be made to the Clearing Agency in immediately
available funds, which will credit the relevant accounts on the applicable
Distribution Dates. Payments in respect of the Common Securities shall be made
in such manner as shall be mutually agreed between the Property Trustee and the
Common Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at
the Depositor's expense, and file all United States federal, state and local tax
and information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
forms required to be filed in respect of the Trust in each taxable year of the
Trust; and (b) prepare
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and furnish (or cause to be prepared and furnished) to each Securityholder the
appropriate Internal Revenue Service forms required to be furnished to such
Securityholder or the information required to be provided on such form. The
Administrative Trustees shall provide the Depositor with a copy of all such
returns and reports promptly after such filing or furnishing. The Property
Trustee shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest (as defined in
Section 1.1 of the Indenture), the Property Trustee, at the direction of an
Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or
governmental charges of whatsoever nature (other than withholding taxes) imposed
on the Trust by the United States or any other taxing authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any record holder of Preferred
Securities shall be reduced by the amount of any corresponding payment such
Holder has directly received under the Indenture pursuant to Section 513(b) or
(c) hereof.
ARTICLE IV
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 203 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
The Preferred Securities Certificates shall be issued in minimum
denominations of $25 Liquidation Amount and integral multiples of $25 in excess
thereof, and the Common Securities Certificates shall be issued in denominations
of $25 Liquidation Amount and multiples thereof (which may, in the case of the
Common Securities, include fractional amounts). The Trust Securities
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of at least one Administrative Trustee. Trust Securities Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefits of this Trust
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the delivery of such Trust Securities
Certificates or did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities Certificate shall
become a Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder
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hereunder, upon due registration of such Trust Securities Certificate in such
transferee's name pursuant to Sections 504, 511 and 513.
SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES
CERTIFICATES.
(a) On the Closing Date and on any date on which the underwriters
exercise their over-allotment option, as applicable (an "Option Closing Date"),
the Administrative Trustees shall cause Trust Securities Certificates, in an
aggregate Liquidation Amount as provided in Sections 204 and 205, to be executed
on behalf of the Trust by at least one of the Administrative Trustees and
delivered to or upon the written order of the Depositor, signed by its Chief
Executive Officer, President, any Vice President or its Treasurer without
further corporate action by the Depositor, in authorized denominations.
(b) A Preferred Securities Certificate shall not be valid until
authenticated by the manual signature of an authorized signatory of the Property
Trustee. The signature shall be conclusive evidence that the Preferred
Securities Certificate has been authenticated under this Trust Agreement.
Each Preferred Security Certificate shall be dated the date of its
authentication.
Upon the written order of the Trust signed by one of the Administrative
Trustees, the Property Trustee shall authenticate and make available for
delivery the Preferred Securities Certificates.
The Property Trustee may appoint an Authenticating Agent acceptable to
the Trust to authenticate the Preferred Securities. An Authenticating Agent may
authenticate the Preferred Securities whenever the Property Trustee may do so.
Each reference in this Trust Agreement to authentication by the Property Trustee
includes authentication by such agent. An Authenticating Agent has the same
rights as the Property Trustee to deal with the Company or the Trust.
SECTION 503A. GLOBAL PREFERRED SECURITY.
(a) Any Global Preferred Security issued under this Trust Agreement
shall be registered in the name of the nominee of the Clearing Agency and
delivered to such custodian therefor, and such Global Preferred Security shall
constitute a single Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, no
Global Preferred Security may be exchanged for Preferred Securities registered
in the names of persons other than the Depositary or its nominee unless (i) the
Depositary notifies the Debenture Trustee that it is unwilling or unable to
continue as a depositary for such Global Preferred Securities and the Depositor
is unable to locate a qualified successor depositary, (ii) the Depositor
executes and delivers to the Trustee a written order stating that it elects to
terminate the book-entry system through the Depositary or (iii) there shall have
occurred and be continuing a Debenture Event of Default.
(c) If a Preferred Security is to be exchanged in whole or in part for
a beneficial interest in a Global Preferred Security, then either (i) such
Global Preferred Security shall be so surrendered
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for exchange or cancellation as provided in this Article V or (ii) the
Liquidation amount thereof shall be reduced or increased by an amount equal to
the portion thereof to be so exchanged or cancelled, or equal to the Liquidation
Amount of such other Preferred Securities to be so exchanged for a beneficial
interest therein, as the case may be, by means of an appropriate adjustment made
on the records of the Securities Registrar, whereupon the Property Trustee, in
accordance with the rules and procedures of the Depositary for such Global
Preferred Security (the "Applicable Procedures"), shall instruct the Clearing
Agency or its authorized representative to make a corresponding adjustment to
its records. Upon any such surrender or adjustment of a Global Preferred
Security by the Clearing Agency, accompanied by registration instructions, the
Administrative Trustees shall execute and the Property Trustee shall, subject to
Section 504(b) and as otherwise provided in this Article V, authenticate and
deliver any Preferred Securities issuable in exchange for such Global Preferred
Security (or any portion thereof) in accordance with the instructions of the
Clearing Agency. The Property Trustee shall not be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be fully
protected in relying on, such instructions.
(d) Every Preferred Security executed, authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Preferred Security or any portion thereof, whether pursuant to this Article V or
otherwise, shall be executed, authenticated and delivered in the form of, and
shall be, a Global Preferred Security, unless such Global Preferred Security is
registered in the name of a Person other than the Clearing Agency for such
Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a
Global Preferred Security, shall be considered the Holder of the Preferred
Securities represented by such Global Preferred Security for all purposes under
this Trust Agreement and the Preferred Securities, and owners of beneficial
interests in such Global Preferred Security shall hold such interests pursuant
to the Applicable Procedures and, except as otherwise provided herein, shall not
be entitled to receive physical delivery of any such Preferred Securities in
definitive form and shall not be considered the Holders thereof under this Trust
Agreement. Accordingly, any such owner's beneficial interest in the Global
Preferred Securities shall be shown only on, and the transfer of such interest
shall be effected only through, records maintained by the Clearing Agency or its
nominee. Neither the Property Trustee, the Securities Registrar nor Depositor
shall have any liability in respect of any transfers effected by the Clearing
Agency.
(f) The rights of owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners and the
Clearing Agency.
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES.
(a) The Depositor shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 508, a register or registers for the
purpose of registering Trust Securities Certificates and, subject to the
provisions of Section 503A, transfers and exchanges of Preferred Securities
Certificates (herein referred to as the "Securities Register") in which the
registrar
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designated by the Depositor (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates (subject
to Section 510 in the case of the Common Securities Certificates) and
registration of transfers and exchanges of Preferred Securities Certificates as
herein provided. The Property Trustee shall be the initial Securities Registrar.
(b) Subject to the provisions of Section 503A, upon surrender for
registration of transfer of any Preferred Securities Certificate at the office
or agency maintained pursuant to Section 508, the Administrative Trustees or any
one of them shall execute and deliver, in the name of the designated transferee
or transferees, one or more new Preferred Securities Certificates in authorized
denominations of a like aggregate Liquidation Amount dated the date of execution
by such Administrative Trustee or Trustees. The Securities Registrar shall not
be required to register the transfer of any Preferred Securities that have been
called for redemption. At the option of a record holder, Preferred Securities
Certificates may be exchanged for other Preferred Securities Certificates in
authorized denominations of the same class and of a like aggregate Liquidation
Amount upon surrender of the Preferred Securities Certificates to be exchanged
at the office or agency maintained pursuant to Section 508.
(c) Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange, subject to the provisions of Section 503A,
shall be accompanied by a written instrument of transfer in form satisfactory to
the Property Trustee and the Securities Registrar duly executed by the Holder or
his attorney duly authorized in writing. Each Preferred Securities Certificate
surrendered for registration of transfer or exchange shall be canceled and
subsequently disposed of by the Property Trustee in accordance with its
customary practice. The Trust shall not be required to (i) issue, register the
transfer of, or exchange any Preferred Securities during a period beginning at
the opening of business 15 calendar days before the date of mailing of a notice
of redemption of any Preferred Securities called for redemption and ending at
the close of business on the day of such mailing; or (ii) register the transfer
of or exchange any Preferred Securities so selected for redemption, in whole or
in part, except the unredeemed portion of any such Preferred Securities being
redeemed in part.
(d) No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, subject to the provisions of
Section 503A, but the Securities Registrar may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Preferred Securities Certificates.
(e) Preferred Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Trust Agreement.
Any transfer or purported transfer of any Preferred Security not made in
accordance with this Trust Agreement shall be null and void. A Preferred
Security that is not a Global Preferred Security may be transferred, in whole or
in part, to a Person who takes delivery in the form of another Preferred
Security that is not a Global Preferred Security as provided in Section 504(a).
A beneficial interest in a Global Preferred Security may be exchanged for a
Preferred Security that is not a Global Preferred Security only as provided in
Section 503A.
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SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES.
If (a) any mutilated Trust Securities certificate shall be surrendered
to the Securities Registrar, or if the Securities Registrar shall receive
evidence to its satisfaction of the destruction, loss or theft of any Trust
Securities Certificate; and (b) there shall be delivered to the Securities
Registrar and the Administrative Trustees such security or indemnity as may be
required by them to save each of them harmless, then in the absence of notice
that such Trust Securities Certificate shall have been acquired by a bona fide
purchaser, the Administrative Trustees, or any one of them, on behalf of the
Trust shall execute and make available for delivery, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a
new Trust Securities Certificate of like class, tenor and denomination. In
connection with the issuance of any new Trust Securities Certificate under this
Section 505, the Administrative Trustees or the Securities Registrar may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith. Any duplicate Trust Securities
Certificate issued pursuant to this Section 505 shall constitute conclusive
evidence of an undivided beneficial interest in the assets of the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Trust Securities
Certificate shall be found at any time.
SECTION 506. PERSONS DEEMED SECURITYHOLDERS.
The Trustees, the Paying Agent and the Securities Registrar shall treat
the Person in whose name any Trust Securities Certificate shall be registered in
the Securities Register as the owner of such Trust Securities Certificate for
the purpose of receiving Distributions and for all other purposes whatsoever,
and neither the Trustees nor the Securities Registrar shall be bound by any
notice to the contrary.
SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the
Securities Registrar, the Administrative Trustees or the Depositor shall furnish
or cause to be furnished to the Property Trustee (a) within five Business Days
of March 15, June 15, September 15 and December 15 of each year, a list, in such
form as the Property Trustee may reasonably require, of the names and addresses
of the Securityholders as of the most recent record date; and (b) promptly after
receipt by any Administrative Trustee or the Depositor of a request therefor
from the Property Trustee in order to enable the Property Trustee to discharge
its obligations under this Trust Agreement, in each case to the extent such
information is in the possession or control of the Administrative Trustees or
the Depositor and is not identical to a previously supplied list or has not
otherwise been received by the Property Trustee in its capacity as Securities
Registrar. The rights of Securityholders to communicate with other
Securityholders with respect to their rights under this Trust Agreement or under
the Trust Securities, and the corresponding rights of the Trustee shall be as
provided in the Trust Indenture Act. Each Holder, by receiving and holding a
Trust Securities Certificate, and each owner shall be deemed to have agreed not
to hold the Depositor, the Property Trustee or the Administrative Trustees
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
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SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
The Administrative Trustees shall maintain, or cause to be maintained,
in The City of New York, or other location designated by the Administrative
Trustees, an office or offices or agency or agencies where Preferred Securities
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Trustees in respect of the Trust
Securities Certificates may be served. The Administrative Trustees initially
designate the Corporate Trust Office of the Property Trustee, Wilmington Trust
Company, as the principal corporate trust office for such purposes. The
Administrative Trustees shall give prompt written notice to the Depositor and to
the Securityholders of any change in the location of the Securities Register or
any such office or agency.
SECTION 509. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Administrative Trustees may
revoke such power and remove the Paying Agent if such Trustees determine in
their sole discretion that the Paying Agent shall have failed to perform its
obligations under this Trust Agreement in any material respect. The Paying Agent
shall initially be the Property Trustee, and any co-paying agent chosen by the
Property Trustee, and acceptable to the Administrative Trustees and the
Depositor. Any Person acting as Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Administrative Trustees, the
Property Trustee and the Depositor. In the event that the Property Trustee shall
no longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrative Trustees shall appoint a
successor that is acceptable to the Property Trustee and the Depositor to act as
Paying Agent (which shall be a bank or trust company). The Administrative
Trustees shall cause such successor Paying Agent or any additional Paying Agent
appointed by the Administrative Trustees to execute and deliver to the Trustees
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Trustees that as Paying Agent, such successor Paying Agent
or additional Paying Agent shall hold all sums, if any, held by it for payment
to the Securityholders in trust for the benefit of the Securityholders entitled
thereto until such sums shall be paid to such Securityholders. The Paying Agent
shall return all unclaimed funds to the Property Trustee and, upon removal of a
Paying Agent, such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to
the Property Trustee also in its role as Paying Agent, for so long as the
Property Trustee shall act as Paying Agent and, to the extent applicable, to any
other paying agent appointed hereunder. Any reference in this Agreement to the
Paying Agent shall include any co-paying agent unless the context requires
otherwise.
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SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, any attempted transfer of the Common Securities (other than a transfer
in connection with a merger or consolidation of the Depositor into another
corporation pursuant to Section 12.1 of the Indenture) shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT
TRANSFERABLE."
SECTION 511. TRUST SECURITIES CERTIFICATES.
(a) Upon their original issuance, Preferred Securities Certificates
shall be issued in the form of one or more fully registered Global Preferred
Securities Certificates which will be deposited with or on behalf of the
Clearing Agency and registered in the name of the Clearing Agency's nominee.
Unless and until it is exchangeable in whole or in part for the Preferred
Securities in definitive form, a global security may not be transferred except
as a whole by the Clearing Agency to a nominee of the Clearing Agency or by a
nominee of the Clearing Agency to the Clearing Agency or another nominee of the
Clearing Agency or by the Clearing Agency or any such nominee to a successor of
such Clearing Agency or a nominee of such successor.
(b) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 512. NOTICES TO CLEARING AGENCY.
To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Securities Certificate, the Trustees shall
give all such notices and communications specified herein to be given to the
Clearing Agency, and shall have no obligations to provide notice to the owners
of the beneficial interest in the Global Preferred Securities.
SECTION 513. RIGHTS OF SECURITYHOLDERS.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 209, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights. When issued and delivered to Holders
of the Preferred Securities against payment of the purchase price therefor, the
Preferred Securities shall be fully paid and nonassessable interests in the
Trust. The Holders of the Preferred Securities, in their capacities as such,
shall be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware.
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(b) For so long as any Preferred Securities remain Outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee fails or the holders of
not less than 25% in principal amount of the outstanding Debentures fail to
declare the principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the Preferred
Securities then Outstanding shall have such right by a notice in writing to the
Depositor and the Debenture Trustee; and upon any such declaration such
principal amount of and the accrued interest on all of the Debentures shall
become immediately due and payable, provided that the payment of principal and
interest on such Debentures shall remain subordinated to the extent provided in
the Indenture.
(c) For so long as any Preferred Securities remain outstanding, upon a
Debenture Event of Default arising from the failure to pay interest or principal
on the Debentures, the Holders of any Preferred Securities then Outstanding
shall, to the fullest extent permitted by law, have the right to directly
institute proceedings for enforcement of payment to such Holders of principal of
or interest on the Debentures having a principal amount equal to the Liquidation
Amount of the Preferred Securities of such Holders.
ARTICLE I
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 512, 810 and
1002 and in the Indenture and as otherwise required by law, no record Holder of
Preferred Securities shall have any right to vote or in any manner otherwise
control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of an
association.
(b) So long as any Debentures are held by the Property Trustee on
behalf of the Trust, the Trustees shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on the Debenture Trustee with
respect to such Debentures; (ii) waive any past default which is waivable under
Article VII of the Indenture; (iii) exercise any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and payable;
or (iv) consent to any amendment, modification or termination of the Indenture
or the Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the Holders of at least a majority in
Liquidation Amount of all Outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
Holder of Outstanding Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior written consent of each holder
of Preferred Securities. The Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of the Outstanding Preferred
Securities, except by a subsequent vote of the Holders of the Outstanding
Preferred Securities. The Property Trustee shall notify each Holder of the
Outstanding Preferred Securities of any notice of default received from the
Debenture Trustee
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with respect to the Debentures. In addition to obtaining the foregoing approvals
of the Holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that the Trust shall
continue to be classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes on account of
such action.
(c) If any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise; or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class shall be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. No amendment to this Trust
Agreement may be made if, as a result of such amendment, the Trust would cease
to be classified as a grantor trust or would be classified as an association
taxable as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the
time, place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled to
vote upon the written request of the Preferred Securityholders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation Amount)
and the Administrative Trustees or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on any
matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding
Preferred Securities (based upon their aggregate Liquidation Amount), present in
person or by proxy, shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding more
than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such meeting shall constitute the
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action of the Securityholders, unless this Trust Agreement requires a greater
number of affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each $25 of
Liquidation Amount represented by their Trust Securities (with any fractional
multiple thereof rounded up or down as the case may be to the closest integral
multiple) in respect of any matter as to which such Securityholders are entitled
to vote.
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy, shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
Only Holders of record shall be entitled to vote. When Trust Securities are held
jointly by several persons, any one of them may vote at any meeting in person or
by proxy in respect of such Trust Securities, but if more than one of them shall
be present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and, the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years after its date of
execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be
taken without a meeting if Securityholders holding more than a majority of all
outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof as
shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing (based upon their aggregate Liquidation
Amount).
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees or the Property Trustee may from time
to time fix a date, not more than 90 days prior to the date of any meeting of
Securityholders or the payment of Distribution or other action, as the case may
be, as a record date for the determination of the identity of the
Securityholders of record for such purposes.
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SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Trust Agreement to be
given, made or taken by Securityholders may be embodied in and evidenced by one
or more instruments of substantially similar tenor signed by such
Securityholders or owners in person or by an agent duly appointed in writing;
and, except as otherwise expressly provided herein, such action shall become
effective when such instrument or instruments are delivered to an Administrative
Trustee. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Securityholders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Trust Agreement and (subject to Section 801)
conclusive in favor of the Trustees, if made in the manner provided in this
Section 608.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which any Trustee receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Securityholder of any Trust Security shall bind every
future Securityholder of the same Trust Security and the Securityholder of every
Trust Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled hereunder
to take any action hereunder with regard to any particular Trust Security may do
so with regard to all or any part of the Liquidation Amount of such Trust
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any part of such liquidation
amount.
(f) A Securityholder may institute a legal proceeding directly against
the Depositor under the Guarantee to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee (as
defined in the Guarantee), the Trust or any Person.
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SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection at the principal
executive office of the Trust (as indicated in Section 202) by record holders of
the Trust Securities during normal business hours for any purpose reasonably
related to such record holder's interest as a record holder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE
PROPERTY TRUSTEE.
The Bank and the Property Trustee, each severally on behalf of and as
to itself, as of the date hereof, and each Successor Property Trustee at the
time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee hereunder (in the case of a Successor Property Trustee, the
term "Bank" as used herein shall be deemed to refer to such Successor Property
Trustee in its separate corporate capacity), hereby represents and warrants (as
applicable) for the benefit of the Depositor and the Securityholders that:
(a) the Bank is a state chartered trust company duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) the Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Property Trustee and constitutes the valid and legally binding
agreement of the Property Trustee enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Property Trustee of
this Trust Agreement has been duly authorized by all necessary corporate or
other action on the part of the Property Trustee and does not require any
approval of stockholders of the Bank and such execution, delivery and
performance shall not (i) violate the Bank's charter or by-laws; (ii) violate
any provision of, or constitute, with or without notice or lapse of time, a
default under, or result in the creation or imposition of, any Lien on any
properties included in the Trust Property pursuant to the provisions of, any
indenture, mortgage, credit agreement, license or other agreement or instrument
to which the Property Trustee or the Bank is a party or by which it is bound; or
(iii) violate any law, governmental rule or regulation of the United States or
the State of Delaware, as the case may be, governing the banking or trust powers
of the Bank or the Property Trustee (as appropriate in context) or any order,
judgment or decree applicable to the Property Trustee or the Bank;
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(e) neither the authorization, execution or delivery by the Property
Trustee of this Trust Agreement nor the consummation of any of the transactions
by the Property Trustee contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing federal law governing the banking or trust powers of the Bank or the
Property Trustee, as the case may be, under the laws of the United States or the
State of Delaware;
(f) there are no proceedings pending or, to the best of the Property
Trustee's knowledge, threatened against or affecting the Bank or the Property
Trustee in any court or before any governmental authority, agency or arbitration
board or tribunal which, individually or in the aggregate, would materially and
adversely affect the Trust or would question the right, power and authority of
the Property Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement; and
(g) the Property Trustee is a Person eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND
THE DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf of
and as to itself, as of the date hereof, and each Successor Delaware Trustee at
the time of the Successor Delaware Trustee's acceptance of appointment as
Delaware Trustee hereunder (the term "Delaware Bank" being used to refer to such
Successor Delaware Trustee in its separate corporate capacity), hereby
represents and warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and
delivered by the Delaware Trustee and constitutes the valid and legally binding
agreement of the Delaware Trustee enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Delaware Trustee of
this Trust Agreement has been duly authorized by all necessary corporate or
other action on the part of the Delaware Trustee and does not require any
approval of stockholders of the Delaware Bank and such execution, delivery and
performance shall not (i) violate the Delaware Bank's charter or by-laws; (ii)
violate any provision of, or constitute, with or without notice or lapse of
time, a default under, or result in the creation or imposition of, any Lien on
any properties included in the Trust Property
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pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the Delaware Bank or the
Delaware Trustee is a party or by which it is bound; or (iii) violate any law,
governmental rule or regulation of the United States or the State of Delaware,
as the case may be, governing the banking or trust powers of the Delaware Bank
or the Delaware Trustee (as appropriate in context) or any order, judgment or
decree applicable to the Delaware Bank or the Delaware Trustee;
(e) neither the authorization, execution or delivery by the Delaware
Trustee of this Trust Agreement nor the consummation of any of the transactions
by the Delaware Trustee contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing federal law governing the banking or trust powers of the Delaware Bank
or the Delaware Trustee, as the case may be, under the laws of the United States
or the State of Delaware; and
(f) there are no proceedings pending or, to the best of the Delaware
Trustee's knowledge, threatened against or affecting the Delaware Bank or the
Delaware Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust or would question the right, power and
authority of the Delaware Trustee to enter into or perform its obligations as
one of the Trustees under this Trust Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or the
Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall have been, duly and validly executed, issued and delivered
by the Administrative Trustees pursuant to the terms and provisions of, and in
accordance with the requirements of, this Trust Agreement and the
Securityholders shall be, as of such date, entitled to the benefits of this
Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by
the Trust (or the Trustees on behalf of the Trust) under the laws of the State
of Delaware or any political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the Property Trustee or the
Delaware Trustee, as the case may be, of this Trust Agreement.
ARTICLE III
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as
provided by this Trust Agreement and, in the case of the Property Trustee, by
the Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Trust Agreement shall require the Trustees to expend or risk their
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own funds or otherwise incur any financial liability in the performance of any
of their duties hereunder, or in the exercise of any of their rights or powers,
if they shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it. No Administrative Trustee nor the Delaware Trustee shall be liable for
its act or omissions hereunder except as a result of its own gross negligence or
willful misconduct. The Property Trustee's liability shall be determined under
the Trust Indenture Act. Whether or not therein expressly so provided, every
provision of this Trust Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustees shall be subject to the
provisions of this Section 801. To the extent that, at law or in equity, the
Delaware Trustee or an Administrative Trustee has duties (including fiduciary
duties) and liabilities relating thereto to the Trust or to the Securityholders,
the Delaware Trustee or such Administrative Trustee shall not be liable to the
Trust or to any Securityholder for such Trustee's good faith reliance on the
provisions of this Trust Agreement. The provisions of this Trust Agreement, to
the extent that they restrict the duties and liabilities of the Delaware Trustee
or the Administrative Trustees otherwise existing at law or in equity, are
agreed by the Depositor and the Securityholders to replace such other duties and
liabilities of the Delaware Trustee or the Administrative Trustees, as the case
may be.
(b) All payments made by the Property Trustee or a Paying Agent in
respect of the Trust Securities shall be made only from the revenue and proceeds
from the Trust Property and only to the extent that there shall be sufficient
revenue or proceeds from the Trust Property to enable the Property Trustee or a
Paying Agent to make payments in accordance with the terms hereof. Each
Securityholder, by its acceptance of a Trust Security, agrees that it shall look
solely to the revenue and proceeds from the Trust Property to the extent legally
available for distribution to it as herein provided and that the Trustees are
not personally liable to it for any amount distributable in respect of any Trust
Security or for any other liability in respect of any Trust Security. This
Section 801(b) does not limit the liability of the Trustees expressly set forth
elsewhere in this Trust Agreement or, in the case of the Property Trustee, in
the Trust Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any
error of judgment made in good faith by an authorized
officer of the Property Trustee, unless it shall be
proved that the Property Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Property Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the
Holders of not less than a majority in Liquidation
Amount of the Trust Securities relating to the time,
method and place of conducting any proceeding for any
remedy available to the Property Trustee, or
exercising any trust or power conferred upon the
Property Trustee under this Trust Agreement;
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(iii) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of
the Debentures and the Payment Account shall be to
deal with such Property in a similar manner as the
Property Trustee deals with similar property for its
own account, subject to the protections and
limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust
Indenture Act;
(iv) the Property Trustee shall not be liable for any
interest on any money received by it except as it may
otherwise agree with the Depositor and money held by
the Property Trustee need not be segregated from
other funds held by it except in relation to the
Payment Account maintained by the Property Trustee
pursuant to Section 301 and except to the extent
otherwise required by law; and
(d) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their respective
duties under this Trust Agreement, nor shall the Property Trustee be liable for
the negligence, default or misconduct of the Administrative Trustees or the
Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within five Business Days after the occurrence of any Event of
Default actually known to the Property Trustee, the Property Trustee shall
transmit, in the manner and to the extent provided in Section 1008, notice of
such Event of Default to the Securityholders, the Administrative Trustees and
the Depositor, unless such Event of Default shall have been cured or waived. For
purposes of this Section 802 the term "Event of Default" means any event that
is, or after notice or lapse of time or both would become, an Event of Default.
(b) The Administrative Trustees shall transmit, to the Securityholders
in the manner and to the extent provided in Section 1008, notice of the
Depositor's election to begin or further extend an Extended Interest Payment
Period on the Debentures (unless such election shall have been revoked) within
the time specified for transmitting such notice to the holders of the Debentures
pursuant to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
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(b) if (i) in performing its duties under this Trust Agreement the
Property Trustee is required to decide between alternative courses of action; or
(ii) in construing any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with other provisions contained
herein; or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Preferred Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting written instructions of the Depositor as to the course of action to
be taken and the Property Trustee shall take such action, or refrain from taking
such action, as the Property Trustee shall be instructed in writing to take, or
to refrain from taking, by the Depositor; provided, however, that if the
Property Trustee does not receive such instructions of the Depositor within 10
Business Days after it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent practicable shall
not be less than 2 Business Days), it may, but shall be under no duty to, take
or refrain from taking such action not inconsistent with this Trust Agreement as
it shall deem advisable and in the best interests of the Securityholders, in
which event the Property Trustee shall have no liability except for its own bad
faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the Administrative
Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by
an Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the
Property Trustee shall deem it desirable that a matter be established before
undertaking, suffering or omitting any action hereunder, the Property Trustee
(unless other evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and conclusively rely upon an Officer's
Certificate which, upon receipt of such request, shall be promptly delivered by
the Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording,
filing or registration of any instrument (including any financing or
continuation statement, any filing under tax or securities laws or any filing
under tax or securities laws) or any rerecording, refiling or reregistration
thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates) and the advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon and, in accordance with such advice, such counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
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(h) the Property Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, provided that the Property Trustee shall be responsible for
its own negligence or recklessness with respect to selection of any agent or
attorney appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action; (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received; and (iii) shall
be protected in acting in accordance with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of this
Trust Agreement shall be deemed to impose any duty or obligation on the Property
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall be
illegal, or in which the Property Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts, or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Property Trustee shall be construed to be a duty.
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The Recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 808 and 813 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
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SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time compensation for all
services rendered by them hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust), in the case of the Property Trustee, as set forth in a written agreement
between the Depositor and the Property Trustee;
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to such Trustee's negligence, bad faith or
willful misconduct (or, in the case of the Administrative Trustees or the
Delaware Trustee, any such expense, disbursement or advance as may be
attributable to its, his or her gross negligence, bad faith or willful
misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for,
and to hold the Trustees harmless against, any loss, damage, claims, liability,
penalty or expense of any kind or nature whatsoever, arising out of or in
connection with the acceptance or administration of this Trust Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except any such expense, disbursement or advance as may be
attributable to such Trustee's negligence, bad faith or willful misconduct for
(or, in the case of the Administrative Trustees or the Delaware Trustee, any
such expense, disbursement or advance as may be attributable to its, his or her
gross negligence, bad faith or willful misconduct).
Each Trustee may claim a Lien or charge on Trust Property as a result
of any amount due and unpaid pursuant to this Section 806. The Property Trustee
and the Delaware Trustee may be the same Person.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF
TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with
respect to the Trust Securities. The Property Trustee shall be a Person that is
eligible pursuant to the Trust Indenture Act to act as such and has a combined
capital and surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of its supervising or examining authority, then for the purposes of this Section
807, the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section 807, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VIII.
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(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware; or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be continuing,
at any time or times, for the purpose of meeting the legal requirements of the
Trust Indenture Act or of any jurisdiction in which any part of the Trust
Property may at the time be located, the Depositor shall have power to appoint,
and upon the written request of the Property Trustee, the Depositor shall for
such purpose join with the Property Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to appoint,
one or more Persons approved by the Property Trustee either to act as
co-trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section 809. If the Depositor does not
join in such appointment within 15 days after the receipt by it of a request so
to do, or in case a Debenture Event of Default has occurred and is continuing,
the Property Trustee alone shall have power to make such appointment. Any
co-trustee or separate trustee appointed pursuant to this Section 809 shall
either be (i) a natural person who is at least 21 years of age and a resident of
the United States; or (ii) a legal entity with its principal place of business
in the United States that shall act through one or more persons authorized to
bind such entity.
(b) Should any written instrument from the Depositor be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right, or power, any and
all such instruments shall, on request, be executed, acknowledged, and delivered
by the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent permitted
by law, but to such extent only, be appointed subject to the following terms,
namely:
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(i) The Trust Securities shall be executed and delivered
and all rights, powers, duties and obligations
hereunder in respect of the custody of securities,
cash and other personal property held by, or required
to be deposited or pledged with, the Trustees
specified hereunder, shall be exercised, solely by
such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby
conferred or imposed upon the Property Trustee in
respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or
performed by the Property Trustee or by the Property
Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument
appointing such co-trustee or separate trustee,
except to the extent that under any law of any
jurisdiction in which any particular act is to be
performed, the Property Trustee shall be incompetent
or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be
exercised and performed by such co-trustee or
separate trustee.
(iii) The Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence
of the Depositor, may accept the resignation of or
remove any co-trustee or separate trustee appointed
under this Section 809, and, in case a Debenture
Event of Default has occurred and is continuing, the
Property Trustee shall have the power to accept the
resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the
Depositor. Upon the written request of the Property
Trustee, the Depositor shall join with the Property
Trustee in the execution, delivery and performance of
all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor
to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in
this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of
the Property Trustee or any other trustee hereunder.
(v) The Property Trustee shall not be liable by reason of
any act of a co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee
shall be deemed to have been delivered to each such
co-trustee and separate trustee.
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SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of any Trustee (the "Relevant Trustee")
and no appointment of a successor Trustee pursuant to this Article VIII shall
become effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant
Trustee may resign at any time with respect to the Trust Securities by giving
written notice thereof to the Securityholders. If the instrument of acceptance
by the successor Trustee required by Section 811 shall not have been delivered
to the Relevant Trustee within 30 days after the giving of such notice of
resignation, the Relevant Trustee may petition, at the expense of the Depositor,
any court of competent jurisdiction for the appointment of a successor Relevant
Trustee with respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Common Securityholder at any time.
(d) If any Trustee shall resign, be removed or become incapable of
acting as Trustee, or if a vacancy shall occur in the office of any Trustee for
any cause, at a time when no Debenture Event of Default shall have occurred and
be continuing, the Common Securityholder, by Act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees with respect to the Trust Securities and the Trust, and the successor
Trustee shall comply with the applicable requirements of Section 811. If the
Property Trustee or the Delaware Trustee shall resign, be removed or become
incapable of continuing to act as the Property Trustee or the Delaware Trustee,
as the case may be, at a time when a Debenture Event of Default shall have
occurred and is continuing, the Preferred Securityholders, by Act of the
Securityholders of a majority in Liquidation Amount of the Preferred Securities
then Outstanding delivered to the retiring Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees with respect to the Trust
Securities and the Trust, and such successor Trustee shall comply with the
applicable requirements of Section 811. If an Administrative Trustee shall
resign, be removed or become incapable of acting as Administrative Trustee, at a
time when a Debenture Event of Default shall have occurred and be continuing,
the Common Securityholder, by Act of the Common Securityholder delivered to an
Administrative Trustee, shall promptly appoint a successor Administrative
Trustee or Administrative Trustees with respect to the Trust Securities and the
Trust, and such successor Administrative Trustee or Administrative Trustees
shall comply with the applicable requirements of Section 811. If no successor
Relevant Trustee with respect to the Trust Securities shall have been so
appointed by the Common Securityholder or the Preferred Securityholders and
accepted appointment in the manner required by Section 811, any Securityholder
who has been a Securityholder of Trust Securities on behalf of himself and all
others similarly situated may petition a court of competent jurisdiction for the
appointment Trustee with respect to the Trust Securities.
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(e) The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust office if it is the Property
Trustee.
(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of remaining Administrative Trustees if
there are at least two of them; or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees set forth in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant
Trustee with respect to the Trust Securities and the Trust, the retiring
Relevant Trustee and each successor Relevant Trustee with respect to the Trust
Securities shall execute and deliver an instrument hereto wherein each successor
Relevant Trustee shall accept such appointment and which shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Relevant Trustee all the rights, powers, trusts and
duties of the retiring Relevant Trustee with respect to the Trust Securities and
the Trust and upon the execution and delivery of such instrument the resignation
or removal of the retiring Relevant Trustee shall become effective to the extent
provided therein and each such successor Relevant Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Relevant Trustee with respect to the Trust Securities
and the Trust; but, on request of the Trust or any successor Relevant Trustee
such retiring Relevant Trustee shall duly assign, transfer and deliver to such
successor Relevant Trustee all Trust Property, all proceeds thereof and money
held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Relevant Trustee all such rights, powers and
trusts referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless
at the time of such acceptance such successor Relevant Trustee shall be
qualified and eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Relevant
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Trustee, shall be the successor of such Relevant Trustee hereunder, provided
such Person shall be otherwise qualified and eligible under this Article VIII,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR
TRUST.
