<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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TAYLOR CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware
(State or other jurisdiction 671-6712 36-4108550
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
350 East Dundee Road
Wheeling, Illinois 60090
(847) 459-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Jeffrey W. Taylor
Chairman of the Board and Chief Executive Officer
Taylor Capital Group, Inc.
350 East Dundee Road
Wheeling, Illinois 60090
(847) 459-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
Mark L. Yeager, Esq. David B. Miller, Esq.
Stephen A. Tsoris, Esq. Faegre & Benson LLP
McDermott, Will & Emery Norwest Center
227 West Monroe Street 90 South Seventh Street
Chicago, Illinois 60606-5096 Minneapolis, Minnesota 55402-3901
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
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% Noncumulative Perpetual
Preferred Stock, Series A (par 1,530,000
value $.01 per share)........... shares $25.00 $38,250,000 $11,591
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to said Section 8(a), may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 24, 1996
dated , 1996
1,530,000 SHARES
TAYLOR CAPITAL GROUP, INC.
% NONCUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
All of the shares of % Noncumulative Perpetual Preferred Stock, Series A
offered hereby (the "Preferred Stock") are being sold by Taylor Capital Group,
Inc., a Delaware corporation (the "Company"). The Preferred Stock has a
liquidation preference of $25.00 per share, plus declared and unpaid dividends
for the current Dividend Period (as defined) up to the date fixed for
liquidation. See "Description of Capital Stock--Preferred Stock--Liquidation
Rights." Dividends on the Preferred Stock are noncumulative and, when, as and if
declared, will be payable quarterly on the fifteenth day of each March, June,
September and December commencing on March 15, 1997, at the fixed annual rate of
$ . See "Description of Capital Stock--Preferred Stock--Dividend
Rights."
The Preferred Stock will be redeemable, in whole or in part, at the option of
the Company on and after December 15, 2001 at $25.00 per share, plus the amount
of declared and unpaid dividends for the then-current Dividend Period to the
date fixed for redemption. See "Description of Capital Stock--Preferred
Stock--Redemption."
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system and
no active trading market is expected to develop. Although each Underwriter has
indicated an intention to make a market in the Preferred Stock, neither
Underwriter is obligated to make a market in the Preferred Stock and any market
making may be discontinued at any time at the sole discretion of such
Underwriter. There can be no assurance that an active trading market for the
Preferred Stock will develop. See "Risk Factors--No Prior Public Market for
Preferred Stock" and "Description of Capital Stock--Preferred Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF PREFERRED STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENTAL
AGENCY OR OTHERWISE.
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total............................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at .
The shares of Preferred Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by them and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the Preferred Stock will be made at the offices of Piper
Jaffray Inc. in Minneapolis, Minnesota on or about , 1996.
PIPER JAFFRAY INC. ROBERT W. BAIRD & CO.
INCORPORATED
<PAGE> 3
[MAP]
The Company intends to furnish its stockholders with annual reports containing
audited consolidated financial statements certified by its independent auditors
and quarterly reports containing unaudited consolidated financial information
for the first three quarters of each fiscal year.
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CERTAIN STATEMENTS CONTAINED UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS," UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND UNDER
"BUSINESS," SUCH AS STATEMENTS CONCERNING OPERATIONS OF THE COMPANY AFTER THE
SPLIT-OFF TRANSACTIONS (AS DEFINED), AND OTHER STATEMENTS CONTAINED IN THIS
PROSPECTUS REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING
STATEMENTS (AS SUCH TERM IS DEFINED IN THE RULES PROMULGATED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")). BECAUSE SUCH
FORWARD-LOOKING STATEMENTS INCLUDE RISKS AND UNCERTAINTIES, ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN UNDER "RISK FACTORS."
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED STOCK OF THE COMPANY AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including "Risk Factors" and
the consolidated financial statements and notes thereto, appearing elsewhere in
this Prospectus. Unless the context otherwise indicates, as used herein, the
defined terms "Company" or "Taylor Capital" shall mean Taylor Capital Group,
Inc. together with its two wholly-owned subsidiaries, Cole Taylor Bank (the
"Bank") and CT Mortgage Company, Inc. (the "Mortgage Company"). Unless the
context otherwise indicates, this Prospectus assumes that the Company has
acquired the Bank and the Mortgage Company, which acquisition will become
effective upon the consummation of the Split-Off Transactions (as defined) and
the consummation of this offering.
THE COMPANY
Taylor Capital Group, Inc. (the "Company"), a newly incorporated bank
holding company, wholly owns Cole Taylor Bank, an Illinois state chartered bank
(the "Bank"), which commenced operations over 60 years ago as Main State Bank.
The Bank provides a full range of commercial and consumer banking services both
to small and mid-size businesses and to individuals through its ten branch
offices in Chicago neighborhoods and suburban Cook and DuPage Counties. The
Bank's historical market niche has been providing commercial loans to small and
mid-size companies located in the Chicago metropolitan area. The Company also
wholly owns CT Mortgage Company, Inc. (the "Mortgage Company"), which began
operations in the first quarter of 1996 and competes in the subprime mortgage
market for residential loans on a brokered basis. The Mortgage Company is
located in Altamonte Springs, Florida and, through its subsidiaries, operates
primarily in the southeastern United States.
As a result of a series of transactions (the "Split-Off Transactions")
described in an Amended and Restated Share Exchange Agreement dated as of June
12, 1996 (the "Share Exchange Agreement") among Cole Taylor Financial Group,
Inc. ("CTFG") and Jeffrey W. Taylor, Bruce W. Taylor and certain other members
of the Taylor family (collectively, the "Taylor Family"), CTFG is transferring
all of the capital stock of the Company to the Taylor Family and certain other
shareholders of CTFG (the "Taylor Group") in exchange for their shares of common
stock of CTFG. As of the date of this Prospectus, all conditions precedent to
the consummation of the Split-Off Transactions have been satisfied or waived,
with the only remaining condition being the consummation of the sale of the
Preferred Stock described herein. See "The Split-Off Transactions." At June 30,
1996, adjusting for the Split-Off Transactions, the Company had pro forma
consolidated total assets of $1.9 billion and pro forma total equity of $147.4
million. For the first half of 1996, applying similar adjustments, the Company
had pro forma consolidated net income of $5.1 million. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements".
The Company's strategy for the future is to (i) improve the Bank's results
of operations by continuing to grow and improve its core commercial bank
business, (ii) increase the Bank's fee income by more intensively marketing its
fee producing financial services products, (iii) expand the Bank's deposit
gathering capabilities and (iv) selectively expand the subprime mortgage
financing activities of the Mortgage Company.
The Company's principal executive offices are located at 350 E. Dundee
Road, Wheeling, Illinois 60090, and its telephone number is (847) 459-1111. The
Company was incorporated in Delaware on October 9, 1996.
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3
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THE OFFERING
Securities offered......... 1,530,000 shares of % Noncumulative Perpetual
Preferred Stock, Series A, par value $.01 per
share (the "Preferred Stock"). See "Description of
Capital Stock--Preferred Stock."
Stated value............... $25.00 per share.
Dividends.................. Dividends are noncumulative, payable quarterly in
arrears, at an annual rate of $ per share.
Because dividends are noncumulative, if no
dividend is declared by the Board of Directors on
the Preferred Stock for a quarterly dividend
period (a "Dividend Period"), holders of the
Preferred Stock will have no right to receive a
dividend for that Dividend Period and the Company
will have no obligation to pay a dividend for that
Dividend Period, whether or not dividends are
declared for any subsequent period. Full dividends
must be declared, paid or set aside on the
Preferred Stock before dividends (other than
dividends payable in certain securities) may be
declared, paid or set aside on the Company's
common stock (the "Common Stock"). Holders of
Preferred Stock will not participate in dividends,
if any, declared and paid on the Common Stock.
Dividends are payable quarterly in arrears on the
fifteenth day of each March, June, September and
December commencing on March 15, 1997 when, as and
if declared by the Board. Dividends payable for
any period of less than a quarter will be paid on
a pro rata basis. When a Dividend Payment Date
falls on a non-business day, the dividend will be
paid on the next business day. See "Description of
Capital Stock--Preferred Stock--Dividend Rights."
Maturity................... The Preferred Stock is perpetual.
Redemption at the option of
the Company................ The Preferred Stock shall be redeemable at the
option of the Company, upon no less than 30, nor
more than 60, days' written notice, at any time on
or after December 15, 2001 in whole or in part, at
a redemption price of $25.00 per share, plus
declared and unpaid dividends for the then-current
Dividend Period up to the date fixed for
redemption, without interest. Redemption by the
Company is subject to prior regulatory approval.
See "Description of Capital Stock--Preferred
Stock--Redemption" and "Supervision and
Regulation".
Voting rights.............. The Preferred Stock is non-voting, except that
holders of Preferred Stock shall be entitled to
vote as a class, with the holders of any one or
more series of Preferred Stock then entitled to
vote thereon, for the election of one of the
Company's directors and on certain matters
affecting the powers, preferences and special
rights of Preferred Stock. In certain
circumstances, such holders will also have the
right to elect one additional director. See
"Description of Capital Stock--Preferred
Stock--Voting Rights."
Liquidation rights......... Holders of the Preferred Stock will be paid $25.00
per share, plus dividends declared and unpaid for
the then-current Dividend Period up to the date of
liquidation, in the event of any voluntary or
involuntary liquidation of the Company, before any
distribution to holders of the
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4
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Common Stock or any other junior stock. See
"Description of Capital Stock--Preferred
Stock--Liquidation Rights."
Rating..................... The Company expects that the Preferred Stock will
be rated below investment grade by Duff & Phelps
Credit Rating Co. ("Duff & Phelps") and Fitch
Investors Service, LP ("Fitch"). Ratings are not a
recommendation to purchase, hold or sell shares of
Preferred Stock, as ratings do not comment as to
market price or suitability for a particular
investor. The ratings are based on current
information furnished to Duff & Phelps and Fitch
by the Company and obtained from other sources.
The ratings may be changed, suspended or withdrawn
at any time as a result of changes in, or
unavailability of, such information.
Use of proceeds............ The Company intends to contribute the net proceeds
of the Preferred Stock offered hereby to the
capital of the Bank in fulfillment of a condition
for regulatory approval of the Split-Off
Transactions. The Bank will initially invest the
net proceeds in investment securities and
thereafter they will be used for general corporate
purposes. See "Use of Proceeds".
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5
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SUMMARY SELECTED FINANCIAL DATA
COLE TAYLOR BANK -- HISTORICAL
The summary selected financial data presented below as of and for the years
ended December 31, 1995 and 1994 are derived from the audited historical
financial statements of the Bank on a stand alone basis. This data includes the
Bank's automobile receivables business, which will be discontinued in connection
with the Split-Off Transactions. The financial statements of the Bank for 1995
and 1994 were audited by KPMG Peat Marwick LLP, independent accountants. The
financial data as of and for the periods ended June 30, 1996 and 1995 and
December 31, 1993, 1992 and 1991 are derived from unaudited financial
statements. This data should be read in conjunction with the financial
statements, the notes thereto and other financial information included elsewhere
in this Prospectus. The financial data for the six months ended June 30, 1996
are not necessarily indicative of the Bank's expected results for the full year.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
------------------------ --------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income............ $ 35,593 $ 34,363 $ 69,318 $ 72,149 $ 66,681 $ 58,040 $ 52,055
Provision for loan losses...... 2,052 2,332 4,056 7,374 10,521 8,922 8,816
Noninterest income............. 7,664 6,846 14,227 12,887 15,425 14,502 12,870
Noninterest expense............ 27,225 26,780 53,549 55,248 53,926 49,107 44,690
Provision for income taxes..... 4,665 3,566 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................. $ 9,315 $ 8,531 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (at end of
period):
Total assets................... $1,847,608 $1,736,919 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold......................... 432,959 480,076 443,348 488,019 459,349 394,050 301,702
Loans.......................... 1,280,383 1,169,238 1,211,622 1,130,177 986,384 904,788 822,443
Allowance for loan losses...... 24,475 23,759 23,869 22,833 19,740 14,661 12,646
Total deposits................. 1,486,332 1,274,339 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings.......... 146,373 251,261 202,033 243,997 209,227 152,259 124,511
Long-term borrowings........... 70,836 60,753 61,003 47,864 37,690 5,490 623
Stockholders' equity........... 129,080 127,632 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:
Net interest margin (tax
equivalent).................. 4.39% 4.43% 4.38% 4.88% 5.11% 4.83% 4.71%
Return on average total
assets....................... 1.05 1.00 1.05 0.98 0.87 0.74 0.64
Return on average stockholders'
equity....................... 14.18 13.88 14.29 14.50 13.00 10.52 8.69
Ratio of earnings to fixed
charges:
Including interest on
deposits................... 1.42x 1.38x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits................... 3.05 2.30 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY
RATIOS:
Nonperforming assets to total
assets....................... 0.98% 0.86% 1.08% 1.03% 1.14% 1.72% 2.68%
Nonperforming assets to total
loans plus repossessed
property..................... 1.41 1.28 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans........................ 0.23 0.25 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans........................ 1.91 2.03 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans.......... 155.57 177.11 174.76 157.61 156.67 84.61 66.32
</TABLE>
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PRO FORMA (UNAUDITED)
The following summary selected financial data of the Bank and the
consolidated Company gives pro forma effect to the Split-Off Transactions
including the acquisition of the Bank and the Mortgage Company by the Company,
the sale or transfer of the Bank's Automobile Finance Business (as defined) as
well as the consummation by the Company of the Credit Facilities and the
Preferred Stock offering described elsewhere in this Prospectus. For a
description of the pro forma effects of the Split-Off Transactions see
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY BANK ONLY
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1995 1996 1995
---------------- ------------ ---------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.............. $ 33,321 $ 64,578 $ 34,233 $ 66,698
Provision for loan losses........ 1,692 3,586 1,692 3,586
Noninterest income............... 7,762 14,227 7,664 14,227
Noninterest expense.............. 30,854 59,707 28,935 56,869
Provision for income taxes....... 3,456 5,841 4,411 7,328
---------- ---------- ---------- ----------
Net income.................. $ 5,081 $ 9,671 $ 6,859 $ 13,142
========== ========== ========== ==========
BALANCE SHEET DATA (at end of
period):
Total assets..................... $1,899,018 $1,820,190 $1,892,775 $1,817,395
Investments and federal funds
sold.......................... 521,859 533,448 521,859 533,448
Loans............................ 1,172,722 1,100,622 1,169,383 1,100,622
Allowance for loan losses........ 23,475 22,869 23,475 22,869
Total deposits................... 1,486,332 1,364,075 1,486,332 1,364,075
Short-term borrowings............ 146,373 202,033 146,373 202,033
Long-term borrowings............. 99,966 86,715 70,836 61,003
Stockholders' equity............. 147,409 148,866 170,409 171,866
EARNINGS PERFORMANCE DATA:
Net interest margin
(tax-equivalent).............. 4.15% 4.14% 4.27% 4.27%
Return on average total assets... 0.56 0.54 0.75 0.74
Return on average stockholders'
equity........................ 6.79 6.75 7.95 7.91
Ratio of earnings to fixed
charges:
Including interest on
deposits.................... 1.23x 1.22x
Excluding interest on
deposits.................... 1.80 1.64
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets........................ 0.95% 1.05% 0.96 1.05
Nonperforming assets to total
loans plus repossessed
property...................... 1.54 1.73 1.55 1.73
Net loan charge-offs to average
loans......................... 0.25 0.29 0.26 0.29
Allowance for loan losses to
loans......................... 2.00 2.08 2.01 2.08
Allowance for loan losses to
nonperforming loans........... 149.22 167.44 149.22 167.44
</TABLE>
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing any shares of the Preferred Stock offered hereby.
ABILITY TO PAY DIVIDENDS
The Company is a holding company without significant assets other than its
equity interest in the Bank, and accordingly, dividends on the Preferred Stock
will be paid solely from (i) dividends, loan repayments, if any, and other
payments to the Company by the Bank and (ii) proceeds of any subsequent
securities offering or bank financing. Management does not anticipate the
Mortgage Company will make dividend payments to the Company for the near term.
Dividend payments from the Bank are subject to regulatory limitations, generally
based on current and retained earnings, imposed by the various regulatory
agencies with authority over the Bank. Payment of dividends is also subject to
regulatory restrictions if such dividends would impair the capital of the Bank.
Dividends on the Preferred Stock are payable when, as and if declared by
the Board of Directors of the Company. The final determination of the timing,
amount and payment of dividends on the Preferred Stock will depend on conditions
then existing, including dividends received from the Bank, the Company's
profitability, financial condition and capital requirements and other
restrictions described below. Under Delaware corporate law, the Company may
declare and pay dividends out of surplus, or if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared and/or the
preceding year.
The Federal Reserve Board ("FRB") has issued a policy statement on the
payment of cash dividends by bank holding companies. In the policy statement,
the FRB expressed its view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends which exceed its net income or which
could only be funded in ways that would weaken its financial health, such as by
borrowing. The FRB also may impose limitations on the payment of dividends as a
condition to its approval of certain applications, including applications for
approval of mergers and acquisitions. There can be no assurance that the FRB
will not impose such limitations on the payment of dividends to Company
stockholders, including holders of shares of Preferred Stock. As a result of the
Split-Off Transactions, the Company expects a substantial decline in tangible
book value of the Bank and the Company from historical levels at the Bank, which
capital levels may inhibit the Company's dividend paying ability. See "Risks
Arising from Split-Off Transactions--Decrease in Tangible Capital"; "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and "Supervision and
Regulation".
Substantially all of the consolidated assets of the Company are held by the
Bank, and, in the event of liquidation of both the Company and the Bank,
creditors of the Bank, including depositors, would have first claim to such
assets before holders of the Preferred Stock. At June 30, 1996, the Bank had
outstanding indebtedness and other liabilities, including deposits, of $1.7
billion. See "Description of Capital Stock--Preferred Stock--Liquidation
Rights."
In addition to the foregoing restrictions, the Company expects to obtain a
$25 million, unsecured five year term loan and a $5 million, unsecured one year
line of credit, which may contain certain restrictive covenants, including
covenants which may affect the Company's ability to pay dividends. The terms of
any future financing arrangements could also limit the Company's ability to pay
dividends on the Preferred Stock. See "The Split-Off Transactions--Related
Financing" and "Description of Capital Stock--Preferred Stock--Dividends."
RISKS ARISING FROM THE SPLIT-OFF TRANSACTIONS
Discontinuance of Automobile Finance Contract Business
All of the automobile finance contract business of the Bank (the
"Automobile Finance Business") is being sold or transferred by the Bank. The
used automobile finance contract business, which consists of the Bank's rights
and obligations pursuant to automobile loans or notes which are collateralized
primarily with
8
<PAGE> 10
used automobiles (the "Used Automobile Receivables") and related assets, is
being transferred from the Bank to a wholly-owned subsidiary of CTFG. The new
automobile finance contract business is being sold by the Bank to an
unaffiliated third party, with the majority of the proceeds of such sale to be
transferred to CTFG as a part of the Split-Off Transactions and the remainder,
if any, to be retained by the Bank to be used for general corporate purposes. As
of August 31, 1996, the Bank held approximately $115 million in aggregate face
amount of automobile receivables, of which approximately 31% was collateralized
by used automobiles. There can be no assurance the Bank will be able to replace
the income contribution of the assets being transferred or sold or that any
retained proceeds will be reinvested in assets that will provide the same
historical rate of return as the Automobile Finance Business. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements."
Increased Leverage
The Company will incur substantial indebtedness in connection with the
Split-Off Transactions. The Company will obtain a $25 million, unsecured five
year term term loan and a $5 million, unsecured one year line of credit from
LaSalle National Bank (collectively, the "Credit Facilities"). This indebtedness
will require the dedication of an increased portion of the Company's cash flow
to the payment of principal and interest, thereby reducing funds available for
Preferred Stock dividends, capital expenditures and future business
opportunities. The Company expects the Credit Facilities will contain customary
covenants, representations, warranties, conditions and default provisions. The
covenants may affect the operating flexibility of the Company, including the
Company's ability to pay dividends on the Preferred Stock. See "The Split-Off
Transactions--Related Financing."
Decrease in Tangible Capital
The transfer of the Used Automobile Receivables and payment of the First
Cash Component (as defined) in connection with the Split-Off Transactions will
have the effect of lowering tangible capital levels at the Bank from historical
levels. The Bank's regulatory capital levels are anticipated to be, immediately
following the Split-Off Transactions, above the "well capitalized" level
established by banking regulators. Under applicable federal banking regulations,
the Bank could become subject to increasingly restrictive regulatory oversight
and limitations on operations and capital if regulatory capital levels fall
below "well capitalized." For example, should the Bank's capital ratios fall
below such levels, it may be restricted from issuing certain instruments such as
brokered certificates of deposit, which the Bank relies upon as an element of
its overall asset/liability management. Inability of the Bank to issue such
instruments could jeopardize its liquidity and result in the Bank's inability to
maintain sufficient funds to respond to the needs of borrowers or take advantage
of earnings enhancement opportunities.
The Company anticipates that its leverage capital and Tier 1 risk based
capital ratios will exceed regulatory capital guideline minimums for a "well
capitalized" institution at the time of the Closing of the Split-Off
Transactions. However, the Company's total risk based capital ratio at such time
is expected to only exceed the regulatory capital guideline minimum for an
"adequately capitalized" institution. As a result, the Company will be deemed
"adequately capitalized" for purposes of various banking regulations. Should the
Company be deemed less than "adequately capitalized", under applicable federal
guidelines, the Company may become subject to certain limitations affecting the
payment of dividends, limitation on the consummation of certain acquisitions or
other operating or financial restrictions.
Following the offering, it is not expected that an active public market
will develop for the Preferred Stock or that a public market will exist for the
Company's Common Stock. The absence of an active public market for the Company's
capital stock could adversely affect the Company's ability to raise additional
capital to meet desired regulatory capital minimums of the Company or the Bank
should the need arise in the future. There can be no assurance that either the
Bank or the Company will be able to maintain its capital at levels which will
not result in adverse operating or financial restrictions or that access to
adequate capital or capital on terms satisfactory to the Company or the Bank
will exist in the event capital restoration is necessary or desirable. See "Pro
Forma Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations" and "Supervision and Regulation."
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Liabilities Under Share Exchange Agreement
The Company and the Bank will assume a number of obligations to CTFG
related to the Share Exchange Agreement, including (i) obligations to comply
with certain agreements which affect the tax free status of the Split-Off
Transactions and (ii) obligations to indemnify and hold harmless CTFG for Losses
(as defined) relating to the operations of the Bank and the Mortgage Company or
CTFG's ownership of securities thereof. In addition, it is expected that the
Company will enter into an indemnification agreement which will obligate the
Company to indemnify the Taylor Family against these obligations as well as
various other obligations of the Taylor Family contained in the Share Exchange
Agreement, including the Taylor Family's agreement to indemnify CTFG against 25%
of any Losses relating to the transactions contemplated by the Share Exchange
Agreement. See "The Split-Off Transactions--Liabilities Under the Share Exchange
Agreement." Many of these obligations or liabilities are contingent in nature
and the existence, probability and magnitude thereof are impossible to predict,
are not within the control of the Company, its subsidiaries or the Taylor
Family, may bear no relationship to the business and operations of the Company
and its subsidiaries, and are not subject to any contractual upper limit on
liability. Some of these liabilities, such as liability resulting from an action
causing the Split-Off Transactions to be taxable, could have a material adverse
impact on the Company or the Bank, could prevent the Company and the Bank from
paying dividends, and may affect the continuing viability of the Company or the
Bank.
Interest of Taylor Family; Possible Conflicts of Interest
The Company was formed solely for the purpose of facilitating the Split-Off
Transactions and has no prior operating history. Accordingly, the Share Exchange
Agreement and related agreements and arrangements affecting the Company were
negotiated with CTFG and executed by representatives of the Taylor Family. The
Share Exchange Agreement includes no representations and warranties relating to
the business and operations of the Bank and the Mortgage Company due, in part,
to the Taylor Family's knowledge of these businesses. The Share Exchange
Agreement includes representations, warranties, covenants and indemnification
obligations of the Taylor Family. The Taylor Family has placed in escrow shares
of CTFG to secure its obligation to pay $15 million to CTFG if the Share
Exchange Agreement is terminated in certain events, including a termination by
CTFG if by June 30, 1997 adequate financing to complete the Split-Off
Transactions has not been obtained by the Taylor Family.
In many cases, obligations of the Taylor Family will be assumed by the
Company and/or the Bank and/or indemnification will be extended by the Company
to the Taylor Family with the effect that the Taylor Family will be relieved of
responsibility for such obligations and, correspondingly, the Company or the
Bank will be bound by such obligations. Among other things, the Company and the
Bank may be liable for indemnity or damages to CTFG in connection with the
operations of the Bank and the Mortgage Company or CTFG's ownership of
securities thereof prior to Closing or for indemnity to the Taylor Family in
connection with the portion of the Losses suffered by CTFG arising out of the
Split-Off Transactions for which the Taylor Family has agreed to indemnify CTFG.
See "Risk Factors--Risks Arising From the Split-Off Transaction--Liabilities
under Share Exchange Agreement" and "The Split-Off Transactions--Liabilities
Under Share Exchange Agreement." Additionally, counsel to the Taylor Family in
connection with the Split-Off Transactions is also counsel to the Company.
Neither the Company nor any of its non-Taylor Family shareholders have been
separately represented. The Taylor Family's financial advisor in connection with
the Split-Off Transactions is one of the underwriters of the Preferred Stock
offered hereby and, in addition to the underwriting discount set forth on the
cover page of this Prospectus, will receive an additional fee upon closing of
the Split-Off Transactions for such advisory services. See "Underwriting." The
Taylor Family and its various representatives may experience conflicts of
interest in connection with the formation of the Company, the negotiation and
execution of the various assumption and indemnification agreements and
implementation of the Split-Off Transactions. There can be no assurance that
these conflicts will be resolved in a manner favorable to the non-Taylor Family
stockholders of the Company or that the terms of such agreements are comparable
to those that would be available were these agreements negotiated at arms length
between unaffiliated parties.
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INTEREST RATE RISK EXPOSURE
The Bank's cash flows depend to a great extent upon the level of net
interest income, which is the difference between total interest income earned on
earning assets, such as loans and investments, and total interest expense paid
on interest-bearing liabilities, such as deposits and borrowings. The amount of
net interest income is affected by changes in the volume and mix of earning
assets, the level of rates earned on those assets, the volume of
interest-bearing liabilities and the level of rates paid on those
interest-bearing liabilities. Balancing the maturities of the Bank's assets in
relation to maturities of liabilities involves estimates as to how changes in
the general level of interest rates will impact the yields earned on assets and
the rates paid on liabilities. Currently, the Bank's liabilities reprice or
mature more quickly than its assets, a condition referred to as a "negative gap"
position. Accordingly, when interest rates rise, the Bank's net interest income
tends to be adversely impacted. Conversely, in a declining rate environment the
Bank's net interest income is generally positively impacted. At June 30, 1996,
the Bank's interest rate risk model showed a decline of approximately 3.07% of
the Bank's twelve month net interest income, assuming a gradual 200 basis point
increase in market interest rates. Changes in the level of interest rates also
affect the amount of loans originated by the Bank and, thus, the amount of loan
and commitment fees, as well as the market value of the Bank's interest-earning
assets. Moreover, increases in interest rates also can result in
disintermediation, which is the flow of funds away from banks into direct
investments, such as corporate securities and other investment vehicles, which
generally pay higher rates of return than financial institutions. In addition, a
flattening of the "yield curve" (i.e., a decline in the difference between long
and short term interest rates), could adversely impact net interest income to
the extent that the Bank's assets have a longer average term than its
liabilities. Finally, the Bank's portfolio of loans held for sale, which is
composed predominantly of residential mortgage loans and the Bank's outstanding
commitments to finance residential properties, incur interest rate risk because
loan rates are committed to borrowers before the loan is either sold or
committed to a secondary mortgage market investor. The Bank will continue to be
vulnerable to changes in interest rates and to decreases in the difference
between long and short term interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Asset/Liability
Management."
LIQUIDITY MANAGEMENT
The Bank's success depends in part on its ability to maintain sufficient
funds to respond to the needs of depositors and borrowers, as well as to take
advantage of earnings enhancement opportunities. As a part of its
asset/liability management, the Bank uses a number of funding sources in
addition to liquidity from core deposit growth and repayments and maturities of
loans and investments. These alternatives include Federal Home Loan Bank
advances, repurchase agreements, municipal deposits, brokered deposits, and
federal funds purchased. Generally, the Company has paid a premium for brokered
and other out of market area deposits which is included in interest expense.
Adverse operating results at the Bank or changes in industry conditions could
lead to an inability to replace such brokered deposits at maturity, which could
result in higher costs to or reduced asset levels of the Bank. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity" and "-- Deposits."
DEPENDENCE ON CHICAGO MARKET AREA
The success of the Bank is dependent upon the general economic conditions
in the Chicago metropolitan area, where virtually all of its loans are
generated. Adverse changes in the economy of the Chicago metropolitan area would
likely impair the Bank's ability to gather deposits and could otherwise have a
negative effect on its business, including the demand for new loans, the ability
of customers to repay loans and the value of the collateral pledged to the Bank.
A substantial portion of the Bank's loan portfolio involves loans which are to
some degree secured by real estate properties located primarily within the
Chicago metropolitan area. In the event that real estate values in such area
decline, the value of such collateral would be impaired.
MANAGEMENT OF CREDIT RISK
The Bank's allowance for loan losses is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Company's control, and such
losses may exceed current estimates. In addition, the Bank's historical strategy
of providing commercial loans
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to small and mid-sized businesses has resulted in a loan portfolio which has
relatively larger loans concentrated with fewer customers than a similarly sized
bank focused on consumer lending. There can be no assurance that the allowance
for loan losses will prove sufficient to cover actual loan losses in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Allowance for Loan Losses."
GOVERNMENT REGULATION AND RECENT LEGISLATION
The Company, the Bank and the Mortgage Company are subject to extensive
federal and state legislation, regulation and supervision. Recently enacted,
proposed and future legislation and regulations have had and will continue to
have a significant impact on the banking industry. Some of the legislative and
regulatory changes, such as the recently enacted assessment on federally insured
depository institutions to contribute towards the cost of interest due on bonds
issued between 1987 and 1989 to resolve failed savings and loan associations,
may increase the costs of doing business and assist competitors of the Company
and its subsidiaries. The effects of any such changes or potential changes
cannot be accurately predicted but could adversely affect the operating results
of the Company and the Bank. See "Supervision and Regulation."
COMPETITION
The banking business is highly competitive. The Bank encounters competition
primarily in seeking deposits and in obtaining loan customers. The Bank's
principal competitors include other commercial banks, savings and loan
associations, mutual funds, money market funds, finance companies, credit
unions, mortgage companies, the United States Government, private issuers of
debt obligations and suppliers of other investment alternatives, such as
securities firms. In recent years, several major multi-bank holding companies
have entered the Chicago metropolitan market. Generally, these financial
institutions are significantly larger than the Bank and have access to greater
capital and other resources. As a result of these and other factors, future
growth opportunity for the Bank may be limited. In addition, many of the Bank's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally insured banks and state
regulations governing state chartered banks. As a result, such non-bank
competitors may have advantages over the Bank in providing certain services.
CONTROL BY TAYLOR FAMILY
Based on commitments received as of the date of this Prospectus, the Taylor
Family in the aggregate will beneficially own or control in excess of % of
the Company's outstanding common stock. As a result, these stockholders, acting
together, are able effectively to control virtually all matters requiring
approval by the stockholders of the Company, including amendment of the
Company's Certificate of Incorporation (the "Certificate") and Bylaws, the
approval of mergers or similar transactions, and, with the exception of the
right of Preferred Stockholders to vote for the election of one director (and,
in the event the Company fails to declare and pay dividends for any six
consecutive or nonconsecutive quarters, the election of an additional director)
the election of all directors. See "Security Ownership of Management and Certain
Beneficial Owners." Certain provisions of the Company's Certificate of
Incorporation and Bylaws could have the effect of delaying or preventing any
change in control of the Company. Conversely, the death of a substantial
stockholder in the Company or the decision by the Taylor Family to sell or
liquidate its position in the Company for whatever reason would have the effect
of altering the balance of effective stockholder control of the Company and,
among other things, could have the effect of altering the composition of the
Board of Directors. Preferred Stockholders will have no rights of redemption
upon the occurrence of a change of control and, except in certain limited
circumstances, will have no right to vote upon a change of control which
requires a stockholder vote. See "Description of Capital Stock--Voting Rights."
In addition, as of the Closing, members of the Taylor Family will constitute
three of the seven members of the Board of Directors of each of the Company and
the Bank and will serve as the Company's and the Bank's highest ranking
officers. These persons may experience conflicts of interest in the execution of
their duties on behalf of the Company and the Bank. There can be no assurance
any such conflicts would be resolved in a manner favorable to the Company or the
Bank. See "Management."
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MORTGAGE COMPANY RISKS
Through its subsidiaries the Mortgage Company originates, warehouses and
resells residential first and second mortgages primarily of subprime borrowers
who generally do not qualify for conventional loans or whose borrowing needs are
not met by traditional residential mortgage lenders. These borrowers generally
do not satisfy the more rigid underwriting standards of the traditional mortgage
lending market for a number of reasons, such as blemished credit histories (from
past loan delinquencies or bankruptcy), inability to provide income verification
data or lack of established credit history. Generally, these borrowers pose an
increased risk of default than do borrowers under conventional loans.
Since the subsidiaries of the Mortgage Company typically hold loans for
sixty to ninety days or longer prior to sale, and do not receive a commitment to
purchase the loan from an investor at the time of origination, the Mortgage
Company faces the risk that fluctuations in market interest rates will render
the loans held by its subsidiaries less valuable than the Mortgage Company's
basis in such loans. In addition, the Mortgage Company could experience a loss
on any loan that went into default while held by a subsidiary of the Mortgage
Company.
The Mortgage Company commenced business in the first quarter of 1996. It is
a start-up business with a limited history of operations. It has been
substantially dependent upon CTFG, which has advanced funds to the Mortgage
Company and guaranteed the performance of the obligations of the Mortgage
Company under certain agreements for the sale of loans to various purchasers.
The Company will assume the existing arrangements between CTFG and the
purchasers of Mortgage Company loans and will provide financing to the Mortgage
Company. The Mortgage Company will continue to be dependent upon guarantees and
financing from the Company for the foreseeable future. The Mortgage Company,
therefore, is not currently able to operate without assistance from its parent
company. In addition, as a result of these guarantees, the Company is subject to
the same risks that may impact the Mortgage Company and such risks could result
in losses which may exceed the Company's investment in the Mortgage Company. See
"Business--The Mortgage Company."
POSSIBLE LACK OF AVAILABLE INFORMATION
The Company anticipates that it will not be required to register the
Preferred Stock pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and does not presently intend voluntarily to effect such a
registration. Following the offering, the Company will be subject to the
periodic and other reporting requirements of the Exchange Act for the 1997
calendar year pursuant to Section 15(d) thereof. Thereafter, provided the
Preferred Stock is then held by less than 300 holders of record at the beginning
of any subsequent fiscal year the Company could cease to be subject to the
obligation to file such reports with respect to such fiscal year. The Company
anticipates that the Preferred Stock will be held by less than 300 holders of
record at the end of 1997, and therefore that it will then cease to be subject
to the reporting requirements of the Exchange Act at that time. The Company
intends to provide quarterly and annual financial information to its
shareholders even if not required to do so pursuant to the Exchange Act. See
"Additional Information."
NO PRIOR PUBLIC MARKET FOR PREFERRED STOCK
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system, and
no active trading market for the Preferred Stock is expected to develop.
Although each Underwriter has indicated an intention to make a market in the
Preferred Stock, neither Underwriter is obligated to make a market in the
Preferred Stock and any market making may be discontinued at any time at the
sole discretion of such Underwriter. If shares of Preferred Stock are traded
after their initial issuance, they may trade at a discount to their offering
price. Without an active market, it may be difficult for investors to resell
shares of Preferred Stock. See "Underwriting."
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THE SPLIT-OFF TRANSACTIONS
GENERAL
As a result of a series of transactions (the "Split-Off Transactions")
described in an Amended and Restated Share Exchange Agreement dated as of June
12, 1996 among Cole Taylor Financial Group, Inc. ("CTFG") and Jeffrey W. Taylor,
Bruce W. Taylor and certain other members of the Taylor family (collectively,
the "Taylor Family"), CTFG is transferring all of the capital stock of the
Company to the Taylor Family and certain other shareholders of CTFG (the "Taylor
Group") in exchange for 4.5 million shares of CTFG common stock (the "Stock
Amount"). Prior to the consummation of the Split-Off Transactions (the
"Closing") CTFG will have transferred to the Company all of the outstanding
shares of the Bank and the Mortgage Company and the Bank will have transferred
$51.8 million in cash (the "First Cash Component") and between $30 million and
$31 million in aggregate fair market value of the Used Automobile Receivables to
a wholly-owned subsidiary of CTFG. The First Cash Component is being funded with
the proceeds of the sale by the Bank of approximately $81 million in aggregate
face amount of new automobile receivables business of the Bank. The proceeds of
such sale in excess of the First Cash Component will be invested initially by
the Bank in investment securities. As a result of the sale and transfer of the
Automobile Finance Business and payment of the First Cash Component, the Bank
will require additional capital to continue operating as a well-capitalized
institution in accordance with regulatory requirements. Accordingly, as a part
of the Split-Off Transactions, the Company will provide a direct capital
contribution of approximately $59.3 million to the Bank, which will be funded by
(i) proceeds of approximately $36.3 million from the sale of the Preferred Stock
offered hereby and (ii) senior debt in the amount of $23 million.
All conditions precedent to the Closing have been satisfied or waived, with
the only remaining condition being the recapitalization of Bank with the
proceeds of the sale of the Preferred Stock offered hereby. Accordingly, the
Split-Off Transactions will have been completed and the transfer of the
ownership interest in the Bank and Mortgage Company will occur simultaneously
upon the closing of this offering.
CTFG was formed in 1981 and in 1984 became the holding company for what was
then the Main State Bank (which had been acquired by CTFG's founders, Irwin H.
Cole and Sidney J Taylor, in 1969) and Drovers National Bank (which had been
acquired by Messrs. Cole and Taylor in 1978). CTFG has a third wholly-owned
subsidiary, Reliance Acceptance Corporation (f/k/a Cole Taylor Finance Co.) (the
"Finance Company"). CTFG was a private company until 1994, when CTFG made an
initial public offering of its Common Stock. As of September 30, 1996, the
family of Irwin H. Cole (the "Cole Family") and the Taylor Family each owned
approximately 25% of the Common Stock of CTFG.
To resolve differences among the Cole Family, the Taylor Family and certain
other directors of CTFG regarding the strategic direction of CTFG, CTFG and the
Taylor Family entered into the Share Exchange Agreement. The Share Exchange
Agreement is included as an exhibit to the Registration Statement on Form S-1,
of which this Prospectus forms a part, and the following summary does not
purport to be a complete description of the Share Exchange Agreement or the
Split-Off Transactions described therein but is qualified in its entirety by
reference to the Share Exchange Agreement as filed.
After the closing of the Split-Off Transactions, Jeffrey Taylor, Bruce
Taylor, and John Christopher Alstrin, previously the Chairman of the Board and a
director, Chief Executive Officer and a director and Chief Financial Officer,
respectively, of the Bank, will continue to be executive officers and directors
of the Company and the Bank. It is also expected that substantially all of the
employees of the Bank and the Mortgage Company will continue to be employees of
the Bank and the Mortgage Company, respectively, after the consummation of the
Split-Off Transactions. Except for the adjustments contemplated by virtue of the
Split-Off Transactions, the Bank, as a whole, is expected to continue its core
operations in the same manner as prior to the Split-Off Transactions. See
"Unaudited Pro Forma Condensed Consolidated Financial Statement."
TERMS OF THE SHARE EXCHANGE AGREEMENT
The Share Exchange Agreement outlines in detail the transaction steps which
ultimately will provide the Taylor Family with ownership of approximately %
of the common stock of the Company and will allow
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the Taylor Family to control the operations of the Bank and members of the Cole
Family to control the Automobile Finance Business previously operated through
CTFG. Under the terms and conditions contemplated by the Share Exchange
Agreement, CTFG will contribute all of the Bank stock to the Company and then
exchange all of the stock of the Company for 4.5 million shares of CTFG Common
Stock (the "Stock Amount") owned by the Taylor Family and certain other parties
to the exchange, hereinafter referred to as the "Taylor Group" (the "Split-Off
Transactions"). The Split-Off Transactions are intended to be a tax free
transaction for all parties. The Taylor Family will retain no ownership in CTFG
after the proposed Split-Off Transactions are consummated.
Prior to the Split-Off Transactions, the Bank formed a new wholly-owned
subsidiary ("New Reliance") to which the Bank will transfer (i) its used
automobile receivables business, primarily consisting of the Bank's rights and
obligations pursuant to automobile loans or notes (the "Used Automobile
Receivables") and related assets, including agreements with automobile dealers
to purchase sales finance contracts; (ii) an amount in cash estimated to be
$51.8 million (the "First Cash Component") dependent on the Stock Amount and the
fair market value of the Used Automobile Receivables, which must be between $30
million and $31 million; and (iii) an amount in cash estimated to be $1.2
million (the "Second Cash Component") based on the value of CTFG's investments
in the Mortgage Company and Alpha Capital Fund II, L.P., an investment
partnership in which the Company will be a limited partner with a total
financial commitment of $500,000 (the "Alpha Capital Fund").
After the formation of New Reliance and transfer of the First and Second
Cash Components and the Used Automobile Receivables, the Bank will distribute
the capital stock of New Reliance to CTFG, and Reliance, a wholly-owned
subsidiary of CTFG, will merge with and into New Reliance. Thereafter, New
Reliance will conduct directly the used automobile finance contract business,
which has been conducted from the Bank's branch office in Burbank, Illinois and
separately from the business of the Bank. CTFG then will transfer to the Company
all of the stock of both the Bank and the Mortgage Company, as well as all of
CTFG's rights, obligations and interests in the Alpha Capital Fund.
As a result of the Split-Off Transactions, the Company will assume certain
severance payments to, and accrued and unpaid salaries of, employees of the Bank
whose employment with the Bank will be terminated. These employees will be
offered employment with New Reliance.
VESTING OF CTFG OPTIONS
Pursuant to the Share Exchange Agreement, all outstanding options to
purchase Common Stock of CTFG held by members of the Taylor Family will become
vested and exercisable in full prior to the Closing. Each Taylor Family member
holding any such options is obligated to exercise them at or prior to the
Closing. Additionally, as a result of the Split-Off Transactions, all
outstanding options ("Employee Stock Options") to purchase CTFG Common Stock
under CTFG's 1991 Stock Option Plan (the "1991 Plan") have become vested as of
October 18, 1996, subject to the restrictions of applicable securities laws.
Employee Stock Options held by persons who will no longer be employees of CTFG
as a result of the Split-Off Transactions (i.e., employees of the Bank) will
expire unless exercised at the Closing or within 60 days thereafter.
In that the options exercised are attributable to Bank employees, the Bank
is entitled to receive a tax benefit equivalent to the excess of the fair value
of the CTFG stock over the exercise price at the date of exercise. Pursuant to
the Share Exchange Agreement, CTFG and the Bank have amended their existing tax
allocation agreement so that (A) the allocation of federal, state and local tax
liabilities incurred through the closing between CTFG and its subsidiaries on
the one hand and Bank on the other will continue in a manner consistent with
past practice, except that beginning June 12, 1996, all tax benefits associated
with the exercise or buyout of all compensatory options on CTFG Common Stock,
whether held by employees or former employees of Bank or otherwise, will inure
solely to the benefit of CTFG; and (B) any claims or liabilities arising from
audits (including audits commenced or completed after the Closing) of
pre-closing periods will be borne by the party to whom the adjustment is
attributable.
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ESTABLISHMENT OF PROFIT SHARING/ESOP
Pursuant to the Share Exchange Agreement, the Company has established a
defined contribution plan that is designed to qualify under Sections 401(a),
401(k) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the
"Code") (the "Profit Sharing/ESOP"). Prior to the Closing, CTFG will transfer to
the Profit Sharing/ESOP the account balances held in the Cole Taylor Financial
Group, Inc. Employee Stock Ownership Plan (the "CTFG ESOP") and the Cole Taylor
Financial Group, Inc. 401(k)/Profit Sharing Plan (the "CTFG Profit Sharing") on
behalf of the active and former Bank employees and any employee of CTFG who will
be a Bank employee as of the Closing. The Profit Sharing/ESOP is intended to
provide substantially the same benefits on substantially the same terms as the
CTFG ESOP and the CTFG Profit Sharing. The Profit Sharing/ESOP will permit each
eligible employee of the Company to elect to contribute, through payroll
deductions, a specified percentage of his or her compensation up to the
statutory limitation. The Company will make a matching contribution and a profit
sharing contribution to the Profit Sharing/ESOP. The profit sharing contribution
will be in an amount determined at the discretion of the Board of Directors. The
Company's contribution may be made in the form of shares of Common Stock, cash
to be invested in shares of Common Stock or cash to be invested as directed by
the Profit Sharing/ESOP participants. Participants with ESOP stock account
balances under the Profit Sharing/ESOP will have the right to exercise certain
limited "put" rights requiring the Company to purchase their shares of Common
Stock following their termination of employment with the Company and the Bank.
See "Description of Capital Stock--Preferred Stock--Dividend Rights."
RELATED FINANCING
In order to provide the capital contribution necessary to obtain requisite
regulatory approval to consummate the Split-Off Transactions, the Company will
obtain a $25 million, unsecured five year term bank loan (the "Term Loan") and a
$5 million, unsecured one year line of credit (the "Line of Credit"; the Term
Loan and Line of Credit are referred to collectively as the "Credit Facilities")
from LaSalle National Bank ("LaSalle"). A commitment letter regarding the Credit
Facilities was executed by the Company and LaSalle on October 17, 1996 (the
"Commitment Letter") and the parties intend to execute definitive documents
prior to the Closing. Based on the terms set forth in the Commitment Letter, the
Company expects the Credit Facilities will contain customary covenants,
representations, warranties, conditions and default provisions. While the Credit
Facilities are unsecured, the Company will be prohibited from using the capital
stock of the Bank as security for other credit facilities. Such covenants may
affect the operating flexibility of the Company, including the Company's ability
to pay dividends on the Preferred Stock. Interest on the Term Loan will be due
quarterly, with annual principal reductions of $1 million beginning in 1998 and
a balloon payment of $21 million at maturity. The funds from the Term Loan will
be used to make capital contributions to the Bank and the Company of $23 million
and $2 million, respectively. Borrowings on the Line of Credit will be used to
support the Company's ongoing working capital needs.
RELATED COMMON STOCK OFFERING
The Company has filed a registration statement with the Securities and
Exchange Commission (the "SEC") and the applicable state securities authorities
registering a minimum of 4.0 million and a maximum of 4.5 million shares of
Common Stock which will be issued to the Taylor Family and the other members of
the Taylor Group in the Split-Off Transactions (the "Common Stock Offering") for
outstanding shares of Common Stock of CTFG owned by such persons. Such shares,
which constitute the Stock Amount, will be transferred to CTFG. The Common Stock
Offering was made to Bank employee participants in the Profit Sharing/ESOP, the
ESOP portion of the Profit Sharing/ESOP, the Taylor Family, certain officers,
directors and employees of the Bank and CTFG who will continue with the Bank or
be employed by the Company and certain other selected CTFG stockholders. As of
the date of this Prospectus, subscriptions for all 4.5 million shares offered in
the Common Stock Offering have been received. See "Security Ownership of
Management and Certain Beneficial Owners."
COMPLIANCE WITH TAX AND REGULATORY REPRESENTATIONS
The tax ruling to the effect that the Split-Off Transactions will be
treated as a tax-free transaction under Section 355 of the Code was issued on
September 3, 1996 (the "Tax Ruling"). Pursuant to the Tax Ruling,
16
<PAGE> 18
for U.S. federal income tax purposes: (i) no gain or loss will be recognized by
CTFG upon the exchange of the capital stock of the Company for Common Stock of
CTFG held by the Taylor Group, and (ii) no gain or loss will be recognized by
(and no amount will be included in the income of) the Taylor Group upon their
receipt of the capital stock of the Company in exchange for the Common Stock of
CTFG owned by them. Although the Tax Ruling will generally be binding upon the
IRS, the Tax Ruling was issued based upon certain factual representations and
assumptions. If any such factual representations or assumptions are incorrect or
untrue in any material respect, the Tax Ruling may be invalidated.
LIABILITIES UNDER SHARE EXCHANGE AGREEMENT
COMPANY OBLIGATIONS
Pursuant to the Share Exchange Agreement, the Taylor Family and CTFG agreed
to cause the Company to enter into, ratify and approve the Share Exchange
Agreement and all of the related transactions prior to the Closing. The
Company's obligations pursuant to this provision will be as follows:
Securities Offerings. The Company will indemnify and hold harmless CTFG
against all costs and liabilities related to the offering of the Preferred Stock
offered hereby and the Common Stock issued in connection with the Split-Off
Transactions, including printing, filing fees and other expenses, and any
liabilities for misstatements or omissions in the registration statements with
respect thereto.
Private Letter Ruling. For a two year period after Closing, the Company
will agree to refrain from taking certain actions unless it has received an
opinion from a nationally recognized tax counsel, which opinion shall be
reasonably satisfactory to tax counsel for CTFG (a "Tax Opinion") that the
desired transactions and any transactions related thereto will neither affect
the tax-free nature of the exchange of stock contemplated by the Share Exchange
Agreement nor affect the Private Letter Ruling. To this end, the Company will
agree, for the two year period following the closing (a) to cause the Bank to
continue the active conduct of its banking business, (b) not to merge or
consolidate with or into any other corporation, or cause the Bank to merge or
consolidate with any other corporation, (c) not to liquidate or partially
liquidate, or cause the Bank to liquidate or partially liquidate, (d) not to
sell or transfer any significant part of its assets or permit the Bank to sell
or transfer any significant part of its assets, (e) not to redeem or otherwise
purchase any of its capital stock or permit the Bank to redeem or otherwise
purchase any of its capital stock, or (f) not to issue, or permit the Bank to
issue, additional shares of its capital stock, except as contemplated by the
Private Letter Ruling. The Company also may not enter into any agreement,
arrangement or understanding for transfer of control of the Bank for one year
following the Closing (a "Transfer Arrangement"), and if the Company enters into
a Transfer Arrangement more than one year but less than two years following the
Closing, the Company shall remain responsible for ensuring that, and will obtain
a written contractual commitment from other parties to the Transfer Arrangement
that they will ensure that, the Bank complies with the obligations contained in
this paragraph, except as otherwise set forth in the Tax Opinion. The Company
and the Bank must deliver a certificate quarterly for two years after Closing to
the effect that they are in compliance with the foregoing. Failure to comply
with these agreements may result in invalidating the tax free nature of the
Split-Off Transactions, causing substantial damages to CTFG and CTFG
shareholders exchanging pursuant to the Share Exchange Agreement. See "Risk
Factors--Liabilities Under Share Exchange Agreement."
Deconsolidation. The Company will agree that after the Closing it will take
such steps with CTFG and the Taylor Family in accordance with generally accepted
accounting principles as are necessary to deconsolidate the Bank from CTFG for
accounting purposes.
Employees. The Company will agree to cause the Bank to assume all liability
(and to indemnify CTFG and its subsidiaries against such liability) for any
severance or change in control payments which, as a result of the Closing, are
owed to any employee of CTFG, the Bank or any of their affiliates (with certain
exceptions).
Benefit Plans. The Company will agree to adopt the Profit Sharing/ESOP and
will accept the transfer of participants' account balances in accordance with
the procedures outlined in the Share Exchange Agreement.
Bank Indemnities. The Company will agree to cause the Bank to indemnify and
hold CTFG harmless from certain liabilities as set forth in the Share Exchange
Agreement. See "--Bank Obligations" below.
17
<PAGE> 19
TAYLOR FAMILY INDEMNITY
It is expected that the Taylor Family will propose that the Company agree
to indemnify and hold harmless the Taylor Family in the event the Company
breaches any of the foregoing agreements. It is contemplated that this
indemnification agreement, which will be subject to the approval of the
independent directors of the Company, would also cover certain Taylor Family
liabilities and obligations which are placed on the Taylor Family and which may
be considered personal to the Taylor Family. Under the proposed agreement, the
Company would be obligated to indemnify the Taylor Family against the Taylor
Family's liabilities under the following provisions of the Share Exchange
Agreement, but only to the extent that any particular liability does not arise
as a result of a reckless breach of the Share Exchange Agreement by the Taylor
Family:
Pre-Closing Transactions. The obligations of the Taylor Family and the Bank
to effect the pre-closing transactions, including, without limitation, the (i)
spin-off of the Used Automobile Receivables, (ii) the payment of the First Cash
Component, (iii) the indemnification of CTFG for severance costs arising out of
the severance of the automobile finance employees of the Bank, and (iv) the
transfer by the Bank of the Second Cash Component.
Tax Representations. The obligations of the Taylor Family to comply with
the representations set forth in the Private Letter Ruling other than a breach
related to the sale or transfer of their stock of the Company. In addition, the
provisions obligating the Taylor Family to cause the Company (or to cause the
Bank) to comply with the provisions described above under "--Private Letter
Ruling."
Indemnification for Certain Liabilities. The Taylor Family's obligations to
indemnify and hold harmless CTFG for any brokerage fees, commissions or finder's
fees payable on the basis of any action taken or caused to be taken by the
Taylor Family. In addition, subject to certain exceptions, the Taylor Family
would be indemnified and held harmless against its obligation to indemnify and
hold harmless CTFG from and against 25% of any costs, damages, losses or
expenses, including, without limitation, any costs or expenses of defense or
settlement of any suits, actions or proceedings initiated by third parties and
any judgments in such suits, actions or proceedings relating to the transactions
contemplated by the Share Exchange Agreement and any losses relating to disputes
regarding CTFG option terminations or limitations, net of any applicable
insurance proceeds.
Further Assurance; Expenses. The Taylor Family's obligations to make
effective the transactions contemplated by the Share Exchange Agreement after
the Closing. In addition, the indemnification would cover the obligation of the
Taylor Family to pay its own expenses in connection with the transactions
contemplated by the Share Exchange Agreement. The Company has agreed to
reimburse the Taylor Family for these expenses. See "Certain Transactions."
BANK OBLIGATIONS
Under the Share Exchange Agreement, the Taylor Family has agreed to cause
the Bank to indemnify and hold CTFG harmless from and against (i) the severance
costs related to the termination of the Bank employees involved in the
automobile finance business, (ii) the liability set forth above under "--Company
Obligations--Securities Offerings" above, and (iii) any liability of CTFG with
respect to representations, indemnifications and guarantees customarily required
by mortgage investors to assure the validity of mortgages sold and with respect
to other assurances to purchasers of mortgages and mortgage-backed securities
from the Mortgage Company and the Bank. In addition, the Taylor Family must
cause the Bank to indemnify and hold harmless CTFG from and against any and all
Losses (as defined) (x) whenever incurred, arising or accrued, relating to the
Bank, the Mortgage Company or Alpha Capital Fund or CTFG's ownership of
securities in the Bank, the Mortgage Company or Alpha Capital Fund, or (y)
incurred, arising or accrued prior to the Closing in connection with the
transfer of the Used Automobile Receivables to a subsidiary of CTFG. See "Risk
Factors--Liabilities Under Share Exchange Agreement."
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of the
Preferred Stock offered hereby, after deducting underwriting discounts and
offering expenses, are approximately $ million. The Company intends to
contribute the net proceeds to the capital of the Bank in fulfillment of a
condition for regulatory approval of the Split-Off Transactions. See "The
Split-Off Transactions." The Bank will initially invest the proceeds in
investment securities and thereafter they will be used for general corporate
purposes.
In order to provide the capital contribution necessary to obtain requisite
regulatory approval to consummate the Split-Off Transactions, prior to the
Closing the Company will have obtained the Credit Facilities, consisting of a
$25 million, unsecured five year term term loan and a $5 million, unsecured one
year line of credit from LaSalle National Bank. See "The Split-Off Transactions
- -- Related Financing".
19
<PAGE> 21
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated long-term debt and
stockholders' equity of the Company at June 30, 1996, after giving effect to the
Split-Off Transactions, the related Credit Facilities and the net proceeds of
the sale of the Preferred Stock offered hereby.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------
(IN THOUSANDS)
<S> <C>
LONG-TERM DEBT:
Federal Home Loan Bank advances(1)...................................... $ 70,000
Term Loan............................................................... 25,000
Line of credit.......................................................... 4,130
Other debt.............................................................. 836
---------
Total long-term debt............................................... 99,966
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 3,000,000 shares authorized,
Series A, 1,530,000 shares issued and outstanding, $25 stated
value(2)............................................................. 36,250
Common stock, $.01 par, 7,000,000 shares authorized, 4,500,000 shares
issued and outstanding............................................... 45
Surplus................................................................. 111,114
Retained earnings....................................................... 0
---------
Total stockholders' equity......................................... 147,409
---------
Total Capitalization...................................................... $ 247,375
=========
REGULATORY CAPITAL RATIOS:
Consolidated Company
Tier 1 risk-based capital............................................ 6.45%
Total risk-based capital............................................. 7.70%
Leverage ratio....................................................... 4.85%
Pro forma Bank only
Tier 1 risk-based capital............................................ 8.27%
Total risk-based capital(3).......................................... 9.52%
Leverage ratio....................................................... 6.19%
</TABLE>
- ---------------
(1) See Note 11 of the Notes to Financial Statements of the Bank.
(2) Reflects the issuance of the Preferred Stock, net of $2 million in estimated
issuance costs.
(3) The regulatory minimum total risk-based capital ratio as established by the
Board of Governors of the Federal Reserve System for an adequately
capitalized bank is set at 8% and for a "well-capitalized" bank is set at
10% or above. Management intends to maintain the Bank's capitalization so
that these regulatory ratios are above the "well-capitalized"
classification. The pro forma capitalization of the Bank as shown above, is
currently below the "well-capitalized" capital level. However, due to the
Bank's anticipated earnings growth subsequent to June 30, 1996 the Bank's
ratios are expected to be in excess of the "well-capitalized" capital level
by the Closing.
20
<PAGE> 22
SELECTED BANK FINANCIAL DATA
The selected data presented below under the caption "Income Statement Data"
and "Balance Sheet Data" for and as of the years ended December 31, 1995 and
1994 are derived from the historical audited financial statements of the Bank on
a stand alone basis. The financial statements of the Bank for 1995 and 1994 were
audited by KPMG Peat Marwick LLP, independent accountants. The financial data
for and as of the periods ended June 30, 1996 and 1995 and December 31, 1993,
1992 and 1991 are derived from unaudited financial statements. This data should
be read in conjunction with the financial statements, the notes thereto and
other financial information included elsewhere in this Prospectus. The financial
data for the six month period ended June 30, 1996 are not necessarily indicative
of the Bank's results to be expected for the full year.
The selected financial data presented below is based on the historical
results of the Bank, including the Bank's automobile receivables business, which
will be discontinued in connection with the Split-Off Transactions. For a
description of the pro forma effects of the Split-Off Transactions, which will
be accounted for using the purchase method of accounting, on the Bank and the
Company, see "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and "Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations" of the Bank and the Company.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------- FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
----------------------- ------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross interest income............ $ 68,085 $ 65,581 $ 133,684 $ 116,267 $ 101,828 $ 98,967 $ 105,881
Gross interest expense........... 32,492 31,218 64,366 44,118 35,147 40,927 53,826
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.............. 35,593 34,363 69,318 72,149 66,681 58,040 52,055
Provision for loan losses........ 2,052 2,332 4,056 7,374 10,521 8,922 8,816
Noninterest income............... 7,664 6,846 14,227 12,887 15,425 14,502 12,870
Noninterest expense.............. 27,225 26,780 53,549 55,248 53,926 49,107 44,690
Provision for income taxes....... 4,665 3,566 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income....................... $ 9,315 $ 8,531 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... $1,847,608 $1,736,919 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold........................... 432,959 480,076 443,348 488,019 459,349 394,050 301,702
Loans............................ 1,280,383 1,169,238 1,211,622 1,130,177 986,384 904,788 822,443
Allowance for loan losses........ 24,475 23,759 23,869 22,833 19,740 14,661 12,646
Total deposits................... 1,486,332 1,274,339 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings............ 146,373 251,261 202,033 243,997 209,227 152,259 124,511
Long-term borrowings............. 70,836 60,753 61,003 47,864 37,690 5,490 623
Stockholders' equity............. 129,080 127,632 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:(1)
Return on average total assets... 1.05% 1.00% 1.05% 0.98% 0.87% 0.74% 0.64%
Return on average equity......... 14.18 13.88 14.29 14.50 13.00 10.52 8.69
Net interest margin
(tax-equivalent)............... 4.39 4.43 4.38 4.88 5.11 4.83 4.71
Ratio of earnings to fixed
charges:
Including interest on
deposits..................... 1.42x 1.38x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits..................... 3.05 2.30 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets......................... 0.98% 0.86% 1.08% 1.03% 1.14% 1.72% 2.68%
Nonperforming assets to total
loans plus repossessed
property....................... 1.41 1.28 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans.......................... 0.23 0.25 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans.......................... 1.91 2.03 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans............ 155.57 177.11 174.76 157.61 156.67 84.61 66.32
Average stockholders' equity to
average total assets........... 7.40 7.38 7.34 6.75 6.73 7.02 7.36
</TABLE>
- ---------------
(1) The Bank was wholly owned by Cole Taylor Financial Group, Inc., therefore,
the per share disclosure for earnings and dividends has been omitted.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF
OPERATIONS
BASIS OF PRESENTATION
The following presents management's discussion and analysis of the
financial condition and results of operations of the Bank on a stand alone basis
for 1995, 1994 and 1993. This discussion covers the historical
performance of the Bank without giving effect to the Split-Off Transactions and
should be read in conjunction with the Bank's historical financial statements
and the notes thereto appearing elsewhere in this Prospectus. This discussion
does not include the results of operations and financial position of the
Company, which was only recently formed for purposes of the Split-Off
Transactions.
The Split-Off Transactions are expected to impact the financial condition
and results of operations of the Bank on a stand alone basis. The estimated
impact of the transaction is reflected in the Pro Forma financial statements
included in this Prospectus and discussed in the notes and management's
discussion accompanying those Pro Forma financial statements. As a result of the
Split-Off Transactions, the Bank's financial position and results of operations
will be impacted by: (1) the sale and transfer of approximately $111 million of
automobile receivables, (2) the reinvestment of a portion of the proceeds from
the automobile receivables sale as well as the proceeds from the capital
contribution received from the Company, and (3) the recording and amortization
of the fair value adjustments recorded on the Bank's balance sheet, including
substantial goodwill, as a result of the excess of the cost of the acquisition
of the Bank over the fair value of the Bank's net assets.
OVERVIEW
For the first six months of 1996, net income was $9.3 million, compared
with $8.5 million for the same period last year. Annualized return on average
assets increased to 1.05% from 1.00% in the first half of 1995, while annualized
return on average equity also increased to 14.18% in the first half of 1996 from
13.88% in the first half of 1995.
Total assets grew $73.6 million, or 4.1% to $1.85 billion as of June 30,
1996 compared to December 31, 1995. During the first six months of 1996, loans
grew $68.8 million, up 5.7% from December 31, 1995. Deposits increased $122.3
million during the first six months of 1996, up 9.0% from December 31, 1995.
Stockholder's equity decreased $3.7 million, down 2.8% from December 31, 1995.
The decline in stockholder's equity is due to a $5.1 million increase in the
unrealized holding loss, net of tax, on securities designated available-for-sale
as a result of changes in market interest rates.
The Bank's net income of $18.2 million in 1995 represented a 14.2% increase
over net income of $15.9 million in 1994. Net income in 1994 surpassed 1993's
net income of $12.7 million by 25.0%. Total assets of the Bank were $1.77
billion, $1.72 billion and $1.54 billion at December 31, 1995, 1994, and 1993,
respectively. Loans grew to $1.21 billion in 1995, compared to $1.13 billion in
1994 and $986.4 million in 1993. Total deposits were $1.36 billion, $1.29
billion and $1.18 billion at December 31, 1995, 1994 and 1993, respectively.
Stockholders' equity increased to $132.7 million at December 31, 1995 compared
to $119.0 million and $101.8 million at December 31, 1994 and 1993,
respectively. The significant increase in stockholder's equity during 1994
included $10.0 million of capital contributions as a result of Cole Taylor
Financial Group, Inc.'s successful completion of its initial public offering.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the difference between total interest income earned on
earning assets and total interest expense paid on interest-bearing liabilities,
is the Bank's principal source of earnings. The amount of net interest income is
affected by changes in the volume and mix of earning assets, the level of rates
earned on those assets, the volume and mix of interest-bearing liabilities, and
the level of rates paid on those interest-bearing liabilities.
22
<PAGE> 24
Net interest income (with an adjustment for tax-exempt income) for the
first six months of 1996 was $36.8 million, an increase of 3.4% from the same
period in 1995. Growth in net interest income during the first six months of
1996 over the comparable period last year was due to a 4.4% increase in average
earning assets partially offset by a 5 basis point decline in net interest
margin. Net interest margin, which is determined by dividing taxable-equivalent
net interest income by average interest-earning assets, decreased during the
first half of 1996 to 4.38%, as compared to 4.43% in the first half of 1995. The
net interest margin was affected by a decline in the commercial loan yield of
approximately 40 basis points, partially offset by a shift of assets from the
lower yielding investment securities into the higher yielding loan portfolio.
The 13 basis point increase of the average rate paid on time deposits was mostly
offset by the 45 basis point decline in short-term borrowing rates.
Net interest income for 1995 (with an adjustment for tax-exempt income) was
$71.8 million, a decrease of 3.7% from 1994. Net interest income for 1994 (with
an adjustment for tax-exempt income) was $74.6 million, an increase of 8.1% from
$69.0 million in 1993. The decrease in net interest income during 1995 is
comprised of a 50 basis point decrease in net interest margin partially offset
by an increase of 7.4% in average earning assets. Net interest margin decreased
during 1995 to 4.38% as compared to 4.88% in 1994. During 1995 the cost of
interest bearing liabilities increased by 130 basis points as a result of
increased cost of deposits and short-term and long-term borrowings and a shift
from lower cost interest-bearing demand and savings accounts to higher cost time
deposits and increased use of brokered and out of market certificates of
deposit. The yield on earning assets increased by 53 basis points. Increased
volume and yield on commercial and installment loans was partially offset by an
increase in real estate mortgages in which narrower margins are earned. In 1994,
net interest income increased as a result of a 13.0% increase in average earning
assets partially offset by a 23 basis point decline in the net interest margin.
Net interest margin decreased during 1994 to 4.88% as compared to 5.11% in 1993.
The cost of interest-bearing liabilities increased by 37 basis points while the
yield on earning assets increased by 7 basis points. The Bank's net interest
margin decrease during 1994 reflects the increased cost of interest-bearing
demand deposits, time deposits and short-term borrowings, an increase in
investment securities and real estate mortgages in which narrower margins are
earned, partially offset by increased yields on commercial loans as a result of
the increases in the prime lending rate which occurred throughout the year and a
decline in the cost of savings deposits reflective of a decrease in interest
rates which had occurred in the second half of 1993.
23
<PAGE> 25
The following tables set forth certain information relating to the Bank's
average balance sheets and reflects the yield on average earning assets and cost
of average liabilities for the years indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities. Interest income is measured on a tax-equivalent basis using a 35%
rate.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (%) BALANCE INTEREST RATE(%)
---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable................................ $ 357,845 $ 11,269 6.33% $ 404,360 $ 12,742 6.35%
Non-taxable (tax equivalent)........... 65,422 2,988 9.19 66,612 3,046 9.22
---------- ------- ---------- -------
Total investment securities....... 423,267 14,257 6.77 470,972 15,788 6.76
---------- ------- ---------- -------
Cash Equivalents......................... 18,872 497 5.30 10,174 300 5.95
---------- ------- ---------- -------
Loans(2):
Commercial and industrial.............. 790,770 35,778 9.10 700,121 33,024 9.51
Real estate mortgages.................. 227,700 8,392 7.41 213,812 7,930 7.48
Consumer and other..................... 230,218 9,525 8.32 224,858 9,099 8.16
Fees on loans.......................... 852 692
Less: Allowance for loan losses........ (24,574) (23,198)
---------- ------- ---------- -------
Net loans (tax equivalent)........... 1,224,114 54,547 8.96 1,115,593 50,745 9.17
---------- ------- ---------- -------
Total earning assets.............. 1,666,253 69,301 8.36 1,596,739 66,833 8.44
---------- ------- ---------- -------
NONEARNING ASSETS:
Cash and due from banks................ 67,331 65,647
Premises and equipment, net............ 17,093 14,502
Accrued interest and other assets...... 33,384 32,470
---------- ----------
Total nonearning assets........... 117,808 112,619
---------- ----------
TOTAL ASSETS............................. $1,784,061 69,301 7.81 $1,709,358 66,833 7.88
========== ------- ========== -------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand deposits..... $ 338,143 5,990 3.56 $ 343,571 6,193 3.63
Savings deposits..................... 123,029 1,564 2.56 130,407 1,684 2.60
Time deposits........................ 669,716 18,675 5.61 532,668 14,486 5.48
---------- ------- ---------- -------
Total deposits.................... 1,130,888 26,229 4.66 1,006,646 22,363 4.48
---------- ------- ---------- -------
Short-term borrowings.................... 164,161 4,468 5.47 239,034 7,014 5.92
Long-term borrowings..................... 61,019 1,795 5.92 57,130 1,841 6.50
---------- ------- ---------- -------
Total interest bearing
liabilities..................... 1,356,068 32,492 4.82 1,302,810 31,218 4.83
---------- ------- ---------- -------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits........... 280,982 268,034
Accrued interest and other
liabilities.......................... 14,912 14,909
---------- ----------
Total noninterest-bearing
liabilities..................... 295,894 282,943
---------- ----------
STOCKHOLDERS' EQUITY..................... 132,099 123,605
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $1,784,061 $1,709,358
========== ==========
Net interest income (tax equivalent)..... $ 36,809 $ 35,615
======= =======
Net interest spread...................... 3.66% 3.68%
Net interest margin...................... 4.38% 4.43%
</TABLE>
- ---------------
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
(3) Yields/rates are annualized.
24
<PAGE> 26
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%) BALANCE INTEREST (%)
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable...................... $ 400,868 $ 25,382 6.33% $ 402,447 $ 25,045 6.22% $ 340,177 $ 21,928 6.45%
Non-taxable (tax
equivalent)................ 66,904 6,117 9.14 65,028 5,986 9.21 59,180 5,597 9.46
----------- --------- ----------- --------- ----------- ---------
Total investment
securities............. 467,772 31,499 6.73 467,475 31,031 6.64 399,357 27,525 6.89
----------- --------- ----------- --------- ----------- ---------
Cash Equivalents............... 11,519 672 5.83 6,294 274 4.35 3,488 102 2.92
----------- --------- ----------- --------- ----------- ---------
Loans(2):
Commercial and industrial.... 719,113 68,003 9.46 681,033 57,546 8.45 630,882 49,589 7.86
Real estate mortgages........ 215,601 16,007 7.42 168,855 12,518 7.41 123,422 9,879 8.00
Consumer and other........... 226,799 18,721 8.25 204,040 15,702 7.70 194,035 15,619 8.05
Fees on loans................ 1,294 1,664 1,434
Less: Allowance for loan
losses..................... (23,506) (21,878) (18,711)
----------- --------- ----------- --------- ---------- --------
Net loans (tax equivalent)... 1,138,007 104,025 9.14 1,032,050 87,430 8.47 929,628 76,521 8.23
----------- --------- ----------- --------- ---------- --------
Total earning assets..... 1,617,298 136,196 8.42 1,505,819 118,735 7.89 1,332,473 104,148 7.82
----------- --------- ----------- --------- ---------- --------
NONEARNING ASSETS:
Cash and due from banks...... 65,453 72,697 77,572
Premises and equipment,
net........................ 15,133 11,991 11,856
Accrued interest and
other assets............... 33,391 35,319 33,100
----------- ---------- ----------
Total nonearning
assets................. 113,977 120,007 122,528
----------- ---------- ----------
TOTAL ASSETS................... $1,731,275 136,196 7.87 $1,625,826 118,735 7.30 $1,455,001 104,148 7.16
=========== ------- ========== ------- ========== -------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand
deposits................. $ 344,466 12,494 3.63 $ 385,028 10,641 2.76 $ 332,948 8,267 2.48
Savings deposits........... 127,987 3,311 2.59 141,848 3,683 2.60 140,614 3,976 2.83
Time deposits.............. 552,956 31,229 5.65 436,947 18,674 4.27 380,021 15,229 4.01
---------- -------- ---------- -------- ---------- --------
Total deposits........... 1,025,409 47,034 4.59 963,823 32,998 3.42 853,583 27,472 3.22
---------- -------- ---------- -------- ---------- --------
Short-term borrowings.......... 233,003 13,584 5.83 227,304 9,483 4.17 210,487 6,639 3.15
Long-term borrowings........... 57,176 3,748 6.56 36,364 1,637 4.50 26,382 1,036 3.93
---------- -------- ---------- -------- ---------- --------
Total interest bearing
liabilities............ 1,315,588 64,366 4.89 1,227,491 44,118 3.59 1,090,452 35,147 3.22
---------- -------- ---------- --------- ---------- --------
NONINTEREST-BEARING
LIABILITIES:
Noninterest-bearing
deposits................... 273,667 273,065 254,424
Accrued interest and other
liabilities................ 14,903 15,602 12,247
---------- ---------- ----------
Total noninterest-bearing
liabilities.................. 288,570 288,667 266,671
---------- ---------- ----------
STOCKHOLDERS' EQUITY 127,117 109,668 97,878
---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY......... $1,731,275 $1,625,826 $1,455,001
========== ========== ==========
Net interest income (tax
equivalent).................. $ 71,830 $ 74,617 $ 69,001
======== ======== ========
Net interest spread............ 3.72 2.71 2.42
Net interest margin............ 4.38% 4.88% 5.11%
==== ==== ====
</TABLE>
- ---------------
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
25
<PAGE> 27
The following table allocates the changes in net interest income to changes
in either average balances or average rates for earning assets and
interest-bearing liabilities. The change in net interest income due to both
volume and rates has been allocated proportionately. Interest income is measured
on a tax-equivalent basis using a 35% rate.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------------- --------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993
----------------------------- ----------------------------- -----------------------------
CHANGE DUE TO CHANGE DUE TO CHANGE DUE TO
------------------ ------------------ ------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Investment securities:
Taxable............... $(1,464) $ (9) $(1,473) $ (99) $ 436 $ 337 $ 3,897 $ (780) $ 3,117
Tax-exempt............ (55) (3) (58) 172 (41) 131 541 (152) 389
Cash equivalents........ 232 (35) 197 282 116 398 107 65 172
------- ------- ------- ------- -------- -------- -------- ------- --------
Loans................... 4,817 (1,015) (3,802) 9,324 7,271 16,595 8,711 2,198 10,909
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest earned..... 3,530 (1,062) 2,468 9,679 7,782 17,461 13,256 1,331 14,587
------- ------- ------- ------- -------- -------- -------- ------- --------
INTEREST PAID ON:
Interest-bearing demand
deposits.............. (97) (106) (203) (1,209) 3,062 1,853 1,378 996 2,374
Savings deposits........ (94) (26) (120) (359) (13) (372) 35 (328) (293)
Time deposits........... 3,813 376 4,189 5,679 6,876 12,555 2,386 1,059 3,445
Short-term borrowings... (2,068) (478) (2,546) 243 3,858 4,101 564 2,280 2,844
Long-term borrowings.... 121 (167) (46) 1,175 936 2,111 433 168 601
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest paid....... 1,675 (401) 1,274 5,529 14,719 20,248 4,796 4,175 8,971
------- ------- ------- ------- -------- -------- -------- ------- --------
Net interest income....... $ 1,855 $ (661) $ 1,194 $ 4,150 $(6,937) $(2,787) $ 8,460 $(2,844) $ 5,616
======= ======= ======= ======= ======== ======== ======== ======= ========
</TABLE>
PROVISION FOR LOAN LOSSES
Management determines a provision for loan losses which it considers
sufficient to maintain an adequate level of allowance for loan losses. In
evaluating the adequacy of the allowance for loan losses, consideration is given
to historical charge-off experience, growth of the loan portfolio, changes in
the composition of the loan portfolio, general economic conditions, information
about specific borrower situations including their financial position and
collateral values, and other factors and estimates which are subject to change
over time. Estimating the risk of loss and amount of loss on any loan is
subjective. Ultimate losses may vary from current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, the adjustments are
reported in income through the provision for loan losses in the appropriate
period. The provision for loan losses for the first six months of 1996 was $2.1
million compared to $2.3 million for the first six months of 1995. The provision
for loan losses was $4.1 million in 1995, a decrease of $3.3 million, or 45.0%,
below 1994's provision for loan losses of $7.4 million. The provision for loan
losses for 1994 decreased $3.1 million or 29.9%, compared to $10.5 million for
1993. Net charge-offs, through the allowance for loan losses were $1.4 million
for both of the six month periods ended June 30, 1996 and 1995. Net charge-offs,
through the allowance for loan losses, during 1995, 1994 and 1993 were $3.0
million, $4.3 million and $5.4 million respectively. See "Financial
Condition--Allowance for Loan Losses."
