<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
REGISTRATION NO. 333-14713
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
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)
------------------
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. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
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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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY , 1997
dated , 1997
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 first day of each April, July,
October and January commencing on April 1, 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 January 15, 2002 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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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 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 , 1997.
PIPER JAFFRAY INC. ROBERT W. BAIRD & CO.
INCORPORATED
<PAGE> 3
[TAYLOR CAPITAL GROUP 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.
------------------
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
<PAGE> 4
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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) (the
"Split-Off Closing") and the consummation of this offering (the "Preferred
Closing").
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 County, Illinois and DuPage
County, Illinois. 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's principal office is located in Altamonte Springs,
Florida. Through its subsidiaries, the Mortgage Company currently provides
mortgage services primarily to borrowers 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, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil, related trusts and a related partnership
(collectively, the "Taylor Family"), CTFG is transferring all of the capital
stock of the Company to the Taylor Family and the Company's 401(k)/Profit
Sharing Employee Stock Ownership Plan (the "Profit Sharing/ESOP") (collectively,
the Taylor Family and the Profit Sharing/ESOP shall be referred to as the
"Taylor Group") in exchange for their shares of common stock of CTFG. For a
description of the composition of the Taylor Group, see "Security Ownership of
Management and Certain Beneficial Owners." 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 September 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 $135.5 million. For the first nine months
of 1996, applying similar adjustments, the Company had pro forma consolidated
net income of $8.5 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
<PAGE> 5
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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 for each quarter on the first day of each
April, July, October and January commencing on
April 1, 1997 (each a "Dividend Payment Date"),
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.
Dividends are payable 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 the
period commencing on the original date of issuance
of the Preferred Stock to and including March 31,
1997 or for a quarterly dividend period (each 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. The Company intends to
declare and pay dividends on the Preferred Stock
as well as the Common Stock each quarter. However,
no assurances can be made that the Company will be
able to or will decide to declare such dividends.
In the event holders of the Common Stock will not
receive dividends in any given Dividend Period,
there may be an incentive to neither declare nor
pay dividends to holders of Preferred Stock in
such Dividend Period. See "Risk Factors--Ability
to Pay Dividends" and "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 January 15, 2002 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 other 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.
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4
<PAGE> 6
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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, to the
extent available after payment to creditors of the
Bank, including depositors, but before any
distribution to holders of the Common Stock or any
other junior stock. See "Risk Factors--Ability to
Pay Dividends" and "Description of Capital Stock
--Preferred Stock--Liquidation Rights."
Rating..................... 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
<PAGE> 7
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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, 1994 and 1993 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,
1994 and 1993 were audited by KPMG Peat Marwick LLP, independent accountants.
The financial data as of and for the periods ended September 30, 1996 and 1995
and December 31, 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 nine months ended September 30, 1996 are not
necessarily indicative of the Bank's expected results for the full year.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income............ $ 53,696 $ 51,797 $ 69,318 $ 72,149 $ 66,681 $ 58,040 $ 52,055
Provision for loan losses...... 3,005 3,297 4,056 7,374 10,521 8,922 8,816
Noninterest income............. 11,748 10,247 14,227 12,887 15,425 14,502 12,870
Noninterest expense............ 40,799 39,499 53,549 55,248 53,926 49,107 44,690
Provision for income taxes..... 7,288 5,732 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................. $ 14,352 $ 13,516 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (at end of
period):
Total assets................... $1,846,054 $1,741,262 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold......................... 460,182 469,308 443,348 488,019 459,349 394,050 301,702
Loans.......................... 1,256,214 1,185,291 1,211,622 1,130,177 986,384 904,788 821,300
Allowance for loan losses...... 24,630 23,720 23,869 22,833 19,740 14,661 12,646
Total deposits................. 1,455,807 1,334,541 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings.......... 153,410 201,678 202,033 243,997 209,227 152,259 124,511
Long-term borrowings........... 85,836 60,753 61,003 47,864 37,690 5,490 623
Stockholder's equity........... 134,748 130,014 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:
Net interest margin (tax
equivalent).................. 4.33% 4.40% 4.38% 4.88% 5.11% 4.83% 4.71%
Return on average total
assets....................... 1.06 1.05 1.05 0.98 0.87 0.74 0.64
Return on average stockholder's
equity....................... 14.52 14.41 14.29 14.50 13.00 10.52 8.69
Ratio of earnings to fixed
charges:
Including interest on
deposits................... 1.43x 1.40x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits................... 3.12 2.36 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY
RATIOS:
Nonperforming assets to total
assets....................... 0.98% 0.82% 1.08% 1.03% 1.15% 1.72% 2.69%
Nonperforming assets to total
loans plus repossessed
property..................... 1.44 1.20 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans........................ 0.24 0.28 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans........................ 1.96 2.00 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans.......... 152.30 248.40 174.76 157.61 156.67 84.61 66.32
</TABLE>
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6
<PAGE> 8
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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
NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
----------------- ------------ ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income................. $ 49,919 $ 64,133 $ 51,076 $ 66,038
Provision for loan losses........... 2,455 3,596 2,455 3,596
Noninterest income.................. 12,205 14,227 11,748 14,227
Noninterest expense................. 45,806 58,752 42,739 55,914
Provision for income taxes.......... 5,318 5,607 6,598 7,034
----------- ---------- ---------- ----------
Net income..................... $ 8,545 $ 10,405 $ 11,032 $ 13,721
=========== ========== ========== ==========
BALANCE SHEET DATA (at end of period):
Total assets........................ $ 1,878,990 $1,804,680 $ 1,874,049 $1,803,765
Investments and federal funds
sold............................. 546,482 530,448 546,482 530,448
Loans............................... 1,152,077 1,103,622 1,148,214 1,103,622
Allowance for loan losses........... 23,630 22,869 23,630 22,869
Total deposits...................... 1,455,807 1,364,075 1,455,807 1,364,075
Short-term borrowings............... 153,410 202,033 153,410 202,033
Long-term borrowings................ 113,578 84,835 85,836 61,003
Stockholders' equity................ 135,493 134,924 158,493 157,924
EARNINGS PERFORMANCE DATA:
Net interest margin
(tax-equivalent)................. 4.08% 4.11% 4.18% 4.23%
Return on average total assets...... 0.62 0.59 0.80 0.78
Return on average stockholders'
equity........................... 8.60 8.05 9.46 9.01
Ratio of earnings to fixed charges:
Including interest on deposits... 1.25x 1.22x
Excluding interest on deposits... 1.88 1.63
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets........................... 0.96% 1.06% 0.97% 1.06%
Nonperforming assets to total loans
plus repossessed property........ 1.57 1.72 1.57 1.72
Net loan charge-offs to average
loans............................ 0.26 0.29 0.26 0.29
Allowance for loan losses to
loans............................ 2.05 2.07 2.06 2.07
Allowance for loan losses to
nonperforming loans.............. 146.11 167.44 146.11 167.44
</TABLE>
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7
<PAGE> 9
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. Management intends to pay quarterly
dividends at the stated annual rate if allowable under legal and regulatory
guidelines. However, no assurances can be made that the Company will be able to
or will decide to declare and pay such dividends. The Preferred Stock may be
redeemed by the Company without a dividend on such Preferred Stock ever having
been declared or paid. 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. Holders of Common Stock will not receive dividends for any given Dividend
Period unless holders of Preferred Stock receive their dividends in full for
such period. However, because dividends must be paid on the Preferred Stock
before dividends may be paid to holders of Common Stock and because the
Preferred Stock is not cumulative, there may be an incentive for the Company's
Board of Directors not to declare dividends on Preferred Stock for any Dividend
Period for which the Company's Board of Directors determines not to declare or
pay dividends on the Common Stock. 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 ability to declare and pay dividends.
See "--Risks Arising from the Split-Off Transactions--Decrease in Tangible
Capital"; "Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Supervision and Regulation."
The financial condition and results of operations of the Company impact the
Company's ability to pay dividends. The Split-Off Transactions are expected to
negatively impact the financial condition and results of operations of the Bank
in comparison to historical results. The Bank's pro forma return on average
assets and return on average equity are expected to decline to .80% and 9.46%,
respectively, for the nine months ended September 30, 1996 as compared to 1.06%
and 14.52%, respectively, on an historical basis. The decline is primarily due
to (1) the decline in net interest income resulting from the sale and transfer
of approximately $108 million of automobile receivables, (2) the reinvestment
into investment securities 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
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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. The consolidated Company's pro forma financial condition and results of
operations are further impacted by the interest expense on the Credit Facilities
(as defined) as well as estimated salary and overhead expenses at 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."
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 September 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 contain certain restrictive covenants, including a covenant
not to pay dividends on capital stock, including the Preferred Stock, if an
Event of Default (as defined) exists or would result therefrom, and certain
other covenants which require maintenance of minimum levels of Tier I capital,
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--Dividend Rights."
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 used automobiles (the "Used Automobile Receivables") and related
assets, is being transferred from the Bank to a wholly-owned subsidiary of CTFG
("New Reliance"). 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. The Company currently does not plan to re-enter the
automobile financing business. As of October 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. For the 9 month period ended September 30, 1996,
the interest income earned on the automobile receivables being sold or
transferred comprised approximately 6.7% of the Bank's total interest income.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
In addition, although the Company currently does not plan to re-enter the
automobile financing business, the Company may be required to repurchase certain
new automobile receivables sold by the Company pursuant to a purchase agreement
dated December 23, 1996. Under the terms of this purchase agreement, the Company
has an obligation (subject to certain conditions) to repurchase any loan that is
materially and adversely affected by a breach of certain representations or
warranties thereunder. This repurchase obligation of the Company shall continue
for each loan sold by the Company for the later of one year from January 3, 1997
(the closing date for the sale of substantially all of the Company's new
automobile receivables) or the fourth anniversary of the date of origination of
such loan. Also, in the event of a breach by the Company of certain
representations and warranties, the Company may be required to indemnify the
purchaser of the new automobile receivables for a period of up to two years
after the closing date for such sale. The Company has made customary
representations and warranties which include, but are not limited to,
representations and warranties as to the validity and proper origination of (i)
each new automobile loan sold and (ii) the contracts made between the Bank and
automobile dealers.
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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 Credit Facilities 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."
The Split-Off Transactions are expected to reduce the consolidated
Company's ratio of earnings to fixed charges, in comparison to historical
results of the Bank on a stand alone basis. The pro forma ratio of earnings to
fixed charges for the nine month period ended September 30, 1996, including
interest on deposits, declined from 1.43% to 1.25% primarily because of the pro
forma decline in income before income taxes. See "Management's Discussion and
Analysis of Pro Forma Financial Condition and Results of Operations."
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, the Bank would be restricted from accepting, renewing or
rolling over funds obtained, directly or indirectly, by or through any deposit
broker for deposit into one or more deposit accounts. The Bank relies upon
funds, such as those derived from brokered certificates of deposit, as one
element of its overall asset/liability management. The Federal Deposit Insurance
Corporation ("FDIC") may waive such restriction upon application by the Bank, so
long as, in accordance with the Bank's current policies, the rate paid on such
deposits is not in excess of normal market rate or such deposits are not
accepted in any other unsafe or unsound manner. See "Supervision and
Regulation--Regulation of Banks--Capital Requirements" and "--Brokered
Deposits." 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. In addition, beginning on January 1, 1997, the premium rate for
FDIC insurance will be .0129% per $100 of deposits for "well capitalized" banks
as compared to .0429% per $100 of deposits for "adequately capitalized" banks.
Based on the Bank's deposits at September 30, 1996, should the Bank be deemed
"adequately capitalized," this insurance premium differential could increase the
annual cost of FDIC insurance to the Bank by approximately $420,000.
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 Split-Off Closing. 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
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
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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."
Liabilities Arising in the Event of Loss of Tax-Free Status of Split-Off
Transactions; Other Potential Tax Liabilities
Although a tax ruling was issued on September 3, 1996 (the "Tax Ruling") to
the effect that the Split-Off Transactions will be treated as a tax-free
transaction under Section 355 of the Internal Revenue Code (the "Code"), the Tax
Ruling was 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. The Company is unaware of
any present facts or circumstances that would cause such representations and
assumptions to be inaccurate. However, if the Internal Revenue Service (the
"IRS") were to take the position that such representations were violated or that
such assumptions were inaccurate and that the exchange of the Common Stock for
common stock of CTFG did not qualify as a tax-free transaction, then CTFG would
be required to recognize capital gain equal to the difference between the fair
market value of the Common Stock at the date of the Split-Off Closing and CTFG's
tax basis in the Common Stock. As members of the CTFG consolidated group during
the taxable period in which this gain would have been realized, the Company, the
Bank and the Mortgage Company could be held jointly and severally liable for the
resulting federal income tax that would be payable by CTFG. Such liability could
have a material adverse impact on the Company, could prevent the Company from
declaring and paying dividends and may affect the continuing viability of the
Company. See "Split-Off Transactions--Compliance with Tax and Regulatory
Representations." The Company and the Bank may also have liabilities for adverse
tax consequences pursuant to agreements to be entered into with CTFG and the
Taylor Family. See "--Liabilities Under Share Exchange Agreement."
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 any
and all losses, damages, claims, liabilities or obligations (including
attorneys' fees and interest) ("Losses") (x) relating to the operations of the
Bank and the Mortgage Company or CTFG's ownership of securities in the Bank, the
Mortgage Company or Alpha Capital Fund II, L.P., an investment partnership in
which the Company will be a limited partner (the "Alpha Capital Fund") or (y)
incurred, arising or accrued prior to the Split-Off Closing and relating to New
Reliance. 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, expose the Company
and the Bank to varying degrees of risk based on potentially conflicting
interpretations of applicable contract language, 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 to the Company or the Bank.
By way of example, but not limitation, liabilities relating to CTFG's ownership
of the Bank or Mortgage Company could (but do not necessarily) arise from claims
based on CTFG's status as sole stockholder or controlling person of these
entities such as the pending litigation described in "Business--Legal
Proceedings" to which CTFG is a party defendant, and liabilities arising from
the Share Exchange Agreement could (but do not necessarily) arise from such
matters as failure of the transaction to be tax free to CTFG and its public
stockholders, claims of breach of fiduciary duties by directors or stockholders
of CTFG and claims of material misstatements or omissions by CTFG in connection
with
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disclosures relating to the Share Exchange Agreement. 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 and CTFG; 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 of CTFG
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 to CTFG. The Taylor Family has
placed in escrow shares of CTFG common stock 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.
See "The Split-Off Transactions--Termination of the Share Exchange Agreement"
and "--Escrow Agreement."
In many cases, obligations of the Taylor Family under the Share Exchange
Agreement 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 responsible to pay or perform
such obligations. Many of these obligations benefit, directly or indirectly,
CTFG, the sole stockholder of the Company prior to the Split-Off Closing.
Included among such obligations are approximately $2.0 million in transaction
expenses to be paid by the Company. Further, 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
the Split-Off 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 prospective non-Taylor Family stockholders 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 a portion of the underwriting discount set
forth on the cover page of this Prospectus, received as compensation for such
investment banking services an initial payment of $100,000 and will receive a
final payment of $500,000 upon the Split-Off Closing. 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 (and, to the extent described below, should be
understood not to have been) resolved in a manner favorable to the non-Taylor
Family or non-CTFG stockholders of the Company or that the terms of such
agreements are (and, to the extent described below, should be understood not to
be) comparable to those that would be available were these agreements negotiated
at arms length between unaffiliated parties.
Consideration was given to formation of a committee of Company directors
who have no relationship with the Taylor Family which might affect such
directors' independent judgment concerning consideration of these various
arrangements involving the Taylor Family. These arrangements were entered into
at the request of the Taylor Family, and were not requested by, and, in the case
of the indemnification arrangement between the Company and the Taylor Family,
did not involve the participation in any way of CTFG. Nevertheless, upon advice
of counsel, the Company's directors were informed that, prior to the
consummation of the Split-Off Transactions, directors had no fiduciary
responsibility to any future stockholder and owed their fiduciary duties solely
to CTFG. Accordingly, in negotiating and approving such arrangements, the
Company's directors did not consider the interests of prospective stockholders,
such as persons who purchase Preferred Stock offered
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hereby, but rather those of CTFG. Although generally the interests of CTFG are
adverse to those of the Taylor Family in connection with the Split-Off
Transactions, in its deliberations regarding these arrangements, the Board of
Directors of the Company observed that the interests of the Taylor Family were
not generally adverse to those of CTFG.
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 September 30,
1996, the Bank's interest rate risk model showed a decline of approximately
3.13% 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. The Company will be subject to a degree of interest rate risk under
the Credit Facilities due to the variable nature of interest payable. 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, 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" and "Risk Factors--Risks Arising from the Split-Off
Transactions--Decrease in Tangible Capital."
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
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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 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
The Taylor Family in the aggregate will beneficially own or control in
excess of 92% 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
the Company's By-Laws (the "By-Laws"), the approval of mergers or similar
transactions, and, with the exception of the right of Preferred Stockholders
(together with the holders of any one or more other series of preferred stock
entitled to vote thereon) 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 Certificate and By-Laws 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
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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--Preferred
Stock--Voting Rights." In addition, as of the Split-Off Closing, Jeffrey Taylor,
Bruce Taylor and Sidney Taylor will constitute three of the seven members of the
Board of Directors of each of the Company and the Bank and Jeffrey Taylor and
Bruce Taylor will serve as the Company's and the Bank's highest ranking
officers. In addition, Melvin Pearl, who as trustee of certain Taylor Family
trusts is included within the definition of the "Taylor Family" set forth in the
Share Exchange Agreement, will serve as a member of the Board of Directors.
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."
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 a
greater 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. For the foreseeable future, the Mortgage Company will continue to be
dependent upon guarantees and financing from its parent, which after the
Split-Off Closing will be the Company. The Mortgage Company historically has
required and is expected to continue to require ongoing financing of $8 to $12
million to conduct its business. 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
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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."
RATING BELOW INVESTMENT GRADE
The Preferred Stock will be rated below "investment grade" by Duff & Phelps
and Fitch. Typically, preferred stock with such ratings may experience less
liquidity in the secondary market compared to investment grade preferred stock.
The Preferred Stock should not be purchased by any investor who, because of
financial condition, investment policies or otherwise, does not desire to
assume, or have the ability to bear, the risks inherent in an investment in the
Preferred Stock.
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THE SPLIT-OFF TRANSACTIONS
GENERAL
As a result of the Split-Off Transactions described in the Share Exchange
Agreement, CTFG is transferring all of the capital stock of the Company to the
Taylor Group in exchange for 4.5 million shares of CTFG common stock (the "Stock
Amount"). Prior to the Split-Off 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 approximately $51 million in cash (the "First
Cash Component") and between $30 million and $31 million in aggregate fair
market value of the Used Automobile Receivables (as defined) to a wholly owned
subsidiary of CTFG. The First Cash Component is being funded with the proceeds
of the sale by the Bank of substantially all of the new automobile receivables
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) net proceeds of approximately $36.3 million
from the sale of the Preferred Stock offered hereby and (ii) senior debt in the
amount of approximately $23 million, the terms of which are described herein
under "-- Related Financing".
All conditions precedent to the Split-Off Closing have been satisfied or
waived, with the only remaining condition being the recapitalization of the 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 with the Preferred Closing.
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.
After the Split-Off Closing, 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. See "Management." 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 Split-Off Closing.
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
GENERAL
The Share Exchange Agreement outlines in detail the transaction steps which
ultimately will provide the Taylor Family with ownership of in excess of 92% of
the common stock of the Company and will allow the Taylor Family to control the
operations of the Bank. Under the terms and conditions contemplated by the Share
Exchange Agreement, CTFG will contribute all of the stock of the Bank and the
Mortgage Company to the Company and then, in exchange for the Stock Amount owned
by the Taylor Group, cause the Company to deliver to the Taylor Group all of the
Common Stock. For a description of the composition of the Taylor
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Group, see "Security Ownership of Management and Certain Beneficial Owners." The
Split-Off Transactions are intended to be a tax-free transaction for all
parties. The Taylor Family will retain no ownership in CTFG, and CTFG will
retain no ownership in the Company, after the proposed Split-Off Transactions
are consummated.
Prior to the Split-Off Transactions, the Bank formed 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 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 the Alpha Capital
Fund, to which the Company has a total financial commitment of $500,000.
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 employees of the Bank whose employment with the Bank will
be terminated. The amount of the severance payments approximates $550,000 and
will be accounted for as a direct acquisition cost in accordance with the
application of purchase accounting. These employees will be offered employment
with New Reliance.
REPRESENTATIONS AND COVENANTS
Under the Share Exchange Agreement, each member of the Taylor Family,
jointly and severally, made certain representations and warranties to CTFG,
including the following: (a) that the Share Exchange Agreement and the
consummation of the Split-Off Transactions have been duly authorized and that
the Share Exchange Agreement constitutes a legal, valid and binding obligation
of each member of the Taylor Family; (b) representations and warranties
regarding the number of shares of CTFG common stock and options to purchase CTFG
common stock owned and that such shares and options will be free and clear of
any security interests, liens or other encumbrances ("Liens"); (c) that they
will cooperate with CTFG in taking all necessary action to form the Company and
cause the Company to enter into, ratify and approve the Share Exchange
Agreement; (d) that the assets of the Bank's used automobile receivables
business to be transferred to New Reliance are substantially all of the assets
used exclusively in or necessary for the conduct of such business; and (e) that
the transfer of the Stock Amount will transfer to CTFG good and valid title to
the shares of CTFG common stock constituting the Stock Amount, free and clear of
any Liens, except for Liens CTFG has permitted to attach.
CTFG made certain representations and warranties to the Taylor Family,
including the following: (a) that the consummation of the Split-Off Transactions
has been duly authorized and that the Share Exchange Agreement constitutes the
legal, valid and binding obligation of CTFG; (b) representations regarding the
capital structure of the Bank and the Mortgage Company; (c) representations
regarding the amounts and dates of its investments in the Mortgage Company and
Alpha Capital Fund; (d) that CTFG will, at the closing of the Split-Off
Transactions, have good and valid title to all of the capital stock of the Bank
(the "Bank Stock"), the capital stock of the Mortgage Company (the "Mortgage
Company Stock") and the interest in the Alpha Capital Fund, free and clear of
any Liens; (e) that the transfer of the Bank Stock, the Mortgage Company Stock
and the interest in the Alpha Capital Fund to the Company will transfer good and
valid title to the Bank Stock, the Mortgage Company Stock and the interest in
the Alpha Capital Fund, free
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and clear of any Liens, except for Liens the Taylor Family has permitted to
attach; and (f) that CTFG has not received since September 1, 1995 any
acquisition proposal, except as previously disclosed.
The covenants of the parties include, without limitation, the following:
(a) the members of the Taylor Family who are directors of CTFG (the "Taylor
Directors") will submit, no later than August 31, 1996, any necessary
applications to the applicable governmental authorities for approval of the
Split-Off Transactions (including but not limited to the Federal Reserve Board)
and the Bank and CTFG will assist in such filings; (b) at the annual meeting of
stockholders of CTFG (the "Annual Meeting"), the members of the Taylor Family
will vote all shares of CTFG common stock owned or controlled by them in favor
of the Share Exchange Agreement and the Split-Off Transactions; (c) CTFG and the
Taylor Family will comply with any covenants made in connection with the Tax
Ruling or with any applicable governmental authority to ensure the tax-free
nature of the Split-Off Transactions; and (d) for the two-year period following
the actual date of the Split-Off Closing, the parties agree to take, or refrain
from taking, certain actions which may affect the qualification of the Split-Off
Transactions under Section 355 of the Code or the validity of the Tax Ruling
(unless the party wishing to take such action provides the other party with a
written opinion from nationally recognized tax counsel that the desired
transaction will not affect the qualification of the Split-Off Transactions
under Section 355 of the Code or the validity of the Tax Ruling).
TERMINATION PROVISIONS
The Share Exchange Agreement may be terminated at any time prior to the
Split-Off Closing: (i) by mutual written consent of the Taylor Family and CTFG;
(ii) by the Taylor Family or CTFG if any court of competent jurisdiction within
the United States issues any order, decree or ruling or action restraining,
enjoining or prohibiting the consummation of the Split-Off Transactions; (iii)
by the Taylor Family or CTFG in the event any approval of any applicable
governmental authority has been denied or contains or is subject to terms or
conditions which either party reasonably deems to be materially burdensome; (iv)
provided the party seeking termination has satisfied in all material respects
all covenants and agreements to be performed and satisfied by it on or prior to
the date of termination under the Share Exchange Agreement, by the Taylor Family
or CTFG upon material breach by the other party of any of its covenants or
agreements, subject to a 30-day right to cure following the receipt of written
notice of such breach; (v) provided the terminating party has not caused the
Split-Off Closing not to occur in breach of the Share Exchange Agreement, by the
Taylor Family or CTFG if the Split-Off Closing has not occurred prior to June
30, 1997; (vi) by CTFG, prior to the Annual Meeting, after CTFG's receipt of an
acquisition proposal if the Board of Directors of CTFG (the "CTFG Board")
determines, based on the advice of independent counsel, that such action is
required for the discharge of the CTFG Board's fiduciary duties; (vii) by the
Taylor Family if the CTFG Board withdraws or modifies, in a manner adverse to
the Taylor Family, its approval of the Share Exchange Agreement, the Split-Off
Transactions or its recommendation to CTFG's stockholders, if CTFG enters into
an agreement providing for an acquisition proposal or if the CTFG Board resolves
to do any of the foregoing; (viii) by the Taylor Family, if the Annual Meeting
has not occurred prior to November 28, 1996 (unless the Taylor Family has caused
the Annual Meeting not to occur prior to such date), or (ix) by either CTFG or
the Taylor Family if the stockholders of CTFG do not approve the Split-Off
Transactions at the Annual Meeting.
If the Share Exchange Agreement is terminated due to a Triggering
Termination (as defined), CTFG will be entitled to receive as an exclusive
remedy liquidated damages equal to $15 million from the Taylor Family, which
amount is subject to reduction depending on the result of the Bank Sale Process
(as defined). A "Triggering Termination" means termination of the Share Exchange
Agreement due to the following reasons: (i) failure to obtain the approval of
any applicable governmental authority (other than because of a failure to comply
with the Community Reinvestment Act (the "CRA") or fair lending statutes); or
(ii) if the Split-Off Closing has not occurred prior to June 30, 1997 due to (A)
the failure to obtain sufficient additional capital in order to comply with the
minimum capital requirements of any applicable banking laws, regulations or any
requirements of any regulatory agencies, or (B) the failure to obtain the
approval of any applicable governmental authority (other than because of a
failure to comply with the CRA or fair lending statutes).
If the Share Exchange Agreement is terminated as a result of a Triggering
Termination, CTFG will use its reasonable best efforts to solicit bids from
third parties for the sale of all of the equity interest in the Bank
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(the "Bank Sale Process"). The Taylor Family has agreed to use its best efforts
to support the Bank Sale Process, and the Taylor Directors will direct such
process. If, during the nine-month period after a Triggering Termination, CTFG
receives a Sufficient Bona Fide Offer (as defined) to acquire all of the equity
interest in the Bank that the Taylor Family wishes the CTFG Board to consider,
the obligations of the Taylor Family to pay CTFG $15 million will be reduced
(provided the obligation will never 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. A "Sufficient Bona Fide Offer"
means an offer for all of the equity interest in the Bank from a financially
reliable third party 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. The CTFG Board is under no obligation to accept
a Sufficient Bona Fide Offer that the Taylor Family wishes the CTFG Board to
consider; provided, however, that in the event the CTFG Board rejects a
Sufficient Bona Fide Offer, the obligation of the Taylor Family to pay CTFG $15
million will be reduced in the same manner as set forth in the preceding
sentence. If no Sufficient Bona Fide offer is received during the nine months
after a Triggering Termination, the Taylor Family will pay the full $15 million
to CTFG. CTFG may, without the participation of any member of the Taylor Family,
resolve not to pursue the Bank Sale Process 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 the $15 million to CTFG
will be extinguished. The Taylor Family deposited 750,000 shares of CTFG Common
into escrow to ensure payment of any liquidated damages required to be paid by
the Taylor Family under the Share Exchange Agreement. See "-- The Escrow
Agreement."
If the Share Exchange Agreement is terminated (i) by CTFG after the receipt
of an acquisition proposal, if such action was necessary to discharge the CTFG
Board's fiduciary duties or (ii) by the Taylor Family, if the CTFG Board
withdraws or modifies its approval of the Share Exchange Agreement or the
Split-Off Transactions, if CTFG has entered into an agreement providing for an
acquisition proposal or the CTFG Board resolves to do any of the foregoing, CTFG
is obligated to pay the Taylor family, as an exclusive remedy, liquidated
damages in an amount equal to (a) the Taylor Family's out of pocket expenses
paid to lawyers, accountants, investment bankers or other experts plus (b) three
percent of the fair market value as of the date of the Share Exchange Agreement
of the acquisition proposal that gave rise to such termination. If the Share
Exchange Agreement is terminated by the Taylor Family upon material breach of
any of CTFG's covenants or agreements contained in the Share Exchange Agreement
which has not been cured within 30 days of written notice thereof by CTFG, CTFG
is obligated to pay the Taylor Family, as an exclusive remedy, liquidated
damages equal to $15 million. For a discussion of additional liabilities under
the Share Exchange Agreement, see "-- Liabilities Under Share Exchange
Agreement."
THE ESCROW AGREEMENT
Pursuant to an escrow agreement among the Taylor Family, CTFG and The
Northern Trust Company dated June 19, 1996 (the "Escrow Agreement"), the Taylor
Family deposited 750,000 shares of CTFG common stock (the "Escrow Amount") into
escrow to ensure payment of any liquidated damages required to be paid by the
Taylor Family under the Share Exchange Agreement. The Northern Trust Company, as
escrow agent, will hold the Escrow Amount in escrow until 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 the Taylor Family that such order or judgment is final, or
(ii) joint written notice from CTFG and the Taylor Family, in which case the
Escrow Amount will be distributed in accordance with such order or judgment or
the joint written notice, as the case may be. A copy of the Escrow Agreement has
been filed as an exhibit to the Registration Statement on Form S-1, of which
this Prospectus forms a part.
VESTING OF CTFG OPTIONS
Pursuant to the Share Exchange Agreement, all outstanding options to
purchase CTFG common stock held by members of the Taylor Family will become
vested and exercisable in full prior to the Split-Off Closing. Each Taylor
Family member holding any such options is obligated to exercise them at or prior
to the Split-Off Closing. Additionally, as a result of the Split-Off
Transactions, all outstanding options ("Employee
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Stock Options") to purchase CTFG common stock under CTFG's 1991 Stock Option
Plan (the "1991 Plan") became 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 within
60 days subsequent to the Split-Off Closing.
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 Split-Off Closing) of
pre-closing periods will be borne by the party to whom the adjustment is
attributable.
ESTABLISHMENT OF PROFIT SHARING/ESOP
Pursuant to the Share Exchange Agreement, the Company has established the
Profit Sharing/ESOP, a defined contribution plan designed to qualify under
Sections 401(a), 401(k) and 4975(e)(7) of the Code. Prior to the Split-Off
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 Split-
Off Closing. The trustee of the Profit Sharing/ESOP will be offered the
opportunity to exchange the CTFG common stock held by the Employee Stock
Ownership Plan ("ESOP") portion of the Profit Sharing/ESOP for the Common Stock
at the Split-Off 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 infusion necessary to obtain requisite
regulatory approval to consummate the Split-Off Transactions, the Company has
negotiated a loan agreement (the "Loan Agreement") with LaSalle National Bank
("LaSalle") to obtain a $25 million unsecured five year term bank loan (the
"Term Loan"), to be used solely to infuse additional capital into the Company to
comply with the minimum capital requirements of applicable banking laws or
regulations of any regulatory agency, and a $5 million unsecured one year line
of credit (the "Line of Credit" and together with the Term Loan, the "Credit
Facilities") to support the Company's ongoing working capital needs. The funds
from the Term Loan will be used primarily to make a capital contribution to the
Bank of approximately $23 million. Each of the Term Loan and the Line of Credit
shall bear interest at LaSalle's prime rate of interest (the "Base Rate" and any
loan bearing interest at the Base Rate shall be referred to as a "Base Rate
Loan"), which is not necessarily the lowest or most favorable rate of interest
charged by LaSalle on commercial loans at any one time, payable on a quarterly
basis or upon conversion of the Base Rate Loan into a LIBOR Loan (as hereinafter
defined). The interest rate
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applicable to each Base Rate Loan shall change simultaneously with each change
in prime rate. Provided that no Event of Default (as hereinafter defined) under
the Loan Agreement has occurred and is continuing, the Company has the option to
convert a Base Rate Loan at any time to a loan bearing interest at 1.25% plus
the quotient obtained by dividing the LIBOR rate by the difference of 100% less
the reserve requirement imposed by the Board of Governors of the Federal Reserve
System under Regulation D for an applicable interest period (the "Adjusted LIBOR
Rate") payable on the last day of the one, two or three month interest period
elected by the Company (each, a "LIBOR Loan"). Upon expiration of the interest
period elected by the Company, a LIBOR Loan will be reborrowed as a Base Rate
Loan unless the Company gives LaSalle notice of its intention two business days
in advance of the expiration of the interest period applicable to the LIBOR Loan
to reborrow through a new LIBOR Loan, in whole or in part, the existing LIBOR
Loan. Loans made pursuant to the terms of the Loan Agreement, at the discretion
of LaSalle, may not be evidenced by notes or other instruments issued or made by
the Company and will be evidenced solely by entries upon the ledgers, books or
records of LaSalle. The Company may not have outstanding at any one time more
than three LIBOR Loans in respect of the Line of Credit and five LIBOR Loans in
respect of the Term Loan, and each such loan shall be in a minimum amount of $1
million or such greater amount in increments of $100,000. As an alternative to
being able to have outstanding LIBOR Loans and Base Rate Loans, the Company may
elect to convert the rate of interest on the entire outstanding principal amount
(or such lesser portion thereof) of the Term Loan to a fixed rate of interest
equal to the average yield to maturity for actively traded marketable U.S.
Treasury securities (adjusted to constant maturities approximating the remaining
period until final maturity of the Term Loan) ("Remaining Maturity Average
Yield") plus 1.60%. Prior to the occurrence of a default or event of default
under the Loan Agreement and so long as (i) the relevant LIBOR Loans in respect
of the portion of the Term Loan subject to this election shall have been
converted into a Base Rate Loan and (ii) all unpaid interest on the outstanding
principal amount of the Term Loan (or a lesser portion thereof) subject to this
election is paid in full at a rate per annum equal to the Remaining Maturity
Average Yield (hereinafter defined) plus 1.60%. Interest is computed on each
loan for the actual number of days elapsed on the basis of a 360-day year. The
Company shall also pay annual principal reductions on the Term Loan of $1.0
million beginning in 1999 and a balloon payment of $22 million on January 31,
2002.
Each loan made pursuant to the Loan Agreement will be subject to conditions
precedent including the following: (a) no occurrence of an Event of Default or
an event which but for the giving of notice or lapse of time or both would be an
Event of Default (such event, a "Default"); (b) compliance with the
representations, warranties and covenants contained in the Loan Agreement as of
the Split-Off Closing and on an ongoing basis and (c) no occurrence of a
material adverse change in the financial condition, results of operation or
business of the Company.
The obligations of LaSalle to make any loan pursuant to the terms of the
Loan Agreement is subject to the consummation of the Split-off Transactions. In
addition, the Company must also satisfy the following requirements at all times
that the Credit Facilities are outstanding: (i) all of the capital stock of the
Bank must be owned by the Company; (ii) standard representations, warranties and
covenants regarding the corporate organization of the Company and the Bank, the
financial viability of the Company and the Bank and compliance by the Company
and the Bank with federal and state banking, tax and other laws and regulations;
and (iii) the Bank must maintain certain reporting and financial covenants at
the end of each quarter including (a) applicable regulatory ratios at or above
the "well capitalized" level, (b) Tier 1 capital of not less than $110 million,
(c) a return on average assets of at least 0.50%, until December 31, 1997, .60%
thereafter until December 31, 1998 and .70%, thereafter, (d) a ratio of
non-performing assets to Tier 1 capital (plus certain permitted allowances for
loan losses) of the Bank not exceeding 25%, (e) a ratio of the valuation reserve
established and maintained to absorb credit losses related to loans and leases
to non-performing loans of not less than 1:1, and (f) a ratio of debt to
shareholders' equity (determined in accordance with GAAP) not exceeding 30%.
The Loan Agreement provides that the Company is prohibited from engaging in
any transaction out of the ordinary course of business without the consent of
LaSalle including, but not limited to (a) creating or suffering to exist any
lien, pledge or encumbrance upon or with respect to any of the assets, or
properties of the Bank; (b) dissolving, merging or conveying substantially all
of the assets of the Company or an affiliate or subsidiary of the Company; (c)
modifying the Articles or Certificate of Incorporation, as applicable, or the
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<PAGE> 24
Charter of the Company or an affiliate or subsidiary of the Company; (d)
purchasing all or substantially all of the assets or acquiring equity or debt
interests in any other entity or entering into any joint venture or partnership;
(e) selling, pledging, transferring or otherwise disposing of any of the
outstanding equity interests in the Company or any subsidiary or affiliate of
the Company; (f) becoming liable in any manner for any indebtedness or
obligations, except for any indebtedness pursuant to the Loan Agreement,
indebtedness for any lease in excess of $500,000, which, in conformity with
GAAP, is accounted for as a capital lease, trade payables arising in the
ordinary course, guarantees of obligations of the Mortgage Company and its
subsidiaries under sales of loan pools, up to $100,000 of other debt arising in
the ordinary course and other unsecured ordinary course debt; (g) guaranteeing
or otherwise directly, indirectly or contingently becoming liable for the
obligation or liabilities of any other person other than obligations of the
Mortgage Company and its subsidiaries under sales of loan pools; and (h) issuing
any of the Company's capital stock or redeeming, retiring or otherwise acquiring
directly or indirectly any of the Company's capital stock or other evidence of
ownership interest, or declaring or paying dividends upon any stock of the
Company or making any distribution of its property or assets, except for
dividend payments made if no Event of Default exists or would result therefrom
with respect to common and preferred stock issued prior to the date of the Loan
Agreement or concurrent with consummation of the Split-Off Transactions and
except for redemptions of capital stock from retiring employees and from former
employees or their estates in connection with the Company's employee benefit
plans. Such covenants may affect the operating flexibility of the Company,
including the Company's ability to pay dividends on its capital stock.
An event of default will exist under the Loan Agreement ("Event of
Default") in the event that (a) the Company breaches any representation,
warranty, covenant or agreement in the Loan Agreement or if any representation,
warranty or exhibit is false or misleading in any material respect; (b) the
Company fails to satisfy any of its liabilities or obligations to LaSalle, and
such failure continues for 30 days; (c) the occurrence of a material breach or
default by the Company under any other agreement with LaSalle after any cure
period applicable to any such breach or default has expired; (d) the Company is
in default in the payment of any liability, obligation or indebtedness to any
person in an amount in excess of $100,000; and (e) other specific events,
typical in similar loan agreements, indicating that the Company is experiencing
financial difficulty, is insolvent or subject to a petition for bankruptcy. If
an Event of Default has occurred and is continuing, in addition to other rights
and remedies under the Loan Agreement, including the acceleration and
termination of any outstanding loans, the outstanding loans shall bear interest
from the date of such Event of Default equal to the sum of 2% plus the
applicable interest rate then in effect.
Although the Loan Agreement is unsecured, the Company is required under the
Loan Agreement to execute a Safekeeping Agreement with LaSalle (the "Safekeeping
Agreement") pursuant to which the Company shall deliver to LaSalle all of the
issued and outstanding shares of capital stock of the Bank (the "Bank Shares")
for safekeeping, and not as a pledge. The Bank Shares delivered by the Company
to LaSalle pursuant to the Safekeeping Agreement shall be retained by LaSalle
until all of the Company's liabilities to LaSalle have been paid in full and all
commitments of LaSalle to the Company with respect to the Term Loan and the Line
of Credit have been terminated. Under the Safekeeping Agreement, the Company
agrees that at any time upon the occurrence and during the continuance of an
Event of Default, it shall grant to LaSalle a first priority lien on and
security interest in the Bank Shares to secure the payment and performance of
the Company's liabilities to LaSalle and the Company shall enter into a pledge
agreement with LaSalle to further evidence the same. The Safekeeping Agreement
provides that upon the occurrence of an Event of Default, the possession of the
Bank Shares pursuant to the Safekeeping Agreement shall constitute possession
for purposes of perfecting the pledge and security interest therein to be
granted by the Company. The pledge continues under the Safekeeping Agreement
until the earlier of (i) no Event of Default or Default is continuing and (ii)
payment in full and satisfaction of all of the Company's liabilities to LaSalle.
The Safekeeping Agreement further provides that on delivery of the Bank
Shares, the Bank shall register in its corporate stock records that the Bank
Shares are subject to the Safekeeping Agreement and the pledge requirement
therein.
The form of pledge agreement which, under the Safekeeping Agreement, the
Company agrees to execute during the occurrence and continuation of an Event of
Default, provides that LaSalle shall have all of the
23
<PAGE> 25
rights and remedies of a secured party under the Illinois Uniform Commercial
Code in respect of the Bank Shares for so long as the pledge remains in effect.
The form of pledge agreement precludes the Company during the continuation of
certain Events of Default and certain financial covenant breaches from (i)
keeping the proceeds of, including dividends on and distributions with respect
to, the Bank Shares and (ii) voting on matters subject to the vote of
stockholders of the Bank.
COMPLIANCE WITH TAX AND REGULATORY REPRESENTATIONS
According to the Tax Ruling, the Split-Off Transactions will be treated as
a tax-free transaction under Section 355 of the Code. Pursuant to the Tax
Ruling, 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. The Split-Off Transactions will not result in any tax
consequences to the Company or the Bank provided that the Tax Ruling is not
invalidated. See "Risk Factors--Liabilities Arising in the Event of Loss of
Tax-Free Status of Split-Off Transactions; Other Potential Tax Liabilities."
LIABILITIES UNDER SHARE EXCHANGE AGREEMENT
The Taylor Family has indicated that the Share Exchange Agreement was
executed by representatives of the Taylor Family with a view to various
obligations of the Taylor Family also becoming obligations of the Company or the
Bank once the Company was organized and had acquired the Bank and the Mortgage
Company. Among other covenants of the Taylor Family made in the Share Exchange
Agreement are covenants providing for indemnification of CTFG by the Taylor
Family for any breach of any representation, warranty or agreement of the Taylor
Family contained in the Share Exchange Agreement, for brokerage fees and
commissions payable on the basis of action taken by the Taylor Family, and for
25% of Losses of CTFG arising out of the Share Exchange Agreement and
termination of outstanding CTFG stock options. The Taylor Family also agreed to,
after the Closing, cause the Bank to indemnify CTFG against Losses relating to
the Bank or the Mortgage Company or CTFG's ownership of these entities.
