<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1999
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PRIVATEBANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6022 36-3681151
(State or Other Jurisdiction of Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
Ten North Dearborn Street, Chicago, Illinois 60602, (312) 683-7100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Donald A. Roubitchek
Secretary/Treasurer and
Chief Financial Officer
PrivateBancorp, Inc.
Ten North Dearborn Street
Chicago, Illinois 60602
(312) 683-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy To:
Jennifer R. Evans, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
(312) 609-7500
Approximate date of commencement of proposed sale to the public: Upon
consummation of the Merger as described in the Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is being 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 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. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to Offering Price Per Aggregate Offering Amount of
be Registered Amount to be Registered Unit /(1)/ Price /(1)/ Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 91,668 $2.62 $240,170 $66.77
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, based
on the estimated book value of the common stock of Towne Square Financial
Corporation to be received by the registrant.
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 said Section 8(a),
may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+is filed with the Securities and Exchange Commission becomes effective. This +
+prospectus is not an offer to sell these securities and is not soliciting an +
+offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject to completion; dated July 19, 1999
91,668 Shares of Common Stock
[LOGO]
PrivateBancorp, Inc.
This prospectus relates to our offer to issue of 91,668 shares of our
common stock to the stockholders of Towne Square Financial Corporation, in
connection with the proposed merger of Towne Square with and into
PrivateBancorp, Inc. If the merger is approved by the requisite vote of Towne
Square stockholders, upon consummation of the merger each issued and outstanding
share of Towne Square common stock will be converted into the right to receive
15.278 shares of PrivateBancorp common stock.
Our common stock is traded on the Nasdaq National Market under the symbol
"PVTB."
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 7.
-------------
The shares of common stock that are being offered are not savings accounts
or deposits or other obligations of a bank and are not insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation or any governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal
offense.
-------------
The date of this prospectus is __________, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INFORMATION ABOUT PRIVATEBANCORP............................................ ii
WHERE YOU CAN GET MORE INFORMATION.......................................... ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................... iii
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................... 1
SUMMARY..................................................................... 3
RISK FACTORS................................................................ 7
SELECTED CONSOLIDATED FINANCIAL DATA OF PRIVATEBANCORP...................... 12
SELECTED FINANCIAL DATA OF TOWNE SQUARE..................................... 14
MARKET PRICE AND DIVIDEND INFORMATION....................................... 15
PRIVATEBANCORP, INC......................................................... 16
TOWNE SQUARE................................................................ 16
COMPARATIVE PER COMMON SHARE DATA........................................... 18
PROPOSED MERGER............................................................. 19
TERMS OF THE MERGER......................................................... 21
LEGAL MATTERS............................................................... 33
EXPERTS..................................................................... 33
APPENDIX A--PROSPECTUS OF PRIVATEBANCORP, INC. DATED AS OF JUNE 30, 1999
APPENDIX B--DELAWARE CODE TITLE 8. CORPORATIONS CHAPTER 1. GENERAL CORPORATION
LAW SUBCHAPTER IX MERGER OR CONSOLIDATION
</TABLE>
i
<PAGE>
INFORMATION ABOUT PRIVATEBANCORP
On April 27, 1999, we filed a registration statement on Form S-1 with the
Securities and Exchange Commission in connection with the initial public
offering of our common stock. The Form S-1 was declared effective on June 29,
1999. The prospectus dated June 30, 1999 which is a part of that registration
statement has been attached as Appendix A to this prospectus, and the following
sections constitute a part of this prospectus: "Business;" "Management's
Discussion and Analysis of Financial Conditions and Results of Operations;"
"Management;" "Certain Transactions;" "Principal Stockholders;" "Supervision and
Regulation;" "Description of Capital Stock;" and "Consolidated Financial
Statements." All Towne Square stockholders are urged to read those sections of
the prospectus in their entirety.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form S-4 in connection with the
common stock offered by this prospectus. On April 27, 1999, PrivateBancorp also
filed a registration statement on Form S-1 and a Form 8-A with the SEC in
connection with the initial public offering of our common stock, both of which
became effective, as amended, on June 29, 1999. This prospectus omits certain
information, exhibits and undertakings set forth in the registration statements
we have filed with the SEC. Upon the effectiveness of our public offering, we
became subject to the informational reporting requirements of Securities
Exchange Act of 1934, and we are required to file reports, proxy statements and
other information with the SEC. You may inspect and copy any of these materials
upon payment of prescribed rates at the Public reference Room 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. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. This information is also available on the
Internet at the SEC's web site. The address for the web site is:
http://www.sec.gov. For further information about PrivateBancorp, reference is
made to the registration statements 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 such contract, agreement or other document
filed as an exhibit to the registration statements for a full statement of the
provisions thereof. Each such statement in this prospectus is qualified in all
respects by such reference.
ii
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain statements in this prospectus, and in the documents which
are incorporated herein by reference, that are based upon our current
expectations and projections about current events. These statements are not
historical facts and may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Exchange Act and are intended to be covered by the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. You can identify these
statements from our use of the words "estimate," "project," "believe," "intend,"
"anticipate," "expect" and similar expressions. These forward-looking
statements include:
. statements of our goals, intentions and expectations;
. statements regarding our business plans and growth strategies;
. statements regarding the asset quality of our loan and investment
portfolios;
. estimates of our risks and future costs and benefits; and
. statements regarding the effectiveness of our efforts to make our
operations year 2000 compliant.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
. our ability to successfully integrate the Towne Square business;
. fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect our net interest margin, asset valuations
and expense expectations;
. adverse changes in the economy of the greater Chicago metropolitan area,
our primary market, which might affect our business prospects and could
cause credit-related losses and expenses;
. the extent of continuing client demand for the high level of
personalized service that is the key element of our private banking
approach;
. adverse developments in our loan and investment portfolios;
. difficulties in identifying attractive acquisition opportunities and
strategic partners that will complement our private banking approach;
. competitive factors in the banking industry, such as the trend towards
consolidation in our market;
. changes in banking legislation or the regulatory requirements of federal
and state agencies applicable to bank holding companies and banks like
ours; and
. our effectiveness and that of our suppliers of data processing equipment
and services, government agencies, and other third parties in testing
and implementing year 2000 compliant hardware, software and systems.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results. We discuss these uncertainties and others in the
sections of the prospectus attached as Appendix A entitled "Risk Factors,"
"Business," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the two companies proposing to merge?
A: Management believes the merger affords us an excellent opportunity to
expand our franchise in what we believe is a rapidly growing market, the
community of St. Charles, Illinois. Because of the similarity of our
banking strategies and the compatibility of our management, in lieu of
pursuing the development of a de novo, or startup, bank in St. Charles,
Towne Square has agreed to merge with us in a stock-for-stock transaction
(the "Merger"). Instead of opening a new bank as Towne Square had been in
the process of pursuing, the combined entity will establish a new office of
PrivateBank in St. Charles.
We believe there are significant opportunities for us in St. Charles and
the surrounding Fox River Valley communities to grow our private banking
business.
Q: How will the Merger affect me?
A: When the Merger is completed, Towne Square stockholders will receive 15.278
shares of PrivateBancorp Common Stock in exchange for each share of Towne
Square Common Stock they own.
PrivateBancorp will not issue fractional shares. Instead, we will round any
fractional shares to the nearest whole share.
Under the terms of the Agreement and Plan of Reorganization (the "Merger
Agreement"), each PrivateBancorp share will remain outstanding immediately
following the Merger. Based on the shares of PrivateBancorp and Towne
Square outstanding on the Record Date, persons who are stockholders of
PrivateBancorp immediately before the Merger will own approximately 97.9%,
and former stockholders of Towne Square will own approximately 2.1%, of the
common stock of PrivateBancorp immediately after the Merger.
After the Merger, Towne Square's business will be integrated into
PrivateBancorp's business.
. If at Closing you own 1,000 shares of Towne Square Common Stock, then
after the Merger you will receive 15,278 shares of PrivateBancorp Common
Stock.
The Board of Directors of Towne Square believes the Merger is advisable and
recommends voting in favor of the proposed Merger.
Q: Where can I get information about PrivateBancorp?
A: A prospectus dated June 30, 1999 which was filed with the SEC in connection
with the initial public offering of PrivateBancorp's common stock has been
attached as Appendix A to this prospectus, and the following sections
constitute a part of this prospectus: "Business;" "Management's Discussion
and Analysis of Financial Conditions and Results of Operations;"
"Management;" "Certain Transactions;" "Principal Stockholders;"
"Supervision and Regulation;" "Description of Capital Stock;" and
"Consolidated Financial Statements." All Towne Square stockholders are
urged to read those sections of the prospectus in their entirety.
Q: I am a Towne Square stockholder. Should I send in my stock certificates
now?
A: No. Before the Merger is completed, Towne Square stockholders must approve
the transaction by a majority vote. Towne Square will separately furnish
stockholders materials seeking the written consent of stockholders in lieu
of a special meeting of stockholders. If the Merger is approved, you will
then be sent written instructions for exchanging your stock certificates.
1
<PAGE>
Q: Will Towne Square stockholders have appraisal rights?
A: Under Delaware law, Towne Square stockholders do have a right to an
appraisal of the value of their shares in connection with the merger.
Stockholders of PrivateBancorp do not have such rights. Please see
"Appraisal Rights" for a discussion of the procedures for exercising such
appraisal rights.
Q: Will I be entitled to future dividends?
A: Holders of PrivateBancorp common stock are entitled to receive dividends
that our Board of Directors may declare from time to time. We have paid
quarterly dividends on our common stock since the third quarter of 1995,
and we expect to continue to pay dividends in the future. However, there
can be no assurance that we will continue to pay dividends in the future.
Our declaration of dividends is discretionary and will depend on our
earnings and financial condition, regulatory limitations, tax
considerations and other factors.
Pursuant to the terms of the Merger Agreement, Towne Square has agreed not
to declare or pay any dividends prior to the effective date of the merger.
Towne Square has not declared any dividends since its organization.
Q: What are the tax consequences of the Merger to me?
A: The exchange of shares by Towne Square stockholders in the Merger will be
tax-free to Towne Square stockholders for United States federal income tax
purposes. To review the tax consequences to Towne Square stockholders in
greater detail, see page 26.
Q: When do you expect the Merger to be completed?
A: PrivateBancorp and Towne Square are working toward completing the Merger as
quickly as possible, and to expect to close the Merger promptly following
stockholder approval of the Merger and satisfaction of other closing
conditions. PrivateBancorp and Towne Square anticipate completing the
Merger before the end of August 1999.
Who Can Help Answer My Questions?
If you have more questions about the Merger, you should contact:
Thomas N. Castronovo
Towne Square Financial Corporation
1536 Fargo Boulevard
Geneva, Illinois 60134
or
Donald A. Roubitchek
PrivateBancorp, Inc.
Ten North Dearborn Street
Chicago, Illinois 60602
Mr. Roubitchek, the Chief Financial Officer of PrivateBancorp,
will also answer questions about PrivateBancorp.
2
<PAGE>
SUMMARY
The summary highlights information combined elsewhere in this prospectus.
This summary may not contain all of the information that may be important to
you. You should read the entire prospectus, including the appendices, before
making a decision to invest in our common stock.
The Parties
PrivateBancorp is a Delaware corporation headquartered in Chicago,
Illinois. We are a bank holding company with one bank subsidiary, The
PrivateBank and Trust Company, which we formed as a de novo, or start-up, bank
in 1991. PrivateBank provides private banking and trust services primarily to
affluent professionals, entrepreneurial individuals and their business
interests. Our managing directors seek to build strong relationships with
clients by emphasizing a consistently superior level of personalized service.
We focus on the personal financial services needs of our clients as well as the
banking needs of their various business and investment ventures. Clients are
teamed with dedicated managing directors so they are dealing directly with our
decision makers. In this way, we are able to tailor our loan products and other
services to be highly responsive to the individual situation of each client.
Since year-end 1995, we have grown our asset base at a compound annual rate
of 27.3% to $431.1 million as of March 31, 1999. During the same period, loans
have grown at a compound annual rate of 31.6% to $307.8 million, deposits at a
compound annual rate of 27.0% to $384.5 million and trust assets under
administration at a compound annual rate of 40.2% to $637.4 million. See
Appendix A for a more complete description of our business and results of
operations.
Our executive offices are located at The PrivateBank and Trust Company, Ten
North Dearborn Street, Chicago, Illinois 60602. Our telephone number is (312)
683-7100.
Towne Square Financial Corporation was formed as a Delaware corporation in
March 1999 for the purpose of organizing a de novo, or start-up, bank to be
located in St. Charles, Illinois. To date, Towne Square has raised $300,000 in
seed capital from a group of six organizers and has developed and began to
implement a business plan involving the formation of a local, community-owned
bank dedicated to providing private banking services. Prior to entering into
the Merger Agreement, Towne Square had taken a number of preliminary steps in
connection with the organization of the bank.
The executive offices of Towne Square are located at 1536 Fargo Boulevard,
Geneva, Illinois 60134. The telephone number is (630) 208-1997.
On June 24, 1999, PrivateBancorp entered into a definitive agreement to
acquire Towne Square. Because of the similarity of our banking strategies, the
compatibility of our management teams, and our shared commitment to personalized
banking relationships, Towne Square has agreed to merge with us in a stock-for-
stock transaction in lieu of pursuing its de novo strategy. We believe that the
transaction affords us an excellent opportunity to expand our private banking
business in a rapidly growing market. We will establish a new office of The
PrivateBank and Trust Company, our banking subsidiary, in St. Charles, to be
managed by Thomas Castronovo, one of the principal founders of Towne Square.
Mr. Castronovo has 17 years of prior banking experience and has significant
contacts in the St. Charles community. We believe that there are significant
opportunities in St. Charles and the surrounding Fox River Valley communities
for us to grow our private banking business. We filed the requisite branch
applications with the regulators during late June 1999 and hope to open the St.
Charles office during the fourth quarter of 1999.
Terms of the Merger
PrivateBancorp and Towne Square entered into the Merger Agreement,
providing, among other things, for the merger of Towne Square with and into
PrivateBancorp. The Merger must be approved by holders of the majority of
outstanding shares of common stock of Towne Square. See "TERMS OF THE MERGER."
3
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Each share of Towne Square common stock which is issued and outstanding
immediately prior to the effective time of the Merger shall be converted
pursuant to the Merger into and represent the right to receive 15.278 shares of
PrivateBancorp Common Stock (the "Merger Consideration"). See "TERMS OF THE
MERGER--Merger Consideration."
Vote Required
The affirmative vote of the holders of a majority of the shares of Towne
Square issued and outstanding will be required to approve the Merger Agreement.
Approval of the Merger Agreement is a condition to, and is required for,
consummation of the Merger. As of June 30, 1999, 6,000 shares of Towne Square
common stock were issued, outstanding and entitled to vote. It is anticipated
that Towne Square will seek the written consent of stockholders to approve the
Merger rather than holding a special meeting of stockholders. Written materials
regarding stockholder approval will be furnished separately by Towne Square.
Recommendation of the Towne Square Board of Directors
The Towne Square Board unanimously recommends that stockholders vote FOR
approval and adoption of the Merger Agreement. The Towne Square Board, after
consideration of the terms and conditions of the Merger Agreement and other
factors deemed relevant believe that the terms of the Merger Agreement are fair
and that the Merger is in the best interests of Towne Square and its
stockholders. See "PROPOSED MERGER--Towne Square's Reasons for the Merger and
Board Recommendation."
Interests of Certain Persons in the Merger
Pursuant to the Merger Agreement, PrivateBancorp has agreed to enter into a
three-year employment agreement with Thomas N. Castronovo, President of Towne
Square, to be effective as of the consummation of the Merger. Mr. Castronovo was
appointed a managing director of PrivateBank on June 24, 1999, and he is
currently working for PrivateBank as an employee-at-will. In addition, certain
stockholders of Towne Square have agreed to serve on an advisory board of
PrivateBank, the banking subsidiary of PrivateBancorp, and will be compensated
independently for their service in this capacity. As a condition to the Merger,
PrivateBank will enter into a building lease with Towne Square Realty, L.L.C.
for space in a building in St. Charles, Illinois. Towne Square Realty is an
Illinois limited liability company whose owners are individuals who are also the
stockholders of Towne Square. All of the outstanding shares of Towne Square are
currently held by its six directors and officers. See "TERMS OF THE MERGER--
Building Lease," and "--Interests of Certain Persons in the Merger."
Dissenters' Rights of Appraisal
Holders of Towne Square Common Stock who dissent to the Merger will have a
right to an appraisal value of their shares in connection with the Merger.
"TERMS OF THE MERGER--Dissenters' Rights of Appraisal."
Federal Income Tax Consequences
The Merger is structured in a manner intended to qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended. Accordingly, as a result of the Merger, Towne Square stockholders
will not recognize any income, gain or loss by reason of receiving shares of
PrivateBancorp common stock in the Merger, and the shares of PrivateBancorp
common stock which Towne Square stockholders are entitled to receive in the
Merger will have the same tax basis and holding period as the respective shares
of Towne Square common stock surrendered in exchange therefor. As a condition
precedent to the consummation of the Merger, PrivateBancorp and Towne Square
must each receive an opinion from Vedder, Price, Kaufman & Kammholz, counsel to
PrivateBancorp, dated as of the closing date regarding the federal income tax
consequences of the Merger. See "TERMS OF THE MERGER--Certain Federal Income
Tax Consequences of the Merger."
4
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Accounting Treatment
Because Towne Square is not yet actively engaged in the business of
banking, the Merger will not be accounted for as a business combination.
Rather, at the time of closing, PrivateBancorp will incur a one-time, non-
recurring charge to earnings in an amount equal to the excess of the value of
the PrivateBancorp common stock issued in the Merger over the net assets of
Towne Square on the date of closing. See "TERMS OF THE MERGER--Accounting
Treatment."
Conditions to the Merger
Consummation of the Merger is subject to certain conditions, including,
among others, the approval of the Merger by the affirmative vote of holders of a
majority of the shares of Towne Square Common Stock entitled to vote thereon;
the continued effectiveness of the Registration Statement of which this
prospectus forms a part; receipt by both parties of an opinion of Vedder, Price,
Kaufman & Kammholz, counsel to PrivateBancorp, dated as of the closing date as
to the qualification of the Merger as a tax-free reorganization for federal
income tax purposes; the absence of any injunction or legal restraint
prohibiting consummation of the Merger; and certain other customary closing
conditions. There can be no assurance as to when and if all of the conditions
will be satisfied (or, where permissible, waived) or that the Merger will be
consummated. See "TERMS OF THE MERGER--Conditions to the Merger."
Termination
The Merger Agreement provides that it may be terminated by either party,
whether before or after receipt of stockholder approval, under certain
conditions prior to the effective date of the Merger. In the event that the
Merger Agreement is terminated, each party has agreed to bear and pay all costs
and expenses incurred by it or on its behalf. See "TERMS OF THE MERGER--Merger
Consideration"; "--Conditions to the Merger"; "--Termination, Amendment and
Waiver."
Lease for 24 South Second Street, St. Charles, Illinois
As a condition to the consummation of the Merger Agreement, The PrivateBank
and Trust Company, the banking subsidiary of PrivateBancorp, shall enter into a
building lease with Towne Square Realty, L.L.C. for approximately 6,100 square
feet of space on the first floor of the building located at 24 South Second
Street, St. Charles, Illinois. PrivateBank shall utilize this space for the
operations of its St. Charles office. The term of the lease shall be ten years
and three months, commencing August 1, 1999. Towne Square Realty is an Illinois
limited liability company whose owners are individuals who are also the
stockholders of Towne Square. See "TERMS OF THE MERGER--Building Lease."
Employment Agreement and Non-Competition and Support Agreement with Thomas N.
Castronovo
As a condition to the consummation of the Merger Agreement, PrivateBank
will enter into an Employment Agreement and a Non-Competition and Support
Agreement with Thomas N. Castronovo, President of Towne Square. The Employment
Agreement provides, among other things, that Mr. Castronovo will receive a base
salary of $112,000, options to purchase 7,000 shares of common stock, which will
be granted under PrivateBancorp's Stock Incentive Plan at a contemplated
exercise price equal to the initial public offering price of $18.00 per share,
and an award of 3,000 shares of restricted stock. Mr. Castronovo will also be
entitled to a bonus of $25,000 for the 1999 calendar year, and a signing bonus
in the amount of $150,000, payable in two installments, one-half at the time the
St. Charles office is opened and the other half six months later. In addition,
PrivateBancorp has provided Mr. Castronovo with an interest-free loan in the
amount of $175,000 for the purchase of shares of PrivateBancorp common stock in
its initial public offering. This loan shall be repaid with the proceeds of Mr.
Castronovo's 1999 bonus and signing bonus. Under the terms of the Non-
Competition and Support Agreement, Mr. Castronovo (a) will use his best efforts
to support and develop the business of PrivateBank, and (b) during his term of
employment with PrivateBank, and for a period of one year after, or for so long
as Mr. Castronovo receives severance payments from PrivateBank, will not, for
his own account, or on behalf of any entity located within ten miles of the St.
Charles office of PrivateBank, solicit any client or employee of PrivateBancorp.
See "Terms of the MERGER--Interests of Certain Persons in the Merger."
5
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Advisory Board and Support Agreements
As a condition to the consummation of the Merger Agreement, certain
stockholders of Towne Square will enter into Advisory Board and Support
Agreements with PrivateBank which provide that such persons (a) will serve on an
advisory board to be established in connection with the formation of the St.
Charles office of PrivateBank; (b) will use their best efforts to support and
develop the business of the St. Charles office; and (c) during their service on
the advisory board, and for a period of at least one year after, will not, for
their own accounts, or on behalf of any entity located within ten miles of the
St. Charles office of PrivateBank, solicit any client or employee of
PrivateBank. The advisory board will also include two additional prominent
business people or professionals from the St. Charles area to be mutually
selected by PrivateBancorp and Towne Square. See "TERMS OF THE MERGER--
Interests of Certain Persons in the Merger."
Stock Transfer Restriction Agreements
As a condition to the Merger Agreement, the stockholders of Towne Square
shall enter into Stock Transfer Restriction Agreements which provide that (a) an
aggregate of approximately 54.5%, or 49,998, of the shares of the common stock
received in the Merger will be restricted from resale for a period of one year
from the effective date of the Merger, and (b) the 41,670 remaining shares will
be restricted from resale for a period of three years from the effective date.
See "TERMS OF THE MERGER--Interests of Certain Persons in the Merger."
Market and Market Prices
PrivateBancorp's common stock has been listed on the Nasdaq National Market
since June 30, 1999, the first date of trading in connection with its initial
public offering. There was no established public trading market for the common
stock at the time the proposed Merger was announced publicly. The high and low
closing prices of the common stock during the period from June 30, 1999 to July
14, 1999 were $21.00 and $18.00, respectively. On July 14, 1999, the last
reported sale price of the common stock was $18.00.
The common stock of Towne Square is not traded publicly.
As of June 30, 1999, PrivateBancorp had 491 stockholders of record. As of
the same date, Towne Square had six stockholders of record.
Comparison of Stockholder Rights
See "Comparison of Rights of Stockholders of PrivateBancorp and
Stockholders of Towne Square" for a summary of material differences between the
rights of holders of PrivateBancorp common stock and Towne Square Common Stock.
Risk Factors
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the business of PrivateBancorp.
6
<PAGE>
RISK FACTORS
Investing in our common stock involves risk. The discussion below
describes the most significant risk factors related to the offering. You should
carefully consider the risks and uncertainties described below and elsewhere in
this prospectus, and in the prospectus relating to the initial public offering
of our common stock, attached as Appendix A, before deciding to invest in our
common stock. If any of these risks or uncertainties actually occur, our
business could be adversely affected. In that event, the trading price of our
common stock could decline and you could lose all or a part of your investment.
This prospectus also contains statements that involve risks and uncertainties
which may constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act and are intended
to be covered by the safe harbor provisions of the Private Securities Litigation
Reform Act. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including
those described below and elsewhere throughout the prospectus.
We depend on key personnel.
We are a relatively young organization and are relationship-driven. Our
growth and development to date have depended in large part on the efforts of our
eleven managing directors, who have primary contact with our clients and are
extremely important in maintaining our personalized relationships with our
client base and increasing our market presence. The unexpected loss of services
of one or more of our key employees could have a material adverse effect on our
operations.
We have entered into employment contracts with two of our managing
directors, Ralph B. Mandell, our Chairman, President and Chief Executive
Officer, as well as a co-founder of our company, and Donald A. Roubitchek, our
Secretary/Treasurer and Chief Financial Officer. These agreements are effective
beginning July 1, 1999. We are dependent on the continued services of Messrs.
Mandell and Roubitchek in their roles. We have not entered into employment
agreements with any of our other managing directors, nor have we entered into
any key man life insurance policies.
One of our executive officers, Vice Chairman Caren L. Reed, in addition to
his client responsibilities, serves as our chief credit officer. Mr. Reed has
indicated that he intends to retire from active management in December 1999. Mr.
Reed has agreed to continue to serve as our chief credit officer until we can
name a successor so he can assist in the transition process. Our strong credit
quality experience to date could be adversely impacted by Mr. Reed's retirement.
We may not be able to implement aspects of our growth strategies.
A key component of our growth strategy involves the expansion of our
business and operations, possibly through the addition of new product lines and
the acquisition or establishment of new offices. Implementing this aspect of
our growth strategy depends in part on our ability to successfully identify
acquisition opportunities and strategic partners that will complement our
private banking approach and to successfully integrate their operations with
ours. We have entered into the Merger Agreement as part of this growth
strategy. To open new offices, we must be able to correctly identify profitable
or growing markets, as well as attract the necessary relationships to make these
new facilities cost-effective. We cannot be sure that the proposed Merger with
Towne Square will be consummated, or if it is, that we will be able to
successfully operate the St. Charles office and integrate it with our existing
operations. Nor can we be sure that we will be able to identify other suitable
opportunities for similar expansion, or that if we do, we will be able to
successfully integrate these new operations into our business. If we are unable
to effectively implement our growth strategies, our business may be adversely
affected.
Since our business is concentrated in the Chicago metropolitan area, a downturn
in the Chicago economy may adversely affect our business.
Currently, PrivateBank's lending and deposit gathering activities are
concentrated primarily in the greater Chicago metropolitan area. Our success
depends on the general economic condition of Chicago and its surrounding areas.
Although currently the economy in these areas is favorable, we do not know
whether such conditions will
7
<PAGE>
continue. Adverse changes in the economy could reduce our growth rate, impair
our ability to collect loans, and generally affect our financial condition and
results of operations.
Our future success is dependent on our ability to compete effectively in the
highly competitive banking industry
We face substantial competition in all phases of our operations from a
variety of different competitors. To date, we have grown our business
successfully by focusing on our market niche and emphasizing the high level of
service and responsiveness desired by our clients. While it is our intention to
continue to operate in our targeted niche, we compete for loans, deposits and
other financial services in our geographic market with other commercial banks,
thrifts, credit unions and brokerage houses operating in the greater Chicago
area. Many of our competitors offer services which we do not, and many have
substantially greater resources, name recognition and market presence that
benefit them in attracting business. In addition, larger competitors may be
able to price loans and deposits more aggressively than we do. Some of the
financial institutions and financial services organizations with which we
compete are not subject to the same degree of regulation as is imposed on bank
holding companies and federally insured, state-chartered banks and national
banks. As a result, these nonbank competitors have advantages over us in
providing certain services.
Our business may be adversely affected by the highly regulated environment in
which we operate.
We are subject to extensive federal and state legislation, regulation,
examination and supervision. This regulation and supervision is primarily
intended to protect our clients and their deposits, and not our stockholders.
Recently enacted, proposed and future legislation and regulations have had, will
continue to have, or may have a material adverse effect on our business and
operations. Our success depends on our continued ability to maintain compliance
with these regulations, including those pertaining to the Community Reinvestment
Act. Some of these regulations may increase our costs and thus place other
financial institutions in stronger, more favorable competitive positions. We
cannot predict what restrictions may be imposed upon us with future legislation.
See "Supervision and Regulation."
We may be adversely affected by interest rate changes.
Our operating results are largely dependent on our net interest income.
When interest rates are rising, the interest income we earn on loans and
interest-bearing investments may not increase as rapidly as the interest expense
paid on our liabilities. As a result, our earnings may be adversely affected.
We measure the impact of interest rate changes on our income statement through
the use of gap analysis which is a way to measure and manage sensitivity to
interest rate fluctuations. The amount of earning assets that reprice or mature
during a given time interval is compared to the amount of interest-bearing
liabilities that reprice or mature during the same time period. A bank which
matches perfectly the maturities of its assets and liabilities has a "gap"
position of 1.00. In this instance, under the gap analysis changes in interest
rates would have no effect on net interest income because interest income and
interest expense change in like amounts. There is an interest rate "gap" if the
amounts of repricing assets and liabilities differ for the given time period. A
positive gap, or a position greater than 1.00, indicates more assets than
liabilities will reprice in that time period, while a negative gap, or a
position less than 1.00, indicates more liabilities than assets will reprice. A
bank with a positive gap position would benefit from rising interest rates
because assets will reprice faster than liabilities, improving net interest
income, but net interest income would be reduced when interest rates are
falling. Conversely, a bank would benefit from a negative gap position in a
falling interest rate environment.
We generally operate within guidelines set by our asset/liability policy
for maximum interest rate risk exposure, and attempt to maximize our returns
within an acceptable degree of risk. Our policy calls for maintaining a gap
position at the one year horizon of between 0.70 and 1.30 to allow us to take
advantage of anticipated interest rate environments, but within reasonable
maximum risk exposures. Given the current interest rate environment and
relatively flat yield curve, however, we have recently been operating with a gap
position at the low end of our policy limits in light of the available business
opportunities. At March 31, 1999, our gap position was 0.697, slightly below
our policy limit, reflecting borrowers' general preference for fixed-rate loans
or loans adjusting over longer time intervals, and depositors' general
preference for shorter term certificates of deposits. Generally speaking, a
short-term rise in interest rates will hurt our earnings more than if we were
operating within our policy guidelines.
8
<PAGE>
We may be adversely affected by government monetary policy.
The banking industry is affected by the monetary policies of the Federal
Reserve System, which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. In setting its policy, the Federal
Reserve System may utilize techniques such as the following:
. engaging in open market transactions in United States government
securities;
. setting the discount rate on member bank borrowings; and
. determining reserve requirements.
These techniques may have an adverse effect on our deposit levels, net interest
margin, loan demand or our business and operations.
Our allowance for loan losses may prove to be insufficient to absorb potential
losses in our loan portfolio.
Lending money is a substantial part of our business. However, every loan
we make carries a certain risk of non-payment. This risk is affected by, among
other things:
. the credit risks of a particular borrower;
. changes in economic and industry conditions;
. the duration of the loan; and
. in the case of a collateralized loan, the changes and uncertainties as
to the future value of the collateral.
We maintain an allowance for loan losses which we believe is appropriate to
provide for any potential losses in our loan portfolio. The amount of this
allowance is determined by management through a periodic review and
consideration of several factors, including:
. an ongoing review of the quality, size and diversity of our loan
portfolio;
. evaluation of non-performing loans;
. historical loan loss experience; and
. the amount and quality of collateral, including guarantees, securing the
loans.
Although we believe our loan loss allowance is adequate to absorb probable
losses in our loan portfolio, we cannot predict such losses, and there can be no
assurance that our allowance will be adequate. Excess loan losses could have a
material adverse effect on our financial condition and results of operations.
Regulatory restrictions on dividend payments from our subsidiary may affect our
ability to pay dividends to our stockholders.
We have paid dividends to our stockholders on a regular basis. Although we
intend to continue to pay dividends, our ability to do so may be affected by
many factors. While in the past we have had available cash at the holding
company level to fund dividend payments, we anticipate that in the future we
will rely on income earned by PrivateBank as the primary source for dividend
payments. PrivateBank is subject to certain restrictions on the amount of
dividends it may pay to us without regulatory approval.
9
<PAGE>
Our computer systems could experience a security breach.
As a service to our clients, we offer PrivateBank Access, our Internet PC
banking product. Use of this service involves the transmission of confidential
information over public networks. We cannot be sure that advances in computer
capabilities, new discoveries in the field of cryptography or other developments
will not result in a compromise or breach in the commercially available
encryption and authentication technology that we use to protect our clients'
transaction data. If we were to experience such a breach or compromise, we
could suffer losses and our operations could be adversely affected.
We depend on third parties for our data processing needs; and we are in the
process of converting to a new provider for our loan and deposit processing
requirements.
We rely on outside organizations to handle virtually all of the data
processing aspects of our business. If these outside organizations experience
any type of computer or personnel failure and are unable to properly input or
process our information, our operations may be adversely affected. Situations
which might impair the ability of our outside data processors to meet our needs
include:
. computer system failure;
. loss of the personnel to handle the requirements of all of its
customers;
. loss, misapplication or corruption of our data; and
. lack of preparation for the "year 2000 issue."
If any of these outside organizations cease doing business or are unwilling to
renew our contract, we may be adversely affected. In addition, we are currently
in the process of transferring our loan and deposit processing requirements to a
new third party provider. While we anticipate completing this transition during
the third quarter of 1999, we may experience some delays in this process which
could have an adverse impact on our operations.
We rely on the services of outside investment managers.
In our trust and asset management business, which currently is the source
of substantially all of our fee income, we do not provide investment management
services directly through our own personnel. Rather, we rely on selected
outside investment managers to provide investment advice and asset management
services to our clients. We cannot be sure that we will be able to maintain
these arrangements on favorable terms. Also, many of the investment managers
with whom we work are affiliated with our competitors in the financial services
field. We cannot be sure that our investment managers will continue to work
with us in these arrangements. The loss of any of these outside investment
managers may impact our ability to provide our clients with quality service or
certain types of portfolio management without incurring the cost of replacing
them.
Our business may be negatively impacted by the year 2000 issue.
The "year 2000 issue", a critical issue in the banking industry and the
economy as a whole, has emerged because many existing application software
programs and systems use only the last two digits in referring to a year.
Therefore, these computer programs do not properly recognize a year beginning
with "20" instead of the familiar "19." If not corrected, many computer
applications and other technology-based systems could fail or create erroneous
results. The effects of this problem will vary from system to system, and the
extent of the potential impact of the year 2000 problem is not yet known. The
year 2000 problem may adversely affect a bank's operations. We could experience
interruptions in PrivateBank's business and suffer significant losses if we, or
a supplier or vendor with whom PrivateBank contracts, are unable to achieve year
2000 readiness before January 1, 2000. We are in the process of working with
our third party service providers and software vendors to assure that both our
holding company and PrivateBank are prepared for the year 2000.
10
<PAGE>
Certain provisions of Delaware law and our charter and by-laws may discourage or
prevent a takeover of our company and reduce any takeover premium.
Our Amended and Restated Certificate of Incorporation, our By-laws and
Delaware law all contain provisions that could discourage potential acquisition
proposals, or delay or prevent a change in the control of the Company.
Provisions in our charter and By-laws designed to discourage or prevent a
takeover include:
. staggered terms for our directors, which makes it difficult to replace
the entire board;
. the ability of the Board of Directors to issue shares of preferred
stock, which could dilute the voting power and equity interest of
holders of the common stock; and
. the requirement that holders of 66 2/3% of our outstanding common stock
must approve any change of these anti-takeover provisions.
Stockholders sometimes realize a significant premium in their stock price
when an offer is made to purchase a company. Because we have adopted these
provisions, such offers will likely be discouraged, and our stockholders may
lose the benefit of any potential premium. There are also state and federal
laws which regulate direct and indirect takeover attempts of financial
institutions.
Our directors and officers may have significant influence on how our common
stock is voted.
Our directors and executive officers will beneficially own approximately
28.4% of the outstanding shares of our common stock at the closing of the
Merger. If our directors and executive officers vote together, they could
influence the outcome of certain corporate actions requiring stockholder
approval, including the election of directors and the approval or non-approval
of significant corporate transactions, such as the merger or sale of all or
substantially all of our assets.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF PRIVATEBANCORP
The following table sets forth selected consolidated financial and other
data of PrivateBancorp. The selected statements of condition and statements of
income data, insofar as they relate to the five years in the five-year period
ended December 31, 1998, have been derived from our consolidated financial
statements. The following information should be read in conjunction with our
audited Consolidated Financial Statements and the Notes thereto, included in
Appendix A hereto. The selected financial data for the three months ended March
31, 1999 and 1998, are derived from our unaudited interim consolidated financial
statements. Such unaudited interim financial statements include all adjustments
(consisting only of normal, recurring accruals) that we consider necessary for a
fair presentation of the financial position and the results of operations as of
the dates and for the periods indicated. Information for any interim period is
not necessarily indicative of results that may be anticipated for the full year.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------------- -----------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of Income Data:
Interest income:
Loans, including fees.................. $ 5,636 $ 4,624 $ 19,619 $ 16,729 $ 12,152 $ 10,053 $ 6,418
Federal funds sold and interest-bearing
deposits............................ 48 498 2,181 875 1,392 1,149 358
Securities............................. 1,570 727 3,492 2,519 2,396 1,700 1,265
-------- -------- -------- -------- -------- -------- --------
Total interest income............... 7,254 5,849 25,292 20,123 15,940 12,902 8,041
-------- -------- -------- -------- -------- -------- --------
Interest expense:
Interest-bearing demand deposits....... 142 121 487 377 305 276 210
Savings and money market deposit
accounts............................ 1,800 1,629 6,651 5,880 4,613 3,484 2,139
Other time deposits.................... 1,752 1,346 6,155 3,821 2,973 2,620 782
Funds borrowed......................... 144 -- 19 3 143 50 62
-------- -------- -------- -------- -------- -------- --------
Total interest expense.............. 3,838 3,096 13,312 10,081 8,034 6,430 3,193
-------- -------- -------- -------- -------- -------- --------
Net interest income................. 3,416 2,753 11,980 10,042 7,906 6,472 4,848
Provision for loan losses................ 285 91 362 603 524 930 305
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses................... 3,131 2,662 11,618 9,439 7,382 5,542 4,543
-------- -------- -------- -------- -------- -------- --------
Non-interest income:
Banking and trust services............. 442 273 1,281 1,210 911 674 414
Securities gains....................... -- -- 40 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total non-interest income........... 442 273 1,321 1,210 911 674 414
-------- -------- -------- -------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits......... 1,115 1,102 4,077 3,902 3,411 2,749 2,054
Occupancy.............................. 352 334 1,379 1,274 990 946 745
Data processing........................ 131 120 508 396 334 282 262
Marketing.............................. 153 139 567 500 424 296 272
Amortization of organization costs..... -- -- -- -- 23 280 280
Professional fees...................... 178 94 561 448 326 284 253
Insurance.............................. 41 30 134 115 82 238 342
Other expense.......................... 285 181 864 627 508 434 321
-------- -------- -------- -------- -------- -------- --------
Total non-interest expense.......... 2,255 2.000 8,090 7,262 6,098 5,509 4,529
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.......... 1,318 935 4,849 3,387 2,195 707 428
Income tax provision.................. 291 365 1,839 1,242 762 (403) 3
-------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 1,027 $ 570 $ 3,010 $ 2,145 $ 1,433 $ 1,110 $ 425
======== ======== ======== ======== ======== ======== ========
Per Share Data:
Basic earnings......................... $ 0.30 $ 0.18 $ 0.91 $ 0.69 $ 0.49 $ 0.39 $ 0.17
Diluted earnings....................... 0.28 0.17 0.86 0.65 0.47 0.38 0.16
Dividends.............................. 0.03 0.02 0.08 0.07 0.07 0.03 --
Book value (at end of period).......... 8.71 7.86 8.53 7.67 6.84 6.47 6.13
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share date)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data
(at end of period):
Total securities/(1)/..................... $105,136 $ 48,322 $116,891 $ 65,383 $ 44,617 $ 38,296 $ 24,669
Total loans............................... 307,766 223,746 281,965 218,495 171,343 126,069 98,380
Total assets.............................. 431,055 331,924 416,308 311,872 246,734 196,917 141,826
Total deposits............................ 384,454 304,660 364,994 285,773 222,571 176,868 122,925
Funds borrowed............................ 10,000 -- 20,000 -- 3,000 700 1,000
Total stockholders' equity................ 30,054 25,400 29,274 24,688 20,222 18,445 17,471
Trust assets under administration......... $637,422 $524,019 $611,650 $469,646 $328,662 $212,456 $168,872
Selected Financial Ratios and Other
Data/(2)/:
Performance Ratios:
Net interest margin/(3)/................ 3.57% 3.65% 3.61% 4.01% 3.73% 3.95% 4.09%
Net interest spread/(4)/................ 3.02 2.96 2.98 3.31 3.03 3.16 3.42
Non-interest income to average assets... 0.42 0.34 0.37 0.45 0.42 0.40 0.35
Non-interest expense to average assets.. 2.13 2.49 2.29 2.71 2.79 3.31 3.79
Net overhead ratio/(5)/................. 1.71 2.15 1.91 2.26 2.38 2.90 3.44
Efficiency ratio/(6)/................... 58.45 67.65 60.82 64.53 69.17 77.09 86.07
Return on average assets/(7)/........... 0.97 0.71 0.85 0.80 0.66 0.67 0.36
Return on average equity/(8)/........... 13.84 9.11 11.27 9.49 7.38 6.22 2.94
Dividend payout ratio................... 8.36 10.63 8.74 10.13 12.88 8.03 --
Asset Quality Ratios:
Non-performing loans to total loans..... 0.12 0.32 0.36 0.24 0.65 1.90 0.15
Allowance for possible loan losses to:
total loans........................... 1.20 1.40 1.21 1.40 1.43 1.55 1.04
non-performing loans.................. 1,025 440 336 578 220 82 711
Net charge-offs to average total loans.. -- -- -- -- 0.02 -- 0.01
Non-performing assets to total assets... 0.08 0.21 0.24 0.17 0.45 1.22 0.10
Balance Sheet Ratios:
Loans to deposits....................... 80.1 73.4 77.3 76.5 77.0 71.3 80.0
Average interest-earning assets to
average interest-bearing liabilities.. 114.2 117.0 116.4 117.7 118.6 120.7 123.8
Capital Ratios:
Total equity to total assets............ 6.97 7.65 7.03 7.92 8.20 9.37 12.32
Total risk-based capital ratio.......... 11.21 11.47 11.53 11.75 12.21 14.56 19.58
Tier 1 risk-based capital ratio......... 10.05 10.22 10.40 10.50 10.96 13.31 18.49
Leverage ratio.......................... 7.53 7.87 7.88 8.70 8.71 9.76 13.03
</TABLE>
- ----------------
(1) For all periods after 1994, the entire securities portfolio was classified
"Available for Sale." For 1994, the entire securities portfolio was
classified "Held to Maturity."