26
<PAGE> 28
NONINTEREST INCOME
The following table shows the Bank's noninterest income for the periods
indicated:
NONINTEREST INCOME
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEARS ENDED DECEMBER
ENDED JUNE 30, 31,
----------------- -----------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges.............. $4,269 $3,458 $ 7,452 $ 7,199 $ 6,947
Trust fees................... 1,774 1,644 3,539 3,095 2,944
Financial services income.... 89 180 307 560 882
Mortgage banking income...... 896 910 1,688 694 325
Other noninterest income..... 636 654 1,241 1,331 1,324
Nonrecurring items........... -- -- -- -- 2,438
Net investment securities
gains...................... -- -- -- 8 565
------ ------ ------- ------- -------
Total noninterest income... $7,664 $6,846 $14,227 $12,887 $15,425
====== ====== ======= ======= =======
</TABLE>
Total noninterest income increased $818,000, or 11.9% to $7.7 million, for
the first six months of 1996, as compared to the first six months of 1995. Total
noninterest income for the full year 1995 was $14.2 million, an increase of $1.3
million, or 10.4%, over 1994's noninterest income of $12.9 million. Total
noninterest income for 1994 decreased $2.5 million, or 16.5%, compared to $15.4
million for 1993. Total noninterest income, excluding the impact of net
investment securities gains and nonrecurring items, increased $1.3 million, or
10.5%, from 1994 to 1995, and $457,000, or 3.7%, from 1993 to 1994.
Service charges totaled $4.3 million for the first half of 1996, an
$811,000, or 23.5% increase over the first six months of 1995 service charges of
$3.5 million. The increase is the result of increases in the business deposit
account and credit card service charges. Service charges for the full year 1995,
increased $253,000, or 3.5%, to $7.5 million from 1994 and $252,000, or 3.6%, to
$7.2 million in 1994 from 1993. The 1995 increase relates primarily to increases
in retail and merchant credit card service charges. The 1994 increase is the
result of increases in overdraft charges, partially offset by the reduction of
transaction oriented deposit account services charges on business accounts.
Trust fees increased $130,000, or 7.9%, to $1.8 million during the first
six months of 1996, from $1.6 million during the first six months of 1995. This
increase is related to increases in the personal and employee benefit trusts
business. Trust fees grew to $3.5 million in 1995, an increase of $444,000, or
14.3%, over 1994's trust fees of $3.1 million. The 1995 increase is attributable
to increased employee benefit, land and exchange trust revenues. In February
1995, the Bank completed an acquisition of approximately 1,000 land trust
accounts from a financial institution located in a suburb of Chicago. The 1994
increase is generally the result of increased land and exchange trust revenues.
Total fees received from financial services (i.e., the sale of certain
insurance and financial services products through third party vendors) decreased
$91,000 to $89,000 for the first half of 1996, from $180,000 for the first half
of 1995. This decrease is primarily attributable to a revision of the Bank's
agreement with the third party vendor in mid-1995 which reduced commission
income earned on retail sales. This also accounts for the 1995 decrease of
$253,000, or 45.2%. In 1994, total fees decreased 36.5% to $560,000 in 1994 from
$882,000 in 1993. The 1994 decrease is a result of personnel losses.
Mortgage banking income is generally comprised of gains and losses on loans
originated for sale, which includes lower of cost or market adjustments on such
loans and commitments and loan servicing income. Servicing of loans sold is
retained or released based on the best economic outcome. Since 1995 the Bank has
retained the servicing rights on approximately 75% of the loans sold into the
secondary market. The Bank has not purchased any mortgage servicing rights.
Mortgage banking income declined $14,000, or 1.5% for the first six months of
1996 as compared to the same period in 1995. The 1996 decline is due to smaller
profit margins
27
<PAGE> 29
on loans sold, partially offset by the $87 million increase in loans sold. In
addition, loan servicing income has also declined during 1996 because of
increased amortization of mortgage servicing rights and declining loan servicing
rates, partially offset by the $52 million increase in the average loan
servicing portfolio. Both 1996 and 1995 periods have gains from bulk sales of
mortgage servicing rights, $451,000 in 1996 and $487,000 in 1995. During the
first half of 1995, the mortgage income was partially offset by a $130,000 loss
on the sale of approximately $30 million in mortgage loans previously held in
the loan portfolio which were not originated for sale. For the full year 1995,
mortgage banking income grew to $1.7 million, an increase of $994,000 over
1994's income of $694,000, which increased $369,000, or 113.5% over 1993's
mortgage banking income of $325,000. The increase in 1995's income reflected the
adoption of SFAS No. 122 "Accounting for Mortgage Servicing Rights" which
resulted in $895,000 of additional income and an increased volume of loans sold
with servicing retained. The 1994 and 1993 reported income amounts are primarily
comprised of loan servicing income. As of June 30, 1996, and December 31, 1995,
1994 and 1993, the Bank's portfolio of mortgage loans serviced for others was
approximately $246 million, $195 million, $166 million and $135 million,
respectively.
Other noninterest income, which principally includes standby letters of
credit, ATM and vault rental fees, remained fairly flat during the six month
periods ended June 30, 1996 and 1995, and decreased $90,000, or 6.8%, to $1.2
million in 1995 from 1994 and was flat during 1994 compared to 1993.
Nonrecurring income in 1993 totaled $2.4 million and is attributable to a
legal settlement related to certain equipment leases purchased in December 1986.
The settlement arose as a result of a lawsuit filed against the seller claiming
breach of contract and fraud.
There were no net investment securities gains recorded during the first six
months of 1996 or in 1995. Net investment securities gains were $8,000 and
$565,000 during 1994 and 1993, respectively. In 1994, the proceeds from
securities sales were $525,000 with a resultant gross gain of $8,000. In 1993,
the proceeds from securities sales were $42 million with resultant gross gains
and losses recorded of $717,000 and $152,000, respectively.
Noninterest Expense
The following table shows the Bank's noninterest expense for the years
indicated:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED DECEMBER
ENDED JUNE 30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................ $14,781 $14,073 $28,973 $28,691 $28,069
Occupancy of premises, net.................... 2,349 2,421 4,880 4,885 5,114
Furniture and equipment....................... 1,519 1,321 2,651 2,385 2,458
Computer processing........................... 999 788 1,676 1,444 1,403
Legal fees.................................... 744 742 1,655 1,106 1,116
Advertising and public relations.............. 917 783 1,582 2,298 2,183
FDIC deposit insurance........................ 2 1,408 1,451 2,646 2,400
Other real estate and repossessed asset
expense..................................... 675 6 1,169 999 1,292
Other noninterest expense..................... 5,239 5,238 9,512 10,794 9,891
------- ------- ------- ------- -------
Total noninterest expense................ $27,225 $26,780 $53,549 $55,248 $53,926
======= ======= ======= ======= =======
Efficiency ratio(1)........................... 62.94% 64.99% 64.38% 64.98% 68.17%
</TABLE>
- ---------------
(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income, less security gains and significant nonrecurring items.
Total noninterest expense for the first six months of 1996, increased
$445,000, or 1.7% over the same 1995 period. For the full year 1995, noninterest
expense decreased $1.7 million, or 3.1% as compared to 1994.
28
<PAGE> 30
The decrease in 1995 is primarily attributable to CTFG assuming approximately
$2.8 million in salary and overhead expenses that had been paid by the Bank in
1994. For 1994, noninterest expense increased $1.3 million, or 2.5%, over the
1993 levels.
Salaries and employee benefits represent the largest category of
noninterest expense, accounting for 54.3% of the total expenses during the first
six months of 1996, and 52.5% for the same period in 1995. For the first six
months of 1996, salaries and benefits increased $708,000, or 5% over the same
1995 period. The 1996 increase includes $461,000 increase in expenses relating
to the Bank's incentive, employee stock ownership, and profit sharing plans. For
the full year 1995, salaries and benefits totaled 54.1% of the total expenses
versus 51.9% in 1994 and 52.1% in 1993. Salaries and employee benefits increased
$282,000, or 1.0%, to $29.0 million in 1995 from $28.7 million in 1994. In 1995,
certain Bank employees were transferred to CTFG. Giving effect to the transfer
of employees to CTFG, 1995 salaries and benefits increased $1.2 million or 4.4%
over 1994. During 1994, salaries and employee benefits increased $622,000, or
2.2%. Salary and employee benefits expense includes contributions to the Bank's
management incentive, employee stock ownership, and profit sharing plans of $2.2
million in 1995 and $2.9 million in both 1994 and 1993, respectively. The Bank's
group health insurance costs decreased in 1995 and 1994 to $1.7 million and $2.0
million, respectively, compared with $2.5 million in 1993. In 1995, 1994 and
1993, the average number of full-time equivalent employees at the Bank was 676,
686 and 679, respectively.
Occupancy expenses for the first six months of 1996, decreased $72,000 from
the same 1995 period because of reduced real estate tax and maintenance
expenses, partially offset by additional expenses relating to the Bank's new
Broadview, IL branch. Occupancy expenses remained relatively flat during 1995.
Occupancy expense decreases during 1994 relate to real estate tax and repairs
and maintenance expenses.
Furniture and equipment expenses increased $198,000 for the first six
months of 1996 over the same 1995 period due to additional expenses relating to
technology enhancement and the Bank's new Broadview, IL branch. For the full
year 1995, furniture and equipment expenses increased $266,000, or 11.2%, after
remaining relatively flat during 1994. The 1995 increase relates to increased
depreciation charges.
Computer processing expenses for the first six months of 1996 increased
$211,000 over the same 1995 period. This 1996 increase is due to increased
charges from the Bank's data processor and volume increases on credit card
processing charges. Computer processing expenses increased $232,000, or 16.1%,
in 1995 after remaining relatively flat during 1994. The increase is
attributable to phone line charges associated with the Bank's wide area computer
network, credit card processing charges related to the credit card program
introduced in 1995, and enhancements in certain data processing systems made in
1995.
Legal fees for the first six months of 1996 were flat when compared to the
same 1995 period. Legal fees for the full year 1995, increased $549,000, or
49.6%, after decreasing $10,000 in 1994. The increase in 1995 is generally
attributable to increased litigation costs associated with various legal actions
concluded in 1995.
Advertising and public relations expenses for the first six months of 1996
increased $134,000 over the same 1995 period because of an increased emphasis on
direct marketing. Advertising and public relations expense decreased $716,000,
or 31.2%, in 1995 after increasing $115,000 in 1994. The decrease in 1995 is
primarily attributable to reduced television and radio advertisements compared
to the previous two years when the Bank was attempting to raise customer
awareness levels.
For the first six months of 1996 compared to the first six months of 1995,
FDIC deposit insurance decreased $1.4 million. For 1995 compared to 1994, FDIC
deposit insurance decreased $1.2 million. The decreases were a result of the
reductions in the premium rate assessed. FDIC deposit insurance was up $246,000,
or 10.3%, during 1994 as a result of the increased level of deposits. For all of
the periods presented, the Bank was categorized as "well-capitalized" and,
therefore, was being assessed at the lowest premium rate.
Other real estate and repossessed asset expense for the first six months of
1996 increased $669,000 over the same 1995 period, primarily due to costs
associated with the operation and disposition of a repossessed business
property. Provision for losses on other real estate included in these amounts
were $39,000 and $88,000 for the six month periods ending June 30, 1996 and
1995, respectively. Other real estate and repossessed asset expense was $1.2
million, $999,000 and $1.3 million in 1995, 1994 and 1993, respectively.
29
<PAGE> 31
Provision for losses on other real estate included in these amounts were
$243,000, $587,000 and $266,000 during the years ended December 31, 1995, 1994
and 1993, respectively. The principal balance of other real estate and
repossessed assets outstanding as of December 31, 1995, 1994 and 1993 was $5.4
million, $3.2 million and $5.1 million, respectively. See "Financial
Condition--Nonperforming Loans and Assets."
Other noninterest expense (which principally includes certain professional
fees, consulting, outside services and other operating expenses such as
telephone, postage, stationary and printing, etc.) was flat the first six months
of 1996 compared to the same 1995 period. For the full year 1995, these expenses
decreased $1.3 million, or 11.9%, from 1994. The decrease in 1995 is
attributable to CTFG assuming approximately $1.6 million in certain overhead
expenses that had been paid by the Bank in 1994. During 1994, other noninterest
expense increased $1.1 million, or 11.6%, from $9.7 million in 1993.
INCOME TAXES
The effective income tax rate for the first six months of 1996 was 33.4%,
as compared to 29.5% for the first six months of 1995. The income tax provision
for the full years of 1995, 1994 and 1993 was $7.8 million, $6.5 million and
$4.9 million, respectively. As a percentage of pretax income, income tax expense
for 1995 was 30.0%, as compared to 29.1% in 1994, and 28.0% in 1993.
The Bank filed a consolidated federal income tax return with CTFG for each
of the periods presented. The Internal Revenue Service (the IRS) is currently
conducting a routine audit of the consolidated 1993 federal income tax return.
While the IRS audit findings are not yet known, management does not expect the
results to have a material impact on the Bank's financial position.
FINANCIAL CONDITION
LOAN PORTFOLIO
The Banks primary source of income is interest on loans. The following
table presents the composition of the Bank's loan portfolio at the end of the
periods indicated:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial... $ 661,039 $ 638,497 $ 611,670 $580,587 $556,578 $535,807
Real estate--residential
construction.............. 159,035 121,547 94,223 71,030 55,031 44,965
Real estate--mortgage....... 180,929 207,377 202,455 135,322 106,105 84,044
Mortgage loans
held-for-sale............. 41,856 15,748 1,554 -- -- --
Consumer.................... 238,778 231,717 224,927 202,102 190,588 163,020
Other loans................. 3,017 2,061 1,136 1,559 1,570 1,015
---------- ---------- ---------- -------- -------- --------
Gross loans.......... 1,284,654 1,216,947 1,135,965 990,600 909,872 828,851
Less: Unearned discount..... (4,271) (5,325) (5,788) (4,216) (5,084) (7,551)
---------- ---------- ---------- -------- -------- --------
Total loans.......... 1,280,383 1,211,622 1,130,177 986,384 904,788 821,300
Less: Allowance for loan
losses.................... (24,475) (23,869) (22,833) (19,740) (14,661) (12,646)
---------- ---------- ---------- -------- -------- --------
Loans, net........... $ 1,255,908 $1,187,753 $1,107,344 $966,644 $890,127 $808,654
========== ========== ========== ======== ======== ========
</TABLE>
The loan portfolio has grown consistently each of the past five years. This
is consistent with the Bank's asset/liability strategy of increasing loans
outstanding to increase net interest income. At June 30, 1996, gross loans
increased $67.7 million, or 5.6%, over the previous year end. Gross loans
increased $81.0 million, or 7.1% at December 31, 1995, as compared to December
31, 1994. In 1994, gross loans increased $145.4 million, or 14.7%, as compared
to December 31, 1993.
30
<PAGE> 32
Commercial and industrial loans, the largest component of the Company's
loan portfolio, increased to $661.0 million at June 30, 1996, an increase of
$22.5 million, or 3.5% from December 31, 1995. Commercial and industrial loans
represented 51.4% of the loan portfolio at June 30, 1996 and 52.5%, 53.8% and
58.6% at December 31, 1995, 1994 and 1993, respectively.
Real estate--residential construction loans increased $37.5 million, or
30.8%, to $159.0 million at June 30, 1996 as compared to December 31, 1995. Real
estate--residential construction loans represented 12.4% of the loan portfolio
at June 30, 1996 and 10.0%, 8.3% and 7.2% at December 31, 1995, 1994 and 1993,
respectively.
Real estate--mortgage loans decreased $26.4 million, or 12.8%, to $180.9
million at June 30, 1996, as compared to December 31, 1995. This decline in
mortgage loans is due to normal loan amortization and prepayments and
management's asset/liability strategy to limit the growth of long-term maturity
mortgage loans. During 1993 the Bank retained all of the mortgages it
originated. The conforming originations were securitized and transferred to the
Bank's investment securities portfolio to be held to maturity. Securitization
provided the Bank with additional liquidity and risk-based capital adequacy and
therefore was a more desirable means for meeting the Bank's capacity for
long-term investments. By mid-1994, the Bank had reached its asset/liability
strategy limit for long-term fixed rate lending and began selling all conforming
loan originations with maturities over 5 years. The Bank continued to hold in
its portfolio adjustable rate mortgages and 3 to 5 year balloon loans. Beginning
in 1995, and throughout 1996, the Bank began selling all conforming mortgages
into the secondary market. Real estate--mortgage loans represented 14.1% of
gross loans as of June 30, 1996 and 17.0%, 17.8% and 13.7% at December 31, 1995,
1994 and 1993, respectively.
Mortgage loans held-for-sale increased $26.1 million, or 165.8%, to $41.8
million as of June 30, 1996, as compared to December 31, 1995. This significant
increase is due to the Bank's growing emphasis on mortgage banking activities.
Consumer loans increased $7.1 million, or 3.0%, to $238.8 million at June
30, 1996, as compared to December 31, 1995. Consumer loans represented 18.6% of
gross loans as of June 30, 1996 and 19.0%, 19.8% and 20.4% at December 31, 1995,
1994 and 1993, respectively.
The following table sets forth the remaining maturities, net of unearned
discounts for certain consumer loans, at June 30, 1996:
MATURITIES AND RATE SENSITIVITY OF LOANS (1)
<TABLE>
<CAPTION>
OVER 1 YEAR
THROUGH 5 YEARS OVER 5 YEARS
---------------------- ----------------------
ONE YEAR FLOATING FLOATING
OR LESS FIXED RATE RATE FIXED RATE RATE TOTAL
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial....... $331,946 $175,753 $ 90,255 $ 51,162 $ 11,923 $ 661,039
Real estate--residential
construction.................. 58,810 31,387 56,617 12,221 -- 159,035
Real estate--mortgage........... 9,728 63,683 3,226 44,097 60,195 180,929
Mortgage loans held-for-sale.... 41,856 -- -- -- -- 41,856
Consumer........................ 56,263 95,163 19,882 5,437 57,762 234,507
Other loans..................... 3,017 -- -- -- -- 3,017
-------- -------- -------- -------- ------- ----------
Total...................... $501,620 $270,823 $150,098 $107,480 $ 72,118 $1,280,383
======== ======== ======== ======== ======= ==========
</TABLE>
- ---------------
(1) Maturities based upon contractual dates. Demand loans are included in the
one year or less category and totaled $16.3 million as of June 30, 1996.
The ratio of average loans outstanding to total average interest-bearing
liabilities was 92.1% as of June 30, 1996 and 88.3%, 85.9%, 87.0%, 87.5% and
84.5% at December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
31
<PAGE> 33
NONPERFORMING LOANS AND ASSETS
Management reviews the loan portfolio for problem loans through a loan
review function and various credit committees. During the ordinary course of
business, management becomes aware of borrowers that may not be able to meet the
contractual requirements of loan agreements. Such loans are placed under close
supervision with consideration given to placing the loan on a nonaccrual status,
the need for an additional allowance for loan loss, and (if appropriate) a
partial or full charge-off. Those loans on which management does not expect to
collect interest in the normal course of business are placed on a nonaccrual
status. After a loan is placed on nonaccrual status, any current year interest
previously accrued but not yet collected is reversed against current income.
Interest is included in income subsequent to the date the loan is placed on
nonaccrual status only as interest is received and so long as management is
satisfied that there is no impairment of collateral values. The loan is returned
to accrual status only when the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.
The following table sets forth the amounts of nonperforming loans and other
assets at the ends of the periods indicated:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans contractually past due 90 days
or more but still accruing.......... $ 3,794 $ 3,737 $ 4,012 $ 2,151 $ 5,584 $ 8,543
Nonaccrual loans...................... 11,938 9,921 10,475 10,449 11,744 10,524
------- ------- ------- ------- ------- -------
Total nonperforming loans........ 15,732 13,658 14,487 12,600 17,328 19,067
Other real estate..................... 2,103 2,928 2,843 4,628 5,373 13,588
Other repossessed assets.............. 284 2,488 356 456 1,351 853
------- ------- ------- ------- ------- -------
Total nonperforming assets....... $ 18,119 $19,074 $17,686 $17,684 $24,052 $33,508
======= ======= ======= ======= ======= =======
Nonperforming loans to total loans.... 1.23% 1.13% 1.28% 1.28% 1.92% 2.32%
Nonperforming assets to total loans
plus repossessed property........... 1.41 1.57 1.56 1.78 2.64 4.01
Nonperforming assets to total
assets.............................. 0.98 1.08 1.03 1.14 1.72 2.68
</TABLE>
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses has been established to provide for those
loans which may not be repaid in their entirety. Loan losses are primarily
created from the loan portfolio, but may also be generated from other sources,
such as commitments to extend credit, guarantees, and standby letters of credit.
The allowance for loan losses is increased by provisions charged to expense and
decreased by charge-offs, net of recoveries. Although a loan is charged-off by
management when deemed uncollectible, collection efforts continue and future
recoveries may occur.
The allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position, collateral values, and other factors and
estimates which are subject to change over time. Estimating the risk of loss and
amount of loss on any loan is necessarily subjective and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in income through the provision
for loan losses in the periods in which they become known. The adequacy of the
allowance for loan losses is monitored by the internal loan review staff and
reported to management and the Board of Directors. Although management believes
that the allowance for loan losses is adequate to absorb any losses on existing
loans that may become uncollectible, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses in the future. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the adequacy of the Bank's allowance for loan
losses. Such agencies may require the Bank
32
<PAGE> 34
to make additional provisions to the allowance based upon their judgments about
information available to them at the time of their examinations. See "Results of
Operations--Provision for Loan Losses".
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts of loans charged-off, amounts of
recoveries, additions to the allowance charged to operating expense, the ratio
of net charge-offs to average total loans, the ratio of the allowance to total
loans at end of period, and the ratio of the allowance to nonperforming loans:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR THE
SIX
MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans.......... $1,248,688 $1,161,513 $1,053,928 $948,339 $876,957 $779,442
========== ========== ========== ======== ======== ========
Total loans at end of
period..................... $1,280,383 $1,211,622 $1,130,177 $986,384 $904,788 $821,300
========== ========== ========== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of
period..................... $23,869 $22,833 $19,740 $14,661 $12,646 $10,256
---------- ---------- ---------- -------- -------- --------
Charge-offs:
Commercial and
industrial.............. (819) (3,728) (4,280) (6,968) (7,477) (6,066)
Real estate--residential
construction............ -- -- -- -- -- --
Real estate--mortgage...... (142) (242) (290) (420) (55) (2)
Consumer and other......... (853) (931) (588) (583) (523) (794)
---------- ---------- ---------- -------- -------- --------
Total charge-offs....... (1,814) (4,901) (5,158) (7,971) (8,055) (6,862)
---------- ---------- ---------- -------- -------- --------
Recoveries:
Commercial and
industrial.............. 203 1,581 666 2,344 969 364
Real estate--residential
construction............ -- -- -- -- -- --
Real estate--mortgage...... 9 40 -- -- -- --
Consumer and other......... 156 260 211 185 179 72
---------- ---------- ---------- -------- -------- --------
Total recoveries........ 368 1,881 877 2,529 1,148 436
---------- ---------- ---------- -------- -------- --------
Net charge-offs.............. (1,446) (3,020) (4,281) (5,442) (6,907) (6,426)
---------- ---------- ---------- -------- -------- --------
Provision for loan losses.... 2,052 4,056 7,374 10,521 8,922 8,816
---------- ---------- ---------- -------- -------- --------
Allowance at end of period... $24,475 $23,869 $22,833 $19,740 $14,661 $12,646
========== ========== ========== ======== ======== ========
Net charge-offs to average
total loans(1)............. 0.23% 0.26% 0.41% 0.57% 0.79% 0.82%
Allowance to total loans at
end of period.............. 1.91 1.97 2.02 2.00 1.62 1.54
Allowance to nonperforming
loans...................... 155.57 174.76 157.61 156.67 84.61 66.32
</TABLE>
- ---------------
(1) June 30, 1996 ratio is annualized.
The Bank regards the allowance for loan losses as a general reserve which
is available to absorb losses from all loans. However, for purposes of complying
with disclosure requirements of the Securities and Exchange Commission, the
table below presents an allocation of the allowance for loan losses among the
various loan categories and sets forth the percentage of loans in each category
to gross loans. The allocation of the allowance for loan losses as shown in the
table should neither be interpreted as an indication of future
33
<PAGE> 35
charge-offs, nor as an indication that charge-offs in future periods will
necessarily occur in these amounts or in the indicated proportions.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------- ---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
LOAN LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLOCATED:
Commercial and
industrial.... $11,568 51.5% $11,163 52.5% $10,693 53.8% $2,658 58.6% $3,169 61.2% $7,070 64.6%
Real estate--
residential
construction... 2,783 12.4 2,127 10.0 1,648 8.3 -- 7.2 -- 6.0 -- 5.4
Real estate--
mortgage...... 2,228 17.3 2,231 18.3 2,040 18.0 37 13.7 12 11.7 92 10.2
Consumer and
other......... 3,064 18.8 2,972 19.2 2,891 19.9 614 20.5 715 21.1 265 19.8
UNALLOCATED..... 4,832 -- 5,376 -- 5,561 -- 16,431 -- 10,765 -- 5,219 --
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance
for loan
losses........ $24,475 100.0% $23,869 100.0% $22,833 100.0% $19,740 100.0% $14,661 100.0% $12,646 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
During 1994, the Bank revised the manner in which the allowance for loan
losses is allocated to specific loan types for the purpose of complying with
disclosure requirements of the Securities and Exchange Commission. Prior periods
have not been restated.
INVESTMENT SECURITIES
The purpose of the investment portfolio is to primarily provide a source of
earnings and secondarily for liquidity management purposes. In managing the
portfolio and the composition of the entire balance sheet, the Bank seeks a
balance among earnings, credit and liquidity considerations, with a goal of
maximizing the longer-term overall profitability.
On November 15, 1995, the Financial Accounting Standards Board issued its
Special Report on the implementation of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Guidance in the Special Report
allows entities to reclassify securities, including held-to-maturity debt
securities, without calling into question the intent of the entity to hold debt
securities to maturity in the future. The Special Report indicates that the
one-time reclassification permitted should occur as of a single date between
November 15, 1995 and December 31, 1995. In compliance with the provisions
contained in the Special Report, the Bank reclassified approximately $299.8
million of held-to-maturity securities, at amortized cost, into the
available-for-sale classification. Unrealized gains of approximately $400,000
were recorded in stockholder's equity as a result of this reclassification.
34
<PAGE> 36
The following tables present the composition and maturities of the
investment portfolio by major category as of the periods indicated:
INVESTMENT PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
---------------------- ---------------------- ----------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 1996:
U.S. Treasury securities......... $ 107,702 $ 107,432 -- -- $ 107,702 $ 107,432
U.S. government agencies
securities..................... 38,877 38,727 -- -- 38,877 38,727
U.S. government agency mortgage-
backed securities.............. 179,083 170,901 -- -- 179,083 170,901
States and political
subdivisions................... -- -- 64,878 66,888 64,878 66,888
Collateralized mortgage
obligations.................... 305 305 -- -- 305 305
Commercial paper................. 24,904 24,904 -- -- 24,904 24,904
Other securities................. -- -- 10,412 10,417 10,412 10,417
-------- -------- ------- ------- -------- --------
Total..................... $ 350,871 $ 342,269 $ 75,290 $ 77,305 $ 426,161 $ 419,574
======== ======== ======= ======= ======== ========
DECEMBER 31, 1995:
U.S. Treasury securities......... $ 110,897 $ 111,688 -- -- $ 110,897 $ 111,688
U.S. government agencies
securities..................... 55,131 55,738 -- -- 55,131 55,738
U.S. government agency mortgage-
backed securities.............. 195,463 193,953 -- -- 195,463 193,953
States and political
subdivisions................... -- -- 67,110 70,733 67,110 70,733
Collateralized mortgage
obligations.................... 364 356 -- -- 364 356
Other securities................. -- -- 9,503 9,506 9,503 9,506
-------- -------- ------- ------- -------- --------
Total..................... $ 361,855 $ 361,735 $ 76,613 $ 80,239 $ 438,468 $ 441,974
======== ======== ======= ======= ======== ========
DECEMBER 31, 1994:
U.S. Treasury securities......... $ 11,051 $ 11,087 $ 110,207 $ 106,265 $ 121,258 $ 117,352
U.S. government agencies
securities..................... -- -- 51,240 48,165 51,240 48,165
U.S. government agency mortgage-
backed securities.............. 51,854 46,277 170,266 157,761 222,120 204,038
States and political
subdivisions................... -- -- 66,639 66,643 66,639 66,643
Collateralized mortgage
obligations.................... 1,073 1,067 -- -- 1,073 1,067
Other securities................. -- -- 7,636 7,640 7,636 7,640
-------- -------- ------- ------- -------- --------
Total....................... $ 63,978 $ 58,431 $ 405,988 $ 386,474 $ 469,966 $ 444,905
======== ======== ======= ======= ======== ========
DECEMBER 31, 1993:
U.S. Treasury securities......... $ 30,716 $ 31,823 $ 70,981 $ 74,319 $ 101,697 $ 106,142
U.S. government agencies
securities..................... -- -- 32,497 32,938 32,497 32,938
U.S. government agency mortgage-
backed securities.............. 60,067 59,719 158,231 160,189 218,298 219,908
States and political
subdivisions................... -- -- 64,324 69,013 64,324 69,013
Collateralized mortgage
obligations.................... 3,327 3,279 -- -- 3,327 3,279
Other securities................. -- -- 6,945 6,948 6,945 6,948
-------- -------- ------- ------- -------- --------
Total....................... $ 94,110 $ 94,821 $ 332,978 $ 343,407 $ 427,088 $ 438,228
======== ======== ======= ======= ======== ========
</TABLE>
35
<PAGE> 37
INVESTMENT PORTFOLIO--MATURITY AND YIELDS
(AS OF JUNE 30, 1996)
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------------- ---------------- --------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- ------- ----- ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
SECURITIES(1):
U.S. Treasury securities.... $ 79,373 6.39 % $ 28,059 5.38 % $ -- -- % $ -- -- % $107,432 6.13 %
U.S. government agencies
securities................ 12,979 6.54 25,748 6.52 -- -- -- -- 38,727 6.53
U.S. government agency
mortgage-backed
securities(3)............. 30,252 6.40 75,026 6.37 45,103 6.49 20,520 6.68 170,901 6.44
Collateralized mortgage
obligations(3)............ 240 6.15 65 6.15 -- -- -- -- 305 6.15
Commercial paper............ 24,904 5.40 -- -- -- -- -- -- 24,904 5.40
-------- -------- ------- ------- --------
Total
available-for-sale.... 147,748 128,897 45,103 20,520 342,269
-------- -------- ------- ------- --------
HELD-TO-MATURITY
SECURITIES(2):
States and political
subdivisions(4)........... 3,292 8.46 18,508 9.00 36,710 9.26 6,368 8.75 64,878 9.10
Other securities............ -- -- -- -- 575 8.22 9,837 6.15 10,412 6.26
-------- -------- ------- ------- --------
Total
held-to-maturity...... 3,292 18,508 37,285 16,206 75,290
-------- -------- ------- ------- --------
Total securities... $151,040 $147,405 $82,388 $36,726 $417,559
======== ======== ======= ======= ========
</TABLE>
- ---------------
(1) Based on estimated fair value.
(2) Based on amortized cost.
(3) Maturities of mortgage-backed securities and collateralized mortgage
obligations are based on anticipated lives of the underlying mortgages, not
contractual maturities.
(4) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 35% income tax rate.
Investments in U.S. Treasury securities are generally considered to have
very low credit risk and high liquidity. U.S. government agencies securities
principally consist of Federal Home Loan Bank ("FHLB"), Federal Farm Credit Bank
and Federal National Mortgage Association ("FNMA") notes. These securities are
considered to possess a relatively low credit risk and moderate interest rate
risk. U.S. government agency mortgage-backed securities consist principally of
FNMA and Federal Home Loan Mortgage Corporation ("FHLMC") certificates. These
securities possess a higher risk level than U.S. Treasuries and agencies due, in
part, to certain prepayment risks. The Bank generally only invests in state and
municipal investment securities which are rated investment grade by nationally
recognized rating organizations. Certain municipal issues, which are restricted
to the Bank's local market area, are not rated. The Bank also invests in
commercial paper all of which is short term and investment grade. Other
securities are primarily composed of equity securities. These include Federal
Reserve Bank stock and FHLB stock that are required to be maintained for various
purposes. At June 30, 1996, the Bank held no securities of any single issuer,
other than the U.S. Treasury and U.S. government agencies securities, including
FNMA, that exceeded 10% of stockholder's equity. Although the Bank holds
securities issued by municipalities within the state of Illinois which in the
aggregate exceed 10% of stockholder's equity, none of the holdings from
individual municipal issues exceed this threshold.
36
<PAGE> 38
A significant portion of the Bank's investment securities portfolio
(approximately 76% at June 30, 1996) is used as collateral for public funds time
deposits, securities sold under agreement to repurchase and other Bank
borrowings.
DEPOSITS AND BORROWED FUNDS
The Bank's core deposits consist of noninterest- and interest-bearing
demand deposits, savings deposits, certificates of deposit under $100,000,
certain certificates of deposit over $100,000 and public funds. These deposits,
along with other borrowed funds are used by the Bank to support its asset base.
The following tables sets forth the distribution of the Bank's average
deposit account balances and average cost of funds rates on each category of
deposits for the periods indicated:
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------------
1996
------------------------------
PERCENT
AVERAGE OF
BALANCE DEPOSITS RATE
---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Noninterest-bearing demand deposits................................ $ 280,982 19.90% --%
Interest-bearing demand deposits................................... 338,143 23.95 3.56
Savings deposits................................................... 123,029 8.71 2.56
Time deposits:
Customer certificates of deposit................................. 391,329 27.72 5.59
Brokered certificates of deposit................................. 113,023 8.01 5.71
Public funds..................................................... 165,364 11.71 5.58
---------- ------
Total time deposits........................................... 669,716 47.44 5.61
---------- ------
Total deposits.............................................. $1,411,870 100.00%
========== ======
</TABLE>
Average deposits increased $113.7 million or 8.8% to $1.4 billion through
June 30, 1996 from the average of $1.3 billion in 1995. Average public funds
time deposits increased $50.9 million, or 44.4%. This was a result of the Bank
encouraging its municipal customers to move from repurchase agreements to time
deposits, since the reduction in the FDIC insurance premiums made repurchase
agreements less attractive to the Bank. Customer certificates of deposit
increased $43.4 million, or 12.5%. Brokered certificates of deposit increased
$22.5 million to average $113.0 million as the Bank's asset growth continued to
exceed customer deposit growth.
37
<PAGE> 39
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
AVERAGE OF AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits....... $ 272,732 21.01% -- % $ 272,546 22.05% -- % $ 254,285 22.95% -- %
Interest-bearing demand
deposits.............. 344,466 26.54 3.63 385,028 31.14 2.76 332,948 30.06 2.48
Savings deposits........ 127,987 9.86 2.59 141,848 11.47 2.60 140,614 12.69 2.83
Time deposits:
Certificates of
deposit, under
$100,000............ 288,736 22.24 5.60 198,504 16.06 4.01 223,288 20.15 4.15
Certificates of
deposit, over
$100,000............ 59,210 4.56 5.73 30,024 2.43 4.02 30,632 2.76 3.45
Brokered certificates
of deposit.......... 90,528 6.97 5.30 95,976 7.76 4.81 49,438 4.47 4.65
Public funds.......... 114,482 8.82 5.99 112,443 9.09 4.35 76,663 6.92 3.39
---------- ------ ---------- ------ ---------- ------
Total time
deposits.......... 552,956 42.59 5.65 436,947 35.34 4.27 380,021 34.30 4.01
---------- ------ ---------- ------ ---------- ------
Total deposits...... $1,298,141 100.00% $1,236,369 100.00% $1,107,868 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
Average deposits increased 5.0% in 1995 as compared to an increase of 11.6%
in 1994. During 1995, average noninterest-bearing deposits were flat, average
interest-bearing demand deposits decreased 10.5%, average savings deposits
decreased 9.8% and average time deposits increased 26.5%. In 1994, average
noninterest-bearing demand deposits increased 7.2%, average interest-bearing
demand deposits increased 15.6%, average savings deposits increased .9% and
average time deposits increased 15.0%.
Since 1992, earning asset growth has exceeded core deposit growth, which
has resulted in the use of brokered and out of market certificates of deposit
and other borrowed funds. In 1995, the Bank began offering certificates of
deposit over the National CD Network. The National CD Network is a private
database that collects certificate of deposit rates from participating
institutions across the country and provides such information to its
subscribers. The balance of certificates of deposit obtained through the
National CD Network was $57 million at June 30, 1996. In 1992, the Bank began
issuing brokered certificates of deposit. The balance of brokered certificates
of deposit balances was $128 million at June 30, 1996. The brokered and out of
market certificates of deposit generally have original terms of one to two
years. Under FDIC regulations, only "well-capitalized" institutions may fund
themselves with brokered certificates of deposit without the prior approval of
regulators. The Bank is categorized as "well-capitalized" at June 30, 1996. See
"Risks Arising from the Split-Off Transactions." In addition, municipal
deposits, consisting of public funds time deposits and repurchase agreements
with municipalities have become an important funding source for the Bank. Total
municipal time deposits and repurchase agreements approximated $243 million at
June 30, 1996. Most of these deposits and short-term borrowings are
collateralized by securities which are part of the Bank's investment portfolio.
Time deposits in denominations of $100,000 or more totaled $307.0 million
at June 30, 1996, up $90.8 million, or 34.5% from 1995. The following table sets
forth the amount and maturities of time deposits of $100,000 or more at June 30,
1996:
TIME DEPOSITS $100,000 AND OVER
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
3 months or less......................................................... $ 158,052
Over 3 months through 6 months........................................... 70,508
Over 6 months through 12 months.......................................... 70,342
Over 12 months........................................................... 8,079
--------
Total.................................................................. $ 306,981
========
</TABLE>
38
<PAGE> 40
The Bank also uses short-term borrowings to support its asset base. These
borrowings include federal funds purchased, securities sold under agreements to
repurchase and U.S. Treasury tax and loan note option accounts. At June 30,
1996, short-term borrowings were $146.4 million or 8.5% of total liabilities
compared with $202.0 or 12.3% of total liabilities at December 31, 1995 and
$244.0 million or 15.2% of total liabilities at December 31, 1994. In 1996,
short-term borrowings averaged $164.2 million compared with $233.0 million,
$227.3 million and $210.5 million during 1995, 1994 and 1993 respectively. The
decrease in short-term borrowings was a result of the Bank encouraging its
municipal deposit customers to move from repurchase agreements to time deposits.
The following table reflects categories of short-term borrowings having
average balances during the period greater than 30% of stockholder's equity at
the end of each year. During each reported year, federal funds purchased and
securities sold under repurchase agreements are the only categories meeting this
criteria.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
---------- ------------------------------------
1996 1995 1994 1993
---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FEDERAL FUNDS PURCHASED:
Balance at end of period............................. $ 26,562 $ 43,500 $ 48,450 $ 24,720
Weighted average interest rate at end of period...... 5.37% 5.94% 6.26% 3.24%
Maximum amount outstanding(1)........................ $ 30,185 $ 54,900 $ 53,750 $ 53,175
Average amount outstanding........................... $ 28,339 $ 28,227 $ 36,343 $ 46,942
Weighted average interest rate during period......... 5.31% 5.82% 4.48% 3.12%
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
Balance at end of period............................. $109,896 $148,546 $181,624 $154,007
Weighted average interest rate at end of period...... 5.17% 5.43% 5.29% 3.19%
Maximum amount outstanding(1)........................ $144,825 $224,907 $190,142 $166,523
Average amount outstanding........................... $130,440 $196,728 $179,027 $143,057
Weighted average interest rate during period......... 5.41% 5.81% 4.13% 3.22%
</TABLE>
- ---------------
(1) Based on amount outstanding at month end during each year.
The Bank's long-term borrowings consists principally of FHLB advances. The
Bank, as of June 30, 1996 had $70 million of borrowings outstanding from the
Federal Home Loan Bank of Chicago. FHLB advances totaled $60 million and $47.0
million at December 31, 1995 and 1994, respectively. During 1995, $50 million of
new advances were offset by $37 million of maturities. The Bank also had
$836,000 of non-interest bearing notes outstanding as of June 30, 1996 related
to certain community reinvestment activities.
CAPITAL RESOURCES
The Bank actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet,
and the amount and composition of off-balance sheet items, in addition to the
level of capital.
39
<PAGE> 41
The Bank's capital ratios were as follows for the dates indicated:
RISK-BASED CAPITAL RATIOS(1)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
JUNE 30,
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital............. $ 132,067 9.47% $ 130,642 10.19% $ 120,587 10.18% $ 98,826 9.29%
Tier 1 capital "well
capitalized"
requirement.............. 83,706 6.00 76,948 6.00 71,069 6.00 63,823 6.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 48,361 3.47% $ 53,694 4.19% $ 49,518 4.18% $ 35,003 3.29%
========== ===== ========== ===== ========== ===== ========== =====
Total capital.............. $ 149,593 10.72% $ 146,770 11.44% $ 135,492 11.44% $ 112,122 10.54%
Total capital "well
capitalized"
requirement.............. 139,510 10.00 128,246 10.00 118,448 10.00 106,371 10.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 10,083 0.72% $ 18,524 1.44% $ 17,044 1.44% $ 5,751 0.54%
========== ===== ========== ===== ========== ===== ========== =====
Total risk adjusted
assets................... $1,395,104 $1,282,460 $1,184,476 $1,063,714
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Based on fully phased in risk-based capital guidelines of the Federal
Reserve Bank, a bank is required to maintain a Tier 1 capital to
risk-adjusted asset ratio of 6% and total capital to risk-adjusted assets
ratio of 10% to be considered well capitalized.
LEVERAGE RATIO(1)(2)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
JUNE 30,
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital.............. $ 132,067 7.31 % $ 130,642 7.41 % $ 120,587 7.15 % $ 98,826 6.51 %
Requirement................. 108,398 6.00 105,800 6.00 101,135 6.00 91,065 6.00
---------- ----- ---------- ---- - ---------- ---- - ---------- ---- -
Excess...................... $ 23,669 1.31 % $ 24,842 1.41 % $ 19,452 1.15 % $ 7,761 0.51 %
========== ===== ========== ===== ========== ===== ========== =====
Quarterly average tangible
assets.................... $1,806,628 $1,763,327 $1,685,587 $1,517,755
========== ========== ========== ==========
</TABLE>
- ---------------
(1) The leverage ratio is defined as the ratio of Tier 1 capital to quarterly
average tangible assets.
(2) Based on Federal Reserve Bank guidelines, a bank generally is required to
maintain a leverage ratio of 4% plus an additional cushion of at least 100
to 200 basis points.
LIQUIDITY
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the Bank's
ability to meet withdrawals either on demand or at contractual maturity, to
repay borrowings as they mature and to make new loans and investments as
opportunities arise. The Bank actively manages its liquidity position to
maintain sufficient funds to respond to the needs of depositors and borrowers,
as well as to take advantage of earnings enhancement opportunities. In addition
to the normal influx of liquidity from core deposit growth, together with
repayments and maturities of loans and investments, the Bank utilizes the
brokered and national certificate of deposit markets, sells securities under
agreement to repurchase, and borrows overnight federal funds. The Bank is a
member of the FHLB, which affords the Bank the opportunity to borrow funds (from
overnight to 10 years and beyond) collateralized by the Bank's first mortgage
residential loans and FHLB stock.
The Bank's management uses two primary measures of liquidity to monitor its
position. The first measure is a static analysis of basic surplus, which
represents the relationship between liquid assets and short-term liabilities
which are vulnerable to non-replacement under abnormally stringent conditions.
The second measure is a 90-day cash flow forecast of the relationship between
identified funding sources and uses and the total funds required to support that
asset position. Management has targeted ranges specified for each of the
measures and maintains a liquidity plan with specific action steps to provide
required liquidity under stringent conditions.
40
<PAGE> 42
For the first six months of 1996, cash outflows from operating activities
exceeded operating inflows by $11.7 million, as compared to positive cash
inflows of $11.7 million in the year earlier period. The 1996 outflows reflect
the increase in mortgage banking loans held for sale. In the 1995 period,
interest received net of interest paid was the principal source of operating
cash inflows. Net cash outflows from investing activities were $31.9 million in
the first six months of 1996 as compared to $43.7 million in 1995. The primary
usage of investing cashflow in each of these periods, was net loan growth;
however, in 1996, this outflow was offset by excess maturities over new
purchases of investment securities. Net cash inflows from financing activities
were $68.5 million in the first half of 1996 as compared to $7.9 million in
1995. In 1996, net cash inflows were attributable to deposit inflow of $122.2
million offset by repayments of short-term borrowings. For the comparable 1995
period, the cash inflows were attributable to net increases in the long-term and
short-term borrowings, offset by deposit outflows.
Cash inflows from operating activities exceeded operating outflows by $10.2
million in 1995, $20.9 million in 1994 and $25.8 million in 1993. Interest
received net of interest paid is the principal source of operating cash inflows
in each of the above periods. Management of investing and financing activities,
and market conditions, determine the level and the stability of net interest
cash flows. The decrease in net cash provided by operating activities is a
result of increases in loans originated and held for sale due to the Bank's
increased emphasis on mortgage banking activities.
Net cash outflows from investing activities were $44.9 million in 1995 as
compared to $192.6 million in 1994 and $132.7 million in 1993. In each of the
aforementioned years, the majority of the net cash outflows from investing
activities were the result of loan growth.
Net cash inflows from financing activities were $33.9 million in 1995 as
compared to $162.9 million in 1994 and $132.8 million in 1993. In 1995, net cash
inflows were attributable to deposits of $70.7 million and long-term borrowings
of $50.3 million. During 1994, the major contributors to net cash inflows from
financing activities were deposits of $112.6 million, short-term borrowings of
$34.8 million, long-term borrowings of $25.3 million and proceeds from a capital
contribution of $10.0 million. In 1993, net cash inflows were attributable to
deposits of $50.0 million, short-term borrowings of $57.0 million and long-term
borrowings of $32.3 million.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management objectives are to manage, to the
degree prudently possible, its exposure to interest rate risk over both a one
year planning horizon and a longer-term strategic horizon and, at the same time,
provide a stable and steadily increasing flow of net interest income. The Bank's
primary measurement of interest rate risk is earnings at risk, which is
determined through computerized simulation modeling. The modeling estimates
changes in net interest income in response to increases or decreases in market
interest rates. The model uses the rates and maturities of the Bank's existing
interest-earning assets and interest-bearing liabilities and revises each based
on how the market interest rates move and how the specific Bank products would
respond to changes in rates. The structuring of the Bank's balance sheet is
determined by ensuring that the earnings at risk do not exceed predetermined
maximum limits. The Bank's policy requires that earnings at risk, under a 200
basis point increase or decrease in interest rates, does not exceed 10%. Given
the Bank's current interest rate risk profile, management's response to
increases in interest rates is to extend funding to lengthen liabilities and to
modify product offerings to shorten asset maturities. For example, in
expectation of rising rates the Bank's marketing and sales force would emphasize
floating rate loans, such as home equity lines and adjustable rate mortgages,
and longer term certificates of deposit and demand deposit accounts. In
addition, wholesale funding through FHLB advances or brokered certificates of
deposit would be extended in term. The Bank also uses static gap analysis to
monitor interest rate risk. A static gap matrix is prepared reflecting the
difference between interest-earning assets and interest-bearing liabilities
within specific time periods. The Bank's gap position is defined as liability
sensitive, which means its net interest margin is impacted negatively during
periods of rising interest rates. The negative impact of the rising rates must
then be minimized through growth and restructuring of the balance sheet.
41
<PAGE> 43
Interest rate swaps have been entered into by the Bank to reduce then
existing balance sheet interest rate risk. The present notional amount of all of
the interest rate swaps as of June 30, 1996 is $75 million. Under the swap
contract designated to hedge certain floating-rate commercial loans, the Bank
pays a variable rate (LIBOR based) in exchange for receiving a fixed rate. In
periods of rising interest rates, the value of the swap contract decreases and
the Bank either receives less or pays more under the terms of the contract.
Conversely, the related loans against which the hedge is designated, would earn
at the now higher rate, thereby substantially offsetting the negative impact of
the swap contract. The effect of the contract is to fix the interest received on
the hedged loans. Under the swap contract designated to hedge certain short-term
borrowings, the Bank pays a fixed rate in exchange for receiving a variable rate
(fed funds). In periods of rising interest rates, the value of the swap contract
increases and the Bank either receives more or pays less under the terms of the
contract. Conversely, the Bank would then pay the higher rate for the short-term
borrowings, substantially offsetting the positive impact of the swap contract.
The effect of the contract is to fix the rate paid on the hedged short-term
borrowings. In each case if economic conditions reduce the value of a specific
swap, that reduction in value is offset by the improved profitability of the
hedged financial instruments.
The financial impact of these swaps was to decrease net interest income by
approximately $290,000 for the six month period ended June 30, 1996. As of June
30, 1996, the estimated fair value of these swaps was approximately $(683,000).
The financial impact of these swaps is dependent upon market interest rates,
which cannot be predicted with any certainty.
The following table sets forth information concerning interest rate
sensitivity of the Bank's consolidated assets and liabilities as of June 30,
1996. Assets and liabilities are classified by the earliest possible repricing
date or maturity, whichever comes first.
INTEREST SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------------------------
NON-RATE
0-3 4-12 1-5 SENSITIVE AND
MONTHS MONTHS YEARS OVER 5 YEARS TOTAL
--------- --------- -------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Cash equivalents............................ $ 31,489 $ -- $ -- $ -- $ 31,489
Investment securities(1).................... 51,816 99,288 147,341 119,114 417,559
Total loans(1).............................. 661,445 113,051 436,392 69,495 1,280,383
--------- --------- -------- -------- --------
TOTAL EARNING ASSETS........................ $ 744,750 $ 212,339 $583,733 $188,609 $1,729,431
========= ========= ======== ======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing demand deposits.......... $ 337,131 $ -- $ -- $ -- $ 337,131
Savings deposits.......................... 122,598 -- -- -- 122,598
Time deposits............................. 290,616 326,658 109,070 726,344
--------- --------- -------- -------- --------
Total interest-bearing deposits....... 750,345 326,658 109,070 -- 1,186,073
--------- --------- -------- -------- --------
Short-term borrowings....................... 144,323 2,050 -- -- 146,373
Long-term debt.............................. 10,000 35,160 25,640 36 70,836
--------- --------- -------- -------- --------
Total borrowings...................... 154,323 37,210 25,640 36 217,209
--------- --------- -------- -------- --------
TOTAL INTEREST-BEARING LIABILITIES.......... $ 904,668 $ 363,868 $134,710 $ 36 $1,403,282
========= ========= ======== ======== ========
Interest sensitivity gap.................... $(159,918) $(151,529) $449,023 $188,573 $ 326,149
Derivatives affecting interest rate
sensitivity:
Pay floating interest rate swaps.......... (25,000)
Receive fixed interest rate swaps......... 25,000
Pay fixed interest rate swaps............. (50,000)
Receive floating interest rate swaps...... 50,000
Interest sensitivity gap.................... $(134,918) $(201,529) $474,023 $188,573 $ 326,149
Cumulative gap.............................. (134,918) (336,447) 137,576 326,149 326,149
Interest sensitivity gap to total assets.... (7.30)% (10.91)% 25.66% 10.21% 17.65%
Cumulative sensitivity gap to total
assets.................................... (7.30) (18.21) 7.45 17.65 17.65
</TABLE>
- ---------------
(1) Callable investment securities are generally reported at the earlier of
maturity or call date. Loans are placed in the earliest time frame in which
maturity or repricing may occur, except for mortgage-backed securities and
real estate loan maturities which are based on published industry prepayment
estimates.
42
<PAGE> 44
Those estimates are for loans and mortgage-backed securities with comparable
weighted average interest rates and contractual maturities. Loans are stated
gross of the allowance for loan losses.
The table assumes that all savings deposits reprice in the earliest period
presented; however, the Bank believes a significant portion of these accounts
constitute a core component and are generally not rate sensitive. The Bank
believes that its aggressive lowering of interest rates paid on savings accounts
has significantly reduced the volatility of the balances in these accounts.
The table does not necessarily indicate the future impact of general
interest rate movements on the Bank's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to competitive
and other pressures. As a result, assets and liabilities indicated as repricing
within the same period may in fact reprice at different times and at different
rate levels.
EFFECTS OF INFLATION
A banking organization's assets and liabilities are primarily monetary.
Therefore, a banking organization does not necessarily gain or lose due to the
effects of inflation. Moreover, changes in interest rates, which are a major
determinant of a financial service organization's profitability, do not
necessarily correspond to changes in the prices of goods and services. An
analysis of a banking organization's asset and liability structure provides the
best indication of how a banking organization is positioned to respond to
changing interest rates and maintain profitability.
The financial statements and supplementary financial data have been
prepared, primarily, on an historical basis which is mandated by generally
accepted accounting principles. Fluctuations in the relative value of money due
to inflation or recession generally are not considered.
ADDITIONAL ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
("SFAS No. 121"), is effective for fiscal years beginning after December 31,
1995. SFAS No. 121 requires entities to review assets to be held and used in the
business for impairment and an impairment loss, if any, to be recognized if the
carrying amount of the asset exceeds the fair value of the asset as defined in
the standard. The Bank has determined that SFAS No. 121 will not have a material
impact on its financial condition or results of operations.
Statement of Financial Accounting Standards No. 123, Accounting and
Disclosure of Stock-Based Compensation ("SFAS No. 123"), is effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 encourages, but does not
require, entities to recognize expense for stock-based awards based on their
fair value on the date of grant. Under SFAS No. 123, entities may continue
following the existing accounting rules (the intrinsic value method which often
results in no compensation expense), provided that pro forma disclosures are
made of what net income and earnings per share would have been had the new fair
value method been used. To do so, the fair value of options and similar awards
will have to be calculated using complex valuation techniques. Additionally,
this new standard requires entities to make significantly more disclosures
regarding employee stock options than are now required. The Bank has determined
that SFAS No. 123 will not have a material impact on its financial condition or
results of operations.
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
("SFAS 125") was issued in June 1996, and is effective for fiscal years
beginning after December 31, 1996. SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on a consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and liabilities that have
been extinguished. If a transfer does not meet the criteria for a sale, then the
transfer is accounted for as a secured borrowing with pledge of
43
<PAGE> 45
collateral. The Bank has determined that SFAS No. 125 will not have an impact on
its financial condition or results of operations.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth unaudited financial data regarding the
Bank's operations for the first two quarters of 1996 and each of the four
quarters of 1995 and 1994. This information, in the opinion of management,
includes all adjustments necessary to present fairly the Bank's results of
operations for such periods, consisting only of normal recurring adjustments for
the periods indicated. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------------
JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31,
1996 1996 1995 1995 1995 1995 1994 1994 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income..... $ 34,362 $33,723 $ 34,171 $ 33,932 $ 33,343 $32,238 $ 31,436 $ 29,764 $ 28,702 $26,365
Interest expense.... 16,396 16,096 16,650 16,498 16,276 14,942 12,992 11,343 10,590 9,193
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------
Net interest
income............ 17,966 17,627 17,521 17,434 17,067 17,296 18,444 18,421 18,112 17,172
Provision for loan
losses............ 1,053 999 759 965 1,055 1,277 1,817 1,740 1,901 1,916
Noninterest
income............ 3,963 3,701 3,980 3,401 3,596 3,250 3,296 3,161 3,199 3,223
Securities gains,
net............... -- -- -- -- -- -- -- -- -- 8
Noninterest
expense........... 13,288 13,937 14,050 12,719 13,280 13,500 13,919 13,902 13,752 13,675
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------
Income before income
taxes............. 7,588 6,392 6,692 7,151 6,328 5,769 6,004 5,940 5,658 4,812
Income taxes........ 2,603 2,062 2,042 2,166 1,888 1,678 1,712 1,742 1,716 1,342
-------- ------- -------- -------- -------- ------- -------- -------- -------- -------
Net income.......... $ 4,985 $ 4,330 $ 4,650 $ 4,985 $ 4,440 $ 4,091 $ 4,292 $ 4,198 $ 3,942 $ 3,470
======== ======= ======== ======== ======== ======= ======== ======== ======== =======
</TABLE>
44
<PAGE> 46
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Financial Statements include
the Company and its subsidiaries, the Bank and the Mortgage Company. The pro
forma financial statements begin with the historical financial statements of the
Bank as of June 30, 1996 (unaudited) and December 31, 1995 (audited) and for the
periods then ended. The pro forma financial statements reflect the results of
the Split-Off Transactions including the acquisition of the Bank and the
Mortgage Company by the Company, the sale or transfer of the Bank's Automobile
Finance Business as well as the consummation of the Credit Facilities and the
Preferred Stock offering described elsewhere in this Prospectus.
The pro forma balance sheets assume that the Split-Off Transactions and
Preferred Stock offering occurred on the balance sheet date and include an
estimated accrual for nonrecurring expenses attributable to the transaction. The
pro forma income statements assume that the transactions occurred on the first
date of the reporting period and include only those adjustments expected to have
a continuing impact on the Company. The pro forma financial statements are based
on the assumptions set forth in the accompanying notes and are not necessarily
indicative of the Bank's or Company's future results of operations or financial
position.
Following the pro forma financial statements is management's discussion and
analysis of financial condition and results of operations on a pro forma basis
of the Bank and the Company, highlighting the effects of the Split-Off
Transactions on the Bank and the Company. See "The Split-Off Transactions."
45
<PAGE> 47
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(D) ELIMINATIONS(E) CONSOLIDATED
---------- ----------- ---------- -------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks................. $ 102,071 $ $ 102,071 $ 218 $ $ $ 102,289
Federal funds sold...... 15,400 15,400 15,400
Investment securities... 417,559 59,250(c) 506,459 506,459
28,250(a)
1,400(b)
Investment in
subsidiaries.......... 171,462 (171,462)
Loans held for sale..... 41,856 41,856 8,893 50,749
Loans, less allowance
for loan losses....... 1,214,052 (110,000)(a) 1,104,052 2,950 (5,554) 1,098,498
(2,950)
Premises, leasehold
improvements and
equipment, net........ 16,945 6,500(b) 23,445 64 23,509
Goodwill and other
intangibles........... 4,251 59,767(b) 64,018 351 64,369
Other assets............ 35,474 35,474 144 2,127 37,745
---------- --------- ---------- ------- ------ --------- ----------
Total assets...... $1,847,608 $ 45,167 $1,892,775 $9,319 $176,539 $(179,615) $1,899,018
========== ========= ========== ======= ====== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits.......... $1,486,332 $ $1,486,332 $ $ $ $1,486,332
Short-term borrowings... 146,373 146,373 146,373
Accrued interest, taxes
and other
liabilities........... 14,987 638(a) 18,825 113 18,938
3,200(b)
Long-term borrowings.... 70,836 70,836 8,504 29,130 (8,504) 99,966
---------- --------- --------- ------- ------ --------- ----------
Total
liabilities..... 1,718,528 3,838 1,722,366 8,617 29,130 (8,504) 1,751,609
---------- --------- --------- ------- ------ --------- ----------
Stockholders' equity:
Preferred stock....... -- 36,250 36,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 50,826 (13,980)(a) 155,409 702 111,114 (155,409) 111,114
59,313(b) (702)
59,250(c)
Retained earnings..... 68,408 (68,408)(a)
Unrealized loss on
securities available
for sale, net of
tax................. (5,154) 5,154(b)
---------- --------- --------- ------- ------ --------- ----------
Total
stockholders'
equity.......... 129,080 41,329 170,409 702 147,409 (171,111) 147,409
---------- --------- --------- ------- ------ --------- ----------
Total liabilities
and
stockholders'
equity.......... $1,847,608 $ 45,167 $1,892,775 $9,319 $176,539 $(179,615) $1,899,018
========== ========= ========= ======= ====== ========= ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
46
<PAGE> 48
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO HISTORICAL PRO
HISTORICAL SPLIT-OFF FORMA MORTGAGE FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(J) ELIMINATIONS(K) CONSOLIDATED
---------- ----------- ------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest & fees on loans... $ 54,376 $(4,700)(f) $49,676 $ 259 $ $ (118) $ 49,817
Interest on investment
securities............... 13,212 920(f) 16,552 7 (7) 16,552
495(g)
1,925(h)
Interest on cash
equivalents.............. 497 497 497
------ ------- ------ ------- ----- ----- -------
Total interest
income.......... 68,085 (1,360) 66,725 266 (125) 66,866
Interest expense:
Deposits............... 26,229 26,229 (7) 26,222
Short-term
borrowings........... 4,468 4,468 4,468
Long-term borrowings... 1,795 1,795 118 1,060 (118) 2,855
------ ------- ------ ------- ----- ----- -------
Total interest
expense......... 32,492 32,492 118 1,060 (125) 33,545
Net interest income........ 35,593 (1,360) 34,233 148 (1,060) 33,321
Provision for loan
losses................... 2,052 (360)(f) 1,692 1,692
------ ------- ------ ------- ----- ----- -------
Net interest income
after provision....... 33,541 (1,000) 32,541 148 (1,060) 31,629
Noninterest income:
Service charges........ 4,269 4,269 4,269
Trust fees............. 1,774 1,774 1,774
Other noninterest
income............... 1,621 1,621 98 1,719
------ ------- ------ ------- ----- ----- -------
Total noninterest
income.......... 7,664 7,664 98 7,762
Noninterest expense:
Salaries & benefits.... 14,781 (285)(f) 14,496 305 850 15,651
Occupancy expenses..... 2,349 145(g) 2,494 53 2,547
Furniture &
equipment............ 1,519 1,519 1,519
Computer processing.... 999 999 999
Legal fees............. 744 744 744
Other real estate &
repos................ 675 675 675
Other noninterest
expense.............. 6,059 (140)(f) 5,919 211 500 6,630
Goodwill
amortization......... 99 1,990(g) 2,089 2,089
------ ------- ------ ------- ----- ----- -------
Total noninterest
expense......... 27,225 1,710 28,935 569 1,350 30,854
Income before taxes........ 13,980 (2,710) 11,270 (323) (2,410) 8,537
Income taxes............... 4,665 (254)(i) 4,411 (110) (845) 3,456
------ ------- ------ ------- ----- ----- -------
Net income
(loss).......... $ 9,315 $(2,456) $ 6,859 $ (213) $ (1,565) $ $ 5,081
====== ======= ====== ======= ===== ===== =======
Net income
applicable to
common
stockholders(l)... $ 3,216
=======
Earnings per
common share.... $ 0.71
=======
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
47
<PAGE> 49
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(D) ELIMINATIONS(E) CONSOLIDATED
---------- ---------- ---------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks................. $ 87,547 $ $ 87,547 $ 565 $ $ $ 88,112
Federal funds sold...... 5,000 5,000 5,000
Investment securities... 438,348 59,250(c) 528,448 528,448
28,250(a)
2,600(b)
Investment in
subsidiaries.......... 172,506 (172,506)
Loans held for sale..... 15,748 15,748 15,748
Loans, less allowance
for loan losses....... 1,172,005 (110,000)(a) 1,062,005 1,062,005
Premises, leasehold
improvements and
equipment, net........ 16,844 6,500(b) 23,344 62 23,406
Goodwill and other
intangibles........... 3,640 56,763(b) 60,403 96 60,499
Other assets............ 34,900 34,900 2,072 36,972
---------- -------- ---------- ---- -------- ---------- ----------
Total assets.... $1,774,032 $ 43,363 $1,817,395 $ 627 $174,578 $(172,410) $1,820,190
========== ======== ========== ==== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits.......... $1,364,075 $ $1,364,075 $ $ $ $1,364,075
Short-term borrowings... 202,033 202,033 202,033
Accrued interest, taxes
and other
liabilities........... 14,180 638(a) 18,418 83 18,501
3,600(b)
Long-term borrowings.... 61,003 61,003 25,712 86,715
---------- -------- ---------- ---- -------- ---------- ----------
Total
liabilities... 1,641,291 4,238 1,645,529 83 25,712 1,671,324
---------- -------- ---------- ---- -------- ---------- ----------
Stockholders' equity:
Preferred stock....... 36,250 36,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 50,826 (15,395)(a) 156,866 544 112,571 (156,866) 112,571
62,185(b) (544)
59,250(c)
Retained earnings..... 66,993 (66,993)(a)
Unrealized loss on
securities available
for sale, net of
tax................. (78) 78(b)
---------- -------- ---------- ---- -------- ---------- ----------
Total
stockholders'
equity........ 132,741 39,125 171,866 544 148,866 (172,410) 148,866
---------- -------- ---------- ---- -------- ---------- ----------
Total
liabilities
and
stockholders'
equity........ $1,774,032 $ 43,363 $1,817,395 $ 627 $174,578 $(172,410) $1,820,190
========== ======== ========== ==== ======== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
48
<PAGE> 50
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(J) ELIMINATIONS(K) CONSOLIDATED
---------- ----------- --------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest & fees on
loans................... $103,654 $(9,300)(f) $94,354 $ $ $ 94,354
Interest on investment
securities.............. 29,358 1,840(f) 36,038 36,038
990(g)
3,850(h)
Interest on cash
equivalents............. 672 672 672
--
-------- ------- -------- ----- ------- --------
Total interest
income........... 133,684 (2,620) 131,064 131,064
Interest expense:
Deposits................ 47,034 47,034 47,034
Short-term borrowings... 13,584 13,584 13,584
Long-term borrowings.... 3,748 3,748 2,120 5,868
--
-------- ------- -------- ----- ------- --------
Total interest
expense.......... 64,366 64,366 2,120 66,486
Net interest income....... 69,318 (2,620) 66,698 (2,120) 64,578
Provision for loan
losses.................. 4,056 (470)(f) 3,586 3,586
--
-------- ------- -------- ----- ------- --------
Net interest income
after provision.. 65,262 (2,150) 63,112 (2,120) 60,992
Noninterest income:
Service charges......... 7,452 7,452 7,452
Trust fees.............. 3,539 3,539 3,539
Other noninterest
income................ 3,236 3,236 3,236
--
-------- ------- -------- ----- ------- --------
Total noninterest
income........... 14,227 14,227 14,227
Noninterest expense:
Salaries & benefits..... 28,973 (730)(f) 28,243 92 1,700 30,035
Occupancy expenses...... 4,880 285(g) 5,165 7 5,172
Furniture & equipment... 2,651 2,651 2,651
Computer processing..... 1,676 1,676 1,676
Legal fees.............. 1,655 1,655 6 1,661
Other real estate &
repos................. 1,169 1,169 1,169
Other noninterest
expense............... 12,349 (220)(f) 12,129 33 1,000 13,162
Goodwill amortization... 196 3,985(g) 4,181 4,181
--
-------- ------- -------- ----- ------- --------
Total noninterest
expense.......... 53,549 3,320 56,869 138 2,700 59,707
Income before taxes....... 25,940 (5,470) 20,470 (138) (4,820) 15,512
Income taxes.............. 7,774 (446)(i) 7,328 (47) (1,440) 5,841
--
-------- ------- -------- ----- ------- --------
Net income (loss)... $ 18,166 $(5,024) $13,142 $ (91) $ (3,380) $ 9,671
======== ======= ======== ===== ======= == ========
Net income
applicable to
common
stockholders(l)... $ 5,942
========
Earnings per common
share............ $ 1.32
========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
49
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects transfer and sale of $110 million net automobile receivables
(net of $1 million in allowance for loan losses). This includes the transfer of
the estimated $30 million fair market value of Used Automobile Receivables from
the Bank to New Reliance. Loans sold totaling $80 million provide cash for
payment of the First Cash Component of $52 million required to be contributed to
New Reliance as part of the Split-Off Transactions. The proceeds from the sale
of the loans in excess of the required First Cash Component, estimated to
approximate $28 million, are assumed to be reinvested in investment securities.
It is assumed that the loans can be sold and transferred at their book value and
therefore the sale and transfer will not result in either a gain or a loss. The
estimated $52 million First Cash Component assumes the tender of 4.5 million
shares by the Taylor Group in exchange for the Company. Accrued interest, taxes,
and other liabilities have also been increased by $638,000 reflecting the
$397,000 deferred tax liability resulting from the $1 million reduction in the
allowance for loan losses and $241,000 representing certain severance payments,
net of taxes.
(b) Reflects the application of purchase accounting to the assets and
liabilities of the Bank (net of deferred income taxes) and the resulting
recognition of goodwill for the excess of the cost (the "Total Purchase Price")
over the fair value of the net assets acquired. The Company's cost of the
acquired Bank is comprised of three components: (1) the Taylor Group's
proportionate interest in the Bank's book value at the balance sheet date (the
"Historical Ownership Interest") plus (2) the proportionate fair value of the
4.5 million shares exchanged at the balance sheet date (the "Purchased Ownership
Interest") and (3) estimated direct acquisition costs of $2 million.
The proportionate interest of the Taylor Group in the Bank is represented
by their percentage ownership in CTFG, which, assuming the exercise of all
options held by the Taylor Group and all Bank employees, approximates 28.35% of
the then outstanding shares of CTFG. This represents the Taylor Group's
Historical Ownership Interest in the Bank. Therefore, the first component of the
Total Purchase Price of the Bank represents 28.35% of the Bank's book value at
the balance sheet date (after the distribution of the $52 million First Cash
Component and $30 million Used Automobile Receivables). The Purchased Ownership
Interest is the proportionate fair value of the 4.5 million shares exchanged for
the remaining 71.65% of the book value of the Bank. It is calculated using the
market value of the shares at the balance sheet date.
The excess of the cost, or total purchase price, over the fair value of the
net assets acquired is recorded as goodwill. The calculation of the goodwill is
as follows:
<TABLE>
<CAPTION>
CALCULATION OF GOODWILL
JUNE 30, 1996 DECEMBER 31, 1995
---------------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Number of shares exchanged......................... 4.5 million 4.5 million
Market price of CTFG stock @ balance sheet date.... $ 29.75 $ 29.88
Implied percentage of Bank stock deemed
purchased........................................ 71.65% 71.65%
----------- --------
Purchased Ownership Interest....................... $ 95,922 $ 96,341
Historical Ownership Interest -- book value of Bank
@ 28.35%......................................... 13,237 14,275
Direct acquisition costs........................... 2,000 2,000
-------- ----------
Total Purchase Price of the Bank................... $111,159 $112,616
Total book value of the Bank....................... $ 129,080 $ 132,741
Transfer of cash and automobile receivables........ (82,388) (82,388)
Fair value adjustments to balance sheet, net of
deferred income taxes............................ 4,700 5,500
----------- --------
Less: Adjusted book value of the Bank.............. 51,392 55,853
Goodwill........................................... $ 59,767 $ 56,763
======== ===========
</TABLE>
As illustrated by the calculation presented above, the actual goodwill
recorded at the Closing depends on the market price of the CTFG Common Stock,
the Taylor Group's Historical Ownership Interest percentage, the fair market
value of the Bank's assets and the liabilities and the Bank's total equity at
the date of Closing. These factors are volatile and are expected to change by
the date of the Closing.
50
<PAGE> 52
The estimated fair value adjustments to the Bank's balance sheet relate
primarily to investment securities and premises and equipment. The adjustments
to estimated fair value are proportionate to the share of the Bank deemed to
have been purchased. Therefore, the purchase accounting adjustments reflect
71.65% of the total fair market value increases and decreases identified and no
fair value adjustments are applied to the Taylor Group's Historical Ownership
Interest in the Bank.
(c) Reflects the capital contribution from the Company's preferred stock
and long term debt proceeds into the Bank. The proceeds are assumed to be
invested in investment securities. The capital contribution is funded through
the issuance by the Company of $38 million (expected to net $36 million after
issuance costs) of noncumulative perpetual preferred stock and approximately $23
million of long term debt.
(d) Reflects the pro forma Company. Other assets include capitalized
estimated organization costs of $100,000, the cash surrender value of officers
life insurance relating to the Company officers of almost $2.0 million and the
investment in Alpha Capital Fund. Loans reflect the intercompany loan to the
Mortgage Company of $3 million assumed as part of the Split-Off Transactions.
Long term debt at June 30, 1996 totals $29 million and is composed of the $23
million drawn to contribute to the Bank, the approximate $1 million in cash paid
to acquire the Mortgage Company and Alpha Capital Fund and the $5 million used
to assume the cash surrender value of the officers life insurance and the
intercompany loan to Mortgage Company formerly provided by CTFG. Equity includes
the estimated net proceeds from the Preferred Stock offering and 4.5 million
shares of Company common stock for the CTFG stock exchanged.