As a means of allocating to the Company and the Bank the responsibility to
perform certain covenants of the Taylor Family, including certain covenants
relating to the indemnification of CTFG, the Company, the Taylor Family and CTFG
have entered into the CTFG Agreement (as defined below) and the Company and the
Taylor Family have entered into the Indemnity Agreement (as defined below).
Pursuant to the terms of these agreements, unless otherwise noted below, the
Taylor Family has retained exclusive responsibility for any breach of
representations and covenants of the Taylor Family made in the Share Exchange
Agreement and has agreed to indemnify the Company against losses associated with
any inaccuracy or breach where knowing or reckless. CTFG has also agreed to
provide indemnification to the Taylor Family, the Company and the Bank with
respect to certain matters relating to CTFG and New Reliance. These arrangements
are summarized more fully below.
These agreements were entered into at the request of the Taylor Family and
were not requested by, and, in the case of the Indemnity Agreement between the
Company and the Taylor Family, did not involve the participation in any way of
CTFG. Nonetheless, upon advice of counsel, the Company's Board of Directors were
informed that, prior to consummation of the Split-Off Transactions, directors
had no fiduciary responsibility to any future stockholder and owed their
fiduciary duties solely to CTFG. Accordingly, in negotiating and approving these
arrangements, the Company's directors did not consider the interests of
prospective stockholders, such as persons who purchase Preferred Stock offered
hereby, but rather those of CTFG. Although generally the interests of CTFG are
adverse to those of the Taylor Family in connection with the Split-Off
Transactions, in its deliberations regarding these agreements, the Board of
Directors of the Company observed that the interests of the Taylor Family were
not generally adverse to those of CTFG. These agreements should not be
considered to be on terms comparable to those which might be available in
24
<PAGE> 26
agreements negotiated at arms length between unaffiliated parties. See "Risk
Factors--Interest of Taylor Family and CTFG; Possible Conflicts of Interest."
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 Split-Off Closing.
The Company, the Taylor Family and CTFG are expected to enter into an agreement
(the "CTFG Agreement") which implements the provisions of the Share Exchange
Agreement. The Company's obligations pursuant to the CTFG Agreement 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 offering documents and filings
with respect thereto.
Tax Ruling. For a two year period after the Split-Off 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 in form and substance 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 Tax Ruling. To this end, the Company
will agree, for the two year period following the Split-Off 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 Tax Ruling. Regardless of whether a Tax Opinion has been obtained, the
Company also may not enter into any agreement, arrangement or understanding for
transfer of control of the Bank for one year following the Split-Off Closing (a
"Transfer Arrangement"), and if the Company enters into a Transfer Arrangement
more than one year but less than two years following the Split-Off 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 Split-Off Closing
to the effect that they are in compliance with the foregoing. Failure to comply
with these agreements may result in the invalidation of the tax free nature of
the Split-Off Transactions, causing substantial damages to CTFG and CTFG
stockholders exchanging pursuant to the Share Exchange Agreement. To the extent
the transaction is not tax free, the Company, the Bank and Mortgage Company
could have joint and several liability for the resulting gain to CTFG. See "Risk
Factors-- Liabilities Arising in the Event of Loss of Tax-Free Status of
Split-Off Transactions." and "--Liabilities Under Share Exchange Agreement."
Deconsolidation. The Company will agree that after the Split-Off 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 the Company shall, and shall cause the Bank, to indemnify CTFG and its
subsidiaries against such liability) for any severance or change in control
payments which, as a result of the Split-Off 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.
25
<PAGE> 27
Bank Obligations. The Company will agree to cause the Bank to fulfill its
obligations under the Share Exchange Agreement. See "--Bank Obligations."
Bank Indemnities. The Company will agree to indemnify and hold harmless
CTFG and its affiliates 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 Split-Off Closing in connection with the transfer of the Used
Automobile Receivables to a subsidiary of CTFG. After the Split-Off Closing, the
Company will indemnify and hold harmless CTFG and its affiliates from and
against any and all Losses whenever incurred, arising or accrued, relating to
the Company's or CTFG's ownership of securities in the Company, but only to the
extent that the Losses are not primarily the result of actions by CTFG. See
"Risk Factors--Liabilities Under Share Exchange Agreement." Pursuant to the CTFG
Agreement, the Company has agreed to assume responsibility to CTFG for causing
the Bank to assume these obligations as well. See "--Company Obligations" and
"--Bank Obligations."
Further Assurances; Expenses. The Company will agree to continue to make
effective the transactions contemplated by the Share Exchange Agreement at the
time of the Split-Off Closing. In addition, the Company will agree to assume
responsibility for its own expenses in connection with the transactions
contemplated by the Share Exchange Agreement.
TAYLOR FAMILY INDEMNITY
The Taylor Family and the Company have entered into an agreement dated
January , 1997 (the "Indemnity Agreement") to be effective upon the Split-Off
Closing, pursuant to which the Company will agree to indemnify and hold harmless
the Taylor Family in the event the Company breaches any of the foregoing
agreements. The agreement also covers certain liabilities of the Taylor Family
pursuant to the Share Exchange Agreement.
Under the Indemnity 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 knowing or reckless breach
of the Share Exchange Agreement by the Taylor Family member seeking
indemnification:
Pre-Closing Transactions. The obligations of the Taylor Family and the Bank
to effect the pre-closing transactions, including, without limitation, (i) the
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
payment of the Second Cash Component.
Tax Covenants. The obligations of the Taylor Family to comply with the
covenants to ensure the tax-free nature of the Split-Off Transactions set forth
in the Tax Ruling and other filings with governmental authorities other than a
breach related to the sale or transfer of their stock of the Company or related
Transfer Arrangement. 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 "--Company Obligations--Tax Ruling."
Indemnification for Certain CTFG Liabilities. 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 (i) 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 the Share Exchange Agreement and (ii) any Losses relating to
disputes regarding CTFG option terminations or limitations imposed on holders of
outstanding stock options of CTFG, in each case, 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 at the
time of the Split-Off Closing. In addition, the indemnification would cover 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
26
<PAGE> 28
the Taylor Family and 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 fees,
commissions and expenses, which are estimated to be $2 million. See "Certain
Transactions."
The Company has agreed to advance to members of the Taylor Family, prior to
an ultimate determination of their entitlement to indemnification, the expenses
incurred by such Taylor Family member in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in any proceeding to which the Indemnity Agreement relates. Any member
of the Taylor Family must repay such advances, without interest, once it is
determined that said Taylor Family member is not entitled to indemnification.
Additionally, the Taylor Family members have agreed to indemnify and hold
harmless the Company against liabilities and expenses incurred by the Company as
a result of any knowing or reckless breach of a representation or warranty by a
Taylor Family member in the Share Exchange Agreement and any knowing or reckless
breach of a covenant of the Taylor Family under the Share Exchange Agreement.
BANK OBLIGATIONS
Under the Share Exchange Agreement, the Bank is obligated to effect the
pre-closing transactions, including, without limitation, (i) the 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 payment of the Second
Cash Component. Each of the Bank and CTFG may purchase from the other any
insurance policy owned by the other which provides coverage related to the Bank
or CTFG, respectively, at the greater of the book or cash value of such
policies. In addition, the Bank is obligated 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. The Bank will also
agree to continue to make effective the transactions contemplated by the Share
Exchange Agreement at the time of the Split-Off Closing.
Under the Share Exchange Agreement and the CTFG Agreement, the Taylor
Family and the Company have agreed to cause the Bank to indemnify and hold CTFG
and its affiliates 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 and its affiliates 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 Split-Off Closing
in connection with the transfer of the Used Automobile Receivables to a
subsidiary of CTFG. In addition, after the Split-Off Closing, the Company is
obligated to cause the Bank to indemnify and hold harmless CTFG and its
affiliates from and against any and all Losses whenever incurred, arising or
accrued, relating to the Company's or CTFG's ownership of securities in the
Company, but only to the extent that the Losses are not primarily the result of
actions by CTFG. See "Risk Factors--Liabilities Under Share Exchange Agreement."
Pursuant to the CTFG Agreement, the Company has agreed to assume responsibility
to CTFG for causing the Bank to assume these obligations. See "--Company
Obligations."
CTFG OBLIGATIONS
CTFG is obligated to 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 the
Share Exchange 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 Split-Off
27
<PAGE> 29
Closing, CTFG is obligated to 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
CTFG pursuant to the Share Exchange Agreement) or Cole Taylor Finance Co. or (y)
incurred, arising or accrued after the Split-Off Closing and relating to New
Reliance. Pursuant to the CTFG Agreement, CTFG has acknowledged that the Company
and the Bank are entitled to the indemnification by CTFG described above to the
same extent as the Taylor Family.
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
Split-Off 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."
28
<PAGE> 30
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated long-term debt and
stockholders' equity of the Company at September 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 SEPTEMBER 30, 1996
------------------------
(IN THOUSANDS)
<S> <C>
LONG-TERM DEBT:
Federal Home Loan Bank advances(1).................................. $ 85,000
Term Loan........................................................... 25,000
Line of Credit...................................................... 2,742
Other debt.......................................................... 836
-----------
Total long-term debt........................................... 113,578
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 3,000,000 shares authorized,
Series A, 1,530,000 shares issued and outstanding, $25 stated
value............................................................ 38,250
Common stock, $.01 par, 7,000,000 shares authorized, 4,500,000
shares issued and outstanding.................................... 45
Surplus............................................................. 97,198
Retained earnings................................................... 0
-----------
Total stockholders' equity..................................... 135,493
-----------
Total Capitalization.................................................. $249,071
===========
REGULATORY CAPITAL RATIOS:
Consolidated Company
Tier 1 risk-based capital........................................ 6.94%
Total risk-based capital......................................... 8.20%
Leverage ratio................................................... 5.08%
Pro forma Bank only
Tier 1 risk-based capital........................................ 8.73%
Total risk-based capital(2)...................................... 9.99%
Leverage ratio................................................... 6.38%
</TABLE>
- ---------------
(1) See Note 11 of the Notes to Financial Statements of the Bank.
(2) 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 September 30, 1996 the
Bank's ratios are expected to be in excess of the "well-capitalized" capital
level by the Split-Off Closing.
29
<PAGE> 31
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, 1994
and 1993 are derived from the historical audited financial statements of the
Bank on a stand alone basis. The financial statements of the Bank for 1995, 1994
and 1993 were audited by KPMG Peat Marwick LLP, independent accountants. The
financial data for and as of the periods ended September 30, 1996 and 1995 and
December 31, 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 nine month period ended September 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. This data
does not include the historical results of the Mortgage Company or Alpha Capital
Fund which will also be acquired in conjunction with 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 $108 million of
automobile receivables, (2) the reinvestment into investment securities 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. 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 NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross interest income............. $ 103,189 $ 99,513 $ 133,684 $ 116,267 $ 101,828 $ 98,967 $ 105,881
Gross interest expense............ 49,493 47,716 64,366 44,118 35,147 40,927 53,826
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............... 53,696 51,797 69,318 72,149 66,681 58,040 52,055
Provision for loan losses......... 3,005 3,297 4,056 7,374 10,521 8,922 8,816
Noninterest income................ 11,748 10,247 14,227 12,887 15,425 14,502 12,870
Noninterest expense............... 40,799 39,499 53,549 55,248 53,926 49,107 44,690
Provision for income taxes........ 7,288 5,732 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $ 14,352 $ 13,516 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets...................... $1,846,054 $1,741,262 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold............................ 460,182 469,308 443,348 488,019 459,349 394,050 301,702
Loans............................. 1,256,214 1,185,291 1,211,622 1,130,177 986,384 904,788 821,300
Allowance for loan losses......... 24,630 23,720 23,869 22,833 19,740 14,661 12,646
Total deposits.................... 1,455,807 1,334,541 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings............. 153,410 201,678 202,033 243,997 209,227 152,259 124,511
Long-term borrowings.............. 85,836 60,753 61,003 47,864 37,690 5,490 623
Stockholder's equity.............. 134,748 130,014 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:(1)
Return on average total assets.... 1.06% 1.05% 1.05% 0.98% 0.87% 0.74% 0.64%
Return on average stockholder's
equity.......................... 14.52 14.41 14.29 14.50 13.00 10.52 8.69
Net interest margin
(tax-equivalent)................ 4.33 4.40 4.38 4.88 5.11 4.83 4.71
Ratio of earnings to fixed
charges:
Including interest on
deposits...................... 1.43x 1.40x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits...................... 3.12 2.36 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets.......................... 0.98% 0.82% 1.08% 1.03% 1.15% 1.72% 2.69%
Nonperforming assets to total
loans plus repossessed
property........................ 1.44 1.20 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans........................... 0.24 0.28 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans........................... 1.96 2.00 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans............. 152.30 248.40 174.76 157.61 156.67 84.61 66.32
Average stockholder's equity to
average total assets............ 7.32 7.29 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.
30
<PAGE> 32
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 the first nine months of 1996 as well as 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 $108 million of
automobile receivables, (2) the reinvestment into investment securities 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 nine months of 1996, net income was $14.4 million, compared
with $13.5 million for the same period last year. Annualized return on average
assets increased slightly to 1.06% from 1.05% in the first nine months of 1995,
while annualized return on average equity increased to 14.52% in the first nine
months of 1996 from 14.41% in the first nine months of 1995.
Total assets grew $72.0 million, or 4.1% to $1.85 billion as of September
30, 1996 compared to December 31, 1995. During the first nine months of 1996,
loans grew $44.6 million, up 3.7% from December 31, 1995. Deposits increased
$91.7 million during the first nine months of 1996, up 6.7% from December 31,
1995. Stockholder's equity increased $2.0 million, up 1.5% from December 31,
1995. The increase in stockholder's equity was impacted by a $3.4 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.
31
<PAGE> 33
Net interest income (with an adjustment for tax-exempt income) for the
first nine months of 1996 was $55.6 million, an increase of 3.4% from the same
period in 1995. Growth in net interest income during the first nine months of
1996 over the comparable period last year was due to a 5.0% increase in average
earning assets partially offset by a 7 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 nine months of 1996 to 4.33%, as compared to 4.40% in the first nine
months of 1995. The net interest margin was affected by a decline in the
commercial loan yield of 42 basis points, partially offset by a shift of assets
from the lower yielding investment securities into the higher yielding loan
portfolio. The 12 basis point increase in the average rate paid on total
deposits was mostly offset by a 40 basis point and 68 basis point decline in
short-term and long-term borrowing rates, respectively.
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.
32
<PAGE> 34
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 NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (%)(3) BALANCE INTEREST RATE(%)(3)
---------- -------- ----------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable.......................... $ 365,617 $ 17,146 6.26% $ 404,868 $ 19,186 6.34%
Non-taxable (tax equivalent)..... 65,098 4,450 9.13 66,805 4,583 9.17
---------- -------- ---------- --------
Total investment
securities................ 430,715 21,596 6.70 471,673 23,769 6.74
---------- -------- ---------- --------
Cash Equivalents................... 26,671 1,052 5.27 9,115 402 5.90
---------- -------- ---------- --------
Loans(2):
Commercial and industrial........ 799,016 54,247 9.07 708,506 50,305 9.49
Real estate mortgages............ 221,140 12,096 7.31 215,852 12,039 7.46
Consumer and other............... 234,253 14,673 8.37 225,806 13,879 8.22
Fees on loans.................... 1,347 1,003
Less: Allowance for loan
losses......................... (24,723) (23,405)
---------- -------- ---------- --------
Net loans (tax equivalent)..... 1,229,686 82,363 8.95 1,126,759 77,226 9.16
---------- -------- ---------- --------
Total earning assets........ 1,687,072 105,011 8.31 1,607,547 101,397 8.43
---------- -------- ---------- --------
NONEARNING ASSETS:
Cash and due from banks.......... 68,201 64,890
Premises and equipment, net...... 16,997 14,790
Accrued interest and other
assets......................... 32,435 32,539
---------- ----------
Total nonearning assets..... 117,633 112,219
---------- ----------
TOTAL ASSETS....................... $1,804,705 105,011 7.77 $1,719,766 101,397 7.88
========== -------- ========== --------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand
deposits.................... $ 340,348 9,096 3.57 $ 344,084 9,333 3.63
Savings deposits............... 122,468 2,349 2.56 129,270 2,507 2.59
Time deposits.................. 685,664 28,657 5.58 538,564 22,501 5.59
---------- -------- ---------- --------
Total deposits.............. 1,148,480 40,102 4.66 1,011,918 34,341 4.54
---------- -------- ---------- --------
Short-term borrowings.............. 160,046 6,537 5.46 239,817 10,517 5.86
Long-term borrowings............... 64,918 2,854 5.87 58,351 2,858 6.55
---------- -------- ---------- --------
Total interest bearing
liabilities............... 1,373,444 49,493 4.81 1,310,086 47,716 4.87
---------- -------- ---------- --------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits..... 283,840 269,362
Accrued interest and other
liabilities.................... 15,382 14,918
---------- ----------
Total noninterest-bearing
liabilities............... 299,222 284,280
---------- ----------
STOCKHOLDER'S EQUITY............... 132,039 125,400
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY........................... $1,804,705 $1,719,766
========== ==========
Net interest income (tax
equivalent)...................... $ 55,518 $ 53,681
======== ========
Net interest spread................ 3.50% 3.56%
Net interest margin................ 4.33% 4.40%
==== ====
</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.
33
<PAGE> 35
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
----------- ----------- -----------
STOCKHOLDER'S EQUITY........... 127,117 109,668 97,878
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY......... $1,731,275 $1,625,826 $1,455,001
=========== =========== ===========
Net interest income (tax
equivalent).................. $ 71,830 $ 74,617 $ 69,001
========= ========= =========
Net interest spread............ 3.53% 4.30% 4.60%
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.
34
<PAGE> 36
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 NINE MONTHS
ENDED SEPTEMBER 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............... $(1,843) $ (197) $(2,040) $ (99) $ 436 $ 337 $ 3,897 $ (780) $ 3,117
Tax-exempt............ (117) (16) (133) 172 (41) 131 541 (152) 389
Cash equivalents........ 697 (47) 650 282 116 398 107 65 172
------- ------- ------- ------- -------- -------- -------- ------- --------
Loans................... 6,875 (1,738) 5,137 9,324 7,271 16,595 8,711 2,198 10,909
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest earned..... 5,612 (1,998) 3,614 9,679 7,782 17,461 13,256 1,331 14,587
------- ------- ------- ------- -------- -------- -------- ------- --------
INTEREST PAID ON:
Interest-bearing demand
deposits.............. (101) (136) (237) (1,209) 3,062 1,853 1,378 996 2,374
Savings deposits........ (131) (27) (158) (359) (13) (372) 35 (328) (293)
Time deposits........... 6,148 8 6,156 5,679 6,876 12,555 2,386 1,059 3,445
Short-term borrowings... (3,299) (681) (3,980) 243 3,858 4,101 564 2,280 2,844
Long-term borrowings.... 304 (308) (4) 1,175 936 2,111 433 168 601
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest paid....... 2,921 (1,144) 1,777 5,529 14,719 20,248 4,796 4,175 8,971
------- ------- ------- ------- -------- -------- -------- ------- --------
Net interest income....... $ 2,691 $ (854) $ 1,837 $ 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 nine months of 1996 was $3.0
million compared to $3.3 million for the first nine 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. The decrease in the provision for loan losses in 1995 and 1994
was a result of management's assessment of improved credit quality as evidenced
by the decrease in net charge-offs and the increased ratio of the allowance for
loan losses to non-performing loans. Net charge-offs through the allowance for
loan losses were $2.2 million and $2.4 million for the nine month periods ended
September 30, 1996 and 1995, respectively. 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."
35
<PAGE> 37
NONINTEREST INCOME
The following table shows the Bank's noninterest income for the periods
indicated:
NONINTEREST INCOME
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER FOR THE YEARS ENDED DECEMBER
30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges.............. $ 6,499 $ 5,381 $ 7,452 $ 7,199 $ 6,947
Trust fees................... 2,697 2,500 3,539 3,095 2,944
Financial services income.... 147 259 307 560 882
Mortgage banking income...... 1,435 1,161 1,688 694 325
Other noninterest income..... 970 946 1,241 1,331 1,324
Nonrecurring items........... -- -- -- -- 2,438
Net investment securities
gains...................... -- -- -- 8 565
------- ------- ------- ------- -------
Total noninterest income... $11,748 $10,247 $14,227 $12,887 $15,425
======= ======= ======= ======= =======
</TABLE>
Total noninterest income increased $1.5 million, or 14.6% to $11.7 million,
for the first nine months of 1996, as compared to the first nine 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 $6.5 million for the first nine months of 1996, a
$1.1 million, or 20.8% increase over the first nine months of 1995 service
charges of $5.4 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 $197,000, or 7.9%, to $2.7 million during the first
nine months of 1996, from $2.5 million during the first nine 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
$112,000 to $147,000 for the first nine months of 1996, from $259,000 for the
first nine months 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 increased $274,000, or 23.6% for the first nine months
of 1996 as compared to the same period in 1995. The 1996 increase is due to
improved profit
36
<PAGE> 38
margins on loans sold, and the $92 million increase in loans sold. Loan
servicing income declined during 1996 because of increased amortization of
mortgage servicing rights and declining loan servicing rates, partially offset
by the $49 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 nine months 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 September 30, 1996, and December 31, 1995, 1994 and
1993, the Bank's portfolio of mortgage loans serviced for others was
approximately $253 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 nine month
periods ended September 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
nine 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 NINE
MONTHS
ENDED SEPTEMBER FOR THE YEARS ENDED DECEMBER
30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................ $22,634 $21,766 $28,973 $28,691 $28,069
Occupancy of premises, net.................... 3,801 3,747 4,880 4,885 5,114
Furniture and equipment....................... 2,261 1,961 2,651 2,385 2,458
Computer processing........................... 1,484 1,212 1,676 1,444 1,403
Legal fees.................................... 1,146 1,159 1,655 1,106 1,116
Advertising and public relations.............. 1,325 1,109 1,582 2,298 2,183
FDIC deposit insurance........................ 2 1,329 1,451 2,646 2,400
Other real estate and repossessed asset
expense..................................... 897 74 1,169 999 1,292
Other noninterest expense..................... 7,249 7,142 9,512 10,794 9,891
------- ------- ------- ------- -------
Total noninterest expense................ $40,799 $39,499 $53,549 $55,248 $53,926
======= ======= ======= ======= =======
Efficiency ratio(1)........................... 62.34% 63.66% 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 nine months of 1996, increased $1.3
million, or 3.3% over the same 1995 period. For the full year 1995, noninterest
expense decreased $1.7 million, or 3.1% as compared to 1994. The decrease in
1995 is primarily attributable to CTFG assuming approximately $2.8 million in
salary and
37
<PAGE> 39
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 55.5% of the total expenses during the first
nine months of 1996, and 55.1% for the same period in 1995. For the first nine
months of 1996, salaries and benefits increased $868,000, or 4.0% over the same
1995 period. The 1996 increase includes $716,000 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 nine months of 1996, increased $54,000
from the same 1995 period as a result of 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 $300,000 for the first nine
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 nine months of 1996 increased
$272,000 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 nine 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 nine months of 1996
increased $216,000 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 nine months of 1996 compared to the first nine months of
1995, FDIC deposit insurance decreased $1.3 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 nine months
of 1996 increased $823,000 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 $44,000 and $96,000 for the nine month periods ending September 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.
Provision for losses on other real estate included in these amounts were
$243,000, $587,000 and $266,000
38
<PAGE> 40
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, office supplies and printing, etc.) was relatively flat,
increasing $107,000 in the first nine 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 nine months of 1996 was 33.7%,
as compared to 29.8% for the first nine 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.
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>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial...... $ 646,903 $ 638,497 $ 611,670 $580,587 $556,578 $535,807
Real estate--residential
construction................. 165,056 121,547 94,223 71,030 55,031 44,965
Real estate--mortgage.......... 177,486 207,377 202,455 135,322 106,105 84,044
Mortgage loans held-for-sale... 19,208 15,748 1,554 -- -- --
Consumer....................... 168,138 231,717 224,927 202,102 190,588 163,020
Consumer loans held-for-sale... 82,110 -- -- -- -- --
Other loans.................... 1,262 2,061 1,136 1,559 1,570 1,015
---------- ---------- ---------- -------- -------- --------
Gross loans............. 1,260,163 1,216,947 1,135,965 990,600 909,872 828,851
Less: Unearned discount........ (3,949) (5,325) (5,788) (4,216) (5,084) (7,551)
---------- ---------- ---------- -------- -------- --------
Total loans............. 1,256,214 1,211,622 1,130,177 986,384 904,788 821,300
Less: Allowance for loan
losses....................... (24,630) (23,869) (22,833) (19,740) (14,661) (12,646)
---------- ---------- ---------- -------- -------- --------
Loans, net.............. $ 1,231,584 $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 September 30, 1996, gross loans
increased $43.2 million, or 3.6%, 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.
Commercial and industrial loans, the largest component of the Company's
loan portfolio, increased to $646.9 million at September 30, 1996, an increase
of $8.4 million, or 1.3% from December 31, 1995.
39
<PAGE> 41
Commercial and industrial loans represented 51.3% of the loan portfolio at
September 30, 1996 and 52.5%, 53.8% and 58.6% at December 31, 1995, 1994 and
1993, respectively.
Real estate--residential construction loans increased $43.5 million, or
35.8%, to $165.1 million at September 30, 1996 as compared to December 31, 1995.
Real estate--residential construction loans represented 13.1% of the loan
portfolio at September 30, 1996 and 10.0%, 8.3% and 7.2% at December 31, 1995,
1994 and 1993, respectively.
Real estate--mortgage loans decreased $29.9 million, or 14.4%, to $177.5
million at September 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 September 30, 1996 and 17.0%, 17.8% and 13.7% at December 31,
1995, 1994 and 1993, respectively.
Mortgage loans held-for-sale increased $3.5 million, or 22.0%, to $19.2
million as of September 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 decreased $63.6 million, or 27.4%, to $168.1 million at
September 30, 1996, as compared to December 31, 1995. The decrease is a result
of $79.7 million of new car indirect loans, net of unearned discounts, which
were reclassified from consumer loans to consumer loans held-for-sale. Such
loans will be sold to provide cash for payments due pursuant to the Split-Off
Transactions. Consumer loans represented 13.3% of gross loans as of September
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 September 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....... $319,785 $176,269 $ 85,799 $ 52,009 $ 12,386 $ 646,248
Real estate--residential
construction.................. 69,043 31,969 51,261 12,783 -- 165,056
Real estate--mortgage........... 11,693 55,831 -- 109,962 -- 177,486
Mortgage loans held-for-sale.... 19,208 -- -- -- -- 19,208
Consumer........................ 29,611 45,697 19,488 4,627 67,864 167,287
Consumer loans held-for-sale.... 79,667 -- -- -- -- 79,667
Other loans..................... 1,262 -- -- -- -- 1,262
-------- -------- -------- -------- ------- ----------
Total...................... $530,269 $309,766 $156,548 $179,381 $ 80,250 $1,256,214
======== ======== ======== ======== ======= ==========
</TABLE>
- ---------------
(1) Maturities based upon contractual dates except for loans held for sale which
are expected to be sold within one year. Demand loans are included in the
one year or less category and totaled $11.0 million as of September 30,
1996.
40
<PAGE> 42
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,
SEPTEMBER 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......................... $ 5,462 $ 3,737 $ 4,012 $ 2,151 $ 5,584 $ 8,543
Nonaccrual loans................... 10,710 9,921 10,475 10,449 11,744 10,524
------- ------- ------- ------- ------- -------
Total nonperforming loans..... 16,172 13,658 14,487 12,600 17,328 19,067
Other real estate.................. 1,583 2,928 2,843 4,628 5,373 13,588
Other repossessed assets........... 334 2,488 356 456 1,351 853
------- ------- ------- ------- ------- -------
Total nonperforming assets.... $18,089 $19,074 $17,686 $17,684 $24,052 $33,508
======= ======= ======= ======= ======= =======
Nonperforming loans to total
loans............................ 1.29% 1.13% 1.28% 1.28% 1.92% 2.32%
Nonperforming assets to total loans
plus repossessed property........ 1.44 1.57 1.56 1.78 2.64 4.01
Nonperforming assets to total
assets........................... 0.98 1.08 1.03 1.15 1.72 2.69
</TABLE>
In addition to the loans presented above, management has identified,
through its internal loan monitoring, approximately $1.4 million of loans at
September 30, 1996 which exhibit a higher than normal credit risk. These loans
are not in default but have characteristics such as recent adverse operating
cash flows or general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal or interest payments. The
ultimate resolution of these credits is subject to changes in economic
conditions and other factors.
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
41
<PAGE> 43
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 Company's 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 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 NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans......... $ 1,254,409 $1,161,513 $1,053,928 $948,339 $876,957 $779,442
========== ========== ========== ======== ======== ========
Total loans at end of
period.................... $ 1,256,214 $1,211,622 $1,130,177 $986,384 $904,788 $822,443
========== ========== ========== ======== ======== ========
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............. (1,465) (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........ (1,192) (931) (588) (583) (523) (794)
---------- ---------- ---------- -------- -------- --------
Total charge-offs...... (2,799) (4,901) (5,158) (7,971) (8,055) (6,862)
---------- ---------- ---------- -------- -------- --------
Recoveries:
Commercial and
industrial............. 323 1,581 666 2,344 969 364
Real estate--residential
construction........... -- -- -- -- -- --
Real estate--mortgage..... 9 40 -- -- -- --
Consumer and other........ 223 260 211 185 179 72
---------- ---------- ---------- -------- -------- --------
Total recoveries....... 555 1,881 877 2,529 1,148 436
---------- ---------- ---------- -------- -------- --------
Net charge-offs............. (2,244) (3,020) (4,281) (5,442) (6,907) (6,426)
---------- ---------- ---------- -------- -------- --------
Provision for loan losses... 3,005 4,056 7,374 10,521 8,922 8,816
---------- ---------- ---------- -------- -------- --------
Allowance at end of
period.................... $ 24,630 $23,869 $22,833 $19,740 $14,661 $12,646
========== ========== ========== ======== ======== ========
Net charge-offs to average
total loans(1)............ 0.24% 0.26% 0.41% 0.57% 0.79% 0.82%
Allowance to total loans at
end of period............. 1.96 1.97 2.02 2.00 1.62 1.54
Allowance to nonperforming
loans..................... 152.30 174.76 157.61 156.67 84.61 66.32
</TABLE>
- ---------------
(1) September 30, 1996 ratio is annualized.
42
<PAGE> 44
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 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>
SEPTEMBER 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.... $11,309 51.3% $11,163 52.5% $10,693 53.8% $2,658 58.6% $3,169 61.2% $7,070 64.6%
Real estate--
residential
construction... 2,888 13.1 2,127 10.0 1,648 8.3 -- 7.2 -- 6.0 -- 5.4
Real estate--
mortgage...... 1,967 15.6 2,231 18.3 2,040 18.0 37 13.7 12 11.7 92 10.2
Consumer and
other......... 3,184 20.0 2,972 19.2 2,891 19.9 614 20.5 715 21.1 265 19.8
UNALLOCATED..... 5,282 -- 5,376 -- 5,561 -- 16,431 -- 10,765 -- 5,219 --
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance
for loan
losses........ $24,630 100.0% $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.
43
<PAGE> 45
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>
SEPTEMBER 30, 1996:
U.S. Treasury securities............ $ 137,813 $ 137,722 -- -- $ 137,813 $ 137,722
U.S. government agencies
securities........................ 44,848 44,910 -- -- 44,848 44,910
U.S. government agency mortgage-
backed securities................. 170,527 164,784 -- -- 170,527 164,784
States and political subdivisions... -- -- 64,748 67,301 64,748 67,301
Collateralized mortgage
obligations....................... 239 233 -- -- 239 233
Commercial paper.................... 24,934 24,811 -- -- 24,934 24,811
Other securities.................... -- -- 12,024 12,028 12,024 12,028
-------- -------- ------- ------- -------- --------
Total........................ $ 378,361 $ 372,460 $ 76,772 $ 79,329 $ 455,133 $ 451,789
======== ======== ======= ======= ======== ========
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>
44
<PAGE> 46
INVESTMENT PORTFOLIO--MATURITY AND YIELDS
(AS OF SEPTEMBER 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.... $ 89,413 6.51% $ 48,309 5.68% $ -- --% $ -- --% $137,722 6.22%
U.S. government agencies
securities................ 29,117 6.14 15,793 6.49 -- -- -- -- 44,910 6.27
U.S. government agency
mortgage-backed
securities(3)............. 33,717 5.86 74,315 5.76 46,920 5.68 9,832 6.88 164,784 5.82
Collateralized mortgage
obligations(3)............ 233 6.15 -- -- -- -- -- -- 233 6.15
Commercial paper............ 24,811 5.32 -- -- -- -- -- -- 24,811 5.32
-------- -------- ------- ------- --------
Total
available-for-sale.... 177,291 138,417 46,920 9,832 372,460
-------- -------- ------- ------- --------
HELD-TO-MATURITY
SECURITIES(2):
States and political
subdivisions(4)........... 2,634 8.00 19,240 9.04 37,517 9.20 5,357 8.65 64,748 9.06
Other securities............ -- -- -- -- 575 8.22 11,449 6.17 12,024 6.26
-------- -------- ------- ------- --------
Total
held-to-maturity...... 2,634 19,240 38,092 16,806 76,772
-------- -------- ------- ------- --------
Total securities... $179,925 $157,657 $85,012 $26,638 $449,232
======== ======== ======= ======= ========
</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 September 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.
45
<PAGE> 47
A significant portion of the Bank's investment securities portfolio
(approximately 76% at September 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 set 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 NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1996
------------------------------
PERCENT
AVERAGE OF
BALANCE DEPOSITS RATE
---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Noninterest-bearing demand deposits................................ $ 283,840 19.82% --%
Interest-bearing demand deposits................................... 340,348 23.76 3.57
Savings deposits................................................... 122,468 8.55 2.56
Time deposits:
Customer certificates of deposit................................. 323,834 22.61 5.49
Customer certificates of deposit over $100,000................... 72,254 5.04 5.82
Brokered certificates of deposit................................. 117,173 8.18 5.74
Public funds..................................................... 172,403 12.04 5.55
---------- ------
Total time deposits........................................... 685,664 47.87 5.58
---------- ------
Total deposits.............................................. $1,432,320 100.00%
========== ======
</TABLE>
Average deposits increased $134.2 million or 10.3% to $1.4 billion through
September 30, 1996 from the average of $1.3 billion in 1995. Average public
funds time deposits increased $57.9 million, or 50.6%. 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 $48.1 million, or 13.8%. Brokered certificates of deposit
increased $26.6 million to average $117.2 million as the Bank's asset growth
continued to exceed customer deposit growth.
46
<PAGE> 48
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 $53.6 million at September 30, 1996. In 1992, the Bank
began issuing brokered certificates of deposit. The balance of brokered
certificates of deposit balances was $106.9 million at September 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 was categorized as "well-capitalized"
at September 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 $238 million at September 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 $302.3 million
at September 30, 1996, up $86.1 million, or 39.8% from 1995. The majority of the
increase was due to increased public fund deposits. The following table sets
forth the amount and maturities of time deposits of $100,000 or more at
September 30, 1996:
TIME DEPOSITS $100,000 AND OVER
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
3 months or less.................................................... $183,898
Over 3 months through 6 months...................................... 65,915
Over 6 months through 12 months..................................... 46,252
Over 12 months...................................................... 6,249
--------
Total............................................................. $302,314
========
</TABLE>
47
<PAGE> 49
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 September 30,
1996, short-term borrowings were $153.4 million or 9.0% 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 $160.0 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
NINE MONTHS
ENDED
SEPTEMBER 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........................... $ 23,440 $ 43,500 $ 48,450 $ 24,720
Weighted average interest rate at end of period.... 5.50% 5.94% 6.26% 3.24%
Maximum amount outstanding(1)...................... $ 42,045 $ 54,900 $ 53,750 $ 53,175
Average amount outstanding......................... $ 27,663 $ 28,227 $ 36,343 $ 46,942
Weighted average interest rate during period....... 5.27% 5.82% 4.48% 3.12%
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
Balance at end of period........................... $ 119,985 $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......................... $ 126,624 $196,728 $179,027 $143,057
Weighted average interest rate during period....... 5.40% 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 September 30, 1996 had $85 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 September 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.
48
<PAGE> 50
The Bank's capital ratios were as follows for the dates indicated:
RISK-BASED CAPITAL RATIOS(1)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
SEPTEMBER 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............. $ 134,933 9.63% $ 130,642 10.19% $ 120,587 10.18% $ 98,826 9.29%
Tier 1 capital "well
capitalized"
requirement.............. 84,134 6.00 76,948 6.00 71,069 6.00 63,823 6.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 50,799 3.63% $ 53,694 4.19% $ 49,518 4.18% $ 35,003 3.29%
========== ===== ========== ===== ========== ===== ========== =====
Total capital.............. $ 152,549 10.88% $ 146,770 11.44% $ 135,492 11.44% $ 112,122 10.54%
Total capital "well
capitalized"
requirement.............. 140,224 10.00 128,246 10.00 118,448 10.00 106,371 10.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 12,325 0.88% $ 18,524 1.44% $ 17,044 1.44% $ 5,751 0.54%
========== ===== ========== ===== ========== ===== ========== =====
Total risk adjusted
assets................... $1,402,242 $1,282,460 $1,184,476 $1,063,714
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Based on 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,
-----------------------------------------------------------------
SEPTEMBER 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.............. $ 134,933 7.31% $ 130,642 7.41% $ 120,587 7.15% $ 98,826 6.51%
Requirement................. 110,814 6.00 105,800 6.00 101,135 6.00 91,065 6.00
---------- ----- ---------- ---- - ---------- ---- - ---------- ---- -
Excess...................... $ 24,119 1.31% $ 24,842 1.41% $ 19,452 1.15% $ 7,761 0.51%
========== ===== ========== ===== ========== ===== ========== =====
Quarterly average tangible
assets.................... $1,846,903 $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.
The Bank plans to open a new branch facility in late 1997 in north suburban
Chicago. While no contractor has yet been selected to construct the branch, the
anticipated cost of construction approximates $3.3 million. The cost of
construction will be funded from current operations.
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 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
49
<PAGE> 51
measures and maintains a liquidity plan with specific action steps to provide
required liquidity under stringent conditions.
For the first nine months of 1996 and 1995, cash inflows from operating
activities exceeded operating outflows by $14.8 million and $5.7 million,
respectively. Interest received net of interest paid was the principal source of
operating cash inflows for these periods. Net cash outflows from investing
activities were $59.0 million in the first nine months of 1996 as compared to
$46.4 million in the same 1995 period. The primary usage of cash flow from
investing activities in each of these periods was net loan growth; however, in
1996 this outflow was also affected by purchases of investment securities which
exceeded investment maturities. Net cash inflows from financing activities were
$57.8 million in the first nine months of 1996 as compared to $6.6 million in
1995. For both periods, net cash inflows were attributable to deposit inflow of
$91.7 million in 1996 and $41.1 million in 1995, offset by repayments of
short-term borrowings.
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.
50
<PAGE> 52
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 September 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 $305,000 for the nine month period ended September 30, 1996 as
compared to a decrease of approximately $270,000 for the full year 1995. During
1994 net interest income was increased by approximately $678,000 as a result of
the swap contracts. As of September 30, 1996, the estimated fair value of these
swaps was approximately $(208,000) as compared to $(796,000) at December 31,
1995 and $(2,400,000) at December 31, 1994. 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 September
30, 1996. Assets and liabilities are classified by the earliest possible
repricing date or maturity, whichever comes first.
INTEREST SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
SEPTEMBER 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............................ $ 11,011 $ -- $ -- $ -- $ 11,011
Investment securities(1).................... 92,906 123,571 121,104 111,651 449,232
Total loans(1).............................. 685,112 97,193 383,986 89,924 1,256,215
--------- --------- -------- -------- --------
TOTAL EARNING ASSETS........................ $ 789,029 $ 220,764 $505,090 $201,575 $1,716,458
========= ========= ======== ======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing demand deposits.......... $ 331,400 $ -- $ -- $ -- $ 331,400
Savings deposits.......................... 120,055 -- -- -- 120,055
Time deposits............................. 262,745 334,926 109,193 40 706,904
--------- --------- -------- -------- --------
Total interest-bearing deposits....... 714,200 334,926 109,193 40 1,158,359
--------- --------- -------- -------- --------
Short-term borrowings....................... 153,410 -- -- -- 153,410
Long-term debt.............................. 25,000 35,160 25,640 36 85,836
--------- --------- -------- -------- --------
Total borrowings...................... 178,410 35,160 25,640 36 239,246
--------- --------- -------- -------- --------
TOTAL INTEREST-BEARING LIABILITIES.......... $ 892,610 $ 370,086 $134,833 $ 76 $1,397,605
========= ========= ======== ======== ========
Interest sensitivity gap.................... $(103,581) $(149,322) $370,257 $201,499 $ 318,853
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.................... $ (78,581) $(199,322) $395,257 $201,499 $ 318,853
Cumulative gap.............................. $ (78,581) $(277,903) $117,354 $318,853 $ 318,853
Interest sensitivity gap to total assets.... (4.26)% (10.80)% 21.41% 10.92% 17.27%
Cumulative sensitivity gap to total
assets.................................... (4.26)% (15.05)% 6.36% 17.27% 17.27%
</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
51
<PAGE> 53
securities and real estate loan maturities which are based on published
industry prepayment estimates. 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 No. 125") was issued in June 1996, and is effective for fiscal years
beginning after December 31, 1996. SFAS No. 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
52
<PAGE> 54
borrowing with pledge of 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 three 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
----------------------------------------------------------------------------------------------------------------------
SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31,
1996 1996 1996 1995 1995 1995 1995 1994 1994 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest
income... $ 35,104 $ 34,362 $33,723 $ 34,171 $ 33,932 $ 33,343 $32,238 $ 31,436 $ 29,764 $ 28,702 $26,365
Interest
expense... 17,001 16,396 16,096 16,650 16,498 16,276 14,942 12,992 11,343 10,590 9,193
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net
interest
income... 18,103 17,966 17,627 17,521 17,434 17,067 17,296 18,444 18,421 18,112 17,172
Provision
for loan
losses... 953 1,053 999 759 965 1,055 1,277 1,817 1,740 1,901 1,916
Noninterest
income... 4,084 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... 13,574 13,288 13,937 14,050 12,719 13,280 13,500 13,919 13,902 13,752 13,675
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income
before
income
taxes... 7,660 7,588 6,392 6,692 7,151 6,328 5,769 6,004 5,940 5,658 4,812
Income
taxes... 2,623 2,603 2,062 2,042 2,166 1,888 1,678 1,712 1,742 1,716 1,342
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net
income... $ 5,037 $ 4,985 $ 4,330 $ 4,650 $ 4,985 $ 4,440 $ 4,091 $ 4,292 $ 4,198 $ 3,942 $ 3,470
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
53
<PAGE> 55
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 September 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."