(2) Certain financial ratios for interim periods have been annualized.
(3) Net interest income divided by average interest-earning assets.
(4) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(5) Non-interest expense less non-interest income divided by average total
assets.
(6) Non-interest expense divided by the sum of net interest income plus non-
interest income.
(7) Net income divided by average total assets.
(8) Net income divided by average common equity.
13
<PAGE>
SELECTED FINANCIAL DATA OF TOWNE SQUARE
The following table sets forth certain selected financial data of Towne
Square as of June 30, 1999, and for the period from its inception until June 30,
1999.
<TABLE>
<CAPTION>
June 30, 1999
-------------
(dollars in thousands)
<S> <C>
Selected Balance Sheet Data:
Assets
Cash................................................. $233
----
Total assets....................................... 233
====
Liabilities and Stockholders' Equity:
Liabilities
Total liabilities.................................. $ 10
----
Stockholders' equity
Common stock, $0.01 par value per share; 1,000,000
authorized; 6,000 shares issued and outstanding.... 300
Surplus.............................................. --
Retained earnings (deficit).......................... (77)
----
Total stockholders' equity......................... 223
----
Total liabilities and stockholders' equity......... $233
====
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended
June 30, 1999
-------------
<S> <C>
Selected Statement of Income Data:
Income
Interest income........................................ $ 2,378
--------
Expenses
Salaries and employee benefits......................... 21,138
Payroll taxes.......................................... 12,648
Legal fees............................................. 20,000
Accounting fees........................................ 5,000
Marketing and promotion fees........................... 7,437
Professional fees...................................... 7,363
Operating expenses..................................... 867
Other.................................................. 5,000
--------
Total expenses....................................... 79,453
--------
Net income (loss).................................... (77,075)
--------
Earnings (loss) per share................................ $ (12.85)
========
</TABLE>
14
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
PrivateBancorp
Holders of our common stock are entitled to receive dividends that our
Board of Directors may declare from time to time. We may only pay dividends out
of funds which are legally available for that purpose. Because our consolidated
net income consists largely of the net income of PrivateBank, our ability to pay
dividends to our stockholders may become dependent upon our receipt of dividends
from PrivateBank. PrivateBank's ability to pay dividends is regulated by
banking statutes. See "Supervision and Regulation -- Bank Regulation --
Dividends." Our declaration of dividends is discretionary and will depend on
our earnings and financial condition, regulatory limitations, tax
considerations, and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity."
We have paid quarterly dividends on our common stock since the third
quarter of 1995. While our Board of Directors expects to continue to declare
dividends quarterly, there can be no assurance that we will continue to pay
dividends at these levels or at all. The following table sets forth the
history of per share cash dividends paid on our stock since the beginning of
1997:
<TABLE>
<CAPTION>
1997
<S> <C>
First Quarter...................... $0.016
Second Quarter..................... 0.016
Third Quarter...................... 0.019
Fourth Quarter..................... 0.019
1998
First Quarter...................... $0.019
Second Quarter..................... 0.020
Third Quarter...................... 0.020
Fourth Quarter..................... 0.020
1999
First Quarter...................... $0.025
Second Quarter..................... 0.025
</TABLE>
As of June 30, 1999, we had 491 stockholders of record. Our common stock
is listed on the Nasdaq National Market under the symbol "PVTB" and began
trading on June 30, 1999. There was no established public trading market for
the common stock at the time that the Merger was first announced.
The high and low closing prices of our common stock during the period from
June 30, 1999 to July 14, 1999 were $21.00 and $18.00, respectively. On July
14, 1999, the last reported sale price of our common stock was $18.00.
Towne Square
While holders of Towne Square common stock are entitled to receive such
dividends as the Towne Square Board of Directors may declare, Towne Square has
not declared nor paid dividends to date. Pursuant to the Merger Agreement,
Towne Square has agreed not to pay cash dividends pending the consummation of
the Merger.
There is no established public trading market for Towne Square common
stock.
15
<PAGE>
PRIVATEBANCORP, INC.
We organized PrivateBancorp as a Delaware corporation in 1989 to provide
highly personalized financial services primarily to professionals,
entrepreneurial individuals and their closely-held businesses. We were one of
the first banks newly formed in the Chicago area in recent years. The
organizers had significant senior level banking experience and many potential
client contacts from prior banking positions.
We believe that as the financial industry has consolidated, many financial
institutions have focused on a mass market approach using automated customer
service which de-emphasizes personal contact. We believe that the
centralization of decision-making power at these large institutions has resulted
in disruption of client relationships as frontline bank employees who have
limited decision-making authority fill little more than a processor role for
their customers. At many of these large institutions, services are provided by
employees in the "home office" who evaluate requests without the benefit of
personal contact with the customer or an overall view of the customer's
relationship with the institution.
We believe that this trend has been particularly frustrating to affluent
individuals, professionals, owners of closely-held businesses and commercial
real estate investors who traditionally were accustomed to dealing directly with
senior bank executives. These customers typically seek banking relationships
managed by a decision maker who can deliver a prompt response to their requests
and custom tailor a banking solution to meet their needs. As smaller,
independent banks have been acquired by national, multi-bank holding companies,
we believe that the personal relationships that these customers maintained with
the management of such banks have eroded, and their individualized banking
services have been lost.
Through our banking subsidiary, The PrivateBank and Trust Company, we
provide our clients with traditional personal and commercial banking services,
lending programs, and trust and asset management services. Using the European
tradition of "private banking" as our model, we strive to develop a unique
relationship with each of our clients, utilizing a team of highly qualified
account executives to serve the client's individual and corporate banking needs,
and tailoring our products and services to meet such needs. Our managing
directors are strategically located in three Chicago-area offices: Downtown
Chicago, Wilmette, Illinois, and Oak Brook, Illinois. We opened our flagship
Chicago location in 1991. We expanded to our Wilmette office in north suburban
Cook County in 1994 after identifying a senior banking officer with existing
relationships and client contacts in this North Shore area. We opened the Oak
Brook facility in west suburban DuPage County in 1997 with the addition of a
managing director who has extensive relationships in that market.
Since our start in 1991, we have experienced rapid internal growth. From
year-end 1995 to March 31, 1999, our compound annual growth rate in loans was
31.6%, in assets was 27.3%, in deposits was 27.0% and in trust assets under
administration was 40.2%. At March 31, 1999, we had total loans of $307.8
million, total assets of $431.1 million, total deposits of $384.5 million, total
stockholders' equity of $30.1 million and total trust assets under
administration of $637.4 million.
On April 27, 1999, we filed a registration statement on Form S-1 with the
SEC in connection with the initial public offering of our common stock. The
Form S-1 was declared effective on June 29, 1999. The prospectus dated June 30,
1999 which is a part of that registration statement has been attached as
Appendix A to this prospectus, and the following sections constitute a part of
this prospectus: "Business"; "Management's Discussion and Analysis of Financial
Conditions and Results of Operations"; "Management;"; "Certain Transactions";
"Principal Stockholders"; "Supervision and Regulation"; "Description of Capital
Stock"; and "Consolidated Financial Statements." All Towne Square stockholders
are urged to read those sections of the prospectus in their entirety.
TOWNE SQUARE
Towne Square Financial Corporation was formed in March 1999 as a Delaware
corporation for the purpose of developing a de novo, or start-up, bank in the
community of St. Charles, Illinois, a far western suburb of Chicago. As of June
1, 1999, Towne Square had raised initial seed capital of $300,000 from a group
of six investors and had developed and began to implement a business plan to
start a local bank focused on private banking services. Prior to
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<PAGE>
entering into the Merger Agreement, Towne Square had taken the preliminary steps
necessary to obtain the regulatory approvals involved in the de novo bank
formation.
Towne Square Management
The following table sets forth certain information concerning the executive
officers and directors of Towne Square, including the number of shares of Towne
Square stock beneficially owned by each:
<TABLE>
<CAPTION>
Common Stock of Towne Square
Beneficially Owned as of June 30, 1999
--------------------------------------
Percent of Common
Name Age Position(s) Number of Shares Stock Outstanding
---- --- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Thomas N. Castronovo 40 President, Director 1,000 16.67%
Steven J. Baginski 37 Director 1,000 16.67
John J. Hoscheit 40 Secretary, Director 1,000 16.67
William J. Podl 54 Treasurer, Director 1,000 16.67
Daniel L. Star 53 Director 1,000 16.67
Sean M. Williams 32 Vice President, Director 1,000 16.67
</TABLE>
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<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following table sets forth selected comparative per share data for
PrivateBancorp common stock (giving effect to the 2-for-1 stock split effective
as of June 28, 1999, but not giving effect to Private-Bancorp's initial public
offering which closed on July 6, 1999) and Towne Square common stock, on an
historical and pro forma combined basis for PrivateBancorp and for Towne Square
common stock on a pro forma equivalent basis, giving effect to the Merger.
The pro forma combined information is not necessarily indicative of the
actual results that would have occurred had the Merger been consummated at the
beginning of the periods indicated, or of the future operations of the combined
entity.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
PrivateBancorp Historical:
Diluted earnings per share............................ $ 0.28 $ 0.86
Cash dividends declared per share..................... 0.03 0.08
Book value per share (at period end).................. 8.71 8.53
Towne Square Historical:
Diluted earnings per share............................ -- --
Cash dividends declared per share..................... -- --
Book value per share (at period end).................. -- --
PrivateBancorp Pro Forma Combined:
Diluted earnings per share............................ (0.07) 0.48
Cash dividends declared per share..................... 0.03 .07
Book value per share (at period end).................. 8.55 8.34
Towne Square Common Stock - Equivalent Pro Forma
Combined:
Diluted earnings (loss) per share..................... (1.10) 7.26
Cash dividends declared per share..................... .53 1.14
Book value per share (at period end).................. 130.56 127.34
</TABLE>
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<PAGE>
PROPOSED MERGER
Background of the Merger
Upon learning of Towne Square's plans to form a de novo bank in the St.
Charles area, Ralph Mandell, our Chairman and CEO, contacted representatives of
the Towne Square group on April 30, 1999 to explore the possibility of a
strategic alliance. Our Board approved a letter of intent on May 27, 1999, and
after extensive negotiations, we entered into a definitive agreement on June 24,
1999. Our management believes the transaction affords us an excellent
opportunity to expand our franchise in an attractive market. We will establish a
new office of PrivateBank in St. Charles to be managed by Thomas Castronovo, one
of the principal founders of Towne Square who has joined us as a managing
director of our banking subsidiary. Mr. Castronovo has 17 years of prior banking
experience and has significant contacts in the St. Charles community. We filed
the requisite branch applications with the regulators during late June 1999 and
currently anticipate opening the St. Charles office during the fourth quarter of
1999.
PrivateBancorp's Reasons for the Merger
The terms of the Merger are the result of extensive arms' length
negotiation between representatives of Towne Square and PrivateBancorp. In
approving the transaction on the negotiated terms, and concluding that the
transaction is in the best interest of our stockholders, our Board of Directors
considered a number of factors, including, among others, the following:
. the potential market opportunities offered by St. Charles and the
surrounding Fox Valley communities and the opportunity to expand the
PrivateBank franchise consistent with our growth strategy;
. management's opinion that the transaction affords us a unique opportunity
to expand in an attractive market on terms that our Board believed were
fair to our stockholders based on a consideration of the potential
dilutive effect of the transaction to our stockholders weighed against
the potential for a favorable internal return on investment over the
longer term;
. the significant contacts of Mr. Castronovo, an experienced banking
veteran in the Fox Valley area, his perceived compatibility with our
management and his willingness to join PrivateBank as a managing director
in connection with the transaction;
. the competitive advantages of forestalling the Towne Square organizers
from pursuing an independent private banking strategy;
. the commitment of the Towne Square organizers, all prominent businessmen
and professionals from St. Charles, to serve on a Fox Valley advisory
board of PrivateBank and to support the efforts of the bank in St.
Charles;
. the strategic benefits of the Advisory Board and Support agreements to be
entered into by the Towne Square organizers in connection with the
acquisition;
. the value of the preliminary business plan that had been developed by
Towne Square, including the identification of an attractive banking
location in St. Charles that would be available to PrivateBank at market
rates under a ten-year lease; and
. that, as a result of the transaction, PrivateBank would expect to be in a
position to expedite the organizational activities related to
establishing a new banking location and be able to open a banking office
in St. Charles during the fourth quarter of 1999.
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<PAGE>
Towne Square's Reasons for the Merger and Board Recommendation
The Towne Square Board believes that the Merger is fair to, and in the best
interests of, Towne Square and its stockholders. The Towne Square Board
unanimously approved the Merger Agreement as being advisable and recommends that
stockholders vote "FOR" approval and adoption of the Merger Agreement.
The Towne Square Board has evaluated the financial, legal and market
conditions bearing on the decision to recommend the Merger. In reaching its
conclusion to approve the Merger Agreement and the transactions contemplated
thereby, the Towne Square Board consulted with Towne Square management and
considered a number of factors, including the following:
. the current and prospective environment in which Towne Square originally
intended to operate including national and local economic conditions, the
competitive environment for financial institutions generally and
particularly in the St. Charles and Kane County, Illinois areas, the
increased regulatory burden on financial institutions generally and the
trend towards consolidation in the financial services industry,
particularly in Towne Square's proposed market area;
. information concerning the business, operations, asset quality and
prospects of PrivateBancorp;
. information concerning the preliminary business plan of Towne Square and
prospects for opening a de novo bank and raising the capital necessary to
do so;
. the financial strength of PrivateBancorp;
. the review by the Towne Square Board of the financial and other
significant terms and provisions of the Merger Agreement;
. the Towne Square Board's belief that the terms of the Merger Agreement
are attractive in that they would allow Towne Square stockholders to (a)
receive the Merger Consideration in stock, thus permitting stockholders
to defer any tax liability associated with any gain in the value of their
investment; and (b) become stockholders of PrivateBancorp, an institution
with a history of strong operations, management and earnings performance
and a public market for its stock;
. the expectation that we will continue to be able to provide quality
products and services to the communities and clients targeted by Towne
Square in its preliminary business plan;
. the compatibility of our respective business and management philosophies;
Certain members of the management of Towne Square have interests in the
completion of the Merger in addition to their interests as stockholders
generally. Following the Merger, we have agreed to enter into a three-year
employment agreement with Thomas N. Castronovo, President of Towne Square. Mr.
Castronovo was appointed a managing director of PrivateBank, our banking
subsidiary, on June 24, 1999. In addition, we have agreed to appoint an
individual designated by Towne Square (who may be a stockholder of Towne Square)
to our Board of Directors, and certain stockholders of Towne Square will sit on
an advisory board we will establish in connection with the opening of the St.
Charles office. As a condition to the consummation of Merger, PrivateBank will
enter into a building lease with Towne Square Realty, L.L.C. for approximately
6,100 square feet of space located at 24 South Second Street, St. Charles,
Illinois. PrivateBank will utilize this space for the operations of the St.
Charles office. Towne Square Realty is an Illinois limited liability company all
of whose owners are the stockholders of Towne Square. You may wish to consider
such interests in evaluating terms of the Merger. See "--Building Lease" and
"--Interests of Certain Persons in the Merger."
In reaching its determination to accept the Merger Agreement we proposed,
the Towne Square Board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given different weights to
different factors. The importance of these factors relative to one another
cannot precisely be determined or stated herein and there can be no assurance
that the expected results or benefits of the proposed Merger will actually
occur.
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<PAGE>
Although there can be no assurance, the Towne Square Board also believes that
the Merger will provide Towne Square's stockholders with increased value and
liquidity for their stock and will provide its communities and clients with
expanded services and products. The Towne Square Board recommends that Towne
Square stockholders vote "FOR" approval and adoption of the Merger Agreement.
TERMS OF THE MERGER
The following description of the Merger is qualified in its entirety by
reference to the Merger Agreement, filed as Exhibit 10.11 to the Registration
Statement on Form S-1 of PrivateBancorp (file no. 333-77147) and incorporated
herein by reference. All Towne Square stockholders are urged to read the Merger
Agreement in its entirety.
Merger Consideration
On the Closing Date (as defined below), subject to the terms and conditions
of the Merger Agreement, Towne Square will merge with and into PrivateBancorp,
with PrivateBancorp being the continuing and surviving corporation. Our Amended
and Restated Certificate of Incorporation and By-laws in effect at the Effective
Time will govern the surviving corporation until amended or repealed in
accordance with applicable law. Each share of Towne Square Common Stock which is
issued and outstanding immediately prior to the Effective Time shall be
converted into and represent the right to receive 15.278 (the "Exchange Ratio")
shares of our common stock, the value of which is referred to herein as the
"Merger Consideration." The Exchange Ratio was determined by dividing $1,650,000
by $18.00, the initial public offering price of our common stock. We will not
issue any fractional shares in connection with the Merger. Instead, we will
round any fractional shares to the nearest whole share.
At June 30, 1999, Towne Square had 6,000 shares of common stock
outstanding. Based on this number, and the initial public offering price of
$18.00, a total of approximately 91,668 shares of our common stock will be
issued in the Merger.
Closing Date of the Merger
We will close the Merger on a date mutually agreed upon by Towne Square and
us, but not later than 3 days following the satisfaction or waiver of all
conditions precedent to the consummation of the transactions contemplated by the
Merger Agreement. The date and time on which the Merger becomes effective is
referred to herein as the "Effective Time."
Surrender of Certificates
Prior to the Effective Time, we will deliver each Towne Square stockholder
instructions for surrendering their stock certificates. You should not send in
your stock certificates until you receive our instructions. Upon surrender, we
will cancel your Towne Square certificate and issue a certificate for shares of
our common stock.
No dividends or other distributions declared after the Effective Time with
respect to our common stock payable to the holders of record thereof after the
Effective Time shall be paid to the holder of any unsurrendered Towne Square
stock certificate common stock until such holder of record has surrendered the
certificate. Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of the certificate, the holder will receive
any dividends or distributions, without interest, payable with respect to the
shares of our common stock represented by that certificate.
Conditions to the Merger
Consummation of the Merger is subject to the satisfaction of certain
conditions unless waived, to the extent waiver is permitted by applicable law.
Conditions to our Obligations. Our obligations to effect the Merger are
subject to the fulfillment at the Effective Time of the following conditions:
21
<PAGE>
. the representations and warranties of Towne Square contained in the
Merger Agreement shall have been true in all material respects on the
date of the Merger Agreement and shall continue to be true in all
material respects at and as of the Effective Time;
. Towne Square shall have performed and complied with in all material
respects all obligations, agreements and covenants required by the Merger
Agreement to be performed or complied with by it on or prior to the
Effective Time;
. except as contemplated by the Merger Agreement, there shall not have been
any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any federal
or state government or governmental agency or instrumentality or court,
which would prohibit PrivateBancorp's ownership or operation of all or a
material portion of Towne Square's business or assets, whether
immediately at the Effective Time or as of some future date, whether
specified or to be specified, or which would compel PrivateBancorp to
dispose of or hold separate all or a material portion of Towne Square's
business or assets, whether immediately at the Effective Time or as of
some future date, whether specified or to be specified, as a result of
the Merger Agreement, or which would render PrivateBancorp or Towne
Square unable to consummate the transactions contemplated by this Merger
Agreement;
. as of the Closing Date, there shall have been no material adverse change
in the operations or financial condition or business prospects of Towne
Square;
. Towne Square shall have delivered various officers' certificates;
. each of the Employment Agreement and Non-Competition and Support
Agreement with Thomas N. Castronovo shall be in full force and effect;
. each of the Stock Restriction Agreements and the Advisory Board and
Support Agreements shall be in full force and effect; and
. the Lease Agreement shall be in full force and effect.
Conditions to Obligations of Towne Square. The obligations of Towne Square
to effect the Merger shall be subject to the fulfillment at the Effective Time
of the following conditions:
. the representations and warranties of PrivateBancorp contained in the
Merger Agreement shall have been true in all material respects on the
date of the Merger Agreement and shall continue to be true in all
material respects at and as of the Effective Time;
. PrivateBancorp shall have performed and complied in all material respects
all obligations, covenants, and agreements required by the Merger
Agreement to be performed or complied;
. PrivateBancorp shall have delivered various certificates of
PrivateBancorp's officers and opinions of counsel;
. PrivateBancorp shall not have refused to enter into each of the
Employment Agreement and Non-Competition and Support Agreement with
Thomas N. Castronovo; and
. PrivateBancorp shall not have refused to enter into each of the Stock
Restriction Agreements, the Advisory Board and Support Agreements and the
Lease Agreement.
Condition to Obligations of Both Parties. The obligation of each party to
consummate the Merger is further conditioned upon the following:
. the receipt of all necessary regulatory approvals, if any, excluding the
prior regulatory approvals to open the St. Charles office of PrivateBank;
22
<PAGE>
. the absence of a stop order suspending effectiveness of the registration
statement of which this Prospectus is a part and/or proceedings seeking
such a stop order;
. the absence of a preliminary or a permanent injunction or other order by
any federal or state court, or threat thereof, which prevents the
consummation of the Merger;
. authorization for listing on the Nasdaq National Market of the shares of
our common stock issuable in the Merger;
. approval of the Merger and the Merger Agreement by the requisite vote of
the stockholders of Towne Square; and
. the receipt of an opinion of Vedder, Price, Kaufman & Kammholz as to the
tax-free nature of the Merger.
Regulatory Approvals
We have been advised that there are no regulatory approvals necessary to
complete the Merger. Therefore, we intend to proceed with the Merger in the
absence of regulatory approvals necessary to open the St. Charles office of
PrivateBank, unless any federal or state regulatory entity having jurisdiction
over us indicates their opposition to the Merger. See "--Conditions to the
Merger," "--Closing Date of the Merger" and "--Termination, Amendment and
Waiver." PrivateBancorp and Towne Square have agreed to take all reasonable
actions necessary to obtain approvals and comply with the requirements of the
FDIC, the Illinois Commissioner of Banks and Real Estate and other governmental
entities in order to establish the St. Charles office of PrivateBank.
Business Pending the Merger
Until the consummation of the Merger, pursuant to the terms of the Merger
Agreement, Towne Square has agreed that:
. it will cease any and all actions by Towne Square, its stockholders,
directors or officers of any business activities, including, but not
limited to, the efforts to organize or obtain a charter for an Illinois
chartered de novo bank and instead will focus all such actions toward the
establishment of a branch office of PrivateBank in the same business
purview with the same intended plan of operation as the now abandoned de
novo bank business plan;
. it will use its best efforts to comply promptly with all requirements
which federal or state law may impose on it with respect to the Merger
and will promptly cooperate with and furnish information to us in
connection with any such requirements imposed upon it in connection with
the Merger;
. it will use its best efforts to obtain (and to cooperate with us in
obtaining) any consent, authorization or approval of, or any exemption
by, any governmental authority or agency, or other third party, required
to be obtained or made by them in connection with the Merger or the
taking of any action contemplated hereby. It will not knowingly or
willfully take any action that would adversely affect the ability of such
party to perform its obligations under the Merger Agreement;
. it will not declare or pay any dividends on or make other distributions
with respect of capital stock;
. it will not amend its Certificate of Incorporation or by-laws, except as
contemplated by the Merger Agreement; and
. it will not incur any debts, liabilities or charges from the date of the
Merger Agreement.
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<PAGE>
Operations of Towne Square after the Merger
In the Merger, Towne Square will be merged with and into PrivateBancorp and
the separate corporate existence of Towne Square will cease with PrivateBancorp
being the continuing and surviving corporation.
None of the officers and directors of Towne Square will continue to serve
in those positions following consummation of the Merger. Thomas N. Castronovo,
President of Towne Square, has been appointed as a managing director of
PrivateBancorp's banking subsidiary, and will enter into a three-year employment
agreement with PrivateBank upon closing of the Merger. Certain stockholders of
Towne Square will serve in an advisory capacity to PrivateBank, as discussed
below, and an individual designated by Towne Square (who may be a Towne Square
stockholder) will be appointed to the Board of Directors of PrivateBancorp.
Building Lease
As a condition to the consummation of the Merger Agreement, PrivateBank
will enter into a building lease with Towne Square Realty, L.L.C. for
approximately 6,100 square feet of space on the first floor of the building
located at 24 South Second Street, St. Charles, Illinois. It is contemplated
that PrivateBank will utilize this space for the operations of its St. Charles
office. The term of the lease will be ten years and three months, commencing
August 1, 1999, and PrivateBank will have the option to extend the term for two
additional five-year periods. The monthly base rent for the first fifteen months
of the lease is $8,900, with the base rent for each succeeding lease year equal
to 102.5% of the prior year's base rent. Towne Square Realty is an Illinois
limited liability company all of whose owners are the stockholders of Towne
Square.
Interests of Certain Persons in the Merger
Agreements with Thomas N. Castronovo. As a condition to the consummation of
the Merger Agreement, PrivateBank will enter into an Employment Agreement and a
Non-Competition and Support Agreement with Thomas Castronovo. Under the terms of
the Employment Agreement, which has a three year term and shall automatically be
extended for additional one year terms unless terminated pursuant to the
provisions thereof, Mr. Castronovo is entitled to an annual base salary of
$112,000, any discretionary bonuses determined by our Board of Directors, and
participation in benefit plans and other fringe benefits available to our
managing directors. For the 1999 calendar year, Mr. Castronovo will receive a
bonus of $25,000, payable in January 2000. Mr. Castronovo will also receive a
signing bonus in the amount of $150,000, payable in two equal installments, the
first upon the opening of our St. Charles office and the second six months
later. In addition, we have provided Mr. Castronovo with an interest-free loan,
evidenced by a promissory note, in the amount of $175,000 for the purchase of
shares of our common stock in our initial public offering. This loan is to be
repaid with the proceeds of Mr. Castronovo's 1999 bonus and signing bonus. Under
the terms of the note, the loan is due in full on the earlier of (a) the six-
month anniversary of the opening of our St. Charles office; (b) December 31,
2000; (c) the termination of Mr. Castronovo's employment; or (d) his sale of
such shares. As security for repayment of this loan, we have been granted a
continuing lien on and security interest in all Mr. Castronovo's right, title
and interest in the shares purchased. Pursuant to the Employment Agreement, we
have agreed to grant Mr. Castronovo options to purchase 7,000 shares of our
common stock and a restricted stock award of 3,000 shares. Both the option grant
and the restricted stock award will be made under our Stock Incentive Plan and
the Employment Agreement contemplates an exercise price equal to the initial
public offering price of $18.00.
Under the Employment Agreement, Mr. Castronovo's employment may be
terminated by PrivateBank at any time for "cause," as defined in the Employment
Agreement, in which case, or if he resigns from PrivateBank without "good
reason," the Employment Agreement immediately terminates, and Mr. Castronovo
would be entitled only to unpaid benefits accrued during the term of his
employment. If Mr. Castronovo chooses to resign with good reason, or PrivateBank
chooses to terminate his employment without cause, Mr. Castronovo will also be
entitled to receive severance in the amount equal to at least 12 months of his
then current base annual salary, plus a pro rata bonus for the year of
termination based on the prior year's bonus amount, if any. The Employment
Agreement also provides for death benefits equal to six months of his then
current annual base salary.
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<PAGE>
In the event that Mr. Castronovo is terminated after a change in control of
PrivateBancorp, he will be entitled to a lump sum payment equal to two times the
sum of (1) his annual base salary; (2) the greater of (a) his bonus amount, if
any, for the prior year or (b) his average bonus, if any, for the three
preceding years; and (3) the sum of the contributions that would have been made
by the company under any benefit plan and the annual value of any other
executive perquisites. The Employment Agreement entitles Mr. Castronovo to
receive gross up payments to cover any federal excise taxes payable by him in
the event the change in control benefits are deemed to constitute "excess
parachute payments" under Section 280G of the Internal Revenue Code. A change in
control is defined under the agreements as an occurrence of any one of the
following events as determined by our Board:
. if any person, as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, becomes the beneficial owner of 25% or more of
the total voting power of our then outstanding voting capital stock;
provided, however, that if that person becomes a beneficial owner of 25%
or more of our voting capital stock as a result of an acquisition of
stock directly from PrivateBancorp, or a decrease in the number of
outstanding shares due to a repurchase of shares by PrivateBancorp, it
shall not be considered a change in control;
. if during any period of two consecutive years, those individuals who at
the beginning of the period constitute our Board of Directors cease to
make up a majority of the Board;
. the consummation of a reorganization, merger or consolidation of
PrivateBancorp, or the sale of all or substantially all of our assets;
provided, that so long as more than 50% of the voting stock of the
successor entity is held by stockholders who had been beneficial owners
of our stock immediately before the transaction, and at least a majority
of the board of the successor entity is made up of members of our Board,
the merger or sale shall not be considered a change in control; and
. the approval by our stockholders of a plan of complete liquidation or
dissolution.
Under the terms of the Non-Competition and Support Agreement, Mr.
Castronovo (a) will use his best efforts to support and develop the business of
PrivateBank and (b) during his term of employment with PrivateBank, and for a
period of one year after, or for so long as Mr. Castronovo receives severance
payments from PrivateBank, will not, for his own account, or on behalf of any
entity located within ten miles of the St. Charles office, solicit any client or
employee of PrivateBank.
Advisory Board and Support Agreements. Pursuant to the Advisory Board and
Support Agreements, we have agreed to appoint to the Fox Valley Advisory Board
of PrivateBank certain stockholders of Towne Square, for the purpose of
assisting and advising with respect to forming and operating our St. Charles
branch. Advisory board members will each receive a quarterly per meeting fee of
$200 for service on the advisory board. The Advisory Board and Support
Agreements also provide that during their service on the advisory board, and for
a period of at least one year after, each advisory board member agrees that he
will not, for his own account, or on behalf of any entity located within ten
miles of the St. Charles office of PrivateBank, solicit any client or employee
of PrivateBank. It is currently contemplated that those stockholders of Towne
Square who will not serve as directors or officers of PrivateBancorp or
PrivateBank will serve on the advisory board. The advisory board will also
include two additional prominent business people or professionals from the area
to be mutually selected by Towne Square and PrivateBancorp in order to draw on
the experience and contacts of these individuals in the local community to
assist in the development of the St. Charles office.
Stock Transfer Restriction Agreements. As a condition to the Merger
Agreement, each stockholder of Towne Square will enter into a Stock Transfer
Restriction Agreement pursuant to which he will agree not to sell, assign,
pledge or otherwise transfer or encumber 54.5% of the PrivateBancorp shares
received in the Merger for a period of one year from the closing of the Merger.
The remaining 45.5% of the shares will be restricted from resale under the Stock
Transfer Restriction Agreements for a period of three years.
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<PAGE>
Termination, Amendment and Waiver
Pursuant to the terms and conditions of the Merger Agreement, the Merger
Agreement may be terminated at any time prior to the Effective Time by:
. the mutual consent of the parties;
. the existence of a final and unappealable judicial or regulatory
determination that any material provision of the Merger Agreement is
illegal, invalid or unenforceable, or denying any regulatory application;
. either party for a material breach of a representation, warranty or
covenant by the other party if such breach causes the failure to satisfy
a condition precedent of the terminating party; or
. either party on or after November 1, 1999;
The Merger Agreement may be amended by the parties at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of Towne Square, but after any such approval, no amendment may be
made which changes the form of consideration or adversely affects or decreases
the value of the consideration to be provided to Towne Square stockholders
pursuant to the Merger or which has a similar effect. At any time prior to the
Effective Time, either party may, to the extent legally allowed, extend the time
for performance of any of the obligations of the other party, waive any
inaccuracies and representations and warranties of the other and waive
compliance with any of the agreements or conditions.
Certain Federal Income Tax Consequences of the Merger
The Merger is structured in a manner intended to qualify as a tax-free
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code.
Accordingly, it is anticipated that Towne Square and PrivateBancorp will
recognize no gain or loss for federal income tax purposes as a result of the
Merger and that no gain or loss will be recognized for federal income tax
purposes by any Towne Square stockholders upon receipt of our common stock in
exchange for Towne Square common stock pursuant to the Merger. We have not asked
the Internal Revenue Service (the "Service") to rule upon the tax consequences
of the Merger. Instead, Towne Square and PrivateBancorp will use their best
efforts to receive an opinion from Vedder, Price, Kaufman & Kammholz, counsel to
PrivateBancorp in connection with the Merger, as to certain federal income tax
consequences of the Merger. Unlike a ruling from the Service, an opinion of
counsel is not binding on the Service and there can be no assurance, and none is
hereby given, that the Service will not take a position contrary to one or more
positions reflected herein or that the opinion of counsel will be upheld by the
courts if challenged by the Service.
Each stockholder of Towne Square is urged to consult his or her own tax and
financial advisors as to the effect of such federal income tax consequences of
the Merger on his or her own particular facts and circumstances and also as to
any state, local, foreign or other tax consequences arising out of the Merger.
As a condition precedent to the consummation of the Merger, the parties
will receive an opinion from Vedder, Price, Kaufman & Kammholz, which will be is
based upon various representations and subject to various assumptions and
qualifications, that the following federal income tax consequences will result
from the Merger:
. the Merger will constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code and PrivateBancorp
and Towne Square will each be a party to the reorganization;
. the exchange in the Merger of our common stock for Towne Square common
stock will not give rise to the recognition of any income, gain or loss
to PrivateBancorp, Towne Square or the stockholders of Towne Square with
respect to such exchange;
. the adjusted tax basis of our common stock issuable to Towne Square
stockholders in the Merger will equal the adjusted tax basis of the
shares of the Towne Square common stock surrendered in exchange therefor;
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<PAGE>
. the holding period of the shares of our common stock received in the
Merger will include the period during which the shares of Towne Square
common stock surrendered in exchange therefor were held, provided such
shares of Towne Square common stock were held as capital assets at the
Effective Time;
. the adjusted tax basis of the assets of Towne Square in the hands of
PrivateBancorp will be the same as the adjusted tax basis of such assets
in the hands of Towne Square immediately prior to the exchange; and
. the holding period of the assets of Towne Square transferred to us will
include the period during which such assets were held by Towne Square
prior to the exchange.
The foregoing is a description of the material federal income tax
consequences of the Merger for Towne Square stockholders who are citizens or
residents of the United States and who hold their shares as capital assets,
without regard to the particular facts and circumstances of the tax situation of
each such stockholder. It does not discuss all of the particular consequences
that may be relevant to Towne Square stockholders entitled to special treatment
under the Internal Revenue Code (such as insurance companies, financial
institutions, dealers in securities, tax-exempt organizations or foreign
persons). The summary set forth above does not purport to be a complete analysis
of all potential tax effects of the transactions contemplated by the Merger
Agreement or the Merger itself. No information is provided herein with respect
to the tax consequences, if any, of the Merger under state, local or foreign tax
laws.
Accounting Treatment
Because Towne Square is not yet actively engaged in the business of
banking, the Merger will not be accounted for as a business combination. Rather,
at the time of closing, we will incur a one-time, nonrecurring charge to
earnings in an amount equal to the excess of the value of our stock issued in
the Merger over the net assets of Towne Square on the date of closing. We
anticipate that the net assets of Towne Square, consisting substantially of
cash, will approximate $223,000 at closing. The one-time charge, currently
estimated to be approximately $1.29 million, is expected to be recorded during
the third quarter of 1999 and will adversely affect our 1999 results of
operations. The Merger-related charge will not be a deductible expense for tax
purposes.
In addition to the Merger-related charge, we will incur additional start-up
costs relating to the opening of the St. Charles office. We currently anticipate
that the total pre-tax start-up costs will be approximately $430,000, including
$75,000 of the signing bonus payable to Mr. Castronovo, and that the majority of
these costs will be expensed during 1999.
Expenses
The Merger Agreement provides, in general, that PrivateBancorp and Towne
Square will each pay its own expenses in connection with the Merger and the
transactions contemplated thereby, including fees and expenses of its own
financial or other consultants, investment bankers, accountants and counsel.
PrivateBancorp will pay for the opinion of Vedder, Price, Kaufman & Kammholz
with respect to the tax matters discussed above.
Vote Required
The affirmative vote of the holders of a majority of the shares of Towne
Square issued and outstanding will be required to approve the Merger Agreement.
Approval of the Merger Agreement is a condition to, and is required for,
consummation of the Merger. As of June 30, 1999, 6,000 shares of Towne Square
common stock were issued, outstanding and entitled to vote. It is anticipated
that Towne Square will seek the written consent of stockholders to approve the
Merger rather than holding a special meeting of stockholders. Written materials
regarding stockholder approval will be furnished separately by Towne Square.
Resale of PrivateBancorp Common Stock
As a condition to the Merger Agreement, each stockholder of Towne Square
will enter into a Stock Transfer Restriction Agreement pursuant to which he will
agree not to sell, assign, pledge or otherwise transfer or encumber 54.5% of the
PrivateBancorp shares received in the Merger for a period of one year from the
closing of the Merger. The
27
<PAGE>
remaining 45.5% of the shares will be restricted from resale under the Stock
Transfer Restriction Agreements for a period of three years.
Upon the expiration of the restrictive terms of the Stock Transfer
Restriction Agreements, shares of PrivateBancorp common stock issued to Towne
Square stockholders will be freely transferable without further restriction,
except for any shares issued to "affiliates" of Towne Square or PrivateBancorp,
as that term is defined under the Securities Act. Shares held by these
affiliates may be resold without registration as permitted by Rule 145 of the
Securities Act or as otherwise permitted under the Securities Act. In general,
under Rule 145 affiliates are entitled to sell, within a three-month period,
that number of shares which does not exceed the greater of:
. one percent of the outstanding shares of PrivateBancorp common stock; or
. the average weekly reported trading volume of PrivateBancorp common stock
during the four calendar weeks preceding the sale.
Sales made under Rule 145 are also subject to certain requirements pertaining to
. limitation on the volume of the sales;
. the manner of such sales; and
. the availability of current public information about PrivateBancorp.
Dissenters' Rights of Appraisal
Under Delaware law, any stockholder of Towne Square entitled to receive the
Merger Consideration will be entitled to demand the fair cash value of his
shares, if he follows prescribed procedures. Stockholders of PrivateBancorp do
not have appraisal rights in connection with the Merger. Following is a summary
of the applicable provisions of Section 262 of the Delaware General Corporation
Law, which describes the appraisal rights of dissenting stockholders. This
summary should be read with the full text of Section 262, a copy of which is
attached hereto as Appendix B. We urge any Towne Square stockholder who intends
to exercise his appraisal rights to review Appendix B carefully and to consult
with legal counsel so as to assure strict compliance with its provisions.
A vote in favor of the Merger Agreement and the Merger will constitute a
waiver of your right to demand appraisal of your Towne Square common stock.
Who May Exercise Statutory Appraisal Rights. Under Section 262 of the
Delaware General Corporation Law, holders of Towne Square common stock who
follow the procedures set forth in the law will be entitled to have their Towne
Square common stock appraised by the Delaware Court of Chancery and to receive
payment in cash of the "fair value" of their shares, exclusive of any element of
value arising from the consummation or expectation of the Merger, together with
a fair rate of interest, if any, as determined by the court. Towne Square
stockholders considering seeking appraisal rights of their shares should be
aware that the fair value of the shares under Section 262 could be more than,
less than or equal to the Merger Consideration.
Procedure for Exercising Statutory Appraisal Rights. A Towne Square
stockholder who wishes to exercise his appraisal rights must: (a) deliver to
Towne Square prior to the circulation of the written consent in lieu of special
meeting regarding the Merger Agreement a written demand for appraisal of his
common stock; and (b) not vote in favor of the Merger Agreement. A Towne Square
stockholder wishing to exercise his rights must be the record holder of such
shares on the date the written demand is made and must continue to hold such
shares of record through the Effective Time of the Merger. Accordingly, if you
are a Towne Square stockholder on the date of demand, but subsequently sell or
transfer your shares, you will lose your appraisal rights.
A demand for appraisal should be executed by or on behalf of the holder of
record, as such holder's name appears on the stock certificate. If the Towne
Square shares in question are held in a fiduciary or representative capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity. If the shares are
28
<PAGE>
owned of record by more than one person, the demand should be executed by or on
behalf of all joint owners. All demands for appraisal must be made in writing
and must be sent or delivered to Towne Square at 1536 Fargo Boulevard, Geneva,
Illinois 60134, Attn.: Secretary.
Any holder of Towne Square stock who has demanded an appraisal in
compliance with Section 262 will not, from and after the Effective Time of the
Merger, be entitled to vote the shares subject to the demand for any purpose or
be entitled to the payment of any future dividends or other distributions on the
Towne Square common stock.
Within ten days after the Effective Time, Towne Square will be required to
notify each stockholder who has complied with the provisions of Section 262, and
who has not voted in favor of the Merger Agreement and the Merger, of the date
that the Merger became effective. Within 120 days after the Effective Time, any
stockholder who has complied with the requirements for exercise of statutory
appraisal rights will be entitled, upon written request, to receive from Towne
Square a statement setting forth the aggregate number of shares of Towne Square
common stock not voted in favor of the Merger Agreement and with respect to
which demands for appraisal have been received, and the aggregate number of
holders of such shares. These statements must be mailed within ten days after a
written request therefor has been received by Towne Square or within ten days
after the expiration of the period for delivery of demands, whichever is later.
Determination of Fair Value. Within 120 days after the Effective Time,
Towne Square or any stockholder who has complied with the statutory requirements
may file a petition in the Delaware Chancery Court demanding a determination of
the fair value of the Towne Square common stock. If a petition for appraisal is
timely filed, stockholders entitled to appraisal rights may receive notice of
the time and place of a hearing on the petition. After the hearing, the Delaware
Chancery Court will determine the stockholders entitled to statutory appraisal
rights and the "fair value" of their Towne Square stock.
Costs of Appraisal Action. The costs of an appraisal action may be
determined by the Chancery Court and taxed upon the parties as it deems
equitable. The Chancery Court may also order that all or a portion of the
expenses incurred by any stockholder in connection with appraisal, including
reasonable attorneys' fees and the fees and expenses of any experts utilized in
the appraisal proceeding, be charged pro rata against the value of all of the
Towne Square shares entitled to appraisal.