If and when the Property Trustee or the Delaware Trustee shall be or
become a creditor of the Depositor or the Trust (or any other obligor upon the
Debentures or the Trust Securities), the Property Trustee or the Delaware
Trustee, as the case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust Indenture Act
regarding the collection of claims against the Depositor or Trust (or any such
other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) Not later than July 15 of each year commencing with July 15, 1999,
the Property Trustee shall transmit to all Securityholders in accordance with
Section 1008, and to the Depositor, a brief report dated as of May 15 with
respect to:
(i) its eligibility under Section 807 or, in lieu
thereof, if to the best of its knowledge it has
continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its
possession as Property Trustee since the date of its
last report and any action taken by the Property
Trustee in the performance of its duties hereunder
which it has not previously reported and which in its
opinion materially affects the Trust Securities.
(b) In addition the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Property Trustee with The Nasdaq National MarketSM,
and each national securities exchange or other organization upon which the Trust
Securities are listed, and also with the Commission and the Depositor.
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
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SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five, provided that the Holder of
all of the Common Securities by written instrument may increase or decrease the
number of Administrative Trustees. The Property Trustee and the Delaware Trustee
may be the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 810.
(c) The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul the Trust. Whenever a vacancy in the number of Administrative Trustees
shall occur, until such vacancy is filled by the appointment of an
Administrative Trustee in accordance with Section 810, the Administrative
Trustees in office, regardless of their number (and notwithstanding any other
provision of this Agreement), shall have all the powers granted to the
Administrative Trustees and shall discharge all the duties imposed upon the
Administrative Trustees by this Trust Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purpose of executing any documents contemplated in Section
207(a); and
(b) The Administrative Trustees shall have power to delegate from time
to time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or
approval of the Administrative Trustees shall require consent or approval by not
less than a majority of the Administrative Trustees, unless there are only two,
in which case both must consent.
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ARTICLE IV
TERMINATION, LIQUIDATION AND MERGER
SECTION 901. TERMINATION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on,
September 30, 2053 (the "Expiration Date") subject to distribution of the Trust
Property in accordance with Section 904.
SECTION 902. EARLY TERMINATION.
The first to occur of any of the following events is an "Early
Termination Event:"
(a) the occurrence of a Bankruptcy Event in respect of, or the
dissolution or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the
Depositor at any time (which direction is wholly optional and within the
discretion of the Depositor, subject to Depositor having received prior approval
of the Board of Governors of the Federal Reserve System if so required under
applicable guidelines, policies or regulations thereof) to dissolve the Trust
and distribute the Debentures to Securityholders in exchange for the Preferred
Securities in accordance with Section 904;
(c) the redemption of all of the Preferred Securities in connection
with the redemption of all of the Debentures (whether upon a Debenture
Redemption Date or the maturity of the Debenture); or
(d) an order for dissolution of the Trust shall have been entered by a
court of competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 904, or upon the
redemption of all of the Trust Securities pursuant to Section 402, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge
of all administrative duties of the Administrative Trustees, including the
performance of any tax reporting obligations with respect to the Trust or the
Securityholders; and (d) the filing of a Certificate of Cancellation by the
Administrative Trustee under the Business Trust Act.
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SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d)
of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated
by the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each Securityholder a Like Amount of Debentures,
subject to Section 904(d). Notice of liquidation shall be given by the Property
Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more
than 60 days prior to the Liquidation Date to each Holder of Trust Securities at
such Holder's address appearing in the Securities Register. All notices of
liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the
Trust Securities shall no longer be deemed to be
Outstanding and any Trust Securities Certificates not
surrendered for exchange shall be deemed to represent
a Like Amount of Debentures; and
(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust
Securities Certificates for Debentures, or, if
Section 904(d) applies, receive a Liquidation
Distribution, as the Administrative Trustees or the
Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to effect
the liquidation of the Trust and distribution of the Debentures to
Securityholders, the Property Trustee shall establish a record date for such
distribution (which shall be not more than 45 days prior to the Liquidation
Date) and, either itself acting as exchange agent or through the appointment of
a separate exchange agent, shall establish such procedures as it shall deem
appropriate to effect the distribution of Debentures in exchange for the
Outstanding Trust Securities Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the
Liquidation Date, (i) the Trust Securities shall no longer be deemed to be
outstanding; (ii) certificates representing a Like Amount of Debentures shall be
issued to holders of Trust Securities Certificates upon surrender of such
certificates to the Administrative Trustees or their agent for exchange; (iii)
the Depositor shall use its reasonable efforts to have the Debentures listed on
the Nasdaq National MarketK or on such other securities exchange or other
organization as the Preferred Securities are then listed or traded; (iv) any
Trust Securities Certificates not so surrendered for exchange shall be deemed to
represent a Like Amount of Debentures, accruing interest at the rate provided
for in the Debentures from the last Distribution Date on which a Distribution
was made on such Trust Securities Certificates until such certificates are so
surrendered (and until such certificates are so surrendered, no payments of
interest or principal shall be made to holders of Trust Securities Certificates
with respect to such Debentures); and (v) all rights of Securityholders holding
Trust Securities shall cease, except the right of such Securityholders to
receive Debentures upon surrender of Trust Securities Certificates.
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(d) In the event that, notwithstanding the other provisions of this
Section 904, whether because of an order for dissolution entered by a court of
competent jurisdiction or otherwise, distribution of the Debentures in the
manner provided herein is determined by the Property Trustee not to be
practical, the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in such manner as the
Property Trustee determines. In such event, on the date of the dissolution,
winding-up or other termination of the Trust, Securityholders shall be entitled
to receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, an amount equal to the Liquidation Amount per Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If, upon any such
dissolution, winding-up or termination, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust Securities shall be paid
on a pro rata basis (based upon Liquidation Amounts). The holder of the Common
Securities shall be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as aforesaid) with
Holders of Preferred Securities, except that, if a Debenture Event of Default
has occurred and is continuing, the Preferred Securities shall have a priority
over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF
THE TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except pursuant
to this Section 905. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the holders of the Preferred
Securities, the Property Trustee or the Delaware Trustee, the Trust may merge
with or into, consolidate, amalgamate, be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any state; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of the Trust with
respect to the Preferred Securities; or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise; (ii) the
Depositor expressly appoints a trustee of such successor entity possessing
substantially the same powers and duties as the Property Trustee as the holder
of the Debentures; (iii) the Successor Securities are listed or traded, or any
Successor Securities shall be listed or traded upon notification of issuance, on
any national securities exchange or other organization on which the Preferred
Securities are then listed, if any; (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect; (v)
such successor entity has a purpose substantially identical to that of the
Trust; (vi) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, the Depositor has received an Opinion of Counsel
to the effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect; and (b) following such merger,
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consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity shall be required to register as an
"investment company" under the Investment Company Act; and (vii) the Depositor
owns all of the Common Securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of holders of 100% in Liquidation Amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger or replacement would cause the Trust or the successor
entity to be classified as other than a grantor trust for United States federal
income tax purposes.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding-up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Trustees and the Depositor, without the consent of any Securityholders, (i) as
provided in Section 811 with respect to acceptance of appointment by a successor
Trustee; (ii) to cure any ambiguity, correct or supplement any provision herein
or therein which may be inconsistent with any other provision herein or therein,
or to make any other provisions with respect to matters or questions arising
under this Trust Agreement, that shall not be inconsistent with the other
provisions of this Trust Agreement; or (iii) to modify, eliminate or add to any
provisions of this Trust Agreement to such extent as shall be necessary to
ensure that the Trust shall be classified for United States federal income tax
purposes as a grantor trust at all times that any Trust Securities are
outstanding or to ensure that the Trust shall not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case of clause (ii), such action shall not adversely affect in any
material respect the interests of any Securityholder, and any amendments of this
Trust Agreement shall become effective when notice thereof is given to the
Securityholders.
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor (i) with the consent of Trust Securityholders representing not less
than a majority (based upon Liquidation Amounts) of the Trust Securities then
Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to
the
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effect that such amendment or the exercise of any power granted to the Trustees
in accordance with such amendment shall not affect the Trust's status as a
grantor trust for United States federal income tax purposes or the Trust's
exemption from status of an "investment company" under the Investment Company
Act.
(c) In addition to and notwithstanding any other provision in this
Trust Agreement, without the consent of each affected Securityholder (such
consent being obtained in accordance with Section 603 or 606 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date; or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 603 or 606 hereof), this
paragraph (c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an "investment company" under the Investment Company Act or to fail or
cease to be classified as a grantor trust for United States federal income tax
purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made,
the Administrative Trustees shall promptly provide to the Depositor a copy of
such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be
required to enter into any amendment to this Trust Agreement which affects its
own rights, duties or immunities under this Trust Agreement. The Property
Trustee shall be entitled to receive an Opinion of Counsel and an Officers'
Certificate stating that any amendment to this Trust Agreement is in compliance
with this Trust Agreement.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust
Securities Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN
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ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF).
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day
that is not a Business Day, then such payment need not be made on such date but
may be made on the next succeeding day which is a Business Day, except that, if
such Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day (and without any reduction of
interest or any other payment in respect of any such acceleration), in each case
with the same force and effect as though made on the date fixed for such
payment, and no distribution shall accumulate thereon for the period after such
date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the
benefit of any successor to the Depositor, the Trust or the Relevant Trustee(s),
including any successor by operation of law. Except in connection with a
consolidation, merger or sale involving the Depositor that is permitted under
Article XII of the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the Depositor shall
not assign its obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be given or served
to or upon any Securityholder or the Depositor may be given or served in writing
by deposit thereof, first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a) in the case of
a Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to Wintrust Financial
Corporation, 727 North Bank Lane, Lake Forest, Illinois 60045, Attention: David
A. Dykstra, Chief Financial Officer, facsimile no.: (847) 234-3567. Any notice
to Preferred Securityholders shall also be given to such owners as have, within
two years preceding the giving of such notice, filed their names and addresses
with the Property Trustee for that purpose. Such notice, demand or other
communication to or upon a Securityholder shall be deemed to have been
sufficiently given or made, for all purposes, upon hand delivery, mailing or
transmission.
Any notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
the Trust, the Property Trustee or the Administrative Trustees shall be given in
writing addressed (until another address is published by
- 51 -
<PAGE>
the Trust) as follows: (a) with respect to the Property Trustee to Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001, Attention: Corporate Trust Administration; (b) with respect
to the Delaware Trustee, to Wilmington Trust Company at the above address; and
(c) with respect to the Administrative Trustees, to them at the address above
for notices to the Depositor, marked AAttention: "dministrative Trustees of
Capital Trust." Such notice, demand or other communication to or upon the Trust
or the Property Trustee shall be deemed to have been sufficiently given or made
only upon actual receipt of the writing by the Trust or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor or any of the Trustees takes action
in violation of this Section 1009, the Property Trustee agrees, for the benefit
of Securityholders, that at the expense of the Depositor (which expense shall be
paid prior to the filing), it shall file an answer with the bankruptcy court or
otherwise properly contest the filing of such petition by the Depositor or such
Trustee against the Trust or the commencement of such action and raise the
defense that the Depositor or such Trustee has agreed in writing not to take
such action and should be stopped and precluded therefrom. The provisions of
this Section 1009 shall survive the termination of this Trust Agreement.
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Trust Agreement and shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
- 52 -
<PAGE>
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN
BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY
SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND
SUCH SECURITYHOLDER AND SUCH OTHERS.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
WINTRUST FINANCIAL CORPORATION
By:________________________________________
Name:
Title:
WILMINGTON TRUST COMPANY, as
Property Trustee
By:________________________________________
Name:
Title:
WILMINGTON TRUST COMPANY, as
Delaware Trustee
By:________________________________________
Name:
Title:
___________________________________________
Edward J. Wehmer, As Administrative Trustee
___________________________________________
David A. Dykstra, As Administrative Trustee
___________________________________________
Randolph M. Hibben, As Administrative
Trustee
- 54 -
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
WINTRUST CAPITAL TRUST I
THIS CERTIFICATE OF TRUST OF Wintrust Capital Trust I (the "Trust"),
dated August 14, 1998, is being duly executed and filed by Wilmington Trust
Company, a Delaware banking corporation, Edward J. Wehmer, David A. Dykstra and
Randolph M. Hibben, each an individual, as trustees, to form a business trust
under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.).
1. NAME. The name of the business trust formed hereby is Wintrust
Capital Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee
of the Trust in the State of Delaware is Wilmington Trust
Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective
on August 14, 1998.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY, as
trustee
By:________________________________
Name: Donald F. Carey, Jr.
------------------------------
Title: Vice President
------------------------------
___________________________________
Edward J. Wehmer, as Trustee
___________________________________
David A. Dykstra, as Trustee
___________________________________
Randolph M. Hibben, as Trustee
A-1
<PAGE>
EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER____ NUMBER OF COMMON SECURITIES _____
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
WINTRUST CAPITAL TRUST I
COMMON SECURITIES
(LIQUIDATION AMOUNT $25 PER COMMON SECURITY)
WINTRUST CAPITAL TRUST I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that WINTRUST
FINANCIAL CORPORATION (the "Holder") is the registered owner of ( ) common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the Common Securities (liquidation amount $25
per Common Security) (the "Common Securities"). In accordance with Section 510
of the Trust Agreement (as defined below), the Common Securities are not
transferable and any attempted transfer hereof shall be void. The designations,
rights, privileges, restrictions, preferences, and other terms and provisions of
the Common Securities are set forth in, and this certificate and the Common
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust dated as of September 29, 1998, as the same may be amended from time to
time (the "Trust Agreement"), including the designation of the terms of the
Common Securities as set forth therein. The Trust shall furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this 29th day of September, 1998.
WINTRUST CAPITAL TRUST I
By:______________________________
Name:_________________________
Title:________________________
B-1
<PAGE>
EXHIBIT C
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
September 29, 1998, between WINTRUST FINANCIAL CORPORATION, an Illinois
corporation (the "Company"), and WINTRUST CAPITAL TRUST I, a Delaware business
trust (the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive 9.00% Subordinated Debentures (the "Debentures")
from, the Company and to issue and sell Wintrust Capital Trust I 9.00%
Cumulative Trust Preferred Securities (the "Preferred Securities") with such
powers, preferences and special rights and restrictions as are set forth in the
Amended and Restated Trust Agreement of the Trust dated as of September 29,
1998, as the same may be amended from time to time (the "Trust Agreement");
WHEREAS, the Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1 GUARANTEE BY THE COMPANY.
Subject to the terms and conditions hereof, the Company, including in
its capacity as holder of the Common Securities, hereby irrevocably and
unconditionally guarantees to each person or entity to whom the Trust is now or
hereafter becomes indebted or liable (the "Beneficiaries") the full payment when
and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust other than obligations of the Trust to pay to holders
of any Preferred Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
C-1
<PAGE>
SECTION 1.2 Term of agreement.
This Agreement shall terminate and be of no further force and effect
upon the later of (a) the date on which full payment has been made of all
amounts payable to all holders of all the Preferred Securities (whether upon
redemption, liquidation, exchange or otherwise); and (b) the date on which there
are no Beneficiaries remaining; provided, however, that this Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any holder of Preferred Securities or any Beneficiary must restore payment
of any sums paid under the Preferred Securities, under any obligation, under the
Preferred Securities Guarantee Agreement dated the date hereof by the Company
and Wilmington Trust Company as guarantee trustee or under this Agreement for
any reason whatsoever. This Agreement is continuing, irrevocable, unconditional
and absolute.
SECTION 1.3 Waiver of Notice.
The Company hereby waives notice of acceptance of this Agreement and of
any obligation to which it applies or may apply, and the Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 1.4 No Impairment.
The obligations, covenants, agreements and duties of the Company under
this Agreement shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the obligations or for the performance of any other obligation under,
arising out of, or in connection with, the obligations;
(b) any failure, omission, delay or lack of diligence on the part of
the Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
C-2
<PAGE>
SECTION 1.5 Enforcement.
A Beneficiary may enforce this Agreement directly against the Company,
and the Company waives any right or remedy to require that any action be brought
against the Trust or any other person or entity before proceeding against the
Company.
AII
SECTION 2.1 Binding Effect.
All guarantees and agreements contained in this Agreement shall bind
the successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the Beneficiaries.
SECTION 2.2 Amendment.
So long as there remains any Beneficiary or any Preferred Securities of
any series are outstanding, this Agreement shall not be modified or amended in
any manner adverse to such Beneficiary or to any of the holders of the Preferred
Securities.
SECTION 2.3 Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same by facsimile
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answerback, if sent by telex):
Wintrust Capital Trust I
c/o Wintrust Financial Corporation
727 North Bank Lane
Lake Forest, Illinois 60045
Facsimile No.: (847) 234-3567
Attention: David A. Dykstra, Administrative Trustee
Wintrust Financial Corporation
727 North Bank Lane
Lake Forest, Illinois 60045
Facsimile No.: (847) 234-3567
Attention: David A. Dykstra, Chief Financial Officer
SECTION 2.4 This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois (without regard
to conflict of laws principles).
C-3
<PAGE>
THIS AGREEMENT is executed as of the day and year first above written.
WINTRUST FINANCIAL
CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
WINTRUST CAPITAL TRUST I
By:________________________________
Name:___________________________
Title: Administrative Trustee
C-4
<PAGE>
EXHIBIT D
CERTIFICATE NUMBER ____ NUMBER OF PREFERRED SECURITIES ____
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
WINTRUST CAPITAL TRUST I
9.00% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
CUSIP 97650 Q 20 0
Wintrust Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that
________________ (the "Holder") is the registered owner of _____ preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the 9.00% Cumulative Trust Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer as provided in Section
504 of the Trust Agreement (as defined herein). The designations, rights,
privileges, restrictions, preferences, and other terms and provisions of the
Preferred Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust dated as of September 29, 1998, as the same may be amended from time to
time (the "Trust Agreement"), including the designation of the terms of
Preferred Securities as set forth therein. The Holder is entitled to the
benefits of the Preferred Securities Guarantee Agreement entered into by
Wintrust Financial Corporation, an Illinois corporation, and Wilmington Trust
Company as guarantee trustee, dated as of September 29, 1998, as the same may be
amended from time to time (the "Guarantee"), to the extent provided therein. The
Trust shall furnish a copy of the Trust Agreement and the Guarantee to the
Holder without charge upon written request to the Trust at its principal place
of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
Unless the Certificate of Authentication has been manually executed by
the Authentication Agent, this certificate is not valid or effective.
D-1
<PAGE>
IN WITNESS WHEREOF, the Administrative Trustees of the Trust have
executed this Certificate this 29th day of September.
CERTIFICATE OF AUTHENTICATION: WINTRUST CAPITAL TRUST I
This is one of the 9.00% Cumulative
Trust Preferred Securities referred By:________________________________
to in the within-mentioned Amended Edward J. Wehmer, as Trustee
and Restated Trust Agreement.
By:________________________________
David A. Dykstra, as Trustee
WILMINGTON TRUST COMPANY,
as Authentication Agent and Registrar
By:________________________________
Randolph M. Hibben, as Trustee
By:____________________________________
AUTHORIZED SIGNATURE
D-2
<PAGE>
[FORM OF REVERSE OF CERTIFICATE]
The Trust will furnish without charge to any registered owner of
Preferred Securities who so requests, a copy of the Trust Agreement and the
Guarantee. Any such request should be in writing and addressed to Wintrust
Capital Trust I, c/o Secretary, Wintrust Financial Corporation, 727 North Bank
Lane, Lake Forest, Illinois 60045 or to the Registrar named on the face of this
Certificate.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN CON -- as tenants in common UNIF
GIFT MIN ACT -- under Uniform Gift to Minors Act
TEN ENT -- as tenants by the entireties and not as tenants
JT TEN -- as joint tenants with right of survival
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
________________________________________________________________________________
________________________________________________________________________________
(Please insert social security or other identifying number of assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(insert address and zip code of assignee)
the within Certificate and all rights and interests represented by the Preferred
Securities evidenced thereby, and hereby irrevocably constitutes and appoints
_______________________________________________________________________ attorney
to transfer the said Preferred Securities on the books of the within-named Trust
with full power of substitution in the premises.
Dated:_______________________ Signature:________________________________
Note: The signature(s) to this
assignment must correspond with
the name(s) as written upon the
face of this Certificate in
every particular, without
alteration or enlargement, or
any change whatever.
Signature(s) Guaranteed:
___________________________________
NOTICE: Signature(s) must be guaranteed by
an "eligible guarantor institution" that is
a member or participant in a "signature
guarantee program" (i.e., the Securities
Transfer Agents Medallion Program, the Stock
Exchange Medallion Program or the New York
Stock Exchange, Inc. Medallion Signature
Program).
D-3
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE OF AUTHENTICATION
This is one of the 9.00% Cumulative Trust Preferred Securities referred
to in the within-mentioned Amended and Restated Trust Agreement.
WILMINGTON TRUST COMPANY,
as Authentication Agent and Registrar
By:_______________________________________
AUTHORIZED SIGNATURE
E-1
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made by and between
WINTRUST FINANCIAL CORPORATION ("Wintrust"), an Illinois bank holding company,
and Edward J. Wehmer, an individual resident in the State of Illinois
("Executive").
WITNESSETH THAT:
WHEREAS, Wintrust is an Illinois bank holding company;
WHEREAS, Executive has particular expertise and knowledge concerning
the business of Wintrust and its operations and is a valued member of Wintrust's
senior management;
WHEREAS, by virtue of his employment with Wintrust, Executive will
become acquainted with certain confidential information regarding the services,
customers, methods of doing business, strategic plans, marketing, and other
aspects of the business of Wintrust or its Affiliates;
WHEREAS, Wintrust and Executive have previously entered into an
employment agreement dated December 16, 1996 (the "Prior Employment Agreement");
and
WHEREAS, Wintrust and Executive desire to restate and set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment effective as of the date first written above (the "Effective
Date") and this Agreement is intended by the parties to supersede all previous
agreements and understanding, whether written or oral, concerning such
employment, including, without limitation, the Prior Employment Agreement.
NOW THEREFORE, in consideration of the covenants and agreements
contained herein, of Executive's employment, of the compensation to be paid by
Wintrust for Executive's services, and of Wintrust's other undertakings in this
Agreement, the parties hereto do hereby agree as follows:
1. Scope of Employment. Executive will be employed as President and
--------------------
Chief Executive Officer of Wintrust and shall perform such duties as may be
assigned to Executive by the Board of Directors of Wintrust in such position.
Executive agrees that during their employment Executive will be subject to and
abide by the written policies and practices of Wintrust. Executive also agrees
to assume such new or additional positions and responsibilities as he may from
time to time be assigned for or on behalf of Wintrust or any Affiliate of
Wintrust. Notwithstanding the foregoing, Executive will not be required without
his consent to move his principal business location to another location more
than a 35 mile radius from his principal business location on the Effective Date
of this Agreement. For purposes of this Agreement, the term "Affiliate" shall
<PAGE>
include but not be limited to Barrington Bank & Trust Company, Hinsdale Bank &
Trust Company, Lake Forest Bank & Trust Company, Libertyville Bank & Trust
Company, North Shore Community Bank & Trust Company, Crystal Lake Bank & Trust
Company, First Insurance Funding Corporation, Wintrust Asset Management Company,
and any subsidiary of any of them and shall further include any present or
future affiliate of any of them as defined by the rules and regulations of the
Federal Reserve Board. In the event Executive shall perform services for any
Affiliate in addition to serving as President and Chief Executive Officer of
Wintrust, the provisions of this Agreement shall also apply to the performance
of such services by Executive on behalf of the Affiliate.
2. Compensation and Benefits. Executive will be paid such base salary
-------------------------
as may from time to time be agreed upon between Executive and Wintrust.
Executive will be entitled to coverage under such compensation plans, insurance
plans and other fringe benefit plans and programs as may from time to time be
established for employees of Wintrust in accordance with the terms and
conditions of such plans and programs. Executive shall also be eligible to
participate in the Wintrust 1997 Stock Incentive Plan or any successor Plan
thereto.
3. Extent of Service. Executive shall devote his entire time, attention
-----------------
and energies to the business of Wintrust during the term of this Agreement; but
this shall not be construed as preventing Executive from (a) investing
Executive's personal assets in such form or manner as will not require any
services on the part of Executive in the operation or the affairs of the
companies in which such investments are made and in which his participation is
solely that of an investor; (b) engaging (whether or not during normal business
hours) in any other professional, civic or philanthropic activities provided
that Executive's engagement does not result in a violation of his covenants
under this Section or Sections 4 and 5 hereof; or (c) accepting appointments to
the boards of directors of other companies provided that the Board of Directors
of Wintrust approves of such appointments and Executive's performance of his
duties on such boards does not result in a violation of his covenants under this
Section or Sections 4 and 5 hereof.
4. Competition. During the period in which Executive performs services
-----------
for Wintrust and for a period of two years after termination of Executive's
employment with Wintrust, regardless of the reason, Executive shall not,
directly or indirectly, either alone or in conjunction with any person, firm,
association, company or corporation: (a) serve as President and Chief Executive
Officer or in a comparable senior management position with a bank or other
financial institution (or any branch or affiliate thereof) which offers to its
customers any of the services provided by Wintrust or its Affiliates which
operates in the Market Area of Wintrust or any Affiliate; (b) solicit or conduct
business which involves any of the services provided by Wintrust or its
Affiliates from or with any person, corporation or other entity which was a
customer of Wintrust or any Affiliate with whom Executive had direct or indirect
contact while employed by Wintrust or potential customers with whom Wintrust or
any Affiliate has, at the time of Executive's termination of employment with
Wintrust, an outstanding oral or written proposal to provide such services; (c)
request, advise or directly or indirectly invite any of the
- 2 -
<PAGE>
existing customers, suppliers or service providers of Wintrust or any Affiliate
to withdraw, curtail or cancel its business with Wintrust or any Affiliate
(other than through mass mailings or general advertisements not specifically
directed at customers of Wintrust or any Affiliate); (d) hire, solicit, induce
or attempt to solicit or induce any employee, consultant, or agent of Wintrust
or any Affiliate: (i) to terminate his employment or association with Wintrust
or any Affiliate; or (ii) to become employed by or to serve in any capacity by a
bank or other financial institution which operates or is planned to operate in
the Market Area of Wintrust or of any Affiliate; or (e) in any way participate
in planning or opening a bank or other financial institution which operates or
is intended to operate in the Market Area of Wintrust or of any Affiliate. For
the purposes of this Agreement, the Market Area of Wintrust or of an Affiliate
shall be the area within a ten (10) mile radius of the principal office and
branches of Wintrust or of any Affiliate.
Notwithstanding the foregoing, Executive shall not be
prevented from (i) investing or owning shares of stock of any corporation
engaged in any business provided that such shares are regularly traded on a
national securities exchange or in any over-the-counter market or (ii) retaining
any shares of stock in any corporation which Executive owned prior to the date
of his employment with Wintrust.
5. Confidential Information. Executive acknowledges that, during his or
------------------------
her employment with Wintrust, Executive has and will obtain access to
Confidential Information of and for Wintrust or its Affiliates. For purposes of
this Agreement, "Confidential Information" shall mean information not generally
known or available without restriction to the trade or industry, including,
without limitation, the following categories of information and documentation:
(i) documentation and information relating to lending customers of Wintrust or
any Affiliate, including, but not limited to, lists of lending clients with
their addresses and account numbers, credit analysis reports and other credit
files, outstanding loan amounts, repayment dates and instructions, information
regarding the use of the loan proceeds, and loan maturity and renewal dates;
(ii) documentation and information relating to depositors of Wintrust or any
Affiliate, including, but not limited to, lists of depositors with their
addresses and account numbers, amounts held on deposit, types of depository
products used and the number of accounts per customer; (iii) documentation and
information relating to trust customers of Wintrust or any Affiliate, including,
but not limited to, lists of trust customers with their addresses and account
numbers, trust investment management contracts, identity of investment managers,
trust corpus amounts, and grantor and beneficiary information; (iv)
documentation and information relating to investment management clients of
Wintrust or any Affiliate, including, but not limited to, lists of investors
with their addresses, account numbers and beneficiary information, investment
management contracts, amount of assets held for management, and the nature of
the investment products used; (v) the identity of actual or potential customers
of Wintrust or any Affiliate, including lists of the same; (vi) the identity of
suppliers and service providers of Wintrust or any Affiliate, including lists of
the same and the material terms of any supply contracts; (vii) marketing
materials and information regarding the products and services offered by
Wintrust or any
- 3 -
<PAGE>
Affiliate and the nature and scope of use of such marketing materials and
product information; (viii) policy and procedure manuals and other materials
used by Wintrust or any Affiliate in the training and development of its
employees; (ix) identity of all computer systems, programs and software utilized
by Wintrust of any Affiliate to conduct its operations and manuals or other
instructions for their use; (x) minutes or other summaries of Board of Directors
or other department or committee meetings held by Wintrust or any Affiliate;
(xi) the business and strategic growth plans of Wintrust or any Affiliate; and
(xii) confidential communication materials provided for shareholders of Wintrust
or of any Affiliate. Absent prior authorization by Wintrust or as required in
Executive's duties for Wintrust, Executive will not at any time, directly or
indirectly, use, permit the use of, disclose or permit the disclosure to any
third party of any such Confidential Information to which Executive will be
provided access. These obligations apply both during Executive's employment with
Wintrust and shall continue beyond the termination of Executive's employment and
this Agreement.
6. Inventions. All discoveries, designs, improvements, ideas, and
----------
inventions, whether patentable or not, relating to (or suggested by or resulting
from) products, services, or other technology of Wintrust or any Affiliate or
relating to (or suggested by or resulting from) methods or processes used or
usable in connection with the business of Wintrust or any Affiliate that may be
conceived, developed, or made by Executive during employment with Wintrust
(hereinafter "Inventions"), either solely or jointly with others, shall
automatically become the sole property of Wintrust or an Affiliate. Executive
shall immediately disclose to Wintrust all such Inventions and shall, without
additional compensation, execute all assignments and other documents deemed
necessary to perfect the property rights of Wintrust or any Affiliate therein.
These obligations shall continue beyond the termination of Executive's
employment with respect to Inventions conceived, developed, or made by Executive
during employment with Wintrust. The provisions of this Section 6 shall not
apply to any Invention for which no equipment, supplies, facility, or trade
secret information of Wintrust or any Affiliate is used by Executive and which
is developed entirely on Executive's own time, unless (a) such Invention relates
(i) to the business of Wintrust or an Affiliate or (ii) to the actual or
demonstrably anticipated research or development of Wintrust or an Affiliate, or
(b) such Invention results from work performed by Executive for Wintrust.
7. Remedies. Executive acknowledges that the compliance with the terms
--------
of this Agreement is necessary to protect the Confidential Information and
goodwill of Wintrust and its Affiliates and that any breach by Executive of this
Agreement will cause continuing and irreparable injury to Wintrust and its
Affiliates for which money damages would not be an adequate remedy. Executive
acknowledges that Affiliates are and are intended to be third party
beneficiaries of this Agreement. Executive acknowledges that Wintrust and any
Affiliate shall, in addition to any other rights or remedies they may have, be
entitled to injunctive relief for any breach by Executive of any part of this
Agreement. This Agreement shall not in any way limit the remedies in law or
equity otherwise available to Wintrust and its Affiliates.
- 4 -
<PAGE>
8. Term of Agreement. The initial term of Executive's employment
------------------
pursuant to this Agreement shall be five (5) years, commencing on the date of
this Agreement. After such initial term, this Agreement shall be extended
automatically for successive one (1) year terms, unless either Executive or
Wintrust gives contrary written notice not less than ninety (90) days in advance
of the expiration of the initial or any succeeding term of this Agreement.
9. Termination of Employment.
-------------------------
a. General Provisions. Executive's employment may be
--------------------
terminated by Wintrust at any time and, except as otherwise provided in this
Section 9, any and all of Wintrust's obligations under this Agreement shall
terminate, other than Wintrust's obligation to pay Executive, within thirty (30)
days of Executive's termination of employment, the full amount of any unpaid
base salary and accrued but unpaid vacation pay earned by Executive pursuant to
this Agreement through and including the date of termination and to observe the
terms and conditions of any plan or benefit arrangement which, by its terms,
survives such termination of Executive's employment. The payments to be made
under this Section 9(a) shall be made to Executive, or in the event of
Executive's death, to such beneficiary as Executive may designate in writing to
Wintrust for that purpose, or if Executive has not so designated, then to the
spouse of Executive, or if none is surviving, then to the personal
representative of the estate of Executive. Notwithstanding the foregoing,
termination of employment shall not affect the obligations of Executive that,
pursuant to the express provisions of this Agreement, continue in effect.
b. Termination Due to Death. If Executive should die during
------------------------
the term of this Agreement, which event shall result in the termination of
Executive's employment, Wintrust shall pay Executive an amount equal to two (2)
times the sum of (i) Executive's base annual salary in effect at the time of
Executive's death plus (ii) an amount equal to any bonuses paid to Executive
during the twelve (12) month period prior to Executive's death in a lump sum
within thirty (30) days following the date of Executive's death. The amount to
be paid to Executive pursuant to this Section 9(b) shall be reduced by the
amount of any life insurance benefit payments paid or payable to Executive from
policies of insurance maintained and paid for by Wintrust; provided that in the
event the life insurance benefits exceed the amount to be paid to Executive
pursuant to this Section 9(b), Executive shall remain entitled to receive the
excess life insurance payments. The payments to be made under this Section 9(b)
shall be made to Executive, or in the event of Executive's death, to such
beneficiary as Executive may designate in writing to Wintrust for that purpose,
or if Executive has not so designated, then to the spouse of Executive, or if
none is surviving, then to the personal representative of the estate of
Executive.
c. Termination Due to Permanent Disability. If Executive
------------------------------------------
should suffer a permanent disability, which event shall result in the
termination of Executive's employment, Wintrust shall pay Executive an amount
equal to two (2) times the sum of
- 5 -
<PAGE>
(i) Executive's base annual salary in effect at the time of Executive's
permanent disability plus (ii) an amount equal to any bonuses paid to Executive
during the twelve (12) month period prior to Executive's permanent disability
ratably over a twenty-four (24) month period beginning on the first payroll
period following such termination and on each payroll period thereafter during
the twenty-four (24) month period. The amount to be paid to Executive pursuant
to this Section 9(c) shall be reduced by the amount of any long-term disability
benefit payments paid or payable to Executive during such payment period from
policies of insurance maintained and paid for by Wintrust; provided that in the
event the long-term disability benefits exceed the amount to be paid to
Executive pursuant to this Section 9(c), Executive shall remain entitled to
receive the excess long-term disability insurance payments.