54
<PAGE> 56
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 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................. $ 95,193 $ $ 95,193 $ 286 $ $ $ 95,479
Federal funds sold...... 10,950 10,950 10,950
Investment securities... 449,232 59,250 (c) 535,532 535,532
25,250 (a)
1,800 (b)
Investment in
subsidiaries.......... 159,569 (159,569)
Loans held for sale..... 98,875 (77,000) (a) 21,875 8,495 30,370
Loans, less allowance
for loan losses....... 1,132,709 (30,000) (a)1,102,709 3,400 (8,032) 1,098,077
Premises, leasehold
improvements and
equipment, net........ 15,655 8,000 (b) 23,655 63 23,718
Goodwill and other
intangibles........... 4,614 40,695 (b) 45,309 337 45,646
Other assets............ 38,826 38,826 126 266 39,218
---------- -------- ---------- ------ ------- -------- ----------
Total assets...... $1,846,054 $ 27,995 $1,874,049 $8,970 $163,235 $(167,264) $1,878,990
========== ======== ========== ====== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits.......... $1,455,807 $ $1,455,807 $ $ $ $1,455,807
Short-term borrowings... 153,410 153,410 153,410
Accrued interest, taxes
and other
liabilities........... 16,253 4,250 (b) 20,503 199 20,702
Long-term borrowings.... 85,836 85,836 8,032 27,742 (8,032) 113,578
---------- -------- ---------- ------ ------- -------- ----------
Total
liabilities..... 1,711,306 4,250 1,715,556 8,231 27,742 (8,032) 1,743,497
---------- -------- ---------- ------ ------- -------- ----------
Stockholders' equity:
Preferred stock....... -- 38,250 38,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 52,028 (10,505) (a) 143,493 739 97,198 (143,493) 97,198
42,720 (b) (739)
59,250 (c)
Retained earnings..... 71,245 (71,245) (a)
Unrealized loss on
securities available
for sale, net of
tax................. (3,525) 3,525 (b)
---------- -------- ---------- ------ ------- -------- ----------
Total
stockholders'
equity.......... 134,748 23,745 158,493 739 135,493 (159,232) 135,493
---------- -------- ---------- ------ ------- -------- ----------
Total liabilities
and
stockholders'
equity.......... $1,846,054 $ 27,995 $1,874,049 $8,970 $163,235 $(167,264) $1,878,990
========== ======== ========== ====== ======= ======== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
55
<PAGE> 57
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 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..... $ 82,099 $(6,900) (f) $ 75,199 $ 642 $ $(332) $ 75,509
Interest on investment
securities................. 20,038 1,160 (f) 24,318 8 (8) 24,318
400 (g)
2,720 (h)
Interest on cash
equivalents................ 1,052 1,052 1,052
------- ------- ------- ------ ------- ----- -------
Total interest
income............ 103,189 (2,620) 100,569 650 (340) 100,879
Interest expense:
Deposits................. 40,102 40,102 (8) 40,094
Short-term borrowings.... 6,537 6,537 6,537
Long-term borrowings..... 2,854 2,854 332 1,475 (332) 4,329
------- ------- ------- ------ ------- ----- -------
Total interest
expense........... 49,493 49,493 332 1,475 (340) 50,960
Net interest income.......... 53,696 (2,620) 51,076 318 (1,475) 49,919
Provision for loan losses.... 3,005 (550) (f) 2,455 2,455
------- ------- ------- ------ ------- ----- -------
Net interest income
after provision... 50,691 (2,070) 48,621 318 (1,475) 47,464
Noninterest income:
Service charges.......... 6,499 6,499 6,499
Trust fees............... 2,697 2,697 2,697
Other noninterest
income................. 2,552 2,552 457 3,009
------- ------- ------- ------ ------- ----- -------
Total noninterest
income............ 11,748 11,748 457 12,205
Noninterest expense:
Salaries & benefits...... 22,634 (320) (f) 22,314 645 1,275 24,234
Occupancy expenses....... 3,801 435 (g) 4,236 78 4,314
Furniture & equipment.... 2,261 2,261 2,261
Computer processing...... 1,484 1,484 1,484
Legal fees............... 1,146 1,146 1,146
Other real estate &
repos.................. 897 897 897
Other noninterest
expense................ 8,427 (210) (f) 8,217 319 750 9,286
Goodwill amortization.... 149 2,035 (g) 2,184 2,184
------- ------- ------- ------ ------- ----- -------
Total noninterest
expense........... 40,799 1,940 42,739 1,042 2,025 45,806
Income (loss) before taxes... 21,640 (4,010) 17,630 (267) (3,500) 13,863
Income taxes (benefit)....... 7,288 (690) (i) 6,598 (90) (1,190) 5,318
------- ------- ------- ------ ------- ----- -------
Net income (loss)... $ 14,352 $(3,320) $ 11,032 $ (177) $ (2,310) $ $ 8,545
======= ======= ======= ====== ======= ===== =======
Net income
applicable to
common
stockholders(l)... $ 5,927
=======
Earnings per common
share(m).......... $ 1.32
=======
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
56
<PAGE> 58
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
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) 525,448 525,448
25,250 (a)
2,600 (b)
Investment in
subsidiaries.......... 158,564 (158,564)
Loans held for sale..... 15,748 15,748 15,748
Loans, less allowance
for loan losses....... 1,172,005 (107,000) (a) 1,065,005 1,065,005
Premises, leasehold
improvements and
equipment, net........ 16,844 8,000 (b) 24,844 62 24,906
Goodwill and other
intangibles........... 3,640 41,633 (b) 45,273 96 45,369
Other assets............ 34,900 34,900 192 35,092
----------- -------- ----------- ---- -------- ---------- ----------
Total assets.... $1,774,032 $ 29,733 $1,803,765 $ 627 $158,756 $(158,468) $1,804,680
=========== ======== =========== ==== ======== ========== ==========
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 4,550 (b) 18,730 83 18,813
Long-term borrowings.... 61,003 61,003 23,832 84,835
----------- -------- ----------- ---- -------- ---------- ----------
Total
liabilities... 1,641,291 4,550 1,645,841 83 23,832 1,669,756
----------- -------- ----------- ---- -------- ---------- ----------
Stockholders' equity:
Preferred stock....... 38,250 38,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 50,826 (14,757) (a) 142,924 544 96,629 (142,924) 96,629
47,605 (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 25,183 157,924 544 134,924 (158,468) 134,924
----------- -------- ----------- ---- -------- ---------- ----------
Total
liabilities
and
stockholders'
equity........ $1,774,032 $ 29,733 $1,803,765 $ 627 $158,756 $(158,468) $1,804,680
=========== ======== =========== ==== ======== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
57
<PAGE> 59
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
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 $(9,000) (f) $ 94,654 $ $ $ 94,654
Interest on investment
securities............... 29,358 1,550 (f) 35,078 35,078
540 (g)
3,630 (h)
Interest on cash
equivalents.............. 672 672 672
--
-------- ------- -------- ----- ------- --------
Total interest
income............ 133,684 (3,280) 130,404 130,404
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 1,905 5,653
--
-------- ------- -------- ----- ------- --------
Total interest
expense........... 64,366 64,366 1,905 66,271
Net interest income........ 69,318 (3,280) 66,038 (1,905) 64,133
Provision for loan
losses................... 4,056 (460) (f) 3,596 3,596
--
-------- ------- -------- ----- ------- --------
Net interest income
after provision... 65,262 (2,820) 62,442 (1,905) 60,537
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 (710) (f) 28,263 92 1,700 30,055
Occupancy expenses....... 4,880 580 (g) 5,460 7 5,467
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 2,715 (g) 2,911 2,911
--
-------- ------- -------- ----- ------- --------
Total noninterest
expense........... 53,549 2,365 55,914 138 2,700 58,752
Income (loss) before
taxes.................... 25,940 (5,185) 20,755 (138) (4,605) 16,012
Income taxes (benefit)..... 7,774 (740) (i) 7,034 (47) (1,380) 5,607
--
-------- ------- -------- ----- ------- --------
Net income (loss).... $ 18,166 $(4,445) $ 13,721 $ (91) $ (3,225) $ 10,405
======== ======= ======== ===== ======= == ========
Net income applicable
to common
stockholders(l)... $ 6,915
========
Earnings per common
share(m).......... $ 1.54
========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
58
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects transfer and sale of $107 million net automobile receivables
(net of $1 million in allowance for loan losses). This includes the transfer of
the estimated $31 million fair market value of Used Automobile Receivables from
the Bank to New Reliance. Loans sold totaling $77 million provide cash for
payment of the First Cash Component of $51 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 $25 million, are assumed to be reinvested in investment securities.
It is assumed that the loans would be sold at an estimated loss of $1 million
and the allowance for loan losses would be reduced $1 million. The estimated $51
million First Cash Component assumes the tender of 4.5 million shares by the
Taylor Group in exchange for the Company.
(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, at the
date of the Share Exchange Agreement, of the 4.5 million shares exchanged (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 $51 million First Cash
Component and $31 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
average market value of the shares on the date of and two days before and two
days after the Share Exchange Agreement, dated June 12, 1996.
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
SEPTEMBER 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 @ date of Share Exchange
Agreement........................................ $ 25.50 $ 25.50
Implied percentage of Bank stock deemed
purchased........................................ 71.65% 71.65%
----------- -----------
Purchased Ownership Interest....................... $82,218 $82,218
Historical Ownership Interest -- book value of Bank
@ 28.35%......................................... 15,025 14,456
Direct acquisition costs........................... 2,000 2,000
------- -------
Total Purchase Price of the Bank................... $99,243 $98,674
Total book value of the Bank....................... $ 134,748 $ 132,741
Transfer of cash and automobile receivables........ (81,750) (81,750)
Fair value adjustments to balance sheet, net of
deferred income taxes............................ 5,550 6,050
----------- -----------
Less: Adjusted book value of the Bank.............. 58,548 57,041
------- -------
Goodwill........................................... $40,695 $41,633
======= =======
</TABLE>
As illustrated by the calculation presented above, the actual goodwill
recorded at the Split-Off Closing depends on 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 the Split-Off
Closing. These factors are volatile and are expected to change by the date of
the Split-Off Closing.
59
<PAGE> 61
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 and the investment in Alpha Capital
Fund. Loans reflect the intercompany loan to the Mortgage Company of $3.4
million assumed as part of the Split-Off Transactions. Long term debt at
September 30, 1996 totals $28 million and is composed of the $23 million drawn
to contribute to the Bank, the approximate $1.2 million in cash paid to acquire
the Mortgage Company and Alpha Capital Fund and the $3.4 million used to assume
the intercompany loan to the 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 $337,000 at September 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 $108 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 $25 million at a 6.125% yield. The reinvestment yield is the three
year U.S. Treasury security market yield at September 30, 1996.
(g) Reflects the amortization of the purchase accounting adjustments.
Premises and equipment is amortized over 20 and 7 years, respectively,
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 September 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 6.125%
yield. The reinvestment yield is the three year U.S. Treasury security market
yield at September 30, 1996.
(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% which is the prime rate at September 30, 1996. The interest expense for
the nine months ended September 30, 1996 is based on debt outstanding at January
1, 1996 of $23.8 million. The 1995 interest expense is based on debt outstanding
of $23.1 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.
60
<PAGE> 62
(l) Assumes the issuance of $38.25 million of Preferred Stock at an annual
dividend rate of 9.125%. The dividend rate is based on the market yield of the
thirty year U.S. Treasury security plus 2.25%, which approximates the pricing of
other perpetual preferred stock offerings for comparably rated financial
institutions.
(m) The Company intends to establish a stock option plan in the future.
Issuance of stock options could have a dilutive effect on earnings per common
share.
61
<PAGE> 63
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 September 30, 1996 and December
31, 1995 and for the nine month period 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 nine months of 1996, pro forma Bank only net income was $11.0
million as compared to $14.4 million on an historical basis. Annualized return
on average assets was .80% on a pro forma basis as compared to 1.06% on an
historical basis. Annualized return on average equity was 9.46% on a pro forma
basis as compared to 14.52% on an historical basis. For the first nine months of
1996, pro forma consolidated Company net income was $8.5 million and annualized
return on average assets and equity was .62% and 8.60% respectively.
Pro forma Bank only net income for 1995 was $13.7 million as compared to
$18.2 million on an historical basis. Return on average assets was .78% on a pro
forma basis as compared to 1.05% on an historical basis. Return on average
equity was 9.01% on a pro forma basis as compared to 14.29% on an historical
basis. Pro forma consolidated Company net income for 1995 was $10.4 million and
annualized return on average assets and equity was .59% and 8.05% respectively.
NET INTEREST INCOME
Net interest income for the Bank decreased $2.6 million, or 4.9%, for the
nine months ended September 30, 1996 and $3.3 million, or 4.7%, for 1995 on a
pro forma basis as compared to historical results. The net interest margin
declined to 4.18% in 1996 and 4.23% in 1995 on a pro forma basis as compared to
the historical net interest margins of 4.33% 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, $107 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 $25
million, as well as funds received from the capital contribution to be received
from the Company, estimated at $59 million, are assumed to be reinvested in
investment securities yielding 6.125%. It is management's intention to
ultimately reinvest these proceeds in higher yielding loans. Average earning
assets on a pro forma basis declines $21 million, or 1.2% for 1996 and $20
million, or 1.2% 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 $1.5 million to $49.9 million for the nine months ended September 30, 1996
and reduced $1.9 million to $64.1 million for the 1995 year, for the estimated
interest expense for Company debt. The consolidated pro forma net interest
margin is 4.08% for
62
<PAGE> 64
the nine months ended September 30, 1996 and is 4.11% for the year ended
December 31, 1995. The interest expense is based on the pro forma debt
outstanding of approximately $24 million and $23 million at January 1, 1996 and
1995 respectively.
PROVISION FOR LOAN LOSSES
The pro forma provision for loan losses decreases $550,000, or 18.3% for
the nine months ended September 30, 1996 and $460,000, or 11.3% for 1995 as
compared to the historical provision of $3.0 million and $4.1 million for 1996
and 1995 respectively. The decrease in the provision is a result of the
disposition of the $107 million of net 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 nine months of 1996
increased $1.9 million, or 4.8%, to $42.7 million as compared to $40.8 million
on an historical basis. Noninterest expense for 1995 increased $2.4 million, or
4.4%, to $55.9 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 $530,000 for the nine month period ended September 30, 1996 and
$930,000 for the 1995 year.
In addition, the expenses of the Mortgage Company increase total
noninterest expenses by $1.0 million for the nine months ended September 30,
1996. Total noninterest expense on a consolidated pro forma basis is further
increased, by $2.0 million to $45.8 million for the nine month period ended
September 30, 1996 and by $2.7 million to $58.8 million 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 $107 million of net automobile
receivables, the Bank's pro forma loan portfolio, including loans held for sale,
declines 8.7% to $1.125 billion and 9.0% to $1.081 billion at September 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 12% at September 30, 1996 on a pro forma basis from
20% on an historical basis.
ALLOWANCE FOR LOAN LOSSES
In connection with the sale and transfer of the $108 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
September 30, 1996 is 2.06% as compared to 1.96% on an historical basis. The
consolidated Company's pro forma allowance as a percentage of total loans at
September 30, 1996 is 2.05%.
INVESTMENT SECURITIES
Investment securities increase $84.5 million as a result of the
reinvestment of the remaining proceeds received from the sale of certain
automobile receivables, estimated to be $25.25 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.
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CAPITAL RESOURCES
Total pro forma Bank equity at September 30, 1996 increases by $24 million
to $158 million as compared to historical equity of $135 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 $46 million at September 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 September 30, 1996 decreases by $20
million. Tier 1 risk-based capital at September 30, 1996 is 8.73% on a pro forma
basis as compared to 9.63% on an historical basis. Pro forma total risk-based
capital is 9.99% at September 30, 1996 as compared to 10.88% on an historical
basis. It is management's intention that the Bank remain "well capitalized"
after the consummation of the Split-Off Transactions. Management expects the
Bank's earnings subsequent to September 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 the
Split-Off 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. In addition, beginning on January 1, 1997, the
premium rate for FDIC insurance will be .0129% per $100 of deposits for "well
capitalized" banks as compared to .0429% per $100 of deposits for "adequately
capitalized" banks. Based on the Bank's deposits at September 30, 1996, should
the Bank be deemed "adequately capitalized," this insurance premium differential
could increase the annual cost of FDIC insurance to the Bank by approximately
$420,000.
The consolidated Company's pro forma tangible capital totals $108.3
million. Pro forma Tier 1 risk-based capital and total risk-based capital is
6.94% and 8.20% respectively. The consolidated pro forma leverage capital ratio
is 5.08%. As a result, the Company will be deemed "adequately capitalized" for
purposes of various banking regulations.
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.
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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 County, Illinois and DuPage County,
Illinois. 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's principal office is located in Altamonte Springs, Florida. Through its
subsidiaries, the Mortgage Company currently provides mortgage services
primarily to borrowers 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. 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.
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The Bank's primary market is the Chicago metropolitan area. 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>
TOTAL DEPOSITS AT SEPTEMBER 30, 1996
BANK BRANCH YEAR OPENED OR ACQUIRED ------------------------------------
- ---------------------------------------- ----------------------- (IN THOUSANDS)
<S> <C> <C>
Chicago Branches:
824 East 63rd Street (Woodlawn) Opened 1993 $ 11,496
1965 North Milwaukee Avenue (Chicago) Acquired 1969 91,187
850 West Jackson Boulevard (Jackson) Opened 1987 30,995
1542 West 47th Street (Ashland) Acquired 1978 171,246
7601 South Cicero Avenue (Cicero) Acquired 1984 192,335
Suburban Branches:
Lombard (Yorktown) Acquired 1982 156,023
Skokie Acquired 1984 377,495
Burbank Acquired 1984 176,971
Broadview Opened 1995 31,118
Wheeling Acquired 1984 216,940
</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, at September 30, 1996 approximately
56% of loans outstanding were 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 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
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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, at September 30, 1996
approximately 14% of the Bank's loans were 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, at September
30, 1996, 17% of the Bank's loan portfolio was real estate mortgage loans.
Approximately 65% of the portfolio consisted of fixed rate loans at September
30, 1996, 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 at September 30, 1996, approximately 12% of loans
outstanding were consumer loans.
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
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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 Bank's president and subsequent review by 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
$535.5 million, or 28.5% of pro forma total assets, at September 30, 1996.
Virtually all of the Bank's securities at September 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 November 30, 1996, the Bank's
trust asset mix consisted of approximately 49% employee benefits, 10%
exchange/land trusts, 29% personal trusts, and 12% 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.
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,
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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 warehouse line of credit
granted by the Bank or 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 principal office is 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 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.
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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
31, 2010, with options to extend until March 31, 2025.
The Company owns four of the buildings from which the Bank branches are
operated. The Company leases buildings for its Chicago, Woodlawn, Jackson,
Yorktown and Cicero branches, which in accordance with the current lease terms
expire in or may be extended to December 1997, May 2013, March 2014, March 2010
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, Carolyn B. Blackwell, Sandra Carbone, Phyllis K.
Cramer, George Havelka and Philip A. Roche v. Cole Taylor Bank, Cole Taylor
Financial Group, Inc., Sidney Taylor, Jeffrey Taylor, Bruce Taylor, Richard
Keneman, Daniel Bleil and Fred deRoode was filed by five former Bank branch
managers in the U.S. District Court for the Northern District of Illinois,
Eastern Division, claiming age discrimination, race discrimination (as to one of
them) and defamation. The plaintiffs seek unspecified 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
Split-Off 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)............ 60 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 Split-Off 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 Split-Off 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 Split-Off 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 Split-Off 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 Split-Off 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 Split-Off 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 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 joined the Bank in August 1990 and is currently the
Bank's Executive Vice President-Relationship Banking Division. 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 employed by Independence One Mortgage
Corporation, which was purchased by Norwest Mortgage in 1994, from November 1983
to September 1994, ultimately holding the position of Senior Vice President,
Regional Manager from 1988 to 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 Company
Richard Schwartz..................... 57 Executive Vice President of the Company
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 and will have held such position with CTFG from 1993 until the
Split-Off Closing. From 1990 to 1993, Ms. Schmidt was Vice President in charge
of human resources consulting services for Management Resource Group Inc. Prior
to 1990, Ms. Schmidt served as Senior Vice President and Director of Corporate
Human Resources of First America Corp., a bank holding company based in
Nashville, Tennessee.
RICHARD SCHWARTZ is the Company's Executive Vice President-Acquisitions and
will have held such position with CTFG from June 1994 until the Split-Off
Closing. From 1963 to 1994, Mr. Schwartz was
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employed by American National Bank and Trust Company of Chicago, ultimately
serving as Executive Vice President, 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 Executive Vice President, Trust & Investments for
Premier Bank of Baton Rouge, Louisiana. From 1979 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 Certificate contains a provision 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. The
By-Laws provide that the Company will indemnify its directors and officers to
the fullest extent permitted by law. These provisions 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 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.
Except as disclosed under "Business--Legal Proceedings", 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 additional threatened litigation or proceeding that might result in
a claim for such indemnification.
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
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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 an
annual fee of $10,000 and an attendance fee of $500 for each Board meeting
attended and $650 for each committee meeting attended. The chairman of each
committee receives an additional $250 per 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"). With the exception of the bonus figures as described in footnote 1
below, the estimated compensation figures represent estimates of compensation
projected to be paid in 1997, with calculations of such amounts based on actual
compensation paid by CTFG in 1996.
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 38,410
Executive Vice President of the Bank(5)
Richard Keneman.................................. 216,300 27,729 37,835 25,653
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. The bonus amounts reflect
actual CTFG bonus amounts for fiscal year 1996 to be paid in 1997.
(2) "Other Annual Compensation" includes the following estimated amounts: $933
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 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.
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(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:
$61,893 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, $12,978 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 $36,890 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, $6,817 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 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 Jeffrey Taylor, Bruce Taylor, Richard
White, Richard Keneman and certain other officers (collectively, the "Senior
Managers"). Although the terms of the agreements have not been finalized, it is
anticipated that upon termination other than for cause, each Senior Manager will
be entitled to severance payments which will range from the amount of such
Senior Manager's base salary to one and one half times such Senior Manager's
base salary plus an amount equal to the performance bonus payable to such Senior
Manager in the year immediately preceding termination (the "Past Performance
Amount"). The Senior Manager will also receive medical benefits and outplacement
assistance for a defined period following termination.
CHANGE OF CONTROL AGREEMENTS
Subject to the approval of the Compensation Committee, the Company intends
to enter into change of control agreements with Richard White, Richard Keneman
and certain other Senior Managers. Although the terms of the agreements have not
been finalized, it is anticipated that upon termination due to a change of
control of the Company, any stock options held by the Senior Manager will be
fully exercisable and any
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contributions to the Company's deferred compensation plan will become fully
vested. In addition, each Senior Manager will receive a change of control
severance payment in an amount which will range from one and one half times such
Senior Manager's base salary plus the Past Performance Amount to two and one
half times base salary plus the Past Performance Amount.
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 Split-Off 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 date of the Split-Off 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/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 November 15, 1996 are as follows: Jeffery Taylor, $202,788.10 and
9,157.9857 shares of CTFG common stock; Bruce Taylor, $360,386.96 and 9,157.9986
shares of CTFG common stock; Sidney Taylor, $105,409.64 and 8,656.1145 shares of
CTFG common stock; Richard White, $2,919.78 and 467.6112 shares of CTFG common
stock; and Richard Keneman, $66,331.32 and 3,088.1648 shares of CTFG common
stock.
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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, 1996 President Clinton signed into law the Deposit Insurance
Funds Act of 1996 ("DIFA") which imposes a special 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. 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 Financing Corporation
("FICO") 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). Recently enacted
legislation allows well-capitalized bank holding companies to engage in certain
activities without the advance approval of the FRB. Well-capitalized bank
holding companies are required merely to notify the FRB within 10 business days
of engaging in such activity. 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.
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
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.
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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 CRA 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.
INTERSTATE BANKING AND BRANCHING
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. If a state opts out of interstate branching
within the specified time period,
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no bank in any other state may establish a branch in the opting out state,
whether through an acquisition or de novo. Under Illinois law, after May 31,
1997, an Illinois chartered bank, such as the Bank, may establish and maintain
branches in another state that may conduct any activity in that state that is
authorized or permitted for any bank that has a banking charter issued by that
state, subject to the same limitations and restrictions that are applicable to
banks chartered by that state. In addition, an out-of-state bank which is the
resulting bank in a merger with an Illinois chartered bank may, after the
merger, establish or maintain a branch or branches in Illinois at the locations
where the in-state bank had its main office and branches immediately before the
merger, and may subsequently establish and maintain additional branches in
Illinois to the same extent as an in-state bank.
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. 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. 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).
The recent enactment of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 ("EGRPRA") streamlines the nonbanking activities
application process for well capitalized and well managed bank holding
companies. Under EGRPRA, qualified bank holding companies may commence a
regulatory approved nonbanking activity without prior notice to the FRB; written
notice is merely required within 10 days after commencing the activity. Also,
under EGRPRA, the prior notice period is reduced to 12 days in the event of any
nonbanking acquisition or share purchase, assuming the size of the acquisition
does not exceed 10% of risk-weighted assets of the acquiring bank holding
company and the consideration does not exceed 15% in Tier 1 capital. This prior
notice requirement also applies to commencing a nonbanking activity de novo
which has been previously approved by order of the FRB, but not yet implemented
by regulations.
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,
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,
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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 September 30, 1996, CTFG had Tier 1 and total risk-based capital
ratios of 10.03% and 12.73%, respectively, and a Tier 1 leverage ratio of 7.91%.
As adjusted for the Split-Off Transactions and giving effect to the offering of
Preferred Stock described hereby, the Company had pro forma September 30, 1996
Tier 1 and total risk-based capital ratios of 6.94% and 8.20%, respectively, and
a leverage ratio of 5.08%.
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, 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.
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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. In 1991, at the request of the FRB,
CTFG's Board passed a resolution requiring that CTFG give prior notification to
the FRB before paying dividends on its stock. 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.
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
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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 September 30, 1996, the Bank qualified as "well capitalized," with a
total risk-based capital ratio of 10.88%, a Tier 1 risk-based capital ratio of
9.63% 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 had pro forma September 30, 1996
total and Tier 1 risk-based capital ratios of 9.99% and 8.73% respectively, and
a leverage ratio of 6.38%.
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 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."
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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.
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 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
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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
September 30, 1996 the Bank had brokered deposits of $106.9 million and was
considered "well capitalized" for purposes of this rule. See "Risk
Factors--Liquidity Management".
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
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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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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the Common
Stock which is projected to be beneficially owned as of the Split-Off 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. Collectively, such
stockholders set forth below, together with Cindy Taylor Bleil, who beneficially
owns 126,880 shares, constitute the "Taylor 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK(1)
- ------------------------------------------------------------- ------------------ ---------------
<S> <C> <C>
Iris A. Taylor(2)............................................ 2,531,000 56.2%
Sidney J Taylor(3)(4)........................................ 685,490 15.2
Jeffrey W. Taylor(5)......................................... 267,600 5.9
Bruce W. Taylor.............................................. 267,150 5.9
Melvin E. Pearl(6)........................................... -- --
State Street Bank and Trust Company(7)....................... 330,703 7.3
Taylor Family Partnership, L.P.(8)........................... 987,577 21.9
All directors and executive officers as a group (9
persons)................................................... 1,220,240 27.1
</TABLE>
- ---------------
(1) Percentage of beneficial ownership is based on 4.5 million shares of Common
Stock to be outstanding immediately following the Split-Off Closing.
(2) Excludes 685,490 shares beneficially owned by Iris A. Taylor's husband,
Sidney J Taylor, of which shares Iris Taylor disclaims beneficial ownership.
Includes an aggregate 1,781,000 shares held by various Taylor Family Trusts,
including 633,960 shares held by the Shirley Tark Grandchildren Trust dated
January 20, 1978; 783,960 shares held by the Shirley Tark Great
Grandchildren Trust dated January 20, 1978; 152,200 shares held by the
Lillian M. Tark Trust dated October 26, 1971 and 210,880 shares held by the
Annual Gift Trusts dated December 14, 1982, July 10, 1983, November 10,
1985, November 18, 1985, December 15, 1987 and August 1, 1988; over all of
which Iris A. Taylor has sole voting and investment power. Also includes
750,000 of the shares held by the Taylor Family Partnership, L.P. (the
"Taylor Family Partnership"), over which Iris Taylor has sole voting and
investment power.
(3) Excludes 2,531,000 shares beneficially owned by Sidney J Taylor's wife, Iris
A. Taylor, of which shares Sidney J Taylor disclaims beneficial ownership.
Includes 626,840 shares held by various Taylor Family Trusts including
547,320 shares held in the Sidney J Taylor Trust dated September 17, 1976,
over which Sidney J Taylor has sole voting and investment power.
(4) Upon the death of the sole beneficiary of each Taylor Family Trust or all of
the beneficiaries of the Trust, the trust assets will be divided among
sub-trusts for the benefit of the deceased beneficiary's descendants and/or
siblings. However, each trust agreement contains a "rule against
perpetuities" provision which generally provides that all trust assets must
be distributed outright to the current income beneficiaries of the trust
twenty-one years after the date of death of the last survivor of the
Grantor/Donor, and all descendants of the Grantor/Donor and all natural
persons mentioned by name in the Trust Agreement who were living at the date
of the execution of the Agreement or the date on which the Trust Agreement
became irrevocable.
(5) Includes 40,000 shares held in trust for the benefit of Mr. Taylor's spouse
and 450 shares held by Mr. Taylor's children.
(6) Mr. Pearl disclaims beneficial ownership of 53,600 shares which are held by
the 12/17/92 Gift Trust of which Mr. Pearl serves as a Trustee. Mr. Pearl's
address is c/o Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600,
Chicago, Illinois 60661.
(7) The address of this stockholder is 200 Newport Avenue, N. Quincy, MA 02191.
State Street Bank and Trust Company holds such stock as trustee for the
Profit Sharing/ESOP. See "The Split-Off Transactions--Establishment of
Profit Sharing/ESOP" and "Management--Profit Sharing/ESOP." The number of
shares for the Profit Sharing/ESOP represents the number of shares allocated
to the participants' accounts under the ESOP portion of the Profit
Sharing/ESOP.
(8) The address of this stockholder is c/o Katten Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661. Iris Taylor has sole
voting and investment power over 750,000 of the shares held by the Taylor
Family Partnership.
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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 Split-Off Closing. Management believes that all such loans and investments
have been and will continue to be made in the ordinary course of business of the
Bank 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. All future
material transactions and loans, and any forgiveness of loans, will be approved
by a majority of the independent outside members of the Company's Board of
Directors who do not have an interest in the transactions. As of September 30,
1996, 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 $20.5 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." In addition, the Company and the
Taylor Family have entered into an Indemnity Agreement whereby the Company
agrees to indemnify and hold harmless the Taylor Family in the event the Company
fails to satisfy certain agreements of the Taylor Family set forth in the Share
Exchange Agreement and in certain other events. The Company has also entered
into an agreement with CTFG which provides for the assumption by the Company of
various obligations of the Taylor Family. See "The Split-Off
Transactions--Liabilities Under Share Exchange Agreement."
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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 the
consummation of the Split-Off Transactions, there will be 4,500,000 shares of
Common Stock outstanding and held of record by 39 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, as amended (the "DGCL"), the
Certificate, Certificate of Designation (as defined) and By-Laws is a summary
and is qualified in its entirety by 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 Split-Off Transactions 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 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, Rights and Preferences filed with the Delaware Secretary of State
(the "Certificate of Designation").
The shares of Preferred Stock which will be issued and outstanding as of
the Preferred Closing 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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The shares of Preferred Stock will not be convertible into, or exchangeable
for, shares of Common Stock, any other class or classes of capital stock (or any
other security) or any other series of any class or classes of capital stock (or
any other security) 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
Holders of shares of Preferred Stock shall be entitled to receive
noncumulative cash dividends payable quarterly in arrears for each quarter 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 the period commencing on the date of original issuance
of the Preferred Stock to and including March 31, 1997 and for each quarterly
dividend period commencing on the first day of each April, July, October and
January thereafter, and ending on and including the day next preceding the first
day of the next Dividend Period (each a "Dividend Period"). Dividends so
declared will be payable on the first day of each April, July, October and
January, commencing on April 1, 1997 (each, a "Dividend Payment Date"), to the
holders of record on a date not more than 30 days and not less than 10 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. The amount
of dividends payable per share of Preferred Stock for each Dividend Period shall
be computed by dividing the amount due on an annual basis by four. 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 Company intends to declare and pay dividends on the Preferred Stock as
well as the Common Stock each quarter. However, 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 Dividend Period. The Company may redeem the Preferred Stock without
ever having declared or paid a dividend on such stock.
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 Loan Agreement.
See "The Split-Off Transactions--Related Financing."
No full dividends will be declared or paid or set apart for payment on any
share of any series of 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, and
for all prior Dividend Periods for which dividends were declared, 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
89
<PAGE> 91
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 have been paid for all Dividend
Periods for which dividends were declared, 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 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 January 15, 2002. 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.
In the event the Company shall redeem shares of Preferred Stock, 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) (a
"Paying Agent"), 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). If
notice of redemption shall have been mailed or if the Company shall have given
to a Paying Agent irrevocable authorization promptly to mail such notice, then
deposit of the funds necessary for redemption with a Paying Agent 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
90
<PAGE> 92
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 of shares of Preferred Stock 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; and 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 so 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 so tendering shares of Preferred Stock for such purchase or exchange.
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, and with the approval of LaSalle pursuant to
the Loan Agreement.
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 at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders to cast one
vote (or fraction thereof) for each $25.00 of liquidation preference to which
such preferred stock is entitled for the election of one director of the
Company, with the remaining directors of the Company to be elected by the
holders of the shares of any other class or classes or series of stock entitled
to vote therefor. Any director who has been so elected may be removed at any
time, 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 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 holders of one or more series of
preferred stock then entitled to vote thereon shall be entitled to cast 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 elected as described above 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
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<PAGE> 93
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).
The Company is not permitted to amend, alter or repeal (whether by merger,
consolidation or otherwise) any provisions of the Certificate 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 the assets is made to the holders of
shares of the Common Stock or on any other class or series of stock of the
Company ranking junior to the shares of Preferred Stock as to such a
distribution, an amount equal to $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. If,
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, 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 class or series of stock,
ratably in proportion to the respective full preferential amounts to which they
are entitled. After any liquidating payments, the holders of shares of Preferred
Stock will be entitled to no other payments. A consolidation or merger of the
Company with or into any other corporation or corporations 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.
92
<PAGE> 94
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 Split-Off Closing.
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.
93
<PAGE> 95
EXPERTS
The financial statements of the Bank as of December 31, 1995 and 1994 and
for each of the years in the three 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 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. 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 (http://www.sec.gov) that contains
reports, proxy statements and other information filed by the Company.
94
<PAGE> 96
INDEX TO FINANCIAL STATEMENTS
COLE TAYLOR BANK
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.................................................... F-2
Financial Statements:
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995
and 1994................................................................... F-3
Statements of Income for the nine months ended September 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-4
Statements of Changes in Stockholder's Equity for the nine months ended
September 30, 1996 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.............................................................. F-5
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993....... 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> 97
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 three 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 three year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Chicago, Illinois KPMG PEAT MARWICK LLP
November 21, 1996
F-2
<PAGE> 98
COLE TAYLOR BANK
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and due from banks.................................. $ 95,193 $ 87,547 $ 69,715
Federal funds sold....................................... 10,950 5,000 23,600
Investment securities:
Available-for-sale, at fair value...................... 372,460 361,735 58,431
Held-to-maturity, at amortized cost (fair value of
$79,329 (unaudited), $80,239 and $386,474 at
September 30, 1996, and December 31, 1995 and 1994,
respectively)....................................... 76,772 76,613 405,988
Loans held for sale, net................................. 98,875 15,748 1,554
Loans, less allowance for loan losses of $24,630
(unaudited), $23,869 and $22,833 at September 30, 1996,
and December 31, 1995 and 1994, respectively........... 1,132,709 1,172,005 1,105,790
Premises, leasehold improvements and equipment, net...... 15,655 16,844 13,873
Other assets............................................. 43,440 38,540 40,702
---------- ---------- ----------
Total assets...................................... $ 1,846,054 $1,774,032 $1,719,653
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest-bearing.................................... $ 297,448 $ 318,117 $ 318,800
Interest-bearing....................................... 1,158,359 1,045,958 974,611
---------- ---------- ----------
Total deposits...................................... 1,455,807 1,364,075 1,293,411
Short-term borrowings.................................... 153,410 202,033 243,997
Accrued interest, taxes and other liabilities............ 16,253 14,180 15,384
Long-term borrowings..................................... 85,836 61,003 47,864
---------- ---------- ----------
Total liabilities................................. 1,711,306 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................................................ 52,028 50,826 50,826
Retained earnings...................................... 71,245 66,993 56,777
Unrealized holding loss on securities
available-for-sale, net of income taxes............. (3,525) (78) (3,606)
---------- ---------- ----------
Total stockholder's equity........................ 134,748 132,741 118,997
---------- ---------- ----------
Total liabilities and stockholder's equity........ $ 1,846,054 $1,774,032 $1,719,653
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 99
COLE TAYLOR BANK
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- -----------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans................. $ 82,099 $76,946 $103,654 $ 87,057 $ 76,160
Interest on investment securities:
Taxable................................. 17,146 19,186 25,382 25,045 21,928
Tax-exempt.............................. 2,892 2,979 3,976 3,891 3,638
Interest on cash equivalents............... 1,052 402 672 274 102
-------- ------- -------- -------- --------
Total interest income.............. 103,189 99,513 133,684 116,267 101,828
-------- ------- -------- -------- --------
Interest expense:
Deposits................................... 40,102 34,341 47,034 32,998 27,472
Short-term borrowings...................... 6,537 10,517 13,584 9,483 6,639
Long-term borrowings....................... 2,854 2,858 3,748 1,637 1,036
-------- ------- -------- -------- --------
Total interest expense............. 49,493 47,716 64,366 44,118 35,147
-------- ------- -------- -------- --------
Net interest income.......................... 53,696 51,797 69,318 72,149 66,681
Provision for loan losses.................... 3,005 3,297 4,056 7,374 10,521
-------- ------- -------- -------- --------
Net interest income after provision
for loan losses.................. 50,691 48,500 65,262 64,775 56,160
-------- ------- -------- -------- --------
Noninterest income:
Service charges............................ 6,499 5,381 7,452 7,199 6,947
Trust fees................................. 2,697 2,500 3,539 3,095 2,944
Legal settlement........................... -- -- -- -- 2,438
Investment securities gains, net........... -- -- -- 8 565
Other noninterest income................... 2,552 2,366 3,236 2,585 2,531
-------- ------- -------- -------- --------
Total noninterest income........... 11,748 10,247 14,227 12,887 15,425
-------- ------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits............. 22,634 21,766 28,973 28,691 28,069
Occupancy of premises, net................. 3,801 3,747 4,880 4,885 5,114
Furniture and equipment.................... 2,261 1,961 2,651 2,385 2,458
Computer processing........................ 1,484 1,212 1,676 1,444 1,403
Legal fees................................. 1,146 1,159 1,655 1,106 1,116
Advertising and public relations........... 1,325 1,109 1,582 2,298 2,183
FDIC deposit insurance..................... 2 1,329 1,451 2,646 2,400
Other real estate and repossessed asset
expense................................. 897 74 1,169 999 1,292
Other noninterest expense.................. 7,249 7,142 9,512 10,794 9,891
-------- ------- -------- -------- --------
Total noninterest expense.......... 40,799 39,499 53,549 55,248 53,926
-------- ------- -------- -------- --------
Income before income taxes................... 21,640 19,248 25,940 22,414 17,659
Income taxes................................. 7,288 5,732 7,774 6,512 4,937
-------- ------- -------- -------- --------
Net income......................... $ 14,352 $13,516 $ 18,166 $ 15,902 $ 12,722
======== ======= ======== ======== ========
Earnings per share........................... $ 9.57 $ 9.01 $ 12.11 $ 10.60 $ 8.48
======== ======= ======== ======== ========
Cash dividends declared per share............ $ 6.73 $ 3.43 $ 5.30 $ 3.07 $ 4.27
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 100
COLE TAYLOR BANK
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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................ $15,000 $40,826 $ 39,153 $ -- $ 94,979
Adoption of SFAS No. 115................ 462 462
Dividends on common stock -- $4.267 per
share................................ (6,400) (6,400)
Net income.............................. 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
Nine months ended September 30, 1996
(unaudited):
Change in unrealized holding loss on
investment securities, net of income
taxes................................ (3,447) (3,447)
Tax benefit associated with exercise of
CTFG common stock options............ 1,202 1,202
Dividends on common stock -- $6.733 per
share................................ (10,100) (10,100)
Net income.............................. 14,352 14,352
------- ------- ------- ------- --------
Balance at September 30, 1996............. $15,000 $52,028 $ 71,245 $ (3,525) $134,748
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 101
COLE TAYLOR BANK
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------- -------------------------------------
1996 1995 1995 1994 1993
--------- -------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 14,352 $ 13,516 $ 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............. 592 809 1,024 2,058 2,518
Deferred loan fee amortization.......................... (1,818) (1,768) (2,515) (2,146) (1,851)
Provision for loan losses............................... 3,005 3,297 4,056 7,374 10,521
(Gain) loss on sales of loans originated for sale....... (822) (76) (150) 87 --
Loans originated and held for sale...................... (173,913) (60,683) (87,250) (17,795) --
Proceeds from sales of loans originated for sale........ 171,113 49,163 73,368 16,154 --
Depreciation and amortization........................... 2,261 1,876 2,534 2,343 2,343
Amortization of intangible assets....................... 125 146 196 180 121
Deferred income taxes................................... 459 (168) 16 (1,239) (2,662)
Provision for other real estate......................... 38 96 243 587 266
Other, net.............................................. (509) 23 75 158 (115)
Changes in assets and liabilities:
Accrued interest receivable........................... 259 (1,048) (251) (4,045) 1
Other assets.......................................... (3,633) 1,645 1,940 434 (655)
Accrued interest, taxes and other liabilities......... 3,275 (1,108) (1,204) 814 3,145
--------- -------- --------- --------- ---------
Net cash provided by operating activities..... 14,784 5,720 10,248 20,858 25,789
--------- -------- --------- --------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities.............. (154,883) (27,228) (27,228) -- --
Purchases of held-to-maturity securities................ (3,228) (3,784) (4,744) (93,993) (71,220)
Proceeds from principal payments and maturities of
available-for-sale securities......................... 137,826 13,559 29,130 29,879 --
Proceeds from principal payments and maturities of
held-to-maturity securities........................... 3,027 19,275 33,317 52,075 90,400
Proceeds from sales of investment securities............ -- -- -- 525 41,914
Proceeds from sale of loans............................. -- 28,924 28,924 -- --
Net increase in loans................................... (43,168) (75,752) (100,743) (178,878) (191,922)
Net additions to premises, leasehold improvements and
equipment............................................. (922) (3,344) (5,502) (4,438) (2,124)
Acquisition of land trust customer base................. -- (204) (204) -- (887)
Proceeds from sale of other real estate................. 2,318 2,145 2,145 2,227 1,164
--------- -------- --------- --------- ---------
Net cash used in investing activities......... (59,030) (46,409) (44,905) (192,603) (132,675)
--------- -------- --------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits..................... 91,732 41,130 70,664 112,566 49,995
Net (decrease) increase in short-term borrowings........ (48,623) (42,319) (41,964) 34,770 56,968
Repayments of long-term borrowings...................... (50,167) (22,111) (37,111) (15,076) (50)
Proceeds from long-term borrowings...................... 75,000 35,000 50,250 25,250 32,250
Proceeds from capital contribution...................... -- -- -- 10,000 77
Dividends paid.......................................... (10,100) (5,150) (7,950) (4,600) (6,400)
--------- -------- --------- --------- ---------
Net cash provided by financing activities..... 57,842 6,550 33,889 162,910 132,840
--------- -------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents...... 13,596 (34,139) (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.................... $ 106,143 $ 59,176 $ 92,547 $ 93,315 $ 102,150
========= ======== ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................ $ 48,858 $ 46,909 $ 63,339 $ 46,612 $ 35,901
Income taxes........................................ 4,878 5,198 7,448 8,576 7,348
Supplemental disclosures of noncash investing and
financing activities:
Unrealized holding (loss) gain on investment securities,
net of income taxes................................... (3,447) 2,651 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.................... 1,274 705 958 -- --
Real estate acquired through foreclosure................ 498 1,485 2,465 1,090 2,050
Sale of other real estate financed...................... -- -- -- -- 1,575
Tax benefit associated with exercise of parent company
common stock options.................................. 1,202 -- -- -- --
Transfer of consumer loans to loans held for sale....... 79,667 -- -- -- --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 102
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 unaudited September 30, 1996 financial statements of
the Bank reflect all adjustments which are, in the opinion of management, of a
normal recurring nature and necessary to a fair statement of the results of the
financial statements presented. The results of operations for the nine month
periods ended September 30, 1996 and 1995 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 and consumer 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.