(e) Reflects the eliminations necessary to report consolidated financial
statements. The Company's investment in the Bank and Mortgage Company are
eliminated. In addition, the intercompany loans from the Bank and the Company to
the Mortgage Company are eliminated. These consolidation entries cause the
excess of the purchase price over the fair value of the net assets of the
Mortgage Company totaling $351,000 at June 30, 1996 to be reclassified from
investment in subsidiaries to goodwill and other intangibles
(f) Reflects the estimated impact to the Bank's income statement of the
sale and transfer of the estimated $111 million in automobile receivables.
Interest and fees on loans is reduced as well as the direct costs to originate
and service these automobile receivables and the related estimated provisions
for loan losses for the period. This adjustment also reflects the interest
income earned on the reinvestment of the excess proceeds from the loan sale of
approximately $28 million at a 6.5% yield.
(g) Reflects the amortization of the purchase accounting adjustments.
Premises and equipment is amortized over 20 years, investment securities over
approximately 7 years and goodwill over 15 years. The amortization is based on
the fair market value adjustments and goodwill computed as of June 30, 1996.
(h) Reflects the interest income on the investment of the estimated $59
million capital contribution at the Bank in investment securities at a 6.5%
yield.
(i) Reflects the tax effect of the pro forma adjustments, excluding
goodwill amortization, at a 35% tax rate in 1996 and 30% in 1995.
(j) Reflects the pro forma Company income statement including the estimated
interest expense on the cost of the long term debt and the estimated salary and
other operating expenses of the Company. Both periods assume a cost on the debt
of 8.25%. The interest expense for the six months ended June 30, 1995 is based
on debt outstanding at January 1, 1996 of $25.7 million. The 1995 interest
expense is based on debt outstanding of $25.0 million.
(k) Reflects the eliminations necessary to report condensed consolidated
financial statements. Interest income and expenses on intercompany loans is
eliminated as well as interest earned on deposits maintained by the Mortgage
Company at the Bank.
(l) Assumes the issuance of $38.25 million of Preferred Stock at an annual
dividend rate of 9.75%.
51
<PAGE> 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following presents management's discussion and analysis of the
financial condition and results of operations of the Bank and the consolidated
Company on an unaudited pro forma basis as of June 30, 1996 and December 31,
1995 and for the six months and year then ended. The discussion compares the
effects of the Split-Off Transactions and formation of the Company on the Bank
and the consolidated Company, with the Bank on a historical basis. This
discussion should be read in conjunction with the Unaudited Pro Forma Condensed
Consolidated Financial Statements and the accompanying notes which describe the
assumptions used in the preparation of the Unaudited Pro Forma Condensed
Consolidated Financial Statements. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and "The Split-Off Transactions".
RESULTS OF OPERATIONS
OVERVIEW
For the first six months of 1996, pro forma Bank only net income was $6.9
million as compared to $9.3 million on an historical basis. Annualized return on
average assets was .75% on a pro forma basis as compared to 1.05% on an
historical basis. Annualized return on average equity was 7.95% on a pro forma
basis as compared to 14.18% on an historical basis.
Pro forma Bank only net income for 1995 was $13.1 million as compared to
$18.2 million on an historical basis. Return on average assets was .74% on a pro
forma basis as compared to 1.05% on an historical basis. Return on average
equity was 7.91% on a pro forma basis as compared to 14.29% on an historical
basis.
NET INTEREST INCOME
Net interest income for the Bank decreased $1.4 million, or 3.8%, for the
six months ended June 30, 1996 and $2.6 million, or 3.8%, for 1995 on a pro
forma basis as compared to historical results. The net interest margin declined
to 4.27% in 1996 and 4.27% in 1995 on a pro forma basis as compared to the
historical net interest margins of 4.39% and 4.38%, respectively. The decline in
net interest margin resulted from the change in the mix of assets on a pro forma
basis as certain earning assets are replaced by a combination of lower earning
and nonearning assets. In connection with the Split-Off Transactions, $110
million of net automobile receivables are expected to be transferred and sold.
The average yield of these loans approximated 8.40% over the periods shown. A
portion of the proceeds from the sale, estimated at $28 million, as well as
funds received from the capital contribution received from the Company,
estimated at $59 million, are assumed to be reinvested in investment securities
yielding 6.50%. It is management's intention to ultimately reinvest these
proceeds in higher yielding loans. Average earning assets on a pro forma basis
decline $22 million, or 1.3% for 1996 and $21 million, or 1.3% for 1995 in
comparison to historical average earning assets of $1.7 billion and $1.6 billion
for 1996 and 1995 respectively.
The negative impact of the change in the mix of assets is partially offset
by the write down of the existing investment securities to fair market value at
the balance sheet date in accordance with purchase accounting requirements. The
resulting discount is accreted into interest income over the life of the
respective securities, which approximates 7 years.
Net interest income on a consolidated pro forma basis is further reduced,
by $1.1 million for the six months ended June 30, 1996 and $2.1 million for the
1995 year, for the estimated interest expense for Company debt. The interest
expense is based on the debt outstanding of approximately $26 million and $25
million at January 1, 1996 and 1995 respectively.
PROVISION FOR LOAN LOSSES
The pro forma provision for loan losses decreases $360,000, or 17.5% for
the six months ended June 30, 1996 and $470,000, or 11.6% for 1995 as compared
to the historical provision of $2.1 million and $4.1 million
52
<PAGE> 54
for 1996 and 1995 respectively. The decrease in the provision is a result of the
disposition of the net $110 million of automobile receivables. The reductions in
the provision represent the estimated provisions relating to the automobile
receivables identified to be sold or transferred as a result of the Split-Off
Transactions.
NONINTEREST EXPENSE
The Bank's pro forma noninterest expense for the first six months of 1996
increased $1.7 million, or 6.3%, to $28.9 million as compared to $27.2 million
on an historical basis. Noninterest expense for 1995 increased $3.3 million, or
6.2%, to $56.9 million on a pro forma basis as compared to $53.5 million on an
historical basis. The increase is primarily attributable to the amortization of
the goodwill created as a result of the Split-Off Transactions. The write-up of
the Bank's premises and equipment to estimated fair value also results in
increased depreciation expenses. The negative impact of these charges is
partially offset by the estimated cost reductions as a result of the Bank's
departure from the automobile receivables business. Estimated savings from the
salaries and other direct expenses of the origination and servicing of these
loans totaled $425,000 for the six months ended June 30,1996 and $950,000 for
the 1995 year.
Total noninterest expense on a consolidated pro forma basis is further
increased, by $1.3 million for the six months ended June 30, 1996 and $2.7 for
the year ended 1995, as a result of estimated Company expenses for salaries and
overhead.
FINANCIAL CONDITION
LOAN PORTFOLIO
As a result of the sale and transfer of the $110 million of net automobile
receivables, the Bank's pro forma loan portfolio declines 9.0% to $1.128 billion
and 9.3% to $1.085 billion at June 30, 1996 and December 31, 1995, respectively.
The mix of the loan portfolio changes as a result of the sale and transfer.
Consumer loans as a percentage of the total loan portfolio decreases to 11% at
June 30, 1996 on a pro forma basis from 19% on an historical basis.
ALLOWANCE FOR LOAN LOSSES
In connection with the sale and transfer of the $111 million of automobile
receivables, the allowance for loan losses is assumed to be reduced by $1
million. The Bank's pro forma allowance as a percentage of total loans at June
30, 1996 is 2.03% as compared to 1.91% on an historical basis.
INVESTMENT SECURITIES
Investment securities increase $87.5 million as a result of the
reinvestment of the remaining proceeds received from the sale of certain
automobile receivables, estimated to be $28.25 million and the capital
contribution, estimated to be $59.25 million from the Company to the Bank. In
addition, securities designated as held to maturity are assumed to be written up
to the fair market value of the securities at the balance sheet date.
CAPITAL RESOURCES
Total pro forma Bank equity at June 30, 1996 increases $41 million as
compared to historical equity of $129 million. Pro forma equity is first
decreased by approximately $82 million due to the distribution of cash and the
Used Automobile Receivables to New Reliance. The application of purchase
accounting at the Bank then results in a pro forma increase in total equity of
$64 million at June 30, 1996. Finally, Bank equity is increased with a capital
contribution of $59 million.
Although total pro forma Bank equity increases from historical equity, the
Bank's pro forma tangible capital at June 30, 1996 decreases $25 million. Tier 1
risk-based capital at June 30, 1996 is 8.27% on a pro forma basis as compared to
9.47% on an historical basis. Pro forma total risk-based capital is 9.52% at
June 30, 1996 as compared to 10.72% on an historical basis. It is management's
intention that the Bank
53
<PAGE> 55
remain "well capitalized" after the consummation of the Split-Off Transactions.
Management expects the Bank's earnings subsequent to June 30, 1996 to raise the
Bank's historical total equity such that the assumed capital contribution of $59
million results in a total risk-based capital ratio of at least 10.0% at the
time of Closing. A failure to meet the regulatory risk-based capital guidelines
for a "well capitalized" institution potentially impacts the Bank's use of
brokered certificates of deposit as a funding source and may increase FDIC
deposit insurance premiums.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
As a result of the sale of the automobile receivables and the proceeds from
the capital contribution, the Bank's liquidity on a pro forma basis would
improve. The immediate impact to the Bank's interest rate risk profile and gap
position as a result of the Split-Off Transactions is dependent on the term and
structure of the investment securities acquired with the cash received. After
re-deployment of the net sale proceeds and the capital contribution consistent
with the Bank's existing asset/liability management strategy, no significant
impact to the Bank's position and profile is expected.
54
<PAGE> 56
BUSINESS
GENERAL
The Company, a newly incorporated bank holding company, wholly owns the
Bank, which commenced operations over 60 years ago as Main State Bank. The Bank
provides a full range of commercial and consumer banking services both to small
and mid-size businesses and to individuals through its ten branch offices in
Chicago neighborhoods and suburban Cook and DuPage Counties. The Bank's
historical market niche has been providing commercial loans to small and
mid-size companies located in the Chicago metropolitan area. The Company also
wholly owns the Mortgage Company, a Delaware corporation, which began operations
in the first quarter of 1996 and competes in the subprime mortgage market for
residential loans on a brokered basis. The Mortgage Company is located in
Altamonte Springs, Florida and, through its subsidiaries, operates primarily in
the Southeastern United States.
Main State Bank was acquired by Irwin Cole and Sidney J Taylor in 1969. In
1978, Drovers National Bank was purchased and several years later CTFG was
created as a holding company to own and operate these two banks. The Bank of
Yorktown was acquired in 1982 and Wheeling Trust & Savings Bank, Ford City Bank
& Trust Co. and Skokie Trust & Savings Bank were acquired in 1984. At the end of
1988, the banks (other than the Bank of Yorktown), were merged into Cole Taylor
Bank, which became the first Illinois bank to deliver services through a branch
bank system. The Bank of Yorktown was merged into Cole Taylor Bank in 1992.
OPERATIONS OF THE COMPANY AFTER THE SPLIT-OFF TRANSACTIONS; GROWTH STRATEGY
The Company's strategy for the Bank and Mortgage Company is to continue to
improve their earnings and financial condition by following the key initiatives
outlined below.
Grow and Improve Core Commercial Bank Business. The Company intends to
continue to grow and improve the Bank's core commercial bank business and to
further improve its management of credit and interest rate risk. The Bank's
strategy will be to continue to emphasize relationship banking for small to mid-
sized business customers in the Chicago metropolitan market. The Bank also
intends to improve its core business by selling additional banking services to
its existing customer base.
Increase Fee Income. The Company plans to continue to increase the Bank's
fee income by more intensively marketing an integrated array of lending, cash
management, investment and trust services and other fee producing products. The
Bank's marketing efforts have focused on offering its core fee income services
to new and existing customers, through initiatives in its professional and
executive banking area, as well as marketing new financial services through its
retail operations.
Expand Deposit Gathering Capabilities. The Company intends to expand
deposit gathering capabilities by considering strategic opportunities to open de
novo bank branches, such as its planned branch site expected to open in late
1997 across from the Old Orchard shopping mall in north suburban Chicago, to
complement the Bank's existing branch network. The Company will continue to
market products and services which expand its customer base and enhance its
relationships with existing customers. Finally, the Company intends to increase
its cross-selling of deposit products to customers of other Bank products.
Selectively Expand Subprime Mortgage Financing Activities. The Company
plans to continue to expand the Mortgage Company's subprime mortgage financing
activities by purchasing additional loans, by increasing its warehouse funding
capability and by opening retail offices in the Chicago area or in other
regions.
THE BANK
The Bank offers various loan products such as commercial and industrial
loans, residential construction and mortgage loans, consumer loans and a full
range of deposit services including checking, savings and money market accounts
and certificates of deposit. The Bank's trust and investment department provides
a wide array of trust services for corporations and individuals.
55
<PAGE> 57
The Bank's primary market is the Chicago metropolitan area. According to
the 1990 census, the Chicago metropolitan area is the third largest metropolitan
area in the United States with a population of approximately 7.1 million. With
approximately 600,000 manufacturing jobs, 1.1 million jobs in retail/wholesale
trade, transportation and public utilities, and 300,000 jobs in finance,
insurance and real estate, the Chicago metropolitan area follows only the New
York and Los Angeles metropolitan areas in total non-agricultural wage and
salary employment. The Chicago metropolitan area is not dependent on any
particular industry, and population and employment in the area remained
relatively constant from 1980 to 1990. Five of the Bank's branch offices are
located in Chicago neighborhoods and the remainder are located in suburban Cook
and DuPage counties. A substantial majority of the Bank's total consolidated net
loans are attributable to customers located in the Chicago metropolitan area.
Generally, each branch draws most of its deposits from and makes most of its
consumer and small business loans within a three mile radius of the respective
branch; however, the Bank's branches provide commercial banking services and
make industrial loans to companies located throughout the Chicago metropolitan
area.
The following table presents certain information about each of the Bank's
branches:
<TABLE>
<CAPTION>
BANK BRANCH YEAR OPENED OR ACQUIRED TOTAL DEPOSITS AT JUNE 30, 1996
- ---------------------------------------- ----------------------- -------------------------------
(IN THOUSANDS)
<S> <C> <C>
Chicago Branches:
824 East 63rd Street (Woodlawn) Opened 1993 $ 12,157
1965 North Milwaukee Avenue (Chicago) Acquired 1969 89,474
850 West Jackson Boulevard (Jackson) Opened 1987 33,385
11542 West 47th Street (Ashland) Acquired 1978 175,368
7601 South Cicero Avenue (Cicero) Acquired 1984 198,830
Suburban Branches:
Lombard (Yorktown) Acquired 1982 154,595
Skokie Acquired 1984 384,791
Burbank Acquired 1984 179,590
Broadview Opened 1996 26,850
Wheeling Acquired 1984 231,291
</TABLE>
The Bank's staff focuses on establishing and maintaining long-term
relationships with customers. The Bank encourages its officers to actively
participate in community organizations and, within credit and rate of return
parameters, the Bank attempts to ensure that it meets the credit needs of its
communities and that it invests in local municipal securities. The Bank has
focused its efforts on its "Relationship Builders" advertising campaign and
promoting programs such as the Bank's "Sweat Equity" program, in which
commercial lenders, branch managers and trust officers from the Bank spend a day
working at a customer's business.
LOANS AND INVESTMENTS
General. In allocating its assets among locally generated loans, investment
assets and other earning assets, the Bank attempts to maximize return while
managing risk at an acceptable level. The Bank has identified and implemented
strategies to reach these goals, including an emphasis on quality local loan
growth, diversification and long-term performance of its earning asset
portfolios. The following is a brief description of the types of lending and
investment activities engaged in by the Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
- -- Loan Portfolio" and "Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations -- Financial Condition -- Loan
Portfolio."
Commercial and Industrial Loans. Commercial and industrial loans represent
the largest portion of the Bank's loan portfolio. On a pro forma basis after
giving effect to the Split-Off Transactions, approximately 59% of loans
outstanding are in this category. The Bank makes both collateralized and
unsecured loans. Collateral for loans generally includes accounts receivable,
inventory, equipment and real estate. Included in
56
<PAGE> 58
this category are commercial real estate loans which are generally
collateralized by owner-occupied properties used for business purposes.
Real Estate--Residential Construction Loans. The real estate-residential
construction loan portfolio consists primarily of loans to professional
homebuilders and developers. These loans have increased in recent years
primarily because of an increase in homebuilding in the Chicago metropolitan
area. Generally, these loans are structured with three components: a
non-revolving lot loan which is used to fund costs other than construction, such
as marketing and architectural costs and financing fees; a construction revolver
primarily relating to pre-sold homes; and a letter of credit which the bank
issues to guarantee the performance of a customer to a third party. These loans
generally mature and are completely repaid within two years and bear interest at
an annual rate based upon prime. On a pro forma basis after giving effect to the
Split-Off Transactions, approximately 14% of the Bank's loans are residential
construction loans.
Real Estate Mortgage Loans. The real estate mortgage loan portfolio
primarily consists of first mortgage loans for single-family properties. On a
pro forma basis after giving effect to the Split-Off Transactions, 16% of the
Bank's loan portfolio is real estate mortgage loans. Approximately 65% of the
portfolio consists of fixed rate loans, with approximately 50% of the fixed rate
loans comprised of balloon loans with 3 to 5 year original maturities. The
remaining 35% of the portfolio consists of adjustable rate mortgage loans.
Beginning in 1995 and throughout 1996, the Bank began selling all conforming
mortgages into the secondary market. In late 1995, the Bank began purchasing
loans on a wholesale basis from approved mortgage bankers and other financial
intermediaries. Currently, approximately 60% of originations are originated
through the Bank's retail network and 40% are originated through its wholesale
sources. Both retail and wholesale loans are underwritten by the Bank and
processed for pooling and sale into the secondary market.
From the time a formal commitment is extended to the borrower until the
sale of the resulting mortgage loan to the secondary mortgage market investor,
the Bank is exposed to changes in interest rates which impact the market values
of these loans. The primary method used to manage interest rate risk is forward
sale of the mortgages or mortgage securities. Management of this risk is
monitored daily by the Mortgage Risk Management Committee of the Bank. Mortgage
loans held for sale are valued at the lower of cost or fair value. Fair value is
the commitment price for loans sold forward and market prices for loans not
hedged.
Servicing of loans sold is retained or released based upon which method
provides a more economic outcome. Beginning in 1995, the Bank adopted SFAS No.
122, "Accounting for Mortgage Servicing Rights" which allows the Bank to
capitalize the fair value of the loan servicing rights at the time the loans are
sold into the secondary market. The servicing rights are then amortized over the
estimated servicing life of the loan and is a reduction of loan servicing
income. Since 1995, the Bank has retained the servicing rights on approximately
75% of the loans sold into the secondary market. The current servicing portfolio
consists primarily of FHLMC and FNMA mortgage backed securities pool servicing
that was originated in-house. The Bank has not purchased any mortgage servicing
rights. The Bank derives servicing income by collecting the difference between
the note rate of the loans and the pass-through rate paid to the investor.
Typically, this difference is 25 to 35 basis points of the loan balances. The
Bank also receives late and service charge revenue generated from these loans.
During 1995 and 1996, the Bank sold a portion of these servicing rights,
representing 20% in 1995 and 12% in 1996, of the servicing loan balances.
Consumer Loans. Prior to the Split-Off Transactions, the Bank's consumer
loan portfolio included home equity, credit card and loans secured by
automobiles. Because the Bank is discontinuing its Automobile Finance Business
as a result of the Split-Off Transactions, after the Closing, the Bank's
consumer loan business will primarily be comprised of its home equity and credit
card lines. The Bank's consumer loan portfolio consists of both collateralized
and unsecured loans to individuals for various personal reasons, such as home
improvements. This category includes home equity lines of credit issued by the
Bank that can be drawn at the discretion of the borrower. The majority of home
equity lines, after giving effect to the outstanding loan balance of any
existing mortgage loan, does not exceed 80% of the appraised value of the
underlying real estate collateral. On a pro forma basis after giving effect to
the Split-Off Transactions, approximately 11% of loans outstanding are consumer
loans.
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Loan Approval Procedures and Authority. The Bank's Loan Policy is
established by the Board of Directors based upon the recommendations of the
Bank's Chief Credit Officer and the Credit Policy Committee. The Loan Policy of
the Bank is reviewed and reaffirmed by the Board of Directors not less often
than annually. The Bank's Lending Guidelines for its various product lines are
approved by the Credit Policy Committee and reviewed annually by that committee
as well as the Directors' Loan Committee. These guidelines and policies set
forth the underwriting criteria for the various types of loans originated by the
Bank based upon the risks attendant to each type of loan, the borrowers of such
loans and the types of collateral. The Credit Policy Committee also determines
the adequacy of the Bank's allowance for loan losses.
The Bank delegates lending decision authority among various committees and
officers based primarily on the size of the loan sought. With limited
exceptions, the Bank generally applies a self-imposed maximum of $10.0 million
total credit exposure for each borrower. The Loan Committee of the Bank reviews
all loans in excess of $100,000, and any loan which would result in an aggregate
credit exposure to a borrower in excess of $500,000 requires the prior approval
of the Loan Committee of the Bank. Loans in excess of $500,000 that result in an
aggregate credit exposure to a borrower in excess of $5.0 million require the
prior approval of the Credit Policy Committee. All loans or commitments in
excess of $2.0 million are presented for review on a monthly basis to the
Directors' Loan Committee (which includes members of the Bank's Board of
Directors). Subject to these requirements, each loan officer has authority to
approve loans that comply with the Bank's commercial lending guidelines and loan
policies of up to a specified amount which is determined based upon such
person's experience and position with the Bank. Any exception to the Bank's
commercial lending guidelines and loan policies must be approved by a higher
authority, such as the Loan Committee or Credit Policy Committee.
Investment Portfolio. The Company's investment portfolio is used primarily
to provide a source of earnings and secondarily for liquidity management
purposes. Management maintains an investment grade portfolio oriented toward
U.S. government and U.S. government agency securities. The portfolio is
comprised of U.S. Treasury securities, U.S. government agency instruments and a
modest amount of investment grade obligations of state and political
subdivisions. In managing its interest rate exposure the Company also invests in
mortgage-backed securities and floating rate collateralized mortgage
obligations. Investment securities of the Company on a pro forma basis were
506.5 million, or 26.7% of pro forma total assets, at June 30, 1996. Virtually
all of the Bank's securities at June 30, 1996 were rated investment grade by a
nationally recognized rating organization. The Bank is a party to two interest
rate swap contracts with a combined notional amount of $75 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Financial Condition -- Investment Securities" and "Management's
Discussion and Analysis of Pro Forma Financial Condition and Results of
Operation -- Financial Condition -- Investment Securities."
DEPOSITS
Each of the Bank branches offers the usual and customary range of
depository products provided by commercial banks, including checking, savings
and money market accounts, and certificates of deposit. Deposits at each Bank
are insured by the Federal Deposit Insurance Corporation up to statutory limits.
The Bank also gathers deposits through brokerage relationships and the National
Certificates of Deposit Network. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TRUST AND INVESTMENT DEPARTMENT
The Bank's trust and investment department provides a wide array of trust
services for corporations and individuals. As of June 30, 1996, the Bank's trust
asset mix consisted of approximately 33% employee benefits, 33% exchange/land
trusts, 19% personal trusts, 10% retail trusts and 5% corporate trusts.
Historically, the trust and investment department primarily has serviced its
commercial customers out of its office located near downtown Chicago. Recently,
however, the Bank has placed a greater emphasis on offering trust services to
its retail as well as commercial customers out of its other branch offices. The
Bank's trust and investment department is also emphasizing ESOPs, tax deferred
exchanges and employee benefit plans to commercial business customers for
additional growth. The Bank's retail investment securities activities are sold
through a third party agreement with a registered broker/dealer to effect
securities and annuity transactions for retail clients.
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COMPETITION
The banking business is highly competitive. The Bank encounters competition
primarily in seeking deposits and in obtaining loan customers. The Bank's
principal competitors include other commercial banks, savings and loan
associations, mutual funds, money market funds, finance companies, credit
unions, mortgage companies, the United States Government, private issuers of
debt obligations and suppliers of other investment alternatives, such as
securities firms. In recent years, several major multi-bank holding companies
have entered the Chicago metropolitan market. Generally, these financial
institutions are significantly larger than the Bank and have access to greater
capital and other resources. As a result of these and other factors, future
growth opportunities for the Bank may be limited. In addition, many of the
Bank's non-bank competitors are not subject to the same extensive federal
regulations that govern bank holding companies and federally insured banks and
state regulations governing state chartered banks. As a result, such non-bank
competitors may have advantages over the Bank in providing certain services.
THE MORTGAGE COMPANY
During the fourth quarter of 1995, the Company formed a new subsidiary, the
Mortgage Company. In the first quarter of 1996, the Mortgage Company entered the
subprime mortgage market for loans secured by first and second mortgages on a
brokered basis. Depending on referrals from independent brokers, the
subsidiaries of the Mortgage Company, originate, warehouse and resell
residential mortgages of borrowers who do not qualify for conventional loans or
whose borrowing needs are not met by traditional residential mortgage lenders.
Such borrowers may not satisfy the more rigid underwriting standards of the
traditional residential mortgage lending market for a number of reasons, such as
blemished credit histories (from past loan delinquencies or bankruptcy),
inability to provide income verification data or lack of established credit
history. Management of the Mortgage Company believes that this market is
underserved by traditional lenders. Therefore, there is less competition in this
market and interest rates are higher than on mortgage loans for more
credit-worthy borrowers.
These wholesale originated loans are funded using the underwriting criteria
of selected secondary mortgage market investors and are typically sold to one of
those buyers after a period of warehousing at the Mortgage Company, which
generally ranges from 30 to 90 days or longer. The Mortgage Company is currently
funding such loans at a rate of approximately $3 million per month. Once funded,
and prior to sale, the loans are carried under either a) a warehouse line of
credit granted by the Bank or b) advances from the Company.
The Mortgage Company derives its income principally from gains on the sale
of loans and, to a lesser degree, from net interest income on loans being held
for sale. In instances wherein a sold loan is prepaid during the first year
after sale, the Mortgage Company may be obligated to refund a portion of the
premium paid by the secondary mortgage market investor for such loan. In
addition, the agreements under which the loans are sold to institutional buyers
contain representations and warranties which are standard in the mortgage
industry. Violations of these representations and warranties could constitute
grounds for a requirement for the seller of the loan to repurchase any such
loan. Furthermore, the agreements under which the loans are sold contain
indemnification provisions which are standard in the mortgage industry and which
could require the payment of sums beyond the repurchase price. All obligations
of CT Mortgage and its subsidiaries under the various loan sales agreements,
including, without limitation, obligations to make refunds, to repurchase loans
and to indemnify, will be guaranteed by the Company.
The Mortgage Company's operations are located in Altamonte Springs,
Florida. Through its subsidiaries, the Mortgage Company currently provides
mortgage services primarily to borrowers in the southeastern United States.
EMPLOYEES
After giving effect to the Split-Off Transactions, the Company, the Bank
and the Mortgage Company will have a total of approximately 660 full-time
equivalent employees. None of the employees of the Company, the
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Bank or the Mortgage Company is subject to a collective bargaining agreement.
The Company, the Bank and the Mortgage Company consider their relationship with
their employees to be good.
PROPERTIES
The principal offices of both the Company and the Bank are located in the
Bank's main office building at 350 East Dundee Road, Wheeling, Illinois. The
Bank's main office is leased by the Bank and consists of a three-story building
which has six drive-up windows. The Bank occupies approximately 58,310 square
feet. The Bank also owns an adjacent 1.65 acre parking lot which can accommodate
approximately 150 cars. Both the building and the land are leased by the Bank
under a renegotiated lease which commenced on January 1, 1995 and expires March
21, 2010, with options to extend until March 31, 2025.
The Company owns six of the buildings from which the Bank branches are
operated, although the underlying land for two of these properties is leased.
The Company leases buildings for its Woodlawn, Jackson and Cicero branches,
which in accordance with the current lease terms expire in or may be extended to
May 2013, March 2014, and January 2002, respectively.
LEGAL PROCEEDINGS
The Bank and the Mortgage Company are from time to time parties to various
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Company, the Bank or
the Mortgage Company which, if determined adversely, would have a material
adverse impact on the financial condition or results of operations.
On February 16, 1996, five former Bank branch managers filed suit in the
U.S. District Court (Northern District of Illinois) against the Bank, CTFG and
certain officers of the Bank and CTFG claiming age discrimination, race
discrimination (as to one of them) and defamation. The plaintiffs seek
compensatory and punitive damages. The case is currently in the discovery phase
and has not been set for trial. The Bank believes that the complaint is without
merit and intends to vigorously defend the allegations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company will, as of the
Closing, be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Jeffrey W. Taylor............. 44 Chairman of the Board, Chief Executive Officer and
Director of the Company, Chairman of the Board and
Director of the Bank and Director of the Mortgage
Company
Bruce W. Taylor............... 41 President and Director of the Company, President,
Director and Chief Executive Officer of the Bank and
Director of the Mortgage Company
Sidney J Taylor............... 73 Director of the Company and Director of the Bank
Richard W. Tinberg(1)......... 46 Director of the Company
Melvin E. Pearl(1)............ 58 Director of the Company
Adelyn Dougherty(1)........... 66 Director of the Company
John Christopher Alstrin...... 50 Chief Financial Officer and Director of the Company, the
Bank and the Mortgage Company
Richard C. Keneman............ 52 Director and Executive Vice President of the Bank
Frank DeGradi................. 48 Executive Vice President of the Bank and President and
Director of the Mortgage Company
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
JEFFREY W. TAYLOR is Chairman of the Board, Chief Executive Officer and a
director of the Company and Chairman of the Board and a director of both the
Bank and the Mortgage Company. Mr. Taylor will have served as a director of CTFG
from its inception in 1984 until the Closing. From February 1994 until prior to
the Split-Off Transactions, Mr. Taylor served as Chairman and Chief Executive
Officer of CTFG and Chairman of the Bank. From 1990 to February 1994, Mr. Taylor
served as Vice Chairman of CTFG and Chairman and Chief Executive Officer of the
Bank. Mr. Taylor served as Vice Chairman of Banking Strategy from April 1990
until the end of 1990. Mr. Taylor began his career with the Bank in 1978 as
Associate General Counsel and has held several management positions with the
Bank since that time. Mr. Taylor is the son of Sidney J Taylor and the brother
of Bruce W. Taylor.
BRUCE W. TAYLOR is President and a director of the Company and President
and Chief Executive Officer of the Bank and a director of the Mortgage Company.
Mr. Taylor will have served as a director of CTFG from its inception in 1984
until the Closing. From February 1994 until prior to the Split-Off Transactions,
Mr. Taylor served as President of CTFG in addition to President and Chief
Executive Officer of the Bank. From 1991 to February 1994, Mr. Taylor served as
Vice Chairman of CTFG and President and Chief Operating Officer of the Bank. Mr.
Taylor began working for Cole Taylor Bank in 1979 and has held several
management positions with the Bank since that time. Mr. Taylor is the son of
Sidney J Taylor and the brother of Jeffrey W. Taylor.
SIDNEY J TAYLOR is a director of the Company and of the Bank and will have
been a director of CTFG from its inception in 1984 until the Closing. From the
inception of CTFG through February 1994, Mr. Taylor served as its Chairman and
Chief Executive Officer. Mr. Taylor has over 50 years of banking experience. Mr.
Taylor began his banking career in 1946 and in 1960 became the President of Main
State Bank. In 1969, Mr. Taylor purchased Main State Bank with Irwin H. Cole and
became Chairman of the Board. Mr. Taylor is the father of Jeffrey W. Taylor and
Bruce W. Taylor.
RICHARD W. TINBERG is a director of the Company and will have been a
director of CTFG from 1995 until the Closing. Since 1985, Mr. Tinberg has been
the President and Chief Executive Officer of The Bradford Group, a group of
organizations engaged in the development and marketing of collectibles and Chief
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Executive Officer of Hammacher Schlemmer & Company, which specializes in the
marketing of innovative products and gifts.
MELVIN E. PEARL is a director of the Company and will have been a director
of CTFG from its inception in 1984 until the Closing. Mr. Pearl is a Partner
with the law firm of Katten, Muchin & Zavis.
ADELYN DOUGHERTY is a director of the Company and will have been a director
of CTFG from August 1995 until the Closing. Ms. Dougherty retired in August 1996
as the President of the Institute of European and Asian Studies. From 1988 to
1992, Ms. Dougherty was Senior Vice President and director of Human Resources
for First Colonial Bankshares Corporation, a holding company for sixteen banks
and three non-bank subsidiaries located in the greater metropolitan Chicago
area.
JOHN CHRISTOPHER ALSTRIN is a director and the Chief Financial Officer of
the Company. Mr. Alstrin was the Chief Financial Officer of CTFG from August
1995 until prior to the Split-Off Transactions. Mr. Alstrin also has been Chief
Financial Officer and a Director of the Bank since August 1995, and has served
as a director of the Mortgage Company since its inception. From March 1989 to
June 1994, Mr. Alstrin was the Chief Financial Officer and the Chief Investment
Officer of the Farm & Home Financial Corp., a multi-state financial services
corporation.
RICHARD C. KENEMAN has been the Bank's Executive Vice
President-Relationship Banking Division, since August 1990. Since 1991, Mr.
Keneman also has served as director of the Bank. Prior to joining the Bank, Mr.
Keneman was Senior Vice President of the bank consulting firm BMR, Inc., held
executive management positions with First America Bank, Atlanta, Georgia and
served as a director of Escambia Bank in Pensacola, Florida.
FRANK S. DEGRADI has been the President and a director of the Mortgage
Company since its inception and has been the Bank's Executive Vice
President-Mortgage Banking and Servicing since April 1995. Mr. DeGradi was Vice
President and Regional Manager for Norwest Mortgage in Southfield, Michigan from
October 1994 to March 1995 and was Senior Vice President, Regional Manager, for
Independence One Mortgage Corporation, which was purchased by Norwest Mortgage
in 1994, from November 1983 to September 1994.
KEY EMPLOYEES
Other key employees of the Company will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Roy Postel........................... 51 Chief Credit Officer of the Bank
Jean C. Schmidt...................... 52 Director of Human Resources and Business
Planning of the Bank
Richard Schwartz..................... 57 Executive Vice President of the Bank
Richard S. White, Jr................. 62 Executive Vice President of the Bank
</TABLE>
ROY POSTEL has been the Bank's Chief Credit Officer since 1990 and
currently serves as chairman of the Bank's Loan Committee. Prior to joining the
Bank, Mr. Postel was President of Columbian Financial Corp. in Kansas City,
Missouri, and prior to that served as Senior Vice President, Corporate Loan
Review for Boatmen's Bancshares in St. Louis, Missouri.
JEAN C. SCHMIDT is the Company's Director of Human Resources and Business
Planning will have held such position with CTFG from 1993 until the Closing.
From 1991 to 1993, Ms. Schmidt was Vice President in charge of human resources
consulting services for Management Resource Group Inc. and from 1990 to 1991 Ms.
Schmidt performed human resources consulting services at Management Partners,
Inc. in Brentwood, Tennessee. Ms. Schmidt also served as Senior Vice President
and Director of Corporate Human Resources of First America Corp., a bank holding
company based in Nashville, Tennessee.
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RICHARD SCHWARTZ has been the Bank's Executive Vice President-Acquisitions
since June 1994. From 1963 to 1994 Mr. Schwartz was employed by American
National Bank and Trust Company of Chicago, ultimately serving as Executive Vice
President and Director of Middle Market Commercial Banking.
RICHARD S. WHITE, JR. has been the Bank's Executive Vice President-Trust &
Investment Department and Director, Trust Services since December 1994. From
1988 to 1994, Mr. White was Senior Executive Vice President, Trust & Investments
for Premier Bank of Baton Rouge, Louisiana. From 1982 to 1988, Mr. White held
several executive positions at Republic Bank in Houston, Texas.
TERM OF OFFICE
Each member of the Board of Directors of the Company will be elected
annually. All officers of the Company will serve at the pleasure of the Board of
Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate contains provisions (i) eliminating the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the General Corporation Law of
Delaware and (ii) indemnifying its directors and officers to the fullest extent
permitted by the General Corporation Law of Delaware, including circumstances in
which indemnification is otherwise discretionary. These provisions in the
Certificate do not eliminate the duty of care and, in appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available under Delaware law. Each director will continue to be
subject to liability for breach of a director's duty of loyalty to the Company
or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit and for improper
distributions to stockholders. These provisions also do not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Company's By-Laws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by law. The By-Laws also permit the
Company to secure insurance on behalf of any person it is required or permitted
to indemnify for any liability arising out of his or her actions in such
capacity, regardless of whether the By-Laws would permit indemnification. The
Company maintains liability insurance for its directors and officers.
The Company intends to enter into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in the
Certificate and By-Laws. These agreements, among other things, will indemnify
the Company's directors and such officers for all direct and indirect expenses
and costs (including, without limitation, all reasonable attorneys' fees and
related disbursements, other out of pocket costs and reasonable compensation for
time spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and settlement fees) actually and
reasonably incurred by such person in connection with either the investigation,
defense, settlement or appeal of any threatened, pending or completed action,
suit or other proceeding, including any action by or in the right of the
corporation, arising out of such person's services as a director or officer of
the Company or as a director, officer, employee or other agent of any subsidiary
of the Company or any other company or enterprise to which the person provides
services at the request of the Company. The Company believes that these
provisions and agreements are necessary to attract and retain talented and
experienced directors and officers.
At present, there is no pending litigation or proceeding involving any
director or officer of the Company where indemnification will be required or
permitted. The Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification.
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BOARD COMMITTEES
The Board of Directors intends to establish four standing committees: the
Nominating Committee, the Audit Committee, the Compensation Committee and the
Executive Committee. The Nominating Committee will conduct a continuing study of
the size, structure and composition of the Board, will determine Board selection
and retention criteria and will nominate proposed directors. The Audit Committee
will recommend the appointment of auditors and oversee the accounting and audit
functions of the Company. The Compensation Committee will determine executive
officers' and key employees' salaries and bonuses and administer any future
stock option plan. The Executive Committee will have the authority to take all
actions which the Board of Directors as a whole would be able to take, except as
limited by applicable law.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company will receive
$ for each Board and committee meeting attended. In addition, all
directors may be reimbursed for certain expenses in connection with attendance
at Board and committee meetings. Other than with respect to reimbursement of
expenses, directors who are employees or officers of the Company will not
receive additional compensation for service as a director.
EXECUTIVE COMPENSATION
The Company was incorporated on October 9, 1996. Therefore, the requirement
for prior years' information regarding the Chief Executive Officer of the
Company and the next four most highly compensated executives of the Company is
not applicable. The following table sets forth the estimated compensation to be
paid in 1997 by the Company to such individuals (collectively, the "Named
Officers").
ESTIMATED COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION
- ------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Jeffrey W. Taylor................................ $365,510 $127,929 $ 19,378 $ 43,216
Chairman of the Board and Chief Executive Officer
of the Company(2)
Bruce W. Taylor.................................. 344,525 120,619 22,269 40,389
President of the Company(3)
Sidney J Taylor.................................. 300,000 -- 76,675 97,884
Director of the Company(4)
Richard S. White, Jr............................. 309,000 20,000 2,425 41,440
Executive Vice President of the Bank(5)
Richard Keneman.................................. 216,300 27,729 37,835 28,190
Executive Vice President of the Bank(6)
</TABLE>
- ---------------
(1) The Company anticipates that bonuses in each future year will be based upon
the Company's performance compared to budgeted goals set by the
Compensation Committee each year. Different groups of executives will
receive a percentage of salary for surpassing earnings, returns on assets
and return on equity goals established by the Compensation Committee. The
classifications of employees will involve committee judgments as to the
value of the employee to the Company and in the market place and the growth
and contribution demonstrated by the executive.
(2) "Other Annual Compensation" includes the following estimated amounts: $833
for reimbursement of premiums to be paid by Mr. Taylor for split-dollar
life insurance for Mr. Taylor for 1997 and $18,445 in reimbursement for
country club dues and company car costs to be paid in 1997. "All Other
Compensation" includes an estimated: $5,250 in 401(k) contributions by the
Company to the Profit Sharing/ESOP, $24,899 in contributions to the
deferred compensation plan which the Company expects to establish, $5,625
in ESOP stock account contributions to the Profit Sharing/ESOP and payments
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totaling $7,442, representing the full dollar value of all premiums
expected to be paid by the Company for split-dollar life insurance for Mr.
Taylor.
(3) "Other Annual Compensation" includes the following estimated amounts: $771
for reimbursement of premiums to be paid by Mr. Taylor for split-dollar
life insurance for Mr. Taylor for 1997 and $21,498 in reimbursement for
country club dues and company car costs to be paid in 1997. "All Other
Compensation" includes an estimated: $5,250 in 401(k) contributions by the
Company to the Profit Sharing/ESOP, $22,855 in contributions to the
deferred compensation plan which the Company expects to establish, $5,625
in ESOP stock account contributions to the 401(k)/ESOP and payments
totaling $6,659, representing the full dollar value of all premiums
expected to be paid by the Company for split-dollar life insurance for Mr.
Taylor.
(4) "Other Annual Compensation" includes the following estimated amounts:
$81,893 for reimbursement of premiums to be paid by Mr. Taylor for
split-dollar life insurance for Mr. Taylor for 1997 and $14,782 in
reimbursement for country club dues and company car costs to be paid in
1997. "All Other Compensation" includes an estimated: $5,250 in 401(k)
contributions by the Company to the Profit Sharing/ESOP, $5,625 in ESOP
stock account contributions to the Profit Sharing/ESOP and payments
totaling $87,009, representing the full dollar value of all premiums
expected to be paid by the Company for split-dollar life insurance for Mr.
Taylor.
(5) "Other Annual Compensation" includes an estimated $379 for reimbursement of
premiums to be paid by Mr. White for split-dollar life insurance for Mr.
White for 1997 and $2,046 in reimbursement for country club dues to be paid
in 1997. "All Other Compensation" includes an estimated: $5,250 in 401(k)
contributions by the Company to the Profit Sharing/ESOP, $16,008 in
contributions to the deferred compensation plan which the Company expects
to establish, $5,625 in ESOP stock account contributions to the Profit
Sharing/ESOP and payments totaling $14,557, representing the full dollar
value of all premiums expected to be paid by the Company for split-dollar
life insurance for Mr. White.
(6) "Other Annual Compensation" includes an estimated $945 for reimbursement of
premiums to be paid by Mr. Keneman for split-dollar life insurance for Mr.
Keneman for 1997 and $12,464 in reimbursement for country club dues to be
paid in 1997. "All Other Compensation" includes an estimated: $5,250 in
401(k) contributions by the Company to the Profit Sharing/ESOP, $9,354 in
contributions to the deferred compensation plan which the Company expects
to establish, $5,625 in ESOP stock account contributions to the Profit
Sharing/ESOP and payments totaling $7,961, representing the full dollar
value of all premiums expected to be paid by the Company for split-dollar
life insurance for Mr. Keneman.
STOCK OPTION PLANS
The Company currently does not have a stock option plan in place. However,
the Company intends to establish such a plan in the future and accordingly
expects to reserve 500,000 shares of Company Common Stock for issuance under
such plan.
SEVERANCE AGREEMENTS
Subject to the approval of the Compensation Committee, the Company intends
to enter into severance agreements with Richard White, Richard Keneman and
certain other officers (collectively, the "Senior Managers"). The terms of these
agreements are still under the consideration of the Compensation Committee.
PROFIT SHARING/ESOP
The Company will sponsor a defined contribution retirement plan that will
be designed to qualify under Sections 401(a), 401(k) and 4975(e)(7) of the Code
(the "Profit Sharing/ESOP"). Prior to the Closing, CTFG will transfer to the
Profit Sharing/ESOP the account balances held in the Cole Taylor Financial
Group, Inc. Employee Stock Ownership Plan (the "CTFG ESOP") and the Cole Taylor
Financial Group, Inc. 401(k)/Profit Sharing Plan (the "CTFG Profit Sharing") on
behalf of the active and former Bank employees and any employee of CTFG who will
be a Bank employee on the Closing. The Profit
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Sharing/ESOP is intended to provide substantially the same benefits on
substantially the same terms as the CTFG ESOP and the CTFG Profit Sharing/ESOP.
The Profit Sharing/ESOP will permit each eligible employee of the Company to
elect to contribute, through payroll deductions, a specified percentage of his
or her compensation up to the statutory limitation. The Company will make a
matching contribution and a profit sharing contribution to the Profit
Sharing/ESOP. The Profit Sharing contribution will be in an amount as determined
at the discretion of the Board of Directors. The Company's contribution may be
made in the form of shares of Common Stock, cash to be invested in shares of
Common Stock or cash to be invested as directed by the Profit Sharing/ESOP
participants. The account values to be transferred from the CTFG ESOP and CTFG
Profit Sharing to the Profit Sharing/ESOP for each of the Named Executives above
as of June 30, 1996 are as follows: Jeffrey W. Taylor, $ ; Bruce W.
Taylor, $ ; Sidney J Taylor, $ ; Richard S. White, Jr., $ ;
Richard Keneman, $ .
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SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of the Company and its subsidiaries, including the Bank,
can be materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and the legislative
and governmental actions of Congress and the various federal and state
regulatory agencies with jurisdiction over the Company and the Bank, such as the
Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC")
and the Illinois Office of Banks and Real Estate ("IOBRE"). The effect of
applicable statutes, regulations and policies can be significant, cannot be
predicted with a high degree of certainty and can change over time. Furthermore,
such statutes, regulations and other pronouncements and policies are intended to
protect the Bank's depositors and the FDIC's deposit insurance fund, not to
protect stockholders. Bank holding companies and banks are subject to
enforcement actions by their regulators for statutory and regulatory violations
and safety and soundness considerations. In addition to compliance with
statutory and regulatory limitations and requirements concerning financial,
managerial and operating matters, regulated financial institutions such as the
Company and the Bank must file periodic and other reports and information with
their regulators and are subject to examination by each of their regulators.
The statutory requirements applicable to, and regulatory supervision of,
bank holding companies and banks have increased significantly and have undergone
substantial change in recent years. These changes are embodied in, among others,
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act") and the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "IBBEA"), and the regulations
promulgated thereunder. Many of the regulations promulgated pursuant to FDICIA
have only recently been finalized, and the provisions of the Community
Development Act and IBBEA are still being implemented. As a result, the impact
of these new laws on the Company and the Bank cannot be predicted with
certainty.
Legislation may be introduced from time to time that could, if enacted,
have significant impact on the operations of the Company and its subsidiaries.
On September 30, President Clinton signed into law the Deposit Insurance Funds
Act of 1996 ("DIFA") which imposes assessments on federally-insured depository
institutions to contribute towards the cost of interest due on bonds issued
between 1987 and 1989 to resolve failed savings and loan associations. Because
the Bank has no Savings Association Insurance Fund ("SAIF")--assessable
deposits, it will not be required to pay the special assessment imposed by DIFA.
However, to cover the annual assessment for the period from January 1, 1997
until December 31, 1999, banks, including the Bank, will pay semiannually on
their Bank Insurance Fund ("BIF") deposit base 1.29 basis points, according to
revised Banking Committee estimates. Starting in the year 2000 until the FICO
bonds are retired, banks and thrifts will pay the FICO assessment on a pro rata
basis (estimated to run 2.43 basis points on each institution's insured deposit
base). Congress currently is considering legislation to broaden the powers of
bank holding companies and permit other financial service companies to own
banks. Legislation also has been introduced in the Congress to restructure the
federal bank regulatory system. Although the Secretary of Treasury of the United
States and the Chairman of the FRB have previously expressed support for
restructuring the federal bank regulatory system, there can be no certainty as
to the effect, if any, that such legislation would have on the regulation of the
Company or the Bank. In addition, on August 23, 1996, the FRB proposed sweeping
changes to Regulation Y, a key bank holding company regulation, that would allow
new activities by bank holding companies and their non-bank subsidiaries,
broaden existing operations and reduce or eliminate certain restrictions. It is
unclear, however, whether and in what form these proposed changes will be
implemented and, if implemented, the impact, if any, such changes will have on
the Company.
The following discussion and other references to and descriptions of the
regulation of financial institutions and their parent holding companies
contained herein are not intended to constitute and do not purport to be a
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complete statement of all legal restrictions and requirements applicable to the
Company and the Bank, and all such descriptions are qualified in their entirety
by reference to applicable statutes, regulations and policies.
REGULATION OF BANK HOLDING COMPANIES AND THEIR NON-BANK SUBSIDIARIES
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). As such, the Company is subject to
regulation, supervision and examination by the FRB. The Company is also subject
to the limitations and requirements of the Illinois Bank Holding Company Act
("IBHCA"). These limitations and requirements, however, are no more restrictive
in most instances than those imposed by the BHCA and the FRB. The business and
affairs of the Company are regulated in a variety of ways, including limitations
on acquiring control of other banks and bank holding companies, limitations on
activities and investments, regulations relating to capital requirements and
limitations on payment of dividends. In addition, it is the FRB's policy that a
bank holding company is expected to act as a source of financial strength to
banks that it owns or controls and, as a result, the FRB could require the
Company to commit resources to support the Bank in circumstances in which the
Company might not do so absent the FRB's policy.
In 1996, Federal Reserve examiners began to assign a formal supervisory
rating to the adequacy of a bank holding company's and its member bank's risk
management processes, including their internal controls. The emphasis on sound
risk management processes and strong internal controls reflects the Federal
Reserve's view that proper risk management is critical to the conduct of safe
and sound banking activities in light of new technologies, activities in product
innovation and other changes to the banking industry.
ACQUISITION OF BANKS AND BANK HOLDING COMPANIES
The BHCA generally prohibits a bank holding company from (1) acquiring,
directly or indirectly, more than 5% of the outstanding shares of any class of
voting securities of a bank or bank holding company, (2) acquiring control of a
bank or another bank holding company, (3) acquiring all or substantially all of
the assets of a bank or (4) merging or consolidating with another bank holding
company, without first obtaining FRB approval. In considering an application
with respect to any such transaction, the FRB is required to consider a variety
of factors, including the potential anti-competitive effects of the transaction,
the financial conditions, managerial resources and future prospects of the
combining and resulting institutions, the convenience and needs of the
communities the combined organization would serve, the record of performance of
each combining organization under the Community Reinvestment Act and the
prospective availability to the FRB of information appropriate to determine
ongoing regulatory compliance with applicable banking laws. In addition, both
the federal Change In Bank Control Act and the Illinois Banking Act ("IBA")
impose limitations on the ability of one or more individuals or other entities
to acquire control of the Company or the Bank.
AFFILIATE TRANSACTIONS
The Federal Reserve Act and IBA impose certain limitations on extensions of
credit and other transactions by and between banks and their parent holding
companies or affiliates of their parent holding companies. Under the Bank
Holding Company Act Amendments of 1970 and the FRB's regulations, a bank holding
company and its bank and nonbanking subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property and the furnishing of any services.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
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INTERSTATE BANKING AND BRANCHING
Until September 29, 1995, the BHCA prohibited a bank holding company from
acquiring control of a bank whose principal office is located outside of the
state in which the principal place of business of the bank holding company is
located unless specifically authorized by applicable state law. The IBHCA
permitted Illinois bank holding companies to acquire control of banks in any
state and permitted bank holding companies whose principal place of business is
in another state to acquire control of Illinois banks or bank holding companies,
provided the other state afforded reciprocal rights to Illinois bank holding
companies and certain other requirements were satisfied.
As of September 29, 1995, interstate acquisitions of banks and bank holding
companies were permitted without geographic limitation. Beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date of
enactment of the IBBEA and May 31, 1997. The IBBEA also provides that states may
enact laws permitting interstate bank merger transactions prior to June 1, 1997.
Once a bank has established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable federal
or state law. A bank may also establish and operate a de novo branch in a state
in which the bank does not maintain a branch if that state expressly permits
such de novo branching. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state in
the same manner and to the same extent as a bank having a branch in such state
as a result of an interstate merger. If a state opts out of interstate branching
within the specified time period, no bank in any other state may establish a
branch in the opting out state, whether through an acquisition or de novo.
Legislation was recently enacted in Illinois to permit Illinois chartered banks,
such as the Bank, to establish out-of-state branches by merger beginning June 1,
1997 and permit out-of-state banks to branch into Illinois as of the same date.
The restrictions described above represent limitations on expansion by the
Company and the Bank, the acquisition of control of the Company by another
company and the disposition by the Company of all or a portion of the stock of
the Bank or by the Bank of all or a substantial portion of its assets.
PERMITTED NON-BANKING ACTIVITIES
The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, more than 5% of
the voting securities or assets of any company engaged in any activity other
than banking, managing or controlling banks and bank subsidiaries or another
activity that the FRB has determined, by regulation or otherwise, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Subject to certain exceptions, a bank holding company must
obtain the prior approval of the FRB to engage in or acquire control of a
company engaging in a permissible nonbanking activity.
In evaluating such applications, the FRB will consider, among other
relevant factors, whether permitting the bank holding company to engage in the
activity in question can reasonably be expected to produce benefits to the
public (such as increased convenience, competition or efficiency) that outweigh
any possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or safety and soundness
concerns). Those activities that the FRB has determined by regulation to be
closely related to banking include real estate mortgage lending, the principal
activity of the Mortgage Company. Recent proposed amendments to the FRB
regulations implementing the BHCA would streamline the application process and,
in some cases, limit the FRB's evaluation to a determination of whether the bank
holding company in question is well managed and capitalized.
CAPITAL REQUIREMENTS
The FRB has adopted minimum risk-based capital standards for bank holding
companies. The FRB requires bank holding companies to maintain certain minimum
ratios of risk-weighted capital to total risk-adjusted assets. Risk-adjusted
assets include a "credit equivalent amount" of off-balance sheet items,
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determined in accordance with conversion factors set forth in the FRB's
regulations. In August 1995, the federal bank regulators implemented a final
rule to revise and expand the conversion factors used to calculate the credit
equivalent amounts to recognize certain derivative contracts and transactions
subject to qualifying bilateral netting arrangements. Each asset and off-balance
sheet item, after certain adjustments, is assigned to one of four risk-weighing
categories, 0%, 20%, 50% or 100%, and the risk-adjusted values then are added
together to determine the total amount of risk-weighted assets.
A bank holding company must meet two risk-based capital standards, a "core"
or "Tier 1" capital requirement and a total capital requirement. The current
regulations require that a bank holding company maintain Tier 1 capital equal to
4% of risk-adjusted assets and total capital equal to 8% of risk-adjusted
assets, at least one-half of which must be Tier 1 capital. Tier 1 capital
consists of common stockholders' equity; qualifying noncumulative perpetual
preferred stock; qualifying cumulative perpetual preferred stock (up to 25% of
total Tier 1 capital); and minority interests in the equity accounts of
consolidated subsidiaries. Core capital excludes goodwill and certain other
intangible assets. It is intended that the Preferred Stock will be considered
Tier 1 capital for the purposes of those regulations.
Total capital represents the sum of Tier 1 capital plus "Tier 2" capital,
less certain deductions. Tier 2 or "supplementary" capital consists, subject to
certain limitations, of allowances for loan and lease losses (up to 1.25% of
total weighted risk assets); perpetual preferred stock (to the extent not
included in Tier 1 capital); hybrid capital instruments; perpetual debt;
mandatory convertible debt securities; term subordinated debt; and intermediate
term preferred stock. In determining total capital, a bank holding company must
deduct its investments in unconsolidated banking and finance subsidiaries and,
as determined by the FRB on a case-by-case basis, other designated subsidiaries
or associated companies, reciprocal holdings of certain securities of banking
organizations; and other deductions required by regulation or determined by the
FRB on a case-by-case basis.
The FRB also has established a minimum leverage ratio requirement for bank
holding companies. The minimum leverage ratio, which is defined as Tier 1
capital divided by average quarterly assets (net of allowance for losses and
goodwill), is 3% for banking organizations that do not anticipate significant
growth and that have well-diversified risk (including no undue interest rate
risk), excellent asset quality, high liquidity and good earnings. Banking
organizations, however, generally are expected to operate well above these
minimum risk-based ratios and are expected to have ratios of at least 100 to 200
basis points above the stated minimum, depending upon their particular condition
and growth plans. Higher capital ratios could be required if warranted by the
particular circumstances or risk profile of a given banking organization. The
FRB has not advised the Company of any specific minimum Tier 1 leverage ratio
applicable to it.
As of June 30, 1996, CTFG had Tier 1 and total risk-based capital ratios of
9.65% and 10.90%, respectively, and a Tier 1 leverage ratio of 7.92%. As
adjusted for the Split-Off Transactions and giving effect to the offering of
Preferred Stock described hereby, the Company will have pro forma June 30, 1996
Tier 1 and total risk-based capital ratios of 6.45% and 7.70%, respectively, and
a leverage ratio of 4.85%.
The failure of a bank holding company to meet its risk-weighted capital
ratios may result in supervisory action, as well as an inability to obtain
approval of any regulatory applications and, potentially, increased frequency of
examination. The nature and intensity of the supervisory action will depend upon
the level of noncompliance. Under the IBHCA, no bank holding company may acquire
control of a bank if, at the time it applies for approval or at the time the
transaction is consummated, its ratio of total capital to total assets as
determined in accordance with then applicable FRB regulations, is or will be
less than 7%.
The federal bank regulators have previously indicated a desire to raise
minimum capital requirements for banking organizations and have suggested that
revisions to the risk-based capital requirements should be made. The effect of
any future change in the required capital ratios of the Company or the Bank
cannot be determined at this time.
Risk-based capital ratios which focus principally on broad categories of
credit risk are only one indicator of the overall financial health of a bank
organization. They do not incorporate other factors that can affect the
Company's financial condition, such as overall interest rate risk exposure,
liquidity, funding and market risks,
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the quality and level of earnings, investment or loan portfolio concentrations,
the quality of loans and investments, the effectiveness of loan and investment
policies and management's ability to monitor and control financial and operating
risks.
In the event that the subsidiary institution fails to meet minimum capital
requirements and is required to submit a capital restoration plan, such plan
would be acceptable only if the parent holding company guarantees compliance
with the plan up to the lesser of 5% of the institution's total assets or the
amount necessary to bring the institution into compliance with capital standards
applicable at the time that the institution fails to comply.
DIVIDENDS
The FRB has indicated that banking organizations should generally pay cash
dividends out of current operating earnings and the current rate of earnings
retention should be consistent with the organization's capital needs, asset
quality and overall financial condition. A banking organization experiencing
earnings weaknesses should not pay cash dividends which exceed its net income or
which could only be funded in ways that would weaken its financial health or
undermine its ability to serve as a source of strength to its subsidiary bank,
such as by borrowing. The FRB may, and in certain circumstances must, prohibit a
bank holding company from making any capital distributions without prior FRB
approval if the subsidiary institution is undercapitalized. See "--Capital
Requirements." The FRB also may impose limitations on the payment of dividends
as a condition to its approval of certain applications, including applications
for approval of mergers or acquisitions. Between 1989 and 1992, the FRB did not
permit CTFG, then the Bank's parent holding company, to pay dividends on its
stock without the FRB's prior consent. In 1992, the FRB modified this
restriction to require only prior notification of such dividends. In 1993, the
FRB informed CTFG that CTFG was permitted to pay dividends without restriction.
REGULATION OF BANKS
The Bank is a banking corporation organized under the IBA. As such, it is
subject to regulation, supervision and examination by the IOBRE. The Bank is a
member of the Federal Reserve System and, therefore, subject to regulation,
supervision and examination by the FRB. The deposit accounts of the Bank are
insured up to applicable limits by the FDIC's Bank Insurance Fund (the "BIF").
Thus, the Bank is also subject to regulation, supervision and examination by the
FDIC. In certain instances, statutes administered and regulations promulgated by
certain of these agencies are more stringent than those of other agencies with
jurisdiction. In these instances, the Bank must comply with the more stringent
restrictions, prohibitions or requirements.
The business and affairs of the Bank are regulated in a variety of ways.
Regulations apply to, among other things, insurance of deposit accounts, the
Bank's capital ratios, payment of dividends, liquidity requirements, the nature
and amount of the investments that the Bank may make, transactions with
affiliates, community and consumer lending, internal policies and controls,
reporting by and examination of the Bank and changes in control of the Bank. The
federal bank regulators have recently adopted an interest rate risk component to
the risk capital requirements to assess the exposure of banks to declines in the
economic value of the bank's capital due to changes in interest rates.
DEPOSIT INSURANCE
As a BIF-insured institution, the Bank is required to pay deposit premiums
to the BIF. The FDIC has implemented a risk-based deposit insurance assessment
system under which each insured depository institution is assigned to one of
nine categories based upon its level of capital and an evaluation of other
supervisory factors and assessed insurance premiums accordingly. These premium
rates for the semiannual period beginning July 1, 1996 range from 0.0% of
deposits included in an institution's "assessment base" for the highest rated
institutions to .27% of such deposits for the lowest rated institutions, with
well-capitalized and well-managed institutions paying only the statutory minimum
yearly fee of $2,000. Risk classification of an insured institution is made by
the FDIC for each semiannual assessment period.
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In August 1995, the FDIC revised the schedule for BIF-insured institutions
to lower the premium rates to .04% for the highest rated institutions and .31%
for the lowest rated institutions. The BIF rates were further reduced to 0.0%
for the highest rated institutions and .27% for the lowest rated institutions
effective January 1, 1996. The FDIC left untouched the premium levels for the
period beginning July 1, 1996. Rates may be increased in the future if the
designated reserve ratio for BIF falls below 1.25%, or are otherwise modified by
the FDIC or the Congress. The FDIC may propose additional changes in the
assessment rate matrix at a later date.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound banking practices, is in a condition
that is unsafe or unsound for the continuation of operations or otherwise has
violated any applicable law, regulation or order, or any condition imposed in
writing by or in a written agreement with the FDIC. The FDIC also may suspend
deposit insurance temporarily during the pendency of a proceeding to terminate
insurance if the institution has no tangible capital.
CAPITAL REQUIREMENTS
FRB regulations establish the same three minimum capital standards for
insured state member banks as they do for bank holding companies. Under the FRB
regulations, the Bank's capital ratios are computed in a manner substantially
similar to the manner in which bank holding company capital ratios are
determined. See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries--Capital Requirements." The FRB capital requirements are minimum
requirements and higher levels of capital will be required if warranted by the
particular circumstances or risk profile of an individual bank.
FDICIA provides the federal banking regulators with broad power to take
"prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers under this provision depends
on whether the institution in question is "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under regulations adopted by the federal banking
regulators, a bank is considered "well capitalized" if it (i) has a total
risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital
ratio of 6% or greater, (iii) has a leverage ratio of 5% or greater and (iv) is
not subject to any order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" bank is defined as one that (i) has a
total risk-based capital ratio of 8% or greater, (ii) has a Tier 1 risk-based
capital ratio of 4% or greater, (iii) has a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with the highest composite regulatory
examination rating that is not experiencing or anticipating significant growth)
and (iv) does not meet the definition of a well capitalized bank. A bank would
be considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or
(iii) a leverage ratio of less than 4% (or 3% in the case of a bank with the
highest composite regulatory examination rating that is not experiencing or
anticipating significant growth); (B) "significantly undercapitalized" if the
bank has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than
3% and (C) "critically undercapitalized" if the bank has a ratio of tangible
equity to total assets of equal to or less than 2%. The appropriate federal
banking regulator may downgrade a bank to the next lower category if the
regulator determines (i) after notice and opportunity for hearing or response,
that the bank is in an unsafe or unsound condition or (ii) that the bank has
received (and not corrected) a less-than-satisfactory rating for any of the
categories of asset quality, management earnings or liquidity in its most recent
exam.
As of June 30, 1996, the Bank qualified as "well capitalized," with a total
risk-based capital ratio of 10.72%, a Tier 1 risk-based capital ratio of 9.47%
and a leverage ratio of 7.31%. As adjusted for the Split-Off Transactions and
giving effect to the offering of Preferred Stock described hereby and the
assumption of the Credit Facilities, the Bank will have pro forma June 30, 1996
total and Tier 1 risk-based capital ratios of 9.52% and 8.27% respectively, and
a leverage ratio of 6.19%, as of the Closing.
Depending upon the capital category to which an institution is assigned,
the regulators' supervisory and corrective powers, many of which are mandatory
in certain circumstances, include a prohibition on capital distributions by the
institution if, after making the distribution, it would be undercapitalized;
prohibition on
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payment of management fees to controlling persons; requiring the submission of a
capital restoration plan; placing limits on asset growth; limiting acquisitions,
branching or new lines of business, requiring the institution to issue
additional capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rates that
the institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be dismissed;
prohibiting the institution from accepting deposits from correspondent banks;
requiring the institution to divest certain subsidiaries; requiring the holding
company to divest the institution or other nonbanking subsidiaries; prohibiting
the holding company from making any distributions without FRB approval,
prohibiting the payment of principal or interest on subordinated debt; and,
ultimately, appointing a receiver for the institution. See "--Regulation of Bank
Holding Companies and Their Non-Bank Subsidiaries--Dividends."
DIVIDENDS
Under the IBA, the Bank is permitted to declare and pay dividends in
amounts up to the amount of its accumulated net profits, provided that it shall
retain in its surplus at least one-tenth of its net profits since the date of
the declaration of its most recent previous dividend until said additions to
surplus, in the aggregate, equal at least the paid-in capital of the Bank. In no
event may the Bank, while it continues its banking business, pay dividends in
excess of its net profits then on hand (after deductions for losses and bad
debts). The Bank is also subject to various regulatory policies and requirements
relating to the payment of dividends. See "--Capital Requirements."
The FRB permits a state member bank such as the Bank to pay dividends,
while it continues its banking operations, in an amount not greater than its net
profits then on hand, after deducting therefrom its losses and bad debts. No
state member bank may pay as a dividend any portion of its paid-in capital and
no state member bank may pay dividends if its accumulated losses equal or exceed
its undivided profits then on hand. The FRB cash dividend policy statement
described above (See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries--Dividends") also applies to the payment of dividends by state
member banks.
INSIDER AND AFFILIATE TRANSACTIONS
The Bank is subject to certain restrictions imposed by the Federal Reserve
Act and the IBA on any extensions of credit to, purchase of assets from, and
other transactions with the Company and its nonbanking subsidiaries, on
investments in the stock or other securities of the Company and its subsidiaries
and the acceptance of the stock or other securities of the Company or its
subsidiaries as collateral for loans made by the Bank.
Such restrictions prevent the Company and its affiliates from borrowing
from the Bank unless the loans are secured by marketable obligations of
specified amounts. Further, such secured loans, investments and other
transactions between the Bank and the Company or its affiliates are limited to
10% of the Bank's capital and surplus (as defined by federal regulations) and
such secured loans, investments and other transactions are limited, in the
aggregate, to 20% of either the Bank's capital and surplus (as defined by
federal regulations). The sales of some assets, for example the sales of
mortgages by the Mortgage Company to the Bank, are exempt from these percentage
limitations and security requirements only if specific regulatory requirements
are met. In addition, all covered transactions with affiliates must comply with
regulations prohibiting terms that would be preferential to the Company or the
Mortgage Company. There have been no intercompany transactions between the
Company or the Mortgage Company and the Bank which would implicate these
provisions.
Certain limitations and reporting requirements also are placed on
extensions of credit by the Bank to principal stockholders of the Company and to
directors and certain executive officers of the Company, its non-bank
subsidiaries and the Bank and to "related interests" of such principal
stockholders, directors and officers. In addition, any director or officer of
the Company or the Bank or principal stockholder of the Company may be limited
in his or her ability to obtain credit from banks with which the Bank maintains
a correspondent relationship.
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COMMUNITY REINVESTMENT ACT
In connection with its lending activities, the Bank is subject to a variety
of federal and state laws designed to protect borrowers and promote lending to
various sectors of the economy and population. Included among these are the Home
Mortgage Disclosure Act ("HMDA"), Real Estate Settlement Procedures Act
("RESPA"), Truth-In-Lending Act ("TILA"), the Equal Credit Opportunity Act
("ECOA"), Fair Credit Reporting Act ("FCRA"), the Community Reinvestment Act
("CRA") and similar Illinois laws applicable to, among other things, usury,
credit discrimination and business practices.
The CRA requires a bank to define the communities that it serves, identify
the credit needs of such communities and adopt and implement a "Community
Reinvestment Act Statement" pursuant to which it offers credit products and
takes other actions that respond to the credit needs of the communities. Under
FIRREA, the FRB is required to conduct annual CRA examinations of insured
financial institutions and to assign to them a CRA rating of "outstanding,"
"satisfactory," "needs improvement" or "unsatisfactory" based on their record of
meeting community needs.
The federal banking regulatory agencies will take into account the CRA
ratings of combining organizations and their level of compliance with the Equal
Credit Opportunity Act in connection with acquisitions involving a change in
control of a financial institution and, if any of the combining institutions has
a CRA rating of "needs improvement" or "unsatisfactory," the agency may deny the
application or require corrective action as a condition of its approval. In
1995, 1994 and 1993 the Bank's CRA rating was "satisfactory". Under recently
approved regulations, the Bank will be subject to a new system for evaluating
its actual performance in meeting community needs beginning with the December
1996 examination. There can be no certainty as to the effect, if any, that such
changes will have on the Bank.
The operations of the Mortgage Company and its subsidiaries are subject to
HMDA, RESPA, TILA, ECOA, the regulations promulgated thereunder and similar
state laws applicable to among other things, usury, credit discounts and
business practices. Provisions of those statutes and related regulations
prohibit discrimination and require disclosure of certain basic information to
mortgagors such as credit and settlement costs. Each of the subsidiaries of the
Mortgage Company has or will obtain all necessary licenses in all states in
which it conducts or expects to conduct its mortgage operations.
ANNUAL AUDIT, REPORTING AND MANAGERIAL CONTROL REQUIREMENTS
Under FDICIA, the FDIC was required to promulgate regulations requiring
FDIC-insured financial institutions over a certain size to have an annual
independent audit of their financial statements in accordance with generally
accepted auditing standards, to have an independent audit committee of outside
directors, and to file with the FDIC and their respective primary federal
regulators annual reports, attested to by their independent auditors, as to
their internal control structure and compliance with certain designated laws and
regulations. The FDIC's regulations apply these requirements to insured
depository institutions with total assets of $500 million or more. The
requirements can be satisfied by audit procedures adhered to by a parent entity
such as the Company that is consolidated with the Bank for financial reporting
purposes. Legislation is pending that could result in substantial changes to the
audit requirements. There is no certainty as to what, if any, effect such
legislation may have on the Company or the Bank.
BROKERED DEPOSITS
The FDIC has issued a rule regarding the ability of depository institutions
to accept brokered deposits, i.e. deposits obtained through a deposit broker.
The rule provides that (i) an "undercapitalized" institution is prohibited from
accepting, renewing or rolling over brokered deposits, (ii) an "adequately
capitalized" institution must obtain a waiver from the FDIC before accepting,
renewing or rolling over brokered deposits and is subject to limitations on the
rate of interest payable on brokered deposits, and (iii) a "well capitalized"
institution may accept or renew brokered deposits without restriction. At June
30, 1996 the Bank had brokered deposits of $128.4 million and was considered
"well capitalized" for purposes of this rule. See "Risk Factors--Liquidity
Management".
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<PAGE> 76
OTHER FDICIA RULES
The banking agencies have also adopted or proposed rules to implement
provisions of FDICIA, the Community Development Act and the IBBEA, including:
(i) real estate lending standards for banks, which provide guidelines concerning
loan-to-value ratios for various types of real estate loans; (ii) revisions to
the risk-based capital rules to account for interest rate risk, concentration of
credit risk, transferring of assets without recourse and the risks posed by
"non-traditional activities"; (iii) rules requiring depository institutions to
develop and implement internal procedures to evaluate and control credit and
settlement exposure to their correspondent banks; (iv) rules prohibiting, with
certain exceptions, state member banks from making equity investments of types
and amounts not permissible for national banks; and (v) rules addressing various
"safety and soundness" issues, including operations and managerial standards,
standards for asset quality, earnings and stock valuations, and compensation
standards for the officers, directors, employees and principal shareholders of
the depository institution.
CHANGE IN CONTROL
As an Illinois bank, the Bank is subject to the rules regarding change in
control of Illinois banks contained in the IBA. The Company is also subject to
these rules by virtue of its control of the Bank. Generally, the IBA provides
that no person or entity or group of affiliated persons or entities may, without
the IOBRE's consent, directly or indirectly, acquire control of an Illinois
bank. Such control is presumed if any person, directly or indirectly, owns or
controls 20% or more of the outstanding stock of an Illinois bank or such lesser
amount as would enable the holder or holders, by applying cumulative voting, to
elect one director of the bank.
In evaluating applications for acquisition of control of an Illinois bank
or bank holding company, in addition to the IOBRE's consideration of other
factors deemed relevant, the IOBRE must find that the character of the proposed
management of the bank, after the change in control will assure reasonable
promise of successful, safe and sound operation, that the future earnings
prospects of the bank after the promised change in control are favorable, and
that any prior involvement that the proposed controlling persons or the proposed
management of the institution after the change in control have had with any
other financial institution has been conducted in a safe and sound manner. See
"Regulation of Bank Holding Companies and Their Non-Bank Subsidiaries --
Acquisition of Banks and Bank Holding Companies."
The IOBRE has reviewed the Split-Off Transactions and on September 9, 1996
issued its determination that such transactions do not constitute a change of
control for purposes of the IBA.
REGULATION OF THE MORTGAGE COMPANY
The Mortgage Company's business is subject to extensive regulation at both
the Federal and state level. Regulated matters include loan origination, credit
activities, truth in lending, maximum interest rates and finance and other
charges, disclosure to customers, equal credit opportunity, the terms of secured
transactions, the collection, repossession and claims handling procedures
utilized by the Mortgage Company, multiple qualification and licensing
requirements for doing business in various jurisdictions and other trade
practices.
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<PAGE> 77
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The Company has filed a Registration Statement with the SEC and the
applicable state securities authorities registering Common Stock which will be
issued to the Taylor Family and the other members of the Taylor Group in the
Common Stock Offering. See "The Split-Off Transactions--Related Common Stock
Offering." The following table sets forth certain information regarding the
Common Stock which, based on commitments the Company has received as of the date
of this Prospectus, is projected to be beneficially owned as of the Closing by
(i) each stockholder known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of the Common Stock, (ii) each
director of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information provided by such owners, will have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. Except as set forth below, the address of each
of the stockholders named below is the Company's principal executive and
administrative office.(1)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK
- ------------------------------------------------------------ ------------------ ----------------
<S> <C> <C>
</TABLE>
- ---------------
(1) To be completed after expressions of interest are received following
distribution of the Preliminary Prospectus related to the Common Stock
Offering.
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<PAGE> 78
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS, OFFICERS AND FAMILY MEMBERS
Certain of the directors and officers of the Company and of the Bank and
members of their immediate families, and firms and corporations with which they
are associated, have had transactions with the Bank, including borrowings and
investments in certificates of deposit. These arrangements will continue after
the Closing. Management believes that all such loans and investments have been
made in the ordinary course of business of the Bank, have been made on
substantially the same terms, including interest rates paid or changed and
collateral required, as those prevailing at the time for comparable transactions
with unaffiliated persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 1995,
the aggregate outstanding amount of all loans which are projected to exceed
$60,000 to officers and directors of the Company, and members of their immediate
families and firms and corporations in which they have at least a 10% beneficial
interest was approximately $20 million. The Company relies on its directors and
executive officers for identification of loans to their related interests.