For the purposes of this Agreement, "permanent disability"
means any mental or physical illness, disability or incapacity which renders
Executive unable to perform his duties hereunder for ninety (90) consecutive
working days. In addition, in the event of permanent disability, Executive's or
Executive's dependents' participation in any medical, health, accident,
disability, death, life insurance or similar plan in which Executive was
participating immediately prior to termination shall continue for the period in
which payments are being made under this Section 9(c) at Wintrust's expense
(subject to any normal employee contributions, if any), although any
continuation of health coverage shall count toward the "COBRA" continuation of
coverage period.
d. Termination Without Cause. In the event Executive's
----------------------------
employment is terminated without Cause (as such term is defined in Section 9(h)
hereof) by Wintrust other than upon the expiration of the initial term or the
expiration of any succeeding one (1) year term of this Agreement, Wintrust shall
pay Severance Pay to Executive in the amount equal to two (2) times the sum of
(i) Executive's base annual salary in effect at the time of Executive's
termination plus (ii) an amount equal to any bonuses paid to Executive during
the twelve (12) month period prior to termination. Severance Pay under this
Section 9(d) shall be paid to the Executive ratably over a twenty-four (24)
month period beginning on the first payroll period following such termination
and on each payroll period thereafter during the twenty-four (24) month
Severance Pay period. The amount of Severance Pay under this Section 9(d) shall
be reduced by any income earned by Executive, whether paid to Executive
immediately or deferred until a later date, during the twenty-four (24) month
Severance Pay period from employment of any sort, including without limitation
full, part time or temporary employment or work as an independent contractor or
as a consultant. Executive agrees to promptly notify Wintrust if he obtains
employment of any sort during the twenty-four (24) month Severance Pay period
and to provide Wintrust with a copy of any W-2 or 1099 forms or other payroll or
income records and a summary of contributions received under any deferred
compensation arrangement. Notwithstanding the foregoing, Executive's Severance
Pay to be paid under this Section 9(d) shall be not less than an amount to
provide Executive with a monthly payment of $ 4,166.67 during the twenty-four
(24) month Severance Pay period.
- 6 -
<PAGE>
e. Constructive Termination. If Executive suffers a
--------------------------
Constructive Termination, Wintrust shall pay Severance Pay to Executive in the
amounts and at the times described in Section 9(d) hereof. For the purposes of
this Agreement, "Constructive Termination" means (i) a material reduction by
Wintrust in the duties and responsibilities of Executive or (ii) a reduction by
Wintrust of Executive's "Adjusted Total Compensation" (as hereinafter defined),
to (y) less than seventy-five percent (75%) of the Adjusted Total Compensation
of Executive for the twelve month period ending as of the last day of the month
immediately preceding the month in which the Constructive Termination occurs; or
(z) less than seventy-five percent (75%) of the Executive's Adjusted Total
Compensation for the twelve month period ending as of the last day of the month
preceding the Effective Date, whichever is greater. The amount of Severance Pay
under this Section 9(e) shall be reduced by any income earned by Executive,
whether paid to Executive immediately or deferred until a later date, during the
twenty-four (24) month Severance Pay period from employment of any sort,
including without limitation full, part time or temporary employment or work as
an independent contractor or as a consultant. Executive agrees to promptly
notify Wintrust if he or she obtains employment of any sort during the
twenty-four (24) month Severance Pay period and to provide Wintrust with a copy
of any W-2 or 1099 forms or other payroll or income records and a summary of
contributions received under any deferred compensation arrangement.
Notwithstanding the foregoing, Executive's Severance Pay to be paid under this
Section 9(e) shall be not less than an amount to provide Executive with a
monthly payment of $ 4,166.67 during the twenty-four (24) month Severance Pay
period.
(A) For the purposes of this Agreement, "Adjusted Total
Compensation" means the aggregate base salary earned by the
Executive plus the dollar value of all perquisites (i.e.
Wintrust provided car, club dues and supplemental life
insurance) as estimated by Wintrust in respect of the
Executive for the relevant twelve month period. Adjusted Total
Compensation shall exclude any bonus payments paid or earned
by the Executive. For the purpose of illustration, attached as
Exhibit A to this Agreement is the base salary paid and the
dollar value of the Executive's perquisites for the last
fiscal year of Wintrust.
(B) For the purposes of this Section 9(e) (but not for the
purpose of Section 9(f)), the Executive will not be deemed to
have incurred a Constructive Termination under Section
9(e)(ii) if there is a general reduction in base salaries
and/or perquisites applicable to the President, Chief
Executive Officer and all Vice Presidents of Wintrust.
f. Termination Upon Change In Control. In the event that
-------------------------------------
within twelve (12) months of a Change In Control of Wintrust (as defined below)
(i) Executive's employment is terminated without Cause (as such term is defined
in Section 9(h) hereof) prior to the expiration of the initial term or the
expiration of any succeeding one (1) year term of this Agreement or (ii)
Executive suffers a Constructive Termination, Wintrust (or the successor
thereto) shall pay Severance Pay to Executive in the amounts described in
- 7 -
<PAGE>
Section 9(d) hereof in a lump sum within thirty (30) days following the date of
Executive's termination or Constructive Termination. For the purposes of this
Agreement, the term "Change in Control" shall have the same meaning as provided
in Section 12(b) of the Wintrust 1997 Stock Incentive Plan. Notwithstanding the
foregoing, if the payment required to be paid under this Section 9(f), when
considered either alone or with other payments paid or imputed to the Executive
from Wintrust or an Affiliate that would be deemed "excess parachute payments"
under Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), is deemed by Wintrust to be a "parachute payment" under Section
280G(b)(2) of Code, then the amount of Severance Pay required to be paid under
this Section 9(f) shall be automatically reduced to an amount equal to $1.00
less than three times the "base amount" (as defined in Section 280G(3) of the
Code) (the "Reduced Amount"). Provided, however, the preceding sentence shall
not apply if the sum of (a) the amount of Severance Pay described in this
Section 9(f) less (b) the amount of excise tax payable by the Executive under
Section 4999 of the Code with respect to the amount of such Severance Pay and
any other payments paid or imputed to the Executive from Wintrust or an
Affiliate that would be deemed to be "excess parachute payments" under Section
280G(b)(1) of the Code, is greater than the Reduced Amount. The decision of
Wintrust (based upon the recommendations of its tax counsel and accountants) as
to the characterization of payments as parachute payments, the value of
parachute payments, the amount of excess parachute payments, and the payment of
the Reduced Amount shall be final.
g. Voluntary Termination. If Executive voluntarily terminates
---------------------
employment prior to the expiration of the initial term or any succeeding one (1)
year term of this Agreement, this Agreement shall terminate forthwith and all
obligations of each party to the other shall terminate immediately except for
the obligations of the parties contained in Section 9(a) hereof.
h. Termination For Cause. If Executive is terminated for Cause
---------------------
as determined by the written resolution of the Compensation and Nominating
Committee or any successor committee of the Wintrust Board of Directors, all
obligations of each party to the other shall terminate immediately except the
obligations of the parties described in Section 9(a) hereof. For purposes of
this Agreement, termination for "Cause" means:
(i) Executive's failure or refusal, after
written notice thereof, to perform specific
directives approved by a majority of the Wintrust
Board of Directors which are consistent with the
scope and nature of Executive's duties and
responsibilities as President and Chief Executive
Officer of Wintrust;
(ii) Habitual drunkenness or illegal use of
drugs which interferes with the performance of
Executive's duties and obligations under this
Agreement;
(iii) Executive's conviction of a felony;
- 8 -
<PAGE>
(iv) Any defalcation or acts of gross or
willful misconduct of Executive resulting in economic
loss to Wintrust or substantial damage to Wintrust's
reputation;
(v) Any breach of Executive's covenants
contained in Sections 4 through 6 hereof; or
(vi) A written order requiring the
termination of Executive from his position with
Wintrust or any Affiliate for which Executive is also
providing services by any regulatory agency or body.
i. Executive's right to receive Severance Pay per Sections
9(d) through 9(f) hereof is contingent upon Executive not violating any of
on-going obligations under this Agreement.
j. The payment of Severance Pay to Executive pursuant to
Sections 9(d) through 9(f) hereof shall be liquidated damages for and in full
satisfaction of any and all claims Executive may have relating to or arising out
of Executive's employment and termination of employment by Wintrust, any and all
claims Executive may have relating to or arising out of this Agreement and the
termination thereof and any and all claims Executive may have arising under any
statute, ordinance or regulation or under common law. Executive expressly
acknowledges and agrees that, except for whatever claim Executive may have to
Severance Pay, Executive shall not have any claim for damages or other relief of
any sort relating to or arising out of Executive's employment or termination of
employment by Wintrust or relating to or arising out of this Agreement and the
termination thereof.
k. Upon termination of employment with Wintrust for any
reason, Executive shall promptly deliver to Wintrust all writings, records,
data, memoranda, contracts, orders, sales literature, price lists, client lists,
data processing materials, and other documents, whether or not obtained from
Wintrust or any Affiliate, which pertain to or were used by Executive in
connection with his employment by Wintrust or which pertain to any Affiliate,
including, but not limited to, Confidential Information, as well as any
automobiles, computers or other equipment which were purchased by Wintrust for
Executive.
10 Resolution of Disputes. Except as otherwise provided herein, any
----------------------
disputes arising under or in connection with this Agreement shall be resolved by
binding arbitration, to be held in Chicago, Illinois, in accordance with the
rules and procedures of the American Arbitration Association (the "AAA") and the
parties hereby agree to expedite such arbitration proceedings to the extent
permitted by the AAA. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. This requirement to
arbitrate any disputes arising under or in
- 9 -
<PAGE>
connection with this Agreement shall not apply to claims made by Wintrust for
injunctive and/or other equitable relief for Executive's failure to adhere to
the covenants set forth in Sections 3, 4, 5 and 6 of this Agreement. Each party
shall initially bear their own costs of the arbitration or litigation, except
that, if Wintrust is found to have violated any material terms of this
Agreement, Wintrust shall reimburse Executive for the entire amount of
reasonable attorneys fees incurred by Executive as a result of the dispute
hereunder in addition to the payment of any damages awarded to Executive.
Notwithstanding the foregoing, any dispute arising under this Agreement as a
result of Executive's termination of employment must be raised by Executive
within two (2) years after the Executive's termination, provided, however, that
the claim must be initiated within thirty (30) days after written notice of the
claim has been delivered by the Executive to Wintrust (Attn: President).
11. General Provisions.
------------------
a. All provisions of this Agreement are intended to be
interpreted and construed in a manner to make such provisions valid, legal, and
enforceable. To the extent that any Section of this Agreement or any word,
phrase, clause, or sentence hereof shall be deemed by any court to be illegal or
unenforceable, such word, clause, phrase, sentence, or Section shall be deemed
modified, restricted, or omitted to the extent necessary to make this Agreement
enforceable. Without limiting the generality of the foregoing, if the scope of
any covenant in this Agreement is too broad to permit enforcement to its full
extent, such covenant shall be enforced to the maximum extent provided by law;
and Executive agrees that such scope may be judicially modified accordingly.
b. This Agreement may be assigned by Wintrust. This Agreement
and the covenants set forth herein shall inure to the benefit of and shall be
binding upon the successors and assigns of Wintrust.
c. This Agreement may not be assigned by Executive, but shall
be binding upon Executive's executors, administrators, heirs, and legal
representatives.
d. No waiver by either party of any breach by the other party
of any of the obligations, covenants, or representations under this Agreement
shall constitute a waiver by any prior or subsequent breach.
e. Where in this Agreement the masculine gender is used, it
shall include the feminine if the sense so requires.
f. The use of any number shall be construed as singular or
plural, as the case may require.
g. This instrument constitutes the entire agreement of the
parties with respect to its subject matter. This Agreement may not be changed or
amended orally but
- - 10 -
<PAGE>
only by an agreement in writing, signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought. Any other
understandings and agreements, oral or written, respecting the subject matter
hereof are hereby superseded and canceled.
12. Governing Law. The parties agree that this Agreement shall be
--------------
construed and governed by the laws of the State of Illinois, excepting its
conflict of laws principles. Further, the parties acknowledge and specifically
agree to the jurisdiction of the courts of the State of Illinois in the event of
any dispute regarding this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date written opposite their signatures.
WINTRUST FINANCIAL CORPORATION
By:____________________________________
David A. Dykstra
Its: Chief Financial Officer
Dated:__________________________________
________________________________________
Edward J. Wehmer
Dated:__________________________________
- 11 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHTLIGHTS
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data
(at end of period):
Total assets $ 1,348,048 $ 1,053,400 $ 706,037 $ 470,890 $ 354,158
Total deposits 1,229,154 917,701 618,029 405,658 221,985
Total net loans 992,062 712,631 492,548 258,231 193,982
Long-term debt and notes payable 31,050 20,402 22,057 10,758 6,905
Total shareholders' equity 75,205 68,790 42,620 40,487 25,366
- -------------------------------------------------------------------------------------------------------------------------------
Selected Statements of Operations Data:
Net interest income $ 36,764 $ 26,772 $ 14,882 $ 9,700 $ 7,873
Total net revenues 44,839 31,716 22,414 18,244 9,359
Income (loss) before income taxes (1) (2) 4,709 1,058 (2,283) 1,002 (2,000)
Net income (loss) (1) (2) 6,245 4,846 (973) 1,497 (2,236)
Net income (loss) per common share-basic (1) (2) 0.77 0.62 (0.16) 0.27 (0.56)
Net income (loss) per common share-diluted (1) (2) 0.74 0.60 (0.16) 0.24 (0.56)
- -------------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin 3.43% 3.41% 2.91% 2.96% 3.35%
Net interest spread 3.00% 2.92% 2.40% 2.41% 3.07%
Non-interest income to average assets 0.69% 0.58% 1.34% 2.36% 0.57%
Non-interest expense to average assets (1) (2) 3.04% 3.18% 4.05% 4.37% 4.14%
Net overhead ratio (1) (2) 2.36% 2.60% 2.71% 2.01% 3.57%
Return on average assets (1) (2) 0.53% 0.56% (0.17)% 0.40% (0.88)%
Return on average equity (1) (2) 8.68% 7.88% (2.33)% 4.66% (12.20)%
Average total assets $ 1,177,745 $ 858,084 $ 562,244 $ 362,125 $ 259,404
Average shareholders' equity 71,906 61,504 41,728 31,173 18,633
Ending loan-to-deposit ratio 80.7% 77.7% 79.7% 63.7% 87.4%
Average loan-to-average deposit ratio 80.1% 80.1% 69.8% 61.3% 100.0%
Average interest-earning assets to
average interest-bearing liabilities 108.92% 109.93% 110.73% 111.37% 106.61%
Asset Quality Ratios:
Non-performing loans to total loans 0.55% 0.59% 0.36% 0.74% 0.01%
Non-performing assets to total assets 0.45% 0.40% 0.25% 0.41% 0.01%
Allowance for possible loan losses to:
Total loans 0.71% 0.72% 0.74% 1.07% 0.88%
Non-performing loans 129.66% 121.64% 204.15% 143.91% N/M
Common Share Data at end of period:
Market price per common share $ 19.63 $ 17.00 $ 14.75 N/A N/A
Book value per common share 9.23 8.47 6.45 $ 6.94 $ 5.35
Other Data at end of period:
Number of:
Bank subsidiaries 6 6 5 4 3
Banking offices 21 17 14 11 5
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) For the year ended December 31, 1998, the Company recorded a non-recurring
$1.0 million pre-tax charge related to severance amounts due to the
Company's former Chairman and Chief Executive Officer and certain related
legal fees.
(2) For the year ended December 31, 1996, the Company recorded non-recurring
merger-related expenses of $891,000.
</FN>
</TABLE>
HERE'S OUR STORY. WE THINK YOU'LL FIND IT QUITE REMARKABLE
When we meet with investors, we are usually asked the same question--what's so
special about Wintrust? When we explain the Wintrust "story", they tell us it is
quite intriguing and that our Company really does appear to be without peer in
the industry.
Here's our unique story. Wintrust is a very young company that is focusing on
building value from two different perspectives. The first is "franchise value"
which is based on building long-term shareholder value by creating de novo
community bank franchises, growing them rapidly to achieve critical mass market
share and then improving profitability as they mature and growth slows. This
franchise value will very likely be supplemented by strategic acquisitions of
other financial institutions in the future.
The second type of value we strive for is "earnings value" which is the standard
way a company is measured by the investment community. Our earnings value has
been diluted by the investments we have made in our early years in building the
company. However, we believe Wintrust has hidden "potential energy" (stored
earnings potential) due to the earnings burden of our start-up banks. As each of
our new locations matures, they should begin producing profitability levels
consistent with our more mature banks.
WINTRUST BANKS ARE VERY YOUNG.
Wintrust is unique in the banking industry for a number of reasons.
First, we are a very young organization. In a world where banks typically grow
---------------------------------
by buying other banks, Wintrust has grown to date only by creating de novo
community banks. The first of these (Lake Forest Bank & Trust) was opened in
December 1991, the most recent one (Crystal Lake Bank & Trust) was opened in
December 1997, and the average age of our six community banks is only a little
more that 3 1/2 years. But given our asset size of $1.35 billion, most
individuals assume that Wintrust could only be a mature company. Once our story
is learned, the investment community tends to evaluate us on our growth and
future earnings potential. We agree.
WINTRUST BANKS ARE ALL HOME GROWN.
Second, as explained above, we have started all these de novo banking franchises
--------------------------------------------
ourselves, from scratch, using our own unique recipe. A significant investment
- ---------
in people, facilities, operations and marketing is necessary to get each of
these banks off to a good start and to reach critical mass market share. This
investment means that each new bank generally takes about 13-24 months to become
profitable. That de novo burden reduces the Company's earnings and return on
equity in its early years. However, in our short life, we have been able to
reach the number two market share in all of our mature banks' primary markets
and these banks are beginning to generate good profitability. This strategy
quickly grows our customer base and deters other community banks from entering
our markets.
As our young bank group continues to mature, the Company's earnings should
increase markedly. As an example, our pre-tax earnings increased almost
five-fold in 1998 over the prior year. The steady progression of each bank up
the earnings curve is impressive and is according to our plan. That's part of
the "potential energy" we talked about earlier.
WINTRUST BANKS OPERATE VERY EFFICIENTLY.
Third, we are structured to operate efficiently. This is a result of a number of
-------------------
factors: 1) we currently operate banks in affluent suburban markets where we
receive greater impact per dollar spent in marketing and operations; 2) we
operate "lean and mean", hiring fewer but more experienced and competent
managers; and, 3) our employees are motivated to perform through programs that
are designed to align employee's interests with those of the shareholders. We
recently instituted an Employee Stock Purchase Plan to make it easy and
financially attractive for our employees to own stock in the Company. Also, top
management at Wintrust and all of our subsidiaries have significant stock
ownership and stock options. These strategies are already paying dividends at
our mature banks. Our four oldest banks, for example, already have overhead
ratios that are better than their peer groups. All of our banks should
experience gains in efficiency as they mature and grow into the overhead
associated with the personnel and facilities infrastructure investment.
HAVE REAL ADVANTAGES OVER THE OTHER BANKS IN OUR MARKETS.
Fourth, we have a real advantage over the big banks and other community banks
-------------------------------------------------------------
that we compete against. We know what consumers want (don't tell the big
banks--it's personal, friendly service from a bank that is locally run!) and
have aligned our community bank operations to give customers what they want. As
community bankers, we care most about our customers, and it shows. Big banks
only seem to care about their profitability, and it shows, with more fees and
less personal service. Our decentralized approach and locally run operations
gives us significant service and speed
- 2 -
<PAGE>
advantages over the centralized branch banking operations of our competitors.
As a locally run bank, we can also customize products and services to meet the
needs of the community. A good example of this is our Clarendon Hills Community
Account, a package of banking products and services for Clarendon Hills
residents that has the added bonus of providing customers additional discounts
at participating merchants. And since over three-quarters of Clarendon Hills
merchants are participating, this represents a real extra benefit for our
customers. Imagine a big bank that is centrally controlled with lots of branches
trying to do something like this for one of its communities. Not a chance.
We have a real advantage over most community bank groups. Wintrust has the
infrastructure to grow and expand, much more efficiently and more successfully
than the typical community bank organization. While we operate each of our
community banks as separate and distinct organizations--with its own name, its
own management and decision making, its own operations, and its own product mix
and pricing--we have put in place a number of functions at the Wintrust level
which create operational efficiency. While each bank has its own marketing
campaign, we have centralized the marketing function and have brought in
expertise that the typical community bank cannot afford. The same can be said
for technology, investments, and financial/capital planning, all of which are
provided for at the Wintrust level. This will enable us without much difficulty
to add additional community banks in the future.
CREATING ASSET NICHES IS OUR KEY TO PROFITABILITY.
Fifth, we have a unique earning asset philosophy and have created a number of
-------------------------------------------
asset niches (e.g. premium finance, indirect auto, leasing, homeowner and
condominium association lending, etc.) that allow our community banks to
maximize their loan-to-deposit ratio, and therefore, earnings potential. We
believe most community banks can only secure local loans to cover about one-half
of their capacity without compromising credit quality. Our goal is to fill the
rest of our loan capacity with niche loans, and as such, maximize our earning
potential in a way that most community banks cannot.
IT'S A STORY ABOUT A UNIQUE COMPANY WITH LOTS OF HIDDEN "POTENTIAL ENERGY"
(STORED EARNINGS POTENTIAL).
So you see, Wintrust does have a unique story. We have real advantages over the
big banks and most community banks as well. Our short-term earnings are held
back due to our young age, our de novo start-up strategy and our drive to reach
critical mass market share. But we have proven growth and earnings strategies
and lots of earnings potential. These will blossom and bear real fruit in the
future as our young banks march towards maturity. We have created (and continue
to create) strong franchise value--value that will pay out in the long term for
our shareholders. Management and directors of Wintrust and its subsidiaries have
meaningful ownership of Wintrust common stock so our needs are clearly aligned
with those of our shareholders. We believe in our unique recipe for developing
long term shareholder value and wholeheartedly expect to be judged by our
ability to achieve these goals.
- 3 -
<PAGE>
TO OUR FELLOW SHAREHOLDERS
Welcome to our third annual report. 1998 was a good year for Wintrust Financial
Corporation. In our second full year of operations, we continue to exhibit
strong core growth and earnings improvement.
1998 marked a very successful and very eventful year for our young corporation.
Our unique strategy of building long-term shareholder value by creating de novo
community bank franchises in affluent markets has moved us closer to our goal of
becoming a high performing financial institution.
1998 HIGHLIGHTS
Here are a few of the highlights for the year ended December 31, 1998:
o Net income grew to $6.2 million, compared to $4.8 million in 1997,
resulting in a healthy earnings growth of 29%.
o Pre-tax income increased 4.5 times over a year ago, evidencing the
vitality of Wintrust's core earnings.
**** Net Income and Pre-Tax Income Growth Bar Chart OMITTED ****
o On a per share basis, net income reached $0.74 per diluted common
share versus $0.60 a year ago.
o Total assets continue to grow, increasing to $1.35 billion, a $295
million or 28% increase over a year ago.
**** Asset Growth Bar Chart OMITTED ****
o Total deposits rose to $1.23 billion, up 34% from last year and all
due to our internal de novo growth.
o Net loans showed solid growth, increasing 39% to $992 million.
o Loan volume for our First Insurance Funding subsidiary was up 43% to
about $500 million, making this the fifth largest commercial insurance
premium finance company in the country.
o We purchased Medical and Municipal Funding, a leasing operation which
is expected to produce a lease portfolio of approximately $60 million
over the next few years.
o Core and total loan delinquencies were well below peer group averages
as were net charge-offs.
o We successfully raised $31 million in core capital through the
issuance of Trust Preferred securities.
o We launched Wintrust Asset Management, our newest subsidiary, which is
now providing trust and investment services to the valued clients of
our communities.
o We opened six new community banking facilities (two of which replaced
temporary facilities), bringing our total to 21.
**** New Bank Facilities and Timing Bar Chart OMITTED ****
o For the year, the Company's net overhead ratio (a measure of
operational efficiency) was reduced 0.24% of total assets to 2.36%--a
result of our efforts to
- 4 -
<PAGE>
control costs and our younger banks growing into their overhead.
o We opened our wintrust.com investor relations web site for
shareholders and interested investors and began publishing an investor
relations newsletter.
o We also opened web sites for some of our more mature community banks
(lakeforestbank.com and hinsdalebank.com).
o We signed a contract to offer our customers fully functional internet
banking capabilities. This will become the portal for many future high
tech products and services.
o Our stock price increased 16% during a year when our peer group's
stock price averaged a 14% decline.
WHAT IF?
We believe in being very straightforward with our shareholders, telling you the
good news and the bad news. While earnings increased to $6.2 million (versus
$4.8 million in 1997), a respectable 29% growth rate, three one-time events
occurred in 1998 that reduced pre-tax earnings by $2.4 million. These were
related to the second quarter departure of the Company's previous Chairman & CEO
($1.0M), an additional provision for loan losses during the first half of 1998
to provide for the write-off of non-performing loans at one of our subsidiary
banks ($0.8M) and a fourth quarter write-off of an operational loss ($0.6M).
These issues are now behind us. The operational controls and systems of all our
subsidiary banks have been strengthened and additional controls and procedures
have been put into place to minimize the chance of these problems reoccurring.
We have also expanded the independent loan review function. Finally, we have
also added a "best practices" officer whose responsibility it is to review and
assess controls and procedures at all of our subsidiaries. Without these
one-time events:
o earnings would have increased to $7.7 million, up 59%
o return on assets would have been 0.66%
o return on equity for the year would have been 10.7%.
PERFORMANCE VERSUS GOALS.
At last year's Annual Meeting, we reiterated our goals for Wintrust. Reaching
these goals over the next few years will make us a high performing bank relative
to our peers:
o Net Interest Margin of 4 - 4 1/2 %
o Net Overhead Ratio of 1 1/2 - 2 %
o Return on Assets of 1 1/2 %
o Return on Equity of 20 - 25 %
In 1998, we have made meaningful strides towards achieving most of these "high
performing bank" goals. We want to be held accountable to these goals.
NET INTEREST MARGIN (GOAL: 4 - 4 1/2 %)
In the latter half of 1998 we began focusing on the dual objective, especially
at our mature banks, of controlling our cost of funds while still growing
assets. We were able to accomplish this objective and maintain an aggressive
growth rate. As a result, our net interest margin increased slightly to 3.43%,
up from 3.41% a year ago. The net interest margin, excluding the cost of the
Trust Preferred Securities, was 3.45% in 1998.
**** Net Interest Margin Bar Chart OMITTED ****
While moving closer to goal, this margin is still below the industry, due in
part to these factors: 1) our banks are located in affluent suburban Chicago
markets which have higher than average deposit rates due to the increased
competition caused by a high per capita number of banks; 2) our newer de novo
banks typically use more aggressive deposit rates to grow market share
- 5 -
<PAGE>
to a critical mass; and, 3) our newer de novo banks also typically have lower
loan-to-deposit ratios than the more established banks as core loan growth is
slower to develop in new markets than deposit growth.
We expect to continue to show improvement in our core net interest margin as we
grow additional earning asset niches and control our deposit pricing in
communities where we have already achieved significant market share.
NET OVERHEAD RATIO (GOAL: 1 1/2 - 2 %)
Notwithstanding the non-recurring charges mentioned earlier, our consolidated
net overhead ratio for the year was 2.36%, a meaningful decrease from the year
ago level of 2.60%. This is a result of the continuing improvement in the run
rate of this key efficiency ratio as our banks fill the capacity of the
personnel and facilities infrastructure we create when opening new banks. Given
the average age of our six de novo banks is only 31/2 years, as our young banks
continue to grow into their overhead we should soon begin to approach the top
end of our consolidated goal. At our four oldest banks, our run rate is already
at or ahead of this goal.
**** Net Overhead Ratio Bar Chart OMITTED ****
RETURN ON ASSETS (GOAL: 1 1/2 %) AND RETURN ON EQUITY (GOAL: 20 - 25 %)
Our returns on average assets and average equity for 1998 were relatively
consistent with 1997. As a result of the three events discussed earlier that
negatively impacted earnings, net income as a percentage of average assets
declined slightly to 0.53%, versus 0.56% for a year ago; however, our return on
average equity increased slightly to 8.68%, up from 7.88% for the prior year.
Improvement in these ratios should occur in 1999 as our Banks mature. However,
they will continue to lag industry standards due to the investment made during
1998 in our newest trust and investment subsidiary, Wintrust Asset Management
Company, and the impact of our other recent de novo banks.
**** Return on Equity Bar Chart OMITTED ****
Although the returns on assets and equity were relatively flat from 1997 to
1998, it is important to note that the pre-tax earnings level was up by 345%
evidencing the significant growth and vitality of the Company's core earnings.
Recognition of income tax benefits in 1997 and 1998 for prior operating losses
makes for an unusual comparison of net income amounts. Management looks to the
pre-tax amounts as a better barometer of the health of the Company's earnings
growth.
ASSET QUALITY
While not one of the goals set out in last year's Annual Meeting, asset quality
is clearly an important area to manage. At year-end, our non-performing asset
levels were relatively low and very manageable. Non-performing loans as a
percentage of total loans declined to 0.55% at year-end 1998 from 0.59% at the
end of 1997. Management is pleased with the improvement in the non-performing
loan ratio during 1998 and will strive to keep a high quality loan portfolio.
During the year, we increased our allowance for possible loan losses to $7.0
million from $5.1 million at the end of 1997. We believe this level is adequate.
However, our allowance for possible loan losses as a percent of total loans
remained at about 0.71% of total loans. As a young and growing institution, we
must continue to build up this allowance toward the level of the more mature
banks that comprise our peer group with which we are often compared.
- 6 -
<PAGE>
STRATEGIES FOR FUTURE GROWTH.
In our mid-year shareholder letter, we stated our intention to pursue accretive
growth, not just growth for growth's sake. We clearly understand that we need to
balance the growth in assets with growth in earnings. The good news is that
opportunities for this kind of growth are still strong. 1998 was also another
year filled with big bank mergers and consolidation, resulting in less service
and more fees for many customers. Bank One's merger with First Chicago/NBD, and
that institution's absorption of American National Bank, National City Bank's
purchase of First of America, and Harris' continuing centralization should
generate incremental business and share growth for our community banks.
**** Graphic Advertisement OMITTED ****
NEW DE NOVO BANKS AND POSSIBLE ACQUISITIONS.
We have identified new markets for additional de novo banks and continue to open
new facilities so that we might serve a broader market and establish our kind of
community banking before competitors do.
We have also made some initial contacts with other Chicagoland community banks
that are already in attractive local markets, who may not have adequate
resources to continue their growth, and who may have shareholders who would like
to have a publicly traded investment. Merging or being acquired by Wintrust
might be attractive to their bank management and shareholders because they could
continue to operate under their current name and significantly improve
shareholder liquidity and future growth potential. This acquisition strategy,
along with our historically successful de novo bank and branch expansion,
represent sizable future growth opportunities for Wintrust. As such, over the
long-term, acquisitions represent another part of our arsenal for growth.
WINTRUST ASSET MANAGEMENT.
EXPANDING OUR TRUST AND INVESTMENT SERVICES.
With the creation of Wintrust Asset Management and the hiring of a number of
experienced trust and investment professionals, we are now positioned to take
advantage of the huge potential that our affluent markets have to offer. We
believe our market areas represent some of the highest potential trust and
investment markets, not just in Chicagoland, but the entire Midwest.
In September 1998, we received regulatory approval for this new trust
subsidiary. In the fourth quarter we introduced trust and investment services to
Hinsdale Bank & Trust, North Shore Community Bank & Trust, and Barrington Bank &
Trust, while continuing to service Lake Forest Bank & Trust. Wintrust Asset
Management will act as the trust department for each of these banks, providing
integrated trust and investment products and services for consumers and
businesses in our markets. We will roll out these services to our remaining
banks in the next year or so. While this new "trust department" is the most
efficient way to provide outstanding trust and investment services to each of
our banks, the upfront cost of personnel and marketing does represent a sizable
investment that, like a new de novo bank, takes a few years to pay out. In many
respects, Wintrust Asset Management was our de novo institution launch for 1998.
If any of our shareholders are getting tired of the "take a number" approach of
the big bank trust departments, you know who to call--us!
**** Graphic Advertisement OMITTED ****
ASSET NICHES.
THE SECRET OF GREATER COMMUNITY BANK EARNINGS.
We also are aggressively expanding our asset niches which provide the additional
loan volume a community bank needs to optimize our loan-to-deposit ratio and
earnings capacity. In addition to premium finance lending and high-quality
indirect auto lending, we have recently added a couple of other asset
generators:
- 7 -
<PAGE>
o In 1998, Lake Forest Bank & Trust purchased the leasing operations of
Medical and Municipal Funding, which should generate a lease portfolio
of approximately $60 million over the next few years.
o Barrington Bank & Trust recently hired the leading expert in Midwest
condo and community association lending. This is a potentially sizable
local (and possibly national) new business for us.
**** Loan Growth Bar Chart OMITTED ****
HIGH TECH STUFF FROM THE OLD FASHIONED BANK!
While we have invested in the brick and mortar facilities that our traditional
("banking the way it used to be") community bank customers demand, we also
realize the importance of providing new, more convenient distribution systems
for our more technologically demanding customers. While our mature banks
currently operate informational web sites on the internet, we have signed a
contract and are about to introduce an integrated electronic banking system
which includes fully functional internet bank sites and improved PC banking and
tele-banking for each bank. This technology is state-of-the-art, with all of the
basics (access to account balances and transfer of funds) and advanced features
which include bill-pay (that integrates with leading bill pay processors) and
interfaces with popular personal finance management software.
In 1998 we purchased an MCIF (Marketing Customer Information File) system to
further improve our marketing by allowing us to effectively segment our customer
base for each product we are promoting. In 1999, we are now beginning to use
that system which will be beneficial in a number of ways:
o More efficient marketing spending via segmentation and mailing to most
likely candidates
o Better cross-selling of current customers
o Better acquisition of new customers
o Detailed analysis and reports for strategic planning and internal
management reporting
o Analysis of potential bank acquisitions
BRING IT ON. WE'RE READY FOR Y2K.
Wintrust is ready for Y2K, perhaps more so than most banks in our markets.
That's because we have two Y2K advantages that most big banks don't have: 1)
being a relatively young organization means that we have more up to date
networks, servers and PCs than the older banks, and 2) given that all of our
banks are de novo organizations, we have not had to merge any computer systems.