F-7
<PAGE> 103
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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........... 17
Use of Proceeds...................... 28
Pro Forma Capitalization............. 29
Selected Bank Financial Data......... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 31
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 54
Notes to Unaudited Pro Forma
Condensed Consolidated Financial
Statements......................... 59
Management's Discussion and Analysis
of Pro Forma Financial Condition
and Results of Operations.......... 62
Business............................. 65
Management........................... 71
Supervision and Regulation........... 77
Security Ownership of Management and
Certain Beneficial Owners.......... 86
Certain Transactions................. 87
Description of Capital Stock......... 88
Underwriting......................... 93
Legal Matters........................ 93
Experts.............................. 94
Additional Information............... 94
Index to Financial Statements........ F-1
</TABLE>
-------------------------------
Until , 1997 (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
January , 1997
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 12, 1996, CTFG and the Taylor Family entered into the Share
Exchange Agreement. The members of the Taylor Family who are parties to the
Share Exchange Agreement collectively directly own 3,645,980 shares of common
stock of CTFG. In addition, they own 26,733 shares through the CTFG ESOP and
280,540 options to purchase shares of common stock of CTFG which are currently
exercisable. The Share Exchange Agreement provides that the Taylor Family must
exchange all of the shares of common stock of CTFG which they own as of the
Split-Off Closing, but does not restrict the Taylor Family from increasing or
decreasing their holdings of shares of CTFG common stock prior to the Split-Off
Closing. In accordance with the Share Exchange Agreement, the Taylor Family will
exchange their shares of common stock of CTFG for Common Stock immediately prior
to the Split-Off Closing. It is expected that the amount acquired in the
exchange, when added to the amount disclosed in the next paragraph, will total
4.5 million shares of Common Stock.
The Company has formed its own 401(k)/ESOP and the account balances of the
Bank employees in the CTFG 401(k)/Profit Sharing and the CTFG ESOP will be
transferred to the Company's plan prior to the Split-Off Closing. The trustee of
the Company's plan may elect to exchange the shares of common stock of CTFG held
by the ESOP portion of the Company's plan for Common Stock. After transfer of
account balances of the Bank employees, the ESOP will hold 330,703 shares of
common stock of CTFG. If the trustee decides to exchange the shares of common
stock of CTFG held by the ESOP portion of the Company's plan, Common Stock will
be issued to the ESOP portion of the Company's plan, immediately prior to the
Split-Off Closing.
All of the foregoing transactions have been or are being effected by the
Company in reliance upon the exemption from registration under Section 4(2) of
the Securities Act of 1933 because of the nature of the offerees and the manner
of sale.
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 Form of Opinion of McDermott, Will & Emery regarding legality
10.1 Form of Loan Agreement between LaSalle National Bank and Taylor Capital
Group, Inc.
*10.1(a) Form of Safekeeping Agreement between LaSalle National Bank and Taylor
Capital Group, Inc.
*10.2 Form of Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock
Ownership Plan
*10.3 Form of Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock
Ownership Trust
10.4 Form of Agreement among Taylor Capital Group, Inc., Cole Taylor Financial
Group, Inc. and the Taylor Family
</TABLE>
II-1
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -------------------------------------------------------------------------
<S> <C>
10.5 Form of Indemnity Agreement by and among Taylor Capital Group, Inc. and
the Taylor Family
***10.6 Purchase Agreement by and between First Midwest Bank, National
Association and Cole Taylor Bank dated December 23, 1996
*10.7 Form of Taylor Capital Group, Inc. Deferred Compensation Plan
*12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
*21 Subsidiaries of Taylor Capital Group, Inc. and CT Mortgage Company, 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
*27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
*** Confidential treatment requested for certain portions of this document.
(b) Financial Statement Schedules:
None.
II-2
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Wheeling, Illinois on January 6, 1997.
TAYLOR CAPITAL GROUP, INC.
By /s/ BRUCE W. TAYLOR
-------------------------------------
Bruce W. Taylor
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <C> <S>
* Chairman of the Board and January 6, 1997
- ------------------------------------------ Chief Executive Officer
Jeffrey W. Taylor (Principal Executive Officer)
* Chief Financial Officer January 6, 1997
- ------------------------------------------ and Director
John Christopher Alstrin (Principal Financial and
Accounting Officer)
* President and Director January 6, 1997
- ------------------------------------------
Bruce W. Taylor
* Director January 6, 1997
- ------------------------------------------
Richard W. Tinberg
* Director January 6, 1997
- ------------------------------------------
Sidney J Taylor
* Director January 6, 1997
- ------------------------------------------
Melvin E. Pearl
* Director January 6, 1997
- ------------------------------------------
Adelyn Dougherty
*By: /s/ BRUCE W. TAYLOR
--------------------------------------
Bruce W. Taylor
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 1
EXHIBIT 3.1.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
FIXED RATE NONCUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
OF
TAYLOR CAPITAL GROUP, INC.
____________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_____________________________
TAYLOR CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), in accordance with
Section 151 of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
1. The Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation"), fixes the total number of shares of all
classes of capital stock which the Corporation shall have the authority to
issue at Ten Million (10,000,000) shares, of which Three Million (3,000,000)
shares shall be shares of Preferred Stock, par value $.01 (herein referred to
as "Preferred Stock"), and of which Seven Million (7,000,000) shares shall be
shares of Common Stock of the par value of $.01 per share (herein referred to
as "Common Stock").
2. The Certificate of Incorporation expressly grants to
the Board of Directors of the Corporation (the "Board of Directors") authority
to provide for the issuance of said Preferred Stock in one or more series, with
such voting powers, full or limited or without voting powers, and with such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the Board of Directors and as are not stated and
expressed in the Certificate of Incorporation.
3. Pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation, the Board of Directors, on
December __, 1996, by unanimous written consent of a duly authorized committee
thereof, duly authorized and adopted the following resolutions providing for an
issue of a series of its Preferred Stock to be designated "__% Noncumulative
Perpetual Preferred Stock, Series A (par value $.01 per share)":
<PAGE> 2
"RESOLVED that an issue of a series of Preferred Stock of the
Corporation, par value $.01 per share (the Preferred Stock of the
Corporation being herein referred to as "Preferred Stock", which term
shall include any additional shares of Preferred Stock of the same
class hereafter authorized to be issued by the Corporation) consisting
of One Million Five Hundred Thirty Thousand (1,530,000) shares is
hereby provided for, and the voting power, designation, preferences
and relative participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of such series
shall be as set forth below:
1. Designation: Number of Shares.
(a) The designation of such series of Preferred Stock
shall be "__% Noncumulative Perpetual Preferred Stock, Series A" (hereinafter
referred to as the "Series A Preferred"), stated value $25.00, and the number
of authorized shares constituting the Series A Preferred is One Million Five
Hundred Thirty Thousand (1,530,000). No fractional shares of Series A
Preferred shall be issued.
(b) Any shares of Series A Preferred which at any time
have been redeemed by the Corporation shall, after such redemption, have the
status of authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more designated as part of
a particular series of Preferred Stock by the Board of Directors.
2. Dividends.
(a) (i) Holders of shares of Series A Preferred shall be
entitled to receive noncumulative cash dividends, payable
quarterly in arrears for such quarter, when, as and if
declared by the Board of Directors, or a duly authorized
committee thereof, out of funds legally available therefor,
for a dividend period (a "Dividend Period") commencing on the
date of original issuance of the Series A Preferred to and
including March 31, 1997, and for each quarterly period
thereafter commencing on the first day of each April, July,
October and January and ending on and including the day next
preceding the first day of the next Dividend Period at a rate
per annum as follows: (A) for each Dividend Period, at an
annual rate of ___% per stated value of each share (the "Fixed
Rate"). The amount of dividends per share payable for any
period of less than a quarter will be paid on the basis of a
360-day year consisting of
-2-
<PAGE> 3
twelve 30-day months. The amount of dividends payable per
share of Preferred Stock for each Dividend Period shall be
computed by dividing the amount of dividends due on an annual
basis by four.
(ii) Dividends as provided for in this Section 2
shall accrue from the date of original issuance and shall be
payable when, as and if declared by the Board of Directors, or
a duly authorized committee thereof, out of funds legally
available therefor, for a Dividend Period on the first of each
April, July, October and January, commencing on April 1, 1997
(each, a "Dividend Payment Date"), to the holders of record on
a date not more than 30 days and not less than 10 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.
When a Dividend Payment Date falls on a non-business day, the
dividend will be paid on the next business day.
(b) Dividends on shares of Series A Preferred shall be
noncumulative so that if a dividend on the shares of Series A Preferred with
respect to any Dividend Period is not declared by the Board of Directors, or
any duly authorized committee thereof, then the Corporation shall have no
obligation at any time to pay a dividend on the shares of Series A Preferred
for such Dividend Period whether or not dividends are paid for any subsequent
Dividend Period. Holders of the shares of Series A Preferred shall not be
entitled to any dividends, whether payable in cash, property or stock, in
excess of the noncumulative dividends declared by the Board of Directors, or a
duly authorized committee thereof, as set forth herein.
(c) No full dividends shall be declared or paid or set
apart for payment on any share of any series of 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 Series A Preferred as to dividends unless full
dividends for the then- current Dividend Period on the Series A Preferred have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof, and for all prior Dividend Periods for
which dividends were declared, set apart for such payment. When dividends are
not paid in full upon the Series A Preferred and any other series or class of
stock ranking on a parity with the Series A Preferred as to dividends, all
dividends declared upon the Series A Preferred and such other series or class
of stock shall be declared pro rata so that the amount of dividends declared
per share on the Series A Preferred and such other series or class of stock
shall in all cases bear the same
-3-
<PAGE> 4
ratio that accrued dividends per share (which in the case of the Series A
Preferred shall not include any accumulation in respect of undeclared or unpaid
dividends for prior Dividend Periods) on the Series A Preferred and on such
other series or class of stock bear to each other.
(d) So long as any shares of Series A Preferred shall be
outstanding, unless full dividends on all outstanding shares of Series A
Preferred shall have been declared and paid or set apart for payment for the
current Dividend Period and have been paid for all Dividend Periods for which
dividends were declared and except as provided in Section 2(c), (i) no dividend
(other than a dividend in Common Stock or in any other stock of the Corporation
ranking junior to the Series A Preferred as to dividends or distribution of
assets upon liquidation, dissolution or winding up) shall 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 Series A
Preferred 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 Corporation ranking junior to or on a parity with Series A
Preferred as to dividends or distribution of assets upon liquidation,
dissolution or winding up shall be redeemed, purchased or otherwise acquired
for any consideration by the Corporation or any subsidiary of the Corporation
(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 Corporation ranking junior to Series A Preferred as to dividends
or distribution of assets upon liquidation, dissolution or winding up.
3. Redemption.
(a) Issued and outstanding shares of Series A Preferred are
not redeemable prior to January 15, 2002. On or after such date, the shares of
Series A Preferred will be redeemable at the option of the Corporation, 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 unless
previously declared and without interest) to the date fixed for redemption.
(b) (i) In the event the Corporation shall redeem
shares of Series A Preferred, notice of such redemption shall be given
by first-class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the
-4-
<PAGE> 5
date fixed for redemption, to each holder of record of the shares to
be redeemed, at such holder's address as the same appears on the books
of the Corporation. Each such notice shall state: (A) the date fixed
for redemption; (B) the redemption price (specifying the amount of
declared and unpaid dividends to be included therein) and the manner
in which such redemption price is to be paid and delivered; (C) the
place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (D) that dividends on
the shares to be redeemed will cease to accrue as of the date fixed
for redemption; and (E) the provision hereunder pursuant to which such
redemption is being made. No defect in the notice of redemption or in
the mailing thereof shall affect the validity of the redemption
proceedings, and the failure to give notice to any holder of shares of
Series A Preferred to be so redeemed shall not affect the validity of
the notice given to the other holders of shares of Series A Preferred
to be so redeemed.
(ii) In the event the Corporation shall redeem shares of
Series A Preferred, on or before 12:00 noon, Chicago time, on the date
fixed for redemption, the Corporation shall deposit with a paying
agent (which may be an affiliate of the Corporation) (a "Paying
Agent"), 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 $100,000,000, funds necessary for such
redemption, in trust, with irrevocable instructions and authorization
that such funds be applied to the redemption of the shares of Series A
Preferred called for redemption upon surrender of certificates for
such shares (properly endorsed or assigned for transfer).
(iii) If such notice of redemption shall have been duly mailed
or if the Corporation shall have given to a Paying Agent irrevocable
authorization promptly to mail such notice, and if on or before the
redemption date specified therein the funds necessary for such
redemption shall have been deposited by the Corporation with a Paying
Agent in trust for the pro rata benefit of the holders of the shares
of Series A Preferred called for redemption, together with irrevocable
instructions that such funds be applied to such redemption, then,
notwithstanding that any certificate for shares of Series A Preferred
so called for redemption shall not have been surrendered for
cancellation, from and after the time of such deposit, all shares of
Series A Preferred so called for redemption shall no longer be deemed
to be outstanding and all rights with respect to such shares of Series
A Preferred shall forthwith cease and terminate,
-5-
<PAGE> 6
except for the right of the holders thereof to receive from such
Paying Agent at any time after the time of such deposit the funds so
deposited, without any interest thereon.
(iv) Any interest accrued on funds deposited with a
Paying Agent in connection with any redemption of shares of Series A
Preferred shall be paid to the Corporation from time to time and the
holders of any such shares to be redeemed with such money shall have
no claim to any such interest. Any funds deposited and unclaimed at
the end of two years from any redemption date shall be repaid or
released to the Corporation, after which the holder or holders of
shares of Series A Preferred so called for redemption shall look only
to the Corporation for payment of the redemption price, without any
interest thereon.
(c) Upon surrender in accordance with such notice of the
certificate for any shares to be redeemed (properly endorsed or assigned for
transfer), such shares shall be redeemed by the Corporation at the applicable
redemption price.
(d) In no event shall the Corporation redeem less than
all the outstanding shares of Series A Preferred, unless dividends for the
then-current Dividend Period (without accumulation of any accrued and unpaid
dividends for prior Dividend Periods unless previously declared and without
interest) to the date fixed for redemption shall have been declared and paid or
set apart for payment on all outstanding shares of Series A Preferred;
provided, however, that the foregoing shall not prevent, if otherwise
permitted, the purchase or acquisition by the Corporation of shares of Series A
Preferred pursuant to a tender or exchange offer made on the same terms to
holders of all the outstanding shares of Series A Preferred 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 Corporation; and provided further that if
some, but less than all, of the shares of Series A Preferred are to be
purchased or otherwise acquired pursuant to such tender or exchange offer and
the number of such shares so tendered exceeds the number of shares so to be
purchased or otherwise acquired by the Corporation, the shares of Series A
Preferred so tendered shall be purchased or otherwise acquired by the
Corporation on a pro rata basis (with adjustments to eliminate fractions)
according to the number of such shares duly tendered by each holder so
tendering shares of Series A Preferred for such purchase or exchange.
(e) If less than all of the outstanding shares of Series
A Preferred are to be redeemed, the Corporation will select the shares to be
redeemed by lot, pro rata (as nearly may
-6-
<PAGE> 7
be), or in such other equitable manner as the Board of Directors of the Company
may determine.
4. Liquidation Preference.
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Preferred shall be entitled to receive out of the assets of
the Corporation available for distribution to stockholders, before any
distribution of assets shall be made to the holders of shares of Common Stock
or of any other class or series of stock ranking junior to the Series A
Preferred as to such a distribution, an amount equal to $25.00 per share, plus
an amount equal to any dividends declared and unpaid for the then-current
Dividend Period (without accumulation of accrued and unpaid dividends for prior
Dividend Periods unless previously declared) to the date fixed for payment of
such distribution.
(b) If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
will be insufficient to make the full liquidating payment with respect to
shares of Series A Preferred and liquidating payments on shares of any other
class or series of stock of the Corporation ranking on a parity with the Series
A Preferred as to any such distribution, then such assets will be distributed
among the holders of shares of Series A Preferred and the holders of shares of
such other class or series of stock, ratably in proportion to the respective
full preferential amounts to which they are entitled.
(c) After payment to the holders of shares of Series A
Preferred of the full preferential amounts provided for in this Section 4, the
holders of such shares shall not be entitled to any further participation in
any distribution of assets by the Corporation.
(d) A consolidation or merger of the Corporation with or
into any other corporation or corporations, or the sale, lease or conveyance of
all or substantially all the assets of the Corporation, whether for cash,
shares of stock, securities or properties, shall not be regarded as a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Section 4.
(e) Written notice of liquidation, dissolution or winding up
of the Corporation stating (i) the payment date, (ii) the amount of payment and
(iii) the place where the amounts distributed shall be payable, shall be given
by first-class mail, postage prepaid, mailed not less than 30 days prior to the
payment date stated therein, to the holders of record of the
-7-
<PAGE> 8
Series A Preferred as of such notice date at such holder's address as the same
appears on the books of the Corporation.
5. Conversion and Exchange. The holders of shares of Series A
Preferred shall not have any rights to convert such shares into, or to exchange
such shares for, shares of Common Stock, any other class or classes of capital
stock (or any other security) or any other series of any class or classes of
capital stock (or any other security) of the Corporation.
6. Voting Rights.
(a) Holders of shares of Series A Preferred shall have no
voting rights, either general or special, except as expressly provided by
applicable law or as specified in this Section 6.
(b) Holders of shares of Series A Preferred, voting
separately as a class with the holders of any one or more other series of
Preferred Stock then entitled to vote thereon, shall be entitled at the
Corporation's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders to cast one vote (or fraction thereof) for each $25.00
of liquidation preference to which such Preferred Stock is entitled for the
election of one director of the Corporation, with the remaining directors of
the Corporation to be elected by the holders of the shares of any other class
or classes or series of stock entitled to vote therefor. Any director who has
been so elected by the holders of shares of Preferred Stock may be removed at
any time, 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.
(c) (i) If a Voting Event (as defined below) occurs, the
number of members of the Board of Directors automatically shall be
increased by one and the holders of shares of Series A Preferred,
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, shall be entitled commencing at the
Corporation's next annual meeting of stockholders, unless prior
thereto such Voting Event has been terminated, to cast one vote (or
fraction thereof) for each $25.00 of liquidation preference to which
such Preferred Stock is entitled for the election of one additional
director of the Corporation, with the remaining directors of the
Corporation to be elected by the holders of the shares of any other
class or classes or series of stock entitled to vote
-8-
<PAGE> 9
therefor; provided, however, that 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 voting separately as a class.
Until such Voting Event has been terminated, any director who has been
elected as described in this section 6(c)(i) by the holders of shares
of Preferred Stock may be removed at any time, with or 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 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 Series A Preferred and such other series of
Preferred Stock pursuant to the foregoing special voting rights will
immediately terminate.
(ii) A "Voting Event" shall be deemed to have occurred in the
event that dividends payable on any share or shares of Series A
Preferred 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 shall 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 rights of holders of the Series A Preferred 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 Corporation to pay dividends at the stated rate for any
six full quarterly Dividend Periods (whether or not consecutive).
(d) So long as any shares of Series A Preferred remain
outstanding, without the consent of the holders of shares entitled to cast at
least two-thirds of the votes entitled to be cast by the holders of the total
number of shares of Preferred Stock then outstanding, voting separately as a
class without regard to series, with the holders of shares of Preferred Stock
being entitled to cast one vote (or fraction thereof) for each $25.00 of
liquidation preference to which such stock is entitled, the Corporation may
not: (i) create, authorize or issue, or increase the authorized or issued
amount of any class or series of stock of the Corporation or any warrants,
options or other rights convertible or exchangeable into any class or series of
any capital stock of the Corporation which shall have preference, or be on a
parity with, as to dividends or distributions of assets upon liquidation,
-9-
<PAGE> 10
dissolution or winding up over the Series A Preferred or (ii) amend, alter or
repeal (whether by merger, consolidation or otherwise) any provision of the
Certificate of Incorporation or this Certificate of Designation, Preferences
and Rights of the Corporation so as to adversely affect the powers, preferences
or special rights of the Series A Preferred or holders thereof; provided,
however, that an increase in the authorized amount of Preferred Stock or the
creation of any class or series of stock ranking junior to the shares of Series
A Preferred as to dividends and/or distributions of assets upon liquidation,
dissolution or winding up shall not be deemed to adversely affect the voting
power, preferences or special rights of the holders of shares of Series A
Preferred. The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such voting would otherwise be
required occurs, all outstanding shares of Series A Preferred shall have been
(x) redeemed or called for redemption and sufficient funds, together with
irrevocable instructions to the Paying Agent to apply such funds, shall have
been deposited in trust, to effect such redemption in accordance with Section
3(b)(ii) or 3(b)(iii) hereof, or (y) purchased or otherwise acquired and
cancelled.
7. Priority as to Certain Distributions. As a series of
Preferred Stock, the shares of Series A Preferred shall be entitled to such
rights and priorities, and subject to such limitations, as to dividends as are
set forth in these resolutions and in the Certificate of Incorporation.
8. Sinking Fund. No sinking fund shall be provided for the
purchase or redemption of shares of the Series A Preferred.
9. Ranking. For purposes hereof, any class or series of stock
of the Corporation shall be deemed to rank:
(a) prior to the Series A Preferred as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Series A Preferred;
(b) on a parity with the Series A Preferred as to
dividends or distribution of assets upon liquidation, dissolution or winding
up, whether or not the dividend rates, dividend payment dates, redemption
prices or liquidation preferences per share thereof are different from those of
the Series A Preferred, if the holders of such class or series of stock and of
the Series A Preferred shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective
-10-
<PAGE> 11
dividend amounts or liquidation preferences, without preference or priority to
the holders of Series A Preferred; and
(c) junior to the Series A Preferred as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be Common Stock or if the holders of the Series A Preferred shall
be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of such class or series.
10. Exclusion of Other Rights. Unless otherwise required by law,
shares of Series A Preferred shall not have any rights, including preemptive
rights, or preferences other than those specifically set forth herein or as
provided by applicable law.
11. Notices. All notices or communications, unless otherwise
specified in the By-laws of the Corporation, the Certificate of Incorporation
or otherwise in these resolutions, shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail, postage prepaid. Notice
shall be deemed given on the earlier of the date received or the date such
notice is mailed.
12. Captions. The captions and headings set forth in these
resolutions are for convenience of reference only and are not a part of, nor
shall they affect the interpretation or construction of, these resolutions.
* * *
-11-
<PAGE> 12
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Jeffrey W. Taylor and J. Christopher Alstrin, its
Chairman of the Board and Chief Executive Officer and Chief Financial Officer,
respectively, and attested to by J. Christopher Alstrin, its Secretary, as of
the date first written above.
TAYLOR CAPITAL GROUP, INC.
By:
------------------------------------
Jeffrey W. Taylor
Its: Chairman of the Board and
Chief Executive Officer
By:
------------------------------------
J. Christopher Alstrin
Its: Chief Financial Officer
ATTEST
By
--------------------------
J. Christopher Alstrin
Its: Secretary
-12-
<PAGE> 1
EXHIBIT 5.1
January __, 1997
Taylor Capital Group, Inc.
350 East Dundee Road
Wheeling, Illinois 60090
Gentlemen:
We have acted as counsel to Taylor Capital Group, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance by the
Company of 1,530,000 shares of ___% Non-cumulative Perpetual Preferred Stock,
Series A, par value $.01 per share (the "Preferred Stock"), to be sold to the
public through a firm commitment underwriting pursuant to a Purchase Agreement,
dated January __, 1997, by and among the Company, Piper Jaffray Inc. and
Robert W. Baird & Co. Incorporated (the "Purchase Agreement").
For the purposes of rendering our opinion as stated herein, we have
made such inquiries and examined such documents as we have considered necessary
or appropriate, including the examination of executed or conformed
counterparts, or copies otherwise proved to our satisfaction, of the Certificate
of Incorporation of the Company, including the Certificate of Designation
relating to the Preferred Stock in the form submitted for our review to be
filed with the Secretary of State of Delaware in accordance with Section 103 of
the General Corporation Law of the State of Delaware (collectively, the
"Certificate of Incorporation"), the By-Laws of the Company, resolutions of the
Board of Directors of the Company, the Purchase Agreement, the Registration
Statement on Form S-1, as amended, with respect to the Preferred Stock,
originally filed by the Company with the Securities and Exchange Commission on
October 24, 1996 (together with all amendments, the "Registration Statement"),
and certificates of public officials and representatives of the Company as to
factual matters upon which we have relied. We have assumed the authenticity of
all documents submitted to us as originals, the conformity with the originals
of all documents submitted to us as copies, the genuineness of all signatures
and the legal capacity of natural persons.
<PAGE> 2
Taylor Capital Group, Inc.
January __, 1997
Page 2
Based upon and subject to the foregoing, and based upon our
consideration of such matters of law as we have deemed appropriate, it is our
opinion that, under Delaware law: (i) upon the Certificate of Designation being
duly filed in the proper order in the form submitted for our review with the
Secretary of State of Delaware in accordance with Section 103 of the General
Corporation Law of the State of Delaware, the 1,530,000 shares of Preferred
Stock will be duly authorized for issuance; (ii) when thereafter issued, sold,
delivered and paid for in accordance with the Purchase Agreement, such shares
of Preferred Stock will be validly issued, fully paid, and nonassessable; and
(iii) thereupon the relative powers, preferences and rights, and the
qualifications, limitations and restrictions thereof, of the Preferred Stock
will be as set forth in the Certificate of Incorporation, none of which
relative powers, preferences or rights, or the qualifications, limitations or
restrictions thereof, contravenes any provision of any applicable law or
regulation of the State of Delaware in effect as of the date hereof.
We hereby consent to the use and filing of this opinion as an exhibit
to the Registration Statement and to all references to our firm in the
Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 10.1
LOAN AGREEMENT
Dated as of January ___, 1997
among
TAYLOR CAPITAL GROUP, INC.
as Borrower,
and
LASALLE NATIONAL BANK
as Bank
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
<TABLE>
<S> <C>
1. DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certain UCC and Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 14
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Term Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Borrowing Procedures under the Commitment . . . . . . . . . . . . . . . . . . . . 15
2.4 All Loans to Constitute One Obligation . . . . . . . . . . . . . . . . . . . . . 15
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. LOANS: NOTES EVIDENCING LOANS; SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Revolving Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Security Interest in Stock of Cole Taylor . . . . . . . . . . . . . . . . . . . . . 16
4. LOANS: AMOUNTS; INTEREST; BALANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Applicable Borrowing Amounts; Interest Rates; Default Rate . . . . . . . . . . . . 16
4.2 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Conversion and Reborrowing of Loans . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR
Rate or Adjusted LIBOR Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 Yield Protection, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Funding Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Discretion of Bank as to Manner of Funding . . . . . . . . . . . . . . . . . . . . 21
4.9 Interest Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5. LOANS: GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Payments to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Application of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Conditions Precedent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Credit Termination Date; Continuance of Obligations, Etc. . . . . . . . . . . . . . 23
5.6 Loan Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 Over-Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6. LOANS: CONDITIONS TO LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 Initial Loan Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 25
7. REPRESENTATIONS AND WARRANTIES; COVENANTS; INDEMNIFICATION; CONTINUING OBLIGATION . . . . . . . . . . 27
7.1 Representations and Warranties of Borrower . . . . . . . . . . . . . . . . . . . . 27
7.2 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.3 Acceleration and Termination of Loans . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Rights of Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.1 Payment Application Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2 Statement of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.3 Manner of Application; Waiver of Setoff Prohibition . . . . . . . . . . . . . . . . 43
9.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . 43
9.5 Integration; Amendment; Assignment; Participation . . . . . . . . . . . . . . . . . 43
9.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Conflict with Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 No Impairment by Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Costs, Fees and Expenses Related to Agreement and Other Agreements . . . . . . . . 45
9.13 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.15 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.16 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.17 Forum; Bank; Venue; Jury Trial Waiver . . . . . . . . . . . . . . . . . . . . . . . 46
9.18 Other Costs, Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.19 Revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.20 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.21 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.22 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.23 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.24 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
ii
<PAGE> 4
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of the ___ day of
January, 1997, by and between TAYLOR CAPITAL GROUP, INC., a Delaware
corporation ("Borrower"), and LASALLE NATIONAL BANK, a national banking
association ("Bank").
W I T N E S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other financial
accommodations from Bank; and
WHEREAS, pursuant to Borrower's request, Bank is willing to lend
monies to Borrower pursuant hereto;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements set forth herein, Borrower agrees to borrow from Bank, and Bank
agrees to lend to Borrower, subject to and upon the following terms and
conditions:
1. DEFINITIONS AND TERMS
1.1 Certain Definitions. The following words, terms and/or
phrases shall have the meanings set forth thereafter and such meanings shall be
applicable to the singular and plural form thereof, giving effect to the
numerical difference.
"Adjusted LIBOR Rate" shall mean a rate per annum determined
pursuant to the following formula:
Adjusted LIBOR Rate = LIBOR
----------------------------
100% - Reserve Percentage
"Affiliate" means any Person (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or
is under common control with Borrower or one or more Subsidiaries, (b)
that directly or beneficially owns or holds 10% or more of any equity
interest in Borrower or one or more Subsidiaries or (c) 10% or more of
whose voting stock (or in the case of a Person which is not a
corporation, 10% or more of any equity interest) is owned directly or
beneficially or held by Borrower or one or more Subsidiaries. For
purposes of this definition and this Agreement, the term "control"
shall mean, the power to direct or cause the direction, directly or
indirectly, of the management or policies of a Person, whether through
ownership interest or otherwise, including without limitation the
power to elect or appoint, directly or indirectly, a majority of the
members of its governing board or body.
<PAGE> 5
"Allowance for Loan and Lease Losses" means the valuation
reserve established and maintained by Cole Taylor to absorb credit
losses related to loans and leases in accordance with GAAP and
regulatory accounting.
"Authorized Officer" means the Chairman, President, or Chief
Financial Officer of Borrower.
"Average Yield" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities for such number of years
as approximates as closely as practicable the remaining number of
years from the date Borrower makes a Fixed Rate Election until the
Term Loan Maturity Date), as determined by Bank in its sole
discretion.
"Bank Stock" means all of the issued and outstanding Stock of
Cole Taylor.
"Banking Liabilities" means (i) any deposits with Cole Taylor
or funds collected by Cole Taylor, (ii) any banker's acceptance credit
of Cole Taylor, (iii) any check, note, certificate of deposit, money
order, letter of credit, travelers check, draft or bill of exchange
issued, accepted or endorsed by Cole Taylor, (iv) any discount with,
borrowing from, or other obligation to, any Federal Reserve Bank, (v)
any agreement made by Cole Taylor to purchase or repurchase
securities, loans or federal funds or any interest or participation in
any thereof, (vi) any guarantee or similar obligation incurred by Cole
Taylor in such circumstances as may be incidental or usual in carrying
on the banking or trust business of a bank or trust company, (vii) any
transaction in the nature of an extension of credit, whether in the
form of a commitment or otherwise, undertaken by Cole Taylor for the
account of a third party with the application of the same banking
considerations and legal lending limits that would be applicable if
the transaction were a loan to such party, (viii) any transaction in
which Cole Taylor acts solely in a fiduciary or agency capacity, (ix)
any obligation of Cole Taylor on account of any loans from the Federal
Deposit Insurance Corporation which may or may not be secured by any
assets of Cole Taylor; and (x) any Lien, in favor of a public or
governmental authority, upon securities guaranteed by agencies and
instrumentalities of the federal government held by Borrower or any
Subsidiary equal in market value to the amount by which the funds
deposited by such public or governmental authority with Cole Taylor
exceeding the federally insured amount of such deposits and any Lien
arising in connection with any commercial repurchase agreement entered
into the normal course of business by Borrower or a Subsidiary.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
2
<PAGE> 6
"Base Rate" shall have the meaning assigned to such term in
the definition of "Prime Rate" in this Paragraph 1.1 below.
"Base Rate Loan" shall mean a Loan bearing interest as
specified in Paragraph 4.1(a).
"Borrower's Liabilities" means all obligations and liabilities
of Borrower in the aggregate to Bank (including, without limitation,
all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether
under this Agreement or the Other Agreements or by operation of law or
otherwise.
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day on which commercial banking
institutions are open for the transaction of commercial banking
business in Chicago, Illinois other than a Saturday or Sunday, and
(ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, any LIBOR Loan, any
day which is a Business Day described in clause (i) and which is also
a day for trading by and between banks in U.S. dollar deposits in the
interbank eurodollar market.
"Capital" means the Tier 1 capital of Cole Taylor as that term
is defined in Appendix A to 12 C.F.R Section 208.
"Capital Lease" as applied to any Person shall mean any lease
of property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on
the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in
each case taken at the amount thereof accounted for as liabilities in
accordance with GAAP.
"Charges" means all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality, division,
agency, body or department thereof, including, without limitation, the
PBGC) taxes, levies, assessments, charges, liens, claims or
encumbrances upon and/or relating to Borrower's Liabilities,
Borrower's business, Borrower's ownership and/or use of its assets,
income and/or gross receipts.
"Closing Date" means January ___, 1997.
3
<PAGE> 7
"Code" means the Internal Revenue Code of 1986, as amended.
"Cole Taylor" means Cole Taylor Bank, an Illinois banking
corporation and a 100% owned subsidiary of Borrower (after giving
effect to the Transactions).
"Collateral Interest" means a Lien held by Borrower or Cole
Taylor in another Person which is granted to the holder pursuant to a
financing arrangement, and shall also include any Lien held during and
after foreclosure of that Lien by the holder thereof, unless and until
the subject holder first commences to treat, in any manner (howsoever
evidenced by a single act or a course of dealing or otherwise), the
subject Lien, or the subject other Person, as an on-going equity
investment or an affiliated business operation, rather than a Lien.
"Commitment" means as to Bank, the aggregate obligation of the
Bank to Borrower under the Revolving Credit Commitment and the Term
Loan Commitment.
"Conversion Date" means the Business Day on which a Base Rate
Loan is converted to a LIBOR Loan.
"CT Mortgage Company" means CT Mortgage Company, Inc., a
Delaware corporation and a 100% owned subsidiary of Borrower (after
giving effect to the Transactions).
"Debt" means, without duplication, all of a Person's
liabilities, obligations and indebtedness to any Person of any and
every kind and nature, whether primary, secondary, direct, indirect,
absolute, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether
under written or oral agreement, by operation of law or otherwise.
Without in any way limiting the generality of the foregoing, Debt
specifically includes (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of
property or services, (iv) obligations as lessee under leases which
shall have been or should be, in accordance with GAAP, recorded as
capital leases, and (v) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above.
4
<PAGE> 8
"Default" shall have the meaning assigned to such term in
Paragraph 6.1(b)(iii) hereof.
"Default Rate" shall have the meaning assigned to such term in
Paragraph 4.1(c) hereof.
"Early Termination Date" means the date, pursuant to Paragraph
8.3, upon which, whether by notice or by right hereunder, Bank's
Commitment is terminated.
"Environmental Claim" means any notice of violation, claim,
demand, abatement order or other order or direction (conditional or
otherwise) by any governmental authority for any damage, including,
without limitation, personal injury (including sickness, disease or
death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, release of any Hazardous Material to
the environment, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from
or based upon (i) the occurrence of a Release (whether sudden or
non-sudden or accidental or non-accidental) of, or exposure to, any
Hazardous Material, in, into or onto the environment at, in, by, from,
onto or related to any Facility, (ii) the generation, use, handling,
transportation, storage, treatment or disposal of Hazardous Materials
in connection with the operation of any Facility, or (iii) the
violation, or alleged violation, of any Environmental Laws or any
Governmental Authorizations relating to environmental matters in
connection with the Facilities.
"Environmental Laws" means all statutes, ordinances, orders,
rules, regulations, plans, policies, or decrees and the like relating
to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials, (ii) the generation, use,
handling, transportation, storage, treatment or disposal of Hazardous
Materials or (iii) occupational safety and health, industrial hygiene,
land use or the protection of human, plant or animal health or welfare
related to Hazardous Materials, in any manner applicable to Borrower or
an Affiliate or any of their respective properties, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and
the Emergency Planning and Community
5
<PAGE> 9
Right-To-Know Act (42 U.S.C. Section 11001 et seq.), each as amended
or supplemented, and any analogous present or future local, state and
federal statutes and regulations promulgated pursuant thereto, each as
in effect as of the date of determination.
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time and, unless the
context otherwise requires, the regulations promulgated thereunder and
any successor statute.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with Borrower or an Affiliate would be
deemed to be a "single employer" within the meaning of Section 4001(b)
of ERISA or, where applicable, would be treated as a "single employer"
under Section 412(c)(11) of the Code.
"ERISA Termination Event" means (i) a "Reportable Event"
described in Section 4043 of ERISA (other than a "Reportable Event"
not subject to the provision for 30-day notice to the PBGC under such
regulations), (ii) the withdrawal of Borrower or any Affiliate from a
Plan during a plan year in which it was a "substantial employer," as
defined in Section 4001(a) of ERISA, including a cessation of
operations that is treated as a withdrawal by a "substantial employer"
under Section 4062(e) of ERISA, (iii) the filing of a notice of intent
to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC, (v) any other event or
condition which in the reasonable judgment of Borrower is likely to
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to or any ERISA administer, any Plan,
or (vi) the partial or complete withdrawal of Borrower or any ERISA
Affiliate from a Multiemployer Plan.
"Event of Default" shall have the meaning assigned to such
term in Paragraph 8.1 hereof.
"Excess Interest" shall have the meaning assigned to such
term in Paragraph 4.9 hereof.
"Facilities" means any and all real property (including,
without limitation, all buildings, or other improvements located
thereon) now, hereafter or heretofore, owned, leased, operated or used
by Borrower, its Subsidiaries or any of its respective successors and
assigns.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the
6
<PAGE> 10
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, provided that (i)
if the day for which such rate is to be determined is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the
next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be
the average rate charged to Bank on such day on such transactions as
determined by Bank.
"Federal Reserve" means the Board of Governors of the Federal
Reserve System or its designee, the Federal Reserve Bank of Chicago.
"Financials" means those financial statements of Borrower
heretofore or concurrently herewith delivered by or on behalf of
Borrower to Bank.
"Fixed Rate" means the Average Yield plus one hundred sixty
(160) basis points.
"Fixed Rate Election" shall have the meaning assigned to such
term in Paragraph 4.1(c) hereof.
"Fixed Rate Loan" means a Term Loan bearing interest at the
Fixed Rate.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or
from any federal, state or local governmental authority, agency or
court having jurisdiction over Borrower or any Facility.
"Hazardous Materials" means (i) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "infectious waste,"
"toxic substances" or any other formulations intended to define, list
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws or publications
promulgated pursuant thereto, (ii) any oil, petroleum or petroleum
derived substance, (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or
production of crude oil, natural gas or
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geothermal resources, (iv) any flammable substances or explosives, (v)
any radioactive materials, (vi) asbestos in any form (which is or
could become friable), (vii) urea formaldehyde foam insulation, (viii)
electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty
parts per million, (ix) pesticides or (x) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
any governmental authority or which may or could pose a hazard to the
health and safety of the owners, occupants or any Persons in the
vicinity of the Facilities.
