As filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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VILLAGE BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 6712 36-4200931
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1845 EAST RAND ROAD
P.O. BOX 936
PROSPECT HEIGHTS, ILLINOIS 60070-0936
(847) 870-8300
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
THOMAS H. ROTH
CHAIRMAN OF THE BOARD
GERALD F. HARTLEY
PRESIDENT
VILLAGE BANCORP, INC.
PROSPECT HEIGHTS, ILLINOIS 60070-0936
(847) 870-8300
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copies of communications to:
STEVEN J. GRAY, ESQ.
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET, SUITE 2600
CHICAGO, ILLINOIS 60601-1003
(312) 609-7500
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, check the following
box and list the Securities Act registration statement number of 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 this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
==========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, par value $0.01 per share 554,000 Shares $13.25 $7,340,500 $2,041
==========================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 28, 1999
454,000 SHARES (MINIMUM)
554,000 SHARES (MAXIMUM)
[Logo]
VILLAGE BANCORP, INC.
COMMON STOCK
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This is a public offering of shares of common stock of Village Bancorp,
Inc. Village Bancorp is offering a minimum of 454,000 shares and a maximum of
554,000 shares at an initial price of $13.25 per share. The shares are being
offered on a best efforts basis by certain directors and executive officers of
Village Bancorp without compensation.
There is currently no public market for our common stock. The common stock
will not be listed on the Nasdaq Stock Market or any stock exchange. The
offering price was arbitrarily determined by us and does not bear any
relationship to Village Bancorp's assets, book value, net worth or any other
recognized criteria of value.
------------------
INVESTING IN THE COMMON STOCK INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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The shares of common stock are not savings accounts
or savings deposits and are not to be insured by
the Federal Deposit Insurance Corporation
or any other government agency.
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PER SHARE MINIMUM MAXIMUM
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Price to public............................. $13.25 $6,015,500 $7,340,500
Fees and commissions........................ -- -- --
Proceeds to Village Bancorp................. $13.25 $6,015,500 $7,340,500
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Subscription proceeds are to be sent directly to our escrow agent, LaSalle
National Bank, Chicago, Illinois. The escrow agent will hold the subscription
proceeds until we receive subscriptions for at least 454,000 shares and satisfy
a variety of other conditions. We plan to end the offering on July 31, 1999,
unless we decide to end it sooner or extend it. If we are unable to sell 454,000
shares of common stock or satisfy the other conditions, the escrow agent will
return all subscription proceeds to investors without interest, and we will pay
all of the escrow agent's expenses. We may reject all or part of any
subscription for any reason.
________, 1999
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[Map of Market Area]
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus under the captions
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere are "forward-looking statements."
Forward-looking statements include statements that relate to our beliefs or
expectations as to future events and statements that are not historical facts.
When used in this prospectus, the words "anticipate," "believe," "estimate," and
similar expressions generally identify forward-looking statements. Although we
believe that the assumptions these forward-looking statements are based on are
reasonable, we can give no assurance that the assumptions will be correct.
Because forward-looking statements involve this risk, there are important
factors that could cause actual results to differ materially and adversely from
those expressed or implied by the forward-looking statements. These factors,
which should be carefully considered by you, include, among other things:
o The success of our business strategy
o The sufficiency of our allowance for loan losses
o Changes in economic conditions including interest rates
o Management's ability to manage interest rate and credit risks
o The impact of future regulations
o Our handling of Year 2000 issues
o Other factors discussed under "Risk Factors"
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................................................1
Summary Consolidated Financial Data...........................................5
Risk Factors..................................................................6
The Offering.................................................................11
Use of Proceeds..............................................................13
Dividend Policy..............................................................13
Capitalization...............................................................14
Dilution.....................................................................15
Selected Consolidated Financial Data.........................................16
Pro Forma 1997 Consolidated Statement of Operations..........................17
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................18
Business.....................................................................36
Management...................................................................42
Principal Stockholders.......................................................45
Certain Transactions.........................................................46
Supervision and Regulation...................................................47
Description of Capital Stock.................................................53
Shares Eligible for Future Sale..............................................57
Legal Matters................................................................57
Experts......................................................................57
Reports to Shareholders......................................................58
Available Information........................................................58
Index to Financial Statements...............................................F-1
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and consolidated financial statements and related notes appearing later in this
prospectus, including the information under "Risk Factors."
VILLAGE BANCORP
Village Bancorp is a community-based bank holding company headquartered in
Prospect Heights, Illinois. We currently provide a wide range of banking
services through our bank subsidiaries, Northwest Community Bank in Prospect
Heights, Illinois and Village Bank and Trust in North Barrington, Illinois. We
intend to open a third bank under the name Village Bank and Trust in Munster,
Indiana, which will be capitalized with proceeds of this offering.
We have made a strong commitment to provide community oriented,
full-service banking services to our customers. Our banks offer a wide array of
financial products and services for both consumers and small- to medium-sized
businesses. We provide a full range of low-cost consumer services including free
personal checking accounts, ATM services, telephone banking, residential
mortgages, credit cards, and automobile financing. Our banks also serve
owner-managed businesses by providing a high degree of personal service to
companies and their employees. We provide many types of commercial financing for
businesses, as well as a full range of deposit products. We stress personal
service and provide well-staffed teller and customer service areas without
charge to our customers.
Northwest Community Bank, which began operating in May 1995, was acquired
by our founding stockholders on June 1, 1997. In November 1997, Village Bancorp
was formed to act as the holding company for Northwest Community Bank. In
October 1998, we organized Village Bank North Barrington. We are now in the
process of forming Village Bank Munster, subject to regulatory approvals and the
successful completion of this offering.
As of December 31, 1998, Village Bancorp had total assets of $72.8 million,
total loans of $35.7 million, and total deposits of $61.2 million. The ratio of
the allowance for loan losses to total loans was 1.29% at December 31, 1998.
MARKETS
Through our banks, Village Bancorp currently serves the northwestern
suburban communities of Chicago, Illinois. Northwest Community Bank's customer
base is concentrated in Arlington Heights, Prospect Heights and surrounding
metropolitan Chicago suburbs in Cook County. Village Bank North Barrington
presently serves North Barrington, Lake Zurich, Wauconda and Hawthorn Woods in
Lake County, Illinois.
Village Bank Munster will serve the Munster, Dyer, Schererville and
Highland communities in Lake County, Indiana and Lansing in Cook County,
Illinois.
We view our existing and potential market areas as encompassing the
metropolitan Chicago area, primarily the suburban communities extending from
Northwest Illinois to Northwest Indiana.
GROWTH OPPORTUNITY
The expansion of interstate banking has contributed to substantial
consolidation of the banking industry in Illinois and Indiana, including our
existing and potential market areas. Many locally owned or managed banks either
have been acquired by large regional bank holding companies or have been
consolidated into branches of other banks. We believe that, after consolidation,
these banks no longer offer the same level of personalized customer service.
Although the banking industry remains competitive, we believe that this
consolidation has created a favorable opportunity for community oriented,
locally managed commercial banks in our existing and potential market areas. We
want to take advantage of this opportunity. We emphasize local ownership and
management and
<PAGE>
strong ties and active commitment to the community. We believe that community
banks can improve the economic development and overall economy of their
communities. We believe that community residents recognize these benefits and
that Village Bancorp will be successful in attracting individuals and small- to
medium-sized businesses as customers by taking an active interest in their
business and personal finances.
BUSINESS STRATEGY
We believe that our overall business strategy will support the growth of
Village Bancorp and allow us to maintain positive expansion in our markets. Key
aspects of our business strategy include the following:
o Emphasize community banking
o Increase deposits
o Expand through the creation of new banks or branches
o Expand lending
o Maintain competitive technology
o Emphasize superior customer service
See "Business--Business Strategy" for a discussion of each of these aspects
of our business strategy.
We were formerly known as Delta Bancorp, Inc. and adopted our present name,
Village Bancorp, Inc., on April 8, 1999. Our principal executive offices are
located at 1845 East Rand Road, Prospect Heights, Illinois 60070-0936 and our
telephone number is (847) 870-8300.
2
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THE OFFERING
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Common stock offered.................................. Minimum: 454,000 shares
Maximum: 554,000 shares
Common stock outstanding prior to the offering........ 888,000 shares
Common stock to be outstanding after the
offering(1)........................................... Minimum: 1,342,000 shares
Maximum: 1,442,000 shares
Offering price per share.............................. $13.25
Use of proceeds....................................... Village Bancorp will use approximately $5.9 million in
net proceeds received from the sale of the minimum
number of shares to capitalize Village Bank Munster. The
remaining proceeds will be used to pay expenses of this
offering.
Village Bank Munster intends to use the $5.9 million it
receives from the sale of its stock to Village Bancorp for:
o Organizational and pre-opening expenses of the bank
o Purchase of the bank's site
o Construction and furnishing of the bank's offices
o Working capital needs, including paying the salaries of
officers and employees and making loans and
investments
Net proceeds in excess of the minimum subscription
amount will be used by Village Bancorp for general corporate
purposes. See "Use of Proceeds."
Terms of the offering................................. The offering is scheduled to expire on July 31, 1999, but
Village Bancorp is reserving the right to continue the
offering up to October 31, 1999. Initially, we will place
all subscription proceeds we receive in an escrow account
handled by an independent escrow agent. THE ESCROW
AGENT WILL NOT RELEASE THESE FUNDS TO VILLAGE BANCORP,
AND NO SHARES WILL BE ISSUED IN THE OFFERING, UNLESS ON
OR BEFORE THE EXPIRATION DATE OF THE OFFERING WE HAVE
ACCEPTED OR RECEIVED:
o Subscriptions and payment in full for a minimum of
454,000 shares, which will result in gross offering
proceeds of $6,015,500
- --------
(1) Under our stock incentive plan, 225,000 shares of common stock have been
reserved for issuance. As of April 14, 1999, options to purchase 106,000
shares of common stock were outstanding under the plan, none of which were
exercisable.
3
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o Approval from the Indiana Department of Financial
Institutions to organize Village Bank Munster
o Approval from the Federal Reserve for Village Bancorp
to acquire the stock of Village Bank Munster
o Approval of Village Bank Munster's application for
deposit insurance from the FDIC
Plan of distribution.................................. The sale of shares offered hereunder will be made
primarily by directors and executive officers of Village
Bancorp, who will not receive any fees or commissions for
such efforts. See "The Offering--Plan of Distribution."
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4
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SUMMARY CONSOLIDATED FINANCIAL DATA
VILLAGE BANCORP, INC.
The statement of operations data, per share data and selected financial
ratios of Village Bancorp for the year ended December 31, 1998 and the period
June 1, 1997 (Date of Inception) through December 31, 1997 and the balance sheet
data as of December 31, 1998 and 1997 have been derived from the audited
financial statements of Village Bancorp appearing later in this prospectus. The
pro forma 1997 financial statement data reflects Village Bancorp's acquisition
of Northwest Community Bank as if the acquisition had occurred on January 1,
1997.
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FOR THE YEAR ENDED
DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
--------------------------- PRO FORMA
1998 1997 1997
----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Total interest income.............................................. $ 3,552 $ 1,655 $ 2,637
Total interest expense............................................. 1,781 827 1,405
------- ------- -------
Net interest income................................................ 1,771 828 1,232
Provision for loan losses.......................................... 242 121 164
Other income....................................................... 443 98 156
Other expenses..................................................... 2,780 918 1,609
------- ------- ------
Loss before income tax benefit..................................... (808) (113) (385)
Income tax expense (benefit)....................................... (59) (15) (21)
------- ------- ------
Net loss........................................................... $ (749) $ (98) $ (364)
======= ======= =======
PER SHARE DATA:
Basic loss per share of common stock............................... $ (1.46) $ (0.25) $(0.91)
Book value at end of period........................................ 10.58 10.00 10.00
Tangible book value at end of period............................... 10.04 8.71 8.71
SELECTED FINANCIAL RATIOS:
Return on average assets........................................... (1.54)% (0.28)% (1.07)%
Return on average equity........................................... (14.05) (8.43) (9.42)
Average equity to average assets................................... 10.96 3.28 11.41
Net yield on interest-earning assets............................... 3.94 4.29 3.99
Allowance for loan losses to total loans at end of period.......... 1.29 1.00 1.00
Nonperforming loans to total loans at end of period(1)............. 0.09 0.87 0.87
Net loans charged off to average total loans....................... 0.19 0.31 0.34
Tier 1 risk-based capital.......................................... 20.40 12.35 12.35
Total risk-based capital........................................... 25.65 16.05 16.05
DECEMBER 31,
--------------------------- PRO FORMA
1998 1997 1997
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets....................................................... $72,822 $40,777 $40,777
Total earning assets............................................... 67,677 38,731 38,731
Average assets(2).................................................. 48,652 35,406 33,873
Total loans........................................................ 35,655 27,502 27,502
Allowance for loan losses.......................................... 459 276 276
Total deposits..................................................... 61,213 35,649 35,649
Mandatorily convertible subordinated debentures.................... 1,800 771 771
Stockholders' equity............................................... 9,392 3,999 3,999
Tangible book value................................................ 8,915 3,486 3,486
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(1) Includes total nonaccrual, impaired and all other loans 90 days past due.
(2) Average for the periods ended.
5
<PAGE>
RISK FACTORS
An investment in the common stock involves a significant degree of
risk. You should not invest in the common stock unless you can afford to lose
your entire investment. You should carefully consider the following risk
factors, as well as the other information contained in this prospectus, in
evaluating Village Bancorp and its business and in deciding whether to purchase
any of the common stock.
WE HAVE A LIMITED OPERATING HISTORY
Village Bancorp has a limited operating history. Our business is
subject to the risks inherent in the establishment of any new business
enterprise. As a result, you do not have access to the information that might be
available to the purchasers of securities of a financial institution with an
extended operating history. Northwest Community Bank was formed in 1995 and
acquired by us in 1997. Village Bank North Barrington commenced operations in
October 1998. Village Bank Munster is still in the process of formation and has
not yet received all necessary regulatory approvals to commence banking
operations. Village Bancorp's profitability will depend, to a significant
degree, upon our bank in North Barrington and our new bank in Munster. There is
no assurance that Village Bancorp as a whole will ever operate profitably. We
can be expected to incur significant operating losses over the next several
years, and perhaps longer. Such losses could adversely affect the consolidated
results of operations of Village Bancorp.
Although we hope that our new bank in Munster will commence operations
at the end of the third quarter of 1999, there can be no assurance as to when,
if at all, our Munster bank will commence operations. Any delay in opening for
business will increase our pre-opening expenses and postpone our realization of
potential revenues. Such a delay will cause our accumulated deficit to increase
as a result of continuing operating expenses such as salaries and other
administrative expenses. Once it commences operations, Village Bank Munster is
expected to sustain operating losses unless and until its deposit base develops
to a level where it is able to generate significant loan-related and other
income to offset operating expenses.
INVESTORS IN THE COMMON STOCK WILL SUFFER IMMEDIATE DILUTION
If you purchase shares of common stock, you will suffer an immediate
and substantial dilution in net tangible book value per share of common stock.
The net tangible book value of Village Bancorp at December 31, 1998 was
approximately $8.9 million or $10.04 per share of common stock. Based upon an
assumed public offering price of $13.25 per share, the dilution per share to new
stockholders would be $2.21 assuming the minimum number of shares are sold in
the offering and $2.05 assuming the maximum number of shares are sold in the
offering. See "Dilution," "Description of Capital Stock--Mandatorily Convertible
Subordinated Debentures" and "Management--Stock Option Plan."
THE OFFERING WILL BE CANCELED IF REGULATORY APPROVALS ARE NOT RECEIVED
Village Bancorp applied to the Department of Financial Institutions of
the State of Indiana (the "Indiana Department") for an Indiana state bank
charter to operate in Munster, Indiana (the "State Application"). Village
Bancorp has also applied to the Federal Deposit Insurance Corporation ("FDIC")
for deposit insurance. Approval of the organization of Village Bank Munster by
the Indiana Department and of deposit insurance by the FDIC will occur only
after, among other things, sufficient funds have been raised to capitalize
Village Bank Munster. Village Bancorp intends to raise these funds through this
offering. Such regulatory approvals may also be conditioned upon other
occurrences, which may be beyond the control of Village Bancorp. There is no
assurance that final regulatory approvals from the Indiana Department or the
FDIC will be obtained in a timely manner, or at all. If all necessary regulatory
approvals have not been received by the expiration date, the offering will be
canceled, regardless of the number of shares subscribed for in the offering. See
"The Offering--Release from Escrow."
6
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WE ARE DEPENDENT UPON OUR MANAGEMENT TEAM
Village Bancorp is, and for the foreseeable future will be, dependent
upon the services of:
o Thomas H. Roth, Chairman of Village Bancorp
o Gerald F. Hartley, President of Village Bancorp
o R. Kennedy Alger, President & Chief Executive Officer of
Northwest Community Bank
o John A. Reck, President and Chief Executive Officer of Village
Bank North Barrington
o Robert J. Necastro, the proposed President of Village Bank
Munster
and other senior managers to be retained by Village Bancorp. The loss of the
services of Messrs. Roth, Hartley, Alger, Reck or Necastro could have a material
adverse effect on the consolidated operations of Village Bancorp. No key-man
life insurance policy is maintained on any director, officer or employee of
Village Bancorp or our banks. Village Bank Munster has not yet retained all of
the additional officers and employees it will need to commence operations. See
"Management--Directors and Executive Officers."
WE FACE STRONG COMPETITION
Village Bancorp will face strong competition for deposits, loans and
other financial services from numerous Illinois, Indiana and out-of-state banks,
thrifts, credit unions and other financial institutions, as well as other
entities which provide financial services. Some of the financial institutions
and financial services organizations with which we will compete are not subject
to the same degree of regulation as our banks. Most of these competitors have
been in business for many years, have established customer bases, are
substantially larger, and have substantially higher lending limits than our
banks and will be able to offer certain services, including multiple branches
and international banking services, that our banks can offer only through
correspondents, if at all. In addition, most of these entities have greater
capital resources than our banks, which, among other things, may allow them to
price their services at levels more favorable to the customer and to provide
larger credit facilities than could our banks. Many of these entities may also
have affiliates that provide more favorable services to them than Village
Bancorp will be able to provide to our banks.
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our future
success will depend in part on our ability to address the needs of our customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in Village
Bancorp's operations. Many of our competitors have substantially greater
resources to invest in technological improvements. There can be no assurance
that Village Bancorp will be able to effectively implement these products and
services or be successful in marketing those products and services to our
customers.
GOVERNMENT REGULATION MAY NEGATIVELY IMPACT OUR PROFITABILITY AND FAVOR
NONREGULATED COMPETITORS
Village Bancorp and each of our banks will be subject to extensive
state and federal legislation, regulation and supervision, including regulation
by the Office of Banks and Real Estate of the State of Illinois ("Illinois
Commissioner"), the Indiana Department, the FDIC, and the Board of Governors of
the Federal Reserve System ("Federal Reserve"). Changes in legislation and
regulations may continue to have a significant impact on the banking industry.
Although some of the legislative and regulatory changes may benefit Village
Bancorp and our banks, others may increase the costs of doing business and
assist competitors of Village Bancorp and our banks which are not subject to
similar regulation. See "Supervision and Regulation."
7
<PAGE>
CHANGES IN INTEREST RATES AND ECONOMIC CONDITIONS MAY HAVE AN ADVERSE EFFECT ON
OUR FINANCIAL PERFORMANCE
Financial institutions may be negatively affected by changes in
prevailing economic conditions, including declines in real estate market values,
rapid changes in interest rates and the monetary and fiscal policies of the
federal government. Northwest Community Bank operates in Prospect Heights,
Arlington Heights and surrounding metropolitan Chicago suburbs. Village Bank
North Barrington operates in the North Barrington, Illinois area which includes
North Barrington, Hawthorn Woods, Lake Zurich, and Wauconda. Village Bank
Munster will operate in Munster, Indiana and the surrounding communities of
Dyer, Schererville and Highland, Indiana and Lansing, Illinois. Any decline in
the economy of the areas served by our banks would likely have an adverse impact
on Village Bancorp's consolidated results of operations.
WE DO NOT PLAN TO PAY DIVIDENDS AND OUR ABILITY TO PAY DIVIDENDS IS RESTRICTED
Village Bancorp does not plan to pay dividends for the foreseeable
future. We will initially have no source of income other than dividends that we
receive from our banks. Our ability to pay dividends to you will therefore
depend on the ability of each of our banks to pay dividends to Village Bancorp.
Bank holding companies and state chartered banks are subject to significant
regulatory restrictions on the payment of cash dividends. In light of these
restrictions and the need for Village Bancorp and our banks to retain and build
capital, it will be our policy to reinvest earnings for the period of time
necessary to help support the success of our banks. The future dividend policy
of Village Bancorp will depend on Village Bancorp's earnings, capital
requirements, financial condition and other factors that the board of directors
of Village Bancorp considers relevant. See "Dividend Policy" and "Supervision
and Regulation--Financial Institution Regulation Generally--Dividend
Limitations." MONEY INVESTED IN THE PURCHASE OF COMMON STOCK WILL NOT BE INSURED
BY THE FDIC OR ANY OTHER ENTITY AND WILL NOT EARN INTEREST.
OUR LOWER LENDING LIMITS MAY LIMIT OUR ABILITY TO ATTRACT BORROWERS
The risk of nonpayment of loans is inherent in retail and commercial
banking. Nonpayment of loans may have a material adverse effect on Village
Bancorp's earnings, overall financial condition and the value of our common
stock. Moreover, our banks' focus on small- to medium-sized businesses may
result in a concentration of loans to these businesses. As a result, we may
assume greater lending risks than banks which have a lesser concentration of
these loans and tend to make loans to larger companies. We will attempt to
minimize this credit exposure by carefully monitoring the concentration of our
loans within specific industries and through prudent underwriting and lending
guidelines and procedures, but there can be no assurance that such monitoring
and procedures will reduce such lending risks.
Each of our banks' lending limits are or are expected to be between
approximately $850,000 and $1,000,000, as calculated under applicable state
banking regulations. The combined lending limits of Village Bancorp and our
banks will be approximately $2,000,000. Accordingly, the size of the loans which
we can offer to potential customers is less than the size of loans which
competitors with larger lending limits are able to offer. This should not,
however, affect our ability to seek relationships with most of the businesses in
our markets. The majority of our commercial and real estate loans are or will be
made to sole proprietors and to owners and local real estate developers in our
primary markets where the need for loans in excess of legal lending limits will
be rare.
THERE IS NO ASSURANCE THAT WE CAN SUCCESSFULLY IMPLEMENT OUR EXPANSION STRATEGY
We may expand our markets by establishing new banks or additional
branches. If we expand, Village Bancorp is likely to experience the effects of
higher operating expenses relative to operating income, which may result in
operating losses or limit our short-term profitability. Village Bancorp's
ability to expand by establishing new banks or branch offices is dependent on
our ability to identify advantageous bank or office locations and generate new
deposits and loans from those locations that will create an acceptable level of
net income for Village Bancorp.
Our expansion strategy also may involve acquiring existing
institutions. Acquisition candidates may not be available on terms favorable to
Village Bancorp in the future. We must compete with a variety of institutions
and individuals for suitable acquisition candidates. Competition from other
institutions could affect our ability to make
8
<PAGE>
acquisitions, increase the price that we pay for certain acquisitions, and
increase Village Bancorp's resources devoted to analyzing possible acquisitions.
Further, acquisitions of financial institutions are subject to regulatory
approval. There can be no assurance that potential acquisitions that meet our
investment criteria will be available on terms acceptable to us or that
sufficient financing for or the required regulatory approval of any proposed
acquisitions will be obtained. Neither can there be any assurance that we will
be able to successfully operate and manage any business we acquire so as to
establish, maintain or increase profitability. At present, Village Bancorp is
not a party to any understanding, letter of intent or binding agreement with
respect to the acquisition of the stock or assets of an existing entity. See
"Supervision and Regulation."
In connection with the split-up of National Bancorp, Inc., the former
owner of Northwest Community Bank, each of Mr. Roth and Northwest Community Bank
entered into a three-year noncompete agreement with Popular, Inc., formerly
BancPonce Corporation. These agreements generally provide that for the
three-year period beginning on May 31, 1997, neither Mr. Roth, or banks in which
he has more than a 5% ownership, nor Northwest Community Bank can solicit or
cause to be solicited retail or commercial banking business from customers of
the former American Midwest Bank and Trust, Melrose Park, Illinois (now known as
"Banco Popular") as of that date or hire or offer employment to any employees of
American Midwest Bank and Trust. See "Business--The Banks."
OUR COMPUTER SYSTEMS, OR THOSE OF OUR SERVICE PROVIDERS, SUPPLIERS OR CUSTOMERS,
MAY NOT OPERATE PROPERLY ON YEAR 2000-SENSITIVE DATES
A critical issue has emerged in the banking industry and for the
economy overall regarding how existing application software programs and
operating systems can accommodate the date value for the year 2000. Many
existing application software products in the marketplace were designed only to
accommodate a two digit date position which represents the year (e.g., '95' is
stored on the system and represents the year 1995). As a result, the year 1999
(i.e., '99') could be the maximum date value these systems will be able to
accurately process. We are working with our software vendors to assure that
Village Bancorp is prepared for the year 2000. We do not anticipate that Village
Bancorp will incur material operating expenses or be required to invest heavily
in computer system improvements to be year 2000 compliant. Nevertheless, the
inability of Village Bancorp to successfully address year 2000 issues could
result in interruptions in Village Bancorp's business and have a material
adverse effect on Village Bancorp's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Information Systems and the Year 2000."
DIRECTORS AND EXECUTIVE OFFICERS WILL HAVE THE ABILITY TO INFLUENCE STOCKHOLDER
ACTION
After the offering, our directors and executive officers will
beneficially own approximately 21.6% of the outstanding shares of common stock
if the minimum number of shares are sold and 20.1% if the maximum number of
shares are sold. Our directors and executive officers are likely to continue to
exercise substantial control over Village Bancorp's affairs. As a result,
management of Village Bancorp will, if acting together, be able to control most
matters requiring approval by the stockholders of Village Bancorp, including the
election of directors. The voting control of management would also have the
effect of delaying or preventing a change in control of Village Bancorp that was
not approved by management. See "Principal Stockholders" and "Description of
Capital Stock."
ACQUISITION AND OWNERSHIP OF COMMON STOCK MAY BE RESTRICTED BY BANK REGULATORS
Any person or group who purchases 10% or more of Village Bancorp's
common stock in the offering, or hereafter acquires additional securities such
that its interest in Village Bancorp exceeds 10%, may be required to obtain
approval of the Federal Reserve under the Change in Bank Control Act and the
approval of the Illinois Commissioner or Indiana Department. Further, any
corporation, partnership, trust or organized group that acquires a controlling
interest in Village Bancorp may have to obtain approval of the Federal Reserve
to become a bank holding company and thereafter be subject to regulation as
such. See "Supervision and Regulation."
THE ARBITRARILY DETERMINED PUBLIC OFFERING PRICE MAY BE HIGHER OR LOWER THAN THE
MARKET PRICE OF THE COMMON STOCK AFTER THE OFFERING
The offering price of $13.25 per share was determined arbitrarily by
us and is not based upon earnings or any history of operations. The offering
price should not be construed as indicative of the present or anticipated
9
<PAGE>
future value of the common stock. Village Bancorp did not retain an independent
investment banking firm to assist in determining the offering price. You may not
be able to resell the common stock for the offering price or any other amount.
NO ACTIVE TRADING MARKET EXISTS OR IS EXPECTED TO DEVELOP FOR THE COMMON STOCK
Before the offering, there was no public market for the common stock.
There can be no assurance that any active trading market for the common stock
will ever develop or that there will ever be any demand for the common stock.
The common stock will not be listed on the Nasdaq Stock Market or any securities
exchange. Therefore, shares of common stock acquired in the offering may not be
readily marketable in the case of financial emergency or otherwise and you
should have no need for liquidity with respect to your investment in the common
stock.
ADDITIONAL CAPITAL RAISING MAY DECREASE YOUR PERCENTAGE OWNERSHIP
Although we believe that the offering will provide sufficient funds
for the Munster bank's operations, there can be no assurance that Village
Bancorp will not be required to raise additional funds for bank capital.
Additional funds could be necessary if:
o Operations do not proceed as anticipated
o Village Bancorp has the opportunity to organize a new bank,
acquire other banking assets or another financial institution or
open a new branch
o Additional capital is required by bank regulators
Village Bancorp could raise additional equity funds on such terms as it deems
appropriate, including the possibility of raising equity capital at a lower
effective price than the subscription price for shares under this offering. The
percentage ownership in Village Bancorp of each investor would then also be
decreased. Village Bancorp, in its discretion, may consider other alternatives
to raising the necessary funds such as issuing subordinated debt. In any case,
you will not have any preemptive rights to participate in the additional fund
raising. See "Description of Capital Stock--Common Stock."
IF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS OR DELAWARE LAW DETERS A CHANGE
IN CONTROL, YOU MAY BE DEPRIVED OF AN OPPORTUNITY TO SELL YOUR SHARES AT A
PREMIUM OVER MARKET PRICES
Anti-takeover provisions of Village Bancorp's Certificate of
Incorporation and By-Laws, and the Delaware General Corporation Law ("DGCL"),
may have the effect of impeding the acquisition or change of control of Village
Bancorp by means of a tender offer, a proxy fight, open-market purchases or
otherwise in a transaction not approved by the board of directors of Village
Bancorp. These provisions will also render the removal of the current board of
directors or management of Village Bancorp more difficult. Among other
provisions, Village Bancorp's Certificate of Incorporation and By-Laws include
provisions authorizing "blank check" preferred stock, limiting the ability to
fill vacancies to the board of directors, requiring advance notice with respect
to stockholder proposals and director nominations, eliminating the power of
stockholders to act by written consent and requiring the vote of the holders of
66 2/3% of the outstanding shares to amend certain anti-takeover provisions in
the Certificate of Incorporation. Village Bancorp has also implemented a
classified board of directors with staggered terms. As a result of these
anti-takeover provisions, you may be deprived of opportunities to sell some or
all of your shares at prices that represent a premium over market prices. See
"Description of Capital Stock--Certain Anti-Takeover Effects of the Certificate
of Incorporation, By-Laws and Delaware Law."
10
<PAGE>
THE OFFERING
MINIMUM/MAXIMUM
Village Bancorp is offering a minimum of 454,000 shares and a maximum
of 554,000 shares of its common stock for the price of $13.25 per share for a
total minimum price of $6,015,500 and a total maximum price of $7,340,500. The
minimum purchase for any investor is 800 shares of common stock, unless Village
Bancorp, in its sole discretion, accepts a subscription for a lesser number of
shares. The maximum purchase for any investor is 65,000 shares of common stock,
unless Village Bancorp, in its sole discretion, accepts a subscription for a
greater number of shares.
OFFERING PERIOD
The offering period for the shares will end when all of the shares of
the common stock are sold or 5:00 p.m. Chicago time, on July 31, 1999 whichever
occurs first. We may extend this date at our discretion until October 31, 1999.
We will promptly notify subscribers of any extensions. No written notice of any
extension of the offering period need be given prior to any extension and any
such extension will not alter the binding nature of subscriptions already
accepted by Village Bancorp. The extension of the expiration date may cause an
increase in the expenses incurred with this offering. The date on which this
offering ends plus any extension is referred to in this prospectus as the
"expiration date."
We also reserve the right to end the offering at any time after
454,000 shares have been subscribed.
HOW TO SUBSCRIBE
Investors who wish to subscribe will need to complete the following
procedures:
o Complete and sign a subscription agreement
o Complete and sign a check payable to "Village Bancorp, Inc. -
Escrow Account #628133506" in the amount of $13.25 multiplied by
the number of shares subscribed
o Send the signed subscription agreement and check directly to our
escrow agent at the following address:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60606
Attention: Pamela S. Ristau, Trust Department
ALL SUBSCRIPTIONS WILL BE IRREVOCABLE UNTIL THE CLOSE OF THE OFFERING.
VILLAGE BANCORP DISCRETION
We reserve the right, in our sole discretion, to accept or reject any
subscription in whole or in part on or before the expiration date. If the
offering is over-subscribed, we retain the discretion to allocate shares among
the subscribers. We also reserve the right to accept subscriptions on a
first-come, first-served basis or on a prorated basis if we receive
subscriptions for more than 554,000 shares. We will notify subscribers within
five business days after the expiration date if their subscriptions have not
been accepted. If we do not accept all or a portion of a subscription, we will
also return the unaccepted portion of the subscription funds, without interest.
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Village Bancorp may purchase
shares in the offering to complete the offering. None of the directors and
executive officers of Village Bancorp have committed to purchase any amount of
common stock in the offering. All shares purchased by the directors and
executive officers will be for
11
<PAGE>
investment and not with a view to resell the shares. Any purchases by those
persons will be made on the same terms as purchases made by other investors and
will count towards the achievement of the minimum offering. The purchase of
shares by any director or executive officer of Village Bancorp should not be
relied upon by investors as a basis for evaluating the merits of this offering
or that a director's or executive officer's investment decision is shared by
public investors. See "Risk Factors--Substantial Control by Directors and
Executive Officers."
ESCROW
Subscription proceeds are to be sent directly to our escrow agent,
LaSalle National Bank, located at 135 South LaSalle Street, Chicago, Illinois
60603. The escrow agent will invest the subscription proceeds in short-term
United States Government securities, or interest bearing accounts offered by the
escrow agent or in other short-term investments as we may agree upon with the
escrow agent. The escrow agent has not investigated the desirability or
advisability of an investment in Village Bancorp, and has not approved,
endorsed, or passed upon the merits of the common stock.
RELEASE FROM ESCROW
The escrow agent will release the subscription proceeds to us when we
have received all of the following:
o Subscriptions and subscription proceeds for a total of at least
454,000 shares of common stock
o Approval from the Indiana Department to operate an Indiana state
bank in Munster, Indiana
o Approval from the Federal Reserve to acquire the stock of Village
Bank Munster
o Approval from the FDIC for deposit insurance
We will not deposit in the escrow account any subscription proceeds we
receive after the above conditions are met but before this offering ends.
Instead, those funds will be available for our immediate use.
If we do not meet the conditions to release the funds from the escrow
account by the expiration date, then the escrow agent will return the
subscription agreements and the full amount of all subscription funds, without
interest, to the subscribers within five business days after the expiration
date. We will retain all interest earned on subscriptions to repay the expenses
incurred by the offering.
The closing of this offering is conditioned upon our receiving
regulatory approvals to begin operating Village Bank Munster. If all necessary
regulatory approvals have not been received by the expiration date, the offering
will be canceled, regardless of the number of shares subscribed for in the
offering.
PLAN OF DISTRIBUTION
Offers and sales of the common stock will be made on behalf of Village
Bancorp primarily by its officers and directors. The executive officers and
directors will receive no commissions or other remuneration in connection with
such activities, but they will be reimbursed for reasonable expenses incurred in
the offering. In reliance on Rule 3a4-1 of the Securities Exchange Act of 1934,
Village Bancorp believes such executive officers and directors will not be
deemed to be brokers and/or dealers under the Exchange Act. We may find it
desirable to utilize the services of brokers and/or dealers to sell the common
stock. We have no present arrangements with any brokers or dealers relating to
this offering. If we use brokers or dealers, they will sell the common stock on
a best-efforts basis, and we will pay them a commission based on the shares sold
by them. We believe that the range of possible commissions to be paid to brokers
or dealers is $0.66 to $0.99 per share and that the maximum average commission
payable in the offering when all shares subject to this offering are taken into
account is $0.33. We do not expect that sales of common stock through brokers or
dealers will comprise a major part of this offering.
12
<PAGE>
USE OF PROCEEDS
Village Bancorp intends to raise from the offering a total of
$5,905,500 to $7,230,500, net of estimated offering expenses of $110,000. Net
proceeds from the minimum offering will be used to capitalize Village Bank
Munster. The bank will use approximately $750,000 to purchase the bank site from
Village Bancorp, $620,000 to construct the banking structure and approximately
$463,000 to purchase furniture, fixtures and equipment and other necessary
assets for the bank's operations. Approximately $250,000 will be used for
pre-opening expenses and initial start-up costs. The remaining net proceeds will
be used to fund investments in loans and securities and pay operating expenses.
Any proceeds in excess of the minimum offering will be used by Village Bancorp
for general corporate purposes.
DIVIDEND POLICY
Village Bancorp does not plan to pay dividends for the foreseeable
future. Village Bancorp has no significant source of funds other than dividends
that we receive from our banks. Village Bancorp's ability to pay dividends to
you will therefore depend on the ability of each of the banks to pay dividends
to Village Bancorp. Bank holding companies and state chartered banks are subject
to significant regulatory restrictions on the payment of cash dividends. In
light of these restrictions and the need for Village Bancorp and our banks to
retain and build capital, it will be the policy of each of the banks' boards of
directors to reinvest earnings for the period of time necessary to help support
the success of their operations. In the future, Village Bancorp may begin
income-producing operations independent from those of the banks, which may
provide another source of income from which Village Bancorp could pay dividends
to you. Village Bancorp can give no assurance, however, as to when, if at all,
these operations may begin or whether they will be profitable. Additionally, the
future dividend policy of Village Bancorp will depend on Village Bancorp's
earnings, capital requirements, financial condition and other factors that the
board of directors of Village Bancorp considers relevant.
Under Illinois law, banks are prohibited from paying dividends in
excess of net profits, after first deducting losses and bad debts. Under Indiana
law, banks may not declare or pay dividends that would impair their capital or
that would be greater than their undivided profits. In addition, as FDIC-insured
institutions, payment of dividends by the banks will be subject to regulation by
both the FDIC and either the Illinois Commissioner or the Indiana Department,
who are statutorily authorized to determine whether the payment of dividends by
a bank would constitute an unsafe and unsound banking practice. In such an
instance, either the FDIC, the Illinois Commissioner or the Indiana Department
could prohibit payment of dividends. See "Supervision and Regulation--Financial
Institution Regulation Generally--Dividend Limitations."
13
<PAGE>
CAPITALIZATION
The following table shows the indebtedness and capitalization of
Village Bancorp as of December 31, 1998, and as adjusted to reflect the issuance
and sale by Village Bancorp of 454,000 and 554,000 shares of common stock,
respectively, offered hereby at the public offering price of $13.25 per share
and the application of the estimated net proceeds as shown under "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------
ACTUAL MINIMUM MAXIMUM
------------ ------------ ------------
<S> <C> <C> <C>
SERIES ONE MANDATORILY CONVERTIBLE SUBORDINATED DEBENTURES............. $ 1,800,000 $ 1,800,000 $ 1,800,000
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 500,000 authorized, none issued...... -- -- --
Common stock, par value $0.01 per share; 5,000,000 shares
authorized; 888,000 shares outstanding; 1,342,000 to 1,442,000
shares outstanding as projected(1).................................... 8,880 13,420 14,420
Additional paid-in capital............................................. 10,191,120 16,092,080 17,416,080
Accumulated deficit.................................................... (847,528) (847,528) (847,528)
Unrealized gain on securities available-for-sale, net.................. 39,930 39,930 39,930
----------- ----------- -----------
Total stockholders' equity............................................ 9,392,402 15,297,902 16,622,902
----------- ----------- -----------
Total capitalization............................................... $11,192,402 $17,097,902 $18,422,902
=========== =========== ===========
</TABLE>
- ----------
(1) Under Village Bancorp's stock incentive plan, 225,000 shares of common
stock have been reserved for issuance. As of April 14, 1999, options to
purchase 106,000 shares of common stock were outstanding under the plan,
none of which were exercisable.
14
<PAGE>
DILUTION
The net tangible book value of Village Bancorp as of December 31, 1998
was $8.9 million or $10.04 per share of common stock. "Net tangible book value"
is defined as the total stockholders' equity of Village Bancorp less intangible
assets. "Net tangible book value per share" is determined by dividing the net
tangible book value of Village Bancorp by the number of outstanding shares of
common stock.
After giving effect to the sale of the minimum number of shares of
common stock offered hereby at the public offering price of $13.25 per share,
Village Bancorp's pro forma net tangible book value as of December 31, 1998
would have been $14.8 million or $11.04 per share of common stock. This
represents an immediate increase in net tangible book value of $1.00 per share
to the existing stockholders, and an immediate dilution of $2.21 per share to
investors who purchase shares of common stock in the offering. "Dilution" is the
difference between the offering price per share and the pro forma net tangible
book value per share as adjusted for the offering.
The following table illustrates this per share dilution as of December
31, 1998, which is determined by subtracting the net tangible book value per
share after the offering from the price paid by a new investor.
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share(1)................................ $13.25
Net tangible book value per share as of December 31, 1998........ $10.04
Increase in net tangible book value per share attributable to
payments by new investors(2).................................. 1.00
------
Pro forma net tangible book value per share after offering........ 11.04
------
Dilution of net tangible book value per share to new $ 2.21
investors(3)(4).................................................. ======
</TABLE>
- ----------
(1) Before deducting the estimated offering expenses.
(2) After deducting the estimated offering expenses.
(3) After giving effect to the conversion of the $1.8 million outstanding
mandatorily convertible subordinated debentures at the conversion rate of
$15.15, the pro forma net tangible book value per share after the offering
would be $11.38 and the dilution of net tangible book value to new
investors would be $1.87.
(4) After giving effect to the exercise of outstanding options to purchase
106,000 shares of common stock at a price of $12.50 per share, the pro
forma net tangible book value per share after the offering would be $11.15
and the dilution of net tangible book value per share to new investors
would be $2.10.
The following table summarizes, as of December 31, 1998, the number of
shares purchased from Village Bancorp, the total consideration paid and the
average price per share paid by: (a) the directors, executive officers, and
affiliated persons of Village Bancorp who acquired such shares since June 1997
and (b) investors in the offering assuming a public offering price of $13.25 per
share:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES TOTAL PRICE
PURCHASED CONSIDERATION PER SHARE
--------- ------------- ---------
<S> <C> <C> <C>
Directors, executive officers and affiliated persons.... 481,297 $5,284,763 $10.98
New investors........................................... 454,000 6,015,500 13.25
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Village Bancorp shown
below should be read in conjunction with the financial statements and related
notes of Village Bancorp and Northwest Community Bank included later in this
prospectus and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The statement of operations data, per share data and
selected financial ratios for the year ended December 31, 1998 and the period
June 1, 1997 (Date of Inception) through December 31, 1997 and the balance sheet
data as of December 31, 1998 and 1997 have been derived from the audited
financial statements of Village Bancorp appearing later in this prospectus. The
pro forma 1997 data reflects Village Bancorp's acquisition of Northwest
Community Bank as if the acquisition had occurred on January 1, 1997. See "Pro
Forma 1997 Consolidated Statement of Operations."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
--------------------------- PRO FORMA
1998 1997 1997
----------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total interest income.......................................... $ 3,552 $ 1,655 $ 2,637
Total interest expense......................................... 1,781 827 1,405
------- ------- -------
Net interest income............................................ 1,771 828 1,232
Provision for loan losses...................................... 242 121 164
Other income................................................... 443 98 156
Other expenses................................................. 2,780 918 1,609
------- ------- -------
Loss before income tax benefit................................. (808) (113) (385)
Income tax expense (benefit)................................... (59) (15) (21)
------- ------- -------
Net loss....................................................... $ (749) $ (98) $ (364)
======= ======= =======
PER SHARE DATA:
Basic loss per share of common stock........................... $ (1.46) $ (0.25) $ (0.91)
Book value at end of period.................................... 10.58 10.00 10.00
Tangible book value at end of period........................... 10.04 8.71 8.71
SELECTED FINANCIAL RATIOS:
Return on average assets....................................... (1.54)% (0.28)% (1.07)%
Return on average equity....................................... (14.05) (8.43) (9.42)
Average equity to average assets............................... 10.96 3.28 11.41
Net yeild on interest-earning assets........................... 3.94 4.29 3.99
Allowance for loan losses to total loans at end of period...... 1.29 1.00 1.00
Nonperforming loans to total loans at end of period(1)......... 0.09 0.87 0.87
Net loans charged off to average total loans................... 0.19 0.31 0.34
Tier 1 risk-based capital...................................... 20.40 12.35 12.35
Total risk-based capital....................................... 25.65 16.05 16.05
DECEMBER 31,
--------------------------- PRO FORMA
1998 1997 1997
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets................................................... $72,822 $40,777 $40,777
Total earning assets........................................... 67,677 38,731 38,731
Average assets(2).............................................. 48,652 35,406 33,873
Total loans.................................................... 35,655 27,502 27,502
Allowance for loan losses...................................... 459 276 276
Total deposits................................................. 61,213 35,649 35,649
Mandatorily convertible subordinated debentures................ 1,800 771 771
Stockholders' equity........................................... 9,392 3,999 3,999
Tangible book value............................................ 8,915 3,486 3,486
</TABLE>
- ----------
(1) Includes total nonaccrual, impaired and all other loans 90 days past due.
(2) Average for the periods ended.
16
<PAGE>
PRO FORMA 1997 CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations
for the year ended December 31, 1997 has been prepared to reflect the
acquisition of Northwest Community Bank as if the acquisition had occurred on
January 1, 1997, after giving effect to the pro forma adjustments as described
below. The pro forma adjustments are based on estimates made for the purpose of
preparing the pro forma consolidated statement of operations. In the opinion of
Village Bancorp's management, the estimates used in the preparation of this pro
forma consolidated statement of operations are reasonable under the
circumstances. The transaction was accounted for as a purchase and the actual
results of Northwest Community Bank were included with those of Village Bancorp
subsequent to the date of the transaction.
The Village Bancorp pro forma consolidated statement of operations for
the year ended December 31, 1997 should be read in conjunction with the
historical financial statements and related notes of Village Bancorp and
Northwest Community Bank presented later in this prospectus.
<TABLE>
<CAPTION>
ACTUAL NORTHWEST COMMUNITY
FOR THE PERIOD BANK FOR THE PERIOD
JUNE 1, 1997 THROUGH JANUARY 1, 1997 PRO FORMA PRO FORMA
DECEMBER 31, 1997 THROUGH MAY 31, 1997 (1) ADJUSTMENTS (2) 1997
----------------- ------------------------ --------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income...................... $1,655 $972 $ 10 $2,637
Interest expense..................... 827 471 107 1,405
------ ---- ----- ------
Net interest income.................. 828 501 (97) 1,232
Provision for loan losses............ 121 43 -- 164
------ ---- ----- ------
Net interest income after provision
for loan losses..................... 707 458 (97) 1,068
Other income......................... 98 58 -- 156
Other expenses....................... 918 472 219 1,609
------ ---- ----- ------
Income (loss) before income taxes.... (113) 44 (316) (385)
Income tax expense (benefit)......... (15) 16 (22) (21)
------ ---- ----- ------
Net income (loss).................... $ (98) $ 28 $(294) $ (364)
====== ==== ===== ======
</TABLE>
- ----------
(1) Actual operating results of Northwest Community Bank for the five month
period ended May 31, 1997.
(2) Represents estimated adjustments to Village Bancorp parent company only
operating results to reflect a twelve month period of operation, as
follows:
(a) Annualized interest expense on $1.8 million mandatorily convertible
subordinated debentures.
(b) Annualized other expenses:
Officer compensation $159,000
Goodwill amortization 15,000
Other operating expenses 45,000
--------
$219,000
========
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended as a review of
significant factors affecting the financial condition and results of operations
of Village Bancorp for the periods indicated. The discussion should be read in
conjunction with the financial statements and related notes of Village Bancorp
and Northwest Community Bank and the Selected Consolidated Financial Data
presented in this prospectus. In addition to historical information, the
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Village Bancorp's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed in "Risk Factors" and
elsewhere in this prospectus.
HISTORY
Village Bancorp was formed in 1997 and serves as a bank holding
company for Northwest Community Bank and Village Bank North Barrington. Village
Bancorp will also be the parent company of Village Bank Munster. Village
Bancorp, originally organized under Illinois law, was reincorporated in Delaware
on April 8, 1999.
Northwest Community Bank was organized under Illinois law as a new, or
de novo, bank in May 1995 by National Bancorp, Inc. The founding stockholders of
Village Bancorp acquired Northwest Community Bank on June 1, 1997. Northwest
Community Bank serves Arlington Heights and Prospect Heights, Illinois, and
other northwest suburbs of metropolitan Chicago. As of December 31, 1998,
Northwest Community Bank had total assets of $47.4 million, deposits of $43.2
million and stockholder's equity of $3.8 million.
Village Bank North Barrington was organized under Illinois law as a de
novo bank on October 9, 1998. Village Bank North Barrington serves North
Barrington, Lake Zurich, Wauconda and Hawthorn Woods, Illinois. As of December
31, 1998, Village Bank North Barrington had total assets of $24.8 million,
deposits of $19.1 million and stockholder's equity of $5.5 million.
Village Bank Munster will be organized as a de novo bank upon
completion of the offering and will serve Munster, Dyer, Schererville and
Highland, Indiana, and Lansing, Illinois.
OVERVIEW
Village Bancorp's principal business is conducted by the banks and
consists of full service community- based financial services. The profitability
of Village Bancorp's operations depends primarily on its net interest income,
provision for loan losses, other income and other expenses. Net interest income
is the difference between the income Village Bancorp receives on its loan and
investment portfolios and its cost of funds, which consists of interest paid on
deposits and borrowings. The provision for loan losses reflects the cost of
credit risk in Village Bancorp's loan portfolio. Other income consists of
service charges on deposit accounts, securities gains, loan fees and other
commissions. Other expenses include salaries and employee benefits as well as
occupancy and equipment expenses, and other noninterest expenses.
Net interest income is dependent on the amounts of and yields on
interest-earning assets as compared to the amounts of and rates on
interest-bearing liabilities. Net interest income is sensitive to changes in
market rates of interest. The provision for loan losses is dependent on
increases in the loan portfolio and management's assessment of the
collectibility of the loan portfolio under current economic conditions. Other
expenses are heavily influenced by the growth of operations, with additional
employees necessary to staff and open new banks or branches and marketing
expenses necessary to promote them. Growth in the number of account
relationships directly affects expenses such as data processing costs, supplies,
postage and other miscellaneous expenses.
18
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
The following table shows the condensed consolidated statement of
operations for Village Bancorp for the year ended December 31, 1998, for the
period June 1, 1997 (Date of Inception) through December 31, 1997 and on a pro
forma basis for the year ended December 31, 1997 as if the acquisition of
Northwest Community Bank occurred on January 1, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD
JUNE 1, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
---------------------------------------- PRO FORMA
1998 1997 1997
------------------- ------------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................. $3,552 $1,655 $2,637
Interest expense............................ 1,781 827 1,405
------ ------ ------
Net interest income......................... 1,771 828 1,232
Provision for loan losses................... 242 121 164
------ ------ ------
Net interest income after provision for loan
losses................................. 1,529 707 1,068
Other income................................ 443 98 156
Other expenses.............................. 2,780 918 1,609
------ ------ ------
Loss before income taxes.................... (808) (113) (385)
Income taxes (benefit)...................... (59) (15) (21)
------ ------ ------
Net loss.................................... $ (749) $ (98) $ (364)
====== ====== ======
</TABLE>
Total assets increased $32.0 million or 78.4% to $72.8 million as of
December 31, 1998 from $40.8 million as of December 31, 1997. The increase is
primarily due to the organization and growth of Village Bank North Barrington.
Village Bancorp recorded a net loss of $749,000 for the year ended December 31,
1998 as compared to a net loss of $98,000 for the seven-month period June 1,
1997 (Date of Inception) through December 31, 1997 and a net loss of $364,000
for pro forma 1997. The return on average assets decreased to (1.54)% in 1998
from (0.28)% for the last seven months of 1997 and (1.07)% for pro forma 1997.
The return on average equity decreased to (14.05)% in 1998 from (8.43)% for the
last seven months of 1997 and (9.42)% for pro forma 1997. The principal factors
contributing to the increased net loss for 1998, and the decreased returns on
average assets and average equity, are the pre-opening expenses and the initial
operating loss of Village Bank North Barrington and pre-opening and
organizational expenses incurred in the formation of Village Bank Munster.
1998 COMPARED TO PRO FORMA 1997
Net Interest Income. Net interest income increased $539,000 or 43.8%
to $1,771,000 in 1998 from $1,232,000 in pro forma 1997. Interest income
increased $915,000 or 34.7% and interest expense increased $376,000 or 26.8% in
1998 as compared to pro forma 1997. Interest income increased due to a $14.1
million increase in the average volume outstanding, primarily in loans and
federal funds sold, which was offset by a 63 basis point decrease in the average
rate on earning assets from 8.54% to 7.91%. The increase in interest expense was
primarily due to a $9.0 million increase in average deposits which was partially
offset by a 32 basis point decrease in rates paid to 5.16%.
Provision for Loan Losses. The provision for loan losses increased
$78,000 or 47.6% to $242,000 in 1998 from $168,000 in pro forma 1997. The
increase was due to an overall growth in the loan portfolio. As of December 31,
1998, the allowance for loan losses totaled $459,000 or 1.29% of total loans.
The amounts of the provision and the allowance for loan losses are influenced by
current economic conditions, actual loss experience, industry trends and
management's assessment of current collection risks within the portfolio.
Other Income. Village Bancorp's other income increased $287,000 to
$443,000 in 1998 from $156,000 in pro forma 1997. Other income as a percentage
of average assets was 0.91% for the year ended 1998 as compared to 0.46% for pro
forma 1997. The increase in 1998 was primarily due to increased service charges
on deposit accounts due to increased volume. The 1998 results included a $32,000
gain from the sale of securities.
19
<PAGE>
Other Expenses. Village Bancorp's other expenses increased $1,171,000
or 72.8% to $2,780,000 in 1998 from $1,609,000 in pro forma 1997. As a
percentage of average assets, other expenses increased to 5.7% in 1998 as
compared to 4.8% for pro forma 1997. Net occupancy expenses remained constant at
0.7% of average assets for both periods. Factors also contributing to the
increase in total other expenses were additional staffing costs to support
Village Bank North Barrington, increased data processing fees due to volume
growth, increased marketing and advertising costs to promote Village Bank North
Barrington, increased legal and professional fees related to revising Village
Bancorp's corporate structure, pre-opening and organizational expenses for the
formation of Village Bank Munster and general increases in other categories to
support the growth and expansion of Village Bancorp.
Federal and State Income Taxes. Village Bancorp recorded an income tax
benefit of $59,000 in 1998 and $21,000 in pro forma 1997 due to its operating
losses. As of December 31, 1998 Village Bancorp had a federal net operating loss
carryforward of $602,000, of which $39,000 expires in 2012 and $563,000 expires
in 2018.
1998 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 1997
Net Interest Income. Net interest income increased $943,000 or 113.9%
to $1,771,000 in 1998 from $828,000 for the seven months ended December 31,
1997. Interest income increased $1,897,000 or 114.6% and interest expense
increased $954,000 or 115.4%. Interest income increased due to a $12.0 million
increase in the average volume outstanding, primarily in loans and federal funds
sold, which was offset by a decrease in the average rate on earning assets from
8.58% to 7.91%. The increase in interest expense was primarily due to a
combination of a $7.0 million increase in average deposits and a $1.7 million
increase in average borrowings offset by a 32 basis point decrease in rates paid
to 5.16%.
Provision for Loan Losses. The provision for loan losses increased
$121,000 or 100.0% to $242,000 in 1998. The increase is due to an overall growth
in the loan portfolio. As of December 31, 1998, the allowance for loan losses
totaled $459,000 or 1.3% of total loans. The amounts of the provision and the
allowance for loan losses are influenced by current economic conditions, actual
loss experience, industry trends and management's assessment of current
collection risks within the portfolio.
Other Income. Village Bancorp's other income increased $345,000 to
$443,000 in 1998 from $98,000 for the seven months ended December 31, 1997.
Other income as a percentage of average assets was 0.9% for the year ended 1998
as compared to 0.3% for the seven months ended December 31, 1997. The increase
in 1998 was primarily due to increased service charges on deposit accounts due
to increased volume. Furthermore, 1998 included a $32,000 gain from the sale of
securities as compared to a $1,000 loss recorded for the seven months ended
December 31, 1997.
Other Expenses. Village Bancorp's total other expenses increased
$1,862,000 or 202.8% to $2,780,000 in 1998 from $918,000 for the seven months
ended December 31, 1997. The overall effect of a shorter period of operation in
1997 as compared to 1998 accounts for approximately $691,000 of the increase in
other expenses. As a percentage of average assets, other expenses were 5.7% for
the year ended 1998 as compared to 2.6% for the seven months ended December 31,
1997. Net occupancy expenses were 0.7% and 0.4% as a percentage of average
assets in 1998 and 1997, respectively. Factors also contributing to the increase
in total other expenses were additional staffing to support Village Bank North
Barrington, increased data processing fees due to volume growth, increased
marketing and advertising costs to promote Village Bank North Barrington,
increased legal and professional fees related to revising Village Bancorp's
corporate structure, pre-opening and organizational expenses for the formation
of Village Bank Munster and general increases in other categories to support the
growth and expansion of Village Bancorp.
Federal and State Income Taxes. Village Bancorp recorded an income tax
benefit of $59,000 in 1998 and $15,000 for the seven months ended December 31,
1997. As of December 31, 1998 Village Bancorp had a federal net operating loss
carry forward of $602,000 of which $39,000 expires in 2012 and $563,000 expires
in 2018.
20
<PAGE>
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the average balances (based on daily
averages), net interest income and expense and average yields and rates for
Village Bancorp's interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
----------------------------------------------------------- PRO FORMA
1998 1997 1997
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and deposits
with other financial
institutions........................ $ 8,268 $ 415 5.02% $ 2,382 $ 77 5.54% $ 2,034 $ 112 5.50%
Taxable securities (1).................. 6,434 355 5.55 4,658 157 5.74 4,577 261 5.66
Loans(2):
Commercial loans.................... 6,637 693 10.44 6,356 344 9.28 5,986 557 9.30
Commercial real estate loans........ 9,317 858 9.21 8,322 483 9.95 7,927 798 10.07
Consumer real estate loans.......... 11,959 1,021 8.54 9,464 494 8.95 8,500 746 8.78
Consumer installment loans.......... 2,291 210 9.17 1,903 100 9.01 1,817 163 8.97
------- ------ ------- ------ ------- ------
Total loans..................... 30,204 2,782 9.21 26,045 1,421 9.35 24,230 2,264 9.34
------- ------ ------- ------ ------- ------
Total interest-earning assets....... $44,906 3,552 7.91 $33,085 1,655 8.58 $30,841 2,637 8.54
======= ------ ======= ------ ======= ------
NTEREST-BEARING LIABILITIES:
Deposits:
Interest-bearing demand deposits.... $ 1,821 35 1.92 $ 1,275 15 2.02 $ 1,111 22 1.98
Money-market demand
accounts/savings accounts........ 7,664 322 4.20 4,438 120 4.64 4,029 178 4.42
Time deposits of less than
$100,000......................... 17,027 967 5.68 14,933 515 5.91 13,819 813 5.88
Time deposits of $100,000 or
more............................. 5,250 299 5.70 4,677 159 5.83 4,377 255 5.83
Public funds........................ 1,064 56 5.26 500 17 5.83 500 29 5.80
------- ------ ------- ------ ------- ------
Total interest-bearing deposits.. 32,826 1,679 5.11 25,823 826 5.48 23,836 1,297 5.44
Mandatorily convertible
subordinated debentures.......... 1,700 102 6.00 29 1 6.00 1,800 108 6.00
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities.................. $34,526 1,781 5.16 $25,852 827 5.48 $25,636 1,405 5.48
======= ------ ======= ------ ======= ------
Net interest income..................... $1,771 $ 828 $1,232
====== ====== ======
Net interest spread..................... 2.75 3.10 3.06
Net yield on interest-earning assets.... 3.94 4.29 3.99
Interest-bearing liabilities to interest-
earning assets ..................... 76.94 78.07 83.03
</TABLE>
- ----------
(1) Average balances include $32,000 in 1998, $(29,000) in 1997 and $(34,000)
in pro forma 1997 for FAS 115 adjustment. The average rate is calculated
utilizing average amortized cost.
(2) Non-accrual loans are excluded in average balances. Loan fees were $65,000
in 1998, $28,000 in 1997 and $93,000 in pro forma 1997.
CHANGES IN INTEREST INCOME AND EXPENSE
The changes in net interest income from period to period are
reflective of changes in the rate environment, changes in the composition of
assets and liabilities as to type and maturity (and the inherent rate
differences related thereto) and volume changes. Later sections of this
discussion and analysis address the changes in maturity composition of loans and
investments, and in the asset and liability repricing gaps associated with
interest rate risk, all of which contribute to changes in net interest margin.
The following table shows an analysis of volume and rate changes in
interest income and interest expense of Village Bancorp's average
interest-earning assets and average interest-bearing liabilities. The table
distinguishes between the changes related to average outstanding balances
(changes in volume holding the prior year average interest rate constant) and
the changes related to average interest rates (changes in average rate holding
the prior
21
<PAGE>
year average outstanding balance constant). The change in interest due to both
volume and rate has been allocated to volume and rate changes in proportion to
the relationship of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998 FOR THE YEAR ENDED
COMPARED TO THE PERIOD DECEMBER 31, 1998
JUNE 1, 1997 (DATE OF INCEPTION) COMPARED TO
THROUGH DECEMBER 31, 1997 PRO FORMA 1997
-------------------------------- -------------------------------
NET VOLUME RATE NET VOLUME RATE
------- ------ --------- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and deposits with other
financial institutions.............................. $ 338 $ 381 $(43) $303 $343 $(40)
Taxable securities.................................... 198 212 (14) 94 101 (7)
Commercial loans...................................... 349 271 78 136 60 76
Commercial real estate loans.......................... 375 444 (69) 60 140 (80)
Consumer real estate loans............................ 527 576 (49) 275 304 (29)
Consumer installment loans............................ 110 106 4 47 42 5
------ ------ ---- ---- ---- ----
Total interest-earning assets....................... 1,897 1,990 (93) 915 990 (75)
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits...................... 20 22 (2) 13 14 (1)
Money market demand accounts/savings
accounts............................................ 202 236 (34) 144 161 (17)
Time deposits of less than $100,000................... 452 493 (41) 154 188 (34)
Time deposits of $100,000 or more..................... 140 147 (7) 44 51 (7)
Public funds.......................................... 39 45 (6) 27 33 (6)
Mandatorily convertible subordinated
debentures.......................................... 101 101 -- (6) (6) (0)
------ ------ ---- ---- ---- ----
Total interest-bearing liabilities.................. 954 1,044 (90) 376 441 (65)
------ ------ ---- ---- ---- ----
Net interest income................................... $ 943 $ 946 $ (3) $539 $549 $(10)
====== ====== ==== ==== ==== ====
</TABLE>
OTHER INCOME AND EXPENSES
The following table shows Village Bancorp's other income.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
---------------------------------------- PRO FORMA
1998 1997 1997
------------------ ------------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service charges on deposit accounts..................... $307 $82 $134
Gains (losses) on security transactions................. 32 (1) --
Other income............................................ 104 17 22
---- --- ----
Total other income.................................... $443 $98 $156
==== === ====
</TABLE>
22
<PAGE>
The following table shows Village Bancorp's other expenses.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
---------------------------------------- PRO FORMA
1998 1997 1997
------------------ ------------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Other Expenses:
Salaries and employee benefits.......................... $1,261 $403 $ 767
Occupancy and equipment expense......................... 339 140 245
Data processing fees.................................... 252 63 107
Marketing............................................... 177 81 119
Other supplies.......................................... 84 15 32
Legal and professional fees............................. 185 56 60
Loan fees............................................... 50 35 57
Amortization of goodwill and organizational
costs................................................ 63 37 63
Other expenses.......................................... 369 88 159
------ ---- ------
Total other expenses................................. $2,780 $918 $1,609
====== ==== ======
</TABLE>
FINANCIAL CONDITION
Loans
Village Bancorp's loan portfolio largely reflects the profile of the
communities in which it operates. The following table shows the composition of
the loan portfolio.
DECEMBER 31,
------------------------
1998 1997
------- -------
(IN THOUSANDS)
Commercial........................... $ 8,564 $ 6,060
Commercial real estate............... 10,851 8,255
Consumer real estate................. 13,155 11,071
Consumer installment................. 3,085 2,116
------- -------
Total loans, gross............... 35,655 27,502
Allowance for loan losses............ (459) (276)
------- -------
Net loans........................ $35,196 $27,226
======= =======
Total loans increased $8.2 million to $35.7 million as of December
31, 1998 from $27.5 million as of December 31, 1997. The increase in total loans
was principally due to increased commercial, commercial real estate loans and
consumer real estate loans. The initial market penetration of Village Bank North
Barrington represents $3.3 million of the recorded increase.
Commercial loans increased $2.5 million to $8.6 million as of
December 31, 1998 from $6.1 million as of December 31, 1997. The increase
reflected increased demand due to a stronger economy, increased working capital
and equipment requirements by existing borrowers, new customer relationships and
initial market penetration of Village Bank North Barrington.
Commercial real estate loans increased $2.6 million to $10.9 million
as of December 31, 1998 from $8.3 million as of December 31, 1997. The increase
reflected the stronger economy, the overall improvement in the commercial real
estate market, increased commitments with existing borrowers and the initial
market penetration of Village Bank North Barrington.
23
<PAGE>
Consumer real estate loans increased $2.1 million to $13.2 million
as of December 31, 1998 from $11.1 million as of December 31, 1997. The increase
was primarily in the categories of home equity loans and home equity lines of
credit.
Consumer installment loans increased $1.0 million to $3.1 million as
of December 31, 1998 from $2.1 million as of December 31, 1997. The increase was
primarily due to the initial market penetration of Village Bank North
Barrington.
Although the risk of nonpayment for any reason exists with respect
to all loans, certain other more specific risks are associated with each type of
loan. The primary risks associated with commercial loans are quality of the
borrowers' management and the impact of local economic factors. Risks associated
with real estate loans include concentrations of loans in a loan type such as
commercial or residential and fluctuating land values. Consumer loans also have
risks associated with concentrations of loans in a single type of loan. Consumer
loans additionally face the risk of a borrower's unemployment as a result of
deteriorating economic conditions.
Village Bancorp attempts to balance the types of loans in its
portfolio with the objective of reducing risk. While Village Bancorp has a
sizable portion of its loan portfolio secured by real estate in one form or
another, the portfolio mix includes fixed, adjustable and floating interest
rates. Village Bancorp believes that its philosophy in extending credit is
conservative in nature, with a presumption that most credit should have both a
primary and a secondary source of repayment, and that the primary source should
generally be supported by operating cash flows, while the secondary source
should generally be disposition of collateral. Village Bancorp engages in very
little unsecured lending, and generally requires personal guarantees of
principals for business obligations. Village Bancorp practices a system of
concurrence in the approval of commercial credit whereby the documented
concurrence of an officers' credit committee (or approval by the board or a
board committee, where applicable) is obtained in addition to that of the
recommending officer. This system is intended to assure that commercial credit
is subjected to an independent objective review on at least two different
levels. In addition, Village Bancorp has an independent loan review function.
Loan Maturities
The following table shows the remaining maturities, based upon
contractual dates, for selected loan categories as of December 31, 1998.
<TABLE>
<CAPTION>
1-5 YEARS OVER 5 YEARS
ONE YEAR ------------------- ------------------
OR LESS FIXED VARIABLE FIXED VARIABLE TOTAL
------- ------ -------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial......................................... $ 3,884 $ 3,164 $ 738 $ 542 $ 236 $ 8,564
Commercial real estate............................. 5,591 4,674 327 0 259 10,851
Consumer real estate............................... 1,122 4,539 2,558 619 4,317 13,155
Consumer installment............................... 1,092 1,778 38 177 0 3,085
------- ------- ------ ------ ------ -------
Total loans, gross............................... $11,689 $14,155 $3,661 $1,338 $4,812 $35,655
======= ======= ====== ====== ====== =======
</TABLE>
Nonperforming Loans
Village Bancorp discontinues the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. On a case-by-case basis, Village
Bancorp discontinues the accrual of interest on a loan once it becomes 90 days
past due. All accrued and uncollected interest is charged against income or the
allowance for loan losses at the time a loan is placed on nonaccrual status.
Nonaccrual loans are returned to an accrual status when, in the opinion of
management, the financial position of the borrower indicates that there is no
longer any reasonable doubt as to the timely payment of principal and interest.
There are no potential problem loans as to which management has serious doubts
as to collectibility that are not included in the following table.
24
<PAGE>
The following table shows information on Village Bancorp's
nonperforming loans and other assets as of the indicated dates.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual and impaired loans not accruing............................ $31 $239
Impaired and other loans 90 days past due and accruing................ 1 0
--- ----
Total nonperforming loans........................................... 32 239
Other real estate..................................................... 0 0
--- ----
Total nonperforming assets.......................................... $32 $239
=== ====
Total nonperforming loans to total loans.............................. 0.09% 0.87%
Total nonperforming assets to total loans and other real estate....... 0.09 0.87
Total nonperforming assets to total assets............................ 0.04 0.59
</TABLE>
For 1998, gross interest income that would have been recorded if the
nonaccrual loans had been current and outstanding throughout the period was
approximately $7,200. During 1998, Village Bancorp recognized interest income on
such nonaccrual loans of $3,330.
Nonperforming assets were 0.04% of total assets as of December 31,
1998 compared to 0.59% of total assets as of December 31, 1997.
Analysis of Allowance for Loan Losses
An allowance for loan losses has been established to provide for
those loans that may not be repaid in their entirety. The allowance for loan
losses is maintained at a level considered by management to be adequate to
provide for potential loan losses. The allowance is increased by provisions
charged to earnings and is reduced by charge-offs, net of recoveries. The
provision for loan losses is based on past loan loss experience and management's
evaluation of the loan portfolio under current economic conditions. Loans are
charged to the allowance for loan losses when, and to the extent, they are
deemed by management to be uncollectible. The allowance for loan losses is
composed of allocations for specific loans and an unallocated portion for all
other loans.
25
<PAGE>
The following table shows loans charged off and recovered by type of
loan and an analysis of the allowance for loan losses.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
---------------------------------------- PRO FORMA
1998 1997 1997
-------------------- ------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Average total loans.............................. $30,329 $26,254 $24,354
Total loans at end of period..................... 35,655 27,502 27,502
Total nonperforming and impaired loans........... 32 239 239
Allowance at beginning of period................. $ 276 $ 0 $ --
Allowance of acquired bank....................... -- 237 196
Charge-offs:
Commercial loans............................... 47 5 5
Consumer real estate loans..................... 0 50 50
Commercial real estate loans................... 0 0 0
Consumer installment loans..................... 12 27 29
------- ------- -------
Total charge-offs........................... 59 82 84
Total recoveries................................. 0 0 0
------- ------- -------
Net charge-offs.................................. 59 82 84
------- ------- -------
Provision for loan losses........................ 242 121 164
------- ------- -------
Allowance at end of period....................... $ 459 $ 276 $ 276
======= ======= =======
Net charge-off to average total loans............ 0.19% 0.31% 0.34%
Allowance to total loans at end of period........ 1.29 1.00 1.00
Allowance to nonperforming loans................. 14.34x 1.15x 1.15x
</TABLE>
The allowance for loan losses was $459,000 at December 31, 1998 and
$276,000 at December 31, 1997. There were no recoveries recorded in 1998 or
1997.
Net charge-offs decreased $23,000 to $59,000 or 0.2% of average
loans in 1998 compared to 1997. We consider the allowance for loan losses to be
adequate to meet potential losses in the loan portfolio as of December 31, 1998.
See "--Nonperforming Loans."