Loss of Appraisal Rights. If any stockholder who properly demands appraisal
rights of his Towne Square common stock under Section 262 fails to perfect, or
effectively withdraws or loses, his right to appraisal, as provided under
Delaware law, that stockholder's shares will be converted into the right to
receive the Merger Consideration. A stockholder will fail to perfect, or
effectively lose, his appraisal rights if, among other things, no petition for
appraisal is filed within 120 days after the Effective Time or if the
stockholder delivers to Towne Square a written withdrawal of his demand for
appraisal and acceptance of the Merger.
Comparison of Rights of Stockholders of PrivateBancorp and Stockholders of Towne
Square
Upon consummation of the Merger, the stockholders of Towne Square who
receive PrivateBancorp common stock will become stockholders of PrivateBancorp
and their rights will be governed by our Amended and Restated Certificate of
Incorporation and our Amended and Restated By-laws, which differ in certain
material respects from Towne Square's charter and by-laws. The following
comparison of the corporate governance documents of Towne Square and
PrivateBancorp is not intended to be complete and is qualified in its entirety
by reference to the relevant provisions of the Delaware General Corporation Law,
Towne Square's Certificate of Incorporation and By-laws, and our Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws. You may
inspect the Towne Square charter and By-laws at its executive office, or request
delivery of copies from the Secretary of Towne Square. Copies of the
PrivateBancorp charter and By-laws are available on the SEC's web site at
http://www.sec.gov, or may be requested from the Secretary of PrivateBancorp.
See also "DESCRIPTION OF CAPITAL STOCK" in Appendix A, attached.
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<PAGE>
Authorized Capital Stock. Towne Square's authorized capital stock currently
consists of 1,000,000 shares of common stock, par value $0.01 per share. As of
June 30, 1999, there were 6,000 shares of Towne Square common stock issued and
outstanding. The Amended and Restated Certificate of Incorporation of
PrivateBancorp authorizes the issuance of 12,000,000 shares of common stock,
without par value, of which 4,351,824 shares were outstanding as of June 30,
1999. Both the holders of Towne Square common stock and the holders of
PrivateBancorp common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. Neither charter permits
cumulative voting of shares of common stock with respect to the election of
directors, nor do holders of the common stock of either company have any
conversion, preemptive or redemptive rights. In the event of the liquidation of
either company, the holders of shares of common stock are entitled to share
ratably in any assets retained by the respective companies after payment in full
of creditors, and, in the case of PrivateBancorp, after payments to holders of
any preferred stock then issued and outstanding, to the extent of any
liquidation preference, as described below.
The charter of PrivateBancorp also authorizes the issuance of 1,000,000
shares of preferred stock, without par value, in one or more series. Our Board,
without stockholder approval, may determine voting, conversion and other rights
which could adversely affect the rights of the holders of our common stock.
Currently, no shares of our authorized preferred stock are issued or
outstanding. The rights of the holders of our common stock are generally subject
to the prior rights of our preferred stock with respect to dividends,
liquidation preferences and other matters. The dividend rights, dividend rates,
conversion rights, conversion prices, voting rights, redemption rights and terms
(including sinking fund provisions, if any), the redemption price or prices and
the liquidation preferences of any series of our authorized preferred stock and
the numbers of such shares of preferred stock in each series will be determined
by our Board of Directors as such shares are to be issued. Holders of our common
stock do not have preemptive rights to subscribe for shares of our preferred
stock. The Certificate of Incorporation of Towne Square has not authorized the
issuance of any shares of preferred stock.
Size and Classification of the Board of Directors. The directors of Towne
Square are elected annually by the stockholders to serve until the next annual
meeting or until their successors are elected and qualified. Vacancies occurring
on Towne Square's Board are filled by a majority of the directors then in
office. Currently, the Board of Towne Square is fixed at six.
The Board of Directors of PrivateBancorp 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 Delaware General Corporation Law, members of a
staggered board may only be removed for cause, unless the certificate of
incorporation states otherwise. Our Amended and Restated 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 its voting power to gain control of our Board of Directors without the
consent of the incumbent Board.
Our Amended and Restated By-laws provide that there shall be sixteen
directors. Any vacancy occurring on the Board, including a vacancy created by an
increase in the number of directors, will be filled by a majority vote of the
directors then in office. Directors so chosen will hold office until their
successors are elected and qualified or until their earlier resignation or
removal.
Nominations for Directors. Under the charter of Towne Square, there are no
specific procedures for the nomination for the election of directors by
stockholders, therefore directors can be nominated from the floor at the annual
meeting of the stockholders.
PrivateBancorp's By-Laws provide that nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors, subject to the nomination having been
made in compliance with certain notice and informational requirements.
In light of these requirements, a stockholder may be deterred from
nominating an individual for election as a director. This provision is designed
to prevent nominations from the floor at the annual meeting without advance
notice and requires that sufficient information be provided regarding each
nominee. Our Board of Directors believes that such
30
<PAGE>
disclosure is beneficial and the elimination of the element of surprise will
allow a more reasonable consideration of the qualifications of all nominees.
Action by Written Consent. Under the Delaware General Corporation Law and
the charter and by-laws of Towne Square, whenever stockholders are required or
permitted to take any action by vote, such action may be taken without a meeting
by written consent setting forth the action so taken signed by the holders of
all shares. PrivateBancorp's charter and by-laws prohibit stockholder action by
written consent. The purpose of this limitation is to require that all
proposals be addressed at the regularly scheduled meetings of stockholders,
thereby creating sufficient opportunity to disseminate information to all
stockholders resulting in a more reasonable consideration of matters by our
stockholders.
Meetings of Stockholders. Special meetings of the stockholders of Towne
Square may be called by the president or secretary at the request, in writing,
of a majority of the Board of Directors, or at the written request of
stockholders owning shares of capital stock equal to 50% of the capital stock
issued and outstanding and entitled to vote. The presence in person or by proxy
of the holders of a majority of the issued and outstanding Towne Square stock
constitutes a quorum. In general, all Towne Square matters requiring
stockholder action must be approved by stockholders holding a majority of the
outstanding voting stock. However, any merger, consolidation or sale of all, or
substantially all, of the assets of Towne Square which has not been previously
approved by the Towne Square Board requires the approval of at least 80% of the
outstanding shares.
Under the terms of PrivateBancorp's by-laws, special meetings of our
stockholders may be called at any time by our Chairman, President or Secretary,
or at the request of a majority of our directors. A quorum for a meeting of our
stockholders generally is a majority of the outstanding shares entitled to vote
for the transaction of any business. Except as described below under the
subheading "Amendment of the Certificate of Incorporation and By-Laws," a
majority of the quorum is generally required for the transaction of any general
business.
Shareholder Proposals. The Towne Square charter documents provide no
specific procedures for the consideration of stockholder proposals, therefore
proposals can be introduced from the floor at an annual or special meeting of
the stockholders.
PrivateBancorp's by-laws establish procedures that must be followed for a
stockholder to submit a proposal for consideration at a meeting of the
stockholders. No proposal for a stockholder vote may be submitted to the
stockholders by a stockholder unless such submitting stockholder has delivered
to our Chairman, President or Secretary a written notice of intent to make a
proposal or the proposal itself not less than 120 days prior to the date of the
meeting. The notice should set forth: (a) a brief description of the business
to be brought before the meeting; (b) the name and address of the stockholder
making the proposal; (c) the number of shares of PrivateBancorp stock held by
the stockholder; and (d) any material interest of the stockholder in such
business. If the presiding officer at any stockholders' meeting determines that
any such proposal was not made in accordance with these procedures or is
otherwise not in accordance with the law, such presiding officer may refuse to
permit the matter to come before the meeting.
In light of these requirements, a stockholder may be deterred from bringing
a matter before the stockholders. This provision is designed to prevent the
introduction of matters from the floor at a meeting without advance notice and
sufficient information. Our Board of Directors believes that such disclosure is
beneficial and the elimination of the element of surprise will allow a more
reasonable consideration of the merits of the matter.
Indemnification of Officers and Directors and Limitation of Liability. The
indemnification and limitation of the liability of officers and directors under
the Delaware General Corporation Law and the charter and by-laws of Towne Square
is substantially similar to the indemnification and limitation of liability
provided by the charter and by-laws of PrivateBancorp. See "DESCRIPTION OF
CAPITAL STOCK" in Appendix A for a more detailed discussion of the
indemnification provisions of PrivateBancorp.
Amendment of the Charter and By-laws. The charter of PrivateBancorp
provides that the affirmative vote of the holders of at least 66 2/3% of our
outstanding voting stock, voting together as a single class, is required to
amend, repeal, or adopt any provision inconsistent with, the provisions of our
charter classifying directors, establishing cumulative voting, prohibiting
stockholder action without a meeting or specifying the vote required to amend
such
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provisions. Our by-laws may be amended by the stockholders or our Board of
Directors; however, the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting stock, voting together as a single class, is required to
amend, repeal, or adopt any provision inconsistent with, the provisions of our
by-laws prohibiting stockholder action without a meeting, regarding properly
bringing business before a stockholder meeting, stating the number of and
classifying directors, relating to filling director vacancies, and specifying
the vote required to amend such provisions.
The charter and by-laws of Towne Square do not contain any supermajority
stockholder vote requirement to amend those documents.
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LEGAL MATTERS
Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago,
Illinois 60601, will pass upon the validity of the shares of PrivateBancorp
common stock to be issued pursuant to the Merger and certain other legal matters
in connection with the Merger for PrivateBancorp.
EXPERTS
The consolidated financial statements for each of the three years in the
three-year period ended December 31, 1998, incorporated by reference in this
prospectus, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said report.
33
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APPENDIX A
PROSPECTUS OF
PRIVATEBANCORP, INC., DATED AS OF
JUNE 30, 1999
A-1
<PAGE>
PROSPECTUS
900,000 Shares
[LOGO OF PRIVATEBANCORP INC.]
Common Stock
This is the initial public offering of our common stock. Our common stock
is traded on the Nasdaq National Market under the symbol "PVTB."
Investing in the common stock involves risks. See "Risk Factors" beginning
on page 11.
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price.............................. $18.00 $16,200,000
Underwriting Discount.............................. $ 1.26 $ 1,134,000
Proceeds to PrivateBancorp, Inc.................... $16.74 $15,066,000
</TABLE>
This is a firm commitment underwriting. We have granted the underwriters a
30-day option to purchase up to 135,000 additional shares of our common stock
on the same terms and conditions set forth above to cover over-allotments, if
any.
The shares of common stock that are being offered are not savings accounts
or deposits or other obligations of a bank and are not insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation or any governmental agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The underwriters expect to deliver the shares to purchasers on July 6, 1999.
EVEREN Securities, Inc. Stifel, Nicolaus & Company
Incorporated
The date of this prospectus is June 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 11
Special Note Regarding Forward-Looking Statements......................... 17
Pending Acquisition....................................................... 18
Use of Proceeds........................................................... 20
Dividends; No Prior Trading Market........................................ 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Business.................................................................. 23
Selected Consolidated Financial Data...................................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 38
Management................................................................ 56
Certain Transactions...................................................... 65
Principal Stockholders.................................................... 66
Supervision and Regulation................................................ 67
Description of Capital Stock.............................................. 74
Shares Eligible for Future Sale........................................... 78
Underwriting.............................................................. 81
Legal Matters............................................................. 83
Experts................................................................... 83
Where You Can Get More Information........................................ 83
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
Our executive offices are located at The PrivateBank and Trust Company, Ten
North Dearborn Street, Chicago, Illinois 60602. Our telephone number is (312)
683-7100.
----------------
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. The
information contained in this document may have changed since the date of this
prospectus. This prospectus is not an offer to sell and it is not soliciting an
offer to buy the common stock in any state where offers or sales are not
permitted.
----------------
Until July 25, 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligations to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all the information that may be important to you.
You should read the entire prospectus, including the financial statements and
related notes, before making a decision to invest in the common stock. Unless
we indicate otherwise, all share, per share and financial information in this
prospectus: (a) reflects the two-for-one stock split of our common stock
effective as of June 28, 1999; and (b) assumes no exercise of the underwriters'
option to purchase up to an additional 135,000 shares of common stock from us.
PrivateBancorp
PrivateBancorp is a Delaware corporation headquartered in Chicago, Illinois.
We are a bank holding company with one bank subsidiary, The PrivateBank and
Trust Company, which we formed as a de novo, or start-up, bank in 1991.
PrivateBank provides private banking and trust services primarily to
professionals, entrepreneurial individuals and their business interests. Our
managing directors seek to build strong relationships with clients by
emphasizing a consistently superior level of personalized service. We focus on
the personal financial services needs of our clients as well as the banking
needs of their various business and investment ventures. Clients are teamed
with dedicated managing directors so they are dealing directly with our
decision-makers. In this way, we are able to tailor our loan products and other
services to be highly responsive to the individual situation of each client.
Since year-end 1995, we have grown our asset base at a compound annual rate
of 27.3% to $431.1 million as of March 31, 1999. During the same period, loans
have grown at a compound annual rate of 31.6% to $307.8 million, deposits at a
compound annual rate of 27.0% to $384.5 million and trust assets under
administration at a compound annual rate of 40.2% to $637.4 million.
[CHART APPEARS HERE]
Total Assets and Total Trust Assets under Administration
<TABLE>
<CAPTION>
Trust Assets Total Assets
------------ ------------
(In Millions)
<S> <C> <C>
12/31/91 15.6 32.7
12/31/92 50.0 71.6
12/31/93 138.0 104.0
12/31/94 168.9 141.8
12/31/95 212.5 197.0
12/31/96 328.7 246.7
12/31/97 469.6 311.9
12/31/98 611.7 416.3
12/31/99 637.4 431.1
</TABLE>
4
<PAGE>
Our Market
We have targeted affluent individuals with annual incomes in excess of
$150,000, professionals, owners of closely-held businesses and commercial real
estate investors because we believe that they have significant unmet demand for
personalized services. Demographic data compiled by National Decision Systems,
San Diego, California, indicates that there is significant growth potential in
the affluent segment of the population. In the metropolitan Chicago area, the
number of households with annual incomes greater than $150,000 was estimated at
190,042 in 1998, compared to 63,861 households in 1990. This equates to a
compound annual growth rate of 14.6%, versus a growth rate for the total number
of households in the metropolitan Chicago area of 0.6%. By 2003, the number of
these affluent households in the Chicagoland area is expected to increase to
358,000, representing an annual growth rate of 13.5%, while the aggregate
number of households is expected to increase at an annual growth rate of only
0.3%.
[CHART APPEARS HERE]
- --------
(1) Based on information from the 1990 U.S. census.
(2) Estimated by National Decision Systems based on, among other things, (a) a
time series of estimates made by the U.S. Census Bureau regarding six
counties in the Chicago metropolitan area; and (b) data provided by the
Department of Planning of the City of Chicago.
(3) Generated by National Decision Systems through the application of an
econometric model of the Chicago metropolitan area to the 1998 estimate.
The econometric forecasting model considers the impact of various economic
factors such as employment, inflation, interest rates and housing starts on
future population growth.
5
<PAGE>
The PrivateBank and Trust Approach
We believe that we have developed a unique approach to private banking
designed to provide our clients with unparalleled service. We emphasize
personalized client relationships and custom-tailored financial services,
complemented by the convenience of technology. The key aspects of our private
banking approach are:
. Personal Relationships. Each of our clients is matched with a dedicated
team of individuals, headed by a managing director who becomes the
client's central point of contact with PrivateBank. Through these
dedicated teams, we are able to build strong, ongoing, personal
relationships with our clients.
. Affluent Target Client. We offer our services to those members of the
affluent segment of the population who are focused on building and
preserving wealth. Our clients include affluent professionals,
entrepreneurial individuals and their business interests.
. Customized Financial Services. We provide our clients with a wide
variety of financial services beyond traditional banking products and
are constantly working with our clients to identify their particular
needs and to develop and shape our services to meet those needs.
. Streamlined Decision-Making Process. Unlike many larger banks, we have
not instituted a lengthy chain of command. Our clients deal directly
with their dedicated managing directors, whose broad decision-making
authority allows them to respond quickly and efficiently.
. Enhanced Personal Service through Technology. While we encourage our
clients to contact us directly, we also utilize technology to complement
and enhance our service. Through PrivateBank Access, an internet banking
service, we offer clients the convenience of accessing our services from
remote locations at any time.
. Extensive Financial Network. To better compete with other financial
service providers, we rely on a network of professionals in the
financial and investment communities with whom we have developed
relationships over the years. This network allows us to deliver to our
clients a broad array of diverse, high-quality services, including
investment management, insurance and brokerage.
Strategy for Growth
Our growth strategy entails five key components:
. Developing Our Existing Relationships. An important part of our future
growth will be the continued development of our existing client
relationships. As the needs of our clients change and grow, we hope to
grow with them and continue to provide them with our unique, flexible
services.
. Increasing the Reach of Our Existing Offices. We hope to expand the
market presence of our existing offices, especially our Oak Brook,
Illinois and Wilmette, Illinois branches. We believe that there is a
growing need for private banking services in these regions which is
largely unmet, and we hope to capitalize on the experience and
reputations of our managing directors in meeting this need.
. Opening Additional Offices in the Chicago Metropolitan Area. The success
of our Oak Brook and Wilmette offices has confirmed a significant demand
by our target clients for specialized private banking services in the
Chicago metropolitan area. We have recently undertaken to establish a
new office in St. Charles, Illinois to meet this demand, and we will
consider opening additional offices as we identify favorable locations
and other qualified senior executives to add to our management team. See
"Pending Acquisition."
. Expanding into New Markets. We believe that the demand for our private
banking services is not unique to Chicago. As we identify Midwestern
markets that present similar opportunities for growth and development,
we intend to pursue selective geographic expansion through acquisitions
of existing institutions or by establishing new banking offices.
. Expanding into New Product Lines. We intend to identify additional
financial services not currently offered by PrivateBank in order to
increase our franchise value by diversifying our fee income,
strengthening our client relationships and broadening our product line.
We may expand our product line by acquisition. We will focus on
companies that emphasize quality service and the value of relationships
and complement our products and client base.
6
<PAGE>
Our Experienced Management Team
PrivateBancorp, Inc. was founded in November 1989 by Ralph B. Mandell and
William R. Langley. Together, they had previously headed a $1.2 billion
publicly traded suburban Chicago bank holding company which they successfully
merged into First Chicago Corporation in 1987. As founders of our company, they
assembled a team of senior bankers with diverse experience and varied
backgrounds. Mr. Mandell, with 34 years in banking, has been instrumental in
the development of many of our client relationships, either personally or by
providing his assistance. As chief executive officer, he sets the direction of
our company and instills our sense of corporate culture. Mr. Langley retired
from active management in 1995, but remains on our Board of Directors.
Our current management team consists of eleven managing directors, including
Mr. Mandell, and six associate managing directors. Our managing directors are
senior financial professionals with an average of 27 years of banking and
financial experience. Together with our Board of Directors, they currently own
an aggregate of 1,079,692 shares of our common stock, which represents
approximately 31.3% of the shares currently outstanding. In addition to Mr.
Mandell, two other managing directors, Caren L. Reed and Donald A. Roubitchek
who have both been involved with the company since 1990, also serve on our
Board of Directors. Mr. Reed, our vice chairman and chief credit officer, has
spent 43 years in banking and has extensive experience in relationship
management and credit administration. Our quality loan portfolio and credit
culture was developed under his tutelage. Mr. Roubitchek, our chief financial
officer, also serves as our chief administrative and operating officer. Mr.
Roubitchek, with 27 years of experience, has been responsible for managing our
rapid growth.
Of our other three executive officers, Gary S. Collins, a managing director
since 1991, has over 24 years of experience and has been responsible for a
considerable number of client relationships through his expertise in real
estate lending. M. Gail Fitzgerald, a managing director since 1996, has 20
years of trust experience and is our senior trust officer responsible for
managing our trust area. Hugh H. McLean, a managing director since 1996, has
over 19 years of experience. He serves as head of our credit marketing group
and manages our Oak Brook office.
7
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by PrivateBancorp........ 900,000 shares(1)
Common stock to be outstanding after the
offering..................................... 4,351,824 shares(2)
Price to Public............................... $18.00 per share
Use of Proceeds............................... We intend to use the net proceeds from the sale of
shares of common stock offered hereby for general
corporate purposes to support our anticipated future
growth. This may include:
. funding internal growth at the current
locations of our banking subsidiary;
. creating new offices in the Chicago
metropolitan area;
. expanding our presence into new markets
located in the Midwest; and/or
. acquiring businesses that are complementary
to ours.
Nasdaq National MarketSM Symbol............... PVTB
</TABLE>
- --------
(1) We have granted the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to an additional 135,000
shares of our common stock at the initial public offering price, solely to
cover over-allotments, if any. See "Underwriting."
(2) This number does not include shares reserved for issuance under our stock-
based compensation program and upon the exercise of various other
outstanding stock options. Pursuant to the terms of these programs, we are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. If we
issue these shares, the percentage of the common stock you own may be
diluted. The following is a summary of additional shares of common stock
that we have approved for issuance:
. 476,607 shares reserved for issuance under a stock incentive plan
maintained for the benefit of eligible officers and employees. This
number includes (a) 50,119 shares available for future awards, and (b)
426,488 shares issuable upon exercise of currently outstanding options
at a weighted average exercise price of $10.37 per share previously
granted under the plan.
. 206,320 shares reserved for issuance under other outstanding options to
purchase common stock that were previously granted to directors and
officers. The weighted average exercise price of these options is $10.51
per share.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes certain consolidated financial information of
PrivateBancorp. You should read this table in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
----------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of
Income Data:
Interest income:
Loans, including fees.. $ 5,636 $ 4,624 $ 19,619 $ 16,729 $ 12,152 $ 10,053 $ 6,418
Federal funds sold and
interest-bearing
deposits.............. 48 498 2,181 875 1,392 1,149 358
Securities............. 1,570 727 3,492 2,519 2,396 1,700 1,265
-------- -------- -------- -------- -------- -------- --------
Total interest
income.............. 7,254 5,849 25,292 20,123 15,940 12,902 8,041
-------- -------- -------- -------- -------- -------- --------
Interest expense:
Interest-bearing
demand deposits....... 142 121 487 377 305 276 210
Savings and money
market deposit
accounts.............. 1,800 1,629 6,651 5,880 4,613 3,484 2,139
Other time deposits.... 1,752 1,346 6,155 3,821 2,973 2,620 782
Funds borrowed......... 144 -- 19 3 143 50 62
-------- -------- -------- -------- -------- -------- --------
Total interest
expense............. 3,838 3,096 13,312 10,081 8,034 6,430 3,193
-------- -------- -------- -------- -------- -------- --------
Net interest income.. 3,416 2,753 11,980 10,042 7,906 6,472 4,848
Provision for loan
losses................. 285 91 362 603 524 930 305
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses......... 3,131 2,662 11,618 9,439 7,382 5,542 4,543
-------- -------- -------- -------- -------- -------- --------
Non-interest income:
Banking and trust
services.............. 442 273 1,281 1,210 911 674 414
Securities gains....... -- -- 40 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total non-interest
income.............. 442 273 1,321 1,210 911 674 414
-------- -------- -------- -------- -------- -------- --------
Non-interest expense:
Salaries and employee
benefits.............. 1,115 1,102 4,077 3,902 3,411 2,749 2,054
Occupancy.............. 352 334 1,379 1,274 990 946 745
Data processing........ 131 120 508 396 334 282 262
Marketing.............. 153 139 567 500 424 296 272
Amortization of
organization costs.... -- -- -- -- 23 280 280
Professional fees...... 178 94 561 448 326 284 253
Insurance.............. 41 30 134 115 82 238 342
Other expense.......... 285 181 864 627 508 434 321
-------- -------- -------- -------- -------- -------- --------
Total non-interest
expense............. 2,255 2,000 8,090 7,262 6,098 5,509 4,529
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes............... 1,318 935 4,849 3,387 2,195 707 428
Income tax provision... 291 365 1,839 1,242 762 (403) 3
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 1,027 $ 570 $ 3,010 $ 2,145 $ 1,433 $ 1,110 $ 425
======== ======== ======== ======== ======== ======== ========
Per Share Data:
Basic earnings......... $ 0.30 $ 0.18 $ 0.91 $ 0.69 $ 0.49 $ 0.39 $ 0.17
Diluted earnings....... 0.28 0.17 0.86 0.65 0.47 0.38 0.16
Dividends.............. 0.03 0.02 0.08 0.07 0.07 0.03 --
Book value (at end of
period)............... 8.71 7.86 8.53 7.67 6.84 6.47 6.13
Selected Financial
Condition Data
(at end of period):
Total securities(1)..... $105,136 $ 48,322 $116,891 $ 65,383 $ 44,617 $ 38,296 $ 24,669
Total loans............. 307,766 223,746 281,965 218,495 171,343 126,069 98,380
Total assets............ 431,055 331,924 416,308 311,872 246,734 196,917 141,826
Total deposits.......... 384,454 304,660 364,994 285,773 222,571 176,868 122,925
Funds borrowed.......... 10,000 -- 20,000 -- 3,000 700 1,000
Total stockholders'
equity................. 30,054 25,400 29,274 24,688 20,222 18,445 17,471
Trust assets under
administration......... $637,422 $524,019 $611,650 $469,646 $328,662 $212,456 $168,872
</TABLE>
- --------
(1) For all periods after 1994, the entire securities portfolio was classified
"Available for Sale." For 1994, the entire securities portfolio was
classified "Held to Maturity."
9
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
-------------- ---------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios
and Other Data(1):
Performance Ratios:
Net interest margin(2)..... 3.57% 3.65% 3.61% 4.01% 3.73% 3.95% 4.09%
Net interest spread(3)..... 3.02 2.96 2.98 3.31 3.03 3.16 3.42
Non-interest income to
average assets............ 0.42 0.34 0.37 0.45 0.42 0.40 0.35
Non-interest expense to
average assets............ 2.13 2.49 2.29 2.71 2.79 3.31 3.79
Net overhead ratio(4)...... 1.71 2.15 1.91 2.26 2.38 2.90 3.44
Efficiency ratio(5)........ 58.45 67.65 60.82 64.53 69.17 77.09 86.07
Return on average
assets(6)................. 0.97 0.71 0.85 0.80 0.66 0.67 0.36
Return on average
equity(7)................. 13.84 9.11 11.27 9.49 7.38 6.22 2.94
Dividend payout ratio...... 8.36 10.63 8.74 10.13 12.88 8.03 --
Asset Quality Ratios:
Non-performing loans to
total loans............... 0.12 0.32 0.36 0.24 0.65 1.90 0.15
Allowance for possible loan
losses to:
total loans............... 1.20 1.40 1.21 1.40 1.43 1.55 1.04
non-performing loans...... 1,025 440 336 578 220 82 711
Net charge-offs to average
total loans............... -- -- -- -- 0.02 -- 0.01
Non-performing assets to
total assets.............. 0.08 0.21 0.24 0.17 0.45 1.22 0.10
Balance Sheet Ratios:
Loans to deposits.......... 80.1 73.4 77.3 76.5 77.0 71.3 80.0
Average interest-earning
assets to
average interest-bearing
liabilities............... 114.2 117.0 116.4 117.7 118.6 120.7 123.8
Capital Ratios:
Total equity to total
assets.................... 6.97 7.65 7.03 7.92 8.20 9.37 12.32
Total risk-based capital
ratio..................... 11.21 11.47 11.53 11.75 12.21 14.56 19.58
Tier 1 risk-based capital
ratio..................... 10.05 10.22 10.40 10.50 10.96 13.31 18.49
Leverage ratio............. 7.53 7.87 7.88 8.70 8.71 9.76 13.03
</TABLE>
- --------
(1) Certain financial ratios for interim periods have been annualized.
(2) Net interest income divided by average interest-earning assets.
(3) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(4) Non-interest expense less non-interest income divided by average total
assets.
(5) Non-interest expense divided by the sum of net interest income plus non-
interest income.
(6) Net income divided by average total assets.
(7) Net income divided by average common equity.
10
<PAGE>
RISK FACTORS
Investing in our common stock involves risk. The discussion below describes
the most significant risk factors related to the offering. You should carefully
consider these risks and uncertainties before deciding to invest in our common
stock. If any of these risks or uncertainties actually occur, our business
could be adversely affected. In that event, the trading price of our common
stock could decline and you could lose all or a part of your investment. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those described below and elsewhere throughout the prospectus.
We depend on key personnel.
We are a relatively young organization and are relationship-driven. Our
growth and development to date have depended in large part on the efforts of
our 11 managing directors, who have primary contact with our clients and are
extremely important in maintaining personalized relationships with our client
base, the key aspect of our business strategy and in increasing our market
presence. The unexpected loss of services of one or more of these key employees
could have a material adverse effect on our operations.
We have entered into employment contracts with Ralph B. Mandell, our
Chairman, President and Chief Executive Officer, as well as a co-founder of our
company, Donald A. Roubitchek, our Secretary/Treasurer and Chief Financial
Officer and two of our managing directors. These agreements are effective
beginning July 1, 1999. We are dependent on the continued services of Messrs.
Mandell and Roubitchek in their roles. We have not entered into employment
agreements with any of our other managing directors, nor have we entered into
any key man life insurance policies. See "Management."
One of our executive officers, Vice Chairman Caren L. Reed, in addition to
his client responsibilities, serves as our chief credit officer. Mr. Reed has
indicated that he intends to retire from active management in December 1999.
Mr. Reed has agreed to continue to serve as our chief credit officer until we
can name a successor so he can assist in the transition process. Our strong
credit quality experience to date could be adversely impacted by Mr. Reed's
retirement.
We may not be able to implement aspects of our growth strategies.
A key component of our growth strategy involves the expansion of our
business and operations, possibly through the addition of new product lines and
the acquisition or establishment of new offices. Implementing this aspect of
our growth strategy depends in part on our ability to successfully identify
acquisition opportunities and strategic partners that will complement our
private banking approach and to successfully integrate their operations with
ours. To open new offices such as the pending St. Charles branch successfully,
we must be able to correctly identify profitable or growing markets, as well as
attract the necessary relationships to make these new facilities cost-
effective. See "Pending Acquisition." We cannot be sure that we will be able to
identify suitable opportunities for further expansion, or that if we do, that
we will be able to successfully integrate these new operations into our
business. If we are unable to effectively implement our growth strategies, our
business may be adversely affected.
Since our business is concentrated in the Chicago metropolitan area, a downturn
in the Chicago economy may adversely affect our business.
Currently, PrivateBank's lending and deposit gathering activities are
concentrated primarily in the greater Chicago metropolitan area. Our success
depends on the general economic condition of Chicago and its surrounding areas.
Although currently the economy in these areas is favorable, we do not know
whether such conditions will continue. Adverse changes in the economy could
reduce our growth rate, impair our ability to collect loans, and generally
affect our financial condition and results of operations.
11
<PAGE>
Our future success is dependent on our ability to compete effectively in the
highly competitive banking industry.
We face substantial competition in all phases of our operations from a
variety of different competitors. Our future growth and success will depend on
our ability to compete effectively in this highly competitive environment. To
date, we have grown our business successfully by focusing on our market niche
and emphasizing the high level of service and responsiveness desired by our
clients. While it is our intention to continue to operate in our targeted
niche, we compete for loans, deposits and other financial services in our
geographic market with other commercial banks, thrifts, credit unions and
brokerage houses operating in the greater Chicago area. Many of our competitors
offer services which we do not, and many have substantially greater resources,
name recognition and market presence that benefit them in attracting business.
In addition, larger competitors may be able to price loans and deposits more
aggressively than we do. Some of the financial institutions and financial
services organizations with which we compete are not subject to the same degree
of regulation as is imposed on bank holding companies and federally insured,
state-chartered banks and national banks. As a result, these nonbank
competitors have advantages over us in providing certain services. See
"Business--Competition."
Our business may be adversely affected by the highly regulated environment in
which we operate.
We are subject to extensive federal and state legislation, regulation,
examination and supervision. This regulation and supervision is primarily
intended to protect our clients and their deposits, and not our stockholders.
Recently enacted, proposed and future legislation and regulations have had,
will continue to have, or may have a material adverse effect on our business
and operations. Our success depends on our continued ability to maintain
compliance with these regulations, including those pertaining to the Community
Reinvestment Act. Some of these regulations may increase our costs and thus
place other financial institutions in stronger, more favorable competitive
positions. We cannot predict what restrictions may be imposed upon us with
future legislation. See "Supervision and Regulation."
We may be adversely affected by interest rate changes.
Our operating results are largely dependent on our net interest income. When
interest rates are rising, the interest income we earn on loans and interest-
bearing investments may not increase as rapidly as the interest expense paid on
our liabilities. As a result, our earnings may be adversely affected. We
measure the impact of interest rate changes on our income statement through the
use of gap analysis which is a way to measure and manage sensitivity to
interest rate fluctuations. The amount of earning assets that reprice or mature
during a given time interval is compared to the amount of interest-bearing
liabilities that reprice or mature during the same time period. A bank which
matches perfectly the maturities of its assets and liabilities has a "gap"
position of 1.00. In this instance, under the gap analysis changes in interest
rates would have no effect on net interest income because interest income and
interest expense change in like amounts. There is an interest rate "gap" if the
amounts of repricing assets and liabilities differ for the given time period. A
positive gap, or a position greater than 1.00, indicates more assets than
liabilities will reprice in that time period, while a negative gap, or a
position less than 1.00, indicates more liabilities than assets will reprice. A
bank with a positive gap position would benefit from rising interest rates
because assets will reprice faster than liabilities, improving net interest
income, but net interest income would be reduced when interest rates are
falling. Conversely, a bank would benefit from a negative gap position in a
falling interest rate environment.
We generally operate within guidelines set by our asset/liability policy for
maximum interest rate risk exposure, and attempt to maximize our returns within
an acceptable degree of risk. Our policy calls for maintaining a gap position
at the one year horizon of between 0.70 and 1.30 to allow us to take advantage
of anticipated interest rate environments, but within reasonable maximum risk
exposures. Given the current interest rate environment and relatively flat
yield curve, however, we have recently been operating with a gap position at
the low end of our policy limits in light of the available business
opportunities. At March 31, 1999, our gap position was 0.697, slightly below
our policy limit, reflecting borrowers' general preference for
12
<PAGE>
fixed-rate loans or loans adjusting over longer time intervals, and depositors
general preference for shorter term certificates of deposits. Generally
speaking, a short-term rise in interest rates will hurt our earnings more than
if we were operating within our policy guidelines. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Asset/Liability
Management Policy."
We may be adversely affected by government monetary policy.
The banking industry is affected by the monetary policies of the Federal
Reserve System, which regulates the national money supply in order to mitigate
recessionary and inflationary pressures. In setting its policy, the Federal
Reserve System may utilize techniques such as the following:
. engaging in open market transactions in United States government
securities;
. setting the discount rate on member bank borrowings; and
. determining reserve requirements.
These techniques may have an adverse effect on our deposit levels, net interest
margin, loan demand or our business and operations. See "Supervision and
Regulation."
Our allowance for loan losses may prove to be insufficient to absorb potential
losses in our loan portfolio.
Lending money is a substantial part of our business. However, every loan we
make carries a certain risk of non-payment. This risk is affected by, among
other things:
. the credit risks of a particular borrower;
. changes in economic and industry conditions;
. the duration of the loan; and
. in the case of a collateralized loan, the changes and uncertainties as
to the future value of the collateral.
We maintain an allowance for loan losses which we believe is appropriate to
provide for any potential losses in our loan portfolio. The amount of this
allowance is determined by management through a periodic review and
consideration of several factors, including:
. an ongoing review of the quality, size and diversity of our loan
portfolio;
. evaluation of non-performing loans;
. historical loan loss experience; and
. the amount and quality of collateral, including guarantees, securing the
loans.
Although we believe our loan loss allowance is adequate to absorb probable
losses in our loan portfolio, we cannot predict such losses, and there can be
no assurance that our allowance will be adequate. Excess loan losses could have
a material adverse effect on our financial condition and results of operations.
Regulatory restrictions on dividend payments from our subsidiary may affect our
ability to pay dividends to our stockholders.
We have paid dividends to our stockholders on a regular basis. Although we
intend to continue to pay dividends, our ability to do so may be affected by
many factors. While in the past we have had available cash at the holding
company level to fund dividend payments, we anticipate that in the future we
will rely on
13
<PAGE>
income earned by PrivateBank as the primary source for dividend payments.
PrivateBank is subject to certain restrictions on the amount of dividends it
may pay to us without regulatory approval. See "Dividends" and "Supervision and
Regulation--Bank Regulation--Dividends."
Our computer systems could experience a security breach.
As a service to our clients, we offer PrivateBank Access, our internet PC
banking product. Use of this service involves the transmission of confidential
information over public networks. We cannot be sure that advances in computer
capabilities, new discoveries in the field of cryptography or other
developments will not result in a compromise or breach in the commercially
available encryption and authentication technology that we use to protect our
clients' transaction data. If we were to experience such a breach or
compromise, we could suffer losses and our operations could be adversely
affected.
We depend on third parties for our data processing needs; and we are in the
process of converting to a new provider for our loan and deposit processing
requirements.
We rely on outside organizations to handle virtually all of the data
processing aspects of our business. If these outside organizations experience
any type of computer or personnel failure and are unable to properly input or
process our information, our operations may be adversely affected. Situations
which might impair the ability of our outside data processors to meet our needs
include:
. computer system failure;
. loss of the personnel to handle the requirements of all of its
customers;
. loss, misapplication or corruption of our data; and
. lack of preparation for the "year 2000 issue."
If any of these outside organizations cease doing business or are unwilling to
renew our contract, we may be adversely affected. In addition, we are currently
in the process of transferring our loan and deposit processing requirements to
a new third party provider. While we anticipate completing this transition
during the third quarter of 1999, we may experience some delays in this process
which could have an adverse impact on our operations.
We rely on the services of outside investment managers.
In our trust and asset management business, which currently is the source of
substantially all of our fee income, we do not provide investment management
services directly through our own personnel. Rather, we rely on selected
outside investment managers to provide investment advice and asset management
services to our clients. We cannot be sure that we will be able to maintain
these arrangements on favorable terms. Also, many of the investment managers
with whom we work are affiliated with our competitors in the financial services
field. We cannot be sure that our investment managers will continue to work
with us in these arrangements. The loss of any of these outside investment
managers may impact our ability to provide our clients with quality service or
certain types of portfolio management without incurring the cost of replacing
them.
Our business may be negatively impacted by the year 2000 issue.
The "year 2000 issue", a critical issue in the banking industry and the
economy as a whole, has emerged because many existing application software
programs and systems use only the last two digits in referring to a year.
Therefore, these computer programs do not properly recognize a year beginning
with "20" instead of the familiar "19." If not corrected, many computer
applications and other technology-based systems could fail or create erroneous
results. The effects of this problem will vary from system to system, and the
extent of the potential impact of the year 2000 problem is not yet known. The
year 2000 problem may adversely affect a
14
<PAGE>
bank's operations. We could experience interruptions in PrivateBank's business
and suffer significant losses if we, or a supplier or vendor with whom
PrivateBank contracts, are unable to achieve year 2000 readiness before January
1, 2000. We are in the process of working with our third party service
providers and software vendors to assure that both our holding company and
PrivateBank are prepared for the year 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Our Information
Systems and the Year 2000."
A trading market for our common stock may not develop, and may be affected by a
significant number of shares which will become eligible for public sale after
the offering.
Our common stock has never been publicly traded, so we cannot predict the
extent to which a trading market will develop. In addition, the market price of
our common stock could drop as a result of sales of a large number of shares of
common stock after this offering. Your ability to resell you shares at or above
the initial public offering price may be adversely affected by these factors.
Immediately after this offering, assuming no prior exercise of outstanding
options, there will be 4,351,824 shares of our common stock outstanding. Unless
held by our affiliates, who are subject to certain trading restrictions under
the securities laws:
. 2,770,550 shares, or 63.6% of the shares outstanding, will immediately
be freely tradable in the public market, including all 900,000 shares
sold in this offering; and
. 81,900 shares, or 1.9% of the total outstanding, will become available
for sale beginning in September 1999.
Our directors and executive officers, who hold an aggregate of 1,005,112
shares, and certain of our stockholders, who hold an aggregate of 472,662
shares, representing in aggregate 33.9% of the total number of shares that will
be outstanding after the offering, have agreed not to offer, sell or contract
to sell any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of EVEREN Securities, Inc. Upon
expiration of this lock-up period, however, these shares may become available
for resale in the public market. See "Shares Eligible for Future Sale."
Pursuant to the terms of our Stock Incentive Plan, we have awarded an
aggregate of 21,600 shares of restricted stock to certain of our employees who
are not executive officers. Although our employees have full voting rights with
regard to these shares and may receive any dividends we declare, they may not
transfer the shares until they are fully vested. Each restricted stock award
will vest in its entirety on the fifth anniversary of the date of grant and is
subject to forfeiture until vesting. The shares vest on various dates between
2001 and 2004.
A substantial number of shares of our common stock issued pursuant to our
Stock Incentive Plan will also become available for resale in the public market
at prescribed times. In addition, we intend to register under the Securities
Act the shares of common stock reserved for issuance under our stock-based
programs.
Certain provisions of Delaware law and our charter and by-laws may discourage
or prevent a takeover of our company and reduce any takeover premium.
Our Amended and Restated Certificate of Incorporation, our By-laws and
Delaware law all contain provisions that could discourage potential acquisition
proposals, or delay or prevent a change in the control of the Company.
Provisions in our charter and By-laws designed to discourage or prevent a
takeover include:
. staggered terms for our directors, which makes it difficult to replace
the entire board;
. the ability of the Board of Directors to issue shares of preferred
stock, which could dilute the voting power and equity interest of
holders of the common stock; and
15
<PAGE>
. the requirement that holders of 66 2/3% of our outstanding common stock
must approve any change of these anti-takeover provisions.
Stockholders sometimes realize a significant premium in their stock price
when an offer is made to purchase a company. Because we have adopted these
provisions, such offers will likely be discouraged, and our stockholders may
lose the benefit of any potential premium. There are also state and federal
laws which regulate direct and indirect takeover attempts of financial
institutions.
Our directors and officers may have significant influence on how our common
stock is voted.