"Interest Period" means with respect to the LIBOR Loans, the
period used for the computation of interest commencing on the date the
relevant LIBOR Loan is effected by conversion or continued and
concluding on the date one (1), two (2) or three (3) months
thereafter, at Borrower's option, with any subsequent Interest Period
commencing on the last day of the immediately preceding Interest
Period and concluding one (1), two (2) or three (3) months thereafter,
at Borrower's option; provided, however, that no Interest Period for
any LIBOR Loan made under the Commitment may extend beyond the
Revolving Credit Maturity Date or the Term Loan Maturity Date, as the
case may be. Each Interest Period for a LIBOR Loan which would
otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (unless such next succeeding Business Day
is the first Business Day of a calendar month, in which case such
Interest Period shall end on the next preceding Business Day).
"Liabilities" means, as of any date, the aggregate amount of
all liabilities of Borrower, in accordance with GAAP.
"LIBOR" means for each Interest Period the rate of interest
per annum as determined by Bank (rounded upward, if necessary, to the
nearest whole multiple of one-sixteenth of one percent (1/16th of 1%)
or such other integral multiple thereof at which interest rates for
LIBOR-based loans are commonly quoted to major banks in the interbank
eurodollar market) at which deposits of United States Dollars in
immediately available and freely transferable funds would be offered
at 11:00 a.m., Chicago time, two (2) Business Days prior to the
commencement of such Interest Period by the principal offshore funding
office of Bank to major banks in the interbank eurodollar market upon
request by such major banks for a period equal to such Interest Period
and in an amount equal to the principal amount of the LIBOR Loan to be
outstanding from Bank during such Interest Period. Each determination
of LIBOR made by Bank in accordance with this paragraph shall be
conclusive and binding on Borrower except in the case of manifest
error.
"LIBOR Loan" means a Loan bearing interest as specified in
Paragraph 4.1(b).
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"LIBOR Margin" means one and 25/100 percent (1.25%).
"Lien" means, with respect to any asset of Borrower, any
mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code in effect in any
jurisdiction).
"Loan" or "Loans" means and includes all Prime Rate Loans and
LIBOR Loans made under the Commitment, unless the context in which
such term is used shall otherwise require.
"Loan Loss Reserve" means that amount reserved for possible
loan losses as reflected in the financial statements of Cole Taylor.
"Material Adverse Effect" means: (i) a material adverse effect
upon the financial condition of (x) either Borrower or Cole Taylor,
(y) Borrower and the Subsidiaries, taken as a whole, or (z) any
Subsidiary comprising 20% or more of the assets or earning power of
Borrower, and other Subsidiaries, taken as a whole, in any such case
measured against the most recently delivered Financials (or, if more
favorable to Borrower, measured against the Financials as of the
fiscal year-end of Borrower immediately preceding the date hereof); or
(ii) a change in the business, operations or assets of Borrower, or
any Subsidiary which could reasonably be expected to cause Borrower to
be unable to repay Borrower's Liabilities or satisfy the covenants set
forth in Paragraphs 7.2 and 7.3.
"Maximum Rate" shall have the meaning assigned to such term
in Paragraph 4.9 hereof.
"Multiemployer Plan" means a plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by Borrower
or an ERISA Affiliate.
"Net Worth" means, as of any date of determination thereof,
the amount of all assets of Cole Taylor as may be properly classified
as such less the amount of all unsubordinated Liabilities of Cole
Taylor, all as determined in accordance with GAAP.
"Non-Performing Assets" means those assets of Cole Taylor
classified as non-performing in accordance with standard industry
practices on the most recent consolidated financial statements of
Borrower.
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"Non-Performing Loans" means those loans of Cole Taylor
classified as non-performing in accordance with standard industry
practices on the most recent consolidated financial statements of
Borrower.
"Notes" means the Revolving Note and the Term Note.
"OBRE" means Illinois Office of Banks and Real Estate.
"Other Agreements" means all agreements, instruments and
documents, including, without limitation, guaranties, mortgages, deeds
of trust, guaranties, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower and delivered to the Bank in connection with this Agreement
including, without limitation, the Notes, the Safekeeping Agreement
and the Pledge Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Debt" means (i) Debt incurred pursuant to this
Agreement; (ii) the Capitalized Lease Obligations of Borrower,
provided that the aggregate Capitalized Lease Obligations under all
Capital Leases shall not exceed $500,000; (iii) Subordinated Debt of
Borrower; (iv) legal fees with respect to the transactions
contemplated by this Agreement; (v) Debt incurred in the ordinary
course of business not exceeding $100,000 in aggregate; (vi) Debt
arising or accruing in the ordinary course of business, which Debt
does not give rise to a Lien or other security interest, other than a
Permitted Lien; (vii) guarantees of the obligations of CT Mortgage
Company and its Subsidiaries under sales of loan pools; and (viii)
trade payables accrued in the ordinary course of business.
"Permitted Liens" means (i) Liens securing the payment by
Borrower or a Subsidiary of taxes, assessments or governmental
charges, provided that Borrower is contesting in good faith, by an
appropriate proceeding, the validity, amount or imposition of the
above while maintaining reserves deemed adequate by Bank to cover the
above and (a) such contest does not have or cause a Material Adverse
Effect, (b) Borrower has made an adequate provision for the payment of
all taxes, assessments, penalties, interest and other governmental
charges which are accruing but are not yet due and payable, and (c)
Borrower has no knowledge and is not aware of any deficiency or
additional assessment which may have or has arisen in connection with
the foregoing, in all cases where such failure could not reasonably be
expected to have a Material Adverse Effect; (ii) Liens securing
charges, levies, claims or demands against Borrower
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or a Subsidiary of materialmen, mechanics, carriers, warehousemen,
landlords and other like persons, provided that the obligations
secured by such Liens are otherwise permitted hereunder; (iii) Liens
incurred or deposits made in the ordinary course of business (a) in
connection with workmen's compensation, unemployment insurance, social
security and other like laws against Borrower or a Subsidiary, and (b)
to secure the performance of letters of credit, bids, tenders,
contracts, leases, surety, appeal and performance bonds and other
similar obligations against Borrower or a Subsidiary not incurred in
connection with the borrowing of money; (iv) Liens to secure, or which
are granted in connection with, Banking Liabilities of Borrower or a
Subsidiary; (v) attachment, judgment and other similar Liens arising
in connection with court proceedings involving Borrower or a
Subsidiary, provided that such Liens do not involve any judgement or
order requiring payment of monies in excess of $10,000 in aggregate
which are not covered by insurance; (vi) Liens on the property of a
Bank or a Subsidiary securing obligations owing to Borrower, a Bank or
a Subsidiary; (vii) reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases
and other similar title exceptions or encumbrances affecting real
property of Borrower or a Subsidiary, provided that such Liens do not
interfere with the use or value of the real property in a manner which
would have a Material Adverse Effect; (viii) Liens, mortgages,
pledges, conditional sales contracts, security interests, capitalized
leases and arrangements for the retention of title existing as to
Borrower or a Subsidiary outstanding on the date of this Agreement;
(ix) Liens issued or incurred pursuant to Collateral Interests; (x)
Liens of a Subsidiary arising under the Interest Rate and Currency
Exchange Agreement dated as of April 16, 1992 and related documents,
granted by Cole Taylor Bank in favor of Bear Stearns Capital Markets,
Inc. and liens of a Subsidiary granted to others in connection with
interest rate swaps and other hedging devices comparable in function
to the foregoing arrangement with Bear Stearns Capital Markets, Inc.;
(xi) Liens or mortgages incurred by a Bank or Subsidiary after the
date hereof, given to secure the payment of the purchase price
incurred in connection with the acquisition of assets intended to be
used in carrying on the business of a Subsidiary; provided that (a)
such Liens or mortgages attach solely to the property acquired or
purchased, (b) at the time of the acquisition of such assets, the
aggregate amount remaining unpaid on all Debt secured by the
applicable Lien shall not exceed an amount equal to seventy percent
(70%) of the lesser of the total purchase price or the fair market
value at the time of acquisition of such assets (as determined in good
faith by the Board of Directors of such Subsidiary), and (c) the Debt
secured by such Liens shall not result in or cause a Default of the
financial covenants contained in Paragraph 7.2(i) hereof; (xii) (A)
Liens or encumbrances granted in connection with leases of real
property and (B) Liens granted in connection with leases on personal
property (long-term, capital or otherwise) so long as such leases
qualify as Permitted Debt; and (xiii) Liens issued or incurred in
connection with the replacement,
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extension and renewal of any obligations secured by a Lien
permitted under this definition provided that the Debt secured by such
Liens shall not result in or cause a Default of the financial covenants
contained in Paragraph 7.2(i) hereof.
"Person" means and includes an individual, a partnership, a
joint venture, a corporation (whether or not for profit), a trust, an
unincorporated organization, a government or any department or agency
thereof or any other entity or organization.
"Plan" means, at any time, any single-employer plan, as
defined in Section 4001(a) and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding
the time in question was maintained, for employees of Borrower or an
Affiliate.
"Pledge Agreement" means that certain pledge agreement made by
Borrower in favor of the Bank which may be executed and delivered from
time to time by Borrower in connection with the Safekeeping Agreement.
"Prime Rate" or "Base Rate" means the rate of interest
(expressed as a percentage per annum) most recently announced or
published publicly from time to time by Bank as its prime or base rate
of interest, which is not necessarily the lowest or most favorable
rate of interest charged by Bank on commercial loans at any one time.
The rate of interest shall change automatically and immediately as and
when the prime or base rate shall change, without notice to Borrower,
and any notice to which it may be entitled is hereby waived, and any
such change in Bank's prime or base rate shall not affect any of the
terms and conditions of this Agreement, all of which shall remain in
full force and effect.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge,
dumping, leaching, or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment
or disposal of any barrels, containers or other closed receptacles
containing any Hazardous Materials), or into or out of any Facility.
"Reserve Percentage" means, for the purpose of computing the
Adjusted LIBOR Rate, the reserve requirement imposed by the Board of
Governors of the Federal Reserve System (or any successor) under
Regulation D on "Eurocurrency liabilities" (as such term is defined in
Regulation D) for the applicable Interest Period as of the first day
of such Interest Period, but subject to any amendments of such reserve
requirement by such Board or its successor, and taking into account
any transitional adjustments thereto becoming effective during such
Interest Period. For purposes of this definition,
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LIBOR Loans shall be deemed to be Eurocurrency liabilities as defined
in Regulation D without benefit of or credit for prorations,
exemptions or offsets under Regulation D.
"Return on Average Assets" means Cole Taylor's ratio of (i)
net income after taxes but before extraordinary items to (ii) total
assets, all as determined in accordance with GAAP.
"Revolving Credit Commitment" shall have the meaning assigned
to such term in Paragraph 2.1 hereof.
"Revolving Credit Maturity Date" means January ___, 1998.
"Revolving Credit Termination Date" means the earlier to occur
of (i) the Revolving Credit Maturity Date or (ii) the Early
Termination Date.
"Revolving Loan" means and includes all Loans made under the
Revolving Credit Commitment.
"Revolving Note" means that certain Revolving Note of even
date herewith in the original aggregate maximum principal amount of
Five Million Dollars ($5,000,000), as the same may be amended,
modified or supplemented from time to time, and together with any
renewals thereof or exchanges or substitutes therefor.
"Safekeeping Agreement" means that certain Safekeeping
Agreement of even date herewith between Borrower and Bank.
"Stock" means all shares, interests, participation or other
equivalents, however designated, of or in a corporation, bank, limited
liability corporation, partnership or other entity, whether or not
voting, including but not limited to common stock, warrants, preferred
stock, convertible debentures, and all agreements, instruments and
documents convertible, in whole or in part, into any one or more or
all of the foregoing.
"Subordinated Debt" means, as of any date, the amount of Debt
which is subordinated in right of payment to Borrower's Liabilities on
terms reasonably satisfactory to the Bank in each particular case.
"Subsidiary" means any corporation of which a Person owns,
directly or indirectly through one or more intermediaries, more than
50% of the voting stock at the time of determination.
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"Term Loan Commitment" shall have the meaning assigned to such
term in Paragraph 2.2 hereof.
"Term Loan" means and includes all Loans made under the Term
Loan Commitment, unless the context in which such term is used shall
otherwise require.
"Term Loan Maturity Date" means January ___, 2002.
"Term Loan Termination Date" means the earlier to occur of the
(i) Term Loan Maturity Date or (ii) Early Termination Date.
"Term Note" means that certain Term Note of even date herewith
made payable by Borrower in favor of Bank in the original aggregate
principal amount of Twenty-Five Million Dollars ($25,000,000), as the
same may be amended, modified or supplemented from time to time, and
together with any renewals thereof or exchanges or substitutes
therefor.
"Termination Date" means the later to occur of the (i)
Revolving Credit Termination Date and (ii) the Term Loan Termination
Date.
"Transactions" means the transactions contemplated by that
certain Amended and Restated Share Exchange Agreement dated as of June
12, 1996, among Cole Taylor Financial Group, Inc. and various
shareholders of the Borrower.
1.2 Certain UCC and Accounting Terms. Except as otherwise defined
in this Agreement or the Other Agreements, all words, terms and/or phrases used
herein and therein shall be defined by the applicable definition therefor (if
any) in the Uniform Commercial Code as adopted by the State of Illinois.
Notwithstanding the foregoing, any accounting terms used in this Agreement
which are not specifically defined herein shall have the meaning customarily
given to them in accordance with GAAP. All financing computations hereunder
shall be computed, unless otherwise specifically provided herein, in accordance
with GAAP as consistently applied.
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES
2.1 Revolving Credit Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make revolving credit
available to Borrower from time to time prior to the Revolving Credit
Termination Date in such aggregate amounts as Borrower may from time to time
request but in no event exceeding Five Million Dollars ($5,000,000) (the
"Revolving Credit Commitment"). The Revolving Credit Commitment shall be
available to Borrower by means of Revolving Loans, it being understood that
Revolving Loans may be repaid and used
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<PAGE> 18
again during the period from the date hereof to and including the Revolving
Credit Termination Date, at which time the Revolving Credit Commitment shall
expire.
2.2 Term Loan Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make the Term Loan to
Borrower in the aggregate principal amount of Twenty-Five Million Dollars
($25,000,000) (the "Term Loan Commitment"). The Term Loan shall be funded in
one drawing. Amounts borrowed in respect of the Term Loan and repaid may not
be reborrowed; provided LIBOR Loans consisting of Term Loans may be continued
as LIBOR Loans or converted into Base Rate Loans pursuant to Paragraph 4.3
hereof.
2.3 Borrowing Procedures under the Commitment. Borrower shall
give Bank irrevocable telephonic notice (with prompt written confirmation),
written notice or telecopied notice by no later than 11:00 a.m., Chicago time,
on the date it requests to make a Base Rate Loan hereunder. Each such notice
shall be effective upon receipt by Bank and shall specify the date the Loan
shall be funded by Bank (which shall be a Business Day) and the amount of such
Loan. Borrower shall give Bank irrevocable telephonic notice (which notice
shall be promptly confirmed in writing) no later than 10:00 a.m., Chicago time,
two (2) Business Days prior to the date that it requests Bank to make a LIBOR
Loan hereunder or to effect a conversion from a Base Rate Loan to a LIBOR Loan,
including a reborrowing as provided in Paragraph 4.3. Each such notice shall
be effective upon receipt by Bank, and shall specify the date of such Loan
(which shall be a Business Day), the amount of such Loan, and the Interest
Period applicable thereto. Borrower agrees that Bank may rely on any notice
given by any person it reasonably believes to be an Authorized Officer without
the necessity of independent investigation. Each borrowing shall be on a
Business Day. Each borrowing shall be funded by Bank by 2:00 p.m., Chicago
time, on the applicable Business Day determined above.
2.4 All Loans to Constitute One Obligation. The Loans shall
constitute one general obligation of Borrower.
2.5 Use of Proceeds. The proceeds of the Term Loan shall be used
by Borrower primarily to infuse additional capital into Cole Taylor to comply
with the minimum capital requirements of any applicable banking laws or
regulations or any requirements of any regulatory agencies and any funds not so
used shall be applied to expenses for the Transactions or for general working
capital purposes. The proceeds of the Revolving Loans will be used for general
working capital purposes.
3. LOANS: NOTES EVIDENCING LOANS; SECURITY
3.1 Revolving Note. The Revolving Loans made by Bank under the
Revolving Credit Commitment shall be evidenced by the Revolving Note
substantially in the form set forth in Exhibit 3.1, with appropriate
insertions, dated the date hereof (or such
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other date prior thereto as shall be satisfactory to Bank), payable to the
order of Bank in the maximum aggregate principal amount of Five Million Dollars
($5,000,000). The unpaid principal amount of the Revolving Loan shall bear
interest and be due and payable as provided in this Agreement and the Revolving
Note. Payments to be made by Borrower under the Revolving Note shall be made
at the time, in the amounts and upon the terms set forth herein and therein.
3.2 Term Note. The Term Loan made by Bank under the Term Loan
Commitment shall be evidenced by the Term Note substantially in the form set
forth in Exhibit 3.2, with appropriate insertions, dated the date hereof (or
such other date prior thereto as shall be satisfactory to Bank), payable to the
order of Bank in the aggregate principal amount of Twenty-Five Million Dollars
($25,000,000). The unpaid principal amount of the Term Loan shall bear
interest and be due and payable as provided in this Agreement and the Term
Note. Payments to be made by Borrower under the Term Note shall be made at the
time, in the amounts and upon the terms set forth herein and therein.
3.3 Recordation. The type, date and amount of each Loan made by
Bank, the interest rate, and the date and amount of each repayment of principal
received by Bank shall be recorded by Bank in its records. The aggregate
unpaid principal amount so recorded shall be prima facia evidence of the
principal amount owing and unpaid on the Revolving Note and the Term Note. The
failure to so record any such amount or any error in so recording any such
amount shall not limit or otherwise affect the obligations of Borrower
hereunder or under the Revolving Note and the Term Note to repay the principal
amount of the Loans together with all interest accrued thereon.
3.4 Security Interest in Stock of Cole Taylor. In the
circumstances described in the Safekeeping Agreement, Borrower agrees that it
shall immediately pledge, assign, transfer, deliver and set over to Bank
pursuant and subject to the Safekeeping Agreement and the Pledge Agreement, all
of Borrower's right, title and interest in and to, and grant Bank a
first-priority Lien on and security interest in, all of the Stock of Cole
Taylor, to be retained subject to the terms of such agreements by Bank.
4. LOANS: AMOUNTS; INTEREST; BALANCES
4.1 Applicable Borrowing Amounts; Interest Rates; Default Rate
(a) Borrower hereby promises to pay interest on the
unpaid principal amount of each Revolving Loan that is a Base Rate Loan at a
rate per annum equal to the Base Rate from time to time in effect for the
period commencing on the date of such Loan until such Base Rate Loan is (A)
converted to a LIBOR Loan pursuant to Paragraph 4.3 hereof, or (B) paid in
full. Borrower hereby promises to pay interest on the unpaid principal amount
of the Term Loan that is a Base Rate Loan at a rate per annum equal to the Base
Rate from time to time in effect for the period commencing
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on the date of such Loan until such Base Rate Loan is (i) converted to a LIBOR
Loan pursuant to Paragraph 4.3 hereof or (ii) paid in full. Accrued interest
on the outstanding principal amount of Loans shall be payable (i) quarterly in
arrears on the last Business Day of each calendar quarter in the case of a Base
Rate Loan or a Fixed Rate Loan, (ii) on the last day of the Interest Period
therefor in the case of a LIBOR Loan, (iii) upon conversion of any Loan into a
LIBOR Loan (such amount of accrued interest then coming due to be calculated
based on the principal amount of the Loan so converted) and (iv) upon the
Revolving Credit Termination Date (in the case of a Revolving Loan) and the
Term Loan Maturity Date (in the case of a Term Loan), which payments shall
commence with the last Business Day of January, 1997 in the case of a Base Rate
Loan or a Fixed Rate Loan. After the Revolving Credit Termination Date (in the
case of a Revolving Loan) and the Term Loan Maturity Date (in the case of a
Term Loan) or Conversion Date covered in (ii) above, as applicable, accrued
interest on such Loans shall be payable on demand.
(b) Each LIBOR Loan shall be in a minimum amount of
$1,000,000 or such greater amount which is an integral multiple of $100,000 and
shall bear interest (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such LIBOR
Loan is effected by conversion or continued until maturity (whether by
acceleration or otherwise) at a rate per annum equal to the sum of the LIBOR
Margin plus the Adjusted LIBOR Rate, with such interest payable in accordance
with Paragraph 4.1(a) above.
(c) Notwithstanding the provisions of Paragraph 4.1(a)
above, prior to the occurrence of a Default or Event of Default, Borrower may
elect to convert the rate of interest on all or any portion of the outstanding
principal amount of the Term Loan to the Fixed Rate (the "Fixed Rate
Election"); provided, however, that prior to the effectiveness of a Fixed Rate
Election, the following shall occur: (i) all LIBOR Loans in respect of the
portion of the principal amount of the Term Loan subject to the Fixed Rate
Election shall have been converted into a Base Rate Loan and (ii) all unpaid
interest on the outstanding principal amount of the portion of the principal
amount of the Term Loan subject to the Fixed Rate Election shall be paid in
full at a rate per annum equal to the Average Yield.
(d) If an Event of Default shall have occurred and be
continuing hereunder, the Loans shall bear interest from the date of such Event
of Default, payable on demand, at a rate per annum (the "Default Rate") equal
to the sum of two percent (2%) plus the applicable interest rate from time to
time in effect (computed on the basis of a 360 day year and actual days
elapsed).
4.2 Computation of Interest. Interest on each Loan shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
The interest rate applicable to each Base Rate Loan shall change simultaneously
with each change in such Base Rate. Upon conversion of less than all the
aggregate principal amount of
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Base Rate Loans outstanding at any one time to a LIBOR Loan, interest on the
remaining principal amount of Base Rate Loans outstanding after such conversion
shall be calculated assuming such LIBOR Loan replaced a corresponding amount of
Base Rate Loans bearing interest at the Base Rate applicable thereto
immediately prior to such conversion such that the remaining principal amount
of Base Rate Loans outstanding after such conversion shall bear interest at the
Base Rate which would have been applicable to such Base Rate Loans had no such
conversion been effected.
4.3 Conversion and Reborrowing of Loans.
(a) Provided that no Event of Default has occurred and is
continuing, Base Rate Loans may, subject to Paragraphs 2.3 and 4.1(b) hereof,
at any time be converted by Borrower to LIBOR Loans, which LIBOR Loans shall
mature and become due and payable on the last day of the Interest Period
applicable thereto. Provided that no Event of Default has occurred and is
continuing, Borrower shall have the right, subject to the terms and conditions
of this Agreement, to reborrow through a new LIBOR Loan in whole or in part,
subject to Paragraph 4.1(b), any LIBOR Loan from any current Interest Period
into a subsequent Interest Period, provided that Borrower shall give Bank
notice of the reborrowing of any such LIBOR Loan as provided in Paragraph 2.3
hereof.
(b) In the event that (i) Borrower fails to give notice
pursuant to Paragraph 2.3 hereof of the reborrowing of any LIBOR Loan or fails
to specify the Interest Period applicable to such reborrowing or (ii) an Event
of Default has occurred and is continuing at the time any such LIBOR Loan is to
be reborrowed hereunder, then such LIBOR Loan shall be automatically reborrowed
as a Base Rate Loan, subject to Paragraphs 4.1(c) (in the case of subpart (ii)
of this Paragraph 4.3(b)) and 8.3 hereof if an Event of Default has occurred
and is continuing, whichever is applicable, unless the relevant LIBOR Loan is
paid in full on the last day of the then applicable Interest Period.
(c) Notwithstanding anything contained herein to the
contrary, Borrower may not have outstanding at any one time more than (i) three
(3) LIBOR Loans in respect of the Revolving Credit Commitment and (ii) five (5)
LIBOR Loans in respect of the Term Loan Commitment.
4.4 Change of Law. Notwithstanding any other provisions of this
Agreement or the Notes, if at any time Bank shall determine in good faith that
any change in applicable law or regulation or in the interpretation thereof
makes it unlawful or impossible for Bank to effect a conversion of a Base Rate
Loan into a LIBOR Loan or to continue to maintain any LIBOR Loan, Bank shall
promptly give notice thereof to Borrower, and the obligation of Bank to effect
by conversion or continue such LIBOR Loan under this Agreement shall terminate
until it is no longer unlawful or impossible for Bank to effect by conversion
or maintain such LIBOR Loan. Upon the receipt of
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such notice, Borrower may elect to either (i) pay or prepay, as the case may
be, the outstanding principal amount of any such LIBOR Loan, together with all
interest accrued thereon and all other amounts payable to Bank under this
Agreement, or (ii) convert the principal amount of such affected LIBOR Loan to
a Base Rate Loan available hereunder, subject to the terms and conditions of
this Agreement.
4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR
Rate or Adjusted LIBOR Rate. Notwithstanding any other provision of this
Agreement or the Notes to the contrary, if prior to the commencement of any
Interest Period Bank shall determine in good faith (i) that deposits in the
amount of any LIBOR Loan scheduled to be outstanding are not available to Bank
in the relevant market or (ii) by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining
the LIBOR rate or Adjusted LIBOR Rate, then Bank shall promptly give notice
thereof to Borrower, and the obligation of Bank to effect by conversion or
continue any such LIBOR Loan in such amount and for such Interest Period shall
terminate until deposits in such amount and for the Interest Period selected by
Borrower shall again be readily available in the relevant market and adequate
and reasonable means exist for ascertaining the LIBOR rate or Adjusted LIBOR
Rate, as the case may be. Upon the giving of such notice, Borrower may elect
to either (i) pay or prepay, as the case may be, the outstanding principal
amount of any such LIBOR Loan, together with all interest accrued thereon and
all other amounts payable to the Bank under this Agreement or (ii) convert the
principal amount of such affected LIBOR Loan to a Base Rate Loan available
hereunder, subject to all the terms and conditions of this Agreement.
4.6 Yield Protection, Etc.
(a) Increased Costs. If (x) Regulation D of the Board of
Governors of the Federal Reserve System, or (y) the adoption of any applicable
law, treaty, rule, regulation or guideline, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank or its lending branch with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency,
(i) shall subject Bank, its lending branch or any
Loan to any tax, duty, change, stamp tax, fee, deduction, withholding
or other charge in respect of this Agreement, any Loan, the Notes or
the obligation of Bank to make or maintain any Loan, or shall change
the basis of taxation of payments to Bank of the principal of or
interest on any Loan or any other amounts due under this Agreement in
respect of any Loan or its obligation to make or maintain any Loan
(except for changes in the rate of tax on the overall net income of
Bank imposed by the federal, state or local jurisdiction in which
Bank's principal executive office or its lending branch is located);
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(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for the
account of, or credit extended by, Bank; or
(iii) shall impose on Bank any penalty with respect
to the foregoing or any other condition affecting this Agreement, any
Loan, the Notes or the obligation of Bank to make or maintain any
Loan;
and the result of any of the foregoing is to increase the cost to (or to impose
a cost on) Bank of making or maintaining any Loan, or to reduce the amount of
any sum received or receivable by Bank under this Agreement or under the Notes
with respect thereto, then Bank shall notify Borrower after it receives final
notice of any of the foregoing and, within forty-five (45) days after demand by
Bank (which demand shall be accompanied by a statement setting forth in
reasonable detail with calculations the basis of such demand), Borrower shall
pay directly to Bank for such additional amount or amounts as will compensate
Bank for such increased cost or such reduction.
In the event that an additional payment is made under Paragraph 4.6(a)(i) for
the account of Bank and Bank, in its good faith judgment, determines that it
has finally and irrevocably received or been granted a credit against or
release or remission for, or repayment of, any tax paid or payable by it in
respect of or calculated with reference to the deduction or withholding giving
rise to such payment, Bank shall, to the extent that it determines that it can
do so without prejudice to the retention of such amount or such credit, relief,
remission or repayment, pay to Borrower such amount as Bank shall, in its good
faith judgment, have determined to be attributable to such deduction or
withholding and to leave Bank (after such payment and net of related expenses)
in no worse position than it would have been in if Borrower had not been
required to make such deduction or withholding.
(b) Capital Adequacy. If either (i) the introduction of
or any change in or change in the interpretation of any law or regulation or
(ii) compliance by Bank with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects
or would affect the amount of capital required or expected to be maintained by
Bank or any corporation controlling Bank and Bank determines that the amount of
such capital is increased solely by or solely based upon the existence of
Bank's Commitment and other commitments of this type, then, upon demand by
Bank, Borrower shall immediately pay to Bank, from time to time as specified by
the Bank, additional amounts sufficient to compensate Bank in the light of such
circumstances, to the extent that Bank reasonably determines such increase in
capital to be allocable to the existence of Bank's commitment to lend
hereunder; provided such demand shall be accompanied by a summary in reasonable
detail with calculations showing the bases therefor.
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4.7 Funding Indemnity. In the event Bank shall incur any loss,
cost or expense (including, without limitation, any loss of profit and any
loss, cost or expense incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by Bank to fund or maintain any LIBOR Loan or
the relending or reinvesting of such deposits or amounts paid or prepaid to
Bank) as a result of:
(a) any payment of a LIBOR Loan on a date other than the
last day of the then applicable Interest Period;
(b) any failure by Borrower to effect by conversion or
continue any LIBOR Loan on the date specified in the notice given pursuant to
Paragraph 2.3 hereof;
(c) any failure by Borrower to make any payment of
principal or interest when due on any LIBOR Loan, whether at stated maturity,
by acceleration or otherwise; or
(d) the occurrence of any Event of Default;
then, upon the demand by Bank, Borrower shall pay to the applicable Bank such
amount as will reimburse Bank for such loss, cost or expense. If Bank makes
such a claim for compensation under this Paragraph 4.7, Bank shall provide to
Borrower a certificate setting forth the amount of such loss, cost or expense
in reasonable detail with calculations and such certificate shall be conclusive
and binding on Borrower as to the amount thereof except in the case of manifest
error.
4.8 Discretion of Bank as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary other than Paragraph 4.7, Bank
shall be entitled to fund and maintain its funding of all or any part of the
Loans in any manner each sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if
Bank had actually funded and maintained each LIBOR Loan during each Interest
Period for such LIBOR Loan through the purchase of deposits in the London
Interbank Market having a maturity corresponding to such Interest Period and
bearing an interest rate equal to the Adjusted LIBOR Rate for such Interest
Period.
4.9 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the Other Agreements, Borrower shall not be
required to pay, and Bank shall not be permitted to collect, any amount of
interest in excess of the maximum amount of interest permitted by law ("Excess
Interest"). If any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any of
the Other Agreements, then in such event: (a) the provisions of this Paragraph
shall govern and control; (b) Borrower shall not be obligated to pay any Excess
Interest; (c) any Excess Interest Bank may have received hereunder shall be, at
Bank's option, (i) applied as a credit against the outstanding
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principal balance of Borrower's Liabilities or accrued and unpaid interest (not
to exceed the maximum amount permitted by law), (ii) refunded to the payor
thereof, or (iii) any combination of the foregoing; (d) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "Maximum Rate"), and this
Agreement and the Other Agreements shall be deemed to have been and shall be
reformed and modified to reflect such reduction; and (e) Borrower shall not
have any action against Bank for any damages arising out of the payment or
collection of any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Borrower's Liabilities is calculated at the
Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Borrower's Liabilities shall remain at the Maximum
Rate until Bank shall have received the amount of interest which Bank would
have received during such period on such Borrower's Liabilities had the rate of
interest not been limited to the Maximum Rate during such period.
5. LOANS: GENERAL TERMS
5.1 Payments to Bank. That portion of Borrower's Liabilities
consisting of: (a) principal payable on account of the Loans made by Bank to
Borrower pursuant to this Agreement shall be payable by Borrower to Bank (i) as
provided in the Revolving Note in respect of the Revolving Loans and (ii) as
provided in the Term Note in respect of the Term Loan; (b) costs, fees and
expenses payable pursuant to this Agreement shall be payable by Borrower on
demand; (c) interest payable pursuant to this Agreement shall be payable by
Borrower for account of Bank as provided in Paragraph 4.1; and (d) the balance
of Borrower's Liabilities, if any, shall be payable by Borrower as and when
provided in this Agreement or the Other Agreements.
5.2 Application of Payment. Borrower shall, at the time of making
each payment under this Agreement or any Note (whether by account debit or
otherwise), specify to the Bank the Loan or other amounts payable by Borrower
hereunder to which such payment is to be applied (and in the event that it
fails to so specify, or if an Event of Default has occurred and is continuing,
Bank may distribute such payment in such manner as it may determine to be
appropriate).
5.3 Conditions Precedent Events. Each Loan made by the Bank to
Borrower, other than a conversion from a LIBOR Loan to a Base Rate Loan, at the
request of Borrower pursuant to this Agreement or the Other Agreements shall in
any event be subject to the following conditions precedent: (a) there shall not
then exist an Event of Default (as hereinafter defined) or any event or
condition which with notice, lapse of time and/or the making of such Loan would
constitute an Event of Default; (b) the representations, warranties and
covenants of Borrower contained in this Agreement shall be true and correct in
all material respects as of the date of such Loan with the same effect as
though made on such date; (c) all of the covenants and agreements
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<PAGE> 26
of Borrower in this Agreement, and all of the requirements of this Agreement
with respect to such Loan, shall have been complied with; and (d) there shall
not have occurred, since the date of this Agreement, any material adverse
change in the financial condition, results of operations or business of
Borrower. Each borrowing by Borrower hereunder shall be deemed a
representation and warranty by Borrower that the foregoing conditions have been
fulfilled as of the date of such borrowing. Bank shall have received upon
request a certificate signed by an Authorized Officer of Borrower dated the
date of such requested Loan certifying satisfaction of the conditions specified
in clauses (a)-(d) of this Paragraph 5.3.
5.4 Offset. Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim Bank may
otherwise have, Bank shall be entitled, at its option to offset balances held
by it for account of Borrower at any of its offices, in United States Dollars
or in any other currency, against any principal of or interest on any of its
Loans, or any other amount payable to Bank hereunder, which is not paid when
due (regardless of whether such balances are then due to Borrower).
5.5 Credit Termination Date; Continuance of Obligations, Etc.
This Agreement, Bank's Commitment and Borrower's ability to borrow monies from
Bank shall be in effect until the Revolving Credit Termination Date or Term
Loan Termination Date, as applicable. Notwithstanding the foregoing and until
such date when Borrower's Liabilities shall be paid in full, Borrower's
obligations hereunder and under the Other Agreements shall continue, interest
shall continue to be paid in accordance with the foregoing and the Bank shall
retain all of its rights and remedies under this Agreement and the Other
Agreements.
5.6 Loan Evidence. Loans made by Bank to Borrower pursuant to
this Agreement may or may not (at Bank's sole and absolute discretion) be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Where such loans are not so evidenced, such loans shall be evidenced solely by
entries upon the ledgers, books, records and/or computer records of Bank
maintained for that purpose, which entries shall be rebuttably presumptive
evidence of such loans in the absence of manifest error.
5.7 Over-Advances. If, at any time and for any reason, the
aggregate amount of Borrower's Liabilities outstanding hereunder exceeds the
limitations set forth in Paragraph 2.1 or Paragraph 2.2 (an "Over-Advance"),
then Borrower shall immediately pay to Bank, in cash, the amount of such
Over-Advance. If such Over-Advance remains outstanding for more than three (3)
days, until such Over-Advance is so repaid to Bank, the amount of such
Over-Advance shall bear interest at the applicable Default Rate.
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5.8 Prepayment. If Borrower, after a Fixed Rate Election,
prepays the principal portion of the Term Loan subject to such Fixed Rate
Election, in whole or in part, prior to the Termination Date, the same shall
pay (i) the Make-Whole Amount (as defined below) plus (ii) one percent (1%)
prior to the third (3rd) anniversary of the Closing Date and zero percent (0%)
thereafter. For the purposes hereof, the "Make-Whole Amount" shall be the
amount calculated as follows:
(i) There shall first be determined, as of the
date fixed for prepayment (the "Prepayment Date"), the amount, if any,
by which (A) the Fixed Rate exceeds (B) the yield to maturity
percentage for the United States Treasury Note dated ______________,
2002 (the "Treasury Note") as published in The Wall Street Journal on
the fifth business day preceding the Prepayment Date plus two hundred
and twenty-five basis points (2.25%) (the "Current Yield"). If (A)
publication of The Wall Street Journal is discontinued, or
(B) publication of the Treasury Note in The Wall Street Journal is
discontinued, Bank, in its sole discretion, shall designate another
daily financial or governmental publication of national circulation to
be used to determine the Current Yield;
(ii) The difference calculated pursuant to clause
(i) above shall be multiplied by the outstanding principal balance
hereof as of the Prepayment Date;
(iii) The product calculated pursuant to clause
(ii) above shall be multiplied by the quotient, rounded to the nearest
one-hundredth of one percent, obtained by dividing (A) the number of
days from and including the Prepayment Date to and including the Term
Loan Maturity Date, by (B) 365; and
(iv) The sum calculated pursuant to clause (iii)
above shall be discounted at the annual rate of the Current Yield to
the present value thereof as of the Prepayment Date, on the assumption
that said sum would be received in equal monthly installments on each
monthly anniversary of the Prepayment Date prior to the Maturity Date,
with the final such installment to be deemed received on the Maturity
Date;
provided that Borrowers shall not be entitled in any event to a credit against,
or a reduction of, the Debt being prepaid if the Current Yield exceeds the
Fixed Rate or for any other reason.
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6. LOANS: CONDITIONS TO LENDING
6.1 Initial Loan Conditions Precedent. In addition to those
conditions set forth in Paragraph 5.3 above with respect to all Loans and
advances hereunder, prior to or contemporaneously with the making of the
initial advance of funds, Bank's obligation to make any Loan is subject to the
satisfaction of the following conditions precedent:
(a) Fees and Expenses. Borrower shall have paid all fees
owed to Bank and reimbursed Bank for all expenses due and payable hereunder on
or before the date hereof including, but not limited to, reasonable counsel
fees provided for in Paragraph 9.12 hereof.
(b) Documents. Bank shall have received the following
documents, in form and substance reasonably satisfactory to Bank, and all of
the transactions contemplated by each such document shall have been consummated
or each condition contemplated by each such document shall have been satisfied:
(i) Related Documents. Copies of this Agreement
as required by Bank and one copy of the Revolving Note and the Term
Note conforming to the requirements hereof duly executed by Borrower.
(ii) Legal Opinion. The legal opinion of counsel
to Borrower.
(iii) Officer's Certificate. A certificate
executed by the President of Borrower stating that (A) no Event of
Default or event which, but for the giving of notice or lapse of time
or both, would be an Event of Default (each such event, a "Default")
has occurred and is continuing, (B) the representations, warranties
and covenants of Borrower contained herein are true and correct, and
(C) all of the covenants, conditions and agreements of Borrower in
this Agreement, and all of the requirements of this Agreement shall
have been complied with.
(iv) Insurance Policies. Certificates from
Borrower's insurance carriers evidencing that all insurance policies
and coverage required by Paragraph 7.2(h) below are in effect.
(v) Certificate of Incorporation and Bylaws. A
copy of Borrower's Certificate or Articles of Incorporation, and all
amendments, certified by the Secretary of State of its jurisdiction of
incorporation, and a copy of Borrower's Bylaws certified by the
Secretary of Borrower.
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(vi) Good Standing Certificate. A Good Standing
Certificate for Borrower from its jurisdiction of incorporation and
each state in which Borrower is required to be qualified to transact
business as a foreign corporation.
(vii) Regulatory Certificate. Regulatory
certificate from the Federal Reserve indicating that Borrower is a
registered bank holding company that was duly organized and registered
and is validly existing and has filed all reports required by the
Federal Reserve.
(viii) Affiliate Regulatory Certificate.
Certificate from the OBRE that Cole Taylor is an Illinois banking
corporation in good standing and authorized to transact the business
of banking dated as of a date not earlier than ten (10) business days
prior to the date hereof.
(ix) Affiliate Charter Documents. A copy of the
charter of Cole Taylor certified to be true and correct by the OBRE.
(x) Board Resolutions. Certified copies of
resolutions of the Board of Directors of Borrower authorizing the
execution and delivery of and the consummation of the transactions
contemplated by this Agreement and the Other Agreements and all other
documents or instruments to be executed and delivered in conjunction
herewith and therewith on behalf of Borrower.
(xi) Incumbency Certificate. A certificate of the
Secretary or an Assistant Secretary of Borrower certifying the names
of the officer or officers of Borrower authorized to sign this
Agreement and the Other Agreements on behalf of Borrower together with
a sample of the true signature of each such officer.
(xii) Other Documents. Such other documents
as Bank may reasonably request.
(xiii) Disbursement Instructions. Written
instructions executed by an Authorized Officer as to the disbursement
of the initial advances of funds hereunder.
(c) Consummation of Split Off Transaction. The
transactions contemplated by that certain Amended and Restated Share Exchange
Agreement dated as of June 12, 1996 (the "Exchange Agreement") among Cole
Taylor Financial Group, Inc. and certain members of the Taylor family listed
therein shall close simultaneously with this Agreement and 100% of the Stock of
Cole Taylor shall simultaneously with this Agreement be owned, directly and
beneficially, by Borrower.
7. REPRESENTATIONS AND WARRANTIES; COVENANTS;
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INDEMNIFICATION; CONTINUING OBLIGATION
7.1 Representations and Warranties of Borrower. Borrower hereby
represents and warrants to the Bank as of the date hereof and, with respect to
subsections (a) through (e) and subsections (g) through (ee) below, the date of
disbursement of each Loan or advance hereunder, as follows:
(a) Corporate Existence, Authority and Capitalization.
(i) Borrower is a corporation registered as a
bank holding company under the BHCA. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business and is in good
standing under the laws of each state in which the ownership of its
properties and the nature and extent of the activities transacted by
it makes such qualification necessary except where the failure to be
so qualified could not reasonably be expected to have a Material
Adverse Effect.
(ii) Borrower has all requisite corporate power
and authority to conduct its activities as presently conducted, to own
its properties and to perform its obligations under this Agreement.