The provision for loan losses increased $121,000 or 100.0% to
$242,000 for the year ended December 31, 1998. On a comparative basis to the pro
forma 1997 results, the provision for loan losses increased 47.6% or $78,000 in
1998. The increase in the provision for loan losses was due to actual growth in
loans and the initial funding of the allowance for loan losses for Village Bank
North Barrington.
26
<PAGE>
Allocation of Allowance for Loan Losses
The following table shows Village Bancorp's allocation of the
allowance for loan losses by types of loans as of the indicated dates.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1998 1997
--------------------- ---------------------
LOAN LOAN
CATEGORY CATEGORY
TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS
------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Allocated:
Commercial loans............................ $181 24.0% $110 22.0%
Commercial real estate loans................ 67 30.4 36 30.0
Consumer real estate loans.................. 71 36.9 39 40.3
Consumer installment loans.................. 34 8.7 22 7.7
Unallocated................................. 106 -- 69 --
---- ----- ---- -----
Total allowance for losses.............. $459 100.0% $276 100.0%
==== ===== ==== =====
</TABLE>
Village Bancorp has limited historical loan loss experience upon
which to base its allocation of the allowance for loan losses.
Securities
Village Bancorp manages its investment portfolio to provide a source
of both liquidity and earnings. The investment policy is reviewed by senior
management of Village Bancorp in terms of its objectives, investment guidelines
and consistency with overall performance and risk management goals. Each of the
banks' investment policy is formally reviewed and approved annually by its board
of directors. Each bank is responsible for monthly reporting and monitoring
compliance with the investment policy. Monthly reports are provided to each
bank's board of directors and the board of directors of Village Bancorp.
Existing investment policies at each of the banks set limits on
amounts, maximum term and average life for each class and grade of investment
security. Investment policies do not require ratings for U.S. Treasury bonds or
notes, agency issues or agency guaranteed mortgage-backed securities. In
addition, ratings are not required for municipal investments of limited
maturities within Village Bancorp's existing market areas.
The investment portfolio represented approximately 11.1% of Village
Bancorp's assets as of December 31, 1998. During the past two years, the
investment portfolio ranged between 14-17% of each of the banks' assets,
depending upon liquidity requirements, deposit growth and loan demand in each
market.
The total fair value of the securities portfolio was $8.1 million as
of December 31, 1998 or 100.7% of stated book value. The total fair value of the
securities portfolio was $5.5 million as of December 31, 1997.
27
<PAGE>
The following tables show the composition of Village Bancorp's
investment portfolio by major category as of the indicated dates. All securities
have been categorized as available-for-sale in accordance with SFAS No. 115 as
of December 31, 1998 and 1997.
DECEMBER 31, 1998
----------------------------------------
AMORTIZED ESTIMATED % OF
COST FAIR VALUE PORTFOLIO
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
U.S. Treasury.................... $3,036 $3,058 37.7%
U.S. government agencies......... 5,020 5,058 62.3
------ ------ -----
Total......................... $8,056 $8,116 100.0%
====== ====== =====
DECEMBER 31, 1997
-----------------------------------------
AMORTIZED ESTIMATED % OF
COST FAIR VALUE PORTFOLIO
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
U.S. Treasury.................... $5,028 $5,022 90.8%
U.S. government agencies......... 505 507 9.2
------ ------ -----
Total......................... $5,533 $5,529 100.0%
====== ====== ======
As of December 31, 1998, Village Bancorp did not hold any off-balance
sheet derivative financial instruments such as futures, forwards, or swaps.
As of December 31, 1998, Village Bancorp held no securities with a
book value exceeding 10% of stockholders' equity of a single issuer other than
the U.S. Treasury or U.S. government agencies.
Village Bancorp's securities portfolio increased $2.6 million or
47.0% in 1998 compared to 1997. The growth was attributed to the generation of
new deposits in excess of the loan funding and operational requirements of the
banks.
INVESTMENT MATURITIES AND YIELDS
At December 31, 1998, all securities mature in one-to-five years. U.S.
Treasury and U.S. government agencies' yields were 5.22% and 5.45%,
respectively, with an overall yield of 5.36%.
Deposits
Village Bancorp has experienced significant growth in total deposits.
Total deposits were $61.2 million at December 31, 1998 and $35.6 million at
December 31, 1997. Average total deposits were $40.5 million for the year ended
December 31, 1998 and $31.3 million for the year ended December 31, 1997. The
increase in average deposits was the result of increased marketing activity at
Northwest Community Bank and the opening of Village Bank North Barrington during
October 1998, which ended 1998 with $19.1 million in deposits.
28
<PAGE>
The following table shows the average amount of and the average rate
paid on deposits by category.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD JUNE 1, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
PERCENT PERCENT
AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
------- -------- ---- ------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits..... $ 7,664 18.9% -- $ 5,512 17.6% --
Interest-bearing demand deposits....... 1,821 4.5 1.92% 1,275 4.1 2.02%
Savings and money market accounts....... 7,664 18.9 4.20 4,438 14.2 4.64
Time Deposits:
Certificates of deposit, under
$100,000(1)....................... 17,027 42.1 5.68 14,933 47.6 5.91
Certificates of deposit, over
$100,000(1)....................... 5,250 13.0 5.70 4,677 14.9 5.83
Public funds......................... 1,064 2.6 5.26 500 1.6 5.83
------- ------ ------- ------
Total time deposits............... 23,341 57.7 5.66 20,110 64.1 5.89
------- ------ ------- ------
Total........................... $40,490 100.0% 5.11 $31,335 100.0% 5.48
======= ====== ======= ======
</TABLE>
- ----------
(1) Certificates of deposit exclusive of public funds.
The following table summarizes the maturity distribution of
certificates of deposit in amounts of $100,000 or more as of December 31, 1998.
These deposits have been made by individuals, businesses and public and other
not-for-profit entities, most of which are located within Village Bancorp's
market area.
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
Three months or less.................................. $2,910
Over three months through twelve months............... 4,711
Over one year through three years..................... 1,272
Over three years...................................... 300
------
Total.............................................. $9,193
======
Borrowings
Village Bancorp has available overnight federal funds lines of credit
with correspondent banks. There were no outstanding borrowings at December 31,
1998 and 1997.
CAPITAL RESOURCES
Village Bancorp monitors compliance with bank and bank-holding company
regulatory capital requirements, focusing primarily on risk-based capital
guidelines. Under the risk-based capital method of capital measurement, the
ratio computed is dependent upon 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. Included in the risk-based capital method
are two measures of capital adequacy, Tier 1, or core, capital, and total
capital, which consists of Tier 1 plus Tier 2 capital. See "Supervision and
Regulation--Bank Holding Company Regulation" for definitions of Tier 1 and Tier
2 capital.
29
<PAGE>
The following table shows the capital amounts and ratios for Village
Bancorp and Northwest Community Bank.
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997
------------------ -------------------
AMOUNT RATIO AMOUNT RATIO
------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
VILLAGE BANCORP
- ---------------
Tier 1 capital to risk-weighted assets.......... $ 8,727 20.40% $ 3,491 12.35%
Tier 1 capital minimum requirement.............. 1,711 4.00 1,130 4.00
Total capital to risk-weighted assets........... 10,969 25.65 4,537 16.05
Total capital minimum requirement............... 3,422 8.00 2,261 8.00
Total risk-weighted assets...................... $42,775 $28,260
NORTHWEST COMMUNITY BANK
- ------------------------
Tier 1 capital to risk-weighted assets.......... $ 3,646 10.78 $ 3,593 12.83
Tier 1 capital minimum requirement.............. 1,352 4.00 1,120 4.00
Total capital to risk-weighted assets........... 4,055 11.99 3,868 13.81
Total capital minimum requirement............... 2,705 8.00 2,239 8.00
Total risk-weighted assets...................... $33,810 $28,000
</TABLE>
LIQUIDITY
Village Bancorp manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and borrowers
and to take advantage of earnings enhancement opportunities. In addition to the
normal inflow of funds from core deposit growth, together with repayments and
maturities of loans and investments, the banks have various funding arrangements
with correspondent banks providing up to $3.0 million of available funding
sources in the form of federal funds lines. The banks maintain these funding
arrangements to achieve favorable costs of funds and to enhance liquidity in the
event of deposit withdrawals.
Village Bancorp monitors and manages its liquidity position depending
upon the time period. As the time period is expanded, other data is factored in,
including estimated loan funding requirements, estimated loan payoffs,
investment portfolio maturities or calls, and anticipated deposit buildups or
runoffs.
Village Bancorp classifies all of its investment securities as
available-for-sale, thereby maintaining significant liquidity. Village Bancorp's
liquidity position is further enhanced by structuring the majority of its loan
portfolio interest payments as monthly.
Village Bancorp's cash flows are composed of three classifications:
cash flows from operating activities, cash flows from investing activities, and
cash flows from financing activities. Net cash provided by or used in operating
activities, consisting primarily of earnings or losses, was $(608,000) and
$413,000 for the periods ended December 31, 1998 and 1997, respectively. Net
cash used in investing activities, consisting primarily of federal funds sold,
loan funding, and premises and equipment expenditures was $30.0 million and $8.9
million for the periods ended December 31, 1998 and 1997, respectively. Net cash
provided by financing activities, consisting principally of deposit growth and
common stock issuance, was $32.7 million and $9.5 million for the periods ended
December 31, 1998 and 1997, respectively. The increase in deposit growth in 1998
was principally due to the initial market penetration of Village Bank North
Barrington.
30
<PAGE>
ASSET/LIABILITY MANAGEMENT
The business of Village Bancorp and the composition of its balance
sheet consist of investment in interest-earning assets (primarily loans and U.S.
Treasury and U.S. government securities) which are primarily funded by
interest-bearing liabilities (deposits and borrowings). Village Bancorp's net
interest income is dependent on the amounts of and yields on its
interest-earning assets as compared to the amounts of and rates on its
interest-bearing liabilities. Net interest income is therefore sensitive to
changes in market rates of interest.
Village Bancorp's asset/liability management strategy is to maximize
net interest income while limiting exposure to risks associated with a volatile
interest rate environment. This strategy is implemented by Village Bancorp's
ongoing analysis and management of its interest rate risk. A principal function
of asset/liability management is to coordinate the levels of interest-sensitive
assets and liabilities to minimize net interest income fluctuations in times of
fluctuating market interest rates.
Interest rate risk results when the maturity or repricing intervals
and interest rate indices of the interest-earning assets, interest-bearing
liabilities and off-balance sheet financial instruments are different, creating
a risk that changes in the level of market interest rates will result in
disproportionate changes in the value of, and the net earnings generated from,
Village Bancorp's interest-earning assets, interest-bearing liabilities and
off-balance sheet financial instruments. Village Bancorp's exposure to interest
rate risk is managed primarily through Village Bancorp's strategy of selecting
the types and terms of interest-earning assets and interest-bearing liabilities
which generate favorable earnings, while limiting the potential negative effects
of changes in market interest rates. Since Village Bancorp's primary source of
interest-bearing liabilities is customer deposits, Village Bancorp's ability to
manage the types and terms of such deposits may be somewhat limited by customer
maturity preferences in the market areas in which Village Bancorp operates. The
rates, terms and interest rate indices of Village Bancorp's interest-earning
assets result primarily from Village Bancorp's strategy of investing in loans (a
substantial portion of which have adjustable rate terms) and securities which
permit Village Bancorp to limit its exposure to interest rate risk, together
with credit risk, while at the same time achieving a positive interest rate
spread from the difference between the income earned on interest-earning assets
and the cost of interest-bearing liabilities.
Management uses a duration model for each bank's internal
asset/liability management. The model uses cash flows and repricing information
from each individual loan and certificate of deposit, plus repricing assumptions
on products without specific repricing dates (e.g., savings and interest-bearing
demand deposits) to calculate the durations of each bank's assets and
liabilities. Investment securities are stress tested and the theoretical changes
in cash flow are key elements of Village Bancorp's model. The model also
projects the effect on Village Bancorp's earnings and theoretical value for a
change in interest rates. The model computes the duration of each bank's rate
sensitive assets and liabilities, a theoretical market value of each bank and
the effects of rate changes on each bank's earnings and market value. The banks'
exposure to interest rates is reviewed on a quarterly basis by senior management
and the board of directors.
Each bank also maintains specific interest rate risk management policy
limits. Based upon simulation modeling, these guidelines include: (i) a +/- 20%
change in net income upon an immediate 200 basis point change in interest rates;
and (ii) a +/- 10% change in net income upon a gradual 200 basis point change in
interest rates during a twelve-month period.
31
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
Village Bancorp's overall interest rate sensitivity is demonstrated by
net interest income analysis and "gap" analysis. Net interest income analysis
measures the change in net interest income in the event of hypothetical changes
in interest rates. This analysis assesses the risk of change in net interest
income in the event of sudden and sustained 1.0% to 2.0% increases and decreases
in market interest rates. The table below presents Village Bancorp's projected
changes in net interest income for the various rate shock levels at December 31,
1998.
NET INTEREST INCOME
------------------------------------
AMOUNT CHANGE CHANGE
------ ------ --------
(DOLLARS IN THOUSANDS)
+200 bp............... $1,522 $(249) (14.06)%
+100 bp............... 1,646 (125) (7.06)
Base ................. 1,771 -- --
-100 bp............... 1,900 129 7.28
-200 bp............... 1,953 182 10.28
As shown above, at December 31, 1998, the effect of an immediate 200 basis point
increase in interest rates would decrease Village Bancorp's net interest income
by 14.06% or approximately $249,000. The effect of an immediate 200 basis point
decrease in rates would increase Village Bancorp's net interest income by 10.28%
or approximately $182,000. The volume of federal funds sold at Village Bank
North Barrington at December 31, 1998, directly impacts the results of this rate
shock analysis.
"Gap" analysis is used to determine the repricing characteristics of
Village Bancorp's assets and liabilities. The following table sets forth the
interest rate sensitivity of Village Bancorp's assets and liabilities as of
December 31, 1998, and sets forth the repricing dates of Village Bancorp's
interest-earning assets and interest-bearing liabilities as of that date, as
well as Village Bancorp's interest rate sensitivity gap percentages for the
periods presented.
<TABLE>
<CAPTION>
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------ ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Funds sold....................................... $23,906 $ -- $ -- $ -- $23,906
Securities....................................... -- -- 8,116 -- 8,116
Loans............................................ 19,745 2,257 13,322 331 35,655
------- -------- ------- ------- -------
Total interest-earning assets.............. 43,651 2,257 21,438 331 67,677
------- -------- ------- ------- -------
INTEREST-BEARING LIABILITIES:
Interest-bearing demand deposits................. 2,547 -- -- -- 2,547
Money markets deposits........................... 4,652 -- -- -- 4,652
Savings deposits................................. 6,244 -- -- -- 6,244
Time deposits.................................... 2,554 28,653 5,467 -- 36,674
------- -------- ------- ------- -------
Total interest-bearing deposits............ 15,997 28,653 5,467 -- 50,117
BORROWINGS:
Mandatorily convertible subordinated
debentures.................................... -- -- 1,800 -- 1,800
------- -------- ------- ------- -------
Total interest-bearing liabilities......... 15,997 28,653 7,267 -- 51,917
------- -------- ------- ------- -------
Interest sensitivity gap......................... $27,654 $(26,396) $14,171 $ 331 $15,760
======= ======== ======= ======= =======
Cumulative gap................................... $27,654 $ 1,258 $15,429 $15,760 $15,760
======= ======== ======= ======= =======
Interest sensitivity gap to total assets......... 37.97% (36.25)% 19.46% 0.45% 21.63%
Cumulative sensitivity gap to total assets....... 37.97 1.72 21.18 21.63 21.63
</TABLE>
32
<PAGE>
The asset mix of Village Bank North Barrington at December 31, 1998
directly impacts the repricing characteristics and interest rate sensitivity of
Village Bancorp. The volatility of the "gap" analysis shown above will change as
funds sold are reinvested into higher yielding loans and securities.
Computations of the prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay rates, and should not be
relied upon as indicative of actual results. Actual values may differ from those
projections set forth above, should market conditions vary from assumptions used
in preparing the analysis. Further, the computations do not contemplate any
actions Village Bancorp may undertake in response to changes in interest rates.
The "gap" analysis is based upon assumptions as to when assets and liabilities
will reprice in a changing interest rate environment. Since such assumptions can
be no more than estimates, certain assets and liabilities indicated as maturing
or otherwise repricing within a stated period may, in fact, mature or reprice at
different times and at different volumes than those estimated. Also, the renewal
or repricing of certain assets and liabilities can be discretionary and subject
to competitive and other pressures. Therefore, the gap table included above does
not and cannot necessarily indicate the actual future impact of general interest
rate movements on Village Bancorp's net interest income.
EFFECTS OF INFLATION
Inflation can have a significant effect on the operating results of
all industries. However, management believes that inflationary factors are not
as critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets in the banking
industry. Inflation does, however, have some impact on Village Bancorp's growth,
earnings and total assets and on its need to closely monitor its equity capital
levels.
Interest rates are significantly affected by inflation, but it is
difficult to assess the impact, since neither the timing nor the magnitude of
the changes in the various inflation indices coincides with changes in interest
rates. Inflation does impact the economic value of longer term interest-bearing
assets and liabilities, but Village Bancorp attempts to limit its long-term
assets and liabilities, as indicated in the tables presented under "--Financial
Condition" and "--Asset/Liability Management."
INFORMATION SYSTEMS AND THE YEAR 2000
The Year 2000 Problem. The year 2000 issue confronting Village
Bancorp, each of our banks and our suppliers, customers, customers' suppliers
and competitors centers on the inability of computer systems to recognize the
year 2000 and other year 2000 sensitive dates such as September 9, 1999,
December 3, 1999 and February 29, 2000. Many existing computer programs and
systems originally were programmed with six-digit dates that provided only two
digits to identify the calendar year in the date field. With the impending new
millennium, these programs and computers will recognize "00" as the year 1900
rather than the year 2000. Like most financial service providers, Village
Bancorp and its operations may be affected significantly by the year 2000 issue
because it depends on computer-generated financial information. Software,
hardware and equipment, both within and outside our direct control, and third
parties with whom we electronically or operationally interface are likely to be
affected. These third parties include customers and third-party vendors
providing data processing, information systems management, computer systems
maintenance and credit bureau information. If computer systems are not able to
identify the year 2000, many computer applications could fail or create
incorrect results. Consequently, many calculations that rely on date-related
functions, could generate significantly misstated results, and we could lose our
ability to process transactions, prepare statements or engage in similar normal
business activities. In addition, under certain circumstances, the failure to
address adequately the year 2000 issue could adversely affect the viability of
our suppliers and creditors and the creditworthiness of our borrowers. If not
adequately addressed, the year 2000 issue could ultimately have a significant
adverse impact on our products, services, and competitive condition and, in
turn, our financial condition and results of operations.
Regulatory Oversight. Financial institution regulators recently have
increased their focus on year 2000 compliance issues and have issued guidance
concerning the responsibilities of senior management and directors. The Federal
Financial Institutions Examination Council has issued several interagency
statements on the year 2000. These statements require, among other things, that
financial institutions examine the year 2000 implications of relying on vendors
and the potential impact of the year 2000 issue on their customers, suppliers
and borrowers.
33
<PAGE>
These statements also require each federally regulated financial institution to
survey its exposure, measure its risk, and prepare a plan to address the year
2000 issue. In addition, the federal and state banking regulators have
guidelines to be followed to ensure resolution of any year 2000 problems. The
federal and state banking agencies have asserted that year 2000 testing and
certification is a key safety and soundness issue in regulatory examinations.
Consequently, an institution's failure to address appropriately the year 2000
issue could result in supervisory action, including the reduction of the
institution's supervisory ratings, disapproval of mergers or acquisitions, and
the imposition of civil money penalties.
State of Readiness. Village Bancorp has formally established a year
2000 plan for Northwest Community Bank and Village Bank North Barrington and has
created a project team for management of the year 2000 project. The project team
has created a plan of action for each bank that includes milestones, budget
estimates, strategies, and methodologies to track and report the status of the
project. Members of the project team also attend conferences and information
sharing sessions to gain more insight into the year 2000 issue and potential
strategies for addressing it. This phase is substantially complete.
Because Northwest Community Bank and Village Bank North Barrington
were organized relatively recently, all vendor-supplied mission critical systems
are certified as year 2000 compliant. As a result, we do not have renovation or
upgrade issues as other institutions with longer operating histories might have.
Nonetheless, we have undertaken measures to validate and test the ability of our
hardware and software to accurately process date- sensitive data. We have
substantially completed the validation testing of our mission-critical systems.
During the validation testing process, no significant year 2000 problems have
been identified relating to any mission-critical systems.
As a start-up entity, Village Bank Munster does not have existing
systems or equipment requiring year 2000 testing and remediation. We will
purchase all of our office equipment, hardware and software and obtain service
commitments only from vendors and service providers that can certify that their
products and services are year 2000 compliant. For example, we will purchase
applications software, microcomputers, teller equipment, and network file
servers only from vendors that can provide year 2000 compliance certificates
relating to those products. We plan to obtain data processing services,
automatic teller machine applications, a voice response system, document imaging
solutions and bond accounting systems from third party service providers that
can certify that the products and services they provide will be year 2000
compliant. We believe that we will be able to obtain these products and services
from vendors and service providers that can supply the necessary certification.
If we are unable to do so, however, we will either forego acquiring the product
or service until we receive the required certification or, if the product or
service is essential to our operations, arrange for independent testing and
verification of year 2000 compliance.
Although our internal systems, equipment and operations require
significant oversight relating to year 2000 issues, we believe that our
customers' year 2000 readiness could also have a significant effect on our
operations. For example, if a customer with an outstanding loan from one of our
banks is unable to maintain its cash flow as a result of disruption caused by
its own or its customers' year 2000 problems, the customer could default in the
repayment of the loan, which would lead to increased loan losses. Any such
losses could exceed our allowance for loan losses. To address this concern, we
have communicated with customers on an ongoing basis regarding their year 2000
readiness and have attempted to identify at the earliest opportunity those
customers that are likely to encounter year 2000 problems. We plan to work with
these customers to ensure, to the greatest extent possible, that their year 2000
compliance issues do not disrupt our operations.
Resources Invested. Our year 2000 project team has been assigned the
task of ensuring that all systems are identified, tested, and have any changes
into service by June 30, 1999. The year 2000 project team members represent all
functional areas of Village Bancorp, including data processing, loan
administration, accounting, item processing and operations, compliance, human
resources, and marketing. The board of directors of each bank oversees the year
2000 plan and provides guidance and resources to, and receives monthly updates
from, the banks' year 2000 team.
Village Bancorp is expensing all year 2000 costs as those costs are
incurred, and such costs are being funded through operating cash flows. The
total cost of the year 2000 project since commencement has been
34
<PAGE>
minimal and we do not expect significant increases in future data processing or
other costs related to year 2000 compliance.
Contingency Plans. We have developed back-up or contingency plans for
each of our mission-critical systems. Virtually all of Village Bancorp's
mission-critical systems are dependent upon third party vendors or service
providers. Therefore, contingency plans include selecting a new vendor or
service provider and converting to their system. In the event a current vendor's
system fails during the validation phase and it is determined that the vendor is
unable or unwilling to correct the failure, we will convert to a new system from
a pre-selected list of prospective vendors. In each case, realistic trigger
dates have been established in compliance with regulatory guidelines to allow
for orderly and successful conversions. For some systems, contingency plans
consist of using spreadsheet software or reverting to manual systems until
computer system problems can be corrected. Unlike larger financial institutions,
because Northwest Community Bank and Village Bank North Barrington were
organized relatively recently, the volume of transactions does not prohibit
utilizing a temporary manual operation for most systems.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133 on derivatives
will, in 2000, require all derivatives to be recorded at fair value in the
balance sheet, with changes in fair value charged or credited to income. If
derivatives are documented and effective as hedges, the change in the derivative
fair value will be offset by an equal change in the fair value of the hedged
item. Under the new standard, securities held-to-maturity can no longer be
hedged, except for changes in the issuer's creditworthiness. Therefore, upon
adoption of Statement No. 133, companies will have another one-time window of
opportunity to reclassify held-to-maturity securities to either trading or
available-for-sale, provided certain criteria are met. This Statement may be
adopted early at the start of a calendar quarter. Since Village Bancorp has no
significant derivative instruments or hedging activities, nor any securities
held-to-maturity, adoption of Statement No. 133 is not expected to have a
material impact on the Village Bancorp's financial statements. Management has
not decided whether to adopt Statement No. 133 early.
Statement No. 134 on mortgage banking will, in 1999, allow mortgage
loans that are securitized to be classified as trading, available-for-sale, or,
in certain circumstances, held-to-maturity. Currently, these must be classified
as trading. Since Village Bancorp has not securitized mortgage loans, Statement
No. 134 is not expected to affect Village Bancorp.
American Institute of Certified Public Accountants Statement of
Position 98-1, effective in 1999, sets the accounting requirement to capitalize
costs incurred to develop or obtain software that is to be used solely to meet
internal needs. Costs to capitalize are those direct costs incurred after the
preliminary project stage, up to the date when all testing has been completed
and the software is substantially ready for use. All training costs, research
and development costs, costs incurred to convert data, and all other general and
administrative costs are to be expensed as incurred. The capitalized cost of
internal-use software is amortized over its useful life and reviewed for
impairment using the criteria in Statement No. 121. Statement of Position 98-1
is not expected to have a material impact on Village Bancorp.
American Institute of Certified Public Accountants Statement of
Position 98-5, also effective in 1999, requires all start-up, pre-opening, and
organization costs to be expensed as incurred. Any such costs previously
capitalized for financial reporting purposes must be written off to income at
the start of the year. Statement of Position 98-5 is not expected to have a
material impact on Village Bancorp.
35
<PAGE>
BUSINESS
VILLAGE BANCORP
Village Bancorp, a Delaware corporation, is a multi-bank holding
company registered under the Bank Holding Company Act (the Bank Holding Company
Act and the regulations thereunder are collectively referred to herein as the
"BHC Act"). We maintain our principal offices in Prospect Heights, Illinois.
Village Bancorp was organized as a holding company for Northwest Community Bank
effective June 1, 1997. In October 1998, we opened our second bank, Village Bank
& Trust, in North Barrington, Illinois. Our third bank will be located in
Munster, Indiana and also operate under the name Village Bank & Trust.
The banks operate on an autonomous basis with centralized planning and
staff support functions performed at the holding company level. Each bank faces
different levels and varied types of competition, which are addressed by the
local, decentralized nature of each bank. The banks maintain full responsibility
for day-to-day operations, including lending practices and decision-making,
pricing, sales and customer service. The banks are supported by centralized
staff services provided by Village Bancorp for accounting, auditing, financial
and strategic planning, marketing, human resources, loan review and regulatory
compliance.
THE BANKS
Northwest Community Bank, an Illinois state bank, was organized as a
de novo bank in May 1995. The bank was acquired from National Bancorp, Inc. in
1997 by Mr. Robert W. Svendsen, Sr. as part of the split-up of National Bancorp,
Inc. On June 1, 1997, Northwest Community Bank was purchased from Svendsen by
Mr. Roth, members of Northwest Community Bank's board of directors, and other
individual purchasers. Northwest Community Bank maintains its banking facility
in Prospect Heights, Illinois.
Village Bank North Barrington is an Illinois state bank organized as a
de novo bank on October 9, 1998. It operates its primary banking facility in
North Barrington, Illinois. Village Bank North Barrington also maintains a
branch office in Lake Zurich, Illinois, which it opened in March 1999.
Village Bank Munster will be organized under Indiana law as a de novo
bank upon completion of the offering. It will maintain its banking facility in
Munster, Indiana.
Shown below is selected financial and other information for Northwest
Community Bank and Village Bank North Barrington.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD JUNE 1, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997 FOR THE YEAR ENDED
------------------------------------------ DECEMBER 31,
1998 1997 1997
-------------- -------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NORTHWEST COMMUNITY BANK
Net income.......................... $ 201 $ 27 $ 55
Return on average assets............ 0.46% 0.08% 0.16%
Return on average equity............ 5.41 0.44 1.54
DECEMBER 31,
------------------------------------------
1998 1997
-------------- --------------
(IN THOUSANDS)
Total assets........................ $47,419 $40,221
Total loans......................... 32,363 27,502
Total deposits...................... 43,177 36,390
</TABLE>
36
<PAGE>
FOR THE PERIOD OCTOBER 13, 1998
(DATE OF INCEPTION),
THROUGH DECEMBER 31, 1998
-------------------------------
(DOLLARS IN THOUSANDS)
VILLAGE BANK NORTH BARRINGTON
Net loss.................................... $ (581)
Return on average assets.................... (17.56)%
Return on average equity.................... (43.46)
DECEMBER 31, 1998
-------------------------------
(IN THOUSANDS)
Total assets................................ $24,754
Total loans................................. 3,293
Total deposits.............................. 19,116
MARKETS
Our banks operate in broadly diverse markets, with varying levels of
growth rates of economic development and activity. Population trends, geographic
density and the demographic mix vary by market. The largest segments of Village
Bancorp's customer base live and work in relatively mature markets in Lake
County, Illinois and the northwest suburban areas of Cook County, Illinois.
Village Bank Munster will serve the markets in Lake County, Indiana and southern
Cook County, Illinois.
Village Bancorp considers its primary market areas to be those areas
immediately surrounding its offices for retail customers and, generally, within
a 5-7 mile radius of each bank for commercial relationships. Village Bancorp's
business is highly concentrated in the areas in which our banks are located. The
communities in which our banks are located have a broad spectrum of demographic
characteristics. These communities include a number of densely populated areas
as well as rural areas, and some extremely high-income areas as well as many
middle- income and some low- to moderate-income areas.
The following table shows certain information with respect to each of
the banks' primary markets:
<TABLE>
<CAPTION>
MEDIAN
HOUSEHOLD POPULATION
BANK MARKET AREAS INCOME(1) OF AREA(1)
- -------------------------------------- -------------------------------------- --------- ----------
<S> <C> <C>
Northwest Community Bank...............Prospect Heights, Arlington Heights $46,572 312,944
and surrounding metropolitan
Chicago suburbs
Village Bank North Barrington..........North Barrington, Lake Zurich, 62,990 62,770
Wauconda and Hawthorn Woods
Village Bank Munster...................Munster, Dyer, Schererville and 36,098 198,428
Highland, Indiana and Lansing,
Illinois
</TABLE>
- ----------
(1) Information from 1990 U.S. Census data within a 5 mile radius of bank
location. NDS/UDS Data Service
37
<PAGE>
We view our potential market area as encompassing the metropolitan
Chicago area, primarily the suburban communities extending from Northwest
Illinois to Northwest Indiana. According to the 1990 census, the metropolitan
Chicago area is the third largest metropolitan area in the United States with a
population of approximately 7.1 million. With approximately 550,000
manufacturing jobs, 1.1 million service jobs, 1.1 million jobs in
retail/wholesale trade, transportation and public utilities, and 300,000 jobs in
finance, insurance and real estate, the Chicago metropolitan area followed only
the New York and Los Angeles metropolitan areas in total nonagricultural wage
and salary employment.
GROWTH OPPORTUNITY
The expansion of interstate banking has contributed to substantial
consolidation of the banking industry in Illinois and Indiana, including our
existing and potential market areas. Many locally owned or managed banks either
have been acquired by large regional bank holding companies or have been
consolidated into branches of other banks. We believe that, after consolidation,
these banks no longer offer the same level of personalized customer service.
Although the banking industry remains competitive, we believe that
this consolidation has created a favorable opportunity for community-oriented,
locally managed commercial banks in our existing and potential market areas. We
want to take advantage of this opportunity. We emphasize local ownership and
management and strong ties and active commitment to the community. We believe
that community banks can improve the economic development and overall economy of
their communities. We believe that community residents recognize these benefits
and that we will be successful in attracting individuals and small- to
medium-sized businesses as customers by taking an active interest in their
business and personal finances.
BUSINESS STRATEGY
We believe that our business strategy will support the growth of
Village Bancorp and allow us to maintain positive expansion in our markets. Key
aspects of our business strategy include the following:
o Emphasize Community Banking. We strive to maintain a strong
commitment to community banking. Our goal is to attract as
customers individuals and small- to medium-sized, owner-operated
businesses who wish to conduct business with a local commercial
bank that demonstrates an active interest in their business and
personal financial affairs. We believe that our banks are able to
deliver timely responses to customer requests, provide customized
financial products and services and offer customers the personal
attention of senior banking officers. We believe that our
commitment to service gives us a competitive advantage in the
marketplace.
o Increase Deposits. We have been able to attract a strong base of
core deposits from our local markets. Management of our banks has
a long history of involvement in the communities where the banks
are located. Competitive rate and fee structures and a high level
of service have also been important in increasing deposits for
us.
o Expansion Through the Creation of New Banks or Branches. A key
component of our growth strategy is expansion through the
creation of new banks and branches in our target markets. The
formation of Village Bank North Barrington and Village Bank
Munster are examples of this strategy. We actively analyze those
communities we believe will be supportive of a local community
bank. We consider it critically important for any new bank that
we attract local management with strong ties to the community and
promote local ownership in Village Bancorp.
o Expand Lending. Our lending philosophy is to provide a
full-service lending and deposit relationship to all customers.
Part of our lending focus is on the small- to medium-sized,
owner-operated businesses. Upon obtaining the lending
relationship of the businesses, we try to expand the relationship
through extensive cross-selling efforts to the business owners,
their families, associates and employees. The cross-selling
includes special loan programs, direct payroll deposits, special
deposit packages and customized service programs. We also offer
residential mortgage loans,
38
<PAGE>
automobile financing, credit card loans, home equity loans, and
personal loans. We intend to maintain our emphasis on these
lending services.
o Maintain Competitive Technology. As a relatively new company, we
are able to invest in the latest technology at a much lower
initial cost than some competing institutions, which must update
their systems to be competitive. We have selected computer
vendors with a history of maintaining technological superiority
which is expected to allow us to remain at the forefront of
technology at a lower long-term cost. We have, as a result, a
multitude of delivery methods, including telephone banking, wire
transfer, automatic clearing house, electronic bill payment and
ATMs.
o Emphasize Superior Customer Service. We strive to maintain an
environment where the customer is the most important element of
the business. From loan officers highly visible in the community
to accessible executive management, the customer is always viewed
as the most important person in our banks.
PRODUCTS AND SERVICES
Deposit Products
We believe our banks offer deposit products and programs which address
the needs of customers in each of our local markets. These products include:
Checking Accounts. The banks offer a range of different checking
account products designed and priced to meet specific target segments (e.g., age
and industry groups) of the local markets served by each bank.
NOW/Money Market Accounts. The banks offer several types of premium
rate NOW (negotiable order of withdrawal) accounts and money market accounts
with interest rates indexed to the prime rate or the 180-day U.S.
Treasury bill rate.
Time Deposits. Village Bancorp offers a wide range of innovative time
deposits and IRA accounts tailored to the banks' market areas at competitive
rates.
Lending Services
We aggressively seek quality loan relationships. Village Bancorp's
loan portfolio consists of commercial loans, commercial real estate loans,
consumer real estate loans (including home equity loans and home equity lines of
credit) and consumer loans. We emphasize sound credit analysis and loan
documentation. We also seek to avoid undue concentrations of loans to a single
industry or based on a single class of collateral.
Lending officers are assigned various levels of loan approval
authority based upon their respective levels of experience and expertise. Loan
approval is also subject to Village Bancorp's formal loan policy, as established
by each bank's board of directors, and to the concurrence of an officers' credit
committee (or the banks' boards of directors or a committee of the boards) in
addition to the recommendation of the lending officer. This system is intended
to assure that commercial credit requests are subjected to independent objective
review on at least two different levels.
We have concentrated our efforts on building Village Bancorp's lending
business in the following areas:
Commercial Loans. Commercial and individual loans are made to small-
to medium-sized businesses that are sole proprietorships, partnerships, and
corporations. Generally, these loans are secured with collateral, including
accounts receivable, inventory and equipment, and require personal guarantees of
the principals. Frequently, these loans are further secured with real estate
equities.
Commercial Real Estate Loans. Commercial real estate loans include
loans for acquisition, development, and construction of real estate which are
secured by the real estate involved, and other loans secured by commercial real
estate, multifamily residential properties, and other nonresidential properties.
Loans retained by Village
39
<PAGE>
Bancorp for its portfolio are generally short-term balloon loans and adjustable
rate mortgages with initial fixed terms of one to five years.
Consumer Real Estate Loans. Consumer real estate loans are made to
finance residential units that will house from one to four families. Village
Bancorp originates both fixed and adjustable rate consumer real estate loans. In
addition, Village Bancorp originates loans as an agent for others on a fee
basis.
Home equity lines of credit, included within Village Bancorp's
consumer real estate loan portfolio, are secured by the borrower's home and can
be drawn on at the discretion of the borrower. These lines of credit are
generally at variable interest rates. When made, home equity lines, combined
with the outstanding loan balance of prior mortgage loans, generally do not
exceed 80% of the appraised value of the underlying real estate collateral.
Consumer Loans. Consumer loans are collateralized loans to individuals
for various personal reasons such as automobile financing and home improvements.
ATMs
Each of Village Bancorp's banks maintain an ATM onsite and participate
in the Cash Station Network. The ATM equipment is owned by the banks.
COMPETITION
Village Bancorp competes in the financial services industry through
the banks. The financial services business is highly competitive. Village
Bancorp encounters strong direct competition for deposits, loans and other
financial services. Village Bancorp's principal competitors include other
commercial banks, savings banks, savings and loan associations, mutual funds,
money market funds, finance companies, credit unions, mortgage companies,
private issuers of debt obligations and suppliers of other investment
alternatives, such as securities firms.
In addition, in recent years, several major multi-bank holding
companies have entered or expanded in the Chicago metropolitan market.
Generally, these financial institutions are significantly larger than Village
Bancorp and have access to greater capital and other resources. In addition,
many of Village Bancorp's nonbank competitors are not subject to the same degree
of regulation as that imposed on bank holding companies, federally insured banks
and national, Illinois or Indiana chartered banks. As a result, such nonbank
competitors have advantages over Village Bancorp in providing certain services.
Village Bancorp addresses these competitive challenges by creating
market differentiation and by maintaining an independent community bank presence
with local decision-making within its markets. The banks compete for deposits
principally by offering depositors a variety of deposit programs, convenient
office locations, hours and other services. The banks compete for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers, the variety of
their loan products and their trained staff of professional bankers.
Village Bancorp competes for qualified personnel by offering
competitive levels of compensation and by augmenting compensation with stock
options pursuant to its stock option plan. Attracting and retaining high quality
employees is important in enabling Village Bancorp to compete effectively for
market share with both our large and small competitors.
PROPERTIES
The principal offices of Village Bancorp and Northwest Community Bank
are located in an approximately 5,000 square foot leased facility at 1845 East
Rand Road, Prospect Heights, Illinois. This two-story location also houses a
number of nonaffiliated professional offices.
Village Bank North Barrington is located at 444 N. Rand Road in North
Barrington, Illinois. Village Bank North Barrington is currently operating out
of a modular facility adjacent to the site on which the new bank is being
40
<PAGE>
built. Village Bank North Barrington intends to build a 10,000 square foot
permanent two-story facility on this site. Village Bank North Barrington also
operates a branch in Lake Zurich, Illinois in a 2,200 square foot leased
facility.
Village Bancorp has entered into a real estate contract to purchase a
2.5 acre bank site in Munster, Indiana for Village Bank Munster. We intend to
build a 5,000 square foot permanent one-story facility on this site.
LEGAL PROCEEDINGS
Village Bancorp and the banks are from time to time parties to various
legal actions arising in the normal course of business. We believe that there is
no proceeding threatened or pending against Village Bancorp or any of the banks
which, if determined adversely, would have a material adverse effect on the
financial condition or results of operations of Village Bancorp.
EMPLOYEES
As of December 31, 1998, Village Bancorp had 23 full-time employees
and 8 part-time employees. We consider our relationships with our employees to
be good.
41
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position of each of the directors and executive
officers of Village Bancorp and names of employers, titles and dates of
positions held during the past five years are as follows:
NAME AGE POSITION
- ---- --- --------
Gerald F. Hartley 60 Director and President
Kevin R. Hitzeman 48 Director
Rosario Ippolito 72 Director
Richard P. Nevins 51 Director
John A. Reck 51 Director
Thomas H. Roth 58 Director and Chairman of the Board
Ronald L. Spiekhout 59 Director
Michael A. Speziale 59 Director
Elizabeth A. Chartier 49 Senior Vice President, Controller and Secretary
Gerald F. Hartley was appointed a director and President of Village
Bancorp on April 6, 1999. Previously, Mr. Hartley was a partner with the
accounting firm of Crowe, Chizek and Company LLP from 1986 to March 31, 1999.
Kevin R. Hitzeman has served as a director of Village Bancorp since
1997. Mr. Hitzeman has served as President of Complete Cleaning Company, Inc.
since 1974.
Rosario Ippolito was elected a director of Village Bancorp at its 1999
Annual Meeting of Shareholders. Mr. Ippolito has served as President of
International Beauty Systems, Inc. since 1973.
Richard P. Nevins was elected a director of Village Bancorp at the
1999 Annual Meeting of Shareholders. Mr. Nevins was the former President of
Wisco Alloys, Inc., a position he held from 1974 through April 1999.
John A. Reck has served as a director of Village Bancorp since 1998.
He also has served as President of Village Bank North Barrington since its
organization in October 1998. Previously, Mr. Reck served as President of First
Chicago/NBD Lake Zurich from 1994 to 1997.
Thomas H. Roth has served as director and Chairman of the Board since
1997. Mr. Roth also served as President of Village Bancorp from 1997 until April
6, 1999. From 1981 to May 1997, Mr. Roth served as President of National Bancorp
Inc.
Ronald L. Spiekhout has served as a director of Village Bancorp since
1998. Previously, he served as President of First National Bank of Lake Zurich
from 1983 to 1993. Mr. Spiekhout is currently retired.
Michael A. Speziale has served as a director of Village Bancorp since
1997. He has also served as Vice Chairman of Northwest Community Bank since the
beginning of 1999. Mr. Speziale served as President of Northwest Community Bank
from 1995 through February 1999.
Elizabeth A. Chartier has served as the Senior Vice President,
Controller and Secretary of Village Bancorp since 1997. Previously, Ms. Chartier
served as Vice President and Controller of National Bancorp, Inc. from 1985 to
1997.
42
<PAGE>
BOARD OF DIRECTORS
The board of directors of Village Bancorp consists of eight members.
Directors of Village Bancorp serve staggered terms whereby one-third of the
directors are elected each year at the annual meeting of stockholders. The term
of the Class I directors expires in 2000, the term of the Class II directors
expires in 2001 and the term of the Class III directors expires in 2002. After
the annual meetings in such years, each elected director will serve for a term
of three years. The terms of Village Bancorp's current directors expire as
follows: Messrs. Reck and Speziale -- 2000; Messrs. Hartley, Hitzeman and
Spiekhout -- 2001; and Messrs. Ippolito, Nevins and Roth -- 2002. Executive
officers of Village Bancorp serve at the discretion of the board of directors.
The board of directors has established an Audit Committee that
recommends the annual appointment of Village Bancorp's auditors and reviews the
scope and results of the audit and other services provided by Village Bancorp's
independent auditors. Messrs. Hitzeman, Spiekhout, Ippolito and Nevins presently
serve on the Audit Committee. Messrs. Hitzeman, Spiekhout, Ippolito and Nevins,
are members of the Compensation Committee which administers Village Bancorp's
stock incentive plan.
BOARD OF DIRECTORS' COMPENSATION
No compensation is paid to the directors of Village Bancorp or to the
members of the board of directors of the banks.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Village
Bancorp to the President and Chairman during 1998 and 1997. No executive officer
of Village Bancorp other than Mr. Roth earned salary and bonus in excess of
$100,000 in 1998 or 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------------------------
--------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Thomas H. Roth..................... 1998 150,000 -- 7,500(1) -- --
President and Chairman 1997 75,000(2) -- -- -- --
</TABLE>
- ----------
(1) Automobile allowance
(2) Partial year
No stock options were granted in 1998 or 1997 by Village Bancorp to
any director or executive officer.
STOCK OPTION PLAN
Under Village Bancorp's 1998 Omnibus Stock Incentive Plan, stock
options, restricted stock, stock appreciation rights, performance units and
performance shares (collectively, "Awards"), may be granted to key employees and
directors of Village Bancorp. The plan was ratified by the stockholders at
Village Bancorp's 1998 Annual Meeting of Shareholders. The plan is administered,
construed and interpreted by the Compensation Committee. The Compensation
Committee may at any time alter, amend, suspend or terminate the plan.
Participants in the plan shall be selected by the Compensation Committee from
among those employees who are recommended for participation by the Chairman and
President and who, in the opinion of the Compensation Committee, are key
employees in a position to contribute materially to Village Bancorp's continued
growth and development and to its long-term financial success, and from among
the directors. Unless earlier terminated by the board of directors, the plan
will terminate on April 29, 2008.
43
<PAGE>
The total number of shares of stock subject to awards under the plan
may not exceed 225,000 (of this total up to 25,000 shares may be issued in
restricted stock), and the total number of shares which may be made subject to
Awards granted under the plan in any calendar year to any single participant may
not exceed 25,000. Such numbers of shares shall be subject to adjustment upon
occurrence of certain events described in the plan. The shares to be delivered
under the plan may consist, in whole or in part, of authorized but unissued
stock or treasury stock, not reserved for any purpose.
In April 1999, Village Bancorp granted options under the plan to
certain directors and officers covering 106,000 shares of Village Bancorp common
stock with an exercise price of $12.50 per share.
401(k) PLAN
Village Bancorp maintains a 401(k) SIMPLE salary deferral plan for its
qualifying employees. Under the 401(k) plan, which is designed to be qualified
under Section 401(k) of the Internal Revenue Code, an employee is eligible to
participate in the 401(k) plan if the employee is 21 years of age and earns a
minimum of $5,000 in annual compensation. Subject to limitations, a participant
is able to elect to defer up to $6,000 of his or her compensation into the plan.
Village Bancorp may elect to make matching contributions equal to a portion of
the participating employee's contribution, subject to a maximum contribution of
no more than 3% of the participant's salary.
Under the 401(k) plan, a separate account is established for each
employee. Participants are 100% vested in employee contributions, earnings and
matching contributions. Distributions from the 401(k) plan are made upon
termination of service, disability or death in a lump sump or in annual
installments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The board of directors is responsible for determining the compensation
of Village Bancorp's executive officers. Thomas H. Roth served as President and
Chairman of the board of directors during 1998 and 1997. Mr. Roth presently
serves as Chairman of the board of directors and Mr. Hartley, a director, is
President of Village Bancorp.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows certain information regarding the beneficial
ownership of Village Bancorp's common stock as of April 16, 1999, by (i) each of
Village Bancorp's directors; (ii) each of Village Bancorp's executive officers;
and (iii) all directors and executive officers of Village Bancorp as a group. No
other persons are known by us to own beneficially more than 5% of Village
Bancorp's outstanding common stock.
<TABLE>
<CAPTION>
COMMON SHARES OF STOCK
NAME BENEFICIALLY OWNED CLASS PERCENT
- ---- ---------------------- -------------
<S> <C> <C>
Gerald F. Hartley(1)....................................... -- --
Kevin R. Hitzeman(2)....................................... 14,800 1.7%
Rosario Ippolito(3)........................................ 40,000 4.5
Richard P. Nevins(4)....................................... 8,000 *
John A. Reck(5)............................................ 15,120 1.7
Thomas H. Roth(6).......................................... 187,317 21.1
Ronald L. Spiekhout(7)..................................... 14,000 1.6
Michael A. Speziale(8)..................................... 10,400 1.1
Elizabeth A. Chartier(9)................................... 800 *
All Directors and Officers as a group (9 persons).......... 290,437 32.7%
</TABLE>
- ----------
* Less than one percent.
(1) Excludes 13,201 shares issuable upon the conversion of mandatorily
convertible subordinated debentures acquired on April 6, 1999.
(2) Excludes 3,168 shares issuable upon the conversion of mandatorily
convertible subordinated debentures.
(3) Includes 40,000 shares owned together with his spouse. Excludes 11,749
shares issuable upon the conversion of mandatorily convertible subordinated
debentures.
(4) Includes 8,000 shares owned through a defined contribution plan.
(5) Includes 15,120 shares owned through a defined contribution plan. Excludes
25,000 shares subject to currently non-exercisable options granted on April
14, 1999.
(6) Includes 24,000 shares owned through a defined contribution plan and trust.
Excludes 29,703 shares issuable upon the conversion of mandatorily
convertible subordinated debentures. Mr. Roth's mailing address is 1845
East Rand Road, Prospect Heights, Illinois, 60070-0936.
(7) Includes 6,000 shares owned together with his spouse; 8,000 shares are
owned through a defined contribution plan.
(8) Includes 400 shares owned together with his spouse; 10,000 shares are owned
through a defined contribution plan. Excludes 3,102 shares issuable upon
the conversion of mandatorily convertible subordinated debentures.
(9) Excludes 1,320 shares issuable upon the conversion of mandatorily
convertible subordinated debentures.
45
<PAGE>
CERTAIN TRANSACTIONS
Some of the directors and executive officers of Village Bancorp are,
or have been in the past, customers of the banks, and some of the directors and
executive officers of Village Bancorp are direct or indirect owners of 10% or
more of the stock of corporations which are, or have been in the past, customers
of the banks. As such customers, they have engaged in transactions in the
ordinary course of business of the banks, including borrowings, all of which
transactions are or were on substantially the same terms (including interest
rates and collateral on loans) as those prevailing at the time for comparable
transactions with nonaffiliated persons. None of the transactions involved more
than the normal risk of collectibility or presented any other unfavorable
features. As of December 31, 1998, the banks had $1.0 million in loans
outstanding to the directors and executive officers of Village Bancorp, which
amount represented 11.1% of total stockholders' equity as of that date. See also
"Management--Compensation Committee Interlocks and Insider Participation."
TimberRand Corp., a company owned by Mr. Roth, Village Bancorp's
Chairman and principal stockholder, held an option contract to purchase an eight
acre parcel where the main banking premises of Village Bank North Barrington are
to be located. The option was assigned to Village Bancorp at TimberRand Corp.'s
cost. Village Bancorp exercised the option on two acres to acquire the bank
site. Village Bancorp is holding the option to purchase the remaining six acres
which expires in August 1999.
TimberRand Corp. also assigned a real estate contract to Village
Bancorp for the purchase of property in Arlington Heights, Illinois, which is
being considered as a possible new site for Northwest Community Bank.
During 1997, Mr. Roth purchased a nonperforming commercial loan from
Northwest Community Bank at the principal amount outstanding of $249,000 which
approximated fair market value at that time. Mr. Roth has no other relationship
with this loan customer.
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<PAGE>
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. References under this heading to applicable statutes or
regulations are brief summaries of portions thereof which do not purport to be
complete and which are qualified in their entirety by reference to those
statutes and regulations. Any change in applicable laws or regulations may have
a material adverse effect on the business of commercial banks and bank holding
companies, including Village Bancorp and the banks. However, management is not
aware of any current recommendations by any regulatory authority which, if
implemented, would have or would be reasonably likely to have a material effect
on the liquidity, capital resources or operations of Village Bancorp or the
banks.
BANK HOLDING COMPANY REGULATION
Village Bancorp is registered as a "bank holding company" with the
Federal Reserve and, accordingly, is subject to supervision by the Federal
Reserve under the BHC Act. Village Bancorp is required to file with the Federal
Reserve periodic reports and such additional information as the Federal Reserve
may require pursuant to the BHC Act. The Federal Reserve examines Village
Bancorp and may examine the banks.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHC Act prohibits a bank holding company
from acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or bank holding company and from engaging directly
or indirectly in any activity other than banking or managing or controlling
banks or performing services for its authorized subsidiaries. A bank holding
company may, however, engage in or acquire an interest in a company that engages
in activities which the Federal Reserve has determined, by regulation or order,
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. Under the BHC Act and Federal Reserve regulations,
Village Bancorp and its banks are prohibited from engaging in certain tie-in
arrangements, in connection with an extension of credit, leases, sales of
property or furnishing services.
Any company, including associates and affiliates of and groups acting
in concert with such company, which purchases or subscribes for five percent or
more of Village Bancorp's common stock may be required to obtain prior approval
of the Illinois Commissioner, Indiana Department and the Federal Reserve. Prior
regulatory notice and approval requirements under the federal Change in Bank
Control Act, the Illinois Banking Act and the Indiana Financial Institutions Act
may also apply with respect to any person who acquires stock of Village Bancorp
such that its interest exceeds ten percent of Village Bancorp. In addition, any
corporation, partnership, trust or organized group that acquires a controlling
interest in Village Bancorp or the banks may have to obtain approval of the
Federal Reserve to become a bank holding company and thereafter be subject to
regulation as such.
It is the policy of the Federal Reserve that Village Bancorp is
expected to act as a source of financial strength to the banks and to commit
resources to support the banks. The Federal Reserve takes the position that in
implementing this policy, it may require Village Bancorp to provide such support
when Village Bancorp otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for
assessing bank holding company capital adequacy. These standards define
regulatory capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risks. The Federal
Reserve's risk-based guidelines apply on a consolidated basis for bank holding
companies with consolidated assets of $150 million or more and on a "bank-only"
basis for bank holding companies with consolidated assets of less than $150
million, subject to certain terms and conditions. Under the Federal Reserve's
risk-based guidelines, capital is classified into two categories. For bank
holding companies, Tier 1 or "core" capital consists of common stockholders'
equity, qualifying noncumulative perpetual preferred stock (including related
surplus), qualifying cumulative perpetual preferred stock (including related
surplus) (subject to certain limitations) and minority interests in the equity
accounts of consolidated subsidiaries, and is reduced by goodwill, certain other
intangible assets and certain investments in other corporations ("Tier 1
Capital"). Tier 2 capital consists of the allowance for loan and lease losses
(subject to certain limitations), perpetual preferred stock and related surplus
(subject to certain conditions), "hybrid capital
47
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instruments," perpetual debt, mandatorily convertible debt securities, term
subordinated debt and intermediate-term preferred stock (including related
surplus) (subject to certain limitations), and unrealized holding gains on
equity securities (subject to certain limitations).
Under the Federal Reserve's capital guidelines, bank holding companies
are required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of eight percent, of which at least four percent must be in
the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage
ratio of Tier 1 Capital to total assets of three percent, except that bank
holding companies not rated in the highest category under the regulatory rating
system are required to maintain a leverage ratio of one percent to two percent
above such minimum. The three percent Tier 1 Capital to total assets ratio
constitutes the minimum leverage standard for bank holding companies, and will
be used in conjunction with the risk-based ratio in determining the overall
capital adequacy of banking organizations. In addition, the Federal Reserve
continues to consider the Tier 1 leverage ratio in evaluating proposals for
expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes
that the foregoing standards are supervisory minimums and that banking
organizations generally are expected to operate well above the minimum ratios.
These guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum levels, without significant reliance
on intangible assets.
As of December 31, 1998, Northwest Community Bank had regulatory
capital in excess of the Federal Reserve's minimum requirements. Northwest
Community Bank had a total capital to risk-weighted assets ratio of 11.99% and a
Tier 1 capital to risk-weighted assets ratio of 10.78% as of December 31, 1998.
See "Note 10 - Regulatory Matters" to Village Bancorp Inc. and Subsidiaries
Notes to Consolidated Financial Statements included herein.
BANK REGULATION
Under Illinois law, Northwest Community Bank and Village Bank North
Barrington are subject to supervision and examination by the Illinois
Commissioner. Under Indiana law, Village Bank Munster will be subject to
supervision and regulation of the Indiana Department. As an affiliate of the
banks, Village Bancorp is also subject to examination by the Illinois
Commissioner and Indiana Department.
The deposits of the banks are insured by the Bank Insurance Fund
("BIF") under the provisions of the Federal Deposit Insurance Act (the "FDIA"),
and the banks are, therefore, also subject to supervision and examination by the
FDIC. The FDIA requires that the appropriate federal regulatory authority
approve any merger and/or consolidation by or with an insured bank, as well as
the establishment or relocation of any bank or branch office. The FDIC also
supervises compliance with the provisions of federal law and regulations which
place restrictions on loans by FDIC-insured banks to their directors, executive
officers and other controlling persons.
Furthermore, all banks are affected by the credit policies of other
monetary authorities, including the Federal Reserve, which regulate the national
supply of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
Banks located in Illinois and Indiana have traditionally been
restricted as to the number and geographic location of branches which they may
establish. The Illinois Banking Act and the Indiana Financial Institutions Act
now permit banks located in Illinois and Indiana to establish branches anywhere
in Illinois and Indiana, respectively, without regard to the location of other
banks' main offices or the number of branches previously maintained by the bank
establishing the branch.
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FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its
holding company or other affiliates are subject to various restrictions imposed
by state and federal regulatory agencies. Such transactions include loans and
other extensions of credit, purchases of securities and other assets, and
payments of fees or other distributions. In general, these restrictions limit
the amount of transactions between an institution and an affiliate of such
institution, as well as the aggregate amount of transactions between an
institution and all of its affiliates, impose collateral requirements in some
cases, and require transactions with affiliates to be on terms comparable to
those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, Village Bancorp is
primarily dependent upon dividend distributions from its operating subsidiaries
for its income. Federal and state statutes and regulations impose restrictions
on the payment of dividends by Village Bancorp and the banks.
Federal Reserve policy provides that a bank holding company should not
pay dividends unless (i) the bank holding company's net income available to
common stockholders during the prior year is sufficient to fully fund the
dividends and (ii) the prospective rate of earnings retention appears consistent
with the capital needs, asset quality and overall financial condition of the
bank holding company and its subsidiaries.
Delaware law places certain limitations on the ability of Village
Bancorp to pay dividends. Village Bancorp may generally pay dividends to its
stockholders, subject to any restrictions contained in its certificate of
incorporation, from either: (1) surplus (as defined in the DGCL), or (2) in case
there shall be no such surplus, out of its net profits for the fiscal year, in
which the dividend is declared and for the preceding fiscal year.
Because a major source of Village Bancorp's revenue is dividends,
Village Bancorp receives and expects to receive from the banks, Village
Bancorp's ability to pay dividends is likely to be dependent on the amount of
dividends paid by the banks. No assurance can be given that the banks will, in
any circumstances, pay such dividends to Village Bancorp on their stock.
As Illinois state-chartered banks, neither Northwest Community Bank
nor Village Bank North Barrington may pay dividends in an amount greater than
its current net profits after deducting losses and bad debts out of undivided
profits provided that its surplus equals or exceeds its capital. For the purpose
of determining the amount of dividends that an Illinois bank may pay, bad debts
are defined as debts upon which interest is past due and unpaid for a period of
six months or more, unless such debts are well-secured and in the process of
collection.
As an Indiana state-chartered bank, Village Bank Munster may not
declare or pay dividends that would impair its capital or that would be greater
than its undivided profits. In addition, the prior approval of the Indiana
Department is required for the payment of any dividend if the aggregate amount
of all dividends paid during such calendar year, including the proposed
dividend, would exceed the sum of its retained net income for the year to date
and previous two years.
In addition to the foregoing, the ability of Village Bancorp and the
banks to pay dividends may be affected by the various minimum capital
requirements and the capital and noncapital standards established under the
Federal Deposit Insurance Corporation Improvements Act of 1991 ("FDICIA"), as
described below. The right of Village Bancorp, its stockholders and its
creditors to participate in any distribution of the assets or earnings of its
subsidiaries is further subject to the prior claims of creditors of the
respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994,
requires the Federal Reserve, together with the other federal bank regulatory
agencies, to prescribe standards of safety and soundness, by regulations or
guidelines, relating generally to operations and management, asset growth, asset
quality, earnings, stock valuation, and compensation. The Federal Reserve and
the other federal bank regulatory agencies adopted, effective August 9, 1995, a
set of guidelines prescribing safety and soundness standards pursuant to FDICIA,
as amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the
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risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal shareholder. The Federal Reserve and other federal bank
regulatory agencies also adopted guidelines for asset quality and earnings
standards.
A range of other provisions in FDICIA include requirements applicable
to: closure of branches; additional disclosures to depositors with respect to
terms and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of an
investment by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal stockholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In August 1995, the Federal Reserve, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve and the
FDIC must explicitly include a bank's exposure to declines in the economic value
of its capital due to changes in interest rates as a factor in evaluating a
bank's capital adequacy. The Federal Reserve, the FDIC and other federal banking
agencies also have adopted a joint agency policy statement providing guidance to
banks for managing interest rate risk. The policy statement emphasizes the
importance of adequate oversight by management and a sound risk management
process. The assessment of interest rate risk management made by the banks'
examiners will be incorporated into the banks' overall risk management rating
and used to determine the effectiveness of management.
Prompt Corrective Action. FDICIA requires the federal banking
regulators, including the Federal Reserve and the FDIC, to take prompt
corrective action with respect to depository institutions that fall below
certain capital standards and prohibits any depository institution from making
any capital distribution that would cause it to be undercapitalized.
Institutions that are not adequately capitalized may be subject to a variety of
supervisory actions including, but not limited to, restrictions on growth,
investment activities, capital distributions and affiliate transactions and will
be required to submit a capital restoration plan which, to be accepted by the
regulators, must be guaranteed in part by any company having control of the
institution (such as Village Bancorp). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for undercapitalized institutions. The
capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions. However,
federal banking agencies have indicated that, in regulating bank holding
companies, the agencies may take appropriate action at the holding company level
based on their assessment of the effectiveness of supervisory actions imposed
upon subsidiary insured depository institutions pursuant to the prompt
corrective action provisions of FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured
institution, each of the banks is required to pay deposit insurance premiums
based on the risk it poses to the insurance fund. The FDIC has authority to
raise or lower assessment rates on insured deposits in order to achieve certain
designated reserve ratios on the insurance funds and to impose special
additional assessments. Each depository institution is assigned to one of three
capital groups: "well capitalized", "adequately capitalized" or "under
capitalized." Within each capital group, institutions are assigned to one of
three supervisory subgroups: "A" (institutions with few minor weaknesses), "B"
(institutions that demonstrate weaknesses which, if not corrected, could result
in a significant deterioration of the institution and increased risk of loss to
the BIF) or "C" (institutions that pose a substantial probability of loss to the
BIF unless effective corrective action is taken). Accordingly, there are nine
combinations of capital groups and supervisory subgroups to which varying
assessment rates would be applicable. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned.
The FDIC may terminate deposit insurance upon a finding that an
institution or the directors or trustees of an institution have engaged in
unsafe or unsound practices, the institution is in an unsafe or unsound
condition to continue operations or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. The management of each of the
banks does not know any practice, condition or violation that might lead to
termination of deposit insurance.
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The Economic Growth and Regulatory Paperwork Reduction Act of 1996
enacted on September 30, 1996 provides that beginning with semi-annual periods
after December 31, 1996, BIF deposits will also be assessed to pay interest on
the bonds (the "FICO Bonds") issued in the late 1980s by the Financing
Corporation to recapitalize the now defunct Federal Savings & Loan Insurance
Corporation. For purposes of the assessments to pay interest on the FICO Bonds,
BIF deposits will be assessed at a rate of 20% of the assessment rate applicable
to SAIF deposits until December 31, 1999. After the earlier of December 31, 1999
or the date on which the last savings association ceases to exist, full pro rata
sharing of FICO assessments will begin. It has been estimated that the rates of
assessment for the payment of interest on the FICO Bonds will be approximately
1.3 basis points for BIF-assessable deposits and approximately 6.4 basis points
for SAIF-assessable deposits. The payment of the assessment to pay interest on
the FICO Bonds should not materially affect the banks.
Federal Reserve System. The banks are subject to Federal Reserve
regulations requiring depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require three percent
reserves on the first $46.5 million of transaction accounts and $1,345,000
million plus ten percent on the remainder. The first $4.9 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve) are exempted
from the reserve requirements. The banks are in compliance with the foregoing
requirements.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"),
a financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires each federal
banking agency, in connection with its examination of a financial institution,
to assess and assign one of four ratings to the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by the institution, including applications
for charters, branches and other deposit facilities, relocations, mergers,
consolidations, acquisitions of assets or assumptions of liabilities, and
savings and loan holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings. Northwest Community
Bank received a "satisfactory" rating on its most recent CRA performance
evaluation. Village Bank North Barrington has not been subject to a CRA
performance evaluation.
In April 1995, the Federal Reserve and other federal banking agencies
adopted amendments revising their CRA regulations. Among other things, the
amended CRA regulations substitute for the prior process-based assessment
factors a new evaluation system that would rate an institution based on its
actual performance in meeting community needs. In particular, the system focuses
on three tests: (i) a lending test, to evaluate the institution's record of
making loans in its assessment areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing and programs benefiting low- or moderate-income individuals and
businesses; and (iii) a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices. The amended CRA
regulations also clarify how an institution's CRA performance would be
considered in the application process.
Brokered Deposits. Well-capitalized institutions are not subject to
limitations on brokered deposits, while an adequately capitalized institution is
able to accept, renew or rollover brokered deposits only with a waiver from the
FDIC and subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.
Enforcement Actions. Federal and state statutes and regulations
provide financial institution regulatory agencies with great flexibility to
undertake enforcement action against an institution that fails to comply with
regulatory requirements, particularly capital requirements. Possible enforcement
actions range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994,
the Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies will be allowed to
acquire banks across state lines subject to certain limitations. In addition,
under the Interstate Banking Act, since June 1, 1997, banks
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have been permitted, under some circumstances, to merge with one another across
state lines and thereby create a main bank with branches in separate states.
After establishing branches in a state through an interstate merger transaction,
a bank may establish and acquire additional branches at any location in the
state where any bank involved in the interstate merger could have established or
acquired branches under applicable federal and state law.
Illinois adopted legislation, effective September 29, 1995, permitting
interstate mergers beginning on June 1, 1997. It is anticipated that this
interstate merger and branching ability will increase competition and further
consolidate the financial institutions industry. In 1996, Indiana authorized
out-of-state banks to establish branch offices in Indiana, subject to certain
conditions.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by
general economic conditions and also by the fiscal and monetary policies of
federal regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in
interest rates have affected the operating results of all commercial banks in
the past and are expected to do so in the future. The banks and Village Bancorp
cannot fully predict the nature or the extent of any effects which fiscal or
monetary policies may have on their business and earnings.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Village Bancorp is authorized to issue 5,000,000 shares of common
stock, $0.01 par value, of which 888,000 shares were outstanding prior to the
offering. The outstanding shares of common stock currently are, and the shares
of common stock to be issued in the offering will be (when issued and delivered
in accordance with the terms and conditions of the offering), fully paid and
nonassessable. Each holder of record of common stock is entitled to one vote per
share on all matters voted upon by Village Bancorp's stockholders. Upon
completion of the public offering, holders of shares of common stock will have
no preemptive, redemption or cumulative voting rights. In the event of
liquidation, the holders of shares of common stock are entitled to share ratably
in any assets of Village Bancorp retained after payment in full of creditors
and, if any preferred stock is then authorized, issued and outstanding, after
payment to holders of such preferred stock but only to the extent of any
liquidation preference. As of March 5, 1999, Village Bancorp had approximately
200 holders of record of its common stock.
Dividends. The holders of common stock are entitled to receive and
share equally in such dividends, if any, declared by the board of directors out
of funds legally available therefor. Village Bancorp may pay dividends if, as
and when declared by the board of directors. See "Dividend Policy" and
"Supervision and Regulation--Financial Institution Regulation
Generally--Dividend Limitations." If Village Bancorp issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to
dividends.
Voting Rights. The holders of common stock possess voting rights in
Village Bancorp. Stockholders elect Village Bancorp's board of directors and act
on such other matters as are required to be presented to them under the DGCL or
Village Bancorp's Certificate of Incorporation or as are otherwise presented to
them by the board of directors. Each holder of common stock will be entitled to
one vote per share and will not have any right to cumulate votes in the election
of directors. Accordingly, holders of more than fifty percent of the outstanding
shares of common stock will be able to elect all of the directors to be elected
each year. Although there are no present plans to do so, if Village Bancorp
issues preferred stock, holders of the preferred stock may also possess voting
rights. See "--Certain Anti-Takeover Effects of the Certificate of
Incorporation, By-Laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding
up of Village Bancorp, the holders of the common stock would be entitled to
receive, after payment or provision for payment of all debts and liabilities of
Village Bancorp, all assets of Village Bancorp available for distribution. If
preferred stock is issued, the holders thereof may have a priority over the
holders of the common stock in the event of any liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the common stock will not
be entitled to preemptive rights with respect to any shares which may be issued
by Village Bancorp in the future. The common stock is not subject to mandatory
redemption by Village Bancorp.
PREFERRED STOCK
The board of directors is authorized, by the Certificate of
Incorporation, to issue 500,000 shares of preferred stock, $0.01 par value, in
one or more series with respect to which the board, without stockholder
approval, may determine voting, conversion and other rights which could
adversely affect the rights of the holders of common stock. The rights of the
holders of the common stock would generally be subject to the prior rights of
the preferred stock with respect to dividends, liquidation preferences and other
matters. Preferred stock could be issued by Village Bancorp to raise capital or
to finance acquisitions. The issuance of preferred stock under certain
circumstances could have the effect of delaying or preventing a change in
control of Village Bancorp. Village Bancorp has no present plans to issue any
shares of preferred stock.
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MANDATORILY CONVERTIBLE SUBORDINATED DEBENTURES
Village Bancorp has outstanding $1.8 million of Series One Mandatorily
Convertible Subordinated Debentures. Each debenture bears interest at the rate
of 6.0% per annum payable quarterly on the last day of March, June, September,
and December, until the maturity date of December 31, 2002. On the maturity
date, the debentures shall automatically convert to common stock on the basis of
one share of common stock for each $15.15 in principal amount of debentures so
converted. The holder of a debenture may voluntarily elect at any time to
convert a debenture to common stock.
Upon certain "trigger events," the debentures automatically convert to
common stock. The trigger events consist of a merger, consolidation, or other
reorganization of Village Bancorp in which Village Bancorp is not the survivor.
If the effective date of a trigger event was on the first, second, third, or
fourth anniversary of the date of issuance, the debentures would convert at
$12.20, $12.90, $13.65, and $14.40 per share, respectively, of common stock.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND
DELAWARE LAW
General. Certain provisions of the Certificate of Incorporation,
By-Laws and the DGCL may have the effect of impeding the acquisition of control
of Village Bancorp by means of a tender offer, a proxy fight, open-market
purchase or otherwise in a transaction not approved by the board of directors.
These provisions may have the effect of discouraging a future takeover attempt
which is not approved by the board of directors but which individual
stockholders may deem to be in their best interests or in which stockholders may
receive a substantial premium for their shares over then current market prices.
As a result, stockholders who might desire to participate in such a transaction
may not have an opportunity to do so. Such provisions will also render the
removal of the current board of directors or management of Village Bancorp more
difficult.
The provisions of the Certificate of Incorporation and By-Laws
described below are designed to reduce, or have the effect of reducing, the
vulnerability of Village Bancorp to an unsolicited proposal for the
restructuring or sale of all or substantially all of the assets of Village
Bancorp or an unsolicited takeover attempt which is unfair to stockholders. The
following description of certain of the provisions of the Certificate of
Incorporation and By-Laws of Village Bancorp is necessarily general and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-Laws of Village Bancorp.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of common stock and 500,000 shares of preferred
stock. The shares of common stock and preferred stock have been authorized in an
amount which provides the board of directors with flexibility to effect, among
other things, transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these authorized shares may also be
used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of Village Bancorp. The board of directors also
has sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of preferred stock,
the board of directors has the power to the extent consistent with its fiduciary
duty to issue a series of preferred stock to persons friendly to management in
order to attempt to block a merger or other transaction by which a third party
seeks control, and thereby assist the incumbent board of directors and
management to retain their respective positions.