The Company expects that its primary insurance brokers will be Dann
Brothers, Inc., which provides property and casualty insurance brokerage
services, and Benefit Planning Associates, which provides health insurance
brokerage services. Each of Russell Dann and Scott Dann, the brothers-in-law of
Jeffrey W. Taylor, beneficially owns approximately 25% of the capital stock of
Dann Brothers, Inc. Each of Russell Dann, Scott Dann and Armand Dann, the
father-in-law of Jeffrey Taylor and a director of the Bank, beneficially owns
approximately 16% of the partnership interests of Benefit Planning Associates.
During 1995, CTFG paid total commissions of approximately $180,000 to Dann
Brothers, Inc. and Benefit Planning Associates in connection with various
insurance policies. The Company anticipates it will pay commissions to such
entities in substantially similar amounts in 1997.
It is expected that the Company will reimburse the Taylor family for
expenses incurred in connection with the organization of the Company and the
transactions contemplated by the Split-Off Transactions. Such expenses are
estimated to be $2 million.
The Share Exchange Agreement between CTFG and members of the Taylor Family
provides for a series of Split-Off Transactions. The Company was formed solely
for the purpose of facilitating the Split-Off Transactions. Accordingly, the
Share Exchange Agreement and related agreements and arrangements affecting the
Company, some of which will continue beyond the Closing, were negotiated with
CTFG and executed by representatives of the Taylor Family. See "Risk
Factors--Risks Arising From the Split-Off Transactions--Interest of Taylor
Family; Possible Conflicts of Interest", "--Liabilities Under Share Exchange
Agreement" and "The Split-Off Transactions."
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<PAGE> 79
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10 million shares,
of which 7 million shares are Common Stock, par value $.01 per share, and 3
million shares are preferred stock, par value $.01 per share. Upon completion of
the Company's offering of Common Stock and the consummation of the Split-Off
Transactions, there will be shares of Common Stock outstanding and
held of record by stockholders. No shares of preferred stock are currently
outstanding.
The following description of the capital stock of the Company and certain
provisions of Delaware General Corporation Law, the Certificate, Certificate of
Designation (as defined) and By-Laws is a summary and is qualified in its
entirety by the Delaware General Corporation Law, as amended, (the "DGCL") and
the Certificate, Certificate of Designation and By-Laws, which have been filed
as exhibits to the Company's Registration Statement on Form S-1, of which this
Prospectus forms a part.
COMMON STOCK
The shares of Common Stock which will be issued and outstanding as of the
closing of the Common Stock Offering will be validly issued, fully paid and
nonassessable. Subject to the rights of holders of Preferred Stock which may be
issued, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board of Directors may from time to time determine. The
shares of Common Stock are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
Preferred Stock then outstanding, including holders of the Preferred Stock
described hereby. Each outstanding share of Common Stock is entitled to one vote
on all matters submitted to a vote of stockholders. There is no cumulative
voting in the election of directors.
The Board of Directors of the Company may approve for issuance, without
approval of the holders of Common Stock, preferred stock which has voting,
dividend or liquidation rights superior to the Common Stock and which may
adversely affect the rights of holders of Common Stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company.
PREFERRED STOCK
The Certificate authorizes the Board of Directors to issue preferred stock
in classes or series and to establish the designations, preferences,
qualifications, limitations or restrictions of any class or series with respect
to the rate and nature of dividends, the price and terms and conditions on which
shares may be redeemed, the terms and conditions for conversion or exchange into
any other class or series of the stock, voting rights and other terms. Pursuant
to this authority, prior to the commencement of this offering, the Board of
Directors designated 1,530,000 shares as % Noncumulative Perpetual
Preferred Stock, Series A (the "Preferred Stock"), $25.00 stated value per
share. The rights, preferences, privileges, qualifications, restrictions and
limitations of the Preferred Stock are described in a Certificate of Designation
filed with the Delaware Secretary of State ("Certificate of Designation").
The shares of Preferred Stock which will be issued and outstanding as of
the closing of the Preferred Stock offering described hereby will be validly
issued, fully paid and nonassessable. The rights of holders of Preferred Stock
could be subject to, and may be adversely affected by, the rights of holders of
any additional series of preferred stock that may be issued in the future and
that may rank prior to, or on parity with, as to dividends or distributions of
assets, the Preferred Stock described herein. However, any such issuance will be
subject to the approval of the holders of shares entitled to cast at least
two-thirds of the votes entitled to be cast by the holders of the Preferred
Stock then outstanding, voting together separately as a class. See "--Voting
Rights."
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<PAGE> 80
The shares of Preferred Stock will not be convertible into shares of Common
Stock of the Company and will have no preemptive rights. No fractional shares of
Preferred Stock will be issued. The Company will treat the Preferred Stock as
Tier 1 Capital for purposes of the risk-based capital guidelines of the Federal
Reserve Board. The shares of Preferred Stock will be subject to redemption under
the circumstances described under "--Redemption at the Option of the Company"
below.
Since the Company is a holding company, the right of the Company, and hence
the rights of creditors and shareholders of the Company, to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise is necessarily subject to the prior claims of creditors of such
subsidiary, including depositors in the case of the Bank, except to the extent
that claims of the Company itself as a creditor of the subsidiary may be
recognized.
DIVIDEND RIGHTS
Noncumulative cash dividends on the Preferred Stock will accrue from the
date of original issuance (the "Date of Original Issue") and will be payable
quarterly in arrears at an annual rate of $ per share, when, as and if
declared by the Board of Directors, or a duly authorized committee thereof, out
of funds legally available therefor, for a quarterly dividend period (a
"Dividend Period") on the fifteenth day of each March, June, September, and
December, commencing on March 15, 1997 (each, a "Dividend Payment Date"), to the
holders of record on such respective dates, not more than 30 days and not less
than 60 days preceding the related Dividend Payment Date, as may be determined
by the Board of Directors, or a duly authorized committee thereof, in advance of
such Dividend Payment Date. Dividends payable for any period of less than a
quarter will be paid on the basis of a 360-day year of twelve 30 day months.
When a Dividend Payment Date falls on a non-business day, the dividend will be
paid on the next business day. Holders of Preferred Stock will not participate
in dividends, if any, declared and paid on the Common Stock.
The right of holders of Preferred Stock to receive dividends is
noncumulative. Accordingly, if the Board fails to declare a dividend on the
Preferred Stock for a Dividend Period, then holders of the Preferred Stock will
have no right to receive a dividend for that Dividend Period, and the Company
will have no obligation to pay the dividend accrued for that Dividend Period,
whether or not dividends are declared for any subsequent period.
Under the DGCL, the Company can pay dividends on the Preferred Stock only
out of (i) the Company's surplus, which is equal to the amount by which its net
assets (excess of assets over liabilities) exceed the stated capital
attributable to all outstanding shares of capital stock), or (ii) if it has no
surplus, its net profits for the current or preceding year. If the Company has
no surplus or profits, it would be unable to pay the scheduled dividends on the
Preferred Stock. The Company's right to pay dividends on the Preferred Stock
also will be subject to certain restrictions under the Company's Credit
Facilities. See "The Split-Off Transactions--Related Financing."
No full dividends will be declared or paid or set apart for payment on any
share of the Preferred Stock or any share of any other class of stock, or series
thereof, in any such case ranking on a parity with or junior to the Preferred
Stock as to dividends unless full dividends for the then-current Dividend Period
on the Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment. When dividends are not paid in full upon the Preferred Stock and any
other series or class of stock ranking on a parity with the Preferred Stock as
to dividends, all dividends declared upon the Preferred Stock and such other
series or class of stock will be declared pro rata so that the amount of
dividends declared per share on the Preferred Stock and such other series or
class of stock will in all cases bear the same ratio that accrued dividends per
share (which in the case of the Preferred Stock will not include any
accumulation in respect of undeclared or unpaid dividends for prior Dividend
Periods) on the Preferred Stock and on such other series or class of stock bear
to each other.
Except as set forth in the paragraph immediately following, so long as any
shares of Preferred Stock are outstanding, unless the full dividends on all
outstanding shares of Preferred Stock have been declared and paid or set apart
for payment for the current Dividend Period and except as provided in the
immediately preceding paragraph, (i) no dividend (other than a dividend in
Common Stock or in any other stock of the Company
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<PAGE> 81
ranking junior to the Preferred Stock as to dividends or distribution of assets
upon liquidation, dissolution or winding up) may be declared and paid, or set
aside for payment, or other distribution declared or made, on the Common Stock
or on any other stock ranking junior to or on a parity with Preferred Stock as
to dividends or distribution of assets upon liquidation, dissolution or winding
up, and (ii) no shares of Common Stock or shares of any other stock of the
Company ranking junior to or on a parity with Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, will be
redeemed, purchased or otherwise acquired for any consideration by the Company
or any subsidiary of the Company (nor may any moneys be paid to or made
available for a sinking or other fund for the redemption, purchase or other
acquisition of any shares of any such stock), other than by conversion into or
exchange for Common Stock or any other stock of the Company ranking junior to
the Preferred Stock as to dividends or distribution of assets upon liquidation,
dissolution or winding up.
Participants with ESOP stock account balances under the Profit Sharing/ESOP
will have the right to exercise certain limited "put" rights requiring the
Company to purchase their shares of Common Stock following their termination of
employment with the Company and the Bank. These former Profit Sharing/ ESOP
participants will receive in-kind distribution of shares of Common Stock,
subject to the terms of the Profit Sharing/ESOP. Upon receipt of their shares of
Common Stock, former participants will have a "put" right entitling them to sell
the shares to the Company. The rights of the Preferred Stockholders described in
the preceding paragraph notwithstanding, the Company has a legal obligation to
honor a holder's "put" rights by purchasing the shares of Common Stock at a
purchase price that is equal to the fair market value, as determined by the
Trustee of the Profit Sharing/ESOP, based on a valuation report by an
independent appraiser. The Company may pay for these shares of Common Stock in
cash or by issuing a five-year, interest-bearing promissory note.
DIVIDEND RATE
Except as provided below, the dividend rate per annum referred to above for
any Dividend Period will be equal to % per annum (or $ per share of
Preferred Stock). The amount of dividends payable per share for each Dividend
Period shall be computed by dividing the annual rate by four.
REDEMPTION AT THE OPTION OF THE COMPANY
Shares of Preferred Stock are not redeemable prior to December 15, 2001. On
or after such date, the shares of Preferred Stock will be redeemable at the
option of the Company, in whole or in part, at any time or from time to time on
not less than 30, nor more than 60, days' written notice, at a redemption price
of $25.00 per share, plus an amount equal to dividends declared and unpaid for
the then-current Dividend Period (without accumulation of accrued and unpaid
dividends for prior Dividend Periods and without interest) to the date fixed for
redemption.
On or before 12:00 noon, Chicago time, on the date fixed for redemption,
the Company shall deposit with a paying agent (which may be an affiliate of the
Company), which shall be a bank or trust company organized and in good standing
under the laws of the United States, the state of Illinois or the state of New
York, and having capital, surplus and undivided profits aggregating at least
$100 million funds necessary for such redemption, in trust, with irrevocable
instructions and authorization that such funds be applied to the redemption of
the shares of Preferred Stock called for redemption upon surrender of
certificates for such shares (properly endorsed or assigned for transfer). Such
deposit shall be deemed to constitute full payment of such shares to their
holders and from and after the date of such deposit, notwithstanding that any
certificates for such shares shall not have been surrendered for cancellation,
the shares represented thereby shall no longer be deemed to be outstanding.
Thereafter, all rights of the holders of such shares as holders of Preferred
Stock (except the right to receive the redemption price, but without interest)
will cease.
In no event shall the Company redeem less than all the outstanding shares
of Preferred Stock, unless dividends for the then-current Dividend Period to the
date fixed for redemption for such series shall have been declared and paid or
set apart for payment on all outstanding shares of Preferred Stock; provided
however, that the foregoing provisions will not prevent, if otherwise permitted,
the purchase or acquisition by the Company
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<PAGE> 82
of such shares pursuant to a tender or exchange offer made on the same terms to
holders of all the outstanding shares of Preferred Stock, and mailed to the
holders of record of all such outstanding shares at such holders' addresses as
the same appear on the books of the Company; provided, further, that if some,
but less than all, of the shares of Preferred Stock are to be purchased or
otherwise acquired pursuant to such tender or exchange offer and the number of
shares so tendered exceeds the number of such shares so to be purchased or
otherwise acquired by the Company, the shares of Preferred Stock tendered will
be purchased or otherwise acquired by the Company on a pro rata basis (with
adjustments to eliminate fractions) according to the number of such shares
tendered by each holder tendering shares of Preferred Stock.
If less than all of the outstanding shares of Preferred Stock are to be
redeemed, the Company will select the shares to be redeemed by lot, pro rata (as
nearly may be), or in such other equitable manner as the Board of Directors of
the Company may determine.
Any optional redemption by the Company will be with the approval of the
Federal Reserve Board, unless at the time the Federal Reserve Board determines
that its approval is not required.
VOTING RIGHTS
Except as indicated below and except as required by applicable law, the
holders of the Preferred Stock shall have no voting rights.
Generally, in the election of directors, the holders of Preferred Stock,
voting separately as a class, together with the holders of shares of any one or
more other series of preferred stock entitled to vote in the election of
directors, shall be entitled to elect one director (and to exercise any right of
removal or replacement of such director). If a Voting Event (as hereinafter
defined) occurs, the holders of a majority of the shares of Preferred Stock,
voting separately as a class with the holders of shares of any one or more other
series of preferred stock entitled to vote upon the occurrence of such Voting
Event, will be entitled commencing with the Company's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders, unless prior
thereto such Voting Event has been terminated, to elect one additional director
of the Company, (and to exercise any right of removal or replacement of such
director). At elections for such director, each holder of Preferred Stock and
any other series of preferred stock entitled to vote shall be entitled to one
vote (or fraction thereof) for each $25.00 of liquidation preference to which
such preferred stock is entitled, with the remaining directors of the Company to
be elected by the holders of shares of any other class or classes or series of
stock entitled to vote therefor. The Board of Directors at no time will include
more than two directors who have been elected by the holders of shares of
Preferred Stock or other preferred stock. Until such Voting Event has been
terminated, any director who has been so elected by the holders of shares of
Preferred Stock and other preferred stock may be removed at any time, either
with or without cause, only by the affirmative vote of the holders of the shares
at the time entitled to cast a majority of the votes entitled to be cast for the
election of any such director at a special meeting of such holders called for
that purpose, and any vacancy thereby created may only be filled by the vote of
such holders. If and when such Voting Event has been terminated, the holders of
shares of Preferred Stock then outstanding and so authorized will be divested of
the foregoing special voting rights, subject to revesting upon the further
occurrence of a Voting Event. Upon termination of such Voting Event, the terms
of office of any person who may have been elected a director by vote of the
holders of shares of Preferred Stock and such other series of Preferred Stock
pursuant to the foregoing special voting rights will immediately terminate.
A "Voting Event" will be deemed to have occurred in the event that
dividends payable on any share or shares of Preferred Stock shall not be
declared and paid at the stated rate for the equivalent of six full quarterly
Dividend Periods (whether or not consecutive). A Voting Event will be deemed to
have been terminated when all such dividends in arrears have been declared and
paid or declared and set apart for payment in full, subject always to the
revesting of the right of holders of the Preferred Stock voting as a class with
the holders of any other preferred stock, to elect a director as provided above
in the event of any future failure on the part of the Company to pay dividends
at the stated rate for any six full quarterly Dividend Periods (whether or not
consecutive).
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<PAGE> 83
The Company is not permitted to amend, alter or repeal (whether by merger,
consolidation or otherwise) any provisions of the Certificate or the Certificate
of Designation so as to adversely affect the rights, powers or preferences of
the Preferred Stock or the holders thereof without the approval of the holders
of two-thirds of the outstanding shares of Preferred Stock voting separately as
a class. The Company may not, without the consent of the holders of at least
two-thirds of the outstanding shares of Preferred Stock, voting separately as a
class, create, authorize or increase the authorized or issued amount of shares
of any class of stock ranking prior to or on a parity with the Preferred Stock
as to dividends or distribution of assets on liquidation.
Under regulations adopted by the Federal Reserve Board, the Preferred Stock
may be deemed a "class of voting securities" and a holder of 25% or more of such
Preferred Stock (or a holder of 5% or more if it otherwise exercises a
"controlling influence" over the Company) may then be subject to regulation as a
bank holding company in accordance with the BHCA. In addition, at such time (i)
any bank holding company may be required to obtain the approval of the Federal
Reserve Board under the BHCA, to acquire or retain 5% or more of the Preferred
Stock and (ii) any person other than a bank holding company may be required to
obtain the approval of the Federal Reserve Board under the Bank Change in
Control Act to acquire 10% or more of the Preferred Stock.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Preferred Stock will be
entitled to receive out of assets of the Company available for distribution to
stockholders, before any distribution of assets is made on the Common Stock or
on any other class or series of stock of the Company ranking junior to the
shares of Preferred Stock, upon liquidation, liquidating distributions in the
amount of $25.00 per share, plus an amount equal to dividends declared and
unpaid for the then-current Dividend Period up to the date of liquidation
(without accumulation of accrued and unpaid dividends for prior Dividend
Periods) to the date fixed for payment of such distribution. After such payment,
the holders of shares of Preferred Stock will be entitled to no other payments.
If, in such case, the assets of the Company will be insufficient to make the
full liquidating payment on the Preferred Stock and liquidating payments on any
other class or series of stock of the Company ranking on a parity with the
Preferred Stock as to any such distribution, then such assets will be
distributed among the holders of the Preferred Stock and such other series of
stock, ratably in proportion to the respective full preferential amounts to
which they are entitled. A consolidation or merger of the Company with or into
any other corporation or corporations or the merger or consolidation of any
other corporation into or with the Company or plan of exchange between the
Company and any other corporation (in which consolidation or merger or plan of
exchange any stockholders of the Company received distributions of cash or
securities or other property), or the sale, lease or conveyance, whether for
cash, shares of stock, securities or properties, of all or substantially all the
assets of the Company will not be regarded as a liquidation, dissolution or
winding up of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Preferred Stock is Cole Taylor
Bank.
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<PAGE> 84
UNDERWRITING
The Company has entered into a Purchase Agreement (the "Purchase
Agreement") with the underwriters listed in the table below (the
"Underwriters"). Subject to the terms and conditions set forth in the Purchase
Agreement, the Company has agreed to sell to each of the Underwriters, and each
of the Underwriters has severally agreed to purchase from the Company, the
number of shares of Preferred Stock set forth opposite each Underwriter's name
in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------- ---------
<S> <C>
Piper Jaffray Inc.............................................
Robert W. Baird & Co. Incorporated............................
---------
Total.................................................... 1,530,000
========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the shares of Preferred Stock being
sold pursuant thereto if any shares are purchased. In the event of a default by
either Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriter may be
increased or the Purchase Agreement may be terminated.
The Underwriters have advised the Company that the Underwriters propose to
offer shares of the Preferred Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
selected dealers at such price less a concession of not in excess of $ per
share. Additionally, the Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the Preferred Stock, the public offering price
and other selling terms may be changed by the Underwriters.
The Underwriters have informed the Company that the Underwriters will not,
without customer authority, confirm sales to any accounts over which they
exercise discretionary authority.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system and
no active trading market is expected to develop. Although each Underwriter has
indicated an intention to make a market in the Preferred Stock, neither
Underwriter is obligated to make a market in the Preferred Stock and any market
making may be discontinued at any time at the sole discretion of such
Underwriter. If shares of the Preferred Stock are traded after their original
issuance, they may trade at a discount to their offering price. Without an
active market, it may be difficult for investors to resell shares of Preferred
Stock.
In connection with the Split-Off Transactions, Piper Jaffray Inc. provided
investment banking services to the Taylor Family, some of whom are directors,
officers or affiliates of the Company. As compensation for those investment
banking services Piper Jaffray Inc. received an initial payment of $100,000 and
will receive a final payment of $500,000 upon the closing of the Split-Off
Transactions.
LEGAL MATTERS
The validity of the shares of Preferred Stock offered hereby will be passed
upon for the Company by McDermott, Will & Emery, Chicago, Illinois. Certain
legal matters will be passed upon for the Underwriters by Faegre & Benson LLP,
Minneapolis, Minnesota.
83
<PAGE> 85
EXPERTS
The financial statements of the Bank as of December 31, 1995 and 1994 and
for each of the years in the two year period ended December 31, 1995 have been
included in this Prospectus and the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Preferred Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Preferred Stock offered hereby, reference is made to the Registration Statement.
Statements made in the Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected, without charge, at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7
World Trade Center, Suite 1300, New York, NY 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy statements and other
information filed by the Company at (http://www.sec.gov).
84
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
COLE TAYLOR BANK
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report.................................................. F-2
Financial Statements:
Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 and
1994..................................................................... F-3
Statements of Income for the six months ended June 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994 and the
year ended December 31, 1993 (unaudited)................................. F-4
Statement of Changes in Stockholder's Equity for the six months ended June
30, 1996 (unaudited) and for the years ended December 31, 1995 and 1994
and for the year ended December 31, 1993 (unaudited)..................... F-5
Statements of Cash Flows for the six months ended June 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994 and for
the year ended December 31, 1993 (unaudited)............................. F-6
Notes to Financial Statements............................................... F-7 - F-22
</TABLE>
All schedules are omitted, because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of Taylor Capital Group, Inc. have been omitted,
because Taylor Capital Group, Inc. has not yet issued any stock, has no assets
and no liabilities and has not conducted any business other than of an
organizational nature.
F-1
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Cole Taylor Bank:
We have audited the balance sheets of Cole Taylor Bank (a wholly owned
subsidiary of Cole Taylor Financial Group, Inc.) as of December 31, 1995 and
1994, and the related statements of income, changes in stockholder's equity and
cash flows for each of the years in the two year period ended December 31, 1995.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cole Taylor Bank (a wholly
owned subsidiary of Cole Taylor Financial Group, Inc.) as of December 31, 1995
and 1994 and the results of its operations and its cash flows for each of the
years in the two year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
October 18, 1996
Chicago, Illinois
KPMG PEAT MARWICK LLP
F-2
<PAGE> 88
COLE TAYLOR BANK
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and due from banks.................................. $ 102,071 $ 87,547 $ 69,715
Federal funds sold....................................... 15,400 5,000 23,600
Investment securities:
Available-for-sale, at fair value...................... 342,269 361,735 58,431
Held-to-maturity, at amortized cost (fair value of
$77,304 (unaudited), $80,239 and $386,474 at June
30, 1996, and December 31, 1995 and 1994,
respectively)....................................... 75,290 76,613 405,988
Loans held for sale, net of unrealized losses of $303
(unaudited), at June 30, 1996.......................... 41,856 15,748 1,554
Loans, less allowance for loan losses of $24,475
(unaudited), $23,869 and $22,833 at June 30, 1996, and
December 31, 1995 and 1994, respectively............... 1,214,052 1,172,005 1,105,790
Premises, leasehold improvements and equipment, net...... 16,945 16,844 13,873
Other assets............................................. 39,725 38,540 40,702
---------- ---------- ----------
Total assets...................................... $1,847,608 $1,774,032 $1,719,653
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest-bearing.................................... $ 300,259 $ 318,117 $ 318,800
Interest-bearing....................................... 1,186,073 1,045,958 974,611
---------- ---------- ----------
Total deposits...................................... 1,486,332 1,364,075 1,293,411
Short-term borrowings.................................... 146,373 202,033 243,997
Accrued interest, taxes and other liabilities............ 14,987 14,180 15,384
Long-term borrowings..................................... 70,836 61,003 47,864
---------- ---------- ----------
Total liabilities................................. 1,718,528 1,641,291 1,600,656
---------- ---------- ----------
Commitments and contingent liabilities
Stockholder's equity:
Common stock, $10 par value; 1,500,000 shares
authorized, issued and outstanding.................. 15,000 15,000 15,000
Surplus................................................ 50,826 50,826 50,826
Retained earnings...................................... 68,408 66,993 56,777
Unrealized holding loss on securities
available-for-sale, net of income taxes............. (5,154) (78) (3,606)
---------- ---------- ----------
Total stockholder's equity........................ 129,080 132,741 118,997
---------- ---------- ----------
Total liabilities and stockholder's equity........ $1,847,608 $1,774,032 $1,719,653
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 89
COLE TAYLOR BANK
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------ -----------------------------------
1996 1995 1995 1994 1993
------- ------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.................. $54,376 $50,559 $103,654 $ 87,057 $ 76,160
Interest on investment securities:
Taxable.................................. 11,269 12,742 25,382 25,045 21,928
Tax-exempt............................... 1,943 1,980 3,976 3,891 3,638
Interest on cash equivalents................ 497 300 672 274 102
------- ------- -------- -------- --------
Total interest income............... 68,085 65,581 133,684 116,267 101,828
------- ------- -------- -------- --------
Interest expense:
Deposits.................................... 26,229 22,363 47,034 32,998 27,472
Short-term borrowings....................... 4,468 7,014 13,584 9,483 6,639
Long-term borrowings........................ 1,795 1,841 3,748 1,637 1,036
------- ------- -------- -------- --------
Total interest expense.............. 32,492 31,218 64,366 44,118 35,147
------- ------- -------- -------- --------
Net interest income........................... 35,593 34,363 69,318 72,149 66,681
Provision for loan losses..................... 2,052 2,332 4,056 7,374 10,521
------- ------- -------- -------- --------
Net interest income after provision
for loan losses................... 33,541 32,031 65,262 64,775 56,160
------- ------- -------- -------- --------
Noninterest income:
Service charges............................. 4,269 3,458 7,452 7,199 6,947
Trust fees.................................. 1,774 1,644 3,539 3,095 2,944
Legal settlement............................ -- -- -- -- 2,438
Investment securities gains, net............ -- -- -- 8 565
Other noninterest income.................... 1,621 1,744 3,236 2,585 2,531
------- ------- -------- -------- --------
Total noninterest income............ 7,664 6,846 14,227 12,887 15,425
------- ------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits.............. 14,781 14,073 28,973 28,691 28,069
Occupancy of premises, net.................. 2,349 2,421 4,880 4,885 5,114
Furniture and equipment..................... 1,519 1,321 2,651 2,385 2,458
Computer processing......................... 999 788 1,676 1,444 1,403
Legal fees.................................. 744 742 1,655 1,106 1,116
Advertising and public relations............ 917 783 1,582 2,298 2,183
FDIC deposit insurance...................... 2 1,408 1,451 2,646 2,400
Other real estate and repossessed asset
expense.................................. 675 6 1,169 999 1,292
Other noninterest expense................... 5,239 5,238 9,512 10,794 9,891
------- ------- -------- -------- --------
Total noninterest expense........... 27,225 26,780 53,549 55,248 53,926
------- ------- -------- -------- --------
Income before income taxes.................... 13,980 12,097 25,940 22,414 17,659
Income taxes.................................. 4,665 3,566 7,774 6,512 4,937
------- ------- -------- -------- --------
Net income.......................... $ 9,315 $ 8,531 $ 18,166 $ 15,902 $ 12,722
======= ======= ======== ======== ========
Earnings per share............................ $ 6.21 $ 5.69 $ 12.11 $ 10.60 $ 8.48
======= ======= ======== ======== ========
Cash dividends declared per share............. $ 5.27 $ 1.87 $ 5.30 $ 3.07 $ 4.27
======= ======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 90
COLE TAYLOR BANK
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND FOR THE YEARS
ENDED DECEMBER 31, 1995 AND 1994 AND FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAIN (LOSS) ON
SECURITIES
COMMON RETAINED AVAILABLE-
STOCK SURPLUS EARNINGS FOR-SALE TOTAL
------- ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 (unaudited).... $15,000 $40,826 $ 39,153 $ -- $ 94,979
Adoption of SFAS No. 115 (unaudited).... 462 462
Dividends on common stock -- $4.267 per
share (unaudited).................... (6,400) (6,400)
Net income (unaudited).................. 12,722 12,722
------- ------- ------- ------- --------
Balance at December 31, 1993.............. 15,000 40,826 45,475 462 101,763
Change in unrealized holding loss on
investment securities, net of income
taxes................................ (4,068) (4,068)
Capital contribution.................... 10,000 10,000
Dividends on common stock -- $3.067 per
share................................ (4,600) (4,600)
Net income.............................. 15,902 15,902
------- ------- ------- ------- --------
Balance at December 31, 1994.............. 15,000 50,826 56,777 (3,606) 118,997
Change in unrealized holding gain on
investment securities, net of income
taxes................................ 3,528 3,528
Dividends on common stock -- $5.300 per
share................................ (7,950) (7,950)
Net income.............................. 18,166 18,166
------- ------- ------- ------- --------
Balance at December 31, 1995.............. 15,000 50,826 66,993 (78) 132,741
Six months ended June 30, 1996
(unaudited):
Change in unrealized holding loss on
investment securities, net of income
taxes................................ (5,076) (5,076)
Dividends on common stock -- $5.267 per
share................................ (7,900) (7,900)
Net income.............................. 9,315 9,315
------- ------- ------- ------- --------
Balance at June 30, 1996.................. $15,000 $50,826 $ 68,408 $ (5,154) $129,080
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 91
COLE TAYLOR BANK
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------
1996 1995 1995 1994 1993
-------- -------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 9,315 $ 8,531 $ 18,166 $ 15,902 $ 12,722
Adjustments to reconcile net income to net cash provided
by operating activities:
Investment security gains, net......................... -- -- -- (8) (565)
Amortization of premiums and discounts, net............ 494 577 1,024 2,058 2,518
Deferred loan fee amortization......................... (1,252) (1,182) (2,515) (2,146) (1,851)
Provision for loan losses.............................. 2,052 2,332 4,056 7,374 10,521
(Gain) loss on sales of loans originated for sale...... (447) (201) (150) 87 --
Loans originated and held for sale..................... (130,409) (20,510) (87,250) (17,795) --
Proceeds from sales of loans originated for sale....... 104,586 17,318 73,368 16,154 --
Depreciation and amortization.......................... 1,487 1,244 2,534 2,343 2,343
Amortization of intangible assets...................... 100 97 196 180 121
Deferred income taxes.................................. (371) (168) 16 (1,239) (2,662)
Provision for other real estate........................ 43 89 243 587 266
Other, net............................................. (479) (116) 75 158 (115)
Changes in assets and liabilities:
Accrued interest receivable.......................... 314 1,627 (251) (4,045) 1
Other assets......................................... 2,078 4,123 1,940 434 (655)
Accrued interest, taxes and other liabilities........ 807 (2,097) (1,204) 814 3,145
-------- -------- --------- --------- ---------
Net cash provided by operating activities.... (11,682) 11,664 10,248 20,858 25,789
-------- -------- --------- --------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities............. (49,811) (24,319) (27,228) -- --
Purchases of held-to-maturity securities............... (1,077) (2,934) (4,744) (93,993) (71,220)
Proceeds from principal payments and maturities of
available-for-sale securities........................ 60,327 11,263 29,130 29,879 --
Proceeds from principal payments and maturities of
held-to-maturity securities.......................... 2,372 9,863 33,317 52,075 90,400
Proceeds from sales of investment securities........... -- -- -- 525 41,914
Proceeds from sale of loans............................ -- -- 28,924 -- --
Net increase in loans.................................. (43,938) (36,931) (100,743) (178,878) (191,922)
Net additions to premises, leasehold improvements and
equipment............................................ (1,588) (2,550) (5,502) (4,438) (2,124)
Acquisition of land trust customer base................ (204) (204) -- (887)
Proceeds from sale of other real estate................ 1,791 2,145 2,145 2,227 1,164
-------- -------- --------- --------- ---------
Net cash used in investing activities........ (31,924) (43,667) (44,905) (192,603) (132,675)
-------- -------- --------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits.................... 122,257 (9,425) 70,664 112,566 49,995
Net (decrease) increase in short-term borrowings....... (55,660) 7,264 (41,964) 34,770 56,968
Repayments of long-term borrowings..................... (40,167) (22,111) (37,111) (15,076) (50)
Proceeds from long-term borrowings..................... 50,000 35,000 50,250 25,250 32,250
Proceeds from capital contribution..................... -- -- -- 10,000 77
Dividends paid......................................... (7,900) (2,800) (7,950) (4,600) (6,400)
-------- -------- --------- --------- ---------
Net cash provided by financing activities.... 68,530 7,928 33,889 162,910 132,840
-------- -------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents..... 24,924 (24,075) (768) (8,835) 25,954
Cash and cash equivalents, beginning of year............. 92,547 93,315 93,315 102,150 76,196
-------- -------- --------- --------- ---------
Cash and cash equivalents, end of year................... $117,471 $ 69,240 $ 92,547 $ 93,315 $ 102,150
======== ======== ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 31,698 $ 30,571 $ 63,339 $ 46,612 $ 35,901
Income taxes....................................... 8,150 8,576 7,348
Supplemental disclosures of noncash investing and
financing activities:
Unrealized holding (loss) gain on investment
securities, net of income taxes...................... (5,076) 2,904 3,528 (4,068) 462
Securitization of mortgage loans transferred to
investment securities................................ -- -- -- 33,414 106,260
Reclassification of investment securities from
held-to-maturity to available-for-sale............... -- -- 299,858 -- 94,821
Mortgage servicing rights originated................... 807 -- 958 -- --
Real estate acquired through foreclosure............... 446 768 2,465 1,090 2,050
Sale of other real estate financed..................... -- -- -- -- 1,575
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 92
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
Cole Taylor Bank ("the Bank") is a wholly owned subsidiary of Cole Taylor
Financial Group, Inc. ("CTFG", or "the Parent"). The accounting and reporting
policies of the Bank conform to generally accepted accounting principles and
general reporting practices within the banking industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates. The results of operations for the six month period ended
June 30, 1996 is not necessarily indicative of the results to be expected for
the full year. The following is a summary of the more significant accounting and
reporting policies:
INVESTMENT SECURITIES:
Securities that may be sold as part of the Bank's asset/liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at fair value. Unrealized holding
gains and losses on such securities are reported net of tax in a separate
component of stockholder's equity. Securities that the Bank has the ability and
positive intent to hold to maturity are classified as held-to-maturity and
carried at amortized cost, adjusted for amortization of premiums and accretion
of discounts using the interest method. Realized gains and losses on the sales
of all securities are reported in income and computed using the specific
identification method. The Bank did not maintain a trading portfolio in 1996 or
prior years.
LOANS HELD FOR SALE:
Mortgage loans held for sale are carried at the lower of cost or market as
determined by the aggregate method. In determining the aggregate lower of cost
or market, the unrealized gains and losses associated with the corresponding
closed loans, outstanding commitments to originate loans and the forward
sale/delivery commitments used to hedge these loans and loan commitments are
netted together. Market prices are generally taken from on-line market reporting
services or dealer quoted prices for specialized loans and commitments.
LOANS:
Loans are stated at the principal amount outstanding, net of unearned
discount. Unearned discount on consumer loans is recognized as income over the
terms of the loans using the sum-of-the-months-digits method, which approximates
the interest method. Interest on other loans is accrued on the principal amount
outstanding during the period. Loan origination and commitment fees and certain
direct loan origination costs are deferred and the net amount amortized as an
adjustment of the related loans' yields.
ALLOWANCE FOR LOAN LOSSES:
An allowance for loan losses has been established to provide for those
loans which may not be repaid in their entirety. The allowance is increased by
provisions for loan losses charged to expense and decreased by charge-offs, net
of recoveries. Although a loan is charged off by management when deemed
uncollectible, collection efforts continue and future recoveries may occur.
The allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and
estimates
F-7
<PAGE> 93
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
which are subject to change over time. Estimating the risk of loss and amount of
loss on any loan is necessarily subjective and ultimate losses may vary from
current estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in income in the periods in which they
become known.
Effective January 1, 1995, the Bank adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." A loan is
considered impaired, based on current information and events, if it is probable
that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. SFAS
No. 114 and SFAS No. 118 do not apply to certain groups of small-balance
homogenous loans which are collectively evaluated for impairment and are
generally represented by consumer and residential mortgage loans or loans which
are measured at fair value or at the lower of cost or fair value. The Bank
generally identifies impaired loans within the nonaccrual and restructured
commercial and commercial real estate portfolios on an individual loan-by-loan
basis. The measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. Prior to January 1, 1995, the Bank's
impaired loans were described as, and included in, nonaccrual loans. The
adoption of SFAS No. 114 and SFAS No. 118 had no impact on the Bank's
nonperforming assets or financial statements, determined as of January 1, 1995.
INCOME RECOGNITION ON IMPAIRED LOANS AND NONACCRUAL LOANS:
Loans, including impaired loans, are generally placed on a nonaccrual basis
for recognition of interest income when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal or interest. The
nonrecognition of interest income on an accrual basis does not constitute
forgiveness of the interest. While a loan is classified as nonaccrual,
collections of interest and principal are generally applied as a reduction to
principal outstanding.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of
interest and principal.
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Premises, leasehold improvements and equipment are reported at cost less
accumulated depreciation and amortization. Depreciation is charged to operating
expense using the straight-line and accelerated methods over a three to thirty
year period, the estimated useful lives of the assets. Leasehold improvements
are amortized over a three to thirty year period, which represents the shorter
of the lease term or the estimated useful life of the improvement.
OTHER REAL ESTATE:
Other real estate primarily includes properties acquired through
foreclosure or deed in lieu of foreclosure. Other real estate is recorded in
other assets at the lower of the amount of the loan balance or the current fair
value. Fair value is based on the estimated sales price of the property less any
selling expenses. Any charge-off of the loan balance to fair value when the
property is acquired is charged to the allowance for loan losses. Subsequent
provisions for losses, operating expenses and gains or losses on the sale of
other real estate are charged or credited to other real estate expense.
F-8
<PAGE> 94
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE SERVICING RIGHTS:
Effective January 1, 1995, the Bank adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." This new standard requires that an entity recognize
as separate assets the right to service mortgage loans for others, however those
servicing rights are acquired, eliminating the previously existing accounting
distinction between servicing rights acquired through purchase transactions and
those acquired through loan originations. This statement requires the assessment
of capitalized mortgage servicing rights for impairment to be based on the
current fair value of those rights.
The fair value of capitalized mortgage servicing rights is estimated using
the present value of estimated expected future cash flows based upon assumptions
on interest, default and prepayment rates which are consistent with assumptions
that market participants would utilize. The Bank stratifies the capitalized
mortgage servicing rights generally on the basis of the note rate and loan type
for purposes of measuring impairment. Impairment is recognized through a
valuation allowance for each impaired stratum. Capitalized mortgage servicing
rights are amortized in proportion to, and over the period of, estimated net
servicing income similar to the interest method. The amortization of capitalized
mortgage servicing rights is reflected in the income statement as a reduction to
mortgage servicing fee income.
INTANGIBLE ASSETS:
Intangible assets are comprised of the excess cost over net assets acquired
and are principally allocated, based on independent appraisals, to core deposit
benefit, land trust customer base and goodwill. These intangibles are being
amortized on a straight-line basis over eleven to forty years.
INCOME TAXES:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
income tax provision.
FINANCIAL INSTRUMENTS:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit, unused
lines of credit, letters of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
The Bank uses interest-rate exchange agreements (swaps) to manage interest
rate risk. These contracts are designated and are effective as hedges of
specific existing assets and liabilities. Net interest income (expense)
resulting from the differential between exchanging floating and fixed rate
interest payments is recorded on a current basis. The Bank's asset and liability
management and investment policies do not allow the use of derivative financial
instruments for trading purposes.
STATEMENTS OF CASH FLOWS:
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are sold with maturities of three months or less.
F-9
<PAGE> 95
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. CASH AND DUE FROM BANKS:
The Bank is required to maintain a reserve balance with the Federal Reserve
Bank. The average reserve balance for the years ended December 31, 1995 and 1994
was approximately $7.7 million and $9.1 million, respectively.
3. INVESTMENT SECURITIES:
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities..................... $ 110,897 $ 964 $ (173) $ 111,688
U.S. government agency securities............ 55,131 698 (91) 55,738
Mortgage-backed securities................... 195,827 1,014 (2,532) 194,309
-------- ------ ------- --------
Total Available-for-Sale................ 361,855 2,676 (2,796) 361,735
-------- ------ ------- --------
Held-to-Maturity:
State and municipal obligations.............. 67,110 3,646 (23) 70,733
Other securities............................. 9,503 3 -- 9,506
-------- ------ ------- --------
Total Held-to-Maturity.................. 76,613 3,649 (23) 80,239
-------- ------ ------- --------
Total................................ $ 438,468 $6,325 $ (2,819) $ 441,974
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities....................... $ 11,051 $ 43 $ (7) $ 11,087
Mortgage-backed securities..................... 52,927 -- (5,583) 47,344
-------- ------ -------- --------
Total Available-for-Sale.................. 63,978 43 (5,590) 58,431
-------- ------ -------- --------
Held-to-Maturity:
U.S. Treasury securities....................... 110,207 -- (3,942) 106,265
U.S. government agency securities.............. 51,240 32 (3,107) 48,165
Mortgage-backed securities..................... 170,266 59 (12,564) 157,761
State and municipal obligations................ 66,639 1,398 (1,394) 66,643
Other securities............................... 7,636 4 -- 7,640
-------- ------ -------- --------
Total Held-to-Maturity.................... 405,988 1,493 (21,007) 386,474
-------- ------ -------- --------
Total.................................. $ 469,966 $1,536 $ (26,597) $ 444,905
======== ====== ======== ========
</TABLE>
On November 15, 1995, the Financial Accounting Standards Board issued its
Special Report on the implementation of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Guidance in the Special Report
allows entities to reclassify securities, including held-to-maturity debt
securities, without calling into question the intent of the entity to hold debt
securities to maturity in the future.
F-10
<PAGE> 96
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Special Report indicates that the one-time reclassification permitted should
occur as of a single date between November 15, 1995 and December 31, 1995. In
conjunction with the provisions contained in the Special Report, the Bank
reclassified approximately $299.8 million of held-to-maturity securities, at
amortized cost, into the available-for-sale classification. Unrealized gains of
approximately $400,000 were recorded as a result of this reclassification.
The amortized cost and estimated fair value of investment securities at
December 31, 1995, categorized by the earlier of call or contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Available-for-Sale:
Due in one year or less................................ $ 89,173 $ 89,951
Due after one year through five years.................. 76,855 77,475
Mortgage-backed securities............................. 195,827 194,309
-------- --------
Totals............................................ $ 361,855 $ 361,735
======== ========
Held-to-Maturity:
Due in one year or less................................ $ 5,459 $ 5,516
Due after one year through five years.................. 31,043 32,621
Due after five years through ten years................. 30,983 32,969
Due after ten years.................................... 9,128 9,133
-------- --------
Totals............................................ $ 76,613 $ 80,239
======== ========
</TABLE>
Mortgage-backed securities are collateralized by residential real estate
loans and consist primarily of Federal National Mortgage Association (FNMA) and
Federal Home Loan Mortgage Corporation (FHLMC) certificates.
Proceeds from sales of investment securities available for sale and the
related gross realized gains and losses are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales.................................... $ -- $525 $41,914
Gross realized gains................................... -- 8 717
Gross realized losses.................................. -- -- (152)
</TABLE>
Investment securities with an approximate book value of $297 million at
December 31, 1995 were pledged to collateralize certain deposits, securities
sold under agreements to repurchase and for other purposes as required or
permitted by law.
F-11
<PAGE> 97
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS:
Loans classified by type at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial............................. $ 638,497 $ 611,670
Real estate--construction............................. 121,547 94,223
Real estate--mortgage................................. 207,377 202,455
Consumer.............................................. 231,717 224,927
Other loans........................................... 2,061 1,136
---------- ----------
Gross loans...................................... 1,201,199 1,134,411
Less: Unearned discount............................... (5,325) (5,788)
---------- ----------
Total loans...................................... 1,195,874 1,128,623
Less: Allowance for loan losses....................... (23,869) (22,833)
---------- ----------
Loans, net....................................... $1,172,005 $1,105,790
========== ==========
</TABLE>
Loans on a nonaccrual basis, including impaired loans, at December 31,
1995, 1994 and 1993 were approximately $9.9 million, $10.5 million and $10.4
million, respectively. Interest on these loans included in income amounted to
$240,000, $346,000 and $78,000 in 1995, 1994 and 1993, respectively. The total
interest income which would have been recognized under the original terms of the
loans was $1,073,000, $942,000 and $827,000 in 1995, 1994 and 1993,
respectively.
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $9.6 million, of
which $3.9 million related to impaired loans which do not require a related
allowance for loan losses because the loans have been partially written down
through charge-offs, and $5.7 million related to loans with a corresponding
allowance for loan losses of $604,000. For the year ended December 31, 1995, the
average recorded investment in impaired loans was approximately $7.8 million.
The Bank recognized $39,000 of interest on impaired loans during the portion of
the year that they were impaired.
The Bank provides several types of loans to its customers including
residential, construction, commercial and consumer loans. Lending activities are
conducted with customers in a wide variety of industries as well as with
individuals with a wide variety of credit requirements. The Bank does not have a
concentration of loans in any specific industry. Credit risks tend to be
geographically concentrated in that the majority of the Bank's customer base
lies within the Chicago metropolitan area.
Activity in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $22,833 $19,740 $14,661
Provision for loan losses................................... 4,056 7,374 10,521
Loans charged-off........................................... (4,901) (5,158) (7,971)
Recoveries on loans previously charged-off.................. 1,881 877 2,529
------- ------- -------
Net charge-offs............................................. (3,020) (4,281) (5,442)
------- ------- -------
Balance at end of year...................................... $23,869 $22,833 $19,740
======= ======= =======
</TABLE>
F-12
<PAGE> 98
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Bank has extended loans to directors and executive officers of the
Bank, the Parent and their related interests. The aggregate loans outstanding as
reported by the directors and executive officers of the Bank and their related
interests, which individually exceeded $60,000, totaled $20.3 million, $7.4
million and $11.8 million at December 31, 1995, 1994 and 1993, respectively.
During 1995, 1994 and 1993, new loans totaled $20.2 million, $2.2 million and
$6.3 million, respectively, and repayments totaled $7.3 million, $6.6 million
and $4.1 million, respectively. In the opinion of management, these loans were
made in the normal course of business and on substantially the same terms for
comparable transactions with other borrowers and do not involve more than a
normal risk of collectibility. The Bank relies on its directors and executive
officers for identification of loans to their related interests.
At December 31, 1995, 1994 and 1993, mortgage loans serviced for others
totaled $195 million, $166 million and 135 million, respectively.
5. PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Premises, leasehold improvements and equipment at December 31, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements........................... $ 4,524 $ 2,915
Buildings and improvements...................... 7,522 5,577
Leasehold improvements.......................... 4,398 4,234
Furniture, fixtures and equipment............... 19,039 17,255
-------- --------
Total cost................................. 35,483 29,981
Less accumulated depreciation and
amortization.................................. (18,639) (16,108)
-------- --------
Net book value............................. $ 16,844 $ 13,873
======== ========
</TABLE>
6. OTHER REAL ESTATE AND REPOSSESSED ASSETS:
Other real estate and repossessed assets included in other assets in the
balance sheet at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Other real estate................................... $2,928 $2,843
Repossessed assets.................................. 2,488 356
------- -------
- -
Net book value................................. $5,416 $3,199
======== ========
</TABLE>
Activity in the allowance for other real estate for the years ended
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................. $ 795 $ 482 $ 381
Provision for other real estate.............. 243 587 266
Charge-offs.................................. (451) (274) (165)
----- -----
Balance at end of year....................... $ 587 $ 795 $ 482
===== =====
</TABLE>
F-13
<PAGE> 99
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. MORTGAGE SERVICING RIGHTS:
Capitalized mortgage servicing rights included in other assets in the
balance sheet totaled $895,000 as of December 31, 1995, which approximates fair
value. For the year ended December 31, 1995, amortization of capitalized
mortgage servicing rights totaled $68,000. During 1995, there were no valuation
allowances established for capitalized mortgage servicing rights.
8. INTEREST-BEARING DEPOSITS:
Interest-bearing deposits at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
(IN THOUSANDS)
<S> <C> <C>
NOW accounts.......................................... $ 66,049 $ 57,795
Savings accounts...................................... 124,210 135,291
Money market deposits................................. 266,351 275,384
Certificates of deposit, less than $100,000........... 292,489 214,162
Certificates of deposit, $100,000 or more............. 84,910 61,089
Public time deposits.................................. 114,127 132,940
Brokered certificates of deposit...................... 97,822 97,950
---------- --------
Total............................................ $1,045,958 $974,611
========== ========
</TABLE>
Interest expense on certificates of deposit, $100,000 or more, was $3.4
million, $1.7 million and $1.1 million for the years ended December 31, 1995,
1994 and 1993, respectively.
At December 31, 1995 the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------- --------
<S> <C>
1996....................................... $465,011
1997....................................... 104,108
1998....................................... 11,889
1999....................................... 3,333
2000 and thereafter........................ 5,007
--------
$589,348
========
</TABLE>
9. SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Securities sold under agreements to repurchase......... $148,546 $181,624
Federal funds purchased................................ 43,500 48,450
U.S. Treasury tax and loan note option................. 9,987 13,923
-------- --------
Total............................................. $202,033 $243,997
======== ========
</TABLE>
Securities sold under agreements to repurchase generally mature within 1 to
180 days from the transaction date. Under the terms of the repurchase
agreements, if the market value of the pledged securities declines below the
repurchase liability, the Bank may be required to provide additional collateral
to the buyer.
F-14
<PAGE> 100
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Average balance during the year............ $196,728 $179,027 $143,057
Average interest rate during the year...... 5.81% 4.13% 3.22%
Maximum month end balance during the
year..................................... $224,907 $190,142 $166,523
</TABLE>
Additional information with respect to securities sold under agreements to
repurchase as of December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
COLLATERAL
-----------------------------------------------------
U.S. TREASURY AND
GOVERNMENT AGENCY MORTGAGE-BACKED
WEIGHTED SECURITIES SECURITIES
AVERAGE ------------------------ ------------------------
REPURCHASE INTEREST AMORTIZED ESTIMATED AMORTIZED ESTIMATED
TERM LIABILITY RATE COST FAIR VALUE COST FAIR VALUE
- --------------------------- ---------- -------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Overnight.................. $ 93,429 5.43% $23,244 $ 23,387 $ 75,899 $ 74,763
Up to 30 days.............. 27,604 5.13 10,177 10,285 19,903 19,699
30 to 90 days.............. 9,673 5.49 514 519 10,587 10,574
Over 90 days............... 17,840 5.72 6,859 6,986 13,147 13,185
-------- ---- ------- ------- -------- --------
$148,546 5.41% $40,794 $ 41,177 $ 119,536 $ 118,221
======== ==== ======= ======= ======== ========
</TABLE>
Under the treasury tax and loan note option, the Bank is authorized to
accept U.S. Treasury deposits of excess funds along with the deposits of
customer taxes. These liabilities bear interest at a rate of .25% below the
average federal funds rate and are collateralized by a pledge of various
investment securities.
At December 31, 1995, the Bank had outstanding and unused lines of credit
for short-term borrowings with various entities totaling $233 million.
10. INCOME TAXES:
The components of the income tax expense (benefit) for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal................................. $7,758 $ 7,751 $ 7,599
Deferred tax expense (benefit):
Federal................................. 16 (1,139) (2,662)
State................................... -- (100) --
------ ------- -------
Total................................ 16 (1,239) (2,662)
------ ------- -------
Applicable income taxes............ $7,774 $ 6,512 $ 4,937
====== ======= =======
</TABLE>
F-15
<PAGE> 101
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
AMOUNT
--------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Fixed assets, principally due to differences in depreciation..... $ 478 $ 316
Loans, principally due to allowance for loan losses.............. 8,454 8,092
State net operating loss carryforwards........................... 261 941
Deferred income, principally net loan origination fees........... 1,183 1,248
Other real estate................................................ 352 276
Other accruals................................................... 216 353
------- -------
Gross deferred tax assets..................................... 10,944 11,226
Less valuation allowance......................................... (261) (941)
------- -------
Gross deferred tax assets, net of valuation allowance......... 10,683 10,285
------- -------
DEFERRED TAX LIABILITIES:
Discount accretion............................................... (224) (123)
Mortgage servicing rights........................................ (313) --
------- -------
Gross deferred tax liabilities................................ (537) (123)
------- -------
Subtotal.................................................... 10,146 10,162
------- -------
Tax effect of unrealized holding losses on investment
securities.................................................... 42 1,941
------- -------
Net deferred tax assets..................................... $10,188 $12,103
======= =======
</TABLE>
There was no securities transactions tax effect for 1995. The securities
transactions tax effect for 1994 and 1993 was approximately $3,000 and $198,000,
respectively.
At December 31, 1995 and 1994, the Bank had net operating loss
carryforwards for Illinois state income tax purposes of approximately $6 million
and $20 million, respectively. These carryforwards will expire at various dates
through the year 2006. A valuation allowance has been provided for these net
operating loss carryforwards because of the uncertainty surrounding their
recognition prior to their expiration.
Income tax expense (benefit) was different from the amounts computed by
applying the federal statutory rate of 35% in 1995, 1994 and 1993 to income
before income taxes because of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense at statutory rate $ 9,079 $ 7,845 $ 6,181
(Decrease) increase in taxes resulting from:
Tax-exempt interest income, net of disallowed
interest deduction......................... (1,423) (1,448) (1,370)
Other, net.................................... 118 115 126
------- ------- -------
Total...................................... $ 7,774 $ 6,512 $ 4,937
======= ======= =======
</TABLE>
F-16
<PAGE> 102
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM BORROWINGS:
Long-term borrowings consisted of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank (FHLB) various advances ranging from $5 million to
$15 million due at various dates through May 8, 1997; collateralized by
qualified first mortgage residential loans and FHLB stock totaling
approximately $256 million and $7 million, respectively, as of December
31, 1995; weighted average interest rates at December 31, 1995 and 1994
are 6.33% and 5.99%, respectively...................................... $60,000 $47,000
Chicago Equity Fund non-interest bearing notes payable over a five to
seven year period in approximately equal annual installments........... 1,003 864
------- -------
Total............................................................... $61,003 $47,864
======= =======
</TABLE>
Following are the scheduled maturities of long-term borrowings at December
31, 1995:
<TABLE>
<CAPTION>
YEAR
-------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996.............................................. $ 50,166
1997.............................................. 10,204
1998.............................................. 192
1999.............................................. 151
2000.............................................. 109
Thereafter........................................ 181
-------
Total........................................ $ 61,003
=======
</TABLE>
12. EMPLOYEE BENEFIT PLANS:
The employees of the Bank participate in the employee benefit plans of
CTFG, consisting of the CTFG Profit Sharing Plan, the CTFG 401(k) Plan, and the
CTFG ESOP. Company contributions are at the discretion of the CTFG Board of
Directors, with the exception of certain matching of employee contributions and
a minimum ESOP contribution sufficient to service the ESOP debt. During 1995,
1994 and 1993, Bank contributions paid to the profit-sharing plan and ESOP were
$1.5 million, $1.2 million and $857,000, respectively.
13. RELATED PARTY TRANSACTIONS:
Included in other assets are amounts due from and to the Parent and other
affiliates. As of December 31, 1995 and 1994, the amounts due from the Parent
and other affiliates totaled $131,000 and $46,000, respectively. The amount due
to the Parent as of December 31, 1995 totaled $99,000.
During the years ended December 31, 1995, 1994 and 1993, payments were made
to the Parent and other affiliates for interest expense on securities sold under
agreements to repurchase totaling $303,000, $173,000 and $43,000, respectively.
The Bank received from the Parent and other affiliates, $422,000, $418,000
and $509,000, during the years ended December 31, 1995, 1994 and 1993,
respectively, for office space and various services performed by Bank employees
on behalf of the Parent and other affiliates. These services include accounting,
marketing,
F-17
<PAGE> 103
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
operations, human resources, and legal services. These fees were recorded as a
reduction to occupancy and salaries and employee benefits. During 1995, the Bank
paid $1.1 million to the Parent for various services which include acquisition
related services, human resources services, and audit services during 1995.
These fees are included in salaries and employee benefits. No such payments were
made in 1994 or 1993.
14. ALLOCATION OF PARENT COMPANY EXPENSES:
The Parent Company provides certain executive and other services to the
Bank. Costs related to those services are not allocated to the Bank, nor are the
costs reflected in the Bank's financial statements. The Parent estimates these
costs to be $2.86 million, $1.82 million and $1.69 million for the years ended
December 31, 1995, 1994 and 1993, respectively. These costs are computed using
various estimates and a predefined formula based upon assets, revenues and
employees. The above estimates would change if different methods were applied.
15. COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS:
COMMITMENTS:
The Bank is obligated in accordance with the terms of various long-term
noncancelable operating leases for premises (land and building) and office space
and equipment. The terms of the leases generally require periodic adjustment of
the minimum lease payments based on an increase in the consumer price index. In
addition, the Bank is obligated to pay the real estate taxes assessed on the
properties and certain maintenance costs. Certain of the leases contain renewal
options for periods of up to five years. Total rental expense was approximately
$2.0 million, $2.3 million and $1.9 million for 1995, 1994 and 1993,
respectively.
Estimated future minimum rental commitments under these operating leases as
of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR
------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996................................................... $ 1,718
1997................................................... 1,642
1998................................................... 1,472
1999................................................... 858
2000................................................... 821
Thereafter............................................. 7,205
-------
Total............................................. $ 13,716
=======
</TABLE>
CONTINGENCIES:
The Bank is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the advice of legal
counsel, the ultimate resolution of these matters will not have a material
adverse effect on the Bank's financial position.
FINANCIAL INSTRUMENTS:
The Bank is party to various financial instruments with off-balance sheet
risk. The Bank uses these financial instruments in the normal course of business
to meet the financing needs of customers and to effectively manage exposure to
interest rate risk. These financial instruments include commitments to extend
credit, standby letters of credit, interest-rate exchange contracts (swaps) and
forward commitments to sell loans. When viewed in terms of the maximum exposure,
those instruments may involve, to varying degrees,
F-18
<PAGE> 104
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheet. Credit risk is the possibility that a
counterparty to a financial instrument will be unable to perform its contractual
obligations. Interest rate risk is the possibility that, due to changes in
economic conditions, the Bank's net interest income will be adversely affected.
The Bank mitigates its exposure to credit risk through its internal
controls over the extension of credit. These controls include the process of
credit approval and review, the establishment of credit limits, and, when deemed
necessary, securing collateral. Collateral held varies but may include deposits
held in financial institutions; U.S. Treasury securities; other marketable
securities; income-producing commercial properties; accounts receivable;
inventories; and property, plant and equipment. The Bank manages its exposure to
interest rate risk, on a limited basis, by using off-balance sheet instruments
to offset existing interest rate risk of its assets and liabilities, and by
generally setting variable rates of interest on contingent extensions of credit.
The following is a summary of the contractual or notional amount of each
significant class of off-balance sheet financial instrument outstanding. The
Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. For interest-rate exchange contracts (swaps) and forward
commitments to sell loans the contract or notional amounts substantially exceed
actual exposure to credit loss.
At December 31, 1995, the contractual or notional amounts are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Financial instruments wherein contract amounts represent credit
risk:
Commitments to extend credit................................... $394,877
Standby letters of credit...................................... 53,683
Financial instruments wherein notional amounts exceed the amount
of credit risk:
Interest rate exchange agreements (swaps)...................... $ 75,000
Forward commitments to sell loans.............................. 18,926
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Such instruments are
generally issued for one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Most of the Bank's standby letters of credit are
expected to expire undrawn.
An interest-rate exchange contract (swap) is an agreement in which two
parties agree to exchange, at specified intervals, interest payment streams
calculated on an agreed-upon notional principal amount with at least one stream
based on a specified floating-rate index. The Bank's objective in holding
interest-rate swaps is interest rate risk management. The Bank entered into an
agreement based on a $25 million notional amount to assume variable-market
indexed interest payments in exchange for fixed-rate interest payments. The
original maturity of this agreement (12/6/98) was five years and the fixed-rate
component received is 5.32%. The variable-interest rate component paid is based
on three-month LIBOR and was 5.81% as of December 31, 1995. The Bank also
entered into an agreement based on a $50 million notional amount to assume
fixed-rate interest payments in exchange for variable-market indexed payments.
The original maturity of this agreement
F-19
<PAGE> 105
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5/12/97) was 2 years and the fixed-rate component paid is 5.97%. The
variable-interest component paid is based on the federal funds rate and was
5.65% as of December 31, 1995.
The Bank enters into forward commitments to sell loans to manage the
interest rate risk exposure of mortgage banking activities. The hedging activity
helps to protect the Bank from a risk that the market value of mortgage loans
intended to be sold will be adversely affected by changes in interest rates. At
December 31, 1995, the Bank's forward commitments to sell loans had delivery
commitments expiring within three months. Gross unrealized losses on forward
sale commitments, based on dealer-quoted prices, approximated $103,000 at
December 31, 1995.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
the estimated fair value of financial instruments. For the Bank, a significant
portion of its assets and liabilities are considered financial instruments as
defined in SFAS No. 107. Many of the Bank's financial instruments, however, lack
an available, or readily discoverable, trading market as characterized by a
willing buyer and willing seller engaging in an exchange transaction.
Significant estimations and present value calculations were used by the Bank for
the purposes of estimating fair values. Accordingly, fair values are based on
various factors relative to expected loss experience, current economic
conditions, risk characteristics, and other factors. The assumptions and
estimates used in the fair value determination process are subjective in nature
and involve uncertainties and significant judgment and, therefore, fair values
cannot be determined with precision. Changes in assumptions could significantly
affect these estimated values.
The methods and assumptions used to determine fair values for each
significant class of financial instruments are presented below:
CASH AND CASH EQUIVALENTS:
Cash, due from banks and federal funds sold are reported at amounts which
approximate fair value in the balance sheet.
INVESTMENT SECURITIES:
Fair values for investment securities are determined from quoted market
prices. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar instruments. The fair values pertaining to
investment securities are disclosed in Note 3.
LOANS:
Fair values of loans have been estimated by the present value of future
cash flows, using current rates at which similar loans would be made to
borrowers with similar credit ratings and the same remaining maturities. The
estimated fair value of the entire loan portfolio as of December 31, 1995 and
1994 was $1.21 billion and $1.11 billion, respectively.
DEPOSIT LIABILITIES:
Deposit liabilities with stated maturities have been valued at the present
value of future cash flows using rates which approximate current market rates
for similar instruments. Fair values of demand deposits are equal to the
respective amounts due on demand. The carrying amount of variable rate
instruments approximates fair value. The estimated fair value of deposit
liabilities as of December 31, 1995 and 1994 was $1.366 billion and $1.287
billion, respectively.
F-20
<PAGE> 106
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings and long-term debt have been valued at present values
of future cash flows using rates which approximate current market rates for
similar instruments. The estimated fair value of short-term borrowings as of
December 31, 1995 and 1994 was $202 million and $244 million, respectively. The
estimated fair value of long-term debt as of December 31, 1995 and 1994 was $61
million and $48 million, respectively.
FINANCIAL INSTRUMENTS:
The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of these commitments is not
material. The fair value of interest rate swap agreements is estimated using
quoted market prices for similar instruments. The estimated fair value of
interest rate exchange contracts (swaps) as of December 31, 1995 and 1994 was
$(796,000) and $(2.4) million, respectively.
17. REGULATORY DISCLOSURES
The Bank is subject to various 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's 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 Bank 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 of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1995, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1995, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized
"well-capitalized" the Bank 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 that notification that management believes have
changed the institution's category.
F-21
<PAGE> 107
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Bank's actual capital amounts and ratios as of December 31, 1995 and
1994 are also presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSE ACTION PROVISION
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
Total Capital
(to Risk Weighted Assets)..... $146,770 11.44 $102,597 >8.00 $128,246 >10.00
Tier 1 Capital
(to Risk Weighted Assets)..... 130,642 10.19 51,248 >4.00 76,948 >6.00
Tier 1 Capital
(to Average Assets)........... 130,642 7.41 70,533 >4.00 88,166 >5.00
As of December 31, 1994
Total Capital
(to Risk Weighted Assets)..... 135,492 11.44 94,758 >8.00 118,448 >10.00
Tier 1 Capital
(to Risk Weighted Assets)..... 120,587 10.18 47,379 >4.00 71,069 >6.00
Tier 1 Capital
(to Average Assets)........... 120,587 7.15 67,423 >4.00 84,279 >5.00
</TABLE>
18. DEFINITIVE SHARE AGREEMENT
On June 12, 1996 the Board of Directors of CTFG approved a definitive share
agreement as amended providing for the split-off of the Bank to an investment
group headed by CTFG's Chairman, President, and Company director and co-founder.
Under the terms of the agreement, CTFG will receive between 4.0 and 4.5 million
shares of common stock of CTFG plus the Bank's used automobile receivables
business, principally consisting of cash and sales finance receivables secured
by automobiles and cash amounts. The aggregate value of the cash and receivables
to be transferred to CTFG will range from $82 million to $98 million depending
on the number of shares exchanged. The Bank anticipates that the split-off
transaction will be consummated by the first quarter of 1997.
F-22
<PAGE> 108
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR EITHER UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
The Split-Off Transactions........... 14
Use of Proceeds...................... 19
Pro Forma Capitalization............. 20
Selected Bank Financial Data......... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 45
Management's Discussion and Analysis
of Pro Forma Financial Condition
and Results of Operations.......... 52
Business............................. 55
Management........................... 61
Supervision and Regulation........... 67
Security Ownership of Management and
Certain Beneficial Owners.......... 76
Certain Transactions................. 77
Description of Capital Stock......... 78
Underwriting......................... 83
Legal Matters........................ 83
Experts.............................. 84
Additional Information............... 84
Index to Financial Statements........ F-1
</TABLE>
-------------------------------
Until , 1996 (25 days from the date of this Prospectus), all
dealers effecting transactions in the Preferred Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,530,000 SHARES
TAYLOR CAPITAL
GROUP, INC.
% NONCUMULATIVE
PERPETUAL PREFERRED
STOCK, SERIES A
---------------------------
PROSPECTUS
---------------------------
PIPER JAFFRAY INC.
ROBERT W. BAIRD & CO. INCORPORATED
, 1996
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee and the NASD filing fee) of the issuance and distribution of the securities
being registered, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee................................................ $11,591
NASD filing fee..................................................... 4,325
Printing expenses................................................... *
Fees and expenses of counsel........................................ *
Fees and expenses of accountants.................................... *
Transfer agent and registrar fees................................... *
Blue sky fees and expenses.......................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct or (3) by the
stockholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement or otherwise.
It is expected that the Taylor Family will propose that the Company agree
to indemnify and hold harmless the Taylor Family in the event the Company
breaches of agreements entered into by the Company in connection with the
Split-Off Transactions. It is contemplated that this indemnification agreement,
which will be subject to the approval of the independent directors of the
Company, would also cover certain Taylor Family liabilities and obligations
which are placed on the Taylor Family pursuant to the Split-Off Transactions
II-1
<PAGE> 110
and which may be considered personal to the Taylor Family. Under the proposed
agreement, the Company would be obligated to indemnify the Taylor Family against
the Taylor Family's liabilities under certain provisions of the Share Exchange
Agreement, but only to the extent that any particular liability does not arise
as a result of a reckless breach of the Share Exchange Agreement by the Taylor
Family.
The Company's Certificate and the Company's By-Laws provide for
indemnification of the Company's directors, officers, employees and other agents
to the fullest extent not prohibited by the Delaware law.
The Company intends to enter into agreements to indemnify its directors and
certain officers, in addition to the indemnification provided for in the
Company's Certificate and By-Laws. These agreements, among other things, will
indemnify the Company's directors and officers for all direct and indirect
expenses and costs (including, without limitation, all reasonable attorneys'
fees and related disbursements, other out of pocket costs and reasonable
compensation for time spent by such persons for which they are not otherwise
compensated by the Company or any third person) and liabilities of any type
whatsoever (including, but not limited to, judgments, fines and settlement fees)
actually and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
The Company maintains liability insurance for the benefit of its directors
and officers.
Under the terms of the Purchase Agreement, the Underwriters have agreed to
indemnify, under certain conditions, the Company, its directors, certain of its
officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------
<S> <C>
* 1 Form of Purchase Agreement
2 Amended and Restated Share Exchange Agreement among Cole Taylor Financial
Group, Inc. and the Taylor Family dated June 12, 1996
3.1.1 Certificate of Incorporation of Taylor Capital Group, Inc., dated October
9, 1996
* 3.1.2 Form of Certificate of Designation of the Preferred Stock
3.2 By-Laws of Taylor Capital Group, Inc.
* 5.1 Opinion of McDermott, Will & Emery regarding legality
*10.1 Loan Agreement between LaSalle National Bank and Taylor Capital Group, Inc.
dated .
10.2 Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock Ownership Plan
10.3 Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock Ownership Trust
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Taylor Capital Group, Inc.
23.1 Consent of KPMG Peat Marwick LLP
*23.2 Consent of McDermott, Will & Emery (see Exhibit 5.1 above)
24 Power of Attorney (included with the signature page to the Registration
Statement)
</TABLE>
II-2
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------
<S> <C>
</TABLE>
Schedule
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Purchase Agreement certificates in
such denominations and registered in such names as required by such Underwriters
to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Wheeling, Illinois on
October 20, 1996.
TAYLOR CAPITAL GROUP, INC.
By /s/ JEFFREY W. TAYLOR
-------------------------------------
Jeffrey W. Taylor
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey W. Taylor and Bruce W. Taylor and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Taylor Capital Group, Inc.) to sign any or all amendments (including
post-effective amendments) to this Registration Statement and to sign a
Registration Statement pursuant to Section 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <C> <S>
/s/ JEFFREY W. TAYLOR Chairman of the Board and October 20, 1996
- ------------------------------------------ Chief Executive Officer
Jeffrey W. Taylor (Principal Executive Officer)
/s/ JOHN CHRISTOPHER ALSTRIN Chief Financial Officer October 20, 1996
- ------------------------------------------ and Director
John Christopher Alstrin (Principal Financial and
Accounting Officer)
/s/ BRUCE W. TAYLOR President and Director October 20, 1996
- ------------------------------------------
Bruce W. Taylor
/s/ RICHARD W. TINBERG Director October 20, 1996
- ------------------------------------------
Richard W. Tinberg
</TABLE>
II-4
<PAGE> 1
EXHIBIT 2
AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT
THIS AMENDED AND RESTATED SHARE EXCHANGE AGREEMENT is entered into as of
June 12, 1996, by and among Cole Taylor Financial Group, Inc. ("CTFG") and
those certain persons listed on Schedule 7(b) hereof (the "Taylor Family") and
represented by the members of the Taylor Family shown on the signature page
hereof, for the purposes described below. References to "the date hereof" or
"the date of this Agreement," or similar references, shall mean June 12, 1996,
the date of the original Share Exchange Agreement between the parties hereto.
RECITALS
WHEREAS, CTFG is the beneficial and record owner of one hundred percent
(100%) of the issued and outstanding shares of capital stock (the "Bank Stock")
of Cole Taylor Bank, an Illinois state-chartered bank, having its principal
place of business at 350 East Dundee Road, Wheeling, Illinois 60090 (the
"Bank"); and
WHEREAS, substantial disagreements have arisen between CTFG's two largest
shareholder groups concerning the future strategic direction of CTFG and, in an
effort to avoid the adverse consequences of these disagreements, the Taylor
Family has offered to exchange its shares in CTFG for shares of the Bank;
WHEREAS, the Board of Directors of CTFG (the "Board") has determined that
the transfer of all of the outstanding shares of Bank Stock and certain other
assets of CTFG in exchange for certain shares of common stock, par value $.01
per share, of CTFG (the "CTFG Stock") on the terms and subject to the conditions
set forth in this Agreement is fair to and in the best interest of CTFG and its
shareholders; and
WHEREAS, the parties desire to enter into certain other related agreements
in connection with the foregoing transactions; and
WHEREAS, the Taylor Family currently intends to cause a new bank holding
company ("Newco") to be formed to hold the Bank Stock at the Closing (as defined
below) if permitted by the Private Letter Ruling (as defined below); and
WHEREAS, the parties hereto intend that the exchange of the Bank Stock (or
the common stock of Newco (the "Newco Stock") as the case may be) for CTFG Stock
owned by the Taylor Family, as described herein, qualify as a tax-free split-off
under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code").
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements herein contained, the parties hereby agree as
follows:
1. Exchange of Bank Stock.
Upon the terms and subject to the conditions set forth in this
Agreement, CTFG shall assign, transfer and deliver to the Taylor Family (or,
with respect to not more than 49.9% of the outstanding stock of the Bank, to
such party or parties as the Taylor Family shall direct) on the Closing Date (as
hereinafter defined), in exchange for a number of shares of CTFG Stock equal to
the Stock Amount (as defined below), all right, title and interest in and to all
of the Bank Stock. In the event that the Private Letter Ruling specifically
contemplates the formation of Newco and the transfer of Bank Stock to it and
such transfer occurs prior to the Closing, CTFG shall exchange and the Taylor
Family (or, with respect to not more than 49.9% of the outstanding stock of
Newco, such party or parties as the Taylor Family shall direct) shall receive
Newco stock in lieu of Bank Stock.
2. Exchange of CTFG Stock; Options; Adjustments.
2.1 Transfer and Exchange. At the Closing, in exchange for the
transfer of the Bank Stock or Newco stock to the Taylor Family (or, with respect
to not more than 49.9% of the outstanding stock of the Bank or Newco, to such
party or parties as the Taylor Family shall direct), the Taylor Family shall
assign, transfer and deliver or cause to be assigned, transferred and delivered
to CTFG a number of shares of CTFG Stock to be determined, subject to the
proviso set forth below, at the discretion of the Taylor Family (such number of
shares of CTFG Stock shall be referred to as the "Stock Amount"); provided,
however, that in no event shall the Stock Amount consist of more than 4,500,000
shares of CTFG Common Stock or less than the greater of (i) 4,000,000 shares of
CTFG Common Stock or (ii) all of the shares of CTFG Stock owned beneficially or
of record by the Taylor Family (including any shares of CTFG Stock owned after
the exercise of any options to purchase shares of CTFG Stock ("Options") and any
shares of CTFG Stock in the CTFG Employee Stock Ownership Plan (the "ESOP") and
the CTFG 401(k) Plan allocated to members of the Taylor Family) immediately
prior to the Closing.
2.2 Options. CTFG will cause all outstanding Options to become
vested and exercisable prior to the Closing. Each Taylor Family member holding
any Options shall exercise such Options at or prior to the Closing.
-2-
<PAGE> 3
2.3 Change in CTFG Stock. In the event that between the date of
this Agreement and the Closing Date CTFG subdivides the outstanding shares of
CTFG Stock into a greater number of shares, or combines its outstanding shares
of CTFG Stock into a smaller number of shares, or effects a reclassification of
the CTFG Stock, or pays a dividend in shares of its capital stock, then the
consideration set forth in this Section 2 shall be adjusted so that the number
of shares of CTFG Stock to be received by CTFG shall be reduced or increased by
an amount such that the aggregate value received is not increased or decreased
as a result of such subdivision, combination, reclassification or dividend.