(iii) The authorized and issued capital stock of
Borrower, pursuant to Borrower's Certificate or Articles of
Incorporation and By-Laws, as of the Closing Date, consists of ______
shares of common stock, $______ par value per share, ______ of which
shares are validly issued and outstanding and fully paid and
non-assessable. As of the Closing Date, no other shares of Borrower's
Stock are authorized, issued or outstanding. As of the Closing Date,
the ownership of the Stock of Borrower is as set forth on Exhibit
7.1(a)(iii). Borrower is not subject to any obligation, option,
warrant, put or call right (contingent or otherwise) to repurchase,
issue, acquire or retire any of its Stock nor are there any agreements
between any parties with respect to the voting or transfer of
Borrower's Stock. Borrower has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance
of its Stock.
(b) Corporate Existence and Capitalization of Cole
Taylor. Cole Taylor is an Illinois state banking corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois,
with deposit accounts federally insured by the Federal Deposit Insurance
Corporation, and has the requisite power and authority, corporate or otherwise,
to conduct its business as now conducted and as proposed to be conducted while
this Agreement is in effect. The authorized capital stock of Cole Taylor
consists of _________ shares of common stock, $______ par value per share,
__________ of which shares are validly issued and outstanding and fully paid
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and non-assessable (except as provided by state banking law). Borrower is the
beneficial and record owner of 100% of the issued and outstanding Stock of Cole
Taylor, free and clear of all liens, encumbrances, rights of first refusal,
options or other restrictions of any nature whatsoever, and there are no
options, warrants or rights outstanding to acquire any capital stock of Cole
Taylor and no Person has any other right to purchase or acquire any unissued
shares of Cole Taylor, nor does Cole Taylor have any obligation of any nature
with respect to its unissued shares of capital stock. Such Stock owned by
Borrower represents 100% of the voting power of Cole Taylor.
(c) Authorization; No Conflict. The execution, delivery
and performance by Borrower of this Agreement and the Other Agreements to which
it is a party are within Borrower's corporate powers, have been duly authorized
by all necessary corporate action and do not contravene (i) Borrower's
Certificate or Articles of Incorporation or Bylaws or (ii) any law or any
contractual restriction binding on or affecting Borrower, or its respective
properties, and do not result in or require the creation of any Lien (except as
may be created under this Agreement or the Other Agreements) upon or with
respect to any of its properties except for which consent has been obtained and
remains effective.
(d) No Approval. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Borrower of this Agreement or any Other Agreement to which Borrower is a party
except for which the same has been obtained and remains effective.
(e) Validity and Binding Nature. This Agreement is, and
the Other Agreements to which Borrower is a party when delivered hereunder will
be, legal, valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights, generally.
(f) Financial Statements and Condition.
(i) Borrower has delivered to Bank a pro forma
opening balance sheet as of September 30, 1996. The pro forma balance
sheet fairly presents on a pro forma basis the financial condition of
the Borrower as of September 30, 1996, on a consolidated basis, after
giving effect to the consummation of the Exchange Agreement and
acquisition by Borrower of the Stock of Cole Taylor including, without
limitation, all material fees and expenses incurred in connection
therewith. All pro forma information with respect to the Borrower
included in the pro forma balance sheet or otherwise provided by Cole
Taylor has been derived from financial statements and information
prepared on the basis of accounting consistent with GAAP and with
accounting principles currently used by Borrower and all material
assumptions on which such pro
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forma information was based are disclosed therein. The pro forma
balance sheet has been prepared in good faith and represents the good
faith opinion of the Borrower as to the assets and liabilities of
Borrower at such date after giving effect to the acquisition of Cole
Taylor. The portion of such pro forma balance sheet involving Cole
Taylor has been prepared in accordance with the rules and regulations
of the OBRE.
(ii) Borrower has delivered to Bank copies of audited
financial statements as of and for the year ended December 31, 1995,
and interim financials as of the nine month period ended September 30,
1996 for Cole Taylor. All of these financial statements are complete
and correct, are in accordance with the respective books of account
and records of Cole Taylor have been prepared in accordance with GAAP
applied on a basis consistent with prior periods and the rules and
regulations of the OBRE and fairly present the financial condition of
Cole Taylor and its respective assets and liabilities and the results
of its operations as at such date. Since September 30, 1996, there
has been no material adverse change in the respective financial
condition, business, properties and operations of Cole Taylor.
(iii) Borrower has delivered to Bank copies of Form FFIEC
032 filed by Cole Taylor for the periods ended June 30, 1996,
September 30, 1996 and the year ended December 31, 1995 and copies of
Form FRY-9 filed by Cole Taylor Financial Group, Inc. and the most
recent Form 10-K and Form 10-Q filings of Cole Taylor Financial Group,
Inc. for the periods ended June 30, 1996, September 30, 1996 and for
the year ended December 31, 1995. All of these reports are complete
and correct, are in accordance with the respective books of account
and records of Cole Taylor, and have been prepared in accordance with
applicable banking regulations, rules and guidelines on a basis
consistent with prior periods, and fairly and accurately present the
financial condition of Cole Taylor and its respective assets and
liabilities and the results of their operations as at such date.
(g) Litigation. Except as set forth on Exhibit 7.1(g),
there is no pending or, to the knowledge of Borrower, threatened action, suit,
inquiry, investigation, or proceeding affecting, directly or indirectly,
Borrower, its Subsidiaries or their respective properties before any court,
governmental agency or arbitrator, which, in any case, (i) could reasonably be
expected to have a Material Adverse Effect, (ii) seeks to restrain the
transactions contemplated herein, or (iii) would affect the validity or
enforceability of this Agreement or the Other Agreements. Neither Borrower nor
any Subsidiary is currently operating under any restriction (other than
restrictions of general application to bank holding companies or Illinois
banking corporations, as applicable) imposed by any bank regulatory authority
having jurisdiction over Borrower or any Subsidiary.
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(h) Securities Transaction. No proceeds of any Loan or
advance made by Bank to Borrower hereunder will be used to acquire any security
in any transaction which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, as amended.
(i) Regulation U. Neither Borrower nor its Subsidiaries
are engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U issued by the
Board of Governors of the Federal Reserve System), and no proceeds of any Loan
or advance made by Bank to Borrower hereunder will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
(j) ERISA Termination Event and Funding. No ERISA
Termination Event has occurred nor is expected to occur with respect to any
Plan and all Plans, to the extent governed by ERISA, meet the minimum funding
standards of Section 302 of ERISA.
(k) Withdrawal Liability and Reportable Events. Neither
Borrower nor any ERISA Affiliate has incurred, or expects to incur, any
withdrawal liability under Section 4201 of ERISA to any Multiemployer Plan. No
Reportable Event (as defined in ERISA) has occurred with respect to any Plan.
(l) Taxes. Borrower and each of its Subsidiaries have
filed all tax returns (Federal, state and local) required to be filed and paid
all taxes shown thereon to be due, including interest and penalties, other than
such taxes that Borrower or a Subsidiary is contesting in good faith by
appropriate legal proceedings and proper reserves therefor have been
established on the respective books of Borrower or such Subsidiary. Each of
Borrower and its Subsidiaries have withheld amounts from its employees,
shareholders or holders of public deposit accounts in full and complete
compliance with the tax withholding provisions of applicable federal, state and
local laws and each has filed all federal, state and local returns and reports
for all years for which any such return or report would be due with respect to
employee income tax withholding, social security, unemployment taxes, income
and other taxes and all payments or deposits with respect to such taxes have
been made within the time period required by law.
(m) Liens. There are no Liens upon or with respect to
any of the properties of Borrower or any right to receive revenues of Borrower
or any of its Subsidiaries other than Permitted Liens.
(n) Conflicts. Neither Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument (including corporate charters) which is likely
to have a Material Adverse Effect.
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(o) Environmental Matters. To the best of Borrower's
knowledge after diligent inquiry:
(i) the operations of Borrower and each of its
Subsidiaries (including, without limitation, all operations and
conditions at or in the Facilities) comply with all Environmental
Laws; and
(ii) no Hazardous Materials are stored or
otherwise located on any Facility owned, leased or operated by
Borrower, and no part of such Facility, including the groundwater
located thereon or thereunder, is contaminated by any Hazardous
Materials.
(p) Investment Company Act. Neither Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(q) Compliance with Laws. Borrower and its Subsidiaries
are in compliance with all laws, orders, regulations and ordinances of all
federal, foreign, state and local governmental authorities and regulatory
authorities binding upon or affecting the business, operation or assets of
Borrower and such Subsidiaries except where non-compliance therewith could not
reasonably be expected to have a Material Adverse Effect. Neither Borrower nor
any Subsidiary has received any notice or other information indicating that
subsidiary is not an "insured depository institution" as defined in 12 U.S.C.
1813.
(r) Other Agreements. Borrower makes each of the
representations and warranties contained in the Other Agreements to which
Borrower is a party operative and applicable for the benefit of the Bank as if
the same were set forth at length herein.
(s) Regulatory Reporting. Borrower and its Subsidiaries
have filed all reports, notices and other statements, together with any
amendments required to be made with respect thereto, if any, that they were
each required to file with the Federal Reserve and the OBRE and any other
governmental agency or authority with jurisdiction over Borrower or its
Subsidiaries and each of such reports, notices and other statements, including
the financial statements, exhibits and schedules thereto, complied in all
material respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. Cole
Taylor has complied in all material respects with all laws and regulations
relating to the extension of credit.
(t) Affiliate Transactions. Neither Borrower nor its
Subsidiaries are a party to any transactions or agreements with any of
Borrower's other Affiliates; it being understood the foregoing shall not
prohibit transactions between Borrower and
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its Subsidiaries or between Borrowers' Subsidiaries, provided such transactions
or agreements shall be arms' length transactions on terms no more favorable
than would be applicable in a third party transaction.
(u) Affiliates and Subsidiaries. Except as disclosed on
Exhibit 7.1(u), Borrower has no Affiliates or Subsidiaries.
(v) Labor. As of the Closing Date, none of the employees
of Borrower or its Subsidiaries are subject to any collective bargaining
agreement. There are no strikes, work stoppages, election or decertification
petitions or proceedings, unfair labor charges, equal employment opportunity
proceedings, wage payment or material unemployment compensation proceedings,
material worker's compensation proceedings or other material labor or
employee-related controversies pending or threatened involving Borrower and any
of its employees.
(w) Solvency. Borrower has capital sufficient to carry
on its business and transactions and all businesses and transactions in which
it is about to engage and is solvent and able to pay its debts as they mature.
No transfer of property is being made and no Debt is being incurred in
connection with the transactions contemplated by this Agreement with the intent
to hinder, delay or defraud either present or future creditors of Borrower, its
Subsidiaries or any Affiliate.
(x) Loan Loss Reserve. The reserves for possible loan
and lease losses shown on the financial statements and reports for Borrower and
its Subsidiaries described in the financial statements specified in Paragraph
7.1(f) are adequate in all material respects to provide for all losses, net of
recoveries relating to loans previously charged off, on loans outstanding, as
of the date of such statement, and Borrower and its Subsidiaries have no reason
to believe that the loan portfolios of its Subsidiaries at such date will incur
losses in excess of such reserves.
(y) Title. Borrower has good, indefeasible and
merchantable title to and ownership of its assets, free and clear of all Liens,
claims, security interests and other encumbrances, except for Permitted Liens.
(z) Debt. As of the date of this Agreement, Borrower has
no Debt except for the Permitted Debt.
(aa) Insurance. Borrower and its Subsidiaries are
adequately insured under its policies of insurance currently in effect, no
notice of cancellation has been received with respect to such policies and
Borrower and its Subsidiaries are in compliance with all conditions contained
in such policies.
(bb) Absence of Default. No event has occurred which
either of itself or with the lapse of time or the giving of notice or both,
would give any creditor of
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Borrower or its Subsidiaries, the right to accelerate the maturity of any Debt
of Borrower or its Subsidiaries having a principal amount, individually or in
the aggregate in excess of $50,000. Neither Borrower nor any Subsidiary is in
default under any other lease, agreement or instrument, or any law, rule,
regulation, order, writ, injunction, decree, determination or award,
non-compliance with which could reasonably be expected to have a Material
Adverse Effect.
(cc) No Burdensome Agreements. Neither Borrower nor any
Subsidiary or Affiliate is a party to any agreement, instrument or undertaking
or subject to any other restriction, (i) which presently has a Material Adverse
Effect, or (ii) under or pursuant to which Borrower or any Subsidiary or
Affiliate is or will be required to place (or under which any other person may
place) a Lien upon any of its properties securing indebtedness either upon
demand or upon the happening of a condition, with or without such demand.
(dd) Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of Borrower to Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other factual information (taken as a whole)
hereafter furnished by or on behalf of Borrower to Bank will be, true and
accurate in every material respect on the date as of which such information is
dated or certified, and Borrower has not omitted and will not omit any material
fact necessary to prevent such information from being false or misleading.
7.2 Affirmative Covenants. At all times prior to the Termination
Date and thereafter for so long as any amounts are due or owing to the Bank
hereunder, Borrower hereby covenants that it will, and cause its Subsidiaries
to, unless the Bank otherwise consents in writing:
(a) Existence, Etc. Do or cause to be done all things
necessary to preserve and keep in full force and effect Borrower's and each
Subsidiary's corporate existence in good standing in their respective
jurisdictions of incorporation and in each other jurisdiction where the failure
to be in good standing could reasonably be expected to have a Material Adverse
Effect.
(b) Compliance with Laws, Etc. Comply, and cause each
Subsidiary to comply, with all applicable present and future laws, rules,
ordinances, regulations and orders including, without limitation, laws, rules,
ordinances, regulations and orders regarding the operation and maintenance of
Borrower's and each Subsidiary's respective business including, without
limitation, the BHCA, the Illinois Banking Act and the Federal Deposit
Insurance Act.
(c) Payment of Taxes and Other Claims. Pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (i)
all Charges
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levied or imposed upon Borrower and each Subsidiary or upon the income, profits
or property of Borrower and each Subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a Lien upon
the property of Borrower or any Subsidiary; provided, however, that Borrower or
any Subsidiary shall not be required to pay or discharge or cause to be paid or
discharged any such Charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings to the extent adequate
reserves have been established on the books of Borrower or any Subsidiary, as
the case may be.
(d) Reporting Requirements. Keep true books of record
and account in which full, true and correct entries in accordance with GAAP
consistently applied will be made of all dealings or transactions in relation
to its business and activities, and shall furnish to the Bank:
(i) within ninety (90) days after the close of
each fiscal year of Borrower, consolidated audited financial
statements for Borrower and its Subsidiaries, including a balance
sheet and related profit and loss statement, prepared in accordance
with GAAP consistently applied throughout the periods reflected
therein by independent certified public accountants acceptable to
Bank, who shall give their opinion with respect thereto subject only
to such qualifications which are reasonably acceptable to Bank and
including Borrower-only financial statements prepared in accordance
with GAAP consistently applied throughout the periods reflected
therein for the same fiscal year as the annual audited financials;
(ii) within forty-five (45) days after the close
of each quarter of each fiscal year of Borrower (other than the last
fiscal quarter of each fiscal year), consolidated financial statements
for Borrower and its Subsidiaries, including a balance sheet and
related profit and loss statement, prepared in accordance with GAAP
consistently applied throughout the period reflected therein;
(iii) within forty-five (45) days after the close
of each quarter of each fiscal year of Borrower, or within such
further time as Bank may permit, copies of the Form FFIEC 032 as filed
by Cole Taylor with federal bank regulatory agencies, and as soon as
available, but in any event not more than forty-five (45) days after
the close of each quarter of each fiscal year of Borrower, or within
such further time as Bank may permit, a copy of Form Y-9 filed by
Borrower with the Federal Reserve;
(iv) concurrently with the delivery of the
financial statements required by subsection (i) above, Borrower shall
deliver to Bank (a) a certificate of the accountants who performed the
audit in connection with such statements (1) containing a computation
of, and showing compliance with the
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financial covenants and restrictions set forth in Paragraph
7.2(i) of this Agreement; (2) stating that in making the audit
necessary to the issuance of a report on such financial statements,
they have obtained no knowledge that any Event of Default or event
which, with notice or a lapse of time or both, would constitute an
Event of Default, as it relates to accounting matters, has occurred and
is continuing or, if such accountants have obtained knowledge of an
Event of Default or such event, specifying the nature and period of
existence thereof and (b) a certificate of Borrower executed by the
President or Chief Financial Officer of Borrower stating whether any
Event of Default, or Default, currently exists and is continuing and
what activities, if any, Borrower is taking or proposing to take with
respect thereto;
(v) concurrently with the delivery of the
financial statements referred to in Paragraphs (i) and (ii), a
compliance certificate duly completed and executed by both the
Chairman of the Board or President and the Chief Financial Officer of
Borrower (a) stating that Borrower has observed and performed all of
its covenants and other agreements and satisfied every condition,
contained in this Agreement, the Term Note, the Revolving Note and all
Other Agreements to which Borrower is a party to be observed,
performed or satisfied by it and that such officer has no knowledge of
any Event of Default except as specified in such certificate, (b)
stating that, to the best of such officer's knowledge, all such
financial statements are complete and correct in all respects and have
been prepared in accordance with GAAP consistently applied throughout
the periods reflected therein, and (c) showing calculations of
compliance with the financial covenants set forth in Paragraph 7.2(i).
(vi) as soon as possible and in any event within
ten (10) days after the occurrence of an Event of Default or Default,
the statement of an Authorized Officer of Borrower setting forth
details of such Event of Default or Default and the action which
Borrower has taken or proposes to take to cure the same;
(vii) (A) as soon as possible and in any event
(i) within thirty (30) days after Borrower or any ERISA Affiliate
knows or has reason to know that any ERISA Termination Event described
in clause (i) of the definition of ERISA Termination Event with
respect to any Plan has occurred and (ii) within ten (10) days after
Borrower or any ERISA Affiliate knows or has reason to know that any
other ERISA Termination Event with respect to any Plan has occurred, a
statement of the Chief Financial Officer (or designee) of Borrower
describing such ERISA Termination Event and the action, if any, which
Borrower, or any such ERISA Affiliate proposes to take with respect
thereto;
(B) promptly and in any event within two
(2) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from the PBGC,
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copies of each notice received of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Plan; and
(C) promptly and in any event within ten
(10) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from a Multiemployer Plan sponsor, a copy of each notice
received concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA;
(viii) promptly after notice to Borrower of the
commencement thereof, notice, in writing, of any action, suit,
arbitration or other proceeding instituted, commenced or threatened in
writing against or affecting Borrower with an amount in controversy in
excess of $100,000;
(ix) if requested by Bank, Borrower's federal,
state and local tax returns as soon as said returns are completed in
the form said returns will be filed with the Internal Revenue Service
and any state or local department of revenue or taxing authority;
(x) promptly upon their becoming available,
copies of (A) all registration statements and regular periodic reports
which Borrower shall have filed with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any
national securities exchange and (B) all financial statements, reports
and proxy statements so mailed; and
(xi) such other information respecting the
condition or operations, financial or otherwise, of Borrower or any
Affiliate as the Bank may from time to time reasonably request.
(e) Loan Loss Reserves. Cole Taylor shall maintain a
reserve for possible loan losses which is adequate in all respects to provide
for possible or specific losses, net of recoveries relating to loans previously
charged off, on loans outstanding and which contains an additional amount of
unallocated reserves for unanticipated future losses at a level consistent with
administrative policies approved by the Board of Directors of Cole Taylor.
(f) Visitation Rights. At any time or times during
regular business hours, permit Bank or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and books of
account of and visit and inspect the properties of Borrower, all as Bank shall
reasonably request, and to discuss the affairs, finances and accounts with
Borrower's officers or directors; provided, however, that prior to the
occurrence of an Event of Default, no more than one (1) such visit shall be
made by Bank in any calendar year. In furtherance and not in limitation of the
foregoing, Borrower agrees to bear all expenses of any visitation made by Bank
for the purposes set forth in this Paragraph 7.2(f).
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(g) Environmental Disclosure and Inspection.
(i) Exercise due diligence in order to comply in
all material respects with all Environmental Laws.
(ii) Promptly advise Bank in writing and in
reasonable detail of (i) any Release of any Hazardous Materials
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any
and all written communications with respect to Environmental Claims or
any Release of Hazardous Material required to be reported to any
federal, state or local governmental or regulatory agency, (iii) any
remedial action taken by Borrower or any other person in response to
(1) any Hazardous Material on, under or about any Facility, the
existence of which is reasonably likely to give rise to an
Environmental Claim, or (2) any Environmental Claim that could have a
material adverse effect on Borrower or any Affiliate, (iv) Borrower's
discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such
Facility or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use there of under any
Environmental Laws, and (v) any request for information from any
governmental agency indicating that such agency has initiated an
investigation as to whether Borrower or any Affiliate may be
potentially responsible for a Release or threatened Release of
Hazardous Materials, in each case where the amount in dispute or
controversy could reasonably be expected to exceed $100,000.
(iii) At its own expense, provide copies of such
documents or information as Bank may reasonably request in relation to
any matters disclosed pursuant to this Paragraph 7.2(g).
(iv) Promptly take any and all necessary remedial
action in connection with the presence, storage, use, disposal,
transportation, Release or threatened Release of any Hazardous
Materials on, under or about any Facility in order to comply with all
applicable Environmental Laws and Governmental Authorizations. In the
event Borrower or any Affiliate undertakes any remedial action with
respect to any Hazardous Material on, under or about any Facility,
Borrower or such Affiliate shall conduct and complete such remedial
action in compliance with all applicable Environmental Laws and in
accordance with the policies, orders and directives of all federal,
state and local governmental authorities.
(h) Insurance.
(i) At its sole cost and expense, keep and
maintain business interruption insurance and public liability and
property damage insurance relating
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to its business and properties. All such policies of insurance shall
be in form and with insurers recognized as adequate by prudent
business persons and all such policies shall be in amounts reasonably
satisfactory to Bank. Borrower shall deliver to Bank the original (or
certified) copy of each policy of insurance, or a certificate of
insurance, and evidence of payment of all premiums for each such
policy on or prior to the date of this Agreement. Such policies
shall: (A) contain a lender's loss payable clause naming Bank, for
the benefit of Bank, as loss payee and additional insured as its
interest may appear; and (B) provide that the insurance companies will
give Bank at least thirty (30) days written notice before any such
policy or policies of insurance shall be altered or cancelled.
(ii) In the event Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part
relating thereto, then Bank after giving five (5) days' prior notice
to Borrower, without waiving or releasing any obligation or Event of
Default by Borrower hereunder, may at any time or times thereafter
(but shall be under no obligation to) obtain and maintain such
policies of insurance and pay such premium and take any other action
with respect thereto which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorneys fees, court costs,
expenses and other charges relating thereto, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
(i) Financial Covenants. Borrower warrants and
represents to and covenants with the Bank that it shall cause Cole Taylor to:
(i) Maintain applicable regulatory ratios at or
above the "Well Capitalized" level at all times as determined by the
Federal Reserve in accordance with 12 C.F.R. Section 208 or any
successor thereof.
(ii) Maintain Capital, at all times, of not less
than $110.0 million.
(iii) Maintain a Return on Average Assets, at all
times, of at least (A) one-half of one percent (0.50%) from the
Closing Date to December 31, 1997; (B) six-tenths of one percent
(0.60%) from January 1, 1998 until December 31, 1998; and (C) seven-
tenths of one percent (0.70%) from January 1, 1999 through the
Termination Date, in each case calculated in accordance with GAAP.
(iv) Maintain a ratio of (a) Non-Performing Assets
to (b) Capital (plus the amount of the Allowance for Loan and Lease
Losses) not exceeding twenty-five percent (25%) at any time.
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(v) Maintain ratio of (a) Allowance for Loan and
Lease Losses to (b) Non-Performing Loans of not less than 1:1, at any
time, determined in accordance with GAAP.
Borrower further agrees to maintain a ratio of (a) Debt to (b)
shareholder's equity (as determined in accordance with GAAP) not exceeding
thirty percent (30%) at any time. Notwithstanding anything contained herein to
the contrary, all of the financial covenants contained in this Paragraph 7.2(i)
shall be measured as of the end of each calendar quarter.
7.3 Negative Covenants. Prior to the Term Loan Termination Date
and thereafter for so long as any amount is due or owing to the Bank hereunder,
unless the Bank shall otherwise consent in writing, Borrower shall not:
(a) Liens, Etc. Create or suffer to exist, any Lien,
other charge, pledge or encumbrance, or any other type of preferential
arrangement, upon or with respect to any of its assets or properties including,
but not limited to, the Stock of Cole Taylor, whether now owned or hereafter
acquired, or assign any right to receive income, except for Permitted Liens.
(b) Maintain Existence, Merger, Etc. (i) dissolve or
liquidate or amend or modify its Articles or Certificate of Incorporation, as
applicable, or the Charter, of any Affiliate or Subsidiary; or (ii) convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) any assets (whether now owned or hereafter acquired) to
any Person except in the ordinary course of business; or (iii) together with
one or more Affiliates convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially all of
the assets of Borrower and such Affiliates (whether now owned or hereafter
acquired) to any Person; or (iv) purchase, lease or otherwise acquire all or
substantially all of the assets or properties of, or acquire any capital stock,
equity interests, debt or other securities of any Person, or enter into any
joint venture or become a partner in any partnership; (v) engage in any
transaction out of the ordinary course of business; or (vi) merge or
consolidate with any Person.
(c) Transfer of Stock. Sell, pledge, transfer, assign or
otherwise dispose of, nor permit any stockholder of Borrower to sell, pledge,
transfer, assign or otherwise dispose of, to any person or entity, or group of
persons or entities acting in concert, directly or indirectly, in one
transaction or a series of transactions, any shares of the outstanding Stock of
Borrower or any Subsidiary or Affiliate.
(d) Debt. Incur, create, assume, become or be liable in
any manner with respect to or permit to exist, any Debt, obligations or
indebtedness, except for Permitted Debt.
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(e) Loans. Make or permit to exist loans to any other
Person. Nothing in this Paragraph 7.3(e) shall prohibit Cole Taylor from
making loans, advances or other extensions of credit in the ordinary course of
its banking business upon substantially the same terms as may at the time be
customary in the banking business, which loans, advances, or other extensions
of credit may (but need not) be secured by capital stock or other security of
any third party. Furthermore, nothing in this Paragraph 7.3(e) shall prohibit
Cole Taylor from acquiring capital stock or other security from any third party
by foreclosure or otherwise, provided such capital stock or other security is
acquired in the ordinary course of Cole Taylor's banking business when
collecting a debt previously contracted in good faith.
(f) Guaranties. Guaranty, endorse or otherwise in any
way directly, indirectly or contingently become liable for the obligations or
liabilities of any other Person, except endorsements of negotiable instruments
for collection in the ordinary course of business, except for guaranties of the
obligations of CT Mortgage Company and its Subsidiaries under sales of loan
pools.
(g) Stock and Dividends.
(i) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any Stock of Borrower or other evidence of
ownership interest, or declare or pay dividends upon any Stock of
Borrower or make any distribution of Borrower's property or assets,
except for (a) if no Event of Default exists or would result
therefrom, dividend payments on common and preferred stock issued
prior to the date hereof or concurrent with the consummation of the
Transactions in accordance with Borrower's Certificate or Articles of
Incorporation, (b) redemptions of Stock from retiring employees, or
(c) redemptions of Stock from former employees or their estates in
connection with Borrower's Employee Stock Ownership Plan or other
employee benefit plans.
(ii) Authorize or issue any Stock of Borrower or any
Subsidiary or Affiliate thereof, except for such Stock authorized,
issued or outstanding on the date hereof.
(h) Transactions with Affiliates or Insiders. Enter
into, or be a party to, any transaction with any Affiliate or stockholder of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which
are fully disclosed to Bank and are no less favorable to Borrower than would
obtain in a comparable arm's length transaction with a Person not an Affiliate
or stockholder of Borrower.
(i) Safe and Sound Banking Practices. Engage in, or permit
any Affiliate to engage in, any unsafe or unsound banking practices.
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8. DEFAULT
8.1 Events of Default. The occurrence of any one of the following
events shall constitute a default ("Event of Default") by Borrower under this
Agreement: (a) if Borrower fails or neglects to perform, keep or observe any
covenant or agreement contained in this Agreement or in the Other Agreements
which is required to be performed, kept or observed by Borrower and such
failure continues for thirty (30) days after notice thereof from Bank; (b) any
representation or warranty made by Borrower herein or in any Other Agreement is
breached or is false or misleading in any material respect, or any exhibit,
schedule, certificate, financial statement, report, notice or other writing
furnished by Borrower or any of its partners, shareholders, directors,
officers, employees, or agents to any Bank is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified; (c) if Borrower fails to pay Borrower's Liabilities when due and
payable or declared due and payable; (d) if any of Borrower's assets are
attached, seized, subjected to a writ or distress warrant or is levied upon, or
comes within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not terminated or dismissed within
thirty (30) days thereafter; (e) if a petition under any section or chapter of
the Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation
shall be filed by Borrower or if Borrower shall make an assignment for the
benefit of its creditors or if any case or proceeding is filed by Borrower for
its dissolution or liquidation; (f) if Borrower is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of
its business affairs or if a petition under any section or chapter of the
Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation is
filed against Borrower or if any case or proceeding is filed against Borrower
for its dissolution or liquidation and such injunction, restraint or petition
is not dismissed or stayed within forty-five (45) days after the entry or
filing thereof; (g) if an application is made by Borrower for the appointment
of a receiver, trustee or custodian for any of Borrower's assets; (h) if an
application is made by any Person other than Borrower for the appointment of a
receiver, trustee or custodian for the assets of Borrower and the same is not
dismissed within forty-five (45) days after the application therefor; (i) if a
notice of lien, levy, or assessment is filed of record with respect to all or
any of the assets of Borrower by the United States or any department, agency or
instrumentality thereof or by any state, county, municipal or other
governmental agency, including without limitation the PBGC, or if any taxes or
debts owing at any time or times thereafter to any one of them becomes a lien
or encumbrance upon any of the assets of Borrower and the same is not released
within forty-five (45) days after the same becomes a lien or encumbrance; (j)
if Borrower becomes insolvent or is unable generally to pay its debts as they
become due; (k) if Borrower is in default in the payment of Debt in an amount
in excess of $100,000; (l) the appointment of a conservator for all or any
portion of the assets of Borrower; or (m) the occurrence of a material breach,
a default or an event of default by Borrower under any of the Other
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<PAGE> 45
Agreements after any cure period applicable to any such breach, default or
event of default has expired.
8.2 Cumulative Remedies. All of the Bank' and Bank's rights and
remedies under this Agreement and the Other Agreements are cumulative and
non-exclusive.
8.3 Acceleration and Termination of Loans. Upon the occurrence
and during the continuance of an Event of Default, (a) upon notice by any Bank
to Borrower, Borrower's Liabilities shall be immediately due and payable,
unless there shall have occurred an Event of Default under subparagraphs
8.1(d), (e), (f), (g), (h), (i), (j) or (l), in which case Borrower's
Liabilities shall automatically become due and payable without notice or
demand, and (b) without notice by any Bank to or demand by any Bank of
Borrower, the Bank shall have no further obligation to and may then forthwith
cease advancing monies or extending credit to or for the benefit of Borrower
under this Agreement and the Other Agreements.
8.4 Rights of Creditor. Upon an Event of Default, Bank, in its
sole and absolute discretion, may exercise any one or more of the rights and
remedies accruing (a) under applicable law upon default by a debtor, (b) under
any instrument or (c) under any document or agreement. Nothing contained
herein shall interfere with Bank's right under law to set-off the balances of
any deposit accounts maintained by Borrower with Bank against Borrower's
Liabilities.
8.5 Injunctive Relief. Borrower recognizes that in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement or the Other Agreements, no remedy of law will
provide adequate relief to Bank, and agrees that Bank shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages or the posting of bond, surety or other
security.
9. GENERAL
9.1 Payment Application Date. Any check, draft, or similar item
of payment by or for the account of Borrower delivered to Bank on account of
Borrower's Liabilities shall be applied by Bank on account of Borrower's
Liabilities on the date final settlement thereof is reflected by irrevocable
credit to Bank.
9.2 Statement of Account. Each statement of account by Bank
delivered to Borrower relating to Borrower's Liabilities shall be presumed
correct and accurate, absent manifest error, and shall constitute an account
stated between Borrower and Bank unless, within ninety (90) days after
Borrower's receipt of said statement, Borrower delivers to Bank, by registered
or certified mail addressed to Bank at its Address for Notices specified on the
signature pages hereto, written objection thereto specifying the error or
errors, if any, contained in any such statement.
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<PAGE> 46
9.3 Manner of Application; Waiver of Setoff Prohibition. Upon the
occurrence and during the continuance of an Event of Default, Borrower waives
the right to direct the application of any and all payments at any time or
times hereafter received by Bank on account of Borrower's Liabilities and
Borrower agrees that Bank shall have the right, in its absolute and sole
discretion, to apply and re-apply any and all such payments in such manner as
Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records. Borrower further waives any right under or benefit of any
law that would restrict or limit the right or ability of Bank to obtain payment
of Borrower's Liabilities, including any law that would restrict or limit Bank
in the exercise of its right to appropriate any indebtedness owing from Bank to
Borrower and any deposits or other property of Borrower in the possession or
control of Bank and apply the same toward or setoff the same against the
payment of Borrower's Liabilities.
9.4 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Bank that all representations and
warranties of Borrower contained in this Agreement and the Other Agreements
shall be true at the time of Borrower's execution of this Agreement and the
Other Agreements and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto.
9.5 Integration; Amendment; Assignment; Participation.
(a) This Agreement and the Other Agreements constitute
the entire agreement and understanding between the parties relating to the
subject matter hereof and supersede all prior agreements, whether oral or
written, including without limitation, that certain Commitment Letter dated
October 17, 1996. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank, and no provision of this Agreement may be waived except with the consent
in writing of Bank in accordance with Paragraph 9.6 below.
(b) Bank shall have the right to assign to one or more
banks or other financial institutions all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Commitment, the Loans and the Other Agreements). Upon any such
assignment, (i) the assignee shall become a party hereto and, to the extent of
such assignment, have all rights and obligations of Bank hereunder and under
the Other Agreements and (ii) Bank shall, to the extent of such assignment,
relinquish its rights and be released from its obligations hereunder and under
the Other Agreements. Borrower hereby agrees to execute and deliver such
documents, and to take such other actions, as Bank may reasonably request to
accomplish the foregoing.
43
<PAGE> 47
(c) In addition to the assignments permitted in
subsection (b) of this Paragraph 9.5, Bank and any assignee pursuant to
subsection (b) above shall have the right to grant participations to one or
more banks or other financial institutions in or to any Loan hereunder (and the
Other Agreements) without notice to or consent from Borrower.
9.6 No Waiver. Bank's failure at any time or times hereafter to
require strict performance by Borrower of any provision of this Agreement shall
not waive, affect or diminish any right of Bank or Bank thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Bank
of an Event of Default by Borrower under this Agreement or the Other Agreements
shall not suspend, waive or affect any other Event of Default by Borrower under
this Agreement or the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants or representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default by
Borrower under this Agreement or the Other Agreements shall be deemed to have
been suspended or waived by Bank unless such suspension or waiver is by an
instrument in writing by Bank specifying such suspension or waiver and given
pursuant to the requirements of Paragraph 9.16 hereof.
9.7 Severability. If any provision of this Agreement or the Other
Agreements or the application thereof to any Person or circumstance is held
invalid or unenforceable, the remainder of this Agreement and the Other
Agreements and the application of such provision to other Persons or
circumstances will not be affected thereby and the provisions of this Agreement
and the Other Agreements shall be severable in any such instance.
9.8 Successors and Assigns. This Agreement and the Other
Agreements shall be binding upon and inure to the benefit of the successors and
assigns of Borrower and Bank. This provision, however, shall not be deemed to
modify Paragraph 9.5 hereof.
9.9 Conflict with Other Agreements. The provisions of the Other
Agreements are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in the Other Agreements by specific reference to
the applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in the Other
Agreements, the provision contained in this Agreement shall govern and control.
9.10 No Impairment by Termination. Except to the extent provided
to the contrary in this Agreement and in the Other Agreements, no termination
or cancellation (regardless of cause or procedure) of this Agreement or the
Other Agreements shall in any way affect or impair the powers, obligations,
duties, rights
44
<PAGE> 48
and liabilities of Borrower or Bank in any way or respect relating to (a) any
transaction or event occurring prior to such termination or cancellation and/or
(b) any of the undertakings, agreements, covenants, warranties and
representations of Borrower contained in this Agreement or the Other
Agreements. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
9.11 Waivers. Except as otherwise specifically provided in this
Agreement, Borrower waives any and all notice or demand which Borrower might be
entitled to receive with respect to this Agreement or the Other Agreements by
virtue of any applicable statute or law and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by the Bank on which Borrower may in any
way be liable and hereby ratifies and confirms whatever Bank may do in this
regard.
9.12 Costs, Fees and Expenses Related to Agreement and Other
Agreements. In accordance with this Agreement on or prior to the date hereof
and thereafter upon demand by Bank therefor, Borrower shall pay or reimburse
Bank for all costs, fees and expenses incurred by Bank, or for which Bank
becomes obligated, in connection with the negotiation, preparation and
consummation of this Agreement and the Other Agreements, including but not
limited to, reasonable attorneys' fees, costs and expenses; search fees, costs
and expenses; and all taxes (other than taxes payable on the net income of
Bank) payable in connection with this Agreement or the Other Agreements. That
portion of Borrower's Liabilities consisting of costs, expenses or advances to
be reimbursed by Borrower to Bank pursuant to this Agreement or the Other
Agreements which are not paid on or prior to the date hereof shall be payable
by Borrower to Bank on demand.
9.13 Environmental Indemnity. Borrower agrees to indemnify and
save Bank, its officers, directors, employees and agents, harmless of, from and
against any liability, loss, damage or expense (including reasonable attorneys'
fees) to which Bank or any of such persons may become subject, arising from or
based upon (a) any violation, or claim of violation, by Borrower of any laws,
regulations or ordinances relating to Hazardous Materials, or (b) any Hazardous
Materials located or disposed of on or released or transported from any
property owned, leased or operated by Borrower, or any claim of any of the
foregoing.
9.14 Release. Borrower releases Bank from any and all causes of
action, claims or rights which Borrower may now or hereafter have for, or which
may arise from, any loss or damage caused by or resulting from any act or
omission to act on the part of Bank, its officers, agents or employees, except
in each instance for willful misconduct and gross negligence.
45
<PAGE> 49
9.15 Governing Law. This Agreement and the Other Agreements shall
be governed and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect, choice of law, and
in all other respects including, but not limited to, the legality of the
interest rate and other charges.
9.16 Notices. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given to
any party or parties (a) upon delivery to the address of the party or parties
as specified in the "Address for Notices" below such party or parties' name on
the signature pages hereof if delivered in person or by courier or if sent by
certified or registered mail (return receipt requested), or (b) upon dispatch
if transmitted by telecopy or other means of facsimile transmission and
electronic confirmation of receipt, in any case to the party or parties at the
telecopy numbers specified on the same, or to such other address or telecopy
number as any party may hereafter designate by written notice in the aforesaid
manner.
9.17 FORUM; BANK; VENUE; JURY TRIAL WAIVER. TO INDUCE BANK TO
ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, BORROWER, IRREVOCABLY AGREES
THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS
IN ANY WAY, MANNER, OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS
AGREEMENT OR THE OTHER AGREEMENTS SHALL BE LITIGATED ONLY IN COURTS HAVING
SITUS WITHIN CHICAGO, ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH
THIS PARAGRAPH. BORROWER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY ACTION IN WHICH BORROWER IS A PARTY.
9.18 Other Costs, Fees and Expenses. If at any time or times
hereafter Bank: (a) employs counsel for advice or other representation (i) with
respect to this Agreement or the Other Agreements, (ii) to represent Bank in
any litigation, contest, dispute, suit or proceeding or to commence, defend, or
intervene or to take any other action in or with respect to any litigation,
contest, dispute, suit, or proceeding (whether instituted by Bank, Borrower, or
any other Person) in any way or respect relating to this Agreement, the Other
Agreements or Borrower's affairs, or (iii) to enforce any rights of Bank
against Borrower or any other Person which may be obligated to Bank by virtue
of this Agreement or the Other Agreements; and/or (b) attempts to or enforces
any of Bank's rights or remedies under the Agreement or the Other Agreements,
the reasonable costs and expenses incurred by Bank in any manner or way with
respect to the foregoing, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand.
46
<PAGE> 50
9.19 Revival. To the extent that Bank receives any payment on
account of Borrower's Liabilities and any such payment(s) and/or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, subordinated and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, then, to the extent of such payment(s)
and/or proceeds received, Borrower's Liabilities or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment(s) and/or proceeds had not been received by Bank and applied on account
of Borrower's Liabilities.
9.20 Acknowledgments. Borrower acknowledges that (i) it has been
advised by counsel of its choice with respect to this Agreement and the
transactions contemplated hereby, (ii) each of the waivers set forth herein was
knowingly and voluntarily made; and (iii) the obligations of Bank hereunder,
including the obligation to advance and lend funds to Borrower in accordance
herewith, shall be strictly construed and shall be expressly subject to
Borrower's compliance in all respects with the terms and conditions herein set
forth.
9.21 Section Headings. Section headings used in this Agreement are
for convenience only and shall not effect the construction or interpretation of
this Agreement.
9.22 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
9.23 Effectiveness. This Agreement shall become effective upon the
execution and delivery to Bank of counterparts of this Agreement by Borrower
and the Bank.
9.24 Effectiveness. Bank shall hold all non-public information
obtained pursuant to this Agreement in accordance with its customary procedures
for handling confidential information of this nature and will use such
information only in connection with the transactions contemplated by this
Agreement, and in any event may make disclosure of any such information (i) to
the extent required by law (including statute, rule, regulation or judicial
process), (ii) to counsel for Bank or to their accountants, each of whom shall
also be bound by the confidentiality obligations set forth herein, (iii) to
bank examiners and auditors and appropriate government examining authorities,
(iv) to the extent necessary or appropriate in connection with any litigation
to which Bank is a party, or (v) to any permitted actual or prospective
participant in or any Loan owing to or Note held by Bank; provided that each
such person or entity shall undertake in writing to Bank (for the benefit of
Bank and Borrower) prior to such disclosure by Bank to maintain the
confidentiality of such information subject to the same terms and restrictions
provided in this Paragraph 9.24 for Bank.
47
<PAGE> 51
[SIGNATURE PAGE FOLLOWS]
48
<PAGE> 52
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
ATTEST: TAYLOR CAPITAL GROUP, INC.