Our directors and executive officers will beneficially own approximately
28.9% of the outstanding shares of our common stock at the closing of this
offering, assuming none of them purchases shares in the offering. If our
directors and executive officers vote together, they could influence the
outcome of certain corporate actions requiring stockholder approval, including
the election of directors and the approval or non-approval of significant
corporate transactions, such as the merger or sale of all or substantially all
of our assets.
You will incur immediate and substantial dilution in your shares.
Investors in this offering will experience an immediate and substantial
dilution in the book value of the common stock. If you purchase shares of our
common stock, and we sell 900,000 shares at the offering price of $18.00 on the
cover page of this prospectus, after giving effect to the issuance of 91,668
shares in the pending acquisition, the pro forma net tangible book value of
your shares at March 31, 1999 will be $10.04. This is $7.96 less than your
purchase price. See "Dilution" and "Pending Acquisition."
Management will have substantial discretion over the use of the proceeds of
this offering.
We have not designated specific uses for all of the net proceeds of this
offering. We intend to immediately use $8.0 million of the net proceeds to
increase the regulatory capital of our PrivateBank subsidiary to support the
growth of our existing banking operations and the planned establishment of a
new office in St. Charles, Illinois. The remaining $6,316,000, or approximately
44%, of the proceeds are currently unallocated and will be available to fund
future internal growth or expansion of our business through establishment of
new banking locations and entering into strategic acquisitions and
affiliations, to the extent we identify these opportunities. Accordingly, you
must rely upon the judgment of our management who will have significant
flexibility with respect to applying the net proceeds. At present, other than
the pending acquisition of Towne Square Financial Corporation, we have no
plans, agreements or understandings relating to any specific acquisitions or
alliances. Although part of our business strategy is to pursue acquisitions and
alliances that will broaden our product offerings and add new markets, we
cannot be sure that we will find strategic acquisition opportunities at
favorable prices, that we will have sufficient capital resources to finance our
acquisition strategy, or that any such acquisitions, if consummated, will be
successfully integrated with our business operations.
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make certain forward-looking statements in this prospectus that are based
upon our current expectations and projections about current events. You can
identify these statements from our use of the words "estimate," "project,"
"believe," "intend," "anticipate," "expect" and similar expressions. These
forward-looking statements include:
. statements of our goals, intentions and expectations;
. statements regarding our business plans and growth strategies;
. statements regarding the asset quality of our loan and investment
portfolios;
. estimates of our risks and future costs and benefits; and
. statements regarding the effectiveness of our efforts to make our
operations year 2000 compliant.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
. fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect our net interest margin, asset valuations
and expense expectations;
. adverse changes in the economy of the greater Chicago metropolitan area,
our primary market, which might affect our business prospects and could
cause credit-related losses and expenses;
. the extent of continuing client demand for the high level of
personalized service that is the key element of our private banking
approach;
. adverse developments in our loan and investment portfolios;
. unforeseen developments or delays relating to the pending acquisition of
Towne Square Financial Corporation or difficulties relating to the
establishment of a St. Charles office;
. difficulties in identifying attractive acquisition opportunities and
strategic partners that will complement our private banking approach;
. competitive factors in the banking industry, such as the trend towards
consolidation in our market;
. changes in banking legislation or the regulatory requirements of federal
and state agencies applicable to bank holding companies and banks like
ours; and
. our effectiveness and that of our suppliers of data processing equipment
and services, government agencies, and other third parties in testing
and implementing year 2000 compliant hardware, software and systems.
Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results. We discuss these uncertainties and others in the
sections of this prospectus named "Risk Factors," "Business," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
17
<PAGE>
PENDING ACQUISITION
Effective as of June 24, 1999, we entered into a definitive agreement to
acquire Towne Square Financial Corporation, a recently organized Delaware
corporation formed for the purpose of developing a de novo, or start-up, bank
in the community of St. Charles, Illinois, a far western suburb of Chicago.
Demographic data shows that the St. Charles area has been one of the more
rapidly growing areas in Illinois in recent years, and our management believes
the transaction affords us an excellent opportunity to expand our franchise in
an attractive market.
Background
Upon learning of Towne Square's plans to form a de novo bank in the St.
Charles area, Ralph Mandell, our Chairman and CEO, contacted representatives of
the Towne Square group to explore the possibility of a strategic alliance. At
the time we began discussions with Towne Square on April 30, 1999, the company
had already raised initial seed capital from a group of six organizers and
developed a business plan to start a local bank focused on private banking
services, but had not yet commenced operations nor filed any of the required
regulatory applications relating to organization of a new bank. Because of the
similarity of our banking strategies and the compatibility of our management,
in lieu of pursuing its de novo strategy, Towne Square has agreed to merge with
us in a stock-for-stock transaction.
The terms of the transaction are the result of extensive arms' length
negotiations between the parties. In approving the transaction on the
negotiated terms, and concluding that the transaction is in the best interest
of our stockholders, our Board of Directors considered a number of factors,
including, among others, the following:
. the potential market opportunities offered by St. Charles and the
surrounding Fox Valley communities and the opportunity to expand the
PrivateBank franchise consistent with the Company's growth strategy;
. management's opinion that the transaction affords us a unique
opportunity to expand in an attractive market on terms that the Board
believed were fair to our stockholders based on a consideration of the
potential dilutive effect of the transaction to existing stockholders
and new investors in this offering in the short term, weighed against
the potential for a favorable internal return on investment over the
longer term;
. the significant contacts of Thomas Castronovo, an experienced banking
veteran in the Fox Valley area, his perceived compatibility with
management and his willingness to join PrivateBank as a managing
director in connection with the transaction;
. the competitive advantages of forestalling the Towne Square organizers
from pursuing an independent private banking strategy;
. the commitment of the Towne Square organizers, all prominent businessmen
and professionals from St. Charles, to serve on a Fox Valley advisory
board of PrivateBank and to support the efforts of the bank in St.
Charles;
. the strategic benefits of non-compete agreements to be entered into by
the Towne Square organizers in connection with the acquisition;
. the value of the preliminary business plan that had been developed by
Towne Square, including the identification of an attractive banking
location in St. Charles that would be available to PrivateBank at market
rates under a ten-year lease; and
. that, as a result of the transaction, PrivateBank would expect to be in
a position to expedite the organizational activities related to
establishing a new banking location and be able to open a banking office
in St. Charles during the fourth quarter of 1999.
Instead of opening a new bank as Towne Square had planned, we will establish
a new office of PrivateBank in St. Charles to be managed by Mr. Thomas
Castronovo, one of the principal organizers of Towne Square who will be joining
us as a managing director. Mr. Castronovo has 17 years of prior banking
experience and has significant contacts in the St. Charles community. Under
this arrangement, we believe there
18
<PAGE>
are significant opportunities for us in St. Charles and the surrounding Fox
River Valley communities to grow our private banking business.
We expect to file the requisite branch applications with the regulators
during July 1999 and currently anticipate opening the St. Charles office during
the fourth quarter of 1999.
Terms of the Transaction
Pursuant to the contemplated merger, Towne Square will be merged into
PrivateBancorp, Towne Square will cease to exist, and PrivateBancorp will
continue as the surviving corporation. In exchange for their shares of Towne
Square, the stockholders of Towne Square will receive merger consideration
equal to an aggregate of approximately 91,668 shares of PrivateBancorp common
stock. The exchange ratio was determined by dividing $1,650,000 by the initial
public offering price of our stock. Of the shares to be issued in the merger,
approximately 55%, or about 50,000 shares, will be subject to a one year
restriction on resale and the remainder to a three-year resale restriction.
In connection with the transaction, we have agreed to enter into a three-
year employment agreement with Mr. Castronovo providing for, among other
things, a signing bonus in the amount of $150,000 payable in two installments,
one-half at the time we open the St. Charles office and the other half six
months later. It is contemplated that Mr. Castronovo's employment agreement
will commence upon the closing of the transaction. We have also agreed that Mr.
Castronovo will receive options to purchase 7,000 shares, expected to be
granted under our Stock Incentive Plan at the initial public offering price,
and an award of 3,000 shares of restricted stock which will be subject to
forfeiture until fully vested five years after the date of grant. In addition
to our employment of Mr. Castronovo, we have agreed that following consummation
of the merger we will add to our Board of Directors one individual, who must be
acceptable to us, to be designated by the stockholders of Towne Square.
Also as part of the transaction, Towne Square will agree, and will cause
each of its six organizers also to agree, for a period of at least three years
not to compete with our business in the St. Charles market and to support our
efforts to develop relationships in the community. We will be forming a St.
Charles advisory board, to be comprised of the Towne Square organizers plus two
more prominent business people or professionals from the area to be mutually
selected, in order to draw on the experience and contacts of these individuals
in the local community to assist us in the development of our St. Charles
office. Also in connection with the transaction, we will enter into a lease for
space in a building recently acquired by the Towne Square organizers which is
where we will locate our St. Charles office. The lease will run for ten years
and provides for rents not in excess of comparable market rates.
Consummation of the merger is subject to effectiveness of a registration
statement being filed with the SEC relating to the transaction, the approval of
Towne Square's stockholders owning at least a majority of the outstanding
shares of Towne Square, and customary closing conditions. It is currently
anticipated that the transaction will close during the third quarter of 1999
following completion of this offering.
Accounting Treatment; Financial Impact of the Acquisition
Because Towne Square is not yet actively engaged in business, the merger
transaction will not be accounted for as a business combination. Rather, at the
time of closing, we will incur a one-time, nonrecurring charge to earnings in
an amount equal to the excess of the value of our stock issued in the merger
over the net assets of Towne Square on the date of closing. We anticipate that
the net assets of Towne Square, consisting substantially of cash, will
approximate $240,000 at closing. The one-time charge, currently estimated to be
approximately $1.29 million, is expected to be recorded during the third
quarter of 1999 and will adversely affect our 1999 results of operations. The
merger related charge will not be a deductible expense for tax purposes.
In addition to the merger related charge, we will incur additional start-up
costs relating to the opening of the St. Charles office. We currently
anticipate that the total pre-tax start-up costs will be approximately
$430,000, including $75,000 of the signing bonus payable to Mr. Castronovo, and
that the majority of these costs will be expensed during 1999.
19
<PAGE>
USE OF PROCEEDS
The net proceeds which we will receive from the sale of 900,000 shares of
common stock in this offering are estimated to be approximately $14,316,000
(assuming no exercise of the over-allotment option) after deducting
underwriting discounts and the aggregate expenses payable by us. Such expenses
are currently estimated to be approximately $750,000.
We intend to contribute $8.0 million of the net proceeds from this offering
to increase the regulatory capital of PrivateBank to support the growth of our
existing banking operations and the planned establishment of a new office in
St. Charles, Illinois. We are raising the remainder of the proceeds to have
funds available for future internal growth or expansion of our business
through:
. establishing new offices within the Chicago metropolitan area;
. expanding our presence into new markets located in the Midwest; and
. acquiring or affiliating with companies in businesses complementary to
ours.
Other than the pending acquisition of Towne Square Financial Corporation, we
have not yet identified any specific acquisition or affiliation candidates.
Until we have designated the specific use by the company of the remaining
proceeds, we intend to deposit these funds in an account of the company at
PrivateBank, where we can use them as a temporary funding source for loans or
investments of PrivateBank.
DIVIDENDS; NO PRIOR TRADING MARKET
Holders of our common stock are entitled to receive dividends that our Board
of Directors may declare from time to time. We may only pay dividends out of
funds which are legally available for that purpose. Because our consolidated
net income consists largely of the net income of PrivateBank, our ability to
pay dividends to our stockholders may become dependent upon our receipt of
dividends from PrivateBank. PrivateBank's ability to pay dividends is regulated
by banking statutes. See "Supervision and Regulation--Bank Regulation--
Dividends." Our declaration of dividends is discretionary and will depend on
our earnings and financial condition, regulatory limitations, tax
considerations, and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity."
We have paid quarterly dividends on our common stock since the third quarter
of 1995. While our Board of Directors expects to continue to declare dividends
quarterly, there can be no assurance that we will continue to pay dividends at
these levels or at all. The following table sets forth the history of per share
cash dividends declared and paid on our stock since the beginning of 1997:
<TABLE>
<S> <C>
1997
First Quarter............................. $0.016
Second Quarter............................ 0.016
Third Quarter............................. 0.019
Fourth Quarter............................ 0.019
1998
First Quarter............................. $0.019
Second Quarter............................ 0.020
Third Quarter............................. 0.020
Fourth Quarter............................ 0.020
1999
First Quarter............................. $0.025
Second Quarter (1)........................ $0.025
</TABLE>
- --------
(1) Payable on June 30, 1999, to stockholders of record on June 7, 1999.
As of March 31, 1999, we had 491 stockholders of record. Prior to this
offering, there has been no established public trading market for our common
stock. We have applied for inclusion of our common stock in The Nasdaq National
Market upon completion of this offering.
20
<PAGE>
CAPITALIZATION
The following tables set forth our total capitalization and capital ratios
as of March 31, 1999, and our total capitalization pro forma to give effect to
completion of the pending acquisition and pro forma as adjusted to reflect the
issuance and sale of 900,000 shares of our common stock which we are offering
in this prospectus (assuming the underwriters do not exercise the over-
allotment option).
<TABLE>
<CAPTION>
March 31, 1999
---------------------------
Pro
Pro Forma As
Actual Forma(1) Adjusted
------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, 1,000,000 shares authorized(2);
none designated or outstanding................... $ -- $ -- $ --
Common stock, without par value, 12,000,000 shares
authorized(2); 3,451,824 shares, $1.00 stated
value, issued and outstanding; 3,543,492 shares
outstanding pro forma, and 4,443,492 shares
outstanding pro forma as adjusted(3)............. 3,452 3,543 4,443
Surplus........................................... 22,600 24,034 37,450
Retained earnings................................. 5,853 4,568 4,568
Accumulated other comprehensive income, net of tax
effect........................................... (58) (58) (58)
Deferred compensation............................. (843) (843) (843)
Loan to executive officer......................... (950) (950) (950)
------- ------- -------
Total stockholders' equity...................... $30,054 $30,294 $44,610
======= ======= =======
</TABLE>
- --------
(1) Gives effect to completion of the pending acquisition of Towne Square
Financial Corporation based on the issuance of 91,668 shares in the
transaction as if the transaction had been consummated on March 31, 1999,
resulting in a one-time charge to earnings of $1,285,000. See "Pending
Acquisition."
(2) Gives effect to the amendment to PrivateBancorp's Restated Certificate of
Incorporation to increase the authorized shares which was approved by
stockholders on April 22, 1999.
(3) These share amounts do not include an aggregate of 632,808 shares of common
stock issuable upon exercise of outstanding options (after giving effect to
option grants through the date of this prospectus), of which 453,408 shares
are subject to currently exercisable options. The pro forma amounts also
exclude 3,000 shares of restricted stock and 7,000 shares to be subject to
options that are expected to be granted in connection with the pending
acquisition. See "Pending Acquisition."
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Capital ratios (at end of period):
Total equity to total assets........................................ 6.97%
Total risk-based capital ratio...................................... 11.21
Tier 1 risk-based capital ratio..................................... 10.05
Leverage ratio...................................................... 7.53
</TABLE>
21
<PAGE>
DILUTION
As of March 31, 1999, we had an aggregate of 3,451,824 shares of common
stock outstanding, and, giving effect to the assumed issuance of 91,668 shares
in the pending Towne Square acquisition, the common stock had a net tangible
pro forma book value of $8.55 per share. "Net tangible pro forma book value per
share" represents our tangible net worth, which is our total assets less our
intangibles and total liabilities as adjusted to give effect to the Towne
Square acquisition, divided by the total number of shares of common stock
outstanding. Net tangible pro forma book value is equal to our reported book
value as adjusted to give effect to the Towne Square acquisition. Without
taking into account any other changes in net tangible book value after March
31, 1999, other than those resulting from application of the net proceeds we
will receive from the sale of 900,000 shares offered hereby (after deduction of
the underwriting discount and estimated offering expenses), the net tangible
book value at March 31, 1999, would have been $10.04 per share. This represents
an immediate increase of $1.49 per share to current stockholders and an
immediate dilution in book value of $7.96 per share to new investors. The
following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $18.00
Net tangible pro forma book value per share before the
offering.................................................. $8.55
Increase per share attributable to investors in the
offering.................................................. 1.49
-----
Net tangible pro forma book value per share after the
offering.................................................... 10.04
------
Per share book value dilution to investors in the
offering(1)................................................. $ 7.96
======
</TABLE>
- --------
(1) Does not give effect to and assumes no prior exercise of currently
outstanding options to purchase up to an aggregate of 632,808 shares of
common stock, of which 453,408 are currently exercisable. Further adjusted
as of March 31, 1999, to give effect to the exercise of such options in
accordance with their terms, the estimated net tangible pro forma book
value per share before the offering would be $8.50 and after the offering
would be $9.86, and the estimated per share book value dilution to
investors in the offering would be $8.14.
The following table compares, on a pro forma basis at March 31, 1999:
. the total number of shares of common stock purchased from us, giving
effect to the assumed issuance of 91,668 shares in the pending Towne
Square acquisition;
. the total cash consideration paid; and
. the average price per share paid by:
. existing stockholders; and
. new investors.
This table assumes the sale of 900,000 shares in the offering, before the
deduction of the underwriting discount and estimated offering expenses, and
assumes no exercise of stock options outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
--------------- ---------------- Price
Percent Percent Per
Number of Total Amount of Total Share
------ -------- ------- -------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 3,543 79.7% $26,272 61.9% $ 7.40
Investors in the offering(1)........... 900 20.3 16,200 38.1 18.00
----- ----- ------- -----
Total................................ 4,443 100.0% $42,472 100.0%
===== ===== ======= =====
</TABLE>
- --------
(1) If the over-allotment option is exercised in full, the number of shares of
common stock held by investors in the offering will increase to 1,035,000
shares, or 22.6% of the total shares of common stock outstanding after this
offering.
22
<PAGE>
BUSINESS
Overview
We organized PrivateBancorp as a Delaware corporation in 1989 to provide
highly personalized financial services primarily to professionals,
entrepeneurial individuals and their closely-held businesses. We were one of
the first banks newly formed in the Chicago area in recent years. The
organizers had significant senior level banking experience and many potential
client contacts from prior banking positions.
We believe that as the financial industry has consolidated, many financial
institutions have focused on a mass market approach using automated customer
service which de-emphasizes personal contact. We believe that the
centralization of decision-making power at these large institutions has
resulted in disruption of client relationships as frontline bank employees who
have limited decision-making authority fill little more than a processor role
for their customers. At many of these large institutions, services are provided
by employees in the "home office" who evaluate requests without the benefit of
personal contact with the customer or an overall view of the customer's
relationship with the institution.
We believe that this trend has been particularly frustrating to affluent
individuals, professionals, owners of closely-held businesses and commercial
real estate investors who traditionally were accustomed to dealing directly
with senior bank executives. These customers typically seek banking
relationships managed by a decision maker who can deliver a prompt response to
their requests and custom tailor a banking solution to meet their needs. As
smaller, independent banks have been acquired by national, multi-bank holding
companies, we believe that the personal relationships that these customers
maintained with the management of such banks have eroded, and their
individualized banking services have been lost.
Through our banking subsidiary, The PrivateBank and Trust Company, we
provide our clients with traditional personal and commercial banking services,
lending programs, and trust and asset management services. Using the European
tradition of "private banking" as our model, we strive to develop a unique
relationship with each of our clients, utilizing a team of highly qualified
account executives to serve the client's individual and corporate banking
needs, and tailoring our products and services to meet such needs. Our managing
directors are strategically located in three Chicago-area offices: Downtown
Chicago, Wilmette, Illinois, and Oak Brook, Illinois. We opened our flagship
Chicago location in 1991. We expanded to our Wilmette office in north suburban
Cook County in 1994 after identifying a senior banking officer with existing
relationships and client contacts in this North Shore area. We opened the Oak
Brook facility in west suburban DuPage County in 1997 with the addition of a
managing director who has extensive relationships in that market.
Since our start in 1991, we have experienced rapid internal growth. From
year-end 1995 to March 31, 1999, our compound annual growth rate in loans was
31.6%, in assets was 27.3%, in deposits was 27.0% and in trust assets under
administration was 40.2%. At March 31, 1999, we had total loans of $307.8
million, total assets of $431.1 million, total deposits of $384.5 million,
total stockholders' equity of $30.1 million and total trust assets under
administration of $637.4 million.
Our Market
In response to the need for individualized banking services, we created The
PrivateBank and Trust Company as the first Chicago-based institution dedicated
primarily to providing banking services to professionals, entrepreneurial
individuals, and their business interests. We targeted the affluent segment of
the market because we believe that there is significant unmet demand for
personalized services within this segment, and also because we recognize its
significant growth potential. According to National Decision Systems, San
Diego, California, the number of households in the metropolitan Chicago area
with annual incomes greater than $150,000 was estimated at 190,042 in 1998,
compared to 63,861 households in 1990. This equates to a compound annual growth
rate of 14.6%, versus an annual growth rate for the total number of households
in the
23
<PAGE>
metropolitan Chicago area of 0.6%. By 2003, the number of these affluent
households in the Chicagoland area is expected to increase to approximately
358,000, representing an annual growth rate of 13.5%, while the aggregate
number of households is expected to increase at an annual growth rate of 0.3%.
The following graph illustrates the size and relative growth of this market:
[Performance Graph Appears Here]
[PLOT POINTS TO COME]
(1) Based on information from the 1990 U.S. census.
(2) Estimated by National Decision Systems based on, among other things, (a) a
time series of estimates made by the U.S. Census Bureau regarding six of
the counties in the Chicago metropolitan area; and (b) data provided by the
Department of Planning of the City of Chicago.
(3) Generated by National Decision Systems through the application of an
econometric model of the Chicago metropolitan area to the 1998 estimate.
The econometric forecasting model considers the impact of various economic
factors such as employment, inflation, interest rates and housing starts on
future population growth.
The PrivateBank and Trust Approach
We believe that we have developed a unique approach to private banking
designed to provide our clients with unparalleled service. We emphasize
personalized client relationships and custom-tailored financial services,
complemented by the convenience of technology. The key aspects of our private
banking approach are:
. Personal Relationships. Our approach begins with the development of
strong, dedicated relationships with our clients. Each client of
PrivateBank is matched with a team of individuals headed by a managing
director. This managing director becomes our client's central point of
contact with PrivateBank. Our eleven managing directors, who are senior
financial professionals with an average
24
<PAGE>
of 27 years of banking and financial experience, act as the financial
partners of our clients, working with them to identify and service their
banking needs. By dedicating a team of executives to each client, we are
able to build ongoing relationships which allow our managing directors
to use their increasing knowledge of the client's financial history and
goals to quickly adapt our services to the client's individual needs.
Our clients interact with the same persons at PrivateBank for all types
of banking services, enabling them to gain a sense of security and
continuity of personal service in their banking relationship. On the
basis of this trust and confidence, we seek to expand the scope of
services provided to each client, often including banking needs related
to the business affairs of our clients. Satisfied clients provide our
most fertile source of new business and new client referrals as well.
. Affluent Target Client. We believe that the affluent segment of the
population, meaning that segment with annual incomes over $150,000, is
increasing and is diverse in terms of its overall wealth and financial
needs. PrivateBank offers its services to those members of this segment
who are focused on building and preserving wealth. Our clients include
professionals, entrepreneurial individuals and their business interests.
We target service industries such as the accounting, legal and medical
professions, as well as owners of closely-held businesses, commercial
real estate investors and corporate executives. Although we generally
target individuals with high annual incomes and net worths, we recognize
the growth potential of certain young professionals and extend our
services to those individuals whose income or net worth do not initially
meet our criteria. We believe that this segment of the market is most
suited to our business and that these individuals are most likely to
develop long-term relationships with us.
. Customized Financial Services. We realize that many of our clients
require a custom solution to their financial needs. In taking a long-
term, relationship approach to our clients, we are able to differentiate
ourselves from the "one-size-fits-all" mentality of other financial
institutions. We offer our clients a wide variety of financial services
beyond the traditional banking products and are constantly working to
develop and shape our services to meet their growing needs. We take the
time to identify our clients' particular needs and tailor our services
to meet those needs on an individual customized basis, while maintaining
highly competitive rates and fees that take into account the size and
profitability of each client relationship. While we are proud of our
portfolio of products, we believe that it is our service that
distinguishes us from our competition. We encourage our clients to
contact us rather than discourage them. We use regular contact as a way
to strengthen our relationships, increase services to existing clients
and earn referral business.
. Streamlined Decision-Making Process. Unlike most larger banks, we have
not instituted a lengthy chain of command. Our clients deal directly
with their dedicated managing directors, who are given broad decision-
making authority. This allows our managing directors to respond quickly
and efficiently to our clients' needs. We are able to use a streamlined
approach because our organization has many qualified, experienced credit
officers. Officers with credit approval authority make themselves
available on short notice to help consult on or approve credits when
time is of the essence. We use an "on call" approach, rather than
structured meetings, to approve credit. As the amount of the credit and
the complexity increases, we resort to a more traditional process.
. Enhanced Personal Service through Technology. While we encourage our
clients to contact us directly, we also utilize technology to complement
and enhance our service. We created products such as PrivateBank Access,
our internet banking service, MasterMoney debit cards and Private Line
Access, our voice-response communication system, to enhance, not
replace, personal contact. This technology allows us to offer our
clients the convenience of accessing our services from remote locations
at any time of day.
We believe that our PrivateBank Access product is likely to grow in
importance. Our clients may connect to PrivateBank Access directly
through our internet website, without the need for the diskettes or
software downloads found in some competing PC banking systems.
Currently, our product:
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<PAGE>
. accesses deposit and loan information;
. allows transfers of funds among accounts;
. includes a bill payment service with a variety of options;
. allows information to be exported to financial software packages;
. includes a help desk which is staffed 92 hours per week; and
. sends e-mail messages from clients to PrivateBank personnel.
We are working to supplement our website to enhance our service to
clients. Some features we are planning include:
. applications for our banking products;
. access to trust account information;
. current deposit rate schedules; and
. current mortgage rate schedules.
As technology changes, we intend to modify and enhance our electronic
banking products. We believe that in the future, a growing number of
our clients will desire both personal and electronic services. We
intend to work to offer dual-delivery systems providing the quality of
service to which PrivateBank clients are accustomed.
. Extensive Financial Network. In order to compete with other financial
service providers, we rely on a network of professionals in the
financial and investment communities with whom we have developed
strategic alliances over the years. This enables us to offer our clients
a broad array of high quality services. For example, we work with
selected investment management firms in providing services to our trust
clients. Our clients can either maintain existing investment management
relationships when they become our trust clients, or use our preferred
providers of investment management services. We believe this choice
distinguishes our service from the rigid policies set by some of our
competitors. We, in turn, help our clients select a complete package of
services best suited to their individual needs without incurring the
overhead associated with directly employing diversified portfolio
managers. We also have a contractual fee sharing agreement with Mesirow
Financial, Inc., an independent insurance brokerage company in the
Chicago area. Through this affiliation, we offer a full range of
personal and corporate insurance products to our clients. To complement
our existing financial products and services, we have a contractual
arrangement with Sterling Investment Services, Inc., a registered
securities broker-dealer firm, through which we offer our clients on-
site securities brokerage services.
Strategy for Growth
Our growth strategy entails five key components:
. Developing Our Existing Relationships. An important part of our future
growth will be the continued development of our existing client
relationships. As the needs of our clients change and grow, we seek to
grow with them and continue to provide them with our custom-tailored,
flexible services. For example, we strive to follow our clients from the
purchase of their homes, through the financing of their own business, to
the development and planning of their estate, continuing the
relationship tradition with their children and grandchildren. We believe
we have a significant opportunity to further develop our existing client
relationships in each of our offices.
. Increasing the Reach of Our Existing Offices. In addition to increasing
the services provided to our existing clients, we seek to expand the
market presence of our existing offices, especially our Oak Brook and
Wilmette branches. We believe that the growing need for private banking
services in these regions is largely unmet and we have a significant
opportunity to increase our client base in these branches. We hope to
capitalize on our reputation and the reputations of our managing
directors in
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increasing our market presence. Our managing directors, with their
personal and professional contacts in the financial and corporate
arenas, have been instrumental in developing our business to date. We
encourage our senior executives to attend and host business receptions,
charitable activities and promotional gatherings so that we may interact
with our clients in a unique and personal manner. We also hope to grow
our branch offices through referrals from our existing clients.
Referrals have been a significant source of new business for us. We
value this system of networking because it allows us to further develop
and strengthen our personal and professional relationships with both new
and existing clients.
. Opening Additional Offices in the Chicago Metropolitan Area. Our
experience in our Oak Brook and Wilmette offices demonstrates to us that
there exists significant demand by our target client for specialized
private banking services in the Chicago metropolitan area. We built
these offices around senior executive officers whom we recruited for
their strong banking experience and extensive personal and professional
contacts in those areas. To increase our market penetration, we have
recently negotiated the acquisition of Towne Square Financial
Corporation and plan to establish a new office of PrivateBank in St.
Charles, Illinois, a far western suburb of Chicago located in the
rapidly growing Fox River Valley area. We have recruited one of the
organizers of Towne Square, who is an experienced banker with
significant contacts in St. Charles and the surrounding communities, to
join us as a managing director to head this office. See "Pending
Acquisition." We will consider opening additional offices as we identify
locations and other senior executives that will maintain our standards
for high-quality personalized service.
. Expanding into New Markets. We believe the trend toward bank
consolidation and centralized decision-making that has created a demand
for our private banking services is not unique to Chicago. We believe
there is similar demand in other markets within the Midwest and we are
interested in expanding in markets that present opportunities for growth
and development similar to those in the Chicago market. We intend to
pursue selective geographic expansion through possible acquisitions of
existing institutions or by establishing new banking offices.
. Expanding into New Product Lines. We desire to be the primary source of
financial products and services for our clients. By broadening our
product line with additional financial services not currently offered by
PrivateBank, we believe we can increase our franchise value through
diversification of our fee income and strengthening of our client
relationships. To achieve this goal, we intend to consider acquisitions,
joint ventures or strategic alliances with other companies that
emphasize quality service and the value of relationships. Our targets
are businesses that complement our services and enable us to broaden our
product line to better serve our clients.
Our Services
We offer banking services to our clients at a personal level. This is not
the same as personal banking service. We define private banking as offering
banking products and services to our clients when they want it, how they want
it and where they want it. We tailor our products and services to fit our
clients instead of making our clients fit our products and services. Our
services fall into four general categories:
. Commercial Services. PrivateBank offers a full range of lending products
to businesses owned by or affiliated with our clients. We offer lines of
credit for working capital, term loans for equipment and other
investment purposes, and letters of credit to support the commitments
our clients make. PrivateBank tailors these products to meet the varied
needs of the client. Non-credit products we offer include lockbox, cash
concentration accounts, merchant credit card processing, electronic
funds transfer, other cash management products and insurance. We strive
to offer banking packages that are competitive and allow us to provide
service to our clients beyond what is expected in our industry.
. Real Estate Services. PrivateBank provides real estate loan products to
businesses and individuals. Our commercial real estate lending products
are designed for real estate investors. We provide a full range of fixed
and floating rate permanent and mini-permanent mortgages for our clients
to finance a variety of properties such as apartment buildings, office
buildings, strip shopping centers, and other income properties. We also
provide some construction lending for residential and commercial
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developments. We believe that our lending products are competitively
priced with terms that are tailored to our clients' individual needs.
Our residential mortgage products range from 30-year fixed rate
products to personal construction lending. The home mortgage market is
very competitive and we believe that our service is what separates
PrivateBank from our competition. Many mortgage lenders cannot work
with borrowers who have non-traditional income sources or non-
traditional properties, such as co-ops. Our mortgage lending staff is
trained to work with successful individuals who have complex personal
financial profiles. We have developed a proficiency for mortgages in
excess of $1.0 million per loan and will work with our clients and our
market sources to place these loans into the secondary market. Our
experience has been that residential lending is an excellent vehicle to
attract new clients.
. Trust and Asset Management. PrivateBank's trust services include
investment management, personal trust and estate services, custodial
services, retirement accounts and brokerage and investment services. Our
investment management professionals work with our clients to define
objectives, goals and strategies for their investment portfolios.
PrivateBank assists the client with the selection of an investment
manager and works to tailor the investment program accordingly. Our
trust and estate account administrators work with our clients and their
attorneys to establish their estate plans. We work closely with our
clients and their beneficiaries to ensure that their needs are met and
to advise them on financial matters. When serving as trustee or
executor, we often structure and oversee investment portfolios. We also
provide our clients with custodial services for safekeeping of their
assets. Consistent with our private banking approach, we emphasize a
high level of personal service in our trust area, including prompt
collection and reinvestment of interest and dividend income, weekly
valuation, tracking of tax information, customized reporting and ease of
security settlement. PrivateBank also offers retirement products such as
individual retirement accounts and administrative services for
retirement vehicles such as profit sharing plans and employee stock
option plans, as well as a full line of brokerage and investment
products.
. Individual Banking Services. Our typical private banking client has
several of the following products: interest bearing checking with credit
line, money market deposit accounts, certificates of deposit, ATM/debit
card, and brokerage accounts. Some of our clients have recently selected
our PrivateBank Access Internet PC banking product. In addition to
residential mortgages, we provide clients a variety of secured and
unsecured personal loans and lines of credit. Through our affiliations
with Mesirow and Sterling, we offer insurance products and securities
brokerage services. We strive to accommodate the individual needs of
each of our clients by offering the convenience of highly personalized
services, including domestic and international wire transfers and
foreign currency exchange.
Lending Activities
We work with our clients to provide a full range of commercial, real estate
and personal lending products and services. Our loans are concentrated in six
major areas: (a) commercial real estate; (b) residential real estate; (c)
commercial; (d) personal; (e) home equity; and (f) construction. We have
adopted a loan policy that contains general lending guidelines and is subject
to review and revision by the Board of Directors. We extend credit consistent
with this comprehensive loan policy. We believe the credit quality of our loan
portfolio is excellent.
The goal of our lending program is to meet the credit needs of our diverse
client base while using sound credit principles to protect the quality of our
assets. Our business and credit strategy is relationship-driven and we strive
to provide a reliable source of credit, a variety of lending alternatives, and
sound financial advice. When extending credit, our decision is based upon our
client's ability to repay us from non-speculative sources. The quality and
integrity of the borrower is crucial in the loan approval process. We monitor
the performance of our loan portfolio through regular contacts with our
clients, continual portfolio review, careful monitoring of delinquency reports
and reliance on our loan review function.
We have retained an independent, outside resource to perform our loan review
function. Using an outside resource ensures that our loan review process
remains independent of the loan production and administration
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processes. Our loan reviewer examines individual credits to critique individual
problems and the entire portfolio to comment on systemic weaknesses. The
reviewer reports directly to the audit committee of our Board of Directors on a
quarterly basis. In addition to loan review, the loan/investment committee of
our Board reviews the adequacy of the allowance for loan losses on a quarterly
basis. The committee assesses management's loan loss provisions based on loan
review's findings, delinquency trends, historical loan loss experience and
current economic trends.
Our legal lending limit, based on PrivateBank's financials, is calculated at
20% of capital plus unencumbered reserves. At March 31, 1999, our legal lending
limit was approximately $6.6 million. This is the maximum amount of credit that
we may commit to any one individual or business entity after aggregating all
related credit. Immediately after the offering, our legal lending limit will
increase by $1.6 million based on our intention to contribute $8.0 million of
the proceeds to the capital of PrivateBank.
In addition to our chief credit officer, certain individuals have been
designated acting chief credit officers, credit officers, officers with lending
authority, and residential real estate lending officers. No single individual
has sole authority to approve a loan. As the size of aggregate credit exposure
increases, additional officers are required to approve the loan requests. This
serves several purposes: (a) larger credits get more scrutiny, (b) most senior
credit officers become involved in the decision-making process for the vast
majority of dollars loaned without approving a proportionate number of loan
requests, and (c) we become more consistent in administration of credit as
credit officers experience the dynamics of our overall portfolio and credit
culture. We also believe that our past credit approval practices will mitigate
the effect of the impending retirement of our chief credit officer because our
credit culture is firmly in place.
Our chief credit officer, or his designate, is involved in all credit
decisions when the aggregate credit exposure is in excess of $250,000. Our
loan/investment committee reviews all credit decisions over $1.0 million. Prior
approval is required for credit exposure in excess of $4.0 million and for all
credits related to our board members or our managing directors. Loans are
approved at the bank level by a management loan committee or by small group
presentations to credit officers. We believe that this process allows us to be
more responsive to our clients' needs by being able to approve credit without
waiting for scheduled committee meetings. We also use management committee
meetings to discuss complex credits or when we feel that a particular credit
may be informative to everyone in the loan approval process.
Our lending policy sets guidelines for advance rates on certain types of
collateral including accounts receivable, inventory, equipment and real estate
that we generally do not exceed absent special circumstances. Under the policy
guidelines, the maximum loan-to-value ratios are 80% for accounts receivable,
50% for inventory and 65% for equipment. Under the policy, the maximum loan-to-
value ratio for real estate is 80%, but maximum advance rates on real estate
will differ depending upon the type of real estate taken as collateral. For
example, higher loan-to-value ratios are acceptable for owner-occupied
residential properties than non-owner occupied residential or commercial
properties. Vacant land commands the lowest advance rate guidelines. We accept
primary and secondary liens on properties when appraised values are adequate.
Our lending policy also contains advance rate guidelines for securities and
other financial instruments taken as collateral, including stocks, bonds,
commercial paper, and bank deposit instruments. Under the policy guidelines,
maximum loan-to-value ratios should generally not exceed 75% for stocks, 98%
for government bonds, 80% for non-governmental bonds, 95% for commercial paper
and 100% of bank deposit instruments.
Specific collateral requirements are based upon the facts and circumstances
of each individual credit decision. The financial strength and ascertainable
character of each borrower and guarantor is also a factor in the credit
approval process. Because we tend to lend to clients whom we know well, we
believe we are in a good position to assess our borrowers' strengths and
weaknesses and to make well-informed credit decisions on this basis. We make
loans based upon borrowers' available assets and the condition of their
financial statements. We do not sell credit life insurance to our borrowers.
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The following table sets forth our loan portfolio by category as of March
31, 1999:
<TABLE>
<CAPTION>
Percentage
March of total
31, 1999 loans
-------- ----------
<S> <C> <C>
Commercial real estate................................ $108,599 35.3%
Residential real estate............................... 62,208 20.2
Commercial............................................ 53,834 17.5
Personal.............................................. 45,122 14.7
Home equity........................................... 19,860 6.4
Construction.......................................... 18,143 5.9
-------- -----
Total loans......................................... $307,766 100.0%
======== =====
</TABLE>
Commercial Real Estate Loans. Our commercial real estate portfolio is
comprised primarily of loans secured by multi-family housing units located in
the Chicago metropolitan area. Other types of commercial real estate collateral
include: commercial properties owned by clients housing their manufacturing,
warehousing or service businesses, investments in small retail centers, and
investments in other business properties.
Risks inherent in real estate lending are related to the market value of the
property taken as collateral, the underlying cash flows and documentation. It
is important to accurately assess property values through careful review of
appraisals. Some examples of risky commercial real estate lending include loans
secured by properties with widely fluctuating market values or income
properties occupied by renters with unstable sources of income, and not
perfecting liens on property taken as collateral. We mitigate these risks by
understanding real estate values in areas in which we lend, investigating the
sources of cash flow servicing the debt on the property and adhering to loan
documentation policy.
Commercial real estate loan products include mini-permanent and permanent
financing, transaction loans to purchase properties prior to permanent
financing, and lines of credit secured by commercial real estate portfolios. We
typically structure mini-permanent and permanent financing as adjustable rate
mortgages ("ARMs"). ARM structure allows our clients to lock in an interest
rate for a fixed period of time in order to avoid interest rate risk. The vast
majority of our ARM loans have initial fixed pricing for between one to five
years. Each ARM loan has language defining repricing beyond the initial fixed
pricing term. Transaction loans to purchase commercial property typically have
maturities of one year or less. Lines of credit secured by commercial real
estate portfolios are typically granted for one year with annual extensions
after a successful underwriting review. Interest rates for our lines of credit
typically are based on a floating rate formula.
In our credit analysis process for commercial real estate loans, we
typically review the appraised value of the property, the ability of the
property as collateral to service debt, the significance of any outside income
of the borrower or income from other properties owned by the borrowers, and the
strength of guarantors, if any. Our real estate appraisal policy has been
approved by our board loan/investment committee. It addresses selection of
appraisers, appraisal standards, environmental issues and specific requirements
for different types of properties.
Residential Real Estate Loans. Our residential real estate portfolio
consists primarily of first and second mortgage loans for 1-4 unit residential
properties. We do not originate long-term fixed rate loans for our own
portfolio due to interest rate risk considerations. However, we do originate
these loans for sale into the secondary market. This is a significant business
activity in our residential real estate lending unit. For our own portfolio, we
originate ARM loans typically structured with 30 year maturities and initial
rates fixed for between one to five years with annual repricing beyond the
initial term.
Our credit review process mirrors the standards set by traditional secondary
market sources. We review appraised value and debt service ratios, and we
gather data during the underwriting process in accordance with the various laws
and regulations governing residential real estate lending. Our real estate
appraisal policy sets specific standards for valuing residential property.
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We require pre-approval from secondary market sources before we approve
loans to be sold into the secondary market. Our internal approval process is
less stringent for loans pre-approved by our secondary market sources. This
allows us to be responsive to the tight time commitments dictated for locking
in rates in the secondary market.
We believe that we have a competitive advantage in our ability to offer
financing for our clients who have non-traditional income sources or require
large mortgage loans. We have developed secondary market sources for mortgages,
including several able to provide financing in amounts in excess of $1.0
million per loan which is occasionally required by our clients. By offering our
own ARM loans, we can offer credit to individuals who are self-employed or have
significant income from partnerships or investments. The secondary market often
will not take the time or will be unable to make exceptions for otherwise
qualified borrowers. We have experience in making loans to qualified borrowers
secured by co-ops. We believe that we are one of a limited number of financial
institutions in the Chicago area making these loans.
Commercial Loans. Our commercial loan portfolio is comprised of lines of
credit for working capital, term loans for equipment and expansion, and letters
of credit. These loans are made to businesses affiliated with our clients, or
to clients directly for business purposes. The vast majority of our commercial
loans are personally guaranteed. Unsecured loans are made to businesses when a
guarantor, as a secondary source of repayment, has a significant ability to
repay and a significant interest in the business entity. Commercial loans can
contain risk factors unique to the business of each borrower. In order to
mitigate these risks, we seek to gain an understanding of the business of each
borrower, place appropriate value on collateral taken and structure the loan
properly to make sure that collateral values are maintained while loans are
committed. Appropriate documentation of commercial loans is also important to
protect our interests.