Classified Board of directors; Filling of Board Vacancies and
Qualifying Shares. Village Bancorp has a classified board of directors with
staggered terms. The board of directors is divided into three classes, each of
which contains approximately one-third of the whole number of the members of the
board of directors. Each class serves a staggered three-year term, with
approximately one-third of the total number of directors being elected each
year. Under the DGCL, members of a staggered board may only be removed for cause
unless the Certificate of Incorporation provides otherwise. The Certificate of
Incorporation does not provide for removal of directors without cause. The
staggered board is intended to provide for continuity of the board of directors
and to make it more difficult and time consuming for a stockholder group to
fully use to its voting power to gain control of the board of directors without
the consent of the incumbent board of directors.
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The By-Laws provide that the number of the directors shall be fixed
from time to time by the board of directors. Currently, the number of directors
on the board is fixed at eight. The By-Laws also provide that any vacancy
occurring on the board of directors, including a vacancy created by an increase
in the number of directors, will be filled for the remainder of the unexpired
term by a majority vote of the directors then in office.
Cumulative Voting; Action by Written Consent and Stockholder Meetings.
The Certificate of Incorporation does not provide for cumulative voting for any
purpose. The Certificate of Incorporation and By-Laws also provide that any
action required or permitted to be taken by the stockholders must be effected at
an annual or special meeting and may not be effected by written consent in lieu
of a meeting. The By-Laws provide that special meetings of the stockholders may
only be called by the President of Village Bancorp.
Delaware Business Combination Statute. Section 203 of the DGCL
provides that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with the corporation for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) at or subsequent to such time the business combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as otherwise specified in Section 203, an interested
stockholder is defined to include any person that is (x) the owner of 15% or
more of the outstanding voting stock of the corporation, or (y) is an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date of determination; and the affiliates and
associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period. Village Bancorp has not
elected to be exempt from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage persons interested in acquiring Village
Bancorp to negotiate in advance with the Board of directors of Village Bancorp
since the stockholder approval requirement would be avoided if a majority of the
directors then in office approves either the business combination or the
transaction which results in any such person becoming an interested stockholder.
Such provisions also may have the effect of preventing changes in the management
of Village Bancorp. It is possible that such provisions could make it more
difficult to accomplish transactions which Village Bancorp's stockholders may
otherwise deem to be in their best interests.
Shareholder Approval for certain Corporate Transactions. The
Certificate of Incorporation provides that the affirmative vote of at least
662/3% of the voting power of all outstanding shares of each class of stock is
required for approval of any merger or consolidation involving Village Bancorp,
issuance or transfer of all of its securities for cash, securities or other
property, the sale of all or substantially all of the assets or property of
Village Bancorp, any plan of liquidation, dissolution or recapitalization of
Village Bancorp or any reclassification of its securities.
Amendment of the Certificate of Incorporation and By-Laws. The
Certificate of Incorporation provides that the affirmative vote of the holders
of at least 662/3% of the voting stock, voting together as a single class, is
required to amend provisions of the Certificate of Incorporation requiring a
supermajority vote for certain corporate transactions, prohibiting stockholder
action without a meeting or specifying the vote required to amend such
provisions. The By-Laws, which may be amended by the stockholders or the board
of directors, requires the affirmative vote of the holders of at least 66 2/3%
of the common stock to amend the By-Law sections dealing with special meetings,
elimination of written action by stockholders, notice of stockholder business,
number, tenure and qualifications of directors, vacancies and newly created
directorships on the board of directors, and amendments by stockholders.
Certain By-Law Provisions. The By-Laws of Village Bancorp also require
a stockholder who intends to nominate a candidate for election to the board of
directors, or to raise new business at an annual stockholder meeting, to provide
advance notice of at least 120 days to Village Bancorp. The notice provision
requires a
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stockholder who desires to raise new business at an annual stockholder meeting
to provide certain information to Village Bancorp concerning the nature of the
new business, the stockholder and that stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director must provide Village Bancorp with certain information concerning the
nominee and the proposing stockholder.
The provisions described above are intended to reduce Village
Bancorp's vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by members of its board of
directors.
Attempts to take over corporations have become increasingly common. An
unsolicited, nonnegotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the board
of directors believes it is in the best interests of Village Bancorp and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage nonnegotiated takeover attempts. It is also the view of the board of
directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price that reflects the true value of Village
Bancorp and that otherwise is in the best interest of all stockholders.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION
Village Bancorp's Certificate of Incorporation contains a provision
that limits the liability of directors for breaches of their fiduciary duties as
directors to the full extent permitted by the DGCL. As a result, directors will
not be liable, in certain circumstances, to Village Bancorp or the stockholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Such limitation does not, however, affect the liability of a
director: (i) for any breach of the director's duty of loyalty to Village
Bancorp or the stockholders; (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the DGCL; or (iv) for any transaction from which the director
derives an improper personal benefit. The Certificate of Incorporation provides
that Village Bancorp shall indemnify its officers and directors to the fullest
extent permitted by applicable law.
The By-Laws provide that Village Bancorp will indemnify, to the full
extent permitted under the DGCL, any person made or threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of Village Bancorp, or
is or was serving at Village Bancorp's request as a director, officer, employee
or agent of another corporation or other enterprise against liabilities and
expenses reasonably incurred or paid by such person in connection with such
action, suit or proceeding. Expenses incurred in defending a civil, criminal,
administrative, investigative or other action, suit or proceeding may be paid by
Village Bancorp in advance of a final disposition in accordance with the DGCL.
The indemnification and advancement of expenses provided by the By-Laws are not
to be deemed exclusive of any other rights to which any person indemnified may
be entitled under any by-law, statute, agreement, vote of stockholders, or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and will
continue as to a person who has ceased to be such director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person. Village Bancorp may purchase and maintain insurance on behalf of
any indemnified person against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not Village Bancorp would have the power to indemnify him against such liability
under the By-Laws. The provisions of the By-Laws are deemed a contract between
Village Bancorp and each director, officer, employee and agent who serves in any
such capacity at any time while the By-Laws and relevant provisions of the DGCL,
or other applicable law, if any, are in effect, and any repeal or modification
of any such law or of the By-Laws will not affect any right or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or threatened based
in whole or in part upon such state of facts.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Village Bancorp as a result of the foregoing provisions, or otherwise,
Village Bancorp has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities other than the payment by Village Bancorp of expenses
incurred or paid by a director, officer or
56
<PAGE>
controlling person of Village Bancorp in the successful defense of any action,
suit or proceeding is asserted by such director, officer or controlling person
in connection with the securities being registered, Village Bancorp will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
Village Bancorp serves as the transfer agent and registrar for its
common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Village Bancorp will have a minimum
of 1,342,000 and a maximum of 1,442,000 shares of common stock outstanding.
Except for shares purchased by "affiliates" of Village Bancorp, any shares
issued in the offering will be freely tradeable without restriction. An
additional 238,400 shares will be freely tradeable after November 1999, and
359,163 shares, which can now be resold only to Illinois residents, will be
freely tradeable beginning in July 1999.
Affiliates of Village Bancorp must comply with the resale limitations
of Rule 144 issued under the Securities Act. Rule 144 defines an affiliate of a
company as a person who directly or indirectly controls, or is controlled by, or
is under common control with, the company. Affiliates of a company generally
include its directors, officers and principal shareholders. Each of Village
Bancorp's affiliates who hold common stock may sell, within any three-month
period, a number of shares of common stock that does not exceed the greater of
(i) 1% of the outstanding shares of common stock or (ii) if the common stock is
trading on the Nasdaq Stock Market or an exchange, Village Bancorp's average
weekly trading volume during the four calendar weeks preceding the affiliate's
proposed sale. Sales by affiliates under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about Village Bancorp.
Prior to the offering, there has not been a public market for the
common stock, and we cannot predict the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of common stock on
the public market could adversely affect prevailing market prices and the
ability of Village Bancorp to raise equity capital in the future.
The common stock will not be listed on the Nasdaq Stock Market or any
securities exchange.
LEGAL MATTERS
Certain legal matters in connection with this offering are being
passed upon for Village Bancorp by Vedder, Price, Kaufman & Kammholz, Chicago,
Illinois.
EXPERTS
The consolidated financial statements of Village Bancorp, Inc. and
subsidiaries as of December 31, 1998 and 1997 and for the year ended December
31, 1998 and for the period June 1, 1997 (Date of Inception) through December
31, 1997, and the financial statements of Northwest Community Bank as of
December 31, 1998 and 1997 and for the years ended December 31, 1998 and 1997
included in this prospectus have been audited by Crowe, Chizek and Company LLP,
independent auditors. These financial statements are included herein in reliance
on their reports given upon the authority of that firm as experts in accounting
and auditing.
57
<PAGE>
REPORTS TO SHAREHOLDERS
Upon the effective date of the Registration Statement on Form SB-2
that registers the shares of common stock offered by this prospectus with the
SEC, Village Bancorp will be subject to certain of the reporting requirements of
the Exchange Act, as currently in effect, which include requirements to file
annual reports on Form 10-KSB and quarterly reports on Form 10-QSB with the SEC.
This reporting obligation will exist for at least one year and will continue for
two fiscal years thereafter, except that these reporting obligations may be
suspended for any subsequent fiscal year if at the beginning of the year the
common stock is held of record by less than 300 persons. Village Bancorp will
furnish its shareholders with annual reports containing audited financial
information for each fiscal year on or before the date of the annual meeting of
stockholders. Village Bancorp's fiscal year ends on December 31. Additionally,
Village Bancorp will also furnish such other reports as it may determine to be
appropriate or as otherwise may be required by law.
AVAILABLE INFORMATION
Village Bancorp has filed a Registration Statement on Form SB-2 under
the Securities Act with the SEC in connection with the common stock offered by
this prospectus. This prospectus omits certain information, exhibits and
undertakings set forth in the Registration Statement which Village Bancorp has
filed with the SEC. Such materials may be inspected and copied upon payment of
prescribed rates at the public reference facilities of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Regional Office of the SEC at
the following locations: Seven World Trade Center, Suite 1300, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Information regarding the operation of the public reference facilities may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site
(http://www.sec.gov) that contains registration statements, reports, proxy and
information statements and other information regarding registrants, such as
Village Bancorp, that file electronically with the SEC. For further information
with respect to Village Bancorp, reference is hereby made to the Registration
Statement and the exhibits thereto. Statements contained in this prospectus
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of that
contract, agreement or other document filed as an exhibit to the Registration
Statement for a full statement of the provisions thereof. These statements are
qualified in all respects by these references.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VILLAGE BANCORP, INC.
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997................F-3
Consolidated Statements of Operations for the year ended December 31,
1998 and for the period June 1, 1997 (Date of Inception) through
December 31, 1997........................................................F-4
Consolidated Statements of Changes in Shareholders' Equity for the
year ended December 31, 1998 and for the period June 1, 1997
(Date of Inception) through December 31, 1997............................F-5
Consolidated Statements of Cash Flows for the year ended
December 31, 1998 and for the period June 1, 1997
(Date of Inception) through December 31, 1997............................F-6
Notes to Consolidated Financial Statements..................................F-7
NORTHWEST COMMUNITY BANK
Report of Independent Auditors.............................................F-22
Balance Sheets as of December 31, 1998 and 1997............................F-23
Statements of Operations for the years ended
December 31, 1998 and 1997..............................................F-24
Statements of Changes in Shareholder's Equity for the years
ended December 31, 1998 and 1997........................................F-25
Statements of Cash Flows for the years ended December 31, 1998 and 1997....F-26
Notes to Financial Statements..............................................F-27
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Shareholders
Village Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Village
Bancorp, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the year ended December 31, 1998 and for the period June 1, 1997 (date
of inception) through December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Village
Bancorp, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1998 and for the period June 1, 1997 through December 31, 1997, in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 8, 1999, except for
Note 18 as to which the
date is April 6, 1999
F-2
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 3,124,278 $ 1,078,599
Federal funds sold..................................... 23,905,881 5,700,000
Securities available-for-sale.......................... 8,116,114 5,528,906
Loans.................................................. 35,655,446 27,502,208
Allowance for loan losses.............................. (458,564) (275,740)
----------- -----------
35,196,882 27,226,468
Leasehold improvements and equipment, net.............. 1,326,519 331,379
Goodwill and core deposit intangibles.................. 477,449 513,053
Accrued interest and other assets...................... 675,189 398,579
----------- -----------
$72,822,312 $40,776,984
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing................................. $11,095,805 $ 7,364,931
Interest-bearing.................................... 50,117,093 28,283,822
----------- -----------
61,212,898 35,648,753
Mandatorily convertible subordinated debentures....... 1,800,000 771,000
Accrued interest and other liabilities................ 417,012 358,318
----------- -----------
63,429,910 36,778,071
Shareholders' equity
Preferred stock - $1 par value;
authorized 500,000 shares;
none issued Common stock............................. 222,000 100,000
Additional paid-in capital............................ 9,978,000 4,000,000
Accumulated deficit................................... (847,528) (98,443)
Unrealized gain (loss) on securities
available-for-sale, net of income taxes.............. 39,930 (2,644)
----------- -----------
9,392,402 3,998,913
----------- -----------
$72,822,312 $40,776,984
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
1998 1997
------------ ----------
(NOTE 2)
<S> <C> <C>
Interest income
Loans, including fees................................. $2,781,964 $1,421,146
Securities............................................ 355,309 156,646
Deposits with other financial institutions............ 36,424 --
Federal funds sold.................................... 378,600 76,790
---------- ----------
3,552,297 1,654,582
Interest expense
Deposits.............................................. 1,678,803 826,129
Other................................................. 101,862 1,143
---------- ----------
1,780,665 827,272
---------- ----------
NET INTEREST INCOME.................................... 1,771,632 827,310
Provision for loan losses.............................. 241,600 121,100
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 1,530,032 706,210
Other income
Securities gains (losses), net........................ 32,094 (1,367)
Service charges on deposit accounts................... 306,648 82,832
Other income.......................................... 103,945 17,009
---------- ----------
442,687 98,474
Other expense
Salaries and employee benefits........................ 1,261,442 403,140
Occupancy and equipment expense....................... 338,562 139,836
Other expenses........................................ 1,180,300 375,451
---------- ----------
2,780,304 918,427
---------- ----------
LOSS BEFORE INCOME TAXES............................... (807,585) (113,743)
Income taxes (benefit)................................. (58,500) (15,300)
---------- ----------
NET LOSS............................................... $ (749,085) $ (98,443)
========== ==========
Basic loss per share of common stock................... $ (1.46) $ (.25)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON PAID-IN ACCUMULATED AVAILABLE-
STOCK CAPITAL DEFICIT FOR-SALE TOTAL
----- ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C>
Issuance of common stock............... $100,000 $4,000,000 $ -- $ -- $4,100,000
Comprehensive income
Unrealized loss on securities
available-for-sale, net of income
taxes............................... (2,644) (2,644)
Net loss.............................. (98,443) (98,443)
----------
Total comprehensive income.......... (101,087)
-------- ---------- --------- ------- ----------
Balance at December 31, 1997..... 100,000 4,000,000 (98,443) (2,644) 3,998,913
Issuance of common stock............... 122,000 5,978,000 -- -- 6,100,000
Comprehensive income
Change in unrealized gain (loss) on
securities available-for-sale, net of
income taxes........................ 42,574 42,574
Net loss.............................. (749,085) (749,085)
----------
Total comprehensive income.......... (706,511)
-------- ---------- --------- ------- ----------
Balance at December 31, 1998..... $222,000 $9,978,000 $(847,528) $39,930 $9,392,402
======== ========== ========= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
1998 1997
------------ -----------
(NOTE 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................ $ (749,085) $ (98,443)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities
Amortization of intangibles....................................... 35,604 20,769
Depreciation...................................................... 95,406 47,943
Securities (gains) losses, net.................................... (32,094) 1,367
Gain on sale of equipment......................................... -- (5,353)
Loss on sale of other real estate owned........................... 13,229 --
Net premium amortization on securities............................ 26,932 8,962
Provision for loan losses......................................... 241,600 121,100
Decrease (increase) in accrued interest and other assets.......... (277,973) 156,244
Increase in accrued interest and other liabilities................ 38,124 159,912
------------ -----------
Net cash provided by (used in) operating activities............ (608,257) 412,501
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in federal funds sold...................................... (18,205,881) (5,300,000)
Proceeds from sales and maturities of
securities available-for-sale...................................... 5,553,594 5,003,398
Purchase of securities available-for-sale........................... (8,071,133) (6,043,784)
Net increase in loans............................................... (8,435,243) (3,810,953)
Cash received as the result of acquisition of subsidiary bank....... -- 1,327,537
Proceeds from sale of other real estate owned....................... 210,000 --
Proceeds from sale of equipment..................................... -- 11,000
Bank premises and equipment expenditures............................ (1,090,546) (38,801)
------------ -----------
Net cash used in investing activities............................. (30,039,209) (8,851,603)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits............................................ 25,564,145 8,746,701
Proceeds from issuance of common stock.............................. 6,100,000 --
Proceeds from issuance of convertible debentures.................... 1,029,000 771,000
------------ -----------
Net cash provided by financing activities......................... 32,693,145 9,517,701
------------ -----------
Increase in cash and cash equivalents................................ 2,045,679 1,078,599
Cash and cash equivalents at beginning of period..................... 1,078,599 --
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 3,124,278 $ 1,078,599
============ ===========
Supplemental schedule of noncash investing activities
Loans transferred to other real estate owned........................ $ 223,229 $ --
============ ===========
Purchase of Northwest Community Bank
Fair value of assets acquired..................................... $30,602,786
Stock issued...................................................... (4,100,000)
-----------
Liabilities assumed............................................ $26,502,786
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The accompanying consolidated financial statements include the accounts of
Village Bancorp, Inc., formerly Delta Bancorp, Inc., (the "Company") and its
wholly-owned subsidiaries, Northwest Community Bank and Village Bank and Trust
of North Barrington (the "Banks"). All significant intercompany transactions and
balances have been eliminated in consolidation.
Prior to June 1, 1997, Northwest Community Bank was a wholly-owned subsidiary of
National Bancorp, Inc. Effective May 31, 1997, Northwest Community Bank's shares
were sold to one of National Bancorp, Inc.'s shareholders and other investors as
part of a reorganization plan. Subsequent thereto, Delta Bancorp, Inc. was
formed and became Northwest Community Bank's 100% owned parent through a
one-for-one share exchange of common stock. Delta Bancorp, Inc. then changed its
name to Village Bancorp, Inc. (see note 18).
The Company's only significant activity is ownership of the Banks. Northwest
Community Bank is a commercial bank which was organized under the laws of the
state of Illinois on May 3, 1995. Village Bank and Trust of North Barrington is
a commercial bank which was organized under the laws of the state of Illinois on
October 9, 1998. The Banks provide financial services to commercial and retail
customers in Lake County and the northwest suburban area of Cook County,
Illinois.
While management monitors the revenue streams of the various Company products
and services, operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Company's banking operations are
considered by management to be aggregated in one reportable operating segment.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accounting policies followed by the Company and the
methods of applying those policies conform with generally accepted accounting
principles and with general practice within the banking industry. The
preparation of the consolidated 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 consolidated
financial statements. Actual results could differ from those estimates.
The Company commenced operations on June 1, 1997. Accordingly, amounts reported
in the 1997 consolidated statements of operations, cash flows, and changes in
shareholders' equity are for the period June 1, 1997 through December 31, 1997.
Securities: Securities are classified as held-to-maturity when management has
the positive intent and the Company has the ability to hold those securities to
maturity. They are stated at cost, adjusted for amortization of premiums and
accretion of discounts. All other securities are classified as
available-for-sale because the Company may decide to sell those securities for
(Continued)
F-7
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
changes in market interest rates, liquidity needs, changes in yields on
alternative investments, and for other reasons. These securities are carried at
fair value. Unrealized gains and losses on securities available-for-sale are
charged or credited to a valuation allowance which is included as a separate
component of shareholders' equity. Realized gains and losses on disposition are
based on the net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method.
Loans: Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Interest income on loans is reported on the accrual
basis over the term of the loan based on the amount of principal outstanding.
Where there is doubt as to the ability of the debtor to meet the terms of the
loan contract or the loan is not adequately secured, the accrual of interest is
discontinued. Loan fees and direct loan origination costs are deferred and
amortized over the term of the loan as a yield adjustment.
Allowance for Loan Losses: The Company has established an allowance for loan
losses 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 may continue and future
recoveries may occur.
The allowance is maintained by management at a level considered to be 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
the 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 earnings in the periods in
which they become known.
Loans considered to be impaired are reduced to the present value of expected
cash flows or to the fair value of the collateral by allocating a portion of the
allowance for loan losses to such loans. Interest payments on impaired loans are
generally applied to principal, unless the loan principal is considered to be
fully collectible, in which case interest is recognized on the cash basis.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Provisions for depreciation and
amortization are computed on the straight-line method over the estimated service
lives of the related assets. The cost of maintenance and repairs is charged to
income as incurred; significant repairs are capitalized.
(Continued)
F-8
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: The Company recognizes deferred tax assets and liabilities for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities and expected benefits of operating loss and
credit carryforwards. Deferred taxes are recognized for the estimated taxes
ultimately payable or recoverable based on enacted tax laws. Changes in enacted
tax rates or laws will be reflected in the financial statements in the periods
they occur. A valuation allowance is maintained for deferred tax assets which
may not ultimately be realized.
Intangible Assets: Goodwill and core deposit intangibles result from the
application of purchase accounting principles to the acquisition of subsidiary
banks and are being amortized over 15 years using the straight-line method.
Earnings Per Share: Earnings (loss) per share are computed under Statement of
Financial Accounting Standards No. 128, which became effective during 1997.
Basic earnings (loss) per share is based on net income (loss) divided by the
weighted average number of common shares outstanding during the period. The
weighted average number of common shares outstanding was 512,307 and 400,000 in
1998 and 1997, respectively. Diluted earnings per share are not presented
because the inclusion of potentially dilutive securities is anti-dilutive.
Comprehensive Income: Under recently enacted Statement of Financial Accounting
Standards No. 130, comprehensive income is required to be reported for all
periods presented. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income includes, among other
components, the change in unrealized gains and losses on securities
available-for-sale.
Cash Equivalents: For purposes of reporting cash flows, the Company considers
amounts due from banks to be cash equivalents.
NOTE 3 -- SECURITIES
The amortized cost and fair value of debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
U.S. Treasury securities.................... $3,036,041 $22,084 $ -- $3,058,125
U.S. government agencies securities......... 5,019,573 38,416 -- 5,057,989
---------- ------- -------- ----------
$8,055,614 $60,500 $ -- $8,116,114
========== ======= ======== ==========
</TABLE>
(Continued)
F-9
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -- SECURITIES (Continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
U.S. Treasury securities.................... $5,027,804 $2,275 $(8,204) $5,021,875
U.S. government agencies securities......... 505,109 1,922 -- 507,031
---------- ------ ------- ----------
$5,532,913 $4,197 $(8,204) $5,528,906
========== ====== ======= ==========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalty.
AMORTIZED FAIR
COST VALUE
---------- ----------
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
Due after one year through five years....... $8,055,614 $8,116,114
========== ==========
Proceeds from sales of securities available-for-sale and the gross realized
gains and losses on such sales in 1998 and 1997 were as follows:
1998 1997
---- ----
Proceeds from sales.......................... $5,053,594 $5,003,398
Gross realized gains......................... 32,094 17,302
Gross realized losses........................ -- (18,669)
Securities with a carrying value of approximately $1,031,000 and $507,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes as required or permitted by law.
NOTE 4 -- LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans as of December 31, 1998 and 1997 are summarized
as follows:
1998 1997
---- ----
Commercial loans............................. $ 8,563,760 $ 6,060,311
Commercial real estate loans................. 10,851,688 8,255,143
Real estate mortgage loans................... 13,154,983 11,070,948
Installment loans............................ 3,085,015 2,115,806
----------- -----------
Total loans................................. $35,655,446 $27,502,208
=========== ===========
(Continued)
F-10
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Activity in the allowance for loan losses in 1998 and 1997 was as follows:
1998 1997
---- ----
Balance, beginning of period................. $275,740 $ --
Allowance of acquired bank................... -- 236,908
Provision for loan losses.................... 241,600 121,100
Loans charged off............................ (58,776) (82,268)
-------- --------
Balance, end of period...................... $458,564 $275,740
======== ========
The balance of impaired loans at December 31, 1998 and 1997 was $30,931 and
$239,495, respectively, which includes non-accrual loans of approximately the
same amount. There were no specific allocations of the allowance for loan losses
for these loans at December 31, 1998 and 1997. The average balance of impaired
loans was $138,905 and $227,737 for the years ended December 31, 1998 and 1997,
respectively. Interest income of $3,330 and $0 was recognized on impaired loans
on the cash basis for the periods ended December 31, 1998 and 1997,
respectively.
NOTE 5 -- BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of December 31, 1998 and 1997 are summarized as
follows:
1998 1997
---- ----
Land......................................... $ 506,748 $ --
Construction in progress..................... 411,504 --
Leasehold improvements....................... 86,479 66,584
Furniture and equipment...................... 597,378 312,738
---------- --------
1,602,109 379,322
Accumulated depreciation and
amortization................................ 275,590 47,943
---------- --------
$1,326,519 $331,379
========== ========
NOTE 6 -- EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, the Company established a 401(k) SIMPLE salary
deferral plan covering substantially all employees. Eligible employees may elect
to make tax deferred contributions within a specific range of their compensation
as defined in the plan. The Banks contribute an amount equal to the employee's
contribution up to 3% of the employee's compensation. Contributions to the plan
were $17,202 for the year ended December 31, 1998.
During 1998, the Company's shareholders approved the 1998 Omnibus Stock
Incentive Plan. The total number of shares subject to awards under the plan may
not exceed 225,000. There were no awards granted at December 31, 1998.
(Continued)
F-11
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Banks, their families, and
companies in which they are principal owners are loan customers of the Banks.
A summary of loans made by the Banks in the ordinary course of business to or
for the benefit of executive officers, directors, and their related interests
is as follows:
Balance at January 1, 1998................... $1,119,400
New loans.................................... 464,100
Repayments................................... (539,800)
----------
Balance at December 31, 1998................. $1,043,700
==========
NOTE 8 -- INCOME TAXES
The provision for income taxes included in the consolidated statement of
operations in 1998 and 1997 consists of the following:
1998 1997
---- ----
Currently payable (refundable)............... $ -- $ (935)
Deferred..................................... (311,594) (28,365)
Change in valuation allowance................ 253,094 14,000
---------- --------
$ (58,500) $(15,300)
========== ========
The difference between the provision for income taxes shown in the statement of
operations and amounts computed by applying the statutory federal income tax
rate of 34% to income (loss) before income taxes is as follows:
1998 1997
---- ----
Income taxes (benefit) computed at the
statutory rate.............................. $(274,580) $(38,700)
Permanent differences........................ 22,690 9,400
State taxes, net of federal benefit.......... (59,704) --
Valuation allowance.......................... 253,094 14,000
--------- --------
$ (58,500) $(15,300)
========= ========
(Continued)
F-12
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- INCOME TAXES (Continued)
Deferred income tax assets and liabilities consisted of the following at
December 31, 1998 and 1997:
1998 1997
---- ----
Gross deferred tax assets
Allowance for loan losses................... $ 152,891 $ 82,065
Net operating loss carryforward............. 262,681 22,925
Unrealized loss on securities
available-for-sale....................... -- 1,363
Other....................................... 3,397 --
--------- --------
418,969 106,353
Valuation allowance......................... (276,019) (22,925)
--------- --------
142,950 83,428
Gross deferred tax liabilities
Depreciation................................ (35,514) (32,285)
Unrealized gain on securities
available-for-sale....................... (20,570) --
Other....................................... -- (781)
--------- --------
(56,084) (33,066)
--------- --------
Net deferred tax asset................... $ 86,866 $ 50,362
========= ========
Cash paid for income taxes in 1997 was $41,500. In 1998, a cash refund in the
amount of $39,000 was received for income taxes.
The Company has a federal net operating loss carryforward of $602,000 of which
$39,000 expires in 2012 and $563,000 expires in 2018.
NOTE 9 -- LEASES
At December 31, 1998, Northwest Community Bank was obligated under two
noncancelable leases for its operating facility which expire in 2002. One lease
provides for annual rentals of $45,120 while the other lease provides for
increased rents annually at a rate of 4% over the prior year base amount plus
executory costs such as maintenance, insurance, and real estate taxes. The
leases contain one five-year renewal option.
(Continued)
F-13
<PAGE>
DELTA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- LEASES (Continued)
Minimum rental payments required under the operating leases subsequent to
December 31, 1998 are as follows:
YEAR AMOUNT
---- ------
1999 $ 92,382
2000 94,273
2001 96,239
2002 65,798
--------
$348,692
========
Rental expense under all operating leases was $153,739 for the year ended
December 31, 1998 and $62,624 for the period June 1, 1997 through December 31,
1997.
NOTE 10 -- REGULATORY MATTERS
The Company and its subsidiary banks are subject to various capital requirements
administered by the federal banking agencies. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, banks must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices.
Quantitative measures established by regulation to ensure capital adequacy
require banks and holding companies to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and Tier I capital to average
assets. If banks do not meet these minimum capital requirements, as defined,
bank regulators can initiate certain actions that could have a direct material
effect on a bank's financial statements. Management believes, as of December 31,
1998, that the Company and its subsidiary banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, the most recent notification Federal Deposit Insurance
Corporation categorized the Company's largest bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since this notification that management believes have changed the
institution's category. To be categorized as well capitalized, banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table below.
(Continued)
F-14
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- REGULATORY MATTERS (Continued)
The actual capital amounts and ratios as of December 31, 1998 for the Company
and Northwest Community Bank, the Company's largest bank, are presented in the
following table:
<TABLE>
<CAPTION>
TO BE TO BE WELL CAPITALIZED
(DOLLARS IN THOUSANDS) ADEQUATELY UNDER PROMPT CORRECTIVE
ACTUAL CAPITALIZED ACTION PROVISIONS
------------------ ----------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)
Company...................................... $10,969 25.7% $3,422 8.0% $4,277 10.0%
Northwest Community Bank..................... 4,055 12.0 2,705 8.0 3,388 10.0
Tier I capital (to risk-weighted assets)
Company...................................... $ 8,727 20.4% $1,711 4.0% $2,566 6.0%
Northwest Community Bank..................... 3,646 10.8 1,352 4.0 2,033 6.0
Tier I capital (to average assets)
Company...................................... $ 8,727 12.5% $2,787 4.0% $3,484 5.0%
Northwest Community Bank..................... 3,646 8.0 1,823 4.0 2,279 5.0
</TABLE>
NOTE 11 -- TIME DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 and over as
of December 31, 1998 and 1997 approximated $9,193,000 and $6,053,000,
respectively. Interest expense related to deposits in denominations of $100,000
and over approximated $349,000 in 1998 and $177,000 for the period June 1, 1997
through December 31, 1997.
At December 31, 1998, scheduled maturities of certificates of deposit were as
follows:
1999 $31,726,986
2000 3,634,966
2001 1,147,020
2002 684,599
-----------
$37,193,571
===========
Cash paid for all interest was $1,747,000 in 1998 and $734,000 in 1997.
(Continued)
F-15
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- MANDATORILY CONVERTIBLE SUBORDINATED DEBENTURES
The Company's Board of Directors approved the issuance of $1,800,000 of Series
One Mandatorily Convertible Subordinated Debentures. The offering was fully
subscribed and all subscriptions were accepted by the Company. The Series One
debentures bear interest at 6%, mature on December 31, 2002, and are convertible
into common stock at any time prior to maturity at $15.15 per share. Under
certain circumstances, known as "trigger events," the debentures automatically
convert on terms consistent with the mandatory conversion ratio. The trigger
events consist of a merger, consolidation, or other reorganization of the
Company in which the Company is not the survivor. If the effective date of the
trigger events were on the first, second, third, and fourth anniversary dates of
the issuance, the debentures would convert at $12.20, $12.90, $13.65, and $14.40
per share of common stock. At December 31, 1998 and 1997, there were $1,800,000
and $771,000, respectively, of such debentures outstanding. None of the
debentures were converted into common stock during 1998 or 1997.
NOTE 13 -- OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit, and unused lines of credit. 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 the payment of fees. Standby
letters of credit and financial guarantees written are conditional commitments
issued by the banks to guarantee the performance of a customer to a third party.
Credit risk is the principal risk associated with these instruments. The
contractual amounts of these instruments represent the credit risk should the
instrument be fully drawn upon and the customer fails completely to perform as
contracted. In order to control the credit risk associated with entering into
commitments and issuing letters of credit, the Company subjects such activity to
the same credit quality and monitoring controls as its lending activities. The
contractual amounts of these credit-related instruments are summarized in the
following table by category of instrument. Because many of these instruments
expire without being drawn upon in whole or in part, the amounts do not
necessarily represent future cash requirements.
CONTRACT AMOUNT
-------------------------
1998 1997
---------- ----------
Financial instruments whose contract amounts
represent credit risk
Unused lines of credit....................... $8,086,218 $6,359,467
Standby letters of credit.................... 418,462 369,271
Commitments to extend credit................. 2,028,000 1,333,900
(Continued)
F-16
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK (Continued)
At December 31, 1998 commitments to extend credit included one $212,000
commitment with a fixed rate of 7.0%.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of loans to local businesses, municipalities,
and consumers in Lake County and the northwest suburban area of Cook County,
Illinois; securities; correspondent bank accounts; and federal funds sold.
NOTE 14 -- RECAPITALIZATION
Effective March 18, 1998, the Company's shareholders approved an increase in the
number of authorized common shares from 500,000 to 5,000,000 shares and changed
the par value from $1.00 to $.25 per share. The Board of Directors approved a
four-for-one stock split effected in the form of a 300% stock dividend in
contemplation of an intrastate public offering of the Company's common stock.
A summary of common stock at December 31, 1998 and 1997 is as follows:
1998 1997
---- ----
Authorized shares............................ 5,000,000 500,000
Par value.................................... $.25 $1.00
Shares issued and outstanding................ 888,000 100,000
NOTE 15 -- CONTINGENCIES
On December 3, 1998, the Company entered into a contract to purchase a 2.46 acre
parcel of land for construction of a banking facility in northwest Indiana. The
purchase price is approximately $750,000.
The Company has entered into contracts to construct a banking facility for the
newly opened Village Bank and Trust of North Barrington at an estimated cost of
approximately $2,174,000.
(Continued)
F-17
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 -- COMPREHENSIVE INCOME
Changes in the components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized holding gains (losses) during the year.............. $96,600 $(5,373)
Less income taxes (benefit).................................... 32,844 (1,827)
------- -------
63,756 (3,546)
Reclassified adjustments for gains (losses) realized in net
income........................................................ 32,094 (1,367)
Less income taxes (benefit).................................... 10,912 (465)
------- -------
21,182 (902)
------- -------
Effect on other comprehensive income........................... $42,574 $(2,644)
======= =======
</TABLE>
(Continued)
F-18
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- PARENT COMPANY FINANCIAL STATEMENTS
The following are condensed balance sheets and statements of operations and cash
flows for Village Bancorp, Inc. without subsidiaries:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 536,082 $ 741,270
Deposits with other financial institutions.................. 513,362 --
Investment in subsidiary banks.............................. 9,352,943 3,590,042
Goodwill and core deposit intangible........................ 477,449 513,053
Accrued interest and other assets........................... 381,426 42,838
----------- ----------
Total assets............................................. $11,261,262 $4,887,203
=========== ==========
LIABILITIES
Mandatorily convertible subordinated debentures............. $ 1,800,000 $ 771,000
Accrued interest and other liabilities...................... 68,860 117,290
----------- ----------
Total liabilities........................................ 1,868,860 888,290
SHAREHOLDERS' EQUITY
Common stock................................................ 222,000 100,000
Additional paid-in-capital.................................. 9,978,000 4,000,000
Accumulated deficit......................................... (847,528) (98,443)
Unrealized gain (loss) on securities available-for-sale
of subsidiary bank........................................ 39,930 (2,644)
----------- ----------
Total shareholders' equity............................... 9,392,402 3,998,913
----------- ----------
Total liabilities and shareholders' equity............ $11,261,262 $4,887,203
=========== ==========
</TABLE>
(Continued)
F-19
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
1998 1997
------------ ---------
(NOTE 2)
<S> <C> <C>
Interest income................................................................... $ 92,859 $ 848
Operating expenses
Salaries and employee benefits................................................... 257,456 81,132
Amortization of goodwill and core deposit intangible............................. 35,604 20,769
Interest expense................................................................. 101,862 1,001
Other expense.................................................................... 226,649 54,897
--------- ---------
621,571 157,799
--------- ---------
LOSS BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME (LOSS) OF SUBSIDIARIES...................................... (528,712) (156,951)
Income tax benefit................................................................ (159,300) (32,000)
--------- ---------
LOSS BEFORE EQUITY IN UNDISTRIBUTED INCOME (LOSS) OF SUBSIDIARIES................. (369,412) (124,951)
Equity in undistributed net income (loss) of subsidiaries......................... (379,673) 26,508
---------- ---------
NET LOSS.......................................................................... (749,085) (98,443)
Change in unrealized gain (loss) on securities held by bank subsidiaries.......... 42,574 (2,644)
--------- ----------
TOTAL COMPREHENSIVE INCOME........................................................ $(706,511) $(101,087)
========= =========
</TABLE>
(Continued)
F-20
<PAGE>
VILLAGE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 -- PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------
1998 1997
------------- ---------
(NOTE 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................................... $ (749,085) $(98,443)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of intangibles................................................... 35,604 20,769
Equity in undistributed net income (loss) of subsidiaries..................... 379,673 (26,508)
Increase in accrued interest and other assets................................. (318,018) (42,838)
Increase (decrease) in accrued interest and other liabilities................. (69,000) 117,290
----------- --------
Net cash used in operating activities...................................... (720,826) (29,730)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries....................................................... (6,100,000) --
Increase in deposits with other financial institutions........................... (513,362) --
----------- --------
Net cash used in investing activities......................................... (6,613,362) --
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock........................................ 6,100,000 --
Proceeds from issuance of convertible debentures.............................. 1,029,000 771,000
----------- --------
Net cash provided by financing activities.................................. 7,129,000 771,000
----------- --------
Increase (decrease) in cash and cash equivalents.................................. (205,188) 741,270
Cash and cash equivalents at beginning of period.................................. 741,270 --
----------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 536,082 $741,270
=========== ========
</TABLE>
NOTE 18 -- REINCORPORATION AND NAME CHANGE
On April 6, 1999, the shareholders of Delta Bancorp, Inc. approved a plan of
merger by which Delta Bancorp, Inc. was merged into a newly formed Delaware
corporation. Concurrent with the merger, the corporation's name was changed to
Village Bancorp, Inc.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Northwest Community Bank
Prospect Heights, Illinois
We have audited the accompanying balance sheets of Northwest Community Bank (a
wholly-owned subsidiary of Village Bancorp, Inc.) as of December 31, 1998 and
1997, and the related statements of operations, changes in shareholder's equity,
and cash flows for the years then ended. 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 Northwest Community Bank at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 8, 1999
F-22
<PAGE>
NORTHWEST COMMUNITY BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................... $ 2,060,294 $ 1,078,599
Federal funds sold........................................... 4,600,000 5,700,000
Securities available-for-sale................................ 8,116,114 5,528,906
Loans........................................................ 32,362,939 27,502,208
Allowance for loan losses.................................... (425,564) (275,740)
----------- -----------
31,937,375 27,226,468
Leasehold improvements and equipment, net.................... 258,248 331,379
Accrued interest and other assets............................ 446,962 355,741
----------- -----------
$47,418,993 $40,221,093
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Deposits
Noninterest-bearing...................................... $10,575,315 $ 7,406,201
Interest-bearing......................................... 32,601,263 28,983,822
----------- -----------
43,176,578 36,390,023
Accrued interest and other liabilities...................... 408,493 241,028
----------- -----------
43,585,071 36,631,051
Shareholder's equity
Common stock - $10 par value; authorized,
issued and outstanding,
100,000 shares........................................... 1,000,000 1,000,000
Additional paid-in capital.................................. 3,000,000 3,000,000
Accumulated deficit......................................... (206,008) (407,314)
Unrealized gain (loss) on securities available-for-sale,
net of income taxes...................................... 39,930 (2,644)
----------- -----------
3,833,922 3,590,042
----------- -----------
$47,418,993 $40,221,093
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
NORTHWEST COMMUNITY BANK
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest income
Loans, including fees................................. $2,761,346 $2,264,326
Securities, taxable................................... 355,309 261,535
Federal funds sold.................................... 246,801 101,529
---------- ----------
3,363,456 2,627,390
Interest expense
Deposits.............................................. 1,635,083 1,297,346
Other................................................. -- 249
---------- ----------
1,635,083 1,297,595
---------- ----------
NET INTEREST INCOME.................................... 1,728,373 1,329,795
Provision for loan losses.............................. 208,600 163,800
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 1,519,773 1,165,995
Other income
Securities gains, net................................. 32,094 394
Service charges on deposit accounts................... 304,313 133,209
Other income.......................................... 101,192 22,193
---------- ----------
437,599 155,796
Other expense
Salaries and employee benefits........................ 688,918 526,060
Occupancy and equipment expense....................... 278,534 245,261
Other expenses........................................ 687,814 463,464
---------- ----------
1,655,266 1,234,785
---------- ----------
INCOME BEFORE INCOME TAXES............................. 302,106 87,006
Income taxes........................................... 100,800 31,700
---------- ----------
NET INCOME............................................. $ 201,306 $ 55,306
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
NORTHWEST COMMUNITY BANK
STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
COMMON PAID-IN ACCUMULATED AVAILABLE-
STOCK CAPITAL DEFICIT FOR-SALE TOTAL
---------- ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997................. $1,000,000 $3,000,000 $(462,620) $(17,641) $3,519,739
Comprehensive income
Change in unrealized gain (loss) on
securities available-for-sale, net
of $7,725 of income taxes.............. 14,997 14,997
Net income................................ 55,306 55,306
----------
Total comprehensive income............. 70,303
---------- ---------- --------- ------- ----------
Balance at December 31, 1997............... 1,000,000 3,000,000 (407,314) (2,644) 3,590,042
Comprehensive income
Change in unrealized gain (loss) on
securities available-for-sale, net
of $21,933 of income taxes............. 42,574 42,574
Net income................................ 201,306 201,306
----------
Total comprehensive income............. 243,880
---------- ---------- --------- ------- ----------
Balance at December 31, 1998............... $1,000,000 $3,000,000 $(206,008) $39,930 $3,833,922
========== ========== ========= ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
NORTHWEST COMMUNITY BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 201,306 $ 55,306
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation.......................................... 91,671 77,634
Securities gains...................................... (32,094) (394)
Gain on sale of equipment............................. -- (5,353)
Loss on sale of other real estate owned............... 13,229 --
Net premium amortization on securities................ 26,932 9,504
Provision for loan losses............................. 208,600 163,800
Decrease (increase) in accrued interest
and other assets................................... (92,584) 143,584
Increase in accrued interest and other liabilities.... 146,895 35,479
---------- -----------
Net cash provided by operating activities.......... 563,955 479,560
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in federal funds sold................ 1,100,000 (3,900,000)
Proceeds from sales and maturities of
securities available-for-sale.......................... 5,553,594 7,989,533
Purchase of securities available-for-sale................ (8,071,133) (9,028,126)
Net increase in loans.................................... (5,142,736) (8,028,323)
Proceeds from sale of other real estate owned............ 210,000 --
Proceeds from sale of equipment.......................... -- 11,000
Leasehold improvements and equipment expenditures........ (18,540) (69,725)
----------- ------------
Net cash used in investing activities................. (6,368,815) (13,025,641)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits................................. 6,786,555 12,370,472
----------- ------------
Increase (decrease) in cash and cash equivalents.......... 981,695 (175,609)
Cash and cash equivalents at beginning of year............ 1,078,599 1,254,208
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 2,060,294 $ 1,078,599
=========== ============
Supplemental disclosures of cash flow information
Cash paid (received) during the year for
Interest.............................................. $ 1,681,834 $ 1,249,949
Income taxes.......................................... (7,000) 41,500
Schedule of noncash activities
Transfers from loans to other real estate owned....... $ 223,229 $ --
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Northwest Community Bank (the "Bank") is a commercial bank which was organized
under the laws of the state of Illinois on May 3, 1995. The Bank provides
financial services to commercial and retail customers in the northwest suburban
area of Cook County, Illinois. Prior to June 1, 1997, the Bank was a
wholly-owned subsidiary of National Bancorp, Inc. Effective May 31, 1997, the
Bank's shares were sold to one of National Bancorp, Inc.'s shareholders and
other investors as part of a reorganization plan. Subsequent thereto, Village
Bancorp, Inc. was formed and became the Bank's 100% owned parent through a
one-for-one share exchange of common stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accounting policies followed by the Bank and the
methods of applying those policies conform with generally accepted accounting
principles and with general practice 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 income and expenses during the reporting period. Actual
results could differ from those estimates.
Securities: Securities are classified as held-to-maturity when management has
the positive intent and the Bank has the ability to hold those securities to
maturity. They are stated at cost, adjusted for amortization of premiums and
accretion of discounts. All other securities are classified as
available-for-sale because the Bank may decide to sell those securities for
changes in market interest rates, liquidity needs, changes in yields on
alternative investments, and for other reasons. These securities are carried at
fair value. Unrealized gains and losses on securities available-for-sale are
charged or credited to a valuation allowance which is included as a separate
component of shareholder's equity. Realized gains and losses on disposition are
based on the net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method.
Loans: Loans are stated at the principal amount outstanding, net of the
allowance for loan losses. Interest income on loans is reported on the accrual
basis over the term of the loan based on the amount of principal outstanding.
Where there is doubt as to the ability of the debtor to meet the terms of the
loan contract or the loan is not adequately secured, the accrual of interest is
discontinued. Loan fees and direct loan origination costs are deferred and
amortized over the term of the loan as a yield adjustment.
(Continued)
F-27
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The Bank has established an allowance for loan losses
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 may continue and future
recoveries may occur.
The allowance is maintained by management at a level considered to be 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
the 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 earnings in the periods in
which they become known.
Loans considered to be impaired are reduced to the present value of expected
cash flows or to the fair value of the collateral by allocating a portion of the
allowance for loan losses to such loans. Interest payments on impaired loans are
generally applied to principal, unless the loan principal is considered to be
fully collectible, in which case interest is recognized on the cash basis.
Leasehold Improvements and Equipment: Leasehold improvements and equipment are
stated at cost, less accumulated depreciation and amortization. Provisions for
depreciation and amortization are computed on the straight-line method over the
estimated service lives of the related assets. The cost of maintenance and
repairs is charged to income as incurred; significant repairs are capitalized.
Income Taxes: Income taxes are provided in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes." SFAS No. 109 generally provides that deferred tax assets and liabilities
are recognized for temporary differences between the financial reporting basis
and the tax basis of the Bank's assets and liabilities and expected benefits of
operating loss carryforwards and tax credit carryforwards. Deferred taxes are
recognized for the estimated taxes ultimately payable or recoverable based on
enacted tax laws. Changes in enacted tax rates or laws will be reflected in the
financial statements in the periods they occur.
Comprehensive Income: Under recently enacted Statement of Financial Accounting
Standards No. 130, comprehensive income is required to be reported for all
periods. Comprehensive income includes both net income and other comprehensive
income. Other comprehensive income includes, among other components, the change
in unrealized gains and losses on securities available-for-sale.
(Continued)
F-28
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents: For purposes of reporting cash flows, the Bank considers
amounts due from banks to be cash equivalents.
NOTE 3 -- SECURITIES
The amortized cost and fair value of debt securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
U.S. Treasury securities.................... $3,036,041 $22,084 $ -- $3,058,125
U.S. government agencies securities......... 5,019,573 38,416 -- 5,057,989
---------- ------- -------- ----------
$8,055,614 $60,500 $ -- $8,116,114
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
U.S. Treasury securities.................... $5,027,804 $2,275 $(8,204) $5,021,875
U.S. government agencies securities......... 505,109 1,922 -- 507,031
---------- ------ ------- ----------
$5,532,913 $4,197 $(8,204) $5,528,906
========== ====== ======= ==========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalty.
AMORTIZED FAIR
COST VALUE
---------- ----------
SECURITIES AVAILABLE-FOR-SALE
- -----------------------------
Due after one year through five years....... $8,055,614 $8,116,114
========== ==========
(Continued)
F-29
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- SECURITIES (Continued)
Proceeds from sales of securities available-for-sale and the gross realized
gains and losses on such sales for the years ended December 31, 1998 and 1997
were as follows:
1998 1997
---- ----
Proceeds from sales.......................... $5,053,594 $7,989,533
Gross realized gains......................... 32,094 20,904
Gross realized losses........................ -- (20,510)
Securities with a carrying value of approximately $1,031,000 and $507,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes as required or permitted by law.
NOTE 4 -- LOANS
Major classifications of loans as of December 31, 1998 and 1997, are summarized
as follows:
1998 1997
---- ----
Commercial loans............................. $ 6,997,527 $ 6,060,311
Commercial real estate loans................. 10,322,984 8,255,143
Real estate mortgage loans................... 12,536,156 11,070,948
Installment loans............................ 2,506,272 2,115,806
----------- -----------
Total loans................................. $32,362,939 $27,502,208
=========== ===========
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1998
and 1997 were as follows:
1998 1997
---- ----
Balance, beginning of year................... $275,740 $196,000
Provision for loan losses.................... 208,600 163,800
Loans charged off............................ (58,776) (84,060)
-------- --------
Balance, end of year........................ $425,564 $275,740
======== ========
(Continued)
F-30
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES (Continued)
The balance of impaired loans at December 31, 1998 and 1997 was $30,931 and
$239,495, respectively, which includes non-accrual loans of approximately the
same amount. There were no specific allocations of the allowance for loan losses
for these loans at December 31, 1998 and 1997. The average balance of impaired
loans was $138,905 and $227,737 for the years ended December 31, 1998 and 1997,
respectively. Interest income of $3,330 and $0 was recognized on impaired loans
on the cash basis for the years ended December 31, 1998 and 1997.
NOTE 6 -- LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment as of December 31, 1998 and 1997 are
summarized as follows:
1998 1997
---- ----
Leasehold improvements....................... $ 86,479 $ 86,479
Furniture and equipment...................... 443,623 430,137
-------- --------
530,102 516,616
Accumulated depreciation and
amortization................................ 271,854 185,237
-------- --------
$258,248 $331,379
======== ========
NOTE 7 -- INCOME TAXES
The provision for income taxes, included in the statements of operations for the
years ended December 31, 1998 and 1997 consists of the following:
1998 1997
---- ----
Currently payable............................ $159,891 $ 60,405
Deferred..................................... (59,091) (28,705)
-------- --------
$100,800 $ 31,700
======== ========
The difference between the provision for income taxes shown in the statements of
operations and amounts computed by applying the statutory federal income tax
rate of 34% to income before income taxes is as follows:
1998 1997
---- ----
Income taxes computed at the statutory rate.. $102,716 $29,582
Permanent differences........................ (1,916) 2,118
-------- -------
$100,800 $31,700
======== =======
(Continued)
F-31
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- INCOME TAXES (Continued)
Deferred income tax assets and liabilities consisted of the following at
December 31, 1998 and 1997:
1998 1997
---- ----
Gross deferred tax assets
Allowance for loan losses................... $140,107 $ 72,025
Unrealized loss on securities
available-for-sale....................... -- 1,363
Other.................................... 3,014 4,447
-------- --------
143,121 77,835
Gross deferred tax liabilities
Depreciation................................ (35,031) (27,473)
Unrealized gain on securities
available-for-sale....................... (20,570) --
-------- --------
(55,601) (27,473)
-------- --------
Net deferred tax asset................... $ 87,520 $ 50,362
======== ========
The Bank's 1998 taxable income is included in the 1998 consolidated income tax
return of its parent, computed as though the Bank filed a separate return. The
Bank's 1997 taxable income is included in the consolidated income tax return of
its parent for the period June 1, 1997 through December 31, 1997, computed as
though the Bank filed a separate return. At December 31, 1998 and 1997, the Bank
had a tax transfer payable to its parent in the amount of $157,454 and $32,100,
respectively.
For years prior to June 1, 1997, the Bank's taxable income (loss) was included
in the consolidated income tax return of National Bancorp, Inc., the former
parent. The Bank's provision for income taxes was computed as though it filed a
separate return. Amounts currently payable or refundable represent transactions
between the Bank and its parent.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, Village Bancorp, Inc. established a 401(k) SIMPLE
salary deferral plan covering substantially all Bank employees. Eligible
employees may elect to make tax deferred contributions within a specified range
of their compensation as defined in the plan. The Bank contributed an amount
equal to the employee's contribution up to 3% of the employee's compensation.
Contributions to the plan were $9,272 for the year ended December 31, 1998.
(Continued)
F-32
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 9 -- RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Bank, their families, and
companies in which they are principal owners, are loan customers of the Bank.
A summary of loans made by the Bank in the ordinary course of business to or for
the benefit of executive officers, directors, and their related interests is as
follows:
Balance at January 1, 1998.................... $1,119,000
New loans..................................... 444,000
Repayments.................................... (539,000)
----------
Balance at December 31, 1998.................. $1,024,000
==========
NOTE 10 -- LEASES
At December 31, 1998, the Bank was obligated under two noncancelable operating
leases for its operating facility which expire in 2002. One lease provides for
annual rentals of $45,120 while the other lease provides for increased rents
annually at a rate of 4% over the prior year base amount plus executory costs
such as maintenance, insurance, and real estate taxes. The leases contain one
five-year renewal option.
Minimum rental payments required under the above operating leases subsequent to
December 31, 1998 are as follows:
YEAR AMOUNT
---- ------
1999 $ 92,382
2000 94,273
2001 96,239
2002 65,798
--------
$348,692
========
Rental expense under all operating leases was $115,034 and $107,734 for the
years ended December 31, 1998 and 1997, respectively.
NOTE 11 -- REGULATORY MATTERS
The Bank is subject to various capital requirements administered by the federal
banking agencies. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
(Continued)
F-33
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 11 -- REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require banks and holding companies to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and Tier I capital to average
assets. If banks do not meet these minimum capital requirements, as defined,
bank regulators can initiate certain actions that could have a direct material
effect on a bank's financial statements. Management believes, as of December 31,
1998, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1998, the most recent notification received from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since this notification that management believes have changed the
institution's category. To be categorized as well capitalized, banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table below.
The actual capital amounts and ratios as of December 31, 1998 for the Bank are
presented in the following table:
<TABLE>
<CAPTION>
TO BE TO BE WELL CAPITALIZED
(DOLLARS IN THOUSANDS) ADEQUATELY UNDER PROMPT CORRECTIVE
ACTUAL CAPITALIZED ACTION PROVISIONS
----------------- ----------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)....... $4,055 12.0% $2,705 8.0% $3,388 10.0%
Tier I capital (to risk-weighted assets)...... $3,646 10.8% $1,352 4.0% $2,033 6.0%
Tier I capital (to average assets)............ $3,646 8.0% $1,823 4.0% $2,279 5.0%
</TABLE>
NOTE 12 -- TIME DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 and over as
of December 31, 1998 and 1997 approximated $5,570,000 and $6,753,000,
respectively. Interest expense related to deposits in denominations of $100,000
and over approximated $318,000 in 1998 and $284,000 in 1997.
(Continued)
F-34
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 12 -- TIME DEPOSITS (Continued)
At December 31, 1998, scheduled maturities of certificates of deposit were as
follows:
1999 $16,583,589
2000 2,523,683
2001 774,787
2002 684,599
-----------
$20,566,658
===========
NOTE 13 -- OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit, and unused lines of credit. 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 the payment of fees. Standby
letters of credit and financial guarantees written are conditional commitments
issued by the banks to guarantee the performance of a customer to a third party.
Credit risk is the principal risk associated with these instruments. The
contractual amounts of these instruments represent the credit risk should the
instrument be fully drawn upon and the customer fail completely to perform as
contracted. In order to control the credit risk associated with entering into
commitments and issuing letters of credit, the Bank subjects such activity to
the same credit quality and monitoring controls as its lending activities. The
contractual amounts of these credit-related instruments are summarized in the
following table by category of instrument. Because many of these instruments
expire without being drawn upon in whole or in part, the amounts do not
necessarily represent future cash requirements.
CONTRACT AMOUNT
-------------------------
1998 1997
---------- ----------
Financial instruments whose contract amounts
represent credit risk
Unused lines of credit....................... $6,924,927 $6,359,467
Standby letters of credit.................... 418,462 369,271
Commitments to extend credit................. 1,816,000 1,333,900
Financial instruments which potentially subject the Bank to concentrations of
credit risk consist principally of loans to local businesses, municipalities,
and consumers in the northwest suburban area of Cook County, Illinois;
securities; correspondent bank accounts; and federal funds sold.
(Continued)
F-35
<PAGE>
NORTHWEST COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 14 -- COMPREHENSIVE INCOME
Changes in the components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized holding gains during the year...... $96,600 $23,117
Less income taxes............................. 32,844 7,860
------- -------
63,756 15,257
Reclassification adjustments for
gains realized in net income............... 32,094 394
Less income taxes............................. 10,912 134
------- -------
21,182 260
------- -------
Effect on other comprehensive income.......... $42,574 $14,997
======= =======
</TABLE>
F-36
<PAGE>
[LOGO]
454,000 SHARES (MINIMUM)
554,000 SHARES (MAXIMUM)
VILLAGE BANCORP, INC.
COMMON STOCK
PROSPECTUS
_______________
________ __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of
Delaware (being Chapter 1 of Title 8 of the Delaware Code), Articles Eighth and
Thirteenth of the Registrant's Certificate of Incorporation provides as follows:
EIGHTH. The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify all persons who it may indemnify pursuant thereto.
THIRTEENTH. No director of the corporation shall be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
In addition, Article VIII of the Registrant's By-laws provides as
follows:
The Corporation shall indemnify, to the full extent that it shall have
the power under the Delaware General Corporation Law to do so and in a manner
permitted by such law, any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against liabilities and expenses reasonably incurred or paid by such
person in connection with such action, suit or proceeding. the words
"liabilities" and "expenses" shall include, without limitations: liabilities,
losses, damages, judgments, fines, penalties, amounts paid in settlement,
expenses, attorneys' fees and costs. Expenses incurred in defending a civil,
criminal, administrative, investigative or other action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding in accordance with the provisions of Section 145 of the
Delaware General Corporation Law, as amended.
The indemnification and advancement of expenses provided by this
By-law shall not be deemed exclusive of any other rights to which any person
indemnified may be entitled under any by-law, statue, agreement, vote of
stockholders, or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any
person referred to in the preceding paragraph against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this By-law or otherwise.
For purposes of this By-law, reference to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation, as director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this By-law with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
II-1
<PAGE>
The provisions of this By-law shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while this By-law and the relevant provisions of the
Delaware General Corporation Law, as amended, or other applicable law, if any,
are in effect, and any repeal or modification of such law or of this By-law
shall not affect any rights or obligations then existing with respect to any
state of facts the or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
such state of facts.
For purposes of this By-law, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include an excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be the best interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as set
forth in the following table. All amounts except the SEC registration fee and
Nasdaq filing fee are estimated.
SEC Registration Fee........................ $ 2,041
Printing and Engraving Expenses............. 5,000
Accounting Fees and Expenses................ 8,000
Legal Fees and Expenses..................... 75,000
Blue Sky Fees and Expenses.................. 10,000
Miscellaneous............................... 9,959
--------
Total ......................... $110,000
========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On December 1, 1997, the Registrant issued 100,000 shares of common
stock in exchange for 100,000 shares of common stock of Northwest Community
Bank. The share exchange was exempt from registration under Section 4(2) of the
Securities Act.
From December 1997 through March 1998, the Registrant issued $1.8
million aggregate principal amount of mandatorily convertible subordinated
debentures at par pursuant to Section 4(2) of the Securities Act.
On September 30, 1998, the Registrant issued 488,000 shares of common
stock at a purchase price of $12.50 per share. The shares were exempt from
registration under Section 3(a)(11) of the Securities Act and Rule 147
thereunder.
On April 8, 1999, the Registrant was reincorporated in Delaware. The
reincorporation was exempt under Rule 145.
ITEM 27. EXHIBITS
3.1 Certificate of Incorporation.
3.2 By-Laws.
4.1 Specimen Common Stock Certificate.
4.2 Series One $1.8 million 6% Mandatorily Convertible Subordinated
Debenture Purchase Agreement.
II-2
<PAGE>
4.3 Form of Series One 6% Mandatorily Convertible Subordinated
Debenture (included as exhibit A to Exhibit 4.2).
5.1 Opinion of Vedder, Price, Kaufman & Kammholz.
10.1 1998 Omnibus Stock Incentive Plan.
10.2 Lease dated February 6, 1981, as amended, and subleases relating
to the Prospect Heights facility.
10.3 Lease dated October 7, 1991, as amended, and subleases relating
to the Prospect Heights facility.
10.4 Branch Facility Lease dated October 27, 1998 relating to the Lake
Zurich branch of Village Bank North Barrington.
10.5 Non-Competition Agreement dated May 31, 1997 by and between
Thomas H. Roth and Popular, Inc., formerly known as BancPonce
Corporation.
10.6 Non-Competition Agreement dated May 31, 1997 by and between
Northwest Community Bank and Popular, Inc., formerly known as
BancPonce Corporation.
10.7 Form of Escrow Agreement between Village Bancorp, Inc. and
LaSalle National Bank, Chicago, Illinois.
21.1 Subsidiaries.
23.1 Consent of Vedder, Price, Kaufman & Kammholz (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of Crowe, Chizek and Company LLP.
24.1 Power of Attorney (included on signature page hereto).
27.1 Financial Data Schedule.
99.1 Form of Subscription Agreement.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a)(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
II-3
<PAGE>
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorize this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Prospect Heights, State of Illinois on the 28th day of
April, 1999.
VILLAGE BANCORP, INC.
By: /s/ Thomas H. Roth,
-------------------------------
Thomas H. Roth
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas H. Roth or Elizabeth A. Chartier
or either of them, his true and lawful attorney-in-fact and agents, with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming said attorneys-in-fact and agents or
their substitutes may lawfully do ro cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas H. Roth Chairman of the Board April 28, 1999
- --------------------------------------------------------- (principal executive officer)
Thomas H. Roth
/s/ Gerald F. Hartley Director and President April 28, 1999
- ---------------------------------------------------------
Gerald F. Hartley
/s/ John A. Reck Director April 28, 1999
- ---------------------------------------------------------
John A. Reck
/s/ Ronald L. Spiekhout Director April 28, 1999
- ---------------------------------------------------------
Ronald L. Spiekhout
/s/ Michael A. Speziale Director April 28, 1999
- ---------------------------------------------------------
Michael A. Speziale
/s/ Kevin R. Hitzeman Director April 28, 1999
- ---------------------------------------------------------
Kevin R. Hitzeman
/s/ Rosario Ippolito Director April 28, 1999
- ---------------------------------------------------------
Rosario Ippolito
/s/ Richard P. Nevins Director April 28, 1999
- ---------------------------------------------------------
Richard P. Nevins
/s/ Elizabeth A. Chartier Vice President and Controller April 28, 1999
- --------------------------------------------------------- (principal financial officer
Elizabeth A. Chartier and controller)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
3.1 Certificate of Incorporation.
3.2 By-Laws.
4.1 Specimen Common Stock Certificate.
4.2 Series One $1.8 million 6% Mandatorily Convertible Subordinated
Debenture Purchase Agreement.
4.3 Form of Series One 6% Mandatorily Convertible Subordinated
Debenture (included as exhibit A to Exhibit 4.2).
5.1 Opinion of Vedder, Price, Kaufman & Kammholz.
10.1 1998 Omnibus Stock Incentive Plan.
10.2 Lease dated February 6, 1981, as amended, and subleases relating
to the Prospect Heights facility.
10.3 Lease dated October 7, 1991, as amended, and subleases relating
to the Prospect Heights facility.
10.4 Branch Facility Lease dated October 27, 1998 relating to the Lake
Zurich branch of Village Bank North Barrington.
10.5 Non-Competition Agreement dated May 31, 1997 by and between
Thomas H. Roth and Popular, Inc., formerly known as BancPonce
Corporation.
10.6 Non-Competition Agreement dated May 31, 1997 by and between
Northwest Community Bank and Popular, Inc., formerly known as
BancPonce Corporation.
10.7 Form of Escrow Agreement between Village Bancorp, Inc. and
LaSalle National Bank, Chicago, Illinois.
21.1 Subsidiaries.
23.1 Consent of Vedder, Price, Kaufman & Kammholz (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of Crowe, Chizek and Company LLP.
24.1 Power of Attorney (included on signature page hereto).
27.1 Financial Data Schedule.
99.1 Form of Subscription Agreement.
II-6
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
VILLAGE BANCORP, INC.
FIRST. The name of the corporation is Village Bancorp, Inc.
SECOND. The address of the corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, 19801, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The nature of business to be conducted or promoted and the
purpose of the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH. The total number of shares of stock which the corporation
shall have authority to issue is five million five hundred thousand (5,500,000),
divided into two classes as follows: five million (5,000,000) of which shall be
common stock, $0.01 par value per share ("Common Stock"), and five hundred
thousand (500,000) of which shall be preferred stock, $0.01 par value per share
("Preferred Stock").
The designations, powers, references and rights, and the
qualifications, limitations or restrictions of the above classes of stock are as
follows:
A. CLASS I: PREFERRED STOCK
------------------------
1. The Board of Directors is expressly authorized at any time, and
from time to time, to issue shares of Preferred Stock in one or more series, and
for such consideration as the Board of Directors may determine, with such voting
powers, full or limited but not to exceed one vote per share, or without voting
powers, and with such designations, preferences and relative, participating,
option or other special rights, and qualifications, limitations or restrictions
thereof, as shall be stated in the resolution or resolutions providing for the
issue thereof, and as are not stated in this Certificate of Incorporation, or
any amendment thereto. All shares of any one series shall be of equal rank and
identical in all respects.
2. No dividend shall be paid or declared on any particular series of
Preferred Stock unless dividends shall be paid or declared pro rata on all
shares of Preferred Stock at the time outstanding of each other series which
ranks equally as to dividends with such particular series.
3. Unless and except to the extent otherwise required by law or
provided in the resolution or resolutions of the Board of Directors creating any
series of Preferred Stock pursuant to this Class I, the holders of the Preferred
Stock shall have no voting power with respect to any matter whatsoever. In no
event shall the Preferred Stock be entitled to more than one vote in respect of
each share of stock. Subject to the protective conditions or restrictions of any
outstanding series
<PAGE>
of Preferred Stock, any amendment to this Certificate of Incorporation which
shall increase or decrease the authorized capital stock of any class or classes
may be adopted by the affirmative vote of the holders of a majority of the
outstanding shares of voting stock of the Corporation.
4. Shares of Preferred Stock redeemed, converted, exchanged,
purchased, retired or surrendered to the corporation, or which have been issued
and reacquired in any manner, shall, upon compliance with any applicable
provisions of the General Corporation Law of the State of Delaware have the
status of authorized and unissued shares of Preferred Stock and may be reissued
by the Board of Directors as part of the series of which they were originally a
part or may be reclassified into and reissued as part of a new series or as part
of any other series, all subject to the protective conditions or restrictions of
any outstanding series of Preferred Stock.
B. CLASS II: COMMON STOCK
----------------------
1. Subject to preferential dividend rights, if any, applicable to
shares of the Preferred Stock and subject to the applicable requirements, if
any, with respect to the setting aside of sums for purchase, retirement or
sinking funds for the Preferred Stock, the holder of the Common Stock shall be
entitled to receive to the extent permitted by law, such dividends as may be
declared from time to time by the Board of Directors.
2. In the event of the voluntary or involuntary liquidation,
dissolution, distribution of assets or winding up of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of the Common Stock shall
be entitled to receive all the remaining assets of the Corporation of whatever
kind available for distribution to stockholders ratably in proportion to the
number of shares of Common Stock held by them respectively.
3. Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of the Common Stock shall have one vote in respect of
each share of stock held by him or her of record on the books of the corporation
on all matters voted upon by the stockholders.
C. VOTING REQUIREMENTS
-------------------
In addition to any affirmative vote required by law or this
Certificate of Incorporation: (a) the authorization of any share exchange,
merger or consolidation of the Corporation or any of its subsidiaries with any
other corporation; (b) the authorization of any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of all, or substantially all, assets or
property of the Corporation; (c) the issuance or transfer by the Corporation or
any of its subsidiaries of all, or substantially all, securities of the
Corporation or any of its subsidiaries to any purchaser in exchange for cash,
securities or other property (or a combination thereof) except pursuant to an
employee benefit plan of the Corporation or one of its subsidiaries; (d) the
adoption of any plan or proposal for the liquidation or dissolution of the
Corporation other than as may be proposed by the Board of Directors; or (e) any
reclassification of securities (including any reverse stock split) or
recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its subsidiaries or other transaction which has the
effect, directly or indirectly, of increasing the
2
<PAGE>
proportionate share of the outstanding shares of any class or series of equity
or convertible securities of the Corporation or any subsidiary of the
Corporation, shall require the affirmative vote of the holders of at least
662/3% of the voting power of all of the outstanding shares of each class of
stock. However, if the stockholders of the Corporation receive no cash or other
consideration with respect to one of the above-listed transactions, then the
required vote of the stockholders shall be as required by law. Such affirmative
votes shall be required notwithstanding that any other provisions of this
Certificate of Incorporation, or any provision of law, or any other agreement
might otherwise permit a lesser vote or no vote.
FIFTH. The name and mailing address of the incorporator is as follows:
Steven J. Gray
Vedder, Price, Kaufman and Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60601
SIXTH. The number of directors of the corporation shall be fixed from
time to time by the By-Laws of the corporation. Election of directors need not
be by written ballot unless the By-Laws so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the corporation.
SEVENTH. In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is expressly
authorized and empowered, in the manner provided in the By-Laws of the
corporation, to make, alter, amend and repeal the By-laws of the corporation in
any respect not inconsistent with the laws of the State of Delaware or with the
Certificate of Incorporation.
In addition to the powers and authorities hereinbefore or by the
statute expressly conferred upon it, the Board of Directors may exercise all
such powers and do all such acts as may be exercised or done by the corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
this Certificate of Incorporation and the By-Laws of the corporation.
Any contract, transaction or act of the corporation or of the
directors or of any committee which shall be ratified by the holders of a
majority of the shares of stock of the corporation present in person or by proxy
and voting any annual meeting, or at any special meeting called for such
purpose, shall, insofar as permitted by law or by this Certificate of
Incorporation, be as valid and as binding as though ratified by every
stockholder of the corporation.
EIGHTH. The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify all persons who it may indemnify pursuant thereto.
3
<PAGE>
NINTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH. Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
ELEVENTH. Any action required by the laws of the State of Delaware,
this Certificate of Incorporation or the By-Laws of the corporation to be taken
at any annual or special meeting of the stockholders of the corporation, or any
action which may be taken at any annual or special meeting of the stockholders
must be effected at such a meeting, and the power of stockholders of the
corporation to consent in writing, without such a meeting, to taking any action
is specifically denied.