By:__________________________________
____________________
____________________ Secretary Title:____________________________
Address for Notices:
350 East Dundee Road
Wheeling, Illinois 60090-5766
Telecopier No.: (847)__________
Telephone No.: (847)___________
Attention: ___________
LASALLE NATIONAL BANK
By:_______________________________
_______________________________
Name: Jay C. Goldner
Title: Vice President
Address for Notices:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.: (312) 904-6352
Telephone No.: (312) 904-2776
Attention: Mr. Jay C. Goldner
Vice President
With a copy to:
Michael A. Nemeroff, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601-1003
Telecopy No.: (312) 609-5005
Telephone No.: (312) 609-7500
49
<PAGE> 53
LIST OF EXHIBITS
Exhibit 3.1 Form of Revolving Note
Exhibit 3.2 Form of Term Note
Exhibit 7.1(a)(iii) Ownership of the Stock of Borrower
Exhibit 7.1(g) Litigation
Exhibit 7.1(u) Affiliates and Subsidiaries
<PAGE> 54
EXHIBIT 3.1
to
Loan Agreement
REVOLVING NOTE
$5,000,000 Chicago, Illinois
January ___, 1997
FOR VALUE RECEIVED, on or before January ____, 1998 (or, if such day
is not a Business Day, on the next following Business Day), the undersigned,
TAYLOR CAPITAL GROUP, INC., a Delaware corporation (herein, together with its
successors and assigns, called the "Borrower"), promises to pay to the order of
LASALLE NATIONAL BANK, a national banking association (herein, together with
its successors and assigns, called the "Bank"), the maximum principal sum of
FIVE MILLION and 00/100 DOLLARS ($5,000,000) or, if less, the aggregate unpaid
principal amount of all Revolving Loans made by the Bank to the undersigned
pursuant to that certain Loan Agreement of even date herewith between the
Borrower and Bank (herein, as the same may be amended, modified or supplemented
from time to time, called the "Loan Agreement") as shown in the Bank's records.
The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at such rates and at such times as
shall be determined in accordance with the provisions of the Loan Agreement.
Accrued interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois 60603
or at such other place as may be designated by the Bank to the Borrower in
writing.
This Note is the Revolving Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated. Terms used
but not otherwise defined herein are used herein as defined in the Loan
Agreement.
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees
<PAGE> 55
and expenses, incurred by the holder of this Note in seeking to collect any
amounts payable hereunder which are not paid when due, whether by acceleration
or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the undersigned and its successors and
assigns, and shall inure to the benefit of the Bank and its successors and
assigns. This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of laws principles.
TAYLOR CAPITAL GROUP, INC., a
Delaware corporation
By:__________________________
Title:_______________________
Borrower's Address:
350 East Dundee Road
Wheeling, Illinois 60090-5766
<PAGE> 56
EXHIBIT 3.2
to
Loan Agreement
TERM NOTE
$25,000,000 Chicago, Illinois
January ___, 1997
FOR VALUE RECEIVED, the undersigned, TAYLOR CAPITAL GROUP, INC., a
Delaware corporation (herein, together with its successors and assigns, called
the "Borrower"), promises to pay to the order of LASALLE NATIONAL BANK, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of TWENTY-FIVE MILLION DOLLARS
($25,000,000), plus interest as described below, with annual principal
installments of One Million Dollars ($1,000,000) due on the last Business Day
of each year commencing January 31, 1999, and with a final payment of the
entire principal balance outstanding hereunder due on January 31, 2002,
pursuant to that certain Loan Agreement of even date herewith between the
Borrower and the Bank (herein, as the same may be amended, modified or
supplemented from time to time, called the "Loan Agreement").
The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at such rates and at such times as
shall be determined in accordance with the provisions of the Loan Agreement.
Accrued interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois 60603,
or at such other place as may be designated by the Bank to the Borrower in
writing.
This Note is the Term Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated. Terms used
but not otherwise defined herein are used herein as defined in the Loan
Agreement.
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees
<PAGE> 57
and expenses, incurred by the holder of this Note in seeking to collect any
amounts payable hereunder which are not paid when due, whether by acceleration
or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the undersigned and its successors and
assigns, and shall inure to the benefit of the Bank and its successors and
assigns. This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of laws principles.
TAYLOR CAPITAL GROUP, INC., a
Delaware corporation
By:____________________________
Title:_________________________
Borrower's Address:
350 East Dundee Road
Wheeling, Illinois 60090-5766
<PAGE> 58
EXHIBIT 7.1(u)
to
Loan Agreement
AFFILIATES AND SUBSIDIARIES
Affiliates: Cole Taylor Bank
CT Mortgage Company
Subsidiaries: Cole Taylor Bank
<PAGE> 1
EXHIBIT 10.4
AGREEMENT
THIS AGREEMENT is entered into as of _________ __, 1997, by and among
Taylor Capital Group, Inc. ("TCG"), Cole Taylor Financial Group, Inc. ("CTFG")
and those certain persons listed on Exhibit A hereof (the "Taylor Family"), for
the purposes described below.
RECITALS
WHEREAS, the Taylor Family and CTFG have entered into an Amended and
Restated Share Exchange Agreement dated as of June 12, 1996 (the "Share
Exchange Agreement");
WHEREAS, pursuant to Section 7(c) of the Share Exchange Agreement, the
Taylor Family has formed TCG; and
WHEREAS, pursuant to Section 7(c) of the Share Exchange Agreement, TCG
shall assume certain obligations and shall indemnify CTFG for certain
liabilities;
NOW THEREFORE, the parties agree as follows:
1 . Capitalized Terms. Capitalized terms used but not otherwise defined
in this Agreement shall have the meanings assigned to such terms in the Share
Exchange Agreement.
2 . Entry, Ratification and Approval. TCG hereby enters into, ratifies
and approves the Share Exchange Agreement and all of the related transactions
required or contemplated by the terms thereof in the manner set forth in this
Agreement.
3 . Newco Stock. Unless the Share Exchange Agreement has been terminated
by the Taylor Family pursuant to Section 13(d) of the Share Exchange Agreement,
TCG shall indemnify and hold harmless CTFG against all costs and liabilities
related to (a) the offer and sale of New Bank Securities or Newco Stock,
including but not limited to all underwriting, accounting, legal, printing,
filing fee and other expenses of such offer(s) and sale(s) and any liabilities
for misstatements or omissions in the offering documents related
<PAGE> 2
thereto or any part thereof and (b) the preparation, filing, amendment and
withdrawal of the Common Registration Statement.
4 . Private Letter Ruling. For the two year period following the
Closing Date, unless the Taylor Family has received a written opinion from a
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 shall neither affect the
qualification of the exchange of Newco Stock for CTFG Stock under Section 355
of the Code nor affect the validity of the Private Letter Ruling (a "Tax
Opinion"), (a) TCG shall cause the Bank to continue the active conduct of its
banking business, (b) TCG shall not merge or consolidate with or into any other
corporation, or cause the Bank to merge or consolidate with any other
corporation, (c) TCG shall not liquidate or partially liquidate, or cause the
Bank to liquidate or partially liquidate, (d) TCG shall not sell or transfer
any significant part of its assets or permit the Bank to sell or transfer any
significant part of its assets, (e) TCG shall not redeem or otherwise purchase
any of its capital stock or permit the Bank to redeem or otherwise purchase any
of its capital stock, and (f) TCG shall not issue, or permit the Bank to issue,
additional shares of its capital stock, except as contemplated by the Private
Letter Ruling. Regardless of whether the Taylor Family has obtained the Tax
Opinion, TCG shall not enter into any agreement, arrangement or understanding
for transfer of control of the Bank for one year following the Closing Date (a
"Transfer Arrangement"), and if TCG enters into a Transfer Arrangement more
than one year but less than two years following the Closing Date, TCG shall
remain responsible for ensuring that, and shall obtain a written contractual
commitment from the other parties to the Transfer Arrangement that they shall
ensure that, the Bank complies with the obligations contained in this Section
4, except to the extent that the Tax Opinion also opines that the qualification
of the exchange of Newco Stock for 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. TCG and the Bank shall deliver a
certificate of an officer as to compliance with this Section 4 to CTFG on the
last day of each calendar
-2-
<PAGE> 3
quarter until the end of the two year period after the Closing Date.
5 . Deconsolidation. After the Closing, TCG shall 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.
6 . Bank Obligations. TCG shall cause the Bank to assume the liability
(and TCG shall and shall cause the Bank to indemnify CTFG and its subsidiaries
against such liability) for the severance or change in control payments
described in Section 10(j) (other than the first sentence thereof) of the Share
Exchange Agreement. After the Closing, TCG shall cause the Bank to comply with
its obligations under the third sentence of Section 3.1(a), the last sentence
of Section 5.2(a), the first sentence of Section 10(i), the second sentence of
Section 10(k), the second sentence of Section 10(m), Section 10(n), the second
sentence of Section 15(a) and Section 16 of the Share Exchange Agreement.
7 . Other Provisions. TCG shall be bound by Sections 10(n), 15(c), 15(d),
16 and 17 (to the extent of its own expenses) of the Share Exchange Agreement
to the same extent as if it were a party thereto. With respect to such Section
17, the fees and expenses of TCG are to be borne by TCG or the Taylor Family
and not by CTFG.
8 . TCG and Bank Indemnity. After the Closing, TCG shall, and shall cause
the Bank to, indemnify and hold harmless CTFG and its affiliates from and
against any and all Losses (a) 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 (b) incurred, arising or accrued prior to the
Closing and relating to Auto Sub. After the Closing, TCG shall, and shall
cause the Bank to, indemnify and hold harmless CTFG and its affiliates from and
against any and all Losses whenever incurred, arising or accrued, relating to
TCG or CTFG's ownership of securities in TCG; provided, however, that TCG and
the Bank shall have no obligation to provide any
-3-
<PAGE> 4
indemnity pursuant to this sentence for any Losses which are primarily the
result of actions by CTFG.
9 . Indemnification by CTFG. CTFG hereby acknowledges that TCG and the
Bank shall be entitled to indemnification pursuant to Sections 15(b), (c) and
(d) of the Share Exchange Agreement to the same extent as the Taylor Family.
10 . Other Benefits. CTFG hereby acknowledges that TCG shall be entitled
to all of the rights and benefits of the Share Exchange Agreement to the same
extent as if it had been a party thereto.
11 . General Provisions.
11.1 Amendments and Waiver. No amendment, waiver or consent with
respect to any provision of this Agreement shall in any event be effective,
unless the same shall be in writing and signed by the parties hereto, and any
such written and signed amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
11.2 Notices. All notices, requests, consents, demands and other
communications hereunder must be in writing.
11.3 Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.4 Successors and Assigns. This Agreement, and the rights and
obligations of the parties hereunder, shall inure to and be binding on the
parties hereto and their respective heirs, successors and assigns. No party
may assign (by operation of law or otherwise) any rights, benefits, duties or
obligations under this Agreement, without the prior written consent of the
other parties hereto; provided, however, that TCG or CTFG may , without such
consent, assign its rights under this Agreement to any successor in the event
of a merger, consolidation, sale of all or substantially all its assets,
liquidation or dissolution, if such assignee executes and delivers to the other
parties hereto an
-4-
<PAGE> 5
agreement satisfactory in form and substance to such other parties under
which such assignee assumes and agrees to perform and discharge all the
obligations and liabilities of the assigning party. No permitted assignment by
any party under this Section 11.4 shall relieve the assigning party of its
obligations hereunder.
11.5 Entire Agreement. This Agreement, the Share Exchange Agreement and the
documents referred to herein contain the entire agreement and understanding
among the parties with respect to the transactions contemplated hereby and
supersede all other agreements, understandings and undertakings among the
parties on the subject matter hereof.
11.6 Severability. If any provision or provisions of this Agreement shall
be held to be invalid or unenforceable for any reason whatsoever: (a) the
validity, legality, and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid or unenforceable) shall not in any
way be affected or impaired thereby; and (b) to the fullest extent possible,
the remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision or provisions held invalid or unenforceable.
11.7 Partial Invalidity. In the event that any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
11.8 Governing Law. This Agreement shall be construed, enforced and
interpreted in accordance with the substantive laws of the State of Delaware
applicable to contracts made and to be performed wholly within said State.
-5-
<PAGE> 6
11.9 Taylor Family Designees. The Taylor Family members hereby appoint
Jeffrey W. Taylor and Bruce W. Taylor, or either of them, to act as their
designated representatives (the "Taylor Family Designees") for the purpose of
exercising all power of the Taylor Family necessary to administer this
Agreement, including, without limitation, the power to modify, amend or waive
provisions under this Agreement, give consents or instructions, or give or
receive notices and incur all out-of-pocket expenses including the reasonable
fees and costs of attorneys or agents, which the Taylor Family Designees may
find it necessary to engage in the performance of such Taylor Family Designees
duties. Any notice, direction, consent or other act to be received or given
by a Taylor Family member shall be deemed properly received or given if
received or given by the Taylor Family Designees. The Taylor Family members,
by unanimous written consent thereof delivered to TCG, may change at any time
the Taylor Family Designees.
11.10 No Amendment. Except as expressly provided herein, the Share Exchange
Agreement shall remain in full force and effect with no amendment or alteration
of any kind.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
TAYLOR CAPITAL GROUP, INC.
By:
------------------------
Its:
-----------------------
Title:
---------------------
COLE TAYLOR FINANCIAL GROUP, INC.
By:
------------------------
Its:
-----------------------
-6-
<PAGE> 7
Title:
--------------------------
--------------------------
Sidney J Taylor(1/)
--------------------------
Jeffrey W. Taylor
--------------------------
Bruce W. Taylor
--------------------------
Iris Taylor(2/)
--------------------------
Cindy Taylor Bleil
- ---------------
(1/)Individually and a trustee under self declaration of trust dated 9/17/96.
(2/)Individually and as trustee of the Taylor Annual Gift Trust FBO Stephanie
Lynn Taylor, the Taylor Annual Gift Trust FBO Ryan Taylor, the Taylor Annual
Gift Trust FBO Rebecca Inez Bleil, the Taylor Annual Gift Trust FBO Melissa
Taylor, the Taylor Annual Gift Trust FBO Lisa Rebecca Taylor, the Taylor Annual
Gift Trust FBO Cindy Taylor Bleil, the Taylor Annual Gift Trust FBO Jeffrey W.
Taylor, the Taylor Annual Gift Trust FBO Elizabeth Ann Bleil, the Taylor Annual
Gift Trust FBO Emily Taylor, the Taylor Annual Gift Trust FBO Adam Taylor, the
Taylor Annual Gift Trust FBO Brett Daniel Taylor, the Taylor Annual Gift Trust
FBO Brian Taylor, the Taylor Annual Gift Trust FBO Bruce W. Taylor.
-7-
<PAGE> 8
-----------------------------
Melvin E. Pearl, as Trustee(3/)
-------------------------------
Susan Taylor, as Trustee of the
Susan Taylor Trust
- ---------------
(3/)As trustee of the Shirley Tark Great Grandchildrens Trust FBO Family of
Jeffrey Taylor (a general partner of Taylor Family Partnership), the Shirley
Tark Grandchildrens Trust FBO Bruce Taylor (a general partner of Taylor Family
Partnership), the Shirley Tark Grandchildrens FBO Cindy Bleil (a general
partner of Taylor Family Partnership), the Taylor 1992 Trust FBO Ryan Taylor,
the Shirley Tark Great Grandchildrens Trust FBO Family of Cindy Taylor Bleil,
the Shirley Tark Great Grandchildrens Trust FBO Family of Bruce Taylor, the
Taylor 1992 Trust FBO Elliott Benjamin Taylor, the Taylor 1992 Trust FBO
Elizabeth Ann Bleil, the Cindy L. Taylor Gift Trust, the Taylor 1992 Trust FBO
Lisa Rebecca Taylor, the Taylor 1992 Trust FBO Rebecca Inez Bleil, the Jeffrey
W. Taylor Gift Trust, the Taylor 1992 Trust FBO Stephanie Lynn Taylor, the
Bruce Taylor Gift Trust, and the Taylor 1992 Trust FBO Brett Daniel Taylor.
-8-
<PAGE> 9
Cole Taylor Bank, as Trustee(4/)
By:________________________________
- ---------------
(4/)As Trustee of the Trust FBO Sidney J. Taylor and the Iris Fund Tark.
-9-
<PAGE> 10
EXHIBIT A
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 Gift Trust 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
-1-
<PAGE> 11
Indirectly Owned Shares
- ------------------------------------------------
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
-2-
<PAGE> 1
EXHIBIT 10.5
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is entered into as of ____________, 1996, by and
among Taylor Capital Group, Inc. ("TCG") and those certain persons listed on
Schedule A hereof (the "Taylor Family") and represented by the members of the
Taylor Family shown on the signature page hereof, for the purposes described
below.
RECITALS
WHEREAS, the Taylor Family and Cole Taylor Financial Group, Inc. ("CTFG")
entered into an Amended and Restated Share Exchange Agreement dated as of June
12, 1996 (the "Share Exchange Agreement");
WHEREAS, pursuant to Section 7(c) of the Share Exchange Agreement, the
Taylor Family has formed TCG; and
WHEREAS, TCG desires to indemnify the Taylor Family for certain
liabilities under the Share Exchange Agreement;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "PROCEEDING" means any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing, or any
other proceeding, pending, threatened or completed, whether civil,
criminal, administrative or investigative, in which a Taylor Family member
is a party or threatened to be a party:
(i) arising, caused by, or as a result of a breach by TCG of the
Section 7(c) Agreement dated _________, 1996 between TCG and CTFG;
and/or
(ii) arising from or relating to the following sections of the
Share Exchange Agreement:
Section 3
Section 5.2(a) (last two sentences only)
Section 5.2(b) (last two sentences only)
Section 10(g)(i) (first sentence only),
10(g)(ii)(other than a breach of 10(g)(ii)(x))
Section 10(h)
Section 10(j) (second sentence only)
Section 10(n)(iii)
Section 15(a) (other than Section 15(a)(i))
Section 16
Section 17
(b) "CLOSING" means the closing of the transactions contemplated by
the Share Exchange Agreement.
<PAGE> 2
(c) "EXPENSES" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(d) "LIABILITIES" means any judgments, fines, penalties, or similar
payments or amounts paid or incurred by a Taylor Family member in
connection with any Proceeding, amounts paid or incurred by a Taylor Family
member or on a Taylor Family member's behalf in settlement of any
Proceeding, and all Expenses.
2. INDEMNIFICATION. TCG shall hold harmless and indemnify each member of
the Taylor Family against all Liabilities and advance to each Taylor Family
member all Expenses to the fullest extent permitted by law; provided, however,
that TCG shall have no obligation to indemnify or hold harmless any member of
the Taylor Family from any Liability caused by such Taylor Family member's
knowing or reckless breach of any representation, warranty or covenant
contained in the Share Exchange Agreement.
3. ADVANCEMENT OF EXPENSES. Notwithstanding anything to the contrary in
this Agreement, TCG shall advance all Expenses incurred by or on behalf of a
Taylor Family member in connection with any Proceeding within five (5) days
after the receipt by TCG of a statement from such Taylor Family member
requesting the advance from time to time, whether prior to or after final
disposition of the Proceeding. Each statement shall reasonably evidence the
Expenses incurred by such Taylor Family member. Each Taylor Family member
hereby undertakes to repay promptly any Expenses advanced if it shall
ultimately be determined that such Taylor Family member is not entitled to be
indemnified against such Expenses. Any advances and the undertaking to repay
pursuant to this Section 3 shall be unsecured and, until thirty (30) days after
the date on which it is determined that such Taylor Family member is not
entitled to be so indemnified, interest free.
4. EXPENSES UNDER THIS AGREEMENT. Notwithstanding any other provision in
this Agreement to the contrary, TCG shall indemnify each Taylor Family member
against all expenses incurred by such Taylor Family member against all Expenses
incurred by such Taylor Family member in connection with any action between the
TCG and such Taylor Family member involving the interpretation or enforcement
of the rights of such Taylor Family member under this Agreement.
5. GENERAL PROVISIONS.
-2-
<PAGE> 3
5.1 EFFECTIVE DATE. This Agreement shall be effective upon the
Closing, and shall be of no force and effect until the Closing.
5.2 AMENDMENTS AND WAIVER. No amendment, waiver or consent with
respect to any provision of this Agreement shall in any event be effective,
unless the same shall be in writing and signed by the parties hereto, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
5.3 NON-EXCLUSIVITY. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which a Taylor Family member may at any time be
entitled under applicable law, the articles of incorporation or bylaws of any
corporation, any other agreement, a vote of shareholders, a resolution of
directors, or otherwise.
5.4 SUBROGATION. In the event of any payment under this Agreement,
TCG shall be subrogated to the extent of such payment to all of the rights of
recovery of each Taylor Family member, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable TCG to bring suit to enforce such rights.
5.5 NO DUPLICATIVE PAYMENT. TCG shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that a Taylor Family member has otherwise actually received
such payment under any insurance policy, contract, agreement, or otherwise.
5.6 NOTICES. All notices, requests, consents, demands and other
communications hereunder must be in writing.
5.7 COUNTERPARTS. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.8 SUCCESSORS AND ASSIGNS. This Agreement, and the rights and
obligations of the parties hereunder, shall inure to and be binding on the
parties hereto and their respective successors and assigns. TCG may not assign
any rights, benefits, duties or obligations under this Agreement, without the
prior written consent of the Taylor Family.
5.9 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire agreement and understanding among the parties with
respect to the transactions contemplated hereby and supersede all other
agreements, understandings and undertakings among the parties on the subject
matter hereof.
-3-
<PAGE> 4
5.10 SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid or unenforceable for any reason whatsoever: (a) the
validity, legality, and enforceability of the remaining provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid or unenforceable) shall not in any way
be affected or impaired thereby; and (b) to the fullest extent possible, the
remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision or provisions held invalid or unenforceable.
5.11 GOVERNING LAW. This Agreement shall be construed, enforced and
interpreted in accordance with the substantive laws of the State of Delaware
applicable to contracts made and to be performed wholly within said State.
5.12 NO THIRD PARTY RIGHTS. This Agreement does not create any
rights, claims or benefits inuring to any person that is not a party hereto nor
create or establish any third-party beneficiary hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
TAYLOR CAPITAL GROUP, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
"TAYLOR FAMILY" REPRESENTATIVES
-------------------------------
Sidney J. Taylor
-------------------------------
Jeffrey W. Taylor
-------------------------------
Bruce W. Taylor
-------------------------------
Iris Taylor
-4-
<PAGE> 5
EXHIBIT A
TAYLOR FAMILY
-------------
<TABLE>
<CAPTION>
Directly Owned Shares
---------------------
<S> <C>
Sidney Taylor 53,900
Jeffrey Taylor 86,880
Bruce Taylor 126,880
Cindy Bleil 126,880
</TABLE>
<TABLE>
<CAPTION>
Indirectly Owned Shares
-----------------------
<S> <C>
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
</TABLE>
A-1
<PAGE> 1
EXHIBIT 10.6
CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE NOTED.
PURCHASE AGREEMENT
THIS AGREEMENT (the "Agreement") is made this 23rd day of December,
1996 by and between First Midwest Bank, National Association ("Buyer") and
Cole Taylor Bank ("Seller").
WHEREAS, Seller desires to sell and Buyer desires to purchase
(i) certain retail installment sales contracts for new automobiles that are
currently owned (but not originated) and serviced by Seller and (ii) all rights
of Seller under Seller's agreements with automobile dealers to purchase
installment sales contracts to the extent relating to the installment sales
contracts purchased by Buyer hereunder.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
TRANSACTIONS
1.1 Purchase and Sale of Sales Contracts. At the Closing
(as defined below), Seller shall sell, transfer, assign and deliver to Buyer,
and Buyer shall purchase, accept and receive from Seller, the following (the
"Purchased Assets"):
(a) all of Seller's right, title and interest in, to and under all
of the retail installment sales contracts for, and secured by, automobiles
that are owned (but not originated) by Seller at the Cut-Off Date (as
defined below) ("Sales Contracts") that do not constitute Excluded Assets
(as defined below) (the "Purchased Sales Contracts"); the Purchased Sales
Contracts shall include, without limitation, (i) the principal unpaid
balance on the Purchased Sales Contracts owing to Seller as of close of
business on the Cut-Off Date, together with all accrued interest, fees,
penalties and other payments receivable by Seller after the Cut-Off Date
with respect thereto and (ii) all payments whatsoever, and all rights,
indemnification, claims, causes of action, defenses, set-off and other
rights arising thereunder after the Cut-Off Date and security, if any,
therefor, made and to be made, existing under or with respect to such
Purchased Sales Contract after the Cut-Off Date;
-1-
<PAGE> 2
(b) all of Seller's right, title and interest in, to and
under all of the contracts between Seller and automobile dealers ("Dealer
Contracts") solely to the extent relating to the Purchased Sales Contracts
and which do not constitute Excluded Assets ("Purchased Dealer
Contracts"), including, without limitation, the Dealer Contracts with the
automobile dealers listed on Schedule 1.1(b) hereto. The Purchased Dealer
Contracts shall include, without limitation, (i) all amounts owing to the
Seller after the Cut-Off Date thereunder, (ii) all payments whatsoever
made and to be made under such Purchased Dealer Contracts after the
Cut-Off Date, and (iii) all rights to indemnification, claims, causes of
actions after the Cut-Off Date, and other rights arising thereunder after
the Cut-Off Date; and
(c) all credit files, work papers, ledger cards, payment
records, appraisals and any and all contracts, agreements, security
agreements, instruments, papers and other documents and writings that are
in Seller's possession to the extent evidencing, describing, securing or
specifically relating to the Purchased Sales Contracts and the Purchased
Dealer Contracts (the "Documentation").
1.2 Excluded Assets. The following assets are not included in the
Purchased Assets:
(a) All of Seller's right, title and interest in, to and under any
Sales Contract with respect to used automobiles;
(b) Subject to Section 1.5 below, any Sales Contract that has been
both approved by an automobile dealer and executed by the purchaser of the
vehicle on or before the Cut-Off Date, but which has not been approved by
Seller on or before the Cut-Off Date and would not if approved on or
before the Cut-Off Date otherwise have been an Excluded Asset ("Unapproved
Loan");
(c) All of Seller's right, title and interest in, to and under any
Sales Contract with respect to which any policy of "forced placed"
insurance is in effect, or is in the process of being obtained, on the
Cut-Off Date and any premium balance with respect to all such insurance;
(d) All of Seller's right, title and interest in, to and under any
Sales Contract in respect of any automobile that was purchased purely
for commercial purposes and for which a personal guaranty has not been
executed by a natural person;
(e) All of Seller's right, title and interest in, to and under any
Sales Contract for which any payments have been, and continue to be as
of the Cut-Off Date, delinquent since November 30, 1996 or earlier;
(f) All of Seller's right, title and interest in, to and under any
Dealer Contract to the extent such Dealer
-2-
<PAGE> 3
Contract relates to contracts that are not Purchased Sales Contracts;
(g) All of Seller's right, title and interest in, to and under any
Sales Contract or Dealer Contract if any party thereto is, as of the
Cut-Off Date, the subject of any action, proceeding or case arising under
any federal, state or foreign bankruptcy, insolvency or similar law; and
(h) Except as otherwise set forth in Section 2.3, any of Seller's
right, title and interest under any Sales Contract or Dealer Contract
that is not transferable without consent (unless such consent has been
obtained).
1.3 Assumed Liabilities. (a) At the Closing, Buyer shall assume
and agree to discharge all of the liabilities and obligations of Seller arising
under the Purchased Assets that accrue after the Cut-Off Date (as defined
below), including, without limitation, all liabilities and obligations of
Seller under the Purchased Assets after the Cut-Off Date (the "Assumed
Liabilities").
(b) Notwithstanding any provisions in this Agreement or any other
writing to the contrary, Buyer is assuming, and shall become liable
for, only the Assumed Liabilities and is not assuming any other liability
or obligation of Seller of whatever nature whether in existence on the
Cut-Off Date or arising thereafter. All such other liabilities and
obligations shall be retained by, and remain obligations and liabilities
of, Seller, and all such liabilities and obligations not being assumed
being herein referred to as the "Excluded Liabilities." Without limiting
the generality of the foregoing, it is expressly understood and agreed by
each of the parties hereto that the Excluded Liabilities shall include (i)
all liabilities with respect to Purchased Sales Contracts that are
repurchased by Seller pursuant to Section 11.2 hereof except to the extent
such liabilities relate to or are caused by Buyer's actions after the
Cut-Off Date, and (ii) all liabilities of the Seller in respect of Class
Action Case No. 95 L 1050 Manohar L. Jasuja individually and on behalf of
others similarly situated and Rohr-Mont Motors, Inc.
1.4 Sale without Recourse. The sale of the Purchased Sales
Contracts shall be made without recourse against Seller except as otherwise
provided herein.
1.5 Option to Purchase Unapproved Loans. Seller shall notify Buyer
of any Unapproved Loans that it has received. Upon receipt of such notice,
Buyer shall have the option for seven (7) days to purchase from Seller any such
Unapproved Loans for a purchase price, calculated as of the Cut-Off Date,
pursuant to the formula set forth in Section 2.1. Any such purchased
-3-
<PAGE> 4
*CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
Unapproved Loan will be deemed to have been a Purchased Asset for all purposes
of this Agreement.
ARTICLE II
PURCHASE PRICE
* 2.1 Consideration for Sale. The aggregate consideration for
the Purchased Assets (the "Purchase Price") shall [OMITTED].
2.2 Payment of Purchase Price. The Purchase Price shall be payable
in cash at the Closing by wire transfer of immediately available funds directly
to the account of Seller.
2.3 Assignment of Purchased Sales Contracts, Purchased Dealer
Contracts, Rights, etc. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign the
right, title or interest of Seller in, to or under any Sales Contract, Dealer
Contract, loan, contract, commitment or other agreement or any claim or right
of any benefit arising thereunder or resulting therefrom if any attempted
assignment thereof, without the consent of a third party thereto, would
constitute a breach thereof or in any way adversely affect the rights of Buyer
or Seller or if by its nature such loan, contract, commitment or other
agreement or claim of right cannot be assigned. Seller shall use its
reasonable efforts to obtain, and Buyer agrees to cooperate with Seller in its
efforts to obtain, the consent of such third party to the assignment or
transfer in all cases in which such consent is required for assignment or
transfer of any Sales Contract or Dealer Contract that would be a Purchased
Asset except for the fact that consent is required for its assignment to Buyer.
If such consent is not obtained, Seller and Buyer shall cooperate in any
reasonable arrangements designed to provide and assign Buyer with the benefit
thereunder, including enforcement for the benefits of Buyer of any and all
rights of Seller against such third party arising out of the cancellation by
such third party or otherwise. Notwithstanding the foregoing, the obligations
of Seller under this Section shall not include any obligation to make any
payment or incur any economic burden that it deems to be unreasonable.
ARTICLE III
THE CLOSING AND TRANSFER OF ASSETS
3.1 Closing. (a) The sale of the Purchased Assets (the "Closing")
shall occur at the offices of McDermott, Will & Emery, 227 West Monroe Street,
Chicago, Illinois at 10:00 a.m. on
-4-
<PAGE> 5
January 3, 1997 (provided that all conditions required herein to be satisfied
prior to the Closing have been satisfied or waived as of such date) or at such
other time or place as may be mutually agreed upon by the parties (the "Closing
Date").
(b) All proceedings to be taken and all documents to be executed and
delivered by Seller in connection with the consummation of the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
Buyer and its Counsel. All proceedings to be taken and all documents to be
executed and delivered by Buyer in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Seller and its counsel. All proceedings to be taken and all
documents to be executed and delivered by all parties at the Closing shall be
deemed to have been taken, executed and delivered simultaneously, and no
proceedings shall be deemed taken nor any documents executed or delivered until
all have been taken, executed and delivered.
3.2 Deliveries of Seller. At the Closing or as soon as
practicable thereafter as may be mutually agreed upon by the parties, Seller
shall deliver or cause to be delivered to Buyer the following:
(a) All Documentation;
(b) All certificates of title for the vehicles identified in
the Purchased Sales Contracts that serve as collateral under the
Purchased Sales Contracts (the "Vehicles");
(c) A limited Power of Attorney, included in the General
Assignment, Bill of Sale and Assumption Agreement, in the form attached
hereto as Exhibit A, authorizing Buyer to enter into all assignments on
behalf of Seller reasonably necessary to assign the certificate of title
for each Vehicle to Buyer; and
(d) A certificate of Seller, dated as of the Closing Date
and signed by an officer of Seller, certifying as to the fulfillment
of the conditions set forth in Sections 8.1, 8.2 and 8.3;
(e) A receipt for the Purchase Price;
(f) A good standing certificate or its equivalent for Seller from
the appropriate governmental agency dated as of a reasonably recent date;
(g) A certificate of an officer of Seller certifying resolutions
adopted by Seller's board of directors relating to the transactions
contemplated hereby.
-5-
<PAGE> 6
(h) A certificate as to the incumbency of each officer of
Seller executing this Agreement or any other closing document contemplated
hereby.
(i) An opinion of counsel for Seller, dated the Closing Date,
substantially in the form attached hereto as Exhibit B.
Notwithstanding the foregoing, Seller shall not transfer any of the above
Documentation or certificates of title to Vehicles as long as Seller, at the
request of Buyer, is performing the administration, management and servicing of
the Purchased Sales Contracts pursuant to Section 6.3 hereto.
3.3 Deliveries of Buyer. At the Closing, Buyer shall deliver or
cause to be delivered to Seller the following:
(a) The Purchase Price by wire transfer of immediately available
funds to the account of Seller;
(b) A certificate of Buyer, dated as of the Closing Date and signed
by an officer of Buyer, certifying as to the fulfillment of the conditions
set forth in Sections 9.1, 9.2 and 9.3;
(c) A good standing certificate or its equivalent for Buyer from the
appropriate governmental agency dated as of a reasonably recent date;
(d) A certificate of an officer of Buyer certifying the resolutions
adopted by Buyer's board of directors relating to the transactions
contemplated hereby.
(e) A certificate as to the incumbency of each officer of Buyer
executing this Agreement or any other closing document contemplated hereby.
(f) An opinion of counsel for Buyer, dated the Closing Date, in form
reasonably acceptable to Buyer and Seller.
3.4 Closing Agreements. At the Closing, Buyer and Seller shall
execute, acknowledge and deliver the General Assignment, Bill of Sale and
Assumption Agreement, substantially in the form of Exhibit A hereto.
3.5 Additional Payments. On the first Remittance Date (as defined
below), (i) Seller shall deliver to Buyer all amounts that it receives to the
extent relating to the Purchased Assets after the Cut-Off Date and (ii) Buyer
shall deliver to Seller any amounts it receives to the extent arising from the
Purchased Assets on or prior to the Cut-Off Date that are not included in the
Purchased Assets.
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*CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
* 3.6 Post-Closing Adjustment. (a) On the Closing Date, Buyer shall
pay Seller [OMITTED] the "Estimated Value."
* (b) Within fifteen (15) days after the termination of all of
Seller's obligations under Section 6.3 (the "Conversion Date"), Seller shall
prepare and deliver to Buyer a determination (the "Determination") of [OMITTED]
the "Actual Value"), which shall be prepared on a basis consistent with the
determination of the Estimated Value. Seller and Buyer shall give each other
reasonable access to the records necessary to determine the Actual Value. If,
within fifteen (15) days after receipt of Seller's Determination, Buyer shall
not have given written notice to Seller setting forth in detail any objection
to such Determination, then such Determination shall be final and binding on
the parties hereto (the "Final Value"). In the event Buyer gives written
notice of any objection to such Determination within the such 15 day period,
then Seller and Buyer shall use all reasonable efforts to resolve the dispute
within 15 days after Buyer's delivery of such notice and objection. If the
parties are unable to reach an agreement by the expiration of such 15 day
period, then the matter shall be submitted to a firm of independent certified
public accountants acceptable to both parties (the "Independent Accountants"),
for determination of the Final Value which shall be final and binding upon the
parties hereto. Seller and Buyer shall contribute equally to the fees and
expenses charged by the Independent Accountants in connection with the
resolution of any such dispute. If the Final Value is greater than the
Estimated Value, then Buyer shall pay Seller the excess amount within three (3)
business days of the final Determination. If the Final Value is less than the
Estimated Value, then Seller shall pay Buyer the deficiency amount within three
(3) business days of the final Determination.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller hereby represents and warrants to Buyer, as of the date
hereof, and as of the Closing Date, as set forth below.
4.1 Authority. Seller has full right, power and authority, without
the consent of any other person, to execute and deliver this Agreement and the
closing agreements contemplated hereby and to consummate the transactions
contemplated hereby and thereby, including the transfer of the Purchased
Assets. All corporate acts required to be taken by Seller to authorize the
execution and delivery of this Agreement and the closing agreements
contemplated hereby and the
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<PAGE> 8
performance of the transactions contemplated hereby and thereby have been duly
and properly taken.
4.2 Validity. This Agreement has been, and the agreements and other
documents to be delivered by Seller at Closing will be, duly executed and
delivered by Seller and when duly executed and delivered constitute the valid
and legally binding obligations of Seller enforceable in accordance with
their respective terms. The execution and delivery by Seller of this Agreement
and the closing agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby will not (immediately, with
notice, the passage of time or both) result in the creation of any Lien (as
defined below) or the acceleration of any indebtedness or other obligation of
Seller and are not prohibited by, do not violate or conflict with any provision
of, and do not and will not (immediately, with notice, the passage of time or
both) constitute a default under or a breach of (i) the charter or by-laws of
Seller, (ii) any note, bond, indenture, contract, agreement, permit, license or
other instrument to which Seller is a party or by which Seller or any of the
Purchased Assets are bound, (iii) any order, writ, injunction, decree or
judgment of any court or governmental agency, or (iv) any law, rule or
regulation applicable to Seller.
4.3 Due Organization. Seller (a) is duly organized, validly
existing and in good standing as a banking association under the laws of the
state of Illinois, (b) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, (c) has
the requisite corporate power and authority and the legal right to own,
transfer, pledge, or otherwise encumber and operate its business and assets, to
lease the property it operates under lease, and to conduct its business as now
being conducted, (d) has all licenses, permits, consents or approvals from or
by, and has made all filings with, and has given all notices to, all
governmental authorities having jurisdiction, to the extent required for such
ownership, operation and conduct of its business, and (e) is in compliance with
its articles of incorporation and bylaws.
4.4 Title. Seller is the sole owner of and has good title to the
Purchased Assets, free and clear of any lien, pledge, hypothecation,
assignment, charge, claim, security interest, easement, encumbrance,
preference, right of first refusal, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (collectively,
"Liens").
4.5 Purchased Sales Contracts.
(a) The down payment shown in each Purchased Sales Contract was
actually received in lawful money of the United
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<PAGE> 9
States by the dealer originating such Purchased Sales Contract;
(b) The property shown in each Purchased Sales Contract as being
traded in (if any) was accepted by the dealer originating such Purchased
Sales Contract in part payment and for the amount shown therein;
(c) Each Purchased Sales Contract is in compliance with all
applicable federal, state and local laws and regulations affecting or
applying to such contract, including specifically and without limitation,
the Truth in Lending Act, Regulation Z of the Federal Reserve Board and
the Illinois Motor Vehicle Retail Installment Sales Act;
(d) The representations and warranties contained in each Purchased
Sales Contract were true and correct at the time such contract was made;
(e) The purchaser of each Vehicle under the Purchased Sales
Contracts ("Purchaser") was of legal age and was competent to execute,
deliver and perform its respective Purchased Sales Contract;
(f) Each Vehicle was delivered into the possession of the Purchaser
of such Vehicle and was accepted by such Purchaser as being in good and
satisfactory condition;
(g) At the time each Purchased Sales Contract was originated, each
Vehicle was insured for loss by fire, theft, collision and other
casualties under extended coverage in an amount equal to or greater than
the unpaid balance of the applicable Purchased Sales Contract with a loss
payable clause in favor of Seller and the applicable dealer, as their
respective interests may appear;
(h) Each Vehicle was in the condition represented to the Purchaser
of such Vehicle;
(i) Each Purchased Sales Contract is a genuine, valid and binding
obligation of the Purchaser relating to such Purchased Sales Contract, and
is enforceable against such Purchaser in accordance with its terms,
except to the extent limited by bankruptcy, insolvency, or similar laws
affecting creditors' rights generally or by general equitable principles;
(j) Each Purchased Sales Contract arises from a bona fide sale of
the Vehicle described therein;
(k) The amounts stated to be due and payable in each Purchased Sales
Contract are due and payable by its
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<PAGE> 10
respective Purchaser at the times provided in such contract, free and
clear of any defenses, claims or offsets;
(l) Seller has a valid, perfected, first priority, purchase money
security interest in the Vehicles identified in the Purchased Sales
Contracts;
(m) The Vehicle identified in each Purchased Sales Contract is free
and clear of all liens, claims, outstanding trust receipts, security
interests and encumbrances (except those of Seller);
(n) There are no pending disputes with or claims by any Purchaser
with respect to such Purchaser's Purchased Sales Contract or the Vehicle
identified therein;
(o) The obligations of each Purchaser under such Purchaser's
Purchased Sales Contract are not contingent or dependent upon the
fulfillment of any covenants or conditions by the Company or by any third
party;
(p) The obligations of each Purchaser under such Purchaser's
Purchased Sales Contract are not evidenced or represented by any note or
other instrument, except such as have been delivered by the applicable
dealer to Seller;
(q) Each dealer will provide maintenance and other service on all
Vehicles identified in any Purchased Sales Contracts sold by such dealer
to Seller, in accordance with any warranties provided by such dealer or by
the manufacturer with respect to such Vehicles;
(r) None of the Purchased Sales Contracts has been satisfied,
subordinated or rescinded;
(s) Since Seller's purchase of the Purchased Sales Contracts, no
Vehicle has been released from the Lien granted by the related Purchased
Sales Contract;
(t) Since Seller's purchase of the Purchased Sales Contracts, no
Lien or other claim has been filed for work, labor or materials relating
to any Vehicle which Lien is prior or equal to the Lien granted in the
related Purchased Sales Contract in favor of Seller;
(u) Except for payment defaults on or after November 30, 1996, there
exists no event or condition occurring on or before September 30, 1996
permitting acceleration under the terms of any Purchased Sales Contract,
except for any default, breach, violation or event that relates to a
Purchaser's failure to obtain or maintain insurance;
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<PAGE> 11
(v) Seller, in accordance with its customary practices and
procedures, has determined, at the time each Purchased Sale Contract
was acquired by Seller, that each Purchaser had obtained or agreed to
obtain appropriate physical damage insurance covering the Vehicle related
thereto;
(w) Seller has not waived any of its rights under any Purchased
Sales Contract except such rights that do not materially adversely
affect the rights of Seller to enforce such Purchased Sales Contract;
(x) No right of rescission, setoff, counterclaim or defense has been
asserted or, to the knowledge of Seller, threatened against Seller with
respect to any Purchased Sales Contract;
(y) No Purchased Sales Contract has an original term to maturity of
more than 89 months;
(z) The original amount financed under each Purchased Sales
Contract was not less than $1,000; and
(aa) No Vehicle subject to any Purchased Sales Contract is in
repossession status.