Imagine the problems that some big banks are having trying to bring all of their
disparate computer systems into Y2K compliance. The banks and First Insurance
Funding have been getting ready for Y2K for some time now, have performed
extensive testing and we are confident that we will be ready for the year 2000.
**** Shareholder EPS Growth Bar Chart OMITTED ****
NON-DILUTIVE CAPITAL GROWTH
. . . TRUST PREFERRED SECURITIES
In October of 1998, we completed our offering of $31.05 million of 9.00%
Cumulative Trust Preferred Securities. The capital treatment and tax-deductible
nature of the Trust Preferred Securities make this type of security a popular
capital instrument for bank holding companies.
This capital has an after-tax cost to the company of about 5.5% and, as such, is
financially
- 8 -
<PAGE>
accretive to our common shareholders versus having issued additional common
equity. Proceeds from the offering are being used to expand our banking
operations as discussed above and, in the short-term, retired outstanding debt.
Our Trust Preferred Securities trade on The Nasdaq Stock Market(R) under the
symbol "WTFCP".
PROTECTING OUR SHAREHOLDERS' INTERESTS.
In August, we communicated that the Board of Directors had adopted a Shareholder
Rights Plan to protect shareholder interests in case Wintrust Financial
Corporation is confronted with a third party acquisition proposal at an unfair
price. With this Rights Plan in place, the Board will have greater leverage in
the event we are required to negotiate on behalf of shareholders.
**** Deposit Growth Bar Chart OMITTED ****
ALIGNING EMPLOYEE GOALS WITH THOSE OF SHAREHOLDERS.
In 1998, we put in place a number of programs to make sure that employee goals
were aligned with those of shareholders--continued growth and increased
earnings. An Employee Stock Purchase Plan was implemented that gave most
non-executive employees an opportunity to purchase common stock of the Company
at a slight discount to the market price. More than 100 employees enrolled in
the first offering of this program during the fourth quarter. We continue to
utilize the Stock Incentive Plan to motivate management to perform.
**** Total Shareholders' Equity Bar Chart OMITTED ****
DON'T HIDE THE LIGHT UNDER THE BUSHEL BASKET.
In 1998, we implemented a number of shareholder and investor relations programs
designed to better communicate our special story. Up until that time we had done
very little investor relations work. In 1998, we built an investor relations web
site on the internet which contains information about Wintrust, all press
releases and recent news for the Company, hot links to Nasdaq's web site for
current price quotes, and hot links to Wintrust's SEC filings. We also began
publishing a newsletter called Wintrust Update that contains news and
information for our shareholders and investors. In addition, the following three
market makers have now published research reports on and are actively following
our Company:
o EVEREN Securities, Inc.
o U.S. Bancorp Piper Jaffray
o ABN AMRO Incorporated
We continue to communicate with these and other investment firms and expect
additional companies to initiate coverage of our Company's story during 1999.
CREATING SHAREHOLDER VALUE IS OUR TOP PRIORITY.
In closing, we thought it important to reiterate that your management team's
goals are aligned with shareholders. All the senior officers of Wintrust and our
subsidiaries have invested significant amounts of their personal resources in
the Company in addition to having stock options. In total, senior management and
the directors of the corporation and its subsidiaries own in excess of 25% of
the common shares outstanding. We are in this for the long haul, looking to
maximize long-term shareholder value.
We encourage all of you to maintain that same long-term outlook when reviewing
Wintrust as an investment. We are a very young company that is without peer in
the industry. We will continue to aggressively build shareholder value through
our dual strategy of continued growth and earnings improvement by moving the
company towards our stated goals and objectives.
Thank you for being a shareholder.
Sincerely,
John S. Lillard
Chairman
Edward J. Wehmer
President & CEO
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<PAGE>
1998 WAS QUITE A YEAR FOR OUR BANKS.
COMMUNITY BANKING--WINTRUST STYLE.
In 1998, we provided community banking service, Wintrust style, to over 100,000
customers in our markets. Our customers heartily consumed over 60,000 cups of
hot coffee and more than 200,000 not-so-low-calorie cookies, donuts and other
pastry treats. We also gave away over thousand of pounds of chocolate eggs,
chocolate hearts, chocolate Santa's, lollipops, and even dog biscuits for our
four legged children.
**** Community Event Picture OMITTED ****
As locally run community banks, we continue to market banking products and
services that are customized to meet local needs and designed to serve a
customer throughout their life. From Junior Savers Accounts for kids to
investment services for young growing families to specialized accounts like
PlatinumPreferred for seniors, we strive to provide products and services that
will meet the changing financial needs of our customers.
Our Junior Savers enjoyed marching in and riding on bank floats in our community
parades. For their enthusiastic savings and loyal support, we awarded them
bubble gum banks, Beanie Babies, basket balls, cool T-shirts, sunglasses, key
chains, yo-yo's, sleds, ice cream sundaes, pizza, snow cones, popcorn, glow
buttons for Halloween, and pictures with the Easter Bunny and Santa.
For the whole family and the community we conducted free community cookouts,
educational seminars, produced community calendars and hosted many community
gatherings in our meeting rooms and bank facilities. We even put on a full-blown
community carnival where thousands of friends and neighbors got to dunk the
banker, ride the rides, slurp the snow cones and have their face painted for
free. On Mother's Day we gave away flowers and potted plants. On Father's Day we
gave away golf balls and Swiss-Army knives. On Halloween we gave away pumpkins
and for the Holidays we gave away brass ornaments. Our seniors enjoyed bank
sponsored day trips to downtown Chicago to see terrific plays like Phantom of
the Opera and Forever Plaid. And yes, we gave away a lot of those invaluable
bank pens too.
WE DO COMMERCIAL BANKING TOO!
We also serve many, many businesses and organizations, disproving the
misconception that community banks only serve "retail" (consumer) banking
customers. With a legal lending limit in excess of $20 million, we are capable
of serving the credit needs of a wide variety of commercial customers. We also
provide a wide variety of highly competitive banking services to our commercial,
professional and merchant customers, including:
o Corporate Line of Credit
o Corporate Retail Lockbox Service
o Automated Cash Manager (Automatic "Sweep") Service
o Controlled Disbursement (if Automated "Sweep" is not used)
o Accounts Payable (automated check issuance) Service
o Account Reconciliation Services (Full Reconciliation and/or Positive
Pay)
o On-Line (PC) Banking which will provide Balance and Transaction
inquiries Electronic file transmission capabilities
o Visa/MasterCard Merchant Processing
o Custodial Services
**** Graphic Advertisement OMITTED ****
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<PAGE>
Technology is a great equalizer in the world of banking. Our community banks can
provide all of the sophisticated services of a big bank, but with a lot more: 1)
our banks are locally controlled and managed, which means that decisions
affecting your business are made quickly by that bank's management, not by some
downtown or out-of-town committee that does not even know you; 2) our commercial
bankers are experienced professionals, not "trainees" as you may experience at
the big banks; and, 3) we strive for a level of personal service that far
surpasses that of any bank in town. That, after all, is the essence of our
community banks.
GROWING OUR DE NOVO FRANCHISES.
Consistent with our past record of expansion, Wintrust opened six new banking
facilities in 1998 (two of which replaced temporary facilities in Crystal Lake
and Western Springs):
o A drive-through/walk-up in Glencoe for North Shore Community Bank &
Trust
o A new branch for North Shore Community Bank & Trust located at the
historic "L" station in southern Wilmette
o A south Libertyville branch for Libertyville Bank & Trust Company
o A branch of Lake Forest Bank & Trust Company located in a newly
constructed, upscale senior housing development known as Lake Forest
Place
o A permanent main bank facility in downtown Crystal Lake for Crystal
Lake Bank & Trust Company
o A permanent main bank facility in downtown Western Springs for The
Community Bank of Western Springs
**** Bank Facility Picture OMITTED ****
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<PAGE>
We currently have two additional facilities that will be opened in the first
half of 1999: 1) Lake Forest Bank and Trust's new Market North addition which
creates much needed space for our oldest bank and for Wintrust's corporate
offices; and 2) a new drive-through/walk-up in downtown Crystal Lake for Crystal
Lake Bank & Trust. We now operate 21 banking offices in eleven high-income
Chicagoland suburban markets. In addition to these facilities, four to six new
branch facilities and one new bank opening are being evaluated for later this
year.
NEW CONVERTS (EMPLOYEES) TO COMMUNITY BANKING, WINTRUST-STYLE.
Every bank has added staff as growth has accelerated the need for additional
service. We are very selective in who we hire to continue our special way of
doing business. Interestingly, a new trend is developing. We are seeing more and
more very experienced bankers, loan officers and trust/investment professionals
desiring to leave their big bank job and return to their entrepreneurial roots
and the fast pace of community banking, Wintrust-style. We have plucked a few of
these plums and have added them to our team.
WHAT'S HAPPENING AT THE BANKS.
As the eldest Wintrust bank, Lake Forest Bank & Trust celebrated its seventh
birthday in 1998. Total assets reached $441M, up 16% versus year ago. This
strengthens its position as the number two bank in the market, serving more than
half of all households. LFB&T now operates six facilities, including the new
walk-in facility at Lake Forest Place, an upscale senior housing community which
opened in the fourth quarter.
**** Bank Facility Picture OMITTED ****
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<PAGE>
1998 was an eventful year for Hinsdale Bank & Trust. Total assets increased
26% to $281 million. While HB&T enjoyed its fifth year of operation, its
Clarendon Hills branch (Clarendon Hills Bank) celebrated its second birthday and
its Western Springs branch (The Community Bank of Western Springs) turned one
year old. In total, the bank operates four facilities including a
drive-through/walk-up in downtown Hinsdale. In December, the Western Springs
facility moved out of its temporary location and into its beautiful new main
bank facility in the downtown area. The architecture of this impressive brick
and stone building fits in well with the historic Water Tower that is located
just to the east.
North Shore Community Bank & Trust reached $294 million in total assets, up
10% from last year, while it celebrated its fourth birthday. The bank operates
six facilities in the affluent north shore markets of Wilmette, Winnetka and
Glencoe. Two new facilities were opened in 1998--a new drive-through/walk-up in
Glencoe and a walk-in facility in the newly refurbished historic 4th & Linden
"L" station in southern Wilmette. Glencoe's new drive-through is unique because
it offers the ultimate in convenience--the only gas station/convenience store in
town is located adjacent to the bank on the same property.
**** Bank Facility Picture OMITTED ****
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<PAGE>
Libertyville Bank & Trust, our fourth community bank in its third year of
operation, increased its assets by 50% to $186 million. LB&T added its third
facility in October when it opened its new walk-in office in southern
Libertyville. This will serve the established southern section of Libertyville
and growing Cuneo Estate area of Libertyville and Vernon Hills.
Barrington Bank & Trust experienced terrific growth in only its second full year
of operation. Total assets reached $120 million, an increase of 67% versus a
year ago. The bank and its customers are enjoying the new main
bank/drive-through facility that was opened in December 1997.
**** Bank Facility Picture OMITTED ****
Crystal Lake Bank & Trust, our youngest bank which opened in a temporary
facility in December 1997, moved into its new main bank facility in downtown
Crystal Lake in September 1998. For a bank that operated almost the entire year
in a cramped 1,200 square foot facility, it is proud to announce that its assets
reached $53 million in 1998. Crystal Lake Bank continues with momentum in 1999
as it opened its drive-through facility in March and has acquired a facility in
the southern section of Crystal Lake that is anticipated to be ready to serve
customers in the second quarter of 1999.
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<PAGE>
FIRST INSURANCE FUNDING HAS A RECORD YEAR.
While not one of our banks, we wanted to give you an update on First Insurance
Funding. First Insurance Funding generated financing loans of $494 million in
1998, a 43% increase over the previous year. This came with very little increase
in overhead costs. This was made possible though a series of system enhancements
that allowed First Insurance Funding to do more business, more quickly and
efficiently.
First Insurance Funding should maintain it's growth in the coming years thanks
to continued investments in technology and aggressive sales and marketing
programs. It has a goal of attaining another year of record growth in
receivables in 1999 as it pursues alternative distribution channels and national
endorsements.
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<PAGE>
**** Map of Company Locations OMITTED ****
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<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
============================================================================================================================
December 31,
--------------------------------------------
1998 1997
--------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks - non-interest bearing $ 33,924 32,158
Federal funds sold 18,539 60,836
Interest bearing deposits with banks 7,863 85,100
Available-for-Sale securities, at fair value 209,119 101,934
Held-to-Maturity securities, at amortized cost, fair value of $5,001
and $4,964 in 1998 and 1997, respectively 5,000 5,001
Loans, net of unearned income 992,062 712,631
Less: Allowance for possible loan losses 7,034 5,116
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 985,028 707,515
Premises and equipment, net 56,964 44,206
Accrued interest receivable and other assets 30,082 14,894
Goodwill and organizational costs 1,529 1,756
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,348,048 1,053,400
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 131,309 92,840
Interest bearing 1,097,845 824,861
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 1,229,154 917,701
Short-term borrowings - 35,493
Notes payable - 20,402
Long-term debt - trust preferred securities 31,050 -
Accrued interest payable and other liabilities 12,639 11,014
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,272,843 984,610
============================================================================================================================
Shareholders' equity
Preferred stock, no par value; 20,000,000 shares authorized, of which 100,000
shares are designated as Junior Serial Preferred Stock A; no shares issued
and outstanding at December 31, 1998 and 1997 - -
Common stock, no par value; $1.00 stated value; 30,000,000 shares authorized;
8,149,946 and 8,118,523 issued and outstanding at December 31,
1998 and 1997, respectively 8,150 8,118
Surplus 72,878 72,646
Common stock warrants 100 100
Retained deficit (5,872) (12,117)
Accumulated other comprehensive income (loss) (51) 43
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 75,205 68,790
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,348,048 1,053,400
============================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 75,369 56,066 30,631
Interest bearing deposits with banks 2,283 1,764 1,588
Federal funds sold 2,327 3,493 2,491
Securities 8,000 3,788 4,327
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 87,979 65,111 39,037
INTEREST EXPENSE
Interest on deposits 49,069 37,375 22,760
Interest on short-term borrowings and notes payable 1,399 964 1,395
Interest on long-term debt - trust preferred securities 747 - -
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 51,215 38,339 24,155
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 36,764 26,772 14,882
Provision for possible loan losses 4,297 3,404 1,935
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 32,467 23,368 12,947
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 5,569 2,341 1,393
Service charges on deposit accounts 1,065 724 468
Trust fees 788 626 522
Loan servicing fees - mortgage loans 163 101 114
Loan servicing fees - securitization facility - 147 1,328
Securities gains, net - 111 18
Gain on sale of premium finance receivables - - 3,078
Other 490 894 611
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 8,075 4,944 7,532
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 18,944 14,204 11,551
Occupancy, net 2,435 1,896 1,649
Equipment expense 2,221 1,713 1,313
Data processing expense 1,676 1,337 1,014
Professional fees 1,654 1,343 906
Advertising and marketing 1,612 1,309 1,102
Merger related expenses - - 891
Other 7,291 5,452 4,336
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 35,833 27,254 22,762
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 4,709 1,058 (2,283)
Income tax benefit (1,536) (3,788) (1,310)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 6,245 4,846 (973)
============================================================================================================================
NET INCOME (LOSS) PER COMMON SHARE - BASIC $ 0.77 0.62 (0.16)
NET INCOME (LOSS) PER COMMON SHARE - DILUTED $ 0.74 0.60 (0.16)
============================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
============================================================================================================================
Accumulated
Compre- other
hensive Common Retainedcomprehensive Total
income Preferred Common stock earnings income shareholders'
(loss) stock stock Surplus warrants (deficit) (loss) equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 503 5,831 50,053 75 (15,990) 15 40,487
Comprehensive Loss:
Net loss $ (973) - - - - (973) - (973)
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (6) - - - - - (6) (6)
---------
Comprehensive Loss (979)
Common stock issuance, net of fractional shares - 567 1,291 - - - 1,858
Conversion of preferred stock (503) 122 381 - - - -
Repurchase of common stock - (4) (44) - - - (48)
Purchase of Wolfhoya Investments, Inc. - 87 1,190 25 - - 1,302
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - 6,603 52,871 100 (16,963) 9 42,620
Comprehensive Income:
Net income 4,846 - - - - 4,846 - 4,846
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment 34 - - - - - 34 34
---------
Comprehensive Income 4,880
Common stock issued upon
exercise of stock options - 118 846 - - - 964
Common stock offering - 1,397 18,929 - - - 20,326
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 - 8,118 72,646 100 (12,117) 43 68,790
Comprehensive Income:
Net income 6,245 - - - - 6,245 - 6,245
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (94) - - - - - (94) (94)
---------
Comprehensive Income 6,151
Common stock issued upon
exercise of stock options - 32 232 - - - 264
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ - 8,150 72,878 100 (5,872) (51) 75,205
============================================================================================================================
Years Ended December 31,
--------------------------------------------
Disclosure of reclassification amount and income tax impact: 1998 1997 1996
--------------------------------------------
Unrealized holding gains (losses) on securities arising during the year $ (153) 166 8
Less: Reclassification adjustment for gains included in net income - 111 18
Less: Income tax expense (benefit) (59) 21 (4)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) $ (94) 34 (6)
============================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
============================================================================================================================
Years ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 6,245 4,846 (973)
Adjustments to reconcile net income (loss) to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 4,297 3,404 1,935
Depreciation and amortization 2,952 2,394 2,104
Deferred income tax benefit (1,961) (3,788) (1,455)
Gain on sale of Available-for-Sale securities - (111) (18)
Net accretion/amortization of securities (340) (670) (1,924)
Originations of mortgage loans held for sale (399,007) (171,960) (132,233)
Proceeds from sales of mortgage loans held for sale 390,528 171,192 123,818
(Increase) decrease in other assets, net (12,603) 5,189 (5,273)
Increase (decrease) in other liabilities, net 1,625 (5,224) 2,285
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (8,264) 5,272 (11,734)
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 481,297 92,336 308,424
Proceeds from sales of Available-for-Sale securities - 420 498
Purchases of Available-for-Sale securities (588,296) (124,522) (318,497)
Net decrease (increase) in interest bearing deposits with banks 77,237 (66,368) 31,868
Net increase in loans (273,918) (221,239) (227,005)
Purchases of premises and equipment, net (15,459) (16,063) (7,925)
Purchase of Wolfhoya Investments, Inc., net of cash acquired - - (318)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (319,139) (335,436) (212,955)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 311,453 299,672 212,371
Increase (decrease) in short-term borrowings and notes payable, net (55,895) 26,780 17,490
Proceeds from trust preferred securities offering 31,050 - -
Issuance of common stock, net of issuance costs and fractional shares - 20,326 1,858
Common stock issued upon exercise of stock options 264 964 -
Repurchase of common stock - - (48)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 286,872 347,742 231,671
- ----------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (40,531) 17,578 6,982
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 92,994 75,416 68,434
- ----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,463 92,994 75,416
============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 51,158 37,499 23,874
Income taxes 787 - 138
Transfer to other real estate owned from loans 587 - -
============================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 20 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Wintrust Financial Corporation and
subsidiaries ("Wintrust" or "Company") conform to generally accepted accounting
principles. In the preparation of the consolidated financial statements,
management is required to make certain estimates and assumptions that affect the
reported amounts contained in the consolidated financial statements. Management
believes that the estimates made are reasonable; however, changes in estimates
may be required if economic or other conditions change beyond management's
expectations. Reclassifications of certain prior year amounts have been made to
conform with the current year presentation. The following is a summary of the
more significant accounting policies of the Company.
DESCRIPTION OF THE BUSINESS
Wintrust is a financial services holding company currently engaged in the
business of providing community banking services through its banking
subsidiaries to customers in the Chicago metropolitan area and financing for the
payment of commercial insurance premiums ("premium finance receivables"), on a
national basis, through its subsidiary, First Insurance Funding Corporation
("FIFC") (formally known as First Premium Services, Inc.). As of December 31,
1998, Wintrust had six wholly-owned bank subsidiaries (collectively, "Banks"),
all of which started as de novo institutions, including Lake Forest Bank & Trust
Company ("Lake Forest Bank"), Hinsdale Bank & Trust Company ("Hinsdale Bank"),
North Shore Community Bank & Trust Company ("North Shore Bank"), Libertyville
Bank & Trust Company ("Libertyville Bank"), Barrington Bank & Trust Company,
N.A. ("Barrington Bank") and Crystal Lake Bank & Trust Company, N.A. ("Crystal
Lake Bank"). FIFC is a wholly-owned subsidiary of Crabtree Capital Corporation
("Crabtree") which is a wholly-owned subsidiary of Lake Forest Bank. On
September 30, 1998, Wintrust began operating a new trust subsidiary, Wintrust
Asset Management Company, N.A. ("WAMC"). This new wholly-owned subsidiary will
provide trust and investment services at each of the Wintrust banks. Previously,
the Company provided trust services through the trust department of Lake Forest
Bank.
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction (the "Reorganization") whereby the holding companies of Lake
Forest Bank, Hinsdale Bank, Libertyville Bank and FIFC were merged with newly
formed wholly-owned subsidiaries of North Shore Community Bancorp, Inc. (which
changed its name to Wintrust Financial Corporation concurrent with the merger).
The merger transaction was accounted for in accordance with the
pooling-of-interests method of accounting for a business combination.
Accordingly, the consolidated financial statements included herein reflect the
combination of the historical financial results of the five entities and the
recorded assets and liabilities have been carried forward to the consolidated
Company at their historical cost.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Wintrust have been prepared in
conformity with generally accepted accounting principles and prevailing
practices of the banking industry. Intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
SECURITIES
The Company classifies securities in one of three categories: trading,
held-to-maturity, or available-for-sale. Trading securities are bought
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and
positive intent to hold the security until maturity. All other securities are
classified as available-for-sale as they may be sold prior to maturity.
Held-to-maturity securities are stated at amortized cost which represents actual
cost adjusted for premium amortization and discount accretion using methods that
approximate the effective interest method. Available-for-sale securities are
stated at fair value. Unrealized gains and losses on available-for-sale
securities, net of related taxes, are excluded from earnings until realized,
however, included as other comprehensive income and reported as a separate
component of shareholders' equity.
Trading account securities are stated at fair value; however, the Company did
not maintain any trading account securities in 1998, 1997, or 1996.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security. Dividend
and interest income are recognized when earned. Realized gains and losses for
securities classified as available-for-sale and held-to-maturity are included in
non-interest income and are derived using the specific identification method for
determining the cost of securities sold.
- 21 -
<PAGE>
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans, which include lease financing and premium finance receivables, are
recorded at the principal amount outstanding. Interest income is recognized when
earned. Loan origination fees and certain direct origination costs associated
with loans retained in the portfolio are deferred and amortized over the
expected life of the loan as an adjustment of yield using methods that
approximate the effective interest method. Finance charges on premium finance
receivables are earned over the term of the loan based on actual funds
outstanding, beginning with the funding date, using a method which approximates
the effective yield method.
Mortgage loans held for sale are carried at the lower of aggregate cost or
market, after consideration of related loan sale commitments, if any. Fees
received from the sale of these loans into the secondary market are included in
non-interest income.
Interest income is not accrued on loans where management has determined that the
borrowers may be unable to meet contractual principal and/or interest
obligations, or where interest or principal is 90 days or more past due, unless
the loans are adequately secured and in the process of collection. Cash receipts
on non-accrual loans are generally applied to the principal balance until the
remaining balance is considered collectible, at which time interest income may
be recognized when received.
The allowance for possible loan losses is maintained at a level adequate to
provide for possible loan losses. In estimating possible losses, the Company
evaluates loans for impairment. A loan is considered impaired when, based on
current information and events, it is probable that a creditor will be unable to
collect all amounts due. Impaired loans are generally considered by the Company
to be commercial and commercial real estate loans that are non-accrual loans,
restructured loans and loans with principal and/or interest at risk, even if the
loan is current with all payments of principal and interest. Impairment is
measured by estimating the fair value of the loan based on the present value of
expected cash flows, the market price of the loan, or the fair value of the
underlying collateral. If the estimated fair value of the loan is less than the
recorded book value, a valuation allowance is established as a component of the
allowance for possible loan losses.
MORTGAGE SERVICING RIGHTS
The Company originates mortgage loans for sale to the secondary market, the
majority of which are sold without retaining servicing rights. There are certain
loans, however, that are originated and sold to a governmental agency, with
servicing rights retained. The Company capitalizes the rights to service these
originated mortgage loans at the time of sale. The capitalized cost of loan
servicing rights is amortized in proportion to, and over the period of,
estimated net future servicing revenue. Mortgage servicing rights are
periodically evaluated for impairment. For purposes of measuring impairment, the
servicing rights are stratified into pools based on one or more predominant risk
characteristics of the underlying loans including loan type, interest rate, term
and geographic location, if applicable. Impairment represents the excess of the
remaining capitalized cost of a stratified pool over its fair value, and is
recorded through a valuation allowance. The fair value of each servicing rights
pool is evaluated based on the present value of estimated future cash flows
using a discount rate commensurate with the risk associated with that pool,
given current market conditions. Estimates of fair value include assumptions
about prepayment speeds, interest rates and other factors which are subject to
change over time. Changes in these underlying assumptions could cause the fair
value of mortgage servicing rights, and the related valuation allowance, if any,
to change significantly in the future.
SERVICED PREMIUM FINANCE RECEIVABLES
From February, 1995 to the fourth quarter of 1996, FIFC sold its premium finance
receivables to a wholly owned subsidiary, First Premium Financing Corporation
("FPFIN") which in turn sold the receivables to an independent third party who
issued commercial paper to fund the purchase ("Commercial Paper Issuer"). FPFIN
was a bankruptcy remote subsidiary established to facilitate the sale to the
independent third party. FIFC retained servicing rights in connection with the
sales of receivables. FIFC recognized the contractual servicing and management
fee income over the term of the receivables as it was earned. In addition, any
excess income earned by the Commercial Paper Issuer above that which was
required to fund interest on its outstanding commercial paper and provide for
normal servicing to FIFC was payable as additional servicing ("Excess
Servicing"). Excess Servicing income over the expected life of the receivables
sold was estimated by FIFC at the time of each sale and recorded as a sales gain
receivable on the financial statements of FIFC.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes depreciation and amortization are
computed using the straight-line method over the
- 22 -
<PAGE>
estimated useful lives of the related assets ranging from three to ten years for
equipment, forty to fifty years for premises, and the related lease terms for
leasehold improvements. Additions to premises are capitalized. Maintenance and
repairs are charged to expense as incurred.
In 1998, the Company made a change in its accounting estimate for the estimated
useful lives of certain premises by increasing these lives from forty years to
either forty-five or fifty years. This change in estimate was made as a result
of management's assessment of the actual lives of similar structures in and
around the communities served by the Banks. The effect of this change in
estimate for the year ended December 31, 1998 was an increase in income before
income taxes and net income of approximately $155,000 and $95,000, respectively.
The effect of this change in estimate on both basic and diluted earnings per
share for the same period was an increase of approximately $0.01 per share.
OTHER REAL ESTATE OWNED
Other real estate owned is comprised of real estate acquired in partial or full
satisfaction of loans and is included in other assets at the lower of cost or
fair market value less estimated selling costs. When the property is acquired
through foreclosure, any excess of the related loan balance over the adjusted
fair market value less expected selling costs, is charged against the allowance
for possible loan losses. Subsequent write-downs or gains and losses upon sale,
if any, are charged to other non-interest expense.
INTANGIBLE ASSETS
Goodwill, representing the cost in excess of the fair value of net assets
acquired, is primarily amortized on a straight-line basis over a period of
fifteen years. The Company periodically evaluates the carrying value and
remaining amortization period of intangible assets and other long-lived assets
for impairment, and adjusts the carrying amounts, as appropriate. Deferred
organizational costs consist primarily of professional fees and other start-up
costs and are being amortized over five years.
TRUST PREFERRED SECURITIES OFFERING COSTS
In connection with the Company's offering of 9.00% Cumulative Trust Preferred
Securities ("Trust Preferred Securities"), approximately $1.4 million of
offering costs were incurred, including underwriting fees, legal and
professional fees, and other costs. These costs are included in other assets and
are being amortized over a ten year period as an adjustment of interest expense
using a method that approximates the effective interest method. See Note 10 for
further information about the Trust Preferred Securities.
TRUST ASSETS
Assets held in fiduciary or agency capacity for customers are not included in
the consolidated financial statements as they are not assets of Wintrust or its
subsidiaries. Fee income is recognized on an accrual basis for financial
reporting purposes.
INCOME TAXES
Beginning September 1, 1996, Wintrust became eligible to file consolidated
Federal and state income tax returns. The subsidiaries provide for income taxes
on a separate return basis and remit to Wintrust amounts determined to be
currently payable.
Prior to the Reorganization on September 1, 1996, Lake Forest Bank, Hinsdale
Bank, Libertyville Bank, North Shore Bank, and FIFC and their respective holding
companies each filed separate consolidated Federal and state income tax returns.
Tax benefits attributable to losses are recognized and allocated to the extent
that such losses can be utilized in the consolidated return.
Wintrust and subsidiaries record income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, Wintrust considers
all cash on hand, cash items in the process of collection, non-interest bearing
amounts due from correspondent banks and federal funds sold to be cash
equivalents.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 supersedes APB Opinion 15, "Earnings Per Share," and
specifies the computation, presentation and disclosure requirements for earnings
per share ("EPS") for entities with publicly held common stock or potential
common stock. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects
- 23 -
<PAGE>
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 this entity.
STOCK OPTION PLANS
The Company follows the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), rather than the recognition
provisions of SFAS No. 123, as allowed by the statement. The Company will
continue to follow APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized by the
Company for its stock option plans. Further disclosures are presented in Note
13.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", to
address concerns over the practice of reporting elements of comprehensive income
directly in equity. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. The statement does not require a specific format for
that financial statement but requires a company to display an amount
representing total comprehensive income for the period in that financial
statement. SFAS No. 130 is effective for both interim and annual financial
statements for periods beginning after December 15, 1997 and comparative
financial statements for earlier periods must be reclassified to reflect the
provisions of this statement. The Company is disclosing comprehensive income in
the Consolidated Statements of Changes in Shareholders' Equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 was issued in response to
requests from financial statement users for additional and improved segment
information. The statement requires a variety of disclosures to better explain
and reconcile segment data so that a user of the financial statements can better
understand the information and its limitations within the context of the
consolidated financial statements. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. In 1998, the initial
year of application, comparable information for earlier years will be restated,
unless it is impracticable to do so. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application shall be
reported in financial statements for interim periods in the second year of
application. See Note 21 for segment information disclosures.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The SOP requires companies to
capitalize certain costs incurred in connection with internal-use software
projects. The SOP is effective for fiscal years beginning after December 15,
1998, with early adoption permitted. The Company elected early adoption of this
new SOP as of January 1, 1998 and capitalized certain salary costs related to
the configuration and installation of new software and the modification of
existing software that provided additional functionality. These costs will be
amortized over a three year period.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities", which requires that the unamortized portion of previously
capitalized start-up costs be written-off as a cumulative effect of a change in
accounting principle. Subsequent to adoption of SOP 98-5, start-up and
organization costs must be expensed as incurred. In the first quarter of 1999,
in accordance with SOP 98-5, the Company will expense the remaining unamortized
portion of previously capitalized deferred organizational costs, which totaled
$199,000 as of December 31, 1998, and expense future start-up costs as incurred.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes, for the first
time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. This new standard requires that all
derivative instruments be recorded in the statement of condition at fair value.
The recording of the gain or loss due to changes in fair value could either be
reported in earnings or as other comprehensive income in the statement of
shareholders' equity, depending on the type of instrument and whether or not it
is considered a hedge. This standard is effective for the Company as of January
1, 2000. The Company has not yet determined the impact this new statement may
have on its future financial condition, its results of operations, or its
liquidity.
- 24 -
<PAGE>
(2) SECURITIES
The following tables present carrying amounts and gross unrealized gains and
losses for the securities held-to-maturity and available-for-sale at December
31, 1998 and 1997 (in thousands). These tables are by contractual maturity which
may differ from actual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties.
======================================================================
DECEMBER 31, 1998
--------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------
Held-to-maturity:
U.S. Treasury - due
in one year or less $ 5,000 1 - 5,001
--------------------------------------
Available-for-sale:
U.S. Treasury - due in
one year or less 5,650 14 - 5,664
Federal agencies - due
in one year or less 48,375 3 (9) 48,369
Federal agencies - due
in five to ten years 6,321 - - 6,321
Municipal securities -
due in one year or less 309 - - 309
Municipal securities -
due in one to five years 195 - - 195
Corporate notes and other -
due in one year or less 135,667 1 (33) 135,635
Corporate notes and other -
due in one to five years 6,498 8 (39) 6,467
Federal Reserve Bank
and Federal Home Loan
Bank stock 6,159 - - 6,159
--------------------------------------
Total securities
available-for-sale 209,174 26 (81) 209,119
--------------------------------------
Total securities $ 214,174 27 (81) 214,120
======================================================================
======================================================================
DECEMBER 31, 1997
--------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------
Held-to-maturity:
U.S. Treasury - due
in one to five years $ 5,001 - (37) 4,964
--------------------------------------
Available-for-sale:
U.S. Treasury - due in
one year or less 2,988 30 - 3,018
U.S. Treasury - due in
one to five years 1,001 9 - 1,010
Federal agencies - due in
one year or less 11,156 47 (2) 11,201
Corporate notes - due in
one year or less 78,707 - (1) 78,706
Corporate notes - due in
one to five years 4,046 17 (17) 4,046
Federal Reserve Bank
and Federal Home Loan
Bank stock 3,953 - - 3,953
--------------------------------------
Total securities
available-for-sale 101,851 103 (20) 101,934
--------------------------------------
Total securities $ 106,852 103 (57) 106,898
======================================================================
During 1998, there were no sales of available-for-sale securities. In 1997 and
1996, Wintrust had gross realized gains on sales of available-for-sale
securities of $111,000 and $18,000, respectively. Wintrust had no realized
losses on sales of securities in 1997 or 1996. Proceeds from sales of
available-for-sale securities during 1997 and 1996 were $420,000 and $498,000,
respectively. At December 31, 1998 and 1997, securities having a carrying value
of $104,874,000 and $77,983,000, respectively, were pledged as collateral for
public deposits and trust deposits.
- 25 -
<PAGE>
(3) LOANS
A summary of the loan portfolio, including commercial lease financing
receivables, at December 31, 1998 and 1997 is as follows (in thousands):
1998 1997
------------------------
Commercial and commercial real estate $ 366,229 235,483
Premium finance 183,165 131,952
Indirect auto 210,137 139,296
Home equity 111,537 116,147
Residential real estate 91,525 61,611
Installment and other 34,650 32,153
------------------------
Total loans 997,243 716,642
Less: Unearned income 5,181 4,011
------------------------
Total loans, net of unearned income $ 992,062 712,631
================================================================
Residential mortgage loans held for sale totaled $18,031,000 and $9,552,000 at
December 31, 1998 and 1997, respectively.