3. Pre-Closing Transactions.
3.1 Spin-Off of Automobile Receivables Business.
(a) Prior to the Closing, CTFG shall cause the Bank to form a new
wholly-owned subsidiary ("Auto Sub") to which the Bank shall contribute its used
automobile receivables business, consisting of substantially all of the assets
used in its used automobile receivables business (the "UARB Assets") and (i) the
Cash Component (as defined below); plus (ii) all of the Bank's rights and
obligations pursuant to automobile loans, notes or the Bank's securities which
as of the Closing Date are collateralized primarily with used automobiles and
have a fair market value as determined in writing by KPMG Peat Marwick (or such
other person upon whom the parties hereto shall mutually agree) of no less than
$30,000,000 nor more than $31,000,000 (the "Automobile Receivables").
Immediately prior to the Closing, CTFG shall cause the Bank employees identified
on Schedule 3.1 to be terminated by the Bank and immediately offered employment
with Auto Sub. The Bank shall be responsible for and shall indemnify CTFG for
severance costs arising out of such termination. The term "Cash Component"
shall mean: (x) if the Stock Amount is less than 4,250,000, cash in an amount
equal to (A) $60,000,000 minus (B) the amount, if any, by which the fair market
value of the Automobile Receivables exceeds $30,000,000 plus (C) the product of
$33.00 and the difference between 4,250,000 and the Stock Amount; (y) if the
Stock Amount is equal to 4,250,000, cash in an amount equal to (A) $60,000,000
minus (B) the amount, if any, by which the fair market value of the Automobile
Receivables exceeds $30,000,000; and (z) if the Stock Amount is greater than
4,250,000, cash in an amount equal to (A) $60,000,000 minus (B) the amount, if
any, by which the fair market value of the Automobile Receivables exceeds
$30,000,000 minus (C) the product of $33.00 and the difference between the Stock
Amount and 4,250,000.
(b) In addition, prior to the Closing and in conjunction with the
formation of Auto Sub as contemplated by Section 3.1(a), the Bank shall
contribute to Auto Sub an amount in cash equal to
-3-
<PAGE> 4
the sum of: (i) the amount of CTFG's cash investment in Alpha Capital Fund, net
of all partner distributions, return of capital and like payments, made from
time to time prior to the date hereof (which was $139,831 as of May 31, 1996),
plus any additional cash investment made by CTFG in Alpha Capital Fund after
the date hereof if made with the Taylor Family's consent, plus interest on the
total amount invested beginning, as to each portion of such amount invested at
different times, on the date of such investment, at the rate of 9% per annum,
compounded annually; plus (ii) the amount of CTFG's aggregate cash investments
in CT Mortgage, net of all distributions to stockholders, return of capital and
like payments, made from time to time prior to the date hereof (which was
$1,007,000 as of May 31, 1996), plus any additional cash investment made by
CTFG in CT Mortgage after the date hereof if made with the Taylor Family's
consent, plus interest on the total amount invested beginning, as to each
portion of such amount invested at different times, on the date of such
investment, at the rate of 9% per annum, compounded annually.
3.2 Transfer to CTFG. Immediately prior to the Closing Date, CTFG
shall cause the Bank to distribute all of the capital stock of Auto Sub to CTFG,
following which CTFG shall cause Cole Taylor Finance Co., a Delaware corporation
and a wholly-owned subsidiary of CTFG ("Finance") to be merged with and into
Auto Sub.
3.3 Investment in Alpha Capital Fund II, L.P. In conjunction with
the formation of Newco as contemplated by Section 3.5, immmediately prior to the
Closing Date, CTFG shall transfer to Newco all of CTFG's rights, obligations and
interest, including, without limitation, CTFG's $500,000 commitment with respect
thereto (the "Alpha Interest") in Alpha Capital Fund II, L.P., a small business
investment company ("Alpha Capital Fund").
3.4 Transfer of CT Mortgage Stock. In conjunction with the
formation of Newco as contemplated by Section 3.5, immediately prior to the
Closing Date, CTFG shall transfer to Newco 100% of the capital stock (the "CT
Mortgage Stock") of CT Mortgage Company, Inc. ("CT Mortgage"), a subsidiary of
CTFG. All intercompany indebtedness between CTFG and CT Mortgage reflected on
the books and records of CT Mortgage and CTFG on the Closing Date shall have
been repaid, together with interest thereon at the interest rate specified by
such indebtedness, and no intercompany indebtedness shall be incurred subsequent
to the date hereof, except in accordance with Section 9(a)(i)(E) hereof.
3.5 Formation of Newco; Transfer of Bank Stock. If specifically
contemplated by the Private Letter Ruling and requested by the Taylor Family,
prior to the closing CTFG shall form Newco and shall transfer all the Bank
shares owned by CTFG
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<PAGE> 5
to Newco. CTFG shall not, however, be required to effectuate this transfer
unless (1) the Taylor Family shall have applied for and obtained appropriate
regulatory approval for Newco, (2) the Internal Revenue Service shall have
ruled in the Private Letter Ruling that the transfer of Bank Stock by CTFG to
Newco is a tax-free transaction to CTFG and Newco, and (3) the New Bank
Securities (as defined below) shall be issued on terms disclosed to the
Internal Revenue Service and consistent with the Private Letter Ruling.
4. Consummation of the Transactions; Closing Date. The consummation of the
transactions contemplated herein (the "Closing") and the delivery of the
certificates and acknowledgements called for by this Agreement shall take place
at the offices of Mayer, Brown & Platt, 190 South LaSalle Street, Chicago,
Illinois 60603, at such time and date (the "Closing Date") as shall be fixed by
mutual agreement of the Taylor Family and CTFG as promptly as practicable
following the satisfaction or waiver of the conditions set forth in Sections 11
and 12 of this Agreement.
5. Regulatory Matters.
5.1 Regulatory Approvals. The parties hereto acknowledge that
requisite approvals must be received from or notices must be given to certain
federal and state governmental bodies and agencies which may include (i) the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board");
(ii) the Federal Deposit Insurance Corporation (the "FDIC"); (iii) the Illinois
Commissioner of Banks and Trust Companies; (iv) the Federal Trade Commission,
(v) the Antitrust Division of the Department of Justice and/or (vi) any other
regulatory authorities having jurisdiction (collectively, the governmental
bodies and agencies referred to in this Section 5.1 are referred to herein as
the "Applicable Governmental Authorities"), in accordance with the laws, rules
and regulations governing or related to the Applicable Governmental Authorities
(the "Applicable Laws"). The parties hereto agree to use their reasonable best
efforts to obtain all such approvals as promptly as practicable and to give all
such notices.
5.2 Capital Infusion; Newco Stock Registration.
(a) Capital Infusion. The Taylor Family acknowledges that the Bank will
require additional capital upon the consummation of the transactions
contemplated by this Agreement in order to comply with the minimum capital
requirements of any applicable banking laws, regulations or any requirements of
any regulatory agencies and agrees to use its reasonable best efforts to obtain
financing sufficient to satisfy this requirement. It is understood that the
Taylor Family intends to obtain some or all
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<PAGE> 6
of such financing from the net proceeds of a sale of securities of the Bank (or
Newco, as the case may be) (the "New Bank Securities"); provided, that the
terms of the New Bank Securities shall have been disclosed to the Internal
Revenue Service and shall be consistent with the Private Letter Ruling. If the
Taylor Family chooses to make such a sale through a public offering, CTFG,
following the direction of the Taylor Family (except as such direction may be
inconsistent with the fiduciary duties of CTFG's directors), shall cause the
Bank (or Newco, as the case may be) to file prior to the Closing Date a
registration statement (the "Registration Statement") with the U.S. Securities
and Exchange Commission (the "SEC") or a comparable agency relating to the
offer and sale of New Bank Securities. The Registration Statement shall be in
form and substance reasonably satisfactory to the Taylor Family. CTFG shall
cause the Bank to use its reasonable best efforts to have the Registration
Statement declared effective and to cause the offer and sale of the New Bank
Securities to be registered, qualified or exempted under applicable state
securities laws as soon as is reasonably practicable, but in no event later
than the Closing Date. CTFG shall cause the Bank (or Newco, as the case may
be) to use its reasonable best efforts to amend or supplement the Registration
Statement or the prospectus contained therein and to take such actions as may
be necessary to cause the Registration Statement to remain effective until the
offer and sale of the New Bank Securities has been completed. If the New Bank
Securities are offered in a manner not involving a public offering requiring a
Registration Statement, CTFG will similarly cooperate in the preparation of
documents for such offering. Unless this Agreement has been terminated by the
Taylor Family pursuant to Section 13(d), the Taylor Family will indemnify and
hold harmless CTFG against all costs and liabilities related to the offer and
sale of the New Bank Securities, including but not limited to all underwriting,
accounting, legal, printing, filing fee and other expenses of a public or
private offering and any liabilities relating to misstatements or omissions in
the Registration Statement or other offering documents or any part thereof.
The Bank will assume such indemnity and hold harmless agreement upon
consummation of the transfer and exchange referred to in Section 2.1 hereof.
(b) Newco Stock Registration. It is understood that Newco may need to
file a registration statement with the SEC with respect to the offer and sale of
Newco Stock in exchange for CTFG Stock pursuant to Section 1 (a "Common
Registration Statement"). CTFG, following the direction of the Taylor Family
(unless the Board, without the participation of the Taylor Directors (as defined
below), shall reasonably determine that such direction is inconsistent with the
Board's fiduciary duties under applicable law), shall cause Newco to file prior
to the Closing Date a Common Registration Statement with the SEC. The Common
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<PAGE> 7
Registration Statement shall be in form and substance reasonably satisfactory
to the Taylor Family. CTFG shall cause Newco to use its reasonable best
efforts to have the Common Registration Statement declared effective and to
cause the offer and sale of the Newco Stock referenced therein to be
registered, qualified or exempted under applicable state securities laws as
soon as reasonably practicable, but in no event later than two weeks prior to
the Closing Date. CTFG shall cause Newco to use its reasonable best efforts to
amend or supplement the Common Registration Statement or the prospectus
contained therein and to take such actions as may be necessary to cause the
Common Registration Statement to remain effective until the earlier to occur of
the Closing Date or the completion of the offer and sale of the Newco Stock
thereunder. Unless this Agreement has been terminated by the Taylor Family
pursuant to Section 13(d), the Taylor Family will indemnify and hold harmless
CTFG against all costs and liabilities related to the offer and sale of the
Newco Stock registered pursuant to the Common Registration Statement, including
but not limited to all underwriting, accounting, legal, printing, filing fee
and other expenses of such offer and sale of Newco Stock and any liabilities
relating to misstatements or omissions in the Common Registration Statement or
other offering documents or part thereof. The Bank and Newco will assume such
indemnity and hold harmless agreement from and after the Closing; provided,
however, that no such assumption shall relieve the Taylor Family from any
liability or obligation in the event that the Bank or Newco shall fail to
perform thereunder.
6. Escrow. Within five business days from the date hereof, as security to
ensure the payment of any termination fee required pursuant to Section 14(c) of
this Agreement, the Taylor Family shall deposit 750,000 shares of CTFG Stock,
with executed stock transfer powers, into escrow (the "Escrow Fund") with The
Northern Trust Company (or such other entity as the parties hereto shall
reasonably agree) pursuant to an Escrow Agreement between the Taylor Family,
CTFG and The Northern Trust Company substantially in the form attached hereto as
Exhibit A.
7. Representations and Warranties of the Taylor Family. Each member of the
Taylor Family, jointly and severally, represents and warrants to CTFG that:
(a) Authorization, No Violation, Et Cetera. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by such Taylor Family member has been duly authorized
by all necessary action on the part of such member of the Taylor Family and
this Agreement constitutes the legal, valid and binding obligation of such
Taylor Family member, enforceable against such Taylor Family member in
accordance with its terms. The execution and delivery of this Agreement by
the
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<PAGE> 8
Taylor Family, and the consummation of the transactions contemplated by this
Agreement, will not violate the provisions of, or constitute a breach or default
under, any material agreement to which such member of the Taylor Family is a
party or is bound, or any other material license, law, order, rule, regulation
or judgment to which such member of the Taylor Family is a party.
(b) Stock and Option Ownership. Each member of the Taylor Family owns in
the aggregate or has allocated to him or her in the ESOP and the CTFG 401(k)
Plan, as applicable, that number of shares of CTFG Stock and Options to purchase
shares of CTFG Stock as set forth opposite his, her or its name on Schedule 7(b)
hereto, and as of the Closing Date, such CTFG Stock and Options will be free and
clear of any security interests, liens, claims, pledges, charges, voting
agreements or other encumbrances of any nature whatsoever ("Liens").
(c) Formation of Newco. In the event the Taylor Family determines to
form Newco as a bank holding company, and the Private Letter Ruling specifically
contemplates the formation of Newco and transfer of Bank Stock to it, the Taylor
Family represents that it will cooperate with CTFG in taking all necessary
corporate and other action to create and form Newco and cause Newco to enter
into, ratify and approve this Agreement and all of the related transactions
prior to the Closing Date.
(d) Broker's and Finder's Fees. No member of the Taylor Family has
incurred any obligation or liability, contingent or otherwise, to any brokers or
finders in respect of the matters provided for in this Agreement other than to
Piper, Jaffray Companies.
(e) UARB Assets. The UARB Assets are substantially all of the assets
used exclusively in or necessary for the conduct of the Bank's used automobile
receivables business.
(f) Prohibitions. Neither any member of the Taylor Family nor any of
their respective properties is subject to any order, writ, judgment, injunction,
decree, determination or award which would prevent or delay the consummation of
the transactions contemplated hereby.
(g) Transfer of Title. The transfer of the shares of CTFG constituting
the Stock Amount hereunder to CTFG will transfer to CTFG good and valid title to
the shares of CTFG constituting the Stock Amount, free and clear of any Liens
(except for Liens CTFG has permitted to attach upon transfer at the Closing).
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<PAGE> 9
8. Representations and Warranties of CTFG. Except as set forth below, CTFG
makes no representation or warranty with respect to the Bank, CT Mortgage or
Alpha Capital Fund and the Taylor Family acknowledges that the Bank, CT Mortgage
and the Alpha Interest are being transferred on an as is, where is basis.
Notwithstanding the foregoing, CTFG represents and warrants to the Taylor Family
that:
(a) Capital Stock. On the date hereof, the Bank has authorized,
issued and outstanding capital stock as follows:
Authorized Issued Outstanding Treasury
---------- ------ ----------- --------
Common 1,500,000 1,500,000 1,500,000 0
--------- --------- --------- --------
There are no issued or outstanding warrants, options, preemptive rights, rights
of first refusal or other rights to purchase equity or debt instruments of the
Bank.
On the date hereof, CT Mortgage has authorized, issued and outstanding
capital stock as follows:
Authorized Issued Outstanding Treasury
---------- ------ ----------- --------
Common 10,000 1,000 1,000 0
---------- ------ ----------- --------
There are no issued or outstanding warrants, options, preemptive rights, rights
of first refusal or other rights to purchase equity or debt instruments of CT
Mortgage.
All of the issued and outstanding shares of Bank Stock and stock of CT Mortgage
are duly and validly authorized and issued. All of the outstanding shares of
Bank Stock and stock of CT Mortgage are fully paid and nonassessable and are
owned free and clear of any liens, mortgages or claims by CTFG.
On the date hereof, CTFG holds a $500,000 commitment in Alpha Capital Fund of
which $139,831 was funded as of May 31, 1996.
(b) Authorization: Validity. The consummation of the transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action on the part of CTFG and this Agreement
constitutes the legal, valid and binding obligation of CTFG, enforceable
against CTFG in accordance with its terms.
(c) Broker's and Finder's Fees. Neither CTFG nor the Bank has
incurred any obligation or otherwise, to any brokers or finders in respect
of the matters provided for in
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this Agreement other than to The Chicago Corporation and Sandler O'Neill &
Partners, L.P.
(d) Investment Schedule. CTFG has previously delivered to the Taylor
Family a true and accurate schedule showing the amounts and dates of its
investments in CT Mortgage and Alpha Capital Fund.
(e) Prohibitions. None of CTFG, any of its subsidiaries or any of
their respective properties is subject to any order, writ, judgment,
injunction, decree, determination or award which would prevent or delay the
consummation of the transactions contemplated hereby.
(f) Title. At the Closing, CTFG will have good and valid title to
all of the Bank Stock, the CT Mortgage Stock and the Alpha Interest free
and clear of any Liens.
(g) Transfer of Title. The transfer of the Bank Shares, the CT
Mortgage Stock and the Alpha Interest hereunder to the Taylor Family, the
Bank or Newco, as the case may be, will transfer to such person good and
valid title to the Bank Shares, the CT Mortgage Stock and the Alpha
Interest, free and clear of any Liens (except for Liens the Taylor Family
has permitted to attach upon transfer at the Closing).
(h) Proposals. Except as previously disclosed in writing to the
Taylor Family, CTFG has not received since September 1, 1995 any offers or
proposals for the acquisition of CTFG, the Bank or Finance.
9. Agreements with Respect to Conduct of the Business After the Date
Hereof.
(a) Ordinary Course, Insurance, Preservation of Business.
(i) Except as otherwise agreed to in writing by the Board and
Sidney Taylor, Jeffrey Taylor and Bruce Taylor (the "Taylor
Directors") and except to the extent required to consummate the
transactions contemplated by Section 3 hereof, CTFG and the Taylor
Directors covenant and agree that they will not, prior to the earlier
of the Closing Date and the termination of this Agreement, terminate
or change the terms or conditions of employment of Jeffrey Taylor or
Bruce Taylor at CTFG, and prior to the later of (i) the Closing Date
and (ii) the termination of the Taylor Sale Period (as that term is
defined in Section 14(d) hereof), terminate or change the terms or
conditions of
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<PAGE> 11
employment of any employees of CTFG (other than Jeffrey Taylor or Bruce Taylor),
the Bank (including Jeffrey Taylor and Bruce Taylor) or CT Mortgage (provided
that this Section 9(a)(i) shall not apply to employees of Finance or its
subsidiaries in their capacity as such) having an annual salary of $100,000 or
more per year and that they will use their reasonable best efforts to cause each
of the Bank and CT Mortgage from and after the date of this Agreement and until
the later of (i) the Closing Date and (ii) the termination of the Taylor Sale
Period to:
(A) carry on its business only in the ordinary course and consistent
with its respective policies, procedures and practices in substantially the
same manner as heretofore conducted (provided that it may take any action
listed on Schedule 9(a)(i));
(B) except as they may terminate in accordance with their terms or in
accordance with the terms of this Agreement, keep in full force and effect,
and not commit or cause a default of any of its obligations under, any
material contracts;
(C) keep in full force and effect the insurance coverage in effect on
the date hereof to the extent that such insurance continues to be
reasonably available;
(D) use its best efforts to maintain, renew, keep in full force and
effect and preserve its business organization and material rights and
franchises, permits and licenses and to retain its present employee force
(including retaining each Taylor Director in all of his current positions
as director, officer and employee of the Bank with no diminution of his
current duties, authority, compensation and benefits except as otherwise
provided in this Agreement), and to maintain its existing, or substantially
equivalent, credit arrangements with banks and other financial institutions
and to use its reasonable best efforts to maintain the continuance of its
general customer relationships;
(E) continue all usual intercompany relationships and practices to
support the ongoing business activities of the Bank and CT Mortgage in
accordance with existing practices, including
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<PAGE> 12
funding usual working capital contributions and normal budgeted
expenditures and making reimbursements for services rendered in accordance
with existing practices, budgets and plans; and
(F) take such action as may be necessary to maintain, preserve, renew
and keep in full force and effect its corporate existence and material
rights and franchises; and duly comply in all material respects with all
laws applicable to it and to the conduct of its business.
(ii) Except as otherwise agreed to by the Board (with the participation of
the Taylor Directors) and except to the extent required to consummate the
transactions contemplated by Section 3 hereof, CTFG covenants and agrees that it
will use its reasonable best efforts to cause each of Finance and Finance's
subsidiaries from and after the date of this Agreement and until the earlier of
the Closing Date and the termination of this Agreement to:
(A) carry on its business only in the ordinary course and consistent
with its respective policies, procedures and practices in substantially the
same manner as heretofore conducted;
(B) except as they may terminate in accordance with their terms or in
accordance with the terms of this Agreement, keep in full force and effect,
and not commit or cause a default of any of its obligations under, any
material contracts;
(C) keep in full force and effect the insurance coverage in effect on
the date hereof to the extent that such insurance continues to be
reasonably available;
(D) use its best efforts to maintain, renew, keep in full force and
effect and preserve its business organization and material rights and
franchises, permits and licenses and to retain its present employee force,
and to maintain its existing, or substantially equivalent, credit
arrangements with banks and other financial institutions and to use its
reasonable best efforts to maintain the continuance of its general customer
relationships;
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<PAGE> 13
(E) continue all usual intercompany relationships and practices to
support the ongoing business activities of Finance in accordance with
existing practices, including funding usual working capital contributions
and normal budgeted expenditures and making reimbursements for services
rendered in accordance with existing practices, budgets and plans; and
(F) take such action as may be necessary to maintain, preserve, renew
and keep in full force and effect its corporate existence and material
rights and franchises; and duly comply in all material respects with all
laws applicable to it and to the conduct of its business.
(b) Prohibited Action Without Approval.
(i) Except as otherwise expressly provided in or permitted by this
Agreement, including the Schedules hereto, or as agreed by CTFG (with the
participation of the Taylor Directors), CTFG and the Taylor Directors covenant
and agree that they will use their reasonable best efforts to cause the Bank and
CT Mortgage, from and after the date of this Agreement and until the earlier of
the Closing and the termination of this Agreement, not to:
(A) incur or agree to incur any obligation or liability (absolute or
contingent) other than the taking of deposits and other liabilities
incurred in the ordinary course of business and consistent with prior
practice, and liabilities arising out of, incurred in connection with, or
related to the consummation of this Agreement; except in the ordinary
course of business consistent with past practice, assume, guarantee or
endorse the obligations of any other person; except in the ordinary course
of business consistent with past practice, mortgage or pledge any of its
assets, tangible or intangible, or create or suffer to exist any Lien
thereupon; make or permit any amendment or termination of any material
contract which would materially adversely affect its rights thereunder;
acquire (by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership or other business organization or division or
substantial part thereof; sell, transfer or otherwise dispose of any
substantial part of its assets; sell, acquire or form any branch location;
enter into, dispose
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<PAGE> 14
or divest itself of any joint venture or partnership or cause any business
entity to become a subsidiary or affiliate; sell or otherwise dispose of
any real property owned or operated by it except for the sale of real
estate held for sale in the ordinary course of business; enhance, expand,
modify, replace or alter any computer or data processing system owned,
leased or licensed by it (including any software associated with any such
computer or system); authorize any new capital expenditure or expenditures
or any other expenditures in excess of $50,000, either individually or in
the aggregate; make, originate or otherwise acquire one or more loans, or
one or more loan commitments for one or more loans, or one or more lines of
credit, except in the ordinary course of business, in accordance with prior
practice and with all approvals as are required by applicable procedures on
the date hereof; or enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing; or
(B) authorize for issuance, issue, sell, deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), redeem or acquire for value, or agree or
commit to do so, any debt securities or any shares of the capital stock or
other equity securities, or any other securities or equity equivalents
(including, without limitation, stock appreciation rights), or declare,
issue or pay any dividend or other distribution of assets, whether
consisting of money, other personal property, real property or other things
of value, to its shareholders other than as set forth in Section 3 or
Section 9(j) hereof; or
(C) split, combine or reclassify any shares of its capital stock; or
(D) sell or pledge or otherwise encumber any stock owned by it in any
subsidiary; amend or propose to amend its, or permit the amendment of any
subsidiary's certificate of incorporation, charter or by-laws or any other
governing document of any subsidiary; split, combine or reclassify any
shares of its capital stock; or enter into any agreement, commitment or
arrangement with respect to any of the foregoing; or
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<PAGE> 15
(E) enter into, adopt or (except as may be required by law) amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee, increase in any manner the compensation or
benefits of any director, officer or employee or pay any benefit not
required by any plan or arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock options, restricted
stock, stock appreciation rights or performance units) or hire any employee
with a salary in excess of $150,000 per year or hire, terminate or change
the terms or conditions of employment of any employee who would be entitled
to any payment upon a change of control of the Bank or CT Mortgage; or
(F) obligate the Bank or CT Mortgage to any intercompany charge; or
(G) acquire or dispose of any securities or interests for investment
purposes or sell or purchase mortgage servicing rights; or
(H) enter into any transactions other than in the ordinary course of
business; or
(I) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency, except in a form
previously approved by the Board and the Taylor Directors, which approval
shall not be unreasonably withheld, or file any federal or state tax return
before furnishing a copy to the Taylor Directors and affording an
opportunity to consult with the filing entity; or
(J) unless the Board decides otherwise, open any new office or close
any current office of the Bank, any of the Bank's subsidiaries or CT
Mortgage at which business is conducted.
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<PAGE> 16
(K) take, or agree in writing or otherwise to take, any of the
actions described above in this Section 9(b)(i) or any action which would
make any of the representations or warranties of CTFG or the Taylor Family
contained in this Agreement untrue or incorrect or would result in any of
the conditions hereunder not being satisfied.
(ii) Except as otherwise expressly provided in or permitted by this
Agreement or as agreed by the Board (with the participation of the Taylor
Directors), CTFG will use its reasonable best efforts to cause Finance, from and
after the date of this Agreement and until the earlier of the Closing and the
termination of this Agreement, not to:
(A) incur or agree to incur any obligation or liability (absolute or
contingent) other than liabilities incurred in the ordinary course of
business and consistent with prior practice, and liabilities arising out
of, incurred in connection with, or related to the consummation of this
Agreement; except in the ordinary course of business consistent with past
practice, assume, guarantee or endorse the obligations of any other person;
except in the ordinary course of business consistent with past practice,
mortgage or pledge any of its assets, tangible or intangible, or create or
suffer to exist any Lien thereupon; make or permit any amendment or
termination of any material contract which would materially adversely
affect its rights thereunder; acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other
business organization or division or substantial part thereof; sell,
transfer or otherwise dispose of any substantial part of its assets; enter
into, dispose or divest itself of any joint venture or partnership or cause
any business entity to become a subsidiary or affiliate; sell or otherwise
dispose of any real property owned or operated by it except for the sale of
real estate held for sale in the ordinary course of business; except as
identified on Schedule 9(b)(ii)(A), enhance, expand, modify, replace or
alter any computer or data processing system owned, leased or licensed by
it (including any software associated with any such computer or system);
authorize any new capital expenditure or expenditures or, except as
identified on Schedule 9(b)(ii)(A), any other
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<PAGE> 17
expenditures in excess of $50,000, either individually or in the aggregate;
make, originate or otherwise acquire one or more loans, or one or more loan
commitments for one or more loans, or one or more lines of credit, except
in the ordinary course of business, in accordance with prior practice and
with all approvals as are required by applicable procedures on the date
hereof; or enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing; or
(B) authorize for issuance, issue, sell, deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise), redeem or acquire for value, or agree or
commit to do so, any debt securities or any shares of the capital stock or
other equity securities, or any other securities or equity equivalents
(including, without limitation, stock appreciation rights), except pursuant
to any employee benefit plan of Finance as in effect as of the date hereof,
or amend any of the terms of any such securities or agreements outstanding
as of the date hereof; or
(C) split, combine or reclassify any shares of its capital stock; or
(D) sell or pledge or otherwise encumber any stock owned by it in any
subsidiary; (b) amend or propose to amend its, or permit the amendment of
any subsidiary's certificate of incorporation, charter or by-laws or any
other governing document of any subsidiary; (c) split, combine or
reclassify any shares of its capital stock; or (d) enter into any
agreement, commitment or arrangement with respect to any of the foregoing;
or
(E) enter into, adopt or (except as may be required by law) amend or
terminate any bonus, profit sharing, compensation, severance, termination,
stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee, increase in any manner the compensation or
benefits of any
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<PAGE> 18
director, officer or employee or pay any benefit not required by any plan
or arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock options, restricted stock, stock
appreciation rights or performance units) or hire any employee with a
salary in excess of $150,000 per year or hire, terminate or change the
terms or conditions of employment of any employee who would be entitled to
any payment upon a change of control of the Bank or CT Mortgage; or
(F) obligate Finance to any intercompany charge other than in the
ordinary course of business consistent with past practice; or
(G) acquire or dispose of any securities or interests for investment
purposes or sell or purchase mortgage servicing rights; or
(H) enter into any transactions other than in the ordinary course of
business; or
(I) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency; or
(J) take, or agree in writing or otherwise to take, any of the
actions described above in this Section 9(b)(ii).
(c) No Solicitation.
(1) CTFG will immediately cease any existing discussions or
negotiations with any third parties conducted prior to the date hereof with
respect to any Acquisition Proposal (as defined below). CTFG shall not,
directly or indirectly, through any officer, director, employee,
representative or agent or any of its subsidiaries, (i) solicit, initiate,
continue or encourage any inquiries, proposals or offers that constitute,
or could reasonably be expected to lead to, a proposal or offer for a
merger, consolidation, business combination, sale of substantial assets,
sale of shares of capital stock (including, without limitation, by way of a
tender offer) or similar transactions involving CTFG, the Bank or any of
CTFG's subsidiaries, other than the transactions
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<PAGE> 19
contemplated by this Agreement (any of the foregoing inquiries or
proposals being referred to in this Agreement as an "Acquisition
Proposal"), (ii) solicit, initiate, continue or engage in negotiations
or discussions concerning, or provide any non-public information or
data to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to, approve or recommend any Acquisition Proposal;
provided, that nothing contained in this Section 9(c) shall prevent
CTFG from furnishing non-public information or data to, or entering
into discussions or negotiations with, any person in connection with
an unsolicited Acquisition Proposal by such person or recommending an
unsolicited Acquisition Proposal to the stockholders of CTFG, if and
only to the extent that (1) CTFG's directors determine in good faith
that such action is required for the discharge of their fiduciary
duties to stockholders under applicable law if so advised by
independent counsel, and (2) CTFG advises the Taylor Family of all
such nonpublic information delivered to such person concurrently with
its delivery to the requesting party.
(2) CTFG shall notify the Taylor Directors immediately (and in
no event later than 24 hours) after receipt by CTFG of any Acquisition
Proposal or any request for non-public information in connection with
an Acquisition Proposal or for access to the properties, books or
records of CTFG by any person or entity that informs CTFG that it is
considering making, or has made, an Acquisition Proposal.
(d) Liabilities. After the date hereof and prior to the Closing Date,
CTFG and the Taylor Directors shall use their reasonable best efforts to cause
the Bank, Finance, CT Mortgage and each of their subsidiaries to pay or
discharge their current liabilities when the same become due and payable, except
for such liabilities as may be subject to a good faith dispute or counterclaim.
(e) Goodwill. After the date hereof and prior to the Closing Date, CTFG
and the Taylor Directors shall use their reasonable best efforts to cause each
of the Bank, Finance, CT Mortgage and each of their subsidiaries not to enter
into any transaction which will create goodwill on its books and records under
generally accepted accounting principles.
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(f) Insider Lending. After the date hereof and prior to the Closing
Date, CTFG and the Taylor Directors shall use their reasonable best efforts to
cause each of the Bank, Finance, CT Mortgage and each of their subsidiaries not
to change or modify any of its current practices relating to the lending of
money, secured or unsecured, to its affiliated persons, including but not
limited to its directors, officers and employees.
(g) No Violation. After the date hereof and prior to the Closing Date,
CTFG and the Taylor Directors shall use their reasonable best efforts to cause
each of the Bank, Finance, CT Mortgage and each of their subsidiaries not to
take any action which knowingly violates any statute, code, ordinance, rule,
regulation or judgment, order, writ, arbitral award, injunction or decree of any
court, governmental agency or body or arbitrator, domestic or foreign, having
jurisdiction over its properties.
(h) Operating Expenses. After the date hereof and prior to the Closing
Date, CTFG and the Taylor Directors shall use their reasonable best efforts to
cause each of the Bank, Finance, CT Mortgage and each of their subsidiaries not
to increase the level of its operating expenses in any material respect.
(i) Accounting. After the date hereof and prior to the Closing Date,
CTFG and the Taylor Directors shall use their reasonable best efforts to cause
each of the Bank, Finance, CT Mortgage and each of their subsidiaries to
maintain its books, accounts and records in accordance with generally accepted
accounting principles. CTFG and the Taylor Directors shall use their reasonable
best efforts to cause the Bank, Finance, CT Mortgage and each of their
subsidiaries not to make any change in any method of accounting or accounting
practice, or any change in the method used in allocating income, charging costs
or accounting for income, except as may be required by law, regulation or
generally accepted accounting principles. CTFG and the Taylor Directors shall
use their reasonable best efforts to cause the Bank, Finance, CT Mortgage and
each of their subsidiaries not to change any practice or policy with respect to
the charging off of loans or the maintenance of its reserves for possible loan
losses, except as required by law, regulation or generally accepted accounting
principles.
(j) Dividends. Except as required otherwise by law, the parties
acknowledge and agree that, from the date hereof through the Closing Date, the
Bank will pay monthly dividends to CTFG equal to one-half of Bank earnings with
an
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<PAGE> 21
adjustment in December, 1996 so that the cumulative dividends to CTFG for
calendar year 1996 are equal to $10,100,000; provided further, that if the
Closing Date occurs prior to January 1, 1997, the maximum amounts of dividends
which may be paid in calendar year 1996 shall be reduced by $27,671.23 for each
day after the Closing Date and prior to January 1, 1997; and provided further,
that such dividends will be $880,000 per month of calendar year 1997
($10,560,000 for all of calendar year 1997) if the Closing Date has not occurred
prior to December 31, 1996 and, if the Closing Date does not occur at the end of
a month, the dividends paid shall be pro-rated on a daily basis through the
Closing Date.
(k) Lenders' Consents. After the date hereof and prior to the Closing
Date, CTFG and the Taylor Directors will use their reasonable best efforts to
cause CTFG, the Bank and Finance to obtain any waivers, consents, amendments or
approvals required to prevent any default, acceleration or other adverse effect
upon CTFG, the Bank or Finance under any indenture, credit agreement, note or
other indebtedness of CTFG, the Bank or Finance.
10. Additional Agreements.
(a) Continuing Access to Information. CTFG shall permit the Taylor
Family and its authorized representatives reasonable access during regular
business hours to the Bank's properties and those of the Bank's subsidiaries and
CT Mortgage. The Bank shall make its and its subsidiaries' directors,
management and other employees and agents and authorized representatives
(including counsel and independent public accountants) available to confer with
the Taylor Family and its authorized representatives at reasonable times and
upon reasonable request, and CTFG shall, and shall cause the Bank and its
subsidiaries and CT Mortgage to disclose and make available to the Taylor
Family, and shall use its reasonable best efforts to cause its agents and
authorized representatives to disclose and make available to the Taylor Family,
all books, papers and records relating to the assets, properties, operations,
obligations and liabilities of the Bank and its subsidiaries and CT Mortgage.
(b) Notification of Change. CTFG shall promptly notify the Taylor
Directors and the Taylor Directors shall promptly notify the Board of any
material change in the ordinary course of business or in the operation of the
properties of the Bank or any of its subsidiaries or CT Mortgage and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may
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<PAGE> 22
be contemplated), or the institution or the threat of litigation involving the
Bank or its subsidiaries or CT Mortgage which is known to CTFG and which is
material or which might have a material adverse effect, or of any other material
breach by CTFG, the Bank or any of its subsidiaries or CT Mortgage of any
representation, warranty, covenant or agreement set forth in this Agreement, and
will keep the Taylor Family promptly and fully informed of such events. CTFG
will consult with the Taylor Directors before taking any steps to comply with
suggestions made by any Applicable Governmental Authorities which could
reasonably be considered significant to the Bank or CT Mortgage.
(c) Information for Regulatory Filings. CTFG promptly shall furnish the
Taylor Directors, and the Taylor Directors shall furnish the Board, with any
information relating to CTFG, the Bank or any of its subsidiaries or CT Mortgage
which is required under any applicable law or regulation for inclusion in any
filing that the Taylor Family, on the one hand, or CTFG, on the other hand, is
required to make with any regulatory or supervisory authority (including the SEC
and State securities authorities) in order to consummate the transactions
contemplated by this Agreement. CTFG represents and warrants to the Taylor
Family that all information so furnished by it shall be true and correct in all
material respects without omission of any material fact required to be stated to
make the information stated therein not misleading and the Taylor Family
represents and warrants to CTFG that all information furnished by it relating to
the transactions contemplated by this Agreement or relating to its ownership
interest in CTFG shall be true and correct in all material respects without
omission of any material fact required to be stated to make the information
stated therein not misleading.
(d) Regulatory Approvals. As promptly as practicable, and in any event
no later than August 31, 1996, the Taylor Directors will submit any necessary
applications to the Applicable Governmental Authorities for approval of the
transactions contemplated hereby, including but not limited to, the Federal
Reserve Board, FDIC and the Illinois Commissioner of Banks. The Bank and CTFG
shall cooperate with and shall assist the Taylor Directors in the preparation
and filing of all such applications.
(e) Private Letter Ruling. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to obtain a private letter ruling from the
Internal Revenue Service (the "IRS")
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<PAGE> 23
that the exchange of Bank (or, as the case may be, Newco) Stock for CTFG Stock
held by the Taylor Family members constitutes a tax-free transaction under
Section 355 of the Internal Revenue Code, and that the transfer of Bank Stock to
Newco constitutes a tax-free transaction to CTFG and Newco (the "Private Letter
Ruling"); provided, however, that no party shall be required to make any
representation or take any action having an effect inconsistent with the
limitations set forth on Schedule 10(e). CTFG will agree to any changes in the
structure of the transactions contemplated herein required by the IRS before it
will issue the Private Letter Ruling so long as such changes do not materially
affect the benefits or impact (economic or otherwise) of, or legal risks
associated with, those transactions on CTFG, Finance or any of their
subsidiaries, affiliates, shareholders, or employees other than the Bank or the
members of the Taylor Family. CTFG and Finance agree in particular that if
necessary they will either eliminate intercompany debt between them prior to the
Closing or, alternatively, convert obligations of Finance to CTFG into a term
promissory note with a minimum term of 10 years. Except as set forth in
Schedule 10(e), neither party shall take action that is intended to cause the
transactions contemplated herein not to qualify as a tax-free exchange under the
Internal Revenue Code. All contacts with the IRS shall be coordinated through
the Taylor Family and its representatives. Counsel for CTFG shall be entitled
to attend all meetings with and participate in all material discussions with the
IRS in connection with the ruling process, and shall review (prior to
submission) all written material submitted to the IRS.
(f) CTFG Shareholder Approval.
(i) CTFG, acting through the Board, shall in accordance with
applicable law and subject to the fiduciary duties of the Board under
applicable law (as determined in good faith after consultation with
independent counsel), as soon as practicable following the execution of
this Agreement:
(x) duly call, give notice of, convene and hold an annual or
special meeting of its shareholders (the "Shareholders Meeting") for the
purpose of considering and taking action upon this Agreement;
(y) prepare and file with the SEC a proxy or information
statement (as amended or supplemented, the "Proxy Statement") to be mailed
to CTFG's shareholders in connection with the Shareholders Meeting and
include in the Proxy Statement the recommendation of the Board
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<PAGE> 24
that shareholders of CTFG vote in favor of the approval and adoption of
this Agreement and the transactions contemplated hereby; and
(z) use its reasonable best efforts (A) to obtain and furnish the
information required to be included by it in the Proxy Statement and, after
consultation with the Taylor Family, respond promptly to any comments made
by the SEC with respect to the Proxy Statement and any preliminary version
thereof and cause the Proxy Statement to be mailed to its shareholders at
the earliest practicable time and (B) to obtain the necessary approvals by
its shareholders of this Agreement and the transactions contemplated
hereby.
(ii) CTFG and the Taylor Family shall cooperate in the preparation of
the Proxy Statement. The Proxy Statement shall not, at the time filed with
the SEC, at the time mailed to the Company's shareholders, at the time of
the Shareholders Meeting or at the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(iii) At the Shareholders Meeting, the members of the Taylor Family
will vote all shares of CTFG Stock owned or controlled by them in favor of
this Agreement and the transactions contemplated hereby.
(g) Compliance with Tax and Regulatory Representations.
(i) Each party hereto will comply with any covenants it makes in
connection with the Private Letter Ruling or with any Applicable
Governmental Authority to ensure the tax-free nature of the transactions
contemplated hereby. CTFG, for the two-year period following the Closing
Date, will cause Auto Sub to continue the operation of the used automobile
receivables business previously operated by the Bank through undertaking
the following actions: (v) purchasing the same type of automobile
receivables previously purchased by the Bank (except that such receivables
may be collateralized by used automobiles only), (w) maintaining a
portfolio of at least $30,000,000 in face amount value of such receivables
(net of unearned finance charge); (x) continuing to underwrite, collect and
process such receivables; (y)
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<PAGE> 25
to the extent practicable, purchasing receivables from the same automobile
dealerships from which the Bank previously purchased such receivables, and
(z) to the extent practicable, retaining the employees specified in
Schedule 3.1 transferred from the Bank to conduct the Auto Sub business.
(ii) For the two-year period following the Closing Date, unless the
Taylor Family has obtained a written opinion from nationally recognized tax
counsel, which opinion shall be reasonably satisfactory in form and
substance to tax counsel for CTFG, that the desired transactions and any
transaction related thereto will neither affect the qualification of the
exchange of the Bank Stock (or the Newco Stock, as the case may be) for the
CTFG Stock under Section 355 of the Code nor affect the validity of the
Private Letter Ruling (a "Tax Opinion"), (x) no Taylor Family member will
sell, exchange, transfer or enter into any transaction reducing economic
risk with respect to, the Bank Stock received in the split-off, (y) the
Taylor Family will cause the Bank to continue the active conduct of its
banking business, and (z) the Taylor Family will not permit either the Bank
or Newco (if Newco is formed) to (A) merge or consolidate with or into any
other corporation, (B) liquidate or partially liquidate, (C) sell or
transfer any significant part of its assets, (D) redeem or otherwise
purchase any of its capital stock, or (E) except as specifically
contemplated by the Private Letter Ruling, issue additional shares of its
capital stock; provided, however, that, regardless of whether the Taylor
Family has obtained a Tax Opinion, the Taylor Family shall not enter into
any agreement, arrangement or understanding for transfer of control of the
Bank or Newco (a "Transfer Arrangement") for one year following the Closing
Date and, if the Taylor Family enters into a Transfer Arrangement more than
one year but less than two years following the Closing Date, the Taylor
Family shall remain responsible for ensuring that, and shall obtain a
written contractual commitment from the other parties to the Transfer
Arrangement that they will ensure that, the Bank and Newco comply with this
Section 10(g)(ii) except to the extent that the Tax Opinion also opines
that the qualification of the exchange of the Bank Stock (or the Newco
Stock, as the case may be) for the CTFG Stock under Section 355 and the
validity of the Private Letter Ruling will not be affected by the
particular actions specified in the Tax Opinion.
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<PAGE> 26
(iii) For the two-year period following the Closing Date, unless CTFG
has obtained a written opinion from nationally recognized tax counsel,
which opinion shall be reasonably satisfactory in form and substance to tax
counsel for the Taylor Family, that the desired transactions and any
transaction related thereto will neither affect the qualification of the
exchange of the Bank Stock (or the Newco Stock, as the case may be) for the
CTFG Stock under Section 355 of the Code nor affect the validity of the
Private Letter Ruling, (x) CTFG will not sell, exchange or transfer the
capital stock of Auto Sub, (y) CTFG will not permit Auto Sub to (A) merge
or consolidate with or into any other corporation (other than a merger of
Finance with and into Auto Sub), (B) liquidate or partially liquidate, or
(C) sell or transfer any significant part of the UARB Assets and (z) CTFG
will not redeem or repurchase any shares of CTFG Stock (except for
purchases of up to 16 percent of the outstanding CTFG Stock as described in
Schedule 10(e) or such greater amounts as may be consistent with the
Private Letter Ruling).
(iv) CTFG and the Bank shall immediately amend their existing tax
allocation agreement so that (A) the allocation of federal, state and local
tax liabilities through the Closing between CTFG and its subsidiaries on
the one hand and Bank on the other shall continue in a manner consistent
with past practice, except that, beginning with the date of the execution
of this Agreement, all tax benefits associated with the exercise or buyout
of all compensatory options on CTFG shares, whether held by employees or
former employees of the Bank or otherwise, shall inure solely to the
benefit of CTFG; and (B) any claims or liabilities arising from audits
(including audits commenced or completed after the Closing) of preclosing
periods shall be borne by the party (i.e., the Bank and CT Mortgage on the
one hand or CTFG and its continuing subsidiaries on the other) to whom the
adjustment is attributable. The party financially responsible for a
proposed audit adjustment shall be afforded the opportunity to determine
and direct the defense of the particular matter at its own expense and the
matter shall be settled or compromised only with such party's consent.
(v) Each of the Bank and/or Newco and CTFG shall deliver a
certificate of an officer as to compliance with such covenants to the other
on the last day of
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each calendar quarter until such ongoing covenants have terminated.
(h) Deconsolidation. After the Closing, CTFG and the Taylor Directors
agree to take such steps in accordance with generally accepting accounting
principles to deconsolidate the Bank from CTFG for accounting purposes. The
parties acknowledge that any Options exercised immediately prior to Closing
pursuant to this Agreement are Options of CTFG, and shall be treated as such for
tax, accounting and deconsolidation purposes.
(i) Lease Arrangements. If requested by CTFG, for 90 days after the
Closing Date, the Bank will sublease to CTFG the space currently utilized by
CTFG on terms reasonably acceptable to the parties hereto. On the Closing Date,
CTFG will assign to the Bank any leases, licenses, and real or personal property
used by or adjacent to the Bank properties but owned by CTFG or Reliance
Acceptance Corporation for no additional consideration. All property (including
leases and real property) owned by the Bank on the date hereof shall be and
remain the property of the Bank on and after the Closing Date.
(j) Employees. CTFG hereby assumes all liability (and indemnifies the
Bank and the Taylor Family against such liability) for any payments which, as a
result of the Closing, are owed to the persons listed on Schedule 10(j)(i) or
full-time employees of Finance or its subsidiaries. The Taylor Family will
cause the Bank to assume all liability (and to indemnify CTFG and its
subsidiaries against such liability) for any severance or change of control
payments which, as a result of the Closing, are owed to any employee of CTFG,
the Bank or any of their affiliates other than the persons listed on Schedule
10(j)(i) and other than full-time employees of Finance or any of its
subsidiaries. On the Closing Date, the employees of CTFG other than the persons
listed on Schedule 10(j)(i) and persons who are also full-time employees of
Finance or any of its subsidiaries will remain or become employees of the Bank.
(k) CT Mortgage Comfort. CTFG has made, and through the Closing Date
will continue in the normal course of business in accordance with prior practice
to make, representations and provide indemnification, guarantees as customarily
required by mortgage investors to assure the validity of mortgages sold and
other assurances to purchasers of mortgages and mortgage-backed securities from
CT Mortgage and the Bank. After the Closing the Bank will indemnify and hold
harmless CTFG from any liability with respect thereto.
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<PAGE> 28
(l) Finance Comfort. CTFG has made and will make representations
and provide indemnification and other assurances and make-well agreements
to purchasers of securities and mortgages from, and creditors of, Finance.
The parties acknowledge that the Bank has no responsibility for such
agreements and CTFG will indemnify and hold the Bank and CT Mortgage
harmless from any liability with respect thereto.
(m) Insurance Policies. The Bank may purchase from CTFG any
insurance policies owned by CTFG and providing coverage with respect to the
Bank or any of its officers at the greater of the book value of such
policies or the cash value of such policies. CTFG may purchase from the
Bank any insurance policies owned by the Bank and providing coverage with
respect to CTFG, any of its subsidiaries or any of their respective
officers at the greater of the book value of such policies or the cash
value of such policies.
(n) Employee Benefit Plans.
(i) CTFG's obligations to CTFG employees who will become Bank employees at
Closing, provided such obligations are incurred prior to the Closing (including
a pro rata portion of obligations accruing with the passage of time in
accordance with usual practice but for which cash or other contributions are not
then required) pursuant to its benefit plans, including, without limitation, the
CTFG 1996 incentive plan, the CTFG 401(k) Plan and the CTFG ESOP, will be and
remain the responsibility of CTFG. The Bank's obligations to Bank employees who
will become employees of CTFG at Closing, provided such obligations are incurred
prior to the Closing (including a pro rata portion of obligations accruing with
the passage of time in accordance with usual practice but for which cash or
other contributions are not then required) pursuant to the CTFG benefit plans in
which the Bank participates, including, without limitation, the CTFG 1996
incentive plan, the CTFG 401(k) Plan and the CTFG ESOP, will be and remain the
responsibility of the Bank. Any such accrued and unpaid salary and vacation
will be paid in full at or prior to the Closing. Any such accrued and unpaid
amounts under the 1996 incentive plan, the CTFG 401(k) Plan and the CTFG ESOP
shall be paid in accordance with the terms of such plans.
(ii) 401(k) Plans.
(A) Prior to the Closing Date but no later than the transfer date
described in paragraph (B) next below, the Taylor Family shall cause the
Bank or Newco to establish a profit sharing plan with a salary reduction
arrangement that covers the employees who are or will become employees of
the Bank and former employees of the Bank ("Bank Employees") and
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<PAGE> 29
meets the requirements of Sections 401(a) and 401(k) of the Code (the "CTB
401(k) Plan"). The Taylor Family shall cause the sponsor of the CTB 401(k)
Plan to credit the Bank Employees with all service credited to them under
the CTFG 401(k) Plan as of the Closing Date and to fully vest them in the
account balances that are transferred from the CTFG 401(k) Plan to the CTB
401(k) Plan.
(B) Prior to the Closing Date, CTFG shall cause the account
balances of all Bank Employees under the CTFG 401(k) Plan as of the date of
the transfer (other than the accounts of those Bank Employees who are
expected to become employees of CTFG at Closing) to be transferred from the
trust maintained under the CTFG 401(k) Plan to the trust maintained under
the CTB 401(k) Plan. Shares of CTFG Stock allocated to the account balances
of the Bank Employees shall be transferred in kind. Such transfer shall be
made only after the sponsor of the CTB 401(k) Plan has supplied CTFG either
a copy of an Internal Revenue Service determination letter finding the CTB
401(k) Plan to be a qualified plan meeting the requirements of Sections
401(a) and 401(k) of the Code or an opinion of counsel or written
representation from the sponsor of the CTB 401(k) Plan (with appropriate
indemnities), in either case to the effect that the CTB 401(k) Plan is a
qualified plan under Sections 401(a) and 401(k) of the Code and the related
trust is exempt from taxation under Section 501(a) of the Code, and an
agreement that the sponsor of the CTB 401(k) Plan will timely request a
determination letter from the IRS with respect to the qualified status of
the CTB 401(k) Plan and will make any and all changes to the CTB 401(k)
Plan necessary to receive a favorable determination letter. As soon as
practicable after the Closing Date, the Taylor Family shall cause the
sponsor of the CTB 401(k) Plan to transfer from the trust maintained under
the CTB 401(k) Plan to the trust maintained under the CTFG 401(k) plan the
account balances of all Bank Employees who become employees of CTFG at
Closing. As soon as practicable after the Closing Date, CTFG shall cause
the transfer from the trust maintained under the CTFG 401(k) Plan to the
trust maintained under the CTB 401(k) plan the account balances of all CTFG
employees who become employees of the Bank at Closing.
(C) The parties agree that the participants in the CTB 401(k) Plan,
in the discretion of the Taylor Family, may have the opportunity to
participate in the Exchange Transaction by electing to exchange for shares
of Newco Stock the shares of CTFG Stock held in their CTFG Stock accounts
under the CTB 401(k) Plan, subject to the terms and conditions of the
Exchange Agreement, as long as the
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requirements of applicable securities laws have been satisfied by the
closing date to which the parties have otherwise agreed.
(iii) ESOPs.
(A) Prior to the Closing Date, the Taylor Family shall cause the
Bank or Newco to establish an employee stock ownership plan that covers the
Bank Employees and meets the requirements of Sections 401(a) and 4975(e)(7)
of the Code (the "CTB ESOP"). The Taylor Family shall cause the sponsor of
the CTB ESOP to credit the Bank Employees with all service credited to them
under the CTFG ESOP as of the Closing Date and to fully vest them in the
account balances that are transferred from the CTFG ESOP to the CTB ESOP.
(B) The parties agree that prior to the Closing Date CTFG shall
cause the applicable employers to make contributions to the CTFG ESOP
sufficient to prepay the outstanding CTFG ESOP loan and shall cause, in
accordance with applicable law, the allocation to the accounts of
participants of the shares of CTFG Stock that are released from the
suspense account by reason of such loan prepayment.
(C) Effective as of the Closing Date, CTFG shall cause the shares
of CTFG Stock and cash held in the account balances of all Bank Employees
under the CTFG ESOP as of such date (other than the accounts of those Bank
Employees who become employees of CTFG on such date) to be transferred
from the trust maintained under the CTFG ESOP to the trust maintained
under the CTB ESOP. Such transfer shall be made only after the sponsor of
the CTB ESOP has supplied CTFG either a copy of an Internal Revenue
Service determination letter finding the CTB ESOP to be a qualified plan
meeting the requirements of Sections 401(a) and 4975(e)(7) of the Code or
an opinion of counsel or written representation from the sponsor of the
CTB ESOP (with appropriate indemnities), in either case to the effect that
the CTB ESOP is a qualified plan under Sections 401(a) and 4975(e)(7) of
the Code and the related trust is exempt from taxation under Section
501(a) of the Code, and an agreement that the sponsor of the CTB ESOP will
timely request a determination letter from the IRS with respect to the
qualified status of the CTB ESOP and will make any and all changes to the
CTB ESOP necessary to receive a favorable determination letter.
(D) The parties agree that the CTB ESOP, in the discretion of the
Taylor Family, may be offered the opportunity to participate in the
Exchange Transaction by exchanging for shares of Newco Stock the shares of
CTFG Stock that will be transferred to the CTB ESOP under
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<PAGE> 31
paragraph (C) next above, subject to the terms and conditions of the
Exchange Agreement, as long as the CTB ESOP trustee making the
determination on the exchange of the shares is an independent financial
institution and retains an independent financial advisor.
(iv) The parties agree that (A) prior to the Closing, they will come to
agreement on any other employee benefit plan matters that need to be resolved
and (B) they shall consult with each other and share information relating to all
the matters set forth in this Section 10(n).
11. Conditions Precedent to Obligations of the Taylor Family. The
obligations of the Taylor Family to effect the transactions contemplated hereby
shall be subject to the fulfillment at the Closing Date of each of the following
conditions (any one or more of which may be waived by the Taylor Family, but
only in writing):
(a) Status as of Closing Date. All representations and warranties
of CTFG contained in this Agreement shall be true in all material respects
when made and at and as of the Closing Date, as though such representations
and warranties were made at and as of the Closing Date (except where the
failure to be so true has been caused by the Taylor Family), and CTFG shall
have performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed and satisfied on or
prior to the Closing Date (except where the failure to be so performed or
satisfied has been caused by the Taylor Family), and at the Closing Date
there shall be delivered to the Taylor Family a certificate signed by an
officer of CTFG dated as of the Closing Date to the foregoing effect.
(b) Required Action. All action required to be taken by or on the
part of CTFG and the Bank to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the Boards of
Directors of CTFG and the Bank.
(c) Regulatory Approvals. Any applicable waiting periods under any
Applicable Laws shall have expired or been terminated and the transactions
contemplated by this Agreement shall have been approved by all Applicable
Governmental Authorities and such approval shall not contain or be subject
to any terms or conditions that the Taylor Family reasonably deems
materially burdensome. The IRS shall have issued rulings that (i) the
exchange of Bank (or, as the case may be, Newco) Stock for CTFG Stock held
by the Taylor Family members will be a tax-free transaction under
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<PAGE> 32
Section 355 of the Code, and (ii) that if the transfer of Bank Stock to
Newco is part of the transaction, that transfer will be a tax-free
transaction to CTFG and Newco.
(d) No Order Preventing Consummation. There shall not be any order,
injunction or decree of any such court or any governmental agency,
department or other regulatory body prohibiting the consummation of the
transactions contemplated hereby.
(e) Material New Litigation. After the date of this Agreement there
shall have been no litigation filed which could reasonably be expected to
have a material adverse effect on the business or financial condition (a
"Material Adverse Effect") of the Bank and its subsidiaries, taken as a
whole.
(f) No Action to Prevent or Restrict Transactions. No statute,
rule, regulation or policy shall have been proposed, promulgated or enacted
by any governmental or regulatory agency of competent jurisdiction which
prevents or restricts the transactions contemplated hereby.
(g) Pre-Closing Transactions. The transactions set forth in Section
3 hereof shall have occurred.
(h) Shareholder Approval. Shareholders of CTFG holding at least a
majority of the outstanding shares of CTFG Stock shall have approved the
transactions contemplated by this Agreement.
(i) Consents. All required approvals, consents and authorizations
of any third parties in connection with the transactions contemplated
hereby shall have been obtained except such approvals, consents and
authorizations which if not obtained would not individually or in the
aggregate have a Material Adverse Effect on the Bank and its subsidiaries,
taken as a whole.
12. Conditions Precedent to Obligations of CTFG. The obligations of CTFG
to effect the transactions contemplated hereby shall be subject to the
fulfillment at the Closing Date of each of the following conditions (any one or
more of which may be waived by CTFG, but only in writing):
(a) Status as of Closing Date. All representations and warranties
of the Taylor Family contained in this Agreement shall be true in all
material respects when made and at and as of the Closing Date, as though
such representations and warranties were made at and as of the Closing Date
(except where the failure to be so true has
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been caused by CTFG), and the Taylor Family and Taylor Directors shall have
performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed and satisfied on or
prior to the Closing Date (except where the failure to be so performed or
satisfied has been caused by CTFG), and at the Closing Date there shall be
delivered to CTFG certificates dated as of the Closing Date and signed by
Jeffrey Taylor, as representative of the Taylor Family, to the foregoing
effect.
(b) Required Action. All action required to be taken by or on the
part the Taylor Family to authorize the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby shall have been duly and validly taken by the Taylor Family and, if
appropriate, by the Board of Directors of Newco.
(c) Regulatory Approvals. Any applicable waiting periods under any
Applicable Laws shall have expired or been terminated, and the transactions
contemplated by this Agreement shall have been approved by all Applicable
Governmental Authorities and such approval shall not contain or be subject
to any terms or conditions that CTFG reasonably deems materially
burdensome. The IRS shall have issued rulings that (i) the exchange of Bank
(or, as the case may be, Newco) Stock for CTFG Stock held by the Taylor
Family members will be a tax-free transaction under Section 355 of the
Code, and (ii) that if the transfer of Bank Stock to Newco is part of the
transaction, that transfer will be a tax-free transaction to CTFG and
Newco.
(d) No Order Preventing Consummation. There shall not be any order,
injunction or decree of any such court or any governmental agency,
department or other regulatory body of competent jurisdiction prohibiting
the consummation of the transactions contemplated hereby.
(e) No Action to Prevent or Restrict Transactions. No statute,
rule, regulation or policy shall have been proposed, promulgated or enacted
by any governmental or regulatory agency of competent jurisdiction which
prevents or restricts or could prevent or restrict the transactions
contemplated hereby.
(f) Pre-Closing Transactions. The transactions set forth in Section
3 hereof shall have occurred.
(g) Material New Litigation. After the date of this Agreement there
shall have been no litigation filed which could reasonably be expected to
have a Material Adverse
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Effect on CTFG and its subsidiaries (other than the Bank), taken as a
whole.
(h) Shareholder Approval. Shareholders of CTFG holding at least a
majority of the outstanding shares of CTFG Stock shall have approved the
transactions contemplated by this Agreement.
(i) Consents. All required approvals, consents and authorizations
of any third parties in connection with the transactions contemplated
hereby shall have been obtained except such approvals, consents and
authorizations which if not obtained would not individually or in the
aggregate have a Material Adverse Effect on CTFG and its subsidiaries
(other than the Bank), taken as a whole.
13. Termination. This Agreement may be terminated at any time prior to
the Closing, notwithstanding approval thereof by the stockholders of CTFG:
(a) by mutual written consent of the Taylor Family and CTFG;
(b) by the Taylor Family or CTFG if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) by the Taylor Family or CTFG if the approval of any Applicable
Governmental Authorities has been denied or if any approval of any
Applicable Governmental Authorities contains or is subject to any terms or
conditions that the Taylor Family or CTFG reasonably deems to be materially
burdensome; provided, however, that neither the Taylor Family nor CTFG
shall terminate this Agreement pursuant to this Section 13(c) until the
other party has had a reasonable opportunity (but not to exceed 60 days) to
persuade the relevant Applicable Governmental Authority to change its
decision; and further provided that neither party may terminate this
Agreement pursuant to this Section 13(c) if it has not complied with all
reasonable requests of the other party in connection with the other party's
efforts to obtain such approval;
(d) provided that the party seeking termination pursuant to this
Section 13(d) shall have performed and satisfied in all material respects
all covenants and
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agreements required by this Agreement to be performed and satisfied by it
on or prior to the date of termination (except where the failure to be so
performed or satisfied has been caused by the other party), by the Taylor
Family or CTFG if the other party shall have breached in any material
respect any of its covenants or agreements contained in this Agreement
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within thirty days (but in no event
later than June 30, 1997) following receipt by such other party of written
notice of such failure to comply;
(e) provided that CTFG shall have performed and satisfied in all
material respects all covenants and agreements required by this Agreement
to be performed and satisfied by it on or prior to the date of termination
(except where the failure to be so performed or satisfied has been caused
by the Taylor Family), by CTFG if the Taylor Family has failed to submit a
request for the Private Letter Ruling to the Internal Revenue Services
prior to July 31, 1996 or an application to any Applicable Governmental
Authority whose approval is required for the transactions contemplated
herein prior to August 31, 1996;
(f) by the Taylor Family or CTFG if the Closing has not occurred
prior to June 30, 1997 (provided, however, that a party may not terminate
this Agreement under this Section 13(f) if that party has caused the
Closing not to occur in breach of this Agreement);
(g) by either CTFG or the Taylor Family if the IRS has finally
determined not to issue the Private Letter Ruling or has issued an adverse
ruling (provided, however, that neither the Taylor Family nor CTFG shall
terminate this Agreement pursuant to this Section 13(g) until the other
party has had a reasonable opportunity (but not to exceed 60 days) to
persuade the IRS to change its decision);
(h) by CTFG, prior to the Shareholders Meeting, after CTFG's receipt
of an Acquisition Proposal if the Board determines, based on the advice of
independent counsel, that such action is required for the discharge of its
fiduciary duties to shareholders under applicable law;
(i) by the Taylor Family if the Board shall have withdrawn or
modified in a manner adverse to the Taylor Family its approval of this
Agreement or its recommendation that CTFG's shareholders approve the
transactions contemplated hereby or if CTFG shall have entered into an
agreement providing for an Acquisition Proposal or the Board shall have
resolved to do any of the foregoing;
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(j) by the Taylor Family if the Shareholders Meeting has not occurred
prior to November 28, 1996 (provided, however, that the Taylor Family may
not terminate this Agreement under this Section 13(j) if the Taylor Family
has caused the Shareholders Meeting not to occur prior to November 28,
1996);
(k) by either CTFG or the Taylor Family if shareholders of CTFG
holding a majority of CTFG's outstanding common stock do not approve the
transactions contemplated herein at the Shareholders Meeting; or
(l) by CTFG if the Taylor Family has not complied with its
obligations under Section 6 within five business days after the execution
of this Agreement (provided, however, that CTFG may not terminate this
Agreement pursuant to this Section 13(l) if CTFG has prevented such
compliance by the Taylor Family).
14. Effect of Termination. (a) If this Agreement is terminated pursuant
to Section 13(h), or pursuant to Section 13(i) under circumstances where the
actions of CTFG or the Board which triggered the right of the Taylor Family to
terminate this Agreement pursuant to Section 13(i) were permitted by Section
9(c) and not otherwise a breach of this Agreement, CTFG shall immediately pay
the Taylor Family as an exclusive remedy liquidated damages in an amount equal
to (i) its out of pocket expenses paid to lawyers, accountants, investment
bankers or other experts plus (ii) three percent of the fair market value
(determined as of the date this Agreement is terminated) of the Acquisition
Proposal that gave rise to the termination of this Agreement.
(b) If this Agreement is terminated by the Taylor Family pursuant to
Section 13(d), CTFG shall immediately pay the Taylor Family as an exclusive
remedy liquidated damages equal to $15 million.
(c) If this Agreement is terminated pursuant to (i) Section 13(c)
other than because of a failure to obtain the approval of the Applicable
Governmental Authorities resulting from a failure to comply with the
Community Reinvestment Act or fair lending statutes, (ii) pursuant to
Section 13(f) where the failure to have closed before the applicable date
was caused by (x) a failure to have obtained the Private Letter Ruling, (y)
a failure to obtain the financing required by Section 5.2, or (z) the
failure to have obtained the approval of the Applicable Governmental
Authorities for any reason other than a failure to comply with the
Community Reinvestment Act or fair lending statutes or (iii) pursuant to
Section 13(g) (a termination pursuant
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to (i), (ii) or (iii) of this Section 14(c) being a "Triggering
Termination"), then CTFG will be entitled, subject to adjustment pursuant
to, and in the manner provided by, Section 14(d), to receive from the
Taylor Family, as an exclusive remedy, liquidated damages in an amount
equal to $15 million.
(d) If this Agreement is terminated as a result of a Triggering
Termination, CTFG agrees to immediately use its reasonable best efforts to
solicit bids from third parties for the sale of all of the equity interest
in the Bank (the "Bank Sale Process"). The Taylor Family shall use its
reasonable best efforts to support the Bank Sale Process. If members of
the Taylor Family are members of the Board, those Board members shall
direct the Bank Sale Process, which power of direction shall include the
right to choose an investment banker to represent CTFG (with such
investment banker to be retained and compensated by CTFG on customary
terms) in connection with the Bank Sale Process. The Nominating Committee
of the Board shall reslate any Taylor Director for reelection as a director
of CTFG if his present term will expire before the end of the Bank Sale
Process. If, during the nine month period after a Triggering Termination,
CTFG receives a Sufficient Bona Fide Offer to acquire all of the equity
interest in the Bank that the Taylor Family wishes the Board to consider,
the obligation of the Taylor Family to pay CTFG $15 million pursuant to
Section 14(c) shall be reduced (provided that in no event shall such
obligation ever be less than zero) by the amount by which the Sufficient
Bona Fide Offer would provide CTFG with gross proceeds with a fair market
value in excess of $235 million, and CTFG shall be entitled to receive the
amount payable under Section 14(c), as reduced pursuant to this sentence.
The Board shall be under no obligation to accept a Sufficient Bona Fide
Offer that the Taylor Family wishes the Board to consider; provided,
however, that should the Board decide to reject a Sufficient Bona Fide
Offer, the obligation of the Taylor Family to pay CTFG $15 million shall
nonetheless be reduced as provided for in the preceding sentence. If no
Sufficient Bona Fide Offer that the Taylor Family wishes the Board to
consider has been made during the nine months after a Triggering
Termination, the full $15 million payable under Section 14(c) shall be
payable to CTFG. A "Sufficient Bona Fide Offer" shall be an offer for all
of the equity interest in the Bank from a financially reliable third party
(or parties) and subject only to customary terms and conditions that, if
accepted, would be likely to be consummated and that, if consummated, would
provide CTFG with gross proceeds with a fair market value in excess of $235
million. Notwithstanding the foregoing, the Board, without the
participation of any
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member of the Taylor Family, may resolve not to pursue the Bank Sale
Process, to terminate the Bank Sale Process (with or without an agreement
to sell all of the equity interest in the Bank) or to enter into an
agreement providing for the merger or disposition of the stock or assets of
CTFG prior to the expiration of the nine month period following a
Triggering Termination, in which case the obligation of the Taylor Family
to pay CTFG $15 million pursuant to Section 14(c) shall be extinguished.
Any amounts payable under Section 14(c) or this Section 14(d) may be paid,
at the option of the Taylor Family, in cash, in CTFG Stock valued at the
Market Value as of the date of such payment, or in a combination of cash
and CTFG Stock valued at the Market Value (as defined below) as of the date
of such payment and shall be paid within seven days from the expiration of
the Taylor Sale Period. Should any such amounts not be paid by the Taylor
Family within such seven days, the amount shall be paid from the Escrow
Fund to the extent the Escrow Fund is sufficient for this purpose and
immediately by the Taylor Family directly to the extent the Escrow Fund is
insufficient for this purpose. Should the Taylor Family pay such
liquidated damages from another source, CTFG agrees to issue joint written
instructions with the Taylor Family to effectuate the release of the Escrow
Fund to the Taylor Family. The term "Market Value" on any date shall mean
the average of the last quoted trading price of CTFG Stock on the Nasdaq
Stock Market for the five preceding Nasdaq Stock Market trading days. The
"Taylor Sale Period" shall be the shorter of (i) the nine month period
after a Triggering Termination, (ii) the period beginning with a Triggering
Termination and ending with a decision by the Board to not pursue or to
terminate the Bank Sale Process or (iii) the period beginning with a
Triggering Termination and ending on the date the Taylor Directors present
a Sufficient Bona Fide Offer to the Board.
(e) In the event of the termination of this Agreement pursuant to
Section 13, this Agreement shall forthwith become void and have no effect,
other than as provided in this Section 14, in the second to last sentence
of Section 5.2, in Section 9 (provided that, in the absence of a Triggering
Termination, Section 9 shall become void and have no effect upon the
termination of this Agreement), in Section 17 and in Section 24. No
termination of this Agreement and nothing contained in this Section 14(e)
shall relieve any party from liability for any breach of this Agreement
except insofar as liquidated damages are paid by any party pursuant to
Sections 14(a), 14(b) or 14(c). The parties acknowledge that the liquidated
damages specified in Sections 14(a), 14(b) and 14(c) are not a penalty, and
are reasonable in light of the anticipated or actual harm, the
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difficulty of proof of loss, and the inconvenience and non-feasibility of
otherwise obtaining an adequate remedy.
15. Indemnification. (a) The Taylor Family shall indemnify and hold
harmless CTFG and its affiliates from and against any and all losses, damages,
claims, liabilities or obligations (including attorneys' fees and interest)
("Losses") with respect to (i) any breach of any representation, warranty or
agreement of the Taylor Family contained in this Agreement and (ii) any
brokerage fees, commissions or finders' fees payable on the basis of any action
taken or caused to be taken by the Taylor Family. After the Closing, the Taylor
Family shall cause the Bank to indemnify and hold harmless CTFG and its
affiliates from and against any and all Losses (x) whenever incurred, arising or
accrued, relating to the Bank or CT Mortgage or CTFG's ownership of securities
in the Bank, CT Mortgage or Alpha Capital Fund or (y) incurred, arising or
accrued prior to the Closing and relating to Auto Sub. In addition, after the
Closing, the Taylor Family shall indemnify and hold harmless CTFG from and
against 25% of any Losses, including, without limitation, any costs or expenses
of defense or settlement of any suits, actions or proceedings initiated by third
parties and any judgments in such suits, actions or proceedings relating to the
transactions contemplated by this Agreement and any Losses relating to disputes
regarding Option terminations or limitations (collectively, "Transaction
Challenge Losses"); provided, however, that Transaction Challenge Losses shall
be net of any insurance proceeds paid to, or for the benefit of, CTFG or members
of the Board, and provided, further, that, for purposes of computing what the
Taylor Family owes under this sentence, any attorneys fees or expenses,
settlements or judgments paid separately by the Taylor Family in connection with
suits, actions or proceedings relating to the transactions contemplated by this
Agreement or regarding Option limitations or terminations (net of any insurance
proceeds paid to, or for the benefit of, the Taylor Family) shall (A) be
considered part of Transaction Challenge Losses and (B) constitute a credit
against any amounts that the Taylor Family owes under this sentence (with such
credit not to exceed such amounts that the Taylor Family owes under this
sentence).
(b) CTFG shall indemnify and hold harmless the Taylor Family, its
affiliates, and the Bank from and against any and all Losses with respect to (i)
any breach of any representation, warranty or agreement of CTFG contained in
this Agreement and (ii) any brokerage fees, commissions or finders' fees payable
on the basis of any action taken or caused to be taken by CTFG. In addition,
after the Closing, CTFG shall indemnify and hold harmless the Taylor Family from
and against any and all Losses (x) whenever incurred, arising or accrued,
relating to CTFG (except for matters for which the Taylor Family is indemnifying
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CTFG pursuant to this Agreement) or Finance or (y) incurred, arising or accrued
after the Closing and relating to Auto Sub.
(c) As soon as reasonably practicable after becoming aware of a claim for
indemnification under this Agreement, the person claiming a right to
indemnification (the "Indemnified Person") shall promptly give notice to the
person from whom indemnification is being sought (the "Indemnifying Person") of
such claim and the amount of indemnification claimed hereunder; provided that
the failure of the Indemnified Person to give notice shall not relieve the
Indemnifying Person of its obligations under this Agreement except to the extent
(if any) that the Indemnifying Person shall have been prejudiced thereby.
(d) With respect to claims for indemnification arising out of a claim, or
the commencement of any suit, action or proceeding asserted by a person not a
party to this Agreement, the Indemnifying Person may, at its own expense (i)
participate in the defense of any such claim, suit, action or proceeding and
(ii) upon notice to the Indemnified Person and the Indemnifying Person's
delivering to the Indemnified Person a written agreement that the Indemnified
Person is entitled to indemnification pursuant to this Section 15 for all Losses
arising out of such claim, suit, action or proceeding, at any time during the
course of any such claim, suit, action or proceeding, assume the defense
thereof; provided that (y) the Indemnifying Person's counsel is reasonably
satisfactory to the Indemnified Person, and (z) the Indemnifying Person shall
thereafter consult with the Indemnified Person upon the Indemnified Person's
reasonable request for such consultation from time to time with respect thereto.
If the Indemnifying Person assumes such defense, the Indemnified Person shall
have the right (but not the obligation) to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by
the Indemnifying Person. Whether or not the Indemnifying Person chooses to
defend or prosecute any such claim, suit, action or proceeding, all parties
shall cooperate in the defense or prosecution thereof. Neither the Indemnifying
Person nor the Indemnified Person shall settle any matter subject to
indemnification under this Agreement without the consent of the other, which
consent shall not be unreasonably withheld.
16. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable on the part of such party, to consummate
and make effective the transactions contemplated by this Agreement at the
earliest practicable date, including the obtaining of all required consents,
approvals, waivers, exemptions, amendments and authorizations, give all notices,
and make or effect all filings,
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registrations, applications, designations and declarations, including, but not
limited to, those described herein, and each party shall cooperate fully with
the other (including by providing any necessary information) with respect to
the foregoing. Each of the parties agrees not to enter into, or agree to enter
into, any transaction or perform, or agree to perform, any act which would
result in any of the representations or warranties on the part of such party
not being true and correct in all material respects at and as of the time
immediately after the occurrence of any such transaction or event or on the
Closing Date or that would be likely to jeopardize the consummation of the
transactions contemplated hereby. In case at any time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of CTFG, the Bank and Newco and the members of the
Taylor Family will take all such necessary action.