4.6 Purchased Dealer Contracts. (a) Each Purchased Dealer
Contract (i) was executed by a dealer located in the United States of America,
(ii) was executed by such dealer and by Seller in the ordinary course of such
dealer's and Seller's respective businesses, and (iii) represents the legal,
valid and binding obligation in writing of the parties thereto, enforceable in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally, as well as general equitable principles;
(b) There exists (i) no default, breach, or violation or event
permitting termination under any of the Purchased Dealer Contracts
(except each parties' right to terminate the Dealer Contract pursuant to
the terms thereof) except such that would not materially adversely affect
the Dealer Contracts, and (ii) no condition that, with notice or the lapse
of time, or both, would constitute a default, breach, violation or event
permitting termination under any of the Purchased Dealer Contracts except
such that would not materially adversely affect any of the Dealer
Contracts;
(c) Seller has not received any written notice or explicit
communication from any party to a Purchased Dealer Contract relating to
such party's intent to modify, terminate or fail to renew the arrangements
and relationships set forth therein;
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<PAGE> 12
(d) Seller has not waived any of its rights under any Purchased
Dealer Contract except such rights that do not materially adversely
affect such Purchased Dealer Contract; and
(e) No Purchased Dealer Contract was originated in, or is subject to
the laws of, any jurisdiction under which the sale, transfer and
assignment thereof pursuant to the terms of this Agreement is unlawful,
void and voidable.
4.7 Litigation. (a) There is no injunction, writ, preliminary
restraining order or other order in effect or, to the knowledge of Seller,
threatened, of any nature issued by a court or other governmental authority of
competent jurisdiction directing that the transactions contemplated by this
Agreement and in the other closing documents contemplated hereby not be
consummated as provided herein.
(b) There is no action or proceeding pending or, to the knowledge of
Seller, threatened, before a court or other governmental authority to restrain,
prohibit or otherwise challenge the transactions contemplated by this
Agreement or any of the other closing documents contemplated hereby, nor has
any governmental or quasi-governmental agency or regulatory body notified
Seller that the consummation of the transactions contemplated hereby or by the
other closing documents delivered pursuant hereto would constitute a violation
of any federal, state or local laws or that it intends to commence proceedings
to restrain the consummation of such transactions, to force divestiture if the
same are consummated, or to modify the terms or results of such transactions.
(c) (i) There are no claims, actions, suits, proceedings (public or
private) or governmental investigations pending or, to the knowledge of Seller,
threatened, against Seller affecting or in respect of any of the Purchased
Assets or the Assumed Liabilities at law or in equity, before or by any
federal, state, municipal or other governmental or non-governmental department,
commission, board, bureau, agency, court or other instrumentality, or by any
private person or entity, (ii) to the knowledge of Seller, there is no basis
for any such action, suit or proceeding, and (iii) there are no existing or, to
the knowledge of Seller, threatened, orders, judgments, assessments or decrees
of any court or other governmental authority affecting any of the Purchased
Assets or the Assumed Liabilities.
4.8 Brokers. No person or entity (other than those the compensation
of which shall be paid by Seller) has acted directly or indirectly as a broker,
finder or financial advisor for Seller in connection with the negotiations
relating to or the transactions contemplated by this Agreement, and no person is
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<PAGE> 13
entitled to any fee, commission or like payment from Buyer in respect of or
based in any way on any agreement, arrangement or understanding made by or on
behalf of Seller.
EXCEPT FOR THE SPECIFIC REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN,
THE PURCHASED ASSETS ARE BEING SOLD AS IS WITHOUT RECOURSE EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED HEREIN AND WITHOUT ANY REPRESENTATION OR WARRANTIES AS TO
COLLECTIBILITY OR ENFORCEABILITY. ALL OTHER WARRANTIES EXPRESS OR IMPLIED ARE
HEREBY DISCLAIMED.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
5.1 Authority. Buyer has full right, power and authority, without
the consent of any other person, to execute and deliver this Agreement and the
closing agreements contemplated hereby and to consummate the transactions
contemplated hereby and thereby, including the purchase of the Purchased
Assets. All corporate acts required to be taken by Buyer to authorize the
execution and delivery of this Agreement and the closing agreements
contemplated hereby and the performance of the transactions contemplated hereby
and thereby have been duly and properly taken.
5.2 Validity. This Agreement has been, and the agreements and other
closing documents to be delivered by Buyer at Closing will be, duly executed
and delivered by Buyer and when duly executed and delivered will constitute the
valid and legally binding obligations of Buyer enforceable in accordance with
their respective terms. The execution and delivery by Buyer of this Agreement
and the closing agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby will not (immediately, with
notice, the passage of time or both) result in the acceleration of any
indebtedness or other obligation of Buyer and are not prohibited by, do not
violate or conflict with any provision of, and do not and will not
(immediately, with notice, the passage of time or both) constitute a default
under or a breach of (i) the charter or by-laws of Buyer, (ii) any note, bond,
indenture, contract, agreement, permit, license or other instrument to which
Buyer is a party or by which Buyer is bound, (iii) any order, writ, injunction,
decree or judgment of any court or governmental agency, or (iv) any law, rule
or regulation applicable to Buyer.
5.3 Due Organization. Buyer (a) is duly organized, validly existing
and in good standing as a banking association under the laws of the United
States, (b) is duly qualified as a foreign corporation and in good standing
under the laws of each
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jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, (c) has the requisite corporate power and
authority and the legal right to own, transfer, pledge, mortgage or otherwise
encumber and operate its business and assets, to lease the property it operates
under lease, and to conduct its business as now being conducted, (d) has all
licenses, permits, consents or approvals from or by, and has made all filings
with, and has given all notices to, all governmental authorities having
jurisdiction, to the extent required for such ownership, operation and conduct
of its business, and (e) is in compliance with its articles of incorporation
and bylaws and other governing documents.
5.4 Litigation. (a) There is no injunction, writ, preliminary
restraining order or other order in effect or, to the knowledge of Buyer,
threatened, of any nature issued by a court or other governmental authority of
competent jurisdiction directing that the transactions contemplated by this
Agreement and in the other closing documents contemplated hereby not be
consummated as provided herein.
(b) There is no action or proceeding pending or, to the knowledge of
Buyer, threatened, before a court or other governmental authority to restrain,
prohibit or otherwise challenge the transactions contemplated by this Agreement
or any of the other closing documents contemplated hereby, nor has any
governmental or quasi-governmental agency or regulatory body notified Buyer
that the consummation of the transactions contemplated hereby or by the other
closing documents delivered pursuant hereto would constitute a violation of any
federal, state or local laws or that it intends to commence proceedings to
restrain the consummation of such transactions, to force divestiture if the
same are consummated, or to modify the terms or results of such transactions.
5.5 Brokers. No person or entity (other than those the compensation
of which shall be paid by Buyer) has acted directly or indirectly as a broker,
finder or financial advisor for Buyer in connection with the negotiations
relating to or the transactions contemplated by this Agreement, and no person
is entitled to any fee, commission or like payment from Seller in respect of or
based in any way on any agreement, arrangement or understanding made by or on
behalf of Buyer.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS OF SELLER
6.1 Consummation. Following the Closing, Seller shall cooperate in
an orderly transfer of the Purchased Assets to Buyer. From time to time, at
Buyer's request and without further consideration, Seller shall execute,
acknowledge and deliver such
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<PAGE> 15
documents, instruments or assurances and take such other action as Buyer may
reasonably request to more effectively assign, convey and transfer any the
Purchased Assets and to perfect the interest of Buyer therein. Subject to the
terms and conditions provided herein, Seller agrees to use all commercially
reasonable efforts to take, or cause to be taken all actions and to do, or
cause to be done all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by the Agreement in accordance with its terms; except that this
covenant shall not require Seller to make any payment or incur any economic
burden that it deems to be unreasonable.
6.2 Interim Conduct of Business. From the date hereof until the
Closing, Seller shall administer, manage and service the Purchased Assets and
perform its obligations under the Dealer Contracts consistent with the practice
of Seller on the date hereof and in the ordinary course of its business.
6.3 Continued Servicing of Sales Contracts by Seller after
Closing. (a) Buyer and Seller agree to use reasonable commercial efforts to
transfer the administration, management and servicing of the Purchased Sales
Contracts and Dealer Contracts to Buyer as quickly as possible on or after the
Closing Date.
(b) Until the end of the second full month following the Closing
Date or such time Buyer notifies Seller in writing of the revocation of
such power and authority, whichever is earlier, Seller, for the benefit of
Buyer, shall manage, service, administer and make collections on the
Purchased Sales Contracts in a manner consistent with such activities
performed by Seller on the date hereof. Seller's duties shall include,
without limitation, (i) collection and posting of payments, (ii)
responding to inquiries of obligors on the Purchased Sales Contract, (iii)
investigating delinquencies, (iv) accounting for collections, (v) granting
extensions, rebates or adjustments on a Purchased Sales Contract
consistent with its customary practices, and (vi) in the absence of
instruction from Buyer, taking or permitting to be taken such action with
respect to the Purchased Assets as it may deem advisable, including resale
of any repossessed Vehicles and rescheduling through extension or
otherwise of payments due under such Purchased Sales Contracts if good
business judgment indicates such rescheduling would enhance collection
results. In addition, during this period, Seller shall retain all
administrative responsibilities with respect to the Purchased Dealer
Contracts. Seller shall maintain records and files to each Purchase Sales
Contract consistent with such records and files currently maintained by
Seller with respect to the Purchased Assets.
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*CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(c) Without limiting the generality of the foregoing, Seller is
authorized and empowered to execute and deliver, on behalf of itself and
Buyer any and all instruments of satisfaction or cancellation, or partial
or full release or discharge, and all other comparable instruments, with
respect to the Purchased Sales Contracts or to the Vehicles securing the
obligations thereunder. Buyer shall pay for all fees and charges paid by
Seller in the delivery of the such instruments.
(d) Seller shall notify Buyer if Seller deems it to be in Buyer's
best interest to commence a legal proceeding with respect to a Purchased
Asset. Seller shall commence such legal proceeding only upon Buyer's
notice of approval. Buyer shall pay for all expenses related to such
legal proceeding. If Seller shall commence a legal proceeding to enforce
any Purchased Sales Contract, then Buyer shall thereupon be deemed to have
automatically assigned, solely for the purpose of collection, such
Purchased Sales Contract to Seller. Seller shall promptly notify Buyer,
if, in any enforcement suit or legal proceeding, it shall be held that
Seller may not enforce a Purchased Sales Contract on the ground that it
shall not be a real party in interest or a holder entitled to enforce such
Purchased Sales Contract.
* (e) Buyer agrees to pay Seller compensation on a monthly basis not
to exceed [OMITTED] for any administration, management and service
functions performed by Seller for Buyer pursuant to this Section 6.3 (the
"Services") plus [OMITTED] ("Servicing Fee") after the Cut-Off Date. The
Servicing Fee will be decreased, as determined in good faith by Seller and
Buyer, to reflect any Services that Buyer elects to provide prior to the
Conversion Date.
(f) (i) After the Closing, Seller on each Remittance Date (as
defined below) shall transfer and deliver to Buyer all amounts received
after the Cut-Off Date on the account of or otherwise with respect to the
Purchased Sales Contracts; provided, however, Seller may subtract from
such amounts to be delivered to Buyer, any compensation that Seller is
entitled to receive as a result of its administration, management and
servicing of the Purchased Sales Contracts, including, without limitation,
the Servicing Fee.
(g) On the 20th business day of each full month following the
Closing (each, a "Remittance Date"), Seller
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shall deliver to Buyer a certificate (the "Servicing Certificate")
containing the following information:
(i) The aggregate of payments received in respect of
the Purchased Sales Contracts during the previous month allocable to
principal, as applied on either a simple interest or actuarial basis;
(ii) The aggregate of payments received on the Purchased Sales
Contracts during the prior month allocable to interest;
(iii) The aggregate Unpaid Principal Balance of the Purchased
Sales Contracts as of the closing of business on the last day of the
prior month, after giving effect to payments allocated to principal;
(iv) The amount of the Servicing Fee payable to Seller for the
prior month;
(v) The amount (and number) of realized losses, if any, for the
Purchased Sales Contracts during the prior month, the amount (and number)
of Purchased Sales Contracts 30 to 60, 61 to 90 and 91 or more days
delinquent as of the last day of the prior month, and the aggregate of
Purchased Sales Contracts (by dollar amount and by number of Purchased
Sales Contracts) determined by Seller to be in default as of the last day
of the prior month;
(vi) The amount of proceeds received in connection with the
disposition of any Vehicle subject to a Purchased Sales Contract that
is in default; and
(vii) The aggregate of all charge-offs for the prior month
relating to the Purchased Sales Contract.
(h) To effectuate Seller's administration, management and servicing
of the Sales Contracts, effective as of the Closing Date and until further
written notice by Buyer to Seller, Buyer hereby designates and appoints
Seller (and its designees or agents) as agent and attorney-in-fact, with
full authority to enforce Buyer's rights and interests to the extent
necessary to perform Seller's obligations under this Section 6.3. This
power of attorney shall automatically terminate upon the termination of
Seller's obligations under this Section 6.3.
(i) Seller shall hold the Documentation as bailee for the benefit of
Buyer. Seller acknowledges that the Purchased Sales Contracts have been
sold to Buyer and, as a result, that Buyer has a right to the possession of
the
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Documentation at any time upon termination of Seller's obligations under
this Section 6.3. Seller shall maintain each Purchased Sales Contract
File at 5501 West 79th Street, Burbank, Illinois 60459 or at such other
office as shall be specified to Buyer by written notice not later than 15
days before any change in location. Nothing contained in this subsection
(i) shall interfere with or affect the obligation of Seller to observe any
applicable law prohibiting the disclosure of information regarding the
obligors under any Purchased Sales Contract.
(j) Seller shall not be responsible for any failure to collect
amounts due under the Purchased Assets, except as specifically
provided for herein. Buyer shall defend, indemnify and hold harmless
Seller from all damages and liabilities arising from claims or actions
brought as a result of the activities of Seller pursuant to this Section
6.3 under the authority granted herein, except for such claims or actions
brought as a result of Seller's failure to perform its obligations under
Section 6.3 in a manner consistent with the performance of such activities
by Seller on the date hereof.
6.4 Schedule of Purchased Assets. Seller hereby agrees and
covenants that it will deliver an electronic tape setting forth information
regarding the Purchased Sales Contracts during the week following the Closing
Date along with a certification by an authorized officer of Seller that such
electronic tape is true and correct in all material respects as of the close of
business on the Cut-Off Date
6.5 Vehicle Casualty Insurance. As soon as practicable after the
Closing Date, Seller and Buyer shall cause Buyer to replace Seller as a listed
loss payee with respect to all vehicle casualty insurance for which Seller is
listed as a loss payee with respect to each Purchased Sales Contract. Seller
shall deliver to Buyer any amounts that it receives as loss payee on such
vehicle casualty insurance with respect to any claims that arise after the
Cut-Off Date.
6.6 Access. From the date hereof through the Closing Date, Seller
shall give Buyer and its representatives access during normal business hours
and under reasonable circumstances to all the financial and other information
in its possession relating to the Purchased Assets and the Assumed Liabilities
as Buyer may from time to time reasonably request.
6.7 Confidentiality. Seller hereby agrees from and after the
Closing to keep confidential and use reasonable commercial efforts to ensure
that its employees, agents and representatives keep confidential all
information, documents and records with respect to the Purchased Assets and the
Assumed Liabilities. Such confidential information shall not include any
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information (a) that is part of the public knowledge or literature prior to the
Closing, (b) which becomes part of the public knowledge or literature by acts
other than those of Seller or its employees, agents or representatives in
violation of this Section, (c) that is required by applicable law to be
disclosed to any governmental regulatory body, court or national securities
exchange, or (d) that is reasonably disclosed in connection with any litigation
or dispute resolution. Buyer acknowledges that this Agreement will be filed
with the Securities and Exchange Commission. Seller agrees to make reasonable
efforts to request confidential treatment from the Securities and Exchange
Commission with respect to the pricing terms set forth in Section 2.1 and
Section 6.3(e) of this Agreement.
ARTICLE VII
ADDITIONAL COVENANTS OF BUYER
7.1 Consummation. Subject to the terms and conditions provided
herein, Buyer agrees to use all commercially reasonable efforts to take, or
cause to be taken all actions and to do, or cause to be done all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Agreement in
accordance with its terms; except that this covenant shall not require Buyer to
make any payment or incur any economic burden that it deems to be unreasonable.
7.2 Confidentiality. Buyer hereby agrees to keep confidential and
use reasonable commercial efforts to ensure that its employees, agents and
representatives keep confidential (a) all confidential information of Seller
not included in the Purchased Assets and obtained by Seller, and (b) prior to
the Closing, all information, documents and records with respect to the
Purchased Assets and the Assumed Liabilities. Such confidential information
shall not include this Agreement and any information (a) that is part of the
public knowledge or literature prior to the receipt thereof by Buyer from
Seller, (b) which becomes part of the public knowledge or literature by acts
other than those of Buyer or its employees, agents or representatives in
violation of this Section, (c) that is required to be disclosed by applicable
law to any governmental regulatory body, court, or national securities
exchange, or (d) that is reasonably disclosed in connection with any litigation
or dispute resolution.
7.3 Access. For a period of six years after the Closing Date (or
such longer period as may be required by any governmental authority or ongoing
legal proceeding):
(a) Buyer shall not dispose of or destroy any of the business
records and files related to the Purchased Assets or the Assumed
Liabilities delivered by Seller to Buyer in
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accordance with this Agreement. If Buyer wishes to dispose of or destroy
such records and files after that time, it shall first give 30 days' prior
written notice to Seller and Seller shall have the right, at its option
and expense, upon prior written notice to Buyer within such 30 day period,
to take possession of the records and files within 60 days after the date
of Seller's notice to Buyer.
(b) Buyer shall allow Seller and its representatives reasonable
access to all business records and files in respect of the Purchased
Assets and the Assumed Liabilities which are delivered by Seller to Buyer
in connection herewith, during regular business hours and upon reasonable
notice at Buyer's principal place of business or at any location where
such records are stored, and Seller shall have the right, at its own
expense, to make copies of any such records and files. To the extent
practicable, Buyer shall send copies of such business records and files to
Seller, at the expense of Seller, by overnight courier or other delivery
service, as reasonably requested by Seller.
(c) Buyer shall make available to Seller, upon written request and
at Seller's expense, Buyer's personnel to assist Seller in locating and
obtaining the aforementioned records and files maintained by Buyer, in
anticipation of, or preparation for, existing or future litigation,
arbitration, administrative proceeding, tax return preparation or other
matters in which Seller is involved and which relate to the Purchased
Assets or the Assumed Liabilities.
7.4 Servicing of Purchased Sales Contracts and Purchased Dealer
Contracts. (a) During the period in which any of Seller's repurchase and
indemnification obligations with respect to Sections 4.5 or 4.6 survive,
Buyer shall service all of the Purchased Assets and Assumed Liabilities in a
commercially reasonable manner, pursuant to the terms of the Purchased Sales
Contracts, the Purchased Dealer Contracts, and as required by applicable law
and regulatory authorities. (b) During the period in which any of Seller's
repurchase and indemnification obligations with respect to Sections 4.5 or 4.6
survive, Buyer shall not waive, amend, cancel or terminate any of its rights
under any Purchased Dealer Contract or Purchased Sales Contract, including,
without limitation, Seller's ability to enforce the repurchase obligations set
forth in the Purchased Dealer Contracts, except such rights that do not
materially adversely affect such Purchased Dealer Contracts and Purchased Sales
Contracts.
7.5 Reasonable Efforts Upon Repurchase. In the event Buyer exercises
its rights under Section 11.2 below, Buyer agrees to make reasonable efforts
(consistent with its then current dealer relations and servicing practice) to
assist Seller in its
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efforts to enforce the repurchase obligations set forth in the applicable
Purchased Dealer Contracts.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to consummate the transactions contemplated
by this Agreement are subject to fulfillment prior to or at the Closing of the
following conditions (unless waived in writing in the sole discretion of Buyer):
8.1 Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Seller contained herein shall be accurate in
all material respects when made and as of the Closing Date. Seller shall have,
in all material respects, performed all obligations and complied with each and
all of the covenants, agreements and conditions required to be performed or
complied with on or prior to the Closing in all material respects.
8.2 No Pending Action. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority shall
be pending or threatened wherein an unfavorable judgment, decree or order would
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated hereby or
cause such transactions to be rescinded.
8.3 Consents. All material consents, approvals, authorizations and
waivers from third parties and governmental agencies that are required for
Seller's transfer of the Purchased Assets or that are otherwise required for
the consummation of the transactions contemplated hereby upon the terms hereof
shall have been obtained or provided for and shall remain in effect.
8.4 Seller Deliveries. Seller shall have delivered to Buyer each of
the items specified in Section 3.2 and 3.4.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS
OF SELLER
The obligation of Seller to consummate the transactions contemplated
by this Agreement are subject to the fulfillment prior to or at the Closing of
the following conditions (unless waived in writing in the sole discretion of
Seller):
9.1 Accuracy of Warranties and Performance of Covenants. The
representations and warranties of Buyer contained herein shall be accurate in
all material respects as if made on and as of the Closing Date. Buyer shall
have, in all material
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respects, performed all of its obligations and complied with each and all of
the covenants, agreements and conditions required to be performed or complied
with on or prior to the Closing in all material respects.
9.2 No Pending Action. No action, suit, proceeding or investigation
before any court, administrative agency or other governmental authority shall
be pending wherein an unfavorable judgment, decree or order would prevent the
carrying out of this Agreement or any of the transactions contemplated hereby
in a way materially adverse to Seller, declare unlawful the transactions
contemplated hereby or cause such transactions to be rescinded.
9.3 Consents. All material consents, approvals, authorizations and
waivers from third parties and governmental agencies that are required for
Buyer's purchase of the Purchased Assets and the Assumed liabilities or that
are otherwise required for the consummation of the transactions contemplated
hereby upon the terms hereof shall have been obtained or provided for and shall
remain in effect in all material respects.
9.4 Buyer Deliveries. Buyer shall have delivered to Seller each of
the items specified in Section 3.3 and 3.4.
ARTICLE X
TERMINATION AND WAIVER
Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and abandoned at any time prior to the Closing
Date:
(a) by the mutual written consent of Seller and Buyer;
(b) by Seller or Buyer if any court of competent jurisdiction or
governmental body, authority or agency having jurisdiction shall have
issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable;
(c) by Buyer, if one or more of the conditions to the obligation of
Buyer to consummate the transactions contemplated hereby has not been
fulfilled by the Closing Date; or
(d) by Seller, if one or more of the conditions to the obligation of
Seller to consummate the transactions contemplated hereby has not been
fulfilled by the Closing Date.
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(e) by Buyer, if Seller shall become the subject of any action,
proceeding or case arising under any federal, state or foreign
bankruptcy, insolvency or similar law; or
(f) by Seller, if Buyer shall become the subject of any action,
proceeding or case arising under any federal, state or foreign
bankruptcy, insolvency or similar law.
In the event of termination of this Agreement pursuant to this Article X, this
Agreement shall terminate and there shall be no other liability on the part of
Seller to Buyer or on the part of Buyer to Seller, except in the case of a
termination pursuant to clauses (c) or (d) above, for liability (including, but
not limited to, liability arising under Section 11.3) arising out of a breach
of this Agreement or the failure by a party to fulfill its conditions
hereunder, in which event, the non-breaching party reserves the right to seek
all available remedies.
ARTICLE XI
SURVIVAL, REMEDIES, REPURCHASE RIGHTS AND INDEMNIFICATION
11.1 Seller's Breach of Representations and Warranties.
(a) All representations and warranties of Seller in Section 4.5
shall survive the Closing and be enforceable with respect to each Purchased
Sales Contracts until the later of (i) the first anniversary of the Closing
Date or (ii) the fourth anniversary of the date of origination of such
Purchased Sales Contract, but shall thereafter be of no further force or
effect, except as they relate to repurchase claims for which notice has been
provided by Buyer to Seller within the applicable survivability period.
(b) All representations and warranties of Seller in Sections 4.6
shall survive the Closing and be enforceable until the second anniversary of
the Closing Date, but shall thereafter be of no further force or effect,
except as they relate to indemnification claims for which notice has been
provided by Buyer to Seller within the two year survivability period.
(c) All representations and warranties of Seller set forth in
Sections 4.1 through 4.4, 4.7 and 4.8 and of the Buyer in Article V shall
survive indefinitely.
11.2 Repurchase Obligation. In accordance with the notice
provisions set forth in 11.4 below, Buyer shall promptly inform Seller and the
dealer(s) originating the Purchased Sales Contract(s) affected by the breached
representation and warranty (the "Dealers"), in writing, upon the discovery of
any breach of
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the Seller's representations and warranties pursuant to Section 4.5 hereof.
Unless the breach shall have been cured by Seller or the Dealers within
forty-five (45) days of such notice, and subject to Buyer's obligations under
Section 7.4, Seller shall repurchase any Purchased Sales Contract materially
and adversely affected by the breach (the "Repurchased Contracts") as of the
expiration of the 45 day cure period (or, at the Seller's option, as of the
date that Seller receives notice from Buyer hereunder of such breach). In
consideration of the repurchase of the Repurchased Contract(s) pursuant to this
Section 11.2, Seller shall remit the Repurchase Price (as defined below) for
such Repurchased Contract(s) within thirty (30) days after the expiration of
the cure period. Seller's repurchase obligation set forth in this Section 11.2
with respect to each Repurchased Contract is contingent upon (i) Buyer's legal
and valid assignment of all of its rights in the Purchased Dealer Contract
relating to such Repurchased Contract, (ii) Buyer's valid assignment of any
dealer reserves related to such Repurchased Contract, (iii) no claims having
been made by Buyer against dealer reserves related to such Repurchased
Contract, (iv) Buyer's delivery to Seller of all Documentation in its
possession relating to the such Repurchased Contract, (v) a certificate
executed by an authorized officer of Buyer certifying compliance with the
covenants set forth in Section 7.4 above, and (i) at Seller's request, Buyer's
attempt to obtain recourse against the applicable Dealer in the event of a
breach of a representation and warranty set forth in Section 4.5 by twice
notifying the applicable Dealer by registered or certified mail, or as
otherwise required by the applicable Purchased Dealer Contract, that Buyer is
demanding its resell rights under the applicable Purchased Dealer Contract with
respect to such Repurchased Contract. The sole remedy of Buyer with respect to
a breach of Seller's representations and warranties pursuant to Section 4.5
hereof shall be to require Seller to repurchase the Purchased Sales Contracts
pursuant to this Section 11.2.
For purposes of this Agreement, "Repurchase Price" shall mean:
(a) The Unpaid Principal Balance of the Repurchased Contracts as of
the expiration of the cure period described above; plus
(b) (.0155) multiplied by (y) the Unpaid Principal Balance of the
Repurchased Contracts as of the expiration of the cure period described above,
multiplied by (z) the remaining number of months outstanding in the term of the
Repurchased Contract as of the expiration of the cure period described above
divided by the number of months outstanding in the term of the Repurchased
Contract as of the Cut-Off Date.
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<PAGE> 25
11.3 Indemnification. (a) Seller agrees to indemnify and
hold Buyer harmless from and against any and all liabilities, obligations,
damages, losses, costs, penalties, and expenses (collectively, "Losses") of
Buyer caused by or resulting from:
(i) any misrepresentation or breach of warranty made by Seller
in this Agreement or any other closing document delivered pursuant hereto,
except for any representations and warranties made in Section 4.5 hereof;
(ii) the failure of Seller to comply with any of the covenants
contained in this Agreement or in any of the documents delivered pursuant
hereto which are required to be performed by Seller; and
(iii) any of the Excluded Liabilities or Excluded Assets.
(b) Buyer agrees to indemnify and hold Seller harmless from and
against any and all Losses of Seller caused by or resulting from:
(i) any misrepresentation or breach of warranty made by Buyer
in this Agreement or any other closing document delivered pursuant hereto;
(ii) the failure of Buyer to comply with any of the covenants
contained in this Agreement or in any of the documents delivered pursuant
hereto which are required to be performed by Buyer; any
(iii) any of the Assumed Liabilities.
11.4 Notice of Indemnification. In the event any legal proceeding
shall be threatened or instituted or any claim or demand shall be asserted by
any person in respect of which payment may be sought by one party hereto
from the other party under the provisions of Section 11.3, the party seeking
indemnification (the "Indemnified Party") shall promptly cause written notice
of the assertion of any such claim of which it has knowledge which is covered
by this indemnity to be forwarded to the other party (the "Indemnifying Party")
which notice in respect of any claims for repurchase and indemnification
pursuant to Section 11.1(a)(i) or 11.1(b)(i), respectively, must be received by
the Indemnifying Party prior to one year from the Closing Date. Any notice of
a claim by reason of a breach of any of the representations, warranties or
covenants contained in this Agreement shall state specifically the
representation, warranty or covenant with respect to which the claim is made,
the facts giving rise to an alleged basis for the claim, and the amount of the
liability asserted against the Indemnifying Party by reason of the claim.
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<PAGE> 26
11.5 Indemnification Procedure for Third-Party Claims. Except as
otherwise provided herein, in the event of the initiation of any legal
proceeding against an Indemnified Party by a third party, the Indemnifying
Party shall have the absolute right after the receipt of notice, at its option
and at its own expense, to be represented by counsel of its choice, and to
defend against, negotiate, settle or otherwise deal with any proceeding, claim
or demand which relates to any loss, liability or damage indemnified against
hereunder; provided, however, that the Indemnified Party may participate in any
such proceeding with counsel of its choice and at its expense. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiations or settlement of any such legal proceeding, claim or demand. To
the extent the Indemnifying Party elects not to defend such proceeding, claim
or demand, and the Indemnified Party defends against or otherwise deals with
any such proceeding, claim or demand, the Indemnified Party may retain counsel,
at the expense of the Indemnifying Party to the extent that the Indemnified
Party has a recoverable claim under Section 11.3 against the Indemnifying
Party, and control the defense of such proceeding. If the Indemnified Party
shall settle any such proceeding without the consent of the Indemnifying Party,
the Indemnified Party shall thereafter have no claim against the Indemnifying
Party with respect to any loss, liability, claim, obligation, damage and
expense occasioned by such settlement.
11.6 General Provisions Relating to Repurchase Obligations, Remedies
and Indemnification.
(a) Seller shall not be required to make any payments arising from
Sections 11.3(a)(i) or (ii) of this Article XI unless and until the
aggregate amount of all Losses of Buyer for which Seller has
indemnification obligations under Section 11.3(a)(i) or (ii) shall exceed
$20,000, as to which Seller shall be responsible only for the excess over
$20,000. Buyer shall not be required to make any payments arising from
Sections 11.3(b)(i) and (ii) of this Article XI unless and until the
aggregate amount of all Losses of Seller for which Seller has
indemnification obligations under 11.3(b)(i) and (ii) shall exceed
$20,000, as to which Buyer shall be responsible only for the excess over
$20,000.
(b) After the Closing, the repurchase and indemnification rights
provided pursuant to this Article XI shall be the exclusive remedy of the
parties with respect to any dispute arising out of or related to this
Agreement and the transactions contemplated hereby. Neither Seller nor
Buyer shall have any obligation to indemnify the other party or otherwise
have liability to the other party for consequential damages, special
damages, incidental damages, indirect damages, lost profits or similar
items. Seller shall have no liability for any Losses incurred by Buyer to
the extent such Losses arise from actions taken or not taken
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<PAGE> 27
by Buyer from and after the Closing. Buyer shall have no liability
for any Losses incurred by Seller to the extent such Losses arise from
actions taken or not taken by Seller from and after the Closing.
(c) Buyer's Losses shall be reduced by any insurance proceeds
or other third party recoveries received by Buyer and the available
federal and state income tax deductions allowed by Buyer in connection
with the Loss.
(d) To the extent that Seller discharges any claim for
indemnification hereunder, Seller shall be subrogated to all rights of
Buyer against third parties related thereto.
(e) EXCEPT FOR THE SPECIFIC REPRESENTATIONS AND WARRANTIES SET FORTH
HEREIN, THE PURCHASED ASSETS ARE BEING SOLD AS IS WITHOUT RECOURSE EXCEPT
AS OTHERWISE SPECIFICALLY PROVIDED HEREIN AND WITHOUT ANY REPRESENTATION
OR WARRANTIES AS TO COLLECTIBILITY OR ENFORCEABILITY. ALL OTHER
WARRANTIES EXPRESS OR IMPLIED ARE HEREBY DISCLAIMED.
ARTICLE XII
GENERAL PROVISIONS
12.1 Amendments and Waiver. No amendment, waiver or consent with
respect to any provision of this Agreement shall in any event be effective,
unless the same shall be in writing and signed by the parties hereto, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
12.2 Notices. All notices, requests, consents, demands and other
communications hereunder must be in writing and shall be delivered in person,
by courier service or by telecopy, telegram or telex as follows:
(a) If to Seller:
COLE TAYLOR BANK
350 East Dundee Road
Wheeling, Illinois 60090
Telecopy No.: (847) 537-7627
Attn: J. Christopher Alstrin
Marjorie J. MacLean
With copies to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Telecopy No.: 312-984-3669
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<PAGE> 28
Attn: Mark Yeager
(b) If to Buyer:
FIRST MIDWEST BANK, NATIONAL ASSOCIATION
300 Park Boulevard
Suite 400
Itasca, IL 60143-4169
Telecopy No.: (630) 875-7389
Attn: Ralph Leonard
With copies to:
MORRISON & FOERSTER LLP
1290 Avenue of the Americas
New York, NY 10104
Telecopy No.: (212) 468-7900
Attn: Arthur Hayes
Any party may change its address or add or change parties for receiving notice
by written notice given to the others named above.
12.3 Expenses. Except as otherwise expressly provided herein, each
party to this Agreement shall pay its own costs and expenses in connection with
the transactions contemplated hereby.
12.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.5 Successors and Assigns; Beneficiaries. This Agreement shall
bind and inure to the benefit of the parties named herein and their respective
successors and assigns. No Party may assign any rights, benefits, duties or
obligations under this Agreement without the prior written consent of the other
party. No third party shall be entitled to enforce any provision hereof; and
no third party is intended to benefit from this Agreement.
12.6 Entire Agreement. This Agreement and the documents referred to
herein contain the entire agreement and understanding among the parties with
respect to the transactions contemplated hereby and supersede all other
agreements, understandings and undertakings among the parties on the subject
matter hereof.
12.7 Announcements. Subject to Section 6.6 and 7.2, no announcement
of the specific terms of this Agreement shall be made by any party without the
written approval of the other party (which approval shall not be unreasonably
withheld).
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<PAGE> 29
12.8 Partial Invalidity. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court or competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
12.9 Governing Law; Jurisdiction. This Agreement shall be
interpreted in accordance with the substantive laws of the State of Illinois
applicable to contracts made and to be performed wholly within said State. All
disputes, legal actions, suits and proceedings arising out of or relating to
this Agreement shall be brought in a federal district court or State court
located in Chicago, Illinois. Each party hereby consents to the jurisdiction
of the federal district court or State court in Chicago, Illinois. Each party
hereby irrevocably waives all claims of immunity from jurisdiction and any
right to object on the basis that any dispute, action, suit or proceeding
brought in the federal district court or State court of Chicago, Illinois has
been brought in an improper or inconvenient venue or forum.
12.10 WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS AGREEMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR
ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND
AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY.
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<PAGE> 30
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by a duly authorized officer all as of the date first
written above.
FIRST MIDWEST BANK, COLE TAYLOR BANK
NATIONAL ASSOCIATION
By /s/ RALPH LEONARD By /s/ JOHN CHRISTOPHER ALSTRIN
--------------------------- ----------------------------
Its Executive Vice President Its Chief Financial Officer
-------------------------- ----------------------------
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<PAGE> 31
* CONFIDENTIAL TREATMENT REQUESTED - MATERIAL OMITTED HAS BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 1.1(b)
* [OMITTED]
<PAGE> 32
EXHIBIT A
GENERAL ASSIGNMENT, BILL OF SALE
AND ASSUMPTION AGREEMENT
This Agreement (this "Agreement") dated as of January 3, 1997
(the "Closing Date") by and between Cole Taylor Bank ("Seller") and First
Midwest Bank, National Association ("Buyer") is being entered into pursuant to
a Purchase Agreement by and between Buyer and Seller dated December 20, 1996
(the "Purchase Agreement").
WHEREAS, the Purchase Agreement provides that Seller shall
sell, transfer, assign and deliver to Buyer, and Buyer shall accept and receive
all of Seller's right, title and interest in and to the Purchased Assets as
defined in the Purchase Agreement.
NOW, THEREFORE, pursuant to the Purchase Agreement and for
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged:
1. Effective as of the date hereof Seller hereby sells,
conveys, transfers, assigns and delivers to Buyer and its successors and
assigns forever, and Buyer hereby accepts and receives all of Seller's right,
title and interest in and to the Purchased Assets, to have and to hold the same
for its and their own use and benefit forever.
2. Certificates of Title for Vehicles
(a) Buyer hereby assumes all of the responsibilities and
obligations of Seller as lienholder of the vehicles identified in the Purchased
Sales Contracts (as defined in the Purchase Agreement) that serve as collateral
under the Purchased Sales Contracts (the "Vehicles"), including, without
limitation, the obligations set forth under the Illinois Vehicle Code (the
"Vehicle Obligations").
(b) Subject to Buyer's compliance with Section 2(a)
above, Seller hereby constitutes and appoints Buyer as its true and lawful
attorney-in-fact, in the name of Seller but on behalf of and for the account of
Buyer, for the sole purposes of (i) assigning any or all of the certificates of
title for the Vehicles in the name of Seller to Buyer and (ii) releasing any or
all of the certificates of title for the Vehicles.
(c) Buyer shall hereby indemnify and hold Seller harmless
from and against any and all liabilities, obligations, damages, losses, costs,
penalties and expenses (collectively, "Losses") of Seller caused by Buyer's
failure to comply with any and all of the Vehicle Obligations.
<PAGE> 33
3. Assumed Liabilities. Buyer hereby assumes and agrees
to fully pay, perform and discharge all of the Assumed Liabilities (as defined
in the Purchase Agreement) when due. Without limiting the foregoing, Buyer
hereby agrees to timely perform all obligations of Seller under the Purchased
Sales Contracts (as defined in the Purchase Agreement) and Purchased Dealer
Contracts (as defined in the Purchase Agreement) in accordance with the terms
thereof when due.
4. All of the terms and provisions of this Agreement shall
be binding upon Seller and its successors and assigns, and shall inure to the
benefit of Buyer and its successors and assigns.
5. All capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given to them in the Purchase
Agreement.
6. This Agreement shall be interpreted in accordance with the
substantive laws of the State of Illinois applicable to contracts made and to
be performed wholly within said State.
7. To the extent that any provision of this Agreement is
inconsistent with the Purchase Agreement, the provisions of the Purchase
Agreement shall control.
* * *
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<PAGE> 34
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed on their behalf by duly authorized officers on the Closing Date.
COLE TAYLOR BANK
By:
---------------------------------
Its
---------------------------------
FIRST MIDWEST BANK, NATIONAL
ASSOCIATION
By:
----------------------------------
Its:
---------------------------------
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<PAGE> 35
EXHIBIT B
[MCDERMOTT, WILL & EMERY DEFINITIONS, ASSUMPTIONS
AND QUALIFICATIONS TO BE ADDED]
[McDermott preambles, introduction, assumptions and qualifications to be
added.]
1. The Company is validly existing and in good standing
under the laws of the State of Illinois.
2. The Company has the corporate power and corporate
authority to execute, deliver and perform all of its obligations under each of
the Documents to which it is a party. The execution and delivery of each of the
Documents and the consummation by the Company of the transactions contemplated
thereby have been duly authorized by requisite corporate action on the part of
the Company. The Documents have each been duly executed and delivered by the
Company.
3. Each Document constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms subject to the following qualifications:
(1) enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law);
(2) we express no opinion as to: the enforceability of
any rights to contribution or indemnification provided for in the
Documents which are violative of the public policy underlying any law,
rule or regulation (including any federal or state securities law, rule
or regulation); and
(3) we express no opinion with respect to the
enforceability of (a) any provision in the Agreement providing for
payment, indemnification or reimbursement of any costs, fees, expenses,
claims, losses, liabilities or other amounts to the extent such amounts
are deemed to be unreasonable in amount, constitute a penalty or be
contrary to public policy, (b) Section 12.8 of the Agreement to the
extent it states that the provisions of the Documents are severable,
(c) the availability of specific performance or other equitable relief
as a remedy, (d) provisions in the Documents as to forum, jurisdiction
and governing law, (e) the ordinances, statutes, administrative
decisions, orders, rules and regulations of any municipality, county or
other
<PAGE> 36
political subdivision of any state, and (f) Section 12.10 relating to the
waiver of a jury trial.
4. The execution and delivery by the Company of each of the
Documents and performance by the Company of its obligations under each of the
Documents, each in accordance with its terms, do not (i) conflict with the
Articles of Incorporation or By-laws of the Company, (ii) constitute a violation
of or a default under any Applicable Contracts or (iii) cause the creation of
any security interest or lien upon any of the property of the Company pursuant
to any Applicable Contract
5. Neither the execution, delivery or performance by the
Company of the Documents nor the compliance by the Company with the terms and
provisions thereof will contravene any provision of any Applicable Law.
6. No Governmental Approval, which has not been obtained or
taken and is not in full force and effect, is required to authorize or is
required in connection with the execution, delivery or performance of any of the
Documents by the Company.
7. Neither the execution, delivery or performance by the
Company of its obligations under the Documents nor compliance by the Company
with the terms thereof will contravene any Applicable Order of any Governmental
Authority against the Company.
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<PAGE> 1
EXHIBIT 23.1
[KPMG PEAT MARWICK LLP]
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 propectus.
Chicago, Illinois KPMG Peat Marwick LLP
January 6, 1997