Certain officers and directors of Wintrust and its subsidiaries and certain
corporations and individuals related to such persons borrowed funds from the
Banks. These loans, totaling $19,791,000 and $9,213,000 at December 31, 1998 and
1997, respectively, were made at substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other borrowers.
(4)ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the allowance for possible loan losses for years ending December
31, 1998, 1997 and 1996 is as follows (in thousands):
================================================================
1998 1997 1996
----------------------------
Allowance at beginning of year $ 5,116 3,636 2,763
Provision 4,297 3,404 1,935
Charge-offs-continuing operations (2,737) (1,874) (520)
Charge-offs-discontinued operations - (241) (583)
Recoveries 358 191 41
----------------------------
Allowance at end of year $ 7,034 5,116 3,636
================================================================
The provision for possible loan losses is charged to operations, and recognized
loan losses (recoveries) are charged (credited) to the allowance. At December
31, 1998, 1997 and 1996, non-accrual loans totaled $3,137,000, $2,440,000 and
$1,686,000, respectively.
At December 31, 1998, 1997, and 1996 loans that were considered to be impaired
totaled $1,714,000, $1,139,000 and $1,444,000, respectively. At December 31,
1998, one impaired loan totaling $285,000 had an allocated specific allowance
for loan losses of approximately $125,000. There was no specific allowance for
loan losses allocated for impaired loans as of December 31, 1997 or 1996. The
average balance of impaired loans during 1998, 1997 and 1996 was approximately
$4,167,000, $990,000 and $1,322,000, respectively. During 1998, interest income
recognized on impaired loans totaled approximately $155,000. In 1997 and 1996,
this amount was insignificant. Management evaluated the value of the impaired
loans primarily by using the fair value of the collateral. During 1998, the
effect of non-performiing loans reduced interest income by approximately
$197,000. During 1997 and 1996, this effect was insignificant.
(5) MORTGAGE SERVICING RIGHTS
The remaining principal balance of mortgage loans serviced for others, which are
not included in the Consolidated Statements of Condition, totaled $82.1 million
and $53.2 million at December 31, 1998 and 1997, respectively. The following is
a summary of the changes in mortgage servicing rights (in thousands):
=============================================================
Year ended December 31,
----------------------------
1998 1997
----------------------------
Balance at beginning of year $ 313 123
Servicing rights capitalized 577 226
Amortization of servicing rights (175) (36)
Valuation allowance - -
----------------------------
Balance at end of year $ 715 313
=============================================================
(6) SERVICED RECEIVABLES AND SECURITIZATION FACILITY
Prior to the Reorganization on September 1, 1996, FIFC premium finance loan
originations were sold and serviced pursuant to a securitization facility
established in February 1995. During 1997, this securitization facility was
discontinued and all remaining deferred costs associated with the facility were
expensed. Accordingly, the Company had no loans serviced for others by FIFC at
December 31, 1998 or 1997. Subsequent to the Reorganization, FIFC loan
originations began to be sold to the
- 26 -
<PAGE>
Banks and consequently remain as an asset of the Company.
(7) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment at December 31, 1998 and 1997 is as follows
(in thousands):
=============================================================
1998 1997
----------------------------
Land $ 9,607 8,751
Buildings and improvements 35,251 25,570
Furniture and equipment 12,802 10,306
Equipment under leasing contracts 473 -
Construction in progress 6,638 4,784
----------------------------
64,771 49,411
Less accumulated depreciation
and amortization 7,807 5,205
----------------------------
Premises and equipment, net $ 56,964 44,206
=============================================================
(8) TIME DEPOSITS
Certificates of deposit in amounts of $100,000 or more approximated $346,046,000
and $233,590,000, respectively, at December 31, 1998 and 1997. Interest expense
related to these deposits approximated $13,999,000, $10,954,000 and $4,270,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
(9) NOTES PAYABLE
The notes payable balance of $20.4 million at December 31, 1997 represented the
balance on a revolving credit line agreement ("Agreement") with an unaffiliated
bank. Effective September 1, 1996, the Company entered into the $25 million
Agreement, which charged interest at a floating rate equal to, at the Company's
option, either the lender's prime rate or the London Inter-Bank Offered Rate
(LIBOR) plus 1.50%. Effective September 1, 1997, this Agreement was increased to
$30 million and the maturity date was extended to September 1, 1998.
Additionally, effective September 1, 1997, the interest rate associated with the
Agreement was reduced to bear interest at a floating rate equal to, at the
Company's option, either the lender's prime rate or LIBOR plus 1.25%. Effective
September 1, 1998, this Agreement was increased to $40 million and the maturity
date was extended to September 1, 1999. In October 1998, the Company paid-off
the remaining outstanding balance with proceeds from the $31.05 million Trust
Preferred Securities offering, as more fully explained in Note 10. The Agreement
is secured by the stock of all Banks, except Crystal Lake Bank, and contains
several restrictive covenants, including the maintenance of various capital
adequacy levels, asset quality and profitability ratios, and certain
restrictions on dividends and other indebtedness. This Agreement may be
utilized, as needed, to provide capital to fund continued growth at its existing
bank subsidiaries, expansion of its trust and investment activities, possible
acquisitions of other financial institutions and other general corporate
matters.
(10) LONG-TERM DEBT - TRUST PREFERRED SECURITIES
In 1998, the Company raised $31.05 million of Trust Preferred Securities. These
proceeds were used mainly to pay-off the remaining revolving credit line
balance, as discussed in Note 9. The Trust Preferred Securities offering has
increased the Company's regulatory capital under Federal Reserve guidelines.
Interest expense on the Trust Preferred Securities is also deductible for income
tax purposes.
Wintrust Capital Trust I ("WCT"), a statutory business trust and wholly-owned
subsidiary of the Company that was formed solely for the purpose of the above
mentioned offering, issued a total of 1,242,000 Trust Preferred Securities,
including the over-allotment, at a price of $25 per security, which totaled
$31,050,000. These securities represent preferred undivided beneficial interests
in the assets of WCT. WCT has also issued $960,000 of common securities, all of
which are owned by the Company. The assets of WCT consist solely of 9.00%
Subordinated Debentures issued by the Company to WCT in the aggregate principal
amount of $32,010,000. Holders of the Trust Preferred Securities are entitled to
receive preferential cumulative cash distributions at the annual rate of 9.00%,
accumulating from September 29, 1998, and payable quarterly in arrears on the
last day of each quarter, the first payment of which occured on December 31,
1998. Subject to certain limitations, the Company has the right to defer payment
of interest at any time, or from time to time, for a period not to exceed 20
consecutive quarters. The Trust Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Subordinated Debentures
at maturity or their earlier redemption. The Subordinated Debentures mature on
September 30, 2028, which may be shortened at the discretion of the Company to a
date not earlier than September 30, 2003, or extended to a date not later than
September 30, 2047, in each case if certain conditions are met, and only after
the Company has obtained Federal Reserve approval, if then required under
applicable guidelines or regulations.
The Company has guaranteed the payment of distributions and payments upon
liquidation or redemption of the Trust Preferred Securities, in each case to the
extent of funds held by WCT. The Company and WCT believe that,
- 27 -
<PAGE>
taken together, the obligations of the Company under the guarantee, the
subordinated debentures, and other related agreements provide, in the aggregate,
a full, irrevocable and unconditional guarantee, on a subordinated basis, of all
of the obligations of WCT under the Trust Preferred Securities.
(11) LEASE EXPENSE AND OBLIGATIONS
Gross rental expense for all operating leases was $922,000, $798,000 and
$659,000, in 1998, 1997 and 1996, respectively. Gross rental income related to
the Company's buildings totaled $390,000, $289,000 and $244,000 in 1998, 1997
and 1996. In 1998, the Company also recorded equipment lease income of
approximately $55,000. Minimum gross rental commitments, primarily for office
space, and future minimum gross rental income and equipment lease income as of
December 31, 1998 for all noncancelable leases are as follows (in thousands):
=============================================================
FUTURE FUTURE FUTURE
MINIMUM MINIMUM MINIMUM
GROSS GROSS EQUIPMENT
RENTAL RENTAL LEASE
COMMITMENTS INCOME INCOME
-------------------------------
1999 $ 740 125 102
2000 627 71 102
2001 511 29 102
2002 518 26 103
2003 455 18 52
2004 and thereafter 3,447 54 -
-------------------------------
Total minimum future amounts $ 6,298 323 461
=============================================================
(12) INCOME TAXES
For the year ended December 31, 1998, Wintrust had $571,000 of current Federal
income tax expense and no current state income tax. For the years ended December
31, 1997 and 1996, Wintrust had no current Federal or state income tax expense.
In 1998, 1997 and 1996, the Company recorded net deferred Federal tax benefits
of approximately $2.3 million, $2.9 million, and $524,000, respectively, and net
deferred state tax (expense) benefits of approximately ($271,000), $890,000 and
$786,000, respectively. During 1998 and 1997, such amounts exclude approximately
$78,000 and $316,000 of Federal tax benefits and $17,000 and $67,000 of state
tax benefits, respectively, that were recorded directly to shareholder's equity
related to the exercise of certain common stock options.
Income taxes for 1998, 1997 and 1996 differ from the expected tax expense for
those years (computed by applying the applicable statutory U.S. Federal income
tax rate of 34% to income before income taxes) as follows (in thousands):
===========================================================================
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------------------------------
Computed "expected" income
tax expense (benefit) $ 1,601 360 (776)
Increase (decrease) in tax resulting from:
Change in the beginning-of-the-year
balance of the valuation allowance
for deferred tax assets (3,357) (4,204) (853)
Merger costs - - 305
Other, net 220 56 14
-------------------------------
Income tax benefit $(1,536) (3,788) (1,310)
===========================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1998 and 1997 are
presented below (in thousands):
===========================================================================
1998 1997
-------------------------------
Deferred tax assets:
Allowance for possible loan losses$ $ 2,405 1,475
Start-up costs 65 133
Federal net operating loss carryforward 6,985 9,072
State net operating loss carryforward 1,390 1,867
Deferred compensation 170 89
Other, net 169 162
-------------------------------
Total gross deferred tax assets 11,184 12,798
Valuation allowance 806 4,163
-------------------------------
Total deferred tax assets 10,378 8,635
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment, due to
differences in depreciation 125 483
Deferred loan fees 1,034 189
Accrual to cash adjustment 711 1,023
Other, net 640 1,082
-------------------------------
Total gross deferred tax liabilities 2,510 2,777
-------------------------------
Net deferred tax assets $ 7,868 5,858
===========================================================================
During 1996, 1997 and 1998, management determined that a valuation allowance
should be established for a portion of the deferred tax asset based on
management's assessment regarding realization of such deferred tax assets
considering the profitability attained by the Company and its operating
subsidiaries during each of the years and future earnings estimates. Management
believes that realization of the recorded net deferred tax asset is more likely
than not.
- 28 -
<PAGE>
At December 31, 1998, Wintrust and its subsidiaries had Federal net operating
losses of approximately $20.5 million and state net operating losses of
approximately $19.4 million. Such amounts are available for carryforward to
offset future taxable income and expire in 2000-2010. Utilization of the net
operating losses are subject to certain statutory limitations. Additionally, the
federal net operating losses of the predecessor companies prior to the
Reorganization are only available to be utilized by the respective companies
that generated the losses.
(13) EMPLOYEE BENEFIT AND STOCK PLANS
Prior to May 22, 1997, Wintrust and the holding companies of Lake Forest Bank,
Hinsdale Bank, Libertyville Bank and FIFC maintained various stock option and
rights plans ("Predecessor Plans") which provided options to purchase shares of
Wintrust's common stock at the fair market value of the stock on the date the
option was granted. The Predecessor Plans permitted the grant of incentive stock
options, nonqualified stock options, rights and restricted stock. Collectively,
the Predecessor Plans covered substantially all employees of Wintrust.
Effective May 22, 1997, the Company's shareholders approved the Wintrust
Financial Corporation 1997 Stock Incentive Plan ("Plan"). The Plan amended,
restated, continued and combined all of the Predecessor Plans implemented
previously by the Company or its subsidiaries, including shares covered under
the Company's Stock Rights Plan. The Plan provides that the total number of
shares of Common Stock as to which awards may be granted may not exceed
1,937,359 shares, which number of shares includes 1,777,359 shares of Common
Stock which had already been reserved for issuance under the Predecessor Plans.
The incentive and nonqualified options expire at such time as the Compensation
Committee shall determine at the time of grant, however, in no case shall they
be exercisable later than ten years after the grant.
A summary of the aggregate activity of the Plans for 1998, 1997 and 1996 is as
follows:
=====================================================================
Common Range of Weighted Average
Shares Strike Prices Strike Price
-----------------------------------------
Outstanding at
December 31, 1995 906,365 $ 5.80-$21.13 $ 8.85
Granted 309,573 $ 11.37-$15.25 $ 13.75
Exercised 13,690 $ 6.31-$ 9.69 $ 8.27
Forfeited or canceled 52,924 $ 6.31-$21.13 $ 10.81
-----------------------------------------
Outstanding at
December 31, 1996 1,149,324 $ 5.80-$21.13 $ 10.10
Granted 350,671 $18.00 $ 18.00
Reclassification of stock
rights to stock options 103,236 $ 7.75-$11.62 $ 7.84
Exercised 117,575 $ 5.80-$16.23 $ 7.72
Forfeited or canceled 26,568 $ 5.80-$21.13 $ 15.85
-----------------------------------------
Outstanding at
December 31, 1997 1,459,088 $ 5.80-$21.13 $ 11.90
Granted 150,400 $ 17.88-$21.75 $ 18.71
Exercised 31,423 $ 5.80-$14.53 $ 8.30
Forfeited or canceled 53,081 $ 9.30-$19.86 $ 16.25
-----------------------------------------
Outstanding at
December 31, 1998 1,524,984 $ 5.80-$21.75 $ 12.49
=====================================================================
At December 31, 1998, 1997 and 1996, the weighted-average remaining contractual
life of outstanding options was 6.6 years, 7.4 years and 7.0 years,
respectively. Additionally, at December 31, 1998, 1997 and 1996, the number of
options exercisable was 887,514, 809,520 and 659,627, respectively, and the
weighted-average per share exercise price of those options was $9.38, $9.08 and
$8.62, respectively. Expiration dates for the options range from June 19, 2000
to October 29, 2008.
The following table presents certain information about the outstanding options
and the currently exercisable options as of December 31, 1998:
<TABLE>
<CAPTION>
===================================================================== ================================
Options Outstanding Options Currently Exercisable
- --------------------------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Exercise Remaining Number Exercise
Prices of Shares Price Term of Shares Price
- --------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.80-$ 6.31 213,944 $ 6.22 2.73 years 213,944 $ 6.22
$ 7.24-$ 8.48 280,595 $ 7.91 5.29 years 280,595 $ 7.91
$ 9.30-$12.42 306,905 $10.73 6.38 years 234,624 $10.54
$ 12.43-$17.88 264,939 $14.37 7.59 years 142,224 $13.87
$ 18.00-$18.00 364,124 $18.00 8.94 years 3,850 $18.00
$ 18.44-$21.75 94,477 $19.57 8.39 years 12,277 $21.13
- --------------------------------------------------------------------- --------------------------------
$ 5.80-$21.75 1,524,984 $12.49 6.61 years 887,514 $ 9.38
=======================================================================================================
</TABLE>
- 29 -
<PAGE>
The Company applies APB No. 25, and related Interpretations, in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the date of grant for awards
under the stock option plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (dollars in thousands):
===============================================================
Year Ended December 31,
----------------------------
1998 1997 1996
----------------------------
Net income (loss)
As reported $ 6,245 4,846 (973)
Pro forma 5,295 4,261 (1,455)
Earnings (loss) per share-Basic
As reported $ 0.77 0.62 (0.16)
Pro forma 0.65 0.55 (0.24)
Earnings (loss) per share-Diluted
As reported $ 0.74 0.60 (0.16)
Pro forma 0.62 0.53 (0.24)
===============================================================
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 years ended December 31, 1998, 1997 and 1996, respectively:
dividend yield of 0% for each period; expected volatility of 24.2% for 1998,
22.5% for 1997 and 20.0% for 1996; risk free rate of return of 5.3% for 1998,
6.4% for 1997 and 1996; and, expected life of 7.5 years for 1998, 8 years for
1997 and 10 years for 1996. The per share weighted average fair value of stock
options granted during 1998, 1997 and 1996 was $7.54, $8.10 and $7.02,
respectively.
Wintrust and its subsidiaries also provide 401(k) Retirement Savings Plans
("401(k) Plans"). The 401(k) Plans cover all employees meeting certain
eligibility requirements. Contributions by employees are made through salary
reductions at their direction, limited to $10,000 in 1998 and $9,500 in earlier
years. Employer contributions to the 401(k) Plans are made at the employer's
discretion. Generally, participants completing 501 hours of service are eligible
to share in an allocation of employer contributions. The Company's expense for
the employer contributions to the 401(k) Plans was approximately $52,000,
$41,000 and $38,000 in 1998, 1997 and 1996, respectively.
Effective May 22, 1997, the Company's shareholders approved the Wintrust
Financial Corporation Employee Stock Purchase Plan ("SPP"). The SPP is designed
to encourage greater stock ownership among employees thereby enhancing employee
commitment to the Company. The SPP gives eligible employees the right to
accumulate funds over an offering period to purchase shares of Common Stock. The
Company has reserved 250,000 shares of its authorized Common Stock for the SPP.
All shares offered under the SPP will be newly issued shares of the Company and,
in accordance with the SPP, the purchase price of the shares of Common Stock may
not be lower than the lessor of 85% of the fair market value per share of the
Common Stock on the first day of the offering period or 85% of the fair market
value per share of the Common Stock on the last date for the offering period.
For the first offering period, which began during the fourth quarter of 1998,
the Company's Board of Directors authorized a purchase price calculation at 90%
of fair market value. The first offering period will conclude on March 31, 1999
and, accordingly, no shares were issued to participant accounts during 1998. The
Company plans to continue to periodically offer Common Stock through this SPP
subsequent to March 31, 1999.
The Company does not currently offer other postretirement benefits such as
health care or other pension plans.
(14) REGULATORY MATTERS
Banking laws place restrictions upon the amount of dividends which can be paid
to Wintrust by the Banks. Based on these laws, the Banks could, subject to
minimum capital requirements, declare dividends to Wintrust without obtaining
regulatory approval in an amount not exceeding (a) undivided profits, and (b)
the amount of net income reduced by dividends paid for the current and prior two
years. During 1998, Lake Forest Bank paid cash dividends of $8.25 million to
Wintrust. No cash dividends were paid to Wintrust by the Banks during the years
ended December 31, 1997 and 1996. As of January 1, 1999, the Banks had
approximately $3.9 million available to be paid as dividends to Wintrust,
subject to certain capital limitations.
The Banks are also required by the Federal Reserve Act to maintain reserves
against deposits. Reserves are held either in the form of vault cash or balances
maintained with the Federal Reserve Bank and are based on the average daily
deposit balances and statutory reserve ratios prescribed by the type of deposit
account. At December 31, 1998 and 1997, reserve balances of approximately
$8,171,000 and $5,765,000, respectively, were required.
- 30 -
<PAGE>
The Company and the Banks 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. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Banks must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and the Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and Tier 1 leverage capital
(as defined) to average quarterly assets (as defined). Management believes, as
of December 31, 1998 and 1997, that the Company and the Banks met all minimum
capital adequacy requirements.
As of December 31, 1998 and 1997, the most recent notification from the Banks'
primary federal regulators categorized the Banks as either well capitalized or
adequately capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately capitalized, the Banks must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since the most recent
notification that management believes would materially affect the Banks'
regulatory capital categories. The Company's and the Banks' actual capital
amounts and ratios as of December 31, 1998 and 1997 are presented in the
following tables (dollars in thousands).
==========================================================
To Be Adequately
Capitalized by
Actual Regulatory Definition
------------------------------------------
Amount Ratio Amount Ratio
------------------------------------------
DECEMBER 31, 1998:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $111,811 9.7% $92,390 8.0%
Lake Forest 30,347 8.8 27,575 8.0
Hinsdale 21,163 8.3 20,469 8.0
North Shore 23,760 9.1 20,937 8.0
Libertyville 14,691 8.8 13,295 8.0
Barrington 11,328 10.9 8,343 8.0
Crystal Lake 6,028 12.4 3,882 8.0
- ----------------------------------------------------------
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $ 98,303 8.5% $46,195 4.0%
Lake Forest 28,404 8.2 13,788 4.0
Hinsdale 19,546 7.6 10,234 4.0
North Shore 22,148 8.5 10,469 4.0
Libertyville 13,775 8.3 6,648 4.0
Barrington 10,734 10.3 4,171 4.0
Crystal Lake 5,677 11.7 1,941 4.0
- ----------------------------------------------------------
TIER 1 CAPITAL (TO AVERAGE QUARTERLY ASSETS):
Consolidated $ 98,303 7.5% $52,344 4.0%
Lake Forest 28,404 7.0 16,331 4.0
Hinsdale 19,546 7.2 10,878 4.0
North Shore 22,148 7.6 11,578 4.0
Libertyville 13,775 7.5 7,363 4.0
Barrington 10,734 9.5 4,527 4.0
Crystal Lake 5,677 12.0 1,888 4.0
==========================================================
DECEMBER 31, 1997:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $ 72,107 9.4% $61,336 8.0%
Lake Forest 23,098 8.9 20,821 8.0
Hinsdale 16,082 8.2 15,711 8.0
North Shore 20,902 10.3 16,114 8.0
Libertyville 11,668 11.6 8,075 8.0
Barrington 6,587 12.5 4,207 8.0
- ----------------------------------------------------------
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $ 66,991 8.7% $30,668 4.0%
Lake Forest 21,378 8.2 10,411 4.0
Hinsdale 14,784 7.5 7,856 4.0
North Shore 19,822 9.8 8,057 4.0
Libertyville 11,078 11.0 4,038 4.0
Barrington 6,258 11.9 2,104 4.0
- ----------------------------------------------------------
Tier 1 Capital (to Average Quarterly Assets):
Consolidated $ 66,991 6.6% $40,354 4.0%
Lake Forest 21,378 6.2 13,861 4.0
Hinsdale 14,785 6.9 8,585 4.0
North Shore 19,822 7.7 10,287 4.0
Libertyville 11,078 9.3 4,783 4.0
Barrington 6,258 10.0 2,515 4.0
==========================================================
- 31 -
<PAGE>
The ratios required for the Banks to be "well capitalized" by regulatory
definition are 10.0%, 6.0%, and 5.0% for the Total Capital-to-Risk Weighted
Assets, Tier 1 Capital-to-Risk Weighted Assets and Tier 1 Capital-to-Average
Quarterly Assets ratios, respectively.
Crystal Lake Bank, which was "well capitalized" in all capital categories, is
not presented above as of December 31, 1997 as that Bank's ratios on that date
were not meaningful, as it opened during the last few weeks of 1997.
(15) COMMITMENTS AND CONTINGENCIES The Company has outstanding, at any time, a
number of commitments to extend credit to its customers. These commitments
include revolving home line and other credit agreements, term loan commitments
and standby letters of credit. These commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the Consolidated Statements of Condition. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company uses the same credit
policies in making commitments as it does for on-balance sheet instruments.
Commitments to extend credit at December 31, 1998 and 1997 were $334.9 million
and $239.1 million, respectively. Standby letters of credit amounts were $10.0
million and $5.3 million at December 31, 1998 and 1997, respectively.
In the ordinary course of business, there are legal proceedings pending against
the Company and its subsidiaries. Management considers that the aggregate
liabilities, if any, resulting from such actions would not have a material
adverse effect on the financial position of the Company.
(16) DERIVATIVE FINANCIAL INSTRUMENT
In August 1998, the Company entered into a $100 million notional amount interest
rate cap agreement that matures on December 3, 1999. As part of the Company's
management of interest rate risk, the cap was purchased to hedge the risk of
rising interest rates on certain of the Company's floating rate deposit products
and fixed rate loan products. This cap provides for the receipt of payments when
the 91 day Treasury bill rate exceeds 5.25%, and is determined on a monthly
basis. The purchase price of the cap totaled $220,000 and is being amortized
over the term of the agreement as an adjustment to net interest income.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The following table presents the carrying
amounts and estimated fair values of Wintrust's financial instruments at
December 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
==========================================================================================================================
At December 31, 1998 At December 31, 1997
--------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and demand balances from banks $ 33,924 33,924 32,158 32,158
Federal funds sold 18,539 18,539 60,836 60,836
Interest-bearing deposits with banks 7,863 7,863 85,100 85,100
Held-to-Maturity securities 5,000 5,001 5,001 4,964
Available-for-Sale securities 209,119 209,119 101,934 101,934
Loans, net of unearned income 992,062 999,312 712,631 718,079
Accrued interest receivable 6,989 6,989 4,792 4,792
Financial liabilities:
Non-maturity deposits 543,524 543,524 392,478 392,478
Deposits with stated maturities 685,630 691,850 525,223 527,263
Short-term borrowings and notes payable - - 55,895 55,895
Long-term borrowings-trust preferred securities 31,050 32,059 - -
Accrued interest payable 1,827 1,827 1,770 1,770
Off-balance sheet derivative contract:
Interest rate cap agreement-positive value 151 20 - -
==========================================================================================================================
</TABLE>
- 32 -
<PAGE>
Cash and demand balances from banks and Federal funds sold: The carrying value
of cash and demand balances from banks approximates fair value due to the short
maturity of those instruments.
Interest-bearing deposits with banks and securities: Fair values of these
instruments are based on quoted market prices, when available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable assets.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are analyzed by type such as commercial, residential real
estate, etc. Each category is further segmented into fixed and variable interest
rate terms.
For variable-rate loans that reprice frequently, estimated fair values are based
on carrying values. The fair value of residential real estate loans is based on
secondary market sources for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value for other loans is estimated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
inherent in the loan.
Accrued interest receivable and accrued interest payable: The carrying value of
accrued interest receivable and accrued interest payable approximates market
value due to the relatively short period of time to expected realization.
Deposit liabilities: The fair value of deposits with no stated maturity, such as
non-interest bearing deposits, savings, NOW accounts and money market accounts,
is equal to the amount payable on demand as of year-end (i.e. the carrying
value). The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently in effect for deposits of similar remaining maturities.
Short-term borrowings: The carrying value of short-term borrowings approximate
fair value due to the relatively short period of time to maturity or repricing.
Long-term borrowings: The fair value of long-term borrowings, which consists
entirely of Trust Preferred Securities, was determined based on the quoted
market price as of the last business day of the year.
Interest rate cap agreement: The carrying value of the interest rate cap
agreement represents the remaining unamortized cost of the contract. The fair
value is based on the quoted market price as of the last business day of the
year.
Commitments to extend credit and standby letters of credit: The fair value of
commitments to extend credit is based on fees currently charged to enter into
similar arrangements, the remaining term of the agreement, the present
creditworthiness of the counterparty, and the difference between current
interest rates and committed interest rates on the commitments. Because most of
Wintrust's commitment agreements were recently entered into and/or contain
variable interest rates, the carrying value of Wintrust's commitments to extend
credit approximates fair value. The fair value of letters of credit is based on
fees currently charged for similar arrangements.
(18) WARRANTS TO ACQUIRE COMMON STOCK
The Company has issued warrants to acquire common stock. The warrants entitle
the holder to purchase one share of the Company's common stock at purchase
prices ranging from $14.85 to $15.00 per share. There were 155,433 outstanding
warrants to acquire common stock at December 31, 1998 and 1997, respectively,
with expiration dates ranging from December 2002 through November 2005.
(19) BUSINESS COMBINATION On September 1, 1996, Wintrust Financial Corporation
(formerly known as North Shore Community Bancorp, Inc.) issued approximately 5.3
million shares of common stock and approximately 122,000 warrants to acquire
common stock in exchange for all outstanding common stock and warrants, if
applicable, of Lake Forest Bancorp, Inc., Hinsdale Bancorp, Inc., Libertyville
Bancorp, Inc. and Crabtree Capital Corporation based upon exchange ratios
approved by shareholders of each of the companies. The combination was accounted
for under the pooling of interests method.
The results of operations previously reported by the separate enterprises and
the combined amounts presented
- 33 -
<PAGE>
in the accompanying consolidated financial statements are summarized below (in
thousands).
==========================================================
Eight Mo. ended
Aug. 31, 1996
---------------
Net interest income:
Lake Forest Bancorp, Inc. $ 3,648
Hinsdale Bancorp, Inc. 2,380
North Shore Comm. Bancorp, Inc. 2,140
Libertyville Bancorp, Inc. 875
Crabtree Capital Corporation 366
---------------
Consolidated $ 9,409
- ----------------------------------------------------------
Other non-interest income:
Lake Forest Bancorp, Inc. $ 726
Hinsdale Bancorp, Inc. 507
North Shore Comm. Bancorp, Inc. 429
Libertyville Bancorp, Inc. 132
Crabtree Capital Corporation 3,352
---------------
Consolidated $ 5,146
- ----------------------------------------------------------
Net income (loss):
Lake Forest Bancorp, Inc. $ 545
Hinsdale Bancorp, Inc. 29
North Shore Comm. Bancorp, Inc. (901)
Libertyville Bancorp, Inc. (862)
Crabtree Capital Corporation (727)
---------------
Consolidated $ (1,916)
=========================================================
(20) ACQUISITION On October 24, 1996, the Board of Directors approved the
acquisition of Wolfhoya Investments, Inc. ("Wolfhoya"), a company organized
prior to the reorganization of the Company (see Note 19) by certain directors
and executive officers of the Company for purposes of organizing a de novo bank
in Barrington, Illinois. Also, on October 24, 1996, an Agreement and Plan of
Merger by and between Wintrust Financial Corporation and Wolfhoya Investments,
Inc. was executed. The Company issued an aggregate of 87,556 shares of Common
Stock to complete the acquisition which was accounted for under the purchase
method and, accordingly, the results of operations are included in the
Consolidated Statements of Operations from the date of acquisition. In addition,
there were outstanding common stock warrants and stock options of Wolfhoya that,
as a result of the transaction, converted by their terms into Warrants to
purchase 16,838 shares and Options to purchase 68,534 shares of Common Stock of
the Company, all at the adjusted exercise price of $14.85 per share. As part of
the transaction, the Company assumed approximately $502,000 of Wolfhoya's
outstanding debt which amount was refinanced under the Company's revolving line
of credit. Barrington Bank, the de novo bank which Wolfhoya began organizing,
opened for business on December 19, 1996.
(21) SEGMENT INFORMATION
The Company's operations consist of four primary segments: banking, premium
finance, indirect auto, and trust. Through its six bank subsidiaries located in
several affluent suburban Chicago communities, the Company provides traditional
community banking products and services to individuals and businesses such as
accepting deposits, advancing loans, administering ATMs, maintaining safe
deposit boxes, and providing other related services. The premium finance
operations consist of financing the payment of commercial insurance premiums, on
a national basis, through FIFC. All loans originated by FIFC are currently being
sold to the Company's bank subsidiaries and are retained in each of their loan
portfolios. The indirect auto segment is operated from one of the Company's bank
subsidiaries and is in the business of providing high quality new and used auto
loans through a large network of auto dealerships within the Chicago
metropolitan area. All loans originated by this segment are currently retained
within the Company's bank subsidiary loan portfolios. The trust segment is
operated through the Company's newest subsidiary, WAMC, which was formed in
September 1998 to offer trust and investment management services at each of the
Company's banks. In addition to offering these services to existing customers of
the banks, WAMC will be targeting newly affluent individuals and small to
mid-size businesses whose needs command personalized attention by experienced
trust professionals. Prior to the formation of WAMC, trust services were
provided through a department of the Lake Forest Bank.
Each of the four reportable segments are strategic business units that are
separately managed as they offer different products and services and have
different marketing strategies. In addition, each segment's customer base has
varying characteristics. The banking and indirect auto segments also have a
different regulatory environment than the premium finance and trust segments.
While the Company's chief decision makers monitor each of the six bank
subsidiaries' operations and profitability separately, these subsidiaries have
been aggregated into one reportable operating segment due to the similarities in
products and services, customer base, operations, profitability measures, and
economic characteristics.
- 34 -
<PAGE>
The segment financial information provided in the following tables has been
derived from the internal profitability reporting system used by management and
the chief decision makers to monitor and manage the financial performance of the
Company. The accounting policies of the segments are generally the same as those
described in the Summary of Significant Accounting Policies in Note 1 to the
Consolidated Financial Statements. The Company evaluates segment performance
based on after-tax profit or loss and other appropriate profitability measures
common to each segment. Certain indirect expenses have been allocated based on
actual volume measurements and other criteria, as appropriate. Intersegment
revenue and transfers are generally accounted for at current market prices. The
other category reflects parent company information.
The following is a summary of certain operating information for reportable
segments (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-----------------------------
NET INTEREST INCOME:
Banking $ 34,245 25,537 14,611
Premium finance 9,714 7,359 554
Indirect auto 5,595 3,610 2,279
Trust 359 182 134
Intersegment eliminations (11,168) (8,963) (2,316)
Other (1,981) (953) (380)
-----------------------------
Total $ 36,764 26,772 14,882
- ----------------------------------------------------------
NON-INTEREST INCOME:
Banking $ 7,700 3,745 2,400
Premium finance - 147 4,406
Indirect auto 2 1 2
Trust 788 626 522
Intersegment eliminations (418) 425 202
Other 3 - -
-----------------------------
Total $ 8,075 4,944 7,532
- ----------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES (NON-CASH ITEM):
Banking $ 4,403 2,474 1,693
Premium finance 401 1,058 142
Indirect auto 855 446 220
Trust - - -
Intersegment eliminations (1,362) (574) (120)
-----------------------------
Total $ 4,297 3,404 1,935
- ----------------------------------------------------------
DEPRECIATION AND AMORTIZATION (NON-CASH ITEM):
Banking $ 2,457 1,968 1,799
Premium finance 284 288 279
Indirect auto 30 23 18
Trust 48 22 20
Intersegment eliminations (62) (45) (38)
Other 195 138 26
-----------------------------
Total $ 2,952 2,394 2,104
- ----------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT):
Banking $ 3,046 880 (417)
Premium finance 1,276 236 (210)
Indirect auto 1,168 773 481
Trust (114) 149 110
Intersegment eliminations (5,424) (4,912) (1,018)
Other (1,488) (914) (257)
-----------------------------
Total $ (1,536) (3,788) (1,310)
- ----------------------------------------------------------
SEGMENT PROFIT (LOSS):
Banking $ 5,131 4,112 (917)
Premium finance 2,022 373 (332)
Indirect auto 1,850 1,225 762
Trust (189) 237 175
Intersegment eliminations (99) (114) (19)
Other (2,470) (987) (642)
-----------------------------
Total $ 6,245 4,846 (973)
- ----------------------------------------------------------
EXPENDITURES FOR ADDITIONS TO PREMISES AND EQUIPMENT:
Banking $ 14,644 12,827 7,351
Premium finance 500 3,221 574
Indirect auto 33 28 68
Trust 72 12 80
Intersegment eliminations (33) (40) (148)
Other 243 15 -
-----------------------------
Total $ 15,459 16,063 7,925
- ----------------------------------------------------------
At December 31,
-----------------------------
1998 1997
-----------------------------
Segment Assets:
Banking $ 1,377,641 1,067,966
Premium finance 234,779 168,986
Indirect auto 219,232 144,265
Trust 2,886 385
Intersegment eliminations (491,795) (332,316)
Other 5,305 4,114
-----------------------------
Total $ 1,348,048 1,053,400
- ------------------------------------------------------------
The premium finance and indirect auto segment information shown in the above
tables was derived from their internal profitability reports, which assumes that
all loans originated and sold to the Banking segment are retained within the
segment that originated the loans. All related loan interest income, allocations
for interest expense, provisions for possible loan losses and allocations for
other expenses are included in the premium finance and indirect auto segments.