Our lines of credit typically are limited to a percentage of the value of
the assets securing the line, and priced by a floating rate formula. Lines of
credit typically are reviewed annually and are supported by accounts
receivable, inventory and equipment. Depending on the risk profile of the
borrower, we may require periodic aging of receivables, and inventory and
equipment listings to verify the quality of the borrowing base prior to
advancing funds. Our term loans are typically also secured by the assets of our
clients' businesses. Term loans typically have maturities between one to five
years, with either floating or fixed rates of interest. Commercial borrowers
are required to provide updated personal and corporate financial statements at
least annually. Letters of credit are an important product to many of our
clients. We issue standby or performance letters of credit, and can service the
international needs of our clients through correspondent banks. We use the same
underwriting standards for letters of credit as we do for funded loans.
Our credit approval process for commercial loans is comprehensive. We
typically review the current and future cash needs of the borrower, the
business strategy, management's ability, the strength of the collateral, and
the strength of the guarantors. While our loan policy has guidelines for
advances on different types of collateral, we establish eligible asset values
on a case-by-case basis for each borrower. Our officer on the account must be
able to validate his or her position during the approval process.
Personal Loans. Our personal loan portfolio consists of loans to secure
funds for personal investment, loans to acquire personal assets such as
automobiles and boats, and personal lines of credit. Quite often, our borrowers
prefer not to liquidate assets to secure funds for investment or personal
acquisitions. They will use these assets as collateral for personal loans, or
if their financial statements and personal reputations are sufficient, we will
grant unsecured credit. A key factor in originating personal loans is knowing
our borrowers. When personal loans are unsecured, we believe that the character
and integrity of the borrower becomes as important as the borrower's financial
statement.
Our clients request a combination of lines of credit, floating-rate term
loans and fixed-rate term loan products. Many of our clients use their personal
investment portfolios as collateral for personal loans. Personal lines of
credit are used for a variety of purposes such as the comfort of having funds
available for future uses or establishing a line of credit as overdraft
protection. We respond quickly to the needs of our clients within the limits
set by our loan policy.
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Personal loans are subject to the same approval process as all other types
of loans. Each client is underwritten to ensure that they have adequate
collateral coverage and/or cash flow. Annual financial statements are required
of each personal borrower.
Home Equity Loans. Our home equity loan portfolio consists of traditional
home equity lines of credit prevalent in the market today. In general, we
advance up to 80% on the value of a home, less the amount of prior liens.
However, we may vary from that percentage depending on the value of the home,
type of dwelling, and the personal financial situation of the borrower. Home
equity loans are funded either through draws requested by our client or by
special home equity credit drafts that function as bank checks. Home equity
loans are approved using the same standards as residential mortgage loans. Our
borrower's personal cash flow is compared to debt service requirements to
determine our borrower's ability to repay. Home equity loans are competitively
priced based using a floating rate formula.
Construction Loans. Our construction loan portfolio consists of single
residential properties, multi-family properties, and commercial projects. As
construction lending has greater inherent risk, we closely monitor the status
of each construction loan throughout its term. Typically, we require full
investment of the borrower's equity in construction projects prior to injecting
our funds. Generally, we do not let our borrowers recoup their equity from the
sale proceeds of finished units (if applicable) until we have recovered our
funds on the overall project. We use a title company to disburse periodic draws
from the construction line to ensure that there will be no title problems at
the end of the project.
Our construction loans are often the highest yielding loans in our portfolio
due to the inherent risks and the monitoring requirements. These loans
typically have floating rates, commitment fees and release fees. During our
credit approval process, factors unique to construction loans are considered.
These include assessment of the market for the finished product, reasonableness
of the construction budget, ability of the borrower to fund cost overruns, and
the borrower's ability to liquidate and repay the loan at the point when the
loan-to-value ratio is the greatest. We seek to manage these risks by, among
other things, ensuring that the collateral value of the property throughout the
construction process does not fall below acceptable levels, ensuring that funds
disbursed are within parameters set by the original construction budget, and
properly documenting each construction draw. Due to our more stringent
standards for underwriting and monitoring construction loans and the credit
profile of our borrowers, we are comfortable with the risk associated with this
portfolio and are committed to construction lending as an integral part of our
lending program.
Investment Activities
The objective of our investment policy is to maximize income consistent with
liquidity, asset quality, regulatory constraints and asset/liability
objectives. The policy is reviewed at least annually by our Board of Directors.
The Board is provided monthly information recapping purchases and sales with
the resulting gains or losses, average maturity, federal taxable equivalent
yields and appreciation or depreciation by investment categories.
We invest primarily in direct obligations of the United States, obligations
guaranteed as to principal and interest by the United States, obligations of
agencies of the United States, bank-qualified obligations of state and local
political subdivisions and collateralized mortgage obligations. We also may
invest from time to time in corporate debt or other securities as permitted by
our investment policy. In addition, we enter into federal funds transactions
with our principal correspondent banks, and primarily act as a net seller of
such funds. The sale of federal funds are effectively short-term loans from us
to other banks.
Our investment accounts also include minimal equity investments in the
Federal Home Loan Bank of Chicago ("FHLB") and Neighborhood Housing Service
("NHS"). We invest in FHLB in order to be a member, which qualifies us to use
their services, including FHLB borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources." NHS is a not-for-profit organization which helps provide affordable
housing to low and moderate income residents in the Chicago area. The size of
our investment is proportionate to the volume of loans in certain credit
programs offered by NHS. NHS is an important vehicle in our Community
Reinvestment Act ("CRA") lending program.
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Rather than incurring the costs of employing a full-time investment manager
with the requisite expertise to establish a diverse investment program, we have
engaged two outside investment advisory firms to help us execute our strategy.
One firm is responsible for helping us select taxable investment products to
meet our investment portfolio objectives. This firm employs a team of
professionals who bring us recommendations on a regular basis. Our other
advisor is a leading investment manager of tax-exempt portfolios and is well-
known to us through his work with our trust clients.
Asset/Liability Management Committee
We have an asset/liability committee ("ALCO") comprised of selected senior
executives who are charged with the dual goals of optimization and
stabilization of net interest income over time while adhering to prudent
banking practices. ALCO oversees asset growth, liquidity and capital, and
directs our overall acquisition and allocation of funds. At our monthly
meetings, ALCO reviews issues including:
. data on economic conditions;
. current interest rate outlook;
. current forecast on loans and deposits;
. mix of interest rate sensitive assets and liabilities;
. bank liquidity position;
. investment portfolio purchases and sales; and
. other matters as presented.
ALCO is also responsible for monitoring compliance with our investment
policy. On a monthly basis, ALCO reports to the loan/investment committee who
reviews the portfolio of reports we prepare for our Board of Directors and all
the decisions made by ALCO affecting net interest income.
Trust and Asset Management
We offer our clients a wide variety of trust and asset management services
designed to meet their individual needs and investment goals. Many of our trust
clients have longstanding relationships with our managing directors. In
administering a trust, we work closely with our client, the beneficiaries and
the trustees' attorneys and accountants on personal and tax matters to assist
the client in accomplishing the stated objectives. As fiduciaries of a trust or
estate our responsibilities may include:
. administering the account pursuant to the applicable document;
. collecting, holding and valuing assets;
. monitoring investment portfolios;
. paying debts, expenses and taxes;
. distributing property; and
. advising beneficiaries.
In addition to trust and estate administration, we offer:
. institutional accounts;
. guardianship administration;
. investment agency accounts;
. Section 1031 exchanges; and
. custodial accounts.
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Over the past three years, the average account value of new trusts
administered by PrivateBank was approximately $3.0 million. We believe that our
trust business will continue to grow as we expand our client base and our
clients increasingly reach retirement age and focus on their estate plans.
Our investment management philosophy for our trust assets under
administration is built on two principles: (a) the preservation of capital, and
(b) achievement of maximum total return consistent with each individual
client's objectives. We have chosen to outsource the investment management
aspect of our business so that we may offer our clients diversity and
flexibility of investment representation and to allow us to impartially
evaluate investment performance. This structure also allows our clients to
independently designate one or more specific advisors enabling them to maintain
existing relationships they may have within the financial community. If the
client does not have such a relationship in place, we then help them select an
investment management firm that will best service their needs. Based on the
client's investment strategy and objectives and the account attributes, one or
more investment managers will be selected from our list of approved advisors.
Our trust policy has established controls over our trust activities to
safeguard the assets of our clients against operational and administrative
risk. We have a system of internal controls that is designed to keep our
operating risk at appropriate levels. Our system of internal controls includes
policies and procedures relating to authorization, approval, documentation and
monitoring of transactions. Administrative risk is the risk of loss that may
occur as a result of breaching a fiduciary duty to a client. To manage this
risk, our trust policy has established corporate policies and procedures to
ensure that obligations to clients are discharged faithfully and in compliance
with applicable legal and regulatory requirements. These policies and
procedures provide guidance and establish standards related to the creation,
sale, and management of investment products, trade execution, and counterparty
selection.
Properties
We currently have three physical banking locations and are planning to
establish a new office location in St. Charles, Illinois, subject to necessary
regulatory approvals. See "Pending Acquisition."
The main offices of PrivateBancorp and PrivateBank are located in the
central business and financial district of Chicago. We lease 20,923 square feet
comprising the entire eighth, ninth, and tenth floors and part of the eleventh
floor of a building located at Ten North Dearborn Street. This lease expires on
or about August 31, 2006.
PrivateBank established a north suburban office in the affluent North Shore
area located at 517 Green Bay Road, Wilmette, Illinois, in October 1994.
PrivateBank leases approximately 5,300 square feet on the first floor of a
commercial building. This lease expires on June 30, 1999 and has been renewed
for an additional five-year term.
In January 1997, we opened a second branch office of PrivateBank in rapidly
growing, west suburban DuPage County at 1603 West Sixteenth Street, Oak Brook,
Illinois. We lease approximately 4,200 square feet on the first floor of a two-
story office building. This lease expires on December 14, 2001.
We have a variety of renewal options in each of our properties and certain
rights to secure additional space.
Competition
We do business in the highly competitive financial services industry.
PrivateBank's geographic market is primarily the greater Chicago metropolitan
area. The financial services industry is comprised of commercial banks,
thrifts, credit unions, investment banks, brokerage houses, money managers, and
other providers of financial products and services. These firms compete with
PrivateBank for one or more of the following: loans, deposits, trust services,
or investment products. Some of these firms have business units that promote
34
<PAGE>
themselves as "private banks." The typical private banking competitor is a unit
of a large commercial bank catering to the upper echelon of that bank's
customer base.
We view ourselves as the only private bank in the Chicago market focused
solely on offering an extended range of traditional banking and trust products
to affluent professionals, entrepreneurial individuals and their business
interests. While our products may be similar to those of our competitors, we
attempt to distinguish ourselves by emphasizing consistent, superior levels of
personal service. For commercial and commercial real estate lending, we compete
with a number of major Chicago-area financial institutions and suburban banks.
For trust services, we compete with the largest Chicago-area banks and some
investment managers. For private banking services, we compete with the private
banking departments of major Chicago-area financial institutions, some suburban
banks, and brokerage houses. For residential mortgage lending, our products
compete with banks, savings and loans, mortgage brokers and numerous other
financial services firms offering mortgage loans in our market area. Several of
our competitors are national or international in scope.
Some of our competitors are not subject to the same degree of regulation as
that imposed on bank holding companies and Illinois banking organizations. In
addition, the larger banking organizations, investment banks and brokerage
houses have significantly greater resources than us. As a result, such
competitors have advantages over PrivateBank in name recognition and market
penetration.
Legal Proceedings
From time to time, we may be party to various legal proceedings arising in
the normal course of our business. Since PrivateBank acts as a depository of
funds, we may be named from time to time as a defendant in various lawsuits
(such as garnishment proceedings) involving claims to the ownership of funds in
particular accounts. We are not currently subject to any pending or threatened
material legal proceedings.
Employees
As of March 31, 1999, we had 76 full-time equivalent employees. The majority
of our employees are located at the main office in downtown Chicago.
PrivateBank pays the salaries of all of our employees with the exception of
Messrs. Mandell and Roubitchek, a portion of whose salaries are paid by the
Company.
We provide our employees with a comprehensive program of benefits, some of
which are on a contributory basis, including comprehensive medical and dental
plans, life insurance plans, and 401(k) plans. We consider our relationship
with our employees to be good.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
data of PrivateBancorp. The selected statements of condition and statements of
income data, insofar as they relate to the five years in the five-year period
ended December 31, 1998, have been derived from our consolidated financial
statements. The following information should be read in conjunction with our
audited Consolidated Financial Statements and the Notes thereto, included
elsewhere herein. The selected financial data for the three months ended March
31, 1999 and 1998, are derived from our unaudited interim consolidated
financial statements. Such unaudited interim financial statements include all
adjustments (consisting only of normal, recurring accruals) that we consider
necessary for a fair presentation of the financial position and the results of
operations as of the dates and for the periods indicated. Information for any
interim period is not necessarily indicative of results that may be anticipated
for the full year. You should also read the following information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in this prospectus.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------- ------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of
Income Data:
Interest income:
Loans, including fees... $5,636 $4,624 $19,619 $16,729 $12,152 $10,053 $6,418
Federal funds sold and
interest-bearing
deposits............... 48 498 2,181 875 1,392 1,149 358
Securities.............. 1,570 727 3,492 2,519 2,396 1,700 1,265
------ ------ ------- ------- ------- ------- ------
Total interest income. 7,254 5,849 25,292 20,123 15,940 12,902 8,041
------ ------ ------- ------- ------- ------- ------
Interest expense:
Interest-bearing demand
deposits............... 142 121 487 377 305 276 210
Savings and money
market deposit
accounts............... 1,800 1,629 6,651 5,880 4,613 3,484 2,139
Other time deposits..... 1,752 1,346 6,155 3,821 2,973 2,620 782
Funds borrowed.......... 144 -- 19 3 143 50 62
------ ------ ------- ------- ------- ------- ------
Total interest
expense.............. 3,838 3,096 13,312 10,081 8,034 6,430 3,193
------ ------ ------- ------- ------- ------- ------
Net interest income... 3,416 2,753 11,980 10,042 7,906 6,472 4,848
Provision for loan
losses.................. 285 91 362 603 524 930 305
------ ------ ------- ------- ------- ------- ------
Net interest income
after provision for
loan losses.......... 3,131 2,662 11,618 9,439 7,382 5,542 4,543
------ ------ ------- ------- ------- ------- ------
Non-interest income:
Banking and trust
services............... 442 273 1,281 1,210 911 674 414
Securities gains........ -- -- 40 -- -- -- --
------ ------ ------- ------- ------- ------- ------
Total non-interest
income............... 442 273 1,321 1,210 911 674 414
------ ------ ------- ------- ------- ------- ------
Non-interest expense:
Salaries and employee
benefits............... 1,115 1,102 4,077 3,902 3,411 2,749 2,054
Occupancy............... 352 334 1,379 1,274 990 946 745
Data processing......... 131 120 508 396 334 282 262
Marketing............... 153 139 567 500 424 296 272
Amortization of
organization costs..... -- -- -- -- 23 280 280
Professional fees....... 178 94 561 448 326 284 253
Insurance............... 41 30 134 115 82 238 342
Other expense........... 285 181 864 627 508 434 321
------ ------ ------- ------- ------- ------- ------
Total non-interest
expense.............. 2,255 2,000 8,090 7,262 6,098 5,509 4,529
------ ------ ------- ------- ------- ------- ------
Income before income
taxes.................. 1,318 935 4,849 3,387 2,195 707 428
Income tax provision.. 291 365 1,839 1,242 762 (403) 3
------ ------ ------- ------- ------- ------- ------
Net income............ $1,027 $ 570 $ 3,010 $ 2,145 $ 1,433 $ 1,110 $ 425
====== ====== ======= ======= ======= ======= ======
Per Share Data:
Basic earnings.......... $ 0.30 $ 0.18 $ 0.91 $ 0.69 $ 0.49 $ 0.39 $ 0.17
Diluted earnings........ 0.28 0.17 0.86 0.65 0.47 0.38 0.16
Dividends............... 0.03 0.02 0.08 0.07 0.07 0.03 --
Book value (at end of
period)................ 8.71 7.86 8.53 7.67 6.84 6.47 6.13
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial
Condition Data
(at end of period):
Total securities(1)..... $ 105,136 $ 48,322 $116,891 $ 65,383 $ 44,617 $ 38,296 $ 24,669
Total loans............. 307,766 223,746 281,965 218,495 171,343 126,069 98,380
Total assets............ 431,055 331,924 416,308 311,872 246,734 196,917 141,826
Total deposits.......... 384,454 304,660 364,994 285,773 222,571 176,868 122,925
Funds borrowed.......... 10,000 -- 20,000 -- 3,000 700 1,000
Total stockholders'
equity................. 30,054 25,400 29,274 24,688 20,222 18,445 17,471
Trust assets under
administration......... $ 637,422 $ 524,019 $611,650 $469,646 $328,662 $212,456 $168,872
Selected Financial
Ratios and Other
Data(2):
Performance Ratios:
Net interest margin(3). 3.57% 3.65% 3.61% 4.01% 3.73% 3.95% 4.09%
Net interest spread(4). 3.02 2.96 2.98 3.31 3.03 3.16 3.42
Non-interest income to
average assets........ 0.42 0.34 0.37 0.45 0.42 0.40 0.35
Non-interest expense to
average assets........ 2.13 2.49 2.29 2.71 2.79 3.31 3.79
Net overhead ratio(5).. 1.71 2.15 1.91 2.26 2.38 2.90 3.44
Efficiency ratio(6).... 58.45 67.65 60.82 64.53 69.17 77.09 86.07
Return on average
assets(7)............. 0.97 0.71 0.85 0.80 0.66 0.67 0.36
Return on average
equity(8)............. 13.84 9.11 11.27 9.49 7.38 6.22 2.94
Dividend payout ratio.. 8.36 10.63 8.74 10.13 12.88 8.03 --
Asset Quality Ratios:
Non-performing loans to
total loans........... 0.12 0.32 0.36 0.24 0.65 1.90 0.15
Allowance for possible
loan losses to:
total loans........... 1.20 1.40 1.21 1.40 1.43 1.55 1.04
non-performing loans.. 1,025 440 336 578 220 82 711
Net charge-offs to
average total loans... -- -- -- -- 0.02 -- 0.01
Non-performing assets
to total assets....... 0.08 0.21 0.24 0.17 0.45 1.22 0.10
Balance Sheet Ratios:
Loans to deposits...... 80.1 73.4 77.3 76.5 77.0 71.3 80.0
Average interest-
earning assets to
average interest-
bearing liabilities... 114.2 117.0 116.4 117.7 118.6 120.7 123.8
Capital Ratios:
Total equity to total
assets................ 6.97 7.65 7.03 7.92 8.20 9.37 12.32
Total risk-based
capital ratio......... 11.21 11.47 11.53 11.75 12.21 14.56 19.58
Tier 1 risk-based
capital ratio......... 10.05 10.22 10.40 10.50 10.96 13.31 18.49
Leverage ratio......... 7.53 7.87 7.88 8.70 8.71 9.76 13.03
</TABLE>
- --------
(1) For all periods after 1994, the entire securities portfolio was classified
"Available for Sale." For 1994, the entire securities portfolio was
classified "Held to Maturity."
(2) Certain financial ratios for interim periods have been annualized.
(3) Net interest income divided by average interest-earning assets.
(4) Yield on average interest-earning assets less rate on average interest-
bearing liabilities.
(5) Non-interest expense less non-interest income divided by average total
assets.
(6) Non-interest expense divided by the sum of net interest income plus non-
interest income.
(7) Net income divided by average total assets.
(8) Net income divided by average common equity.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected
Consolidated Financial Data" and our Consolidated Financial Statements and
Notes thereto, each appearing elsewhere in this prospectus. In addition to
historical information, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that involve risks and uncertainties. Our 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"
contained elsewhere in this prospectus.
Overview
PrivateBancorp was organized in 1989 to serve as the holding company for a
de novo bank, The PrivateBank and Trust Company which provides personal and
commercial banking services to affluent individuals, professionals and their
business interests in the Chicago metropolitan area. We opened our flagship
Chicago location in 1991, and our full-service offices in the affluent
communities of Wilmette, Illinois, a North Shore suburb of Chicago, in 1994,
and Oak Brook, Illinois, located in the rapidly growing western suburbs, in
1997.
Effective as of June 24, 1999, we entered into a definitive agreement to
acquire Towne Square Financial Corporation which we believe provides us an
attractive opportunity to establish a new office in St. Charles, Illinois, a
far western suburb of Chicago. Upon consummation of the transaction, we will
incur a one-time, merger-related charge to earnings, currently estimated to be
approximately $1.29 million. See "Pending Acquisition" for a discussion of the
anticipated financial impact of this transaction and start-up costs associated
with the planned opening of the St. Charles branch.
Since inception, we have experienced rapid internal growth as a result of:
. developing new banking relationships through the lending expertise of
our senior banking officers;
. developing new clients primarily through referrals from professional
advisors and existing clients;
. expanding our products offered and cross-marketing our existing
products;
. expanding our business lines through strategic partnerships; and
. opening new branches.
Since year-end 1995, we have grown our asset base at a compound annual rate
of 27.3% to $431.1 million as of March 31, 1999. During the same period, loans
have grown at a compound annual rate of 31.6% to $307.8 million, deposits at a
compound annual rate of 27.0% to $384.5 million and trust assets under
administration at a compound annual rate of 40.2% to $637.4 million. Due to our
increased size, we expect that these growth rates will moderate over time.
The profitability of our operations depends on our net interest income,
provision for possible loan losses, non-interest income, and non-interest
expense. Net interest income is the difference between the income we receive on
our loan and investment portfolios and our cost of funds, which consists of
interest paid on deposits and borrowings. The provision for possible loan
losses reflects the cost of credit risk in our loan portfolio. Non-interest
income consists primarily of trust fee income, and to a lesser extent, \net
securities gains and fees for ancillary banking services. Non-interest expense
includes salaries and employee benefits as well as occupancy, data processing,
marketing, professional fees, insurance, and other expenses.
Net interest income is dependent on the amounts and yields of interest-
earning assets as compared to the amounts and rates on interest-bearing
liabilities. Net interest income is sensitive to changes in market rates of
interest and our asset/liability management procedures in coping with such
changes. The provision for loan losses is dependent on increases in the loan
portfolio, management's assessment of the collectibility of the loan portfolio,
loss, experience as well as economic and market factors. We earn trust fees for
managing and administering investment funds for a variety of individuals,
families and fiduciary relationships. Non-interest expenses are heavily
influenced by the growth of operations. Growth in the number of client
relationships directly affects the majority of our expense categories.
38
<PAGE>
Our primary financial objectives are to continue to grow our loan portfolio
while maintaining high asset quality, and to increase non-interest income while
maintaining strong expense controls. We have maintained high asset quality
while managing rapid internal growth since our inception. We believe our
history of strong credit quality is testament to our sound credit practices, as
well as evidence that our affluent target client is a better than average
credit risk, resulting in lower loan charge-offs and lower loan loss provisions
than at traditional banks. The following table shows our growth in loans and
our credit quality history:
<TABLE>
<CAPTION>
December 31,
March --------------------------------------
31, 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average loans, net of
unearned discount....... $288,322 $233,987 $195,237 $140,767 $111,637
Net charge-offs to
average loans........... -- -- -- 0.02% --
Non-performing loans to
total loans............. 0.12% 0.36% 0.24% 0.65% 1.90%
</TABLE>
Our non-interest income from fees and deposit service charges are below peer
group levels. This is largely the result of the profile of our typical client.
Our clients tend to have larger deposit account balances than customers of
traditional banks. Because average balances tend to be high, we do not earn
high service charge income typical of community banks. In 1998, we entered into
an alliance with Mesirow Financial to provide insurance services to our
clients. It is expected that fees related to the sale of insurance services
will increase in 1999 and future years.
Higher account balances result in relatively low levels of transactions per
account dollar and therefore our accounts are less costly to maintain. We
believe that as we continue to grow, we will continue to experience lower
overhead costs than other banks with similar aggregate levels of loans and
deposits. We intend to continue to improve our operating efficiency by growing
net interest income and non-interest income at a faster rate than non-interest
expense, and developing new sources of non-interest income. The following table
highlights our improving efficiency measures:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------
1999 1998 1997 1996 1995
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-interest expense to average assets.... 2.13% 2.29% 2.71% 2.79% 3.31%
Net overhead ratio........................ 1.71 1.91 2.26 2.38 2.90
Efficiency ratio.......................... 58.5 60.8 64.5 69.2 77.1
</TABLE>
Results of Operations
Net income
In 1998, we earned $3.0 million as compared to $2.1 million in 1997. This
40.3% increase in earnings was primarily the result of growth in the balance
sheet, particularly in the loan portfolio. Also contributing to improved
performance were increases in the investment portfolio, a reduced provision for
loan losses, increases in trust fees, and improved operating expense levels
which grew at a slower rate than the combined income components.
Diluted earnings per share for 1998 were $0.86, as compared to $0.65 for
1997, an increase of 30.3%. The growth rate of diluted earnings per share was
lower than the growth rate in earnings due to an increase in the number of
shares outstanding between the years and the value of existing stock options.
Return on average assets for 1998 was 0.85%, as compared to 0.80% for 1997.
Return on average equity for 1998 was 11.27%, as compared to 9.49% for 1997.
In 1997, we earned $2.1 million as compared to $1.4 million in 1996. This
49.7% increase was primarily the result of growth in the loan portfolio and
other balance sheet categories. Fees from banking and trust services grew by
32.8% in 1997 over 1996, while the provision for loan losses and other expense
grew by a combined 18.8%. Diluted earnings per share for 1997 were $0.65, as
compared to $0.47 for 1996. Return on
39
<PAGE>
average assets for 1997 was 0.80%, as compared to 0.66% for 1996. Return on
average equity for 1997 was 9.49%, as compared to 7.38% for 1996.
During the first quarter of 1999, we earned $1.0 million as compared to
$570,000 during the first quarter of 1998. This 80.1% increase was primarily
the result of improvements in net interest income and non-interest income which
more than offset increases in the provision for loan losses and non-interest
expenses. Tax strategies implemented in late 1998 resulted in a reduced tax
provision in the first quarter of 1999 as compared to the first quarter of
1998, despite higher pre-tax earnings. Diluted earnings per share for the first
quarter of 1999 was $0.28 as compared to $0.17 for the first quarter of 1998.
Annualized return on average assets and annualized return on average equity for
the first quarter of 1999 were 0.97% and 13.84%, respectively, as compared to
0.71% and 9.11% for the first quarter of 1998, respectively.
Net interest income and net interest margin.
In 1998, net interest income increased from 1997 by $1.9 million, or 19.3%,
to $12.0 million. During the same period, the net interest margin decreased
from 4.01% to 3.61%. Net interest income is affected by both the volume of
assets and liabilities we hold, and the corresponding rates earned and paid.
Earning assets, on average, grew by $80.3 million in 1998, while yields
dropped from 8.03% in 1997 to 7.65% in 1998. Rates earned on assets were
affected by a general reduction in interest rate levels. During 1998, the
Federal Open Market Committee lowered the target federal funds rate on three
separate occasions, by a total of 75 basis points. Similar reductions in
Treasury rates, which are used as indices for several loan products, affected
the average yield on our loan portfolio.
In 1998, average interest-bearing liabilities grew by $71.8 million, while
average rates paid on interest bearing liabilities dropped from 4.72% in 1997
to 4.67% in 1998. Due to rate compression and competitive pressures, we were
unable to reduce rates paid as quickly or as significantly as experienced on
the asset side of the balance sheet. The volume of non-interest bearing funds,
largely comprised of demand deposits and capital, also affects the net interest
margin. In 1998, the effect of non-interest bearing funds on the net interest
margin added 63 basis points to the margin. In 1997, the effect was an addition
of 70 basis points to the net interest margin.
In 1997, net interest income increased from 1996 by $2.1 million, or 27.0%,
to $10.0 million. During the same period, net interest margin increased from
3.73% to 4.01%. Average earning assets grew by $45.7 million, while yields
increased from 7.66% in 1996 to 8.03% in 1997. Yields on assets were affected
by a slight increase in interest rate levels throughout the year. In 1996,
loans comprised 68.5% of earning assets as compared to 77.7% of earning assets
in 1997. Comparatively, this had a positive effect on asset yields in 1997. In
1997, interest-bearing liabilities, on average, grew by $40.2 million while
average rates paid on interest-bearing liabilities increased from 4.63% in 1996
to 4.72% in 1997. Rates paid increased slightly in all categories in 1997. The
effect of non-interest-bearing funds on the net interest margin was 70 basis
points in both 1996 and 1997.
Net interest income increased by 24.1% from $2.8 million in the first
quarter of 1998, to $3.4 million in the first quarter of 1999. Lower interest
rate levels and an increased percentage of assets funded by interest-bearing
liabilities compressed the net interest margin from 3.65% in the first quarter
of 1998, to 3.57% in the first quarter of 1999. The increase in average assets
of more than $100 million reflects increases in both loans and investment
securities. The average balance of federal funds sold in the first quarter of
1999 was significantly less than in the first quarter of 1998. The cost of
interest-bearing liabilities in the first quarter of 1999 was 4.38%, as
compared to 4.83% in the first quarter of 1998.
40
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
The following table sets forth the average balances, the interest earned or
paid thereon, and the effective interest rate yield or cost for each major
category of interest-earning assets, interest-bearing liabilities and
stockholders' equity for the three months ended March 31, 1999 and 1998, and
for the years ended December 31, 1998, 1997 and 1996 on a tax-equivalent
basis, assuming a 34% tax rate.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
----------------------------------------------------- ----------------------
1999 1998 1998
-------------------------- -------------------------- ----------------------
Average Average Average Average Average
Balance Yield/ Balance Yield/ Balance
(1) Interest Cost (1) Interest Cost (1) Interest
-------- -------- ------- -------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold. $ 4,167 $ 48 4.61% $ 36,775 $ 498 5.42% $ 40,230 $ 2,181
Taxable investment
securities........ 112,724 1,570 6.28 48,339 727 6.16 57,427 3,491
Loans, net of
unearned discount. 288,322 5,636 7.88 219,133 4,624 8.55 233,987 19,620
-------- ------ -------- ------ -------- -------
Total earning
assets......... 405,213 7,254 7.40 304,247 5,849 7.79 331,644 25,292
-------- ------ -------- ------ -------- -------
Cash and due from
banks--non-interest
bearing........... 11,664 8,784 9,989
Allowance for
possible loan
losses............ (3,470) (3,082) (3,218)
Premises and
equipment, net.... 1,569 1,885 1,781
Other assets....... 4,898 3,704 4,187
-------- -------- --------
Total assets.... $419,874 $315,538 $344,383
======== ======== ========
Liabilities and
Stockholders'
Equity
Deposits-interest
bearing:
Interest-bearing
demand accounts.. $ 27,199 142 2.12% $ 21,742 121 2.26% $ 22,073 487
Savings and money
market deposits.. 177,600 1,800 4.11 142,077 1,629 4.65 151,558 6,651
Time deposits..... 139,512 1,752 5.10 96,226 1,346 5.68 111,407 6,155
-------- ------ -------- ------ -------- -------
Total interest-
bearing
deposits....... 344,311 3,694 4.36 260,045 3,096 4.83 285,038 13,293
-------- ------ -------- ------ -------- -------
Funds borrowed..... 10,485 144 5.07 -- -- 373 19
Term-debt and
subordinated debt. -- -- -- -- -- --
-------- ------ -------- ------ -------- -------
Total interest-
bearing
liabilities.... 354,796 3,838 4.38 -- 3,096 285,411 13,312
-------- ------ -------- ------ -------- -------
Non-interest
bearing deposits.. 32,990 28,594 31,335
Other liabilities.. 3,487 3,620 3,246
Stockholders'
equity............ 28,601 23,279 24,391
-------- -------- --------
Total
liabilities and
stockholders'
equity......... $419,874 $315,538 $344,383
======== ======== ========
Net interest
income/spread..... $3,416 3.02% $2,753 2.96% $11,980
====== ==== ====== ==== =======
Net interest
margin............ 3.57% 3.65%
==== ====
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996
------- -------------------------- --------------------------
Average Average Average Average Average
Yield/ Balance Yield/ Balance Yield/
Cost (1) Interest Cost (1) Interest Cost
------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold. 5.35% $ 15,917 $ 875 5.43% $ 26,287 $ 1,393 5.22%
Taxable investment
securities........ 6.20 40,164 2,519 6.27 38,569 2,396 6.21
Loans, net of
unearned discount. 8.40 195,237 16,729 8.60 140,767 12,151 8.51
-------- ------- -------- -------
Total earning
assets......... 7.65 251,318 20,123 8.03 205,623 15,940 7.66
-------- ------- -------- -------
Cash and due from
banks--non-interest
bearing........... 7,642 6,183
Allowance for
possible loan
losses............ (2,791) (2,198)
Premises and
equipment, net.... 1,995 1,280
Other assets...... 2,690 2,113
-------- --------
Total assets.... $260,854 $213,001
======== ========
Liabilities and
Stockholders'
Equity
Deposits-interest
bearing:
Interest-bearing
demand accounts.. 2.21% $ 17,722 377 2.13% $ 14,523 305 2.10%
Savings and money
market deposits.. 4.39 127,560 5,880 4.61 102,759 4,613 4.48
Time deposits..... 5.53 68,252 3,821 5.60 53,601 2,973 5.54
-------- ------- -------- -------
Total interest-
bearing
deposits....... 4.67 213,534 10,078 4.72 170,883 7,891 4.61
-------- ------- -------- -------
Funds borrowed..... 5.06 49 3 5.83 2,483 143 5.67
Term-debt and
subordinated debt.. -- -- -- -- -- -- --
-------- ------- -------- -------
Total interest-
bearing
liabilities.... 4.67 213,583 10,081 4.72 173,366 8,034 4.63
-------- ------- -------- -------
Non-interest
bearing deposits.. 25,053 20,783
Other liabilities.. 1,645 1,073
Stockholders'
equity............ 20,573 17,779
-------- --------
Total
liabilities and
stockholders'
equity......... $260,854 $213,001
======== ========
Net interest
income/spread..... 2.98% $10,042 3.31% $ 7,906 3.03%
===== ======= ===== ======= =====
Net interest
margin............ 3.61% 4.01% 3.73%
===== ===== =====
</TABLE>
- ----
(1) Average balances were generally computed using daily balances.
41
<PAGE>
The following table shows the dollar amount of changes in interest income
and interest expense by major categories of interest-earning assets and
interest-bearing liabilities attributable to changes in volume or rate or both,
for the periods indicated. Volume variances are computed using the change in
volume multiplied by the previous year's rate. Rate variances are computed
using the changes in rate multiplied by the previous year's volume. The change
in interest due to both rate and volume has been allocated between the factors
in proportion to the relationship of the absolute dollar amounts of the change
in each.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
----------------------- -------------------------------------------
1998 Compared to 1997 Compared to
1999 Compared to 1998 1997 1996
----------------------- --------------------- ---------------------
Change Change Change Change Change Change
Due to Due to Total Due to Due to Total Due to Due to Total
Rate Volume Change Rate Volume Change Rate Volume Change
------- ------ ------ ------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold...... $ (72) $ (378) $ (450) $ (11) $1,317 $1,306 $ 52 $ (570) $ (518)
Investment securities... 26 817 843 (30) 1,002 972 23 100 123
Loans, net of unearned
discount............... (2,155) 3,167 1,012 (414) 3,305 2,891 96 4,482 4,578
------- ------ ------ ----- ------ ------ ---- ------ ------
Total interest income.. (2,201) 3,606 1,405 (455) 5,624 5,169 171 4,012 4,183
------- ------ ------ ----- ------ ------ ---- ------ ------
Interest-bearing demand
accounts............... (44) 65 21 14 96 110 4 68 72
Savings and money market
deposits............... (995) 1,166 171 (292) 1,063 771 126 1,141 1,267
Time deposits........... (842) 1,248 406 (56) 2,390 2,334 27 821 848
Funds borrowed.......... -- 144 144 -- 16 16 4 (144) (140)
------- ------ ------ ----- ------ ------ ---- ------ ------
Total interest expense. (1,881) 2,623 742 (334) 3,565 3,231 161 1,886 2,047
------- ------ ------ ----- ------ ------ ---- ------ ------
Net interest income..... $ (320) $ 983 $ 663 $(121) $2,059 $1,938 $ 10 $2,126 $2,136
======= ====== ====== ===== ====== ====== ==== ====== ======
</TABLE>
Provision for loan losses.
The provision for loan losses decreased 60.0% from $603,000 in 1997 to
$362,000 in 1998. Throughout 1998, the allowance for loan losses was reassessed
to determine the appropriate level to be maintained. This analysis was
influenced by the following factors: the volume and quality of loans and
commitments in the portfolio, loss experience, and economic conditions. The
reduced provision, despite an increasing portfolio, reflects management's
assessment of the overall risk in the loan portfolio.
The provision for loan losses increased from $524,000 in 1996 to $603,000 in
1997. This 15.1% increase was less than the rate of increase of the loan
portfolio. The quality of the loan portfolio in 1997 continued to be as strong
as experienced in 1996.
The provision for loan losses in the first quarter of 1999, was $285,000 as
compared to $91,000 in the first quarter of 1998. The reason for this increase
was the sharp increase in loan balances of $25.8 million during the first three
months of 1999 as compared to $5.3 million in the first three months of 1998.
Non-interest income.
Our total non-interest income increased 9.2% from $1.2 million in 1997 to
$1.3 million in 1998. The largest component of other income is trust fees.
Trust fees increased 9.7% from $937,000 in 1997 to $1.0 million in 1998,
reflecting growth in trust assets under administration of $141.6 million, or
30.1%, to $611.6 million at year end 1998. Trust assets have more than doubled
since mid-1996. This growth is in part attributable to our success in
attracting larger blocks of business and the favorable stock market. During
1997, we earned fees of $119,000 while administering a problem account. This
account was transferred to another trust institution late in 1997. Without this
income in 1997, the increase in trust income in 1998 over 1997 would have been
$210,000, or 25.7%. In 1998, we realized gains from securities sales of
$40,000.
Our non-interest income increased 32.8% from $911,000 in 1996 to $1.2
million in 1997. During this period, trust fees increased 62.4% from $577,000
in 1996 to $937,000 in 1997. Without fees earned on the
42
<PAGE>
transferred trust account (on which we earned $59,000 in 1996), our annual
increase from 1996 to 1997 would have been 57.9%. In 1997, other income was
enhanced by consulting fees of $132,000 which were of a non-recurring nature.
Non-interest income increased by 61.9% to $442,000 in the first quarter of
1999, as compared to $273,000 in the first quarter of 1998. The major component
of non-interest income, trust fees grew to $320,000 in the first quarter of
1999, as compared to $229,000 in the first quarter of 1998. This 39.7% increase
follows similar increases in trust assets under administration.
Non-interest expense.
<TABLE>
<CAPTION>
Three Months
Ended March Year Ended December
31, 31,
------------- --------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits............... $1,115 $1,102 $4,077 $3,902 $3,411
Occupancy.................................... 352 334 1,379 1,274 990
Data processing.............................. 131 120 508 396 334
Marketing.................................... 153 139 567 500 424
Amortization of organization costs........... -- -- -- -- 23
Professional fees............................ 178 94 561 448 326
Insurance.................................... 41 30 134 115 82
Other expense................................ 285 181 864 627 508
------ ------ ------ ------ ------
Total non-interest expense................. $2,255 $2,000 $8,090 $7,262 $6,098
====== ====== ====== ====== ======
</TABLE>
Total non-interest expense increased 11.4% from $7.3 million in 1997, to
$8.1 million in 1998. Non-interest expense as a percentage of average assets
declined from 2.7% in 1997 to 2.3% in 1998, reflecting the increased efficiency
of our infrastructure in supporting our growth rate. Similar improvements in
efficiency have been achieved in each year of the Company's existence. Non-
interest expense increased 19.1% from $6.1 million in 1996, to $7.3 million in
1997. Non-interest expense as a percentage of average assets declined from 2.8%
in 1996 to 2.7% in 1997.
The efficiency ratio, which measures the percentage of net revenue that is
paid as non-interest expense, has improved each year from 69% in 1996, to 65%
in 1997, to 61% in 1998. This is an indication that expenses have not grown as
quickly as revenues. It also supports the statement that the Company was able
to grow into the infrastructure established in its early years.
Salaries and employee benefits increased 4.5% to $4.1 million in 1998 from
$3.9 million in 1997. Growth from 1996 to 1997 was $491,000, or 14.4%. Staff
levels have been kept under control with the number of full time equivalent
employees increasing from 59.0 at year-end 1996, to 66.5 at year-end 1997 and
70.5 at year-end 1998. Except for staffing of the Oak Brook facility at year-
end 1996, there have been no additions at the executive level for the periods
discussed. Staff additions have been necessary to support growth of the
business.
Occupancy costs related to our facilities showed increases of $105,000, or
8.2% from 1997 to 1998, and $284,000, or 28.7% from 1996 to 1997. The majority
of our increase in operating expenses in 1997 was related to the opening of our
Oak Brook office in January 1997, and a full year's rent paid in 1997 for an
additional floor of the Chicago office.
Insurance costs related to our property, liability, and bond coverages
increased by $19,000, or 16.5%, from 1997 to 1998. The increased costs are
primarily related to increases in coverage commensurate with our growth.
Deposit insurance was an insignificant expense in each of the years.
Data processing increases for 1997 and 1998 are volume-related. During the
third quarter of 1999, we will be converting the processing of our loan and
deposit applications to a different service bureau. This is the result
43
<PAGE>
of our current processor's announcement that it will be terminating operations
in 2000. We expect our data processing expense to increase in 1999 as a result
of this conversion, and remain at higher levels in the years to follow.
Professional fees which include legal, accounting and consulting services
increased by $113,000, or 25.2% from 1997 to 1998, and $122,000, or 37.4% from
1996 to 1997. Reasons for these increases include increased usage of audit and
accounting services, consulting services related to regulatory compliance, and
in 1998, increases in investment advisory services related to our investment
portfolio.