TWELFTH. A director of the corporation shall not in the absence of
fraud be disqualified by his office from dealing or contracting with the
corporation either as a vendor, purchaser or otherwise nor in the absence of
fraud shall a director of the corporation be liable to account to the
corporation for any profit realized by him from or through any transaction or
contract of the corporation by reason of the fact that he, or any firm of which
he is a member, or any corporation of which is an officer, director or
stockholder, was interested in such transaction or contract if such transaction
or contract has been authorized, approved or ratified in the manner provided in
the General Corporation Law of Delaware for authorization, approval or
ratification or transactions or contracts between the corporation and one or
more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest.
THIRTEENTH. No director of the corporation shall be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
4
<PAGE>
FOURTEENTH. Notwithstanding any other provision of this Certificate of
Incorporation or the By-laws of the corporation to the contrary and
notwithstanding that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least 662/3% of the voting power of the
outstanding shares of all classes of stock of the Corporation, voting together
as a single class, shall be required to amend or repeal, or adopt any provision
inconsistent with Paragraph C ("Voting Requirements") of Section Fourth, Section
Eleventh or Section Fourteenth of this Certificate of Incorporation.
The undersigned incorporator, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, has signed
this Certificate this 4th day of March, 1999.
/s/ Steven J. Gray
------------------------------------
Steven J. Gray
5
Exhibit 3.2
BYLAWS
------
OF
--
VILLAGE BANCORP, INC.
---------------------
ARTICLE I
---------
OFFICES OF REGISTERED AGENT
---------------------------
Section 1.1 Registered Office and Agent. The Corporation shall have
and maintain a registered office in Delaware and a registered agent having a
business office identical with such registered office.
Section 1.2 Other Offices. The Corporation may also have such other
office or offices in Delaware or elsewhere as the Board of Directors may
determine or as the business of the Corporation may require.
ARTICLE II
----------
STOCKHOLDERS
------------
Section 2.1 Annual Meeting. An annual meeting of the stockholders
shall be held on the third Friday in April of each year or in the event the
annual meeting is not held on such date and at such time, then on the date and
at the time designated by the Board of Directors, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If the directors
shall not be elected at the annual meeting, or at any adjournment thereof, the
Board of Directors shall cause the election to be held as soon thereafter as may
be convenient.
Section 2.2 Special Meetings. Special meetings of the stockholders may
be called at any time by the President for the purpose or purposes stated in the
call of the meeting.
Section 2.3 Place of Meeting. Annual meetings of stockholders shall be
held at such time and place as may be determined by the Board of Directors and
designated in the call and notice or waiver of notice of such meeting; provided,
that a waiver of notice signed by all stockholders may designate any time or
place as the time and place for the holding of such meeting. If no designation
<PAGE>
is made, or if a special meeting be called, the place of meeting shall be at the
Corporation's principal place of business.
Section 2.4 Notice of Meeting. Written notice stating the place, date
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, or, in the case of a
merger, consolidation or sale, lease or exchange of all or substantially all of
the Corporation's property and assets, at least twenty days before the date of
the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, the Secretary or the persons calling the
meeting to each stockholder of record entitled to vote at such meeting. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken.
Section 2.5 Fixing Record Date for Determination of Stockholders. For
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date to be not more than
sixty days prior to the date of a meeting of stockholders, the date of payment
of a dividend or the date on which other action requiring determination of
stockholders is to be taken, as the case may be. In addition, the record date
for a meeting of stockholders shall not be less than ten days, or in the case of
a merger, consolidation or sale, lease or exchange of all or substantially all
of the Corporation's property and assets, not less than twenty days immediately
preceding such meeting. When a determination of stockholders entitled to vote at
any meeting of stockholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting. If
no record date is fixed for the determination of stockholders entitled to notice
of or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, shall be the record date for such determination
of stockholders.
Section 2.6 List of Stockholders Entitled to Vote. The officer or
agent who has charge of the stock ledger of the Corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, at any
time during usual business hours for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
2
<PAGE>
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of the stockholders, the corporate books, or
to vote at any meeting of the stockholders.
Section 2.7 Quorum and Manner of Acting. Unless otherwise provided by
the Certificate of Incorporation or these By-laws, a majority of the outstanding
shares of the Corporation, entitled to vote on a matter present in person or
represented by proxy, shall constitute a quorum for consideration of such
matter, at any meeting of stockholders; provided, that if less than a majority
of the outstanding shares entitled to vote on a matter are present in person or
represented by proxy at said meeting, a majority of the shares so present in
person or represented by proxy may adjourn the meeting from time to time without
further notice other than announcement at the meeting at which the adjournment
is taken of the time and place of the adjourned meeting. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. If a quorum is present, the affirmative
vote of the majority of the shares present in person or represented by proxy at
the meeting and entitled to vote shall be the act of the stockholders, unless
the vote of a greater number or voting by classes is required by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these By-laws.
Section 2.8 Voting Shares and Proxies. Each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder,
except as otherwise provided in the Certificate of Incorporation. Each
stockholder entitled to vote shall be entitled to vote in person, or may
authorize another person or persons to act for him by proxy executed in writing
by such stockholder or by his duly authorized attorney-in-fact, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 2.9 Inspectors. At any meeting of stockholders, the chairman
of the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting, based upon the list of
stockholders produced at the meeting in accordance with Section 2.6 hereof and
upon their determination of the validity and effect of proxies, and they shall
count all votes, report the results and do such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders. Each such report shall be in writing and signed by at least a
majority of the inspectors, the report of a majority being the report of the
inspectors, and such reports shall be prima facie evidence of the number of
shares represented at the meeting and the result of a vote of the stockholders.
Section 2.10 Voting of Shares by Certain Holders. Shares of its own
stock belonging to the Corporation, unless held by it in a fiduciary capacity,
shall not be voted, directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any given time.
Shares standing in the name of another corporation, domestic or foreign, may be
voted by such officer, agent or proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine. Persons holding stock in a fiduciary capacity
shall be entitled to vote the shares so held. Persons whose stock is pledged
shall
3
<PAGE>
be entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Any
number of stockholders may create an agreement for the purpose of conferring
upon a trustee or trustees the right to vote or otherwise represent their
shares, for any period of time determined by such agreement, by entering into a
written agreement specifying the terms and conditions of the agreement, and by
transferring their shares to such trustee or trustees for the purpose of the
agreement. Any such agreement shall not become effective until a counterpart of
the agreement is deposited with the Corporation at its registered office. The
counterpart of the agreement so deposited with the Corporation shall be subject
to the same right of examination by a stockholder of the Corporation, in person
or by agent or attorney, as are the books and records of the Corporation, and
shall be subject to examination by any beneficiary of the trust under the
agreement, either in person or by agent or attorney, at any reasonable time for
any proper purpose.
Section 2.11 Action by Stockholders. Any action required to be taken
or which may be taken at a meeting of stockholders must be effected at a duly
called annual or special meeting of the stockholders of the Corporation, and the
power of stockholders to consent in writing, without a meeting, to the taking of
any action is specifically denied.
Section 2.12 Notice of Stockholder Business. At an annual meeting of
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before the annual meeting of
stockholders, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (b) otherwise
properly brought before the meeting by or at the direction of the Board, or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting of the stockholders, the
stockholder must have the legal right and authority to make the proposal for
consideration at the meeting and the stockholder must have given timely notice
thereof in writing to the President of the Corporation. To be timely, a
stockholder's written notice of intent to make a proposal or proposals must be
personally delivered to or mailed by United States mail, postage prepaid and
received by the President of the Corporation at the principal executive offices
of the Corporation not less than 120 days prior to the meeting; provided
however, that in the event not less than 130 days notice or prior public
disclosure of the date of the meeting is given or made to stockholders (which
notice or public disclosure shall include the date of the annual meeting
specified in these By-laws, if such By-laws have been filed with the Securities
and Exchange Commission and if the Annual Meeting is held on such date), notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the day of the
annual meeting was mailed or such public disclosure was made. A stockholder's
notice to the President shall set forth as to each item of business the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the meeting, and in the case of a
nomination for election of director, such nominee's name and qualifications, and
the reasons for conducting business at the meeting, (b) the name and the record
address of the stockholder or stockholders proposing such business, (c) the
number of shares of stock of the Corporation which are beneficially owned by
such stockholder or stockholders, and (d) any material interest of the
stockholder in such business. The chairman of the meeting may refuse to
acknowledge the proposal of any stockholder not made in compliance with this
Section 2.12. Notwithstanding anything in these By-laws to the contrary, no
business shall be
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brought before or conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.12.
ARTICLE III
-----------
DIRECTORS
---------
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors, except as may be
otherwise provided by statute or the Certificate of Incorporation.
Section 3.2 Number, Tenure and Qualifications. The number of directors
shall be designated from time to time by the Board of Directors, and such number
may be fixed or changed from time to time by the Board of Directors or the
shareholders without further amendment to these By-laws. Unless and until said
number of directors is fixed or changed by a resolution duly adopted by the
Board of Directors or the shareholders, the number shall be the same as the
number fixed in the Certificate of Incorporation or at the organizational
meeting, as the case may be. No decrease in the number of directors shall have
the effect of removing any director from office prior to the expiration of his
term, but the number of directors may be decreased in conjunction with the
removal of a director in accordance with applicable law. Directors need not be
stockholders or residents of Delaware. Each director shall be elected to hold
office until the next annual meeting of stockholders or until his successor
shall have been elected and qualified.
The directors shall be divided into three (3) classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 2000 annual meeting of stockholders, the term of office of the second class
to expire at the 2001 annual meeting of stockholders and the third class
expiring at the 2002 annual meeting of stockholders. At each annual meeting of
stockholders following such initial classification, directors elected by the
stockholders to succeed those directors whose term expires shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held, without other notice than this Section, immediately
after and at the same place as the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without Delaware, for the holding of additional regular meetings without other
notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the President
or any one or more directors. The person or persons who call a special meeting
of the Board of Directors may designate any place, either within or without
Delaware, as the place for holding such special meeting. In the absence of such
a designation the place of meeting shall be the Corporation's principal place of
business.
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Section 3.5 Notice of Special Meetings. Notice stating the place, date
and hour of a special meeting shall be mailed not less than five days before the
date of the meeting, or shall be sent by telegram or be delivered personally or
by telephone not less than two days before the date of the meeting, to each
director, by or at the direction of the person or persons calling the meeting.
If mailed, such notice shall be deemed to be delivered when deposited with the
United States Postal Services so addressed, with postage thereon prepaid. If
notice is to be given by telegram, such notice shall be deemed to be delivered
when the telegram is delivered to the telegraph company. Attendance of a
director at any meeting shall constitute a waiver of notice of such meeting
except where a director attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at nor the purpose of any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 3.6 Quorum and Manner of Acting. A majority of the number of
directors as fixed in Section 3.2 hereof shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors; provided, that
if less than a majority of such number of directors are present at said meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless otherwise provided in the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these By-laws.
Section 3.7 Informal Action by Directors. Any action which is required
by law or by these By-laws to be taken at a meeting of the Board of Directors,
or any other action which may be taken at a meeting of the Board of Directors or
any committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action to be taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof, or by all the
members of such committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote of all of the directors or all of the
members of such committee, as the case may be, at a duly called meeting thereof,
and shall be filed with the minutes of proceedings of the Board or committee.
Section 3.8 Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of Directors
or of any committee designated by such Board, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence at such meeting.
Section 3.9 Resignations. Any director may resign at any time by
giving written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Such resignation shall take effect at the time
specified therein; and, unless tendered to take effect upon acceptance thereof,
the acceptance of such resignation shall not be necessary to make it effective.
Section 3.10 Vacancies and Newly-Created Directorships. Vacancies and
newly-created directorships resulting from any increase in the authorized number
of directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors
6
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then in office, although less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office until the next election of the
class for which such director shall have been chosen and until their successors
are elected and qualified or until their earlier resignation or removal.
Section 3.11 Removal. Any director or the entire Board of Directors
may be removed with cause by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 3.12 Interested Directors.
(a) No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 3.13 Director Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expense, if any, of attendance at each of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
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ARTICLE IV
----------
COMMITTEES
----------
Section 4.1 Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation which, to the extent provided in said resolution or in these
By-laws, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation (except that any such
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of such shares of stock adopted by the Board of
Directors, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation thereof, or amending the By-laws;
and, unless the resolution, By-laws or Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law.
Section 4.2 Absence or Disqualification of Committee Member. In the
absence or disqualification of any member of such committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 4.3 Record of Proceedings. The committees shall keep regular
minutes of their proceedings and when required by the Board of Directors shall
report the same to the Board of Directors.
ARTICLE V
---------
OFFICERS
--------
Section 5.1 Number and Titles. The officers of the Corporation shall
be a Chairman of the Board, a President, a treasurer, a secretary, and if
desired, any number of vice presidents, assistant treasurers, assistant
secretaries, or other officers as may be elected by the Board of Directors. Any
two or more offices may be held by the same person.
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Section 5.2 Election, Term of Office and Qualifications. The officers
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after the annual meeting of stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as may be convenient. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each officer shall
be elected to hold office until his successor shall have been elected and
qualified, or until his earlier death, resignation or removal. Election of an
officer shall not of itself create contract rights.
Section 5.3 Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 5.4 Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Such
resignation shall take effect at the time specified therein; and, unless
tendered to take effect upon acceptance thereof, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5.5 Duties. In addition to and to the extent not inconsistent
with the provisions in these By-laws, the officers shall have such authority, be
subject to such restrictions and perform such duties in the management of the
business, property and affairs of the Corporation as may be determined from time
to time by the Board of Directors.
Section 5.6 Chairman of the Board. The Chairman of the Board shall be
elected by and from the membership of the Board of Directors. He shall be the
chief executive officer of the Corporation. Subject to the control of the Board
of Directors, the Chairman of the Board shall, in general, supervise and manage
the business and affairs of the Corporation and he shall see that the
resolutions and directions of the Board of Directors are carried into effect.
Except in those instances in which the authority to execute is expressly
delegated to another officer or agent of the Corporation, or a different mode of
execution is expressly prescribed by the Board of Directors or these By-laws, or
where otherwise required by law, the Chairman of the Board may execute for the
Corporation any contracts, deeds, mortgages, bonds or other instruments which
the Board of Directors has authorized to be executed or the execution of which
is in the ordinary course of the Corporation's business, and he may accomplish
such execution either under or without the seal of the Corporation and either
individually or with the Secretary, any Assistant Secretary, or any other
officer thereunto authorized by the Board of Directors or these By-laws. The
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board of Directors (and of any executive committee thereof), and shall
perform such other duties as from time to time shall be prescribed by the Board
of Directors.
Section 5.7 President. The President shall be the chief operating
officer of the Corporation. In the absence of the Chairman of the Board or in
the event of his inability to act or while such office is vacant, the President
shall perform the duties of the Chairman of the Board and when so acting shall
have all of the powers and authority of, and shall be subject to all of the
restrictions upon, the Chairman of the Board. Except in those instances in which
the authority to execute is expressly delegated to another officer or agent of
the Corporation or a different mode of execution is expressly prescribed by the
Board of Directors or these By-laws or were otherwise required by law, he may
9
<PAGE>
execute for the Corporation any contracts, deeds, mortgages, bonds or other
instruments which the Board of Directors has authorized to be executed or the
execution of which is in the ordinary course of the Corporation's business, and
he may accomplish such execution either under or without the seal of the
Corporation and either individually or with the Secretary, any Assistant
Secretary, or any other officer thereunto authorized by the Board of Directors
or these By-laws. In general, he shall perform such other duties as from time to
time may be prescribed by the Chairman of the Board or the Board of Directors.
Section 5.8 Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there is more than one Vice President, the Vice President designated Executive
Vice President by the Board of Directors and thereafter, or in the absence of
such designation, the Vice Presidents in the order otherwise designated by the
Board of Directors, or in the absence of such other designation, in the order of
their election) shall perform the duties of the President, and when so acting,
shall have all the authority of and be subject to all the restrictions upon the
President. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the Corporation or a
different mode of execution is expressly prescribed by the Board of Directors or
these By-laws or where otherwise required by law, the Vice President (or each of
them if there are more than one) may execute for the Corporation any contracts,
deeds, mortgages, bonds or other instruments which the Board of Directors has
authorized to be executed, and he may accomplish such execution either under or
without the seal of the Corporation and either individually or with the
Secretary, any Assistant Secretary, or any other officer thereunto authorized by
the Board of Directors or these By-laws. The Vice Presidents shall perform such
other duties as from time to time may be prescribed by the Chairman of the
Board, the President or the Board of Directors.
Section 5.9 Treasurer. The Treasurer shall be the principal financial
and accounting officer of the Corporation, and shall (a) have charge and custody
of, and be responsible for, all funds and securities of the Corporation; (b)
keep or cause to be kept correct and complete books and records of account
including a record of all receipts and disbursements; (c) deposit all funds and
securities of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with these By-laws; (d) from
time to time prepare or cause to be prepared and render financial statements of
the Corporation at the request of the President or the Board of Directors; and
(e) in general, perform all duties incident to the office of Treasurer and such
other duties as from time to time may be prescribed by the Chairman of the
Board, the President or the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 5.10 Secretary. The Secretary shall (a) keep the minutes of
the proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all stock certificates prior to
the issue thereof and to all documents the execution of which on behalf of the
Corporation under its seal is necessary or appropriate; (d) keep or cause to be
kept a register of the name and address of each stockholder, which shall be
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furnished to the Corporation by each such stockholder, and the number and class
of shares held by each stockholder; (e) sign with the president, or a
vice-president, or any other officer thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, the issue of which shall
have been authorized by the Board of Directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the Board of Directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the Board of Directors or these By-laws; (f) otherwise certify the By-laws,
resolutions of the stockholders and Board of Directors and committees thereof,
and other documents of the Corporation as true and correct copies thereof; (g)
have general charge of the stock transfer books; and (h) in general, perform all
duties incident to the office of Secretary and such other duties as from time to
time may be prescribed by the Chairman of the Board, the President or the Board
of Directors.
Section 5.11 Assistant Treasurers and Assistant Secretaries. In the
absence of the Treasurer or Secretary or in the event of the inability or
refusal of the Treasurer or Secretary to act, the Assistant Treasurer and the
Assistant Secretary (or in the event there is more than one of either, in the
order designated by the Board of Directors or in the absence of such
designation, in the order of their election) shall perform the duties of the
Treasurer and Secretary, respectively, and when so acting, shall have all the
authority of and be subject to all the restrictions upon such office. The
Assistant Treasurers and Assistant Secretaries shall also perform such duties as
from time to time may be prescribed by the Treasurer or the Secretary,
respectively, or by the Chairman of the Board, the President or the Board of
Directors. If required by the Board of Directors, an Assistant Treasurer shall
give a bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine.
Section 5.12 Salaries. The salaries and additional compensation, if
any, of the officers shall be determined from time to time by the Board of
Directors; provided, that if such officers are also directors such determination
shall be made by a majority of the directors then in office.
ARTICLE VI
----------
CERTIFICATES OF STOCK AND THEIR TRANSFER
----------------------------------------
Section 6.1 Stock Certificates. The issued shares of the Corporation
shall be represented by certificates, and no class or series of shares of the
Corporation shall be uncertificated shares. Stock certificates shall be in such
form as determined by the Board of Directors and shall be signed by, or in the
name of the Corporation by the Chairman of the Board, the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation. Any of or all the signatures on the
certificates may be a facsimile. All certificates of stock shall bear the seal
of the Corporation, which seal may be a facsimile, engraved or printed.
Section 6.2 Transfer of Shares. The shares of the Corporation shall be
transferable. The Corporation shall have a duty to register any such transfer
(a) provided there is presented to the Corporation or its transfer agents (i)
the stock certificate endorsed by the appropriate person or
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<PAGE>
persons; and (ii) reasonable assurance that such endorsement is genuine and
effective; and, (b) provided that (i) the Corporation has no duty to inquire
into adverse claims or has discharged any such duty; (ii) any applicable law
relating to the collection of taxes has been complied with; and (iii) the
transfer is in fact rightful or is to a bona fide purchaser. Upon registration
of such transfer upon the stock transfer books of the Corporation the
certificates representing the shares transferred shall be canceled and the new
record holder, upon request, shall be entitled to a new certificate or
certificates. The terms and conditions described in the foregoing provisions of
this Section shall be construed in accordance with the provisions of the
Delaware Uniform Commercial Code, except as otherwise provided by the Delaware
General Corporation Law. No new certificate shall be issued until the former
certificate or certificates for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed, wrongfully
taken or mutilated certificate a new one may be issued therefor upon such terms
and indemnity to the Corporation as the Board of Directors, the Chairman of the
Board or the President may prescribe consistent with applicable law.
ARTICLE VII
-----------
DIVIDENDS
---------
Section 7.1 Dividends. Subject to the provisions of the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of its
capital stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
Section 8.1 Indemnification. The Corporation shall indemnify, to the
full extent that it shall have the power under the Delaware General Corporation
Law to do so and in a manner permitted by such law, any person made or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against liabilities and expenses reasonably
incurred or paid by such person in connection with such action, suit or
proceeding. the words "liabilities" and "expenses" shall include, without
limitations: liabilities, losses, damages, judgments, fines, penalties, amounts
paid in settlement, expenses, attorneys' fees and costs. Expenses incurred in
defending a civil, criminal, administrative, investigative or other action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding in accordance with the provisions of Section
145 of the Delaware General Corporation Law, as amended.
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The indemnification and advancement of expenses provided by this
By-law shall not be deemed exclusive of any other rights to which any person
indemnified may be entitled under any by-law, statue, agreement, vote of
stockholders, or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any
person referred to in the preceding paragraph against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this By-law or otherwise.
For purposes of this By-law, reference to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation, as director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this By-law with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
The provisions of this By-law shall be deemed to be a contract between
the Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while this Bylaw and the relevant provisions of the
Delaware General Corporation Law, as amended, or other applicable law, if any,
are in effect, and any repeal or modification of such law or of this By-law
shall not affect any rights or obligations then existing with respect to any
state of facts the or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
such state of facts.
For purposes of this By-law, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include an excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be the best interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner not opposed to the best interests of the Corporation.
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ARTICLE IX
----------
FISCAL YEAR
-----------
Section 9.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
ARTICLE X
---------
SEAL
----
Section 10.1 Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal" and "Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any manner reproduced.
ARTICLE XI
----------
WAIVER OF NOTICE
----------------
Section 11.1 Waiver of Notice. Whenever any notice is required to be
given under these By-laws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XII
-----------
MISCELLANEOUS PROVISIONS
------------------------
Section 12.1 Contracts. The Board of Directors may authorize any
officer or agent to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and the Chairman of
the Board or the President may so authorize any officer or agent with respect to
contracts or instruments in the usual and regular course of its business. Such
authority may be general or confined to specific instances.
Section 12.2 Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors.
Such authority may be general or confined to specific instances.
Section 12.3 Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, or notes or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or agent as shall
from time to time be authorized by the Board of Directors.
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Section 12.4 Deposits. The Board of Directors may select banks, trust
companies or other depositaries for the funds of the Corporation.
Section 12.5 Stock in Other Corporations. Shares of any other
corporation which may from time to time be held by the Corporation may be
represented and voted by the Chairman of the Board or the President, or by any
proxy appointed in writing by the Chairman of the Board or the President, or by
any other person or persons thereunto authorized by the Board of Directors, at
any meeting of stockholders of such corporation or by executing written consents
with respect to such shares where stockholder action may be taken by written
consent. Shares represented by certificates standing in the name of the
Corporation may be endorsed for sale or transfer in the name of the Corporation
by the Chairman of the Board, the President or by any other officer thereunto
authorized by the Board of Directors. Shares belonging to the Corporation need
not stand in the name of the Corporation, but may be held for the benefit of the
Corporation in the name of any nominee designated for such purpose by the Board
of Directors.
ARTICLE XIII
------------
AMENDMENT
---------
Section 13.1 Procedure. These By-laws may be altered, amended or
repealed and new by-laws may be adopted by the Board of Directors.
Section 13.2 Amendment by Stockholders. Notwithstanding any other
provision of the Certificate of Incorporation or these By-laws of the
Corporation to the contrary and notwithstanding that a lesser percentage may be
specified by law, in the event these By-laws shall be amended by vote of
stockholders, the affirmative vote of the holders of at least two-thirds (2/3)
of the voting power of the outstanding shares of all classes of stock of the
Corporation, voting together as a single class, shall be required to amend or
repeal or adopt any provision inconsistent with Sections 2.2, 2.11, 2.12, 3.2,
3.10, 3.11 or 13.2 of these By-laws.
15
Exhibit 4.1
[FORM OF FACE OF CERTIFICATE]
NUMBER SHARES
______ ______
ORGANIZED UNDER THE LAWS OF THE STATE OF ILLINOIS
VILLAGE BANCORP, INC.
AUTHORIZED SHARES 5,000,000 PAR VALUE $0.01 EACH
THIS CERTIFIES THAT _____________________________________________ is
the owner of __________________________________________ full paid and
non-assessable
COMMON SHARES OF VILLAGE BANCORP, INC.,
transferable on the books of the Corporation in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and sealed with the Seal of the
Corporation, this _____ day of _______________ A.D. 19_____.
_______________________________________ ___________________________________
Secretary President
<PAGE>
[FORM OF BACK OF CERTIFICATE]
FOR VALUE RECEIVED, __________ hereby sell, assign and transfer unto
_______________ __________________________________________ Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
______________________ Attorney to transfer the said Shares on the books of the
within named Corporation with full power of substitution in the premises.
Dated ____________________, 19__
In presence of
_______________________________________ ___________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE
WHATEVER.
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
Exhibit 4.2
NW BANCORP, INC.
----------------
SERIES ONE $1.8 MILLION 6% MANDATORILY CONVERTIBLE
SUBORDINATED DEBENTURE PURCHASE AGREEMENT
-----------------------------------------
This Debenture Purchase Agreement (this "Agreement"), dated as of
December 1, 1997 is between NW Bancorp, Inc., an Illinois corporation (the
"Company") and each of the Illinois residents who has signed this Agreement as a
Purchaser on the signature page hereof (a "Purchaser" and, collectively, the
"Purchasers", which terms shall refer to debenture holders after the Debentures
have been issued.)
---------------------------
WHEREAS, Northwest Community Bank is an Illinois state bank located in
Prospect Heights, Illinois ("Northwest").
WHEREAS, upon the completion of the pending exchange of Northwest
common stock for Company common stock, the Company shall become the registered
bank holding company for Northwest.
WHEREAS, the Company intends to pursue the expansion of its banking
activities either through the formation of new, or de novo, banks or through the
acquisition of existing banks. These activities are expected to be primarily
funded through sales of Company common stock, debentures or other securities to
its stockholders and others. It is expected that the Company's expansion program
shall be aggressive, shall necessitate the hiring of experienced staff and the
investment of substantial sums in new facilities, technology, product and
service development. marketing efforts, and furniture, fixtures and equipment.
The expansion plan is described in the Debenture Offering Memorandum dated
December 1, 1997 (the " Debenture" and the "Memorandum") provided to each of the
Purchasers.
WHEREAS, a copy of this Agreement shall have been provided to all
Company stockholders after about December 1, 1997 (as an Exhibit to the
Memorandum). The stockholders have been advised by the Company that, should they
voluntarily chose not to purchase Debentures hereunder, their Company
stockholdings shall be diluted upon the conversion of the Debentures to Company
common stock. The conversion ratio for the Debentures is based on one (1) share
of Company Common Stock for each $60.60 in principal amount of Debenture so
converted (the "Mandatory Conversion Ratio"). If all of the Company's $1.8
million of Debentures are sold, they shall automatically convert into 29,704
shares of the Company's Common Stock on the Mandatory Conversion Date of
December 31, 2002. Further, in the event of the acquisition, merger or
substantial reorganization of the Company prior to December 31, 2002, the
Debentures shall automatically convert to Company common stock earlier than
December, 2002 in accordance with the Early Conversion Ratio described later in
this Agreement.
<PAGE>
WHEREAS, owing either to their status as Illinois residents, or their
ownership of Company Stock, or their service as a director, executive officer or
principal stockholder of the Company, and/or their status as accredited
investors under Regulation D promulgated by the Securities and Exchange
Commission under Section 4(2) of the Securities Act of 1933, the Purchasers
shall establish for the Company their qualification to receive the Memorandum
and to invest in the Debentures.
WHEREAS, to subscribe to Purchase Debentures, each Purchaser must
execute and deliver this Agreement, and the Company's Buy-Sell Agreement, to the
Company, c/o Glenn E. Meier, Vice President, together with a full or partial
payment for Debentures. The signature page indicates the dollar amount to which
existing Company stockholders are entitled to subscribe as his/her Allocated
Subscription Amount, although existing Company stockholders are entitled to
indicate a subscription for a smaller or a larger amount of Debentures. In the
event of an oversubscription, subscriptions shall be allocated to Purchasers by
the Company's Board of Directors and such allocation shall be binding upon the
Company and the Purchasers.
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
ACKNOWLEDGEMENTS OF PURCHASERS
To induce the Purchasers to purchase the Debentures, the Company
represents and warrants to the Purchasers as follows:
1.01. ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized and validly existing under the laws of the State of Illinois, and
has all requisite corporate and authority to carry on its business as now being
conducted by it.
1.02. CAPITALIZATION. The Company has authorized the issuance of
500,000 shares of $1.00 par value common stock (the "Common Stock") of which
100,000 shares are being exchanged for all 100,000 shares of Northwest's common
stock. The Company's Articles of Incorporation also authorize the issuance of
500,000 shares of preferred stock, none of which have been issued of this date
(collectively, the "Preferred Stock"). The Company is not authorized to issue
any other shares of any class. There are now, and immediately prior to the
consummation of the sale of Debentures to Purchasers on the Closing Date (as
hereinafter defined), there will be, a total of 100,000 shares of Common Stock
issued and outstanding, of which none are treasury shares held by the Company,
and no other shares of the Company of any class are now or will then be
outstanding. There are not now and there will not be on the Closing Date any
outstanding rights, warrants or options entitling anyone other than Purchasers
to acquire from the Company any shares of any class, except with respect to the
Common Stock option rights, if any, which may be created under the Company's
proposed 1997 Stock Option Plan currently under consideration.
<PAGE>
1.03. FINANCIAL STATEMENTS AND CONDITION. Northwest has prepared
financial statements in the ordinary course of business from the date of its
organization through the present date. Copies of Northwest's unaudited financial
statements for calendar years 1995 and 1996, and the first nine months of 1997,
are contained in the Memorandum ("Northwest's Financial Statements").
1.04. TITLE TO PROPERTIES. Northwest has good and marketable title to
all assets reflected in Northwest's Financial Statements, other than assets
disposed of since September 30, 1997 in the ordinary course of Northwest's
business, free and clear of all liens, charges or encumbrances.
1.05. TAXES. Northwest has itself filed, or as a former wholly-owned
subsidiary of National Bancorp, Inc. ("NBI"), has been included in, all tax
returns required to be filed by or for it and has paid all applicable federal,
state, county and local taxes required to be paid by it, other than taxes in
question of an immaterial amount not yet due or which may hereafter be paid
without penalty. The amount set up as a liability for taxes on Northwest's
Financial Statements is deemed sufficient for the payment of all accrued and
unpaid federal, state, county and local taxes of Northwest, whether disputed or
not, through September 30, 1997, and for the payment of any penalties and
interest with respect thereto.
1.06. LITIGATION. There are no material actions, suits or proceedings
pending or, to the best knowledge and belief of the Company, threatened against
the Company or Northwest, by or before any court or administrative agency, nor
are the Company or Northwest subject to any judicial or administrative decree
which has or might have a material adverse effect upon the Company, its business
or its properties.
1.07. CERTAIN ACTIONS OF COMPANY. Since its organization, the Company
has not, and during the period subsequent thereto and prior to the Closing, the
Company shall not have, (a) issued or sold, or granted any right, warrant or
option to purchase, any shares of its Capital Stock or any other of its
securities (other than the issuance of up to 100,000 shares of its stock in
exchange for 100,000 shares of Northwest's stock, or under this Agreement or
under its proposed 1997 Stock Option Plan), (b) incurred any obligation or
liability, fixed or contingent, except for obligations and liabilities incurred
in the ordinary course of the Company's business, (c) discharged or satisfied
any lien, charge or encumbrance, or paid any obligation or liability, fixed or
contingent, other than those provided for or referred to in the Memorandum, (d)
declared or made any payment or distribution, directly or indirectly, to any
stockholder of the Company (as a stockholder) or purchased or redeemed any
shares of Common Stock or any shares of any other class, (e) made any salary
increases except merit and seniority raises, (f) sold or otherwise disposed of
any of its assets, tangible or intangible, or canceled any debts or claims,
except in either case in the ordinary course of the Company's business or as
provided in the proposed 1997 Stock Option Plan, and (g) entered into any
transaction other than in the ordinary course of business, except for matters as
contemplated by this Agreement or as referred to in the Memorandum.
<PAGE>
1.08. CORPORATE ACTION. All corporate action on the part of the
Company, its officers, directors and stockholders, necessary for the
authorization, execution, delivery and performance of this Agreement, and for
the issuance and delivery to Purchasers by the Company of its Debentures
pursuant hereto, has been duly and properly taken; all material authorizations,
approvals and consents, if any, of other persons, firms, corporations or
governmental agencies required for the authorization, execution, delivery or
performance by the Company of this Agreement, if any, have been duly and
properly obtained; and this Agreement, shall constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with,
and subject to, its terms.
1.09. ABSENCE OF CONFLICT. Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions herein contemplated, nor the
fulfillment or compliance with the terms and conditions hereof and of the
Debenture to be issued to Purchasers hereunder, will conflict with or result in
a breach of or constitute a default under the terms, conditions or provisions of
the Company's Articles of Incorporation or its by-laws, or of any material
contract, agreement or instrument to which the Company is a party or by which
the Company or any of its properties is bound.
ARTICLE II
AFFIRMATIVE COVENANTS OF COMPANY
Subject to the provisions of Article X hereof, so long as any part of
the principal amount of any Debenture shall remain outstanding, the Company
covenants and agrees that it will:
2.01. PRESERVATION OF CORPORATE EXISTENCE. Do or cause to be done all
that is necessary to preserve and maintain in full force and effect its
corporate existence, rights and franchises.
2.01. MAINTENANCE OF PROPERTIES. Maintain and keep its properties
owned or used in its business in good repair, working order and condition, and
make or cause to be made all such needful and proper repairs, renewals and
replacements thereto as may be necessary so that the business carried on by the
Company may be properly and advantageously conducted at all times.
2.03. INSURANCE. Keep its properties of a character usually insured by
the owners of similar properties insured against loss or damage by fire,
windstorm, explosion and other risks usually insured against by the owners of
like properties, in amounts not less than 80% of the full insurable value
thereof, with reputable insurance companies; and maintain in force, with
reputable insurance companies, reasonable and adequate public liability and
property damage insurance.
2.04. TAXES AND ASSESSMENTS. Duly pay and discharge, as the same
become due and payable and prior to delinquency, all material taxes, assessments
and other
<PAGE>
governmental charges levied or based upon it or upon any of its properties or in
respect of its income or profits.
2.05. FINANCIAL STATEMENTS. Maintain proper and adequate financial
records which permit the preparation of financial statements in accordance with
generally accepted accounting principles. The Company shall furnish Purchasers
upon request (so long as they shall hold any part of the Debentures) and any
other holder, of any portion of the Debentures at any time outstanding:
(a) As soon as practicable after the end of each fiscal year of
the Company and in any event within 120 days thereafter, parent company
only and consolidated financial statements of the Company and its
subsidiaries as at the end of such year, all prepared in accordance with
generally accepted accounting principles, and audited and reported on by
Crowe Chizek and Company LLP, certified public accountants, or such other
firm of independent certified public accountants as shall at the time be
regularly employed by the Company.
(b) Such other financial information as Purchasers or any holder
of any portion of the Debentures at the time outstanding may from time to
time reasonably request in writing.
2.06. OTHER DEFAULTS. If notified that it is in default in respect of
any of the provisions of any term loan agreement, if any, binding upon the
Company, the Company shall promptly give written notice to the Purchasers and to
any other holder of a Debenture, specifying the details thereof.
2.07. PAYMENTS ON DEBENTURES. Except as provided in Section 4.03
hereof with regard to subordination of the Debentures to Senior Indebtedness, if
any, the Company will duly and punctually pay each periodic installment of
interest on a Debenture at the time, and in the manner set forth therein and
shall pay the accrued and unpaid interest therein on the Mandatory Conversion
Date of December 31, 2002. In accordance with Section 4.03 hereof, no payments
of principal on any Debenture may be made at any time unless the Senior
Indebtedness (as described in Section 4.03) has been paid in full. Principal or
any Debenture prepayments with accrued interest may be made at any time upon 5
days prior written notice.
ARTICLE III
NEGATIVE COVENANTS OF THE COMPANY
Subject to the provisions of Article X hereof, so long as any part of
the principal amount of a Debenture shall remain outstanding, the Company
covenants and agrees that, without the prior written consent of the then holder
or holders of 50% or more in principal amount of the Debentures at the time
outstanding, which consent shall not be
<PAGE>
unreasonably withheld, the Company will not, nor will it permit any
majority-owned subsidiary to:
3.01. ENCUMBRANCES. Create, incur, assume or permit to exist, any
material mortgage, pledge or other lien or encumbrance on any of its or their
properties or assets except such as may be required from time to time by the
Company under any term loan agreement, if any, in effect from time to time which
has been approved by the Company's Board of Directors.
3.02. MERGERS, ETC. Merge or consolidate with or into any other
corporation, or sell, lease, mortgage or otherwise dispose of substantially all
of its assets.
3.03. ACQUISITIONS. Acquire all or substantially all of the stock of
any other corporation (other than stock of a corporation organized by the
Company to engage in a similar or related business to that of the Company, and
which immediately after such acquisitions will be a wholly or majority owned
subsidiary of the Company), or acquire all or substantially all of the assets of
any other person, corporation, firm or other entity or division thereof.
3.04. SALE OF PROPERTY. Sell, assign, transfer or otherwise dispose of
all, substantially all, or a material amount, of any of its or their properties
and assets, other than in the ordinary course of business and for full
consideration in an arms' length bargained transaction or transactions.
3.05. DISTRIBUTIONS. Except as is contemplated herein or permitted
from time to time by applicable Federal Reserve Board or other regulatory law,
regulation or rule, redeem, retire or purchase any of its outstanding shares or
pay or declare any dividend thereon (other than stock dividends) or make any
other distribution of assets to stockholders as such.
ARTICLE IV
$1.8 MILLION SERIES ONE 6% MANDATORILY
CONVERTIBLE SUBORDINATED DEBENTURES
4.01. PURCHASE AND SALE: On the Closing Date on the sale of the
Debentures as set by the Company's Board of Directors, the Company will issue to
the Purchasers, and each Purchaser will acquire for cash from the Company, the
principal amount of such Debentures as indicated on the signature page hereof by
such Purchaser or the lesser or different amount thereof as shall be allocated
to such Purchaser by the Company's Board of Directors in the event of an
oversubscription to the Debentures in accordance with the Subscription Rules
outlined in the Memorandum.
4.02. DESCRIPTION OF THE DEBENTURES. Each Debenture shall be in the
principal amount of the accepted or allocated Subscription, shall be dated the
Closing Date, shall bear interest from the date of its issuance on the unpaid
principal balance at the rate of 6% per annum payable quarterly on the last day
of March, June, September and
<PAGE>
December, commencing on the first of such dates immediately following the
Closing Date, with a final interest payment on December 31, 2002 (the "Mandatory
Conversion Date"), the date on which the Debentures shall be automatically
converted to Company Common Stock in accordance with the Mandatory Conversion
Ratio. The form of the Debenture is attached as Exhibit A. Reference is made to
the Debenture, whose terms are incorporated herein by reference.
4.03. SUBORDINATION TO SENIOR INDEBTEDNESS.
(a) From time to time the Company may enter into term and other
borrowing arrangements and agreements with banks, other financial
institutions or others under which the Company may borrow funds on a
secured or unsecured basis, which borrowings and obligations, if so
designated by the Company or so designated in such arrangements or
agreements, are collectively referred to as the "Senior Indebtedness"
hereunder.
(b) The lender or lenders of the Senior Indebtedness are
individually and collectively referred to as the "Senior Lender". Except as
the Senior Lender, if any, may hereafter otherwise expressly consent in
writing, the payment of the Debentures shall be postponed and subordinated
to the payment in full of all Senior Indebtedness, and the Company shall
make no other distributions over or on account of the principal amount of
the Debentures, nor shall any property or assets of the Company be applied
to the purchase or other acquisition or retirement of the Debentures;
provided however, that, so long as neither an Event of Default, nor an
unmatured Event of Default, shall have occurred under the Senior Lender
Agreements as amended and supplemented from time to time (the "Senior
Lender Agreements"), the Company shall be entitled to pay, and each
Purchaser shall be entitled to receive, interest on the Debentures
according to their terms, provided that (i) prior to the making of any
payment of interest on the Debentures, the Company shall have theretofore
paid all accrued interest and principal then due and payable to the Senior
Lender under the Senior Lender Agreements, and (ii) prior to the making of
any payment of principal on the Debentures the Company shall have
theretofore paid all Senior Indebtedness.
(c) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar proceeding relating to the
Company or to its creditors, or to its property (whether voluntary or
involuntary, partial or complete, and whether in bankruptcy, insolvency or
receivership, or upon an assignment for the benefit of creditors, or any
other marshaling of the assets and liabilities of the Company, or any sale
of all or substantially all of the Company's assets, or otherwise), the
Senior Indebtedness shall first be paid in full before the Purchasers shall
be entitled to receive and to retain any payment or distribution in respect
of the Debentures received after any such event, and, in order to implement
the foregoing, (i) all payments and distributions of any kind or character
in respect of the Debentures to which the Purchasers would be entitled if
the Debentures were not subordinated, or subordinated and pledged or
assigned,
<PAGE>
pursuant to this Agreement, shall be made directly to the Senior Lender,
(ii) the Senior Lender may, in the name of the Purchasers or otherwise,
demand, sue for, collect, receive and receipt for any and all such payments
or distributions, and file, prove, and vote or consent in any such
proceedings with respect to, any and all claims of the undersigned relating
to the Debentures, and (iii) the Purchasers shall promptly file a claim or
claims, in the form required in such proceedings, for the full outstanding
amount of the Debentures, and shall cause said claim or claims to be
approved and all payments and other distributions in respect thereof to be
made directly to the Senior Lender.
(d) In the event a Purchaser receives any payment or other
distribution of any kind or character from the Company or from any other
source whatsoever on account of the Debentures, other than as expressly
permitted by the terms of this Article IV or by any such Senior Lender,
such payment or other distribution shall be received in trust for the
Senior Lender and shall be promptly turned over by the Purchaser to the
Senior Lender. The Purchaser shall mark his books and records, and cause
the Company to mark its books and records, so as to conspicuously indicate
that the Debentures are subordinated in accordance with the terms of this
Agreement. and will cause to be conspicuously inserted in the Debentures,
or other instrument which at any time evidences the Debentures, a statement
to the effect that the payment thereof is subordinated in accordance with
the terms of this Article IV. The Purchasers shall execute such further
documents or instruments and take such further action as the Senior Lender
may reasonably from time to time request to carry out the intent of this
Article IV.
(e) Notwithstanding any payments or distributions received by the
Senior Lender in respect of the Debentures and applied by the Senior Lender
toward the payment of the Senior Indebtedness, the Purchasers shall be
subrogated to the then existing rights of the Senior Lender, if any, in
respect of the Senior Indebtedness only at such time as the Senior Lender
shall have received payment of the full amount of the Senior Indebtedness.
(f) This Article IV shall in all respects be a continuing
obligation binding upon each Debenture holder and shall remain in full
force and effect (notwithstanding, without limitation, the death or
dissolution of a Purchaser or Purchasers).
(g) The Senior Lender may, from time to time, at its sole
discretion and without notice to the Purchasers, take any or all of the
following actions:
(i) retain or obtain a security interest in any property to
secure any of the Senior Indebtedness;
<PAGE>
(ii) retain or obtain the primary or secondary obligations of any
other obligor or obligors with respect to any of the Senior
Indebtedness;
(iii) extend or renew for one or more periods (whether or not
longer than the original period), or alter or exchange, any
of the Senior Indebtedness; and
(iv) release its security or rights as pledgee in, if any, or
surrender, release or permit any substitution or exchange
for, all or any part of any property securing any of the
Senior Indebtedness or pledged to the Senior Lender, or
extend or renew for one, or more periods (whether or not
longer than the original period) or release, compromise,
alter or exchange any obligations of any nature of any
obligor with respect to any such property.
(h) No delay on the part of the Senior Lender in the exercise of
any right or remedy shall operate as a waiver thereof, and no single or
partial exercise by the Senior Lender of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or
remedy.
(i) The Purchasers hereby waive:
(i) notice of non-payment of all or any part of the Senior
Indebtedness; and
(ii) all diligence in the collection or protection of or
realization upon the Senior Indebtedness or any part or any
security therefor.
4.04. DELIVERY OF DEBENTURES AND PAYMENT OF PURCHASE PRICE. The
Debentures shall be issued and delivered to the Purchasers on the Closing Date
as the payment therefor is received by the Company.
4.05. A. OPTIONAL AND MANDATORY CONVERSIONS OF DEBENTURES TO COMMON
STOCK: THE MANDATORY CONVERSION RATIO. At the election of a Purchaser at any
time or times hereunder, all or a portion of the principal amount of a Debenture
then outstanding and unpaid may be converted at the option of such holder into
whole (or fractional interests in whole) shares of the Company's $1.00 Par Value
common stock based on the following "Mandatory Conversion Ratio": One (1) share
of the Company's $1.00 par value common stock for each $60.60 in principal
amount of the Debentures so converted, all as more fully described in the
Debenture. In accordance with the foregoing, Purchasers acknowledge that the
Debentures shall automatically convert to Company Stock under the Mandatory
Conversion Ratio on December 31, 2002, the Mandatory Conversion Date.
B. CONVERSION IN CERTAIN TRIGGER EVENTS: THE EARLY CONVERSION RATIO.
Any other provision of this Agreement to the contrary notwithstanding, in the
event of
<PAGE>
the merger, consolidation or other reorganization of the Company as the result
of which the Company is not the surviving organization (a "Trigger Event"),
effective thereupon, the Debentures then outstanding shall be automatically
converted into Common Stock on terms consistent with the Mandatory Conversion
Ratio so that for example, if the effective date of a Trigger Event were on the
first, second, third or forth anniversaries of the issuance of the Debentures,
the Early Conversion Ratio would convert Debenture principal amounts at $48.80,
$51.60, $54.60 and $57.60 per share of Company Common Stock.
C. EQUITABLE ADJUSTMENT. The Company shall not effect a material
change to its capital stock (including, but not limited to, a change in the
number of authorized or issued shares of common or preferred stock) or change
the par value of either class, without an equitable adjustment to the conversion
rights of the Debentures hereunder so as to assure Purchasers that such
adjustment shall have fully and adequately protected and continued Purchasers'
conversion rights created hereby.
4.06. USE OF PROCEEDS. The proceeds of the Debentures may be used for
such corporate purposes as shall be determined by the Company's Board of
Directors.
4.07. OTHER PROVISIONS. Reference is made to the Debentures for other
and additional provisions and for an amplification of the provisions of this
Agreement. In the event of a conflict, the provisions of this Agreement shall
control.
4.08. THE CLOSING. The closing on the sale of the Debentures will
occur at the Company's offices, 1845 East Rand Road, Prospect Heights, Illinois
60070-0936, on five (5) days prior written notice given on or before Tuesday,
December 23, 1997, providing for a closing thereafter, but not later than
December 31, 1997, unless such date is extended by the Company's Board of
Directors.
ARTICLE V
CONDITIONS TO OBLIGATIONS OF PURCHASERS
5.01. ACCURACY AND COMPLIANCE. The representations and warranties of
the Company contained in Article I shall be true in all material respects on and
as of the Closing Date, except to the extent of changes caused by the
transactions herein contemplated; the covenants, conditions and agreements to be
complied with or performed by the Company hereunder on or before the Closing
Date shall have been duly complied with or performed by the Company; and there
shall exist on the Closing Date no condition or event which constitutes, or
which after notice or lapse of time or both would constitute, an "Event of
Default" (as hereinafter defined).
5.02. OPINION OF COMPANY COUNSEL. The Company shall have received, for
and on behalf of the Purchasers, an opinion of counsel, dated the Closing Date,
to the effect that the Debentures have been duly authorized and executed and
when delivered by the Company to Purchasers against receipt of payment
therefore, will constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms
<PAGE>
except as limited by bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights. Company Counsel in this matter is Thomas H.
Jacobs, Esq., of Chicago, Illinois.
ARTICLE VI
SPECIAL COVENANTS OF THE COMPANY
So long as any part of the principal amount of the Debentures shall
remain outstanding, the Company covenants and agrees that:
6.01. REGISTRATION. If any at time or from time to time the Company
shall propose to register any of its Common Stock under the Securities Act of
1933, as amended, the Company shall give notice in writing thereof to each of
the Purchasers, each of whom shall thereupon, for a period of 15 days after
receipt of such notice, have the right to request that the Company include in
such Registration Statement shares of Common Stock of the Company owned by each
such Purchaser, including any shares acquired as the result of the conversion of
a Debenture. If a Purchaser shall so request, and the Company shall proceed with
such proposed registration, then, subject to the provisions hereinafter set
forth, the Company shall use its best efforts to include in such Registration
Statement, and at no cost or expense to the Purchaser, such number of shares of
the Company's $1.00 par value Common Stock as shall enable the Company to
provide registered shares in exchange for the Debenture in the event of
conversion.
ARTICLE VII
EVENTS OF DEFAULT
7.01. EVENTS OF DEFAULT. In case of the happening of any of the
following events or occurrences (herein and in the Debenture referred to as
"Events of Default"):
(a) Any failure to pay the principal of a Debenture as and when
the same shall be due and payable, whether at maturity, by acceleration or
otherwise;
(b) Any failure to pay interest when due on a Debenture and such
failure shall continue for more than 30 days after the same shall have
become due and payable;
(c) The Company shall have made herein, or in any document or
certification delivered pursuant hereto, any representation, warranty or
certification which shall prove to have been false in any material respect
when made;
(d) Any default shall occur in the Company's observance or
performance of any of the material terms, conditions, covenants and
agreements herein contained on its part to be observed or performed and
such default shall continue
<PAGE>
unremedied for a period of thirty (30) after days after written notice
thereof shall have been given to the Company by any holder of a Debenture
or any part thereof;
(e) The Company shall make an assignment for the benefit of
creditors or shall apply for or consent to the appointment of a receiver or
trustee or similar officer for the Company or for any substantial part of
its property or such a receiver or trustee or similar officer shall
otherwise be appointed, and in such latter case, such appointment shall
remain unvacated for a period of sixty (60) days;
(f) The Company shall commence any proceeding under any present
or future bankruptcy or debtor's law for its relief or its reorganization
or for an arrangement or for a composition, extension or readjustment of
any of its obligations or any such proceeding shall be commenced against
the Company and shall be consented to by it or shall be judicially approved
as properly instituted or shall remain undismissed for a period of sixty
(60) days;
(g) The Company shall file a petition in bankruptcy or a petition
in bankruptcy shall be filed against the Company and be consented to by the
Company or remain undismissed for a period of sixty (60) days, or the
Company shall be adjudicated a bankrupt; or
(h) The Company shall default, and such default shall continue
beyond the applicable period of grace, in the payment of the principal of
or premium, if any, or interest on any Senior Indebtedness;
(i) Any "Event of Default" (as such term is defined in the Senior
Lender Agreement) shall occur at a time when any Senior Indebtedness is
unpaid and (1) the holders of 50% or more in principal amount of the
Debentures at the time outstanding shall given written notice to the Senior
Lender of their intention to accelerate the maturity of such Debentures,
and (2) at least thirty (30) days after the Senior Lender's receipt of such
notice, such Event of Default shall not have been waived (temporarily or
otherwise by the Senior Lender or cured (by amendment or other modification
of the Senior Lender Agreements, or otherwise).
Then, and in any such event, the entire outstanding principal amount of the
Debentures, although otherwise unmatured, shall at the option of the holder or
holders of 50% or more in principal amount of the Debentures at the time
outstanding, by written notice or notices to the Company, forthwith mature and
become due and payable without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived.
<PAGE>
ARTICLE VIII
SECURITIES REGISTRATION AND RELATED MATTERS
8.01. REGISTRATION EXEMPTIONS. The issuance of the Debentures are made
in reliance upon exemptions from registration under the Securities Act of 1933
(the "Act") and under the Illinois Securities Act of 1953, as amended (the
"Illinois Act"). These exemptions collectively permit the issuance of the
Debentures to the Purchasers without registration with the Securities and
Exchange Commission or the Securities Division of the Office of the Illinois
Secretary of State, upon compliance with applicable regulations and rules.
8.02. TRANSFER RESTRICTIONS. (a) In compliance with such rules and
regulations promulgated under the Act and/or the Illinois Act, the Company will
place a legend on the Debentures stating that they are "restricted securities"
which have not been registered under the Act or the Illinois Act. Sales,
transfers or other dispositions of the Debentures may be made only with prior
approval of Company's counsel that such do not constitute an unlawful,
unregistered distribution under applicable securities laws.
(b) The Company and its stockholders are bound by the terms of a
certain Buy-Sell Agreement dated April 15, 1997, attached to the Memorandum
as Exhibit A. By their execution of this Agreement, Purchasers adopt and
apply the Buy-Sell Agreement to the Debentures and to any Company Common
Stock issued upon this conversion, acknowledge and agree that the
Debentures, and any Common Stock received by them upon conversion of a
Debenture, are bound by the terms and conditions of the Buy-Sell Agreement.
8.03. RESIDENCE. Each Purchaser represents and warrants that he/she/it
is a resident of the State of Illinois.
8.04. TRADING MARKET. Purchaser acknowledge that there is no public
market for the Debentures or for the Company's Common Stock and it is not
expected that any such market will develop within the reasonable future.
8.05. ACCESS TO INFORMATION. Purchaser acknowledges and agrees that
he/she/it has had full and complete access to any and all information, financial
or otherwise, concerning the Company which he has requested and that his
investment has been made on a fully informed basis. Further, certain of the
Purchasers acknowledge that, owing to his service as a director, executive
office or principal stockholder of the Company and/or Northwest, and/or because
the Purchaser otherwise, for financial and/or other reasons, qualifies as an
"accredited person" for purposes of Securities and Exchange Commission
Regulation D. Purchaser has made his decision to invest in the Debentures based
on information the Purchaser claims adequate. Further, each Purchases
acknowledges that he/it is financially capable to bear the risk of investment in
the Debentures.
<PAGE>
8.06. INVESTMENT PURPOSE. Each Purchaser hereunder represents and
warrants to the Company that he is purchasing the Debenture(s) for investment
purposes and not with a view to their resale or other distribution.
ARTICLE IX
MISCELLANEOUS
9.01. EXPENSES. The Company shall pay all costs and expenses incident
to the preparation of this Agreement and consummation of the sale of Debentures
contemplated hereby.
9.02. ASSIGNS AND COLLATERAL ASSIGNMENT. Subject to the terms and
conditions hereof, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This
Agreement and any Debenture may be collaterally assigned upon written notice to
the Company.
9.03. NOTICES. Any notice, request, instruction or other document to
be given hereunder to either party shall be in writing and delivered personally
or sent by certified or registered mail, postage prepaid, addressed as follows:
To the Company:
NW Bancorp, Inc.
c/o Thomas H. Roth, President
1845 East Rand Road
Prospect Heights, Illinois 60070-0936
To the Purchasers:
At their addresses on the signature page attached hereto.
Either party hereto, by notice so given to the other party hereto, may from time
to time change its address for future communications hereunder.
9.04. EFFECT OF WAIVER. Neither the failure nor any delay on the part
of Purchaser in the exercise of any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege by Purchaser preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
9.05. SURVIVAL. All representations and warranties and all covenants
contained herein or made in writing in connection herewith shall survive the
execution and delivery of this Agreement and the execution and delivery of the
Debenture.
<PAGE>
9.06. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute on and the same instrument. This Agreement, and
any subsequent amendments, may be executed by facsimile signature.
9.07. RECITALS. The Recitals to this Agreement are referred to and are
incorporated herein be reference.
NW Bancorp, Inc.
By /s/ Thomas H. Roth
--------------------------------
Thomas H. Roth, President
Attest:
/s/ Glenn E. Meier
- -----------------------------------
Secretary
<PAGE>
NW BANCORP, INC.
$1.8 MILLION SERIES ONE 6% MANDATORILY CONVERTIBLE
SUBORDINATED DEBENTURE AGREEMENT
SIGNATURE PAGE
--------------
DOLLAR AMOUNT
DOLLAR AMOUNT ALLOCATED BY THE
SUBSCRIBED TO BY COMPANY'S
PURCHASER PURCHASER BOARD OF DIRECTORS
- --------- --------- ------------------
X_____________________________ $___________________ ____________________
______________________________
______________________________
______________________________
X_____________________________ $___________________ ____________________
______________________________
______________________________
______________________________
X_____________________________ $___________________ ____________________
______________________________
______________________________
______________________________
X_____________________________ $___________________ ____________________
______________________________
______________________________
______________________________
<PAGE>
No. ____
REGISTERED
NW BANCORP, INC.
$1.8 MILLION SERIES ONE 6%
MANDATORILY CONVERTIBLE SUBORDINATED DEBENTURE
----------------------------------------------
NW BANCORP, INC, a corporation duly organized and existing under the
laws of the State of Illinois (the "Company"), for value received, hereby
promises to pay to ____________________________________________________________
_______________________________________________________________________________
or registered assigns, the principal sum of _________________________ DOLLARS
($_______________) in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest from the date of issuance hereof on said
principal sum at the rate of 6% per annum, payable quarterly in arrears on the
last day of each March, June, September and December commencing on the first of
such dates immediately following the date of the Company's issuance of this
Debenture and ending on December 31, 2002 with a final interest payment on
December 31, 2002. The principal amount of this Debenture shall automatically
convert to shares of the Company's $1.00 par value common stock on December 31,
2002. The interest payable shall be paid to the person in whose name this
Debenture is registered at the close of business on the interest payment date.
Payments of principal and of interest shall be made by check mailed to the
registered address of the person entitled thereto.
This Debenture is one of the debentures of a maximum $1,800,000
offering which have been issued under and pursuant to the terms of the Company's
6% Series One Mandatorily Convertible Subordinated Debenture Purchase Agreement
dated as of December 1, 1997 (the "Agreement"). Reference is made to the further
provisions of this Debenture as set forth on the Rider attached hereto,
including without limitation, provisions subordinating the payment of the
principal of and interest on the Debentures to the payment in full of all Senior
Indebtedness as defined in the Agreement and provisions giving the holder of
this Debenture the right to convert all or a portion of this Debenture into
whole (or fractional interests in whole) shares of the Company's $1.00 par value
common stock on the terms specified herein and in the Agreement. Such further
provisions shall for all purposes have the same effect as though fully set forth
in the Debenture.
This Debenture shall not be valid or become obligatory for any purpose
until executed by the manual signature of the below-indicated authorized
officers of the Company.
EXHIBIT A
<PAGE>
THE DEBENTURE IS A "RESTRICTED SECURITY" NOT REGISTERED UNDER FEDERAL OR STATE
SECURITIES LAWS. SALES TRANSFERS OR OTHER DISPOSITIONS OF THIS DEBENTURE MAY BE
MADE ONLY WITH THE APPROVAL OF THE COMPANY'S COUNSEL.
IN WITNESS WHEREOF, NW BANCORP, INC. HAS CAUSED THIS INSTRUMENT TO BE DULLY
EXECUTED UNDER ITS CORPORATE SEAL.
DATED:______________ NW BANCORP, INC.
(DEBENTURE ISSUANCE DATE)
BY:________________________________
THOMAS H. ROTH, PRESIDENT
ATTEST:
________________________________________
SECRETARY
2
<PAGE>
RIDER TO
NW BANCORP, INC.
$1.8 MILLION SERIES ONE 6%
MANDATORILY CONVERTIBLE SUBORDINATED DEBENTURE
FURTHER CONDITIONS
This Debenture is the Company's duly authorized Debenture, designated
as its 6% Series One Mandatorily Convertible Subordinated Debenture (the
"Debenture") limited to the aggregate principal amount of One Million Eight
Hundred Thousand Dollars ($1,800,000), issued or to be issued under and pursuant
to the 6% Mandatorily Convertible Subordinated Debenture Purchase Agreement
dated as of December 1, 1997 (the "Agreement"), duly executed and delivered by
the Company and the Debenture Purchasers, to which Agreement and all supplements
thereto reference is hereby made for a description of the rights, obligations,
duties and responsibilities thereunder of the Company and the holder of the
Debenture.
In case an Event of Default, as defined in the Agreement, shall have
occurred and be continuing, the principal amount hereof may be declared, and
upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Agreement. Under certain
circumstances the holders of a majority in aggregate principal amount of the
Debentures then outstanding may rescind and annul such declaration and its
consequences.
The indebtedness evidenced by the Debentures is subordinate and
subject in right of payment to the prior payment in full of all Senior
Indebtedness as defined in the Agreement. No interest payment may or need be
made unless the Company shall have theretofore paid all accrued interest on the
Senior Indebtedness. No principal payment may or need be made unless the Company
shall have theretofore paid all Senior Indebtedness. Each holder of this
Debenture, by accepting the same, agrees to and shall bound by such provisions
of the Agreement.
The Company and the holders of not less than 50% in aggregate
principal amount of the Debentures at the time outstanding shall be entitled to
execute amendments to the Agreement adding provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or of any
supplemental agreement or modifying in any manner the right of the holders of
the Debentures; provided, however, that no such supplemental amendment shall (i)
extend the maturity of any Debenture, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest therein, or reduce any
principal payable upon the redemption thereof, or adversely affect the right to
convert the Debentures for common stock of the Company, without the consent of
the holder of each Debenture so affected, (ii) reduce the 6% interest rate
payable with respect to the Debentures, the consent of all holders of which is
required for any such agreement to be binding upon all holders of all Debentures
then outstanding or
3
<PAGE>
(iii) amend the maturity, interest rate or interest payment dates, prepayment
provision or subordination provisions of Article IV of the Agreement without the
prior written consent of the then Senior Lender, as defined in the Agreement.
The holders of a majority in aggregate principal amount of the Debentures at any
time outstanding may on behalf of the holders of all Debentures waive any past
default under the Agreement and its consequences, except a default in the
principal payment of or interest on any of the Debentures or in the conversion
of any Debentures into Company Stock. Any such consent or waiver (unless revoked
as provided in the Agreement) shall be conclusive and binding upon the holder
and upon all future holders and owners of this Debenture and any Debenture
issued in exchange or substitution heretofore, whether or not any notation of
such consent or waiver is made upon this Debenture or any such other Debenture.
The obligation of the Company to pay the principal of and interest on
this Debenture at the place, at the respective times, at the rate and in the
coin or currency herein prescribed is subject to conditions imposed upon the
Company under the Secured Lender Agreements, if any, dated as of as amended from
time to time, and to be amended, all or more particularly described in the
Agreement.
At the option of the holder hereof, this Debenture may, at any time
before the close of business on December 31, 2002, or in the cases this
Debenture shall be called for redemption, on or prior to December 31, 2002, then
until and including, but (unless the Company shall default in payment due upon
the redemption hereof) not after, the close of business on the business day next
preceding the redemption, be converted into one (1), or fractional interests in
one (1), share of duly authorized, validly issued, fully paid and nonassessable
$1.00 par value common stock of the Company for each $60.60 in principal amount
hereof so converted (the "Mandatory Conversion Ratio"), subject to such
adjustments, if any, of the conversion rate and the securities or other property
or cash deliverable upon conversion as may be required in the Agreement, upon
delivery of this Debenture, together with the notice herein (or by separate
written notice to the Company) of election to convert this Debenture duly
executed by the holder or by his duly authorized attorney, to the office of the
Company for such purpose in the County of Cook, Village of Prospect Heights, and
State of Illinois, accompanied (if so required by the Company) by instruments of
transfer, in form satisfactory to the Company, duly executed by the holder or by
his duly authorized attorney. Except as otherwise expressly provided in the
Agreement, no payment or adjustment shall be made on account of interest accrued
on any Debenture (or portion) so converted or on account of any dividends on the
shares delivered upon such conversion. As is more fully explained in the
Company's Debenture Purchase Agreement of this date under which this Debenture
has been issued, this Debenture shall automatically convert into shares of the
Company's Common Stock immediately prior to the acquisition of the Company,
whether by merger, purchase or otherwise, if the same occurs. The Debenture
Purchase Agreement also describes a Trigger Event as the result of which the
Debenture shall be automatically converted to common stock based on the Early
Conversion Ratio described in the Agreement. Any other provision of this
Debenture to the contrary notwithstanding, in the event of the merger,
consolidation or other reorganization as the result of which the Company is not
4
<PAGE>
the surviving organization (a "Trigger Event"), effective upon such Trigger
Event, the Debentures then outstanding shall be automatically converted into
Company Common Stock based upon the Mandatory Conversion Ratio. Reference is
made to the Debenture Purchase Agreement for a more complete statement of the
conversion terms and conditions.
The Debentures are issuable as fully registered Debentures without
coupons. Debentures may be exchanged for a like aggregate principal amount of
Debentures of other authorized denominations at the designated office of the
Company, and in the manner and subject to the Agreement.
The transfer of this Debenture is registerable by the registered
holder hereof in person or by his attorney duly authorized in writing on the
Company's books at the Company's office, subject to the terms of the Agreement
but without payment of any charge other than a sum sufficient to reimburse the
Company for any stamp tax or other governmental charge incident thereto, if any,
and upon surrender and cancellation of this Debenture upon any such registration
or transfer, a new Debenture or Debentures of authorized denomination or
denominations, for the same aggregate principal amount, will be issued to the
transferee in exchange. No transfer shall be registered on the Company's books
which, in the opinion of Company's counsel, fails to comply with applicable
federal and state securities law.
Prior to due presentment for registration or transfer of this
Debenture, the Company may treat the person in whose name this Debenture shall
be registered upon the books of the Company as the absolute owner of this
Debenture (whether or not this Debenture shall be overdue and notwithstanding
any notation of ownership or other writing hereon) for the purpose of receiving
payment of or on account of the principal hereof and interest due hereon, for
the conversion hereof and for all other purposes and the Company shall not be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Agreement or any amendment
thereto, against any incorporator, officer or director, as such, past, present
or future, of the Company or any successor corporation, of either thereof or
against any shareholder of the Company of or any successor corporation, either
directly or through the Company, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as a part of the
consideration for the issue hereof, expressly waived and released.
5
<PAGE>
CONVERSION DIRECTION
--------------------
TO: NW Bancorp, Inc.
The undersigned owner of this Debenture hereby irrevocably exercises
the option to convert this Debenture, or portion hereof below designated, for
whole or fractional interests in whole shares of the $1.00 par value common
stock of NW Bancorp, Inc. in accordance with the terms of the Debenture Purchase
Agreement relating thereto and directs that the shares, other securities, other
property or cash deliverable upon the conversion and any Debentures representing
any unconverted principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated below. If
the shares or other securities are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay a transfer fee
payable with respect thereof. Any amount required to be paid by the undersigned
on account of interest accompanies the Debenture.
DATED:
___________________________________
Signature
Principal Amount of this
Debenture to be converted
$________________________
6
<PAGE>
Fill in for registration of shares or other securities if to be delivered, and
of Debentures if to be issued, otherwise than to the registered holder.
___________________________________ _____________________________
(Name) (Social Security or Other
Taxpayer Indemnifying Number)
___________________________________
(Address)
FOR VALUE RECEIVED, ______________________________ hereby sell(s), assign(s) and
transfer(s) unto NW Bancorp, Inc. the above described Debenture(s).
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
the within Debenture and all rights hereunder, hereby irrevocably constituting
and
________________________________________________________________________________
appointing to transfer said Debenture on the books of the Company, with full
power of substitution in the premises.
Dated:________________________
___________________________________
NOTICE: The signature to this
assignment must correspond
with the name as written upon the
face of the within Instrument in
every particular, without
alteration or enlargement or any
change made.
7
Exhibit 5.1
VEDDER PRICE VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601-1003
312-609-7500
FACSIMILE: 312-609-5005
A PARTNERSHIP INCLUDING VEDDER, PRICE,
KAUFMAN & KAMMHOLZ, P.C.
WITH OFFICES IN CHICAGO AND NEW YORK CITY
April 28, 1999
Village Bancorp, Inc.
1845 East Rand Road
Prospect Heights, Illinois 60070
Ladies and Gentlemen:
We have acted as counsel to Village Bancorp, Inc., a Delaware
corporation (the "Company"), in connection with the registration of a minimum of
454,000 shares and a maximum of 554,000 shares of common stock, par value $0.01
per share of the Company (the "Shares"), pursuant to a registration statement on
Form SB-2 under the Securities Act of 1933, as amended (the "Registration
Statement").
In rendering this opinion, we have assumed the authenticity, accuracy
and completeness of all documents submitted to us as originals, the conformity
to authentic original documents of all documents submitted to us as certified,
conformed or photostatic copies and the genuineness of all signatures. As to
questions of fact material to our opinion, we have relied, without
investigation, upon the representations of: (a) officers of the Company
contained in certificates delivered to us; and (b) public officials.
Based upon the foregoing, we are of the opinion that the Shares are duly
authorized, and when sold, will be validly issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion in connection with the
Registration Statement and the Prospectus included therein and to the use of our
name under the heading "Legal Matters" in the Prospectus.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
Exhibit 10.1
- --------------------------------------------------------------------------------
DELTA BANCORP, INC.