The banking segment information also includes all amounts related to these
loans, as these loans are retained within the Banks' loan portfolios.
Accordingly, the intersegment eliminations shown in the above tables includes
adjustments necessary for each category to agree with the related consolidated
financial amounts. The intersegment eliminations amount reflected in the Income
Tax Expense (Benefit) category also includes the recognition of income tax
benefits from the realization of previously unvalued tax loss benefits.
- 35 -
<PAGE>
(22) CONDENSED PARENT COMPANY FINANCIAL
STATEMENTS
============================================================
Condensed Balance Sheet
(in thousands):
December 31,
-----------------------
1998 1997
-----------------------
ASSETS
Cash $ 2,312 854
Investment in subsidiaries 102,634 85,235
Other assets 2,993 3,259
-----------------------
Total assets $ 107,939 89,348
- ------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 724 156
Notes payable - 20,402
Long-term debt-trust preferred securities 32,010 -
Shareholders' equity 75,205 68,790
-----------------------
Total liabilities and shareholders' equity $ 107,939 89,348
- ------------------------------------------------------------------------
========================================================================
CONDENSED STATEMENTS OF OPERATIONS
(in thousands):
Years Ended December 31,
--------------------------------
1998 1997 1996
--------------------------------
INCOME
Dividends from subsidiary $ 8,250 - -
Interest income - - 3
Other income 3 - -
--------------------------------
Total income 8,253 - 3
--------------------------------
EXPENSES
Interest expense 1,981 953 383
Salaries and employee benefits 1,095 333 107
Merger costs - - 173
Other expenses 724 477 213
Amortization of goodwill and
organizational costs 161 138 26
--------------------------------
Total expenses 3,961 1,901 902
--------------------------------
Income (loss) before income taxes
and equity in undistributed net
income (loss) of subsidiaries 4,292 (1,901) (899)
Income tax benefit (1,488) (914) (257)
--------------------------------
Income (loss) before equity in
undistributed net income
(loss) of subsidiaries 5,780 (987) (642)
Equity in undistributed net
income (loss) of subsidiaries 465 5,833 (331)
--------------------------------
Net income (loss) $ 6,245 4,846 (973)
========================================================================
========================================================================
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands):
Years Ended December 31,
--------------------------------
1998 1997 1996
--------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 6,245 4,846 (973)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of goodwill and
organizational costs 161 138 26
Deferred income taxes 519 (914) (257)
(Increase) decrease in other assets (416) 95 64
Increase (decrease) in other liabilities 568 (111) 267
Equity in undistributed net (income)
loss of subsidiaries (465) (5,833) 331
--------------------------------
Net cash provided by (used for)
operating activities 6,612 (1,779) (542)
--------------------------------
INVESTING ACTIVITIES:
Capital infusions to subsidiaries (17,026) (17,850) (23,272)
Purchase of Wolfhoya Investments,
Inc., net of cash acquired - - (318)
--------------------------------
Net cash used for investing activities (17,026) (17,850) (23,590)
--------------------------------
FINANCING ACTIVITIES:
Increase (decrease) in short-term
borrowings, net (20,402) (1,655) 22,057
Proceeds from long-term debt 32,010 - -
Common stock issuance, net - 20,326 1,858
Common stock issued upon
exercise of stock options 264 964 -
Repurchase of common stock - - (48)
Advances from (to) subsidiaries - 785 (785)
--------------------------------
Net cash provided by financing
activities 11,872 20,420 23,082
--------------------------------
Net increase (decrease) in cash 1,458 791 (1,050)
Cash at beginning of year 854 63 1,113
--------------------------------
Cash at end of year $ 2,312 854 63
========================================================================
- 36 -
<PAGE>
(23) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share for 1998, 1997, and 1996 (in thousands, except per share data):
===================================================================
1998 1997 1996
------------------------------
Net income (loss) (A)$6,245 4,846 (973)
------------------------------
Average common shares outstanding (B) 8,142 7,755 6,134
Effect of dilutive common shares 353 331 -
------------------------------
Weighted average common shares and
effect of dilutive common shares (C) 8,495 8,086 6,134
------------------------------
Net income (loss) per average
common share - Basic (A/B)$ 0.77 0.62 (0.16)
Net income (loss) per average
common share - Diluted (A/C)$ 0.74 0.60 (0.16)
===================================================================
The effect of dilutive common shares outstanding results from stock options and
stock warrants being treated as if they had been exercised and are computed by
application of the treasury stock method. No dilutive common shares were assumed
to be outstanding for the year ended December 31, 1996 as accounting standards
require that the computation of earnings per share shall not give effect to
dilutive common shares for any period in which their inclusion would have the
effect of decreasing the loss per share amount otherwise computed.
(24) QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following is a summary in thousands of dollars, except for per common share
data, of quarterly financial information for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
===========================================================================================================================
1998 QUARTERS 1997 QUARTERS
--------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 19,900 21,447 22,941 23,691 13,078 15,381 17,746 18,906
Interest expense 11,896 12,537 13,068 13,714 7,826 8,592 10,406 11,515
--------------------------------------------------------------------------------------
Net interest income 8,004 8,910 9,873 9,977 5,252 6,789 7,340 7,391
Provision for possible loan losses 1,267 1,073 971 986 679 875 958 892
--------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 6,737 7,837 8,902 8,991 4,573 5,914 6,382 6,499
Non-interest income, excluding
securities gains, net 1,683 1,989 2,009 2,394 1,592 928 1,102 1,211
Securities gains, net - - - - - - - 111
Non-interest expense (1) 7,932 9,467 8,639 9,795 6,354 6,424 6,946 7,530
--------------------------------------------------------------------------------------
Income (loss) before income taxes 488 359 2,272 1,590 (189) 418 538 291
Income tax expense (benefit) (554) (604) 118 (496) (918) (708) (773) (1,389)
--------------------------------------------------------------------------------------
Net income $ 1,042 963 2,154 2,086 729 1,126 1,311 1,680
--------------------------------------------------------------------------------------
Net income per common
share - Basic $ 0.13 0.12 0.26 0.26 0.11 0.14 0.16 0.21
Net income per common
share - Diluted $ 0.12 0.11 0.25 0.25 0.10 0.13 0.15 0.20
===========================================================================================================================
<FN>
(1) During the second quarter of 1998, the Company recorded a non-recurring
$1.0 million pre-tax charge related to severance amounts due to the
Company's former Chairman and Chief Executive Officer and certain related
legal fees.
</FN>
</TABLE>
- 37 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wintrust Financial Corporation:
We have audited the accompanying consolidated statements of condition of
Wintrust Financial Corporation and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 Wintrust Financial
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
March 19, 1999
- 38 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, and Selected
Financial Highlights appearing elsewhere within this report. This discussion
contains forward-looking statements that involve risks and uncertainties and, as
such, future results could differ significantly from management's current
expectations. See the last section of this discussion for further information on
forward-looking statements.
GENERAL
The Company's operating profitability depends on its net interest income,
provision for possible loan losses, non-interest income and non-interest
expense. Net interest income is the difference between the income the Company
receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits, short-term borrowings, notes payable and
trust preferred securities. The provision for possible loan losses reflects the
cost of credit risk in the Company's loan portfolio. Non-interest income
consists of fees on mortgage loans sold, trust fees, service charges on deposit
accounts, loan servicing fees, gains on sales of premium finance receivables and
other miscellaneous fees and income. Non-interest expense includes salaries and
employee benefits as well as occupancy, equipment, data processing, advertising
and marketing, professional fees, other expenses and, in 1996, certain
non-recurring merger-related expenses.
Net interest income is dependent on the amounts and yields of interest-earning
assets as compared to the amounts 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 actions. The provision for loan losses is
dependent on increases in the loan portfolio, management's assessment of the
collectibility of the loan portfolio, net loans charged-off, as well as economic
and market factors. Fees on mortgage loans sold relate to the Company's practice
of originating long-term fixed-rate mortgage loans for sale into the secondary
market in order to satisfy customer demand for such loans while avoiding the
interest-rate risk associated with holding long-term fixed-rate mortgage loans
in the Banks' portfolios. These fees are highly dependent on the mortgage
interest rate environment and the volume of real estate transactions and
mortgage refinancing activity. The Company earns trust fees for managing and
administering trust and investment accounts for individuals and businesses.
Gains on sales of loans and loan servicing fees relate principally to FIFC's
past practice of selling its originated commercial insurance premium finance
loans into the secondary market through a securitization facility. Since the
fourth quarter of 1996, it has been the Company's practice to retain premium
finance loans in the Banks' loan portfolios, resulting in higher net interest
income, reduced gains on sale of insurance premium finance loans and diminished
loan servicing fee income. Miscellaneous fees and income include gains on the
sale of securities and income generated from other ancillary banking services.
Non-interest expenses are heavily influenced by the growth of operations, with
additional employees necessary to staff new banks, branch facilities and trust
expansion, higher levels of occupancy and equipment expense, as well as
advertising and marketing expenses necessary to promote the growth. The increase
in the number of account relationships directly affects such expenses as data
processing costs, supplies, postage and other miscellaneous expenses.
OVERVIEW AND STRATEGY Wintrust's operating subsidiaries were organized within
the last eight years, with an average life of its six subsidiary banks of less
than four years. The Company has grown rapidly during the past few years and its
Banks have been among the fastest growing community-oriented de novo banking
operations in Illinois and the country. Because of the rapid growth, the
historical financial performance of the Banks and FIFC has been affected by
costs associated with growing market share in deposits and loans, establishing
new de novo banks, opening new branch facilities, and building an experienced
management team. The Company's financial performance over the past several years
generally reflects improving profitability of the Banks, as they mature, offset
by the significant costs of opening new banks and branch facilities. The
Company's experience has been that is generally takes 13-24 months for new
banking offices to first achieve operational profitability. Similarly,
management currently expects a start-up phase for WAMC of a few years before its
operations become profitable.
The nature of the Company's de novo bank strategy has led to, and will likely
continue to lead to, differences in earnings patterns as compared to other
established community banking organizations. The Company's net interest margin
is low compared to industry standards for the following reasons. First, as de
novo banking institutions, Wintrust's subsidiary banks have been aggressive in
providing competitive loan and deposit interest rates to the communities that
they serve in order to develop
- 39 -
<PAGE>
significant market share. In addition, newer de novo banks typically have lower
loan-to-deposit ratios than more established banks, as core loan growth is
slower to develop in new markets than deposit growth. Finally, the Company has
maintained a relatively shorter term, and therefore lower-yielding, security
portfolio, in order to facilitate loan demand as it emerges, maintain excess
liquidity in the event deposit levels fluctuate and because the interest rate
environment has provided little incentive to invest funds in longer term
securities.
Similarly, as the Company has experienced rapid balance sheet growth over the
past several years, it has also experienced higher overhead levels in relation
to its average assets, when compared to peer industry levels, reflecting the
necessary start-up investment in human resources and facilities to organize
additional de novo banks and open new branch facilities. The net overhead ratio
has improved from 2.60% in 1997 to 2.36% in 1998. While the ratio shows an
improving trend, the Company's objective is to ultimately reduce the net
overhead ratio to a range of 1.50% to 2.00% of average assets. The Company's
more mature banks have met the overhead goals established by the Company. Net
overhead ratios by bank subsidiaries are as follows:
============================================================
NET
OVERHEAD
BANK ESTABLISHED RATIO
- ------------------------------------------------------------
Lake Forest Bank 12/91 1.24%
Hinsdale Bank 10/93 1.88%
North Shore Bank 9/94 1.79%
Libertyville Bank 10/95 1.78%
Barrington Bank 12/96 2.72%
Crystal Lake Bank 12/97 5.71%
============================================================
The Company expects that as its existing Banks continue to mature, the
organizational and start-up expenses associated with future de novo banks and
new branch facilities will not have as significant an impact on the Company's
net overhead ratio.
While committed to a continuing growth strategy, management's current focus is
to balance further asset growth with earnings growth by seeking to more fully
leverage the existing capacity within each of the Banks and FIFC. One aspect of
this strategy is to continue to pursue specialized earning asset niches, and to
shift the mix of earning assets to higher-yielding loans. In addition to Lake
Forest Bank's July 1998 acquisition of a small business engaged in medical and
municipal equipment leasing, the Company may pursue acquisitions of other
specialty finance businesses that generate assets that are suitable for bank
investment and/or secondary market sales. To further balance growth with
increased earnings, management will continue to focus on less aggressive deposit
pricing at the more mature Banks that have more established customer bases.
With the formation of WAMC, the Company intends to expand the trust and
investment management services that have already been provided during the past
several years through the trust department of the Lake Forest Bank. With a
separately chartered trust subsidiary, the Company is now able to offer trust
and investment management services to all communities served by Wintrust banks,
which management believes are some of the best trust markets in Illinois. In
addition to offering these services to existing bank customers at each of the
Banks, the Company believes WAMC can successfully compete for trust business by
targeting small to mid-size businesses and newly affluent individuals whose
needs command the personalized attention that will be offered by WAMC's
experienced trust professionals. During the fourth quarter of 1998, WAMC added
experienced trust professionals at North Shore Bank, Hinsdale Bank and
Barrington Bank. As in the past, a full complement of trust professionals will
continue to operate from offices at the Lake Forest Bank. Services offered by
WAMC typically will include traditional trust products and services, as well as
investment management, financial planning and 401(k) management services.
Similar to starting a de novo bank, the introduction of expanded trust services
is expected to cause relatively high overhead levels when compared to initial
fee income generated by WAMC. The overhead will consist primarily of the
salaries and benefits of experienced trust professionals. Management anticipates
that WAMC will be successful in attracting trust business over the next few
years, to a level that trust fees absorb the overhead of WAMC at that time.
- 40 -
<PAGE>
DE NOVO BANK FORMATION AND BRANCH OPENING ACTIVITY
The following table illustrates the progression of Bank and branch openings that
have impacted the Company's growth and results of operations since inception.
<TABLE>
<CAPTION>
MONTH YEAR BANK LOCATION TYPE OF FACILITY
<S> <C> <C> <C> <C>
December 1998 Lake Forest Bank Lake Forest, Illinois Branch
October 1998 Libertyville Bank Libertyville, Illinois Branch
September 1998 Crystal Lake Bank Crystal Lake, Illinois New permanent facility
May 1998 North Shore Bank Glencoe, Illinois Drive-up/walk-up
April 1998 North Shore Bank Wilmette, Illinois Walk-up
December 1997 Crystal Lake Bank Crystal Lake, Illinois Bank
November 1997 Hinsdale Bank Western Springs, Illinois (2) Branch
February 1997 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up
December 1996 Barrington Bank Barrington, Illinois Bank
August 1996 Hinsdale Bank Clarendon Hills, Illinois (1) Branch
May 1996 North Shore Bank Winnetka, Illinois Branch
November 1995 North Shore Bank Wilmette, Illinois Drive-up/walk-up
October 1995 Hinsdale Bank Hinsdale, Illinois Drive-up/walk-up
October 1995 Libertyville Bank Libertyville, Illinois Bank
October 1995 Libertyville Bank Libertyville, Illinois Drive-up/walk-up
October 1995 North Shore Bank Glencoe, Illinois Branch
May 1995 Lake Forest Bank West Lake Forest, Illinois Branch
December 1994 Lake Forest Bank Lake Bluff, Illinois Branch
September 1994 North Shore Bank Wilmette, Illinois Bank
April 1994 Lake Forest Bank Lake Forest, Illinois New permanent facilities
October 1993 Hinsdale Bank Hinsdale, Illinois Bank
April 1993 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up
December 1991 Lake Forest Bank Lake Forest, Illinois Bank
- ------------------------
<FN>
(1) Operates in this location as Clarendon Hills Bank, a branch of Hinsdale
Bank.
(2) Operates in this location as Community Bank of Western Springs, a branch of
Hinsdale Bank.
</FN>
</TABLE>
REORGANIZATION
Effective September 1, 1996, pursuant to the terms of a reorganization agreement
dated as of May 28, 1996, which was approved by shareholders of all of the
parties, the Company completed a reorganization transaction to combine the
separate activities of the holding companies of each of the Company's then
existing operating subsidiaries. As a result of the transaction, the Company
(formerly known as North Shore Community Bancorp, Inc., the name of which was
changed to Wintrust Financial Corporation in connection with the reorganization)
became the parent holding company of each of the separate businesses, and the
shareholders and warrant holders of each of the separate holding companies
exchanged their shares for Common Stock and their warrants for a combination of
shares of Common Stock and Warrants of the Company (the "Reorganization"). The
Reorganization was accounted for as a pooling-of-interests transaction and,
accordingly, the Company's financial statements have been restated on a combined
and consolidated basis to give retroactive effect to the combined operations
throughout the reported historical periods.
- 41 -
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST INCOME AND EXPENSE, AND INTEREST RATE YIELDS
AND COSTS
The following table sets forth the average balances, the interest earned or paid
thereon, and the effective interest rate yield or cost for each major category
of interest-earning assets and interest-bearing liabilities for the years ended
December 31, 1998, 1997, and 1996. The yields and costs include loan origination
fees and certain direct origination costs which are considered adjustments to
yields. Interest income on non-accruing loans is reflected in the year that it
is collected, to the extent it is not applied to principal. Such amounts are not
material to net interest income or net change in net interest income in any
year. Non-accrual loans are included in the average balances and do not have a
material effect on the average yield. Net interest income and the related net
interest margin have been adjusted to reflect tax-exempt income, such as
interest on municipal securities and loans, on a taxable equivalent basis. This
table should be referred to in conjunction with this analysis and discussion of
the financial condition and results of operations (dollars in thousands).
<TABLE>
<CAPTION>
====================================================================================================================================
1998 1997 1996
-------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits with banks $ 40,094 $ 2,283 5.69% $ 32,319 $ 1,764 5.46% $ 28,382 $ 1,588 5.60%
Federal funds sold 43,784 2,327 5.31 63,889 3,493 5.47 47,199 2,491 5.28
Securities (2) 142,770 8,000 5.60 69,887 3,793 5.43 88,762 4,327 4.87
Loans, net of unearned income (2) 848,344 75,464 8.90 620,801 56,134 9.04 347,076 30,631 8.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,074,992 88,074 8.19 786,896 65,184 8.28 511,419 39,037 7.63
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from
banks - non-interest bearing 26,585 17,966 13,911
Allowance for possible loan losses (5,983) (4,522) (3,247)
Premises and equipment, net 50,681 35,634 26,586
Other assets 31,470 22,110 13,575
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,177,745 $858,084 $562,244
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits - interest bearing:
NOW accounts $ 89,963 $ 2,849 3.17% $ 66,221 $ 2,535 3.83% $ 45,144 $ 1,713 3.79%
Savings and money market deposits 256,644 10,480 4.08 191,317 8,220 4.30 139,150 5,659 4.07
Time deposits 611,199 35,740 5.85 444,587 26,620 5.99 261,502 15,388 5.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing deposits 957,806 49,069 5.12 702,125 37,375 5.32 445,796 22,760 5.11
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings and notes payable 21,249 1,399 6.58 13,694 964 7.04 16,051 1,395 8.69
Long-term debt-trust preferred securities (3) 7,915 747 9.44 - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 986,970 51,215 5.19 715,819 38,339 5.36 461,847 24,155 5.23
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing deposits 100,712 73,280 51,249
Other liabilities 18,157 7,481 7,420
Shareholders' equity 71,906 61,504 41,728
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,177,745 $858,084 $562,244
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $ 36,859 3.00% $ 26,845 2.92% $14,882 2.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 3.43% 3.41% 2.91%
====================================================================================================================================
<FN>
(1) Average balances were generally computed using daily balances.
(2) Interest income on tax advantaged securities and loans reflect a taxable
equivalent adjustment based on a marginal federal tax rate of 34%. The
total taxable equivalent adjustment reflected in the above table is $95 and
$73 in 1998 and 1997, respectively.
(3) This category relates to the $31.05 million 9.00% Cumulative Trust
Preferred Securities offering that was completed in October 1998. The rate
of 9.44% is higher than the coupon rate of 9.00% as it reflects the
amortization of offering costs, including underwriting fees, legal and
professional fees, and other related costs. See Note 10 to the Consolidated
Financial Statements for further information about the Trust Preferred
Securities.
</FN>
</TABLE>
- 42 -
<PAGE>
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest income and
expense by major categories of interest-earning assets and interest-bearing
liabilities attributable to changes in volume or rate or both, for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
============================================================================================================================
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 COMPARED TO 1997 1997 COMPARED TO 1996
----------------------------------------------------------------------------
CHANGE CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
RATE VOLUME CHANGE RATE VOLUME CHANGE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest bearing deposits with banks $ 79 440 519 (40) 216 176
Federal funds sold (95) (1,071) (1,166) 92 910 1,002
Securities 127 4,080 4,207 454 (988) (534)
Loans (925) 20,255 19,330 771 24,732 25,503
----------------------------------------------------------------------------
Total interest income (814) 23,704 22,890 1,277 24,870 26,147
----------------------------------------------------------------------------
INTEREST EXPENSE:
NOW accounts (489) 803 314 16 806 822
Savings and money market deposits (426) 2,686 2,260 336 2,225 2,561
Time deposits (637) 9,757 9,120 275 10,957 11,232
Short-term borrowings and notes payable (66) 501 435 (259) (172) (431)
Long-term debt-trust preferred securities - 747 747 - - -
----------------------------------------------------------------------------
Total interest expense (1,618) 14,494 12,876 368 13,816 14,184
----------------------------------------------------------------------------
Net interest income $ 804 9,210 10,014 909 11,054 11,963
============================================================================================================================
</TABLE>
The changes in net interest income are complicated to assess and require
significant analysis to fully understand. However, it is clear that the change
in the Company's net interest income for the periods under review was
predominantly impacted by the growth in the volume of the overall
interest-earning assets (specifically loans) and interest-bearing deposit
liabilities. In the table above, volume variances are computed using the change
in volume multiplied by the previous year's rate. Rate variances are computed
using the change in rate multiplied by the previous year's volume. The change in
interest due to both rate and volume has been allocated between factors in
proportion to the relationship of the absolute dollar amounts of the change in
each.
ANALYSIS OF FINANCIAL CONDITION
The dynamics of community bank balance sheets is generally dependent upon the
ability of management to attract additional deposit accounts to fund the growth
of the institution. As several of the Company's banks are still less than four
years old, the generation of new deposit relationships to gain market share and
establish themselves in the community as the bank of choice is particularly
important. When determining a community to establish a de novo bank, the Company
generally will only enter a community where it believes the bank can gain the
number one or two position in deposit market share. This is usually accomplished
by initially paying higher deposit rates to gain the relationship and then by
introducing the customer to the Company's unique way of providing local banking
services.
Deposits. Over the past three years, the Company has experienced significant
growth in both the number of accounts and the balance of deposits primarily as a
result of de novo bank formations, new branch openings and strong marketing
efforts. Total deposit balances increased 33.9% to $1.23 billion at December 31,
1998 as compared to $917.7 million at December 31, 1997, which increased 48.5%
when compared to the balance of $618.0 million at December 31, 1996.
The following table presents deposit balances by the Banks and the relative
percentage of total deposits held by each Bank at December 31 during the past
three years (dollars in thousands):
- 43 -
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
1998 1997 1996
---------------------------------------------------------------------------------------
DEPOSIT PERCENT DEPOSIT PERCENT DEPOSIT PERCENT
BALANCES OF TOTAL BALANCES OF TOTAL BALANCES OF TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lake Forest Bank $ 371,900 30% $ 287,765 31% $ 251,906 40%
Hinsdale Bank 259,333 21 206,197 22 140,873 23
North Shore Bank 270,030 22 245,184 27 153,878 25
Libertyville Bank 171,735 14 112,658 12 67,490 11
Barrington Bank 109,130 9 64,803 7 3,882 1
Crystal Lake Bank 47,026 4 1,094 1 - -
---------------------------------------------------------------------------------------
Total Deposits $ 1,229,154 100% $ 917,701 100% $ 618,029 100%
---------------------------------------------------------------------------------------
Percentage increase from
prior year-end 33.9% 48.5% 52.4%
============================================================================================================================
</TABLE>
Short-term borrowings and notes payable. Short-term borrowings fluctuate based
on daily liquidity needs of the Banks and FIFC. In addition, prior to the
October 1998 completion of the $31.05 million Trust Preferred Securities
offering, as discussed in the section below, this category included the
outstanding notes payable balance on a revolving credit line with an
unaffiliated bank. The proceeds from the Trust Preferred Securities offering
were used to pay-off the outstanding balance on this line. Accordingly, there
were no notes payable as of December 31, 1998. The Company continues to maintain
the $40 million revolving credit line, which is available for corporate purposes
such as to provide capital to fund continued growth at existing bank
subsidiaries, expansion of the new trust business, possible future acquisitions
and for other general corporate matters. See Note 9 to the Consolidated
Financial Statements for further discussion of the terms of this revolving
credit line. At December 31, 1997, notes payable totaled $20.4 million and
short-term borrowings totaled $35.5 million.
Trust preferred securities. As of December 31, 1998, this category totaled
$31.05 million of 9.00% Cumulative Trust Preferred Securities, which were
publicly sold in an offering that was completed on October 9, 1998. The proceeds
were used to pay-off the outstanding balance on the revolving credit line, as
mentioned above. The Trust Preferred Securities offering has increased the
Company's regulatory capital, and will provide for the continued growth of its
banking and trust franchise and for possible future acquisitions of other banks
or finance related companies. The ability to treat these Trust Preferred
Securities as regulatory capital under Federal Reserve guidelines, coupled with
the Federal income tax deductibility of the related interest expense, provides
the Company with a cost-effective form of capital. See Note 10 to the
Consolidated Financial Statements for further discussion of these Trust
Preferred Securities.
Total assets and earning assets. The Company's total assets were $1.35 billion
at December 31, 1998, an increase of $294.6 million, or 28.0%, when compared to
$1.05 billion a year earlier. Earning assets totaled $1.23 billion at December
31, 1998, an increase of $267.1 million, or 27.7%, from the balance of $965.5
million at December 31, 1997. Earning assets as a percentage of total assets
dropped slightly to 91.4% as of December 31, 1998 when compared to 91.7% as of
December 31, 1997. This small decline was mainly due to the unusually high prior
year-end level of federal funds sold, which were funded from the increase of
year-end customer repurchase agreements. The increases in total assets and
earning assets since December 31, 1997 were attributable to the 33.9% increase
in the Banks' deposit balances during 1998, and resulted primarily from
continued market share growth at the more established banks and higher balances
at the newer de novo banks. The Company had a total of 21 banking facilities at
the end of 1998 compared to 17 at the end of 1997.
Loans. Strong loan growth in 1998 and an unusually high level federal funds
purchased at the end of 1997, as noted earlier, resulted in loans comprising a
higher proportion of earning assets at December 31, 1998 when compared to the
end of 1997. Total loans, net of unearned income, comprised 80.5% of total
earning assets at December 31, 1998 as compared to 73.8% at December 31, 1997.
Loans, net of unearned income, totaled $992.1 million at December 31, 1998, an
increase of $279.4 million, or 39.2%, since the December 31, 1997 balance of
$712.6 million. The following table presents loan balances, net of unearned
income, by category as of December 31, 1998 and 1997 (dollars in thousands).
- 44 -
<PAGE>
==================================================================
Percent Percent
1998 of Total 1997 of Total
------------------------------------
Commercial and
commercial real estate $ 366,229 37% $ 235,483 33%
Indirect auto, net 209,983 21 138,784 19
Premium finance, net 178,138 18 128,453 18
Home equity 111,537 11 116,147 16
Residential real estate 91,525 9 61,611 9
Other loans 34,650 4 32,153 5
------------------------------------
Total loans, net $ 992,062 100% $ 712,631 100%
==================================================================
Specialty Loan Categories In order to minimize the time lag typically
experienced by de novo banks in redeploying deposits into higher yielding
earning assets, the Company has developed lending programs focused on
specialized earning asset niches having large volumes of homogeneous assets that
can be acquired for the Banks' portfolios and possibly sold in the secondary
market to generate fee income. Currently, the Company's two largest loan niches
function as separate operating segments and consist of the indirect auto segment
and the premium finance segment. Also, in July 1998, Lake Forest Bank acquired a
small operation engaged in medical and municipal equipment leasing, which is
also expected to generate higher yielding assets to maintain within the bank's
loan portfolio. Management continues to evaluate other specialized types of
earning assets to assist in the deployment of deposit funds and to diversify the
earning asset portfolio.
Indirect auto loans. The Company finances fixed rate automobile loans sourced
indirectly through an established network of unaffiliated automobile dealers
located throughout the Chicago metropolitan area. These indirect auto loans are
secured by new and used automobiles and generally have an original maturity of
36 to 60 months with the average actual maturity estimated to be approximately
35 to 40 months. The risk associated with this portfolio is diversified amongst
many individual borrowers. The Company utilizes credit underwriting standards
that management believes results in a high quality portfolio. The Company does
not currently originate any significant level of sub-prime loans, which are made
to individuals with impaired credit histories at generally higher interest
rates, and accordingly, with higher levels of credit risk. Management
continually monitors the dealer relationships and the Banks are not dependent on
any one dealer as a source of such loans. The Company began to originate these
loans in mid-1995 and has consistently increased the level of outstanding loans.
As of December 31, 1998, net indirect auto loans were the second largest loan
category and totaled $210.0 million, an increase of $71.2 million, or 51.3%,
over the prior year-end balance. The mix increase to 21% as of December 31, 1998
as compared to 19% at the end of 1997, as well as the strong growth in balances,
were primarily the result of business development efforts that added new dealers
to the network of auto dealer relationships.
Premium finance receivables. The Company originates commercial premium finance
receivables through FIFC, who currently sell them to the Banks; however, these
receivables could be funded in the future through an asset securitization
facility. All premium finance receivables, however financed, are subject to the
Company's stringent credit standards, and substantially all such loans are made
to commercial customers. The Company rarely finances consumer insurance
premiums. Prior to the September 1, 1996 Reorganization, substantially all loans
were sold through an asset securitization facility. Subsequent to this date,
originated premium finance loans have generally been sold to the Banks and
consequently remain as an asset of the Company. For that reason and because the
securitization facility was eliminated during 1997, the net balance increased
from $57.5 million at the end of 1996 to $128.5 million as of December 31, 1997.
As of December 31, 1998, net premium finance loans totaled $178.1 million and
increased $49.7 million, or 38.7%, over the December 31, 1997 balance. This
increase was mainly due to increased market penetration from new product
offerings and targeted marketing programs.
Core Loan Categories
Commercial and commercial real estate loans, the largest loan category, totaled
$366.2 million at December 31, 1998 and increased $130.7 million, or 55.5%, from
the December 31, 1997 balance. This increase, and the higher mix to 37%,
resulted mainly from the low interest rate environment, healthy economy and the
hiring of additional experienced lending officers.
Total home equity loans declined slightly when comparing the December 31, 1998
balance of $111.5 million to the $116.1 million balance a year earlier, due to
the large volume of home equity loans that have been refinanced into first
mortgage loans over the past year as a result of low mortgage loan interest
rates. Unused commitments on home equity lines of credit, however, have
increased $48.3 million, or 40.2%, over the balance at December 31, 1997 and
totaled $168.3 million at December 31, 1998.
Residential real estate loans totaled $91.5 million at December 31, 1998, an
increase of $29.9 million, or
- 45 -
<PAGE>
48.6%, from the $61.6 million balance at the end of 1997. Mortgage loans held
for sale are included in this category and totaled $18.0 million and $9.6
million at December 31, 1998 and 1997, respectively. The Company collects a fee
on the sale of these loans into the secondary market to avoid the interest-rate
risk associated with these loans, as they are predominantly long-term fixed rate
loans. The $8.4 million increase in these loans was due mainly to the low
mortgage interest rate environment and the related high levels of refinancing
activity. The remaining $21.5 million increase in residential real estate loans
is also predominantly due the low interest rate environment and mostly comprises
adjustable rate mortgage loans and shorter-term fixed rate mortgage loans that
are retained within the Banks' loan portfolios.
Liquidity Management Assets. Funds that are not utilized for loan originations
are used to purchase short-term investment securities and money market
investments, to sell as federal funds and to maintain in interest bearing
deposits with banks. The balances of these assets fluctuate frequently based on
deposit inflows and loan demand. As a result of anticipated significant growth
in the development of de novo banks, it has been Wintrust's policy to maintain
its securities portfolio in short-term, liquid, and diversified high credit
quality securities at the Banks in order to facilitate the funding of quality
loan demand as it emerges and to keep the Banks in a liquid condition in the
event that deposit levels fluctuate. Furthermore, since short-term investment
yields are generally comparable to long-term investment yields in the current
interest rate environment, there is little incentive to invest in securities
with extended maturities. The aggregate carrying value of these investments
declined to $240.5 million at December 31, 1998 from $252.9 million at December
31, 1997, primarily due to the unusually high level of federal funds sold at the
end of 1997, as discussed earlier in the Total Assets and Earning Assets
section. A detail of the carrying value of the individual categories as of
December 31 is set forth in the table below (in thousands).