Other expenses include office supplies, postage, telephone, delivery,
training, director fees, filing fees and duplicating. The majority of increases
in these items are related to growth of the Company.
Non-interest expense increased by 12.8% to $2.3 million in the first quarter
of 1999, as compared to $2.0 million in the first quarter of 1998. This
percentage increase was well below increase percentages earned in net interest
income and non-interest income. Most notable were increases in professional
fees related to bank investment portfolio consultants, year 2000 consultants
and internal audit expenses.
Provision for income taxes.
Our consolidated income tax rate varies from statutory rates principally due
to certain interest income which is tax-exempt for federal and state purposes,
and our expenses which are disallowed for tax purposes. Increases in our income
tax provision for the three years ended December 31, 1998 are primarily related
to increases in pre-tax earnings.
Income taxes in the first quarter of 1999, included the effect of federally
non-taxable interest earned on our municipal bond portfolio and the result of a
tax-advantaged investment program initiated in February 1999.
Financial Condition
Loans.
Our loan clients include individuals, partnerships and corporations. Loan
types include commercial real estate, which is concentrated in apartment
buildings, residential real estate, commercial, personal, home equity, and
construction. Loan quality has remained high with low levels of delinquencies
and minimal charge-offs.
The following table sets forth our loan portfolio by category as of March
31, 1999, and as of December 31 for the previous five fiscal years:
<TABLE>
<CAPTION>
December 31,
March -------------------------------------------
31, 1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate..... $108,599 $ 94,392 $ 55,429 $ 39,452 $ 29,114 $22,402
Residential real estate.... 62,208 54,171 56,307 45,012 25,973 21,696
Commercial................. 53,834 46,800 33,862 28,004 22,906 18,092
Personal................... 45,122 44,094 42,077 35,339 28,150 20,466
Home equity................ 19,860 20,100 20,680 20,683 18,707 11,504
Construction............... 18,143 22,408 10,140 2,853 1,219 747
Bankers' acceptances....... -- -- -- -- -- 3,473
-------- -------- -------- -------- -------- -------
Total loans.............. $307,766 $281,965 $218,495 $171,343 $126,069 $98,380
======== ======== ======== ======== ======== =======
</TABLE>
44
<PAGE>
The following table classifies the loan portfolio, by category, at March 31,
1999, by date at which the loans mature:
<TABLE>
<CAPTION>
More than one
After year
One year From one five ----------------
or less to five years years Total Fixed Variable
-------- ------------- -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial real estate.. $ 16,388 $ 53,400 $ 38,811 $108,599 $36,538 $ 55,673
Residential real estate. 3,142 4,639 54,427 62,208 13,476 45,590
Commercial.............. 32,233 21,236 365 53,834 4,741 16,860
Personal................ 38,018 6,191 913 45,122 1,092 6,012
Home equity............. 1,032 9,941 8,887 19,860 -- 18,828
Construction............ 11,932 5,906 305 18,143 1,993 4,218
-------- -------- -------- -------- ------- --------
Total loans........... $102,745 $101,313 $103,708 $307,766 $57,840 $147,181
======== ======== ======== ======== ======= ========
</TABLE>
Asset Quality.
The following table classifies our non-performing loans as of the dates
shown:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------------
1999 1998 1997 1996 1995 1994
--------- ------ ---- ------ ------ ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans................. $-- $ -- $-- $ -- $2,298 $--
Loans past due 90 days or more... 361 1,016 527 1,116 100 144
---- ------ ---- ------ ------ ----
Total non-performing loans..... 361 1,016 527 1,116 2,398 144
---- ------ ---- ------ ------ ----
Other real estate owned.......... -- -- -- -- -- --
---- ------ ---- ------ ------ ----
Total non-performing assets.... $361 $1,016 $527 $1,116 $2,398 $144
==== ====== ==== ====== ====== ====
Total non-performing loans to
total loans..................... 0.12% 0.36% 0.24% 0.65% 1.90% 0.15%
Total non-performing assets to
total assets.................... 0.08 0.24 0.17 0.45 1.22 0.10
</TABLE>
It is our policy to discontinue the accrual of interest income on any loan
for which we have reasonable doubt as to the payment of interest or principal.
Nonaccrual loans are returned to an accrual status when the financial position
of the borrower indicates there is no longer any reasonable doubt as to the
payment of principal or interest.
Other than those loans reflected in the table above, we had no significant
loans for which the terms had been renegotiated or restructured, or for which
we had serious doubts as to the ability of the borrower to comply with
repayment terms. We did not have any Other Real Estate Owned as of any of the
dates shown.
Potential Problem Loans. In addition to those loans reflected in the table
above, we have identified some loans through our problem loan identification
system which exhibit a higher than normal credit risk. Loans in this category
include those with characteristics such as those past maturity more than 90
days, those that have recent adverse operating cash flow or balance sheet
trends, or have general risk characteristics that the managing director
believes might jeopardize the future timely collection of principal and
interest payments. The principal amount of loans in this category as of March
31, 1999 was $960,000. At March 31, 1999, there were no significant loans which
were classified by any bank regulatory agency that are not included above as
nonaccrual, past due or restructured.
Loan Concentrations. Loan concentrations are considered to exist when there
are amounts loaned to a multiple number of borrowers engaged in similar
activities which would cause them to be similarly impacted by economic or other
conditions. Other than loans made to borrowers residing in the Chicago
metropolitan area and our involvement in lending secured by real estate, we had
no concentrations of loans exceeding 10% of total loans at March 31, 1999.
45
<PAGE>
Allowance for Loan Losses.
We believe our loan loss experience to date reflects the high credit quality
of our loan portfolio. The following table shows changes in the allowance for
loan losses resulting from additions to the allowance and loan charge-offs for
each of the periods shown. All charge-offs have been of loans in the personal
loan category. There were no recoveries on loans previously charged off in any
of the periods. Charge-offs as a percentage of average total loans have been
negligible.
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------------------
1999 1998 1997 1996 1995 1994
--------- -------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period.................. $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025 $ 728
Loans charged-off:
Commercial real estate... -- -- -- -- -- --
Residential real estate.. -- -- -- -- -- --
Commercial............... -- -- -- -- -- --
Personal................. -- 2 3 29 -- 8
Home equity.............. -- -- -- -- -- --
Construction............. --
-------- -------- -------- -------- -------- -------
Total loans charged-
off................... -- 2 3 29 -- 8
-------- -------- -------- -------- -------- -------
Provision for loan
losses.................. 285 362 603 524 930 305
-------- -------- -------- -------- -------- -------
Balance at end of period. $ 3,695 $ 3,410 $ 3,050 $ 2,450 $ 1,955 $ 1,025
======== ======== ======== ======== ======== =======
Average total loans...... $288,987 $234,486 $195,605 $141,043 $111,855 $80,717
======== ======== ======== ======== ======== =======
</TABLE>
The following table shows our allocation of the allowance for loan losses by
specific category at the end of each of the periods shown. We considered
various qualitative and quantitative factors about the loan portfolio which we
deemed relevant.
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
% of % of % of % of % of % of
Total Total Total Total Total Total
Amount Allowance Amount Allowance Amount Allowance Amount Allowance Amount Allowance Amount Allowance
------ --------- ------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial real
estate.......... $ 928 25.1% $ 732 21.5% $ 429 14.1% $ 295 12.0% $ 226 11.6% $ 174 17.0%
Residential real
estate.......... 303 8.2 277 8.1 306 10.0 254 10.4 142 7.3 125 12.2
Commercial....... 833 22.5 693 20.3 464 15.2 422 17.2 913 46.7 271 26.4
Personal......... 509 13.8 545 16.0 1,037 34.0 973 39.7 392 20.1 290 28.3
Home equity...... 217 5.9 201 5.9 201 6.6 184 7.5 164 8.4 105 10.2
Construction..... 185 5.0 236 6.9 106 3.5 28 1.1 13 0.7 7 0.7
Unallocated...... 720 19.5 726 21.3 507 16.6 294 12.0 105 5.4 53 5.2
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total........... $3,695 100.0% $3,410 100.0% $3,050 100.0% $2,450 100.0% $1,955 100.0% $1,025 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Control of our loan quality is continually monitored by management and is
reviewed by the loan/investment committee of the Board of Directors of
PrivateBank on a monthly basis. The amount of additions to the allowance for
loan losses which are charged to earnings through the provision for loan losses
are determined based on a variety of factors, including assessment of the
credit risk of the portfolio, delinquent loans, an evaluation of current and
prospective economic conditions in the market area, actual charge-offs during
the year and historical loss experience.
We maintain an allowance for loan losses sufficient to absorb credit losses
inherent in our loan portfolio. The allowance for loan losses represents our
estimate of probable losses in the portfolio at each balance sheet date and is
supported by all available
46
<PAGE>
and relevant information. The allowance contains provisions for probable
losses that have been identified relating to specific borrowing relationships
as well as probable losses inherent in our loan portfolio and credit
undertakings that are not specifically identified. We believe that the
allowance for loan losses is adequate to provide for estimated probable credit
losses inherent in our loan portfolio.
Investment Securities.
Investments are substantially comprised of federal funds sold and
securities. "Federal funds sold" are overnight investments in which, except
for cash reserves, all remaining funds are invested. Our securities portfolio
is primarily comprised of U.S. Treasury securities and agency obligations,
municipal bonds, collateralized mortgage obligations, and corporate
securities. In the fourth quarter of 1998, we invested in municipal bonds to
take advantage of their favorable taxable equivalent yields. Equity securities
consist of minimal investments in the FHLB and NHS.
All of our investment securities are classified as "available for sale" to
give us the flexibility to alter the composition of our portfolio, and are
carried at fair value. The table below shows the estimated fair value of
investment securities at the dates indicated, presented by category.
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1999 1998 1997 1996
--------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-Sale
U.S. Treasury securities and U.S. Government
agency obligations......................... $ 5,058 $ 6,095 $ 6,066 $ 7,095
State and political subdivision obligations. 40,608 37,804 -- --
Collateralized mortgage obligations......... 47,536 61,414 40,308 14,171
Corporate debt securities................... 10,280 10,263 18,269 21,951
Equity securities........................... 1,654 1,315 740 1,400
-------- -------- ------- -------
Total investment securities............... $105,136 $116,891 $65,383 $44,617
======== ======== ======= =======
</TABLE>
Maturities of investment securities, by category, as of March 31, 1999, are
shown in the following table.
<TABLE>
<CAPTION>
Within From one From five to After Equity
one year to five years ten years ten years securities Total
-------- ------------- ------------ --------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... $4,039 $1,019 $ -- $ -- $ -- $ 5,058
State and political
subdivision
obligations............ 451 2,598 2,764 34,795 -- 40,608
Collateralized mortgage
obligations............ -- -- 4,707 42,829 -- 47,536
Corporate debt
securities............. -- -- -- 10,280 -- 10,280
Equity securities....... -- -- -- -- 1,654 1,654
------ ------ ------ ------- ------ --------
Total investment
securities........... $4,490 $3,617 $7,471 $87,904 $1,654 $105,136
====== ====== ====== ======= ====== ========
</TABLE>
The weighted average yield (computed on a tax equivalent basis) for each
range of maturities of securities, by category, is shown below as of March 31,
1999:
<TABLE>
<CAPTION>
Within From one From five to After Equity
one year to five years ten years ten years securities Total
-------- ------------- ------------ --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
agency obligations..... 6.02% 5.80% -- -- -- 5.97%
State and political
subdivisions
obligations............ 4.82 5.27 5.98% 7.09% -- 6.88
Collateralized mortgage
obligations............ -- -- 5.22 5.88 -- 5.81
Corporate debt
securities............. -- -- -- 7.05 -- 7.05
Equity securities....... -- -- -- -- 6.10% 6.10
---- ---- ---- ---- ---- ----
Total investment
securities........... 5.90% 5.42% 5.50% 6.50% 6.10% 6.36%
==== ==== ==== ==== ==== ====
</TABLE>
47
<PAGE>
Deposits.
In 1998, total deposits increased by $79.2 million, or 27.7%, to $365.0
million. Over each of the past three years, our deposits have grown at rates in
excess of 25% per year. We rely upon our clients to provide funds to support
our lending and investment activities. Our deposit mix is substantially
comprised of interest-bearing deposits. As a client service, we facilitate
quick and convenient transfers of funds to checking accounts on an as-needed
basis. This contributes to our clients keeping account balances that we believe
to be in excess of those at most other financial institutions. While these
larger, interest-bearing accounts tend to increase our cost of funds, we are
able to support our asset base with a smaller number of accounts to service, at
a lower cost per dollar of deposits, than at similar banks of similar asset
size. For the period ended March 31, 1999, the average aggregate balance per
client relationship was approximately $94,000.
The following table presents the balances of deposits by category, and each
category as a percentage of total deposits, at March 31, 1999 and at December
31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
March 31, 1999 1998 1997 1996
----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent
Balance of Total Balance of Total Balance of Total Balance of Total
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand.................. $ 32,582 8.5% $ 39,490 10.8% $ 34,234 12.0% $ 21,177 9.5%
Savings................. 499 0.1 482 0.1 640 0.2 258 0.1
Interest-bearing demand. 27,390 7.1 26,508 7.3 26,084 9.1 17,263 7.8
Money market............ 180,372 46.9 170,231 46.6 134,985 47.3 122,589 55.1
Certificates of deposit. 143,611 37.4 128,283 35.2 89,830 31.4 61,284 27.5
-------- ----- -------- ----- -------- ----- -------- -----
Total deposits........ $384,454 100.0% $364,994 100.0% $285,773 100.0% $222,571 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The aggregate amounts of time deposits, in denominations of $100,000 or
more, by maturity, are shown below as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
March ------------------------
31, 1999 1998 1997 1996
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Three months or less................... $ 89,109 $ 67,922 $37,389 $26,833
Over three through six months.......... 16,478 18,974 16,200 7,638
Over six through twelve months......... 14,348 17,664 16,100 9,353
Over twelve months..................... 1,248 904 941 400
-------- -------- ------- -------
Total................................ $121,183 $105,464 $70,630 $44,224
======== ======== ======= =======
</TABLE>
Over the past several years, in a low interest rate, relatively flat yield
curve environment, our clients have chosen to keep the maturities of their
deposits short. We expect these short-term certificates of deposit to be
renewed on terms and with maturities similar to those currently in place. In
the event that certain of these certificates of deposits are not renewed and
the funds are withdrawn from the bank, we will replace those deposits with
other forms of borrowed money or capital as discussed below, or liquidate
assets to reduce our funding needs.
Liquidity and Capital Resources
The following table reflects various measures of our capital at March 31,
1999, and at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
March 31, -------------------
1999 1998 1997 1996
--------- ----- ----- -----
<S> <C> <C> <C> <C>
Total equity to total assets............... 6.97% 7.03% 7.92% 8.20%
Total risk-based capital ratio............. 11.21 11.53 11.75 12.21
Tier 1 risk-based capital ratio............ 10.05 10.40 10.50 10.96
Leverage ratio............................. 7.53 7.88 8.70 8.71
</TABLE>
48
<PAGE>
At March 31, 1999, we exceeded the minimum levels of all regulatory capital
requirements, and PrivateBank was considered "well-capitalized" under
regulatory standards. Based on guidelines established by the Federal Reserve
Bank, a bank holding company is required to maintain a leverage ratio (Tier 1
capital/total assets less intangibles) of 4.0%, a ratio of Tier 1 capital to
risk-based assets of 4.0% and a ratio of total capital to risk-based assets of
8.0%.
Since inception, we have raised over $22 million in a series of common stock
offerings to provide the necessary capital to support our growth. The proceeds
of these common stock offerings have been the principal source of funds at the
holding company level. We have regularly infused capital into our bank
subsidiary as and when needed to maintain adequate capital ratios and have
tended to retain the balance of the holding company funds on deposit in a non-
interest bearing account at PrivateBank to be available for its funding and
liquidity purposes. The following table shows the funds we have raised through
private placements of our common stock:
<TABLE>
<CAPTION>
Number of Price Per Gross Proceeds Net Proceeds
Shares Sold Share to Company to Company
Date of Offering ----------- --------- -------------- ------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
4Q 1989................. 80,800 $ 6.25 $ 505 $ 505
1Q 1991................. 1,334,400 6.25 8,340 8,340
3Q 1992................. 412,208 6.88 2,834 2,781
2Q 1994................. 1,023,264 7.81 7,994 7,877
2Q 1997................. 208,256 10.94 2,278 2,251
4Q 1998................. 46,000 16.00 736 736
</TABLE>
Liquidity management at PrivateBank involves planning to meet anticipated
funding needs at a reasonable cost. Liquidity management is guided by policies,
formulated and monitored by our senior management and the Bank's
asset/liability committee, which takes into account the marketability of
assets, the sources and stability of funding and the level of unfunded
commitments. PrivateBank's principal sources of funds are deposits, short-term
borrowings and capital contributions by the Company out of the proceeds of our
common stock offerings.
PrivateBank's core deposits, the most stable source of liquidity for
PrivateBank due to the nature of long-term relationships generally established
with clients, are available to provide long-term liquidity. At March 31, 1999,
61.1% of our total assets were funded by core deposits. At December 31, 1998,
62.5% of our total assets were funded by core deposits. At December 31, 1997
and 1996, 69.5% and 72.8% of total assets were funded by core deposits,
respectively.
We periodically use services of the FHLB for short-term funding needs and
other correspondent services. At March 31, 1999, we had a short-term advance of
$10.0 million outstanding at 5.00% with a maturity of April 5, 1999, and at
December 31, 1998, we had a short-term advance of $20.0 million at 5.20% which
matured on January 7, 1999. In addition, we periodically use the FHLB to supply
letters of credit as collateral to support public fund deposits. At March 31,
1999, we had FHLB letters of credit of $17.3 million outstanding. At December
31, 1998, we had no FHLB letters of credit outstanding. We pay 0.125% per annum
for FHLB letters of credit. The following table shows our maximum availability
for and usage of FHLB advances and letters of credit.
<TABLE>
<CAPTION>
Availability Usage
Date ------------ -------
(in thousands)
<S> <C> <C>
March 31, 1999.............. $52,117 $27,340
December 31, 1998........... 45,842 20,000
December 31, 1997........... 32,673 7,905
December 31, 1996........... 25,214 10,890
</TABLE>
Liquid assets refers to money market assets such as federal funds sold, as
well as available-for-sale securities. Net liquid assets represent the sum of
the liquid asset categories less the amount of assets pledged to
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<PAGE>
secure public funds. At March 31, 1999, net liquid assets were approximately
$83.1 million. At December 31, 1998, net liquid assets totaled approximately
$104.5 million, compared to approximately $76.2 million at December 31, 1997
and $55.4 million at December 31, 1996.
PrivateBank accepts deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. The State of Illinois also
accepts FHLB letters of credit as collateral. At March 31, 1999 and December
31, 1998, 1997 and 1996, PrivateBank had approximately $9.7 million, $15.0
million, $13.1 million and $11.5 million, respectively, of securities
collateralizing such public deposits. Deposits requiring pledged assets are not
considered to be core deposits, and the assets that are pledged as collateral
for these deposits are not deemed to be liquid assets.
Our Information Systems and the Year 2000
The year 2000 issue is a computer programming concern that centers on the
inability of certain computer systems to recognize the year 2000 and other year
2000-sensitive dates. Many existing computer programs and systems were
originally programmed to accept only six-digit date fields. In these systems,
the calendar year is identified by the last two digits only. This problem may
leave these programs and computers unable to distinguish between dates in the
twentieth and twenty-first centuries. For example, some computers will treat
"00" as the year 1900, rather than 2000. These computers may also be unable to
correctly identify the year 2000 as a leap year. The inability of these
computer systems to recognize dates could result in the failure of critical
applications of the generation of inaccurate results. Therefore, these systems
must be replaced or upgraded to become compliant with the year 2000 and to
avoid these errors.
Like most providers of financial services, we are particularly sensitive to
the year 2000 issue because our operations depend on computer-generated
financial information. Software, hardware and equipment both within and outside
of our direct control, and third parties with whom we electronically or
operationally interact may be adversely affected by this issue. These third
parties include our clients as well as third party vendors providing data
processing services, information systems management, computer system
maintenance and credit bureau information. In addition, under certain
circumstances, 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 have a significant adverse effect on our products, services and
competitive condition and ultimately our financial condition and results of
operations.
Regulatory Oversight. Regulators of financial institutions have increased
their focus on year 2000 compliance issues, have issued guidance concerning the
responsibilities of senior management and directors and are conducting periodic
examinations to ascertain the state of year 2000 compliance readiness. The
Federal Financial Institutions Examination Council ("FFIEC") has issued a
number of interagency statements on Year 2000 Project Management Awareness.
These statements require financial institutions to, among other things, examine
the year 2000 implications of their reliance on vendors and with respect to
data exchange and the potential impact of the year 2000 issue on their
customers, suppliers and borrowers. 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 banking regulators have issued safety and soundness guidelines to be
followed by insured depository institutions to ensure resolution of any year
2000 problems. The federal banking agencies have asserted that year 2000
testing and certification is a key safety and soundness issue in conjunction
with regulatory examinations. Consequently, an institution's failure to
appropriately and timely address the year 2000 issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, which almost certainly would involve the denial of future applications
for approval of mergers or acquisitions until compliance is achieved. In
certain egregious situations, civil money penalties may be imposed.
Our Readiness. At the direction of our Board of Directors, we have
established a year 2000 readiness committee and have engaged consultants
qualified to help us address our year 2000 issues. Our consultants are
experienced with technology issues and year 2000 compliance, and have worked
closely with our year 2000
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<PAGE>
readiness committee. We also engaged an outside consulting firm to perform an
independent review of our year 2000 planning. The firm evaluated our program
through review of our written procedures, discussion with our year 2000 project
leader and personnel, and observation of our compliance efforts. Based on the
consultants' report to management, management considers our program to address
adequately our potential exposure to the year 2000 issue, but has determined to
make certain suggested procedural changes, none of which we consider
significant.
Following the guidelines established by the FFIEC, we have broken down our
compliance efforts into six stages: awareness, assessment, renovation,
validation, implementation and contingency planning.
. Awareness. During our awareness phase, we educated ourselves on the
issues and risks associated with the year 2000 problem. We also
identified the aspects of our operations which are year 2000 sensitive.
. Assessment. During this stage, we were able to determine the scope of
our entire year 2000 readiness project. We reviewed our systems,
equipment, vendors, client exposure, counterparties and fiduciary risk.
As part of this stage, we established a formal liquidity risk management
plan, which included a contingency plan to aid in mitigating risks
involved with potential withdrawal of client funds before or after the
year 2000 rollover date. This plan has been approved by our Board of
Directors.
. Renovation. For most companies, this phase is time consuming and
complicated. It involves upgrading or replacing all sensitive systems
and equipment. Because we rely on third party vendors for virtually all
of our systems and for our data processing needs, our internal
renovations were minimal. We have undertaken efforts to ensure that our
third party vendors are also year 2000 compliant. We have polled each of
our third party vendors regarding their compliance efforts, and our year
2000 project manager monitors the year 2000 readiness and financial
status of all of our vendors at least on a quarterly basis. However, we
cannot be sure that each of our third party vendors will complete their
compliance efforts in a timely manner or successfully maintain year 2000
readiness.
We consider those third party vendors who provide us significant
services to be "mission critical" to our operations. As of May 28,
1999, we had received responses to our inquiries regarding their year
2000 compliance efforts from 100% of them, and each of them claims to
be year 2000 compliant. In connection with our inquiries and their
responses, we have also completed an assessment of the financial and
operational capabilities of each of these "mission critical" vendors.
Although we do not have any contractual assurances that our "mission
critical" vendors are or will be year 2000 compliant, based on their
responses and our assessments, we believe each of them has taken
appropriate steps to prepare for the year 2000, and that we will have
no material exposure from our vendors involving the year 2000 issue.
We have also undertaken to assess the year 2000 readiness of our
significant borrowers and other clients consistent with the guidelines
of the banking regulations. Each of these clients has been contacted
regarding the year 2000 issue and the need for readiness. Management
continues to solicit client response and to monitor clients'
preparedness for year 2000. Failure of clients to prepare for year 2000
could have a significant adverse effect on their operations and
profitability, potentially causing their ability to repay loans to be
impaired, which could adversely affect our results. At this time, we
are unable to estimate with reliability the extent to which our
significant borrowers and other clients are susceptible to potential
problems relating to the year 2000 issue, or to quantify the potential
impact to us in this case.
. Validation. We have completed the validation, or testing, phase of our
readiness project. Using a comprehensive test plan developed with our
consultants, we have tested, either individually or in collaboration
with our third party vendors, each system and piece of equipment
currently in place in our offices for year 2000 readiness and
compatibility with other systems with which they interface. Our plan,
which we modeled on FFIEC recommendations, indicates, on a system-by-
system basis, the methods used to validate each system and includes
procedures for documenting test results. Our
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<PAGE>
consultants have monitored the maintenance of process controls
throughout the testing process. Our internal auditors have reviewed the
results of our year 2000 testing.
We are currently in the process of transferring our loan and deposit
processing to a new provider. Our conversion date is scheduled for the
end of August 1999. We have been working with our new vendor since early
April 1999. The pre-conversion preparation process is approximately 50%
complete. Through the use of proxy testing, we will be validating the
results of our new vendor's year 2000 readiness. This validation process
has not yet begun but will be completed before the actual conversion
date. In addition, we have received contractual assurances from this new
data processing provider that its software systems are and will be year
2000 compliant. However, if this vendor ultimately fails to be prepared
for the year 2000, we have by contract waived any rights to claim
damages from them. Our business may be disrupted in the event of failure
of the data processing system to handle the century date change
successfully, and we could be materially adversely affected in this
event.
. Implementation. We have completed the testing and have implemented
necessary changes to computer hardware, network equipment and operating
systems owned by us and located in our offices. We are currently using
most of these systems in their year 2000 compliant version. As we
continue to evaluate and modify these systems as needed, we will use our
best efforts to maintain our year 2000 compliance. Because virtually all
of our year 2000-related software modifications are handled by third-
party processing services, and because we have no control over the
renovation of software code, we will continue to monitor software
application upgrade releases from our vendors and the year 2000
implications of such releases. We will continue to implement such
changes as are necessary based on the results of our validation efforts
and our ongoing monitoring efforts.
. Contingency. The final stage of our readiness project involves the
creation of a business continuity plan which outlines how our operations
will continue in the event that we are unable to ensure that all of our
operations will be compliant, or if we experience a failure of any of
our systems. Our business continuity plan is completed and we expect to
have our business resumption validation procedures completed prior to
June 30, 1999. In our business continuity plan, we identify possible
scenarios which could be the result of year 2000 failures. These
scenarios include malfunction of automated systems, loss of electrical
power and extraordinary needs for cash. In each case, our plan considers
solutions including use of electronic and manual alternatives to our
primary operating systems, operating from alternative physical sites and
acquiring replacements for equipment. During the third quarter of 1999,
where practical, we will selectively test our business resumption
validation procedures.
The Costs of Our Compliance Efforts. We estimate that the entire cost of
our year 2000 readiness project will be approximately $650,000. These costs
include:
. upgrades of existing systems and equipment;
. acquisitions of new systems and equipment;
. consultant fees and expenses; and
. allocated personnel costs.
Through March 31, 1999, we have spent approximately $400,000 toward our year
2000 readiness.
The Risks Involved in Our Efforts. Although we are working closely with our
consultants, our third party vendors and our regulators to upgrade our systems
and operations, there can be no assurance that all of our operations will be
year 2000 compliant. In the event of system failure, either internally, or on
the part of one or more of our vendors, our operations may be adversely
affected. We may experience an interruption in our business and incur
significant losses.
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Asset/Liability Management Policy
As a continuing part of our financial strategy, we attempt to manage the
impact of fluctuations in market interest rates on our net interest income.
This effort entails providing a reasonable balance between interest rate risk,
credit risk, liquidity risk and maintenance of yield. Asset/liability
management policy is established by our Board of Directors and monitored by
management. Our asset/liability policy sets standards within which we are
expected to operate. These standards include guidelines for exposure to
interest rate fluctuations, liquidity, loan limits as a percentage of funding
sources, exposure to correspondent banks and brokers, and reliance on non-core
deposits. Our policy also states the reporting requirements to our Board of
Directors. Our investment policy complements our asset/liability policy by
establishing criteria by which we may purchase securities. These criteria
include approved types of securities, brokerage sources, terms of investment,
quality standards, and diversification.
The following table illustrates our estimated interest rate sensitivity and
periodic and cumulative gap positions calculated as of March 31, 1999.
<TABLE>
<CAPTION>
Time to Maturity or Repricing
---------------------------------------
0-90 91-365 1-5 Over 5
Days Days Years Years Total
-------- --------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans...................... $163,231 $ 22,535 $107,224 $ 14,732 $307,722
Investments................ 9,717 27,096 30,736 37,682 105,231
Federal funds sold......... 7,759 -- -- -- 7,759
-------- --------- -------- -------- --------
Total interest-earning
assets.................. $180,707 $ 49,631 $137,960 $ 52,414 $420,712
======== ========= ======== ======== ========
Interest-Bearing Liabilities:
Interest-bearing demand.... $ -- -- -- 27,390 $ 27,390
Savings and money market... 138,109 42,263 -- 499 180,871
Time deposits.............. 100,815 $ 39,452 $ 3,344 -- 143,611
Funds borrowed............. 10,000 -- -- -- 10,000
-------- --------- -------- -------- --------
Total interest-bearing
liabilities............. $248,924 $ 81,715 $ 3,344 $ 27,889 $361,872
======== ========= ======== ======== ========
Cumulative:
Rate sensitive assets
(RSA)..................... $180,707 $ 230,338 $368,298 $420,712
Rate sensitive liabilities
(RSL)..................... $248,924 $ 330,639 $333,983 $361,872
GAP (GAP = RSA-RSL)...... $(68,217) $(100,301) $ 34,315 $ 58,840
RSA/RSL...................... 72.6% 69.7% 110.3% 116.3%
RSA/Total assets............. 41.9 53.4 85.4 97.6
RSL/Total assets............. 57.7 76.7 77.4 84.0
GAP/Total assets............. 15.8% 23.3% 8.0% 13.7%
GAP/RSA...................... 16.2 23.8 8.2 14.0
</TABLE>
We measure the impact of interest rate changes on our income statement
through the use of gap analysis. The gap represents the net position of assets
and liabilities subject to repricing in specified time periods. During any
given time period, if the amount of rate sensitive liabilities exceeds the
amount of rate sensitive assets, a company would generally be considered
negatively gapped and would benefit from falling rates over that period of
time. Conversely, a positively gapped company would generally benefit from
rising rates.
We have structured the assets and liabilities of our company to mitigate the
risk of either a rising or falling interest rate environment. We manage our gap
position at the one year horizon. Depending upon our assessment of economic
factors such as the magnitude and direction of projected interest rates over
the short- and long-term, we generally operate within guidelines set by our
asset/liability policy and attempt to maximize
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our returns within an acceptable degree of risk. Our policy states that we
shall maintain a gap position at the one year horizon of between 0.70 and 1.30.
Our position at March 31, 1999 was 0.697 and was outside of the guidelines of
our policy. We have continued to maintain our gap position near the low end set
by our policy guidelines and expect to continue to operate in this manner as
long as the general rate structure of the economy and our business
opportunities remain consistent. Therefore, generally speaking, a short-term
rise in interest rates will hurt earnings, while a short-term drop in interest
rates would help earnings.
Interest rate changes do not affect all categories of assets and liabilities
equally or simultaneously. There are other factors which are difficult to
measure and predict that would influence the effect of interest rate
fluctuations on our income statement. For example, a rapid drop in interest
rates might cause our loans to repay at a more rapid pace and certain mortgage-
related investments to prepay more quickly than projected. This could mitigate
some of the benefits of falling rates as are expected when negatively gapped.
Conversely, a rapid rise in rates could give us an opportunity to increase our
margins and stifle the rate of repayment on our mortgage-related loans which
would increase our returns.
The following table shows the "rate shock" results of a simulation model
that attempts to measure the effect of rising and falling interest rates over a
two-year horizon in a rapidly changing rate environment.
<TABLE>
<CAPTION>
+200 Basis -200 Basis
Points Points
---------- ----------
<S> <C> <C>
Percentage change in net interest income due to an
immediate 200 basis point change in interest rates
over a two-year time horizon...................... -8.7% +10.3%
</TABLE>
This table shows that if there was an instantaneous, parallel shift in the
yield curve of +200 basis points, we would suffer a decline in net interest
income of 8.7% over a two year horizon. Conversely, a like shift of -200 basis
points would increase net interest income by 10.3% over a two year horizon. We
used a sensitivity model which simulated these interest rate changes on our
earning assets and interest-bearing liabilities. This process allows us to
explore the complex relationships among the financial instruments in various
interest rate environments.
The preceding sensitivity analysis is based on numerous assumptions
including: the nature and timing of interest rate levels including the shape of
the yield curve, prepayments on loans and securities, changes in deposit
levels, pricing decisions on loans and deposits, reinvestment/replacement of
asset and liability cash flows and others. While assumptions are developed
based upon current economic and local market conditions, we cannot make any
assurances as to the predictive nature of these assumptions including how
client preferences or competitor influences might change.
Interest rate exposure is measured by the potential impact on our income
statement of possible changes in interest rates. We use information from our
gap analysis and rate shock calculations as input to help manage our exposure
to changing interest rates. During the past year, we have managed our balance
sheet in a negatively gapped position, reflecting our outlook that the U.S.
economy will be stable with general interest rate levels stable to falling. We
recognized opportunities to extend maturities on assets to take advantage of
higher interest rates at longer maturities.
We use our rate shock information to tell us how much exposure we have to
rapidly changing rates. Based on historical information and our assessment of
future interest rate trends, we do not believe there is a substantial risk of
rapidly rising rates, which would negatively impact our income statement.
Conversely, we also believe there is minimal likelihood of rapidly falling
rates, which would positively impact our income statement.
We feel that more likely scenarios include gradual changes in interest rate
levels. We continue to monitor our gap and rate shock reports to detect changes
to our exposure to fluctuating rates. We have the ability to
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<PAGE>
shorten or lengthen maturities on newly acquired assets, sell investment
securities, or seek funding sources with different maturities in order to
change our asset and liability structure for the purpose of mitigating the
effect of interest rate risk.
Inflation
Our consolidated financial statements and the related notes thereto,
presented elsewhere in this prospectus, have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. Under these principles and practices, we are required to measure our
financial position in terms of historical dollars, without considering changes
in the relative purchasing power of money over time due to inflation.
Unlike many industrial companies, virtually all of our assets and
liabilities are monetary in nature. As a result, interest rates have a more
significant impact on our performance than the general level of inflation. Over
short periods of time, interest rates may not necessarily move in the same
direction or in the same magnitude as inflation.
Recent Accounting Pronouncements
We follow generally accepted accounting principles in the preparation of our
financial statements. There have been several recent authoritative accounting
pronouncements issued by the Financial Accounting Standards Board that we have
adopted or will adopt in the future:
. Effective January 1, 1999, Reporting on the Costs of Start-Up Activities
(AICPA Statement of Position 98-5) requires start-up costs and
organizational costs to be charged to expense when incurred. This new
accounting standard will apply to start-up costs associated with our
planned St. Charles office, currently anticipated to approximate
$430,000 pre-tax. See "Pending Acquisition."
. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS No. 125) requires that after a
transfer of financial assets, we must continue to recognize the
financial and servicing assets we control and the liabilities incurred
until control has been surrendered and liabilities extinguished. Our
adoption of SFAS No. 125 had no effect on our reported consolidated
financial position and results of operations.
. Reporting Comprehensive Income (SFAS No. 130) establishes standards for
reporting and display of comprehensive income and its components. Our
adoption of SFAS No. 130 had no effect on the reported consolidated
financial position and results of operations.
. Accounting for Derivatives Instruments and for Hedging Activities (SFAS
No. 133) will be effective for our fiscal quarters beginning after June
15, 1999. SFAS No. 133 requires that all derivatives be recognized as
assets or liabilities on the balance sheet and be measured at fair
value. Currently, however, we do not own any derivative instruments.
Accordingly, this statement is not expected to affect our reported
consolidated financial position and results of operations.
55
<PAGE>
MANAGEMENT
Directors and Executive Officers
Our directors and executive officers, their ages, and their principal
position(s) with the company are shown in the table below. All of our directors
are also directors of PrivateBank except Mr. Farrell and Mr. Gottlieb. Our
officers are elected annually by our Board to serve for the terms provided in
our By-laws.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Ralph B. Mandell(3)(4)........... 58 Chairman, President and CEO
Caren L. Reed(5)................. 64 Vice Chairman
Donald A. Roubitchek(5).......... 48 Chief Financial Officer and Director
Donald L. Beal(2)(5)............. 53 Director
Naomi T. Borwell(1)(4)........... 71 Director
William A. Castellano(1)(3)(4)... 58 Director
Robert F. Coleman(2)(3)(6)....... 54 Director
W. James Farrell(4).............. 57 Director
John E. Gorman(2)(3)(5).......... 54 Director
Alvin J. Gottlieb(4)............. 72 Director
James M. Guyette(1)(2)(3)(6)..... 54 Director
Philip M. Kayman(6).............. 57 Director
William R. Langley(2)(3)(4)...... 58 Director
Thomas F. Meagher(1)(6).......... 68 Director
Michael B. Susman(1)(5).......... 61 Director
Gary S. Collins.................. 41 Managing Director of PrivateBank
M. Gail Fitzgerald............... 56 Managing Director of PrivateBank
Hugh H. McLean................... 40 Managing Director of PrivateBank
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Planning Committee.
(4) Serves as a Class I director with a term expiring in 2002.
(5) Serves as a Class II director with a term expiring in 2000.
(6) Serves as a Class III director with a term expiring in 2001.
Ralph B. Mandell, a director since 1989, is a co-founder of PrivateBancorp
and PrivateBank. A Managing Director of PrivateBank, he has served as Chairman
and Chief Executive Officer of PrivateBancorp and PrivateBank since 1994 and
assumed the additional title of President of both entities in March 1999. From
inception until 1994, Mr. Mandell had the title of Co-Chairman and Co-Chief
Executive Officer. Prior to starting PrivateBank and PrivateBancorp, Mr.
Mandell was the Chief Operating Officer of First United Financial Services,
Inc., from 1985 to 1989, and served as its President from 1988 to 1989. First
United, a company that was traded on the Nasdaq National Market, was sold to
First Chicago Corporation in 1987. He also served as President of Oak Park
Trust & Savings Bank from 1985 until 1988. Prior thereto, Mr. Mandell had
served as Executive Vice President of Oak Park Trust & Savings Bank since 1979.
Caren L. Reed, a director since 1990, is one of PrivateBank's founding
directors. A Managing Director of PrivateBank, he currently serves as Vice
Chairman of PrivateBancorp and PrivateBank, and functions as Chief Credit
Officer. From 1990 to March 1999, Mr. Reed also held the title of President of
PrivateBancorp and PrivateBank. Prior to joining
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<PAGE>
PrivateBank, Mr. Reed was an Executive Vice President of Continental Bank,
Chicago with a career spanning 34 years. His responsibilities included North
American Banking, Multinational Banking-Europe, U.S. Capital Markets, and the
London Merchant Bank.
Donald A. Roubitchek has been a director since 1997. He has been the
Secretary/Treasurer and Chief Financial Officer of PrivateBancorp, and Managing
Director and Chief Operating Officer of PrivateBank, since inception. He has 27
years' experience in the banking industry and a concentrated background in
finance. Prior to joining PrivateBank, Mr. Roubitchek served in various
capacities with LaSalle Community Banks, and its predecessor, Lakeview Bank.
Donald L. Beal, a director since 1991, has been the owner of Kar-Don, Inc.
d/b/a Arrow Lumber Company, located in Chicago, Illinois, since 1980. Prior to
that, Mr. Beal served as Vice President of Hyde Park Bank & Trust with
responsibilities including commercial lending and personal banking. Mr. Beal is
also the sole owner of Ashland Investment, Inc. In 1994, Ashland Investment
filed for Chapter 11 relief under the federal bankruptcy laws and emerged from
bankruptcy after reorganization in April 1995.
Naomi T. Borwell has been a director since 1990. She is a private investor.
Mrs. Borwell is a former director of First Chicago Bank of Oak Park and First
United Trust Company.
William A. Castellano has been a director since 1991. From 1996 to present
he has been Chairman and founder of both Workspace, Inc. and Worknet, Inc.,
located in Oakbrook Terrace, Illinois. Workspace provides office furniture to
businesses, and Worknet provides computer networking services to businesses. He
was the founder of and served as the Chief Executive Officer to Chrysler
Systems Leasing from 1977 to 1991.
Robert F. Coleman, a director since 1990, is a principal of Robert F.
Coleman & Associates, a law firm located in Chicago, Illinois. He concentrates
his practice on business and professional litigation.
W. James Farrell, a director since 1990, has been an executive with Illinois
Tool Works, Inc. ("ITW"), a manufacturer of fasteners, components, assemblies
and systems, since 1965, and became its Chairman and CEO in 1997. He currently
serves as a director of ITW as well as The Quaker Oats Company, Morton
International, Inc., Premark International, Inc. and Allstate Insurance
Company, each of which is traded on the New York Stock Exchange.
John E. Gorman has been a director since 1994. Since 1982, Mr. Gorman has
been a General Partner of the Jorman Group, a privately-owned organization with
diversified business holdings.
Alvin J. Gottlieb, a director since 1990, is a private investor. Since 1961,
Mr. Gottlieb has served in various capacities on the Board of Directors of
Gottlieb Memorial Hospital, located in Melrose Park, Illinois, and he currently
holds the position of Vice Chairman.
James M. Guyette has been a director since 1990. Since 1997, he has been
President and Chief Executive Officer of Rolls Royce North America, Inc. Mr.
Guyette served as Executive Vice President of UAL Corporation from 1985 to 1995
when he retired after more than 25 years of employment with that company. He is
currently a director of Rolls-Royce plc (London) and Pembroke Capital (Dublin),
and formerly a director of First United Financial Services and United Airlines
Employees Credit Union.
Philip M. Kayman, a director since 1990, has been a senior partner with the
law firm of Neal Gerber & Eisenberg in Chicago, Illinois since the firm's
founding in 1986.