1998 OMNIBUS
STOCK INCENTIVE PLAN
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Establishment, Purpose, and Effective Date of Plan................1
1.1 Establishment..................................................1
1.2 Purpose........................................................1
1.3 Effective Date.................................................1
Section 2. Definitions.......................................................1
2.1 Definitions....................................................1
2.2 Gender and Number..............................................2
Section 3. Eligibility and Participation.....................................2
3.1 Eligibility and Participation..................................2
Section 4. Administration....................................................2
4.1 Administration.................................................2
Section 5. Stock Subject to Plan.............................................2
5.1 Number and Amount Available for Award to Single Participant....2
5.2 Reuse..........................................................2
5.3 Adjustment in Capitalization...................................2
Section 6. Duration of Plan..................................................3
6.1 Duration of Plan...............................................3
Section 7. Stock Options.....................................................3
7.1 Grant of Options...............................................3
7.2 Option Agreement...............................................3
7.3 Option Price...................................................3
7.4 Exercise of Options............................................3
7.5 Payment........................................................3
7.6 Limitations on ISOs............................................3
7.7 Restrictions on Stock Transferability..........................3
7.8 Termination of Employment Due to Death, Disability,
or Retirement..................................................4
7.9 Termination of Employment Due to Death, Disability,
or Retirement..................................................4
7.10 Nontransferability of Options..................................4
Section 8. Stock Appreciation Rights.........................................4
8.1 Grant of Stock Appreciation Rights.............................4
8.2 Exercise of SARs in Lieu of Options............................4
8.3 Exercise of SARs in Addition to Options........................4
8.4 Exercise of SARs Independent of Options........................4
8.5 Exercise of SARs Upon Lapse of Options.........................5
8.6 Payment of SAR Amount..........................................5
8.7 Form and Timing of Payment.....................................5
8.8 Limit of Appreciation..........................................5
8.9 Term of SAR....................................................5
8.10 Termination of Employment......................................5
8.11 Nontransferability of SARs.....................................5
Section 9. Restricted Stock..................................................5
9.1 Grant of Restricted Stock......................................5
9.2 Transferability................................................5
9.3 Other Restrictions.............................................5
9.4 Voting Rights..................................................5
9.5 Dividends and Other Distributions..............................5
9.6 Termination of Employment Due to Retirement....................5
9.7 Termination of Employment Due to Death or Disability...........5
9.8 Termination of Employment for Reasons Other than Death,
Disability, or Retirement......................................5
9.9 Nontransferability of Restricted Stock.........................5
Section 10. Performance Units and Performance Shares.........................6
10.1 Grant of Performance Units or Performance Shares...............6
10.2 Value of Performance Units and Performance Shares..............6
10.3 Payment of Performance Units and Performance Shares............6
10.4 Form and Timing of Payment.....................................6
10.5 Termination of Employment Due to Death, Disability,
or Retirement..................................................6
10.6 Termination of Employment for Other Reasons....................6
10.7 Nontransferability.............................................6
10.8 Performance Goals..............................................6
Section 11. Beneficiary Designation..........................................6
11.1 Beneficiary Designation........................................6
Section 12. Rights of Employees..............................................6
12.1 Employment.....................................................6
12.2 Participation..................................................6
Section 13. Change in Control................................................6
13.1 In General.....................................................6
13.2 Definition.....................................................7
i
<PAGE>
Section 14. Amendment, Modification, and Termination of Plan.................7
14.1 Amendment, Modification, and Termination of Plan...............7
Section 15. Tax Withholding..................................................7
15.1 Tax Withholding................................................7
15.2 Share Withholding..............................................7
Section 16. Indemnification..................................................8
16.1 Indemnification................................................8
Section 17. Requirements of Law..............................................8
17.1 Requirements of Law............................................8
17.2 Governing Law..................................................8
ii
<PAGE>
SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN
1.1 Establishment. Delta Bancorp, Inc., an Illinois corporation,
hereby establishes the "DELTA BANCORP, INC. 1998 OMNIBUS STOCK INCENTIVE PLAN"
for key employees and directors (the "Plan"). The Plan permits the grant of
stock options, stock appreciation rights, restricted stock, common stock or cash
as a payout medium for payments under the Plans, specifically stock appreciation
rights, performance units, and performance shares.
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Company, by encouraging and providing for the acquisition of an equity
interest in the success of the Company by key employees and directors, by
providing additional incentives and motivation toward superior performance of
the Company, and by enabling the Company to attract and retain the services of
key employees upon whose judgment, interest, and special effort the successful
conduct of its operations is largely dependent.
1.3 Effective Date. The Plan shall become effective immediately upon
its adoption by the Board of Directors of the Company, subject to ratification
by the shareholders of the Company. Awards may be granted hereunder on or after
the effective date but shall in no event be exercisable or payable to a
Participant prior to such stockholder approval; and, if such approval is not
obtained within twelve (12) months after the effective date, such Awards shall
be of no force and effect.
SECTION 2. DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Award" means any Stock Option, Stock Appreciation Right,
Restricted Stock, Performance Unit or Performance Share
granted under this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" shall mean any one of the following:
(i) gross misconduct in, or the continued and willful
refusal by the Participant after written notice by the
Company to make himself available for the performance
of the Participant's duties for the Company or a
subsidiary; or
(ii) conviction for a felony for a matter related to the
Company or a subsidiary; or
(iii) suspension due to the direction of any authorized bank
regulatory agency that the Participant be relieved of
his duties and responsibilities to the Company or a
subsidiary.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Compensation Committee of the Board of
Directors or such other committee as may be appointed from
time to time by the Board of Directors to administer this
Plan. To the extent deemed appropriate by the Board, the
Committee shall consist of two or more members, each of whom
shall qualify as a "non-employee director," as the term (or
similar or successor term) is defined by Rule 16b-3, and as
an "outside director" within the meaning of Code Section
162(m) and regulations thereunder. In the absence of a
Committee, the Board shall act as the Committee hereunder.
(f) "Company" means Delta Bancorp, Inc., an Illinois
corporation.
(g) "Director" means a director of the Company or its
Subsidiaries who is not also an employee.
(h) "Disability" means totally and permanently disabled as
determined by the Committee.
(i) "Employee" means a regular salaried employee (including
officers and directors who are also employees) of the
Company or its Subsidiaries, or any branch or division
thereof.
(j) "Fair Market Value" means the value of the stock on a
particular date as determined by the Committee, provided,
however, that in the event the Stock is traded on an
established securities market, then "Fair Market Value"
shall be the average of the highest and lowest prices of the
Stock as reported by such market on a particular date. In
the event that there are no Stock transactions on such date,
the Fair Market Value shall be determined as of the
immediately preceding date on which there were Stock
transactions.
(k) "Option" means the right to purchase Stock at a stated price
for a specified period of time. For purposes of the Plan an
Option may be either (i) an "Incentive Stock Option," or
"ISO" within the meaning of Section 422A of the Code, (ii) a
"Nonstatutory (Nonqualified) Stock Option," or "NSO," or
(iii) any other type of option encompassed by the Code.
(l) "Participant" means any Employee or Director designated by
the Committee to participate in the Plan.
(m) "Performance Unit" means a right to receive a payment equal
to the value of a Performance Unit as determined by the
Committee based upon performance and pursuant to Section 10
of the Plan.
(n) "Performance Share" means a right to receive a payment equal
to the value of a Performance Share as determined by the
Committee based on performance and pursuant to Section 10 of
the Plan.
(o) "Period of Restriction" means the period during which the
transfer of shares of Restricted Stock is restricted
pursuant to Section 9 of the Plan.
(p) "Plan" means the Delta Bancorp, Inc. 1998 Omnibus Stock
Incentive Plan as set forth herein and any amendments
hereto.
(q) "Restricted Stock" means Stock granted to a Participant
pursuant to Section 9 of the Plan.
<PAGE>
(r) "Retirement" means termination of employment other than for
Cause, after the Participant's sixty- fifth (65th) birthday.
(s) "Rule 16b-3" means Rule 16b-3 or any successor or comparable
rule or rules applicable to Awards granted under the Plan
promulgated by the Securities and Exchange Commission under
Section 16(b) of the Securities Exchange Act of 1934, as
amended.
(t) "Stock" means the Common Stock, par value $.25 per share, of
the Company.
(u) "Stock Appreciation Right" and "SAR" mean the right to
receive a payment from the Company equal to the excess of
the Fair Market Value of a share of stock at the date of
exercise over a specified price fixed by the Committee,
which shall not be less than 100% of the Fair Market Value
of the Stock on the date of grant. In the case of a Stock
Appreciation Right which is granted in conjunction with an
Option, the specified price shall be the Option exercise
price.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation. Participants in the Plan shall be
selected by the Committee from among those Employees who are recommended for
participation by the Chief Executive Officer and who, in the opinion of the
Committee, are key employees in a position to contribute materially to the
Company's continued growth and development and to its long-term financial
success, and from among the Directors.
SECTION 4. ADMINISTRATION
4.1 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof (whether
taken during a meeting or by written consent), is authorized to interpret the
Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan, to provide for conditions and assurances deemed necessary or advisable to
protect the interests of the Company, and to make all other determinations
necessary or advisable for the administration of the Plan, but only to the
extent not contrary to the express provisions of the Plan. Determinations,
interpretations, or other actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever. To the extent deemed necessary or
advisable for purposes of Rule 16b-3 or otherwise, the Board may act as the
Committee hereunder.
SECTION 5. STOCK SUBJECT TO PLAN
5.1 Number and Amount Available for Award to Single Participant. The
total number of shares of Stock subject to Awards under the Plan may not exceed
225,000 (of this total number up to 25,000 shares of Stock may be issued in
Restricted Stock), and the total number of shares of Stock which may be made
subject to Awards granted under the Plan in any calendar year to any single
Participant may not exceed 25,000. Such numbers of shares shall be subject to
adjustment upon occurrence of any of the events described in Section 5.3. The
shares to be delivered under the Plan may consist, in whole or in part, of
authorized but unissued Stock or treasury Stock, not reserved for any other
purpose.
5.2 Reuse. If, and to the extent:
(a) An Option shall expire or terminate for any reason without
having been exercised in full (including, without
limitation, cancellation and re-grant), or in the event that
an Option is exercised or settled in a manner such that some
or all of the shares of Stock related to the Option are not
issued to the Participant (or beneficiary) including as the
result of the use of shares for withholding taxes), the
shares of Stock subject thereto which have not become
outstanding shall (unless the Plan shall have terminated)
become available for issuance under the Plan; provided,
however, that with respect to a share-for-share exercise,
only the net shares issued shall be deemed to have become
outstanding as a result thereof.
(b) Restricted Stock, Performance Shares or Performance Units
under the Plan forfeited for any reason, or settled in cash
in lieu of Stock or in a manner such that some or all of the
shares of Stock related to the award are not issued to the
Participant (or beneficiary), such shares of Stock shall
(unless the Plan shall have terminated) become available for
issuance under the Plan; provided, however, that if any
dividends paid with respect to shares of Restricted Stock or
Performance Shares were paid to the Participant prior to the
forfeiture thereof, such shares shall not be reused for
grants or awards.
(c) SARs expire or terminate for any reasons without having been
earned in full, an equal number of SARs shall (unless the
Plan shall have terminated) become available for issuance
under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock that occurs after ratification of the Plan by the
shareholders of the Company by reason of a Stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock subject
to each outstanding Option, and its stated Option price, shall be adjusted
appropriately by the Committee, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. In such event, the Committee also shall have discretion to make
appropriate adjustments in the number and type of shares subject to Restricted
Stock grants then outstanding under the Plan pursuant to the terms of such
grants or otherwise.
SECTION 6. DURATION OF PLAN
6.1 Duration of Plan. The Plan shall remain in effect, subject to the
Board's right to earlier terminate the Plan pursuant to Section 14 hereof, until
all Stock subject to it shall have been purchased or acquired pursuant to the
provisions hereof. Notwithstanding the foregoing, no Award may be granted under
the Plan on or after April 29, 2008.
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SECTION 7. STOCK OPTIONS
7.1 Grant of Options. Subject to the provisions of Section 5 and 6,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Options granted to each Participant. The
Committee may grant any type of Option to purchase Stock that is permitted by
law at the time of grant.
7.2 Option Agreement. Each Option shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other provisions as the Committee shall determine.
7.3 Option Price. No Option granted pursuant to the Plan shall have an
Option price that is less than the Fair Market Value of the Stock on the date
the Option is granted.
7.4 Exercise of Options. Options awarded under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall approve, either at the time of grant of such Options or
pursuant to a general determination, and which need not be the same for all
Participants, provided that, to the extent required to comply with Rule 16b-3,
no Option shall be exercisable within the first six months of its term, unless
death or Disability of the Participant occurs during such period. Each Option
which is intended to qualify as an Incentive Stock Option pursuant to Section
422A of the Code, and each Option which is intended to qualify as another type
of ISO which may subsequently be authorized by law, shall comply with the
applicable provisions of the Code pertaining to such Options.
7.5 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of shares of Stock
with respect to which the Option is to be exercised, accompanied by full payment
for the Stock. The Option Price upon exercise of any Option shall be payable to
the Company in full either:
(a) in cash or its equivalent (including, for this purpose, the
proceeds from a cashless exercise as permitted under Federal
Reserve Board's Regulation T, or other borrowed funds),
(b) by tendering previously-acquired Stock having an aggregate
Fair Market Value at the time of exercise equal to the total
Option price (including, for this purpose, Stock deemed
tendered by affirmation of ownership),
(c) by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law, or
(d) by a combination of (a), (b), and (c).
The exercise of an Option shall cancel any related SAR to the extent of the
number of shares as to which the Option is exercised. As soon as practicable
after receipt of each notice and full payment, the Company shall deliver to the
Participant a certificate or certificates representing acquired shares of Stock.
For purposes of the foregoing, Fair Market Value shall be determined on the date
of Option exercise.
7.6 Limitations on ISOs. Notwithstanding anything in the Plan to the
contrary, to the extent required from time to time by the Code, the following
additional provisions shall apply to the grant of Options which are intended to
qualify as Incentive Stock Options (as such term is defined in Section 422A of
the Code):
(a) The aggregate Fair Market Value (determined as of the date
the Option is granted) of the shares of Common Stock with
respect to which Incentive Stock Options are exercisable for
the first time by any Participant during any calendar year
(under all plans of the Company) shall not exceed $100,000
or such other amount as may subsequently be specified by the
Code; provided that, to the extent that such limitation is
exceeded, any excess Options (as determined under the Code)
shall be deemed to be Nonstatutory (Nonqualified) Stock
Options.
(b) Any Incentive Stock Option authorized under the Plan shall
contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and
contain or be deemed to contain all provisions required in
order to qualify the Options as Incentive Stock Options.
(c) All Incentive Stock Options must be granted within ten years
from the earlier of the date on which this Plan was adopted
by the Board of Directors or the date this Plan was approved
by the shareholders.
(d) Unless exercised, terminated, or cancelled sooner, all
Incentive Stock Options shall expire no later than ten years
after the date of grant.
(e) Directors shall not be eligible to receive Incentive Stock
Options.
7.7 Restrictions on Stock Transferability. The Committee shall impose
such restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable, including, without limitation,
restrictions under the applicable Federal securities law, under the requirements
of any stock exchange upon which such shares of Stock are then listed and under
any blue sky or state securities laws applicable to such shares.
7.8 Termination of Employment Due to Death, Disability, or Retirement.
In the event the employment of a Participant is terminated by reason of death,
Disability, or Retirement, any outstanding Options then exercisable may be
exercised at any time prior to the expiration date of the Options or within
three (3) years after such date of termination of employment, whichever period
is the shorter. However, in the case of Incentive Stock Options, the favorable
tax treatment prescribed under Section 422A of the Code shall not be available
if such options are not exercised within three (3) months after date of
termination, or twelve (12) months in the case of Disability, provided such
Disability constitutes total and permanent disability as defined in Section
22(e)(3) of the Code. If an Incentive Stock Option is not exercised within three
(3) months of termination due to Retirement, it shall be treated as a
Nonstatutory (Nonqualified) Stock Option for the remainder of its allowable
exercise period.
7.9 Termination of Employment Due to Death, Disability, or Retirement.
If the employment of the Participant shall terminate for any reason other than
death, Disability, Retirement, or involuntarily for Cause, the rights under any
then outstanding Option granted pursuant to the Plan shall terminate upon the
expiration date of the Option or one month after such date of termination
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of employment, whichever first occurs; provided, however, that in the event such
termination of employment occurs after a change in control (as defined in
Section 13.2 of the Plan), the rights under any then outstanding Option granted
pursuant to the Plan shall terminate upon the expiration date of the Option or
one year after such date of termination of employment, whichever first occurs.
Where termination of employment is involuntarily for Cause, rights under all
Options shall terminate immediately upon termination of employment.
7.10 Nontransferability of Options. Except as provided below, no
Option granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, otherwise than by will or by the laws of
descent and distribution. Further, all Options granted to a Participant under
the Plan shall be exercisable during his lifetime only by such Participant.
Notwithstanding the foregoing, the Committee may, in its discretion, authorize
all or a portion of the Options (other than Incentive Stock Options) granted to
a Participant to be on terms which permit transfer by such Participant to:
(a) the spouse, children or grandchildren of the Participant
("Immediate Family Members");
(b) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or;
(c) a partnership in which such Immediate Family Members are the
only partners,
provided that:
(i) there may be no consideration for any such transfer;
(ii) the Award Agreement pursuant to which such Options are
granted expressly provides for transferability in a
manner consistent with this Section 7.10; and
(iii) subsequent transfers of transferred Options shall be
prohibited except those in accordance with Section 11.
Following transfer, any such Options shall continue to
be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that
for purposes of Section 11 hereof the term
"Participant" shall be deemed to refer to the
transferee. The provisions of Sections 7 and 13
relating to the period of exercisability and expiration
of the Option shall continue to be applied with respect
to the original Participant, and the Options shall be
exercisable by the transferee only to the extent, and
for the periods, set forth in said Sections 7 and 13.
SECTION 8. STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. Subject to the provisions of
Sections 5 and 6, Stock Appreciation Rights ("SARs") may be granted to
Participants at any time and from time to time as shall be determined by the
Committee. An SAR may be granted at the discretion of the Committee in any of
the following forms:
(a) In lieu of Options,
(b) In addition to Options,
(c) Upon lapse of Options,
(d) Independent of Options,
(e) Each of the above in connection with previously awarded
Options.
8.2 Exercise of SARs in Lieu of Options. SARs granted in lieu of
Options may be exercised for all or part of the shares of Stock subject to the
related Option upon the surrender of the right to exercise an equivalent number
of Options. The SAR may be exercised only with respect to the shares of Stock
for which its related Option is then exercisable. Option shares with respect to
which the SAR shall have been exercised may not be subject again to an Award
under this Plan. SARs granted pursuant to this Section 8.2 with respect to which
the Option shares have been exercised will immediately lapse upon such exercise.
8.3 Exercise of SARs in Addition to Options. SARs granted in addition
to Options shall be deemed to be exercised upon the exercise of the related
Options.
8.4 Exercise of SARs Independent of Options. SARs granted independent
of Options may be exercised upon whatever terms and conditions the Committee, in
its sole discretion, imposes upon the SARs.
8.5 Exercise of SARs Upon Lapse of Options. SARs granted upon lapse of
Options shall be deemed to have been exercised upon the lapse of the related
Options as to the number of shares of Stock subject to the Options.
Notwithstanding Section 5.2 above, cancelled Options in an amount equal to the
related SARs shall not be available again for Awards under the Plan.
8.6 Payment of SAR Amount. Upon exercise of the SAR, the holder shall
be entitled to receive payment of an amount (subject to Section 8.8 below)
determined by multiplying:
(a) The difference between the Fair Market Value of a share of
Stock at the date of exercise over the price fixed by the
Committee at the date of grant, by
(b) The number of shares with respect to which the Stock
Appreciation Right is exercised.
8.7 Form and Timing of Payment. At the discretion of the Committee,
payment for SARs may be made in cash or Stock, or in a combination thereof.
8.8 Limit of Appreciation. At the time of grant, the Committee may
establish in its sole discretion, a maximum amount per share which will be
payable upon exercise of an SAR.
8.9 Term of SAR. The term of an SAR granted under the Plan shall not
exceed ten years and one day.
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8.10 Termination of Employment. In the event the employment of a
Participant is terminated by reason of death, Disability, Retirement, or any
other reason, any SARs outstanding shall terminate in the same manner as
specified for Options under Sections 7.8 and 7.9 herein.
8.11 Nontransferability of SARs. No SAR granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
SARs granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
SECTION 9. RESTRICTED STOCK
9.1 Grant of Restricted Stock. Subject to the provisions of Sections 5
and 6, the Committee, at any time and from time to time, may grant shares of
Restricted Stock under the Plan to such Participants and in such amounts as it
shall determine. Each grant of Restricted Stock shall be in writing.
9.2 Transferability. Except as provided in Sections 9.8 and 9.9
hereof, the shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated for such
period of time as shall be determined by the Committee and shall be specified in
the Restricted Stock grant, or upon earlier satisfaction of other conditions
(which may include the attainment of performance goals as defined in Section
10.8 hereof), as specified by the Committee in its sole discretion and set forth
in the Restricted Stock grant.
9.3 Other Restrictions. The Committee shall impose such other
restrictions on any shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, restrictions under
applicable Federal or state securities laws, and may legend the certificates
representing Restricted Stock to give appropriate notice of such restrictions.
9.4 Voting Rights. Participants holding shares of Restricted Stock
granted hereunder may exercise full voting rights with respect to those shares
during the Period of Restriction.
9.5 Dividends and Other Distributions. During the Period of
Restriction, Participants holding shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those shares while they are so held. If any such dividends or
distributions are paid in shares of Stock, the shares shall be subject to the
same restrictions on transferability as the shares of Restricted Stock with
respect to which they were paid.
9.6 Termination of Employment Due to Retirement. In the event a
Participant's employment terminates on or after his Normal Retirement Date, the
Period of Restriction applicable to the Restricted Stock pursuant to Subsection
9.2 hereof shall automatically terminate and, except as otherwise provided in
Subsection 9.3, the shares of Restricted Stock shall thereby be free of
restrictions and freely transferable. In the event a Participant terminates
employment on or after his Early Retirement Date but prior to Normal Retirement
Date, any shares of Restricted Stock still subject to restrictions at the date
of such termination automatically shall be forfeited and returned to the
Company; provided, however, that the Committee in its sole discretion may waive
the restrictions remaining on any or all shares of Restricted Stock or add such
new restrictions to those shares of Restricted Stock as it deems appropriate.
9.7 Termination of Employment Due to Death or Disability. In the event
a Participant terminates his employment with the Company because of death or
Disability during the Period of Restriction, the restrictions applicable to the
shares of Restricted Stock pursuant to Section 9.2 hereof shall automatically
terminate and, except as otherwise provided in Subsection 9.3, the shares of
Restricted Stock shall thereby be free and restrictions and freely transferable.
9.8 Termination of Employment for Reasons Other than Death,
Disability, or Retirement. In the event that a Participant terminates his
employment with the Company for any reason other than those set forth in
Sections 9.6 and 9.7 hereof during the Period of Restriction, then any shares of
Restricted Stock still subject to restrictions at the date of such termination
automatically shall be forfeited and returned to the Company; provided, however,
that, in the event of an involuntary termination of the employment of a
Participant by the Company other than for Cause, the Committee in its sole
discretion may waive the automatic forfeiture of any or all such shares and/or
may add such new restrictions to such shares of Restricted Stock as it deems
appropriate.
9.9 Nontransferability of Restricted Stock. No shares of Restricted
Stock granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, otherwise than by will or by the laws of
descent and distribution until the termination of the applicable Period of
Restriction. All rights with respect to Restricted Stock granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant.
SECTION 10. PERFORMANCE UNITS AND PERFORMANCE SHARES
10.1 Grant of Performance Units or Performance Shares. Subject to the
provisions of Sections 5 and 6, Performance Units or Performance Shares may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Units or Performance Shares granted to each
Participant.
10.2 Value of Performance Units and Performance Shares. Each
Performance Unit shall have an initial value of one hundred dollars ($100) and
each Performance Share initially shall represent one share of Stock. The
Committee shall set performance goals in its discretion which, depending on the
extent to which they are met, will determine the ultimate value of the
Performance Unit or Performance Share to the Participant. The time period during
which the performance goals must be met shall be called a performance period,
and also is to be determined by the Committee.
10.3 Payment of Performance Units and Performance Shares. After a
performance period has ended, the holder of a Performance Unit or Performance
Share shall be entitled to receive the value thereof as determined by the extent
to which performance goals discussed in Section 10.2 have been met.
10.4 Form and Timing of Payment. Payment in Section 10.3 above shall
be made in cash, stock, or a combination thereof as determined by the Committee.
Payment may be made in a lump sum or installments as prescribed by the
Committee. If any payment is to be made on a deferred basis, the Committee may
provide for the payment of dividend equivalents or interest during the deferral
period.
10.5 Termination of Employment Due to Death, Disability, or
Retirement. In the case of death, Disability, or Retirement, the holder of a
Performance Unit or Performance Share shall receive prorata payment based on the
number of months'
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service during the performance period but based on the achievement of
performance goals during the entire performance period. Payment shall be made at
the time payments are made to Participants who did not terminate service during
the performance period.
10.6 Termination of Employment for Other Reasons. In the event that a
Participant terminates employment with the Company for any reason other than
death, Disability or Retirement, all Performance Units and Performance Shares
shall be forfeited; provided, however, that in the event of an involuntary
termination of the employment of the Participant by the Company other than for
Cause, the Committee in its sole discretion may waive the automatic forfeiture
provisions and pay out on a pro rata basis.
10.7 Nontransferability. Units or Performance Shares granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and distribution
until the termination of the applicable performance period. All rights with
respect to Performance Units and Performance Shares granted to a Participant
under the Plan shall be exercisable during his lifetime only by such
Participant.
10.8 Performance Goals. For purposes of Section 9.2 and 10.2 hereof,
"performance goals" shall mean the criteria and objectives, determined by the
Committee pursuant to the Plan, which shall be satisfied or met during the
applicable restriction period or performance period, as the case may be, as a
condition to the Participant's receipt, in the case of a grant of the Restricted
Stock or a grant of Performance Shares, of the shares of Stock subject to such
grant, or in the case of a Performance Unit Award, of payment with respect to
such Award. Such criteria and objectives may include, but are not limited to,
return on assets, return on equity, growth in net earnings, growth in earnings
per share, asset growth, deposit growth, loan growth, asset quality levels,
growth in the Fair Market Value of the Stock, or any combination of the
foregoing or any other criteria and objectives determined by the Committee. Upon
completion of the restricted period or the performance period, as the case may
be, the Committee shall certify the level of the performance goals attained and
the amount of the Award payable as a result thereof.
SECTION 11. BENEFICIARY DESIGNATION
11.1 Beneficiary Designation. Each Participant under the Plan may
name, from time to time, any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each
designation will revoke all prior designations by the same Participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by
the Participant in writing with the Committee during his lifetime. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to his estate.
SECTION 12. RIGHTS OF EMPLOYEES
12.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
12.2 Participation. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
SECTION 13. CHANGE IN CONTROL
13.1 In General. In the event of a change in control of the Company as
defined in Section 13.2 below, all Awards under the Plan shall vest 100%,
whereupon all Options shall become exercisable in full, the restrictions
applicable to Restricted Stock shall terminate, and Performance Units and
Performance Shares shall be paid out based upon the extent to which performance
goals during the performance period have been met up to the date of the change
in control, or at target, whichever is higher.
13.2 Definition. For purposes of the Plan, a "change in control" shall
mean any of the following events:
(a) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended),
other than (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a subsidiary, or (ii) a corporation owned directly or
indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 10% or
more of the total voting power of the then outstanding
shares of capital stock of the Company entitled to vote
generally in the election of directors (the "Voting Stock"),
provided, however, that the following shall not constitute a
change in control: (A) such person becomes a beneficial
owner of 10% of more of the Voting Stock as the result of an
acquisition of such stock directly from the Company, or (B)
such person becomes a beneficial owner of 10% or more of the
Voting Stock as a result of the decrease in the number of
outstanding shares caused by the repurchase of shares by the
Company; provided, further, that in the event a person
described in clause (A) or (B) shall thereafter increase
(other than in circumstances described in clause (A) or (B))
beneficial ownership of stock representing more than 1% of
the Voting Stock, such person shall then be deemed to become
a beneficial owner of 10% or more of the Voting Stock for
purposes of this paragraph (a), provided such person
continues to beneficially own 10% or more of the Voting
Stock after such subsequent increase in beneficial
ownership, or
(b) During any period of two consecutive years, individuals, who
at the beginning of such period constitute the Board of
Directors of the Company, and any new director, whose
election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a
vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning
of the period or whose election or nomination for election
was previously so approved, cease for any reason to
constitute a majority thereof, or
(c) the shareholders of the Company approve, or if such approval
is not necessary or required, the consummation of, a
reorganization, merger or consolidation, the sale or other
disposition of all or substantially all of the assets, or a
similar transaction or series of transactions involving the
Company (a "Business Combination") in each case, unless (1)
all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Voting
Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of
the total voting power represented by the voting securities
entitled to vote generally in the election of directors of
the Company or the corporation resulting from the Business
Combination (including, without limitation, a corporation
which as a result of the Business Combination owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries), in
substantially the
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same proportions as their ownership, immediately prior to
the Business Combination of the Voting Stock of the Company,
and (2) at least a majority of the members of the board of
directors of the Company or such corporation resulting from
the Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or
action of the Incumbent Board, providing for such Business
Combination; or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
The Board has final authority to determine the exact date on which a change in
control has been deemed to have occurred under (a), (b), (c) and (d) above.
SECTION 14. AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
14.1 Amendment, Modification, and Termination of Plan. The Board at
any time may terminate, and from time to time may amend or modify the Plan,
provided, however, that except as provided in Section 5.3 of the Plan, no such
action of the Board, without approval thereof by the shareholders of the Company
may:
(a) Increase the total amount of Stock which may be issued under
the Plan.
(b) Extend the period during which Awards may be granted.
(c) Extend the maximum period after the date of grant during
which Options may be exercised.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
consent of the Participant.
SECTION 15. TAX WITHHOLDING
15.1 Tax Withholding. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of awards granted hereunder,
Participants may elect to satisfy the withholding requirement, in whole or in
part, by having the Company withhold shares of Stock having a Fair Market Value
on the date the tax is to be determined equal to the minimum statutory total tax
which would be imposed on the transaction; provided, however, that in the event
a deferral election is in effect with respect to the shares deliverable upon
exercise of an Option, then the Participant may only elect to have such
withholding made from the Stock tendered to exercise such Option. All such
elections shall be irrevocable, made in writing, signed by the Participant, and
shall be subject to any restrictions or limitations that the Committee, in its
sole discretion, deems appropriate.
SECTION 16. INDEMNIFICATION
16.1 Indemnification. Each Person who is or shall have been a member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him in settlement thereof, with
the Company's approval, or paid by him in satisfaction of any judgment in any
such action, suit, or proceeding against him, provided he shall give the Company
an opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
SECTION 17. REQUIREMENTS OF LAW
17.1 Requirements of Law. The granting of Awards and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
17.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Illinois.
7
Exhibit 10.2
LEASE AGREEMENT
---------------
THIS LEASE is made the 6th day of February, 1981.
THE PARTIES ARE:
DANIEL FUSCO, 29 South LaSalle, Street, Suite #830, Chicago, Illinois
60603
--"landlord";
and, GLENVIEW GUARANTY SAVINGS & LOAN ASSOCIATION, 990 River Drive,
Glenview, Illinois 60025
--"tenant."
THE DEMISED PREMISES ARE:
THAT PART of the three-story office building and facility to be
constructed by landlord in accordance with the plans and
specifications set forth in Exhibit A ("the improvements") and of the
land legally described in Exhibit B, the improvements and the said
land being herein jointly referred to as "the premises," the aforesaid
PART being described in detail in Exhibit C.
LANDLORD, for and in consideration of the payment of the rent and the
performance of the covenants and agreements by tenant herein contained, does
hereby lease to tenant, and tenant does hereby lease from landlord, the demised
premises.
ARTICLE ONE
-----------
Term, Commencement Date, Construction and Security Deposit
----------------------------------------------------------
Section 1-1. Term. The term of this lease shall be for the period commencing on
the commencement date as hereinafter set forth and expiring without further
notice or act the last day of the tenth year after the commencement date with
two (2) five (5)-year renewable options.
Section 1-2. Commencement Date. The commencement date shall be the date upon
which the improvements are substantially completed in accordance with the plans
and specifications set forth in Exhibit A and certified by landlord's architect
or by the proper municipal authorities by the granting of a certificate of
occupancy if such certificate is required by applicable municipal ordinances.
Landlord shall advise tenant in writing of the commencement date not less than
thirty (30) days prior thereto.
<PAGE>
Section 1-3. Construction of Building, Delivery of Possession. Within a
reasonable time after the date hereof, landlord, subject to the provisions
herein as they may relate to cost and expenses to be paid by tenant, if any, and
subject to landlord obtaining financing for funding the development and
construction of the premises, at landlord's cost and expense, shall begin and
prosecute the erection of the office building and facility referred to in this
lease and shall complete the same in accordance with the plans and
specifications set forth in Exhibit A.
Any work provided to be done under the plans and specifications which shall not
have been completed at the commencement date, shall be promptly completed by
landlord and if not completed within sixty (60) days after the delivery of
possession, tenant may after seven (7) days' prior written notice to landlord
complete the same and deduct the cost thereof from the rent for the next ensuing
month or months. Should the work completed by tenant deviate from the plans and
specifications, then tenant shall correct said work to conform with the plans
and specifications within sixty (60) days from the date of written notice.
Should tenant not correct said work within the sixty (60)-day period, then
landlord may either declare the lease in default or may make said corrections
and tenant shall immediately reimburse landlord for all cost incurred.
Notwithstanding the declaration of default by landlord, tenant shall be
responsible for all costs incurred by landlord in conforming said work to the
plans and specifications.
To see if the improvements are being built in accordance with the plans and
specifications set forth in Exhibit A, tenant, tenant's representatives and
engineers, shall have access to the improvements at all times during the
construction thereof for the purpose of making inspections of the work.
It is anticipated that the improvements will be substantially completed within
one year from the date hereof; however, landlord and tenant each acknowledge to
the other and agree that said date is only a "target date" and that inability to
complete by that date for any reason shall not nullify or otherwise affect the
validity and enforceability of this lease. Tenant shall and hereby does agree
that if, for any reason whatsoever, landlord is unable to complete the
development and construction of the premises and so informs tenant, then, in
that event, this lease shall be null and void and tenant shall release landlord
and landlord shall release tenant from all covenants and agreements contained
herein.
Section 1-4. Options to Extend Term. If the sale of the condominium unit does
not take place as contemplated by landlord's development as set forth herein in
Section 4-15, then, in that event, landlord does hereby grant to tenant the
right, privilege
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<PAGE>
and option to extend this lease for a period of five (5) years from the date of
expiration of the term hereof, upon the same terms and conditions as herein
contained, including the additional rent as provided in this lease, upon written
exercise of such option to the landlord by tenant given at least one hundred
eighty (180) days prior to the expiration of the term hereof.
Section 1-5. Security Deposit. Tenant shall deposit with landlord the sum of Two
Thousand Seven Hundred Two and 50/100 Dollars ($2,702.50) as security deposit
for the performance of each and every covenant and provision of this lease and
covenants to maintain said deposit until the termination of this lease. At the
termination of this lease, provided possession of the premises is returned to
landlord in the same condition as exists at the date of commencement, reasonable
wear and tear expected, said deposit shall be returned to tenant.
ARTICLE TWO
-----------
Base Rental and Rental Adjustments
----------------------------------
Section 2-1. Base Rent. Tenant shall pay to landlord as aggregate base rent for
the demised premises a sum determined as follows:
(a) net rentable area is 2,350 square feet (including drive-up
appendage);
(b) common area factor is 1.20;
(c) gross rentable area is 2,820 square feet (2,350 square feet, net
rentable area X 1.20, common area factor);
(d) the base rent per gross square foot is $11.50;
(e) total base rent per year is $32,430.00 ($11.50 X 2,820 square
feet, gross rentable area); and,
(f) aggregate base rent is $324,300.00, total base rent per year X
ten (10) years, the term of this lease.
Base rent per month of $2,702.50, being the total base rent per year divided by
12 months, shall be payable by tenant to landlord monthly.
Section 2-2. Adjustment to Base Rent. Base rent as determined Section 2-1 shall
be adjusted as follows:
(a) commencing on the first day of the first full year following the
commencement date of this lease, for said first year and for each
year or part thereof thereafter during the
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<PAGE>
remainder of the term, including any extensions or renewals
thereof, the base rent as determined in this Section 2-2, as
adjusted in the preceding paragraph, shall be increased, and
shall be payable as herein provided, by the same percentage as
the increase in direct expenses paid or incurred by landlord on
account of the operation and/or maintenance of the premises (as
defined in Section 2-5) in the first preceding year over the
direct expenses paid or incurred by landlord on account of the
operation and/or maintenance of the premises (as defined in
Section 2-5) in the second preceding year;
(b) in addition to the base rent, as adjusted, tenant shall pay
directly to landlord as additional rent, the following:
(i) expenses attributable to improvements made specifically for
tenant (as set forth in Exhibit D), if any, directly related
to tenant's occupancy and use:
(aa) all property and other taxes, if any, now and hereafter
levied or assessed;
(bb) all insurance premiums;
(cc) all maintenance and repairs;
(dd) all heating, electrical and other utility services
directly zoned and separately metered;_
(ee) all structural repairs; and,
(ff) other expenses, if any.
(ii) expenses directly attributable to tenant's occupancy and
use:
(aa) all heating, electrical and other utility services
directly zoned and separately metered;
(bb) all non-structural repairs;
(cc) telephone services; and,
(dd) other expenses, if any.
(iii) expenses indirectly related to tenant's occupancy and use
which expenses tenant shall pay for the period beginning on
the commencement date and ending on the last day of each
full year following commencement date and each full year
thereafter during the remainder
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<PAGE>
of the term, including any extensions or renewals thereof:
(aa) a proportion of all property taxes paid in excess of
$1.00 per gross square foot of building area after
deduction of such taxes attributable to improvements,
if any, directly related to tenant's occupancy and use
as provided in subparagraph (i)(aa) of this paragraph
(b) of this Section; and,
(bb) a proportion of any increase in insurance premiums paid
or incurred by landlord after the deduction of such
premiums attributable to the improvements, if any,
directly related to tenant's occupancy and use as
provided in subparagraph (i)(bb) of this paragraph (b)
of this Section.
The word "proportion" as hereinabove used shall be deemed to
mean that tenant's expense shall be determined on a prorata
basis which is tenant's percentage of net rentable area
occupied in relation to total net rentable area contained in
the building which is a part of the premises.
(iv) the cost of improvements, if any, to be constructed by
landlord in accordance with the plans and specifications set
forth in Exhibit D attached hereto and by this reference
made a part hereof, amortization of said cost to be paid
monthly by tenant as a fixed sum on one of the two following
bases:
(aa) if the permanent mortgage lender commits an additional
amount for the improvements over and above the total
amount it would commit for a general office building,
then the cost of such improvements shall be amortized
over the term of the permanent mortgage; or,
(bb) if the permanent mortgage lender does not commit an
additional amount for the improvements and landlord
must secure an additional loan or loans for such
improvements, then the cost of such improvements shall
be amortized over the term of the additional loan or
loans.
In each case, if tenant's lease, or any extensions or
renewals thereof, terminates before amortization of the
total cost of the improvements are complete, tenant shall
reimburse landlord for the unamortized portion of the total
cost of such improvements at the
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<PAGE>
time of the termination of this lease.
By way of illustration and not limitation, the following is
an example calculation of amortization of the cost of
improvements:
Cost of improvements = $10,000
Increased permanent loan amount or
additional loan = $ 8,000
Annual constant = .11
Landlord's equity discount rate = .12
($8,000) (.11) + ($2,000) (.1770) = annual amortization of
cost of improvements to be added to base rent.
The improvements shall be and are the property of landlord.
Section 2-3. Occupancy Prior to Commencement Date. If tenant occupies any part
of the demised premises for any period prior to commencement date, tenant shall
pay rental therefor on a prorata basis from the date of occupancy to the
commencement date.
Section 2-4. Payment of Rent. Base rent and all monthly adjustments thereof
shall be paid by tenant on the first day of each and every calendar month during
the term hereof. If the commencement date is other than the first day of a
calendar month, rent for the portion of the calendar month at the beginning of
the term and at the end of the term shall be apportioned. Said payment shall be
made in such manner and at such place or places as landlord may direct, and
until further notice said rental payments shall be made to:
MR. DANIEL FUSCO
29 South LaSalle Street
Suite #830
Chicago, Illinois 60603
Tenant shall pay promptly all expenses required to be paid directly; and, such
sum or sums payable other than monthly as additional rent shall be payable by
tenant to landlord within thirty (30) days after landlord renders a statement to
tenant therefor.
Section 2-5. Definition of Direct Expenses. Direct expenses and direct expenses
paid or incurred by landlord on account of the operation and/or maintenance of
the premises shall be deemed to mean all direct costs of operations and
maintenance as determined by generally accepted principles of accounting and
auditing practices and includes by way of illustration and not limitation: heat,
-6-
<PAGE>
water, electricity and other utility costs; insurance premiums; condominium
association assessments; permits, licenses and inspection fees; cost of labor,
materials and other services; and, personal property taxes or replacement taxes
therefor, paid or incurred by landlord in the operation and maintenance of the
premises as determined by the Certified Public Accountant employed by landlord
for the applicable period or year.
ARTICLE THREE
-------------
Landlord's Additional Rights and Duties
---------------------------------------
Section 3-1. Services. Landlord, at landlord's expense subject to the provisions
of this lease (specifically including but not limited to Section 2-2), shall
provide tenant with the following services and shall pay all direct expenses,
all subject to reasonableness and applicable law and regulations:
(a) utilities for common areas;
(b) janitorial services;
(c) landscape services;
(d) trash removal;
(e) window washing as deemed necessary;
(f) snow removal as required;
(g) all structural repairs and maintenance;
(h) exterior maintenance;
(i) parking area maintenance;
(j) elevator service; and,
(k) management services.
Section 3-2. Taxes and Assessments. Subject to the provisions of this lease,
landlord shall be responsible to pay all state, city and county taxes,
assessments and other charges of every kind that become due and payable in
connection with the premises and any improvements now thereon or hereafter
placed upon said premises during the original term of this lease or during any
extended term if tenant exercises tenant's option to extend.
Section 3-3. Fire and Extended Coverage Insurance. Subject to
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<PAGE>
the provisions of this lease, during the term of this lease or any extensions
thereof, landlord at landlord's own expense, covenants that landlord will keep
the improvements now standing upon, or which may hereafter be erected upon, the
premises insured against loss or damage by fire, vandalism and malicious
mischief and the hazards covered by extended coverage insurance in a responsible
insurance company or companies and to maintain such insurance at all times
during the term of this lease or any extensions thereof in an amount equal to
not less than the full insurable value of said improvements. The policy or
policies thereof shall be taken out by landlord and/or condominium association
and shall name tenant as co-insured or as additional insured and if required by
any mortgagee shall have loss payable to the mortgagees as their interests shall
appear.
Section 3-4. Maintenance. Landlord represents and warrants that the premises,
including hot water, heating, plumbing and electrical systems, and all other
items, will be in good working order and repair. Landlord shall make any repairs
of a structural nature to said improvements and any non-structural repairs made
necessary by defects in construction as well as maintaining the roof, exterior
walls, foundation walls, driveways and parking lots.
If the repairs required to be made by tenant are not completed within a
reasonable time after request for such repair by landlord, landlord shall have
the option to make such repairs after first giving tenant fifteen (15) days'
notice of intention to do so, and any amounts expended by virtue thereof shall
be added to the next month's rent in the full amount of the expenditures.
Section 3-5. Landlord's Right to Access. Tenant shall permit landlord and
landlord's agents to enter upon the demised premises at all reasonable times
during business hours to examine the condition of the same, provided that
landlord gives tenant a twenty-four (24) hour notice of coming, except in time
of emergency, and shall permit landlord to make such repairs as may be required.
Tenant shall permit landlord, for a period of one hundred eighty (180) days
prior to the expiration of the term of this lease, to place upon the premises
the usual "For Rent" or "For Sale" signs, and shall permit landlord and
landlord's agents, at reasonable times, to conduct prospective tenants or
purchasers through the demised premises after giving notice as aforesaid.
Section 3-6. Landlord's Title. Landlord's title is and always shall be paramount
to the title of tenant and nothing contained in this lease shall empower tenant
to do any act which can, shall or may encumber landlord's title.
-8-
<PAGE>
ARTICLE FOUR
------------
Tenant's Additional Rights and Duties
-------------------------------------
Section 4-1. Purpose of Use of Premises. Tenant is hereby given the privilege of
using the demised premises and the common area of the improvements for the
purpose of maintaining offices in the conduct of tenant's principal business as
set forth in Exhibit E; provided, however, that in the event tenant is by law,
regulation or ordinance prohibited or forbidden to use the said improvements for
the purposes previously set forth, tenant is then hereby given the privilege of
using the said improvements for any lawful purpose in accordance with the terms
and conditions of this lease.
Section 4-2. Observation of Laws. Tenant shall at its own cost and expense,
promptly observe and comply with all laws, ordinances, requirements, orders,
directives, rules and regulations of the federal, state, county, municipal or
town governments and of all governmental authorities affecting the premises and
improvements, including land abutting the same and the street and parking lot
abutting it and any sidewalks which may be constructed adjacent to said street,
whether the same are in force at the commencement of the term of this lease or
may be in the future passed, enacted or directed and tenant shall pay all costs,
expenses, liabilities, losses, damages, fines, penalties, claims and demands
that may in any manner arise out of, or be imposed because of, the failure of
tenant to comply with its obligations under this lease; provided, however, that
in observing and complying with all laws, ordinances, requirements, orders,
directives, rules and regulations of all governmental authorities, tenant shall
not be required to make any structural repairs or changes in the improvements or
any non-structural repairs made necessary by defects in construction.
Tenant shall not use or permit the demised premises, the improvements or the
premises to be used for any purpose other than as specified herein and shall not
use or permit the demised premises, the improvements or premises to be used for
any unlawful, immoral or disreputable purposes, nor for any use or occupation
which would be in conflict with provisions of the Municipal Code of the
applicable village, city, county or other governmental subdivision applicable to
the use and occupancy of said premises, or which would jeopardize or invalidate
any of the insurance coverage on said premises.
Section 4-3. Quiet Enjoyment. Tenant shall have the peaceable possession and
enjoyment of the improvements throughout the term of this lease without any
hindrance, disturbance of ejectment by landlord, landlord's successors and
assigns.
Section 4-4. Insurance on Tenant's Property. Tenant shall be
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<PAGE>
solely responsible for obtaining any fire or extended coverage insurance for
tenant's personal property and the leasehold improvements of tenant and for all
goods, commodities and materials stored by tenant in or about the premises.
Section 4-5. Liability Insurance. At all times during the term hereof or any
extension thereof, tenant at tenant's own expense shall maintain and keep in
force for the mutual benefit of landlord and tenant general public liability
insurance against claims for personal injury, death or property damage occurring
in or about the premises or sidewalks or areas adjacent to the premises to
afford protection to the limit of not less than $300,000.00 in respect to injury
or death of a single person and to the limit of not less than $500,000.00 in
respect to any one accident and to the limit of not less than $100,000.00 in
respect to property damage.
In order to evidence the coverage in effect, tenant shall provide landlord with
a certificate of insurance. Tenant agrees to obtain a written obligation from
the insurers to notify landlord in writing at least ten (10) days prior to
cancellation or refusal to renew any such policies. Should tenant fail to carry
such public liability insurance, landlord may at landlord's option cause public
liability insurance as aforesaid to be issued, and in such event, tenant agrees
to pay the premiums for such insurance promptly, upon landlord's demand, as
additional rent.
Section 4-6. Maintenance. Tenant shall make, subject to the warranties of
landlord stated in Section 3-4, at tenant's own expense, all non-structural
repairs of every kind and description which may be needed to maintain the
interior of that part of the improvements and premises leased to tenant, and the
water and heating systems, plumbing system, electrical wiring system, sprinkler
system and air-conditioning in good condition and repair. Notwithstanding any of
the above, tenant shall repair any damage to the premises or appurtenances
thereunto belonging caused by the misuse or negligence of tenant, tenant's
employees or invitees. Tenant agrees to replace all broken glass in connection
with the improvements leased by the tenant with glass of the same size and
quality of that broken.
If the repairs required to be made by landlord are not completed within a
reasonable time after request for such repair by tenant, tenant shall have the
option to make such repairs after first giving landlord fifteen (15) days'
notice of intention to do so, and any amounts expended by virtue thereof shall
be subtracted from the next month's rent in the full amount of the expenditures.
Where applicable, tenant shall have the benefit of all warranties and
maintenance agreements by the contractor, sub-contractor and/or materialmen
relative to the improvements to be erected by landlord
-10-
<PAGE>
on the premises.
Section 4-7. Alterations and Additions. Tenant at tenant's expense, shall have
the right to make such changes in the interior of the improvements other than
major structural changes, as tenant shall deem necessary or advisable in
adapting the improvements for tenant's use. No structural changes shall be made
without the prior written consent of landlord, which consent shall not be
unreasonably withheld.
All fixtures shall become a part of the premises and the property of landlord at
the termination of the lease except that trade fixtures, machinery and equipment
and power wiring, conduits and other fixtures installed by tenant shall be
considered as tenant's own and tenant shall have the right to recover same at
any time during the term of this lease or any extension thereof, provided that
tenant shall repair any damage caused to said premises by such removal.
Section 4-8. Signs. The building shall be known as the "GUARANTY SAVINGS
BUILDING" or any other name as designated by GLENVIEW GUARANTY SAVINGS & LOAN
ASSOCIATION.
Tenant shall not place in, on or about the demised premises and the improvements
any sign or signs without landlord's prior written approval. Tenant shall comply
with all laws, ordinances, plat and deed restrictions, and lawful regulations
applicable to the erection, maintenance and the removal of any signs approved,
and damage and injury from the maintenance of said signs shall be expressly
included in the above-mentioned liability insurance. Any damage to any
improvements caused by said sign or signs shall be restored by tenant forthwith.
Section 4-9. Assignment and Subletting. Tenant shall not assign this lease or
sublet the demised premises, or any part thereof, without obtaining the prior
written consent of landlord which consent shall not be unreasonably withheld.
Any dispute which arises under this Section regarding the reasonableness of
landlord's consent shall be settled by arbitration pursuant to the provisions of
Section 6-1. No assignment or subletting consented to by landlord shall relieve
tenant from tenant's liability hereunder, and each and every assignee or
sublessee shall be charged with all of the provisions hereof.
Section 4-10. Default. If tenant shall fail to pay any installment of the fixed
rent or any additional rent or other charges as and when the same shall become
due and payable, and such default shall continue for a period of twenty (20)
days after written notice given to tenant by landlord, or if tenant shall
default in the performance of any of the other terms, covenants or conditions
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<PAGE>
of this lease and such default shall continue for a period of twenty (20) days
after written notice given to tenant by landlord, or if any execution shall be
issued against tenant or any of tenant's property whereby any part of the
improvements shall be taken or occupied by someone other than tenant, or if
tenant shall vacate and abandon the demised premises, or if this lease or the
estate of tenant hereunder shall be transferred or passed to or devolve upon any
other person, firm or corporation, except in the manner provided in this lease,
or if tenant shall assign, mortgage or encumber this lease or sublet the demised
premises or any part of the premises, without the prior written consent of
landlord, landlord shall have the right, at landlord's option, to terminate this
lease and the term hereof, as well as the right, title and interest of tenant
hereunder, by giving tenant fifteen (15) days' notice in writing of such
intention, and upon the expiration of the time fixed in such latter notice, if
such default be not cured prior thereto or (except a default for non-payment of
rent or additional rent), tenant shall not then be diligently engaged in good
faith in prosecuting the work necessary to remove said cause or in taking the
steps necessary to remedy said default, this lease and term hereof, as well as
all the right, title and interest of tenant hereunder, shall wholly cease and
expire in the same manner and with the same force and effect as if the date
fixed by such latter notice were the expiration of the term herein originally
granted; and tenant shall immediately quit and surrender the premises to
landlord and landlord may re-enter the demised premises and take possession of
all or any part thereof, and remove all property and persons therefrom and shall
not be liable for any damage therefor or for trespass.
Section 4-11. Waiver of Subrogation Clause. Landlord and tenant hereby release
the other from any and all liability or responsibility to the other or anyone
claiming through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any of the extended coverage or
supplementary contract casualties, even if such fire or other casualty shall
have been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible, provided, however, that this release shall
be applicable in force and effect only with respect to loss or damage occurring
at such a time that the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair said policies or prejudice the right of the releasor to recover
thereunder.
Section 4-12. Subordination and Non-Disturbance. This lease and all of the
rights of tenant hereunder are and shall be subject and subordinate to the lien
of any mortgage or mortgages whether now on the premises or whether hereafter
placed on the premises or any part thereof, except tenant's property or trade
fixtures,
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<PAGE>
and to any and all renewals, modifications, replacements, extensions or
substitutions of any such mortgage or mortgages (all of which are hereinafter
termed the mortgage or mortgages) provided, nevertheless, each or all of such
mortgage or mortgages shall contain a provision to the effect that so long as
tenant is not in default under this lease, or any renewal thereof, no
foreclosure of the lien of said mortgage or any other proceeding in respect
thereof shall divest, impair, modify, abrogate or otherwise adversely affect any
interest or rights whatsoever of the tenant under the said lease.
This lease, if required, shall be submitted by landlord to landlord's mortgagee
for the said mortgagee's approval and is subject to such approval, and, this
lease, if required, shall be assigned to landlord's mortgagee by instrument in
form satisfactory to mortgagee.
Section 4-13. Indemnification. Tenant shall indemnify and save landlord harmless
from and against any and all liability, claims, damages, penalties or judgments
arising from or in any way connected with injury to person or property sustained
by action in and about the premises in custody and control of tenant, during the
term of this lease, or any extension thereof. The fact that tenant maintains the
insurance required by Section 4-5 shall be considered complete compliance with
this Section. If landlord shall, without fault on landlord's part, be made a
part of any litigation commenced by or against tenant, tenant shall protect and
hold landlord harmless and pay all costs, expenses and reasonable attorney fees
that may be incurred or paid by landlord in enforcing the covenants and
agreements of this lease.
Except for the negligence of landlord or the negligence of landlord's officers,
agents, servants, employees or contractors, landlord shall not be responsible or
liable for any damage or injury to any property, fixtures, buildings or other
improvements, or to any person or persons at any time on the premises, including
any damage or injury to tenant or to any of tenant's officers, agents, servants,
employees, contractors, customers or sublessees.
Section 4-14. Surrender of Premises. Tenant shall surrender and deliver up the
demised premises and appurtenances at the end of said term broom-clean and in as
good condition and order as they were at commencement of the term hereof,
reasonable use and natural wear and tear thereof and damage by fire or other
casualty and changes made with landlord's consent excepted. Tenant may remove
all the trade fixtures, signs, equipment, stock in trade, and other items of a
similar nature used in connection with tenant's business, including such as may
have been temporarily attached to the realty, provided all rents stipulated to
be paid hereunder have been paid and all damage to paid premises is properly
-13-
<PAGE>
repaired. If said removal results in injury to or defacement of said premises,
tenant shall immediately repair the premises at tenant's expense.
Section 4-15. Condominium Units. Tenant and landlord have discussed the fact
that the premises are held in or will be held in an Illinois limited partnership
known as THE RAND-OLIVE ASSOCIATES, and tenant acknowledges-that fact, and,
further, tenant acknowledges that the intended leasing and operation of the
premises contemplates the causing of the premises to be submitted to the
provisions of the Condominium Property Act of the State of Illinois, as amended
from time to time, and the sale or other disposition of condominium unit
ownership in the condominium property thereby created.
Notwithstanding the foregoing, it is understood and agreed that neither landlord
nor its successor shall have any affirmative obligation to convert the property
to condominium, and in the event the property shall not be converted to
condominium then, subject to the provisions of Section 1-4, this lease shall be
and remain in full force and effect.
ARTICLE FIVE
------------
Eminent Domain, Damage or Destruction of Premises
-------------------------------------------------
Section 5-1. Eminent Domain. If the entire premises, or such part thereof, as,
in the parties' judgment, renders the remainder unsuitable for tenant's
continued use, shall be taken in appropriation proceedings or by any rights of
eminent domain, then this lease shall terminate and be void from the time when
possession thereof is required for public use, and such taking shall not operate
as or be deemed an eviction of the tenant or a breach of landlord's covenant for
quiet enjoyment; but tenant shall pay all rent due, and perform and observe all
other covenants hereof, up to the time when possession is required for public
use; provided, however, that it only a part of said premises be so taken and in
the parties' judgment the premises remain unsuitable for tenant's continued use,
and if two (2) years or more of the term hereof then remains unexpired, and if
the remaining premises can be substantially restored within sixty (60) days,
then this lease shall not terminate, but landlord shall, at landlord's sole
expense, restore the premises, the rent payable by tenant during the period of
restoration being reduced by a reasonable amount, but after such restoration,
the rent herein reserved shall be paid by tenant as herein provided during the
remainder of the term hereof abated by the percentage that the fair market value
of the premises, attributable solely to the land and improvements, has been
reduced because of such taking. Said market value immediately before and after
such taking shall be determined by agreement of the parties
-14-
<PAGE>
or, failing agreement of the parties within thirty (30) days of the effective
date of such taking, by a local Independent Fee Appraiser selected by mutual
agreement of landlord and tenant, which appraiser's decision will be final and
binding on the parties.
The cost of such appraiser shall be borne equally by landlord and tenant.
Tenant shall have the right at tenant's sole cost and expense to assert a
separate claim or join in landlord's claim in any condemnation proceeding for
its personal property, its improvements, loss of value in its leasehold estate,
moving expenses or any other claims it may have. Tenant shall be entitled to and
shall receive that portion of any award or payment made which is attributable
solely to its claims, and landlord shall be entitled to and shall receive that
portion of any award or payment made which is attributable solely to the land
and improvements erected thereon.
Any dispute which arises under this Section regarding the usability of the
premises after a taking shall be settled by arbitration pursuant to the
provision of Section 6-1.
Section 5-2. Damage or Destruction of Improvements. In the event the
improvements shall be rendered untenantable by fire or other casualty, landlord
shall within one hundred twenty (120) days from the date of said damage or
destruction, repair or replace the improvements to substantially the same
condition as prior to the damage or destruction. If landlord fails to commence
repair of the damage or destruction within thirty (30) days from the date of
such damage or destruction, or if the improvements have not been replaced or
repaired to such condition within one hundred twenty (120) days, tenant may at
tenant's option (to be exercised by written notice to landlord), terminate this
lease. The rent herein required to be paid shall abate during the period of such
untenantability.
If the improvements shall be damaged in part by fire or other casualty, but
still remain tenantable, landlord shall repair the improvements to substantially
the same condition as prior to the damage. During the period of such repairs and
restorations, the lease shall continue in full force and effect, provided,
however, that tenant shall be required to pay the rent herein reserved abated by
the percentage of area destroyed as compared to the total area herein demised,
unless such fire or other casualty is caused by tenant's negligence in which
case the rental shall not abate but will continue unaffected during the repair
period.
In the event that any damage or destruction occurs during the last twelve (12)
months of the original term of this lease or any extension of the term, to the
extent of fifty (50%) percent or
-15-
<PAGE>
more of the insurable value of the improvements, landlord and tenant may elect
to terminate this lease as of the date of the destruction or damage, by giving
notice of such election within fifteen (15) days after such damage or
destruction. In such event, landlord shall receive the proceeds of the insurance
policies without obligation to rebuild or restore the premises, and tenant shall
execute any waiver which may be required of it by any insurer or landlord.
Any dispute which arises under this Section regarding the negligence of tenant
shall be settled by arbitration pursuant to the provisions of Section 6-1.
ARTICLE SIX
-----------
General Provisions
------------------
Section 6-1. Arbitration. Any controversy or claim arising out of or relating
to:
(a) the usability of the premises after a taking as provided in
Section 5-1; or,
(b) the negligence of tenant as provided in Section 5-2; or,
(c) the reasonableness of landlord's consent to assignment or
subletting as provided in Section 4-9
shall be settled by arbitration in accordance with the rules of the American
Arbitration Association. The arbitration decision shall be final and binding
upon the parties.
Section 6-2. Service of Notice. Every notice, approval, consent or other
communication authorized or required by this lease shall be in writing and sent
by certified or registered mail, postage prepaid, to the other party at the
following address or at such other address as may be designated by notice in
writing given from time to time and shall be deemed given as of the date of
mailing.
If notice is to be given to landlord, it shall be given at the following
address:
Mr. Daniel Fusco
29 South LaSalle Street
Suite #830
Chicago, Illinois 60603
If notice is to be given to tenant, it shall be given at the address set forth
in Exhibit E.
-16-
<PAGE>
Section 6-3. Governing Law. This lease and the performance thereof shall be
governed, interpreted, construed and regulated by the laws of the State of
Illinois.
Section 6-4. Partial Invalidity. If any term, covenant, condition or provision
of this lease, or the application thereof, to any person or circumstances, shall
at any time or to any extent be invalid or unenforceable, the remainder of this
lease, or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition and provision of this lease
shall be valid and be enforced to the fullest extent permitted by law.
Section 6-5. Interpretation. Wherever in this lease the singular number is used,
the same shall include the plural, and the masculine gender shall include the
feminine and neuter genders, and vice versa, as the context shall require.
The headings used herein are for reference and convenience only and shall not
enter into the interpretation thereof.
This lease may be executed in several counterparts, each of which shall be an
original but all of which shall constitute one and the same instrument.
The Exhibits referred to herein are attached hereto and by reference made a part
hereof.
Section 6-6. Entire Agreement. No oral statement or prior written matter shall
have any force or effect. Tenant agrees that tenant is not relying on any
representations or agreements other than those contained in this lease. This
agreement shall not be modified or canceled except by writing subscribed by all
parties.
Tenant's taking of possession of the demised premises shall be conclusive
evidence that the demised premises were in good order and satisfactory condition
when tenant took possession with exception of those items, if any, set forth in
Exhibit E.
Section 6-7. Benefit. Except as otherwise expressly provided herein, the
covenants, conditions and agreements contained in this lease shall bind and
inure to the benefit of landlord and tenant and their respective successors and
assigns.
Section 6-8. Authority of Parties. Landlord and tenant each to the other
represents and warrants that each has full right and authority to enter into and
perform the obligations under this lease for the full term hereof.
-17-
<PAGE>
Section 6-9. Recording of Lease. This lease, or any part hereof, or any
memorandum concerning said lease shall not be recorded by tenant. Should any
recordation take place, then at the option of landlord, this lease shall be
declared in default and all rights of tenant in the premises in question
whatever nature or kind shall become null and void.
Section 6-10. Compliance with Condominium Documents. Tenant shall obey and
conform to the declaration of condominium, by-laws and rules and regulations of
the association which are hereby incorporated herein.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.
Landlord
--------
/s/ Daniel Fusco
------------------------------
DANIEL FUSCO
Tenant
------
/s/
------------------------------
GLENVIEW GUARANTY SAVINGS
& LOAN ASSOCIATION
-18-
<PAGE>
EXHIBIT A
ATTACHED TO AND MADE A PART OF
LEASE AGREEMENT BY AND BETWEEN
DANIEL FUSCO, LANDLORD, AND
TENANT IDENTIFIED IN EXHIBIT E
------------------------------
Plans and specifications for three-story building to be attached by parties and
signed to evidence their approval and agreement.
***********
The site plan, building elevations and floor plans are immediately following.
The building is to be constructed of steel frame plus brick and glass exterior
wall covering. The building is to be completed per Cook County Building and
Zoning Codes in a good workmanlike manner.
Approved By: /s/
-----------------------------
GLENVIEW GUARANTY SAVINGS &
LOAN ASSOCIATION
Accepted By: /s/ Daniel Fusco
-----------------------------
DANIEL FUSCO
Dated: February 6, 1981
<PAGE>
AMENDMENT TO SUB-LEASE AGREEMENT
--------------------------------
THIS AMENDMENT IS MADE this 15th day of July, 1982 between DANIEL
FUSCO, of Chicago, Illinois (hereinafter called "Landlord") and GUARANTY FEDERAL
SAVINGS & LOAN ASSOCIATION, formerly known as GLENVIEW GUARANTY SAVINGS & LOAN
ASSOCIATION, (hereinafter called "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, by a certain Sub-Lease Agreement dated February 6, 1981
between Landlord and Tenant, (the "Sub-Lease") Landlord subleased to Tenant that
part of a three story office building described in detail in Exhibit "C" to the
Sub-Lease (said part hereinafter referred to as "Premises"); and
WHEREAS, the improvements to be constructed in accordance with the
Sub-Lease have been completed and Landlord and Tenant are desirous of modifying
and amending the Sub-Lease.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Section 1-4 of the Sub-Lease captioned "Option to Extend Term" is
hereby deleted and the following provision is inserted in lieu thereof:
"Section 1-4. Options to Renew Term.
------------- ----------------------
In accordance with Section 1-1 of this lease, landlord does hereby
grant to tenant the right, privilege and option to renew this lease
for two (2) successive five (5) year periods ("option period") upon
the same terms
<PAGE>
and conditions (including the same rental) as herein contained. Each
successive option period will commence on the date immediately
following the expiration of the initial lease term or preceding option
period. Landlord shall give tenant written notice of the impending
expiration of the lease term or option period at least 210 days prior
to the expiration thereof. Tenant thereafter shall exercise its option
by giving landlord written notice of its intent to renew at least 180
days prior to the expiration of the initial lease term or at least 180
days prior to the last day of any succeeding option period."
2. Section 1-5 of the Sub-Lease captioned "Security Deposit" is hereby
amended to make the amount of the security deposit that the Tenant shall deposit
with the Landlord, the sum of Two Thousand Two Hundred Forty-Two Dollars Fifty
Cents ($2,242.50).
3. Section 2-1 of the Sub-Lease captioned "Base Rent" is hereby
deleted in its entirety and the following provision is inserted in lieu thereof:
"Section 2-1. Base Rent.
------------ ---------
Tenant shall pay to landlord as aggregate base rent for the demised
premises, a sum determined as follows:
(a) net rentable area is 1,950 square feet (excluding drive-up
appendage);
(b) common area factor is 1.20;
(c) gross rentable area is 2,340 square feet (1,950 square feet,
net rentable area times 1.20, common area factor);
(d) the base rent per gross square foot is $11.50;
(e) total base rent per year is $26,910.00 ($11.50 times 2,340
square feet, gross rentable area); and
(f) aggregate base rent is $269,100.00, total base rent per year
times ten (10) years, the term of this lease.
Base rent per month of $2,242.50, being the total base rent per year
divided by 12 months, shall be payable to landlord by tenant monthly."
-2-
<PAGE>
4. The first sentence in Section 2-2 captioned "Adjustment to Base
Rent" and the caption thereof is deleted and the following caption and sentence
is inserted in lieu thereof:
"Section 2-2. Additional Rent.
------------ ---------------
In addition to the base rent, tenant shall pay to landlord in
accordance with Section 2-4 the following as additional rents:"
5. Section 2-2(a) is hereby deleted and the following paragraph is
inserted in lieu thereof:
"Section 2-2(a).
---------------
Commencing on the first day of the first full year following the
commencement date of this lease for said first year, and for each year
or part thereof thereafter during the remainder of the term, including
any renewal thereof, tenant shall pay as additional rent an amount
equal to the direct expenses paid or incurred by the landlord on
account of the operation and/or maintenance of the premises (as
defined in Section 2-5) (excluding, however, the direct expenses for
the drive-up appendage paid pursuant to Section 2-2(b)(i)). The amount
to be paid and the manner of payment shall be determined in accordance
with Section 2-4."
6. Section 2-2(b)(iii) is hereby deleted and the following paragraph
is inserted in lieu thereof:
"Section 2-2(b)(iii).
--------------------
The following expenses, (excluding, however, any expenses attributable
to the drive-up appendage as set forth in paragraph 2-2(b)(i))
indirectly related to tenant's occupancy and use of the premises for
the period beginning on the commencement date and ending on the last
day of each full year following commencement date and each full year
thereafter during the remainder of the term, including any renewal
thereof:
(aa) a proportion (as defined below) of all property taxes paid
by landlord;
(bb) a proportion (as defined below) of any insurance premiums
paid or incurred by landlord after deduction of premiums
attributable to the improvements used and occupied by tenant
as provided for in subparagraph 2-2(b)(i) of this Section.
-3-
<PAGE>
The word "proportion" as hereinabove used shall be deemed to mean that
tenant's expense shall be determined on a prorata basis which is
tenant's percentage of gross rentable area occupied in relation to
total gross rentable area contained in the building of which the
premises are a part. Tenant shall pay these expenses to landlord
within thirty (30) days after receiving landlord's statement
therefor."
7. Section 2-2(b)(iv) is hereby deleted in its entirety and the
following provision is inserted in lieu thereof:
"Section 2-2(b)(iv).
-------------------
The cost of improvements to be constructed by landlord in accordance
with the plans set forth in Exhibit D attached hereto and by this
reference made a part hereof, has been determined and agreed to be
exactly One Hundred Fifteen Thousand Dollars ($115,000.00). Said cost
will be paid to landlord at the time that the landlord closes on his
purchase of the premises, after presentation of all final waivers of
lien and presentation of a title commitment issued by a reputable
title company reflecting no mechanic's liens and insuring over new
construction."
8. Section 2-4 captioned "Payment of Rent" is hereby deleted and the
following provision is inserted in lieu thereof:
"Section 2-4. Payment of Base Rent and Additional Rent.
------------------------------------------------------
Base rent shall be paid by tenant on the first day of each and every
calendar month during the term hereof. If the commencement date is
other than the first day of a calendar month, rent for the portion of
the calendar month at the beginning of the term and at the end of the
term shall be prorated.
The additional rent required to be paid by tenant in Section 2-2(a)
shall be determined and paid in the following manner. Landlord shall
notify tenant thirty (30) days in advance, in writing, of the
estimated amount of the direct expenses to be paid or incurred by
landlord (as defined in Section 2-5 and based on the financial
statements prepared by landlord's accountants for the prior year) for
the then current lease year. For the first lease year hereunder,
landlord and tenant shall agree as to the estimated amount of such
expenses. Tenant shall pay such sum in advance to landlord in equal
monthly installments during the balance of the then current lease year
on the first day of each remaining month in said lease year commencing
on the first day of the first month following tenant's receipt of such
notification so that tenant's entire share of such increases shall
have been paid to landlord prior to the end of the lease year. Within
thirty (30) days
-4-
<PAGE>
following the end of each lease year during the term of any renewal
hereof landlord shall submit to tenant a statement showing the actual
amount which should have been paid by tenant with respect to these
expenses for the past lease year, the amount thereof actually paid
during that year by tenant and the amount of any balance or
overpayment thereof as the case may be. Any deficiency shall be paid
by tenant to landlord within thirty (30) days following tenant's
receipt of such statement and any overpayment thereof shall be
immediately credited against tenant's additional rent due hereunder.
The payments due hereunder shall be made in such manner and at such
place or places as landlord may direct in writing and until further
notice to:
Mr. Daniel R. Fusco
29 South LaSalle Street
Suite 830
Chicago, Illinois 60603
Tenant shall pay promptly all expenses required to be paid directly
pursuant to Section 2-2(b)(i) and (ii)."
9. Section 2-5 of the Sub-Lease captioned "Definition of Direct
Expenses" is hereby deleted and the following provision is inserted in lieu
thereof:
"Section 2-5. Definition of Direct Expense.
------------ ----------------------------
Direct expense paid or incurred by landlord on account of the
operation and/or maintenance of the premises shall be deemed to mean
all reasonable direct costs of operations and maintenance as
determined by generally accepted principles of accounting and auditing
practices and includes by way of illustration and not limitation:
heat, water, electricity and other utility costs; insurance premiums;
condominium association assessments; real estate taxes; permits,
licenses and inspection fees; cost of labor, materials and other
services; and, personal property taxes or replacement taxes therefor,
paid or incurred by landlord in the operation and maintenance of the
premises as determined by the Certified Public Accountant employed by
landlord for the applicable period or year. Direct expenses shall not
include, however, any property or other taxes levied or assessed
attributable to the premises, or insurance premiums, to the extent
that the payment of these expenses has already been provided for in
Section 2-2(b) (iii), or any expenses or costs to be paid by tenant
under Sections 2-2(b)(i), (ii) or (iv). Any dispute arising under this
Section as to the reasonableness of the amount of direct expenses, the
inclusion of certain expenses or their attributability to tenant shall
be resolved by arbitration pursuant to Section 6-1."
-5-
<PAGE>
10. Section 4-15 of the Sub-Lease captioned "Condominium Units" is
hereby deleted from the Sub-Lease in its entirety and the following paragraph is
inserted in lieu thereof:
"Section 4-15. Right to Vote.