17. Payment of Expenses. Except as otherwise specifically set forth
herein, each party hereto shall pay its own fees and expenses incident to
preparing for, entering into, and carrying out this Agreement and the
transactions contemplated hereby. The fees and expenses of CTFG and Finance,
including any brokers', finders', investment bankers', attorneys', filing,
accountants' or tax advisors' fees (collectively, "Fees") are to be borne by
CTFG, and the Fees of the Bank and the Taylor Family are to be borne by the
Taylor Family.
18. Publicity and Reports. CTFG shall coordinate all publicity relating
to the transactions contemplated by this Agreement and, except as otherwise
required by law or as required to secure the financing referred to in Section
5.2, the Taylor Family shall not issue any press release, publicity statement or
other public notice relating to this Agreement or any of the transactions
contemplated hereby, or communicate with analysts or the investment community,
without obtaining the prior consent of the Board, which consent shall not be
unreasonably withheld. All press releases, publicity statements, communications
with analysts or the investment community, or other public notice by CTFG
relating to this Agreement or any of the transactions contemplated hereby shall
be submitted for the approval of the full Board, including Sidney J. Taylor,
Jeffrey W. Taylor and Bruce W. Taylor. Each party shall obtain the prior
consent of the other party, which consent shall not be unreasonably withheld, to
the form and content of any application or report made to any regulatory
authority, taxing authority or similar agency in each case which relates to any
of the transactions contemplated by this Agreement and to any proxy or
information statement or other material to be delivered to CTFG shareholders.
19. Survival of Representations and Warranties. The representations and
warranties in Sections 7(a), 7(b), 7(d),
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7(g), 8(a), 8(b), 8(c), 8(f) and 8(g), and the covenants and agreements, made
herein shall survive the Closing to the fullest extent permitted under the
applicable statute of limitations. All other representations and warranties
contained in this Agreement shall not survive beyond the Closing.
20. Binding Effect. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by CTFG or the Taylor Family, in whole
or in part, and any attempted assignment in violation of this prohibition shall
be null and void; provided, however, that this Agreement shall be assignable by
the Taylor Family to an affiliate of the Taylor Family without the consent of
CTFG, but no such assignment shall relieve the Taylor Family of its obligations
hereunder if such assignee does not perform such obligations. Subject to the
foregoing, all of the terms and provisions hereof shall be binding upon, and
inure to the benefit of, the successors and assigns of the parties hereto.
21. Law Governing. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware. The parties hereto agree that the exclusive place of jurisdiction for
any action, suit or proceeding relating to this Agreement shall be in the courts
of the State of Delaware sitting in Wilmington, Delaware and each such party
hereby irrevocably and unconditionally agrees to submit to the jurisdiction of
such courts for the purposes of any such action, suit or proceeding. Each party
hereto irrevocably waives any objection it may have to the venue of any action,
suit or proceeding brought in such courts or to the convenience of the forum.
Final judgment in any such action, suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by the suit on the judgment, a certified
or true copy of which shall be conclusive evidence of the fact and amount of any
indebtedness or liability of any party therein described.
22. Counterparts. This Agreement may be executed in several counterparts
and one or more separate documents, all of which together shall constitute one
and the same instrument with the same force and effect as though all of the
parties had executed the same document.
23. Amendment and Waiver. Any of the terms or conditions of this
Agreement may be waived, amended or modified in whole or in part at any time
before or after the receipt of any approvals, to the extent authorized by
applicable law, by a writing signed by CTFG and the representatives of the
Taylor Family.
24. CTFG Action. From and after the date of this Agreement, any amendment
of this Agreement, any action or inaction of CTFG or any of its subsidiaries
relating to this
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Agreement (other than as set forth in Sections 9(a)(ii), 9(b) and 18),
including any termination of this Agreement by CTFG or any extension by CTFG of
the time for performance of any of the acts or obligations of the Taylor Family
or any waiver of CTFG's rights hereunder, will require the concurrence of the
Board or a duly authorized committee thereof by a majority of those voting
(assuming a quorum is present), without the vote of any member of the Taylor
Family.
25. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of the Taylor Family and CTFG and their respective
successors and permitted assigns, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
26. Notices. Any notice of communication required or permitted hereunder
shall be sufficiently given if in writing and (a) delivered in person or (b)
mailed by certified or registered mail, postage prepaid, as follows:
If to CTFG, addressed to:
Cole Taylor Financial Group, Inc.
350 East Dundee Road
Wheeling, Illinois 60090
Attn: James Kaplan
With a copy addressed to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Robert A. Helman and Scott J. Davis
With a copy addressed to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attn: Steven A. Shapiro
If to the Taylor Family, addressed to:
Mr. Jeffrey Taylor
62 Lakewood
Highland Park, Illinois 60035
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<PAGE> 44
With a copy addressed to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: Mark L. Yeager
27. Entire Agreement. All exhibits and lists referred to in this
Agreement are integral parts hereof, and this Agreement, such exhibits and
related lists, constitute the entire agreement among the parties hereto with
respect to the matters contained herein and therein, and supersede all prior
agreements and understandings between the parties with respect thereto.
28. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
* * *
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
COLE TAYLOR FINANCIAL GROUP, INC.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
"Taylor Family" Representatives
------------------------------------
Sidney Taylor
------------------------------------
Jeffrey Taylor
------------------------------------
Bruce Taylor
------------------------------------
Iris Taylor
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EXHIBIT A
ESCROW AGREEMENT
ESCROW AGREEMENT, made this ____ day of June, 1996, by and among Cole
Taylor Financial Group, Inc., a Delaware corporation ("CTFG"), those certain
persons listed on Schedule 7(b) of that certain Share Exchange Agreement dated
June __, 1996 by and among CTFG and such persons (the "Taylor Family") and
represented by the members of the Taylor Family shown on the signature page
hereof and The Northern Trust Company (the "Escrow Agent").
WHEREAS, CTFG and the Taylor Family have entered into a Share Exchange
Agreement (the "Agreement") in respect of the sale by CTFG of all the issued and
outstanding shares of capital stock and ownership interests in Cole Taylor Bank
(the "Bank") to the Taylor Family; and
WHEREAS, the Agreement requires that 750,000 shares of CTFG common stock
(the "Escrow Amount") be deposited in escrow by the Taylor Family pending
resolution of certain matters; and
WHEREAS, the Taylor Family agreed to and is prepared to place the Escrow
Amount in escrow with Escrow Agent; and
WHEREAS, the Escrow Agent is prepared to accept the deposit of the Escrow
Amount in escrow.
NOW THEREFORE, the parties agree as follows:
1. Escrow Agent shall open an escrow account on the date hereof in the joint
names of CTFG and the Taylor Family, entitled "CTFG/Taylor Agreement Escrow
Account".
2. The Taylor Family shall deliver the Escrow Amount to Escrow Agent for
deposit into the Escrow Account effective as of the date of the opening of said
Escrow Account.
3. Escrow Agent shall hold the Escrow Amount in escrow until such time as it
receives (i) a final order or judgment of a court of competent jurisdiction
directing the disposition of the Escrow Amount or any part thereof, together
with an opinion of counsel to CTFG or counsel to the Taylor Family to the
effect that such order or judgment is final and not subject to appeal or (ii)
joint written notice from CTFG and the persons whose names appear below as
representatives of the Taylor Family in which event Escrow Agent shall
distribute the Escrow Amount in accordance with the final order or judgment or
the joint written notice, as the case may be. The Escrow Agent shall hold any
interest,
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dividends, distributions or other earnings on the Escrow Amount for the sole
benefit of the Taylor Family and shall pay such amounts as instructed in
writing from time to time by the Taylor Family.
4. Any cash funds deposited in the Escrow Account shall be invested by Escrow
Agent in CTFG securities, government securities or certificates of deposit as
instructed by the Taylor Family. CTFG Stock deposited in the Escrow Account
shall be held for investment and shall not be sold or transferred except
pursuant to the requirements of this Escrow Agreement.
5. The duties and responsibilities of the Escrow Agent shall be limited to
those expressly set forth in this Agreement. No implied duties or
discretionary powers may be imputed to it by the terms of this Agreement, or
otherwise. The Escrow Agent shall not be subject to, nor obliged to recognize,
any other instrument governing the rights or duties of the other parties to
this Agreement, even though reference thereto may be made in this Agreement.
6. The Escrow Agent may disregard any and all notices or instructions
received from any source, except only (i) such notices or instructions as are
specifically provided for in this Agreement and (ii) orders or process of any
court of competent jurisdiction. If from time to time any property held
pursuant to this Agreement becomes subject to any order, judgment, decree,
injunction or other judicial process of any court of competent jurisdiction
("Order"), the Escrow Agent may comply with any such Order without liability to
any person, even though such Order may thereafter be annulled, reversed,
modified or vacated.
7. Whenever the Escrow Agent should receive or become aware of any conflicting
demands or claims with respect to this Agreement or the rights of any of the
parties hereto or any property held hereunder, the Escrow Agent may without
liability refrain from any action until the conflict has been resolved or,
alternatively, may tender into the registry or custody of any court which the
Escrow Agent determines to have jurisdiction all money or property in its hands
under this Agreement, together with such legal pleadings as it deems
appropriate, less a reasonable allowance for its outside legal fees and other
reasonable out-of-pocket expenses, and thereupon be discharged from all further
duties and liabilities under this Agreement. Any inaction or filing of
proceedings pursuant to this section shall not deprive the Escrow Agent of its
compensation during such inaction or prior to such filing.
8. Unless otherwise specifically indicated herein the Escrow Agent shall
proceed as soon as practicable to collect any checks or other collection items
at any time deposited hereunder. All
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<PAGE> 48
such collections shall be subject to the usual collection agreement regarding
items received by its commercial banking department for deposit or collection.
The Escrow Agent shall have no duty (1) to collect from any party any money,
securities or documents required to be deposited with it, (2) to notify anyone
of any payment or maturity under the terms of any instrument deposited
hereunder, or (3) to take any legal action to enforce payment of any check,
note or security deposited with it.
9. Except as may be specifically provided herein concerning investments of
cash, the Escrow Agent shall have no liability to pay interest on any money
held pursuant to this Agreement. The Escrow Agent may use its own bond
department in purchasing or selling securities. The Escrow Agent shall not be
liable for any depreciation or change in the value of such documents or
securities or any property evidenced thereby or for any losses incurred in
liquidating securities or other property to satisfy a distribution request.
All distributions provided for hereunder shall be made by the Escrow Agent from
the Escrow Amount or any interest, dividends, distributions or other earnings
thereon, subject to any unpaid fees and unreimbursed out-of-pocket expenses of
the Escrow Agent permitted by this Agreement which are then outstanding, in the
order that proper requests therefor are received by the Escrow Agent. In no
event shall the Escrow Agent be required to seek contributions from any source
or to advance its own funds in order to satisfy a distribution request.
10. The Escrow Agent shall not be responsible for any recitals of fact in this
Agreement, or for the sufficiency, form, execution, validity or genuineness of
any documents or securities deposited under this Agreement or for any
signature, endorsement or any lack of endorsement thereon, or for the accuracy
of any description therein, or for the identity, authority or rights of the
persons executing or delivering the same or this Agreement.
11. The Escrow Agent shall be fully protected in relying without investigation
upon any written notice, demand, certificate or document which it in good faith
believes to be genuine, as to the truth and accuracy of the statements made
therein, the identity and authority of the persons executing the same and the
validity of any signature thereon. Although the Escrow Agent may demand
specific authorizations (including corporate resolutions, incumbency
certificates and the like) or identification from a party or its representative
prior to taking any action hereunder, no such demand shall constitute a waiver
or deprive the Escrow Agent of the protections afforded by this paragraph.
12. The Escrow Agent shall not be personally liable for any act taken or
omitted by it under this Agreement in good faith and in the exercise of its own
best judgment. In no event shall the
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<PAGE> 49
Escrow Agent be liable to any person for special, indirect or consequential
damages of any kind, even if it is advised of the possibility thereof. The
parties shall jointly and severally indemnify, defend and hold harmless the
Escrow Agent from and against any and all claims that may be asserted against
the Escrow Agent by any third parties and any and all liability, loss, cost or
expense (including outside attorneys' fees in a reasonable amount) that may be
incurred by the Escrow Agent as a result of any such claim or otherwise as a
result of acting as Escrow Agent hereunder unless due to bad faith, gross
negligence or wilful misconduct. The obligations of the parties under this
paragraph shall survive termination of this Agreement and distribution of the
Deposit.
13. The Escrow Agent may engage nationally recognized legal counsel to advise
it concerning any of its duties in connection with this Agreement, or in case
it becomes involved in litigation on account of being Escrow Agent under this
Agreement, and reliance on the advice of such counsel shall fully protect the
Escrow Agent except for any action taken by Escrow Agent in bad faith or do to
its gross negligence or willful misconduct.
14. The Escrow Agent shall be entitled to a fee of $3,000, payable in advance
for each 12-month period or any part thereof, without proration plus
reimbursement for its reasonable expenses, including outside attorneys' fees in
a reasonable amount. The fees and expenses of the Escrow Agent shall be paid
by CTFG.
15. Any notices or communication required or permitted hereunder shall be
sufficiently given if in writing and (a) delivered in person, (b) mailed by
certified or registered mail, postage prepaid or (c) transmitted by facsimile,
as follows:
If to Escrow Agent, addressed to:
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
Attn: Frank D. Szymanek
Facsimile: (312) 557-2704
If to CTFG, addressed to:
Cole Taylor Financial Group, Inc.
350 East Dundee Road
Wheeling, IL 60090
Attn: James I. Kaplan
Facsimile: (847) 808-9145
With a copy addressed to:
A-4
<PAGE> 50
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Attn: Scott J. Davis
Facsimile: (312) 701-7711
If to the Taylor Family, addressed to:
Mr. Jeffrey Taylor
62 Lakewood
Highland Park, IL 60035
Fax: (847)___-____
With a copy addressed to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Attn: Mark L. Yeager
Fax: (312) 984-2099
Whenever under this Agreement the time for giving a notice or performing an
act falls upon a Saturday, Sunday, or holiday, such time shall be extended to
the next business day.
16. Any Escrow Agent may resign by written notice to the other parties to this
Agreement. Any such resignation shall be effective upon delivery of the
property then held in escrow to the successor Escrow Agent, whereupon the
resigning Escrow Agent shall be discharged of any further duties under this
Agreement. If an Escrow Agent resigns, the other parties shall appoint a
successor Escrow Agent; provided that if no successor is appointed within 30
days after resignation, the resigning Escrow Agent may appoint as successor any
corporation with trust powers in the United States or may tender the Deposit
into court as provided in paragraph 4.3 hereof.
17. The Escrow Agent shall not be responsible for any delays or failure to
perform caused by circumstances reasonably beyond its control, including but
not limited to breaches by other parties of their obligations hereunder, delays
by messengers or other independent contractors, mechanical or computer
failures, malfunctioning or breakdowns in public utilities, securities
exchanges, Federal Reserve Banks, or securities depositories; interference by
governmental units; strikes, lockouts, or civil disobedience; fires or other
casualties, acts of God or other similar occurrences.
18. The rights and duties of CTFG and the Taylor Family to each other shall be
governed by the laws of the state of Delaware. The rights and duties of the
Escrow Agent shall be determined in
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<PAGE> 51
accordance with the laws of the State of Illinois without reference to its
conflict of law principles. This Agreement shall be deemed to be a contract
made and to be performed in the State of Illinois.
19. This Agreement may be amended from time to time by written instrument
executed by all the parties other than the Escrow Agent; provided that duties
and liabilities of the Escrow Agent may not thereby be changed without its
prior written consent.
20. This Agreement shall benefit, and be binding upon, only the parties hereto
and their respective heirs, estates, successors and assigns (each a "Party").
Nothing in this Agreement shall be construed to give any right against the
Escrow Agent to any person who is not a Party. The Escrow Agent shall have no
duty, express or implied, to any non-Party and no such person shall be deemed a
"third party beneficiary" of this Agreement.
21. The Escrow Agent shall furnish CTFG and the Taylor Family upon the request
of either CTFG or the Taylor Family with a report showing receipts and
disbursements during the period and a priced list of (publicly traded) assets.
Valuations appearing on such reports or otherwise utilized hereunder may be
obtained from third parties generally recognized as sources of pricing
information, but the Escrow Agent shall not be liable for the accuracy of
valuations furnished by recognized pricing sources.
22. This Agreement contains the entire agreement among the parties hereto with
respect to the subject matter hereof and may not be amended or modified in any
manner except by an instrument signed by all parties hereto.
* * *
A-6
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
COLE TAYLOR FINANCIAL GROUP, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
"TAYLOR FAMILY" REPRESENTATIVES
-------------------------------------
Sidney Taylor
-------------------------------------
Jeffrey Taylor
-------------------------------------
Bruce Taylor
-------------------------------------
Iris Taylor
THE NORTHERN TRUST COMPANY
By:
-------------------------
Name:
------------------------
Title:
-----------------------
A-7
<PAGE> 53
Schedule 3.1
1. Tom Collins
2. ___________*
3. ___________*
4. ___________*
* To be selected by Tom Collins from persons currently reporting to him.
<PAGE> 54
Schedule 7(b)
TAYLOR FAMILY
Directly Owned Shares
Sidney Taylor 53,900
Jeffrey Taylor 86,880
Bruce Taylor 126,880
Cindy Bleil 126,880
Indirectly Owned Shares
Iris Taylor TR FBO Adam Taylor 21,720
Melvin Pearl TR/BT Gift Trust 26,480
Melvin Pearl TR/Brett Daniel Taylor 8,800
Iris Taylor TR/Brett Daniel Taylor 11,320
Iris Taylor TR/Brian Taylor 21,720
Iris Taylor TR/Bruce Taylor 21,720
Melvin Pearl TR/Tark/Bruce Taylor 211,320
Iris Taylor TR/Cindy Taylor Bleil 21,720
Melvin Pearl TR/Tark/Cindy Taylor Bleil 211,320
Melvin Pearl TR/Cindy Taylor 26,520
Cole Taylor Bank/FBO SJT 38,040
Cole Taylor Bank/Tark Iris Fund 152,200
Melvin Pearl TR/FBO E. Bleil 8,800
Iris Taylor TR/FBO E. Bleil 4,640
Melvin Pearl TR/FBO E. B. Taylor 8,800
Iris Taylor TR/FBO Emily Taylor 21,760
Melvin Pearl TR/Tark/Bruce Taylor 261,320
Melvin Pearl TR/Tark/C. Bleil 261,320
Melvin Pearl TR/Tark/J. Taylor 261,320
Melvin Pearl TR/JWT Gift Trust 26,520
Iris Taylor TR/FBO JWT 17,800
Melvin Pearl TR/Tark/J.Taylor 211,320
Melvin Pearl TR/FBO Lisa Taylor 4,800
Iris Taylor TR/FBO Lisa Taylor 16,960
Iris Taylor TR/FBO Melissa Taylor 21,760
Melvin Pearl TR/FBO R. Bleil 8,800
Iris Taylor TR/FBO R. Bleil 11,320
Melvin Pearl TR/FBO Ryan Taylor 8,800
Iris Taylor TR/FBO Ryan Taylor 1,480
Iris Taylor TR/FBO Stephanie Taylor 16,960
Melvin Pearl TR/FBO Stephanie Taylor 4,800
Taylor Family Partnership 750,000
Sidney J. Taylor Trust under self 509,280
Susan Taylor Trust 40,000
CTFG Stock Options Owned
Jeffrey Taylor 140,270
<PAGE> 55
Bruce Taylor 140,270
ESOP Shares
Sidney Taylor 9,008.6824
Jeffrey Taylor 8,861.9830
Bruce Taylor 8,861.9961
<PAGE> 56
SCHEDULE 9(a)(i)
1. Complete the installation of the FAST teller and platform automation
systems.
2. Complete the NCS trust accounting system conversion.
3. Open up to five CT Mortgage offices, each on a month to month lease with a
maximum rental expense for each office of $1000 per month.
4. Manage the Bank's asset and liability position in accordance with
established policies and past practices, including without limitation the
purchase and sale of securities.
5. Purchase or sell mortgage servicing rights in bulk up to a maximum total
value of $100,000 per month.
6. Originate and sell mortgages and related servicing rights without
limitation.
7. Expend the amounts necessary to maintain, renovate, and redecorate the
Bank's premises within the limits established by the Bank's 1996 Capital
Expenditure Budget of $1,950,000.
8. Purchase land trust portfolios up to $500,000 in purchase price per
transaction.
9. Expend the amounts indicated in the 1996 Technology Capital Investment plan
of $400,000 for PC and infrastructure upgrades.
10. Dispose of assets acquired through the disposition of problem loans.
11. With the approval of the CTFG compensation committee, implement the
Supplemental Mortgage Incentive Program and the Bank 1996 Incentive
program and the stock options granted as a condition of hiring to Thomas
S. McCarton of 3500 shares and Gil Johnson of 2000 shares.
12. Fund up to the amounts budgeted for 1996 contributions to the CTFG profit
sharing, 401k, ESOP, and Incentive Plans.
13. Prior to Closing liquidate sufficient assets to generate the cash required
at Closing.
<PAGE> 57
Schedule 9(b)(ii)(A)
1. Finance may effect the conversion of certain computer software systems as
previously proposed to its board of directors.
2. Finance may furnish each new office which is opened with computer equipment,
furniture and leasehold improvements not to exceed $15,000 per office
opened.
<PAGE> 58
SCHEDULE 10(e) -- [IRS REPRESENTATIONS]
1. No continuing shareholder of CTFG shall be required to give any
representation indicating that such shareholder does not have a plan or
intention to sell or dispose of its CTFG shares, or otherwise limiting the
ability of such shareholder to dispose of its shares at any time, and
management of CTFG shall not be required to make any representation with
respect to the plan or intention of any continuing 5 percent or greater CTFG
shareholder to sell or dispose of such holder's CTFG shares.
2. The obligations of CTFG, Finance and Auto Sub with respect to the
automobile receivables business transferred from the Bank shall be limited to
the obligations described in Section 10(g)(i), and neither CTFG, Finance or
Auto Sub shall be required to make any covenant or representation inconsistent
with such limitations.
3. Nothing in the Private Letter Ruling, representations or covenants shall
restrict CTFG's ability to repurchase, immediately following the exchange of
the Bank Stock (or Newco Stock, as the case may be) for the CTFG Stock, up to
16 percent of the CTFG Stock then outstanding, it being understood that
permission to redeem a greater percentage will, if possible, be obtained under
the Private Letter Ruling.
<PAGE> 59
Schedule 10(j)(i)
Irwin Cole
Howard B. Silverman
William S. Race
Thomas Barlow
<PAGE> 1
EXHIBIT 3.1.1
CERTIFICATE OF INCORPORATION
OF
TAYLOR CAPITAL GROUP, INC.
FIRST: The name of the corporation is Taylor Capital Group,
Inc.
SECOND: The corporation's registered office in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of the corporation's registered agent at such address is
The Corporation Trust Company.
THIRD: The nature of the business and the objects and
purposes to be transacted, promoted and carried on are to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock
which the corporation shall have the authority to issue is Ten Million
(10,000,000) shares, consisting of (i) Seven Million (7,000,000) shares of
common stock, $0.01 par value per share ("Common Stock"), and (ii) Three
Million (3,000,000) shares of preferred stock, $0.01 par value per share
("Preferred Stock").
The designations, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations and restrictions thereof in respect of each class of capital stock
of the corporation are as follows:
A. COMMON STOCK
1. Voting. Except as otherwise provided by law, each share
of Common Stock shall entitle the holder thereof to one vote in any matter
which is submitted to a vote of stockholders of the corporation.
2. Dividends. Subject to the express terms of the Preferred
Stock outstanding from time to time, such dividend or distribution as may be
determined by the Board of Directors of the corporation may from time to time
be declared and paid or made upon the Common Stock out of any source at the
time lawfully available for the payment of dividends.
3. Liquidation. The holders of Common Stock shall be
entitled to share ratably upon any liquidation, dissolution or winding up of
the affairs of the corporation (voluntary of involuntary), all assets of the
corporation which are legally available for distribution, if any, remaining
after payment of
<PAGE> 2
all debts and other liabilities and subject to the prior rights of any holders
of Preferred Stock of the preferential amounts, if any, to which they are
entitled.
4. Purchases. Subject to any applicable provisions of this
Article Fourth, the corporation may at any time or from time to time purchase
or otherwise acquire shares of its Common Stock in any manner now or hereafter
permitted by law, publicly or privately, or pursuant to any agreement.
B. PREFERRED STOCK
Subject to the terms contained in any designation of a series
of Preferred Stock, the Board of Directors is expressly authorized, at any time
and from time to time, to fix, by resolution or resolutions, the following
provisions for shares of any class or classes of Preferred Stock of the
corporation or any series of any class of Preferred Stock:
1. the designation of such class or series, the number of
shares to constitute such class or series which may be increased or decreased
(but not below the number of shares of that class or series then outstanding)
by resolution of the Board of Directors, and the stated value thereof if
different from the par value thereof;
2. whether the shares of such class or series shall have
voting rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
3. the dividends, if any, payable on such class or series,
whether any such dividends shall be cumulative, and, if so, from what dates,
the conditions and dates upon which such dividends shall be payable, and the
preference or relation which such dividends shall bear to the dividends payable
on any shares of stock of any other class or any other series of the same
class;
4. whether the shares of such class or series shall be
subject to redemption by the corporation, and, if so, the times, prices and
other conditions of such redemption;
5. the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such class or series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon any distribution
of the assets, of the corporation;
6. whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of
-2-
<PAGE> 3
the shares of such class or series for retirement or other corporate purposes
and the terms and provisions relative to the operation thereof;
7. whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other class or
any other series of the same class or any other securities and, if so, the
price or prices or the rate or rates of conversion or exchange and the method,
if any, of adjusting the same, and any other terms and conditions of conversion
or exchange;
8. the limitations and restrictions, if any, to be effective
while any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the corporation of the Common Stock or
shares of stock of any other class or any other series of the same class;
9. the conditions or restrictions, if any, upon the creation
of indebtedness of the corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
10. the ranking (be it pari passu, junior or senior) of each
class or series vis-a-vis any other class or series of any class of Preferred
Stock as to the payment of dividends, the distribution of assets and all other
matters; and
11. any other powers, preferences and relative,
participating, optional and other special rights, and any qualifications,
limitations and restrictions thereof, insofar as they are not inconsistent with
the provisions of this Certificate of Incorporation, to the full extent
permitted in accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional
and other special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. MISCELLANEOUS
1. Issuance of Stock. Shares of capital stock of the
corporation may be issued by the corporation from time to time in such amounts
and proportions and for such consideration (not less than the par value thereof
in the case of capital stock having par value) as may be fixed and determined
from time to time by the Board of Directors and as shall be permitted by law.
-3-
<PAGE> 4
2. Unclaimed Dividends. Any and all right, title, interest
and claim in or to any dividends declared by the corporation, whether in cash,
stock or otherwise, which are unclaimed by the stockholder entitled thereto for
a period of five years after the close of business on the payment date, shall
be and shall be deemed to be extinguished and abandoned; and such unclaimed
dividends in the possession of the corporation, its transfer agents or other
agents or depositories, shall at such time become the absolute property of the
corporation, free and clear of any and all claims of any persons whatsoever.
FIFTH: Special Meetings of Stockholders. Special meetings of
the stockholders, for any purpose or purposes (except to the extent otherwise
provided by law or this Certificate of Incorporation), may only be called by
the Chairman of the Board, the President or a majority of the Board of
Directors then in office.
SIXTH: A. Amendment of By-Laws. The Board of Directors of
the corporation is authorized to adopt, amend or repeal the By-laws of the
corporation, subject to applicable law and any applicable provisions in any
resolution of the Board of Directors.
B. Election of Directors. Elections of Directors need not be
by written ballot unless the By-laws of the corporation shall so provide.
C. Meetings of Stockholders. Meetings of stockholders may be
held within or without the State of Delaware, as the By-laws of the corporation
may provide.
D. Books of Corporation. The books of the corporation may be
kept at such place within or without the State of Delaware as the By-laws of
the corporation may provide or as may be designated from time to time by the
Board of Directors of the corporation.
SEVENTH: Whenever a compromise or arrangement is proposed
between the corporation and its creditors or any class of them and/or between
the corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in
a summary way of the corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for the corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, to be summoned in such manner as the said court
-4-
<PAGE> 5
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of the corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the corporation, as the case
may be, and also on the corporation.
EIGHTH: No Director of the corporation shall be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director, provided that this Article EIGHTH shall not
eliminate or limit the liability of a Director: (i) for any breach of the
Director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the Delaware General
Corporation Law (or the corresponding provision of any successor act or law);
or (iv) for any transaction from which the Director derived an improper
personal benefit. Neither the amendment nor repeal of this Article EIGHTH, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article EIGHTH, shall eliminate or reduce the effect of this Article
EIGHTH in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article EIGHTH, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision. If the Delaware
General Corporation Law is amended after the effective date of this Article to
further eliminate or limit, or to authorize further elimination or limitation
of, the personal liability of directors for breach of fiduciary duty as a
director, then the personal liability of a director to the corporation or its
stockholders shall be eliminated or limited to the full extent permitted by the
Delaware General Corporation Law, as amended. For purposes of this Article,
"fiduciary duty as a director" shall include any fiduciary duty arising out of
serving at the request of the corporation as a director of another corporation,
partnership, joint venture, trust or other enterprise, and "personally liable
to the corporation" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
corporation in its capacity as security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise. Any repeal or
modification of the foregoing paragraph by the stockholders of the corporation
shall not adversely affect the elimination or limitation of the personal
liability of a director
-5-
<PAGE> 6
for any act or omission occurring prior to the effective date of such repeal or
modification.
NINTH: The corporation expressly elects not to be governed by
Section 203 of the Delaware General Corporation Law.
TENTH: The corporation reserves the right to amend or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the sole incorporator has executed this
Certificate this ____ day of _______, 1996.
__________________________
Jeffrey W. Taylor
-6-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
TAYLOR CAPITAL GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1
CERTIFICATE OF INCORPORATION
Section 1.1 Contents . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Certificate in Effect . . . . . . . . . . . . . . 1
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1 Place . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meeting . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings . . . . . . . . . . . . . . . . 1
Section 2.4 Notice of Meetings . . . . . . . . . . . . . . . 2
Section 2.5 Affidavit of Notice . . . . . . . . . . . . . . . 2
Section 2.6 Quorum . . . . . . . . . . . . . . . . . . . . . 2
Section 2.7 Voting Requirements . . . . . . . . . . . . . . . 2
Section 2.8 Proxies and Voting . . . . . . . . . . . . . . . 3
Section 2.9 Director Nominations . . . . . . . . . . . . . . 3
Section 2.10 New Business . . . . . . . . . . . . . . . . . . 4
Section 2.11 Stockholder List . . . . . . . . . . . . . . . . 4
Section 2.12 Record Date . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
DIRECTORS
Section 3.1 Duties . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Number; Election and Term of Office . . . . . . . 6
Section 3.3 Compensation . . . . . . . . . . . . . . . . . . 6
Section 3.4 Reliance on Books . . . . . . . . . . . . . . . . 6
ARTICLE 4
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Place . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2 Annual Meeting . . . . . . . . . . . . . . . . . 7
Section 4.3 Regular Meetings . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
<TABLE>
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Section 4.4 Special Meetings . . . . . . . . . . . . . . . . 7
Section 4.5 Quorum . . . . . . . . . . . . . . . . . . . . . 7
Section 4.6 Action Without Meeting . . . . . . . . . . . . . 8
Section 4.7 Telephone Meetings . . . . . . . . . . . . . . . 8
Section 4.8 Interested Directors . . . . . . . . . . . . . . 8
ARTICLE 5
COMMITTEES OF DIRECTORS
Section 5.1 Designation . . . . . . . . . . . . . . . . . . . 9
Section 5.2 Records of Meetings . . . . . . . . . . . . . . . 9
ARTICLE 6
NOTICES
Section 6.1 Method of Giving Notice . . . . . . . . . . . . . 10
Section 6.2 Waiver . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7
OFFICERS
Section 7.1 In General . . . . . . . . . . . . . . . . . . . 10
Section 7.2 Election of Chairman of the Board,
President, Chief Financial Officer,
Secretary and Treasurer . . . . . . . . . . . . . . . 11
Section 7.3 Election of Other Officers . . . . . . . . . . . 11
Section 7.4 Salaries . . . . . . . . . . . . . . . . . . . . 11
Section 7.5 Term of Office . . . . . . . . . . . . . . . . . 11
Section 7.6 Duties of Chairman of the Board . . . . . . . . . 11
Section 7.7 Duties of President . . . . . . . . . . . . . . . 11
Section 7.8 Duties of Chief Financial Officer . . . . . . . . 11
Section 7.9 Duties of Vice President . . . . . . . . . . . . 12
Section 7.10 Duties of Secretary . . . . . . . . . . . . . . 12
Section 7.11 Duties of Assistant Secretary . . . . . . . . . 12
Section 7.12 Duties of Treasurer . . . . . . . . . . . . . . 12
Section 7.13 Duties of Assistant Treasurer . . . . . . . . . 13
ARTICLE 8
RESIGNATIONS, REMOVALS AND VACANCIES
Section 8.1 Directors . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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Section 8.2 Officers . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9
CERTIFICATE OF STOCK
Section 9.1 Issuance of Stock . . . . . . . . . . . . . . . . 15
Section 9.2 Right to Certificate; Form . . . . . . . . . . . 15
Section 9.3 Facsimile Signature . . . . . . . . . . . . . . . 15
Section 9.4 Lost Certificates . . . . . . . . . . . . . . . . 15
Section 9.5 Transfer of Stock . . . . . . . . . . . . . . . . 16
Section 9.6 Registered Stockholders . . . . . . . . . . . . . 16
ARTICLE 10
INDEMNIFICATION
Section 10.1 Third Party Actions . . . . . . . . . . . . . . 16
Section 10.2 Derivative Actions . . . . . . . . . . . . . . . 17
Section 10.3 Expenses . . . . . . . . . . . . . . . . . . . . 17
Section 10.4 Authorization . . . . . . . . . . . . . . . . . 17
Section 10.5 Advance Payment of Expenses . . . . . . . . . . 18
Section 10.6 Non-Exclusiveness . . . . . . . . . . . . . . . 18
Section 10.7 Insurance . . . . . . . . . . . . . . . . . . . 18
Section 10.8 Constituent Corporations . . . . . . . . . . . . 19
Section 10.9 Additional Indemnification . . . . . . . . . . . 19
ARTICLE 11
EXECUTION OF PAPERS
ARTICLE 12
FISCAL YEAR
ARTICLE 13
DEPOSITORIES
ARTICLE 14
SEAL
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ARTICLE 15
OFFICES
Section 15.1 Registered Office . . . . . . . . . . . . . . . 20
Section 15.2 Principal Office . . . . . . . . . . . . . . . . 20
ARTICLE 16
AMENDMENTS
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TAYLOR CAPITAL GROUP, INC.
ARTICLE 1
CERTIFICATE OF INCORPORATION
Section 1.1 Contents. These By-laws, the powers of the
corporation and of its Directors and stockholders, and all matters concerning
the conduct and regulation of the business of the corporation shall be subject
to such provisions in regard thereto, if any, as are set forth in said
Certificate of Incorporation.
Section 1.2 Certificate in Effect. All references in these
By-laws to the Certificate of Incorporation shall be construed to mean the
Certificate of Incorporation of the corporation as from time to time amended
and restated, including (unless the context shall otherwise require) all
certificates and any agreement of consolidation or merger filed pursuant to the
Delaware General Corporation Law, as amended.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1 Place. All meetings of the stockholders may be
held at such place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors, the Chairman of the
Board or the President and stated in the notice of the meeting or in any duly
executed waiver of notice thereof.
Section 2.2 Annual Meeting. The annual meeting of the
stockholders, commencing in 1997, shall be held each year within 180 days after
the close of the immediately preceding fiscal year of the corporation, at such
date and time as shall be designated from time to time by the Board of
Directors, and stated in the notice or waiver of notice of the meeting.
Section 2.3 Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-laws, may only be called by the President, the
Chairman of the Board or a majority of the Board of Directors then in office.
Such request shall state the purpose or purposes of the proposed meeting.
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Section 2.4 Notice of Meetings. A written notice of all
meetings of stockholders stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the special
meeting is called, shall be given to each stockholder entitled to vote at such
meeting. Except as otherwise provided by law, such notice shall be given not
less than ten (10) nor more than sixty (60) days before the date of the
meeting. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on
the records of the corporation. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 2.5 Affidavit of Notice. An affidavit of the
Secretary or an Assistant Secretary or the transfer agent of the corporation
that notice of a stockholders meeting has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 2.6 Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation or by these By-laws. If,
however, such quorum shall not be present or represented by proxy at any
meeting of the stockholders, the stockholders entitled to vote thereat present
in person or represented by proxy (by vote of a majority of shares
represented), the Chairman of the Board or the President, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, except as hereinafter provided, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the original meeting. If the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
Section 2.7 Voting Requirements. When a quorum is present at
any meeting, the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of any applicable statute, the Certificate of Incorporation or these
By-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
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Section 2.8 Proxies and Voting. Unless otherwise provided by
the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-laws, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period. Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Shares of the capital stock of the
corporation owned by the corporation shall not be voted, directly or
indirectly.
If shares or other securities having voting power stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the corporation is given
written notice to the contrary and is furnished with a copy of the instrument
or order appointing them or creating the relationship wherein it is so
provided, their acts with respect to voting shall have the following effect:
1. If only one votes, his act binds all;
2. If more than one vote, the act of the majority so voting
binds all;
3. If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if
any, may apply to the Court of Chancery or such other court as may
have jurisdiction to appoint an additional person to act with the
persons so voting the shares, which shall then be voted as determined
by a majority of such persons and the person appointed by the Court.
If the instrument so filed shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this
subsection shall be a majority or even split in interest.
Section 2.9 Director Nominations. Nominations for the
election of Directors may be made by the Board of Directors or by any
stockholder entitled to vote for the election of Directors. Nominations by
stockholders shall be made in writing and delivered or mailed by first class
United States mail, postage prepaid, to the Secretary of the corporation not
less than sixty
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(60) nor more than ninety (90) days prior to the date of the annual meeting or
if the corporation mails its notice and proxy to the stockholders less than
sixty (60) days prior to the annual meeting, within ten (10) days after the
notice and proxy is mailed. Each stockholder nomination shall set forth (i)
the name, age, business address and, if known, residence address of each
nominee proposed in such nomination, (ii) the principal occupation or
employment of each such nominee, and (iii) the number of shares of capital
stock of the corporation which are beneficially owned by each nominee; and in
addition, evidence of the nominee's willingness to serve as a Director shall
also be provided. Upon delivery, such nominations shall be posted in a
conspicuous place in the principal office of the corporation. Ballots bearing
the names of all persons nominated by the stockholders shall be provided for
use at the annual meeting.
The chairman of the meeting of stockholders at which any
election of Directors is to occur may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 2.10 New Business. Any new business to be taken up
at any meeting of the stockholders, other than such new business to be taken up
at the request of the Chairman of the Board or the Board of Directors, shall be
stated in writing and delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the corporation not less than sixty (60)
nor more than ninety (90) days before the date of the annual meeting, or if the
corporation mails its notice and proxy to the stockholders less than sixty (60)
days prior to the annual meeting, within ten (10) days after the notice and
proxy is mailed (the "New Business Due Date"), and no other proposal shall be
acted upon at the annual meeting. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, Directors, and committees; but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated and filed
as herein provided. If the chairman of the annual meeting determines that
business was not properly brought before the annual meeting in accordance with
the foregoing procedures, the chairman shall declare to the meeting that the
business was not properly brought before the meeting and such business shall
not be transacted.
Section 2.11 Stockholder List. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten (10)
days before every meeting of
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stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The original or duplicate stock ledger shall be
the only evidence as to who are the stockholders entitled to examine such list,
the stock ledger or the books of the corporation, or to vote in person or by
proxy at any meeting of stockholders.
Section 2.12 Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
If no record date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(b) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
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ARTICLE 3
DIRECTORS
Section 3.1 Duties. The business and affairs of the
corporation shall be managed by or under the direction of its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by the General Corporation Law of the State
of Delaware, nor by the Certificate of Incorporation nor by these By-laws
directed or required to be exercised or done by the stockholders.
Section 3.2 Number; Election and Term of Office. The number
of Directors which shall constitute the whole Board of the corporation shall
initially be four and thereafter shall be as determined from time to time
exclusively by the Board of Directors and set forth in a resolution of the
Board of Directors. Directors shall be elected by the Corporation's
stockholders at the annual meeting of the stockholders, except as provided in
Section 8.1 of Article 8, and each Director elected shall hold office until the
next annual meeting of stockholders and until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal. Directors
need not be stockholders.
Section 3.3 Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, the Board of Directors shall
have the authority to fix the compensation of Directors. The Directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed compensation for attending
committee meetings.
Section 3.4 Reliance on Books. A member of the Board of
Directors or a member of any committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the corporation by any of
its officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by any
committee, or in relying in good faith upon other records of the corporation.
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ARTICLE 4
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Place. The Board of Directors of the corporation
may hold meetings, both regular and special, at such place or places within or
without the State of Delaware as the Board of Directors may from time to time
determine, or as may be specified or fixed in the respective notices or waivers
of notice of such meeting.
Section 4.2 Annual Meeting. The annual meeting of the Board
of Directors shall be held immediately following the annual meeting of
stockholders each year or any special meeting held in lieu thereof, or at such
other time as the Board of Directors may from time to time determine or as may
be specified or fixed in the notices or waivers of notice of such meeting.
Section 4.3 Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 4.4 Special Meetings. Special meetings of the Board
may be called by the Chairman of the Board or the President on two (2) days'
notice to each Director either personally, by mail, by telegram or by
facsimile. Special meetings shall be called by the Chairman of the Board, the
President or the Secretary in like manner and on like notice on the written
request of any two Directors unless the Board consists of only one Director, in
which case special meetings shall be called by the Chairman of the Board, the
President or the Secretary in like manner and on like notice on the written
request of the sole Director.
Section 4.5 Quorum. At all meetings of the Board, a majority
of the Directors then in office shall constitute a quorum for the transaction
of business and the act of a majority of the Directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by statute or by the Certificate of
Incorporation or by these By-laws. Common or interested Directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
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Section 4.6 Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 4.7 Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 4.8 Interested Directors.
(a) No contract or transaction between a corporation and one
or more of its Directors or officers, or between a corporation and any other
corporation, partnership, association, or other organization in which one or
more of its Directors or officers are Directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the Board or committee which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
a. the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in
good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
b. the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
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c. the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the Board of
Directors, a committee or the stockholders.
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE 5
COMMITTEES OF DIRECTORS
Section 5.1 Designation.
(a) The Board of Directors may by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
(b) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(c) Any such committee, to the extent provided in the
resolution of the Board of Directors designating the committee, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, to the extent such
powers and authority are permitted by the Delaware General Corporation Law as
such may be amended from time to time. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors.
Section 5.2 Records of Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
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ARTICLE 6
NOTICES
Section 6.1 Method of Giving Notice. Whenever, under any
provision of the General Corporation Law of the State of Delaware or of the
Certificate of Incorporation or of these By-laws, notice is required to be
given to any Director or stockholder, such notice shall be given in writing by
the Secretary or the person or persons calling the meeting by leaving such
notice with such Director or stockholder at his residence or usual place of
business or by mailing it addressed to such Director or stockholder, at his
address as it appears on the records of the corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be personally delivered or deposited in the United States mail. Notice
to Directors may also be given by telegram or facsimile.
Section 6.2 Waiver. Whenever any notice is required to be
given under any provision of the General Corporation Law of the State of
Delaware or of the Certificate of Incorporation or of these By-laws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the stockholders, Directors or members of a committee of
Directors need be specified in any written waiver of notice.
ARTICLE 7
OFFICERS
Section 7.1 In General. The officers of the corporation
shall be chosen by the Board of Directors and shall include a Chairman of the
Board, a President, a Chief Financial Officer, a Secretary and a Treasurer.
The Board of Directors may also choose one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these By-laws otherwise
provide.
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Section 7.2 Election of Chairman of the Board, President,
Chief Financial Officer, Secretary and Treasurer. The Board of Directors at
its first meeting after each annual meeting of stockholders shall choose a
Chairman of the Board, a President, a Chief Financial Officer, a Secretary and
a Treasurer.
Section 7.3 Election of Other Officers. The Board of
Directors may appoint such other officers and agents as it shall deem
appropriate who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
Section 7.4 Salaries. The salaries of all officers and
agents of the corporation may be fixed by the Board of Directors.
Section 7.5 Term of Office. The officers of the corporation
shall hold office until their successors are elected and qualified or until
their earlier resignation or removal. Any officer elected or appointed by the
Board of Directors may be removed at any time in the manner specified in
Section 8.2.
Section 7.6 Duties of Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the stockholders and of the Board of
Directors, shall advise and counsel with the President shall assume such other
duties as from time to time may be assigned to him by the Board of Directors.
Section 7.7 Duties of President. The President shall be the
chief executive officer of the corporation. He shall have executive authority
to see that all orders and resolutions of the Board of Directors are carried
into effect, and, subject to the control vested in the Board of Directors by
statute, by the Certificate of Incorporation or by these By-laws, shall
administer and be responsible for the overall management of the business and
affairs of the corporation. In general, he shall perform all duties incident
to the office of the President and such other duties as may from time to time
be assigned by the Board of Directors or the Chairman of the Board. In the
absence or disability of the Chairman of the Board, he shall perform the duties
of the Chairman of the Board.
Section 7.8 Duties of Chief Financial Officer. The Chief
Financial Officer shall perform such duties and have such other powers as the
Board of Directors, the Chairman of the Board or the President may from time to
time prescribe.
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Section 7.9 Duties of Vice President. In the absence of the
Chairman of the Board, the President or in the event of their inability or
refusal to act, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated by the Directors, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the
Board of Directors, the Chairman of the Board or the President may from time to
time prescribe.
Section 7.10 Duties of Secretary. The Secretary shall attend
all meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of
the Board of Directors, except as otherwise provided in these By-laws, and
shall perform such other duties as may be prescribed by the Board of Directors,
the Chairman of the Board or the President, under whose supervision he shall
be. He shall have charge of the stock ledger (which may, however, be kept by
any transfer agent or agents of the corporation under his direction) and of the
corporate seal of the corporation.
Section 7.11 Duties of Assistant Secretary. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the order
determined by the Board of Directors (or if there be no such determination,
then in the order of their election) shall, in the absence of the Secretary or
in the event of his inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors or the Chairman of the Board
may from time to time prescribe.
Section 7.12 Duties of Treasurer. The Treasurer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse or supervise the
disbursement of the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Board of Directors, at its regular meetings, or when the Board of Directors
so
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requires, an account of all of his transactions as Treasurer and of the
financial condition of the corporation. If required by the Board of Directors,
he shall give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of this office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 7.13 Duties of Assistant Treasurer. The Assistant
Treasurer, or if there shall be more than one, the Assistant Treasurers in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors or the Chairman of
the Board may from time to time prescribe.
ARTICLE 8
RESIGNATIONS, REMOVALS AND VACANCIES
Section 8.1 Directors.
(a) Resignations. Any Director may resign at any time by
giving written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
(b) Removals. Subject to any provisions of the Certificate
of Incorporation, the holders of stock entitled to vote for the election of
Directors may, at any meeting called for that purpose, by the affirmative vote
of a majority of the shares of such stock outstanding and entitled to vote
thereat, remove any Director or the entire Board of Directors, with or without
cause.
Whenever the holders of any class or series are entitled to
elect one or more Directors by the Certificate of Incorporation, this
subsection shall apply, in respect to the removal of a Director or Directors so
elected, to the vote of the
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<PAGE> 19
holders of the outstanding shares of that class or series and not to the vote
of the outstanding shares as a whole.
(c) Vacancies. Vacancies occurring in the office of Director
and newly created Directorships resulting from any increase in the authorized
number of Directors shall be filled by a majority of the Directors then in
office, though less than a quorum, and the Directors so chosen shall hold
office, subject to the By-laws, until the next election of the class for which
such Directors shall have been chosen, and until their successors are duly
elected and qualified or until their earlier resignation or removal. Whenever
the holders of any class or classes of stock or series thereof are entitled to
elect one or more Directors by the Certificate of Incorporation, vacancies and
newly created Directorships of such class or classes or series may be filled by
a majority of the Directors elected by such class or classes or series thereof
then in office, or by a sole remaining Director so elected.
If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute.
Unless otherwise provided in the Certificate of Incorporation
or these By-laws, when one or more Directors shall resign from the Board,
effective at a future date, a majority of the Directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Section 8.2 Officers. Any officer may resign at any time by
giving written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. The Board of
Directors may, at any meeting called for that purpose, remove from office any
officer of the corporation or any member of a committee, with or without cause.
Any vacancy occurring in the office of Chairman of the Board, President,
Secretary or Treasurer shall be filled by the Board of Directors and the
officers so chosen shall hold office subject to the By-laws for the unexpired
term in respect of which the vacancy occurred and until their successors shall
be elected and qualify or until their earlier resignation or removal.
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<PAGE> 20
ARTICLE 9
CERTIFICATE OF STOCK
Section 9.1 Issuance of Stock. The Directors may, at any
time and from time to time, if all of the shares of capital stock which the
corporation is authorized by its Certificate of Incorporation to issue have not
been issued, subscribed for, or otherwise committed to be issued, issue or take
subscriptions for additional shares of its capital stock up to the amount
authorized in its Certificate of Incorporation. Such stock shall be issued and
the consideration paid therefor in the manner prescribed by law. Shares of
stock with par value may be issued for such consideration, having a value not
less than par value thereof.
Section 9.2 Right to Certificate; Form. Every holder of
stock in the corporation shall be entitled to have a certificate, signed by, or
in the name of the corporation by, the Chairman of the Board, the President or
a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the corporation, certifying the number of shares
owned by him in the corporation; provided that the Directors may provide by one
or more resolutions that some or all of any or all classes or series of the
corporation's stock shall be uncertificated shares. Certificates may be issued
for partly paid shares and in such case upon the face or back of the
certificates issued to represent any such partly paid shares, the total amount
of the consideration to be paid therefor, and the amount paid thereon, shall be
specified.
Section 9.3 Facsimile Signature. Any of or all the
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
Section 9.4 Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the
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<PAGE> 21
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 9.5 Transfer of Stock. Upon surrender to the
corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignation or authority to transfer, it shall be the duty of the corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 9.6 Registered Stockholders. The corporation shall
be entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to vote as such owner,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
General Corporation Law of the State of Delaware.
ARTICLE 10
INDEMNIFICATION
Section 10.1 Third Party Actions. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
Director or officer of the corporation, or is or was serving at the request of
the corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, of itself,
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<PAGE> 22
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 10.2 Derivative Actions. The corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he is or was a Director or officer of the corporation, or is or was serving at
the request of the corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 10.3 Expenses. To the extent that a Director or
officer of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and
10.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 10.4 Authorization. Any indemnification under
Sections 10.1 and 10.2 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the Director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Sections
10.1 and 10.2. Such determination shall be made by (a) the Board of Directors
by a majority vote of a quorum consisting of Directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, or,
even if obtainable, a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, or (c) by the stockholders.
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<PAGE> 23
Section 10.5 Advance Payment of Expenses. Expenses
(including attorneys' fees) incurred by an officer or Director in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such officer or Director to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article 10.
Section 10.6 Non-Exclusiveness. The indemnification and
advancement of expenses provided by this Article 10 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-Law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article 10 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 10.7 Insurance. The corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
Director or officer of the corporation, or is or was serving at the request of
the corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article 10.
For purposes of this Article 10, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a Director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such Director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not
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<PAGE> 24
opposed to the best interests of the corporation" as referred to in this
section.
Section 10.8 Constituent Corporations. The corporation shall
have power to indemnify any person who is or was a Director, officer, employee
or agent of a constituent corporation absorbed in a consolidation or merger
with this corporation or who is or was serving at the request of such
constituent corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, in the same
manner as hereinabove provided so that such persons will stand in the same
position under this Article with respect to this corporation as he would have
stood with respect to such constituent corporation if its separate existence
had continued.
Section 10.9 Additional Indemnification. In addition to the
foregoing provisions of this Article 10, the corporation shall have the power,
to the full extent provided by law, to indemnify any person for any act or
omission of such person against all loss, cost, damage and expense (including
attorneys' fees) if such person is determined (in the manner prescribed in
Section 10.4 hereof) to have acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interest of the corporation.
ARTICLE 11
EXECUTION OF PAPERS
Except as otherwise provided in these By-laws or as the Board
of Directors may generally or in particular cases otherwise determine, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other
instruments authorized to be executed on behalf of the corporation shall be
executed by any officer, agent or agents as may be authorized by the Board of
Directors from time to time.
ARTICLE 12
FISCAL YEAR
The fiscal year of the corporation shall end on the 31st day
of December of each year.
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<PAGE> 25
ARTICLE 13
DEPOSITORIES
The Board of Directors or an officer designated by the Board
shall appoint banks, trust companies, or other depositories in which shall be
deposited from time to time the money or securities of the corporation.
ARTICLE 14
SEAL
The Corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the word "Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE 15
OFFICES
Section 15.1 Registered Office. The registered office in the
State of Delaware shall be located at 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the corporation's registered
agent at such address shall be The Corporation Trust Corporation.
Section 15.2 Principal Office. The corporation may also have
offices within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE 16
AMENDMENTS
These By-laws may be amended or repealed by the vote of a
majority of the Directors present at any meeting at which a quorum is present
or by the vote of the holders of a majority of the total outstanding voting
stock of the corporation, present in person or represented by proxy, at any
meeting of stockholders at which a quorum is present.
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<PAGE> 1
EXHIBIT 10.2
D R A F T
10/8/96
COLE TAYLOR BANK
401(k)/PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of October 1, 1996)
McDermott, Will & Emery
Chicago
<PAGE> 2
CERTIFICATE OF ADOPTION
TAYLOR CAPITAL GROUP, INC., acting through its duly authorized officers, hereby
adopts the COLE TAYLOR BANK 401(k)/PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP
PLAN (Effective as of October 1, 1996) in the form attached hereto, effective
as of October 1, 1996.
Dated this ________ day of October, 1996.
TAYLOR CAPITAL GROUP, INC.
By ___________________________________
Its _______________________________
ATTEST:
__________________________________
Its ______________________________
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 1
Background of Plan 1
Purpose of Plan; Applicable Requirements 1
History of Plan 1
Effective Date; Plan Year; Spin-off Date 2
Trustee; Trust Agreement 2
Plan Administration 2
Employers 2
Predecessor Plans 3
Plan Supplements 3
SECTION 2 4
Eligibility and Participation 4
Eligibility to Participate 4
Notice of Participation and Election to Contribute 6
Period of Participation 6
Leave of Absence 6
Leased Employees 6
SECTION 3 7
Participant Contributions 7
Income Deferral Contributions 7
Change, Discontinuance, or Resumption of Income Deferral Contributions 7
Rollover Contributions 7
Earnings 8
SECTION 4 10
Employer Contributions 10
Employer Contributions of Income Deferral Contributions 10
Employer Matching Contributions 10
Employer Discretionary Contributions 10
Payment of Acquisition Loans; Employer Loan Contributions 11
Individual Employer's Share of Employer Contributions;
Limitations on Employers' Contributions 12
Form of Payment of Employer Contributions 12
SECTION 5 14
Company Stock; Acquisition Loans 14
Company Stock 14
Acquisition Loans 14
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 6 15
Investment of Participant and Employer Contributions 15
Investment Funds 15
ESOP Stock Account Investments in Company Stock 15
Participants' Investment Elections 16
Diversification of Investments in Company Stock 16
SECTION 7 18
Accounting 18
Participants' Accounts 18
Trust Accounts 20
Accounting Dates; Accounting Periods; Quarterly Accounting Period 20
Adjustment of Accounts in Investment Funds 21
Crediting of Shares Related to the Spin-Off. 22
Transfer of Shares From Unreleased Share Account to Released
Share Account 22
Adjustment of ESOP Cash and Stock Accounts 23
Dividends on Company Stock 24
Temporary Investment of Cash in Trust 25
Fair Market Value of Company Stock 25
Stock Dividends, Stock Splits and Capital Reorganizations
Affecting ESOP Shares 25
ESOP Share Records 25
Statement of Accounts 26
Multiple Acquisition Loans 26
SECTION 8 27
Contribution and Benefit Limitations 27
Contribution Limitations 27
Combined Contribution Limitations 28
Combining of Plans 28
Dollar Limitation on Income Deferral Contributions 29
Percentage Limitation on Income Deferral Contributions 29
Percentage Limitation on Employer Matching Contributions 30
Highly Compensated Participant 32
Multiple Use of Alternative Limitations 33
Calculating Income Allocable to Excess Deferrals, Excess
Aggregate Contributions, and Excess Income Deferral Contributions 33
Special Testing Rules 34
SECTION 9 35
Period of Participation 35
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
PAGE
<S> <C>
Settlement Date 35
Restricted Participation 35
SECTION 10 37
In-Service Withdrawals and Participant Loans 37
Hardship Withdrawals 37
In-Service Withdrawal 38
Loans to Participants 38
SECTION 11 42
Vesting 42
Retirement 42
Resignation or Dismissal 42
Death of Participant 44
Forfeitures 44
SECTION 12 45
Distributions Following Settlement Date 45
Manner of Distribution 45
Determination of Account Balances 45
Distribution of Company Stock 46
Timing of Distributions 46
Direct Rollovers 48
Immediate Distributions to Alternate Payees 49
Designation of Beneficiary 50
Missing Participants or Beneficiaries 51
Facility of Payment 52
SECTION 13 53
Rights, Restrictions, and Options on Company Stock 53
Right of First Refusal 53
Put Option 53
Share Legend 54
Nonterminable Rights 55
SECTION 14 56
Reemployment 56
Commencement or Resumption of Participation 56
Credited Service for Vesting 56
Reinstatement of Forfeitures 57
SECTION 15 58
Voting and Tendering of Company Stock 58
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 16 60
General Provisions 60
Interests Not Transferable 60
Absence of Guaranty 60
Employment Rights 60
Litigation by Participants or other Persons 60
Evidence 60
Waiver of Notice 60
Controlling Law 61
Statutory References 61
Severability 61
Additional Employers 61
Action By Employers 61
Gender and Number 61
Examination of Documents 61
Fiduciary Responsibilities 61
Indemnification 62
SECTION 17 63
Restrictions as to Reversion of
Trust Assets to the Employers 63
SECTION 18 65
Amendment and Termination 65
Amendment 65
Termination 65
Nonforfeitability and Distribution on Termination 66
Notice of Termination 66
Plan Merger, Consolidation, Etc. 66
SECTION 19 67
The Committee 67
The Committee 67
The Committee's General Powers, Rights, and Duties 67
Manner of Action of the Committee 68
Interested Committee Member 69
Resignation or Removal of Committee Members 69
Committee Expenses 69
Uniform Rules 69
Information Required by the Committee 69
Review of Benefit Determinations 70
Committee's Decision Final 70
Denial Procedure and Appeal Process 70
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 20 72
Special Rules Applicable When Plan is Top-Heavy 72
Purpose and Effect 72
Top-Heavy Plan 72
Key Employee 73
Aggregated Plans 73
Minimum Employer Contribution 73
Coordination of Benefits 74
Adjustment of Combined Benefit Limitations 74
SUPPLEMENT A 1
</TABLE>
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<PAGE> 8
COLE TAYLOR BANK
401(k)/PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of October 1, 1996)
SECTION 1
Background of Plan
1.1. Purpose of Plan; Applicable Requirements. Effective as of October 1,
1996, Taylor Capital Group, Inc. (the "company") establishes the Cole Taylor
Bank 401(k)/Profit Sharing and Employee Stock Ownership Plan (the "plan") for
the following purposes:
(i) to receive a transfer of the accounts under the CTFG profit
sharing plan and the CTFG ESOP of those employee of employers
who become participants in the plan; and
(ii) to enable eligible employees of the company and its affiliates
to acquire stock ownership interests in the company; and
(iii) to permit eligible employees to accumulate funds for their
future security by electing to make income deferral
contributions and sharing in employer contributions to the
plan.
The plan is a profit sharing plan intended to meet the applicable requirements
of Section 401(a) of the Internal Revenue Code of 1986 (the "Code") and
contains a cash or deferred arrangement intended to qualify under Section
401(k) of the Code. A portion of the plan also constitutes an employee stock
ownership plan that is designed to invest primarily in stock of the company and
that is intended to meet the applicable requirements of Sections 401(a), 409,
and 4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement
Income Security Act of 1974 ("ERISA").
1.2. History of Plan. Prior to the effective date, eligible employees of
the company and its subsidiaries were eligible to participate in the Cole
Taylor Financial Group, Inc. 401(k)/Profit Sharing Plan (the "CTFG profit
sharing plan") and the Cole Taylor Financial Group, Inc. Employee Stock
Ownership Plan (the "CTFG ESOP"). The CTFG profit sharing plan was originally
established by CTFG effective January 1, 1984 as a merger of various plans, and
was amended and restated from time-to-time thereafter, most recently effective
as of January 1, 1993. The CTFG ESOP was originally established by CTFG
effective as of January 1, 1985 and was amended from time to time thereafter,
and was amended and restated most recently effective as of January 1, 1994.
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<PAGE> 9
In connection with the spin-off of the company (and its subsidiaries)
from the controlled group of corporations that includes Cole Taylor Financial
Group, Inc. ("CTFG"), the portions of the CTFG profit sharing plan and the CTFG
ESOP attributable to the employees of the company and its subsidiaries were
spun-off and merged to form the plan.
1.3. Effective Date; Plan Year; Spin-off Date. The "effective date" of the
plan as set forth herein is October 1, 1996. The plan will be administered on
the basis of a "plan year." The "plan year" means the three month period from
October 1, 1996 through December 31, 1996, and thereafter the twelve-month
period beginning each January 1 and ending the following December 31. The date
of the spin-off of the company (and its subsidiaries) from CTFG is referred to
herein as the "spin-off date."
1.4. Trustee; Trust Agreement. Amounts contributed under the plan are held
and invested, until distributed, by a trustee appointed by the company (the
"trustee"). The trustee acts in accordance with the terms of a trust agreement
between the company and the trustee, which trust agreement is known as the
"Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock Ownership Trust"
(the "trust"). The trust implements and forms a part of the plan. The
provisions of and benefits under the plan are subject to the terms and
provisions of the trust.
1.5. Plan Administration. The plan is administered by a committee (the
"committee") as described in Section 19. Any notice or document required to be
given to or filed with the committee will be properly given or filed if
delivered or mailed, by registered or certified mail, postage prepaid, to the
committee, in care of the company at ___________________. Each participant in
the plan shall be a "named fiduciary" within the meaning of section 402 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") with
respect to the investment direction their account balances, and the voting
direction of the shares of company stock in their ESOP stock accounts. The
committee and the company are "named fiduciaries," but solely to the extent
that they have any fiduciary responsibilities under the plan and related trust.
1.6. Employers. Any controlled group member described in paragraph (a) or
(b) of this subsection with respect to the company may adopt the plan with the
company's consent, as described in subsection 16.10. The company and any such
controlled group members that adopt the plan are referred to below collectively
as the "employers" and sometimes individually as an "employer." A "controlled
group member" means:
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<PAGE> 10
(a) any corporation that is not an employer but is a member of a
controlled group of corporations (within the meaning of
Section 1563(a) of the Code, determined without regard to
Sections 1563(a)(4) and 1563(e)(3)(C) thereof) that contains
the company;
(b) any trade or business (whether or not incorporated) that is
not an employer but is under common control with the company
(within the meaning of Section 414(c) of the Code); or
(c) any entity that is affiliated with the company under Section
414(m) of the Code.
As of the effective date, the following employers have adopted the plan: .
1.7. Predecessor Plans. Any other qualified profit sharing, stock bonus,
or money purchase pension plan qualified under Section 401(a) of the Code and
maintained by an employer may, with the consent of the company, be merged into,
and continued in the form of, the plan. Any such plan merged into, and
continued in the form of, this plan shall be referred to as a "predecessor
plan." Special provisions relating to participants in the plan who were
participants in a predecessor plan shall be set forth in one or more
supplements to the plan.
1.8. Plan Supplements. The provisions of the plan may be modified by
supplements to the plan. The terms and provisions of each supplement are a
part of the plan and supersede the provisions of the plan to the extent
necessary to eliminate inconsistencies between the plan and such supplement.
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<PAGE> 11
SECTION 2
Eligibility and Participation
2.1. Eligibility to Participate.
(a) Subject to the conditions and limitations of the plan, each
participant in the CTFG profit sharing plan or CTFG ESOP immediately before the
effective date shall automatically be a participant in the plan on the
effective date. The participant's elections in effect under the CTFG profit
sharing plan will remain in effect under the plan on and after the effective
date unless and until changed by the participant in accordance with the
provisions of the plan; provided, however, that each election in effect under
the CTFG profit sharing plan to invest in the CTFG stock fund will, on or after
the effective date, be deemed to be an election under the plan to invest in the
____________ fund of the plan.
(b) Subject to the conditions and limitations of the plan, each other
employee of an employer will become a participant in the plan as of the January
1st, April 1st, July 1st, or October 1st coincident with or next following the
date he satisfies the following requirements:
(i) he has attained age 21;
(ii) (A) he has completed six months of continuous service
in which he is credited with at least 500 hours of
service or,
(B) if he fails to satisfy paragraph (A) above, he has
completed 1,000 hours of service (as defined below)
during the 12-month period commencing on his date of
hire, or if he has not completed 1,000 hours of
service during such 12-month period, he has completed
1,000 hours of service during a Plan Year ending
before such January 1, April 1, July 1, or October 1;
and
(iii) he is employed as member of a group of employees to
which the plan has been extended, either by unilateral
action of an employer in the case of an employee who
is not represented by a collective bargaining
representative or, if he is a member of a group of
employees represented by a collective bargaining
representative, through a currently effective
collective bargaining agreement between his employer
and the collective bargaining
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representative of the group of employees of which he
is a member.
(iv) an employee classified by an employer as a temporary
or part-time employee will not become a participant
until after such employee has completed one year of
eligibility service (as defined below). If a
temporary or part-time employee completes one year of
eligibility service, such employee will become a
participant on the January 1, April 1, July 1, or
October 1 immediately following the date such
employee completes one year of eligibility service,
provided the employee is in the employ of the
employer on such date. A "year of eligibility
service" means a twelve-month computation period (as
described below) during which a temporary or
part-time employee has completed at least 1,000 hours
of service. The first twelve-month computation
period for a temporary or part-time employee shall be
the twelve-month period beginning on the date the
temporary or part-time employee first performs an
hour of service for the employers or controlled group
members. If a temporary or part-time employee does
not complete 1,000 hours of service in his first
twelve-month computation period, thereafter the
temporary or part-time employee's computation period
shall be the plan year (beginning with the plan year
in which his first 12-month computation period ends).
(v) Notwithstanding any other provision of the plan to
the contrary, an employee who is not yet a
participant but who is eligible to become a
participant may make a rollover contribution to the
plan (in accordance with subsection 3.3) prior to the
employee's entry date. Any eligible employee who
makes a rollover contribution to the plan will be
treated as a participant, except that such employee
shall not be eligible, until he becomes a
participant, to make income deferral contributions
pursuant to subsection 3.1 or to share in any
employer contributions made pursuant to subsections
4.2, 4.3, and 4.4.
For the purposes of the plan, an "hour of service" means each hour for which an
employee is directly or indirectly paid or entitled to payment by an employer
or a controlled group member for the performance of duties and for reasons
other than the performance of duties, including each hour for which back pay,
irrespective of mitigation of damages, has been either awarded or agreed to by
an employer or a controlled group member, as determined and credited in
accordance with Department of Labor Reg. Sec. 2530.200b-2.
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2.2. Notice of Participation and Election to Contribute. The committee
will notify each employee of the date the employee becomes a participant. Such
notification will be in writing and will include a form or forms on which the
participant may elect to make participant contributions in accordance with
Section 3.
2.3. Period of Participation. Subject to the provisions of subsections 9.2
and 14.1, relating to restricted participation and resumption of participation,
respectively, an employee who becomes a participant will continue as a
participant until the later to occur of the date of his termination of
employment with the employers or the date on which all assets in his accounts
under the plan to which he is entitled hereunder have been distributed.
2.4. Leave of Absence. A leave of absence will not interrupt continuity of
service or participation in the plan. A "leave of absence" for purposes of the
plan means an absence from work that is not treated by an employer as a
termination of employment or that is required by law to be treated as a leave
of absence. Leaves of absence will be granted under rules established by an
employer and applied uniformly to all similarly situated employees.
2.5. Leased Employees. Only common-law employees of the employers are
eligible to participate in the plan. If a leased employee (as defined below)
subsequently becomes a common-law employee of an employer, the period during
which the leased employee performed services for the employer shall be taken
into account for purposes of subsections 2.1 and 11.2 of the plan; unless (i)
such leased employee was a participant in a money purchase pension plan
maintained by the leasing organization that provides a non-integrated employer
contribution rate of at least 15 percent of earnings, immediate participation
for all employees and full and immediate vesting, and (ii) leased employees do
not constitute more than twenty percent of the employer's nonhighly compensated
workforce. A "leased employee" means any person who is not a common-law
employee of an employer, but who has provided services to an employer of a type
that have historically (within the business field of such employer) been
provided by employees, on a substantially full-time basis for a period of at
least one year, pursuant to an agreement between an employer and a leasing
organization.
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SECTION 3
Participant Contributions
3.1. Income Deferral Contributions. References in the plan to
participants' "income deferral contributions" mean deferrals made by
participants' from their earnings (as defined in subsection 3.4) before the
imposition of Federal income taxes, irrespective of whether the income deferral
contributions made from such earnings are either before or after the imposition
of state, local or other taxes. An employee is not required to make income
deferral contributions in order to participate in the plan. Subject to the
conditions and limitations of the plan, a participant may elect to make income
deferral contributions for any plan year of a percentage (in increments of one
percent) of the participant's earnings for such plan year at a rate of not less
than one percent and not greater than ten percent of such earnings. The amount
to be deferred will be withheld from the participant's earnings and contributed
to the plan on the participant's behalf by the participant's employer. A
participant's election under this subsection may be made effective as of the
participant's entry date or as of any January 1, April 1, July 1, or October 1
following the participant's entry date. A participant's election to make
income deferral contributions must be made in writing on a form furnished by
the committee and filed with the committee at such time and in such manner as
the committee shall determine. Subject to the limitations of Section 8, a
participant's deferral authorization made pursuant to this subsection shall
remain in effect until any change or suspension properly elected by the
participant under subsection 3.2 becomes effective.
3.2. Change, Discontinuance, or Resumption of Income Deferral
Contributions. A participant may elect, within the limits described in
subsection 3.1, to change the rate of the participant's income deferral
contributions as of any January 1, April 1, July 1, or October 1. A
participant may elect to discontinue making income deferral contributions as of
the first day of any month. If a participant elects to discontinue making
income deferral contributions, the participant may elect to make or to resume
making income deferral contributions as of any following January 1, April 1,
July 1, or October 1. Each election under this subsection shall be made by
completing the form designated by the committee and filing such form with the
committee at such time and in such manner as the committee shall determine.
3.3. Rollover Contributions. On behalf of a participant, the committee may
direct the trustee to receive a "rollover contribution" of all or any portion
of an eligible rollover distribution (as described in paragraph 12.5(a)) or a
rollover amount described in Section 408(d)(3) of the Code (an "IRA rollover"),
subject to the following:
(a) The trustee may accept an eligible rollover distribution in
the form of a direct rollover (as described in Section
401(a)(31) of the Code) or an
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<PAGE> 15
indirect rollover (as described in Section 402(c) of the Code).
The committee shall establish such rules and procedures as it
deems necessary regarding the acceptance of rollover
contributions, including the methods by which direct rollovers,
indirect rollovers, and IRA rollovers may be made to the plan.
(b) Any rollover contributions received by the trustee on behalf
of a participant (or an eligible employee) shall be credited
to the rollover account of the participant (or the eligible
employee) in accordance with subsection 7.4. A participant
(or an eligible employee) shall at all times have a
nonforfeitable right to the net credit balance in the
participant's rollover account.
(c) If after a rollover contribution has been received by the
trustee on behalf of a participant (or an eligible employee)
the committee learns that all or part of such rollover
contribution did not meet the requirements of the Code and the
regulations and rulings thereunder, the committee may direct
the trustee to make a distribution to the participant (or
eligible employee) of the nonqualified portion of such
rollover contribution (and earnings thereon) that were
credited to the rollover account of the participant (or
eligible employee).
3.4. Earnings. Except as otherwise provided below, a participant's
"earnings" for a plan year means all compensation paid to the participant for
services rendered to an employer as an employee as reported on the
participant's Federal wage and tax statement (Form W-2), but including for such
plan year all of a participant's income deferral contributions under this plan
and all salary reductions made pursuant to an arrangement maintained by an
employer under Section 125 of the Code during the plan year. A participant's
earnings shall not include any of the following (to the extent applicable):
(a) Income associated with the payment or reimbursement by an
employer of the participant's relocation, education, or
automobile expenses (including the use of an employer-provided
automobile);
(b) Severance payments;
(c) The value of any noncash incentive awards;
(d) Income attributable to an employer's forgiveness of a loan
made by the employer to the participant;
(e) Income attributable to a distribution to the participant from
a nonqualified deferred compensation arrangement (including a
voluntary or
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<PAGE> 16
incentive deferred compensation arrangement or an employer's
bonus restoration plan) maintained by an employer; and
(f) Income attributable to any grant or exercise of stock options
or to any other stock-based compensation.
For purposes of subsections 4.2 and 4.3, a participant's earnings for the 1995
plan year shall include amounts paid to the participant for the period
beginning January 1, 1995, and ending immediately prior to the spin-off date by
members of the CTFG, as determined in accordance with this subsection. In no
event shall the amount of a participant's earnings taken into account for
purposes of the plan for any plan year exceed the dollar limitation in effect
under Code Section 401(a)(17) (as that limitation is adjusted from time to time
by the Secretary of the Treasury pursuant to Code Section 401(a)(17)). In
determining the earnings of a participant for a plan year, the rules of Section
414(q)(6) of the Code shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the participant and any lineal
descendants of the participant who have not attained age 19 before the close of
the plan year. If, as a result of the application of the provisions of the
preceding sentence, the dollar limitation in effect under Code Section
401(a)(17) (as adjusted) is exceeded, the adjusted limitation shall be prorated
among the affected participant's family members in proportion to each affected
member's earnings as determined under this subsection prior to the application
of the dollar limitation in effect under Code Section 401(a)(17).