William R. Langley, a director since 1989, is a co-founder of PrivateBancorp
and PrivateBank. Mr. Langley held the title of Co-Chairman of PrivateBancorp,
and was active in day-to-day management of the company until 1995 when he
retired. Prior to the formation of PrivateBancorp, Mr. Langley had served as
Chief Executive Officer of First United Financial Services, Inc. from 1985 to
1987 and as Chairman from 1987 to 1989. First United, a company that was traded
on the Nasdaq National Market, was sold to First Chicago Corporation in 1987.
Prior to that, he served as Chairman and President of Oak Park Trust and
Savings Bank, where he had been employed since 1973.
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<PAGE>
Thomas F. Meagher has been a director since 1996. Mr. Meagher has been the
Chairman of Howell Tractor and Equipment Co., a distributor of heavy equipment
located in Elk Grove Village, Illinois, since 1980. He has had an extensive
career in the transportation industry and currently serves on the Board of
Directors of Trans World Airlines, Inc., a New York Stock Exchange company.
Michael B. Susman has been a director since 1990. He has been a partner in
the law firm of Spitzer, Addis, Susman & Krull, located in Chicago, Illinois,
since 1974.
Gary S. Collins has been a Managing Director of PrivateBank since 1991. As a
specialist in real estate lending, Mr. Collins has spent more than 20 years
managing diverse real estate transactions and the full range of mortgage
financing. Before joining PrivateBank in 1991, he held senior positions at
several Chicagoland financial institutions, including First Chicago Bank of Oak
Park, First Colonial Bancshares and Avenue Bank of Oak Park.
M. Gail Fitzgerald has been a Managing Director of PrivateBank since 1996.
She serves as the bank's director of Trust and Investment Services. Ms.
Fitzgerald has over 20 years' banking experience, most of which is in the trust
area. She served as Trust Division President of Firstar Bank of Illinois from
1995 to 1996. She also served as Chairman, President, and Chief Executive
Officer of First Colonial Trust Company in Illinois from 1993 to 1995 and
Senior Vice President of First Chicago Trust Company of Illinois from 1988 to
1993.
Hugh H. McLean has been a Managing Director of PrivateBank since 1996. He
serves as head of credit marketing and manager of the Oak Brook office. Prior
to joining the bank, he served as a regional manager with Firstar Bank Illinois
and its predecessor from 1990 to 1996, and as head of a commercial banking
division at American National Bank and Trust Company in Chicago, Illinois, from
1987 to 1990, where he was employed from 1980 to 1990.
Board of Directors
Our Board of Directors currently consists of 15 members divided into three
classes of directors who are elected to hold office for staggered three-year
terms as provided in our Restated Certificate of Incorporation and Amended and
Restated By-laws. Although our charter documents have fixed the size of our
Board at 16 members, there currently is one Class III director vacancy due to
the recent resignation of a director. Those persons currently serving as Class
I directors have been elected to hold office until the annual stockholders'
meeting to be held in 2002; Class II directors have been elected to hold office
until the annual stockholders' meeting to be held in 2000; and Class III
directors have been elected to hold office until the annual stockholders'
meeting to be held in 2001.
Committees of the Board of Directors
We have appointed certain members of our Board to serve on various
committees of the Board of Directors. The Board of Directors has established
three standing committees: (a) the Compensation Committee; (b) the Audit
Committee; and (c) the Planning Committee.
Compensation Committee. The Compensation Committee is responsible for
reviewing the performance of our Chief Executive Officer; reviewing and
recommending the compensation of the company's officers, including the Chief
Executive Officer; recommending and approving stock option grants and
restricted stock awards to management; reviewing and recommending non-cash
compensation programs including stock option grants, 401(k) contributions and
annual bonuses; reviewing and recommending director compensation; and advising
the Chief Executive Officer on miscellaneous compensation issues. The members
of the Compensation Committee are Messrs. Guyette (Chairman), Castellano,
Meagher and Susman and Mrs. Borwell.
Audit Committee. The Audit Committee reports to the Board of Directors in
discharging its responsibilities relating to our accounting, reporting and
financial control practices. The Audit Committee has general
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<PAGE>
responsibility for oversight of financial controls, as well as our accounting,
regulatory, year 2000 and audit activities, and annually reviews the
qualifications of the independent auditors. The Audit Committee is composed
entirely of outside directors. The members of the Audit Committee are Messrs.
Coleman (Chairman), Beal, Gorman, Guyette and Langley.
Planning Committee. The Planning Committee is responsible for studying
strategic issues prior to submission to the entire Board of Directors for
approval. The Planning Committee consists of Messrs. Mandell (Chairman),
Castellano, Coleman, Gorman, Guyette and Langley.
We have not designated a nominating committee. The entire Board of Directors
acts to nominate persons for election as directors.
Director Compensation
In 1992, we commenced a program of compensating those of our outside
directors who are also outside directors of PrivateBank with stock option
awards in lieu of cash retainers. Our philosophy has been to increase our
directors' equity stake in the company and further enhance the alignment of
their interests with those of our stockholders. The director options have been
granted each year in amounts determined at the discretion of the Board. The
options are fully vested at the end of the year of grant, subject to a full
year of service. In each case, the options have been granted at an exercise
price equal to or greater than the estimated fair market value of our common
stock at the date of grant. Partial awards have been made for partial year
service. As of March 31, 1999, there were outstanding options granted to non-
employee directors pursuant to this program to purchase an aggregate of 179,920
shares of common stock at an average weighted per share exercise price of
$11.13. In March 1999, the Board granted each non-employee director of
PrivateBank an option to purchase 1,500 shares of common stock at the initial
public offering price of shares sold in this offering.
In addition to stock options, non-employee members of PrivateBancorp's Board
of Directors receive fees of $200 for each board meeting attended. The
directors also receive $100 per meeting for attendance at meetings of any
committees of the Board on which they serve. Those directors who serve on the
board of PrivateBank are also entitled to the same meeting fees. During 1998,
the Boards of Directors of each of PrivateBancorp and PrivateBank met monthly.
Total board and committee meeting fees paid in 1998 was $58,800.
We intend to reevaluate the structure of our director compensation program
following the offering and anticipate that we may seek stockholder approval of
a stock-based director compensation plan at our next stockholders' meeting.
Compensation Committee Interlocks and Insider Participation
Messrs. Guyette and Castellano and Ms. Borwell each serve on the
Compensation Committee of our Board of Directors. During our last fiscal year,
each of these individuals has engaged in certain transactions as clients of
PrivateBank, in the ordinary course of PrivateBank's business, including
borrowings, all of which transactions are or were on substantially the same
terms (including interest rates and collateral on loans) as those prevailing at
the time for comparable transactions with unaffiliated persons. In the opinion
of our management, none of these transactions involved more than the normal
risk of collectibility or presented any other unfavorable features. See
"Certain Transactions."
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<PAGE>
Executive Compensation
The following table summarizes the compensation paid by PrivateBancorp and
PrivateBank to the Chairman, President and Chief Executive Officer and the five
other most highly paid executive officers (the "Named Executive Officers")
during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------- ---------------------
Other Annual Securities All Other
Compen- Restricted Underlying Compen-
Name and Principal Salary Bonus sation(1) Stock(2) Options(3) sation
Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- ------- ------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell........ 1998 210,000 100,000 18,845 77,000(4) 6,400 34,723(5)
Chairman, President and
CEO
Caren L. Reed........... 1998 146,000 45,000 14,795 -- 4,800 3,200(6)
Vice Chairman
Donald A. Roubitchek.... 1998 138,000 37,000 1,776 22,000(7) 6,400 3,200(6)
Chief Financial Officer
Hugh H. McLean.......... 1998 115,000 35,000 11,756 22,000(7) 5,600 3,005(6)
Managing Director
M. Gail Fitzgerald...... 1998 112,000 40,000 3,206 22,000(7) 5,600 3,067(6)
Senior Trust Officer
and Managing Director
Gary S. Collins......... 1998 112,000 29,000 9,429 22,000(7) 5,600 2,749(6)
Managing Director
</TABLE>
- --------
(1) Represents automobile allowances, life insurance premiums and club
membership dues and fees paid by the company.
(2) Reflects restricted stock awards under our Stock Incentive Plan.
PrivateBancorp has paid regular dividends on all shares of restricted stock
outstanding. These shares of restricted stock are subject to forfeiture
until the fifth anniversary of the grant date.
(3) Options to purchase shares of common stock were granted in 1998 at an
exercise price of $17.1875 (representing 125% of fair market value at the
date of grant) and vest at the end of five years; however, these options
may vest before the fifth anniversary subject to performance-based
acceleration terms providing for complete vesting upon the third or fourth
anniversary of their grant date if the cumulative annualized growth rate of
the fair market value of the common stock (including dividends paid) equals
at least 15% as of such anniversary date.
(4) Represents award of 5,600 shares of restricted stock at a value of $13.75
per share.
(5) Represents (a) matching contributions to the company's 401(k) plan, and (b)
dollar value benefit of accrued imputed interest (assuming full forgiveness
of cumulative accrued interest) relating to a loan from PrivateBancorp in
connection with Mr. Mandell's 1998 stock purchase transaction. See "Certain
Transactions."
(6) Represents matching contributions to the company's 401(k) plan made by the
company for the benefit of the executive officer.
(7) Represents award of 1,600 shares of restricted stock at a value of $13.75
per share.
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<PAGE>
The table below summarizes certain information about the options which we
granted in 1998 to each Named Executive Officer. All options were granted at
per share exercise prices equal to 125% of the fair market value per share on
the date of grant.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential
Realizable Value
at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Shares Granted to Exercise Appreciation for
Underlying Employees or Base Option Term ($)
Options in Fiscal Price Expiration ----------------
Name Granted Year ($/Sh) Date 5% 10%
---- ---------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Ralph B. Mandell........ 6,400 11.19% 17.1875 6/24/08 $33,343 $118,249
Caren L. Reed........... 4,800 8.39% 17.1875 6/24/08 25,007 88,687
Donald A. Roubitchek.... 6,400 11.19% 17.1875 6/24/08 33,343 118,249
Gary S. Collins......... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
M. Gail Fitzgerald...... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
Hugh H. McLean.......... 5,600 9.79% 17.1875 6/24/08 29,175 103,468
</TABLE>
The following table summarizes for each Named Executive Officer the number
of shares of common stock subject to outstanding options and the value of such
options that were unexercised at December 31, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Shares Options at Money Options at
Acquired on December 31, 1998 (#) Decemer 31, 1998 ($)(2)
Exercise Value ---------------------------- ----------------------------
Name (#) Realized ($) Exercisable/Unexercisable(1) Exercisable/Unexercisable(1)
---- ----------- ------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ralph B. Mandell........ -- -- 71,840/10,400 656,190/32,750
Caren L. Reed........... 65,600 533,500 3,840/ 8,000 37,440/26,200
Donald A. Roubitchek.... -- -- 36,736/ 8,400 333,661/16,375
Gary S. Collins......... -- -- 30,016/ 7,200 272,956/13,100
M. Gail Fitzgerald...... -- -- 8,000/13,600 53,000/53,000
Hugh H. McLean.......... -- -- 8,000/13,600 53,000/53,000
</TABLE>
- --------
(1) The numbers and amounts in the above table represent shares of common stock
subject to options granted that were unexercised as of December 31, 1998.
(2) The estimated fair market value of our common stock at December 31, 1998
was $16.00.
Employment Agreements
We have entered into employment agreements, to be effective as of July 1,
1999, with two of our executive officers: Ralph B. Mandell, our Chairman,
President and Chief Executive Officer, and Donald A. Roubitchek, our Chief
Financial Officer. Under the provisions of his agreement, which has a term of
two years, Mr. Mandell is entitled to an annual base salary of $230,000. Mr.
Roubitchek's agreement has a term of one year and provides for an annual base
salary of $145,000. Both Mr. Mandell and Mr. Roubitchek may receive
discretionary bonuses to the extent determined by the Board of Directors and
are entitled to participate in benefit plans and other fringe benefits
available to our managing directors.
Under each agreement, the executive officer's employment may be terminated
by the company at any time for "cause," as defined in the agreements, in which
case, or if the executive resigns from the company without "good reason," the
agreement immediately terminates, and the officer would be entitled only to
unpaid
61
<PAGE>
benefits accrued during the term of his employment. If the executive chooses to
resign with good reason, or the company chooses to terminate his employment
without cause, the officer is also entitled to receive severance in the amount
equal to 18 months of his then current base annual salary for Mr. Mandell and
12 months for Mr. Roubitchek, plus a pro rata bonus for the year of termination
based on the prior year's bonus amount, if any. The agreements also provide for
death benefits equal to six months of then current annual base salary.
In the event that Mr. Mandell is terminated after a change in control of the
company, he will be entitled to a lump sum payment equal to three times the sum
of (1) his annual base salary; (2) the greater of (a) his bonus amount, if any,
for the prior year or (b) his average bonus, if any, for the three preceding
years; and (3) the sum of the contributions that would have been made by the
company under any benefit plan and the annual value of any other executive
perquisites. Mr. Roubitchek will be entitled to a lump sum payment equal to
twice the sum of these amounts for him. The agreements entitle the executives
to receive gross up payments to cover any federal excise taxes payable by them
in the event the change in control benefits are deemed to constitute "excess
parachute payments" under Section 280G of the Internal Revenue Code. A change
in control is defined under the agreements as an occurrence of any one of the
following events as determined by our Board:
. if any person, as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, becomes the beneficial owner of 10% or more of
the total voting power of our then outstanding voting capital stock;
provided, however, that if that person becomes a beneficial owner of 10%
or more of our voting capital stock as a result of an acquisition of
stock directly from the company, or a decrease in the number of
outstanding shares due to a repurchase of shares by the company, it
shall not be considered a change in control;
. if during any period of two consecutive years, those individuals who at
the beginning of the period constitute our Board of Directors cease to
make up a majority of the Board;
. the consummation of a reorganization, merger or consolidation of the
company, or the sale of all or substantially all of our assets;
provided, that so long as more than 50% of the voting stock of the
successor entity is held by stockholders who had been beneficial owners
of our stock immediately before the transaction, and at least a majority
of the board of the successor entity is made up of members of our Board,
the merger or sale shall not be considered a change in control; and
. the approval by our stockholders of a plan of complete liquidation or
dissolution.
The agreements also contain non-compete provisions, which prohibit the
executive from soliciting, either for his own account or for the benefit of any
entity located within a twenty-five mile radius of the company or any of our
subsidiaries, any of our clients or employees. These non-compete provisions
remain in effect for a period of one year after the termination of employment.
The non-compete provisions do not apply in the event of a change in control.
Stock Incentive Plan
We maintain a Stock Incentive Plan pursuant to which we may grant our
executive officers and key employees stock options and restricted stock awards.
We also have a director compensation program for our non-employee directors.
See "Management--Director Compensation." The purpose of the Stock Incentive
Plan is to enhance our ability to attract and retain officers, executives and
key employees and to align the interests of such individuals with those of our
stockholders. The Stock Incentive Plan is administered, construed and
interpreted by the Compensation Committee of the Board of Directors. The
Compensation Committee may at any time alter, amend or terminate the Stock
Incentive Plan provided that no action of the Board may adversely affect a
participant's rights under any previously-granted stock option or restricted
stock award without the consent of the participant. Any amendment to the Stock
Incentive Plan which increases the number of shares of Common Stock which may
be awarded or changes the class of persons eligible to receive awards must be
approved by the company's stockholders within twelve months prior to or after
the effective
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<PAGE>
date of such amendment. Deductions by the company for compensation amounts
under the Stock Incentive Plan are not expected to be limited by Section 162(m)
of the Internal Revenue Code.
There are currently 476,607 shares of common stock remaining available for
issuance under the Stock Incentive Plan. Of such shares, 426,488 are subject to
options that are currently outstanding and 50,119 remain available for future
grant as options or restricted stock awards.
In the event of any change to the outstanding shares of stock of the company
by reason of stock dividend or distribution, recapitalization, merger or
consolidation, the Compensation Committee will adjust the number of shares of
stock which may be issued under the Stock Incentive Plan and will provide for
an equitable adjustment of any outstanding options or restricted stock grants.
No individual participant in the Stock Incentive Plan may receive options to
purchase more than 100,000 shares of common stock during any calendar year. As
of March 31, 1999, there were outstanding options to purchase an aggregate of
426,488 shares of common stock under the Stock Incentive Plan, at exercise
prices ranging from $6.25 to $18.00. In March 1999, we granted a total of
60,600 stock options, effective upon completion of this offering, at the
initial public offering price. These options vest 50% after two years, 75%
after three years, and are fully vested after four years. A total of 20,400
shares of restricted stock were also granted in March 1999 which will be fully
vested after five years, at which time these shares will no longer be subject
to forfeiture. In connection with the pending acquisition of Towne Square, we
have agreed to grant Mr. Castronovo options to purchase 7,000 shares of our
stock at the initial public offering price and to award him 3,000 shares of
restricted stock. See "Pending Acquisition."
All stock options granted pursuant to the Stock Incentive Plan are evidenced
by agreements stating the number of shares covered thereby, the exercise price,
the period or periods of time within which each option will become fully or
partially exercisable, and whether an option is an "incentive stock option" as
such term is defined in Section 422 of the Internal Revenue Code or a non-
qualified stock option. The Compensation Committee has the authority to
determine exercisability of an option and may in its discretion accelerate the
time or times for exercise. No stock option may be exercisable after the
expiration of 10 years from the date it is granted, and, in the case of an
incentive stock option granted to a 10% stockholder, the option must be
exercised within five years from the date it is granted. The price to be paid
for the shares upon the exercise of each option may not be less than the fair
market value of such shares on the date on which the option is granted, as
determined by the Compensation Committee. An incentive stock option granted to
a 10% stockholder must have an exercise price of at least 110% of the fair
market value of the stock subject to the option as of the date of grant. The
aggregate fair market value (determined as of the time the option is granted)
of stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year (under all option plans of
the company) may not exceed $100,000, provided that, to the extent that such
limitation is exceeded, any excess options shall be deemed not to be incentive
stock options.
All restricted stock awards granted pursuant to the Stock Incentive Plan are
evidenced by a written grant document in a form approved by the Compensation
Committee. The grant document specifies the period or periods of time within
which each grant of restricted stock will no longer be subject to restrictions
on sale, transfer or alienation of the stock. The grant document shall also
specify the treatment of the stock upon termination of employment before the
restrictions are lifted.
Certain Federal Income Tax Consequences
The following summary discusses certain of the federal income tax
consequences associated with (a) the grant of a stock option under our Stock
Incentive Plan, and (b) the exercise of such option. This summary is limited
and does not describe state or local income or other tax consequences.
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<PAGE>
Non-Qualified Stock Options.
The grant of a non-qualified stock option (including any option exceeding
the limitations on incentive stock options described above) will not be a
taxable event to the optionee. Upon the exercise of a non-qualified stock
option, the optionee generally must recognize ordinary compensation income
equal to the difference between the exercise price and the fair market value of
the common stock on the date of exercise. This compensation income will be
subject to applicable withholding. At the time of exercise, the company will
generally be entitled to a tax deduction in the amount of such compensation
income. The optionee's tax basis for the stock received pursuant to the
exercise will equal the sum of the recognized compensation income and the
exercise price.
Incentive Stock Options.
The grant of an incentive stock option will not be a taxable event to the
optionee. In addition, in contrast to the exercise of a non-qualified stock
option, the timely exercise of an incentive stock option will not cause the
optionee to recognize taxable income for regular income tax purposes (although
the employee could be subject to an alternative minimum tax liability as
described below). Also, the company shall not be entitled to a tax deduction
for either the grant or the exercise.
Upon exercise of an incentive stock option by an optionee, the alternative
minimum taxable income of such optionee must be determined as if such incentive
stock option were a non-qualified stock option (see "Non-Qualified Stock
Options," above). Accordingly, such optionee will be required to include as
alternative minimum taxable income the excess (if any) of the value of shares
received upon exercise as of the date such shares are vested over the amount
paid for such shares. Such employee would then be required to pay the greater
of such optionee's regular or alternative minimum tax liability computed with
respect of such year.
If optionee engages in the disqualifying disposition of the stock subject to
an incentive stock option, however, the exercise of the incentive stock option
may give rise to taxable compensation income to the optionee and a tax
deduction to the company. The optionee's sale or exchange of shares required
upon the exercise of an incentive stock option more than one year after the
transfer of the shares to such optionee and more than two years after the date
of grant of the incentive stock option will result in any difference between
the net sale proceeds and the exercise price being treated as long-term capital
gain or loss to the optionee. If such sale or exchange takes place within two
years after the date of the grant of the incentive stock option or within one
year from the date of transfer of the shares to the optionee, the sale or
exchange will generally be a "disqualifying disposition" and will have the
following results: any excess of (x) the lesser of (1) the fair market value of
the shares at the time of exercise and (2) the amount realized on the
disqualifying disposition of the shares over (y) the option exercise price of
such shares, will be ordinary income to the optionee, subject to applicable
withholding taxes, and the company will be entitled to a tax deduction in the
amount of such income. Any further gain or loss after the date of exercise will
generally qualify as capital gain or loss and will not result in any deduction
by the company.
Withholding Taxes.
To the extent that any amount recognized by an optionee upon exercise of an
option is subject to withholding taxes, the company may require the optionee to
pay, in addition to the amount required to exercise the option, the appropriate
amount of withholding. To the extent compensation income is recognized by an
optionee in connection with the exercise of a non-qualified stock option, the
company generally would be entitled to a matching compensation deduction
(assuming the requisite withholding requirements are satisfied).
Restricted Stock Awards.
Ordinarily, the award of restricted stock under the Stock Incentive Plan
will not be a taxable event to the grantee. The grantee will incur ordinary
compensation income, however, when the restrictions on the stock are
64
<PAGE>
lifted, in an amount equal to the fair market value of the stock at the time
the restrictions are lifted. Similarly, while the company will not be entitled
to a tax deduction for the restricted stock at the time of grant, at the time
the restrictions are lifted, the company will generally be entitled to a tax
deduction in the amount of the then-current fair market value of the stock. Any
dividends paid on restricted stock will be taxable income to the grantee at the
time issued.
As an exception to the above paragraph, under Internal Revenue Code (S)83(b)
a grantee may elect to include in current gross income restricted stock at the
time it is granted. If the grantee makes such an election, the fair market
value of the restricted stock at the time of grant, without regard to any
restrictions, shall be includable in the grantee's gross income. If the
restricted stock is subsequently forfeited by the grantee, either by
termination of employment before restrictions are lifted or otherwise, no
deduction to the grantee's income may be made. If the granted makes an election
under (S)83(b), the company will generally be entitled to a tax deduction at
the time of the grant for the then-current fair market value of the restricted
stock, without regard to restrictions.
CERTAIN TRANSACTIONS
Some of our executive officers and directors are, and have been during the
preceding three years, clients of PrivateBank, and some of our executive
officers and directors are direct or indirect owners of 10% or more of the
stock of corporations which are, or have been in the past, clients of
PrivateBank. As such clients, they have had transactions in the ordinary course
of business of PrivateBank, 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. In the opinion of our management, none
of the transactions involved more than the normal risk of collectibility or
presented any other unfavorable features. At March 31, 1999, PrivateBank had
$12,148,755 in loans outstanding to certain directors and executive officers
and their business interests of the company and certain executive officers of
PrivateBank.
In May 1998, Ralph B. Mandell, our Chairman, President and Chief Executive
Officer, purchased 72,720 shares of newly issued common stock at $13.75 per
share from PrivateBancorp. The purpose of the transaction was to enhance Mr.
Mandell's interest in the long-term performance of the company and further
align his interests with those of our stockholders. At the request of the Board
of Directors of the company, one of the underwriters, EVEREN Securities, Inc.,
provided a fairness opinion to the company relating to the sale price
established by our Board in connection with the transaction. As part of the
transaction, we loaned Mr. Mandell approximately 95% of the purchase price on a
full recourse basis. The loan matures in five years but becomes payable prior
to the fifth year in the event Mr. Mandell sells any of the 72,720 shares or
Mr. Mandell's employment is terminated. Interest accrues at 5.69% per annum,
compounded annually (the applicable Federal rate), on the principal amount of
the loan; however, provided Mr. Mandell does not sell any of the shares
purchased and remains in our employ, 25% of the accumulated interest on the
loan will be forgiven on the loan's second anniversary, 50% of the accumulated
interest on the loan will be forgiven on its third anniversary, 75% of the
accumulated interest on the loan will be forgiven on its fourth anniversary,
and 100% of the accumulated interest on the loan will be forgiven on the loan's
fifth anniversary. Mr. Mandell pledged all of the shares of common stock
purchased in the transaction as collateral for the loan he received from us,
but he is entitled to vote, and receive dividends on, the shares.
During 1998, we incurred professional fees for services provided by the law
firm Spitzer, Addis, Susman & Krull. Michael B. Susman, who is one of our
directors, is a partner of that firm.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the common stock
as of March 31, 1999, and as adjusted to give effect to the offering assuming
900,000 shares are sold in the offering (assuming no exercise of the over-
allotment option and no additional purchases of shares in the offering by the
persons shown), with respect to (a) each of our directors and Named Executive
Officers; and (b) all of our directors and Named Executive Officers as a group.
<TABLE>
<CAPTION>
Shares
Subject to
Exercisable
Options to Percentage Percentage
Shares of Purchase Total Ownership Ownership
Common Common Beneficial Before After
Stock(1) Stock(2) Ownership Offering(3) Offering(3)
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Directors
Ralph B. Mandell** (4).. 221,320 75,840 297,160 8.42% 6.71%
Caren L. Reed** (5)..... 9,600 7,040 16,640 * *
Donald A. Roubitchek**
(6).................... 31,920 38,736 70,656 2.02% 1.61%
Donald L. Beal (7)...... 17,464 12,720 30,184 * *
Naomi T. Borwell (8).... 164,800 12,720 177,520 5.12% 4.07%
William A. Castellano
(9).................... 132,400 12,720 145,120 4.19% 3.32%
Robert F. Coleman (10).. 26,400 12,720 39,120 1.13% *
W. James Farrell........ 10,400 6,240 16,640 * *
John E. Gorman.......... 49,000 8,400 57,400 1.66% 1.32%
Alvin J. Gottlieb....... 105,600 6,240 111,840 3.23% 2.57%
James M. Guyette........ 12,000 12,720 24,720 * *
Philip M. Kayman........ 12,800 12,720 25,520 * *
William R. Langley...... 89,600 68,240 157,840 4.48% 3.57%
Thomas F. Meagher....... 12,500 6,480 18,980 * *
Michael B. Susman....... 22,400 12,720 35,120 1.01% *
Other Named Executive
Officers
Gary S. Collins (11).... 28,180 31,616 59,796 1.72% 1.36%
M. Gail Fitzgerald (12). 13,200 8,000 21,200 * *
Hugh H. McLean (13)..... 45,528 12,000 57,528 1.66% 1.32%
Directors and executive
officers
as a group (18
persons)............... 1,005,112 357,872 1,362,984 35.78% 28.94%
</TABLE>
- --------
*Less than 1%
**Denotes person who serves as director and as an executive officer.
(1) Unless otherwise noted, represents all shares held individually, held in
individual retirement accounts or revocable trusts for the benefit of the
director or executive officer, and held jointly with spouse.
(2) Includes options which are currently exercisable or exercisable within 60
days of the date of this prospectus.
(3) Beneficial ownership percentages are calculated in accordance with SEC
Rule 13d-3 promulgated under the Securities Exchange Act of 1934. Does not
give effect to the planned issuance of shares in the pending acquisition.
See "Pending Acquisition."
(4) Includes 26,600 shares of restricted stock granted to Mr. Mandell under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
included are 72,720 shares which have been pledged as collateral to secure
a loan from the company to Mr. Mandell. See "Certain Transactions." Also
includes 23,600 shares held by Mr. Mandell's spouse. Mr. Mandell's
business address is c/o The PrivateBank & Trust Company, Ten North
Dearborn Street, Chicago, Illinois 60602.
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(5) Includes 9,600 shares of restricted stock granted to Mr. Reed under our
Stock Incentive Plan. These shares vest at various dates between 2001 and
2002, and are subject to forfeiture until such time as they vest.
(6) Includes 13,200 shares of restricted stock granted to Mr. Roubitchek under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
includes 400 shares held by Mr. Roubitchek's children.
(7) Includes 10,364 shares held by Mr. Beal's spouse and children.
(8) Ms. Borwell's address is 1040 N. Lake Shore Drive, Chicago, Illinois
60611.
(9) Includes 14,000 shares held by Mr. Castellano's children.
(10) Includes 800 shares held by Mr. Coleman's spouse and 3,200 shares held by
the Robert F. Coleman & Associates Retirement Savings Plan of which Mr.
Coleman is a participant.
(11) Includes 10,400 shares of restricted stock granted to Mr. Collins under
our Stock Incentive Plan. These shares vest at various dates between 2001
and 2004, and are subject to forfeiture until such time as they vest. Also
includes 4,170 shares owned by Mr. Collins' spouse and children.
(12) Includes 6,800 shares of restricted stock granted to Ms. Fitzgerald under
our Stock Incentive Plan. These shares vest at various dates between 2002
and 2004, and are subject to forfeiture until such time as they vest.
(13) Includes 7,800 shares of restricted stock granted to Mr. McLean under our
Stock Incentive Plan. These shares vest at various dates between 2002 and
2004, and are subject to forfeiture until such time as they vest.
SUPERVISION AND REGULATION
General
Banking is a highly regulated industry. We have attempted to summarize
several applicable statutes and regulations, but you should understand that
these summaries are not complete, and you should refer to the statutes and
regulations for more information. Also, these statutes and regulations are
likely to change in the future, and we cannot predict what effect these
changes, if made, will have on our operations. Finally, please remember that
supervision, regulation and examination of banks and bank holding companies by
bank regulatory agencies are intended primarily for the protection of
depositors rather than stockholders of banks and bank holding companies.
Bank Holding Company Regulation
PrivateBancorp is registered as a "bank holding company" with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") pursuant to the
Bank Holding Company Act of 1956 (the Bank Holding Company Act of 1956 and the
regulations issued thereunder are collectively referred to as the "BHC Act"),
and we are subject to regulation, supervision and examination by, and we are
required to file reports and additional information with the Federal Reserve.
Minimum Capital Requirements. The Federal Reserve has adopted risk-based
capital requirements for assessing bank holding company capital adequacy. These
standards revise the normal definition of capital and establish minimum capital
standards in relation to assets and off-balance sheet exposures, as adjusted
for credit risks. At December 31, 1998, our consolidated assets were
approximately $416 million. Under the Federal Reserve's risk-based guidelines
applicable to the company, capital is classified into two categories.
For bank holding companies, Tier 1, or "core", capital consists of:
. common stockholders' equity;
. perpetual preferred stock (subject to some limitations); and
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. minority interests in the common equity accounts of consolidated
subsidiaries
less:
. goodwill;
. specified intangible assets; and
. specified investments in other corporations.
Tier 2 capital consists of:
. the allowance for loan and lease losses;
. perpetual preferred stock and related surplus;
. hybrid capital instruments;
. perpetual debt securities;
. mandatory convertible debt securities;
. term subordinated debt and related surplus; and
. intermediate-term preferred stock, including related securities.
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 8%, of which at least 4% must be in the form of Tier 1
capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1
capital to total assets of 3%. 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 the stated minimum. The 3% Tier 1
capital to total assets ratio is the minimum leverage standard for bank holding
companies, and the Federal Reserve uses this minimum standard 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.
As of March 31, 1999, we had regulatory capital in excess of the Federal
Reserve's minimum requirements. Our total risk-based capital ratio at March 31,
1999 was 11.21% and our leverage ratio was 7.53%.
Acquisitions. 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 5% 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
limited exceptions, the BHC Act prohibits a bank holding company from acquiring
direct or indirect ownership or control of voting shares of any company which
is not a bank or bank holding company and from engaging directly or indirectly
in any activity other than banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding company
may, however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined, by regulation or order, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto, such as owning and operating a savings association,
trust company, or investment or financial advisory business. Under the BHC Act
and Federal Reserve regulations, we are prohibited from engaging in tie-in
arrangements in connection with an extension of credit, lease, sale of
property, or furnishing of services. That means that, in most circumstances, we
may not condition a client's purchase of one of our services on the purchase of
another service.
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Interstate Banking and Branching Legislation. Under the Interstate Banking
and Efficiency Act, adequately capitalized and adequately managed bank holding
companies are allowed to acquire banks across state lines subject to various
limitations. In addition, under the Interstate Banking Act, banks are
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.
Ownership Limitations. Any person, including that person's associates,
affiliates and groups acting in concert with him or her, who purchases or
subscribes for 5% or more of our common stock may be required to obtain prior
approval of the Commissioner and the Federal Reserve. Under the Illinois
Banking Act, any person who thereafter acquires more than 10% of our stock may
be required to obtain the prior approval of the Commissioner. Under the Change
in Bank Control Act, a person may be required to obtain the prior regulatory
approval of the Federal Deposit Insurance Corporation ("FDIC") and the Federal
Reserve before acquiring the power to directly or indirectly control the
management, operations or policies of PrivateBancorp or PrivateBank or before
acquiring control of 25% or more of any class of PrivateBancorp's or
PrivateBank's outstanding voting stock. In addition, any corporation,
partnership, trust or organized group that acquires a controlling interest in
PrivateBancorp or PrivateBank may have to obtain approval of the Federal
Reserve to become a bank holding company and thereafter be subject to
regulation as a bank holding company.
Dividends. The Federal Reserve has issued a policy statement on the payment
of cash dividends by bank holding companies. In the policy statement, the
Federal Reserve expressed its view that a bank holding company experiencing
earnings weaknesses should not pay cash dividends exceeding its net income or
which could only be funded in ways that weakened the bank holding company's
financial health, such as by borrowing. Additionally, the Federal Reserve
possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to prohibit or limit the payment of dividends by banks
and bank holding companies.
Under a longstanding policy of the Federal Reserve, PrivateBancorp is
expected to act as a source of financial strength to PrivateBank and to commit
resources to support PrivateBank. The Federal Reserve takes the position that
in implementing this policy, it may require PrivateBancorp to provide financial
support when the company otherwise would not consider itself able to do so.
In addition to the restrictions on dividends imposed by the Federal Reserve,
Delaware law also places limitations on our ability to pay dividends. For
example, we may not pay dividends to our stockholders if, after giving effect
to the dividend, we would not be able to pay our debts as they become due.
Because a major source of our revenue is dividends which we receive and expect
to receive from PrivateBank, our ability to pay dividends will depend on the
amount of dividends paid by PrivateBank. We cannot be sure that PrivateBank
will, in any circumstances, pay such dividends to us.
Bank Regulation
Under Illinois law, PrivateBank is subject to supervision and examination by
the commissioner of the Illinois Office of Banks and Real Estate (the
"Commissioner"). As an affiliate of PrivateBank, PrivateBancorp is also subject
to examination by the Commissioner. PrivateBank is a member of the Federal Home
Loan Bank ("FHLB") of Chicago and may be subject to examination by the FHLB of
Chicago. In addition, the deposits of PrivateBank are insured by the Bank
Insurance Fund ("BIF") thereby rendering PrivateBank subject to the provisions
of the Federal Deposit Insurance Act ("FDIA") and, as a state nonmember bank,
to supervision and examination by the FDIC. The FDIA requires the FDIC approval
of 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.
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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 Federal Reserve's monetary policies have had a
significant effect on the operating results of commercial banks in the past and
we expect this trend to continue in the future.
Dividends. The Illinois Banking Act provides that an Illinois bank may not
pay dividends of an amount greater than its current net profits after deducting
losses and bad debts while such bank continues to operate a banking business.
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.
In addition to the foregoing, the ability of the company and PrivateBank to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), as described below.
Federal Reserve System. PrivateBank is subject to Federal Reserve
regulations requiring depository institutions to maintain noninterest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3% reserves on the
first $47.8 million of transaction accounts plus 10% on the remainder. The
first $4.7 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. PrivateBank is
in compliance with that requirement.
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 FDIC and the other federal
bank regulatory agencies have adopted a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the guidelines
require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal stockholder. In addition, the FDIC adopted regulations
that authorize, but do not require, the FDIC to order an institution that has
been given notice by the FDIC that it is not satisfying any of the safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the FDIC must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association
is subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the FDIC may seek to enforce
its order in judicial proceedings and to impose civil money penalties. The FDIC
and the other federal bank regulatory agencies also proposed guidelines for
asset quality and earning standards.
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 minimum 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 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 (for example, the company
or a
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stockholder controlling the company). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for under-capitalized institutions. The capital-
based prompt corrective action provisions of FDICIA and their implementing
regulations apply to FDIC-insured depository institutions. However, federal
banking agencies have indicated that, in regulating bank holding companies, the
agencies may take appropriate action at the holding company level based on
their assessment of the effectiveness of supervisory actions imposed upon
subsidiary insured depository institutions pursuant to the prompt corrective
action provisions of FDICIA.
As of March 31, 1999, PrivateBank had capital in excess of the requirements
for a "well-capitalized" institution.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution,
PrivateBank 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 designated reserve
ratios in the insurance funds and to impose special additional assessments. The
FDICIA assessment rate schedule for BIF-insured deposits provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of deposits
depending on capital and supervisory factors. Each depository institution is
assigned to one of three capital groups: "well capitalized," "adequately
capitalized" or "less than adequately capitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups: "healthy,"
"supervisory concern" or "substantial supervisory concern." Accordingly, there
are nine combinations of capital groups and supervisory subgroups to which
varying assessment rates would be applicable. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. During 1998, PrivateBank paid deposit insurance premiums in the
aggregate amount of $33,572.
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practice, 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. We do not know any
practice, condition or violation that might lead to termination of our deposit
insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 provides
that beginning with semi-annual periods after December 31, 1996, BIF deposits
will also be assessed to pay interest on the bonds issued in the late 1980s by
the Financing Corporation (the "FICO Bonds") 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 Bank.
Community Reinvestment. Under the CRA, a financial institution has a
continuing and affirmative obligation 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. However, institutions are rated on their performance in
meeting the needs of their communities. Performance is judged in three areas:
(a) a lending test, to evaluate the institution's record of making loans in its
assessment areas; (b) 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 business; and (c) a
service test, to evaluate the institution's delivery of services through its
branches, ATMs and other offices. 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
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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.
PrivateBank was assigned a "satisfactory" rating in January 1999 as a result
of its last CRA examination. This is the second highest rating a bank may
receive.
Compliance with Consumer Protection Laws. PrivateBank is subject to many
federal consumer protection statutes and regulations including the CRA, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Real Estate Settlement Procedures Act and the
Home Disclosure Act. Among other things, these acts:
. require banks to meet the credit needs of their communities;
. require banks to disclose credit terms in meaningful and consistent
ways;
. prohibit discrimination against an applicant in any consumer or business
credit transaction;
. prohibit discrimination in housing-related lending activities;
. require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects;
. require lenders to provide borrowers with information regarding the
nature and cost of real estate settlements;
. prohibit certain lending practices and limit escrow account amounts with
respect to real estate transactions; and
. prescribe possible penalties for violations of the requirements of
consumer protection statutes and regulations.
From time to time we have been made aware of certain deficiencies in our
consumer compliance program. Management believes that any deficiencies have
already been or are in the process of being corrected. In the event that
consumer compliance deficiencies were to continue over time, enforcement or
administrative actions by the appropriate federal banking regulators may affect
the implementation of our growth strategies.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
an 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.
Other. PrivateBank is also subject to state and federal restrictions upon:
. extensions of credit to the company and any non-banking affiliates,
. the purchase of assets from affiliates,
. the issuance of guarantees, acceptances or letters of credit on behalf
of affiliates, and
. investments in stock or other securities issued by affiliates or
acceptance thereof as collateral for an extension of credit.
PrivateBancorp and PrivateBank are subject to restrictions with respect to
engaging in the issuance, underwriting, public sale or distribution of certain
types of securities. In addition, PrivateBank must maintain reserves against
deposits and is subject to restrictions upon:
. the nature and amount of loans which it may make to a single borrower
(and, in some instances, a group of affiliated borrowers),
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. the nature and amount of securities in which it may invest,
. the amount of investment in PrivateBank premises, and
. the manner in and extent to which it may borrow money.
Pending Legislation. Because of the concerns relating to competitiveness and
the safety and soundness of the banking industry, Congress is considering a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. We cannot
predict whether or in what form any of these proposals will be adopted or the
extent to which the proposals will affect our operations, if at all.
Monetary Policy and Economic Conditions
The earnings of banks and bank holding companies are sensitive to changes in
prevailing interest rates and are affected by general economic conditions and
the fiscal and monetary policies of federal regulatory agencies, including the
Federal Reserve. Through changes in the discount rate, availability of
borrowing at the "discount window," open market transactions, and imposition of
changes in the reserve requirements, the Federal Reserve exerts considerable
influence over the cost and availability of funds obtainable for lending or
investing. Monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments and deposits, and
such use may affect interest rates charged on loans or paid on deposits.
Monetary and fiscal policies have affected the operating results of commercial
banks in the past and are expected to do so in the future. We cannot fully
predict the nature or the extent of any effects which fiscal or monetary
policies may have on our business and earnings.
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DESCRIPTION OF CAPITAL STOCK
The information in this prospectus gives effect to a 2-for-1 stock split
effective as of June 28, 1999, and to an amendment to PrivateBancorp's Restated
Certificate of Incorporation to increase the authorized shares approved by
stockholders on April 22, 1999. The amendment was filed on June 25, 1999, with
the Secretary of State of the State of Delaware.
Common Stock
We are authorized to issue 12,000,000 shares of common stock, without par
value, of which 3,451,824 shares were outstanding prior to the offering. As of
March 31, 1999, 632,808 shares of common stock were reserved for issuance upon
the exercise of currently outstanding options. 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 share of common
stock has the same relative rights as, and is identical in all respects with,
each other share of common stock. Each holder of record of common stock is
entitled to one vote per share on all matters voted upon by our 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 of our assets 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.
Dividends. The holders of our 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. We may pay dividends if, as and when declared
by our Board of Directors. The payment of dividends by the company is subject
to limitations imposed by the Delaware General Corporation Law ("DGCL"). See
"Dividends." If we issue 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 our common stock possess voting rights in the
company. Stockholders elect our Board of Directors and act on such other
matters as are required to be presented to them under the DGCL or our Amended
and Restated 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 we
issue preferred stock, holders of the preferred stock may also possess voting
rights. Certain matters require a two-thirds stockholder vote. See "Certain
Anti-Takeover Effects of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws and Delaware Law."