----------------------------
In the event the premises and improvements are converted to
condominiums, and landlord purchases the fee ownership of the
premises, and as long as tenant is not in default under this
Sub-Lease, tenant shall have the right to participate in all meetings
of condominium owners and shall have the right to vote landlord's vote
as a unit owner of the premises, or give a proxy therefor. Landlord
shall execute any proxy necessary to establish tenant of record as the
holder of the vote attributable to the premises."
11. Exhibit "D" to the Sub-Lease is hereby deleted and Exhibit "D"
attached to this Amendment and made a part hereof is hereby inserted in lieu
thereof.
12. Except for the modifications contained herein, the Sub-Lease shall
remain unmodified and in full force and effect.
LANDLORD:
/s/ Daniel Fusco
-----------------------------------
DANIEL FUSCO
TENANT:
GUARANTY FEDERAL SAVINGS &
LOAN ASSOCIATION, formerly known as
GLENVIEW GUARANTY SAVINGS &
LOAN ASSOCIATION
By /s/
-------------------------------
Its President
-6-
<PAGE>
EXHIBIT D
ATTACHED TO AND MADE A PART OF
SUB-LEASE AGREEMENT BY AND BETWEEN
DANIEL FUSCO, LANDLORD, AND
GUARANTY FEDERAL SAVINGS & LOAN ASSOCIATION, TENANT
- --------------------------------------------------------------------------------
Plans and specifications for appendage and canopy improvements to be attached by
parties and signed to evidence their approval and agreement.
*********
As additional space and facilities for Guaranty Federal Savings & Loan
Association, a 400 plus or minus square foot brick, one-story drive-up
appendage, canopy and improvements associated with such has been constructed by
landlord. The cost of said improvements has been agreed upon by all parties to
be One Hundred Fifteen Thousand Dollars ($115,000.00), no more, no less, and
payable to landlord at the time that landlord closes on his purchase of the
premises, in accordance with Section 2-2(b)(iv) of the Sub-Lease.
Approved By:
/s/
-----------------------------------
GUARANTY FEDERAL SAVINGS &
LOAN ASSOCIATION
Accepted By:
/s/ Daniel Fusco
-----------------------------------
DANIEL FUSCO
Dated:
<PAGE>
THIRD AMENDMENT TO LEASE
------------------------
This Third Amendment to Lease ("Third Amendment") is made as of 11/29,
1994, by DANIEL FUSCO ("Landlord") and NATIONAL BANCORP, INC. ("Tenant").
RECITALS:
---------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated August 16, 1994, FCBC
assigned the Lease to the Tenant.
C. Landlord and Tenant entered into both a first Amendment to Lease
dated as of August 16, 1994 (the "First Amendment") and a Second Amendment to
Lease dated as of November 3, 1994 (the "Second Amendment").
D. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Third
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Landlord and Tenant agree as follows:
1. Tenant's Right of First Refusal. Tenant shall have a continuing
right of first refusal to acquire the Demised Premises at all times during the
term of this Lease. In the event Landlord, receives a bona fide offer to
purchase the Demised Premises, Landlord shall notify the Tenant in writing of
any such purchase offer and Tenant shall have the right to purchase the Demised
Premises on the same terms and conditions as are contained in the purchase
offer. Tenant shall have a thirty (30) day period following Landlord's receipt
of the notice and of a copy of the purchase offer to advise Landlord in writing
of Tenant's intention to exercise the right of first refusal provided in this
paragraph. Should Tenant exercise this option, the purchase shall be subject to
the same terms and conditions as are set out in the offer, including conditions
as to purchase price, financing contingency and the like, with the closing date
to be not later than forty-five (45) days after the closing date provided in the
purchase offer. This right of first refusal shall apply to each and every offer
to purchase the Demised Premises hereunder, whether or not Tenant may have
elected to exercise its purchase option with respect to any prior sale or sales
of the Demised Premises hereunder.
2. Applicable Law. This Third Amendment will be governed by the laws
of the State of Illinois. This Third Amendment is binding on parties or the
respective successors and assigns. Any term used in this Third Amendment which
is defined in the Lease and not
<PAGE>
otherwise defined in this Third Amendment will have the same meaning as in the
Lease. In the event of any conflict between the terms of this Third Amendment
and the terms of the Lease, the terms of this Third Amendment will control.
3. Modifications. Except for the modifications contained herein, the
Lease shall remain unmodified and in full force and effect.
The parties have executed this Third Amendment as of the date first
above written.
Landlord: Tenant:
NATIONAL BANCORP, INC.
/s/ Daniel Fusco By: /s/ Thomas H. Roth
- ---------------------------------------- ------------------------------
DANIEL FUSCO Thomas H. Roth, President
2
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
This Second Amendment to Lease ("Second Amendment") is made as of
December 1, 1994, by DANIEL FUSCO ("Landlord") and NATIONAL BANCORP, INC.
("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982 (collectively the "Lease"), Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated as of August 16, 1994,
FCBC assigned to Tenant, and Tenant assumed, the Lease ("Assignment") to which
Assignment Landlord consented.
C. By Amendment to Lease dated as of August 16, 1994, Landlord and
Tenant amended the Lease ("First Amendment").
D. By a First Amendment to Assignment and Assumption of Lease dated as
of December 1, 1994, FCBC and Tenant amended the Assignment ("First Amendment
Assignment").
E. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Second
Amendment, and for good and valuable consideration, the receipt and sufficiency
of which are acknowledged, Landlord and Tenant agree as follows:
1. With respect to paragraph 1 of the First Amendment, Tenant shall
pay to Landlord base rent per month of $3,760 commencing January 1, 1995 through
July 31, 1997.
2. Paragraph 2 of the First Amendment is deleted in its entirety.
3. If the Assignment and Assumption of the Lease is terminated
pursuant to paragraph 2 of the First Amendment Assignment, the First Amendment
and this Second Amendment shall be null and void.
4. This Second Amendment will be governed by the laws of the State of
Illinois. This Second Amendment is binding on the parties and their respective
successors and assigns. Any term used in this Second Amendment which is defined
in the Lease and not otherwise defined in this Second Amendment will have the
same meaning as in the Lease. In the event of any conflict between the terms of
this Second Amendment and the terms of the Lease, the terms of this Second
Amendment will control.
<PAGE>
5. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
The parties have executed this Second Amendment as of the date first
above written.
Landlord:
-----------------------------------
DANIEL FUSCO
Tenant:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President
Page 2
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
This Second Amendment to Lease ("Second Amendment") is made as of Nov.
3, 1994, 1994, by DANIEL FUSCO ("Landlord") and NATIONAL BANCORP, INC.
("Tenant").
RECITALS:
---------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated August 16, 1994, FCBC
assigned the Lease to the Tenant.
C. Landlord and Tenant entered into a first Amendment to Lease dated
as of August 16, 1994 (the "First Amendment").
D. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Second
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Landlord and Tenant agree as follows:
1. Landlord hereby agrees to eliminate the requirement that Tenant
obtain and deposit with Landlord the irrevocable letter of credit referred to in
Paragraph 2 of the First Amendment. Accordingly, Paragraph 2 of the First
Amendment is deleted in its entirety from and after August 16, 1994.
2. This Second Amendment will be governed by the laws of the State of
Illinois. This Second Amendment is binding on parties or the respective
successors and assigns. Any term used in this Second Amendment which is defined
in the Lease and not otherwise defined in this Second Amendment will have the
same meaning as in the Lease. In the event of any conflict between the terms of
this Second Amendment and the terms of the Lease, the terms of this Second
Amendment will control.
3. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
The parties have executed this Second Amendment as of the date first
above written.
Landlord: Tenant:
FIRST BANCORP, INC.
/s/ Daniel Fusco By: /s/ Thomas H. Roth
- ---------------------------------------- ------------------------------
DANIEL FUSCO Thomas H. Roth, President
<PAGE>
FIRST AMENDMENT TO
ASSIGNMENT AND ASSUMPTION OF LEASE
This First Amendment to Assignment and Assumption of Lease ("First
Amendment Assignment") is made as of December 1, 1994 by and between FIRST
CHICAGO BUILDING CORPORATION, an Illinois corporation ("Assignor") and NATIONAL
BANCORP, INC., a Delaware corporation ("Assignee"). (Assignor and Assignee are
hereinafter sometimes together referred to as the "Parties").
RECITALS
A. By Lease Agreement dated as of February 6, 1982 and Amendment
thereto dated July 15, 1982 (collectively the "Lease") DANIEL FUSCO ("Landlord")
leased to Assignor's predecessor certain premises defined and described in the
Lease as the "demised premises".
B. By an Assignment and Assumption of Lease dated as of August 16,
1994 ("Assignment") Assignor assigned to Assignee, and Assignee assumed, the
Lease.
C. Pursuant to the terms of the Assignment Landlord and Assignee
executed an Amendment to the Lease dated August 16, 1994.
D. Assignee was issued a Permit to Organize the Northwest Community
Bank (the "Bank") by the Commissioner of Banks and Trust Companies for the State
of Illinois ("Commissioner") and Assignee has filed applications with the
Federal Deposit Insurance Corporation ("FDIC") and with the Federal Reserve
Board of Governors through the Federal Reserve Bank of Chicago ("Federal
Reserve") for, respectively, depository insurance for the Bank and approval for
the acquisition of the Bank by Assignee, which applications are pending.
E. The Parties have agreed to enter into this First Amendment
Assignment.
F. Any term used in this First Amendment Assignment which is defined
in the Lease or the Assignment and not otherwise defined in this First
Assignment Amendment will have the same meaning in this First Assignment
Amendment as in the Lease or the Assignment.
The Parties agree as follows:
<PAGE>
AGREEMENTS
1. With regard to Paragraph 4 of the Assignment, the Parties
acknowledge that conditions (a), (b) and (d) have been satisfied and that the
date in condition (c) was extended to December 1, 1994.
2. Condition (c) of Paragraph 4 of the Assignment is deleted and with
regard to condition (c) of Paragraph 4 of the Assignment, Assignor acknowledges
and agrees that the Assignment shall continue from calendar month to calendar
month commencing December 1, 1994 until the earlier of the date that (i) the
Charter for the Bank has been issued to the Assignee or any of the applications
filed with the Commissioner, the FDIC or the Federal Reserve have been denied
and no appeal is pending or (ii) April 30, 1995. Notwithstanding the foregoing,
the Parties agree that the Assignment shall automatically terminate, unless
extended by the Parties in writing, if the foregoing conditions have not been
satisfied by April 30, 1995.
3. With respect to condition (e) of Paragraph 4 of the Lease, Assignor
will modify the security system for its existing ATM so that it is separate from
the security system for the demised premises and the premises included in the
Adjoining Lease. Assignee shall pay Assignor $600 upon the execution of this
Assignment to cover Assignor's costs in connection with such modification.
4. Subject to the terms and conditions of Section 4-7 of the Lease,
commencing on the date that this First Amendment Assignment is fully executed,
Assignee, at Assignee's expense, shall have the right to make changes in the
interior of the demised premises other than major structural changes, as
Assignee shall deem necessary or advisable in adapting the demised premises for
Assignee's use. No structural changes shall be made without the prior written
consent of Assignor which consent shall not be unreasonably withheld. Assignee
shall indemnify and save Assignor harmless from any mechanics' liens for work
done in the demised premises or materials supplied in connection with such work.
If the Assignment is terminated pursuant to the provisions of paragraph 2 of
this First Amendment Assignment and Assignor elects, and so notifies Assignee,
Assignee, at its expense, shall remove such changes and repair any damages to
the demised premises caused by such removal.
5. This First Amendment Assignment is expressly conditioned upon
Landlord and Assignee executing a Second Amendment to Lease in substantially the
form attached hereto.
6. Subject to the terms and conditions hereof, keys to, and possession
of, the demised premises will be provided to Assignee upon the full execution of
this First Amendment Assignment.
7. Except for the modifications contained herein, the Assignment shall
remain unmodified and in full force and effect.
Page 2
<PAGE>
In Witness Whereof the Parties have caused their respective duly
authorized representatives to execute this First Amendment Assignment as of the
date first above written.
Assignor:
FIRST CHICAGO BUILDING CORPORATION
By:________________________________
Title:_____________________________
Assignee:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
-------------------------------
Title: President
Page 3
<PAGE>
Consent of Landlord
The undersigned, being the Landlord under the Lease, hereby consents
to the terms and provisions of the foregoing First Amendment to Assignment and
Assumption of Lease.
Landlord agrees as follows:
1. The Second Amendment to Lease in substantially the form attached to
the foregoing First Amendment to Assignment and Assumption of Lease when
executed between Landlord and Assignee shall not be binding upon Assignor.
2. If the Assignment and Assumption of Lease dated August 16, 1994
between Assignor and Assignee is terminated pursuant to the terms and provisions
of paragraph 2 of the foregoing First Amendment to Assignment and Assumption of
Lease (i) the Amendment to Lease dated August 16, 1994 between Landlord and
Assignee and (ii) the above described Second Amendment to Lease shall be null
and void.
Executed ____________________, 1994.
-----------------------------------
Daniel Fusco
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
----------------------------------
This Assignment and Assumption of Lease ("Assignment") is made as of
August 16, 1994 by FIRST CHICAGO BUILDING CORPORATION, an Illinois corporation
("Assignor") in favor of NATIONAL BANCORP, INC., a ____________________
corporation ("Assignee"). (Assignor and Assignee are hereinafter sometimes
together referred to as the "Parties").
RECITALS
--------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982, copies of which are attached hereto as Exhibit "A"
and by this reference made a part hereof (collectively the "Lease"), DANIEL
FUSCO ("Landlord") leased to Assignor's predecessor certain premises defined and
described in the Lease as the "demised premises".
B. Assignor and Assignee have agreed to enter into this Assignment.
C. Any term used in this Amendment which is defined in the Lease and
not otherwise defined in this Assignment will have the same meaning in this
Amendment as in the Lease.
The Parties agree as follows:
AGREEMENTS
----------
1. Assignor hereby grants, conveys, transfers and assigns to Assignee
all of Assignor's right, title, estate and interest as tenant in, to and under
the Lease.
2. Assignee hereby accepts the foregoing assignment and agrees to
observe and perform all terms, covenants, conditions and obligations as tenant
under the Lease and agrees to comply with all restrictions contained in the
Lease which are applicable to the demised premises and the occupancy by any
person thereof, excepting, specifically, that Assignee shall not be required to
obtain Assignor's consent with respect to any modifications or alterations to
the leased premises by Assignee.
3. Assignee hereby agrees to indemnify, protect, defend and hold
Assignor harmless from and against all claims, demands, liabilities, losses,
costs, damages or expenses (including, without limitation, reasonable attorneys'
fees and costs) arising out of or resulting from any breach or default by
Assignee under the terms of the lease arising on or after the date hereof.
4. This Assignment is expressly conditioned on the following:
<PAGE>
(a) Consent of the Landlord to this Assignment;
(b) Landlord and Assignee executing an amendment to the Lease in
substantially the form of Exhibit "B" attached hereto;
(c) The approval of Assignee's application for a bank charter at
the demised premises and the issuance thereof to Assignee;
(d) The assignment of the Adjoining Lease By Assignor to
Assignee.
(e) Assignee installing its ATM and Assignor removing its
existing ATM from its current location at the Lease site; provided, however,
that Assignor shall not remove its ATM until Assignee has arranged for and has
provided Assignor written notice of the date and time for installation of
Assignee's ATM, in coordination with Assignor's removal of its ATM. It is the
intention of Assignor And Assignee to coordinate the substitution of their
respective ATMs so as not to create a period time in which ATM service is
provided to the Lease premises.
It is understood and agreed that in the event the above conditions are
not satisfied on or before November 1, 1994, this Assignment shall be null and
void and of no further force and effect; provided, however, Assignor at its
option may extend the November 1, 1994 date to December 1, 1994 by written
notice to Assignee prior to November 1, 1994.
5. From the period commencing August 1, 1994 until the earlier of
November 1, 1994, except as may be extended by paragraph 4 above, or the
issuance of the aforedescribed bank charter, Assignee shall pay Assignor as a
fee $3,000 on August 1, 1994 and $3,000 on or before the first day of each month
thereafter, but not later than December 1, 1994, which fee shall be
non-refundable.
6. Except as provided by Exhibit "D", until the expiration of the
first extended term of the lease on July 31, 1997, Assignee agrees not to amend
or modify the lease without the prior written consent of Assignor.
7. Assignee represents and warrants to Assignor that neither it nor
its officers or agents nor anyone acting on its behalf has dealt with any real
estate broker other than Mid-America Real Estate Corporation in the negotiation
or making of this Assignment, and Assignee agrees to indemnify and hold harmless
Assignor from the claim or claims of any other broker or brokers claiming to
have interested Assignee in the Improvement or Premises or claiming to have
caused Assignee to enter into this Assignment.
-2-
<PAGE>
8. Any notice required or permitted to be given under this Assignment
shall be deemed given when dispatched by registered or certified mail, return
receipt requested, postage prepaid, addressed:
to Assignee at:
National Bancorp, Inc.
1300 East Irving Park Road
Suite 200
Streamwood, Illinois 60107
Attn: Mr. Tom Roth, President
with a copy to:
Don Storino
Storino, Ramello & Durkin
9501 West Devon
Suite 800
Rosemont, Illinois 60018
to Assignor at:
First Chicago Building Corporation
Real Estate Transaction Unit
One First National Plaza
Mail Suite 0475
Chicago, Illinois 60670-0475
Attn: Unit Manager
with a copy to:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0801
Chicago, Illinois 60670-0801
Attn: Law Department
9. This Assignment constitutes the entire agreement of the Parties
relative to the subject matter hereof, and all prior negotiations, agreements
and understandings are specifically merged herein and superseded hereby. This
Assignment may be modified only by a written instrument executed by the Parties.
This Assignment is the result of the prior negotiations, agreements and
understandings of the Parties and is to be construed as the jointly prepared
product of the Parties.
10. The terms and provisions of this Assignment shall inure to the
benefit of and shall be binding upon the Parties and their respective
successors, representatives and permitted assigns.
-3-
<PAGE>
11. This Assignment shall be construed in accordance with and governed
by the laws of the State of Illinois.
12. If any terms or provision of this Assignment or the application
thereof to any person or circumstances shall to any extent, be invalid or
unenforceable, the remainder of this Assignment, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each remaining term
and provision of this Assignment shall be valid and be enforced to the fullest
extent permitted by law.
IN WITNESS WHEREOF, Assignor and Assignee have caused their duly
authorized representatives to execute this Assignment as of the date first above
written.
Assignor:
FIRST CHICAGO BUILDING CORPORATION
By: /s/ Chris L. Wagner
------------------------------
Name: Chris L. Wagner
Title: Chairman
Assignee:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Name:
Title: President 8/17/94
-4-
<PAGE>
EXHIBIT "B"
-----------
AMENDMENT TO LEASE
------------------
This Amendment to Lease ("Amendment") is made as of 8/16, 1994, by
DANIEL FUSCO, ("Landlord") and NATIONAL BANCORP, INC. ("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
hereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated 8/16, 1994, FCBC
assigned the Lease to Tenant.
C. Landlord and Tenant desire to amend the Lease.
In consideration of the mutual promises contained in this Amendment,
and for the good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Landlord and Tenant agree as follows:
1. Notwithstanding any provisions of the Lease to the contrary, Tenant
shall pay to Landlord base rent per mont of $3,760 commencing November 1, 1994,
or December 1, 1994, as may be extended by the terms of paragraph 4 of this
Assignment and Assumption of Lease, through July 31, 1997. The total base rent
per year is $45,120. Base rent will be adjusted as set forth in Section 2-2 of
the Lease.
2. Tenant shall deposit with Landlord concurrently with the execution
of this Amendment an irrevocable letter of credit in an initial amount equal to
the total amount of base rent payable during the balance of the term of the
Lease issued by a financial institution approved by Landlord naming Landlord,
its successors and assigns as beneficiary and bearing an expiration date not
earlier than July 31, 1997 as security for Tenant's rental obligations under the
lease. So long as Tenant is not in default under the Lease, Tenant may decrease
the initial amount of the letter of credit annually commencing on October 1,
1995, or later, as may be extended by paragraph 4 of the Assignment and
Assumption of Lease, and each October 1 thereafter by an amount equal to the
total amount of the base rent paid by the Tenant under the Lease during the
previous twelve months. If Tenant exercised the Option to Renew Term, Tenant
will deposit with Landlord a replacement
<PAGE>
letter of credit in an amount equal to the total amount of base rent payable
during the renewal term which shall be subject to annual reductions on Each
October 1 thereafter equal to the total amount of base rent paid during the
previous twelve (12) months.
3. This Amendment will be governed by the laws of the State of
Illinois. This Amendment is binding on parties or the respective successors and
assigns. Any terms used in this Amendment which is defined in the Lease and not
otherwise defined in this Amendment will have the same meaning as in the Lease.
In the event of any conflict between the terms of this Amendment and the terms
of the Lease, the terms of this Amendment will control.
4. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
The parties have executed this Amendment as of the date first above
written.
Landlord:
/s/ Daniel Fusco
-----------------------------------
DANIEL FUSCO
Tenant:
FIRST BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President 8-17-94
-2-
<PAGE>
CONSENT OF LANDLORD
-------------------
The undersigned, being the Landlord under the Lese, hereby consents to
the terms and provisions of the foregoing Assignment and Assumption of Lease.
Landlord agrees as follows:
1. Upon the expiration of the first extended term of the lease on July
31, 1997, Assignor shall be released form all of the terms, covenants,
conditions and obligations as tenant under the Lease notwithstanding the
exercise by Assignee of its option to extend the Lease under Section 1-4 of the
Lease.
2. The Amendment to the Lease in substantially the form attached as
Exhibit "B" to the foregoing Assignment and Assumption of Lease when executed by
Landlord and Assignee shall not be binding upon Assignor.
3. Until the expiration of the first extended term of the Lease on
July 31, 1997, Landlord will not amend or modify the Lease without the prior
written consent of Assignor and Assignor shall in no event or to any extent be
bound by any amendment or modification of the Lease not consented to by
Assignor.
4. Upon the expiration of the first extended term of the Lease on July
31, 1997, Landlord will return the security deposit provided for in Section 1-5
of the lease to Assignor.
Executed 8/16, 1994.
/s/ Daniel Fusco
-----------------------------------
DANIEL FUSCO
-5-
<PAGE>
EXHIBIT "B"
-----------
AMENDMENT TO LEASE
------------------
This Amendment to Lease ("Amendment") is made as of _______________,
1994, by DANIEL FUSCO, ("Landlord") and NATIONAL BANCORP, INC. ("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
hereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated __________, 1994, FCBC
assigned the Lease to Tenant.
C. Landlord and Tenant desire to amend the Lease.
In consideration of the mutual promises contained in this Amendment,
and for the good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Landlord and Tenant agree as follows:
1. Notwithstanding any provisions of the Lease to the contrary, Tenant
shall pay to Landlord base rent per mont of $3,760 commencing November 1, 1994,
or December 1, 1994, as may be extended by the terms of paragraph 4 of this
Assignment and Assumption of Lease, through July 31, 1997. The total base rent
per year is $45,120. Base rent will be adjusted as set forth in Section 2-2 of
the Lease.
2. Tenant shall deposit with Landlord concurrently with the execution
of this Amendment an irrevocable letter of credit in an initial amount equal to
the total amount of base rent payable during the balance of the term of the
Lease issued by a financial institution approved by Landlord naming Landlord,
its successors and assigns as beneficiary and bearing an expiration date not
earlier than July 31, 1997 as security for Tenant's rental obligations under the
lease. So long as Tenant is not in default under the Lease, Tenant may decrease
the initial amount of the letter of credit annually commencing on October 1,
1995, or later, as may be extended by paragraph 4 of the Assignment and
Assumption of Lease, and each October 1 thereafter by an amount equal to the
total amount of the base rent paid by the Tenant under the Lease during the
previous twelve months. If Tenant exercised the option to Renew Term, Tenant
will deposit with Landlord a replacement
-1-
<PAGE>
letter of credit in an amount equal to the total amount of base rent payable
during the renewal term which shall be subject to annual reductions on Each
October 1 thereafter equal to the total amount of base rent paid during the
previous twelve (12) months.
3. Notwithstanding any other provisions contained in this lease, in
the event (a) Tenant or its successors or assignees shall become insolvent or
bankrupt, or if it or their interests under this Lease shall be levied upon or
sold under execution or other legal process, or (b) the depository Institution
then operating on the Premises is closed, or is taken over by any depository
Institution supervisory authority ("Authority"), Landlord may, in either such
event, terminate this Lease only with the concurrence of any Receiver or
Liquidator appointed by such Authority; provided, that in the event this Lease
is terminated by the Receiver or Liquidator, the maximum claim of Landlord for
rent, damages, or indemnity for injury resulting from the termination,
rejection, or abandonment of the unexpired Lease shall by law in no event be in
an amount equal to all accrued and unpaid rent to the date of termination.
4. This Amendment will be governed by the laws of the State of
Illinois. This Amendment is binding on parties or the respective successors and
assigns. Any terms used in this Amendment which is defined in the Lease and not
otherwise defined in this Amendment will have the same meaning as in the Lease.
In the event of any conflict between the terms of this Amendment and the terms
of the Lease, the terms of this Amendment will control.
5. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
The parties have executed this Amendment as of the date first above
written.
Landlord:
-----------------------------------
DANIEL FUSCO
Tenant:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President
-2-
Exhibit 10.3
LEASE AGREEMENT
---------------
THIS LEASE is made the 7th day of October, 1991.
THE PARTIES ARE:
SCHMITT PROPERTIES, INC., 1845 East Rand Road, Suite L-100, Arlington
Heights, Illinois 60004
--"Landlord";
and, FIRST CHICAGO BUILDING CORPORATION, One First National Plaza,
Chicago, Illinois 60670
--"Tenant."
THE DEMISED PREMISES ARE:
THAT APPROXIMATELY 2,500 SQUARE FOOT PART of the three-story office
condominium building and facility, more particularly described on
Exhibit A (the "Improvements"), which are located upon and within the
land and improvements known as 1845 East Rand Road, Arlington Heights,
Illinois more particularly described on Exhibit B and (the
Improvements and the said land being herein jointly referred to as the
"Premises").
LANDLORD, for and in consideration of the payment of the rent and the
performance of the covenants and agreements by Tenant herein contained, does
hereby lease to Tenant, and Tenant does hereby lease from Landlord, the demised
Premises.
ARTICLE ONE
-----------
Term, Commencement Date, Construction and Security Deposit
----------------------------------------------------------
Section 1-1. Term. The term of this Lease shall be for the period commencing on
the commencement date as hereinafter set forth and expiring without further
notice or act on July 31, 1997 with two (2) five (5)-year renewal options.
Section 1-2. Commencement Date. The commencement date shall be the later of
October 1, 1991 or the date upon which the Improvements are substantially
completed to permit Tenant to open Tenant's business for the intended use of the
Premises or the date upon which the proper municipal authorities grant a
certificate of occupancy to permit Tenant to open Tenant's business for the
intended use of the Premises if such certificate is required by applicable
municipal ordinances.
Section 1-3. Delivery of Possession; Consent to Combining Premises With
Adjoining Premises; Condition of Premses. Landlord will deliver
<PAGE>
the Premises to Tenant immediately upon execution of this Lease by Landlord and
Tenant. The Premises will be delivered in their "AS-IS" condition. Tenant may
cause such alterations to be made to the Premises as Tenant may desire to
prepare the Premises for Tenant's intended use of the Premises. As more
particularly set forth below, Landlord acknowledges that Tenant intends to
combine the Premises with those premises (the "Adjoining Premises") leased by
Tenant pursuant to a Lease Agreement (the "Adjoining Lease"), dated February 6,
1981, between Daniel Fusco, as landlord ("Adjoining Landlord"), and Glenview
Guaranty Savings & Loan Association, Tenant's remote predecessor in interest, as
tenant, and to use and operate the Premises and the Adjoining Premises as a
single unit. Landlord specifically consents to Tenant demolishing, opening
passages or doors through, or otherwise altering, the wall or walls between the
Premises and the Adjoining Premises or such other portions of the Premises as
Tenant may desire (the "Adjoining Walls") to accommodate such combination.
Tenant will deliver to Landlord Tenant's plans and specifications relating to
such alterations of the Premises which will demonstrate to Landlord's reasonable
satisfaction that the Premises as so altered will be structurally sound.
Landlord represents to Tenant that, as of the date of this Lease, except as set
forth below, the Premises and the Improvements, and all equipment serving the
Premises and Improvements are in good condition and working order, that the
Premises and Improvements comply will all applicable state, federal, municipal,
and other laws, rules, and regulations applicable to the Premises and
Improvements and that the Premises and Improvements may lawfully be used for
Tenant's intended purpose as set forth in this Lease, and that there is no
breach or violation by Landlord or by the Premises or Improvements of the
conditions, convenants, declarations, rules, or regulations of the Condominium
Documents, as defined below. Notwithstanding the foregoing, Landlord
acknowledges that the parking lot serving the Premises is in need of repair.
Rand Olive Condominium Association, Inc. (the "Condominium Association") will
cause the parking lot to be patched, seal coated, and striped on or before June
30, 1992. Landlord acknowledges that Tenant may desire to modify the front
stairs of the main entrance of the building containing the Premises. Landlord
agrees to support Tenant's efforts to so modify the stairway at a reasonable
cost. Landlord agrees to cast all votes in Landlord's control, and to cause all
affiliates of Landlord to cast all votes in such affiliates' control, in the
same manner as Tenant cast the votes controlled by Tenant in any meeting of the
Condominium Association at which such modifications are voted upon.
Section 1-4. Options to Renew Term.
In accordance with Section 1-1 of this Lease, Landlord does hereby grant to
Tenant the right, privilege and option to renew this Lease for two (2)
successive five (5) year periods (collectively, the "Option Periods") upon the
same terms and conditions as herein contained except as otherwise provided in
this Section. The Base Rent during the first Option Period will be as set forth
below. The Base Rent during the
2
<PAGE>
second Option Period will be equal to the market rent for the Premises as of the
commencement of the first day of the second Option Period. For the purposes of
this section, "market rent" is the rent for which the Premises would be leased
to a tenant of similar creditworthiness as Tenant, for uses similar to Tenant's
use, and for terms similar to the terms of this Lease, less all applicable
concessions and other economic inducements then customarily given to new tenants
of similar leased premises. The market rent will be determined by agreement of
the parties and/or by appraisal, as provided below. The Option Period will
commence on the date immediately following the expiration of the initial Lease
term or the expiration of the first Option Period, if applicable.
Landlord shall give Tenant written notice of the impending expiration of the
initial Lease term or the first Option Period, as applicable, at least 210 days
prior to the expiration thereof. With respect to the first Option Period, Tenant
thereafter shall exercise its option by giving Landlord written notice of its
intent to renew at least 180 days prior to the expiration of the initial Lease
term.
With respect to the second Option Period, together with Landlord's notice to
Tenant, Landlord will also deliver to Tenant Landlord's estimation of the then
market rent for the Premises for purposes of establishing the rent during the
second Option Period. Tenant will have a period of 30 days after receiving such
notice within which to either accept Landlord's estimation of market rent or to
propose a different estimate of market rent. If Tenant accepts Landlord's
estimation of market rent, such estimation will be the rent during the second
Option Period if Tenant exercises its option to extend the term this Lease into
the second Option Period. If Tenant proposes a different estimate of market
rent, Landlord will have a period of 10 days after receiving such proposal
within which to either accept Tenant's estimation of market rent or to notify
Tenant in writing of Landlord's decision to submit the issue of market rent to
appraisal, as provided below. If Landlord accepts Tenant's estimation of market
rent, such estimation will be the rent during the second Option Period if Tenant
exercises its option to extend th term of this Lease into the second Option
Period. If Landlord notifies Tenant of Landlord's election to submit the rent
issue to appraisal, then, together with such notice, Landlord will submit the
name of an appraiser, qualified in the area of appraising the market rental
value of properties similar to the Premises. Tenant will have a period of 10
days within which to either accept the appraiser submitted by Landlord as the
sole appraiser or to submit the matter to a panel of appraisers. If Tenant
accepts such appraiser as the sole appraiser, such appraiser's determination of
market rent will be binding on the parties if Tenant exercises its option to
extend the term of this Lease into the second Option Period. If Tenant does not
so accept such appraiser, Tenant will so notify Landlord and, together with such
notice, Tenant will submit the name of an appraiser qualified in the area of
appraising the market rental value of properties similar to the Premises. The
two appraisers so selected by Landlord and Tenant will name a third appraiser
qualified in the area of appraising the market rental value of properties
similar
3
<PAGE>
to the Premises, and such three appraisers will independently estimate the then
market rental for the Premises and the market rental value of the Premises will
be the arithmatic average of the two appraised values which are closet together.
In the event that there is a sole appraiser, Landlord and Tenant will each pay
one-half of the costs and expenses of such appraiser. In the event that there is
a panel of appraisers, Landlord will pay all of the costs of the appraiser named
by Landlord, Tenant will pay all of the costs of the appraiser named by Tenant,
and Landlord and Tenant will each pay one-half of the third appraiser named by
the other two appraisers. Tenant will notify Landlord as to whether Tenant will
exercise its option to evoke the second Option Period within 30 days after the
date on which the market rent has been determined.
ARTICLE TWO
-----------
Base Rental and Rental Adjustments
----------------------------------
Section 2-1. Base Rent.
Tenant shall pay to Landlord as base rent for the Premises the following amounts
monthly in advance on the first day of each and every calendar month during the
term of this Lease and during the Option Period if exercised by Tenant.
During the initial term of this Lease, Tenant will pay the following amounts as
minimum monthly rent:
Commencement through September 30, 1992: $2,395.00
October 1, 1992 through September 30, 1993: $2 494.79
October 1, 1993 through September 30, 1994: $2,598.74
October 1, 1994 through September 30, 1995: $2,707.02
October 1, 1995 through September 30, 1996: $2,819.81
October 1, 1996 through July 31, 1997: $2,937.30
If Tenant elects to exercise the Option Period, Tenant will pay the following
amounts as base rent monthly rent during the Option Period:
August 1, 1997 through September 30, 1997: $2,937.30
October 1, 1997 through September 30, 1998: $3,059.69
October 1, 1998 through September 30, 1999: $3,187.18
October 1, 1999 through September 30, 2000: $3,319.98
October 1, 2000 through September 30, 2001: $3,458.31
October 1, 2001 through July 31, 2002: $3,602.41
Section 2-2. Additional Rent. In addition to the base rent, Tenant shall pay to
Landlord in accordance with Section 2-4 the following as additional rents:
(a). Tenant shall pay as additional rent an amount equal to the Direct Expenses
(as defined in Section 2-5 below) paid or incurred by the Landlord on account of
the operation and/or maintenance of the Premises (as defined in Section 2-5).
The amount to be paid and the manner of payment shall be determined in
accordance with Section 2-4.
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(i) expenses directly attributable to Tenant's occupancy and use:
(aa) all heating, electrical and other utility services directly zoned
and separately metered;
(bb) all non-structural repairs;
(cc) telephone services; and,
(dd) other expenses, if any.
(ii) The following expenses indirectly related to Tenant's occupancy and
use of the Premises for the period beginning on the commencement date
and ending on the last day of each full year following commencement
date and each full year thereafter during the remainder of the term,
including any renewal thereof:
(aa) a proportion (as defined below) of all property taxes paid by
Landlord;
(bb) a proportion (as defined below) of any insurance premiums, other
than those reimbursed by Tenant as Direct Expenses, paid or
incurred by Landlord after deduction of premiums attributable to
the Improvements used and occupied by Tenant as provided for in
subparagraph 2-2(b)(i) of this Section.
The word "proportion" as hereinabove used shall be deemed to mean that
Tenant's expense shall be determined on a prorata basis which is
Tenant' s percentage of gross rentable area occupied under this Lease
in relation to total gross rentable area contained in the building of
which the Premises are a part. Tenant shall pay these expenses to
Landlord within thirty (30) days after receiving Landlord's statement
therefor. Notwithstanding any other provision of the Lease to the
contrary, the additional rent payable by Tenant with respect to any
given Lease Year, as defined below (other than the first Lease Year),
will not increase by more than five percent (5%) over the additional
rent paid by Tenant with respect to the previous Lease Year.
Section 2-3. Intentionally Omitted.
Section 2-4. Payment of Base Rent and Additional Rent. Base rent shall be paid
by Tenant on the first day of each and every calendar month during the term
hereof. If the commencement date is other than the first day of a calendar
month, rent for the portion of the calendar month at the beginning of the term
and at the end of the term shall be prorated.
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The additional rent required to be paid by Tenant in Section 2-2(a) shall be
determined and paid in the ofllowing manner. Landlord shall notify Tenant thirty
(30) days in advance, in writing, of the estimated amount of the direct expenses
to be paid or incurred by Landlord (as defined in Section 2-5 and based on the
financial statements prepared by Landlord's accountants for the prior year) for
the next succeeding 12 month period commencing upon the commencement date of the
term of this Lease (such 12 month period, and each succeeding 12 month period
thereafter may be referred to as a "Lease Year"). For the first Lease Year,
Landlord and Tenant shall agree as to the estimated amount of such expenses.
Tenant shall pay such sum in advance to Landlord in equal monthly installments
during the balance of the then current Lease Year on the first day of each
remaining month in said Lease Year commencing on the first day of the first
month following Tenant's receipt of such notification so that Tenant's entire
share of such increases shall have been paid to Landlord prior to the end of the
Lease Year. Within thirty (30) days following the end of each Lease Year during
the term of any renewal hereof Landlord shall submit to Tenant a statement
showing the actual amount of expenses of Landlord reimbursable by Tenant under
this Lease, the actual amount which should have been paid by Tenant with respect
to these expenses for the past Lease year, the amount thereof actually paid
during that year by Tenant, and the amount of any balance or overpayment thereof
as the case may be. Tenant may, upon notice to Landlord given within thirty (30)
days after Tenant receives such statement from Landlord, review, copy, or audit
Landlord's records with respect to such expenses. Any deficiency shall be paid
by Tenant to Landlord within thirty (30) days following Tenant's receipt of such
statement or completion of Tenant's review of Landlord's records if Tenant has
given Landlord notice of such review as provided above, and any overpayment
thereof shall be immediately credited against Tenant's additional rent due
hereunder.
The payments due hereunder shall be made in such manner and at such place or
places as Landlord may direct in writing and until further notice to:
Schmitt Properties, Inc.
c/o R.J. Schmitt & Associates, Inc.
1845 East Rand Road
Suite L-100
Arlington Heights, Illinois 60004
Tenant shall pay promptly all expenses required to be paid directly by Tenant
pursuant to Section 2-2(b)(i) and (ii).
Section 2-5. Definition of Direct Expense. Direct expense paid or incurred by
Landlord on account of the operation and/or maintenance of the Premises shall be
deemed to mean all reasonable direct costs of operations and maintenance as
determined by generally accepted principles of accounting and auditing practices
and includes by way of illustration and not limitation: heat, water, electricity
and other utility costs; insurance premiums; condominium association
assessments; real estate taxes; permits, licenses and inspection fees; cost of
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labor, materials and other services; and personal property taxes or replacement
taxes therefor, paid or incurred by Landlord in the operation and maintenance of
the Premises as determined by the certified public accountant employed by
Landlord for the applicable period or year. Direct expenses shall not include,
however, any property or other taxes levied or assessed attributable to the
Premises, or insurance premiums, to the extent that the payment of these
expenses has already been provided for in Section 2-2(b) (ii), or any expenses
or costs to be paid by Tenant under Sections 2-2(b) (i) or (ii). Any dispute
arising under this Section as to the reasonableness of the amount of direct
expenses, the inclusion of certain expenses or their attributability to Tenant
shall be resolved by arbitration pursuant to Section 6-1.
ARTICLE THREE
-------------
Landlord's Additional Rights and Duties
---------------------------------------
Section 3-1. Services. Landlord, at Landlord's expense subject to the provisions
of this Lease (specifically including but not limited to Section 2-2), shall
provide Tenant with the following services and shall pay all direct expenses,
all subject to reasonableness and applicable law and regulations:
(a) utilities for common areas;
(b) janitorial services for common areas;
(c) landscape services;
(d) trash removal;
(e) window washing as deemed necessary;
(f) snow removal as required;
(g) all structural repairs and maintenance;
(h) exterior maintenance;
(i) parking area maintenance;
(j) elevator service; and,
(k) management services.
Section 3-2. Taxes and Assessments. Subject to the provisions of this Lease,
Landlord shall be responsible to pay all state, city and county taxes,
assessments and other charges of every kind that become due and payable in
connection with the Premises and any Improvements now thereon or hereafter
placed upon said Premises during the original term of this Lease or during any
extended term if Tenant exercises Tenant's option to extend.
Section 3-3. Fire and Extended Coverage Insurance. Subject to the provisions of
this Lease, during the term of this Lease or any extensions thereof, Landlord at
landlord's own expense, covenants that Landlord will keep the Improvements now
standing upon, or which may hereafter be erected upon, the Premises insured
against loss or damage by fire, vandalism, and malicious mischief and the
hazards covered by extended coverage insurance in a responsible insurance
company or companies and to maintain such insurance at all times during the term
of this Lease or any extensions thereof in an amount equal to not less
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than the full insurable value of said Improvements. The policy or policies
thereof shall be taken out by Landlord and/or the Condominium Association and
shall name Tenant as co-insured or as additional insured and if required by any
mortgagee shall have loss payable to the mortgagees as their interests shall
appear.
Section 3-4. Maintenance. Landlord represents and warrants that the Premises,
including hot water, heating, plumbing and electrical systems, and all other
items, are in good working order and repair. Landlord shall make any repairs of
a structural nature to the Improvements and any non-structural repairs made
necessary by defects in construction as well as maintaining the roof, exterior
walls, foundation walls, driveways and parking lots.
If the repairs required to be made by Tenant are not completed within a
reasonable time after request for such repair by Landlord, Landlord shall have
the option to make such repairs after first giving Tenant fifteen (15) days'
notice of intention to do so, and any amounts expended by virtue thereof shall
be added to the next month's rent in the full amount of the expenditures.
Section 3-5. Landlord's Right to Access. Tenant shall permit Landlord and
Landlord's agents to enter upon the Premises at all reasonable times during
business hours to examine the condition of the same, provided that Landlord
gives Tenant a twenty-four (24) hour notice of coming, except in time of
emergency, and shall permit Landlord to make such repairs as may be required.
Notwithstanding the foregoing, including specifically, the foregoing provision
regarding entry into the Premises in time of emergency, due to the nature of
Tenant's business, Tenant may designate areas within the Premises which Landlord
may not enter into without Tenant's prior consent and then only when accompanied
by a representative designated by Tenant. Tenant shall permit Landlord, for a
period of one hundred eighty (180) days prior to the expiration of the term of
this Lease, as such term may have been extended, to place upon the Premises the
usual "For Rent" or "For Sale" signs, and shall permit Landlord and Landlord's
agents, at reasonable times during such period, to conduct prospective Tenants
or purchasers through the Premises after giving notice as aforesaid.
Section 3-6. Landlord's Title. Landlord's title is and always shall be paramount
to the title of Tenant and nothing contained in this Lease shall empower Tenant
to do any act which can, shall or may encumber Landlord's title.
ARTICLE FOUR
------------
Tenant's Additional Rights and Duties
-------------------------------------
Section 4-1. Purpose of Use of Premises. Tenant is hereby given the privilege of
using the Premises and the common area of the Improvements for the purpose of
maintaining offices in the conduct of Tenant's principal business as set forth
in Exhibit E; provided, however, that in the event Tenant is by law, regulation
or ordinance prohibited or
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forbidden to use the Improvements for the purposes previously set forth, Tenant
is then hereby given the privilege of using the Improvements for any lawful
purpose in accordance with the terms and conditions of this Lease.
Section 4-2. Observation of Laws. Tenant shall at its own cost and expense,
promptly observe and comply with all laws, ordinances, requirements, orders,
directives, rules and regulations of the federal, state, county, municipal or
town governments and of all governmental authorities affecting the Premises and
Improvements, including land abutting the same and the street and parking lot
abutting it and any sidewalks which may be constructed adjacent to said street,
whether the same are in force at the commencement of the term of this Lease or
may be in the future passed, enacted or directed (collectively, "Laws") and
Tenant shall pay all costs, expenses, liabilities, losses, damages, fines,
penalties, claims and demands that may in any manner arise out of, or be imposed
because of the failure of Tenant to comply with its obligations under this
Lease; provided, however, that Landlord will pay the cost of causing the
Premises to comply with any Laws to the extent that the Premises fail to comply
with any such Laws as of the date of this Lease, and will also pay all costs,
expenses, liabilities, losses, damages, fines, penalties, claims and demands
that may in any manner arise out of, or be imposed because of such failure, and
provided also that in observing and complying with all Laws Tenant shall not be
required to make any structural repairs or changes in the Improvements or any
non-structural repairs made necessary by defects in construction.
Tenant shall not use or permit the Improvements or the Premises to be used for
any purpose other than as specified herein and shall not use or permit the
Improvements or Premises to be used for any unlawful, immoral or disreputable
purposes, nor for any use or occupation which would be in conflict with
provisions of the Municipal Code of the applicable village, city, county or
other governmental subdivision applicable to the use and occupancy of the
Premises, or which would jeopardize or invalidate any of the insurance coverage
on the Premises.
Section 4-3. Quiet Enjoyment. Tenant shall have the peaceable possession and
enjoyment of the Improvements throughout the term of this Lease without any
hindrance, disturbance of ejectment by Landlord, Landlord's successors and
assigns.
Section 4-4. Insurance on Tenant's Property. Tenant shall be solely responsible
for obtaining any fire or extended coverage insurance for Tenant's personal
property and the Leasehold Improvements of Tenant and for all goods, commodities
and materials stored by Tenant in or about the Premises.
Section 4-5. Liability Insurance. At all times during the term hereof or any
extension thereof, Tenant at Tenant's own expense shall maintain and keep in
force for the mutual benefit of Landlord and Tenant general public liability
insurance against claims for personal injury, death or property damage occurring
in or about the Premises or sidewalks or areas adjacent to the Premises to
afford protection to the limit of not
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less than $300,000.00 in respect to injury or death of a single person and to
the limit of not less than $500,000.00 in respect to any one accident and to the
limit of not less than $100,000.00 in respect to property damage.
In order to evidence the coverage in effect, Tenant shall provide Landlord with
a certificate of insurance. Tenant agrees to obtain a written obligation from
the insurers to notify Landlord in writing at least ten (10) days prior to
cancellation or refusal to renew any such policies. Should Tenant fail to carry
such public liability insurance, Landlord may at Landlord's option cause public
liability insurance as aforesaid to be issued, and in such event, Tenant agrees
to pay the premiums for such insurance promptly, upon Landlord's demand, as
additional rent.
Section 4-6. Maintenance. Tenant shall make, subject to the representations and
warranties of Landlord stated in Sections 1-3 and 3-4, at Tenant's own expense,
all non-structural repairs of every kind and description which may be needed to
normally maintain the interior of that part of the Premises leased to Tenant,
and the water and heating systems, plumbing system, electrical wiring system,
sprinkler system and air-conditioning in good condition and repair.
Notwithstanding any of the above, Tenant shall repair any damage to the Premises
or appurtenances thereunto belonging caused by the misuse or negligence of
Tenant, Tenant's employees or invitees. Tenant agrees to replace all broken
glass in connection with the Premises with glass of the same size and quality of
that broken. Landlord, upon Tenant's notice, will replace all major components
of the HVAC systems as necessary.
If the repairs required to be made by Landlord are not completed within a
reasonable time after request for such repair by Tenant, Tenant shall have the
option to make such repairs after first giving Landlord fifteen (15) days'
notice of intention to do so, and any amounts expended by virtue thereof shall
be subtracted from the next month's rent in the full amount of the expenditures.
Where applicable, Tenant shall have the benefit of all warranties and
maintenance agreements by the contractor, sub-contractor and/or materialmen
relative to the Premises.
Section 4-7. Alterations and Additions. Tenant at Tenant's expense, shall have
the right to make such changes in the interior of the Premises, other than major
structural changes, as Tenant shall deem necessary or advisable in adapting the
Premises for Tenant's use. No structural changes shall be made without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
All fixtures shall become a part of the Premises and the property of Landlord at
the termination of the Lease except that trade fixtures, machinery and equipment
and power wiring, conduits and other fixtures installed by Tenant shall be
considered as Tenant's own and Tenant shall have the right to recover same at
any time during the term of
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this Lease or any extension thereof, provided that Tenant shall repair any
damage caused to said Premises by such removal.
Section 4-8. Signs. The building shall be known as the "First Chicago Building"
or any other name as designated by Tenant and approved by the Condominium
Association.
Tenant shall comply with all laws, ordinances, plat and deed restrictions,
condominium declarations, by-laws of the Condominium Association, and lawful
regulations applicable to the erection, maintenance and the removal of any signs
approved, and damage and injury from the maintenance of such signs shall be
expressly included in the above-mentioned liability insurance. Any damage to any
Improvements caused by such sign or signs shall be restored by Tenant forthwith.
Tenant shall have the right to modify any exterior or interior sign currently
relating to the Premises which may be on the Improvements or freestanding on the
real property on which the Improvements are located, subject to obtaining any
necessary approval of any local governmental authority and of the Association,
as defined below.
Section 4-9. Assignment and Subletting. Tenant shall not assign this Lease or
sublet the demised Premises, or any part thereof, without obtaining the prior
written consent of Landlord which consent shall not be unreasonably withheld.
Any dispute which arises under this Section regarding the reasonableness of
Landlord's consent shall be settled by arbitration pursuant to the provisions of
Section 6-1. No assignment or subletting consented to by Landlord shall relieve
Tenant from Tenant's liability hereunder, and each and every assignee or
sublessee shall be charged with all of the provisions hereof. Notwithstanding
the foregoing, Tenant may assign or sublet all or any portion of the Premises or
of Tenant's rights under this Lease to any affiliate of Tenant, or to any entity
which acquires all or a substantial portion of the assets of Tenant, or to any
entity into or with which Tenant merges or is consolidated in any manner.
Section 4-10. Default. If Tenant shall fail to pay any installment of the
fixed-rent or any additional rent or other charges as and when the same shall
become due and payable, and such default shall continue for a period of twenty
(20) days after written notice given to Tenant by Landlord, or if Tenant shall
default in the performance of any of the other terms, covenants or conditions of
this Lease and such default shall continue for a period of twenty (20) days
after written notice given to Tenant by Landlord, or if any execution shall be
issued against Tenant or any of Tenant's property whereby any part of the
Improvements shall be taken or occupied by someone other than Tenant, or if
Tenant shall vacate and abandon the Premises, or if this Lease or the estate of
Tenant hereunder shall be transferred or passed to or devolve upon any other
person, firm or corporation, except in the manner provided in this Lease, or if
Tenant shall assign, mortgage or encumber this Lease or sublet the Premises or
any part of the Premises, except as otherwise provided in this Lease, without
the prior written consent of Landlord, Landlord shall have the right, at
Landlord's
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option, to terminate this Lease and the term hereof, as well as the right, title
and interest of Tenant hereunder, by giving Tenant fifteen (15) days' notice in
writing of such intention, and upon the expiration of the time fixed in such
latter notice, if such default be not cured prior thereto or (except a default
for non-payment of rent or additional rent), Tenant shall not then be diligently
engaged in good faith in prosecuting the work necessary to remove said cause or
in taking the steps necessary to remedy said default, this Lease and term
hereof, as well as all the right, title and interest of Tenant hereunder, shall
wholly cease and expire in the same manner and with the same force and effect as
if the date fixed by such latter notice were the expiration of the term herein
originally granted; and Tenant shall immediately quit and surrender the Premises
to Landlord and Landlord may re-enter the demised Premises and take possession
of all or any part thereof, and remove all property and persons therefrom and
shall not be liable for any damage therefor or for trespass.
Section 4-11. Waiver of Subrogation Clause. Landlord and Tenant hereby release
the other from any and all liability or responsibility to the other or anyone
claiming through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any of the extended coverage or
supplementary contract casualties, even if such fire or other casualty shall
have been caused by the fault or negligence of the other party, or anyone for
whom such party may be responsible, provided, however, that this release shall
be applicable in force and effect only with respect to loss or damage occurring
at such a time that the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair said policies or prejudice the right of the releasor to recover
thereunder.
Section 4-12. Subordination and Non-Disturbance. This Lease and all of the
rights of Tenant hereunder are and shall be subject and subordinate to the lien
of any mortgage or mortgages whether now on the Premises or whether hereafter
placed on the Premises or any part thereof, except Tenant's property or trade
fixtures, and to any and all renewals, modifications, replacements, extensions
or substitutions of any such mortgage or mortgages (collectively, "Mortgage"),
provided, nevertheless, each Mortgage shall contain a provision to the effect
that so long as Tenant is not in default under this Lease, or any renewal
thereof, no foreclosure of the lien of such Mortgage or any other proceeding in
respect thereof shall divest, impair, modify, abrogate or otherwise adversely
affect any interest or rights whatsoever of Tenant under this Lease. Landlord
will use Landlord's best efforts to obtain from Landlord's existing mortgagee
with respect to the Property a written non-disturbance agreement in accordance
with the foregoing provision.
This Lease, if required, shall be submitted by Landlord to Landlord's mortgagee
for such mortgagee's approval and is subject to such approval, and, this Lease,
if required, shall be assigned to Landlord's mortgagee by instrument in form
satisfactory to such mortgagee.
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Section 4-13. Indemnification. Tenant shall indemnify and save Landlord harmless
from and against any and all liability, claims, damages, penalties or judgments
arising from or in any way connected with injury to person or property sustained
by action in and about the Premises in custody and control of Tenant, during the
term of this Lease, or any extension thereof. The fact that Tenant maintains the
insurance required by Section 4-5 shall be considered complete compliance with
this Section. If Landlord shall, without fault on Landlord's part, be made a
part of any litigation commenced by or against Tenant, Tenant shall protect and
hold Landlord harmless and pay all reasonable costs, expenses and reasonable
attorney fees that may be incurred or paid by Landlord in enforcing the
covenants and agreements of this Lease.
Except for the negligence or wilful misconduct of Landlord or the negligence or
wilful misconduct of Landlord's officers, agents, servants, employees or
contractors, Landlord shall not be responsible or liable for any damage or
injury to any property, fixtures, buildings or other improvements, or to any
person or persons at any time on the Premises, including any damage or injury to
Tenant or to any of Tenant's officers, agents, servants, employees, contractors,
customers or sublessees.
Section 4-14. Surrender of Premises. Tenant shall surrender and deliver up the
Premises and appurtenances at the end of the term of this Lease, as it may be
extended, broom-clean and in as good condition and order as they were at
commencement of the term hereof, reasonable use and natural wear and tear
thereof and damage by fire or other casualty and changes made with Landlord's
consent excepted. Tenant may remove all the trade fixtures, signs, equipment,
stock in trade, and other items of a similar nature used in connection with
Tenant's business, including such as may have been temporarily attached to the
realty. If such removal results in injury to or defacement of the Premises,
Tenant shall immediately repair the Premises at Tenant's expense.
Section 4-15. Condominium; Right to Vote. The Premises are part of the Rand
Olive Condominium (the "Condominium"). As long as Tenant is not in default under
this Lease, Tenant shall have the right to participate in all meetings of the
owners of the Condominium and shall have the right to vote Landlord's vote as a
unit owner of the Premises, or give a proxy therefor. Landlord shall execute any
proxy necessary to establish Tenant of record as the holder of the vote
attributable to the Premises. Landlord has delivered to Tenant copies of the
Rand Olive Condominium Declaration, the Articles of Incorporation and By-Laws of
the Condominium Association, all rules and regulations of the Condominium and
the Condominium Association, and all other similar documents relating to the
Condominium and the Condominium Association (collectively, the "Condominium
Documents"). Landlord will not agree to any modification to the Condominium
Documents without Tenant's prior approval. Landlord will deliver to Tenant
notice of any proposed modification of the Condominium Documents and copies of
any documents
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or other materials relating to such proposal which may be in Landlord's
possession or control.
Section 4-16. Right of First Refusal; Expansion Option Space. Landlord is the
owner of the premises directly beneath the Premises (the "Associates Expansion
Premises") and the owner of the premises directly beneath the Adjacent Premises
(the "Additional Expansion Premises") (the Associates Expansion Premises and the
Additional Expansion Premises may be referred to collectively as the "Expansion
Premises"). Landlord hereby grants to Tenant the following rights with respect
to the Expansion Premises.
Tenant, upon 180 days written notice to Landlord, may elect to rent all of any
portion of the Associates Expansion Premises. If Tenant so elects to rent all or
any portion of the Associates Expansion Premises, Landlord will cause such
premises to be available to Tenant upon the date specified by Tenant in such
notice provided that such specified date will be reasonably sufficient to permit
Landlord time to prepare such premises for delivery to Tenant.
Tenant will have the right to rent all or any portion of the Additional
Expansion Premises commencing at the end of the term of the existing leases
affecting the Additional Expansion Premises or of any subsequent lease of such
premises. Landlord will give Tenant 210 days notice of the pending termination
of a lease affecting the Additional Expansion Premises, unless such lease would
terminate earlier that 210 days from such notice due to no default by Landlord,
such as, for example, due to a default by the tenant under such lease, in which
case Landlord would give Tenant as much notice as Landlord reasonably could give
under the circumstances. Tenant would have a period of 30 days within which to
notify Landlord of Tenant's exercise of Tenant's rights under this Section.
The lease of any Expansion Premises would be upon the same terms and conditions
as contained in this Lease except that the Base Rent with respect to such
Expansion Premises would be the then market rental for such Expansion Premises.
The then market rental would be determined by agreement of the parties or by
arbitration, in accordance with the procedures set forth is Section 1-4 of the
Lease.
If Tenant elects to rent less than all of the available Expansion Premises, the
portion of the Expansion Premises not so rented would be an architecturally
complete space of a reasonably marketable size and configuration.
Landlord will deliver the Expansion Premises to Tenant in its then "as-is"
condition, unless otherwise agreed to by the parties.
Landlord hereby also grants to Tenant the right of first refusal with respect to
all Expansion Premises as provided in this Section. If Landlord desires to lease
all or any portion of the Expansion Premises to any party, Landlord will first
offer such space to Tenant together with the terms and conditions upon which
Landlord intends to offer such
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space for rent. Tenant will have a period of 30 days within which to notify
Landlord as to whether Tenant desires to rent the space offered upon the terms
offered. If Tenant does not accept such offer, Landlord may rent the offered to
space to any party provided that the economic terms of such rental are not more
favorable to such party as those which were offered to Tenant. If Landlord
desires to rent such space upon terms which are economically more favorable to
such party, Landlord will first offer such space to Tenant upon such more
favorable terms. Tenant will have a period of 15 days within which to accept
such terms. If Tenant does not accept such terms, Landlord may rent the offered
space to any party on such terms.
ARTICLE FIVE
------------
Eminent Domain, Damage or Destruction of Premises
-------------------------------------------------
Section 5-1. Eminent Domain. If the entire Premises, or the Adjacent Premises,
or such part of the Premises or the Adjacent Premises, as, in Tenant's judgment,
renders the remainder of the combined area of the Premises and the Adjacent
Premises unsuitable for Tenant's continued use, shall be taken in appropriation
proceedings or by any rights of eminent domain, then this Lease shall terminate
and be void from the time when possession thereof is required for public use,
and such taking shall not operate as or be deemed an eviction of the Tenant or a
breach of Landlord's covenant for quiet enjoyment; but Tenant shall pay all rent
due, and perform and observe all other covenants hereof, up to the time when
possession is required for public use; provided, however, that if in Tenant's
judgment, the combined area of the Premises and the Adjacent Premises after such
taking can be made to be suitable for Tenant's continued use, and if two (2)
years or more of the term hereof (including the extension of such term) then
remains unexpired or available, and if the remaining Premises and Adjacent
Premises can be substantially restored within sixty (60) days, then, at Tenant's
option, this Lease shall not terminate, but Landlord shall, at Landlord's sole
expense, restore the Premises to a condition satisfactory to Tenant. The rent
payable by Tenant during the period of restoration will be reduced by a
reasonable amount, but after such restoration, the rent herein reserved shall be
paid by Tenant as herein provided during the remainder of the term hereof abated
by the percentage that the fair market value of the Premises, attributable
solely to the land and Improvements, has been reduced because of such taking.
Said market value immediately before and after such taking shall be determined
by agreement of the parties or, failing agreement of the parties within thirty
(30) days of the effective date of such taking, by a local Independent Fee
Appraiser selected by mutual agreement of Landlord and Tenant, which appraiser's
decision will be final and binding on the parties.
The cost of such appraiser shall be borne equally by Landlord and Tenant.
Tenant shall have the right at Tenant's sole cost and expense to assert a
separate claim or join in Landlord's claim in any condemnation
15
<PAGE>
proceeding for its personal property, Tenant's improvements, loss of value in
Tenant's leasehold estate, moving expenses or any other claims Tenant may have.
Tenant shall be entitled to and shall receive that portion of any award or
payment made which is attributable solely to Tenant's claims, and Landlord shall
be entitled to and shall receive that portion of any award or payment made which
is attributable solely to the land and Improvements erected thereon.
Section 5-2. Damage or Destruction of Improvements. In the event the
Improvements shall be rendered untenantable by fire or other casualty, Landlord
shall within one hundred twenty (120) days from the date of such damage or
destruction, repair or replace the Improvements to substantially the same
condition as prior to the damage or destruction. If Landlord fails to commence
repair of the damage or destruction within thirty (30) days from the date of
such damage or destruction, or if the Improvements have not been replaced or
repaired to such condition within one hundred twenty (120) days, Tenant, at
Tenant's option (to be exercised by written notice to Landlord), may terminate
this Lease, or Tenant may cause such repairs to be completed, and any cost or
expense incurred by Tenant with respect to such repairs will be immediately
reimbursed by Landlord. If Landlord fails to so reimburse Tenant, Tenant, at
Tenant's option, may off set the amount of such costs and expenses against the
rent due under this Lease. The rent herein required to be paid shall abate
during the period of such untenantability.
If the Improvements shall be damaged in part by fire or other casualty, but
still remain tenantable, Landlord shall repair the Improvements to substantially
the same condition as prior to the damage. During the period of such repairs and
restorations, the Lease shall continue in full force and effect, provided,
however, that Tenant shall be required to pay the rent herein reserved abated by
the percentage of area destroyed as compared to the total area herein demised,
unless such fire or other casualty is caused by Tenant's negligence in which
case the rental shall not abate but will continue unaffected during the repair
period. If Landlord fails to commence repair of the damage or destruction within
thirty (30) days from the date of such damage or destruction, or if the
Improvements have not been replaced or repaired to such condition within one
hundred twenty (120) days, Tenant, at Tenant's option (to be exercised by
written notice to Landlord), may terminate this Lease, or Tenant may cause such
repairs to be completed, and any cost or expense incurred by Tenant with respect
to such repairs will be immediately reimbursed by Landlord. If Landlord fails to
so reimburse Tenant, Tenant, at Tenant's option, may off set the amount of such
costs and expenses against the rent due under this Lease.
In the event that any damage or destruction occurs during the last twelve (12)
months of the original term of this Lease or any extension of the term, to the
extent of fifty (50%) percent or more of the insurable value of the
Improvements, Landlord or Tenant may elect to terminate this Lease as of the
date of destruction or damage, by giving notice of such election will fifteen
(15) days after such damage or destruction. In such event, Landlord shall
receive the proceeds of the
16
<PAGE>
insurance without obligation to rebuild or restore the Premises, and shall
execute any waiver which may be required of it by any or Landlord. Any dispute
which arises under this Section regarding the negligence of Tenant shall be
settled by arbitration pursuant to the provisions of Section 6-1.
ARTICLE SIX
-----------
General Provisions
------------------
Section 6-1. Arbitration. Any controversy or claim arising out of or relating
to:
(a) the usability of the Premises after a taking as provided in Section
5-1; or,
(b) the negligence of Tenant as provided in Section 5.2; or
(c) the reasonableness of Landlord's consent to assign or subletting as
provided in Section 4-9,
(d) the resolution of disputes relating to Direct Expenses as provided in
Section 2-5,
shall be settled by arbitration in accordance with the rule the American
Arbitration Association. The arbitration decision shall be final and binding
upon the parties.
Section 6-2. Service of Notice. Every notice, approval, or other communication
authorized or required by this Lease will be in writing and either hand
delivered, which includes delivery by commercially reasonable delivery services,
or sent by certified or registered mail, postage prepaid, to the other party at
the following address or at such other address as may be designated by notice in
writing given from time to time and shall be deemed given, if made by personal
delivery, on the date of delivery, or if made by mailing, three days after the
date postmarked.
If notice is to be given to Landlord, it shall be given at following address:
Schmitt Properties, Inc.
c/o R.J. Schmitt & Associates, Inc.
1845 East Rand Road
Suite L-100
Arlington Heights, Illinois 60004
Attention: Mr. Greg Schmit
If notice is to be given to Tenant, it shall be given at th address set forth in
Exhibit E.
17
<PAGE>
Section 6-3. Governing Law. This Lease and the performance hereof shall be
governed, interpreted, construed and regulated by the laws of the State of
Illinois.
Section 6-4. Partial Invalidity. If any term, covenant, condition or provision
of this Lease, or the application thereof, to any person or circumstances, shall
at any time or to any extent be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition and provision of this Lease
shall be valid and be enforced to the fullest extent permitted by law.
Section 6-5. Combined Space; Cooperation And Coordination With Adjoining
Landlord. Landlord acknowledges that Tenant intends to combine the Premises
leased by Tenant under this Lease with the Adjoining Premises lease by Tenant
under the Adjoining Lease and to operating such combined premises as a single
unit. At Tenant's request, Landlord agrees to cooperate and coordinate with
Tenant and the Adjoining Landlord with respect to matters which may or may not
be addressed in either or both of this Lease and the Adjoining Lease but which
affect the combined premises as a whole.
Section 6-6. Conditioned Upon Consent And Agreement Of Adjoining Landlord.
Notwithstanding any other provision of this Lease to the contrary, this Lease
and Tenant's obligations under this Lease are conditioned upon Tenant receiving
consent from the Adjoining Landlord, satisfactory to Tenant, pursuant to which
the Adjoining Landlord consents to the demolition or other alteration of the
Adjoining Walls, to the combining of the Adjoining Premises and the Premises,
and to the combined use of the Adjoining Premises.
Section 6-7. Termination Of Lease Upon Termination Of Adjoining Lease.
Notwithstanding any other provision of this Lease to the contrary, at Tenant's
option, this Lease will terminate if the Adjoining Lease terminates. If Tenant
desires to so terminate this Lease, Tenant will deliver written notice to
Landlord of such termination. The effective date of such termination will be the
effective date of the termination of the Adjoining Lease.
Section 6-8. Interpretation. Wherever in this Lease the singular number is used,
the same shall include the plural, and the masculine gender shall include the
feminine and neuter genders, and vice versa, as the context shall require.
Section 6-8. Headings. The headings used herein are for reference and
convenience only and shall not enter into the interpretation hereof.
Section 6-9. Counterparts. This Lease may be executed in several counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
18
<PAGE>
Section 6-10. Exhibits. The Exhibits referred to herein are attached hereto and
by reference made a part hereof.
Section 6-11. Entire Agreement. No oral statement or prior written matter shall
have any force or effect. This agreement shall not be modified or canceled
except by writing subscribed by all parties.
Section 6-12. Benefit. Except as otherwise expressly provided herein, the
covenants, conditions and agreements contained in this Lease shall bind and
inure to the benefit of Landlord and Tenant and their respective successors and
assigns.
Section 6-13. Authority of Parties. Landlord and Tenant each to the other
represents and warrants that each has full right and authority to enter into and
perform the obligations under this Lease for the full term hereof.
Section 6-14. Recording of Lease. This Lease shall not be recorded by Tenant.
Landlord and Tenant, at the request of the other, will execute, acknowledge, and
deliver a Memorandum of this Lease, in recordable form, which Memorandum may be
recorded with respect to the Premises.
Section 6-15. Compliance with Condominium Documents. Landlord and Tenant shall
each obey and conform to the declaration of condominium, by-laws and rules and
regulations of the Condominium Association which are hereby incorporated herein.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.
Landlord
--------
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------------
Greg Schmitt, President 10-17-91
Tenant
------
FIRST CHICAGO BUILDING CORPORATION
By: /s/ Richard C. Gallagher
-----------------------------------
Richard C. Gallagher, President
19
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
----------------------------------
This Assignment and Assumption of Lease ("Assignment") is made as of
August 16, 1994 by FIRST CHICAGO BUILDING CORPORATION, an Illinois corporation
("Assignor") in favor of NATIONAL BANCORP, INC., a _______________ corporation
("Assignee"). (Assignor and Assignee are hereinafter sometimes together referred
to as the "Parties").
RECITALS
--------
A. By Lease Agreement dated as of October 7, 1991, a copy of which is
attached hereto as Exhibit "A" and by this reference made a part hereof
(collectively the "Lease"), SCHMITT PROPERTIES, INC., ("Landlord") leased to
Ansignor's predecessor certain premises defined and described in the Lease as
the "demised premises".
B. Assignor and Assignee have agreed to enter into this Assignment.
C. Any term used in this Amendment which is defined in the Lease and
not otherwise defined in this Assignment will have the same meaning in this
Amendment as in the Lease.
The Parties agree as follows:
AGREEMENTS
----------
1. Assignor hereby grants, conveys, transfers and assigns to Assignee
all of Assignor's right, title, estate and interest as tenant in, to and under
the Lease.
2. Assignee hereby accepts the foregoing assignment and agrees to
observe and perform all terms, covenants, conditions amd obligations as tenant
under the Lease and agrees to comply with all restrictions contained in the
Lease which are applicable to the demised premises and the occupancy by any
person thereof.
3. Assignee hereby agrees to indemnify, protect, defend and hold
Assignor harmless from and against all claims, demands, liabilities, losses,
costs, damages or expenses, (including, without limitation, reasonable
attorneys' fees and costs) arising out of or resulting from any breach or
default by Assignee under the terms of the lease arising on or after the date
hereof.
4. This Assignment is expressly conditioned on the following:
<PAGE>
(a) Consent of the Landlord to this Assignment;
(b) Landlord and Assignee executing an amendment to the Lease in
substantially the form of Exhibit "B" attached hereto;
(c) The approval of Assignee's application for a bank charter at
the Premises and the issuance thereof to Assignee;
(d) The assignment of the Adjoining Lease by Assignor to
Assignee.
(e) Assignee installing its ATM and assignor removing its
existing ATM from its current location at the Lease site; provided,
however, that Assignor shall not remove its ATM until Assignee has arranged
for and has provided Assignor written notice of the date and time for
installation of Assignee's ATM, in coordination with Assignor's removal of
its ATM. It is the intention of Assignor and Assignee to coordinate the
substitution of their respective ATMs so as not to create a period time in
which ATM service is provided to the Lease premises.
It is understood and agreed that in the event the above conditions are
not satisfied on or before November 1, 1994, this Assignment shall be null and
void and of no further force and effect; provided, however, Assignor at its
option may extend the November 1, 1994 date to December 1, 1994 by written
notice to Assignee prior to November 1, 1994.
5. From the period commencing August 1, 1994 until the earlier of
November 1, 1994, or as may be extended by paragraph 4 above, or the issuance of
the aforedescribed bank charter, Assigneee shall pay Assignor as a fee $3,000 on
August 1, 1994 and $3,000 on or before the first day of each month thereafter,
but not later than December 1, 1994, which fee shall be non-refundable.
6. Until the expiration of the original term of the Lease on July 31,
1997, Assignee agrees not to amend or modify the Lease without the prior written
consent of Assignor.