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<PAGE> 17
SECTION 4
Employer Contributions
4.1. Employer Contributions of Income Deferral Contributions. Subject to
the conditions and limitations of the plan, each employer will make a
contribution under the plan on behalf of each participant employed by the
employer of the amount of the participant's income deferral contributions.
Income deferral contributions shall be paid to the trustee in cash as soon as
practicable (but not later than the 15th business day of the month following
the month in which such contribution are withheld) after the end of the payroll
period for which the reduction in earnings is made.
4.2. Employer Matching Contributions. Subject to the conditions and
limitations of the plan, each employer will make a contribution to the plan
("employer matching contributions") for each quarterly accounting period on
behalf of each participant who makes income deferral contributions during that
quarterly accounting period, including participants whose settlement dates have
occurred during such quarterly accounting period. The "base matching
contribution" shall be 100 percent (100%) of the participant's income deferral
contribution, not to exceed one percent (1%) of his compensation; and the
"excess matching contribution" shall be fifty percent (50%) of the
participant's income deferral contribution in excess of one percent (1%) of his
compensation, not to exceed six percent (6%) of his compensation. The Board of
Directors of the Company may, in its discretion, prospectively increase,
decrease or discontinue the employer matching contribution. Notwithstanding
the foregoing, a participant who has elected to make income deferral
contributions during a plan year shall receive an employer matching
contribution for each quarterly accounting period during that plan year in
which such participant is unable to make income deferral contributions due
solely to the limitation contained in subsection 8.4, provided that (i) the
participant has not discontinued his election to make income deferral
contributions as of the last day of such quarterly accounting period, and (ii)
the employer matching contribution allocated to such participant for the plan
year shall not exceed fifty percent of the earnings (not to exceed six percent)
that the participant elects to contribute to the plan as income deferral
contributions for that plan year. Employer matching contributions for a
quarterly accounting period shall be paid to the trustee on the last day of
such quarterly accounting period or as soon as practicable thereafter.
4.3. Employer Discretionary Contributions. Subject to the conditions and
limitations of the plan, the company, in its sole discretion, may direct the
employers to make a discretionary contribution to the plan for any plan year.
Any such employer discretionary contribution for a plan year shall be
determined and allocated to participants in accordance with paragraph (a) or
(b) below, as determined by the
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<PAGE> 18
company at or before the time the company decides to direct the employers to
make an employer discretionary contribution for the plan year:
(a) A discretionary matching contribution to be made for a plan
year in such amount, if any, as shall be determined by the
company. Any discretionary matching contribution for a plan
year shall be allocated on the basis of that portion of the
participants' income deferral contributions for that plan year
as shall be determined by the company prior to the end of the
plan year or within a reasonable period of time after the end
of the plan year. Any discretionary matching contribution for
a plan year shall be allocated only to participants who (i)
made income deferral contributions during such plan year and
(ii) either completed at least 1,000 hours of service in such
plan year and are employed by the employers on the last day of
such plan year or terminated employment with the employers
during such plan year under paragraph 9.1(a), (b), or (c).
(b) A discretionary contribution to be made for a plan year in
such amount, if any, as determined by the company prior to the
end of the plan year or within a reasonable period of time
after the end of the plan year. Any discretionary
contribution for a plan year shall be allocated pro rata on
the basis of participants' earnings for such plan year. Any
discretionary contribution for a plan year shall be allocated
only to participants who either (i) completed at least 1,000
hours of service in such plan year and are employed by the
employers on the last day of such plan year or (ii) terminated
employment with the employers during such plan year under
paragraph 9.1(a), (b), or (c).
For purposes of this subsection, "hours of service" shall mean hours of service
as described in subsection 2.1, except that, with respect to an employee for
whom records of hours of service are not maintained, such employee will be
credited with ten hours of service for each day for which the employee would be
required to be credited with at least one hour of service under Department of
Labor Reg. Sec. 2530.200b-2. Any employer discretionary contributions for a
plan year shall be due on the last day of the plan year and, if not paid by the
end of that plan year, shall be payable to the trustee as soon as practicable
thereafter, without interest, but not later than the time prescribed by law for
filing the company's Federal income tax return for such plan year, including
extensions thereof.
4.4. Payment of Acquisition Loans; Employer Loan Contributions. For each
quarterly accounting period during which an acquisition loan is outstanding,
the trustee shall use any contributions made for such quarterly accounting
period pursuant to subsections 4.2 and 4.3 to make principal and interest
payments then due on the acquisition loan or loans outstanding at the end of
such quarterly accounting period. Each such payment by the trustee will
release shares of company stock from
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the unreleased share account to the released share account of the trust (such
terms are defined in subsection 7.2). Company stock that is so released will
be allocated to participants' ESOP stock accounts as provided in subsection
7.7.
Subject to the conditions and limitations of the plan, if, as of any
regular accounting date, (a) an acquisition loan remains outstanding and (b)
the contributions described above that are made for the quarterly accounting
period, after taking into account the use of dividends and earnings in
accordance with subsection 7.8(c), are insufficient to enable the trustee to
pay the principal and interest due under such acquisition loan for such
quarterly accounting period, then the employers shall make an additional
"employer loan contribution" to the trustee for that quarterly accounting
period, in an aggregate amount equal to the amount of the insufficiency
described herein. Any such employer loan contribution shall be allocated in
the manner described in paragraph 4.3(a) or (b), as determined by the company
prior to the time such contribution is made to the trustee, but considering
only income deferral contributions or earnings for that plan year through the
applicable regular accounting date. Any employer loan contribution under the
plan for any quarterly accounting period shall be paid to the trustee in cash
on the last day of the applicable quarterly accounting period or as soon as
practicable after the end of such quarterly accounting period.
If no acquisition loan is outstanding at the end of a quarterly
accounting period, the trustee shall invest the contributions made for such
accounting period as directed by the committee in accordance with Section 6 and
the terms of the trust.
4.5. Individual Employer's Share of Employer Contributions; Limitations on
Employers' Contributions. The company shall determine each employer's share
of employer contributions to be made pursuant to subsections 4.2, 4.3 and 4.4.
The certificate of an independent certified public accountant selected by the
company as to the correctness of any amounts or calculations relating to the
employers' contributions under the plan shall be conclusive on all persons. In
no event will an employer's share of the employers' contributions described in
this Section 4 for any plan year cause the employer's share of the employers'
contributions for that plan year to exceed an amount equal to the maximum
amount deductible on account thereof by that employer for that year for
purposes of Federal taxes on income.
4.6. Form of Payment of Employer Contributions. Subject to the conditions
and limitations of the plan, any employer matching contribution or employer
discretionary contribution shall be made in the form of cash or shares of
company stock (as defined in subsection 5.1), as determined by the board of
directors of the company in its sole discretion prior to the end of the plan
year or within a reasonable period of time after the end of the plan year. Any
such matching contribution or employer discretionary contribution that is made
in the form of cash, and designated as a cash contribution, shall be allocated
to the participants' employer matching contribution
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account or employer discretionary contribution account, as applicable. Any
such matching contribution and discretionary contribution that is made in the
form of company stock, or made in the form of cash and designated as a cash
contribution to be invested in company stock, shall be allocated to the
participants' ESOP stock accounts or ESOP cash accounts to be invested in
company stock, as applicable. Any shares of company stock contributed to the
plan as an employer matching contribution or employer discretionary
contribution shall be valued at the fair market value thereof as of the date or
dates on which the contribution is made.
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SECTION 5
Company Stock; Acquisition Loans
5.1. Company Stock. For purposes of the plan, the term "company stock"
shall mean common stock issued by the company that is readily tradable on an
established securities market; provided, however, if the company's common stock
is not readily tradable on an established securities market, the term "company
stock" shall mean common stock issued by the company having a combination of
voting power and dividend rates equal to or in excess of (a) that class of
common stock of the company having the greatest voting power and (b) that class
of common stock of the company having the greatest dividend rights.
Non-callable preferred stock shall be treated as company stock for purposes of
the plan if such stock is convertible at any time into stock that is readily
tradable on an established securities market (or, if applicable, that meets the
requirements of (a) and (b) next above) and if such conversion is at a
conversion price that, as of the date of the acquisition by the plan, is
reasonable. For purposes of the immediately preceding sentence, preferred
stock shall be treated as non-callable if, after the call, there will be a
reasonable opportunity for a conversion that meets the requirements of the
immediately preceding sentence. Company stock shall be held under the trust
only if such stock satisfies the requirements of Section 407(d)(5) of ERISA.
5.2. Acquisition Loans. An "acquisition loan" means the issuance of notes,
a series of notes or other installment obligations incurred by the trustee, in
accordance with the trust, in connection with the purchase of company stock.
The term "financed shares" means shares of company stock acquired by the
trustee with the proceeds of an acquisition loan. The terms of each
acquisition loan shall meet the applicable requirements of Treasury Regulations
Section 54.4975-7(b), including the requirements (a) that the loan bear a
reasonable rate of interest, be for a definite period (rather than payable on
demand), and be without recourse against the plan and (b) that the only assets
of the plan that may be given as collateral are financed shares purchased with
the proceeds of that loan or with the proceeds of a prior acquisition loan.
The release of financed shares is described in subsection 7.6.
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SECTION 6
Investment of Participant and Employer Contributions
6.1. Investment Funds.
(a) The committee may designate, in its sole discretion, one or more
funds under the trust for the investment of participants' account balances not
otherwise invested in company stock. The committee, in its discretion, may
from time to time designate or establish new investment funds or eliminate
existing investment funds. The funds designated by the committee for this
purpose (including the CTFG stock fund, described below) shall be referred to
herein as the "investment funds."
(b) The committee shall maintain a "CTFG stock fund" for a period of
[6 months] following the spin-off date, which fund shall hold the participants'
investments transferred to the plan from the "Company Stock Fund" under the
CTFG profit sharing plan. The committee shall maintain the CTFG stock fund
solely for the purpose of permitting participants to hold their shares of CTFG
stock and no future contributions or investment transfers may be made to the
CTFG stock fund. During the [6-month] period following the spin-off date, the
participants will be required to redirect the investment of their CTFG stock
fund into one or more of the other investment funds, in accordance with the
procedures determined by the committee.
(c) Subject to the provisions of Section 19.2(g), the Committee shall
have the authority to direct the investment of the assets held in the employer
discretionary contribution account.
6.2. ESOP Stock Account Investments in Company Stock. On the spin-off
date, the CTFG will transfer to the plan from the CTFG ESOP shares of CTFG
common stock, which will be held in the participants' ESOP stock accounts. On
the spin-off date, the trustee will have the right to exchange the shares of
CTFG common stock held in the participants' ESOP stock accounts for shares of
Company stock.
Employer contributions under subsections 4.2, 4.3, or 4.4, made on or
after the spin-off date that are used to repay an acquisition loan shall be
invested in company stock through the release of financed shares and the
crediting of such shares to participants' accounts (as described in subsections
7.6 and 7.7). If an acquisition loan is not outstanding, the committee may
direct the trustee to invest the contributions made under subsections 4.2 and
4.3 in company stock, in accordance with the provisions of subsection 4.6.
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6.3. Participants' Investment Elections. Participants' investment
elections with respect to the investment funds and company stock shall be made
as follows:
(a) Participants' elections to invest in company stock. Each
participant may make a one-time irrevocable election to
exchange all or a portion of his shares of CTFG stock held in
the CTFG stock fund (determined as of the accounting date
designated by the committee) for shares of company stock. The
shares of company stock received by the participants pursuant
to this election shall be held in the participants' ESOP stock
accounts and the participants' shall not have the right to
elect to transfer any portion of their investment in company
stock, except as provided in subsection 6.4. The
participants' election to exchange their shares of CTFG common
stock for shares of company stock shall be made in accordance
with rules established by the committee and shall be effective
as determined by the committee. For the purpose of this
investment election, the eligible participants shall be
considered "named fiduciaries" as described in section 403 of
ERISA.
(b) Participant contributions. Participants may elect to invest
their existing account balances (other than their ESOP stock
and cash accounts and employer discretionary accounts) and
future income deferral contributions, rollover contributions,
and loan repayments in one or more of the investment funds
(other than the CTFG stock fund). Except as provided in
subsection 6.4, participants shall not be entitled to transfer
their account balances in their ESOP stock accounts to the
investment funds. If no investment election is in effect with
respect to a participant, the participant's contributions made
pursuant to Section 3 and loan repayments will be invested in
the investment fund that is designated by the committee for
that purpose.
(c) Committee procedures; election method. Each investment
election made by a participant pursuant to this subsection
shall be made in accordance with rules established by the
committee and shall be effective as determined by the
committee. Each election made pursuant to this subsection
shall be in such dollar or percentage increments as shall be
determined by the committee. As determined by the committee,
participants may make investment or transfer elections under
this subsection by the following methods: (i) by filing
written elections on forms furnished by the committee, (ii) by
telephone through the telephone system established for such
purpose, or (iii) by such other method as may be designated by
the committee.
6.4. Diversification of Investments in Company Stock. Pursuant to rules
established by the committee, participants (including inactive participants)
may elect to diversify portions of their ESOP stock accounts, subject to the
following:
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<PAGE> 24
(a) Each participant who has attained age 55 years and has at
least ten years of participation in the plan (a "qualified
participant") may elect during each of the participant's
qualified election periods (as defined in paragraph (c) below)
to transfer to one or more of the investment funds up to
twenty-five percent (fifty percent in the case of the
participant's last qualified election period) of the qualified
participant's ESOP stock account balance eligible for
diversification (as described in paragraph (b) next below).
(b) The portion of a qualified participant's ESOP stock account
balance subject to diversification shall equal twenty-five
percent (fifty percent in the case of the qualified
participant's last qualified election period) of the total
number of shares of company stock allocated to the
participant's ESOP stock account (including shares that the
participant previously elected to diversify pursuant to this
subsection), less the number of such shares previously
diversified pursuant to the qualified participant's election
under this subsection. In any one election, a qualified
participant may diversify the entire remaining portion of his
ESOP stock account balance eligible for diversification or a
part of such diversifiable portion equal to any whole
percentage of five percent or more of the applicable ESOP
stock account balance.
(c) For purposes of this subsection, a "qualified election period"
means (i) the ninety-day period immediately following the last
day of the first plan year in which the participant becomes a
qualified participant and (ii) the ninety-day period
immediately following the last day of each of the five plan
years immediately following the first plan year in which the
participant becomes a qualified participant. Any election
made in accordance with the provisions of paragraph (a) next
above with respect to any qualified election period shall be
given effect as of the regular accounting date occurring
ninety days after the end of that qualified election period.
(d) The provisions of this subsection shall not apply to any
participant if the value of the participant's ESOP stock
balance (determined as of the regular accounting date
immediately preceding the first day on which the participant
would otherwise be entitled to make an election under this
subsection) is $500 or less.
(e) Any amounts transferred from company stock to one or more of
the investment funds under this subsection shall not be
available for distribution in the form of company stock (as
otherwise allowed under subsection 12.3).
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SECTION 7
Accounting
7.1. Participants' Accounts. The committee shall maintain or cause to be
maintained under the plan the following accounts in the name of each
participant (to the extent applicable):
(a) Income deferral contribution account. An "income deferral
contribution account" to reflect the participant's income
deferral contributions made under the plan, the participant's
pre-tax contributions (if any) made under the CTFG profit
sharing plan or a predecessor plan (and earnings thereon) that
have been transferred to this plan, Benefit Credit
Contributions made under the CTFG profit sharing plan that
have been transferred to this plan, and the income, losses,
appreciation, and depreciation attributable thereto (other
than amounts invested in company stock in accordance with
Section 6). A participant shall be fully vested in his income
deferral contribution account at all times.
(b) Employer matching contribution account. An "employer matching
contribution account" to reflect employer matching
contributions made to the plan on behalf of the participant
(other than amounts invested in company stock in accordance
with Section 6) and the income, losses, appreciation, and
depreciation attributable thereto. The employer matching
contribution account shall be separated into: (i) the "vested
employer matching contribution subaccount," which shall
reflect the participant's base matching contributions, if any,
and the base matching contributions and excess matching
contributions transferred from the CTFG profit sharing plan,
if any, and shall be fully vested at all times, and (ii) the
"excess matching contribution subaccount," which shall reflect
the participant's excess matching contributions, if any, made
under this plan.
(c) Employer discretionary contribution account. An "employer
discretionary contribution account" to reflect employer
discretionary contributions made to the plan on behalf of the
participant (other than amounts invested in company stock in
accordance with Section 6) and the income, losses, appreciation
and depreciation attributable thereto. The employer
discretionary contribution account shall be separated into (i)
the "vested employer discretionary contribution subaccount,"
which shall reflect the participant's employer base
contributions and employer excess contributions transferred
from the CTFG profit sharing plan, if any, and (ii) the
"employer excess discretionary contribution subaccount," which
shall reflect the participant's employer discretionary
contribution, if any, made under this plan.
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<PAGE> 26
(d) Supplemental contribution account. A "supplemental
contribution account" to reflect the participant's
supplemental contributions, if any, made under the CTFG profit
sharing plan prior to January 1, 1987. A participant shall be
fully vested in his supplemental contribution account at all
times.
(e) Drovers transfer account. A "Drovers transfer account" to
reflect the amount, if any, transferred from the Drovers Plan
(as defined in the CTFG profit sharing plan) on behalf of the
electing participants. A participant shall be fully vested in
his Drovers transfer account at all times.
(f) Loan repayment account. A "loan repayment account" to reflect
the amounts repaid by the participant under a loan to the
participant from this plan or a predecessor plan and the
income, losses, appreciation, and depreciation attributable
thereto.
(g) Rollover account. A "rollover account" to reflect any
rollover contributions credited to the participant's account
and the income, losses, appreciation, and depreciation
attributable thereto (other than amounts invested in company
stock in accordance with Section 6).
(h) Vested transfer account. A "vested transfer account" to
reflect the participant's vested transfer contributions, if
any, and any income, losses, appreciation and depreciation
attributable thereto. The term "vested transfer" means an
amount directly transferred from the Trustee of another
tax-qualified retirement plan to this plan to be held for the
benefit of a participant, except that the committee will in no
event accept such a transfer from a tax-qualified retirement
plan to which section 401(a)(11)(B) of the Code is applicable.
(i) ESOP stock account. A "ESOP stock account" to reflect shares
of company stock invested in accordance with Section 6 or
transferred from the unreleased share account and allocated to
the participant as a result of repayment of an acquisition
loan and to reflect any employer contributions under
subsections 4.2, 4.3, and 4.4 made in the form of company
stock.
(j) ESOP cash account. A "ESOP cash account" to reflect any
amounts to be invested in company stock pursuant to Section 6,
employer cash contributions under subsection 4.4 and
subsections 4.2 or 4.3 that are designated to be invested in
company stock in accordance with subsection 4.6, any cash
dividends on company stock allocated and credited to the
participant's ESOP stock account (other than currently
distributable dividends), and any income, losses, appreciation,
or depreciation attributable thereto.
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Each account described in paragraphs (a) through (h) above shall be divided
into separate subaccounts reflecting the portions of such accounts that are
invested in the investment funds described in subsection 6.1. A participant'
ESOP stock account and ESOP cash account shall each be segregated into
subaccounts to reflect the balances in such account attributable to employer
contributions (other than employer contributions of income deferral
contributions) ("ESOP employer subaccount") and to participant income deferral
contributions ("ESOP participant subaccount"). In addition to the accounts
described above, the committee may maintain such other accounts and subaccounts
in the names of participants or otherwise as the committee may consider
necessary or advisable. Except as expressly modified, all accounts and
subaccounts maintained for a participant are referred to collectively as the
participant's "accounts." The committee may establish such nondiscriminatory
rules and procedures relating to the maintenance, adjustment and liquidation of
participants' accounts as the committee may consider necessary or advisable.
7.2. Trust Accounts. The committee shall maintain or cause to be
maintained in the trust the following fund accounts:
(a) Unreleased share account. An "unreleased share account" to
reflect the financed shares acquired by the trustee with the
proceeds of an acquisition loan prior to the transfer of such
financed shares to the released share account (as defined in
paragraph (b) next below), amounts to be invested in company
stock pursuant to Section 6 that have not yet been applied to
repay an acquisition loan, any temporary investment income
attributable to such amounts, any cash dividends attributable
to such shares or transferred to the unreleased share account
pursuant to subsection 7.6, and any temporary investment
income attributable to such dividends.
(b) Released share account. A "released share account" to reflect
the shares of company stock transferred from the unreleased
share account.
(c) Investment fund accounts. An "investment fund account" in the
name of each investment fund to reflect the property held in
such fund.
(d) ESOP stock account and ESOP cash account. An "ESOP stock
account" and an "ESOP cash account," as provided in subsection
7.1.
In addition to the unreleased and released share accounts and participants'
accounts described in subsection 7.1, the committee may maintain or cause to be
maintained such other trust accounts and subaccounts as it considers advisable.
7.3. Accounting Dates; Accounting Periods; Quarterly Accounting Period.
Each June 30 and December 31 is a "semi-annual accounting date." Participants
ESOP stock accounts and ESOP cash accounts (collectively "ESOP portion") shall
be
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adjusted on semi-annual accounting dates. Each March 31, June 30, September
30, and December 31 is a "quarterly accounting date." Participants accounts
that are not part of the ESOP portion of the plan shall be adjusted on
quarterly accounting dates. A "special accounting date" is any date designated
as such by the committee and a special accounting date occurring under
subsection 18.3. The term "accounting date" includes a semi-annual accounting
date, a quarterly accounting date, a special accounting date, and, with respect
to investment funds adjusted more frequently than each quarterly accounting
date, each date such an investment fund is adjusted. The term "regular
accounting date" means the quarterly accounting dates. Any references to an
"accounting period" ending on a regular accounting date shall mean the period
since the next preceding regular accounting date. Any references to a
"quarterly accounting period" ending on a quarterly accounting date shall mean
the period since the next preceding quarterly accounting date.
7.4. Adjustment of Accounts in Investment Funds. Participants' accounts
invested in the various investment funds shall be maintained on the basis of
dollar values or units that may be converted to dollar values. Pursuant to
rules established by the committee and applied on a uniform and
nondiscriminatory basis, participants' subaccounts in an investment fund will
be adjusted not less frequently than each regular accounting date to reflect
the adjusted net worth (as described below) of that fund as of such regular
accounting date, including adjustments to reflect any distributions,
contributions, income, losses, appreciation, or depreciation with respect to
such subaccounts since the previous accounting date on which such subaccounts
were adjusted, provided any income, losses, appreciation or depreciation shall
be allocated after adjusting for distributions and before adjusting for
contributions since the last accounting date. The "adjusted net worth" of an
investment fund (other than a mutual fund) as at any accounting date means the
then net worth of that fund (that is, the fair market value of the fund, less
its liabilities other than liabilities to persons entitled to benefits under
the plan) as reported to the trustee.
Notwithstanding the foregoing, participants' subaccounts in an
investment fund may be adjusted more frequently than each regular accounting
date if such investment fund provides for more frequent adjustment of
participants' subaccounts. In that case, participants' subaccounts in that
investment fund will be adjusted at the times provided by the investment fund
to reflect any distributions, contributions, income, losses, appreciation, or
depreciation with respect to such subaccounts since the previous accounting
date. It is anticipated the participants' subaccount balances in an investment
fund composed only of a mutual fund will be adjusted as of the end of each
business day.
As of each accounting date, each participant's income deferral
contributions (if any) since the preceding accounting date (other than income
deferral contributions that a participant elects to invest in company stock
after the date designated by the company for such investments) shall be
credited to the participant's income deferral contribution account. A
participant's rollover contribution (if any) shall be credited
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to the participant's rollover account as of the accounting date coincident with
or immediately following the date such rollover contribution is accepted by the
trustee. As of each accounting date, the amount of a participant's repayment
on a participant loan for that accounting period will be credited to the
participant's loan repayment account. Contributions so credited shall be
further credited to separate subaccounts reflecting the participant's current
election as to investment of his participant contributions in one or more of
the investment funds described in subsection 6.1.
7.5. Crediting of Shares Related to the Spin-Off. On the spin-off date,
the shares of CTFG common stock held in the participants' ESOP stock accounts
that are exchanged for shares of company stock in accordance with the first
paragraph of subsection 6.2, and the shares of CTFG common stock held in the
participants' CTFG stock fund that are exchanged for shares of company stock in
accordance with subsection 6.3 shall be credited to participant's ESOP stock
accounts as of the December 31, 1996 accounting date. [Shares of company stock
exchanged for shares of CTFG stock held in a forfeiture account shall be
allocated to participants' ESOP stock accounts pro rata, based on participants'
earnings for the 1996 plan year.]
7.6. Transfer of Shares From Unreleased Share Account to Released Share
Account. At the direction of the committee, the trustee shall use the
following to repay an acquisition loan:
(a) Employer contributions under subsections 4.2, 4.3 and 4.4 made
on or after the spin-off date and any investment income
attributable to such contributions; and
(b) Cash dividends paid on unallocated shares of company stock
held in the released share account and unreleased share
account and shares of company stock that have been allocated
to the participants' ESOP stock accounts, and any investment
income attributable to such dividends.
The repayment of a acquisition loan shall cause a transfer of shares of company
stock from the unreleased share account to the released share account as of
each regular accounting date. The number of shares to be transferred shall be
determined by multiplying the number of shares in the unreleased share account
by a fraction, the numerator of which is the principal and interest payments
during that quarterly accounting period and the denominator of which is the
sum of the numerator plus the total projected principal and interest payments
during the remainder of the term of the acquisition loan. If the requirements
of Treasury Regulations Section 54.4975-7(b)(8)(ii) are satisfied, the phrase
"principal and interest" in the preceding sentence shall be replaced by the
word "principal."
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7.7. Adjustment of ESOP Cash and Stock Accounts. Participants' ESOP cash
accounts and ESOP stock accounts shall be adjusted as follows:
(a) Repayments of acquisition loans and purchase of company stock.
(i) For each quarterly accounting period, employer cash
contributions under subsections 4.2, 4.3.and 4.4 that are used
to repay an acquisition loan and release shares of company
stock from the unreleased share account in accordance with
subsection 7.6 shall be credited as of the applicable
accounting date to the participants' ESOP stock accounts in
accordance with the provisions of subsection 4.2 or 4.3, as
applicable. (ii) For each quarterly accounting period,
employer cash contribution under subsections 4.2 and 4.3 that
are designated to be invested in shares of company stock shall
be credited as of the applicable accounting date to the
participants' ESOP cash accounts in accordance with the
provisions of subsection 4.2 or 4.3, as applicable. Upon the
purchase of company stock with such cash, an appropriate
number of shares of company stock shall be credited to the
participants' ESOP stock accounts, and the participants' ESOP
cash accounts shall be charged by the amount of the cash used
to buy such company stock.
(b) Dividends. (i) Subject to the provisions of subsection 7.8,
cash dividends on shares of company stock in the unreleased
stock account shall be used to repay the outstanding
acquisition loan and the released shares shall be credited to
the participants' ESOP stock accounts in accordance with the
provisions of subsection 4.2 or 4.3, as determined by the
company in its sole discretion. (ii) Subject to the
provisions of subsection 7.8, the committee shall credit to
the participants' ESOP cash accounts any cash dividends paid
to the trustee on shares of company stock held in the
participants' ESOP stock accounts as of the record date. Such
cash dividends credited to the participants' ESOP cash
accounts shall be applied as soon as practicable first to the
repayment of any amount due during or prior to that accounting
period on an acquisition loan. If no amount is due on an
acquisition loan, such cash dividends may, as determined in
the discretion of the committee, be used to either prepay any
acquisition loan, purchase shares of company stock, or be paid
to the participants as described in paragraph 7.8(b). The
committee shall credit an appropriate number of shares of
company stock to the ESOP stock account of such participant,
and the participant's ESOP cash account shall then be charged
by the amount of cash used to repay an acquisition loan or
used to purchase such company stock for the participant's ESOP
stock account or as applicable.
(c) Employer contributions in shares of company stock. For any
quarterly accounting period in which the employer
contributions under subsection 4.2 or 4.3 is made in the form
of shares of company stock, such stock
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shall be credited to the participants' ESOP stock accounts as
of the applicable accounting date, in accordance with the
provisions of subsection 4.2 or 4.3, as applicable.
(d) Appreciation, depreciation, etc. As of each accounting date,
before the allocation of any employer contributions under
subsections 4.2, 4.3, or 4.4 made in cash, any appreciation,
depreciation, income, gains or losses in the fair market value
of the participants' ESOP cash accounts shall be allocated
among and credited to the ESOP cash accounts of participants,
pro rata, according to the balance of each ESOP cash account
as of the immediately preceding accounting date, reduced in
each case by the amount of any charge to such ESOP cash
account since the next preceding accounting date. Any gain or
loss realized by the trustee on the sale of company stock will
be allocated to the ESOP cash accounts of participants, pro
rata, according to the balance of participants' ESOP stock
accounts, as of the next preceding accounting date.
7.8. Dividends on Company Stock. The following shall apply with respect to
dividends on company stock:
(a) Dividends credited to ESOP cash accounts. Any cash dividends
paid with respect to shares of company stock allocated to
participants' ESOP stock accounts or held in the unreleased
share account may, as determined by the committee, be
allocated among and credited to participants' ESOP cash
accounts in accordance with paragraph 7.7(b).
(b) Dividends paid to participants. Any cash dividends paid with
respect to shares of company stock allocated to participants'
ESOP stock accounts may, as determined by the committee, be
either paid by the company directly in cash to participants on
a non-discriminatory basis or paid to the trustee and
distributed by the trustee to the participants no later than
ninety days after the end of the plan year in which paid to
the trustee.
(c) Dividends used to repay acquisition loan. To the extent
permitted by applicable law, any cash dividends paid with
respect to shares of company stock allocated to participants'
ESOP stock accounts or held in the unreleased share account
may (as required by applicable acquisition loan documentation
or, if not so required, as determined in the sole discretion
of the committee) be used to repay the principal balance of an
outstanding acquisition loan or interest thereon in whole or
in part, or to purchase additional shares of company stock as
provided in paragraph 7.7(b). Financed shares released from
the unreleased stock account by reason of dividends paid with
respect to such company stock shall be allocated to
participants' ESOP stock accounts as follows:
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(i) First, financed shares with a fair market value at
least equal to the dividends paid with respect to the
company stock allocated to participants' ESOP stock
accounts shall be allocated among and credited to the
ESOP stock accounts of such participants, pro rata,
according to the number of shares of company stock
held in such accounts on the dividend declaration
date; and
(ii) Next, any remaining financed shares released from the
unreleased share account shall be allocated among and
credited to the ESOP stock accounts of all
participants, pro rata, according to each
participant's earnings.
7.9. Temporary Investment of Cash in Trust. At the direction of the
committee, cash held in the unreleased share account or participants' ESOP cash
accounts under the trust will be invested by the trustee, to the extent
practicable, in short term securities or cash equivalents having ready
marketability or as otherwise provided in the trust agreement. Temporary
investment income resulting from such investments shall be credited to the
account to which it pertains. The term "temporary investment income" means
income resulting from the temporary investment of, income deferral
contributions, employer contributions, cash dividends and any other amounts.
7.10. Fair Market Value of Company Stock. For purposes of the plan and
trust, the fair market value of company stock shall be determined, at least
once each plan year, in accordance with the terms of the trust and the
provisions of Section 3(18) of ERISA.
7.11. Stock Dividends, Stock Splits and Capital Reorganizations Affecting
ESOP Shares. Shares of company stock received by the trustee that are
attributable to stock dividends, stock splits or to any reorganization or
recapitalization of the company shall be credited to the unreleased share
account, if attributable to shares held in that account, or shall be credited
to the released share account (including participants' ESOP stock accounts) if
attributable to shares held in the released share account, so that the
interests of participants immediately after any such stock dividend, split,
reorganization or recapitalization are the same as such interests immediately
before such event.
7.12. ESOP Share Records. The committee shall maintain or cause to be
maintained records as to the number and cost of shares of company stock
acquired or transferred by or within the trust in accordance with the
applicable provisions of this Section 7.
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7.13. Statement of Accounts. The committee will provide each participant
with a statement reflecting the balances in the participant's accounts under
the plan at such times as are established by the committee. No participant,
except a person authorized by the company or the committee, shall have the
right to inspect the records reflecting the accounts of any other participant.
7.14. Multiple Acquisition Loans. If more than one acquisition loan to the
trustee becomes outstanding at any time, the foregoing provisions of this
Section 7 and other provisions of the plan shall be modified by the committee
to the extent it deems necessary or appropriate to reflect such additional
acquisition loan or loans.
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SECTION 8
Contribution and Benefit Limitations
8.1. Contribution Limitations. For each limitation year, the "annual
addition" (as defined below) to a participant's accounts shall not exceed the
lesser of $30,000 (or, if greater, 1/4 of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for that limitation year) or twenty-five
percent of the participant's compensation (as defined in Treasury Regulations
Section 1.415-2(d)) during that limitation year. Reference herein to a
"limitation year" means the plan year (or, with respect to the 1996 plan year,
the period commencing on January 1, 1996 and ending on December 31, 1996). The
term "annual addition" for any limitation year means the sum of the participant
contributions (other than rollover contributions) under Section 3, employer
contributions under subsections 4.2, 4.3, and 4.4, corrective deferral
contributions described in subsection 8.5, and corrective matching
contributions described in subsection 8.6 that are credited to a participant's
accounts for that limitation year. As determined by the committee on a uniform
basis for all participants for a limitation year, each participant's annual
addition for a limitation year shall be calculated either (i) on the amount of
contributions credited to the participant's accounts and not on the basis of
the fair market value of company stock or other property credited to the
participant's accounts by reason of such contributions or (ii) on the amount of
contributions credited to the participant's accounts with respect to amounts
invested in the investment funds and on the basis of the fair market value of
company stock credited to the participant's accounts with respect to
contributions invested or to be invested in company stock. If it is
anticipated that a participant's annual addition may exceed the limitations of
this subsection, the committee shall reduce a participant's annual addition to
the extent necessary in accordance with the following:
(a) First, reduce the participant's income deferral contributions
in excess of the percentage matched by the employer pursuant
to subsection 4.2 to the extent necessary to meet the above
limitations. The committee may suspend a participant's income
deferral contributions for the limitation year or direct the
trustee to distribute to the participant the amount of income
deferral contributions that cannot be allocated to the
participant's income deferral contribution account for the
limitation year. If any income deferral contributions are
distributed to the participant, such distribution shall
include any earnings attributable to such income deferral
contributions.
(b) Next, reduce, in proportion, the income deferral contributions
made by the participant that are matched by the employer
pursuant to subsection 4.2 and the employer matching
contributions attributable to such income deferral
contributions. The committee may suspend a participant's
income deferral contributions for the limitation year or
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direct the trustee to distribute to the participant the amount
of income deferral contributions that cannot be allocated to
the participant's income deferral contribution account for the
limitation year. If any income deferral contributions are
distributed to the participant, such distribution shall include
any earnings attributable to such income deferral
contributions. The amount of employer matching contributions
that cannot be allocated to the participant's accounts shall be
applied to reduce employer matching or discretionary
contributions in succeeding limitation years in order of time.
(c) Finally, in accordance with procedures established by the
committee, reduce such participant's share for that limitation
year of the employer matching contributions, employer
discretionary contributions, employer loan contributions,
corrective deferral contributions, or corrective matching
contributions to the extent necessary to meet the above
limitations. The amount of any employer contributions that
cannot be allocated to a participant's accounts shall be
applied to reduce employer matching or discretionary
contributions in succeeding limitation years in order of time.
8.2. Combined Contribution Limitations. If a participant in this plan also
is a participant in a defined benefit plan maintained by an employer or a
controlled group member, the aggregate benefits payable to, or on account of,
the participant under both plans will be determined in a manner consistent with
Section 415 of the Code and Section 1106 of the Tax Reform Act of 1986.
Accordingly, there will be determined with respect to the participant a defined
contribution plan fraction and a defined benefit plan fraction in accordance
with such Sections 415 and 1106. The benefits provided for the participant
under this plan and the defined benefit plan will be adjusted to the extent
necessary so that the sum of such fractions determined with respect to the
participant does not exceed 1.0.
8.3. Combining of Plans. In applying the limitations set forth in
subsections 8.1 and 8.2, reference to this plan shall mean this plan and all
other defined contribution plans (whether or not terminated) ever maintained by
the employers and the controlled group members, and reference to a defined
benefit plan maintained by an employer shall include all defined benefit plans
(whether or not terminated) ever maintained by the employers and the controlled
group members. It is intended that in complying with the requirements of
subsections 8.1 and 8.2, a participant's benefits under this plan shall be
limited after the participant's benefits under any other defined contribution
plan maintained by the employers are limited and after the participant's
benefits under any defined benefit plan maintained by the employers are
limited, unless such other plan provides otherwise.
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8.4. Dollar Limitation on Income Deferral Contributions. In no event shall
the participant's income deferral contributions for any calendar year exceed
$9,500 (or such greater amount as the Secretary of the Treasury shall specify
from time to time pursuant to Code Section 402(g)(5)). As of each December 31,
the committee shall determine the total income deferral contributions made by
each participant during the calendar year ending on that December 31. In the
event that such total for a participant exceeds the amount specified pursuant
to Code Section 402(g)(5), such excess income deferral contributions ("excess
deferrals") (and any income thereon determined in accordance with subsection
8.9) shall be paid to the participant by the following April 15.
8.5. Percentage Limitation on Income Deferral Contributions. In no event
shall the average deferral percentage (as defined below) of the highly
compensated participants (as defined in subsection 8.7) for any plan year
exceed the greater of:
(a) the average deferral percentage of all other eligible employees
for such plan year multiplied by 1.25; or
(b) the average deferral percentage of all other eligible
employees for such plan year multiplied by 2.0; provided that
the average deferral percentage of the highly compensated
participants does not exceed that of all other eligible
employees by more than two percentage points.
The "average deferral percentage" of a group of eligible employees for a plan
year means the average of the ratios (determined separately for each eligible
employee in such group) of A to B where A equals the sum of the income deferral
contributions actually paid to the trust on behalf of such eligible employee
for such plan year, and B equals the eligible employee's testing compensation
(as described below) received by the employee for the portion of such plan year
during which the employee participated in the plan or was eligible to
participate in the plan. For purposes of this subsection, the committee shall
determine the testing compensation of each and every eligible employee for a
plan year under any definition of compensation that satisfies the requirements
of Section 414(s) of the Code and the regulations thereunder. The committee
shall determine whether the foregoing limitation will be satisfied and, to the
extent necessary to ensure compliance with such limitation, shall reduce the
income deferral contributions of highly compensated participants. If for a
plan year the income deferral contributions made on behalf of highly
compensated participants exceed the foregoing limitation ("excess income
deferral contributions"), such excess income deferral contributions shall be
corrected by using one or both of the following measures:
(c) The company may, in its sole discretion, direct the employers
to make contributions on behalf of participants who are not
highly compensated participants in such an amount as will
satisfy the foregoing limitation
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("corrective deferral contributions"). The corrective deferral
contributions, if any, made by the employers pursuant to this
paragraph shall be allocated to all participants (i) who are
not highly compensated participants for such plan year, (ii)
made income deferral contributions during such plan year, and
(iii) either completed at least 1,000 hours of service in such
plan year and are employed by the employers on the last day of
such plan year or terminated employment with the employers
during such plan year under paragraph 9.1(a), (b), or (c). The
employers' corrective deferral contributions for a plan year
shall be allocated to eligible participants in proportion to
such participants' income deferral contributions for the plan
year. Any corrective deferral contributions shall be credited
to eligible participants' income deferral contribution accounts
and invested in accordance with each such participant's
election in effect for the participant's income deferral
contributions.
(d) Excess income deferral contributions (and any income thereon
determined in accordance with subsection 8.9) will be refunded
to the highly compensated participants (in the order of their
average deferral percentage, beginning with the highest
percentage) to the extent necessary to meet such limitation,
generally within two and one-half months after the end of that
plan year but in no event later than the last day of the first
plan year beginning after that plan year. Employer matching
contributions attributable to excess income deferral
contributions distributed to a highly compensated participant
will be forfeited. Employer matching contributions forfeited
under this subparagraph will be reallocated to eligible
participants described in subparagraphs (c)(i), (ii) and (iii)
above, in proportion to their income deferral contributions
for the plan year.
8.6. Percentage Limitation on Employer Matching Contributions. In no event
shall the contribution percentage (as defined below) of the highly compensated
participants (as defined in subsection 8.7) for any plan year exceed the
greater of:
(a) the contribution percentage of all other eligible employees for
such plan year multiplied by 1.25; or
(b) the contribution percentage of all other eligible employees
for such plan year multiplied by 2.0; provided that the
contribution percentage of the highly compensated participants
does not exceed that of all other eligible employees by more
than 2 percentage points.
The "contribution percentage" of a group of eligible employees for a plan year
means the average of the ratios (determined separately for each eligible
employee in such
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group) of A to B where A equals the employer matching contributions (including
discretionary matching contributions allocated under paragraph 4.3(a)) made on
behalf of such eligible employee for such plan year, and B equals the eligible
employee's testing compensation (as described below) received by the employee
for the portion of such plan year during which the employee participated in the
plan or was eligible to participate in the plan. For purposes of this
subsection, the committee shall determine the testing compensation of each and
every eligible employee for a plan year under any definition of compensation
that satisfies the requirements of Section 414(s) of the Code and the
regulations thereunder. If for a plan year the employer matching contributions
made by or on behalf of highly compensated participants exceed the foregoing
limitation ("excess aggregate contributions"), such excess aggregate
contributions shall be corrected by using one or both of the following
measures:
(c) The company may, in its sole discretion, direct the employers
to make contributions on behalf of participants who are not
highly compensated participants in such an amount as will
satisfy the foregoing limitation ("corrective matching
contributions"). The corrective matching contributions, if
any, made by the employers pursuant to this paragraph shall be
allocated to all participants who meet the requirements
described in subparagraphs 8.5(c)(i), (ii), and (iii) for the
plan year, in proportion to such participants' income deferral
contributions for the plan year. Any corrective matching
contributions shall be credited to participants' accounts and
invested in accordance with the provisions of Section 6
relating to employer matching contributions. Notwithstanding
subsection 11.2 to the contrary, any corrective matching
contributions allocated to a participant's accounts will be
fully vested and nonforfeitable at all times.
(d) The committee may direct that such excess aggregate
contributions, and any income thereon determined in accordance
with subsection 8.9, be distributed to the highly compensated
participants to the extent vested (in the order of their
contribution percentages beginning with the highest
percentage), or if not vested shall be forfeited, to the
extent necessary to meet the limitation of this subsection.
(Forfeitures under this subparagraph will be reallocated to
eligible participants described in subparagraphs 8.5(c)(i),
(ii) and (iii), in proportion to their income deferral
contributions for the plan year.) If excess aggregate
contributions made by or on behalf of a highly compensated
participant (and any income thereon determined in accordance
with subsection 8.9) are to be distributed to the participant,
such distribution generally will be made within two and
one-half months after the end of that plan year but in no
event later than the last day of the first plan year beginning
after that plan year.
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8.7. Highly Compensated Participant. A "highly compensated participant"
means an eligible employee who is a "highly compensated participant" as defined
in Section 414(q) of the Code. In accordance with Internal Revenue Procedure
93-42, a highly compensated participant shall be any eligible employee who
during the applicable plan year:
(a) was a 5 percent owner of an employer or a controlled group
member;
(b) received compensation from an employer or a controlled group
member of more than $75,000 (or such greater amount as may be
determined by the Commissioner of Internal Revenue);
(c) received compensation from an employer or a controlled group
member of more than $50,000 (or such greater amount as may be
determined by the Commissioner of Internal Revenue) and was in
the top-paid twenty percent of employees; or
(d) was an officer of an employer or a controlled group member (or
both) receiving compensation greater than fifty percent of the
limitation in effect under Section 415(b)(1)(A) of the Code;
provided, that for purposes of this paragraph, no more than
fifty employees of the employers and the controlled group
members (or, if lesser, the greater of three employees or ten
percent of employees) shall be treated as officers.
For purposes of this subsection, an employee's compensation for a plan year
shall be the employee's compensation for such plan year for services rendered
to the employers and the controlled group members as reported on the employee's
Federal wage and tax statement (Form W-2), but including the employee's
elective deferral contributions made pursuant to Sections 125 and 401(k) of the
Code (including income deferral contributions made under this plan). For
purposes of paragraph (c) next above, the term "top-paid twenty percent of
employees" means the top- paid twenty percent of the employees of the employers
and the controlled group members, exclusive of (i) employees who have not
completed six months of service with the employers or the controlled group
members, (ii) employees who normally work less than seventeen and one-half
hours per week, (iii) employees who normally work not more than six months
during any plan year, (iv) employees who have not attained age twenty-one
years, (v) except to the extent provided in applicable Treasury Regulations,
employees who are included in a unit of employees covered by an agreement that
the Secretary of Labor finds to be a collective bargaining agreement between
employee representatives and an employer, and (vi) employees who are
nonresident aliens and who receive no earned income (within the meaning of
Section 911(d)(2) of the Code) from the employers that constitutes income from
sources within the United States (within the meaning of Section 861(a)(3) of
the Code). A former employee shall be treated as a highly compensated
participant if
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such employee was a highly compensated participant when such
employee separated from service or such employee was a highly compensated
participant at any time after attaining age 55 years. For purposes of this
subsection, if any eligible employee is a member of the family of a five
percent owner of an employer or a highly compensated participant who is in the
group consisting of the ten highly compensated participants of an employer paid
the greatest compensation during the calendar year, such individual shall not
be considered a separate employee and any compensation of such individual shall
be treated as if it were paid to the five percent owner or the highly
compensated participant. The term "family" shall mean with respect to any
employee, such employee's spouse and lineal ascendants and descendants and the
spouses of such lineal ascendants and descendants.
8.8. Multiple Use of Alternative Limitations. Multiple use of the
alternative limitations described in paragraph 8.5(b) and paragraph 8.6(b)
shall be tested in accordance with Treasury Regulations Section 1.401(m)-2. If
multiple use occurs for any plan year, such multiple use will be corrected in
the manner described in Treasury Regulations Section 1.401(m)-1(e).
8.9. Calculating Income Allocable to Excess Deferrals, Excess Aggregate
Contributions, and Excess Income Deferral Contributions. The income allocable
to a distribution to a participant of excess deferrals, excess income deferral
contributions, or excess aggregate contributions (as required under subsection
8.4, 8.5, 8.6, or 8.8, respectively) shall be determined as follows:
(a) Income for the plan year. The income allocable to a
participant's excess deferrals, excess income deferral
contributions, or excess aggregate contributions, as the case
may be, for the plan year in which such excess amount arose
shall be determined by multiplying the income allocable for
that plan year to the participant's income deferral
contribution account or employer matching contribution
account, as applicable, by a fraction. The numerator of the
fraction is the excess amount to be distributed. The
denominator of the fraction is the total balance in the
applicable account of the participant, as determined as of the
end of that plan year, to which such excess amount was
credited. Such account balance shall be reduced by the gain
and increased by the loss allocable to such account balance
for that plan year.
(b) Income for the gap period. No income will be allocated to any
excess deferrals, excess income deferral contributions, or
excess aggregate contributions to be distributed to a
participant for the period between the end of the plan year in
which such excess amount arose and the date of distribution of
such excess amount.
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8.10. Special Testing Rules.
(a) Family aggregation. For purposes of nondiscrimination testing
under subsections 8.5 and 8.6, as well as for purposes of
required correction of excess amounts determined as a result
of such testing, family members (as defined in subsection 8.7)
of a highly compensated participant who is either a five
percent owner of an employer or a controlled group member or
one of the ten most highly compensated participants of the
employers and the controlled group members for any plan year
shall not be treated as separate participants. Such family
members, together with such highly compensated participant,
shall be considered a "family group" and shall be treated as
follows:
(i) Family group ratio. For purposes of determining
deferral ratios under subsection 8.5 and contribution
ratios under subsection 8.6, the family group shall
be treated as a single highly compensated participant
having a ratio for a plan year equal to the greater
of: (A) the ratio determined for all members of the
family group who are highly compensated participants
and (B) the ratio determined for all members of the
family group.
(ii) Correction of excess amounts attributable to a family
group. For purposes of correcting excess amounts
determined under subsections 8.5 and 8.6, if a family
group has excess income deferral contributions or
excess aggregate contributions, the excess income
deferral contributions or excess aggregate
contributions resulting from the required reduction
in the ratio of the family group shall be allocated
among all members of the family group in proportion
to their income deferral contributions or their
employer matching contributions (or for the 199__
plan year, their after-tax contributions), whichever
are applicable.
(b) Disaggregation of plan. For purposes of subsections 8.5, 8.6,
and 8.8, the plan shall be disaggregated in accordance with
Treasury Regulations Section 1.410(b)-7(c)(2).
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SECTION 9
Period of Participation
9.1. Settlement Date. A participant's "settlement date" will be the date
on which his employment with the employers and the related companies is
terminated because of the first to occur of the following events:
(a) Normal Retirement. The participant retires or is retired from
the employ of the employers and the related companies on or
after the date on which he attains age 65 years.
(b) Disability Retirement. The participant is retired on account
of permanent disability when the company determines, based
upon an independent doctor's examination and certificate, that
a participant is under such physical or mental disability that
he is no longer capable of rendering satisfactory service to
the company. This determination will be made in a
nondiscriminatory manner to all participants.
(c) Death. The participant's death.
(d) Resignation or Dismissal. The participant resigns or is
dismissed from the employ of the employers and the related
companies before retirement in accordance with paragraph (a)
or (b) next above.
If a participant is transferred from employment with an employer to employment
with a controlled group member that is not an employer, then for purposes of
determining when the participant's settlement date occurs under this
subsection, the participant's employment with such controlled group member (or
any controlled group member to which the participant is subsequently
transferred) shall be considered as employment with the employers.
9.2. Restricted Participation. If (i) a participant's settlement date has
occurred but full payment of all of the participant's account balances has not
yet been made, or (ii) a participant transfers to a controlled group member
that is not an employer under the plan, the participant or the participant's
beneficiary will be treated as a participant for purposes of the plan, except
as follows:
(a) The participant (or beneficiary) may not make any income
deferral contributions or rollover contributions and may not
share in any employer contributions, except as specifically
provided in subsections 4.2, 4.3, 8.5, and 8.6.
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(b) The participant's beneficiary cannot designate a beneficiary
under subsection 12.7 and may not obtain a loan under
subsection 10.3.
If a participant subsequently again satisfies the requirements for
participation in the plan, the participant will become an active participant in
the plan on the date the participant satisfies such requirements.
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SECTION 10
In-Service Withdrawals and Participant Loans
10.1. Hardship Withdrawals. Subject to the limitations set forth below, a
participant whose settlement date has not occurred may request a hardship
withdrawal from the participant's income deferral contribution account by
filing a written request with the committee to make such a withdrawal. A
participant's request for a hardship withdrawal must include such evidence as
may be deemed necessary by the committee. Such request shall be filed with the
committee at such time and in such manner as the committee may determine. A
hardship withdrawal made under this subsection shall be subject to the
following terms and conditions:
(a) A participant may withdraw all or any portion of the income
deferral contributions (including any pre-tax contributions
under a predecessor plan) credited to the participant's income
deferral contribution account (but not any earnings thereon
that were credited after December 31, 1988, to the
participant's account under the plan or under a predecessor
plan).
(b) A hardship withdrawal may be made only on account of one of
the following immediate and heavy financial needs of a
participant:
(i) Payment of unreimbursed medical expenses described in
Section 213(d) of the Code previously incurred by the
participant, the participant's spouse, or any
dependents of the participant (as defined in Section
152 of the Code) or payment of unreimbursed expenses
necessary for these persons to obtain medical care
described in Section 213(d);
(ii) Purchase (excluding mortgage payments) of the
principal residence of the participant;
(iii) Payment of post-secondary tuition expenses and room
and board expenses for the participant, the
participant's spouse, or the participant's
dependents;
(iv) Prevention of the eviction of the participant from
the participant's principal residence or prevention
of the foreclosure on the mortgage on the
participant's principal residence;
(v) Payment of an Internal Revenue Service lien or
judgment against the participant;
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(vi) Payment of funeral expenses for the death of a
relative of the participant;
(vii) Payments necessary as the result of the loss of the
job of the principal wage earner in the participant's
family; or
(viii) Payment of the uninsured costs of repairing the
participant's property as the result of a catastrophic
event.
(c) A hardship withdrawal shall not be in excess of the amount
necessary to satisfy the immediate and heavy financial need of
the participant. In accordance with such rules and procedures
as the committee may establish, the amount of a hardship
withdrawal may include the amount necessary to pay any
Federal, state, or local income taxes or penalties reasonably
anticipated to result from the withdrawal. A hardship
withdrawal will not be permitted if the participant's
immediate and heavy financial need could be satisfied from
other sources reasonably available to the participant.
(d) If (i) a participant elects to withdraw an amount pursuant to
this subsection and (ii) the participant's income deferral
contribution account is invested in more than one investment
fund, the amount to be withdrawn shall be withdrawn from the
investment funds in the order determined by the committee for
withdrawals from the plan.
The committee may rely on a participant's written representation as to the
satisfaction of the requirements of paragraphs (b) and (c).
10.2. In-Service Withdrawal. A participant who has attained age 65 may
receive a distribution of all or a portion (in increments of 10 percent) from
vested amounts credited to the participant's accounts (other than the
participant's ESOP stock account and ESOP cash account) by filing a request in
writing with the committee in accordance with procedures established by the
committee, in its sole discretion. A request for withdrawal shall be effective
as of the accounting date coincident with or next following the date the
request is delivered to the committee and the distribution shall be made as
soon as practical thereafter. A participant shall be limited to two (2)
in-service withdrawals in any twelve month period.
10.3. Loans to Participants. Although the primary purpose of the plan is to
allow participants to accumulate funds for retirement, it is recognized that
under some circumstances it would be in the best interest of participants to
permit loans to be made to them from certain of their accounts under the plan.
Accordingly, the committee may (pursuant to such nondiscriminatory rules as the
committee may from time to time establish and uniformly apply, which rules are
hereby incorporated into
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and made a part of the plan), approve a loan to a participant, subject to the
following:
(a) Terms and conditions of loans. All loans shall be subject to
the following terms and conditions:
(i) A loan will be made to a participant only for the
purposes described in paragraph 10.1(b). A
participant shall provide the committee with such
evidence as the committee may require to determine
the loan is for such purpose. Each request for a
loan must be made on a form furnished by the
committee and filed with the committee at such time
and in such manner as the committee may determine.
The spouse of a participant must consent to a loan if
required under Treasury Regulations 1.401(a)-20 with
respect to amounts transferred to this plan from a
predecessor plan.
(ii) A loan may not be made to a participant after the
participant's settlement date or after the
participant transfers employment to a controlled
group member. If a participant's settlement date or
transfer to a controlled group member should occur
after the participant has requested a loan but before
the loan is actually made to the participant, the
participant's request for a loan automatically will
be cancelled.
(iii) Each loan shall be evidenced by a note in a form
furnished by the committee and shall bear interest at
the rate that is in effect on the date of the loan.
The interest rate for loans shall be determined by
the committee no less frequently than quarterly based
on appropriate factors in accordance with Department
of Labor regulations.
(iv) Each participant may have no more than one loan
outstanding at any time.
(v) Each loan to a participant shall be secured by a
pledge of a portion of the participant's vested
account balances under the plan. As of the effective
date of a loan, no more than fifty percent of the
participant's vested account balances may be pledged
as security for that loan.
(vi) The making of a loan shall be deemed to be consent by
the participant to charging the participant's accounts
if any portion of the loan (and any accrued interest
thereon) has not been paid as of the participant's
settlement date or such earlier date after the
participant's loan is suspended under paragraph (e)
next below as
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provided under rules established by the committee
pursuant to that paragraph.
(b) Amount of loans. The principal amount of any loan (when added
to the outstanding balance of any prior loans) made to a
participant shall not exceed the lesser of (i) or (ii) below:
(i) $50,000, reduced by the excess (if any) of:
(A) the highest outstanding balance of all
loans under the plan during the one-year
period ending immediately preceding the
date of the loan, over
(B) the outstanding balance on the date of the
loan of all loans under the plan.
(ii) Fifty percent of the amount of the participant's
vested account balances under the plan as of the date
of the loan.
Notwithstanding the foregoing, the principal amount of any
loan shall be limited so that the amount of principal and
interest to be repaid does not exceed twenty percent of a
participant's total pre-tax compensation (determined as of the
date the loan is approved) for each subsequent payroll period.
The principal amount of any loan made to a participant shall
not be less than $1,000.
(c) Sources for loans. A loan to a participant shall be made
solely from vested amounts credited to the participant's
accounts (other than the participant's ESOP stock account and
ESOP cash account). A loan granted under this subsection to a
participant shall be made by liquidating and converting to
cash the participant's accounts (and the participant's
interest in the investment funds) in the order specified by
the committee for loans to participants.
(d) Repayment of loans. Each loan shall specify a payment period
of from one to five years. Payments must be made by payroll
deduction, except that a participant on an authorized paid
leave of absence may make loan payments by check. A
participant who is on an authorized unpaid leave of absence may
suspend payments for up to one year during the period of such
absence. As repayments are made with respect to a loan, the
unpaid balance of such loan shall be reduced. Payments of
principal and interest shall be credited to the participant's
loan repayment account. Payments credited to a participant's
loan repayment account may not be invested in company stock;
pursuant to subsection 6.3, a participant must elect how loan
repayments will be invested. Participants may
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pay the entire outstanding balance of a loan and accrued
interest thereon after the first month of a loan period;
partial prepayments may not be made.
(e) Unpaid loans. If a participant fails to make scheduled loan
payments or reaches his settlement date with an outstanding
loan balance, the following shall apply:
(i) If a participant whose settlement date has not
occurred (and who is not on an authorized unpaid
leave of absence) fails for three consecutive months
to pay any portion of a loan made to the participant
under the plan and accrued interest thereon in
accordance with the terms of the loan, the
participant will have thirty days to pay the amount
then owing. If such payment is not made, the loan
will be considered in default. A participant who has
a loan in default shall not be eligible to obtain
further loans. Loans in default shall be further
handled under uniform rules established by the
committee in accordance with Internal Revenue Service
and Department of Labor rules and regulations.
(ii) If immediately prior to a participant's settlement
date any loan or portion of a loan made to the
participant under the plan remains outstanding, the
participant may repay an amount equal to the unpaid
balance of such loan, provided such repayment is made
(A) within thirty days following the participant's
termination date if the participant will not be
receiving an immediate distribution of the
participant's benefits under the plan or (B) prior to
the time distribution of the participant's plan
benefits will be made if the participant will receive
an immediate distribution of the participant's plan
benefits. If a participant does not repay the entire
balance of the loan within the time period specified
above, the balance of the loan shall be considered in
default as of the participant's settlement date. On
the date that a loan is considered in default, the
promissory note shall immediately become due and
payable and an amount equal to such loan or any part
thereof, together with the accrued interest thereon,
shall be deemed distributed to the participant and
shall be charged to the participant's accounts after
all other adjustments required under the plan have
been made, but before any other distribution.
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SECTION 11
Vesting
11.1. Retirement. A participant shall have a nonforfeitable right to all of
the participant's account balances on and after attaining normal retirement
age. A participant's right to all of the participant's account balances shall
be nonforfeitable on and after the participant becomes eligible for disability
retirement. If a participant's employment with the employers and the
controlled group members is terminated because of retirement under paragraph
9.1(a) or (b), the balances in the participant's accounts shall be
distributable to the participant under Section 12.
11.2. Resignation or Dismissal. If a participant resigns or is dismissed
from the employ of the employers and the controlled group members before
retirement under paragraph 9.1(a) or (b), the balances in the participant's
accounts shall be treated as follows:
(a) The balances in the participant's income deferral contribution
account, vested employer matching contribution subaccount,
vested employer discretionary contribution subaccount,
supplemental contribution account, Drovers transfer account,
rollover, vested transfer, and loan repayment accounts and
ESOP participant subaccount shall be nonforfeitable and shall
be distributable to the participant under Section 12.
(b) The balances in the participant's employer discretionary
contribution account, employer matching contribution account,
and ESOP employer subaccount shall be subject to the
following:
(i) If the participant has completed five or more years
of credited service (as defined in subparagraph (iii)
below) as of his settlement date, the balances in his
employer discretionary contribution account, employer
matching contribution account, and ESOP employer
subaccount shall be nonforfeitable and shall be
distributable to the participant under Section 12.
(ii) If the participant has not completed five years of
credited service as of the participant's settlement
date, the participant shall receive the vested portion
of the balances in the participant's employer
discretionary contribution subaccount, employer
matching contribution subaccount, and ESOP employer
subaccount. The participant shall forfeit the
nonvested portion of such account balances. The
vested portion of the balances in the participant's
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employer discretionary contribution account, employer
matching contribution account, and ESOP employer
subaccount shall be distributable to the participant
under Section 12. Except as provided below, the
vested portion of such balances shall be determined
under the following schedule:
Number of Completed Vested
Years of Service Percentage
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
Notwithstanding any other provision of this
subsection 11.2 to the contrary, a participant who
has less than five years of credited service and has
not yet attained normal retirement age may be deemed
to have no vested interest in his employer
discretionary contribution account, employer matching
contribution account, and ESOP employer subaccount
and his entire balance in such accounts may be
forfeitable, if (i) he is discharged by an employer
due to theft, fraud, embezzlement, other criminal
acts or willful misconduct causing either significant
loss or property damage to an employer or personal
injury to any other employee of an employer; or (ii)
he enters into or engages in a business that directly
competes with an employer.
(iii) A participant's "credited service" means the total
period of the participant's employment with the
employers and the controlled group members (including
service prior to the effective date) measured from
the date the participant first performs an hour of
service (as defined in subsection 2.1) with the
employers, the controlled group members, or members
of CTFG. A "year of credited service" means each
12-month period of credited service. Fractional
years of credited service shall be calculated on the
basis of completed months of service.
(iv) Non-vested amounts shall be forfeited under this
subsection on the earlier of the date the
participant's vested benefits are distributed or the
regular accounting date immediately following the
calendar quarter in which the participant's
settlement date occurs. Forfeitures shall
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be drawn from a participant's accounts in accordance
with Treasury Regulations Section 54.4975-11(d)(4).
11.3. Death of Participant. If a participant's settlement date occurs under
paragraph 9.1(c), the balances in the participant's accounts will be
nonforfeitable and distributable to the participant's beneficiary in accordance
with Section 12. If a participant dies after the participant's settlement date
but before all of the participant's account balances have been paid to the
participant in full pursuant to the provisions of Section 12, the vested
portion of the participant's account balances (as determined under subsection
11.1 or 11.2, whichever is applicable) will be distributable to the
participant's beneficiary in accordance with Section 12.
11.4. Forfeitures. The amount of a participant's accounts forfeited under
subsection 11.2 shall be a "forfeiture." As determined by the committee, and
except as otherwise provided in subsection 7.5, forfeitures shall be applied,
in the plan year in which the participant's settlement date occurred or as soon
thereafter as practicable, to (1) reduce employer matching or discretionary
contributions otherwise required under the plan, (2) pay principal and interest
payments due on an acquisition loan, or (3) pay proper expenses of the plan and
trust. If a participant is reemployed by the employers before he incurs five
consecutive one-year breaks in service, subsection 14.3 shall apply.
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SECTION 12
Distributions Following Settlement Date
12.1. Manner of Distribution. Subject to the conditions set forth below,
distribution of the balances in a participant's accounts (with the exception of
the balance in his Drovers Transfer Account, which shall be distributed in
accordance with the provisions of Supplement A) will be made to, or for the
benefit of, the participant or, in the case of the participant's death, to or
for the benefit of the participant's beneficiary, by payment in a lump sum.
However, the period over which distribution of a participant's ESOP stock
account and ESOP cash account may be made shall be increased by one year, up to
five additional years, for each $132,000 (or fraction thereof) by which the
total balance of the participant's ESOP stock account and ESOP cash account
exceeds $670,000. The aforementioned dollar amounts shall be subject to
cost-of-living adjustments prescribed by the Secretary of the Treasury.
In accordance with subsection 12.5, a participant may elect a direct
rollover of any payment that constitutes an eligible rollover distribution.
Notwithstanding any other provision of this Section 12, if a participant's
vested account balances equal $3,500 or less at or after the participant's
settlement date, the participant (or the participant's beneficiary) shall
receive a lump sum payment of such amount in accordance with paragraph 12.4(c).
In accordance with such rules and procedures as the committee shall establish,
the amount to be paid to a participant who elects to receive a distribution
that is less than the total vested balance in the participant's accounts shall
be drawn from the participant's accounts in the order specified by the
committee for distributions from participants' accounts. The life expectancy
of a participant, the participant's spouse or the participant's designated
beneficiary shall be determined at the time benefit payments commence by use of
the expected return multiples contained in the regulations under Section 72 of
the Code. Life expectancies determined in accordance with the foregoing shall
not be recalculated. A participant may select, in accordance with such rules
as the committee may establish, the method of distributing the participant's
benefits to him; a participant, if the participant so desires, may direct how
the participant's benefits are to be paid to the participant's beneficiary; and
the committee shall select the method of distributing the participant's
benefits to the participant's beneficiary if the participant has not filed a
direction with the committee.
12.2. Determination of Account Balances. After a participant's settlement
date has occurred and pending complete distribution of the participant's
account balances, the participant's accounts will be held under the plan and
will be subject to adjustment under Section 7. For purposes of subsection
12.1, a participant's account balances will be determined as of the accounting
date coincident with or immediately preceding the date of distribution of the
participant's account.
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12.3. Distribution of Company Stock. Subject to rules established by the
committee, with respect to a distribution under subsection 12.1, subject to
subsection 12.4, a participant (or the participant's beneficiary) will receive
an in-kind distribution of the shares of company stock allocated to the
participant's ESOP stock account, except that any fractional shares in the
participant's ESOP stock account shall be paid in cash. Any amounts
transferred from company stock to one or more of the investment funds under
subsection 6.4 may not be available for distribution in the form of company
stock. Company stock distributed pursuant to this subsection shall be subject
to the provisions of Section 13.
12.4. Timing of Distributions. Distribution of the balance of a
participant's accounts shall be made or shall commence as follows:
(a) Interests other than company stock. Payment of a
participant's account balances (other than the participant's
ESOP stock account) will be made within a reasonable time
after the date on which the participant's account balances
have been determined pursuant to subsection 12.2, but not
later than sixty days after (a) the end of the plan year in
which his settlement date occurs or (b) such later date on
which the amount of payment can be ascertained by the
committee.
(b) Company stock. The distribution of amounts representing the
shares of company stock allocated to a participant's ESOP
stock account will be made as follows:
(i) Distribution upon retirement or death. Unless an
earlier date is required by paragraph (c) or (d)
below, or the participant elects a later date if a
participant terminates employment under paragraph
9.1(a) or (b), if a participant retires or dies while
in the employ of an employer or a controlled group
member, distribution of the participant's ESOP stock
account (including amounts invested in company stock
pursuant to subsection 6.2 or paragraph 6.3(b)) will
be made or will commence no later than one year
following the close of the plan year during which the
participant's settlement date occurs.
(ii) Distribution upon resignation or dismissal. Unless an
earlier date is required by paragraph (c) or (d), if a
participant's settlement date occurs under paragraph
9.1(d), distribution of the participant's ESOP stock
account (including amounts invested in company stock
pursuant to subsection 6.2 or paragraph 6.3(b)) will
be made or will commence by the later of (A) or (B):
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(A) one year following the close of the plan year
which is the fifth plan year following the
plan year in which the participant's
settlement date has occurred, unless the
participant is reemployed by an employer or a
controlled group member before such year; or
(B) the earlier of:
(1) one year following the close of the
plan year in which an acquisition
loan is fully repaid with respect to
in-kind distributions of company
stock; or
(2) one year following the close of the
plan year in which the participant
attains normal retirement age.
(iii) Distributions to beneficiary upon death.
Notwithstanding the provisions of subparagraphs (i)
and (ii) above, distributions upon the death of a
participant shall be made in accordance with the
requirements of paragraph (d) below and shall
otherwise comply with Section 401(a)(9) of the Code
and any regulations issued thereunder.
(c) Mandatory cash-outs; consent. Notwithstanding any other
provision of this Section 12, if a participant's vested account
balances equal $3,500 or less at any time at or after his
settlement date, the participant (or the participant's
beneficiary) shall receive an immediate lump sum payment of
such amount. Such distribution shall be made as soon as
practicable after the regular accounting date next following
the participant's settlement date. If the present value of a
participant's entire vested benefit under the plan is zero, the
participant shall be deemed to have received a distribution of
such vested benefit. Notwithstanding any provision of the plan
to the contrary, if a participant's vested account balances
exceed or have ever exceeded $3,500 at any time at or after the
participant's settlement date, distributions may not be made to
the participant before age 65 without the participant's
consent.
(d) Required commencement date. Irrespective of any contrary
provision of the plan, distribution of a participant's account
balances shall be made or shall commence by April 1 of the
calendar year next following the calendar year in which the
participant attains age 70-1/2 (his "required commencement
date"); provided, however, that the required commencement date
of a participant who is not a 5 percent owner of an employer or
a controlled group member and who attained age 70-1/2 prior to
January 1, 1988, shall be April 1 of the calendar year next
following the calendar year in which the participant retires.
If a participant dies before the participant's required
commencement date, the participant's
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benefits must be distributed over a period not exceeding the
greater of: (i) five years from the death of the participant;
(ii) in the case of payments to a designated beneficiary other
than the participant's spouse, the life expectancy of such
beneficiary, provided payments begin within one year of the
participant's death (or such later date as may be prescribed
under Treasury Regulations); or (iii) in the case of payments
to the participant's spouse, the life expectancy of such
spouse, provided payments begin by the date the participant
would have attained age 70-1/2. If a participant dies after
the participant's required commencement date, the remaining
portion of the participant's benefits will be distributed at
least as rapidly as under the method of distribution in effect
at the participant's death. Notwithstanding the foregoing, the
committee may honor a participant's written designation made
under a predecessor plan prior to January 1, 1984, to have the
participant's benefits commence at any date permitted under the
terms of such predecessor plan as in effect immediately prior
to January 1, 1984.
12.5. Direct Rollovers. For plan years beginning on and after January 1,
1993, certain individuals who are to receive distributions under the plan may
elect that such distributions be paid in the form of a direct rollover (as
described in Section 401(a)(31) of the Code and the regulations thereunder) to
the trustee or custodian of a plan eligible to accept direct rollovers, subject
to the following:
(a) Eligible rollover distribution. A distribution may be paid in
a direct rollover under this subsection only if the
distribution constitutes an eligible rollover distribution. An
"eligible rollover distribution" means any distribution under
the plan to an eligible distributee (as defined below) other
than (i) a distribution that is one of a series of
substantially equal payments made annually or more frequently
either over the life (or life expectancy) of the participant or
the joint lives (or life expectancies) of the participant and
his designated beneficiary or over a specified period of ten
years or more, (ii) a distribution required to meet the minimum
distribution requirements of Section 401(a)(9) of the Code, or
(iii) a distribution excluded from the definition of an
"eligible rollover distribution" under applicable Treasury
Regulations. Notwithstanding the immediately preceding
sentence, an eligible rollover distribution includes only those
amounts that would be includable in the gross income of the
eligible distributee if such amounts were not rolled over to
another plan as provided under Section 402(c) of the Code.
(b) Eligible distributee. An "eligible distributee" is (i) a
participant, (ii) a participant's surviving spouse who is
entitled to receive payment of the participant's account
balances after the participant's
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death, or (iii) the spouse or former spouse of a participant
who is an alternate payee under a qualified domestic relations
order (as defined in Section 414(p) of the Code).
(c) Eligible retirement plan. A direct rollover of an eligible
rollover distribution may be made to no more than one "eligible
retirement plan." Except as otherwise provided below, an
"eligible retirement plan" is (i) an individual retirement
account described in Section 408(a) of the Code, (ii) an
individual retirement annuity described in Section 408(b) of
the Code (other than an endowment contract), (iii) an annuity
plan described in Section 403(a) of the Code, or (iv) a plan
qualified under Section 401(a) of the Code that by its terms
permits the acceptance of rollover contributions. With respect
to the surviving spouse of a deceased participant who is
entitled to receive a distribution of the participant's
accounts, an "eligible retirement plan" shall mean only an
individual retirement account described in Section 408(a) of
the Code or an individual retirement annuity described in
Section 408(b) of the Code (other than an endowment contract).
(d) Minimum amounts. An eligible distributee may elect a direct
rollover of all or a portion of an eligible rollover
distribution only if the total amount of the eligible rollover
distributions expected to be received by the eligible
distributee during the plan year is $200 or more (or such
lesser amount as the committee may establish). An eligible
distributee may elect payment of a portion of an eligible
rollover distribution as a direct rollover and may receive
directly the remainder of such distribution, provided that the
amount paid by direct rollover is at least $500 (or such lesser
amount as the committee may establish).
(e) Elections. An eligible distributee's election of a direct
rollover pursuant to this subsection must be in writing on a
form designated by the committee and must be filed with the
committee at such time and in such manner as the committee
shall determine. The committee shall establish such rules and
procedures as it deems necessary to provide for distributions
by means of direct rollover.
12.6. Immediate Distributions to Alternate Payees. The committee shall direct
distribution of the amount of a participant's account balances assigned to an
alternate payee under a qualified domestic relations order (as defined in
Section 414(p) of the Code) on the earliest date specified in such qualified
domestic relations order, without regard to whether such payments commence
prior to the participant's earliest retirement age (as defined in Section
414(p)(4)(B) of the Code).
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12.7. Designation of Beneficiary. Each participant may designate any person
or persons (who may be designated concurrently, contingently or successively)
to whom the participant's benefits are to be paid if the participant dies
before the participant receives all of participant's benefits. A beneficiary
designation must be made on a form furnished by the committee for this purpose,
and such form must be signed by the participant. A beneficiary designation
form will be effective only when the form is filed with the committee while the
participant is alive and will cancel all the participant's beneficiary
designation forms previously filed with the committee. Notwithstanding the
foregoing provisions of this subsection and any beneficiary designation filed
with the committee in accordance with this subsection, if a participant dies
and has a surviving spouse at the participant's date of death, the account
balances described in the preceding sentence shall be payable in full to the
participant's surviving spouse in accordance with this Section 12 (treating
such surviving spouse as the participant's beneficiary), unless prior to the
participant's death the following requirements were met:
(a) The participant elected that the participant's benefits under
the plan be paid to a person other than the participant's
surviving spouse;
(b) The participant's spouse consented in writing to such election;
(c) The spouse's consent acknowledged the effect of such election
and was witnessed by a notary public; and
(d) Such election designates a beneficiary that may not be changed
without further spousal consent, unless the spouse executed a
general written consent expressly permitting changes of the
beneficiary without any requirement of further consent of the
spouse.
For purposes of the plan, and subject to the provisions of any qualified
domestic relations order (as defined in Section 414(p) of the Code), a
participant's "spouse" means the person to whom the participant is legally
married at the earlier of the date of the participant's death or the date
payment of the participant's benefits commenced and who is living at the date
of the participant's death. If a deceased participant failed to designate a
beneficiary as provided above, or if the designated beneficiary dies before the
participant or before complete payment of the participant's benefits, the
participant's benefits shall be distributed to the participant's spouse, or if
there is none, the committee, in its discretion, may direct the trustee to pay
the participant's benefits as follows:
(e) To or for the benefit of any one or more of the participant's
relatives by blood, adoption or marriage and in such
proportions as the committee determines; or
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(f) To the legal representative or representatives of the estate of
the last to die of the participant and the participant's
designated beneficiary.