================================================================
1998 1997
--------------------------
Federal funds sold $ 18,539 60,836
Interest bearing deposits with banks 7,863 85,100
Securities 214,119 106,935
- ----------------------------------------------------------------
Total liquidity management assets $ 240,521 252,871
================================================================
CONSOLIDATED RESULTS OF OPERATIONS Comparison of Results of Operations for the
Years Ended December 31, 1998 and December 31, 1997 Overview of the Company's
profitability characteristics. The following discussion of Wintrust's results of
operations requires an understanding that the Company's bank subsidiaries have
all been started as new banks since December 1991 and have an average life of
less than four years. The Company's premium finance company, FIFC, began limited
operations in 1991 as a start-up company. The Company's new trust and investment
company, WAMC, began operations in September 1998. Previously, the Company's
Lake Forest Bank operated a trust department on a much smaller scale than what
is anticipated for WAMC. Accordingly, Wintrust is still a young Company that has
a strategy of continuing to build its customer base and securing broad product
penetration in each market place that it serves. The Company has expanded its
banking offices from 5 in 1994 to 21 at the end of 1998, adding four new offices
in 1998 and three new offices in 1997. In addition, WAMC has hired experienced
trust professionals in the last half of 1998, who are located within the banking
offices of four of the six subsidiary banks. These expansion activities have
understandably suppressed faster, opportunistic earnings. However, as the
Company matures and existing banks become more profitable, the start-up costs
associated with future bank and branch openings and other new financial services
ventures will not have as significant an impact on earnings. Additionally, the
Company's more mature banks have several operating ratios that are either
comparable or better than peer group data, suggesting that as the banks become
more established, the overall earnings level will accelerate.
Earnings summary. Net income for the year ended December 31, 1998 totaled $6.2
million and increased $1.4 million, or 28.9%, over the prior year. Net income
per basic common share totaled $0.77 in 1998 versus $0.62 in 1997, an increase
of $0.15 per share, or 24.2%. On a diluted basis, net income per common share
totaled $0.74 in 1998 as compared to $0.60 in 1997, an increase of $0.14 per
share, or 23.3%.
In the second quarter of 1998, net income was unfavorably impacted by the
previously reported non-recurring $1.0 million pre-tax charge related to
severance amounts due to the Company's former Chairman and Chief Executive
Officer and certain related legal fees. Excluding this charge, on an after-tax
basis, net income for the year ended December 31, 1998 would have been $6.9
million, or $0.81 per diluted common share, an increase of $2.0 million, or
41.5%, over 1997.
- 46 -
<PAGE>
Net income for 1998 was favorably impacted by a higher earning asset base and
resulted in net interest income increasing by $10.0 million over the 1997 total.
Fees recognized on mortgage loans sold into the secondary market, primarily on a
servicing released basis, also was a key factor for the earnings growth during
1998. These fees increased $3.2 million in 1998 when compared to the 1997 level
and were mainly the result of the low mortgage interest rate environment that
has created a high level of refinancing activity and fueled a healthy
residential real estate market. A $8.6 million increase in total non-interest
expense during 1998 as compared to 1997 offset a portion of this income growth,
and was due primarily to the growth and expansion experienced by the Company
during 1998, as noted earlier in this discussion.
Another significant factor that contributed to net income for both 1998 and 1997
was the recognition of income tax benefits from the realization of previously
unvalued tax loss benefits. For the year ended December 31, 1998 and 1997, the
Company recorded income tax benefits of $1.5 million and $3.8 million,
respectively. These income tax benefits reflect management's determination that
certain of the Company's subsidiaries' earnings histories and projected future
earnings were sufficient to make a judgment that the realization of a portion of
the net deferred tax assets not previously recognized was more likely than not
to occur. See the Income Taxes section later in this discussion for further
information.
Excluding the impact of income tax benefits and the second quarter 1998 $1.0
million non-recurring pre-tax charge, the Company recorded operating income of
$5.7 million and $1.1 million in 1998 and 1997, respectively. This significant
improvement in operating results was due to the enhanced performance of the
Company's more established subsidiaries.
Net interest income. Net interest income totaled $36.8 million for the year
ended December 31, 1998, an increase of $10.0, or 37.3%, when compared to 1997.
This increase was primarily attributable to a 36.6% increase in average earning
assets, including a 36.7% increase in average loans and a 36.5% increase in
average securities and other liquidity management assets. Total average loans as
a percentage of total average earning assets remained constant at 78.9% in both
1998 and 1997. The average loan to average deposit ratio also remained constant
at 80.1% for both 1998 and 1997. The net interest margin slightly increased
during 1998 to 3.43% as compared to 3.41% in 1997. The average earning asset
yield declined to 8.19% in 1998 as compared to 8.28% in 1997, due mostly to the
14 basis point decline in the average loan yield to 8.90% in 1998. This decline
was due primarily to the reductions in the prime lending rate during the last
half of 1998 in addition to competitive pressures on commercial loan rates. The
average prime rate during 1997 was 8.48% compared to 8.36% during 1998 and was
7.75% as of December 31, 1998. A 20 basis point decline in the cost of average
interest bearing deposits to 5.12% in 1998 helped to offset the lower loan
yield. This improvement was due to a general decline in rates and less
aggressive deposit pricing in the markets of the more mature banks that have
already established significant market share. Management's continued focus on
deposit pricing at the more mature banks may result in further improvements in
the net interest margin. Please refer to the previous sections of this
discussion entitled "Average Balance Sheets, Interest Income and Expense, and
Interest Rate Yields and Costs" and "Changes in Interest Income and Expense" for
detailed tables of information and further discussion of the components of net
interest income and the impact of rate and volume changes.
Provision for possible loan losses. The provision for possible loan losses
increased by $893,000 in 1998 when compared to the prior year, and totaled $4.3
million. This increase was necessary to cover higher loan charge-offs and also
to maintain the allowance for possible loan losses at an appropriate level,
considering the growth experienced in the loan portfolio. Management believes
the allowance for possible loan losses is adequate to cover potential losses in
the portfolio. There can be no assurance, however, 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 possible 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.
Non-interest income. Total non-interest income increased $3.1 million, or 63.3%,
to $8.1 million for the year ended December 31, 1998, when compared to $4.9
million in 1997.
Fees on mortgage loans sold, the largest category of non-interest income,
includes income from originating and selling residential real estate loans into
the secondary market. For the year ended December 31, 1998, these fees rose $3.2
million, or 137.9%, in comparison to 1997, and totaled $5.6 million.
Historically low mortgage interest rates and the related high levels of
refinancing activity have been the major reasons for these significant revenue
increases. There can be no assurances a
- 47 -
<PAGE>
favorable mortgage rate environment will continue. Accordingly, future fee
income on mortgage loans sold may not be at the levels experienced during 1998.
Service charges on deposit accounts continued to increase throughout 1998 when
compared to the previous year, predominantly as a result of higher deposit
balances and a larger number of accounts. Service charges totaled $1.1 million
for the year ended December 31, 1998, an increase of $341,000, or 47.1%, over
1997. The majority of deposit service charges relate to customary fees on
overdrawn accounts and returned items. The level of service charges received is
substantially below peer group levels as management believes in the philosophy
of providing high quality service without encumbering that service with numerous
activity charges.
Trust fees totaled $788,000 for the year ended December 31, 1998, an increase of
$162,000, or 25.9%, over 1997 due primarily to new business development efforts.
With the September 30, 1998 start-up of WAMC, it is anticipated that additional
fee income will be generated in the future from the expansion of personalized
trust and investment services to each bank subsidiary. The introduction of
expanded trust and investment services, however, is expected to cause relatively
high overhead levels when compared to the initial fee income generated by WAMC.
This overhead will consist primarily of the salaries and benefits of experienced
trust professionals. It is anticipated that WAMC will be successful in
attracting new business such that trust fees will increase to a level sufficient
to absorb the overhead of WAMC within a few years.
Non-interest expense. For the year ended December 31, 1998, total non-interest
expense was $35.8 million and increased $8.6 million, or 31.5%, over 1997.
Excluding the non-recurring $1.0 million pre-tax charge recorded in the second
quarter of 1998, as discussed earlier, total non-interest expense would have
increased $7.6 million, or 27.8%, over 1997. The increases in non-interest
expense were predominantly caused by the continued growth of the Company, as
discussed in earlier sections of this analysis. For example, the late 1997
start-up of the Crystal Lake Bank added $1.7 million to total 1998 non-interest
expense, and the 1998 incremental increase of non-interest expense at Barrington
Bank, which began operating in December 1996, was $728,000. Since December 31,
1997, total deposits have grown 33.9% and total loan balances have risen 39.2%,
requiring higher levels of staffing and other operating costs, such as
occupancy, advertising and data processing, to both attract and service the
larger customer base.
Despite increases in many of the non-interest expense categories, Wintrust's
ratio of non-interest expense to total average assets declined from 3.18% in
1997 to 2.99% in 1998, exclusive of the previously mentioned second quarter
non-recurring charge, and is comparable to the Company's peer group ratio.
Salaries and employee benefits for the year ended December 31, 1998 totaled
$18.9 million, an increase of $4.7 million, or 33.4%, from the same period in
1997. Approximately $900,000 of the $1.0 million non-recurring charge mentioned
earlier relates to a severance accrual and, excluding this charge, the increase
over 1997 would have been $3.8 million, or 27.0%. The increase was directly
caused by higher staffing levels necessary to support the growth of the Company
including 1) the Crystal Lake Bank that was opened in December 1997, 2) a new
full-service facility located in Western Springs that opened in November 1997,
3) two branch facilities, in Wilmette and Glencoe, that began operations in
early 1998, 4) the formation of WAMC as a separate trust company, 5) the
addition of the new medical and municipal equipment leasing division in July
1998, 6) additional staffing to service the larger deposit and loan portfolios
and 7) normal salary increases. For the year ended December 31, 1998, salaries
and employee benefits, exclusive of the non-recurring charge, as a percent of
average assets was 1.53% versus 1.66% in 1997, ratios that are comparable to the
Company's peer group. This ratio is better than the relevant peer group for the
Company's more established banks.
Net occupancy expenses for the year ended December 31, 1998 increased $539,000,
or 28.4%, to $2.4 million as compared to $1.9 million for the prior year. This
increase was due primarily to the December 1997 start-up of the Crystal Lake
Bank and the opening of three additional facilities, as noted earlier, during
1998.
Equipment expense, which comprises depreciation and repairs and maintenance,
totaled $2.2 million for year ended December 31, 1998, a $508,000, or 29.7%,
increase over the 1997 amount. This increase was mainly due to higher levels of
depreciation expense related to the opening of additional facilities and other
growth as discussed earlier.
Data processing expenses totaled $1.7 million for the year ended December 31,
1998, an increase of $339,000, or 25.4%, when compared to the prior year period.
The increase was mainly due to the Crystal Lake Bank opening and additional
transactional charges related to the larger deposit and loan portfolios, which
increased, on an average basis, 36.5% and 36.7%, respectively, in 1998 when
compared to the prior year.
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<PAGE>
Professional fees, which includes legal, audit and tax fees, external loan
review costs and normal regulatory exam assessments, totaled $1.7 million for
the year ended December 31, 1998, an increase of $311,000, or 23.2%, over 1997.
This increase was primarily due to growth in the Company, legal fees related to
certain non-performing loan work-outs, and approximately $100,000 in legal fees
related to the non-recurring severance charge mentioned earlier.
Advertising and marketing expenses totaled $1.6 million for the year ended
December 31, 1998, an increase of $303,000, or 23.1%, over 1997. Higher levels
of marketing costs were necessary during 1998 to attract loans and deposits at
the Crystal Lake Bank, Barrington Bank and other new branch facilities, to
introduce new loan promotions at FIFC, and to announce the expansion of trust
and investment services through WAMC. Management anticipates continued increases
in this expense category as the Company continues to expand its customer base
and market additional products and services.
Other non-interest expenses for the year ended December 31, 1998 totaled $7.3
million and increased $1.8 million, or 33.7%, over the prior year. This category
includes the amortization of organizational costs and other intangible assets,
loan expenses, correspondent bank service charges, insurance, postage,
stationery and supplies and other sundry expenses. Included in the increase was
a $600,000 operations loss at one subsidiary bank. The operational controls and
systems of this bank and all other Banks have been reviewed and additional
controls and procedures have been put into place, where considered necessary.
Management is aggressively pursuing the recovery of this loss, however, there
can be no assurances that any of this loss will be recovered. The remaining
increase in this category of expenses was generally caused by the Company's
expansion activities, as discussed earlier, including increased costs from the
origination and servicing of a larger base of deposit and loan accounts.
Total non-interest expense as a percent of total average assets was 3.04% in
1998, an improvement from 3.18% in 1997. Controlling overhead costs is a basic
philosophy of management and is closely evaluated. Management is committed to
continually evaluating its operations to determine whether additional expense
savings are possible without impairing the goal of providing superior customer
service.
Income taxes. The Company recorded income tax benefits of $1.5 million and $3.8
million for the years ended December 31, 1998 and 1997, respectively. Prior to
the September 1, 1996 merger transaction that formed Wintrust, each of the
merging companies, except Lake Forest Bank, had net operating losses and, based
upon the start-up nature of the organization, there was not sufficient evidence
to justify the full realization of the net deferred tax assets generated by
those losses. Accordingly, during 1996, certain valuation allowances were
established against deferred tax assets with the combined result being that a
minimal amount of Federal tax expense or benefit was recorded. As the separate
entities become profitable, the recognition of previously unvalued tax loss
benefits become available, subject to certain limitations, to offset tax expense
generated from profitable operations. The income tax benefit recorded in 1998
and 1997 reflected management's determination that certain of the subsidiaries'
earnings history and projected future earnings were sufficient to make a
judgment that the realization of a portion of the net deferred tax assets not
previously valued was more likely than not to occur. Full recognition of the net
operating losses, for financial reporting purposes, was completed in 1998 and,
as such, the Company will be fully-taxable for Federal and state income tax
purposes in 1999. Please refer to Note 12 of the Consolidated Financial
Statements for further discussion and analysis of the Company's tax position.
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of Results of Operations for the Years Ended December 31, 1997 and
December 31, 1996
Earnings Summary. For the year ended December 31, 1997, the Company's net income
increased $5.8 million over the prior year. Specifically, the Company recorded
net income of $4.8 million in 1997 compared to a net loss of $973,000 for the
year ended December 31, 1996. The 1997 net income represents diluted earnings
per share of $0.60 for the year compared to a loss per share of $0.16 for 1996.
The three primary positive factors that added to the increase in earnings were
(1) a greater earning asset base coupled with an improved net interest margin
resulted in an increase in net interest income of $11.9 million; (2) the
increase in the realization of certain income tax net operating losses produced
net tax benefits of $2.5 million in excess of tax benefits recognized during
1996; and (3) the 1996 results of operations contained $891,000 of expenses from
the Company's September 1996 reorganization transaction whereas 1997 contained
no such expenses. The negative factors affecting earnings were (1) an increased
provision for possible loan losses primarily due to the growth in the loan
portfolio; (2) a decrease in the level of non-interest income of approximately
$2.6 million as the Company discontinued the sale of
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<PAGE>
premium finance loans through a securitization facility in favor of maintaining
the loans in its own portfolio as a means to increase interest income; and (3)
an increase of approximately 25% in non-interest expenses, excluding the merger
related costs, to support the 49.2% increase in the asset size of the Company.
Net interest income. Net interest income increased to $26.8 million for the year
ended December 31, 1997, from $14.9 million for the comparable period of 1996.
This increase in net interest income of $11.9 million, or 79.9%, was primarily
attributable to a 53.9% increase in average earning assets in 1997 compared to
1996. The portion of the earning asset portfolio that exhibited the strongest
growth was in the loan portfolio where the average yield on such loans increased
to 9.04% in 1997 from 8.83% in 1996. Offsetting the beneficial impact of the
increased earning asset base was an increase in interest bearing liabilities and
the rate paid thereon from 5.23% in 1996 to 5.36% in 1997. The net impact of the
rate and volume changes was an increase in the net interest margin to 3.41% for
1997 from 2.91% in 1996. Please refer to the previous sections of this report
titled "Average Balance Sheets, Interest Income and Expense, and Interest Rate
Yields and Costs" and "Changes in Interest Income and Expense" for detailed
tables of information and further discussion of the components of net interest
income.
Provision for possible loan losses. The provision for possible loan losses
increased to $3.4 million in 1997, from $1.9 million in the prior year due to
the increases in the loan portfolio and to replenish the allowance for possible
loan losses for the $1.9 million of net loan charge-offs during 1997.
Non-interest income. Total non-interest income decreased approximately $2.6
million, or 34.4%, to $4.9 million for the year ended December 31, 1997, as
compared to $7.5 million in 1996.
The Company recorded no gains on the sale of premium finance receivables during
1997 compared to approximately $3.1 million for the year ended December 31,
1996. The elimination of gains on the sale of premium finance receivables
occurred because all receivables originated were retained by the Company during
1997; thereby eliminating any gain from sales to the previously maintained
securitization facility. By retaining all premium finance receivables, the
Company was able to eliminate borrowing expense associated with the commercial
paper issued to fund the securitization facility and increase interest income by
maintaining the receivables on the balance sheet of the Company. Thus, despite a
$3.1 million decline in this income category, the Company's net interest income
improved during 1997.
Loan servicing fees decreased from $1.4 million for the year ended December 31,
1996 to $248,000 for the year ended December 31, 1997, primarily due to a
decrease in the amount of average managed insurance premium finance receivables
in the 1997 period. During the fourth quarter of 1996, subsequent to the merger
of FIFC and the Banks, the majority of insurance premium finance receivables
originated were retained by the Company; thereby eliminating any servicing
revenue on newly originated loans. Because the term of premium finance loans is
usually less than one year, the average managed insurance premium loans declined
rapidly and related servicing fees similarly declined. Early in the third
quarter of 1997, the Company no longer serviced premium finance receivables for
others; however, the Company continues to service a residential real estate
portfolio for the Federal National Mortgage Association.
Fees on mortgage loans sold relate to income derived by the Banks for services
rendered in originating and selling residential mortgages into the secondary
market. Such fees increased to $2.3 million in 1997 from $1.4 million in 1996
primarily due to new facilities and increased volume. The increased volume was a
result of a favorable interest rate environment and effective product features,
such as low or no cost processing in certain circumstances, that allowed the
banks to differentiate themselves from the competition. Also contributing to the
increase was a full year of loan sales at Barrington Bank that opened during the
last month of 1996.
Service charges on deposit accounts increased 54.7% to $724,000 for the year
ended December 31, 1997, from $468,000 for the year ended December 31, 1996. The
increase is a direct result of the 48.5% increase in deposit balances from
December 31, 1996 to December 31, 1997.
Trust fees increased to $626,000 from $522,000 for the years ended December 31,
1997 and 1996, respectively, due primarily to increased trust business. The
general increase in the value of the equities market also contributed to the
increase in fees because certain assets under management are charged fees based
on a percentage of the market value of the accounts.
Non-interest expense. Total non-interest expense increased approximately $4.5
million, or 19.7%, to $27.3 million for the year ended December 31, 1997, as
compared to $22.8 million in the same period of 1996.
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<PAGE>
Excluding the merger-related costs of $891,000 in 1996, the increase in
non-interest expenses from 1996 to 1997 was approximately 24.6% despite the
increase in total average assets of 52.6% during the same time period.
Salaries and employee benefits increased 23.0% in 1997 to $14.2 million from
$11.6 million for the same period of the prior year. The increase of $2.6
million is principally due to (1) the increase in the number of banking
facilities to 17 at December 31, 1997, from 14 at December 31, 1996; (2) an
increase of approximately $1.1 million related to Barrington Bank, which only
opened and became fully staffed in December, 1996 but which had a fully
operational staff during 1997; (3) additional staffing levels at other existing
facilities to support the increased customer base; and (4) normal salary
increases.
Net occupancy expenses increased to $1.9 million for the year ended December 31,
1997, from $1.6 million for the year ended December 31, 1996, due primarily to
the addition of three additional facilities during 1997 and the inclusion of
occupancy costs for Barrington Bank for a full year.
Equipment expense totaled $1.7 million for the year ended December 31, 1997, an
increase of $400,000, or 30.5%, as compared to the same period in 1996. This
increase was primarily due to higher levels of depreciation expense related to
the increased number of facilities and general growth of the Company.
For the year ended December 31, 1997, data processing expenses increased by
$323,000, or 31.9%, compared to the same period of 1996, as a result of the
increase of average outstanding deposit and loan balances of approximately 48.5%
and 44.7%, respectively.
Professional fees totaled $1.3 million for the year ended December 31, 1997 as
compared to $906,000 in the prior year period, an increase of $437,000, or
48.2%. This increase was mainly due to a higher level of non-performing loans in
1997 and general growth of the Company.
Advertising and marketing expenses increased to $1.3 million for the year ended
December 31, 1997, compared to $1.1 million for the same period of 1996,
primarily due to increased marketing costs to promote the Company's additional
banking locations.
Non-recurring merger-related expenses were $891,000 during 1996. The
Reorganization resulted in various legal expenses, accounting and tax related
expenses, printing, Securities and Exchange Commission filing expenses, and
other applicable expenses. No such expenses were incurred during 1997 because
the merger was consummated in 1996.
Other non-interest expenses increased by $1.1 million, or 25.7%, to $5.5 million
for the year ended December 31, 1997, from $4.3 million for the year ended
December 31, 1996, primarily due to the higher volume of accounts outstanding at
the Banks. Despite the increases in the various non-interest expense categories
during 1997, the Company was successful in reducing its ratio of total
non-interest expenses to total average assets to 3.18% in 1997, compared to
3.89% in 1996, excluding the non-recurring merger-related expenses.
Income taxes. The Company recorded an income tax benefit of $3.8 million during
1997, whereas an income tax benefit of approximately $1.3 million was recorded
in 1996. Prior to completion of the Reorganization on September 1, 1996, each of
the merging companies except Lake Forest Bank had net operating losses and,
based upon the start-up nature of the organization, there was not sufficient
evidence to justify the full realization of the net deferred tax assets
generated by those losses. Accordingly, a valuation allowance was established
against a portion of the deferred tax assets with the combined result being that
some Federal tax benefit was recorded.
OPERATING SEGMENT RESULTS
As described in Note 21 to the Consolidated Financial Statements, the Company's
operations consist of four primary segments: banking, premium finance, indirect
auto, and trust. The Company's profitability is primarily dependent on the net
interest income, provision for possible loan losses, non-interest income and
operating expenses of its banking segment. The net interest income of the
banking segment includes income and related interest costs from portfolio loans
that were purchased from the premium finance and indirect auto segments. For
purposes of internal segment profitability analysis, management reviews the
results of its premium finance and indirect auto segments as if all loans
originated and sold to the banking segment were retained within that segment's
operations.
The banking segment's net interest income for the year ended December 31, 1998
totaled $34.2 million as compared to $25.5 million for the same period in 1997,
an increase of $8.7 million, or 34.1%. The increase in net interest income for
1997 when compared to the total of $14.6 million in 1996 was $10.9 million, or
74.8%. These increases were the direct result of the growth in earning
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<PAGE>
assets, as discussed in the Consolidated Results of Operations section. The
banking segment's non-interest income totaled $7.7 million in 1998, an increase
of $4.0 million, or 105.6%, over the total of $3.7 million in 1997, which
increased $1.3 million, or 56.0%, as compared to the total of $2.4 million in
1996. These increases were primarily the result of higher levels of fees from
the sale of residential mortgage loans and general growth of the Company, as
more fully explained in the Consolidated Results of Operations section of this
discussion. The banking segment's net after-tax profit totaled $5.1 million for
the year ended December 31, 1998, an increase of $1.0 million, or 24.8%, as
compared to the 1997 total of $4.1 million. The total segment profit in 1997
increased $5.0 million over the $917,000 segment loss that was recorded in 1996.
These after-tax segment profit increases were mainly the result of the continued
maturation and related profitability improvements of the more established de
novo bank subsidiaries.
Net interest income for the premium finance segment totaled $9.7 million for the
year ended December 31, 1998 and increased $2.4 million, or 32.0%, over the $7.4
million in 1997 due to higher levels of premium finance receivables as a result
of increased market penetration from new product offerings and targeted
marketing programs. For the year ended December 31, 1996, the premium finance
segment had only $554,000 of net interest income, as prior to September 30,
1996, all loan originations were sold into the secondary market through a
securitization facility, which resulted in non-interest income that totaled $4.4
million for the year. Net after-tax profit of the premium finance segment
totaled $2.0 million for the year ended December 31, 1998, as compared to
$373,000 in 1997 and a $332,000 segment loss in 1996. The improvement in
profitability during 1998 was due mainly to the combination of higher loan
volumes and the implementation of additional collection procedures and upgraded
systems.
Net interest income for the indirect auto segment totaled $5.6 million in 1998,
a $2.0 million, or 55.0%, increase over 1997 as a result of a 49.6% increase in
average outstanding loans. Total net interest income of $3.6 million in 1997
increased $1.3 million, or 58.4%, over the 1996 total of $2.3 million, due to
higher average outstanding loans. The indirect auto segment after-tax profit
totaled $1.8 million for the year ended December 31, 1998, an increase of
$625,000, or 51.0%, over the 1997 total of $1.2 million. In 1997, after-tax
segment profit increased $463,000, or 60.8%, over the 1996 total of $762,000.
These increases were due to growth in the Chicago area automobile dealer
network, which resulted in a higher level of average outstanding loans.
As mentioned earlier, the trust segment relates to the operations of WAMC, a
trust and investment subsidiary that began operations on September 30, 1998.
Trust segment results prior to WAMC relate to the operations of the trust
department of Lake Forest Bank and, accordingly, certain expenses of the bank
were allocated as indirect costs to the trust segment. In addition to trust and
investment management fees that are recorded as non-interest income, and in
connection with internal profitability analysis, the trust segment includes net
interest income related to certain trust account balances that are maintained
with the Lake Forest Bank. This net interest income totaled $359,000 for 1998 as
compared to $182,000 in 1997 and $134,000 in 1996. Trust fee income totaled
$788,000 in 1998 as compared to $626,000 in 1997, an increase of $162,000, or
25.9%, due mainly to new business development efforts. The increase in 1997 when
compared to the 1996 total of $522,000 was $104,000, or 19.9%. The trust segment
after-tax loss totaled $189,000 for the year ended December 31, 1998 as compared
to a profit of $237,000 and $175,000 for the same periods in 1997 and 1996,
respectively. The loss in 1998 was due to the start-up of WAMC and the related
salary and employee benefit costs of hiring experienced trust professionals. See
the Overview and Strategy section of this discussion for further explanation of
the trust segment expansion through WAMC.
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 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
boards of directors of the Banks, subject to general oversight by the Company's
Board of Directors. The policy establishes guidelines for acceptable limits on
the sensitivity of the market value of assets and liabilities to changes in
interest rates.
Interest rate risk arises when the maturity or repricing periods and interest
rate indices of the interest earning assets, interest bearing liabilities, and
off-balance sheet financial instruments are different, creating a risk that
changes in the level of market interest rates will result in disproportionate
changes in the value of, and the net earnings generated from, the Company's
interest earning assets, interest bearing liabilities and off-balance sheet
financial instruments. The Company continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, management attempts to identify potential
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<PAGE>
adverse swings in net interest income in future years, as a result of interest
rate movements, by performing computerized simulation analysis of potential
interest rate environments. If a potential adverse swing in net interest margin
and/or net income are identified, management then would take appropriate actions
with its asset-liability structure to counter these potential adverse
situations. Please refer to earlier sections of this discussion and analysis for
further discussion of the net interest margin.
As the Company's primary source of interest bearing liabilities is customer
deposits, the Company's ability to manage the types and terms of such deposits
may be somewhat limited by customer preferences and local competition in the
market areas in which the Company operates. The rates, term and interest rate
indices of the Company's interest earning assets result primarily from the
Company's strategy of investing in loans and short-term securities that permit
the Company to limit its exposure to interest rate risk, together with credit
risk, while at the same time achieving a positive interest rate spread.
The Company's exposure to interest rate risk is reviewed on a regular basis by
management and the boards of directors of the individual subsidiaries and the
Company. The objective is to measure the effect on net income and to adjust
balance sheet and off-balance sheet instruments to minimize the inherent risk
while at the same time maximize income. Tools used by management include a
standard gap report and a rate simulation model whereby changes in net income
are measured in the event of various changes in interest rate indices. An
institution with more assets than liabilities repricing over a given time frame
is considered asset sensitive and will generally benefit from rising rates and
conversely, a higher level of repricing liabilities versus assets would be
beneficial in a declining rate environment. The following table illustrates the
Company's estimated interest rate sensitivity and periodic and cumulative gap
positions as of December 31, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
------------------------------------------------------------------------
0-90 91-365 1-5 Over 5
Days Days Years Years Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets (RSA) $ 677,217 254,522 225,627 190,682 1,348,048
Rate sensitive liabilities (RSL) 749,271 247,634 89,251 261,892 1,348,048
Cumulative gap (GAP = RSA - RSL) (72,054) (65,166) 71,210
Cumulative RSA/RSL 0.90 0.93 1.07
Cumulative RSA/Total assets 0.50 0.19 0.17
Cumulative RSL/Total assets 0.56 0.18 0.07
GAP/Total assets (5)% (5)% 5%
GAP/Cumulative RSA (11)% (7)% 6%
============================================================================================================================
</TABLE>
While the gap position illustrated above is a useful tool that management can
access for general positioning of the Company's and its subsidiaries' balance
sheets, it is only as of a point in time and does not reflect the impact of a
$100 million notional principal amount interest rate cap that was purchased in
August 1998 to mitigate the effect of rising rates on certain floating rate
deposit products and fixed rate loan products. This interest rate cap agreement
reprices on a monthly basis and expires in December 1999.
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 income due to changes in interest rates over a
two-year time horizon. Management measures its exposure to changes in interest
rates using many different interest rate scenarios. One interest rate scenario
utilized is to measure the percentage change in net income assuming an
instantaneous permanent parallel shift in the yield curve of 200 basis points,
both upward and downward. This analysis includes the impact of the interest rate
cap agreement mentioned above. Utilizing this measurement concept, the interest
rate risk of the Company, expressed as a percentage change in net income over a
two-year time horizon due to changes in interest rates, at December 31, 1998, is
as follows:
======================================================================
+200 Basis -200 Basis
Points Points
- ----------------------------------------------------------------------
Percentage change in net income
due to an immediate 200 basis point
change in interest rates over a
two-year time horizon 2.7% (2.2)%
======================================================================
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects various measures of the Company's capital at
December 31, 1998 and 1997:
==========================================================
DECEMBER 31,
-------------------
1998 1997
-------------------
Average equity-to-average asset ratio 6.1% 7.2%
Leverage ratio 7.5 6.6
Tier 1 risk-based capital ratio 8.5 8.7
Total risk-based capital ratio 9.7 9.4
Dividend payout ratio 0.0 0.0
==========================================================
The Company's consolidated leverage ratio (Tier 1 capital/total fourth quarter
average assets less intangibles) was 7.5% at December 31, 1998, which is in
excess of the "well capitalized" regulatory level. Consolidated Tier 1 and total
risk-based capital ratios were 8.5% and 9.7%, respectively. Based on guidelines
established by the Federal Reserve Bank, a bank holding company is required to
maintain a ratio of Tier 1 capital to risk-based assets of 4.0% and a ratio of
total capital to risk-based assets of 8.0% in order to be deemed "adequately
capitalized".
The Company's principal funds at the holding company level are dividends from
its subsidiaries, borrowings on its revolving credit line with an unaffiliated
bank, proceeds from the October 1998 Trust Preferred Securities offering, as
previously discussed, or additional equity offerings. Refer to Notes 9 and 10 of
the Consolidated Financial Statements for further information on the Company's
revolving credit line and Trust Preferred Securities offering, respectively.
Banking laws impose restrictions upon the amount of dividends which can be paid
to the holding company by the Banks. Based on these laws, the Banks could,
subject to minimum capital requirements, declare dividends to the Company
without obtaining regulatory approval in an amount not exceeding (a) undivided
profits, and (b) the amount of net income reduced by dividends paid for the
current and prior two years. In addition, the payment of dividends may be
restricted under certain financial covenants in the Company's revolving credit
line agreement. At January 1, 1999, subject to minimum capital requirements at
the Banks, approximately $3.9 million was available as dividends from the Banks
without prior regulatory approval. During 1998, Lake Forest Bank paid dividends
of $8.25 million to the holding company.
Liquidity management at the Banks 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 each Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Banks' principal sources of funds are deposits, short-term borrowings and
capital contributions by the Company out of the proceeds from the revolving
credit line and the Trust Preferred Securities offering. In addition, each of
the Banks, except Barrington Bank and Crystal Lake Bank, are eligible to borrow
under Federal Home Loan Bank advances, an additional source of short-term
liquidity.
The Banks' 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, approximately
66% of the Company's total assets were funded by core deposits with balances
less than $100,000, as compared to approximately 62% at the end of 1997. The
remaining assets were funded by other funding sources such as core deposits with
balances in excess of $100,000, public funds, purchased funds, and the capital
of the Banks.
Liquid assets refers to money market assets such as Federal funds sold and
interest bearing deposits with banks, as well as available-for-sale debt
securities and held-to-maturity securities with a remaining maturity less than
one year. Net liquid assets represent the sum of the liquid asset categories
less the amount of assets pledged to secure public funds. At December 31, 1998,
net liquid assets totaled approximately $116.5 million, compared to
approximately $160.9 million at December 31, 1997. The decline in net liquid
assets was mainly due to the unusually high balance of federal funds sold as of
the end of 1997, as discussed earlier.
The Banks routinely accept deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. At December 31, 1998 and
1997, the Banks had approximately $104.9 million and $78.0 million,
respectively, of securities collateralizing such public deposits. Deposits
requiring pledged assets are not considered to be core deposits, and the assets
that are pledged as collateral for these deposits are not deemed to be liquid
assets.
The Company is not aware of any known trends, commitments, events, regulatory
recommendations or uncertainties that would have any adverse effect on the
Company's capital resources, operations or liquidity.
- 54 -
<PAGE>
CREDIT RISK AND ASSET QUALITY
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Control of loan
quality is continually monitored by management and is reviewed by the Banks'
Board of Directors and their Credit Committees on a monthly basis. Independent
external review of the loan portfolio is provided by the examinations conducted
by regulatory authorities and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance for
possible loan losses, which are charged to earnings through the provision for
possible loan losses, are determined based on a variety of factors, including
actual charge-offs during the year, historical loss experience, delinquent and
other potential problem loans, and an evaluation of economic conditions in the
market area.
Summary of Loan Loss Experience. The following table summarizes average loan
balances, changes in the allowance for possible loan losses arising from
additions to the allowance which have been charged to earnings, and loans
charged-off and recoveries on loans previously charged-off for the periods shown
(dollars in thousands).