7. Assignee represents and warrants to Assignor that neither it nor
its officers or agents nor anyone acting on its behalf has dealt with any real
estate broker other than Mid-America Real Estate Corporation in the negotiation
or making of this Assignment, and Assignee agrees to indemnify and hold harmless
Assignor from the claim or claims of any other broker or brokers claiming to
have caused Assignee to enter into this Assignment.
8. Any notice required or permitted to be given under this Assignment
shall be deemed given when dispatched by registered or certified mail, return
receipt requested, postage prepaid, addressed:
-2-
<PAGE>
to Assignee at:
National Bancorp, Inc.
1300 East Irving Park Road
Suite 200
Streamwood, Illinois 60107
Attn: Mr. Tom Roth, President
with a copy to:
Don Storino
Storino, Ramello & Durkin
9501 West Devon
Suite 800
Rosemont, Illinois 60018
to Assignor at:
First Chicago Building Corporation
Real Estate Transaction Unit
One First National Plaza
Mail Suite 0475
Chicago, Illinois 60670-0475
Attn: Unit Manager
with a copy to:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0801
Chicago, Illinois 60670-0801
Attn: Law Department
9. This Assignment constitutes the entire agreement of the Parties
relative to the subject matter hereof, and all prior negotiations, agreements
and understandings are specifically merged herein and superseded hereby. This
Assignment may be modified only by a written instrument executed by the Parties.
This Assignment is the result of the prior negotiations, agreements and
understandings of the Parties and is to be construed as the jointly prepared
product of the Parties.
10. The terms and provisions of this Assignment shall inure to the
benefit of and shall be binding upon the Parties and their respective
successors, representatives and permitted assigns.
11. This Assignment shall be construed in accordance with and governed
by the laws of the State of Illinois.
-3-
<PAGE>
12. If any terms or provision of this Assignment or the application
thereof to any person or circumstances shall to any extent, be invalid or
unenforceable, the remainder of this Assignment, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each remaining term
and provision of this Assignment shall be valid and be enforced to the fullest
extent permitted by law.
IN WITNESS WHEREOF, Assignor and Assignee have caused their duly
authorized representatives to execute this Assignment as of the date first above
written.
Assignor:
FIRST CHICAGO BUILDING CORPORATION
By: /s/ Chris L. Wagner
------------------------------
Name: Chris L. Wagner
Title: Chairman
Assignee:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Name:
Title: President 8-17-94
-4-
<PAGE>
EXHIBIT "B"
-----------
AMENDMENT TO LEASE
------------------
This Amendment to Lease ("Amendment") is made as of 8/16, 1994, by
SCHMITT PROPERTIES, INC., ("Landlord") and NATIONAL BANCORP, INC. ("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of October 7, 1991, leased to FIRST
CHICAGO BUILDING CORPORATION ("FCBC") certain premises described and defined in
the Lease.
B. By Assignment and Assumption of Lease dated 8/16, 1994, FCBC
assigned the Lease to Tenant.
C. Landlord and Tenant desire to amend the Lease.
In consideration of the mutual promises contained in this Amendment,
and for the good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Landlord and Tenant agree as follows:
1. Notwithstanding any provisions of the Lease to the contrary, Tenant
shall pay to Landlord the following amounts as minimum monthly rent:
October 1,* 1994 through September 30,* 1995 $3,333.33
October 1,* l995 through September 30,* 1996 $3,466.67
October 1,* 1996 through July 31, 1997 $3,605.33
* or later, as may be extended pursuant to paragraph 4 of the Assignment and
Assumption of Lease.
Notwithstanding any provisions of the Lease to the contrary, if Tenant
elects to exercise the Option Period, Tenant will pay the following amounts as
base monthly rent during the Otion Period:
August 1, 1997 through September 30, 1997 $3,605.33
October 1, 1997 through September 30, 1998 $3,749.55
October 1, 1998 throuqh September 30, 1999 $3,899.53
October, 1999 through September 30, 2000 $4,055.51
October 1, 2000 through Septpmber 30, 2001 $4,217.73
October 1, 2001 through September 30, 2002 $4,386.44
2. Tenant shall deposit with Landlord concurrently with the execution
of this Amendment an irrevocable letter of credit in an initial amount equal to
the total amount of base rent payable during the balance of the term of the
Lease issued by a financial institution approved by Landlord naming Landlord,
its successors and assigns as beneficiary and bearing an expiration date not
-1-
<PAGE>
earlier than July 31, 1997 as security for Tenant's rental obligations under the
lease. So long as Tenant is not in default under the Lease, Tenant may decrease
the initial amount of the letter of credit annually commencing on October 1,
1995, or later as may be extended pursuant to paragraph 4 of the Assignment and
Assumption of Lease, and each October 1 thereafter by an amount equal to the
total amount or the base rent paid by the Tenant under the Lease during the
previous twelve months. If Tenant exercised the Option to Renew Term, Tenant
will deposit with Landlord a replacement letter of credit in an amount equal to
the total amount of base rent payable during the renewal term which shall be
subject to annual reductions on Each October 1 thereafter equal to the total
amount of base rent paid during the previous twelve (12) months.
3. This Amendment will be governed by the laws of the State of
Illinois. This Amendment is binding on parties or the respective successors and
assigns. Any terms used in this Amendment which is defined in the Lease and not
otherwise defined in this Amendment will have the same meaning as in the Lease.
In the event of any conflict between the terms of this Amendment and the terms
of the Lease, the terms of this Amendment will control.
4. Except for the modifications contained herein, the Lease shall
remain unmodifiod and in full force and effect.
The parties have executed this Amendment as of the date first above
written.
Landlord:
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------
Its: President 8/16/94
Tenant:
FIRST BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President 8-17-94
-2-
<PAGE>
CONSENT OF LANDLORD
-------------------
The undersigned, being the Landlord under the Lease, hereby consents
to the terms and provisions of the foregoing Assignment and Assumption of Lease.
Landlord agrees as follows:
1. Upon the expiration of the original term of the Lease on July 31,
1997, Assignor shall be released from all of the terms, covenants, conditions
and obligations as tenant under the Lease notwithstanding the exercise by
Assignee of its option to extend the Lease under Section 1-4 of the Lease.
2. The Amemdment to the Lease in substantially the form attached as
Exhibit "B" to the foregoing Assignment and Assumption of Lease when executed by
Landlord and Assignee shall not be binding upon Assignor.
3. Until the expiration of the original term of the Lease on July 31,
1997, Landlord will not amend or modify the Lease without the prior written
consent of Assignor and Assignor shall in no event or to any extent be bound by
any amendment or modification of the Lease not consented to by Assignor.
Executed 8/16, 1994.
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------
Its: President
-5-
<PAGE>
EXHIBIT "B"
-----------
AMENDMENT TO LEASE
------------------
This Amendment to Lease ("Amendment") is made as of __________, 1994,
by SCHMITT PROPERTIES, INC., ("Landlord") and NATIONAL BANCORP, INC. ("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of October 7, 1991, leased to FIRST
CHICAGO BUILDING CORPORATION ("FCBC") certain premises described and defined in
the Lease.
B. By Assignment and Assumption of Lease dated __________, 1994, FCBC
assigned the Lease to Tenant.
C. Landlord and Tenant desire to amend the Lease.
In consideration of the mutual promises contained in this Amendment,
and for the good and valuable consideration, the receipt and sufficiency of
which are acknowledged, Landlord and Tenant agree as follows:
1. Notwithstanding any provisions of the Lease to the contrary, Tenant
shall pay to Landlord the following amounts as minimum monthly rent:
October 1,* 1994 through September 30,*1995 $3,333.33
October 1,* 1995 through September 30,* 1996 $3,466.67
October 1,* 1996 through July 31, 1997 $3,605.33
* or later, as may be extended pursuant to paragraph 4 of the Assignment and
Assumption of Lease.
Notwithstanding any provisions of the Lease to the contrary, if Tenant
elects to exercise the Option Period, Tenant will pay the following amounts as
base monthly rent during the Option Period:
August 1, 1997 through September 30, 1997 $3,605.33
October 1, 1997 through September 30, 1998 $3,749.55
October 1, 1998 through September 30, 1999 $3,899.53
October, 1999 through September 30, 2000 $4,055.51
October 1, 2000 through September 30, 2001 $4,217.73
October 1, 2001 through September 30, 2002 $4,386.44
2. Tenant shall deposit with Landlord concurrently with the execution
of this Amendment an irrevocable letter of credit in an initial amount equal to
the total amount of base rent payable
-1-
<PAGE>
during the balance of the term of the Lease issued by a financial institution
approved by Landlord naming Landlord, its successors and assigns as beneficiary
and bearing an expiration date not earlier than July 31, 1997 as security for
Tenant's rental obligations under the lease. So long as Tenant is not in default
under the Lease, Tenant may decrease the initial amount of the letter of credit
annually commencing on October 1, 1995, or later as may be extended pursuant to
paragraph 4 of the Assignment and Assumption of Lease, and each October 1
thereafter by an amount equal to the total amount of the base rent paid by the
Tenant under the Lease during the previous twelve months. If Tenant exercised
the Option to Renew Term, Tenant will deposit with Landlord a replacement letter
of credit in an amount equal to the total amount of base rent payable during the
renewal term which shall be subject to annual reductions on Each October 1
thereafter equal to the total amount of base rent paid during the previous
twelve (12) months.
3. Notwithstanding any other provisions contained in this lease, in
the event (a) Tenant or its successors or assignees shall become insolvent or
bankrupt, or if it or their interests under this Lease shall be levied upon or
sold under execution or other legal process, or (b) the depository Institution
then operating on the Premises is closed, or is taken over by any depository
Institution supervisory authority ("Authority"), Landlord may, in either such
event, terminate this Lease only with the concurrence of any Receiver or
Liquidator appointed by such Authority; provided, that in the event this Lease
is terminated by the Receiver or Liquidator, the maximum claim of Landlord for
rent, damages, or indemnity for injury resulting from the termination,
rejection, or abandonment of the unexpired Lease shall by law in no event be in
an amount equal to all accrued and unpaid rent to the date of termination.
4. This Amendment will be governed by the laws of the State of
Illinois. This Amendment is binding on parties or the respective successors and
assigns. Any terms used in this Amendment which is defined in the Lease and not
otherwise defined in this Amendment will have the same meaning as in the Lease.
In the event of any conflict between the terms of this Amendment and the terms
of the Lease, the terms of this Amendment will control.
5. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
-2-
<PAGE>
The parties have executed this Amendment as of the date first above
written.
Landlord:
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------
Its: President 8/25/94
Tenant:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President
-3-
<PAGE>
FIRST AMENDMENT TO
ASSIGNMENT AND ASSUMPTION OF LEASE
This First Amendment to Assignment and Assumption of Lease ("First
Amendment Assignment") is made as of December 1, 1994 by and between FIRST
CHICAGO BUILDING CORPORATION, an Illinois corporation ("Assignor") and NATIONAL
BANCORP, INC., a Delaware corporation ("Assignee"). (Assignor and Assignee are
hereinafter sometimes together referred to as the "Parties").
RECITALS
A. By Lease Agreement dated as of October 7, 1991 (the "Lease")
SCHMITT PROPERTIES, INC. ("Landlord") leased to Assignor certain premises
defined and described in the Lease as the "Premises".
B. By an Assignment and Assumption of Lease dated as of August 16,
1994 ("Assignment") Assignor assigned to Assignee, and Assignee assumed, the
Lease.
C. Pursuant to the terms of the Assignment Landlord and Assignee
executed an Amendment to the Lease dated August 16, 1994.
D. Assignee was issued a Permit to Organize the Northwest Community
Bank (the "Bank") by the Commissioner of Banks and Trust Companies for the State
of Illinois ("Commissioner") and Assignee has filed applications with the
Federal Deposit Insurance Corporation ("FDIC") and with the Federal Reserve
Board of Governors through the Federal Reserve Bank of Chicago ("Federal
Reserve") for, respectively, depository insurance for the Bank and approval for
the acquisition of the Bank by Assignee, which applications are pending.
E. The Parties have agreed to enter into this First Amendment
Assignment.
F. Any term used in this First Amendment Assignment which is defined
in the Lease or the Assignment and not otherwise defined in this First
Assignment Amendment will have the same meaning in this First Assignment
Amendment as in the Lease or the Assignment.
The Parties agree as follows:
AGREEMENTS
1. With regard to Paragraph 4 of the Assignment, the Parties
acknowledge that conditions (a), (b) and (d) have been satisfied and that the
date in condition (c) was extended to December 1, 1994.
<PAGE>
2. Condition (c) of Paragraph 4 of the Assignment is deleted and with
regard to condition (c) of Paragraph 4 of the Assignment, Assignor acknowledges
and agrees that the Assignment shall continue from calendar month to calendar
month commencing December 1, 1994 until the earlier of the date that (i) the
Charter for the Bank has been issued to the Assignee or any of the applications
filed with the Commissioner, the FDIC or the Federal Reserve have been denied
and no appeal is pending or (ii) April 30, 1995. Notwithstanding the foregoing,
the Parties agree that the Assignment shall automatically terminate, unless
extended by the Parties in writing, if the foregoing conditions have not been
satisfied by April 30, 1995.
3. With respect to condition (e) of Paragraph 4 of the Lease, Assignor
will modify the security system for its existing ATM so that it is separate from
the security system for the Premises and the Adjoining Premises. Assignee has
paid Assignor $600 to cover Assignor's costs in connection with such
modification.
4. Subject to the terms and conditions of Section 4-7 of the Lease,
commencing on the date that this First Amendment Assignment is fully executed,
Assignee, at Assignee's expense, shall have the right to make changes in the
interior of the Premises other than major structural changes, as Assignee shall
deem necessary or advisable in adapting the Premises for Assignee's use. No
structural changes shall be made without the prior written consent of Assignor
which consent shall not be unreasonably withheld. Assignee shall indemnify and
save Assignor harmless from any mechanics' liens for work done in the interior
of the Premises or materials supplied in connection with such work. If the
Assignment is terminated pursuant to the provisions of paragraph 2 of this First
Amendment Assignment and Assignor elects, and so notifies Assignee, Assignee, at
its expense, shall remove such changes and repair any damages to the interior of
the Premises caused by such removal.
5. This First Amendment Assignment is expressly conditioned upon
Landlord and Assignee executing a Second Amendment to Lease in substantially the
form attached hereto.
6. Subject to the terms and conditions hereof, keys to, and possession
of, the Premises will be provided to Assignee upon the full execution of this
First Amendment Assignment.
7. Except for the modifications contained herein, the Assignment shall
remain unmodified and in full force and effect.
Page 2
<PAGE>
In Witness Whereof the Parties have caused their respective duly
authorized representatives to execute this First Amendment Assignment as of the
date first above written.
Assignor:
FIRST CHICAGO BUILDING CORPORATION
By:________________________________
Title:_____________________________
Assignee:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
-------------------------------
Title: President
Page 3
<PAGE>
Consent of Landlord
The undersigned, being the Landlord under the Lease, hereby consents
to the terms and provisions of the foregoing First Amendment to Assignment and
Assumption of Lease.
Landlord agrees as follows:
1. The Second Amendment to Lease in substantially the form attached to
the foregoing First Amendment to Assignment and Assumption of Lease when
executed between Landlord and Assignee shall not be binding upon Assignor.
2. If the Assignment and Assumption of Lease dated August 16, 1994
between Assignor and Assignee is terminated pursuant to the terms and provisions
of paragraph 2 of the foregoing First Amendment to Assignment and Assumption of
Lease (i) the Amendment to Lease dated August 16, 1994 between Landlord and
Assignee and (ii) the above described Second Amendment to Lease shall be null
and void.
Executed 1-5, 1995.
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------
Its: President
<PAGE>
SECOND AMENDMENT TO LEASE
-------------------------
This Second Amendment to Lease ("Second Amendment") is made as of
December 1, 1994, by SCHMITT PROPERTIES, INC. ("Landlord") and NATIONAL BANCORP,
INC. ("Tenant").
RECITALS
--------
A. By Lease Agreement dated as of October 7, 1991 (the "Lease"),
Landlord leased to First Chicago Building Corporation ("FCBC") certain Premises
described and defined in the Lease.
B. By Assignment and Assumption of Lease dated as of August 16, 1994,
FCBC assigned to Tenant, and Tenant assumed, the Lease ("Assignment") to which
Assignment Landlord consented.
C. By Amendment to Lease dated as of August 16, 1994, Landlord and
Tenant amended the Lease ("First Amendment").
D. By a First Amendment to Assignment and Assumption of Lease dated as
of December 1, 1994, FCBC and Tenant amended the Assignment ("First Amendment
Assignment").
E. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Second
Amendment, and for good and valuable consideration, the receipt and sufficiency
of which are acknowledged, Landlord and Tenant agree as follows:
1. Paragraph 1 of the First Amendment is modified such that Tenant
shall pay the following amounts as minimum monthly rent:
January 1, 1995 through September 30, 1995 $3,333.33
October 1, 1995 through September 30, 1996 $3,466.67
October 1, 1996 through July 31, 1997 $3,605.33
2. Paragraph 2 of the First Amendment is deleted in its entirety.
3. If the Assignment and Assumption of the Lease is terminated
pursuant to paragraph 2 of the First Amendment Assignment, the First Amendment
and this Second Amendment shall be null and void.
<PAGE>
4. This Second Amendment will be governed by the laws of the State of
Illinois. This Second Amendment is binding on the parties and their respective
successors and assigns. Any term used in this Second Amendment which is defined
in the Lease and not otherwise defined in this Second Amendment will have the
same meaning as in the Lease. In the event of any conflict between the terms of
this Second Amendment and the terms of the Lease, the terms of this Second
Amendment will control.
5. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and effect.
The parties have executed this Second Amendment as of the date first
above written.
Landlord:
SCHMITT PROPERTIES, INC.
By: /s/ Greg Schmitt
------------------------------
Its: President
Tenant:
NATIONAL BANCORP, INC.
By: /s/ Thomas H. Roth
------------------------------
Its: President
Page 2
<PAGE>
AMENDMENT TO LEASE
------------------
This Second Amendment to Lease ("Second Amendment") is made as of Nov.
3, 1994, 1994, by SCHMITT PROPERTIES, INC. ("Landlord") and NATIONAL BANCORP,
INC. ("Tenant").
RECITALS:
---------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated August 16, 1994, FCBC
assigned the Lease to the Tenant.
C. Landlord and Tenant entered into a first Amendment to Lease dated
as of August 16, 1994 (the "First Amendment").
D. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Second
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Landlord and Tenant agree as follows:
1. Landlord hereby agrees to eliminate the requirement that Tenant
obtain and deposit with Landlord the irrevocable letter of credit referred to in
Paragraph 2 of the First Amendment. Accordingly, Paragraph 2 of the First
Amendment is deleted in its entirety from and after August 16, 1994.
2. This Second Amendment will be governed by the laws of the State of
Illinois. This Second Amendment is binding on parties or the respective
successors and assigns. Any term used in this Second Amendment which is defined
in the Lease and not otherwise defined in this Second Amendment will have the
same meaning as in the Lease. In the event of any conflict between the terms of
this Second Amendment and the terms of the Lease, the terms of this Second
Amendment will control.
3. Except for the modifications contained herein, the Lease shall
remain unmodified and in full force and affect.
The parties have executed this Second Amendment as of the date first
above written.
Landlord: Tenant:
SCHMITT PROPERTIES, INC. FIRST BANCORP, INC.
By: /s/ Greg Schmitt By: /s/ Thomas H. Roth
------------------------------------ -------------------------------
Title: President Thomas H. Roth, President
<PAGE>
AMENDMENT TO LEASE
------------------
This Third Amendment to Lease ("Third Amendment") is made as of 11/29,
1994, by SCHMITT PROPERTIES, INC. ("Landlord") and NATIONAL BANCORP, INC.
("Tenant").
RECITALS:
---------
A. By Lease Agreement dated as of February 6, 1981 and Amendment
thereto dated July 15, 1982 (collectively the "Lease") Landlord leased to the
predecessor in interest of First Chicago Building Corporation ("FCBC") certain
demised premises described and defined in the Lease.
B. By Assignment and Assumption of Lease dated August 16, 1994, FCBC
assigned the Lease to the Tenant.
C. Landlord and Tenant entered into both a first Amendment to Lease
dated as of August 16, 1994 (the "First Amendment") and a Second Amendment to
Lease dated as of November 3, 1994 (the "Second Amendment").
D. Landlord and Tenant desire to further amend the Lease.
In consideration of the mutual promises contained in this Third
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Landlord and Tenant agree as follows:
1. Tenant's Right of First Refusal. Tenant shall have a continuing
right of first refusal to acquire the Demised Premises at all times during the
term of this Lease. In the event Landlord receives a bona fide offer to purchase
the Demised Premises, Landlord shall notify the Tenant in writing of any such
purchase offer and Tenant shall have the right to purchase the Demised Premises
on the same terms and conditions as are contained in the purchase offer. Tenant
shall have a thirty (30) day period following Landlord's receipt of the notice
and of a copy of the purchase offer to advise Landlord in writing of Tenant's
intention to exercise the right of first refusal provided in this paragraph.
Should Tenant exercise this option, the purchase shall be subject to the same
terms and conditions as are set out in the offer, including conditions as to
purchase price, financing contingency and the like, with the closing date to be
not later than forty-five (45) days after the closing date provided in the
purchase offer. This right of first refusal shall apply to each and every offer
to purchase the Demised Premises hereunder, whether or not Tenant may have
elected to exercise its purchase option with respect to any prior sale or sales
of the Demised Premises hereunder.
2. Applicable Law. This Third Amendment will be governed by the laws
of the State of Illinois. This Third Amendment is binding on parties or the
respective successors and assigns. Any term used in this Third Amendment which
is defined in the Lease and not
<PAGE>
otherwise defined in this Third Amendment will have the same meaning as in the
Lease. In the event of any conflict between the terms of this Third Amendment
and the terms of the Lease, the terms of this Third Amendment will control.
3. Modifications. Except for the modifications contained herein, the
Lease shall remain unmodified and in full force and effect.
The parties have executed this Third Amendment as of the date first
above written.
Landlord: Tenant:
SCHMITT PROPERTIES, INC. NATIONAL BANCORP, INC.
By: /s/ Greg Schmitt By: /s/ Thomas H. Roth
- ---------------------------------------- -------------------------------
Title: President Thomas H. Roth, President
2
Exhibit 10.4
Village Bank and Trust
Branch Facility Lease
575 Ela Road
Lake Zurich, Illinois 60047
<PAGE>
585-587 ELA ROAD BUILDING
Bank Facility Lease For Village Bank and Trust Company
585-587 Ela Road
Lake Zurich, Illinois
INDEX
SCHEDULE......................................................................1
Additional Provisions.........................................................3
LEASING AGREEMENT.............................................................5
I. Rental...............................................................5
II. Rental Adjustments...................................................5
III. Security Deposit.....................................................8
IV. Services.............................................................8
V. Use of Premises.....................................................10
VI. Alterations.........................................................14
VII. Rights Reserved to Landlord.........................................15
VIII. Improvements, Condition and Repair of Premises......................16
IX. Surrender of Premises...............................................17
X. Assignment and Subletting; Sale of Business.........................18
XI. Waiver of Certain Claims; Insurance.................................19
XII. Fire and Casualty...................................................21
XIII. Rights and Remedies of Landlord.....................................22
XIV. Bankruptcy or Insolvency............................................24
XV. Default by Landlord.................................................26
XVI. Eminent Domain......................................................27
XVII. Landlord's Mortgage.................................................27
XVIII. Estoppel Certificate................................................28
XIX. Holding Over........................................................28
XX. Miscellaneous.......................................................29
<PAGE>
585-587 ELA ROAD BUILDING
Bank Facility Lease
585-587 Ela Road
Lake Zurich, Illinois
(hereinafter referred to as the "Building")
This Indenture is made this 27th day of October, 1998 between George Garner and
Barbara Garner, hereinafter referred to as "Landlord", and Village Bank and
Trust Company, 101 South Wynstone Drive, Attention: Mr. Jack Reck, North
Barrington, IL 60010 of Lake County, an Illinois chartered Banking Association,
hereinafter referred to as "Tenant".
The following Schedule is an integral part of this Lease.
SCHEDULE
1. Description of Premises ("the space"): The East Two Thousand (2,000) square
feet of the Building and the adjoining Drive-Up Window together with a Remote
Unit, consisting of approximately an additional Two Hundred (200) square feet.
For purposes of this Lease, the "Building" includes a 5,000 square foot Retail
Building structure and an adjoining Drive-Up Window and Remote Unit.
2. Tenant's use of Premises: Operation of a Banking branch facility and for no
other use or purpose.
3. Total Base Rent (subject to adjustments set forth in the Additional
Provisions section below): $138, 600.
4. Monthly installments of Base Rent (subject to adjustments): $3,850.00.
5. Tenant's proportionate share of Rental Adjustments attributable to the
"building": 42.3%.
6. Commencement date of Lease term: January 1, 1999.
7. Termination date of Lease term: December 31, 2001.
8. Tenant's address for notice before possession date:
Village Bank and Trust Company
Attn: Mr. Jack Reck
101 South Wynstone Drive
North Barrington, IL 60010
9. Security Deposit: $7,700.00
1
<PAGE>
10. Landlord makes no estimate for annual electricity, common area expenses, or
real estate taxes to be charged to Tenant.
11. Broker: NONE.
12. Premises: Landlord, for and in consideration of the rents herein reserved
and of the covenants and agreements herein contained on the part of the Tenant
to be preformed, hereby leases to Tenant, and Tenant hereby lets from Landlord,
premises ("Premises") consisting of approximately 2,200 square feet of rentable
area including approximately 2,000 square feet of air conditioned office space
located at and commonly known as 585-587 Ela Road, Lake Zurich, Illinois 60047.
Said Premises are on the ground floor plus an additional 200 square feet outside
the Remote Unit of the building ("Building") commonly known as 585-587 Ela Road,
Lake Zurich, Illinois, 60057, situated on a parcel of ground consisting of
approximately 45,330 square feet. Tenant accepts the premises "as is" and
Landlord is not responsible for any improvements made to or to be made to
tenant's space leased hereunder.
13. Parking Areas: Tenant, its employees and invitees may use, on a reserved
basis, five (5) parking spaces in parking areas contiguous to Tenant's space as
designated by Landlord. Except as otherwise reserved, Tenant shall have the
right to use all other parking spaces on a non-exclusive basis. Landlord may
grant other occupants or tenants of the Building the right to use other parking
spaces on a reserved basis. Landlord shall not be obligated to enforce parking
limitations imposed on tenants, but shall cooperate with Tenant in enforcing
Tenant's rights hereunder. Tenant shall use its best efforts to prevent its
employees from parking at spaces contiguous to other tenants' premises,
including the nearby "Cyclery" building also owned by Landlord.
14. Prohibited Uses: Tenant shall not use or permit the Premises to be used in
any manner which would violate any certificate of occupancy affecting the
Premises, cause injury to the improvements, cause the value or usefulness of the
Building or Real Estate or any part thereof to diminish, constitute a public or
private nuisance or waste, or render the insurance on the Building void or the
insurance risk more hazardous or create any defense to payment, provided,
however, that if Tenant's use of the Premises does make the insurance risk more
hazardous then, without prejudice to any other remedy of Landlord for such
breach, Tenant shall pay to Landlord, on demand, the amount by which Landlord's
insurance premiums are increased as a result of such use. Tenant shall not use
or occupy the Premises contrary to any statute, rule, order, ordinance,
requirement or regulation applicable thereto. Tenant shall not sell, promote the
sale of, repair, service or in any other way deal with bicycles or cycling
equipment or any products related thereto. A violation of this paragraph shall
constitute a default under the Leasing Agreement.
15. Base Rent. Beginning with the Commencement Date, Tenant shall bay a total
base rent of One hundred Thirty-Eight Thousand, Six Hundred and 00/100 Dollars
($138,600) ("Base Rent") payable in equal monthly installments of Three
Thousand, Eight Hundred Fifty and 00/100 Dollars ($3,850.00), in advance on the
Commencement Date and on the first day of each calendar month thereafter of the
Term, and at the same rate for fractions of a month if the Commencement Date
2
<PAGE>
occurs on any date except the first day of a calendar month or the Term ends on
any day except the last day of a calendar month.
Additional Provisions
---------------------
15.1 Rent Escalation in lieu of CPI Provision: On each anniversary of the
Commencement Date, the Base Rent shall increase to an amount equal to One
Hundred Three Percent (103%) of the Base Rent which was payable for the year
immediately preceding such anniversary and Tenant shall thereafter (until
further increase) pay equal monthly installments of the Base Rent as adjusted.
Tenant shall pay all monthly installments of Base Rent to Landlord, in advance,
on or before the first day of each and every month during the Term, without
demand and with out an set-off or deduction whatsoever, except that (i) Tenant
shall pay an amount equal to one full monthly installment of Base Rent at the
time of execution of this Lease, which amount shall be credited to the first
full monthly installment of Base Rent at the time of execution of this Lease,
which amount shall be credited to the first full monthly installment of Base
Rent payable hereunder; and (ii) if the Term commences other than on the first
day of a month or ends other than on the last day of a month, the Base Rent for
such month shall be prorated and the prorated Base Rent for the portion of the
month in which the Term commences shall also be paid at the time of execution of
this Lease.
15.2 Additional Rent: In addition to paying Base Rent, Tenant shall also pay as
additional rent the following amounts ("Additional Rent") for each calendar year
in which the Term falls:
(a) Tenants Pro Rata Share (as hereinafter defined) of Taxes as defined in
Section II.4 of the Leasing Agreement) in excess of zero dollars ($0) ("Base
Taxes"), in accordance with the Section II of the "Leasing Agreement." At the
time of construction, The subject Premises also included an existing building
consisting of 5,000 square feet, which building is currently utilized as a
cyclery. Since that time, the Premises has been split into two separate taxing
parcels. A copy of the most recent real estate tax bill is attached as Exhibit
"A."
(b) Tenant's Pro Rata Share of Expenses (as defined in Section 3 of Article
II of the "Leasing Agreement").
As used in this Lease,
(i) If expenses are to be prorated for the total area of the
"Premises", including the "Cyclery Building", the term "Tenant's Pro Rata Share
of Taxes and Expenses" shall be Twenty-One and 57/100 percent (21.57%), which is
the Rentable area of the Premises divide by the Rentable Area of the Building
and the "Cyclery Building" located on the Premises. If the Expenses referred to
in Section 3 of Article II of the Leasing Agreement are solely attributable to
the 5,000 square foot Building plus Drive-Up Window and Remote Unit Facilities.
Tenant's share shall be Forty-Two and 3/10ths percent (42.3%) of all such
Expenses.
3
<PAGE>
(ii) The term "Rentable Area of the Premises" shall mean usable area
in the Premises plus a share of mechanical space, loading docks and other common
service areas including the Three Hundred Square feet allocated by Landlord to
the Drive-Up Window and Remote Unit being built solely at the expense of Tenant
in the Building, and, if the Premises are less than an entire floor, a share of
public areas (such as corridors, toilets, lobbies and electrical and telephone
closets) on the floor on which the Premises are located. Rentable Area of the
Premises shall be deemed to be Two Thousand, Two Hundred (2,200) square feet.
(iii) The term "Rentable Area of the Building" shall mean the sum of
areas on all floors of the Building (ground floor and above) plus mechanical
space, loading docks and other common service areas including the Two Hundred
Square feet allocated by Landlord to the Drive-Up Window and Remote Unit being
built solely at the expense of Tenant. Rentable Area of the Building shall be
deemed to be 5,200 square feet.
15.3 Tenant Contingencies:
NONE.
15.4 Landlord affirmatively covenants that Tenant shall have the right of quiet
possession of the Premises so long as Tenant observes the term and provisions
set forth in the Lease.
4
<PAGE>
LEASING AGREEMENT
-----------------
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the
Premises described in the Schedule, located in the 585-587 Ela Road Building at
585-587 Ela Road, Lake Zurich, Illinois, for the term set forth in the Schedule,
unless sooner terminated as provided herein.
IN CONSIDERATION THEREOF, THE PARTIES COVENANT AND AGREE as follows:
I. Rental.
------
Tenant shall pay to Landlord at the office of the Building, or at such
other place as may be designated from time to time by notice in writing to
Tenant:
A. the total Base Rent set forth in the Schedule in equal monthly
installments in the amounts set forth in the Schedule and the Additional
Provisions thereof;
B. the Rental Adjustments as provided in Section II below;
C. all other sums payable by Tenant hereunder within ten (10) days after
Landlord bills Tenant therefor; and
D. interest at the rate equal to 3% over the prime commercial lending rate
being offered by the Harris Bank of Chicago from time to time from the due date
of each payment until paid.
Each monthly installment will be payable in advance promptly on the first
day of each calendar month during the term of this Lease. If the term begins
other than on the 1st day of a calendar month or if the Term is terminated other
than on the last day of a calendar month, a prorated amount shall be paid for
such fractional month. All of the aforesaid sums and interest shall constitute
rent hereunder. However, no interest or penalties will be charged to Tenant, if
Tenant's obligations under this paragraph are paid within seven (7) days of the
due date for any such payment.
II. Rental Adjustments.
------------------
The rent payable hereunder shall be increased as set forth in the schedule
and the Additional Provisions thereof, to reflect increases in the cost of
operating the Building and in taxes in the following manner:
A. Definitions.
-----------
For purposes of the Rental Adjustments, the following definitions shall
apply:
1. "Base year" shall mean the last full calendar year before the
commencement date of this Lease.
5
<PAGE>
2. "Adjustment year" shall mean every calendar year being wholly or
partly during the term of this Lease, commencing with the calendar year in which
this Lease commences. In the event that the first adjustment year or the last
adjustment year is not a full calendar year during the term of this Lease, then
the Rental Adjustments with respect to such partial year shall be pro-rated for
the number of days in the term included within such partial calendar year.
3. (a) "Cost of operating the Building" shall mean all normal and
reasonable costs, expenses and disbursements of every kind and nature paid or
incurred by Landlord in connection with the ownership, management, operation,
maintenance and repair of the Building, the underlying land and all related
personal property, as determined by standard accounting practices used by
Landlord in its buildings in the Chicago metropolitan area, and shall include by
way of illustration and not limitation, heat, water, electricity (to the extent
not otherwise paid by tenants), labor, contracted labor, insurance, materials,
service and professional fees and charges, license, permit and inspection fees,
and fees and costs in connection with the obtaining of reductions in Taxes. It
shall not include Taxes as defined below. Repair and other costs, expenses and
disbursements scheduled less often than annually may be prorated, at Landlord's
election, over the period to which the same are applicable.
(b) "Cost of operating the building" should not include costs
incurred by Landlord in connection with the maintenance and repair of the
structural portion of the Building, but shall include costs and expenses
incurred in connection with the operation of the parking areas, access ways
and other common areas. Costs of operating the Building should not include
capital improvements, depreciation or amounts attributable to overhead or
administrative costs of Landlord. Landlord should further covenant to
operate and maintain the common areas in good order and repair. If
requested by Tenant, Landlord should furnish bills, receipts and other
evidence of the amount of costs of operating the Building prior to Tenant's
payment thereof.
4. "Base Taxes" shall mean all real property taxes in respect to the
Building and underlying land and all ad valorem taxes for Landlord's personal
property used in connection therewith, payable in the base or adjustment year,
as the case may be, and all special taxes and special assessments, installments
of which are required to be paid during the base or adjustment year, as the case
may be. Base Taxes as used herein shall not include any penalties or interest
due thereon, unless said penalties and interest are the result of activity or
responsibility of Tenant. If hereafter there shall be imposed any tax,
assessment, charge or fee payable by Landlord tot eh State of Illinois, County
of Lake, Village of Lake Zurich, or any other governmental subdivision either on
the rents or other income collected from the Building (not including a general
income or franchise tax) or in the event that any other tax, assessment, charge
or fee may be imposed hereafter in lieu of or partially in lieu of such real
property taxes or personal property taxes, then such tax, assessment, charge or
fee shall be included with the term "Taxes" under the provisions of this Lease.
Taxes shall be as initially billed and payable in the base or adjustment year,
as the case may be, even though representing taxes levied for a prior year.
5. "Rental Adjustments" shall mean all the rent described in Section
II of this
6
<PAGE>
Lease.
6. The "tenant's proportionate share" shall be as set forth in the
Schedule and Additional Provisions thereto. That percentage represents the
percentage obtained by dividing the agreed upon rentable area of the Premises by
the agreed upon rentable area of the Building. Tenant agrees to said percentage
and agrees not to dispute any of said areas.
B. Adjustment for Cost of Operating the Building
---------------------------------------------
In the event that the costs of operating the Building for any adjustment
year reflect an increase over such costs for the base year, then Tenant shall
pay to Landlord as additional rent Tenant's proportionate share of such
increase.
C. Tax Adjustment
--------------
In the event that the Taxes payable in any adjustment year are more than
the Taxes payable during the base year (the Taxes for the base year on the
Building shall be "0" for purposes of this Leasing Agreement), then Tenant shall
pay to Landlord as additional rent Tenant's proportionate share of such
increase.
D. Estimated Rental Adjustment
---------------------------
Before January first of each adjustment year or as soon thereafter as
Landlord is able to do so, Landlord shall notify Tenant of the expected cost of
operating the Building and Taxes for the adjustment year, together with
Landlord's estimate of the increase in the cost of operating the Building and
Taxes for such adjustment year. Tenant thereafter shall pay as additional rent
the estimated and projected amounts of the Rental Adjustments for such
adjustment year, in installments calculated and payable in the following manner.
Every month, at the same time and place that installments of Base Rent are to be
paid, Tenant shall pay an amount equal to one-twelfth (1/12) of Tenant's
proportionate share of any estimated increase in the cost of operating the
Building and Taxes for such adjustment year over the base year and one-twelfth
(1/12) of the amount of the Rental Adjustment projected by the Landlord. Tenant
shall have the option of making semi-annual payment of the real estate tax
assessment, if Landlord's obligations to make real estate tax deposits under its
mortgage are semi annual or greater. This payment provision shall abate if
Landlord's real estate tax deposit requirements are more frequent than semi
annual. If Tenant is notified of any such estimate or projection after January
1st of any adjustment year or if, at anytime during any adjustment year,
landlord notifies Tenant that it has determined that the cost of operating the
Building and Taxes for such adjustment year will be more or less than previously
estimated or projected, upon submission to Tenant of an adjusted estimate or
projection or the determined amount, the monthly installments of additional rent
to be paid during such adjustment year for increases in the cost of operating
the Building and Taxes shall be adjusted upward or downward, as the case may be,
and such adjustment shall be made retroactive to the beginning of the then
current adjustment year. In this latter regard, Tenant shall pay to Landlord any
amount necessary to reflect any such increase for the current and
7
<PAGE>
past months, or Landlord shall pay to Tenant or credit against the next monthly
installment(s) of additional rent any amount necessary to reflect such decrease
for the current and past months. Whenever the term "Rental Adjustments" or a
similar term is used in this Lease, it shall include the estimated Rental
Adjustments and additional rent payments provided for in this Section.
E. Billing and Final Payment
-------------------------
Landlord will keep, or cause to be kept, books and records showing the
costs of operating the Building and Taxes for the base year and each adjustment
year in accordance with the system of accounts and accounting practices
consistently begin maintained by Landlord for his other buildings in Illinois.
As soon as available after January 1st of each adjustment year, Landlord shall
submit to Tenant a computation of the additional rents, if any, due for Rental
Adjustments for the preceding adjustment year. Within thirty (30) days after the
receipt of such statement, Tenant shall pay to landlord the entire balance of
all Rental Adjustments due for such adjustment year due to increases in the
costs of operating the Building and Taxes not paid, if any, and, if Tenant had
paid more than the actual amounts shown on said statement to be due for Rental
Adjustments for such adjustment year, Landlord shall pay to Tenant or credit
against the next installment of additional rent becoming due hereunder the
amount of the overpayment. The additional rent payable each month during the
then current adjustment year shall be adjusted retroactively to reflect such
adjustments. In no event shall any of the adjustments herein result in a
decrease in the Base Rent. Tenant shall have the right to review all invoices,
bills and receipts relating to rent adjustments as described in this lease.
III. Security Deposit.
----------------
As additional security for the full and timely payment of all rent and
other sums and performance of all other obligations required to be paid or
performed by Tenant hereunder, Tenant has paid a security deposit in the amount
set forth in the Schedule. The Security Deposit may (but need not) be applied by
Landlord toward the curing of any default(s) of Tenant and shall not bear
interest. Tenant on demand shall replenish any portion of the security deposit
applied by Landlord. If Tenant is not in default hereunder, Landlord shall
refund the unapplied balance of the security deposit within thirty (30) day
after expiration of the Lease term.
IV. Services.
--------
A. Heating and Air-Conditioning. Landlord shall operate the Building's
heating system serving the Premises daily from 8:00 a.m to 5:30 p.m. (Saturdays
to 1:00 p.m.), Sundays and holidays excepted, as may be required, in Landlord's
judgment, to provide a temperature condition for reasonably comfortable
occupancy of the Premises by Tenant under normal business operations and in the
absence of use of heat generating machinery or equipment in the Premise. Since
Tenant is paying for the costs of all heating and air conditioning affecting its
space, Tenant shall have the right to adjust the hours of usage to meet its
needs. Tenant shall pay the cost of any heating and air its needs. Tenant shall
pay the cost of any heating and air conditioning systems specifically designed
to service Tenant's rentable space and computer needs. Tenant shall be
responsible for the purchase,
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installation, maintenance, and upkeep of the electrical and air conditioning
systems for Tenant's rentable area of the Premises including but not limited to
Tenant's requirements for computers or other uses in connection with Tenant's
business.
B. Water. Landlord shall cause to be furnished cold water from Village of
Lake Zurich mains for drinking, lavatory and toilet purposes drawn through
fixtures installed by Landlord or by Tenant with Landlord's prior written
consent. Tenant shall pay for all water furnished to or for the Premises,
including water used for air-conditioning.
C. Janitor Services, Cleanliness of Premises. Tenant, at its own expenses,
shall provide janitor and cleaning service in and about the Premises, so as to
keep the Premises in a clean, sightly, sanitary and safe condition. Tenant shall
remove at reasonable times all garbage and other waste material from the
Premises, shall keep the Premises in good order and repair, and shall prevent
any unsanitary conditions from taking place on the Premises. Tenant shall place
and store such garbage and waste material in sealed, sanitary containers within
the Premises pending removal; and in no event shall Tenant place or store
garbage or waste material on the sidewalk or street outside the Building. Tenant
shall keep all ducts, pipes and traps free from accumulations of dirt and grease
and Tenant shall enter into written maintenance contracts with reputable,
professional contractors acceptable to Landlord for such purposes, providing
(among other things) for thorough duct cleaning at least semiannually. All
contracts to be entered into under this paragraph shall be on terms and
conditions acceptable to Landlord for purposes of maintaining the highest
standards of cleanliness, sightliness and sanitation. Each contract shall
require prior written notice to Landlord before modification or termination; and
a copy of each contract shall be delivered to Landlord prior to Tenant's taking
possession of the Premises (and upon execution in the case of any renewal or
substitution). Landlord may inspect the Premises at reasonable times, either by
itself or by its agent or designee, for the purpose of enforcement and
compliance with the provisions of the Lease and this subparagraph. If in
Landlord's judgment, any of the services or obligations required hereby are not
being satisfactorily provided or performed, Landlord, in addition to all other
available remedies, may terminate this Lease or Tenant's right to possession
hereunder if such default is not cured within ten (10) days after notice to
Tenant, and Landlord shall have the right to do whatever is necessary to see to
it that compliance is obtained and to charge Tenant for any and all expenses
incurred in so doing. Such charges shall be in the form of additional rent.
D. Electricity. Landlord shall furnish an electric wiring system in the
Premises for standard lighting fixtures. If Tenant requires electrical usage
that, in the Landlord's Judgment, may affect electrical service to other
portions of the Building or cause damage or unusual wear or tear to the existing
system and equipment, Tenant shall arrange for and install such additional
conduit, wiring and equipment in accordance with the other provisions of this
Lease as shall be necessary and proper, all at Tenant's sole expense.
Landlord will furnish all electric energy consumed in the Premises,
including that for heating, air conditioning and ventilation, during the term of
this Lease. If electrical usage in the Premises is not separately metered,
Tenant shall pay Landlord, as additional rent in equal monthly installments
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of Base Rent, an annual amount as determined by Landlord from time to time as
the amount which Tenant would pay for such electric energy if the same were
separately metered to the Premises by the local electric utility company and
billed to Tenant at such utility company's current rates. If the electrical
usage in the Premises is separately metered, Tenant shall pay all sums billed
per the meter(s). Tenant also shall pay Landlord, as additional rent, an annual
amount as determined by Landlord from time to time as Tenant's prorated share of
the amount payable for electric energy used in the public areas on the floors on
which the Premises are located.
E. Failure to Pay for Services. If Tenant fails to pay promptly any sum
required to be paid by Tenant under this Section IV, Landlord, upon not less
than ten days' prior notice, may discontinue furnishing the relevant services;
and no such discontinuance shall be deemed an eviction or disturbance of
Tenant's possession or use of the Premises, or give rise to any defense or set
off, or render Landlord liable for damages, or relieve Tenant from any
obligation.
F. Interruption of Services. Except for conditions within Landlord's
control and undisclosed defects in construction, Landlord does not warrant that
any service will be free from interruption caused in whole or in part by
maintenance, repairs, renewals, replacements, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, material shortages,
accidents, inability to obtain fuel or supplies, weather conditions, or other
cause beyond the reasonable control of Landlord, or that the quantity or quality
of any service will not be diminished as a result in whole or in party of any
such cause. No such interruption or diminution shall be deemed an eviction or
disturbance of Tenant's use or possession of the Premises, or give rise to any
defense or set-off, or render Landlord liable for damages, or relieve Tenant
from any obligation. However, Landlord will maintain and repair HVACs, electric
and plumbing systems, except that Landlord shall have no responsibility for any
damage caused by the neglect or misuse by tenant. Tenant will waive claims
against Landlord for interruption or stoppage of utility services to the extent
that such interruption or stoppage is not caused by the neglect or misconduct of
Landlord or Landlord's agents or contractors.
G. Installation of Facilities. Landlord shall not be required to install
any special facilities for Tenant, Tenant has inspected the Premises, and Tenant
accepts the Premises "as is".
V. Use of Premises.
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A. Purpose. Tenant shall use and occupy the Premises only for banking
purposes. Tenant continuously during the term of this Lease shall operate and
maintain a first-class, full service bank branch facility in the Lake County
area. All fixtures, equipment, appliances, furniture, furnishings, floor,
ceiling, window and wall coverings, and other items installed or acquired by
Tenant shall be consistent with Tenant's permitted use of the space.
Tenant shall keep its facility open during normal hours, Monday through
Saturday, and may install, at Tenant's expense, an automatic teller facility
(ATM). However, if security becomes a problem at either Tenant's regular space
in the Building or in conjunction with the ATM, Landlord
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may require Tenant to provide reasonable, additional security or guard service
to maintain the general security of Tenant's business and rentable space. It is
understood that guard service and security arrangements, as may be necessary to
protect customers using Tenant's facilities, and other individuals on Landlord's
property, is sole responsibility of Tenant and, except for injuries and damage
arising out of acts or omissions of Landlord, their agents, contractors or
employees, Tenant indemnifies and holds harmless Landlord for any and all
personal injuries and property damage that occur in conjunction with the
operation of Tenant's business. Said indemnification and hold harmless shall
include any attorneys' fees, court costs, expenses, and other costs incurred by
Landlord with respect thereto.
B. Removal of Property. Tenant shall deliver to Landlord a list of all
furniture, equipment and other articles before removing such articles, shall
obtain a removal permit from the Landlord. Landlord's consent shall not be
unreasonably withheld, but may be exercised, for example, to prevent a day time
move that may disrupt other tenants.
C. Doors to be Locked. Before leaving the Premises unattended, Tenant shall
close and securely lock all doors to the Premises and other areas used by Tenant
and shall shut off all utilities controlled from within the Premises. All
damages resulting from failure to do so shall be paid by Tenant.
D. Laws and Regulations. Tenant shall obtain and maintain in full force and
effect all necessary permits and licenses for the operation of its business on
the Premisses and shall comply with all statutes, ordinances, orders, rules and
regulations of any governmental authority with respect to the Premises and the
use or occupancy thereof.
E. Signs. Tenant shall not paint, display, inscribe or affix any sign,
picture, advertisement, notice, lettering or direction on any part of the
outside or inside of the Building, or which is visible from outside the
Premises, except with the prior written consent of Landlord, and then only of
such color, size style character and material as first is approved in writing by
Landlord in its sole and absolute discretion. Landlord reserves the right to
remove any items not complying with the compensation to Tenant, and Tenant shall
reimburse Landlord for all expenses incurred in connection therewith. With
respect to signs permitted by the Village of lake Zurich to be placed at or near
Ela Road, Landlord and Tenant will share equal space on said sign with the total
cost of the sign to be at Tenant's expense subject to Landlord's prior approval
of the content, design, construction and layout thereof. Landlord and Tenant
agree to use Northshore Sign Company located at 1925 Industrial Drive,
Libertyville, Illinois 60048 for the preparation of all signs required or to be
installed pursuant to the terms hereof, or such other mutually agreed sign
company.
F. Advertising. Tenant shall not advertise the business, profession or
activities of Tenant in any manner which violates the letter or spirit of any
code of ethics adopted by any recognized association or organization pertaining
thereto, or use the name of the Building for any purpose other than as the
business address of Tenant, or use any picture or likeness of the Building or
the name "Schwinn," "GT," "Trek," "Klein," "Pearl Izumi," "George Garner" or
"Cyclery" or any combination
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thereof in any letterhead, envelope, circular, notice, advertisement, container,
or wrapping material, without Landlord's prior written consent.
G. Sale of Articles. Tenant shall not exhibit, sell, exchange, us, rent or
offer for sale, exchange, use or rent in the Premises or Building any article,
thing or service except those ordinarily embraced within the use of the Premises
specified in the Schedule, without the prior written consent of Landlord.
H. Unlawful Use. Tenant shall not make or permit any use of the Premises,
or commit or permit to be committed any act therein or elsewhere in the
Building, which, directly or indirectly, is forbidden by law, ordinance or
governmental rule, regulation or order, or which may be dangerous to person or
property.
I. Hazardous Materials. Tenant shall not bring, use or permit to be brought
or used in the Premises or the Building any environmentally unsafe or toxic
materials, flammable or explosive material or any other article deemed in
Landlord's sole and absolute discretion to be hazardous to person or property.
Tenant shall not do or permit to be done any act or thing in or upon the
Premises or the Building, or bring, use or permit to be brought or used anything
therein, which may invalidate, be in conflict with or increase the rates for any
fire or other insurance policies covering the Building or its operations or the
Premises, or any part of either, or which does not comply with all rules,
regulations, orders and requirements of the insurance carriers, the fire
Department, Board of Fire Underwriters and any similar organizations. If, by
reason of Tenant's failure to comply with the provisions of this subsection, any
insurance premium at any time shall be increased above what it otherwise would
be, Tenant shall reimburse Landlord for all such increases.
J. Various Prohibited Uses. Tenant shall not, without the prior written
consent of Landlord to be exercised in the sole and absolute discretion of
Landlord (or other than in strict accordance with such conditions as Landlord
may impose):
1. install or operate any heating, or air-conditioning apparatus or
carry on any mechanical operations; or
2. use the Premises for housing, lodging or sleeping purposes.
K. Sound Devices. Tenant shall not, except as otherwise stated in this
Lease:
1. place any radio or television antenna on the roof or on or in any
part of the inside or outside of the Building other than the inside of the
premises.
2. operate or permit to be operated any musical or sound producing
instrument or device which may be heard outside the Premises; or
3. operate any electrical device from which may emanate electrical
waves which
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may interfere with or impair radio or television broadcasting or reception from
or in the Building or elsewhere.
L. Nuisances. Tenant shall not, except as otherwise stated in this Lease:
1. bring or permit to be brought into the Building any motorized
vehicle or bike or dog (except in the company of a blind or handicapped person
requiring the assistance of such an animal) or other animal or bird;
2. make or permit any objectionable noise or odor to emanate from the
Premises;
3. do or permit anything in the Premises or Building which may create
or maintain a nuisance or public disturbances; or
4. disturb, solicit or canvass any occupant of the Building.
M. Cleanliness and Obstruction of Public Areas. Tenant shall not:
1. place anything or allow anything to be placed in the Premises which
may be unsightly from outside the Premises;
2. take or permit to be taken in or out of any other entrance of the
Building any item normally taken in or out through the shipping or loading dock
or service doors; or
3. temporarily, accidentally, or otherwise, obstruct or place, store
or allow anything in any passage way, exit, stairway, elevator, shipping
platform, or shipping or loading dock. Tenant shall keep such areas free from
all obstruction and in a clean and lightly condition and shall move all
supplies, furniture and equipment as soon as received directly to the Premises
and shall move all items and trash (other than trash customarily removed by
Building employees) being taken from the Premises directly to the trash refuse
area of the Premises at or about the time arranged for removal therefrom.
N. Locks. Due to the nature of Tenant's business, it is understood that
Tenant must keep the Tenant's rentable space secure and Landlord will not have
unlimited access. Therefore, for emergency purposes, Tenant shall make available
a person or persons that have twenty-four (24) hour access to Tenant's space.
The names, addresses and phone numbers, of all such persons shall be supplied to
Landlord in writing on a timely basis and updated each March 31, June 30,
September 31, and December 31 after the original designations thereof.
O. Weight Limits. Tenant shall not overload any floor or place any heavy
equipment, appliance, furniture or fixtures in the Premises contrary to any
instruction from or requirements of Landlord with respect to location for weight
distribution purposes.
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P. Defacing Premises. Tenant shall not:
1. mark, cut or drill into or drive nails or screws into any part of
the Premises or Building, outside or inside, without the prior written consent
of Landlord; or
2. commit or allow any waste, defacing, damage or destruction to or of
the Building or any part thereof.
Q. Alarm. If Tenant desires any signal, communications, alarm, computer or
other utility or service connections installed or changed in the Premises, the
same shall be installed or changed at the expense of Tenant, but only with the
prior written approval and under the direction of Landlord. Landlord waives any
objection to the existing alarm system in the Premises.
R. Window and Door Coverings. Tenant, at its own expense, may install
drapes, blinds and other window and door coverings, provided that the same are
in conformity with the other provisions of this Lease, in harmony with the
exterior and interior appearance of the Building and pose no safety or fire
hazard, as determined in the sole and absolute judgment of Landlord. All such
coverings shall be maintained by Tenant in good order, condition and repair.
VI. Alterations.
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A. Tenant should have the right, without Landlord's consent, to make
non-structural changes to the interior architectural treatments of the premises,
provided that such changes shall not diminish the value of the Building or
create liens.
B. Tenant shall not make any installations, alterations, additions, or
improvements, including underground tunnels for the Drive-Up Window and Remote
Unit, one or more ATM's, and the Drive-Up Window, Remote Unit and Canopy
("work") in or to the Premises without first submitting detailed plans and
specifications to Landlord and securing Landlord's prior written consent, which
may be withheld or conditioned in the sole and absolute discretion of Landlord.
All such work shall be performed by employees of or contractors employed by
Landlord or, with Landlord's written consent given prior to the letting of the
contracts, by contractors employed by Tenant. In each case, the work shall be
performed only under written contracts first approved in writing by Landlord.
Tenant shall submit to Landlord's supervision over all such work and promptly
shall pay to landlord or to Tenant's contractors, as the case may be, when due,
all costs of such work, and upon completion of the work, if payment is made
directly to Tenant's contractors, Tenant shall deliver to Landlord evidence of
full payment, sworn contractors' statements and affidavits, and full and final
waivers of all liens for all labor, services and materials furnished. All work
done by Tenant and its contractors shall be done in strict accordance with the
approved plans and specifications and all requirements and conditions imposed by
Landlord, in a first class, workman-like manner using new, top quality
materials, and in compliance with all insurance requirements and all laws,
ordinances, rules and regulations of all governmental bodies. If Landlord
supervises Tenant' s work, Tenant shall pay Landlord an amount equal to 15% of
the cost of all work done under this Section to reimburse
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Landlord for its overhead and other administrative costs, fees and expenses
incurred in respect thereto. Tenant shall keep the Building and Premises free of
all liens and claims of lien; and if any lien or claim of lien is asserted,
rightfully or wrongfully, on account of any act or omission of Tenant or anyone
for whom Tenant is responsible, Tenant shall cause the same to be released or
discharged within 30 days or shall provide Landlord with security satisfactory
to Landlord in its sole judgment within said period. If Tenant fails to do so,
Landlord, in addition to all other available rights and remedies, may cause such
lien or claim of lien to be released or discharged, and Tenant shall pay
Landlord all cost, expenses and fees incurred by landlord in connection
therewith. To the fullest extent allowed by law, Tenant shall indemnify, defend
and hold harmless Landlord and its agents and employees against and from all
claims, actions, liabilities, injuries, damages, liens, costs, expenses and fees
asserted or incurred in connection with such work.
VII. Rights Reserved to Landlord.
---------------------------
Landlord shall have the following rights, exercisable without notice or
payment of further consideration and without liability to Tenant for damages or
injury to property, persona or business (all claims for damage or injury being
hereby waived and released), and without effecting any eviction or disturbance
of Tenant's use or possession of the Premises or giving rise to any defense or
set-off;
A. To change the name or street address of the Building.
B. To install and maintain signs on the exterior and interior of the
Building, subject to the terms of subparagraph V(E) above.
C. To designate all sources furnishing sign painting and lettering, ice,
mineral, and drinking water, beverages, foods, towels, vending machines and
toilet supplies used or consumed on the Premises.
D. To grant to anyone the exclusive right to conduct any business or render
any service in the Building, provided such exclusive right shall not operate to
exclude Tenant from the use expressly permitted in the Schedule.
E. To decorate, remodel, repair, alter or otherwise prepare the Premises
for reoccupancy, if Tenant vacates or abandons the Premises, subject to Tenant's
obligation to restore and repair as set forth in Section IX of this Lease.
F. To enter the Premises, upon reasonable prior notice to Tenant except in
the event of emergencies, for purposes of making inspections, repairs,
replacements, alterations, additions and improvements in or to the Premises or
the Building, exhibiting the Premises to prospective tenants, purchasers,
mortgagees or others, and performing any acts related to the maintenance,
safety, protection preservation, reletting, sale or improvement of the Premises
or the Building, in each case at all reasonable hours and at any time during an
emergency.
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G. To have access to all mail chutes, if any, according to the rules of the
United States Post Office.
H. To require all persons entering or leaving the Building during such
hours as Landlord from time to time reasonably may determine to identify
themselves to a watchman by registration or otherwise and establish their right
to enter or leave, and to exclude or expel any peddler, solicitor or beggar at
any time from the Premises or the Building, and to regulate the delivery and
servicing of furniture, equipment, supplies and other items.
I. To close the Building at or before 10:00 p.m. on weekdays or before 4:00
p.m. on Saturdays and on Sundays and legal holidays, subject, however, to
Tenant's rights to admittance under such rules and regulations as may be
prescribed from time to time by Landlord. Said right shall not apply to Tenant's
ATM station unless in Landlord's sole discretion, said ATM station is resulting
in a dangerous condition on the Premises or Tenant's customers are misusing said
ATM station to the inconvenience of other Tenants or Landlord.
J. To approve the weight, size and location of safes and other heavy
machinery, equipment, appliances, and articles in and about the Premises and
Building, and to require all such items to be moved in, out of and about the
Building and Premises only at such times and in such manner as Landlord shall
direct and in all events at Tenant's sole risk and responsibility.
K. At any time, to decorate, perform maintenance, and make repairs,
replacements, alterations, additions and improvements -- structural or otherwise
- -- in or to the Premises, the Building, or any part thereof, and during such
operations, to take into and through the Premises and Building all materials and
equipment and close or temporarily suspend operation of entrances, doors,
corridors, elevators, and other facilities and services. Landlord may do any
such work during ordinary business hours; and if Landlord agrees to perform such
work during other hours at Tenant's request, Tenant shall pay Landlord for all
overtime and other additional expenses incurred by Landlord as a result thereof.
L. To do or permit to be done any other work in or about the Premises or
the Building or any adjacent or nearby building land, street or alley.
VIII. Improvements, Condition and Repair of Premises.
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A. Tenant's acceptance of possession shall constitute Tenant's agreement
that Tenant thoroughly has examined the Premises, that Tenant is satisfied in
all respects with the physical condition of the Premises, as well as the amount
of space contained therein, and that Tenant is taking the Premises is their then
existing condition "as is." No representation or warranty has been made by
Landlord or Landlord's agent as to the operation, condition or repair of the
Premises; and there has been no agreement by Landlord to redecorate, alter,
repair or improve the Premises either before or after the execution of this
Lease, other than as set forth herein. Tenant has made an independent
computation of the space and has not relied on any computation, if any, made by
Landlord as to the
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amount of space contained in the Premises.
B. Tenant, at Tenant's expense, shall provide, install and construct within
the Premises (in accordance with the other provisions of this Lease) the
fixtures, special air-conditioning, other equipment, appliances, decorations and
tenant improvements described in Exhibit B attached hereto ("tenant
improvements"). Tenant shall provide Landlord on or before commencement of the
Lease term with proof that Tenant has purchased and owns all of said Tenant
improvements, free and clear of all security interests, liens and encumbrances,
except those approved in writing by Landlord. If, however, Tenant and Landlord
agree that Landlord will purchase and install any of the Tenant improvements
referred to above, Landlord may require Tenant to pay for the same in advance,
based on Landlord's good faith estimate of the cost and subject to adjustment
when actual costs are determined. Such costs shall include fifteen percent for
Landlord's administrative and overhead expenses, if Landlord is required to
supervise said construction.
C. (1) Landlord will maintain the structural portions of the Premises,
including roofs, floors and exterior treatments, in good order, and will make
necessary repairs and replacements thereto. Repairs should be conducted in such
a manner as will minimize interference with Tenant's business at the Premises.
(2) Except as noted in subparagraph C. (1) above and during the term
of this Lease, Tenant shall maintain the Premises in excellent order, condition
and repair, and in compliance with the requirements of all insurers and
governmental authorities having jurisdiction, including making all necessary
repairs, replacements and improvements and providing all necessary repairs,
replacements and improvements and providing all necessary maintenance, in and
about the Premises, at Tenant's sole expense. If Tenant falls to do so, Landlord
may, but need not, provide any maintenance, repairs, replacements, and
improvements; and Tenant shall pay Landlord on demand for all costs incurred by
Landlord in connection therewith, plus 15% for Landlord's overhead and
administrative expenses. Tenant's obligations hereunder extend to all exterior
and corridor glass; and Tenant shall enter into a written agreement with a
reputable glass cleaning contractor to clean all such glass on such a basis and
in such manner as is acceptable to Landlord. Such contractor shall have such
insurance coverage as Landlord may require. Tenant's obligations also include
maintaining all plants and vegetation in good shape and health and replacing
them as necessary.
D. As often as may be deemed necessary and at least once every seven years,
Tenant shall re-paint the Premises, install new floor, wall and window
coverings, and generally remodel the Premises so as to maintain the standards
required of Tenant under this Lease.
IX. Surrender of Premises.
---------------------
Upon termination of this Lease by lapse of time or otherwise or upon
termination of Tenant's right to possession:
A. Tenant shall surrender all keys to the Premises to Landlord and shall
make known to
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Landlord the explanations of all combination and other locks remaining on the
Premises.
B. Tenant shall return the Premises and all property, equipment and
fixtures of Landlord in excellent order, condition and repair, subject to the
provisions of subparagraph C of this Section IX and ordinary wear, and if Tenant
fails to do so, Landlord may place the same in such order, condition and repair
and Tenant shall pay Landlord the cost thereof, plus 15% for Landlord's overhead
and administrative expenses.
C. All decorations, furnishings, installations, additions, hardware,
non-trade fixtures and equipment, and improvements, temporary or permanent,
located in or upon the Premises, where placed there by Tenant or Landlord, shall
be Landlord's property and shall remain upon the Premises, without compensation,
allowance or credit to Tenant; provided, however, that if prior to such
termination or within ten (10) days thereafter Landlord so directs, Tenant
promptly shall remove the furnishings, decorations, installations, additions,
hardware, non-trade fixtures and equipment, and improvements which were placed
in the Premises by Tenant and are designated in the notice, and Tenant shall cap
all utility outlets, restore all surfaces to a smooth uniform condition, and
otherwise remove, restore and repair (including removing the canopy and roof,
removing all underground equipment and removing the Drive-Up Window, Remote Unit
and any ATM placed on the Premises), the Premises to its original condition. If
Tenant fails to do so, Landlord may remove and restore the same and Tenant shall
pay Landlord the cost thereof.
D. All of Tenant's trade fixtures, equipment and personal property not
removed from the Premises prior to such termination shall be conclusively
presumed to have been abandoned by Tenant, and title thereto shall pass to
Landlord under this Lease as a Bill of Sale therefor.
X. Assignment and Subletting; Sale of Business.
-------------------------------------------
A. Tenant shall not assign, mortgage or otherwise transfer or encumber this
Lease or any interest hereunder, or sublet all or any part of the Premises, or
permit all or any part of the Premises to be used by others, without the prior
written consent of Landlord to be exercised in its sole and absolute discretion
in each instance. No assignment, subletting or other transfer shall relieve
Tenant of any obligation or liability hereunder, unless otherwise agreed in
writing by Landlord. If Tenant requests an assignment or subleasing other than
to a wholly-owned subsidiary of Tenant or to a company into which Tenant may be
merged or consolidated, Landlord shall have the right, to be exercised in its
sole and exclusive discretion, to cancel this Lease for the Premises or the
portion thereof to be assigned or sublet, without thereby relieving Tenant from
its obligations or liabilities accruing prior thereto. If without Landlord's
prior written consent this Lease is assigned or the Premises are sublet or
occupied by anyone other than Tenant, Landlord may accept and retain the rent
from such assignee, subtenant or occupant, without being deemed to have accepted
or consented to such purported assignment, subletting or occupancy; and no such
assignment, subletting, occupancy or acceptance of rent shall be deemed a waiver
of this covenant. Consent by Landlord to an assignment or subletting shall not
relieve Tenant from the obligation to obtain Landlord's written consent to any
further assignment or subletting. Consent by Landlord to an assignment or
subletting
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shall not constitute consent to the continuance, assignment or transfer of any
right of first offer, right of first refusal, option to renew or extend, option
to lease other space, or any other similar right or option; and any such rights
and options shall be personal to Tenant, shall terminate upon any assignment or
subletting, and shall not be assignable or transferable, unless and except as
otherwise expressly provided in Landlord's written consent to each respective
assignment or subletting. Any rent or other consideration payable to or received
by Tenant in the form of money or otherwise as a result of an assignment or
sublease which is in excess of the rent payable under the provisions of Sections
I and II of this Lease shall be due and payable to landlord as additional rent
hereunder, except as Landlord otherwise may specifically agree in writing.
B. Regardless of the language of subparagraph X(A) above, Tenant shall,
without Landlord's consent, have the right to transfer the Lease to a subsidiary
or other affiliate or to sell its assets or capital stock; provided that no such
transfer shall be deemed to release Tenant from its obligations under the Lease,
and Tenant shall remain primarily liable thereunder following any such transfer.
XI. Waiver of Certain Claims; Insurance.
-----------------------------------
A. To the fullest extent allowed by law, Tenant waives and releases and
agrees to indemnify, defend and hold harmless Landlord, its directors, officers,
agents and employees, against and from all claims, actions, judgments,
liabilities, cost, expenses and fees which might be asserted against or incurred
by Landlord, its directors, officers, employees, or agents, for or in connection
with any injuries to or deaths of any persons and any losses of and damages to
property sustained by Tenant, its visitors, customers, agents and employees, any
other tenant or occupant of the Premises or the Building, or any other person,
occurring in or about the Building or the Premises, resulting directly or
indirectly from:
1. any existing or future condition, defect, matter or thing in or
about the Premises, the Building or any part thereof resulting from or in
connection with Tenant's operation;
2. the Building, the Premises or any part thereof becoming out of
repair, malfunctioning, breaking, bursting, erupting or exploding;
3. any accident or occurrence within the Premises;
4. the sale or service of alcoholic beverages at or from the Premises;
or
5. any act or omission of Tenant, its agents, employees, customers or
invitees.
B. To the fullest extent allowed by law, Landlord waives and releases and
agrees to indemnify, defend and hold harmless Tenant, its directors, officers,
agents and employees, against and from all claims, actions, Judgments,
liabilities, cost, expenses and fees which might be asserted against or incurred
by Landlord, its directors, officers, employees or agents, for or in connection
with any
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injuries to or deaths of any persons and any losses of and damages to property
sustained by Tenant, its visitors, customers, agents and employees, any other
tenant or occupant of the Premises or the Building, or any other person,
occurring in or about the Building or the Premises, resulting directly or
indirectly from:
1. any existing or future condition, defect, matter or thing in or
about the Premises, the Building or any part thereof resulting from or in
connection with Landlord's operation;
2. the Building, the Premises or any part thereof becoming out of
repair, malfunctioning, breaking, bursting, erupting or exploding;
3. any accident or occurrence within the Landlord's "cyclery"; or
4. any act or omission of Landlord, its agents, employees, customers
or invitees.
C. Tenant at all times shall maintain fire and extended coverage insurance
insuring its interest in all furniture, fixtures, equipment, supplies and other
personal property located in the Premises or elsewhere in the Building and all
tenant improvements tot he Premises, for the full insurable replacement cost
thereof, plus business interruption insurance. Without limiting any other
agreement or obligation of Tenant hereunder, Tenant shall waive and release all
claims, rights and causes of action against Landlord, its directors, officers,
employees and insurance maintained or required to be maintained by Tenant; and
all proceeds payable under such policies for damage to the property or tenant
improvement of Tenant shall be paid in trust Jointly to Landlord and Tenant and
be used to repair or replace the damaged property and improvements, unless this
Lease is terminated as provided elsewhere hereunder. Tenant also at all times
shall maintain comprehensive general as liability and property damage insurance
through financially responsible insurance companies satisfactory to Landlord,
insuring Landlord and Tenant with respect to the Premises and all adjacent ways,
containing a contractual liability endorsement, in amounts of less than One
Million Dollars ($1,000,000) in the event of injury or death of any person, and
One Million Dollars ($1,000,000) in the event of property damage. Tenant may
have self insurance with respect to plate glass insurance. All such insurance
policies shall require at least twenty (20) days prior written notice to
Landlord before termination or modification; and current certificates of such
insurance showing Landlord as named insured shall be maintained and delivered to
Landlord.
If any damage to the Premises, the Building or the tenants thereof is
caused by any act or omission of Tenant, its agents, employees, customers or
invitees, Landlord, at Landlord's option, may repair or otherwise remedy such
damage; and Tenant shall reimburse Landlord for all costs thereof in excess of
the amounts, if any, paid to Landlord under insurance policies covering such
damages. Pending final settlement of any insurance claims covering such damages,
Tenant shall reimburse Landlord in full for such costs; and Tenant shall be
refunded the amount of any insurance proceeds paid for such damages when
received by Landlord. All property in the Building or in the Premises belonging
to Tenant, its agents, employees, customers, or invitees, or belonging to any
other occupant of the Premises, shall be there at the sole risk of Tenant or
such other person; and Landlord
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shall not be liable for any damage thereto or any theft, misappropriation or
loss thereof.