The term "designated beneficiary" or "beneficiary" as used in the plan means
the natural or legal person or persons designated by a participant as the
participant's beneficiary under the last effective beneficiary designation form
filed with the committee under this subsection and to whom the participant's
benefits would be payable under this subsection.
12.8. Missing Participants or Beneficiaries. Each participant and each
designated beneficiary must file with the committee from time to time in
writing his post office address and each change of post office address. If a
participant dies before the participant receives all of the participant's
vested account balances, the participant's beneficiary must file any change in
his post office address with the committee. Any communication, statement or
notice addressed to a participant or beneficiary at the last post office
address filed with the committee, or if no address is filed with the committee
then, in the case of a participant, at the participant's last post office
address as shown on the employers' records, will be binding on the participant
and the participant's beneficiary for all purposes of the plan. The employers,
the trustee, and the committee shall not be required to search for or locate a
participant or beneficiary. If the committee notifies a participant or
beneficiary that the participant or beneficiary is entitled to a payment and
also notifies the participant or beneficiary of the provisions of this
subsection, and the participant or beneficiary fails to claim his benefits or
make his whereabouts known to the committee within three years after the
notification, the benefits of the participant or beneficiary may be disposed
of, to the extent permitted by applicable law, as follows:
(a) If the whereabouts of the participant then are unknown to the
committee but the whereabouts of the participant's spouse then
are known to the committee, payment may be made to the spouse;
(b) If the whereabouts of the participant and the participant's
spouse, if any, then are unknown to the committee but the
whereabouts of the participant's designated beneficiary then
are known to the committee, payment may be made to the
designated beneficiary;
(c) If the whereabouts of the participant, the participant's spouse
and the participant's designated beneficiary then are unknown
to the committee but the whereabouts of one or more relatives
by blood, adoption or marriage of the participant are known to
the committee, the committee may direct the trustee to pay the
participant's benefits to one or more of such relatives and in
such proportions as the committee decides; or
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(d) If the whereabouts of such relatives and the participant's
designated beneficiary then are unknown to the committee, the
benefits of such participant or beneficiary may be disposed of
in an equitable manner permitted by law under rules adopted by
the committee.
12.9. Facility of Payment. When a person entitled to benefits under the plan
is under legal disability, or, in the committee's opinion, is in any way
incapacitated so as to be unable to manage the person's financial affairs, the
committee may direct the trustee to pay the benefits to such person's legal
representative, or to a relative or friend of such person for such person's
benefit, or the committee may direct the application of such benefits for the
benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
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SECTION 13
Rights, Restrictions, and Options on Company Stock
13.1. Right of First Refusal. Subject to the provisions of the last sentence
of this subsection, shares of company stock distributed to participants
pursuant to subsection 12.3 shall be subject to a "right of first refusal."
The right of first refusal shall provide that, prior to any subsequent
transfer, the participant (or the participant's beneficiary) must first make a
written offer of such company stock to the trust and to the company at the then
fair market value of such company stock, as determined by an "independent
appraiser" (as defined in Section 401(a)(28) of the Code). The trust shall
have the first priority to exercise the right to purchase the company stock,
and then the company shall have second priority to exercise the right. A bona
fide written offer from an independent prospective buyer shall be deemed to be
the fair market value of such company stock for this purpose, unless the value
per share, as determined by the independent appraiser as of the December 31
accounting date of the immediately preceding plan year, is greater. The
company and the trust shall have a total of 14 days (from the date the offer is
first received by the company or the trust) to exercise the right of first
refusal on the same terms offered by the prospective buyer. A participant (or
the participant's beneficiary) entitled to a distribution of company stock may
be required to execute an appropriate stock transfer agreement (evidencing the
right of first refusal) prior to receiving a certificate for company stock. No
right of first refusal shall be exercisable by reason of any of the following
transfers:
(a) The transfer upon disposition of any such shares by any legal
representative, heir or legatee, but the shares shall remain
subject to the right of first refusal;
(b) The transfer by a participant or a participant's beneficiary in
accordance with the put option pursuant to subsection 13.2; or
(c) The transfer while company stock is listed on a national
securities exchange registered under Section 6 of the
Securities Exchange Act of 1934 or quoted on a system sponsored
by a national securities association registered under Section
15A(b) of the Securities Exchange Act of 1934.
13.2. Put Option. The company shall issue a "put option" to each participant
(or each participant's beneficiary) who receives a distribution of company
stock if, at the time of such distribution, company stock is not then readily
tradable on an established market, as defined in Section 409(h) of the Code and
the regulations thereunder. The put option shall permit the participant (or
the participant's beneficiary) to sell such company stock at its then fair
market value, as determined by an independent
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appraiser, to the company at any time during the sixty-day period commencing on
the date the company stock was distributed to the participant (or the
participant's beneficiary), and, if not exercised within that period, the put
option will temporarily lapse. The company, in its sole discretion, may extend
the sixty-day period referred to in the immediately preceding sentence if such
an extension is necessary in order for the company stock to be valued by an
independent appraiser as of the December 31 coincident with or immediately
preceding the date the company stock was distributed to the recipient. As of
December 31 of the plan year in which such temporary lapse of the put option
occurs, the independent appraiser shall determine the value of the company
stock, and the committee shall notify each distributee who did not exercise the
initial put option prior to its temporary lapse in the preceding plan year of
the revised value of the company stock. The time during which the put option
may be exercised shall recommence on the date such notice or revaluation is
given and shall permanently terminate sixty days thereafter. The trustee may
be permitted by the company to purchase company stock put to the company under
a put option. At the option of the company or the trustee, as the case may be,
the payment for company stock sold pursuant to a put option shall be made, as
determined in the discretion of the company or the trustee, as the case may be,
in the following forms:
(a) If a participant's ESOP stock account is distributed in a total
distribution (that is, a distribution within one taxable year
of the balance to the credit of the participant's ESOP stock
account), then payment for such company stock may be made with
a promissory note that provides for substantially equal annual
installments commencing within thirty days from the date of the
exercise of the put option and over a period not exceeding five
years, with interest payable at a reasonable rate (as
determined by the company) on any unpaid installment balance,
with adequate security provided, and without penalty for any
prepayment of such installments; or
(b) In a lump sum no later than thirty days after such participant
exercises the put option.
At the direction of the committee, the trustee on behalf of the trust may offer
to purchase any shares of company stock (which are not sold pursuant to a put
option) from any former participant or beneficiary at any time in the future,
at their then fair market value.
13.3. Share Legend. Shares of company stock held or distributed by the
trustee may include such legend restrictions on transferability as the company
may reasonably require in order to assure compliance with applicable Federal
and state securities laws.
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13.4. Nonterminable Rights. The provisions of this Section 13 shall continue
to be applicable to shares of company stock even if the applicable portion of
the plan ceases to be an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code.
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SECTION 14
Reemployment
14.1. Commencement or Resumption of Participation. If a participant should
terminate employment with the employers and subsequently be reemployed by an
employer, the participant shall again become a participant as of the day of the
participant's reemployment with the employer. If an employee who has not
become a participant terminates employment with the employers and subsequently
is reemployed by an employer, the employee shall become a participant on the
entry date immediately following the employees's date of hire if the employee
then meets the requirements of subsection 2.1. For purposes of subsection 2.1,
a temporary or part-time employee who terminates employment with the employers
and subsequently is reemployed by an employer will receive credit for his
service with the employers and the controlled group members prior to his
earlier termination of employment.
14.2. Credited Service for Vesting. The years of credited service accrued
prior to termination of employment by a non-vested participant or employee
shall be disregarded for purposes of subsection 11.2 only if his number of
consecutive one-year breaks in credited service occurring after his termination
equal or exceed the greater of (i) five or (ii) his years of credited service
prior to his termination. The years of credited service of any vested
participant shall be reinstated upon reemployment. However, in no event shall
years of credited service occurring after a participant incurs five consecutive
one-year breaks in credited service be used to determine the nonforfeitable
amount of the participant's employer matching contribution account, employer
discretionary contribution account, or ESOP employer subaccount as of a prior
settlement date. If a participant or employee is reemployed by the employers
within the 12-month period immediately following his termination date, no break
in credited service shall be deemed to have occurred, and such period will be
added to his credited service.
A "one-year break in credited service" means each 12-month period
beginning on the date a participant terminates employment with the employers
and each anniversary thereof. In the case of a maternity or paternity absence
(as defined below), the two 12-month periods beginning on the first day of such
absence and the first anniversary thereof shall not constitute a one-year break
in credited service. A "maternity or paternity absence" means an employee's
absence from work because of the pregnancy of the employee or birth of a child
of the employee, the placement of a child with the employee in connection with
the adoption of such child by the employee, or for purposes of caring for a
child immediately following such birth or placement. The committee may require
an employee to furnish such information as the committee considers necessary to
establish that the employee's absence was for one of the reasons specified
above.
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14.3. Reinstatement of Forfeitures. If a participant whose employment had
terminated with the employers because of resignation or dismissal before the
participant was entitled to the full balance in the participant's employer
matching contribution account, employer discretionary contribution account, and
ESOP employer subaccount is reemployed by the employers before incurring five
consecutive one-year breaks in credited service, the following shall apply:
(a) If the participant did not receive distribution of any part of
the vested portion of the participant's account, the amount of
the participant's account previously forfeited pursuant to
subsection 11.2 will be credited to the participant's account
as of the regular accounting date immediately following the
date the participant is reemployed by the employers.
(b) If the participant received distribution of any part of the
vested portion of the participant's account, the participant
may repay to the trustee the total amount distributed to the
participant from the participant's employer matching
contribution account, employer discretionary contribution
account, and ESOP employer subaccount as a result of such
earlier termination of employment. However, such repayment
must be made before the earlier of (i) the fifth anniversary of
the participant's date of reemployment by the employers or (ii)
the date the participant incurs five consecutive one-year
breaks in credited service commencing after the distribution.
If a participant makes such a repayment to the trustee, the
amount of the repayment shall be credited to the participant's
accounts, and the previously forfeited amounts that resulted
from the participant's earlier termination of employment
(unadjusted for subsequent gains or losses) shall be credited
to the participant's accounts as of the regular accounting date
coincident with or next following the date of repayment.
Forfeitures that are to be credited to participants' accounts as of an
accounting date under this subsection shall be drawn first from outstanding
forfeitures and then, if necessary, from special employer contributions made
for this purpose.
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SECTION 15
Voting and Tendering of Company Stock
The voting of company stock held in the trust, and if a tender offer is made
for company stock, the tendering of such shares, shall be subject to the
provisions of ERISA and the following provisions, to the extent such provisions
are not inconsistent with ERISA:
(a) Allocated shares. For purposes of this Section, shares of
company stock shall be deemed to be allocated and credited to a
participant's ESOP stock account in an amount to be determined
based on the balance in such account on the accounting date
coincident with or next preceding the record date of any vote
or tender offer.
(b) Voting of company stock. With respect to any corporate matter
which involves the voting of company stock with respect to the
approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all of the assets of a trade
or business, or such other transactions which may be prescribed
by regulation, each participant may be entitled to direct the
trustee as to the exercise of any voting rights attributable to
shares of company stock then allocated to his ESOP stock
account, but only to the extent required by Sections 401(a)(22)
and 409(e)(3) of the Code and the regulations thereunder. The
committee shall have the sole responsibility for determining
when a corporate matter has arisen that involves the voting of
company stock under this provision. If a participant is
entitled to so direct the trustee, all allocated company stock
as to which such instructions have been received (which may
include an instruction to abstain) shall be voted by the
trustee in accordance with such instructions, provided that the
trustee may vote the shares as it determines is necessary to
fulfill their fiduciary duties under ERISA. The trustee shall
vote any shares of company stock held in the unreleased stock
account, or any allocated shares of company stock as to which
no voting instructions have been received in accordance with
the directions of the committee, provided, however, that the
trustee may vote the shares as they determine is necessary to
fulfill their fiduciary duties.
(c) Tendering of company stock. In the event of a tender offer for
shares of company stock held by the Trust, the trustee shall
tender the shares in their sole discretion, subject to the
fiduciary duties under ERISA
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In carrying out its responsibilities under this Section, the trustee may rely
on information furnished to it by the committee, including the names and
current addresses of participants, the number of shares of company stock
allocated to their accounts, and the number of shares of company stock held by
the trustee that have not yet been allocated.
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SECTION 16
General Provisions
16.1. Interests Not Transferable. The interests of participants and their
beneficiaries under the plan are not in any way subject to their debts or other
obligations and, except as may be required by the tax withholding provisions of
the Code or any state's income tax act, may not be voluntarily or involuntarily
sold, transferred, alienated or assigned. Notwithstanding the foregoing, the
plan shall comply with any domestic relations order that, in accordance with
procedures established by the committee, is determined to be a qualified
domestic relations order (as defined in Section 414(p)(1)(A) of the Code).
16.2. Absence of Guaranty. The committee, the employers, and the trustee do
not in any way guarantee the trust from loss or depreciation. The liability of
the committee or the trustee to make any payment under the plan will be limited
to the assets held by the trustee that are available for that purpose.
16.3. Employment Rights. The plan does not constitute a contract of
employment, and participation in the plan will not give any employee the right
to be retained in the employ of an employer, nor any right or claim to any
benefit under the plan, unless such right or claim has specifically accrued
under the terms of the plan.
16.4. Litigation by Participants or other Persons. To the extent permitted by
law, if a legal action against the trustee, an employer, or the committee by or
on behalf of any person results adversely to that person, or if a legal action
arises because of conflicting claims to a participant's or beneficiary's
benefits, the cost to the trustee, an employer, or the committee of defending
the action will be charged to the extent possible to the sums, if any, that
were involved in the action or were payable to the participant or beneficiary
concerned.
16.5. Evidence. Evidence required of anyone under the plan may be by
certificate, affidavit, document or other information that the person acting on
it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
16.6. Waiver of Notice. Any notice required under the plan may be waived by
the person entitled to such notice.
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16.7. Controlling Law. To the extent not superseded by the laws of the United
States, the laws of Illinois shall be controlling in all matters relating to
the plan.
16.8. Statutory References. Any reference in the plan to the Code means the
Internal Revenue Code of 1986, as amended. Any reference in the plan to ERISA
means the Employee Retirement Income Security Act of 1974, as amended. Any
reference in the plan to a section of the Code or ERISA, or to a section of any
other Federal law, shall include any comparable section or sections of any
future legislation that amends, supplements or supersedes that section.
16.9. Severability. In case any provisions of the plan shall be held illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the plan, and the plan shall be construed and enforced
as if such illegal and invalid provisions had never been set forth in the plan.
16.10. Additional Employers. With the consent of the company, any controlled
group member described in paragraph 1.6(a) or (b) may, by filing with the
company a written instrument to that effect, become an employer hereunder by
adopting the plan and becoming a party to the trust agreement.
16.11. Action By Employers. Any action authorized or required to be taken by
an employer under the plan shall be by resolution of its Board of Directors, by
resolution of a duly authorized committee of its Board of Directors, or by a
person or persons authorized by resolution of its Board of Directors or such
committee.
16.12. Gender and Number. Where the context admits, words in the masculine
gender include the feminine and neuter genders, the plural includes the
singular, and the singular includes the plural.
16.13. Examination of Documents. Copies of the plan and trust agreement, and
any amendments thereto, are on file at the office of the company where they may
be examined by any participant or other person entitled to benefits under the
plan during normal business hours.
16.14. Fiduciary Responsibilities. It is specifically intended that all
provisions of the plan shall be applied so that all fiduciaries with respect to
the plan shall be required to meet the prudence and other requirements and
responsibilities of applicable law to the extent such requirements or
responsibilities apply to them. In general, a fiduciary shall discharge the
fiduciary's duties with respect to the plan and the trust solely in
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the interests of participants and beneficiaries and with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character and with like aims.
16.15. Indemnification. To the extent permitted by law, any member or former
member of the committee, any person who was, is or becomes an officer or
director of the company, an employer, or a controlled group member or any
employee of an employer to whom the committee or any employer has delegated any
portion of its responsibilities under the plan, and each of them, shall be
indemnified and saved harmless by the employers (to the extent not indemnified
or saved harmless under any liability insurance contract or other
indemnification arrangement with respect to the plan) from and against any and
all liability to which the committee members and such other persons may be
subject by reason of any act done or omitted to be done in good faith with
respect to the administration of the plan and the trust, including all expenses
reasonably incurred in their defense in the event that the employers failed to
provide such defense after having been requested in writing to do so.
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SECTION 17
Restrictions as to Reversion of
Trust Assets to the Employers
The employers shall have no right, title or interest in the assets of the
trust, except as may be provided in a pledge agreement entered into between an
employer and the trustee in connection with an acquisition loan (a "pledge
agreement"). No part of the assets of the trust at any time will revert or
will be repaid to the employers, directly or indirectly, except as follows:
(a) If the Internal Revenue Service initially determines that the
plan, as applied to an employer, does not meet the requirements
of a "qualified plan" under Section 401(a) of the Code, the
assets of the trust attributable to contributions made by the
employer under the plan shall be returned to the employer
within one year of the date of denial of qualification of the
plan as applied to the employer.
(b) If a contribution or a portion of a contribution is made by an
employer as a result of a mistake of fact, such contribution or
portion of a contribution shall not be considered to have been
contributed to the trust by the employer and, after having been
reduced by any losses of the trust allocable thereto, shall be
returned to the employer within one year of the date the amount
is paid to the trust.
(c) If a contribution made by an employer is conditioned upon the
deductibility of such contribution as an expense for Federal
income tax purposes, to the extent the deduction for the
contribution made by the employer is disallowed, such
contribution, or portion of such contribution, after having
been reduced by any losses of the trust allocable thereto,
shall be returned to the employer within one year of the date
of disallowance of the deduction.
(d) If there is a default on an acquisition loan, an employer may
exercise its rights under a pledge agreement with respect to
the shares of company stock subject to the pledge agreement
(including, but not limited to, the sale of pledged shares, the
transfer of pledged shares to the employer, and the
registration of pledged shares in the employer's name).
Contributions may be returned to an employer pursuant to paragraph (a) above
only if they are conditioned upon initial qualification of the plan as applied
to that employer and an application for determination was made by the time
prescribed by
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law for filing the employer's Federal income tax return for the taxable year in
which the plan was adopted (or such later date as the Secretary of the Treasury
may prescribe). In no event may the return of a contribution pursuant to
paragraph (b) or (c) above cause any participant's account balances to be less
than the amount of such balances had the contribution not been made under the
plan.
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SECTION 18
Amendment and Termination
18.1. Amendment. While the company expects and intends to continue the plan,
the company reserves the right to amend the plan from time to time by action of
the company's Board of Directors or the Executive Committee of the Board of
Directors of the company. However, the committee is authorized to cause to be
prepared, to approve, and to execute any amendments of the plan that the
committee determines are necessary to comply with applicable law, regulations,
and rulings or to reflect rules and procedures developed by the committee;
provided, however, that any amendment (other than an amendment needed to comply
with applicable law, regulations, and rulings) that is expected to change the
level of participant or employer contributions made under the plan or to
materially increase the cost of the plan to the employers shall be approved by
the company's Board of Directors or by the Executive Committee of the Board of
Directors of the company. Notwithstanding the foregoing:
(a) An amendment may not change the duties and liabilities of the
committee or the trustee without the consent of the committee
or the trustee, whichever is applicable;
(b) An amendment shall not reduce the value of a participant's
nonforfeitable benefits accrued prior to the later of the
adoption or the effective date of the amendment; and
(c) Except as provided in Section 17, under no condition shall any
amendment result in the return or repayment to the employers of
any part of the trust or the income therefrom or result in the
distribution of the trust for the benefit of anyone other than
employees and former employees of the employers and any other
persons entitled to benefits under the plan.
The committee shall notify the trustee of any amendment of the plan within a
reasonable period of time.
18.2. Termination. The plan will terminate as to all employers on any date
specified by the company if thirty days' advance written notice of the
termination is given to the committee, the trustee and the other employers.
The plan will terminate as to an individual employer on the first to occur of
the following:
(a) The date it is terminated by that employer if thirty days'
advance written notice of the termination is given to the
committee, the trustee and the other employers.
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(b) The date that employer is judicially declared bankrupt or
insolvent.
(c) The date that employer completely discontinues its contributions
under the plan.
(d) The dissolution, merger, consolidation or reorganization of
that employer or the sale by that employer of all or
substantially all of its assets, except that:
(i) in any such event arrangements may be made with the
consent of the company whereby the plan will be
continued by any purchaser of all or substantially all
of its assets, in which case the successor or
purchaser will be substituted for that employer under
the plan and the trust agreement; and
(ii) if an employer is merged, dissolved or in any other
way reorganized into, or consolidated with, any other
employer, the plan as applied to the former employer
will automatically continue in effect without a
termination thereof.
18.3. Nonforfeitability and Distribution on Termination. On termination or
partial termination of the plan, the rights of all affected participants to
benefits accrued to the date of such termination, after all adjustments then
required have been made, shall be nonforfeitable. The committee shall specify
the date of such termination or partial termination as a special accounting
date. As soon as practicable after all adjustments required as of that date
have been made to the account balances of participants, the committee shall
direct the trustee to distribute to each such affected participant his benefits
under the plan in one lump sum provided the participant is no longer employed
by an employer or a controlled group member. All appropriate provisions of the
plan will continue to apply until the account balances of all such participants
have been distributed under the plan.
18.4. Notice of Termination. Participants will be notified of the termination
of the plan within a reasonable time.
18.5. Plan Merger, Consolidation, Etc. In the case of any merger or
consolidation with, or transfer of assets or liabilities to, any other plan,
each participant's benefits (if the plan terminated immediately after such
merger, consolidation or transfer) shall be equal to or greater than the
benefits the participant would have been entitled to receive if the plan had
terminated immediately before the merger, consolidation or transfer.
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SECTION 19
The Committee
19.1. The Committee. As provided in subsection 1.5, the plan is administered
by the committee. The committee shall consist of at least three persons (who
may but need not be employees of the employers) appointed by the company. The
company will certify to the trustee from time to time the names of the members
of the committee.
19.2. The Committee's General Powers, Rights, and Duties. The committee shall
have all the powers necessary and appropriate to discharge its duties under the
plan, which powers shall be exercised in the sole and absolute discretion of
the committee, including, but not limited to, the following:
(a) To construe and interpret the provisions of the plan and to
make factual determinations thereunder, including the power to
determine the rights or eligibility under the plan of
employees, participants, or any other persons, and the amounts
of their benefits (if any) under the plan, and to remedy
ambiguities, inconsistencies or omissions, and such
determinations by the committee shall be binding on all
parties.
(b) To adopt such rules of procedure and regulations as in its
opinion may be necessary for the proper and efficient
administration of the plan and as are consistent with the plan
and trust agreement.
(c) To enforce the plan in accordance with the terms of the plan
and the trust and in accordance with the rules and regulations
the committee has adopted.
(d) To direct the trustee as respects payments or distributions
from the trust in accordance with the provisions of the plan.
(e) To furnish the employers with such information as may be
required by them for tax or other purposes in connection with
the plan.
(f) To employ agents, attorneys, accountants, actuaries or other
persons (who also may be employed by the employers) and to
allocate or delegate to them such powers, rights and duties as
the committee may consider necessary or advisable to properly
carry out administration of the plan, provided that such
allocation or delegation and the acceptance thereof by such
agents, attorneys, accountants, actuaries or other persons,
shall be in writing.
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(g) To appoint an investment manager as defined in section 3(38) of
ERISA ("investment manager") to manage (with power to acquire
and dispose of) the assets of the plan, which investment
manager may or may not be a subsidiary of the company, and to
delegate to any such investment manager all of the powers,
authorities and discretions granted to the committee hereunder
or under the trust agreement (including the power to delegate
and the power, with prior notice to the committee, to appoint
an investment manager), in which event any direction the
trustee from any duly appointed investment manager with respect
to the acquisition, retention or disposition of plan assets
shall have the same force and effect as if such direction had
been given by the committee, and to remove any investment
manager; provided, however, that the power and authority to
manage, acquire, or dispose of any asset of the plan shall not
be delegated except to an investment manager, and provided
further that the acceptance by any investment manager of such
appointment and delegation shall be in writing, and the
committee shall give notice to the trustee, in writing, of any
appointment of, delegation to or removal of an investment
manager.
19.3. Manner of Action of the Committee. During a period in which two or more
members of the committee are acting, the following provisions apply where the
context admits:
(a) The members of the committee may select a secretary, if they
believe it advisable, who may or may not be a member of the
committee.
(b) A committee member by writing may delegate any or all of such
member's rights, powers, duties and discretions to any other
member of the committee, with the written consent of the
latter.
(c) The members of the committee may act by meeting or by writing
signed without meeting, and such members may sign any document
by signing one document or concurrent documents.
(d) An action or a decision of a majority of the members of the
committee as to a matter shall be as effective as if taken or
made by all members of the committee.
(e) If, because of the number qualified to act, there is an even
division of opinion among members of the committee as to a
matter, a disinterested party selected by the committee shall
decide the matter and such person's decision shall control.
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(f) Except as otherwise provided by law, no member of the committee
shall be liable or responsible for an act or omission of the
other members of the committee in which the former has not
concurred.
(g) The certificate of the secretary of the committee or of a
majority of the members of the committee that the committee has
taken or authorized any action shall be conclusive in favor of
any person relying on the certificate.
19.4. Interested Committee Member. If a member of the committee is also a
participant in the plan, the committee member may not decide or determine any
matter or question concerning distributions of any kind to be made to the
committee member or the nature or mode of settlement of the committee member's
benefits, unless such decision or determination could be made by the committee
member under the plan if the committee member were not serving on the
committee.
19.5. Resignation or Removal of Committee Members. A member of the committee
may be removed by the company at any time by ten days' prior written notice to
that member and the other members of the committee. A member of the committee
may resign at any time by giving ten days' prior written notice to the company
and the other members of the committee. The company may fill any vacancy in
the membership of the committee; provided, however, that if a vacancy reduces
the membership of the committee to less than three, such vacancy shall be
filled as soon as practicable. The company shall give prompt written notice
thereof to the other members of the committee. Until any such vacancy is
filled, the remaining members of the committee may exercise all of the powers,
rights and duties conferred on the committee.
19.6. Committee Expenses. All costs, charges and expenses reasonably incurred
by the committee will be paid by the company to the extent not paid from the
assets of the trust. No compensation will be paid to a member of the committee
as such.
19.7. Uniform Rules. The committee shall administer the plan on a reasonable
and nondiscriminatory basis and shall apply uniform rules to all persons
similarly situated.
19.8. Information Required by the Committee. Each person entitled to benefits
under the plan shall furnish the committee with such documents, evidence, data
or information as the committee considers necessary or desirable for the
purpose of administering the plan. The employers shall furnish the committee
with such data and information as the committee may deem necessary or desirable
in order to administer the plan. The records of the employers as to an
employee's or a
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participant's period of employment, hours of service, termination of employment
and the reason therefore, leave of absence, reemployment and earnings will be
conclusive on all persons unless determined to the committee's satisfaction to
be incorrect.
19.9. Review of Benefit Determinations. The committee will provide notice in
writing to any participant or beneficiary whose claim for benefits under the
plan is denied, and the committee shall afford such participant or beneficiary
a full and fair review of its decision if so requested.
19.10. Committee's Decision Final. Subject to applicable law, any
interpretation of the provisions of the plan and any decisions on any matter
within the discretion of the committee made by the committee in good faith
shall be binding on all persons. A misstatement or other mistake of fact shall
be corrected when it becomes known, and the committee shall make such
adjustment on account thereof as it considers equitable and practicable.
19.11. Denial Procedure and Appeal Process. If a participant, beneficiary or
any other person who believes he may be entitled to benefits under the plan (a
"claimant") has an unresolved question about eligibility for benefits, the form
of benefits, or the amount of benefits to be received or being received under
the plan after consulting with the committee or its representatives, a formal
review of the situation may be requested in writing of the committee within
sixty days after receiving notification of the claimant's plan benefits or an
estimate of the claimant's plan benefits. A review decision will be made
within sixty days after receipt of such request (one hundred twenty days in
special circumstances) and the claimant will be informed of the decision within
ninety days after receipt of such request (one hundred eighty days in special
circumstances). However, if the claimant is not informed of the decision
within the period described above, the claimant may request a further review by
the committee as described below as if the claimant had received notice of an
adverse decision at the end of that period. The decision will be written in a
manner calculated to be understood by the claimant, setting forth the specific
reasons for any denial of a benefit or benefit option, specific reference to
pertinent plan provisions on which such denial is based, a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary, and
an explanation of the plan's claim review procedure. The claimant also shall
be advised that the claimant or the claimant's duly authorized representative
may request a further review by the committee of the decision denying the claim
by filing with the committee within sixty days after such notice has been
received by the claimant a written request for such review and that claimant
may review pertinent documents, and submit issues and comments in writing,
within the same sixty-day period. If such request is so filed, such review
shall be made by the committee within sixty days after receipt of such request,
unless special circumstances require an extension of time for processing in
which case the
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review will be completed and decision rendered within one hundred twenty days.
The claimant shall be given written notice of the decision which shall include
specific reasons for the decision, and specific references to the pertinent
plan provisions on which the decision is based, and such decision by the
committee shall be final and shall terminate the review process.
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SECTION 20
Special Rules Applicable When Plan is Top-Heavy
20.1. Purpose and Effect. The purpose of this Section 20 is to comply with
the requirements of Section 416 of the Code. The provisions of this Section 20
are effective for each plan year beginning on or after the effective date in
which the plan is a "top-heavy plan" within the meaning of Section 416(g) of
the Code.
20.2. Top-Heavy Plan. In general, the plan will be a top-heavy plan for any
plan year if, as of the "determination date" (that is, the last day of the
preceding plan year), the sum of the amounts in paragraphs (a), (b) and (c)
below for key employees (as defined generally below and in Section 416(i)(1) of
the Code) exceeds sixty percent of the sum of such amounts for all employees
who are covered by this plan or by a defined contribution plan or defined
benefit plan that is aggregated with this plan in accordance with subsection
20.4:
(a) The aggregate account balances of participants under this plan.
(b) The aggregate account balances of participants under any other
defined contribution plan included under subsection 20.4.
(c) The present value of the cumulative accrued benefits of
participants calculated under any defined benefit plan included
in subsection 20.4.
In making the foregoing determination, (i) a participant's account balances or
cumulative accrued benefits shall be increased by the aggregate distributions,
if any, made with respect to the participant during the 5-year period ending on
the determination date, including distributions under a terminated plan that,
if it had not been terminated, would have been required to be included in the
aggregation group, (ii) the account balances or cumulative accrued benefits of
a participant who was previously a key employee, but who is no longer a key
employee, shall be disregarded, (iii) the account balances or cumulative
accrued benefits of a beneficiary of a participant shall be considered accounts
or accrued benefits of the participant, (iv) the account balances or cumulative
accrued benefits of a participant who has not performed services for an
employer or a controlled group member at any time during the 5-year period
ending on the determination date shall be disregarded and (v) any rollover
contribution (or similar transfer) from a plan maintained by a corporation
other than an employer under this plan initiated by a participant shall not be
taken into account as part of the participant's aggregate account balances
under this plan.
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20.3. Key Employee. In general, a "key employee" is an employee (or a former
or deceased employee) who, at any time during the plan year or any of the 4
preceding plan years, is or was:
(a) an officer of an employer having annual compensation greater
than fifty percent of the amount in effect under Section
415(b)(1)(A) for any such plan year; provided that, for
purposes of this paragraph, no more than fifty employees of the
employer (or, if lesser, the greater of three employees or ten
percent of the employees) shall be treated as officers;
(b) one of the ten employees who have annual compensation from an
employer of more than the limitation in effect under Section
415(c)(1)(A) of the Code for that year and owning or considered
as owning, within the meaning of Section 318 of the Code, the
largest interests in the employer; provided that if two
employees have the same interest in the employer, the employee
having greater annual compensation from the employer shall be
treated as having a larger interest;
(c) a five percent or greater owner of an employer; or
(d) a one percent or greater owner of an employer having annual
compensation from the employer of more than $150,000.
For purposes of this subsection the term "compensation" means compensation as
defined by Code Section 414(q)(7).
20.4. Aggregated Plans. Each other defined contribution plan and defined
benefit plan maintained by an employer that covers a "key employee" as a
participant or that is maintained by an employer in order for a plan covering a
key employee to satisfy Section 401(a)(4) or 410 of the Code shall be
aggregated with this plan in determining whether this plan is top-heavy. In
addition, any other defined contribution or defined benefit plan of an employer
may be included if all such plans that are included, when aggregated, will not
discriminate in favor of officers, shareholders or highly compensated
participants and will satisfy all of the applicable requirements of Sections
401(a)(4) and 410 of the Code.
20.5. Minimum Employer Contribution. Subject to the following provisions of
this subsection and subsection 20.7, for any plan year in which the plan is a
top-heavy plan, the employer contribution credited to each participant who is
not a key employee shall not be less than 3 percent of such participant's total
compensation (as defined in subsection 8.1) from the employers for that year.
In no event, however, shall the total employer contribution credited in any
year to a participant who is not a
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key employee (expressed as a percentage of such participant's total
compensation from the employer) exceed the maximum total employer contribution
credited in that year to a key employee (expressed as a percentage of such key
employee's total compensation from an employer). Contributions made by an
employer under the plan pursuant to participants' income deferral
authorizations shall not be deemed employer contributions for purposes of this
subsection. The amount of minimum employer contribution otherwise required to
be allocated to any participant for any plan year under this subsection shall
be reduced by the amount of employer contributions allocated to him for a plan
year ending with or within that plan year under any other tax-qualified defined
contribution plan maintained by an employer.
20.6. Coordination of Benefits. For any plan year in which the plan is
top-heavy, in the case of a participant who is a non-key employee and who is a
participant in a top-heavy tax-qualified defined benefit plan that is
maintained by an employer and that is subject to Section 416 of the Code,
subsection 20.5 shall not apply, and the minimum benefit to be provided to each
such participant in accordance with this Section 20 and Section 416(c) of the
Code shall be the minimum annual retirement benefit to which he is entitled
under such defined benefit plan in accordance with such Section 416(c), reduced
by the amount of annual retirement benefit purchasable with his plan accounts
(or portions thereof) attributable to employer contributions (as defined in
subsection 20.5) under this plan and any other tax-qualified defined
contribution plan maintained by an employer.
20.7. Adjustment of Combined Benefit Limitations. For any plan year in which
the plan is a top-heavy plan, the determination of the defined contribution
plan fraction and defined benefit plan fraction under subsection 8.2 shall be
adjusted in accordance with the provisions of Section 416(h) of the Code by
substituting "1.0" for "1.25" where the latter number appears in Sections
415(e)(2)(B)(i) and 415(e)(3)(B)(i) of the Code with respect to the calculation
of those fractions; except that with respect to a participant described in
subsection 20.6, such adjustment shall not be required under this plan for any
plan year for which such adjustment is not required under the defined benefit
plan referred to in subsection 20.6.
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SUPPLEMENT A
A-1. Purpose, Application and Definitions. The purpose of this
Supplement A is to modify and supplement the terms and provisions of the Plan
document as applied to Participants for whom the Committee maintains a Drovers
Transfer Account. Unless the context of the Plan document or this Supplement A
clearly implies or indicates to the contrary, a word, term or phrase used or
defined in this Plan document is similarly used or defined in this Supplement
A.
A-2. Distribution of Drovers Transfer Accounts. Subject to the
provisions of subsection A-3, the balance of the Participant's Drovers Transfer
Account will be distributed by payment in a lump sum.
A-3. Revocation of Joint and Survivor Annuity Form. If a
Participant is legally married under the laws of any jurisdiction on his
Termination Date, his Account balances shall be paid in the form of a Joint and
Survivor Annuity (as defined below), subject to the following provisions of
this subsection. As soon as practicable after a married Participant's
Termination Date, the Committee will provide him with election information
consisting of:
(a) a written description of the Joint and Survivor Annuity and the
relative financial effect of payment of his Account balances in
that form; and
(b) a notification of the right to waive payment in that form, the
rights of his spouse with respect to such waiver and the right
to revoke such waiver.
The Committee may make such election information available to a Participant by:
(i) personal delivery to him;
(ii) first-class mail, postage prepaid, addressed to the
Participant at his last known address as shown on his
Employer's records; or
(iii) permanent posting on a bulletin board located at the
Participant's work site.
During an election period commencing on the date the
Participant receives such election information and ending on the later of the
90th day thereafter or the date as of which his benefits are to commence, a
Participant may waive payment in the Joint and Survivor Annuity form and elect
payment in the form described in subsection A-2; provided that, the
Participant's surviving spouse, if any, has consented in writing to such waiver
and the spouse's consent acknowledges the effect of such revocation and is
witnessed by a notary public. A Participant may, at any time during his
election period revoke any prior waiver of the Joint and Survivor
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Annuity form. A Participant may request, by writing filed with the Committee
during his election period, an explanation, written in nontechnical language,
of the terms, conditions and financial effect (in terms of dollars per monthly
benefit payment) of payment in the Joint and Survivor Annuity form. If not
previously provided to the Participant, the Committee shall provide him with
such explanation within 30 days of his request by one of the methods described
in paragraphs (i) or (ii) next above, and the Participant's election period
will be extended, if necessary, to include the 90th day next following the date
on which he receives such explanation. The term "Joint and Survivor Annuity"
means an annuity for the life of the Participant with a survivor annuity for
the life of his surviving spouse which is equal to 50 percent of the amount of
the annuity payable during the joint lives of the Participant and his spouse
and which is the actuarial equivalent of a single life annuity for the life of
the Participant. No distribution shall be made from a Participant's Drover
Transfer Account until his election period has terminated. Notwithstanding the
foregoing, if the Participant's distributable Account balances are less than
$3,500, the Committee may direct the Trustees to immediately distribute such
benefits in a lump sum without such Participant's consent.
A-4. Pre-Retirement Survivor Annuity. The term "Pre-Retirement
Survivor Annuity" means an annuity for the life of the Participant's surviving
spouse, the payments under which must be equal to the amount of benefit which
can be purchased with the balance in the Participant's Drover Transfer Account
as of the date of his death. Payment of such benefits will commence as soon as
practicable after the date of the Participant's death, unless the surviving
spouse elects a later date. Any election to waive the Pre-Retirement Survivor
Annuity must be made by the Participant in writing during the election period
described herein and shall require the spouse's consent in the same manner
provided for in subsection A-3. The election period to waive the
Pre-Retirement Survivor Annuity shall begin on the first day of the Plan Year
in which the Participant attains age 35 and end on the date of the
Participant's death. In the event a Participant separates from service prior
to the beginning of the election period, the election period shall begin on the
date of such separation from service. In connection with the election, the
Committee shall provide each Participant within the period beginning with the
first day of the Plan Year in which the Participant attains age 32 and ending
with the close of the Plan Year preceding the Plan Year in which the
Participant attains age 35, a written explanation of the Pre-Retirement
Survivor Annuity containing comparable information to that required pursuant to
the provisions of paragraphs A-3(a) and (b). If the Participant enters the
Plan after the first day of the Plan Year in which the Participant attained age
32, the Committee shall provide notice no later than the close of the second
Plan Year following the entry of the Participant into the Plan. If the
distributable balance of the Participant's Accounts is less than $3,500, the
Committee may direct the Trustees to immediately distribute such amount to the
Participant's spouse. If the value exceeds $3,500, an immediate distribution
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of the entire amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution.
A-3
<PAGE> 1
EXHIBIT 10.3
COLE TAYLOR BANK
401(K)/PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST
McDermott, Will & Emery
Chicago
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I
Name
2
ARTICLE II
Management and Control of Trust Fund Assets 2
II-1. The Trust Fund 2
II-2. Plan Administration 3
II-3. Exercise of Trustee's Duties 3
II-4. General Powers 4
II-5. Investment Managers 8
II-6. Responsibility of Trustee 8
II-7. Compensation and Expenses 9
II-8. Continuation of Powers Upon Trust Termination 9
ARTICLE III
Provisions Related to Investment in Company Stock 9
III-1. Investment of Cash 9
III-2. Stock Dividends, Splits and Other Capital
Reorganizations 10
III-3. Put Option 10
ARTICLE IV
Miscellaneous 10
IV-1. Disagreement as to Acts 10
IV-2. Persons Dealing with Trustee 10
IV-3. Benefits May Not Be Assigned or Alienated 10
IV-4. Evidence 11
IV-5. Waiver of Notice 11
IV-6. Counterparts 11
IV-7. Governing Laws and Severability 11
IV-8. Successors, Etc 11
IV-9. Action 11
IV-10. Conformance with Plan 12
IV-11. Indemnification 12
IV-12. Headings 12
ARTICLE V
No Reversion to Company 13
<PAGE> 3
PAGE
ARTICLE VI
Change of Trustee 14
VI-1. Resignation 14
VI-2. Removal of the Trustee 14
VI-3. Duties of Resigning or Removed Trustee and of
Successor Trustee 14
VI-4. Filling Trustee Vacancy 15
ARTICLE VII
Additional Employers 15
ARTICLE VIII
Amendment and Termination 16
VIII-1. Amendment 16
VIII-2. Termination 16
-ii-
<PAGE> 4
COLE TAYLOR BANK
401(K)/PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP TRUST
THIS AGREEMENT, made effective as of _____________, by
and between Taylor Capital Group, Inc., an Illinois corporation (the
"Company"), and State Street Bank and Trust Company, a trust company organized
under the laws of the Commonwealth of Massachusetts, and its successor or
successors and assigns in the trust hereby evidenced, as trustee (the
"Trustee").
WITNESSETH THAT:
WHEREAS, effective as of October 1, 1996, the Company established a
tax-qualified plan known as the Cole Taylor Bank 401(k)/Profit Sharing and
Employee Stock Ownership Plan (the "Plan") for the exclusive benefit of its
eligible employees and those of any Related Company (as defined in Article VII)
that adopts the Plan and becomes a party to this Trust Agreement, as provided
in Article VII (the Company and the Related Companies that are parties hereto
are sometimes referred to below collectively as the "Employers" and
individually as "Employer"); and
WHEREAS, the Plan is intended to meet the applicable requirements of
Sections 401(a) and 401(k) and a portion of the Plan is intended to be an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, in connection with the split-off of the Company from the
controlled group of corporations that includes Cole Taylor Financial Group,
Inc. ("CTFG"), the Plan is a spin-off from the Cole Taylor Financial Group,
Inc. 401(k)/Profit Sharing Plan (As Amended and Restated Effective as of
January 1, 1993) (the "CTFG Profit Sharing Plan") and the Cole Taylor Financial
Group, Inc. Employee Stock Ownership Plan (As Amended and Restated Effective as
of January 1, 1994) (the "CTFG ESOP"); and
WHEREAS, the trust established pursuant to this agreement (the
"Trust") will implement and form a part of the Plan and is intended to be
tax-exempt under Section 501(a) of the Code; and
WHEREAS, the Trust is established as a spin-off of a portion of the
trusts that implement and form a part of the CTFG Profit Sharing Plan and the
CTFG ESOP;
NOW THEREFORE, pursuant to the authority delegated to the undersigned
officers of the Company by resolution of its Board of
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<PAGE> 5
Directors, IT IS AGREED, by and between the parties hereto, that the trust
provisions contained herein shall constitute the agreement between the Company
and the Trustee in connection with the Plan; and
IT IS FURTHER AGREED, that the Trustee hereby accepts its appointment
as such under this Trust Agreement, effective as of ______________ ____.
IT IS FURTHER AGREED, by and between the parties hereto as follows:
ARTICLE I
Name
This Trust Agreement and Trust hereby evidenced shall
be known as the "COLE TAYLOR BANK 401(K)/PROFIT SHARING AND EMPLOYEE STOCK
OWNERSHIP TRUST."
ARTICLE II
Management and Control of Trust Fund Assets
II-1. The Trust Fund. The "Trust Fund" as at any date means
all property of every kind then held by the Trustee pursuant to this Trust
Agreement. The Trustee may manage, administer and invest all contributions
made by the several Employers under the Plan as one Trust Fund, except to the
extent that the authority to manage investments has been allocated to one or
more investment managers pursuant to Article II-5. If, for any reason, it
becomes necessary to determine the portion of the Trust Fund allocable to
employees and former employees of any Employer as of any date, the Committee
(as defined in Article II-2) shall specify such date as an accounting date, and
after all adjustments required under the Plan as of that accounting date have
been made, the portion of the Trust Fund attributable to such employees and
former employees shall be determined and shall consist of an amount equal to
the aggregate of the account balances of employees and former employees of that
Employer plus an amount equal to any allocable contributions made by that
Employer since the close of the immediately preceding plan year.
-2-
<PAGE> 6
II-2. Plan Administration. The Plan shall be administered by
a committee (the "Committee"), the members of which shall be certified to the
Trustee by the Company. Except as provided in Article II-4, the Trustee shall
have no authority to act unless directed in writing by the Committee. Such
directions shall take effect when received by the Trustee. The Committee may
authorize one or more individuals to sign all communications between the
Committee and Trustee and shall at all times keep the Trustee advised of the
names of the members of the Committee and individuals authorized to sign on
behalf of the Committee, and provide specimen signatures thereof. With the
Trustee's prior written consent, the Committee may authorize the Trustee to
act, without specific directions or other directions or instructions from the
Committee, on any matter or class of matters with respect to which directions
or instructions from the Committee are called for hereunder. A written
statement signed by a majority of the Committee members or by an authorized
Committee member shall be conclusive in favor of the Trustee acting in reliance
thereon. The Trustee shall be fully protected in relying on any communication
sent by any authorized person and shall not be required to verify the accuracy
or validity of any signature unless the Trustee has reasonable grounds to doubt
the authenticity of any signature. If the Trustee requests any directions
hereunder and does not receive them, the Trustee shall act or refrain from
acting, as it may determine, with no liability for such action or inaction.
II-3. Exercise of Trustee's Duties. The Trustee shall
discharge its duties hereunder solely in the interest of the Plan Participants
and other persons entitled to benefits under the Plan, and:
(a) for the exclusive purpose of:
(i) providing benefits to Participants and other
persons entitled to benefits under the Plan;
and
(ii) defraying reasonable expenses of
administering the Plan;
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character and with like aims; and
(c) in accordance with the documents and instruments
governing the Plan unless, in the good faith judgment
of the Trustee, the documents and instruments
-3-
<PAGE> 7
are not consistent with the provisions of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA").
II-4. General Powers. Subject to the provisions of Articles
II-2 and II-3, and Article III, with respect to the Trust Fund, the Trustee
shall have the following powers, rights and duties in addition to those
provided elsewhere in this Trust Agreement or by law:
(a) to receive and to hold all contributions paid to it
under the Plan; provided, however, that the Trustee
shall have no duty to require any contributions to be
made to it, or to determine that the contributions
received by it comply with the provisions of the Plan
or with any resolution of the Board providing therefor;
(b) as directed by the Committee, to retain in cash
(pending investment, reinvestment or the distribution
of dividends) such reasonable amount as may be required
for the proper administration of the Trust and to
invest such cash as provided in Article III-1;
provided, however, that pending receipt of directions
from the Committee, the Trustee may retain reasonable
amounts of cash, in its discretion, without any
liability for interest;
(c) as directed by the Committee, to make distributions
from the Trust Fund to such persons or trusts, in such
manner, at such times and in such forms (cash or other
property) as directed without inquiring as to whether a
payee is entitled to the payment, or as to whether a
payment is proper, and without liability for a payment
made in good faith without actual notice or knowledge
of the changed condition or status of the payee. If any
payment of benefits directed to be made from the Trust
Fund by the Trustee is not claimed, the Trustee shall
notify the Committee of that fact promptly. The
Committee shall make a diligent effort to ascertain the
whereabouts of the payee or distributee of benefits
returned unclaimed. The Trustee shall dispose of such
payments as the Committee shall direct. The Trustee
shall have no obligation to search for or ascertain the
whereabouts of any payee or distributee of benefits
from the Trust Fund;
(d) to vote any company stock as provided in Section 15 of
the Plan, and any other stocks, bonds or other
-4-
<PAGE> 8
securities held in the Trust, or otherwise consent to
or request any action on the part of the issuer in
person, by proxy or power of attorney;
(e) as directed by the Committee or named fiduciaries, as
defined in subsection 4.2 of the Plan, to contract or
otherwise enter into transactions between itself, as
Trustee, and the Company, a Related Company, or any
Company shareholder or other individual, for the
purpose of acquiring or selling company stock (as
defined in subsection 5.1 of the Plan) or exchanging
shares of CTFG common stock for company stock, and,
subject to the provisions of Article II-3, shall retain
such company stock; provided, however, that the Trustee
shall have complete and independent discretion with
respect to the Trustee's decision to exchange the
shares of CTFG common stock held in the ESOP stock
accounts under the Plan for shares of company stock;
(f) to compromise, contest, arbitrate, settle or abandon
claims and demands by or against the Trust Fund;
(g) to begin, maintain or defend any litigation necessary
in connection with the investment, reinvestment and
administration of the Trust, and, to the extent not
paid from the Trust Fund, the Company shall indemnify
the Trustee against all expenses and liabilities
reasonably sustained or anticipated by it by reason
thereof (including reasonable attorneys' fees);
(h) to retain any funds or property subject to any dispute
without liability for the payment of interest, or to
decline to make payment or delivery thereof until final
adjudication is made by a court of competent
jurisdiction;
(i) to report to the Company as of the last day of each
Plan Year (which shall be the same as the Trust's
fiscal year), as of any accounting date (or as soon
thereafter as practicable), or at such other times as
may be required under the Plan, the then "Net Worth" of
the Trust Fund, that is, the fair market value of all
property held in the Trust Fund, reduced by any
liabilities other than liabilities to Participants in
the Plan and their Beneficiaries, as determined by the
Trustee;
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<PAGE> 9
(j) to furnish to the Company an annual written account and
accounts for such other periods as may be required
under the Plan, showing the Net Worth of the Trust Fund
at the end of the period, all investments, receipts,
disbursements and other transactions made by the
Trustee during the accounting period, and such other
information as the Trustee may possess which the
Company requires in order to comply with Section 103 of
ERISA. The Trustee shall keep accurate accounts of all
investments, earnings thereon, and all accounts, books
and records related to such investments shall be open
to inspection by any person designated by the Company
or the Committee. All accounts of the Trustee shall be
kept on an accrual basis. If, during the term of this
Trust Agreement, the Department of Labor issues
regulations under ERISA regarding the valuation of
securities or other assets for purposes of the reports
required by ERISA, the Trustee shall use such valuation
methods for purposes of the accounts described by this
subparagraph. All valuations of shares of company
stock shall be made by an "Independent Appraiser" (as
described in Section 401(a)(28)(C) of the Code)
retained by the Trustee, and reviewed and finalized by
the Trustee, in accordance with Section 3(18)(B) of
ERISA. The Company may approve such accounting by
written notice of approval delivered to the Trustee or
by failure to express objection to such accounting in
writing delivered to the Trustee within sixty (60) days
from the date upon which the accounting was delivered
to the Company. Upon the receipt of a written approval
of the accounting, or upon the passage of the period of
time within which objection may be filed without
written objections having been delivered to the
Trustee, such accounting shall be deemed to be
approved, and the Trustee shall be released and
discharged as to all items, matters and things set
forth in such account, as fully as if such accounting
had been settled and allowed by decree of a court of
competent jurisdiction in an action or proceeding in
which the Trustee, the Company and all persons having
or claiming to have any interest in the Trust Fund or
under the Plan were parties.
(k) as directed by the Committee, to pay any estate,
inheritance, income or other tax, charge or assessment
attributable to any benefit which shall or may be
required to pay out of such benefit; provided that the
Trustee in its sole undirected
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<PAGE> 10
discretion may require before making any payment such
release or other document from any taxing authority and
such indemnity from the intended payee as the Trustee
shall deem necessary for its protection;
(l) to employ and to reasonably rely upon information and
advice furnished by agents, attorneys, Independent
Appraisers, accountants or other persons of its choice
for such purposes as the Trustee considers desirable;
(m) to assume, until advised to the contrary, that the
Trust evidenced by this Agreement is qualified under
Section 401(a) of the Code and is entitled to tax
exemption under Section 501(a) thereof;
(n) to have the authority to invest and reinvest the assets
of the Trust Fund, upon direction from the Committee,
in personal property of any kind, including, but not
limited to bonds, notes, debentures, mortgages,
equipment trust certificates, investment trust
certificates, guaranteed investment contracts,
preferred or common stock, and registered investment
companies; provided, however, that all investments in
company stock shall be undertaken pursuant to the
provisions of Article III-1. The Trustee shall follow
the directions of the Committee and shall have no duty
or obligation to review the assets from time to time so
acquired, nor to make any recommendations with respect
to the investment, reinvestment or retention thereof;
(o) as directed by the Committee, to exercise any options,
subscription rights and other privileges with respect
to Trust assets, subject to the provisions of Article
III;
(p) to register ownership of any securities or other
property held by it in its own name or in the name of a
nominee, with or without the addition of words
indicating that such securities are held in a fiduciary
capacity, and may hold any securities in bearer form,
but the books and records of the Trustee shall at all
times reflect that all such investments are part of the
Trust;
(q) with the approval of the Committee, to borrow such sum
or sums from time to time as the Trustee considers
necessary or desirable and in the best
-7-
<PAGE> 11
interest of the Trust Fund, and for that purpose to
mortgage or pledge any part of the Trust Fund (subject
to the provisions of Code Section 4795(c) and the
regulations issued thereunder);
(r) to participate in and use the Federal Book-Entry
Account System, a service provided by the Federal
Reserve Bank for its member banks for deposit of
Treasury securities; and
(s) as directed by the Committee, to perform any and all
other acts which are necessary or appropriate for the
proper management, investment and distribution of the
Trust Fund.
II-5. Investment Managers. The Committee may appoint one or
more investment managers (as defined in section 3(38) of ERISA) to manage the
investment of any part or all of the assets of the Trust Fund. Except as
otherwise provided by law, the Trustee shall have no obligation for investment
of any assets of the trust fund which are subject to management by an
investment manager. Appointment of an investment manager shall be made by
written notice to the investment manager and the Trustee, which notice shall
specify those powers, rights and duties of the Trustee under this agreement
that are allocated to the investment manager and that portion of the assets of
the trust fund subject to investment management. An investment manager so
appointed pursuant to this paragraph shall be either a registered investment
adviser under the Investment Advisers Act of 1940, a bank, as defined in said
Act, or an insurance company qualified to manage, acquire and dispose of the
assets of the plan under the laws of more than one state of the United States.
Any such investment manager shall acknowledge to the company in writing that it
accepts such appointment and that it is a fiduciary with respect to the plan
and trust. An investment manager may resign at any time upon written notice to
the Trustee and the Committee. The Committee may remove an investment manager
at any time by written notice to the investment manager and the Trustee.
II-6. Responsibility of Trustee. The Trustee shall not be
responsible in any way for the adequacy of the Trust Fund to meet and discharge
any or all liabilities under the Plan or for the proper application of
distributions made or other action taken upon the written direction of the
Committee. The powers, duties and responsibilities of the Trustee shall be
limited to those set forth in this Trust Agreement, and nothing contained in
the Plan, either expressly or by implication, shall be deemed to impose any
additional powers, duties or responsibilities on the Trustee.
-8-
<PAGE> 12
II-7. Compensation and Expenses. The Trustee shall be
entitled to reasonable compensation for its services, as agreed to between the
Company and the Trustee from time to time in writing and to reimbursement of
all reasonable expenses incurred by the Trustee in the administration of the
Trust. The Trustee is authorized to pay from the Trust Fund all expenses of
administering the Plan and Trust, including its compensation, compensation to
any agents employed by the Trustee and any accounting and legal expenses, to
the extent they are not paid directly by the Employers. The Trustee shall be
fully protected in making payments of administrative expenses pursuant to the
written directions of the Committee.
II-8. Continuation of Powers Upon Trust Termination.
Notwithstanding anything to the contrary in this Agreement, upon termination of
the Trust, the powers, rights and duties of the Trustee hereunder shall
continue until all Trust Fund assets have been liquidated.
ARTICLE III
Provisions Related to
Investment in Company Stock
III-1. Investment of Cash. If an Employer's contribution made
pursuant to the provisions of Section 4 of the Plan for any plan year is in
cash, such cash shall be used by the Trustee as directed in writing by the
Committee. The Trustee is authorized to purchase company stock (as defined in
subsection 5.1 of the Plan) or to liquidate the company stock held in the ESOP
stock account of a terminated participant with the assets contained in the
active participants' ESOP cash accounts, as directed by the Committee. The
Trustee is further authorized to purchase company stock from the Company, a
Related Company, or from any shareholder, if the Trustee is directed by the
Committee, and such stock may be outstanding, newly issued or treasury stock.
All such purchases must be at a price not in excess of fair market value, as
determined by an Independent Appraiser when the company stock is not publicly
traded. Pending investment of cash in company stock, such cash may be invested
in savings accounts, certificates of deposit, high-grade short-term securities,
common or preferred stocks, bonds, or other investments, or may be held in
cash. Such investments may include any collective investment trust which
provides for the pooling of assets of plans described in section 401(a) of the
Code and exempt from tax under section
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<PAGE> 13
501(a) of the Code the terms of which are incorporated by reference.
III-2. Stock Dividends, Splits and Other Capital
Reorganizations. Any company stock received by the Trustee as a stock split or
dividend or as a result of a reorganization or other recapitalization of the
Company shall be allocated as of each accounting date under the Plan in
proportion to the company stock to which it is attributable.
III-3. Put Option. If the distribution of a Participant's
ESOP stock account is to be made in cash, or a distribution is made pursuant to
Section 6.4 of the Plan, or the Trustee expects to incur substantial Trust
expenses which will not be paid directly by the Employers, and the Trustee
determines that the Trust Fund has insufficient cash to make anticipated
distributions or pay Trust expenses, the Trust shall have a "put option" on
company stock it holds to the Company to the extent the Trustee receives
written direction from the Committee for the purpose of making such anticipated
distributions and paying such expenses. The purchase price for the company
stock purchased by the Company pursuant to the "put option" will be the fair
market value of the company stock, as of the date of the purchase, as
determined by an Independent Appraiser.
ARTICLE IV
Miscellaneous
IV-1. Disagreement as to Acts. If there is a disagreement
between the Trustee and anyone as to any act or transaction reported in any
accounting, the Trustee shall have the right to have its account settled by a
court of competent jurisdiction.
IV-2. Persons Dealing with Trustee. No person dealing with
the Trustee shall be required to see to the application of any money paid or
property delivered to the Trustee, or to determine whether or not the Trustee
is acting pursuant to any authority granted to it under this Agreement or the
Plan.
IV-3. Benefits May Not Be Assigned or Alienated. The
interests under the Plan and this Agreement of Participants and other persons
entitled to benefits under the Plan are not subject to the claims of their
creditors and may not be voluntarily or
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<PAGE> 14
involuntarily assigned, alienated or encumbered, except to the extent that the
Committee directs the Trustee that any such interests are subject to a
qualified domestic relations order, as defined in Section 414(p) of the Code.
IV-4. Evidence. Evidence required of anyone under this
Agreement may be by certificate, affidavit, document or other instrument which
the person acting in reliance thereon considers pertinent and reliable, and
signed, made or presented by the proper party.
IV-5. Waiver of Notice. Any notice required under this
Agreement may be waived in writing by the person entitled thereto.
IV-6. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and no other
counterparts need be produced.
IV-7. Governing Laws and Severability. This Agreement shall
be construed and administered according to the laws of the State of Illinois to
the extent that such laws are not preempted by the laws of the United States of
America. If any provision of this Agreement is held illegal or invalid, the
illegality or invalidity shall not affect the remaining provisions of the
Agreement, but shall be severable, and the Agreement shall be construed and
enforced as if the illegal or invalid provision had never been inserted herein.
IV-8. Successors, Etc. This Agreement shall be binding on
the Employers, and any successor thereto by virtue of any merger, sale,
dissolution, consolidation or reorganization, on the Trustee and its successor
and on all persons entitled to benefits under the Plan and their respective
heirs and legal representatives.
IV-9. Action. Any action required or permitted to be taken
by the Company under this Agreement shall be by resolution of its Board of
Directors or by a person or persons authorized by resolution of its Board of
Directors. The Trustee shall not recognize or take notice of any appointment
of any representative of the Company or Committee unless and until the Company
or the Committee shall have notified the Trustee in writing of such appointment
and the extent of such representative's authority. The Trustee may assume that
such appointment and authority continue in effect until it receives written
notice to the
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<PAGE> 15
contrary from the Company or Committee. Any action taken or omitted to be
taken by the Trustee by authority of any representative of the Company or
Committee within the scope of his authority shall be as effective for all
purposes hereof as if such action or nonaction had been authorized by the
Company or Committee.
IV-10. Conformance with Plan. Unless otherwise indicated in
this Trust Agreement, all capitalized terms shall have the meaning as stated in
the Plan. The Company has provided the Trustee with an executed or certified
copy of the Plan and shall provide the Trustee with a certified copy of each
amendment thereto promptly upon adoption. To the extent the provisions of the
Plan and this Agreement conflict, the provisions of the Plan shall govern;
provided however, that the Trustee's duties and obligations shall be determined
solely under this Trust Agreement.
IV-11. Indemnification. The Company shall indemnify and hold
harmless the Trustee from all loss or liability (including expenses and
reasonable attorneys' fee) to which the Trustee may be subject by reason of the
execution of its duties under this Trust Agreement, or by reason of any acts
taken in good faith in accordance with directions, or acts omitted in good
faith due to absence of directions, from the Committee unless such loss or
liability is due to the Trustee's gross negligence or willful misconduct. The
Trustee is entitled to collect on the indemnity provided by this Article IV-11
only from the Company, and is not entitled to any direct or indirect indemnity
payment from assets of the Trust Fund.
IV-12. Headings. The headings of Sections of this Agreement
are for convenience of reference only and shall have no substantive effect on
the provisions of this Agreement.
IV-13. Notice. All notices that are required or may be given
pursuant to the terms of this Trust Agreement shall be in writing and shall be
sufficient in all respects if delivered personally or by registered or
certified mail, postage prepaid, as follows:
If to the Company to:
Taylor Capital Group, Inc.
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<PAGE> 16
If to the Trustee:
State Street Bank and Trust Company
Batterymarch Park III
Three Pine Hill Drive
Quincy, MA 02169
Attn: Kelly Driscoll
Any notice required under this Trust Agreement may be waived by the person
entitled to notice.
ARTICLE V
No Reversion to Company
No part of the corpus or income of the Trust Fund shall revert to any
Employer or be used for, or diverted to, purposes other than for the exclusive
benefit of Participants and other persons entitled to benefits under the Plan,
provided, however, that:
(a) Each Employer's contribution under the Plan is
conditioned on the initial qualification of the Plan as
applied to that Employer under Section 401(a) of the
Code and if that Plan does not so initially qualify,
the Trustee shall, upon written direction of the
Committee, return to that Employer the amount of such
contribution and any increment thereon within one
calendar year after the date that qualification of the
Plan, as applied to that Employer, is denied, but only
if the application for qualification is submitted
within the time prescribed by law.
(b) If, upon termination of the Plan with respect to any
Employer, any amounts are held in a 415 Suspense
Account which are attributable to the contributions of
such Employer and such amounts may not be credited to
the Accounts of Participants, such amounts, upon the
written direction of the Committee, will be returned to
that Employer as soon as practicable after the
termination of the Plan with respect to that Employer.
(c) Employer contributions under the Plans are conditioned
upon the deductibility thereof under Section 404 of the
Code, and, to the extent any such deduction of an
Employer is disallowed, the Trustee
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<PAGE> 17
shall, upon the written direction of the Committee,
return the amount of the contribution (to the extent
disallowed), reduced by the amount of any losses
thereon, to the Employer within one year after the date
the deduction is disallowed.
(d) If a contribution or any portion thereof is made by an
Employer by a mistake of fact, the Trustee shall, upon
written direction of the Committee, return the amount
of the contribution or such portion, reduced by the
amount of any losses there on, to the Employer within
one year after the date of payment to the Trustee.
Notwithstanding the foregoing, the Trustee has no responsibility as to the
sufficiency of the Trust Fund to provide any distribution to an Employer under
this Article V.
ARTICLE VI
Change of Trustee
VI-1. Resignation. The Trustee may resign at any time by
giving thirty (30) days' advance written notice to the Company and the
Committee.
VI-2. Removal of the Trustee. The Committee may, with the
consent of the Company, which shall not be unreasonably withheld, remove the
Trustee by giving thirty (30) days' advance written notice to the Trustee,
subject to providing the removed Trustee with satisfactory written evidence of
the appointment of a successor Trustee and of the successor Trustee's
acceptance of the trusteeship.
VI-3. Duties of Resigning or Removed Trustee and of Successor
Trustee. If the Trustee resigns or is removed, it shall promptly transfer and
deliver the assets of the Trust Fund to the successor Trustee, and may reserve
such amount to provide for the payment of all fees and expenses, or taxes then
or thereafter chargeable against the Trust Fund, to the extent not previously
paid by the Company. The Company shall be obligated to reimburse the Trust for
any amount reserved by the Trustee. Within 120 days, the resigned or removed
Trustee shall furnish to the Company and the successor Trustee an account of
its administration of the Trust from the date of its last account. Each
successor Trustee shall succeed to the title to the Trust
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<PAGE> 18
Fund vested in his predecessor without the signing or filing of any further
instrument, but any resigning or removed Trustee shall execute all documents
and do all acts necessary to vest such title or record in any successor
Trustee. Each successor shall have all the powers, rights and duties conferred
by this Trust Agreement as if originally named Trustee. No successor Trustee
shall be personally liable for any act or failure to act of a predecessor
Trustee. With the approval of the Committee, a successor Trustee may accept
the account rendered and the property delivered to it by its predecessor
Trustee as a full and complete discharge to the predecessor Trustee without
incurring any liability or responsibility for so doing.
VI-4. Filling Trustee Vacancy. The Committee may, with the
consent of the Company, which shall not be unreasonably withheld, fill a
vacancy in the office of Trustee as soon as practicable by a writing filed with
the person or entity appointed to fill the vacancy.
ARTICLE VII
Additional Employers
Any Related Company (as defined below) may become a party to this
Trust Agreement by:
(a) filing with the Company and the Trustee a certified
copy of a resolution of its Board of Directors to that
effect; and
(b) filing with the Trustee a certified copy of a
resolution of the Board of Directors of the Company
consenting to such action.
A "Related Company" is any corporation, trade or business during any period in
which it is, along with the Company, a member of a controlled group of
corporations, a group of trades or businesses under common control or an
affiliated service group, as described in section 414(b), 414(c) and 414(m),
respectively, of the Code or as described in regulations issued by the
Secretary of the Treasury or his delegate pursuant to section 414(o) of the
Code. Any Related Company so becoming a party to this Trust Agreement shall be
deemed to have irrevocably appointed the Company as its agent for all purposes
of this Trust Agreement to the end that the Trustee may deal with the Company
as if the Company were the only Employer party to this Trust Agreement.
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<PAGE> 19
ARTICLE VIII
Amendment and Termination
VIII-1. Amendment. While the Employers expect and intend to
continue the Trust, the Company reserves the right to amend the Trust at any
time pursuant to an action of the Company's Board of Directors, except that no
amendment shall change the rights, duties and liabilities of the Trustee under
this Trust Agreement without its prior written agreement, nor reduce a
Participant's benefits to less than the amount such Participant would be
entitled to receive if such Participant had resigned from the employ of the
Employers on the date of the amendment. Amendments to the Trust shall be
effective upon execution of such amendments by both the Company and the
Trustee.
VIII-2. Termination. The Trust may be terminated as to all
Employees on any date specified by the Company. The Trust will terminate as to
any Employer on the first to occur of the following:
(a) the date it is terminated by that Employer;
(b) the date such Employer's contributions to the Trust are
completely discontinued;
(c) the date such Employer is judicially declared bankrupt
under Chapter 7 of the U.S. Bankruptcy Code; or
(d) the dissolution, merger, consolidation, or
reorganization of that Employer, or the sale by that
Employer of all or substantially all of its assets,
except that, with the consent of the Company, such
arrangements may be made whereby the Trust will be
continued by any successor to that Employer or any
purchaser of all or substantially all of that
Employer's assets, in which case the successor or
purchaser will be substituted for that Employer under
the Trust.
The Trustee's powers upon termination as described above will continue until
liquidation of the Trust Fund, or the portion thereof attributable to an
Employer, as the case may be. Upon termination of this Trust the Trustee shall
first reserve such reasonable amounts as it may deem necessary to provide for
the payment of any expenses or fees then or thereafter chargeable to the Trust
Fund. Subject to such reserve, the balance of the Trust Fund shall be
liquidated and distributed by the Trustee to
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<PAGE> 20
or for the benefit of the Participants or their beneficiaries, as directed by
the Committee after compliance with applicable requirements of ERISA, as
amended from time to time, or other applicable law, accompanied by a
certification that the disposition is in accordance with the terms of the Plan
and the Trustee need not question the propriety of such certification. The
Company shall have full responsibility to see that such distribution is proper
and within the terms of the Plan and this Trust.
IN WITNESS WHEREOF, the Company and Trustee have caused these presents
to be signed and their seals to be hereunto affixed and attested by their duly
authorized officers all as of the day and year first above written.
TAYLOR CAPITAL GROUP, INC.
----------------------------------
----------------------------------
President
State Street Bank and Trust
Company, not in its individual or
corporate capacity, but solely as
Trustee of the Cole Taylor Bank
401(k)/Profit Sharing and Employee
Stock Ownership Trust
----------------------------------
Senior Vice President
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<PAGE> 1
EXHIBIT 12
TAYLOR CAPITAL GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS (PRO FORMA BASIS)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
LINE 1996 1995
- ---- ------------ ------------
<C> <S> <C> <C>
1 Income before income taxes...................................... $ 8,537 $ 15,512
ADD BACK FIXED CHARGES:
2 Total interest expense(1)....................................... 33,545 64,486
3 Interest included in operating lease rental expense(2).......... 542 996
4 Preferred stock dividend(3)..................................... 2,869 5,738
-------- --------
5 Adjusted earnings including interest on deposits................ 45,492 86,731
6 Less: interest expense on deposits.............................. 26,222 47,034
-------- --------
7 Adjusted earnings excluding interest on deposits................ $ 19,270 $ 39,697
======== ========
Fixed charges including interest on deposits (line 2 + line 3 +
8 line 4)......................................................... $ 36,955 $ 71,219
======== ========
Fixed charges excluding interest on deposits (line 8 - line
9 6).............................................................. $ 10,733 $ 24,185
======== ========
RATIO OF EARNINGS TO FIXED CHARGES
Including interest on deposits (line 5/line 8).................. 1.23 1.22
======== ========
Excluding interest on deposits.................................. 1.80 1.64
======== ========
</TABLE>
- ---------------
(1) Interest expense includes cash interest expense on deposits and other debt
and amortization of debt issuance costs.
(2) Calculation of interest included in operating lease rental expense is
representative of the interest factor attributable to the lease payment.
(3) Preferred stock dividends have been computed assuming that $38,250,000 of
preferred stock is issued and that the dividend rate is 9.75% per annum. The
stock dividend amount has been grossed up to compute the pretax income
equivalent assuming an estimated 35% tax rate.
<PAGE> 2
COLE TAYLOR BANK
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (HISTORICAL BASIS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------ -----------------------------------------------
LINE 1996 1995 1994 1993 1992 1991
- ---- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Income before income taxes...... $ 13,980 $25,940 $22,414 $17,659 $14,513 $11,419
ADD BACK FIXED CHARGES:
2 Total interest expense(1)....... 32,492 64,366 44,118 35,147 43,572 56,384
3 Interest included in operating
lease rental expense(2)......... 542 996 1,067 965 1,365 1,536
4 Preferred stock dividend(3).....
------------ ------- ------- ------- ------- -------
5 Adjusted earnings including
interest on deposits............ 47,014 91,302 67,599 53,771 59,450 69,339
6 Less: interest expense on
deposits........................ 26,229 47,034 32,998 27,472 36,550 47,447
------------ ------- ------- ------- ------- -------
7 Adjusted earnings excluding
interest on deposits............ $ 20,785 $44,268 $34,601 $26,299 $22,900 $21,892
=========== ======= ======= ======= ======= =======
8 Fixed charges including interest
on deposits (line 2 + line 3 +
line 4)......................... $ 33,034 $65,362 $45,185 $36,112 $44,937 $57,920
=========== ======= ======= ======= ======= =======
9 Fixed charges including interest
on deposits (line 8 - line 6)... $ 6,805 $18,328 $12,187 $ 8,640 $ 8,387 $10,473
=========== ======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES
Including interest on deposits
(line 5/line 8)................. 1.42 1.40 1.50 1.49 1.32 1.20
=========== ======= ======= ======= ======= =======
Excluding interest on
deposits........................ 3.05 2.42 2.84 3.04 2.73 2.09
=========== ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Interest expense includes cash interest expense on deposits and other debt
and amortization of debt issuance costs.
(2) Calculation of interest included in operating lease rental expense is
representative of the interest factor attributable to the lease payment.
<PAGE> 1
EXHIBIT 21
Upon consummation of the Split-Off Transactions, the Company will own 100%
of the Capital Stock of Cole Taylor Bank and CT Mortgage Company, Inc.
2
<PAGE> 1
EXHIBIT 23.1
[KPMG PEAT MARWICK LLP LOGO]
Consent of Independent
Certified Public Accountants
The Board of Directors
Cole Taylor Bank:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
October 22, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 102,289
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 429,769
<INVESTMENTS-CARRYING> 76,690
<INVESTMENTS-MARKET> 77,305
<LOANS> 1,172,722
<ALLOWANCE> 23,475
<TOTAL-ASSETS> 1,899,018
<DEPOSITS> 1,486,332
<SHORT-TERM> 146,373
<LIABILITIES-OTHER> 18,938
<LONG-TERM> 99,966
0
36,250
<COMMON> 45
<OTHER-SE> 111,114
<TOTAL-LIABILITIES-AND-EQUITY> 1,899,018
<INTEREST-LOAN> 49,817
<INTEREST-INVEST> 16,552
<INTEREST-OTHER> 497
<INTEREST-TOTAL> 66,866
<INTEREST-DEPOSIT> 26,222
<INTEREST-EXPENSE> 33,545
<INTEREST-INCOME-NET> 33,321
<LOAN-LOSSES> 1,692
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 30,854
<INCOME-PRETAX> 8,537
<INCOME-PRE-EXTRAORDINARY> 8,537
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,081
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 4.04
<LOANS-NON> 11,938
<LOANS-PAST> 3,794
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,869
<CHARGE-OFFS> 1,814
<RECOVERIES> 368
<ALLOWANCE-CLOSE> 23,475
<ALLOWANCE-DOMESTIC> 18,643
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,832
</TABLE>