<TABLE>
<CAPTION>
============================================================================================================================
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 5,116 3,636 2,763 1,702 1,357
Total loans charged-off:
Core banking loans (1,636) (448) (190) (43) (20)
Premium finance (455) (1,126) (207) (247) (40)
Indirect auto (646) (300) (123) - -
Discontinued leasing operations - (241) (583) (109) (205)
-------------------------------------------------------------------------
Total loans charged-off (2,737) (2,115) (1,103) (399) (265)
Total recoveries 358 191 41 30 3
-------------------------------------------------------------------------
Net loans charged-off (2,379) (1,924) (1,062) (369) (262)
Provision for possible loan losses 4,297 3,404 1,935 1,430 607
-------------------------------------------------------------------------
Balance at end of year $ 7,034 5,116 3,636 2,763 1,702
-------------------------------------------------------------------------
Average total loans $ 848,344 620,801 347,076 183,614 148,209
-------------------------------------------------------------------------
Allowance as percent of year-end total loans 0.71% 0.72% 0.74% 1.07% 0.88%
Net loans charged-off to average total loans 0.28% 0.31% 0.31% 0.20% 0.18%
Net loans charged-off to the provision for
possible loan losses 55.36% 56.52% 54.88% 25.80% 43.16%
============================================================================================================================
</TABLE>
Net charge-offs of core banking loans for the year ended December 31, 1998
totaled $1.4 million, of which approximately $815,000 was attributable to loans
originated at one banking office and reflect what management believes to be an
isolated problem that has been resolved through the dismissal of the lending
officer involved and a subsequent thorough review of all credits originated
under his authority. Company management continues to be actively involved with
each of the credits at this office and presently believes that all material
losses have been recorded. Core loan net charge-offs as a percentage of average
core loans were 0.29% in 1998 as compared to 0.15% in 1997, the increase due to
the issue noted above.
Premium finance receivable net charge-offs for the year ended December 31, 1998
totaled $328,000 as compared to $1.0 million recorded in 1997. Net charge-offs
were 0.18% of average premium finance receivables in 1998 versus 0.88% in 1997.
This improvement was the result of an enhanced management team and the
implementation of additional collection procedures and system upgrades.
Indirect auto loan net charge-offs totaled $604,000 for the year ended December
31, 1998 as compared to $274,000 in 1997. Net charge-offs as a percentage of
average indirect auto loans were 0.36% in 1998 in comparison to 0.24% in 1997.
Although net-charge-offs have increased over the prior year, the level of net
charge-offs
- 55 -
<PAGE>
continues to be lower than the normal industry experience levels for these type
of loans.
The allowance for possible loan losses as a percentage of total net loans at
December 31, 1998 and 1997 was 0.71% and 0.72%, respectively. Management
believes that the allowance for possible loan losses is adequate to provide for
any potential losses in the portfolio.
Past Due Loans and Non-performing Assets. The following table classifies the
Company's non-performing loans as of December 31 for each of last five years
(dollars in thousands):
<TABLE>
<CAPTION>
============================================================================================================================
1998 1997 1996 1995 1994
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past Due greater than 90 days and still accruing:
Core banking loans $ 800 868 75 121 13
Indirect auto loans 274 11 20 - -
Premium finance receivables 1,214 887 - 21 3
------------------------------------------------------------------------
Total 2,288 1,766 95 142 16
------------------------------------------------------------------------
Non-accrual loans:
Core banking loans 1,487 782 448 684 -
Indirect auto loans 195 29 - - -
Premium finance receivables 1,455 1,629 1,238 1,094 4
------------------------------------------------------------------------
Total non-accrual loans 3,137 2,440 1,686 1,778 4
------------------------------------------------------------------------
Total non-performing loans:
Core banking loans 2,287 1,650 523 805 13
Indirect auto loans 469 40 20 - -
Premium finance receivables 2,669 2,516 1,238 1,115 7
------------------------------------------------------------------------
Total non-performing loans 5,425 4,206 1,781 1,920 20
------------------------------------------------------------------------
Other real estate owned 587 - - - -
------------------------------------------------------------------------
Total non-performing assets $ 6,012 4,206 1,781 1,920 20
------------------------------------------------------------------------
Total non-performing loans by
category as a percent of
its own respective category:
Core banking loans 0.38% 0.37% 0.15% 0.39% 0.01%
Indirect auto loans 0.22% 0.03% 0.02% 0.00% 0.00%
Premium finance receivables 1.50% 1.96% 2.15% 7.22% 0.01%
Total non-performing loans 0.55% 0.59% 0.36% 0.74% 0.01%
Total non-performing assets to total assets 0.45% 0.40% 0.25% 0.41% 0.01%
Non-accrual loans to total loans 0.32% 0.34% 0.34% 0.69% 0.00%
Allowance for possible loan losses as a
percentage of non-performing loans 129.66% 121.64% 204.15% 143.91% N/M
============================================================================================================================
</TABLE>
- 56 -
<PAGE>
Non-performing Core Banking Loans and Other Real Estate Owned Total
non-performing loans for the Company's core banking business (all loans other
than indirect auto loans and premium finance receivables) were $2.3 million as
of December 31, 1998, an increase from the $1.7 million as of December 31, 1997.
As a percentage of total core banking loans, however, non-performing core
banking loans remained relatively constant at 0.38% as of the end of 1998 versus
0.37% a year earlier. Non-performing core banking loans consist primarily of a
small number of commercial and real estate loans, which management believes are
well secured and in the process of collection. The small number of such
non-performing loans enables management the opportunity to monitor closely the
status of these credits and work with the borrowers to resolve these problems
effectively. The other real estate owned balance of $587,000 consists of one
local residential real estate property that is currently listed for sale.
Management believes the Company is well secured and does not expect to incur a
loss on the property.
NON-PERFORMING PREMIUM FINANCE RECEIVABLES
Another significant category of non-performing loans is premium finance
receivables. Due to the nature of the collateral, it customarily takes 60-150
days to convert the collateral into cash collections. Accordingly, the level of
non-performing premium finance receivables is not necessarily indicative of the
loss inherent in the portfolio. In financing insurance premiums, the Company
does not assume the risk of loss normally borne by insurance carriers. Typically
the insured buys an insurance policy from an independent insurance agent or
broker who offers financing through FIFC. The insured makes a down payment of
approximately 15% to 25% of the total premium and signs a premium finance
agreement with FIFC for the balance due, which amount FIFC disburses directly to
the insurance carrier or its agents to satisfy the unpaid premium amount. As the
insurer earns the premium ratably over the life of the policy, the unearned
portion of the premium secures payment of the balance due to FIFC by the
insured. Under the terms of FIFC's standard form of financing contract, FIFC has
the right to cancel the insurance policy if there is a default in the payment on
the finance contract and to collect the unearned portion of the premium from the
insurance carrier. In the event of cancellation of a policy, the cash returned
in payment of the unearned premium by the insurer should generally be sufficient
to cover the loan balance, the interest and other charges due as well. In the
event an insurer becomes insolvent and unable to pay claims to an insured or
refund unearned premiums upon cancellation of a policy to a finance company,
each state provides a state guaranty fund that will pay such a refund, less a
per claim deductible in certain states. FIFC diversifies its financing
activities among a wide range of brokers and insurers. Due to the notification
requirements and the time to process the return of the unearned premium by most
insurance carriers, many loans will become delinquent beyond 90 days while the
processing of the unearned premium refund to the Company occurs. Management
continues to accrue interest until maturity as the unearned premium by the
insurance carrier is ordinarily sufficient to pay-off the outstanding principal
and contractual interest due.
Total non-performing premium finance receivables as of December 31, 1998 were
approximately $2.7 million or 1.50% of total outstanding net premium finance
receivables. This compares favorably with 1.96% as of December 31, 1997. The
decline since the end of 1997 was primarily the result of management's
implementation of additional collection procedures and upgraded systems. This
ratio fluctuates throughout the year due to the nature and timing of canceled
account collections from insurance carriers.
The amount of non-performing premium finance receivables at and prior to
December 31, 1996 were significantly less because, prior to October 1996, the
Company had sold its originated receivables to a securitization facility. In
October 1996, the Company began retaining all originated receivables, and the
Company terminated the securitization facility during the third quarter of 1997,
as discussed earlier.
NON-PERFORMING INDIRECT AUTO LOANS.
Total non-performing indirect automobile loans were $469,000 at December 31,
1998 as compared to $40,000 as of the end of 1997. Although the total has
increased, these loans as a percent of total net indirect automobile loans were
only 0.22% at December 31, 1998 as compared to 0.03% at December 31, 1997, well
below standard industry ratios for this type of loan category. These individual
loans comprise smaller dollar amounts and collection efforts are active.
Potential Problem Loans. In addition to those loans disclosed under "Past Due
Loans and Non-performing Assets," there are certain loans in the portfolio which
management has identified, through its problem loan identification system which
exhibit a higher than normal credit risk. However, these loans are still
considered performing and, accordingly, are not included in non-performing
loans. Examples of these potential problem loans include certain loans that are
in a past-due status, loans with borrowers that have recent adverse operating
cash flow or balance sheet trends, or loans with general
- 57 -
<PAGE>
risk characteristics that the loan officer feels might jeopardize the future
timely collection of principal and interest payments. 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. The principal amount of potential problem loans as of
December 31, 1998 and 1997 were approximately $5.1 million and $7.2 million,
respectively.
Loan Concentrations. Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions.
The Company had no concentrations of loans exceeding 10% of total loans at
December 31, 1998 or December 31, 1997, except for loans included in the
indirect auto and premium finance operating segments.
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that of an industrial company in that virtually all assets and liabilities of a
bank are monetary in nature. Monetary items, such as cash, loans, and deposits,
are those assets and liabilities that are or will be converted into a fixed
number of dollars regardless of prices. Management of the Company believes the
impact of inflation on financial results depends upon the Company's ability to
react to changes in interest rates. Interest rates do not necessarily move in
the same direction, or at the same magnitude, as the prices of other goods and
services. Management seeks to manage the relationship between interest-sensitive
assets and liabilities in order to protect against wide fluctuations in
earnings, including those resulting from interest rate changes and from
inflation.
YEAR 2000 ISSUE
A critical issue has emerged in the banking industry and generally for all
industries that are heavily reliant upon computers regarding how existing
software application programs and operating systems can accommodate the date
value for the "Year 2000." The Year 2000 issue is the result of computer
programs being written using two digits (rather than four) to define the
applicable year. As such, certain programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, the year 1999 (i.e. `99') could be the maximum date value these systems
will be able to accurately process. Like most financial service providers, the
Company may be significantly affected by the Year 2000 problem due to the nature
of financial information. Furthermore, if computer systems are not adequately
changed to properly identify the Year 2000, many computer applications could
fail or generate erroneous reports.
During 1997, management began the process of working with its two outside data
processors and other software vendors to ensure that the Company is prepared for
the Year 2000. Management has been in frequent contact with the outside data
providers and has developed the Company's testing strategy and Year 2000 plan
with the knowledge and understanding of each of the data providers' plans and
timetables. Preliminary testing by the Company of its outside data providers'
Year 2000 compliance efforts has already taken place and final testwork is
anticipated to be completed in the second quarter of 1999. Additionally,
critical in-house hardware and related systems are being reviewed and upgraded,
if necessary, to be Year 2000 compliant. Testing of these critical hardware
systems, such as workstations, file servers, the wide area network and all local
area networks, is expected to be completed no later than June 30, 1999. The
completion of upgraded software installations, where previous software versions
were not Year 2000 compliant, is anticipated to be completed prior to June 30,
1999. The Company has also completed customer assessments to determine whether
any significant potential exposure exists.
The Company has not yet completed a contingency plan, however, a plan is in
development with applicable testing anticipated to be completed by June 30,
1999. The Company is regulated by the Federal Reserve Bank, the Office of the
Comptroller of the Currency and the State of Illinois bank regulatory agency,
all of which are active in monitoring preparedness planning for systems-related
Year 2000 issues. Total estimated Year 2000 compliance costs are not expected to
exceed $200,000 and, accordingly, are not expected to be material to the
Company's financial position or results of operations in either 1998 or 1999.
This cost does not include internal salary and employee benefit costs for
persons that have responsibilities, or are involved, with the Year 2000 project.
The above estimated dates and costs are based on management's best estimates and
include assumptions of future events, including availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that current estimates will be achieved, and actual results
could differ significantly from these plans. In the event the Company does
experience Year 2000 system failures or malfunctions and despite the testing
preparedness efforts, or if the outside data processors prove not to be Year
2000 compliant, the Company's operations would be disrupted until the systems
are restored, and the Company's ability to conduct its business may be adversely
impacted as it relates to processing customer transactions related to its
banking operations. Management anticipates, however, that the contingency plans
being developed would enable the Company to continue to conduct transactions on
a manual basis, if necessary, for a limited period of time until the Year 2000
problems are rectified. In addition, there can be no
- 58 -
<PAGE>
guarantee that the systems of the Company's outside data providers, of which the
Company relies upon, will be timely converted, or that failure to convert would
have a significant adverse impact to the Company.
EFFECTS OF NEW ACCOUNTING PRINCIPLES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes, for the first
time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. Previous accounting standards and
methodologies did not adequately address the many derivative and hedging
transactions in the current financial marketplace and, as such, the Securities
and Exchange Commission, and other organizations, urged the FASB to deal
expeditiously with the related accounting and reporting problems. The accounting
and reporting principles prescribed by this standard are complex and will
significantly change the way entities account for these activities. This new
standard requires that all derivative instruments be recorded in the statement
of condition at fair value. The recording of the gain or loss due to changes in
fair value could either be reported in earnings or as other comprehensive income
in the statements of shareholders' equity, depending on the type of instrument
and whether or not it is considered a hedge. This standard is effective for the
Company as of January 1, 2000. The Company has not yet determined the impact
this new statement may have on its future financial condition or its results of
operations.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of invoking these safe harbor provisions. Such
forward-looking statements may be deemed to include, among other things,
statements relating to anticipated improvements in financial performance and
management's long-term performance goals, as well as statements relating to the
anticipated effects on financial results of condition from expected development
or events, the Company's business and growth strategies, including anticipated
internal growth, plans to form additional de novo banks and to open new branch
offices, and to pursue additional potential development or acquisition of banks
or specialty finance businesses. Actual results could differ materially from
those addressed in the forward-looking statements as a result of numerous
factors, including the following:
o The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank formations, branch
openings, and expanded trust operations. De novo banks may typically
require 13 to 24 months of operations before becoming profitable, due to
the impact of organizational and overhead expenses, the start-up phase of
generating deposits and the time lag typically involved in redeploying
deposits into attractively priced loans and other higher yielding earning
assets. Similarly, the expansion of trust services through the Company's
new trust subsidiary, WAMC, is expected to be in a start-up phase for
approximately the next few years, before becoming profitable.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for possible loan losses is
adequate to absorb losses that may develop in the existing portfolio of
loans and leases, there can be no assurance that the allowance will prove
sufficient to cover actual future loan or lease losses.
o If market interest rates should move contrary to the Company's gap position
on interest earning assets and interest bearing liabilities, the "gap" will
work against the Company and its net interest income may be negatively
affected.
o The financial services business is highly competitive which may affect the
pricing of the Company's loan and deposit products as well as its services.
o The Company's ability to adapt successfully to technological changes to
compete effectively in the marketplace.
o The extent of the Company's success, and that of its outside data
processing providers, software vendors, and customers, in implementing and
testing Year 2000 compliant hardware, software and systems, and the
effectiveness of appropriate contingency plans being developed.
- 59 -
<PAGE>
o Changes in the economic environment may influence the growth rate of loans
and deposits, the quality of the loan portfolio and loan and deposit
pricing.
- 60 -
<PAGE>
DIRECTORS & OFFICERS
WINTRUST FINANCIAL CORPORATION
- ------------------------------
DIRECTORS
Joseph Alaimo
Peter Crist
Bruce K. Crowther
Maurice F. Dunne, Jr.
William C. Graft
Kathleen R. Horne
John S. Lillard
James E. Mahoney
James B. McCarthy
Marguerite Savard McKenna
Albin F. Moschner
Thomas J. Neis
Hollis W. Rademacher
J. Christopher Reyes
Peter Rusin
John N. Schaper
John J. Schornack
Ingrid S. Stafford
Jane R. Stein
Katharine V. Sylvester
Lemuel H. Tate
Edward J. Wehmer
Larry V. Wright
OFFICERS
John S. Lillard
Chairman
Edward J. Wehmer
President & Chief Executive Officer
David A. Dykstra
Executive Vice President &
Chief Financial Officer
Lloyd M. Bowden
Executive Vice President/
Technology
Randolph M. Hibben
Executive Vice President/
Investments
Robert F. Key
Executive Vice President/Marketing
Todd A. Gustafson
Vice President/Finance
Richard J. Pasminski
Vice President/Controller
Jay P. Ross
Assistant Vice President/
Database Marketing
LAKE FOREST BANK & TRUST COMPANY
- --------------------------------
DIRECTORS
Craig E. Arnesen
Maurice F. Dunne, Jr.
Maxine P. Farrell
Francis Farwell
Eugene. Hotchkiss
Moris T. Hoversten
John S. Lillard
Albin F. Moschner
Genevieve Plamondon
Hollis W. Rademacher
J. Christopher Reyes
Babette Rosenthal
Ellen Stirling
Edward J. Wehmer
EXECUTIVE OFFICERS
Edward J. Wehmer
Chairman
Craig E. Arnesen
President and CEO
Randolph M. Hibben
Executive Vice President/
Operations
LOANS
John J. Meierhoff
Executive Vice President/Lending
Frank W. Strainis
Senior Vice President
Rachele L. Wright
Senior Vice President/
Mortgage Loans
Kathryn Walker- Eich
Vice President/Commercial Loans
Mark R. Schubring
Vice President/Lending
Kurt K. Prinz
Vice President/Lending
Janice C. Nelson
Vice President/Loan Administration
Laura Cascarano
Loan Administration Officer
PERSONAL BANKING
Lynn Van Cleave
Vice President/Personal Banking
Twila D. Hungerford
Assistant Vice President/
Personal Banking
Susan G. Mineo
Personal Banking Officer
Piera Dallabattista
Personal Banking Officer
Kathleen E. Eichhorn
Assistant Cashier
FINANCE/OTHER
Mary Ann Gannon
Vice President/Operations
Richard J. Pasminski
Vice President/Controller
Elizabeth K. Pringle
Accounting/Operations Officer
Andrea Levitt
Administration Officer
- 61 -
<PAGE>
HINSDALE BANK & TRUST COMPANY
- -----------------------------
DIRECTORS
Peter Crist
Diane Dean
Donald Gallagher
Elise Grimes
Robert D. Harnach
Dennis J. Jones
Douglas J. Lipke
James B. McCarthy
James P. McMillin
Mary Martha Mooney
Frank J. Murnane, Sr.
Richard B. Murphy
Joel Nelson
Margaret O'Brien Stock
Hollis W. Rademacher
Ralph J. Schindler
Katharine V. Sylvester
Edward J. Wehmer
Lorraine Wolfe
EXECUTIVE OFFICERS
Dennis J. Jones
Chairman & CEO
Richard B. Murphy
President
David LaBrash
President - Clarendon Hills
J. Mark Berry
President - Western Springs
LOANS
Richard Stefanski
Senior Vice President/
Indirect Lending
Eric Westberg
Vice President/Mortgages
Kay Olenec
Vice President/Mortgages
Colleen Ryan
Vice President/Lending
Robert D. Meyrick
Vice President/Indirect Lending
Robert Crisp
Installment Loan Officer
Kathy Oergel
Commercial Lending Officer
Cora Mae Corley
Loan Operations Officer
Pat Gray
Loan Collections Officer
Maria Chialdikis
Loan Processing Officer
PERSONAL BANKING/OPERATIONS
Anne O'Neill
Vice President & Cashier
Heidi Sulaski
Assistant Vice President/
Personal Banking
Natalie Brod
Personal Banking Officer
Margaret A. Madigan
Assistant Vice President/Controller
Michelle Paetsch
Operations Officer
Kim Fernandez
Operations Officer
Patricia Mayo
Operations Officer
NORTH SHORE COMMUNITY BANK & TRUST COMPANY
- ------------------------------------------
DIRECTORS
Brian C. Baker (non-voting)
Gilbert W. Bowen
T. Tolbert Chisum
John W. Close
Joseph DeVivo
Maurice F. Dunne, Jr.
James Fox (Director Emeritus)
Gayle Inbinder
Thomas J. McCabe, Jr.
Marguerite Savard McKenna
Robert H. Meeder
Donald L. Olson
Hollis W. Rademacher
John J. Schornack
Ingrid S. Stafford
Curtis R. Tate (non-voting)
Lemuel H. Tate
Elizabeth C. Warren
Edward J. Wehmer
Stanley R. Weinberger
EXECUTIVE OFFICERS
Lemuel H. Tate
Chairman
John W. Close
President & CEO
Robert H. Meeder
Executive Vice President/Lending
LOANS
James L. Sefton
Vice President/Lending
Henry L. Apfelbach
Vice President/Mortgages
Susan J. Weisbond
Vice President/Lending/Manager - Glencoe
Gina Inglese
Vice President/Lending - Winnetka
Frank McCabe
Vice President/Lending - Glencoe
Romelia Brahim
Loan Officer
Patricia M. McNeilly
Mortgage Loan Officer
- 62 -
<PAGE>
NORTH SHORE COMMUNITY BANK & TRUST COMPANY
- ------------------------------------------
Mark A. Stec
Mortgage Loan Officer
Ann T. Tyler
Loan Administration Officer
PERSONAL BANKING/OPERATIONS
Donald F. Krueger
Senior Vice President/Cashier
James P. Waters
Assistant Vice President/Personal Banking
Jennifer A. Waters
Assistant Cashier
John A. Barnett
Accounting Officer
Leslie A. Neimark
Assistant Vice President/Personal Banking - Glencoe
Eric Jordan
Personal Banking Officer - Glencoe
Catherine W. Biggam
Personal Banking Officer
Debra Miller
Manager - Winnetka
LIBERTYVILLE BANK & TRUST COMPANY
- ---------------------------------
DIRECTORS
J. Albert Carstens
David A. Dykstra
Robert O. Dunn
Bert Getz, Jr.
Donald Gossett
Scott Lucas
James E. Mahoney
Susan Milligan
William Newell
Hollis W. Rademacher
John N. Schaper
Jane R. Stein
Jack Stoneman
Edward J. Wehmer
Edward R. Werdell
EXECUTIVE OFFICERS
J. Albert Carstens
President & CEO
Edward R. Werdell
Executive Vice President
COMMERCIAL BANKING
Brian B. Mikaelian
Senior Vice President/Lending
Betty Berg
Vice President/Commercial
Banking Services
RESIDENTIAL REAL ESTATE
Michael Spies
Vice President/Residential Real Estate
David Luczak
Second Vice President/Residential Real Estate
Rose Marie Garrison
Mortgage Loan Officer
PERSONAL BANKING
Sharon Worlin
Vice President
Ursula Schuebel
Second Vice President
Julie Rolfsen
Personal Banking Officer
Deborah Motzer
Personal Banking Officer
Bobbie Callese
Personal Banking Officer
FINANCE/OPERATIONS
Jolanta Slusarski
Vice President/Operations
Patrice Lima
Vice President/Cashier & Controller
- 63 -
<PAGE>
BARRINGTON BANK & TRUST COMPANY
- -------------------------------
DIRECTORS
James H. Bishop
Raynette Boshell
Edwin C. Bruning
Dr. Joel Cristol
Bruce K. Crowther
Scott A. Gaalaas
William C. Graft
Penny Horne
Peter Hyland
Dr. Lawrence Kerns
Sam Oliver
Mary F. Perot
Betsy Petersen
Hollis W. Rademacher
Peter Rusin
George L. Schueppert
Dr. Richard Smith
Richard P. Spicuzza
W. Bradley Stetson
Dan T. Thomson
Charles VanFossan
Edward J. Wehmer
Tim Wickstrom
EXECUTIVE OFFICERS
James H. Bishop
President
W. Bradley Stetson
Executive Vice President/Lending
LOANS
Barbara E. Ringquist
Mortgage Loan Officer
Christopher P. Marrs
Commercial Loan Officer
Charlotte Neault
Consumer Loan Officer
PERSONAL BANKING/OPERATIONS
Ronald A. Branstrom
Vice President/Operations &
Retail Banking
Helene A. Torrenga
Assistant Vice President/Controller
Gloria B. Andersen
Personal Banking Officer
CRYSTAL LAKE BANK & TRUST COMPANY
- ---------------------------------
DIRECTORS
Charles D. Collier
Henry L. Cowlin
Linda Decker
John W. Fuhler
Diana Kenney
Dorothy Mueller
Thomas Neis
Marshall Pedersen
Hollis W. Rademacher
Candy Reedy
Nancy Riley
Robert Robinson
Robert Staley
Edward J. Wehmer
EXECUTIVE OFFICERS
Charles D. Collier
President & CEO
Pam Umberger
Senior Vice President/Operations
Kurt Parker
Senior Vice President/Loans
MORTGAGE LOANS
Jan Sowers
Vice President/Secondary Market
Mark J. Peteler
Vice President/Construction Loans
PERSONAL BANKING/OPERATIONS
Pamila L. Bialas
Assistant Vice President
Peter Fidler
Controller
WINTRUST ASSET MANAGEMENT COMPANY
- ---------------------------------
DIRECTORS
Joseph Alaimo
Robert Acri
Bert A. Getz, Jr.
Robert Harnach
Randolph M. Hibben
John S. Lillard
Richard P. Spicuzza
Robert Staley
Edward J. Wehmer
Stanley Weinberger
OFFICERS
Edward J. Wehmer
Chairman
Joseph Alaimo
President
Robert C. Acri
Executive Vice President
Jeanette E. Amstutz
Vice President/Lake Forest
Susan Gavinski
Assistant Vice President/
Trust Operations
Anita E. Morris
Vice President/Lake Forest
Laura H. Olson
Vice President/Lake Forest
Sandra L. Shinsky
Vice President/Lake Forest
T. Tolbert Chisum
Managing Director of Marketing
Mary Anne Martin
Vice President/North Shore
Laurie Danly
Vice President/Hinsdale
Edward Edens
Vice President/Hinsdale
Gerard Leenheers
Vice President/Hinsdale
Barbara Miller
Vice President/Barrington
Michael Peifer
Vice President/Barrington
- 64 -
<PAGE>
FIRST INSURANCE FUNDING CORP.
- -----------------------------
DIRECTORS
Frank J. Burke
David A. Dykstra
Hollis W. Rademacher
Edward J. Wehmer
EXECUTIVE OFFICERS
Frank J. Burke
President & CEO
Joseph G. Shockey
Executive Vice President
Robert G. Lindeman
Senior Vice President/Information Technology
MARKETING/OPERATIONS/FINANCE
Michelle H. Perry
Vice President/Controller
Matthew E. Doubleday
Vice President/Marketing
Luther J. Grafe
Vice President/Loan Operations
Mark C. Lucas
Vice President/Asset Management
G. David Wiggins
Vice President/Loan Origination
- 65 -
<PAGE>
CORPORATE INFORMATION
================================================================================
PUBLIC LISTING AND MARKET SYMBOL The Company's Common Stock is traded on The
Nasdaq Stock Market(R) under the symbol WTFC. The stock abbreviation appears as
"WintrstFnl" in the Wall Street Journal.
WEBSITE LOCATION
The Company's maintains an internet website at the following location:
www.wintrust.com
ANNUAL MEETING OF SHAREHOLDERS
May 27, 1999
Drake Oak Brook Hotel
2301 S. York Road
Oak Brook, Illinois
2:30 P.M.
FORM 10-K
The Form 10-K Annual Report to the Securities and Exchange Commission will be
available to holders of record upon written request to the Secretary of the
Company. The information is also available on the Internet at the Securities and
Exchange Commission's website. The address for the web site is:
http://www.sec.gov.
TRANSFER AGENT
Illinois Stock Transfer Company
209 West Jackson Boulevard
Suite 903
Chicago, Illinois 60606
Telephone: (312) 427-2953
Facsimile: (312) 427-2879
MARKET MAKERS FOR WINTRUST
FINANCIAL CORPORATION
COMMON STOCK
ABN AMRO Incorporated
EVEREN Securities, Inc.
Howe Barnes Investments, Inc.
PaineWebber, Inc.
William Blair & Co.
U.S. Bancorp Piper Jaffray
- 67 -
<PAGE>
LOCATIONS
- ---------
WINTRUST FINANCIAL CORPORATION
727 North Bank Lane
Lake Forest, IL 60045
(847) 615-4096
LAKE FOREST BANK & TRUST COMPANY
Lake Forest Locations
Main Bank
727 North Bank Lane
Lake Forest, IL 60045
(847) 234-2882
Drive-thru
780 North Bank Lane
Lake Forest, IL 60045
West Lake Forest
810 South Waukegan Avenue
Lake Forest, IL 60045
(847) 615-4080
West Lake Forest Drive-thru
911 Telegraph Road
Lake Forest, IL 60045
(847) 615-4097
Lake Forest Place Facility
1100 Pembridge Drive
Lake Forest, IL 60045
Lake Bluff Location
103 East Scranton Avenue
Lake Bluff, IL 60044
(847) 615-4060
HINSDALE BANK & TRUST COMPANY
Hinsdale Locations
Main Bank
25 East First Street
Hinsdale, IL 60521
(630) 323-4404
Drive-thru
130 West Chestnut
Hinsdale, IL 60521
(630) 655-8025
Clarendon Hills Location
200 West Burlington Avenue
Clarendon Hills, IL 60514
(630) 323-1240
Western Springs Location
1000 Hillgrove Avenue
Western Springs, IL 60558
(708) 246-7100
NORTH SHORE COMMUNITY BANK
& TRUST COMPANY
Wilmette Locations
Main Bank
1145 Wilmette Avenue
Wilmette, IL 60091
(847) 853-1145
Drive-thru
720 12th Street
Wilmette, IL 60091
Glencoe Locations
362 Park Avenue
Glencoe, IL 60022
(847) 835-1700
Drive-thru
633 Vernon Avenue
Glencoe, IL 60022
Winnetka Location
794 Oak Street
Winnetka, IL 60093
(847) 441-2265
LIBERTYVILLE BANK & TRUST COMPANY
Main Bank
507 North Milwaukee Avenue
Libertyville, IL 60048
(847) 367-6800
Drive-thru
201 Hurlburt Court
Libertyville, IL 60048
(847) 247-4045
South Libertyville Location
1167 South Milwaukee Avenue
Libertyville, IL 60048
BARRINGTON BANK & TRUST COMPANY
Main Bank
201 S. Hough Street
Barrington, IL 60010
(847) 842-4500
CRYSTAL LAKE BANK & TRUST COMPANY
Main Bank
70 N. Williams Street
Crystal Lake, IL 60014
(815) 479-5200
Drive-thru
27 N. Main Street
Crystal Lake, IL 60014
WINTRUST ASSET MANAGEMENT COMPANY
727 North Bank Lane
Lake Forest, IL 60045
(847) 234-2882
25 East First Street
Hinsdale, IL 60521
(630) 323-4404
1145 Wilmette Avenue
Wilmette, IL 60091
(847) 853-1145
794 Oak Street
Winnetka, IL 60093
(847) 441-2265
507 North Milwaukee Avenue
Libertyville, IL 60048
(847) 367-6800
201 S. Hough Street
Barrington, IL 60010
(847) 842-4500
FIRST INSURANCE FUNDING CORPORATION
520 Lake Cook Road, Suite 300
Deerfield, IL 60015
(847) 374-3000
- 68 -
<PAGE>
EXHIBIT 21.1
------------
Subsidiaries of the Registrant
State of Organization
Subsidiary or Incorporation
---------- ----------------
Lake Forest Bank and Trust Company Illinois
North Shore Community Bank and Trust Company Illinois
Hinsdale Bank and Trust Company Illinois
Libertyville Bank and Trust Company Illinois
Barrington Bank and Trust Company, N.A. National Banking Association
Crystal Lake Bank and Trust Company, N.A. National Banking Association
Crabtree Capital Corporation Delaware
First Insurance Funding Corporation Illinois
Wintrust Asset Management Company, N.A. National Banking Association
Wintrust Capital Trust I Delaware
EXHIBIT 23
----------
The Board of Directors
Wintrust Financial Corporation:
We consent to incorporation by reference in the Registration Statement (No.
333-33459) on Form S-8 of Wintrust Financial Corporation of our report dated
March 19, 1999, relating to the consolidated statements of condition of Wintrust
Financial Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1998, which report is incorporated by reference in the December 31, 1998 annual
report on Form 10-K of Wintrust Financial Corporation.
/s/ KPMG LLP
Chicago, Illinois
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the annual
audited financial statements of Wintrust Financial Corporation for the years
ended December 31, 1998 and 1997, and is qualified in its entirety by reference
to such consolidated financial statements.
</LEGEND>
<CIK> 0001015328
<NAME> WINTRUST FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 33,924 32,158
<INT-BEARING-DEPOSITS> 7,863 85,100
<FED-FUNDS-SOLD> 18,539 60,836
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 209,119 101,934
<INVESTMENTS-CARRYING> 5,000 5,001
<INVESTMENTS-MARKET> 5,001 4,964
<LOANS> 992,062 712,631
<ALLOWANCE> 7,034 5,116
<TOTAL-ASSETS> 1,348,048 1,053,400
<DEPOSITS> 1,229,154 917,701
<SHORT-TERM> 0 55,895
<LIABILITIES-OTHER> 12,639 11,014
<LONG-TERM> 31,050 0
0 0
0 0
<COMMON> 8,150 8,118
<OTHER-SE> 67,055 60,672
<TOTAL-LIABILITIES-AND-EQUITY> 1,348,048 1,053,400
<INTEREST-LOAN> 75,369 56,066
<INTEREST-INVEST> 12,610 9,045
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 87,979 65,111
<INTEREST-DEPOSIT> 49,069 37,375
<INTEREST-EXPENSE> 51,215 38,339
<INTEREST-INCOME-NET> 36,764 26,772
<LOAN-LOSSES> 4,297 3,404
<SECURITIES-GAINS> 0 111
<EXPENSE-OTHER> 35,833 27,254
<INCOME-PRETAX> 4,709 1,058
<INCOME-PRE-EXTRAORDINARY> 6,245 4,846
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,245 4,846
<EPS-PRIMARY> 0.77 0.62
<EPS-DILUTED> 0.74 0.60
<YIELD-ACTUAL> 3.43 3.41
<LOANS-NON> 3,137 2,440
<LOANS-PAST> 2,288 1,766
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 5,143 7,200
<ALLOWANCE-OPEN> 5,116 3,636
<CHARGE-OFFS> (2,737) (2,115)
<RECOVERIES> 358 191
<ALLOWANCE-CLOSE> 7,034 5,116
<ALLOWANCE-DOMESTIC> 6,225 3,712
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 809 1,404
</TABLE>