XII. Fire and Casualty.
-----------------
If the Building or the Premises is damaged and made substantially untenable
by fire or other casualty, and Landlord shall determine not to restore the same
or not to require Tenant to restore the Premises if Tenant causes the fire or
other casualty, Landlord may, by notice to Tenant given within one hundred
twenty (120) days after such damage, terminate this Lease. Such termination
shall become effective as of the date of such damage if the Premises are so
damaged, otherwise as of the date one hundred twenty (120) days following the
service of such notice of termination. Unless the Lease is terminated as herein
above provided, if the Premises are damaged by fire or other casualty, not
caused in whole or in part by Tenant, Landlord shall restore the same
substantially to their prior condition, or to a similar condition of
substantially equal or better utility, at Landlord's expense, with reasonable
promptness. Unless the Lease is terminated as herein above provided, if 50% or
more of the Premises are made untenable, (other than as a result of fire or
casualty caused in whole or in part by Tenant) and if Landlord falls, within one
hundred twenty (120) days after Landlord is enabled to take possession of the
Premises, to substantially restore the Premises Tenant may terminate this Lease
as of the end of said one hundred twenty (120) day period by giving written
notice to Landlord not later than thirty (30) days after the expiration of said
one hundred twenty (120) day period. During any such period, Landlord will
permit Tenant, at no cost to Landlord, to maintain temporary banking quarters
about the Premises during any period of rebuilding. Said temporary quarters
shall in no way interfere with any construction and repair work and shall not
interfere with the operation of the "Cyclery" east of the Tenant's space.
If the Premises are damaged or destroyed by fire or other casualty caused
in whole or in part by Tenant, and if Landlord does not elect to terminate this
Lease as aforesaid, this Lease shall remain in full force and effect and
Tenant's obligations to pay rent and all other sums hereunder shall continue
unabated. In such event, Tenant promptly and diligently shall restore the
Premises (in accordance with the other provisions of this Lease, including, but
not limited to, the Section on "Alterations"); or, at Landlord's election,
Landlord may restore the Premises, and Tenant shall pay all costs incurred in
connection therewith, including fifteen percent (15%) of the total restoration
cost for Landlord's administrative expense.
In the event of termination of this Lease pursuant to this Section XII,
rent shall be prorated on a per diem basis and shall be paid to the date of the
fire or other casualty, unless a portion of the Premises shall be rentable and
reasonably accessible, in which case rent shall be prorated on a per diem basis
and shall be payable to the date of termination. If this Lease is not terminated
in the event of a fire or other casualty but the Premises are rendered wholly
untenable or are not reasonably accessible, rent shall abate on a per diem basis
from the date of the fire or other casualty until the Premises are ready for
occupancy and reasonably accessible to Tenant. If part of the Premises are
rendered untenable, rent shall be prorated on a square footage basis in
accordance with the part of the Premises which is usable by Tenant (as measured
by Landlord) until termination or the damaged part is ready for Tenant's
occupancy as the case may be. In all cases, due allowance shall be made
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for delays caused by adjustment of the insurance claim, strikes, labor
difficulties, material shortages, weather conditions, and any other causes
beyond Landlord's reasonable control; and in no case shall Landlord be liable to
Tenant, shall Tenant be entitled to terminate this Lease or shall Tenant be
relieved of any obligation (other than as expressly provided above) by virtue of
any delay in completing repairs and restoration. Notwithstanding anything to the
contrary herein set forth, there shall be no rent abatement or proration if the
loss or damage is due to the fault, neglect or violation of any provision of
this Lease by Tenant or its employees, agents, contractors, customers or
invitees; and in no event shall Landlord be required to repair or restore any
decorating, installations, alterations, additions or improvements in or to the
Premises which were not provided initially by Landlord at its cost.
Landlord covenants to maintain adequate casualty insurance covering the
Building, with replacement cost endorsement. Tenant should have the right to
self-insure with respect to plate glass replacement.
XIII. Rights and Remedies of Landlord.
-------------------------------
A. If Tenant is adjudged bankrupt or is declared to be insolvent in any
court proceeding, if a receiver or trustee is appointed for Tenant or its
property, if proceedings are commenced to wind up or liquidate Tenant's business
or affairs, if a petition is filed by or against Tenant seeking relief under any
chapter of the bankruptcy laws (and in the case of a petition against Tenant, if
such petition is not dismissed within thirty (30) days after filing), or if
Tenant makes an assignment for the benefit of creditors, then in any such event,
Landlord, if Landlord so elects, may terminate this Lease without notice, entry
or any other action; and upon such termination, Landlord shall be entitled to
recover damages as herein and by law provided.
B. If Tenant defaults in the prompt payment of rent and such default
continues for five or more days after the payment first becomes due, if Tenant
defaults in the prompt and full performance of any other obligation or the
prompt and full observance of any other provision of this Lease and such other
default continues for ten or more days after notice thereof is given to Tenant,
if the Leasehold interest of Tenant is subjected to levy, execution or
attachment, or if Tenant abandons the Premises, then in any such event,
Landlord, if Landlord so elects, and with or without notice or demand, may
terminate Tenant's right to possession, without terminating this Lease; and in
any such event of default, whether or not there is a termination, Landlord shall
be entitled to recover all sums and damages recoverable hereunder or by law.
C. Upon termination of this Lease, by lapse of time or otherwise, or upon
termination of Tenant's right to possession, Tenant shall vacate the Premises
immediately and shall deliver possession to Landlord; and in such event Tenant
hereby grants to Landlord full and free license to enter and repossess the
Premises, with or without process of law, and to expel and exclude from
possession Tenant and all other occupants of the Premises and to remove any or
all property therefrom, using such force as may be necessary, without being
guilty of conversion of property, trespass, eviction or forcible entry or
detainer. Tenant hereby waives service of any notice or demand
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of any kind, including every notice and demand prescribed by law, and agrees
that the simple breach of any provision of this Lease by Tenant alone shall
constitute a forcible detainer by Tenant within the meaning of the statutes of
the State of Illinois, without the need for any notice or demand of any kind.
D. If Landlord elects to terminate Tenant's right to possession, without
terminating the Lease, no action of Landlord taken pursuant to such election
shall terminate this Lease or release Tenant from Tenant's obligation to pay
rent for the full term.
E. Upon and after regaining possession of the Premises with or without
termination of the Lease, Landlord shall use reasonable efforts to relet the
Premises or part thereof for the account of Tenant for such rent, for such time
and upon such terms as Landlord shall determine; provided, however, that if
there is any other vacant space in the Building, Landlord may elect to put any
proposed tenant in such other space before reletting the Premises. Landlord
shall not be required to accept any tenant who does not meet Landlord's
qualifications for tenancy of the Premises, or to observe any instructions given
by Tenant about reletting. In any such case, Landlord may make repairs,
alterations, additions and improvements and may redecorate and remodel the
Premises to the extent deemed desirable by Landlord; and Tenant shall pay
Landlord on demand all cost thereof, together with Landlord's other expenses of
reletting, such as advertising, commissions, and legal fees. If the
consideration collected from the new tenant by Landlord upon and after reletting
is not sufficient to pay the full amounts of all rents due or becoming due under
this Lease from time to time, Tenant shall pay to Landlord the amount of each
deficiency on demand.
F. Intentionally Left Blank
G. All property removed from the Premises by Landlord pursuant to the
authority of this Lease or of law, to which Tenant may be entitled, shall be
handled, removed or stored by Landlord at the sole risk, cost and expense of
Tenant; and Landlord in no event shall be liable for conversion or be
responsible for the value, preservation or safe keeping thereof. Tenant shall
pay to Landlord on demand all expenses incurred by Landlord in such handling,
removal and storage.
H. Tenant shall pay all of Landlord's costs and expenses, including the
fees of counsel, agents and others retained by Landlord, incurred in enforcing
Landlord's rights or remedies hereunder or incurred in enforcing Landlord's
rights or remedies hereunder or incurred by Landlord in any litigation,
negotiation or transaction in which Tenant causes Landlord, without Landlord's
fault, to become involved or concerned.
I. If this Lease or Tenant's right to possession is terminated prior to the
Lease expiration date set forth in the Schedule, Tenant shall be liable for and
shall pay to Landlord the unamortized amount of all rent abated, credited or
forgiven for Tenant and the unamortized costs of all decorations, installations,
additions, alterations and improvements made in respect to the Premises and paid
for or credited to Tenant by Landlord; and the entire amount thereof shall be
due and payable immediately upon termination.
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J. If Tenant falls to perform any of its obligations hereunder or violates
any of the provisions of this Lease, Landlord may (but need not) cure such
default in whole or in part, in which event Tenant shall pay Landlord on demand
as additional rent the amount of all costs, expenses and reasonable attorneys
fees incurred by Landlord in connection therewith.
K. To the fullest extent allowed by law, Tenant waives its right to a jury
trial in any action under or with respect to this Lease or the Premises.
L. In addition to any interest payable thereon, Tenant shall pay Landlord
on demand a late charge equal to five percent (5%) of any rent or other sum not
paid by Tenant when due.
M. All rights and remedies of Landlord provided herein and available at law
and in equity shall be separate and cumulative; and any of them may be exercised
singly, concurrently, alternatively and in any order without prejudice to any
other of them.
N. Whenever Landlord's consent is required under the term of this Lease,
said consent shall not be unreasonably withheld.
XIV. Bankruptcy or Insolvency.
------------------------
If Landlord's right to terminate this Lease pursuant to Section XIII(A)
above is not elected, upheld or enforced, the following provisions shall apply
in the event of the bankruptcy or insolvency of Tenant:
A. If Tenant files a petition under Chapters 7, 11 or 13 of the Bankruptcy
Code, or if an order for relief is entered against Tenant under Chapter 7, or if
a proceeding filed by or against Tenant under any other chapter of the
Bankruptcy Code is converted to a chapter 11 or 13 proceeding, and if the
trustee or Tenant as debtor-in-possession fails to assume this Lease within
sixty (60) days after appointment of the trustee in a Chapter 7 proceeding or
the date of the filing of such petition or conversion in such other chapter
proceeding, then the trustee or the debtor-in-possession shall be deemed to have
rejected this Lease, and Landlord shall be entitled immediately to possession of
the Premises without further obligation to Tenant or the trustee and this Lease
shall be terminated. Landlord shall be entitled to recover all past due rent and
damages in the bankruptcy proceeding, and such right shall survive termination
of the Lease. Landlord's damages shall include the unamortized amount of all
rent abated, credited or forgiven for Tenant and the unamortized costs of all
decorations, installations, alterations, additions and improvements made in
respect to the Premises and paid for or credited to Tenant by Landlord
determined as of the commencement of the bankruptcy proceeding. To be effective,
any election to assume this Lease must be given in writing to Landlord, and, in
Landlord's sole business judgment, all of the following conditions, which
Landlord and Tenant acknowledge to be commercially reasonable, must have been
satisfied:
1. The trustee or the debtor-in-possession must have cured or must
have provided to
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Landlord adequate assurance that the trustee will cure all monetary defaults
within ten (10) days and all non-monetary defaults within thirty (30) days after
the date of assumption and that within ten (10) days from the date of
assumption, Landlord will be compensated for all pecuniary damages it has
incurred arising from the defaults of Tenant, the trustee, or the
debtor-in-possession, as recited in Landlord's written statement of pecuniary
loss sent to the trustee or debtor-in-possession.
2. The trustee or the debtor-in-possession must have provided Landlord
with adequate assurance of the timely future performance of each of Tenant's
obligations under this Lease; provide also that:
(a) The trustee or debtor-in-possession must also deposit with
Landlord, as security for the timely payment of rent, an amount equal to
three months' rent and other periodic sums accruing under this Lease; and
(b) The obligations imposed upon the trustee or the
debtor-in-possession must continue and be binding upon Tenant after the
completion of bankruptcy proceedings.
3. For purposes of Subsection A(l), "adequate assurance" means that:
(a) Landlord shall have determined that the trustee or the
debtor-in-possession has, and will continue to have, sufficient
unencumbered assets, after the payment of all secured obligations and
administrative expenses, to assure Landlord that the trustee or the
debtor-in-possession will have sufficient funds timely to fulfill Tenant's
obligation under this Lease and to keep the Premises properly staffed with
sufficient employees to conduct a fully operational, actively promoted
business in the Premises; and
(b) An order shall have been entered segregating sufficient cash
payable to Landlord and/or a valid and perfected first lien and security
interest shall have been granted in property of Tenant, trustee, or
debtor-in-possession which is acceptable in value and kind to Landlord, to
secure to Landlord the obligation of the trustee or debtor-in-possession to
cure all monetary and non-monetary defaults under this Lease within the
time periods set forth above.
B. If the trustee or the debtor-in-possession has assumed this Lease and
assigns or elects to assign Tenant's interest under this Lease or the estate
created by that interest to any other person, such interest or estate may be
assigned only if:
1. The assignee shall have submitted a current financial statement,
audited by a certified public accountant, which shows a net worth and working
capital in amounts determined by Landlord to be sufficient to assure the future
performance by the assignee of the Tenant's obligations under this Lease;
2. If requested by Landlord, the assignee shall have obtained
guarantees, in form and substance satisfactory to Landlord, from one or more
persons who satisfy Landlord's standards
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of credit worthiness; and
3. Landlord shall have obtained consents or waivers from any third
parties which may be required under any Lease, mortgage, financing arrangement,
or other agreement by which Landlord is bound, to enable Landlord to permit such
assignment.
C. When, pursuant to the Bankruptcy Code, the trustee or the
debtor-in-possession is obligated to pay reasonable use and occupancy charges
for the use of all or part of the Premises, such charges shall not be less than
the Base Rent, Rental Adjustments and other sums payable by Tenant hereunder.
XV. Default by Landlord.
-------------------
The Landlord agrees that if it fails to pay any installment of taxes prior
to sale of said taxes or assessments or any interest, principal, costs of other
charges upon any mortgage or mortgages, or other liens and encumbrances
affecting the leased Premises, and to which this Lease may be subordinate when
any of the same become due, or if the Landlord falls to make any repairs or do
any work required of the Landlord by the provisions of this Lease, or in any
other respect fails to perform any covenant and agreement in the Lease contained
on the part of the Landlord to be performed, then, and in any such event or
events, the Tenant, after the continuance of any such failure of default for
thirty (30) days after notice in writing thereof is given by the Tenant to the
Landlord, may at its option pay said taxes, assessments, interest, principal,
costs, and other charges and cure such defaults all on behalf of and at the
expense of the Landlord, and do all necessary work and make all necessary
payments in connection therewith including but not limiting the same to the
payment of any fees, costs and reasonable charges of or in connection with any
legal action which may have been brought; and the Landlord agrees to pay to the
Tenant forthwith the amount so paid by the Tenant, together with interest at the
rate of 12% per annum and agrees that the Tenant may withhold any and all rental
payments thereafter becoming due to the Landlord pursuant to the provisions of
this Lease or any extension thereof and may apply the same to the payment of
such indebtedness of the Landlord to the Tenant until such indebtedness is fully
paid with interest as herein provided. Nothing herein contained shall preclude
the Tenant from proceeding to collect the amount so paid by it as aforesaid
without waiting for rental off-sets to accrue or from exercising any other right
or remedy available to Tenant at law or in equity. Landlord agrees to indemnify
and save Tenant harmless from all fines, claims, demands, actions, proceedings,
judgments, and damages (including court costs and reasonable attorney fees) of
any kind or nature by anyone whomsoever arising or growing out of any breach or
nonperformance by Landlord of the covenants in this Lease.
XVI. Eminent Domain.
--------------
If the whole or any part of the Premises shall be taken for public or
quasi-public use by a governmental authority acting under the power of eminent
domain or shall be conveyed to a governmental authority in lieu of such taking,
and if such taking or conveyance shall cause the remaining part of the Premises
(if any) to be untenable and inadequate for use by Tenant for the
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<PAGE>
purposes for which they were Lease, then Tenant, at its option, may terminate
this Lease as of the date Tenant is required to surrender possession of the
Premises. If a part of the Premises shall be so taken or conveyed but the
remaining part is rentable and adequate for Tenant's use, then this Lease shall
be terminated as to the part taken or conveyed as of the date Tenant surrenders
possession;, Landlord shall make such repairs, alterations and improvements as
may be necessary to render the part not taken or conveyed rentable; and the rent
shall be reduced in proportion to the part of the Premises so taken or conveyed
(as measured by Landlord). All compensation awarded for such taking or
conveyance shall be the property of Landlord without any deduction therefrom for
any present or future estate of Tenant, and Tenant hereby assigns to Landlord
all its rights, title and interest in and to any such award. However, Tenant
shall have the right to recover from the governmental authority, but not from
Landlord, such compensation as may be awarded to Tenant on account of the
interruption of Tenant's business, moving and relocation expenses and
depreciation to and removal of Tenant's trade fixtures and personal property.
XVII. Landlord's Mortgage.
-------------------
From time to time either before or after the execution of this Lease,
Landlord may execute a mortgage or trust deed in the nature of a mortgage of
Landlord's interest in the Building and/or underlying land. In such event:
A. If and as requested by the mortgagee or trustee, Tenant will subordinate
or agree tot he superiority of its interest in this Lease to said mortgage or
trust deed and will execute such subordination or superiority agreement or
agreements as reasonably may be required by said mortgagee or trustee. Tenant's
obligation to subordinate to Landlord's mortgagee is conditioned upon execution
by such mortgagee of an agreement, in form reasonably satisfactory to Tenant,
providing that Tenant's right of quiet possession and occupancy of the Premises
should not be disturbed in the even to foreclosure by such mortgagee or default
under the mortgage.
B. Should such mortgage or trust deed be foreclosed, the liability of the
mortgagee, trustee or purchaser at such foreclosure sale or the liability of a
subsequent owner designated as Landlord under this Lease shall exist only so
long as such trustee, mortgagee, purchaser or owner is the owner of the subject
real estate, and such liability shall not continue or survive after further
transfer of ownership.
C. Tenant agrees that, in the event of any act or omission by Landlord
which would give Tenant the right to terminate this Lease or to claim a partial
or total eviction, Tenant shall not exercise any such right:
1. Until it has notified in writing the holder of any mortgage or
trust deed which at the time shall be a lien on the Building or underlying land
of such act or omission (if the name and address of such holder shall previously
have been furnished by written notice to Tenant); and
2. Until a reasonable period, not exceeding thirty (30) days, for
commencing the
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remedying of such act or omission shall have lapsed following the giving of such
notice; and
3. Unless such holder, with reasonable diligence, shall not have
commenced and continued to remedy such act or omission or to cause the same to
be remedied.
D. If such mortgage or trust deed be foreclosed, upon request of the
mortgagee or trustee, Tenant will attorn to the purchaser at any foreclosure
sale and will execute such instruments as may be necessary or appropriate to
evidence such attornment. Likewise, Tenant will attorn to the leasehold
mortgagee (if any) in the event said leasehold mortgagee should ever become the
owner of the leasehold estate covered by its mortgage or should become the owner
of any new lease in replacement or substitution of such leasehold estate.
XVIII. Estoppel Certificate.
--------------------
When requested by Landlord, Tenant shall deliver to Landlord or to its
present or prospective mortgages, purchasers, auditors or another persons
designated by Landlord, a certificate stating that: this Lease is in full force
and effect; Landlord is not in default (or stating specifically any exceptions
thereto); the date of acceptance of the Premises; the date of commencement of
rent; the date of commencement of the term of this Lease; the expiration date of
this Lease; the amount of rent currently payable; the date to which rent has
been paid; whether or not Landlord has completed any improvements required to be
made to the Premises; whether or not Tenant has any options or rights of first
refusal; and such other matters as may be reasonably required. Failure to give
such a certificate within ten (10) days after written request shall constitute a
default by Tenant and also shall be conclusive evidence that this Lease is in
full force and effect and that Landlord is not in default, and Tenant shall be
estopped from asserting any defaults know to Tenant at that time.
XIX. Holding Over.
------------
If Tenant retains possession of the Premises or any part thereof after
termination of this 1, by lapse of time or otherwise, or after termination of
Tenant's right to possession of the Premises, Tenant shall pay Landlord for the
time Tenant remains in possession rent at double the rental rate payable for the
last period prior to the date of such termination, which rate shall include Base
Rentals and Rental Adjustments as provided in Sections I and II of this
Landlord. Tenant also shall pay all damages sustained by Landlord by reason of
such retention. Unless otherwise provided in writing by Landlord, any such
retention shall give rise to a month to month holdover. If Landlord so elects by
giving written notice thereof to Tenant, such holding over shall constitute
renewal of this Landlord for one year at a rental rate equal to One Hundred
Twenty-Five percent (125%) of the rent provided for thereunder on the stated
termination date of this Lease; plus all rent that may be pursuant to the terms
hereof, as specified in Landlord's notice. Acceptance by Landlord of rent after
any such termination shall not constitute a renewal. This section does not waive
Landlord's right of re-entry or any other right or remedy available to Landlord
upon holding over.
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XX. Miscellaneous.
-------------
A. Default Under Other Lease. If the term of any lease, other than this
Lease, made by Tenant for the Premises or any part thereof or for any other
space in the Building shall be terminated or terminable after the making of this
Landlord, because of any default by Tenant under such other lease, such fact
shall empower Landlord, at Landlord's sole option, to terminate this Landlord or
to exercise any of the remedies set forth in Section XIII.
B. Acts Subsequent to Default. No receipt of money by Landlord from Tenant
after any default, the termination of this Landlord or Tenant's right to
possession, the service of any notice or demand, the commencement of any suit or
the entry of any judgment shall operate to cure or waive such default,
reinstate, continue or extend the term of this Lease or Tenant's right to
possession, or affect any such notice, demand, suit or judgment.
C. Waiver of Default. No waiver of any default of Tenant shall be implied
an no express waiver of any such default shall affect, any default other than
the default specified in such waiver, and then only for the time and to the
extent therein stated. No waiver of or failure to enforce any provision under
any other tenant's lease or any provision of the Building's rules and
regulations, and no consent or permission given to any other tenant or person,
shall operate to waive, diminish, or impair any similar provision relating to
Tenant or give rise to or require any similar consent or permission in the case
of Tenant. The invalidity or unenforceability of any provision of this Lease,
per se or as applied, shall not affect or impair any other provision of this
Lease, the remainder of which shall remain in full force and effect, or any
other application of the provision in question.
D. Plats and Riders. Clauses, plats and riders, if any, signed by Landlord
and Tenant and endorsed on or attached to this Lease are a part hereof; and in
the event of variation or discrepancy, the duplicate original hereof, including
such clauses, plats and riders, if any, held by Landlord shall control.
E. Meaning of Tenant. The word "Tenant" wherever used in this Landlord
shall be construed to mean Tenants in all cases where there is more than one
tenant, and the necessary grammatical changes required to make the provisions
hereof apply either to corporations or individuals, men or women, shall in all
cases be assumed as though in each case fully expressed. The word "term" as used
herein includes the initial Lease term and all extensions and renewals.
F. Representative Capacity. No person executing this Lease in a
representative capacity for Landlord or Tenant shall be held individually liable
hereunder in the absence of fraud, provided that such person acted with due
authority and the intended principals are bound.
G. Brokers. Tenant certifies that it has not dealt with any real estate
broker other than the broker identified on the Schedule and that no other broker
initiated or participated in the negotiation of this Lease, submitted or showed
the Premises to Tenant or is entitled to any commission in connection with this
Landlord. Tenant agrees to indemnify and hold Landlord
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harmless from all claims from and liabilities to any other real estate broker
for commissions or fees in connection with this Lease and space.
H. Force Majeure. Time is of the essence. However, provision or performance
by Landlord of any maintenance, repair, restoration, improvement, facility or
service shall be subject to delays due to strikes, labor problems, material
shortages, Acts of God, weather conditions, war and other cause beyond the
reasonable control of Landlord.
I. Successors and Assigns. Each provision hereof shall extend to and shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
legal representatives, successors and assigns, provided, however, that this
Lease shall not inure to the benefit of any heir, legal representative,
transferee, successor or assign of Tenant except upon the express written
consent or election of Landlord to be exercised in Landlord's sole and absolute
discretion.
J. Rules and Regulations. Tenant agrees to comply with all reasonable rules
and regulations Landlord may adopt from time to time for the operation,
management, protection and welfare of the Building and its tenants and
occupants.
K. Notices. No notice or demand related to this Lease shall be effective
unless in writing and either delivered personally to the party to whom it is
directed or sent by United States certified mail, return receipt requested,
postage prepaid, in a sealed envelope addressed: if to Tenant, to Tenant at the
Premises, with a copy to Mr. Peter Wifler, 335 Chancery Lane, Lake Zurich,
Illinois 60047, or if Tenant is not in possession thereof, then to Tenant's
address last known to Landlord; and if to Landlord, to Landlord at 1111 Waukegan
Road, Northbrook, Illinois, 60062, with a copy to Stephen B. Cohen at the Law
Offices of Stephen B. Cohen, P.C., 5 Revere Drive, Suite 320, Northbrook,
Illinois 60062; provided that either party, by notice to the other, from time to
time may designate another address in the United States of America to which
notices mailed more than ten (10) days thereafter shall be addressed. Notices
mailed as aforesaid shall be effectively given as of the date of mailing.
30
<PAGE>
L. Marginal Notations. The marginal notations of this Lease are for
conveniences only and in no way limit or enlarge scope or meaning.
M. Examination of Lease. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for lease and
this instrument is not effective as a Lease or otherwise until execution and
delivery by both Landlord and Tenant.
N. This Lease is subject to the renewal option granted to Tenant as set
forth in Rider attached hereto and made a part hereof.
LANDLORD: TENANT:
--------- -------
GEORGE GARNER AND BARBARA VILLAGE BANK and TRUST COMPANY
GARNER
By: /s/ George Garner By: /s/ John A. Reck
----------------------------------- -------------------------------
Its President
By: /s/ Barbara Garner By: /s/ Robert C. Rud
----------------------------------- -------------------------------
Its E.V.P. and Cashier
31
<PAGE>
RIDER TO LEASE DATED OCTOBER 27, 1998, BETWEEN GEORGE GARNER
AND BARBARA GARNER, LANDLORD, AND VILLAGE BANK AND TRUST
COMPANY, TENANT, AT 585-587 ELA ROAD, IN LAKE ZURICH, ILLINOIS
Option to Extend Term.
- ---------------------
It is expressly agreed that provided this Lease has not been theretofore
canceled or terminated by operation of law or otherwise, and that the Tenant is
not in default under this Lease on the date (i) that Tenant exercises the option
to extend the Term, or (ii) the extended Term hereof commences, then Tenant is
granted the option to extend the Term of this Lease for a further term of Three
(3) years commencing on the fifth anniversary of the Commencement Date, and
ending five years thereafter, subject to the terms and conditions as in this
Lease contained, except that:
(a) Tenant shall have no further option for any further renewal or
extension;
(b) The Base Rent and Monthly Base Rent during the extended term shall
be as follows:
Period: Thirty-Six (36) months
Base Rent: $151,452.00
Monthly Base Rent: $ 4207.00
(c) Tenant shall deposit additional Security Deposits on or before the
dates hereinafter set forth in the amounts set forth opposite the stated dates
to bring the total Security Deposit up to the amounts also shown opposite the
stated dates:
Date of Required
Additional Security
Deposit: Upon exercise of option to extend term
Amount of Additional
Security Deposit: $ 714.00
Total Security Deposit: $8414.00
The Tenant, in order to exercise such option to extend, must serve notice
of its election upon Landlord, or its successor or assigns, by serving no later
than 5:00 p.m. on a date which is one hundred eighty (180) days prior to the
date of expiration of this original Lease. The notice once given shall be and is
irrevocable. The aforesaid option to extend the Term is given to and may be
enforced by the original Tenant only, and on condition that it shall not be
assigned,
32
<PAGE>
mortgaged or encumbered by such Tenant, nor shall it be exercisable by Tenant if
all or a portion of the Premises may have been sublet by the Tenant with or
without the consent of Landlord or, pass by any devolution, assignment or
transfer of this Lease, which may be permitted by such transfer or disposition
of such option to extend or attempt to accomplish such transfer or disposition,
this option to extend shall become null and void.
(d) The Extended Term Base Rent as described herein shall increase
annually to an amount equal to One Hundred Three percent (103%) of the Base Rent
which was payable for the year immediately preceding such anniversary and Tenant
shall thereafter (until further increase) pay equal monthly installments of the
Base Rent as adjusted. Tenant shall pay all monthly installments of Base Rent to
Landlord, in advance, on or before the first day of each and every month during
the Term, without demand and without any set-off or deduction whatsoever, except
that (i) Tenant shall pay an amount equal to one full monthly installment of
Base Rent at the time of execution of this Lease, which amount shall be credited
to the first full monthly installment of Base Rent payable hereunder; and (ii)
if the Term commences other than on the first day of a month or ends other than
on the last day of a month, the Base Rent for such month shall be prorated and
the prorated Base Rent for the portion of the month in which the Term commences
shall also be paid at the time of execution of this Lease.
This Lease was prepared by Stephen B. Cohen,
the Law Offices of Stephen B. Cohen, P.C.,
5 Revere Drive, Suite 320, Northbrook, IL 60062 (847-509-9030).
33
Exhibit 10.5
NON-COMPETITION AGREEMENT
-------------------------
This Non-Competition Agreement dated as of May 31, 1997 (the
"Agreement"), is entered into by and between Thomas H. Roth ("Covenantor") and
Popular, Inc., formerly known as BanPonce Corporation, a Puerto Rico corporation
("Popular").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Popular, National Bancorp, Inc., a Delaware corporation
(collectively, with its subsidiaries "NBI"), and stockholders of NBI entered
into a Stock Purchase Agreement dated as of December 6, 1996 (the "Acquisition
Agreement") providing, among other things, for the acquisition of all of the
outstanding common stock of NBI (the "Acquisition") and its wholly-owned
subsidiary, American Midwest Bank & Trust, an Illinois state bank ("AmMid");
WHEREAS, Covenantor is a stockholder, a director and an executive
officer of NBI and, pursuant to Section 6.16 of the Acquisition Agreement,
hereby enters into this Non-Competition Agreement; and
WHEREAS, Covenantor acknowledges that as a director, executive officer
and stockholder of NBI, he has become familiar with the customers and related
customer information of NBI.
NOW, THEREFORE, in consideration of and as a condition and inducement
to Popular consummating the transactions contemplated by the Acquisition
Agreement, and in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, Covenantor and
Popular agree as follows:
1. Covenants.
(a) Covenantor covenants and agrees that for a period of three
(3) years beginning upon the Closing Date (as defined in the Acquisition
Agreement) (the "Non-Competition Period") he shall not knowingly:
(i) solicit or cause to be solicited retail or commercial
banking business or related business from any of AmMid's customers existing
on the signing hereof and AmMid's customers existing on the Closing Date;
provided, however, that nothing in this Section 1(a)(i) shall be deemed or
construed to prevent general advertisement, mass mailings or other
marketing efforts soliciting retail or commercial banking business provided
that such advertisement, mass mailings or other marketing efforts are not
specifically targeted at customers of AmMid; and provided, further, that
nothing contained in this Section 1(a)(i) shall prevent, or be deemed to
prevent, the rendering of, or the making of a proposal to render, retail or
commercial banking services by Covenantor to any customer of AmMid in
response to an unsolicited request from such customer therefor,
<PAGE>
or prevent the withdrawal of any account or termination of relationship of
any entity owned or controlled by Covenantor or in which Covenantor is a
general partner; or
(ii) without the prior written consent of Popular, within a
five (5) mile radius of AmMid, either alone or in partnership or jointly or
in conjunction with any person or persons, financial institution, firm,
association, syndicate, company or corporation as principal, agent,
employee, officer, director, shareholder, consultant, investor or advisor
or in any other manner whatsoever establish a facility to: (A) carry on or
be engaged in the commercial or retail banking or related business or do
any other business under the name of "American Midwest Bank & Trust" (or
any derivation thereof); or (B) carry on or engage in the commercial or
retail banking business generally; provided, however, that this Section
1(a)(ii) shall not prohibit Covenantor from owning less than 5% of the
outstanding stock of any class of a retail or commercial banking
institution or corporation controlling a retail or commercial banking
institution which is publicly traded, so long as he has no active
participation in the business or management of such corporation or
financial institution.
(b) Covenantor agrees that during the Non-Competition Period, he
will not offer or cause to be offered employment to or hire or cause to be hired
any person who is employed by AmMid on the date hereof or on the Closing Date,
except with the prior written consent of Popular; provided, however, that
Covenantor shall not be prohibited from either:
(i) placing in any mass media any general advertisement for
prospective employees, provided that such advertisement is not specifically
targeted at employees of AmMid; or
(ii) employing a person whose employment was terminated by
Popular.
(c) Covenantor agrees that he shall not disclose to others or
use, or allow others to use, for business solicitation purposes, whether
directly or indirectly, any information about AmMid's customers, including but
not limited to the identity thereof and loan and account balances, which is not
available to the general public and was learned by Covenantor as a consequence
of his relationship with NBI or AmMid. Covenantor acknowledges that such
information is specialized, unique in nature and of great value to Popular, as
purchaser of NBI.
2. Remedies. Covenantor acknowledges that the covenants and agreements
which he has made in this Agreement are reasonable and are required for the
reasonable protection of Popular's purchase of NBI. Covenantor agrees that the
breach of any covenant or agreement contained herein will result in irreparable
injury to Popular, and that in addition to all other remedies provided by law or
in equity with respect to the breach of any provision of this Agreement,
Popular, its subsidiaries and their successors and assigns will be entitled to
enforce the specific performance by Covenantor of his obligations hereunder and
to enjoin him from engaging in any activity in violation hereof and that no
claim by Covenantor against Popular, its
<PAGE>
subsidiaries or their successors or assigns will constitute a defense or bar to
the specific enforcement of such obligations. In the event of a lawsuit, Popular
shall be entitled to recover from Covenantor reasonable attorney's fees and
costs of litigation. In the event of a breach or a violation by Covenantor of
any of the provisions of this Agreement, the running of the Non-Competition
Period (but not of Covenantor's obligations hereunder) shall be tolled during
the period of the continuance of any actual breach or violation.
3. Partial Invalidity. The various covenants and provisions of this
Agreement are intended to be severable and to constitute independent and
distinct binding obligations. Should any covenant or provision of this Agreement
be determined to be void and unenforceable, in whole or in part, it shall not be
deemed to affect or impair the validity of any other covenant or provision or
part thereof, and such covenant or provision or part thereof shall be deemed
modified to the extent required to permit enforcement. Without limiting the
generality of the foregoing, if the scope of any covenant contained in this
Agreement is too broad to permit enforcement to its full extent, such covenant
shall be enforced to the maximum extent permitted by law, and Covenantor hereby
agrees that such scope may be judicially modified accordingly.
4. Assignment. Covenantor agrees that this Agreement may be assigned
by Popular to any direct or indirect majority owned affiliate of Popular and
that upon such assignment, such affiliate shall acquire all of Popular's rights
under this Agreement, including, without limitation, the right of assignment set
forth in this Section 4.
5. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
6. Notice. Any notice or other communication required or permitted to
be given hereunder shall be determined to have been duly given to any party or
parties:
(a) upon delivery to the address of such party or parties
specified below if delivered in person or by courier, or if sent by certified or
registered mail (return receipt requested), postage prepaid, or
(b) one business day following dispatch if transmitted by
confirmed telecopy or other means of facsimile, in any case to the party or
parties at the following address(es) or telecopy number(s), as the case may be:
If to Covenantor:
Mr. Thomas H. Roth
1709 Appleby Court
Inverness, Illinois 60067
<PAGE>
with a copy to:
Office of Victor J. Caccitore, Esq.
527 South Wells Street
Suite 800
Chicago, Illinois 60607
Attention: Thomas H. Jacobs, Esq.
If to Popular:
Popular, Inc.
209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Attention: President
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Attention: Robert J. Stucker, Esq.
Douglas M. Hambleton, Esq.
7. Waiver of Breach. The waiver by either party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
8. Applicable Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Illinois, without
giving effect to the principles of conflicts of laws thereof.
9. Entire Understanding. This Agreement and the agreements referred to
herein constitute the entire understanding and shall not be changed, altered, or
modified except by the written consent of both parties.
10. Survival. If the Acquisition Agreement is terminated in accordance
with its terms, this Agreement shall terminate and be null and void. All of the
provisions herein shall survive the Closing Date.
<PAGE>
11. Binding Effect. This Agreement shall be binding upon Covenantor's
executors, administrators, legal representatives, heirs and legatees and the
successors and permitted assigns of Popular.
[SIGNATURES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the party has executed this Non-Competition
Agreement on the date first above written.
THOMAS H. ROTH
/s/ Thomas H. Roth
-----------------------------------
POPULAR, INC.
By: /s/ Richard L. Carrion
-------------------------------
Its: President, Chairman of the
Board & CEO
Exhibit 10.6
NON-COMPETITION AGREEMENT
-------------------------
This Non-Competition Agreement dated as of May 31, 1997 (the
"Agreement"), is entered into by and between Northwest Community Bank
("Covenantor") and Popular, Inc., formerly known as BanPonce Corporation, a
Puerto Rico corporation ("Popular").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Popular, National Bancorp, Inc., a Delaware corporation
(collectively, with its subsidiaries "NBI"), and stockholders of NBI entered
into a Stock Purchase Agreement dated as of December 6, 1996 (the "Acquisition
Agreement") providing, among other things, for the acquisition of all of the
outstanding common stock of NBI (the "Acquisition") and its wholly-owned
subsidiary, American Midwest Bank & Trust, an Illinois state bank ("AmMid");
WHEREAS, Covenantor is an affiliated institution of NBI and, pursuant
to Section 6.16 of the Acquisition Agreement, hereby enters into this
Non-Competition Agreement; and
WHEREAS, Covenantor acknowledges that as an affiliated institution of
NBI, it has become familiar with the customers and related customer information
of NBI.
NOW, THEREFORE, in consideration of and as a condition and inducement
to Popular consummating the transactions contemplated by the Acquisition
Agreement, and in consideration of the premises and the mutual covenants,
representations, warranties and agreements herein contained, Covenantor and
Popular agree as follows:
1. Covenants.
(a) Covenantor covenants and agrees that for a period of three
(3) years beginning upon the Closing Date (as defined in the Acquisition
Agreement) (the "Non-Competition Period") it shall not knowingly:
(i) solicit or cause to be solicited retail or commercial
banking business or related business from any of AmMid's customers existing
on the signing hereof and AmMid's customers existing on the Closing Date;
provided, however, that nothing in this Section 1(a)(i) shall be deemed or
construed to prevent general advertisement, mass mailings or other
marketing efforts soliciting retail or commercial banking business provided
that such advertisement, mass mailings or other marketing efforts are not
specifically targeted at customers of AmMid; and provided, further, that
nothing contained in this Section 1(a)(i) shall prevent, or be deemed to
prevent, the rendering of, or the making of a proposal to render, retail or
commercial banking services by Covenantor to any customer of AmMid in
response to an unsolicited request from such customer therefor, or prevent
the withdrawal of any account or termination of relationship of any entity
owned or controlled by Covenantor or in which Covenantor is a general
partner; or
<PAGE>
(ii) without the prior written consent of Popular,
within a five (5) mile radius of AmMid, either alone or in partnership or
jointly or in conjunction with any person or persons, financial
institution, firm, association, syndicate, company or corporation as
principal, agent, employee, officer, director, shareholder, consultant,
investor or advisor or in any other manner whatsoever establish a facility
to: (A) carry on or be engaged in the commercial or retail banking or
related business or do any other business under the name of "American
Midwest Bank & Trust" (or any derivation thereof); or (B) carry on or
engage in the commercial or retail banking business generally; provided,
however, that this Section 1(a)(ii) shall not prohibit Covenantor from
owning less than 5% of the outstanding stock of any class of a retail or
commercial banking institution or corporation controlling a retail or
commercial banking institution which is publicly traded, so long as he has
no active participation in the business or management of such corporation
or financial institution.
(b) Covenantor agrees that during the Non-Competition Period, it
will not offer or cause to be offered employment to or hire or cause to be hired
any person who is employed by AmMid on the date hereof or on the Closing Date,
except with the prior written consent of Popular; provided, however, that
Covenantor shall not be prohibited from either:
(i) placing in any mass media any general advertisement for
prospective employees, provided that such advertisement is not specifically
targeted at employees of AmMid; or
(ii) employing a person whose employment was terminated by
Popular.
(c) Covenantor agrees that it shall not disclose to others or
use, or allow others to use, for business solicitation purposes, whether
directly or indirectly, any information about AmMid's customers, including but
not limited to the identity thereof and loan and account balances, which is not
available to the general public and was learned by Covenantor as a consequence
of its relationship with NBI or AmMid. Covenantor acknowledges that such
information is specialized, unique in nature and of great value to Popular, as
purchaser of NBI.
2. Remedies. Covenantor acknowledges that the covenants and agreements
which it has made in this Agreement are reasonable and are required for the
reasonable protection of Popular's purchase of NBI. Covenantor agrees that the
breach of any covenant or agreement contained herein will result in irreparable
injury to Popular, and that in addition to all other remedies provided by law or
in equity with respect to the breach of any provision of this Agreement,
Popular, its subsidiaries and their successors and assigns will be entitled to
enforce the specific performance by Covenantor of its obligations hereunder and
to enjoin it from engaging in any activity in violation hereof and that no claim
by Covenantor against Popular, its subsidiaries or their successors or assigns
will constitute a defense or bar to the specific enforcement of such
obligations. In the event of a lawsuit, Popular shall be entitled to recover
from Covenantor reasonable attorney's fees and costs of litigation. In the event
of a breach or a violation by
<PAGE>
Covenantor of any of the provisions of this Agreement, the running of the
Non-Competition Period (but not of Covenantor's obligations hereunder) shall be
tolled during the period of the continuance of any actual breach or violation.
3. Partial Invalidity. The various covenants and provisions of this
Agreement are intended to be severable and to constitute independent and
distinct binding obligations. Should any covenant or provision of this Agreement
be determined to be void and unenforceable, in whole or in part, it shall not be
deemed to affect or impair the validity of any other covenant or provision or
part thereof, and such covenant or provision or part thereof shall be deemed
modified to the extent required to permit enforcement. Without limiting the
generality of the foregoing, if the scope of any covenant contained in this
Agreement is too broad to permit enforcement to its full extent, such covenant
shall be enforced to the maximum extent permitted by law, and Covenantor hereby
agrees that such scope may be judicially modified accordingly.
4. Assignment. Covenantor agrees that this Agreement may be assigned
by Popular to any direct or indirect majority owned affiliate of Popular and
that upon such assignment, such affiliate shall acquire all of Popular's rights
under this Agreement, including, without limitation, the right of assignment set
forth in this Section 4.
5. No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
6. Notice. Any notice or other communication required or permitted to
be given hereunder shall be determined to have been duly given to any party or
parties:
(a) upon delivery to the address of such party or parties
specified below if delivered in person or by courier, or if sent by certified or
registered mail (return receipt requested), postage prepaid, or
(b) one business day following dispatch if transmitted by
confirmed telecopy or other means of facsimile, in any case to the party or
parties at the following address(es) or telecopy number(s), as the case may be:
If to Covenantor:
Northwest Community Bank
1845 E. Rand Rd.
Prospect Heights, IL 60070
Attention: President
<PAGE>
with a copy to:
Office of Victor J. Caccitore, Esq.
527 South Wells Street
Suite 800
Chicago, Illinois 60607
Attention: Thomas H. Jacobs, Esq.
If to Popular:
Popular, Inc.
209 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Attention: President
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Attention: Robert J. Stucker, Esq.
Douglas M. Hambleton, Esq.
7. Waiver of Breach. The waiver by either party hereto of a breach of
any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
8. Applicable Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Illinois, without
giving effect to the principles of conflicts of laws thereof.
9. Entire Understanding. This Agreement and the agreements referred to
herein constitute the entire understanding and shall not be changed, altered, or
modified except by the written consent of both parties.
10. Survival. If the Acquisition Agreement is terminated in accordance
with its terms, this Agreement shall terminate and be null and void. All of the
provisions herein shall survive the Closing Date.
<PAGE>
11. Binding Effect. This Agreement shall be binding upon Covenantor's
successors and assigns and the successors and permitted assigns of Popular.
[SIGNATURES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the party has executed this Non-Competition
Agreement on the date first above written.
NORTHWEST COMMUNITY BANK
By: /s/ Michael A. Speziale
--------------------------------
Its: President/CEO
POPULAR, INC.
By: /s/ Richard L. Carrion
--------------------------------
Its: President, Chairman of the
Board & CEO
Exhibit 10.7
ESCROW AGREEMENT
----------------
This ESCROW AGREEMENT (the "Agreement") is made and entered into as of
the ___ day of April, 1999, by and between, Village Bancorp, Inc., (formerly
Delta Bancorp, Inc.) a Delaware corporation located in Prospect Heights,
Illinois ("Company") and LaSalle National, a national banking association
located in Chicago, Illinois (the "Escrow Agent").
RECITALS
--------
A. WHEREAS, the Company is offering for sale to the general public
pursuant to the Securities and Exchange Commission Registration Statement and
the related prospectus (the "Offering") a minimum of 454,000 and a maximum of
554,000 shares of Common Stock, $0.01 par value per share, ("Common Stock") at
an initial offering price of $13.25 per share. The minimum investment will be
800 shares ($10,600). The minimum investment limitation may, but need not, be
waived by the Company in certain circumstances. The Company reserves the right
to reject, in its sole discretion, any subscription in its entirety or to
allocate to any subscriber a smaller number of shares than the number of shares
for which the investor subscribed; and
B. WHEREAS, individual subscribers shall deposit funds in payment of
subscriptions for the purchase of the shares of Common Stock, with the Escrow
Agent in accordance with the terms and conditions set forth herein the the
Subscription Agreement Form ("Subscription Agreement") to be executed by
subscribers;
NOW, THEREFORE, in consideration of the mutual promise contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:
1. Funds received, as payment for properly submitted subscriptions
will be placed in an Escrow Account ("Escrow Account") with the Escrow Agent.
Subscriptions will not be accepted if not in the proper form or if not
accompanied by full payment for all shares for which subscription is made.
Payment for subscriptions must be in cash or by check, money order, bank draft
or wire transfer made payable to the order of "Village Bancorp, Inc.- Escrow
Account # 628133506."
In the event the Escrow Agent receives an incomplete Subscription
Agreement or is otherwise unable to determine the acceptability of any such
Subscription Agreement, the Escrow Agent shall deliver any such Subscription
Agreement to the Company to determine whether to accept or reject such
Subscription Agreement.
2. Escrow Agent will not accept subscriptions, unless received before
5:00 p.m., Central Time on the Closing Date, July 31, 1999. The Company, at its
sole discretion, may extend the Closing Date to October 31, 1999 for acceptance
of subscriptions. The Company shall be required to give written notice of such
extension to the Escrow Agent.
<PAGE>
3. The Escrow Agent hereby agrees that it shall:
a) deposit on a daily basis any and all funds received in
accordance with the terms herein
b) upon request forward by facsimile transmittal, to the
Company, a copy of the Statement of Transactions detailing
the activity in the Escrow Account.
c) hold in the Escrow Account under the supervision of the
Corporate Trust Division any subscription funds delivered
to it;
d) invest subscription funds in (i) direct obligations of the
United States Government or any agency thereof, (ii)
repurchase agreements and money market accounts which are
fully secured by direct obligations of the United States
Government or any agency thereof, (iii) money market mutual
funds which are utilized by the Escrow Agent and which
invest primarily in direct obligations of the United States
Government, or (iv) the ABN AMRO Government Money Market
Fund as directed. In the event no direction is received all
funds shall be invested in the ABN AMRO Government Money
Market Fund;
e) distribute any subscriptions funds as provided in Paragraph
4 of this Agreement.
4. No funds will be released by the Escrow Agent until subscriptions
have been accepted for the minimum number of shares offered, 454,000 shares, by
the Closing Date, July 31, 1999, unless extended in the sole discretion of the
Company as specified in Paragraph 2 of this Agreement, or if the offering is
terminated by the Company.
Funds for all acceptable subscriptions, including any interest earned
on such deposits, will then be released per written instruction received from
the Company. Funds for all subscriptions not accepted or rejected by the Company
in whole or in part, will be returned to the subscribers, without interest,
within five (5) business days of said rejection.
In the event that the minimum number of shares are not subscribed to,
by the Closing Date or as extended thereof at the Company's discretion, all
funds collected to date by the Escrow Agent, will be returned to the
subscriber without interest and no shares will be issued. Funds will be mailed
to subscribers within five (5) business days of the date the offering is
terminated without the issuance of shares.
Any interest earned on subscriptions returned to subscribers shall be
paid to the Company to repay expenses incurred in the Offering.
5. The Company may terminate this Offering prior to the issuance of
any shares for any reason. The Company will give written notice of any such
termination to the Escrow Agent.
6. Upon occurrence of either event contemplated in Paragraph 4 hereof,
and the Escrow Agent's compliance with the terms hereof, the Escrow Agent shall
be relieved of all liabilities in connection with the subscription funds
distributed pursuant to such paragraph from and after the time of such
distribution.
2
<PAGE>
Upon occurrence of the events contemplated in Paragraph 4 hereof, the
Escrow Agent shall deliver all Subscription Agreements and related documents in
its possession to the Company.
7. Throughout the term of this Agreement, the Escrow Agent will be
entitled to reasonable administrative and service fees (the "Agent Fee"). For
the services contemplated herein, an Agent Fee not to exceed a maximum of
$500.00 acceptance fee and a one time administration fee of $4,000.00, has been
mutually agreed upon. The Agent Fee will be paid by the Company from the
proceeds of the offering including the interest earned on the deposited funds
prior to disbursement of such funds.
8. In the event the subscription funds are attached or levied under an
order of any court of competent jurisdiction or if the delivery of such funds is
stayed or enjoined by an order of any court of competent jurisdiction, or any
order or judgment is made or entered by any court of competent jurisdiction
affecting the subscription funds deposited under this Agreement, or any part
thereof, the Escrow Agent is hereby expressly directed to obey and comply with
all orders so entered or issued. So long as the Escrow Agent obeys or complies
with any such order it has received, it will not be liable to any of the parties
hereto or to any other person, firm, or corporation by reason of such
compliance, notwithstanding such order is subsequently reversed, modified,
annulled, set aside or vacated.
9. If the Escrow Agent becomes involved in litigation resulting from
this Escrow Account or this Agreement, other than litigation involving any
breach by the Escrow Agent of third Agreement or other standards or requirements
imposed by applicable law, the Escrow Agent will have the right to retain
counsel and will be entitled to reimbursement by the Company for any and all
reasonable costs, attorney's fees, charges, disbursements and expenses in
connection with such litigation.
10. The Escrow Agent reserves the right to resign at any time by
giving written notice of resignation, specifying the effective date thereof.
Within 30 days after receiving the aforesaid notice, the Company agrees to
appoint a successor Escrow Agent to which the Escrow Agent may distribute the
subscription funds then held hereunder, less the Escrow Agent's fees, costs and
expenses as set forth above. If a successor Escrow Agent has not accepted such
appointment by the end of the 30 day period, the Escrow Agent may apply to a
court of competent jurisdiction for the appointment of a successor Escrow Agent
and any attorney's fees that are incurred in connection with such a proceeding
will be paid by the Company.
11. The obligations and duties of the Escrow Agent are confined to
those specifically enumerated in the escrow instructions. The Escrow Agent shall
not be subject to, nor be under any obligation to ascertain or construe the
terms and conditions of any other instrument, whether or not now or hereafter
deposited with or delivered to Escrow Agent or referred to in the escrow
instructions nor shall the Escrow Agent be obliged to inquire as to the
identity, authority, or rights of the person or persons executing or delivering
the same.
The Escrow Agent shall not be personally liable for any act, which it
may do or omit to do hereunder in good faith in the exercise of its own best
judgement. Any act done or omitted by
3
<PAGE>
the Escrow Agent pursuant to the advice of its attorney shall be deemed
conclusively to have been performed or omitted in good faith by the Escrow
Agent.
If the Escrow Agent should receive or become aware of any conflicting
demands or claims with respect to this escrow, or the rights of any of the
parties hereto, the Escrow Agent shall have the right in its sole discretion,
without liability for interest or damages, to discontinue any or all future acts
on its part until such conflict is resolved to its satisfaction and/or to
commence or defend any action or proceedings for the determination of such
conflict.
The parties to this escrow agreement, jointly and severally, to
indemnify and hold the Escrow Agent harmless from and against all costs,
damages, judgements, attorney's fees (whether such attorneys shall be regularly
retained or specially employed), expenses, obligations and liabilities of every
kind and nature which the Escrow Agent may incur, sustain or be required to pay
in connection with or arising out of this escrow, and to pay the Escrow Agent on
demand the amount of all such costs, damages, judgements, attorney fees,
expenses, obligations and liabilities. To secure said indemnification and to
satisfy its compensation hereunder, the Escrow Agent is hereby given a first
lien upon and the rights to reimburse itself therefor out of all of the rights,
titles, and interests of each said parties in all money, property and
instruments deposited hereunder.
12. Any document required to be signed by the Company pursuant to the
terms and provisions of this Agreement may be signed by either its President or
Secretary. The Escrow Agent may act in reliance upon any writing, instrument or
signature which it, in good faith, believes to be genuine, may assume the
validity and accuracy of any statement or assertion contained in such writing,
or instrument and may assume that any person purporting to give any writing,
notice, advice or instruction in connection with the provisions hereof has been
duly authorized to do so
13. The Escrow Agent represents and warrants that it is duly
authorized to perform its obligations as the Escrow Agent pursuant to this
Agreement and has agreed to act as Escrow Agent in the performance of the duties
set forth above in connection with the Escrow Account.
14. All notices and communications hereunder will be in writing and
will be deemed to be duly given on the date the same is deposited in the United
States mail Registered or Certified mail, return receipt requested, postage
prepaid or delivered by courier or facsimile addressed as follows:
4
<PAGE>
a) In case of the Company
Village Bancorp, Inc.
Attn: E. Chartier
1845 E. Rand Road
P.O. Box 936
Prospect Heights, Ill. 60070
Phone # (847) 870-5324
Fax # (847) 870-5312
b) In case of the Escrow Agent
LaSalle National Bank
Corporate Trust Division
Room 1825
Attn: Ms. Pamela S. Ristau
135 South LaSalle Street
Chicago, Illinois 60603
Phone # (312) 904-2554
Fax #(312) 904-2236
Any party may change the designated address by giving written notice
to the other party.
15. The rights created by this Agreement will inure to the benefit of
and the obligations created hereby will be binding on, respective successors and
assigns of each of the parties hereto.
16. This Agreement and Escrow Account created hereby will be construed
and enforced according to the laws of the State of Illinois without regard to
conflicts of law principals.
17. The Company hereby authorizes Escrow Agent to disburse funds from
the Escrow Account in accordance with the provisions of this Section. Any
disbursement hereunder directed by the Company shall (if otherwise permitted
under the terms of this Agreement) be made by Escrow Agent by issuing a check or
checks or by Fedwire transfer (provided a Wire Transfer Agreement has been
executed), as designated by an original in writing, signed and delivered by the
Company to the Escrow Agent. Such writing shall indicate, the escrow account
number and (i) in the case of check(s), the name of each payee and amount
payable to such payee and (ii) in the case of a Fedwire transfer, the name and
account number of the recipient, the name and ABA routing number of the
recipient's bank and the amount to be transferred to such recipient. In the case
of Fedwire transfer instructions, the Escrow Agent is expressly authorized to
rely on the account number and ABA routing numbers identified therein and may
process such instructions in reliance thereon. Escrow Agent is authorized to
conclusively rely on such written instructions as the authorized instructions of
the Company and on the accuracy of the content of such instructions, which are
the sole responsibility of the Company.
5
<PAGE>
18. This Agreement may be signed in counterpart which, taken
collectively, shall constitute one entire Agreement. In addition, this Agreement
may be signed by facsimile signature.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
Village Bancorp, Inc. LaSalle National Bank
By ____________________________________ By _________________________________
Elizabeth A. Chartier Pamela S. Ristau
Sr. Vice President & Secretary Trust Officer
6
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
VILLAGE BANCORP, INC.
Northwest Community Bank
Village Bank and Trust in North Barrington
Delta Financial, Inc.
Exhibit 23.2
To the Board of Directors
Village Bancorp, Inc.
We consent to the incorporation by reference of our report included herein,
dated January 8, 1999, except for Note 18 as to which the date is April 6, 1999,
relating to the consolidated financial statements of Village Bancorp, Inc. (the
"Company") and our report, dated January 8, 1999, relating to the financial
statements of Northwest Community Bank, in the Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission, and to
the reference to our firm, under the heading "Experts," included in this
registration statement.
/s/ Crowe, Chizek and Company LLP
Oak Brook, Illinois
April 27, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 3,124
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 23,906
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,116
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 35,655
<ALLOWANCE> 459
<TOTAL-ASSETS> 72,822
<DEPOSITS> 61,213
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,217
<LONG-TERM> 0
0
0
<COMMON> 222
<OTHER-SE> 9,170
<TOTAL-LIABILITIES-AND-EQUITY> 72,822
<INTEREST-LOAN> 2,782
<INTEREST-INVEST> 355
<INTEREST-OTHER> 415
<INTEREST-TOTAL> 3,552
<INTEREST-DEPOSIT> 1,679
<INTEREST-EXPENSE> 1,781
<INTEREST-INCOME-NET> 1,771
<LOAN-LOSSES> 242
<SECURITIES-GAINS> 32
<EXPENSE-OTHER> 2,780
<INCOME-PRETAX> (808)
<INCOME-PRE-EXTRAORDINARY> (749)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (749)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> (1.46)
<YIELD-ACTUAL> 3.94
<LOANS-NON> 31
<LOANS-PAST> 1
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 276
<CHARGE-OFFS> 59
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 459
<ALLOWANCE-DOMESTIC> 353
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 106
</TABLE>
Exhibit 99.1
SUBSCRIPTION INSTRUCTIONS
-------------
VILLAGE BANCORP, INC.
COMMON STOCK
454,000 SHARES MINIMUM
554,000 SHARES MAXIMUM
MINIMUM INVESTMENT 800 SHARES ($10,600)
MAXIMUM INVESTMENT 65,000 SHARES ($861,250)
----------------
Village Bancorp, Inc., a Delaware corporation (the "Company"), is
offering for sale pursuant to the Prospectus dated ___________, 1999 a minimum
of 454,000 shares and a maximum of 554,000 shares of common stock, $0.01 par
value per share (the "Common Stock"), at an initial offering price of $13.25 per
share. The minimum investment will be 800 shares ($10,600) and the maximum
investment will be 65,000 shares ($861,250). These investment limitations may,
but need not, be waived by the Company in certain circumstances. Terms not
defined herein shall have the same meaning as in the Prospectus.
In order to subscribe for Common Stock, subscribers must complete and
execute the attached Subscription Agreement and deliver the same, in person or
by mail, together with payment in full of the aggregate subscription price for
all shares for which subscription is made, to:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60606
Attention: Pamela S. Ristau
Trust Department
on or before the expiration date. Payment for subscriptions must be
by check, money order, or bank draft made payable to "Village Bancorp, Inc. -
Escrow Account #628133506." Delivery may be made in person or by mail, provided
that if delivery is made by mail, subscriptions and payment amounts must be
mailed sufficiently in advance so as to be received on or before the expiration
date.
IF, AFTER YOU HAVE CAREFULLY REVIEWED THE PROSPECTUS, YOU WISH TO
SUBSCRIBE, PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS BELOW. SUBSCRIPTION
AGREEMENTS MISSING REQUESTED INFORMATION OR SIGNATURES CANNOT AND WILL NOT BE
ACCEPTED UNLESS AND UNTIL SUCH INFORMATION AND SIGNATURES ARE PROVIDED. ALL SUCH
INFORMATION WILL BE TREATED CONFIDENTIALLY, EXCEPT AS OTHERWISE INDICATED
HEREIN. CAPITALIZED TERMS USED IN THE SUBSCRIPTION DOCUMENTS AND NOT OTHERWISE
DEFINED HAVE THE MEANINGS ASCRIBED TO THEM IN THE PROSPECTUS.
1
<PAGE>
NO PERSON IS AUTHORIZED TO RECEIVE THE SUBSCRIPTION DOCUMENTS AND THESE
INSTRUCTIONS UNLESS IT IS PRECEDED OR ACCOMPANIED BY A COPY OF THE PROSPECTUS.
REPRODUCTION OR CIRCULATION OF THESE MATERIALS, IN WHOLE OR IN PART, IS
PROHIBITED EXCEPT AS SPECIFICALLY PROVIDED HEREIN.
Please note that each co-subscriber must completely execute the
Subscription Agreement. Corporations, partnerships, employee benefit plans,
trusts and individual retirement accounts must furnish complete and unabridged
appropriate authorizing instruments (corporate resolutions, certificate of
incorporation and bylaws, employee benefit plan, partnership agreement, trust
instrument or other documentation evidencing authorization).
The Company reserves the right to reject, in its sole discretion, any
subscription in its entirety or to allocate to any subscriber a smaller number
of shares than the number of shares for which the investor subscribed. In the
event of rejection, a subscriber's funds (or the amount thereof), without
interest, and related subscription documents will be returned and, in the event
of a partial rejection, a pro rata amount of the payment will be returned as
soon as practicable.
If you have any questions concerning the completion of the Subscription
Agreement, or if you need additional copies of the Subscription Agreement,
please call E.A. Chartier, 1845 East Rand Road, P.O. Box 936, Prospect Heights,
Illinois 60070-0936; (847) 870-8300.
IN ORDER TO COMPLETE THE SUBSCRIPTION DOCUMENTS YOU MUST:
i. Complete the subscription information requested in paragraph 6 on
page 6 of the Subscription Agreement;
ii. If incorrect, strike out certification (ii) in the second full
paragraph on page 9 of the Subscription Agreement;
iii. Sign and date the Subscription Agreement on page 9; and
iv. Deliver your check, money order, or bank draft (PAYABLE TO VILLAGE
BANCORP, INC.- ESCROW ACCOUNT #628133506) to LaSalle National Bank, 135 South
LaSalle Street, Chicago, Illinois 60606, Attention: Pamela S. Ristau, Trust
Department, by the expiration date along with your completed subscription
documents.
2
<PAGE>
SUBSCRIPTION AGREEMENT
-------------
VILLAGE BANCORP, INC.
COMMON STOCK
454,000 SHARES MINIMUM
554,000 SHARES MAXIMUM
OFFERING PRICE: $13.25 PER SHARE
-----------------
Mailing Address for Subscriptions:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60606
Attention: Pamela S. Ristau
Trust Department
1. SUBSCRIPTION FOR COMMON STOCK. The undersigned, intending to be
legally bound, hereby irrevocably applies for the number of shares of Common
Stock, $0.01 par value of Village Bancorp, Inc., a Delaware corporation (the
"Company"), set forth in paragraph 6 hereof and agrees to pay $13.25 per share
therefor. Shares are being purchased pursuant to the terms and conditions of the
Company's Prospectus dated __________, 1999, receipt of which is hereby
acknowledged. Terms not defined herein shall have the same meaning as in the
Prospectus.
2. AMOUNT AND METHOD OF PAYMENT. Payments of the purchase price
required to purchase the number of shares for which subscription is made
hereunder is being made by delivery, in person or by mail, to LaSalle National
Bank, 135 S. LaSalle St., Chicago, Illinois 60606; Attention: Pamela S. Ristau,
Trust Department, by check, money order, or bank draft MADE PAYABLE TO "VILLAGE
BANCORP, INC. - ESCROW ACCOUNTS #628133506" in the amount of $13.25 times the
number of shares for which subscription is made, representing the payment in
full for each such sale. The minimum investment is 800 shares or $10,600 and the
maximum investment is 65,000 shares or $861,250. Subscriptions and payments
must be received on or before the expiration date.
3
<PAGE>
3. SUBSCRIPTION FUNDS. All payments made as provided in paragraph 2
hereof shall be deposited as soon as practicable and held in a segregated
Subscription Account (the "Subscription Account") maintained on behalf of the
Company by LaSalle National Bank. Funds for all subscriptions not accepted will
be returned to the respective subscribers, without interest.
4. ACCEPTANCE OF SUBSCRIPTION. (a) The undersigned understands and
agrees that the Company in its sole discretion, reserves the right to accept or
reject this or any other subscription for shares in whole or in part at any time
prior to the completion of the offering, notwithstanding prior receipt by the
undersigned of notice of acceptance.
(b) In the event that this subscription is rejected in whole or in
part, or if the Company has terminated the offering for any reason, the Company
shall promptly cause the return to the undersigned of the applicable portion of
the purchase price paid by the undersigned pursuant to this Subscription
Agreement, without interest, and this Subscription Agreement shall thereafter
have no force or effect with respect to the rejected portion of the
subscription.
5. REPRESENTATIONS AND WARRANTIES OF THE UNDERSIGNED. The undersigned
hereby acknowledges, represents and warrants to, and agrees with, the Company as
follows:
(a) The undersigned has received the Prospectus, has carefully
reviewed it and understands the information contained therein and information
otherwise provided to him or her in writing by the Company relating to this
investment;
(b) No oral or written representations have been made or oral or
written information furnished to the undersigned or his or her advisor(s) in
connection with the offering which were in any way inconsistent with the
information stated in the Prospectus;
(c) The undersigned recognizes that an investment in shares of Common
Stock involves a number of significant risks, including those set forth under
the caption "Risk Factors" in the Prospectus, as well as the following
additional consideration:
(i) No federal or state agency has passed upon the adequacy of
the information presented to the undersigned or made any finding or
determination as to the fairness of this investment;
(ii) There is not an established market for the Common Stock
offered pursuant to the Prospectus, and it is possible that a public market for
such shares of Common Stock will never develop. The Common Stock will not be
listed on the Nasdaq Stock Market or any stock exchange; and
4
<PAGE>
(iii) The shares of Common Stock are not savings accounts or
savings deposits and are not to be insured by the Federal Deposit Insurance
Corporation or any other government agency.
(d) The foregoing representations, warranties and agreements shall be
true and correct in all respects on and as of the date of the consummation of
the offering as if made on and as of such date and shall survive such date. If
more than one person is signing this Subscription Agreement, each
representation, warranty and undertaking herein shall be the joint and several
representation, warranty and undertaking of each such person.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
6. SUBSCRIPTION INFORMATION
------------------------
A. Name(s)___________________________________________
___________________________________________
___________________________________________
B. Social Security Number
or Taxpayer Identification Number
Subscriber # _______________________________
Co-Subscriber # _______________________________
C. Home Address _______________________________
_______________________________
_______________________________
Home Telephone # (______)_______________________
D. Business Address _______________________________
_______________________________
_______________________________
Business Telephone # (______)_______________________
E. NUMBER OF SHARES
OF COMMON STOCK _______________________________
F. Aggregate Purchase Price
(number of shares of
Common Stock x $13.25) $_______________
G. Amount of check
enclosed herewith $_______________
H. Name(s) in which Common Stock
are to be recorded on the books
of the Company _______________________________
_______________________________
_______________________________
6
<PAGE>
I. Form of joint ownership (if applicable). (If one of these boxes is
checked, subscriber and co-subscriber must both sign all documents):
Community Property ______________
Joint Tenants ______________
Tenants-in-Common ______________
If the shares of Common Stock hereby subscribed for are to be owned by
more than one person in any manner, the undersigned understands and agrees that
all of the co-subscribers of such shares of Common Stock must sign this
Subscription Agreement.
7. REPRESENTATION AND WARRANTY OF THE COMPANY. The Company represents
and warrants to this undersigned that all of the shares of Common Stock upon
issuance thereof in accordance with the terms of this Subscription Agreement,
will be duly and validly issued and will be fully paid and nonassessable.
8. INDEMNIFICATION. The undersigned agrees to indemnify and hold
harmless the Company, the officers and directors thereof and each other person,
if any, who controls any thereof, within the meaning of Section 15 of the
Securities Act, against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation or
regulatory action commenced or threatened or any claim whatsoever) arising out
of or based upon any false representation or warranty or breach or failure by
the undersigned to comply with any covenant or agreement made by the undersigned
herein or in any other document furnished by the undersigned to any of the
foregoing in connection with this transaction.
9. IRREVOCABILITY: BINDING EFFECT. The undersigned hereby acknowledges
and agrees that, once accepted by the Company, the subscription hereunder is
irrevocable, that the undersigned is not entitled to cancel, terminate or revoke
this Subscription Agreement or any agreements of the undersigned hereunder and
that this Subscription Agreement and such other agreements shall survive the
death or disability of the undersigned and shall be binding upon and inure to
the benefit of the parties and their heirs, executors, administrators,
successors, legal representatives and assigns. If the undersigned is more than
one person, the obligations of the undersigned hereunder shall be joint and
several and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his or her heirs, executors, administrators, successors, legal
representatives, and assigns.
10. MODIFICATIONS. Neither this Subscription Agreement nor any
provision hereof shall be waived, modified, discharged or terminated except by
an instrument in writing signed by the party against whom any such waiver,
modification, discharge or termination is sought.
11. NOTICES. Any notice, demand or other communication which any party
hereto may be required, or may elect, or give to any other party hereunder shall
be sufficiently given if (a) deposited, postage prepaid, in a United States mail
box, stamped registered or certified mail, return
7
<PAGE>
receipt requested, addressed (i) if to the Company, to such address as may be
listed on the books of the Company, or (ii) if to the undersigned, to the
address provided in this Subscription Agreement unless notification of a change
of address has been provided in accordance herewith or (b) delivered personally
at such address.
12. COUNTERPARTS. This Subscription Agreement may be executed through
the use of separate signature pages or in any number of counterparts, and each
of such counterparts shall, for all purposes, constitute one agreement binding
on all parties, notwithstanding that all parties are not signatories to the same
counterpart.
13. ENTIRE AGREEMENT. This Subscription Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there are
no representations, covenants or other agreements except as stated or referred
to herein.
14. SEVERABILITY. Each provision of this Subscription Agreement is
intended to be severable from every other provision, and invalidity or
illegality of any portion hereof shall not affect the validity or legality of
the remainder hereof.
15. ASSIGNABILITY. This Subscription Agreement is not transferable or
assignable by the undersigned.
16. APPLICABLE LAW. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of Illinois.
-----------------------------------
If the purchaser is a corporation, partnership, trust or other entity,
an authorized officer, partner or trustee must execute this document and by so
doing certifies that such entity is validly existing, with full power and
authority to purchase the shares of Common Stock and that the execution and
delivery hereby of this Subscription Agreement has been duly and validly
authorized and that upon execution hereof this Subscription Agreement will
become a binding obligation of the subscriber hereto.
8
<PAGE>
Under penalties of perjury, the undersigned certifies (i) that the
number shown in paragraph 6 is the correct social security or taxpayer
identification number of the undersigned and (ii) that the undersigned is not
subject to backup withholding either because of having not been notified that
the undersigned is subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has given
notice that the undersigned is no longer subject to backup withholding. (STRIKE
OUT SECOND CERTIFICATION IF IT IS INCORRECT).
IN WITNESS WHEREOF, the undersigned has duly executed this
Subscription Agreement this ________ day of ____________, 1999.
---------------------------------------
Signature
---------------------------------------
Signature (Co-Subscriber)
ACCEPTED this _________ day of _______________, 1999, by Village
Bancorp, Inc.
By:__________________________________________
Title:_______________________________________
9
<PAGE>
ACKNOWLEDGMENT OF CUSTODIAN OF
INDIVIDUAL RETIREMENT ACCOUNT
As custodian of the Individual Retirement Account of the above-signed
subscriber, the undersigned hereby certifies that it has received the due
authorization from such subscriber to withdraw sufficient funds from such
subscriber's Individual Retirement Account to purchase the shares of Common
Stock for which subscription is made by such subscriber.
- ---------------------------------------------------
Signature
10