Liquidation. In the event of any liquidation, dissolution or winding up of
the company, the holders of our common stock would be entitled to receive,
after payment or provision for payment of all of our debts and liabilities, all
of our assets 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 our common stock will not be
entitled to preemptive rights with respect to any shares which we may issue in
the future. The common stock is not subject to mandatory redemption by us.
Preferred Stock
Our Board of Directors is authorized, pursuant to the Amended and Restated
Certificate of Incorporation, to issue 1,000,000 shares of preferred stock,
without 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 our common stock.
Currently, no shares of our authorized preferred stock are issued or
outstanding. Stockholders will not have preemptive rights to subscribe for
shares of preferred stock.
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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. The dividend rights, dividend rates, conversion
rights, conversion prices, voting rights, redemption rights and terms
(including sinking fund provisions, if any), the redemption price or prices and
the liquidation preferences of any series of the authorized preferred stock and
the numbers of such shares of preferred stock in each series will be
established by the Board of Directors as such shares are to be issued. It is
not possible to state the actual effect of the preferred stock on the rights of
holders of common stock until the Board of Directors determines the rights of
the holders of a series of the preferred stock. However, such effects might
include:
. restrictions on dividends;
. dilution of the voting power to the extent that the preferred stock were
given voting rights;
. dilution of the equity interest and voting power if the preferred stock
were convertible into common stock; and
. restrictions upon any distribution of assets to the holders of common
stock upon liquidation or dissolution until the satisfaction of any
liquidation preference granted to holders of the preferred stock.
Furthermore, although we have no present intention to do so, the Board of
Directors could direct us to issue, in one or more transactions, shares of
preferred stock or additional shares of common stock or rights to purchase such
shares (subject to the limits imposed by applicable laws and the rules of any
stock exchange or automated dealer quotation system to the extent that such
rules may become applicable to, or may be observed by, us) in amounts which
could make more difficult and, therefore, less likely, a takeover, proxy
contest, change in our management or any other extraordinary corporate
transaction which might be opposed by the incumbent Board of Directors. Any
issuance of preferred stock or of common stock could have the effect of
diluting the earnings per share, book value per share and voting power of
common stock held by our stockholders.
Certain Anti-Takeover Effects of the Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and Delaware Law
General. Certain provisions of our Amended and Restated Certificate of
Incorporation, Amended and Restated By-laws and the DGCL may have the effect of
impeding the acquisition of control of the company by means of a tender offer,
a proxy fight, open-market purchases or otherwise in a transaction not approved
by our Board of Directors. These provisions may have the effect of discouraging
a future takeover attempt which is not approved by our 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 our current Board of Directors or
management more difficult.
The provisions of the Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws described below are designed to reduce, or have
the effect of reducing, our vulnerability to an unsolicited proposal for the
restructuring or sale of all or substantially all of our assets or an
unsolicited takeover attempt which is unfair to our stockholders. The following
description of certain of the provisions of our Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws is general, and
you should read it with our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws.
Authorized Shares. Our Amended and Restated Certificate of Incorporation
authorizes the issuance of 12,000,000 shares of common stock and 1,000,000
shares of preferred stock. We have authorized these amounts to provide our
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 the company.
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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. Our 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. Our Amended
and Restated 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 its voting power to gain control
of the Board of Directors without the consent of the incumbent Board of
Directors.
Our Amended and Restated By-laws provide that there shall be sixteen
Directors. Our Amended and Restated 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 by a majority vote of the directors
then in office. Directors so chosen shall hold office until their successors
are elected and qualified or until their earlier resignation or removal.
No Cumulative Voting; Limitation on Action by Written Consent and
Stockholder Meetings. Our Amended and Restated Certificate of Incorporation
does not provide for cumulative voting. Our Amended and Restated Certificate of
Incorporation and Amended and Restated 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. Our Amended and Restated By-laws provide that special meetings of
the stockholders may only be called by the Chairman of the Board, the President
or the Secretary at the written request of a majority of the Board of
Directors.
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 (a) 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, (b) 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 (c) 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. We have not elected to
be exempt from the restrictions imposed under Section 203. The provisions of
Section 203 may encourage persons interested in acquiring us to negotiate in
advance with our Board of Directors 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
76
<PAGE>
stockholder. Such provisions also may have the effect of preventing changes in
our management. It is possible that such provisions could make it more
difficult to accomplish transactions which our stockholders may otherwise deem
to be in their best interests.
Amendment of the Restated Certificate of Incorporation and By-laws. Our
Amended and Restated Certificate of Incorporation provides that the affirmative
vote of the holders of at least 66 2/3% of our outstanding voting stock, voting
together as a single class, is required to amend, repeal, or adopt any
provision inconsistent with, the provisions of our Amended and Restated
Certificate of Incorporation classifying directors, eliminating cumulative
voting, prohibiting stockholder action without a meeting or specifying the vote
required to amend such provisions. Our By-laws may be amended by the
stockholders or the Board of Directors; however, the affirmative vote of the
holders of at least 66 2/3% of the outstanding voting stock, voting together as
a single class, is required to amend, repeal, or adopt any provision
inconsistent with, the provisions of the Amended and Restated By-laws
describing how special meetings of the stockholders must be called, prohibiting
stockholder action without a meeting, regarding properly bringing business
before a stockholder meeting, stating the number of and classifying directors,
relating to filling director vacancies, and specifying the vote required to
amend such provisions.
Certain By-Law Provisions. Our Amended and Restated By-laws 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 us advance notice of at least 120 days. The notice provision requires a
stockholder who desires to raise new business at an annual stockholder meeting
to provide us certain information concerning the nature of the new business,
the stockholder and such stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide us with certain information concerning the nominee and
such proposing stockholder.
The provisions described above are intended to reduce our vulnerability to
takeover attempts and certain other transactions which have not been negotiated
with and approved by our 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 the company and our
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 our true value and that
otherwise is in the best interest of all stockholders.
Limitation of Director Liability and Indemnification
Our Amended and Restated Certificate of Incorporation provides that no
director will be personally liable to the company or our stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that directors will have liability (a) for any breach of a director's duty of
loyalty to the company or our stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit.
Our Amended and Restated By-laws provide that we will indemnify 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 or she is or was a director,
officer, employee or agent of the company, or is or was serving at our request
as a director, trustee, officer, employee or agent of another corporation or
other enterprise against expenses actually and reasonably incurred by such
person in connection with such action, suit or proceeding. To the extent that a
person seeking indemnification has been successful on the merits or otherwise
in defense of any action, suit, or proceeding, such person will be indemnified
for his or her expenses which were actually and reasonably incurred. Any
indemnification payment must be authorized upon a determination that the
individual seeking indemnification met the necessary standard of conduct for
such indemnification. Such determination will be made by a majority vote of a
quorum
77
<PAGE>
consisting of directors not involved with the action, suit or proceeding; a
written opinion of independent legal counsel, if the described quorum cannot be
obtained or if the majority vote of the described quorum directs; a vote of the
stockholders; or a decision of the court in which the action was brought. To
qualify for indemnification, such person must have acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was lawful. Expenses may be paid
by us as they are incurred, in advance of a final disposition, as authorized by
the Board of Directors and upon receipt of an undertaking by the person seeking
indemnification to repay the advanced amount if it is later determined that he
or she was not entitled to indemnification. The indemnification and advancement
of expenses provided by the Amended and Restated By-laws are not to be deemed
exclusive of any other rights to which any person seeking indemnification may
be entitled as a matter of law or under our Amended and Restated Certificate of
Incorporation, the Amended and Restated By-laws, any agreement, vote of
stockholders, any insurance purchased by us, or otherwise, both as to action in
his or her 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, trustee, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
We have entered into indemnification agreements with our directors and
executive officers to indemnify them against certain liabilities. Consistent
with the provisions of our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws, under the terms of the agreements, we will
indemnify our directors and executive officers to the fullest extent permitted
under applicable law against all expenses, liabilities and losses incurred in
connection with any legal proceeding brought against any of them by reason of
their status as directors, officers, employees, agents or fiduciaries of the
company. The expenses, liabilities and losses which we are obligated to pay may
include judgments, fines and amounts paid in settlement of such legal
proceedings by our directors and executive officers so long as they acted in
good faith and in a manner which they reasonably believed was in the best
interests of the company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Illinois Stock
Transfer Company, Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 4,351,824 of common stock
issued and outstanding (4,486,824 shares if the underwriters exercise their
over-allotment option in full), assuming no exercise of any options. Of these
shares, 2,770,550 shares, including the 900,000 shares to be sold in this
offering (assuming no exercise of the over-allotment option), will be freely
tradeable in the public market without restriction or registration under the
Securities Act, unless held by our "affiliates" as that term is defined under
the Securities Act. The remaining 1,581,274 shares are subject to certain
restrictions on trading, as described below. All shares sold in the Towne
Square transaction will be subject to contractual holding periods of one to
three years. See "Pending Acquisition."
Restricted stock awards granted to our employees.
Pursuant to the terms of our Stock Incentive Plan, we have awarded 21,600
shares of restricted stock to certain of our employees who are not executive
officers. Although our employees have full voting rights with regard to these
shares and may receive any dividends we declare, they may not transfer the
shares until they are fully vested. Each restricted stock award will vest in
its entirety on the fifth anniversary of the date of grant. Unless earlier
forfeited, the awards will vest according to the following schedule:
<TABLE>
<CAPTION>
Year Shares Vested
---- -------------
<S> <C>
2001....................... 4,800
2002....................... 9,600
2003....................... 1,600
2004....................... 5,600
</TABLE>
78
<PAGE>
Shares held by our executive officers and directors.
Our executive officers and directors currently hold 1,005,112 shares of our
common stock, representing 23.1% of the shares that will be outstanding upon
completion of this offering. Of these shares, 74,400 shares were granted to our
officers pursuant to restricted stock awards and are subject to forfeiture
until the fifth anniversary of the date of grant. These restricted stock awards
will vest between the years 2001 and 2004. The remaining shares held by our
officers and directors may be sold in the public market under the provisions of
Rule 144 of the Securities Act, upon the expiration of certain holding periods
specified in Rule 144.
Lock-up Agreements. Our directors and officers and certain of our
stockholders have entered into lock-up agreements with the underwriters
pursuant to which they have agreed not to offer, sell or contract to sell any
of their shares of common stock for a period of 180 days from the date of this
prospectus without the underwriters' prior written consent. An aggregate of
1,477,774 shares of our common stock are subject to these agreements. Upon the
expiration of this 180-day period, our directors and officers and stockholders
may resell their shares, if vested, subject to the restrictions discussed
below.
Shares Subject to Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell, within a three-month period, that number of shares which does
not exceed the greater of:
. one percent of the outstanding shares of our common stock (approximately
43,518 shares immediately following the offering); or
. the average weekly reported trading volume of our common stock during
the four calendar weeks preceding the sale.
Sales made under Rule 144 are also subject to certain requirements pertaining
to:
. the manner of such sales;
. notices of such sales; and
. the availability of current public information about us.
Under Rule 144(k), a person other than an affiliate may sell shares freely,
without regard to the above restrictions, if that person has held the shares
for a period of two years or more. Affiliates, such as our directors and
officers, are always subject to these manner of sale and volume restrictions,
regardless of the length of time that they have held their shares.
Currently there are 101,900 shares of our common stock held by non-
affiliates which are subject to the provisions of Rule 144. Of such shares,
20,000 are subject to the lock-up agreements discussed above. Non-affiliates
may sell the remaining shares pursuant to the Rule 144 restrictions beginning
in September 1999, except for 20,000 of these shares that are subject to a
lock-up agreement. All of these shares will be freely tradable by non-
affiliates by December 2000.
Registration Rights of Certain of Our Stockholders.
Pursuant to the terms of our private placement offering materials, we have
granted certain "piggyback" registration rights to holders of 2,769,872 shares
of our common stock. These stockholders, including some of our affiliates, are
entitled to have their shares registered for sale under the Securities Act in
the event that we determine to register shares of our common stock in
connection with an underwritten public offering or otherwise. These rights are
subject to certain limitations and conditions, including:
. our ability to preclude or limit the number of shares which these
stockholders may include in the underwritten offering or registration;
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<PAGE>
. the right of the managing underwriter, in its sole discretion, to limit
the number of shares to be underwritten; and
. the requirement that each participating stockholder bear a pro rata
portion of the underwriting discounts and commissions.
Of the shares entitled to these registration rights, all shares held by non-
affiliates are currently tradable pursuant to the terms of Rule 144(k), as
described above. Those shares held by our affiliates are subject to the manner
of sale and volume restrictions of Rule 144, as set forth above. None of the
registration rights with respect to these shares have been exercised in
connection with this offering.
Shares Reserved For Issuance Pursuant to Options.
Effective upon completion of this offering, we will have an aggregate of
632,808 shares reserved for issuance pursuant to outstanding stock options
granted to certain key employees, officers and directors. Options to purchase
453,408 shares are currently exercisable. In addition, there are 50,119 shares
remaining available for future awards under our Stock Incentive Plan, out of
which the option grant and restricted stock award are expected to be made to
Tom Castronovo in connection with the Towne Square Financial Corporation
transaction. We intend to register under the Securities Act the shares of
common stock reserved for issuance under our stock plans, whereupon all of
these shares will be freely tradeable, subject to compliance by affiliates with
the Rule 144 volume and manner of sale limitations.
Our Nasdaq Symbol.
Our common stock has been approved for quotation and trading on The Nasdaq
National Market/SM/ under the symbol "PVTB."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, for whom EVEREN Securities, Inc. and Stifel, Nicolaus
& Company, Incorporated are acting as representatives (the "Representatives"),
have severally agreed to purchase from us, and we have agreed to sell to them,
the respective number of shares of common stock set forth opposite each
underwriter's name below:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ -------
<S> <C>
EVEREN Securities, Inc........................................... 298,500
Stifel, Nicolaus & Company, Incorporated......................... 298,500
ABN AMRO Chicago Corporation..................................... 45,000
William Blair & Company, L.L.C................................... 45,000
McDonald Investments Inc., a KeyCorp Company..................... 45,000
Fox-Pitt, Kelton Inc............................................. 28,000
Hoefer & Arnett, Inc............................................. 28,000
Howe Barnes Investments, Inc..................................... 28,000
Loop Capital Markets............................................. 28,000
Ryan, Beck & Co., Inc............................................ 28,000
Wheat First Securities........................................... 28,000
-------
Total........................................................ 900,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The nature of the underwriters'
obligation is such that they are committed to purchase and pay for all shares
of common stock (other than those covered by the over-allotment options
discussed below) if any are purchased.
The underwriters propose to offer the shares of our common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to certain securities dealers (who may include the
underwriters) at such price, less a concession not in excess of $0.72 per share
of common stock. The underwriters may allow, and such selected dealers may
reallow, a concession not in excess of $0.10 per share of common stock to
certain brokers and dealers. After this offering, the price to the public,
concession, allowance and reallowance may be changed by the Representatives.
The Representatives have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
We have granted the underwriters an option to purchase up to 135,000
additional shares of common stock at the same price per share as we will
receive for the 900,000 shares that the underwriters have agreed to purchase.
This option is exercisable during the 30-day period after the date of this
prospectus, solely to cover over-allotments, if any. To the extent that the
underwriters exercise this option, each of the underwriters will be committed,
subject to certain conditions, to purchase such additional shares of common
stock in approximately the same proportions as set forth in the above table. If
purchased, the underwriters will sell the additional shares on the same terms
as the 900,000 shares are being sold. If the underwriters exercise the over-
allotment in full, the total public offering price will be $18,630,000, total
underwriting discounts and commissions will be $1,304,100, and total proceeds
to us will be $17,325,900.
The offering of the common stock is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject any order for the purchase of common stock.
Subject to certain exceptions, we have agreed not to issue, and each of our
officers and directors (and certain stockholders of the company) has agreed not
to offer, sell or otherwise dispose of any of our shares of common stock or our
other equity securities for a period of 180 days after the date of this
prospectus (other than shares sold pursuant to this prospectus and shares
issuable in the transaction with Towne Square Financial Corporation) without
the prior written consent of EVEREN Securities.
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<PAGE>
Subject to certain exceptions for registration statements on Form S-8, we
have agreed not to file a registration statement relating to any of our shares
of common stock or other equity securities for a period of 180 days after the
date of this prospectus (other than the shares to be issued in this offering
and the shares issuable in the transaction with Towne Square Financial
Corporation) without the prior written consent of EVEREN Securities.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act, or to contribute to payments the underwriters may be
required to make in respect thereof.
Prior to this offering, there has been no public market for our common
stock. Consequently, we negotiated the initial public offering price with the
underwriters. Among the factors considered in such negotiations were:
. prevailing market conditions;
. an assessment of our management;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of other companies
which we and the Representatives believe to be comparable to us; and
. estimates of our business potential.
There can be no assurance that an active trading market will develop for our
common stock or that our common stock will trade in the public market
subsequent to this offering at or above the initial public offering price. The
initial public offering price should not be considered an indication of the
actual value of our common stock. Such price is subject to change as a result
of market conditions and other factors. We cannot assure you that our common
stock can be resold at or above the initial public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of our common stock during and after the offering, such as the
following:
. the underwriters may over-allot or otherwise create a short position in
the common stock for their own account by selling more shares of common
stock than we have been sold to them;
. the underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising
the over-allotment option;
. the underwriters may stabilize or maintain the price of our common stock
by bidding for or purchasing shares of common stock in the open market;
. the underwriters may engage in passive market making transactions; and
. the underwriters may impose penalty bids, under which selling
concessions allowed to syndicate members of other broker-dealers
participating in this offering are reclaimed if shares of common stock
previously distributed in the offering are repurchased in connection
with stabilization transactions or otherwise.
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of our common stock
to the extent that it discourages resales thereof. No representation is made as
to the magnitude or effect of any such stabilization or other transactions.
Such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
EVEREN Securities has provided in the past, and both Representatives may
provide in the future, investment banking services to PrivateBancorp for which
they have received and would expect to receive customary fees and commissions.
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<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering, including the
validity of the common stock, are being passed upon for the company by Vedder,
Price, Kaufman & Kammholz, Chicago, Illinois. Certain legal matters are being
passed upon for the underwriters by Jenner & Block, Chicago, Illinois.
EXPERTS
The consolidated financial statements for each of the three years in the
three-year period ended December 31, 1998, included in this prospectus, have
been audited by Arthur Andersen LLP, independent certified public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form S-1 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 we have filed with the SEC. You may inspect
and copy those materials upon payment of prescribed rates, at the Public
Reference Room 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. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. This
information is also available on the Internet at the SEC's website. The address
for the web site is: http://www.sec.gov. For further information about the
company, 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 such contract,
agreement or other document filed as an exhibit to the registration statement
for a full statement of the provisions thereof. Each such statement in this
prospectus is qualified in all respects by such reference.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PRIVATEBANCORP, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............. F-2
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December
31, 1998 and 1997........................................................ F-3
Consolidated Statements of Income for the three months ended March 31,
1999 and 1998 (unaudited) and for the years ended December 31, 1998, 1997
and 1996................................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the three
months ended March 31, 1999 (unaudited) and for the years ended December
31, 1998, 1997 and 1996.................................................. F-5
Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998 (unaudited) and for the years ended December 31, 1998, 1997
and 1996................................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
PrivateBancorp, Inc.:
We have audited the accompanying consolidated balance sheets of
PRIVATEBANCORP, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
PrivateBancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 29, 1999 (except with respect to the matter discussed in Note 19, as to
which the date is June 25, 1999)
F-2
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of March 31, 1999 and December 31, 1998 and 1997
<TABLE>
<CAPTION>
March 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash and due from banks-noninterest
bearing............................. $ 8,220,209 $ 11,894,781 $ 9,229,704
Federal funds sold................... 7,759,124 3,619,437 16,976,417
------------ ------------ ------------
Total cash and cash equivalents.. 15,979,333 15,514,218 26,206,121
------------ ------------ ------------
Available-for-sale securities, at
fair value.......................... 105,135,775 116,890,739 65,383,252
------------ ------------ ------------
Loans................................ 307,766,039 281,964,896 218,494,547
Less: Allowance for loan losses.... (3,695,000) (3,410,000) (3,050,000)
------------ ------------ ------------
Net loans.......................... 304,071,039 278,554,896 215,444,547
------------ ------------ ------------
Bank premises and equipment, net..... 1,528,416 1,587,720 1,904,338
------------ ------------ ------------
Accrued interest receivable.......... 2,685,131 2,264,195 1,581,728
------------ ------------ ------------
Other assets......................... 1,654,854 1,496,071 1,352,145
------------ ------------ ------------
Total assets..................... $431,054,548 $416,307,839 $311,872,131
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing................ $ 28,178,279 $ 39,490,083 $ 34,233,722
Interest-bearing................... 31,793,923 26,508,202 26,083,741
Savings and money market deposit
accounts............................ 180,871,333 170,713,032 135,624,494
Other time deposits.................. 143,610,570 128,282,346 89,831,506
------------ ------------ ------------
Total deposits................... 384,454,105 364,993,663 285,773,463
Accrued interest payable............. 994,331 720,874 453,056
Funds borrowed....................... 10,000,000 20,000,000 --
Other liabilities.................... 5,552,114 1,319,654 957,857
------------ ------------ ------------
Total liabilities................ 401,000,550 387,034,191 287,184,376
------------ ------------ ------------
Stockholders' equity:
Preferred stock, 1,000,000 shares
authorized........................
Common stock, without par value;
12,000,000 shares authorized;
3,451,824, 3,431,424 and 3,217,184
shares issued and outstanding in
1999, 1998 and 1997, respectively. 3,451,824 3,431,424 3,217,184
Surplus............................ 22,600,302 22,273,902 19,782,477
Retained earnings.................. 5,853,156 4,912,359 2,165,310
Accumulated other comprehensive
income, net of tax effect......... (58,045) 149,471 29,117
Deferred compensation.............. (843,498) (543,767) (506,333)
Loan to executive officer.......... (949,741) (949,741) --
------------ ------------ ------------
Total stockholders' equity....... 30,053,998 29,273,648 24,687,755
------------ ------------ ------------
Total liabilities and
stockholders' equity............ $431,054,548 $416,307,839 $311,872,131
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1999 and 1998, and
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- -----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees. $5,635,595 $4,624,309 $19,619,603 $16,729,277 $12,151,454
Federal funds sold and
interest-bearing
deposits............. 48,268 498,263 2,181,013 874,981 1,392,465
Securities............ 1,570,161 726,566 3,491,622 2,518,675 2,396,461
---------- ---------- ----------- ----------- -----------
Total interest
income............. 7,254,024 5,849,138 25,292,238 20,122,933 15,940,380
---------- ---------- ----------- ----------- -----------
Interest expense:
Deposits:
Interest-bearing
demand............. 142,080 121,077 487,073 376,833 304,807
Savings and money
market deposit
accounts........... 1,800,196 1,628,727 6,651,280 5,879,689 4,613,396
Other time.......... 1,751,289 1,346,153 6,154,468 3,821,473 2,972,891
Funds borrowed........ 144,420 -- 19,136 2,903 143,026
---------- ---------- ----------- ----------- -----------
Interest expense.... 3,837,985 3,095,957 13,311,957 10,080,898 8,034,120
---------- ---------- ----------- ----------- -----------
Net interest income. 3,416,039 2,753,181 11,980,281 10,042,035 7,906,260
Provision for loan
losses................. 285,000 91,370 361,986 602,991 523,679
---------- ---------- ----------- ----------- -----------
Net interest income
after provision for
loan losses.......... 3,131,039 2,661,811 11,618,295 9,439,044 7,382,581
---------- ---------- ----------- ----------- -----------
Non-interest Income:
Banking and trust
services............. 441,456 273,243 1,280,585 1,210,273 910,786
Securities gains...... -- -- 39,894 -- --
---------- ---------- ----------- ----------- -----------
Total non-interest
income............. 441,456 273,243 1,320,479 1,210,273 910,786
---------- ---------- ----------- ----------- -----------
Non-interest Expense:
Salaries and employee
benefits............. 1,115,449 1,101,860 4,076,523 3,901,662 3,410,676
Occupancy............. 352,051 333,527 1,379,059 1,274,058 990,098
Data processing....... 131,039 120,490 508,181 395,665 334,211
Marketing............. 152,990 138,793 566,960 500,482 424,235
Amortization of
organizational costs. -- -- -- -- 23,295
Professional fees..... 177,796 93,843 560,715 448,441 325,663
Insurance............. 41,415 30,015 134,365 114,955 82,001
Other................. 284,040 181,668 863,539 626,412 508,292
---------- ---------- ----------- ----------- -----------
Total non-interest
expense............ 2,254,780 2,000,196 8,089,342 7,261,675 6,098,471
---------- ---------- ----------- ----------- -----------
Income before income
taxes.............. 1,317,715 934,858 4,849,432 3,387,642 2,194,896
Income tax provision.... 291,132 364,594 1,839,294 1,242,347 761,873
---------- ---------- ----------- ----------- -----------
Net income............ $1,026,583 $ 570,264 $ 3,010,138 $ 2,145,295 $ 1,433,023
---------- ---------- ----------- ----------- -----------
Basic earnings per
share.................. $ .30 $ .18 $ .91 $ .69 $ .49
========== ========== =========== =========== ===========
Diluted earnings per
share.................. $ .28 $ .17 $ .86 $ .65 $ .47
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1999 and
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months Ended -----------------------------------------------------------------------
March 31, 1999 1998 1997 1996
----------------------- ----------------------- ----------------------- -----------------------
Compre- Compre- Compre- Compre-
hensive hensive hensive hensive
Total Income Total Income Total Income Total Income
----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock:
Balance at beginning
of year.............. $ 3,431,424 $ 3,217,184 $ 2,958,272 $ 2,850,672
Issuance of stock..... 20,400 214,240 258,912 107,600
----------- ----------- ----------- -----------
Balance at end of
year................. 3,451,824 3,431,424 3,217,184 2,958,272
----------- ----------- ----------- -----------
Surplus:
Balance at beginning
of year.............. 22,273,902 19,782,477 17,301,302 16,652,652
Issuance of common
stock................ 326,400 2,283,360 2,476,534 648,650
Other................. -- 208,065 4,641 --
----------- ----------- ----------- -----------
Balance at end of
year................. 22,600,302 22,273,902 19,782,477 17,301,302
----------- ----------- ----------- -----------
Retained Earnings
(Deficit):
Balance at beginning
of year.............. 4,912,359 2,165,310 237,373 (1,011,042)
Net income............ 1,026,583 $1,026,583 3,010,138 $3,010,138 2,145,295 $2,145,295 1,433,023 $1,433,023
---------- ---------- ---------- ----------
Dividends paid--
$0.03, $0.08, $0.07
and $0.07 per share
in 1999, 1998, 1997
and 1996,
respectively......... (85,786) (263,089) (217,358) (184,608)
----------- ----------- ----------- -----------
Balance at end of
year................. 5,853,156 4,912,359 2,165,310 237,373
----------- ----------- ----------- -----------
Accumulated Other
Comprehensive Income--
Unrealized Gains
(Losses) on Securities
Available for Sale:
Balance at beginning
of year.............. 149,471 29,117 (56,847) (47,750)
Other comprehensive
income--unrealized
gains (losses) on
securities available
for sale, net of tax
provision (benefit)
of $(132,674),
$76,523, $47,698 and
$(4,685) for the
three months ended
March 31, 1999, and
in 1998, 1997, and
1996, respectively... (207,516) (207,516) 120,354 120,354 85,964 85,964 (9,097) (9,097)
----------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Comprehensive income.. $ 819,067 $3,130,492 $2,231,259 $1,423,926
========== ========== ========== ==========
Balance at end of
year................. (58,045) 149,471 29,117 (56,847)
----------- ----------- ----------- -----------
Deferred Compensation:
Balance at beginning
of year.............. (543,767) (506,333) (217,750) --
Awards granted........ (346,800) (187,000) (402,500) (277,500)
Amortization of
deferred
compensation......... 47,068 149,566 98,917 33,500
Other................. -- -- 15,000 26,250
----------- ----------- ----------- -----------
Balance at end of
year................. (843,498) (543,767) (506,333) (217,750)
----------- ----------- ----------- -----------
31,003,739 30,223,389 24,687,755 20,222,350
Loan to Executive
Officer:
Loan to
stockholder/chief
executive officer.... (949,741) (949,741) -- --
----------- ----------- ----------- -----------
Total stockholders'
equity at end of
year............... $30,053,998 $29,273,648 $24,687,755 $20,222,350
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 and
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended December 31,
March 31, March 31, -----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net income............. $ 1,026,583 $ 570,264 $ 3,010,138 $ 2,145,295 $ 1,433,023
------------ ------------ ------------- ------------ ------------
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 135,526 122,731 507,853 472,669 329,013
Amortization of
organization costs.. -- -- -- -- 23,295
Amortization of
deferred
compensation........ 47,068 31,938 149,566 98,917 33,500
Provision for loan
losses.............. 285,000 91,370 361,986 602,991 523,679
Gain on sales of
securities.......... (45,564) -- (39,894) -- --
Increase in deferred
loan fees........... -- -- 347,766 85,684 48,883
(Increase) in
deferred income
taxes............... -- -- (290,700) (440,387) (201,729)
(Increase) in accrued
interest receivable. (420,805) (167,272) (682,467) (145,916) (291,010)
Increase in accrued
interest payable.... 273,457 84,944 267,818 60,881 35,506
Decrease in other
assets.............. (28,012) (366,903) 70,251 77,449 105,579
Increase in other
liabilities......... 4,232,460 368,143 569,862 414,712 691
------------ ------------ ------------- ------------ ------------
Total adjustments.. 4,479,130 164,951 1,262,041 1,227,000 607,407
------------ ------------ ------------- ------------ ------------
Net cash provided
by operating
activities........ 5,505,713 735,215 4,272,179 3,372,295 2,040,430
------------ ------------ ------------- ------------ ------------
Cash Flows From
Investing Activities:
Proceeds from
maturities, pay
downs, and sales of
securities............ 14,917,259 32,628,772 85,390,763 11,255,315 25,658,276
Purchase of securities
available for sale.... (3,456,295) (15,400,000) (136,661,479) (31,888,325) (31,992,943)
Net loan principal
advanced.............. (25,801,143) (5,252,823) (63,820,101) (47,240,005) (45,352,131)
Bank premises and
equipment
expenditures.......... (75,075) (47,393) (191,235) (659,401) (901,638)
------------ ------------ ------------- ------------ ------------
Net cash provided
by (used in)
investing
activities........ (14,415,254) 11,928,556 (115,282,052) (68,532,416) (52,588,436)
------------ ------------ ------------- ------------ ------------
Cash Flows From
Financing Activities:
Net increase in total
deposits.............. 19,460,442 18,886,537 79,220,200 63,202,205 45,702,759
Proceeds from funds
borrowed.............. -- -- 20,000,000 -- 3,000,000
Principal reductions
of funds borrowed..... (10,000,000) -- -- (3,000,000) (700,000)
Issuance of common
stock................. -- 124,200 1,360,859 2,347,946 505,000
Dividends paid......... (85,786) (60,629) (263,089) (217,358) (184,608)
------------ ------------ ------------- ------------ ------------
Net cash provided
by financing
activities........ 9,374,656 18,950,108 100,317,970 62,332,793 48,323,151
------------ ------------ ------------- ------------ ------------
Net Increase (Decrease)
in Cash and Cash
Equivalents............ 465,115 31,613,879 (10,691,903) (2,827,328) (2,224,855)
Cash and Cash
Equivalents at
Beginning of Year...... 15,514,218 26,206,121 26,206,121 29,033,449 31,258,304
------------ ------------ ------------- ------------ ------------
Cash and Cash
Equivalents at End of
Year................... $ 15,979,333 $ 57,820,000 $ 15,514,218 $ 26,206,121 $ 29,033,449
============ ============ ============= ============ ============
Cash Paid During Year
For:
Interest............... $ 3,564,874 $ 3,011,013 $ 13,044,139 $ 10,004,288 $ 7,998,614
Income taxes........... 233,880 $ 88,676 1,826,826 1,562,726 977,432
============ ============ ============= ============ ============
Non-Cash Transactions:
Loan to executive
officer for purchase
of common stock....... $ -- $ -- $ 949,741 $ -- $ --
============ ============ ============= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Accounting Policies:
The consolidated financial statements of PrivateBancorp, Inc. (the
"Company") and Subsidiary have been prepared in conformity with generally
accepted accounting principles and reporting practices prescribed for the
banking industry. A description of the significant accounting policies follows:
a. Consolidation
The consolidated financial statements of the Company and Subsidiary include
the accounts of the Company and its wholly owned subsidiary, The PrivateBank
and Trust Company (the "Bank"). Significant intercompany accounts and
transactions have been eliminated in the preparation of these statements.
b. Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one-day periods, but not longer than thirty days.
c. Securities
Securities for which management has the intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Securities available for sale are reported at fair
value, with unrealized gains and losses and applicable income taxes reported as
other comprehensive income in a separate component of stockholders' equity. At
December 31, 1998 and 1997, all securities held were classified as available
for sale.
Premium and discount on securities are included in interest income on
securities over the period from acquisition to maturity or earlier call date
using the straight-line method, the results of which are not materially
different from those obtained using the level-yield method. The specific
identification method is used to record gains and losses on security
transactions.
d. Loans
Loans are generally reported at the principal amount outstanding, net of
unearned income. Loans originated and intended for sale in the secondary market
are classified as held for sale and reported at the lower of cost or market
value.
Loan origination and commitment fees, offset by certain direct loan
origination costs, are being deferred and the net amount amortized as an
adjustment of the related loan's yield. The Company is generally amortizing
these amounts over the contractual life of the related loans.
Loans are placed on nonaccrual status when, in the opinion of management,
there are doubts as to the collectibility of interest or principal, or when
principal or interest is past due 90 days or more and the loan is not well
secured and in the process of collection. All loans classified as nonaccrual
are considered to be impaired. Any shortfall in the estimated value of an
impaired loan compared with the recorded investment of the loan is identified
as an allocated portion of the allowance for loan losses and is one of the
factors
F-7
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
considered by management in their overall assessment of the adequacy of the
allowance for loan losses. Interest previously accrued but not collected is
reversed and charged against interest income at the time the related loan is
placed on nonaccrual status. Interest payments received on impaired loans are
recorded as reductions of principal if principal payment is doubtful.
e. Allowance for Loan Losses
The allowance for loan losses is determined by management based on factors
such as past loan loss experience, known and inherent risks in the loan
portfolio, the estimated value of any underlying collateral, prevailing
economic conditions and other factors and estimates which are subject to change
over time. Management adjusts the allowance for loan losses by recording a
provision for loan losses in an amount sufficient to maintain the allowance at
a level commensurate with the risks in the loan portfolio. Loans are charged
off when deemed to be uncollectible by management.
f. Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
g. Organization Costs
Organization costs incurred by the Company in performing activities
necessary to organize the Bank were amortized on a straight-line basis over a
five-year period beginning February 6, 1991, when the Bank commenced
operations.
h. Income Taxes
The Company accounts for income taxes under an asset and liability approach
with the objective of recognizing the amount of taxes payable or refundable for
the current year and deferred tax assets and liabilities for the future tax
consequences that have been recognized in the Company's financial statements or
tax returns. The measurement of tax assets and liabilities is based on tax
rates in enacted tax laws. Deferred tax assets are reduced, if necessary, by
the amount of such benefits that are not expected to be realized based on
available evidence.
i. Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
In June, 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Under SFAS No. 125, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered and derecognizes liabilities when
extinguished. In December, 1996, the FASB issued SFAS No. 127 "Deferral of
Effective Date of Certain Provisions of FASB Statement No. 125" which delayed
the effectiveness of selected provisions of SFAS No. 125 from January 1, 1997
to January 1, 1998. Management adopted SFAS No. 125 upon its effectiveness on
January 1, 1997 and January 1, 1998 as appropriate. The adoption of these
statements had no effect on the Company's reported consolidated financial
position and the results of operations.
F-8
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
j. Earnings per Share
The Company accounts for and reports earnings per share using a dual
presentation of basic and diluted earnings per share. Basic earnings per common
share are determined by dividing earnings by the weighted average number of
common shares. Dilutive stock options are included as share equivalents using
the treasury stock method in determining diluted earnings per share.
k. Comprehensive Income
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components. The statement requires that components of
comprehensive income, as defined, be reported in a financial statement that is
displayed with the same prominence as other financial statements. Management
adopted SFAS No. 130 in 1998 upon its effectiveness, using the statement of
changes in stockholders' equity approach. The adoption of this statement had no
effect on the Company's reported consolidated financial position and the
results of operations. The 1997 and 1996 consolidated financial statements have
been restated to conform to the SFAS No. 130 principles.
l. Derivatives
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and for Hedging Activities." It requires that all derivatives be
recognized as assets or liabilities on the balance sheet and be measured at
fair value. If certain conditions are met, a derivative may be specifically
designated as a hedging instrument. The statement is effective for fiscal
quarters beginning after June 15, 1999. As the Company and Bank do not own any
derivative instruments, this statement is expected to have no effect on the
Company's reported consolidated financial position and the results of
operations.
m. Use of Estimates in the Preparation of Financial Statements
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 expense during the reporting
period. Actual results could differ from these estimates.
n. Reclassifications
Certain reclassifications have been made to prior periods' consolidated
financial statements to place them on a basis comparable with the current
period's consolidated financial statements.
o. Interim Financial Information
The accompanying financial statements as of March 31, 1999 and for the three
months ended March 31, 1999 and 1998 are unaudited and in the opinion of
management, reflect all adjustments that are necessary for a fair presentation
of the Company's financial position, results of operations and cash flows for
the periods then ended. All such adjustments are of a normal and recurring
nature.
F-9
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
2. Operations:
The Company was incorporated under the laws of the State of Delaware on
November 7, 1989. The Bank commenced operations on February 6, 1991, after
having received the approval of various banking regulatory authorities.
The Bank, through its downtown Chicago main office as well as two suburban
branches, provides personal and commercial banking services primarily to
affluent individuals, professionals and their business interests in the Chicago
metropolitan area. In addition to loans and deposits, the Company's services
include trust, investment and insurance products.
3. Earnings Per Share and Stock Split:
The following table contains a reconciliation of the numerators and
denominators used in the computation of basic and diluted earnings per share
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Income Average Shares Per Share
(Numerator) (Denominator) Amount
----------- -------------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1998
Basic Earnings Per Share--Income
available to common stockholders. $3,010,138 3,313,092 $.91
====
Effect of Dilutive Stock Options.. -- 201,436
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $3,010,138 3,514,528 $.86
========== ========= ====
Year Ended December 31, 1997
Basic Earnings Per Share--Income
available to common stockholders. $2,145,295 3,124,464 $.69
====
Effect of Dilutive Stock Options.. -- 161,408
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $2,145,295 3,285,872 $.65
========== ========= ====
Year Ended December 31, 1996
Basic Earnings Per Share--Income
available to common stockholders. $1,433,023 2,939,040 $.49
====
Effect of Dilutive Stock Options.. -- 113,984
---------- ---------
Diluted Earnings Per Share--Income
available to common stockholders. $1,433,023 3,053,024 $.47
========== ========= ====
</TABLE>
On June 25, 1998, the Company's stockholders approved an eight-for-one
common stock split to be distributed in the form of a stock dividend. As a
result of this action, 1,446,473 shares were issued to stockholders of record
on June 25, 1998. Additionally, stated value was changed from $20 to $2.50 per
share, leaving the Company's common stock account unchanged. All references to
number of shares, per share amounts and stock option data in the consolidated
financial statements have been adjusted to reflect the stock split on a
retroactive basis.
F-10
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
4. Securities:
The amortized cost and the estimated fair value of securities as of December
31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
December 31, 1998--
Available for Sale--
U.S. Treasuries......... $ 6,020,730 $ 73,333 $ -- $ 6,094,063
States and political
subdivisions........... 37,709,337 227,188 (132,097) 37,804,428
Collateralized mortgage
obligations............ 61,357,858 117,435 (61,016) 61,414,277
Corporate securities.... 10,242,935 19,565 -- 10,262,500
------------ -------- --------- ------------
Total debt securities... 115,330,860 437,521 (193,113) 115,575,268
Equity securities....... 1,315,471 -- -- 1,315,471
------------ -------- --------- ------------
$116,646,331 $437,521 $(193,113) $116,890,739
============ ======== ========= ============
December 31, 1997--
Available for Sale--
U.S. Treasury and U.S.
Government agencies.... $ 35,948,802 $ 22,365 $ (9,917) $ 35,961,250
Collateralized mortgage
obligations............ 10,501,933 4,256 (93,456) 10,412,733
Corporate securities.... 18,145,287 125,650 (1,368) 18,269,569
------------ -------- --------- ------------
Total debt securities... 64,596,022 152,271 (104,741) 64,643,552
Equity securities....... 739,700 -- -- 739,700
------------ -------- --------- ------------
$ 65,335,722 $152,271 $(104,741) $ 65,383,252
============ ======== ========= ============
</TABLE>
The amortized cost and estimated fair value of securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because obligors may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Due within one year............................ $ 6,196,706 $ 6,235,547
Due after one year through five years.......... 2,624,825 2,659,654
Due after five years through ten years......... 8,781,479 8,817,549
Due after ten years............................ 97,727,850 97,862,518
Equity securities.............................. 1,315,471 1,315,471
------------ ------------
$116,646,331 $116,890,739
============ ============
</TABLE>
During 1998, securities were sold for total proceeds of $13,886,279,
resulting in a net gain of $39,894. No securities were sold in 1997 or 1996.
The other comprehensive income--unrealized gain on securities available for
sale is presented on a net basis on the Consolidated Statements of Changes in
Stockholders' Equity. The following table discloses
F-11
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
changes in other comprehensive income for 1998 on a gross basis. As there were
no sales of securities in 1997 or 1996, the gross and net presentations for
these years are the same.
<TABLE>
<CAPTION>
1998
-----------------------------
Before tax Tax Net of Tax
amount Expense Amount
---------- ------- ----------
<S> <C> <C> <C>
Unrealized Gains on Securities Available
for Sale--
Unrealized holding gains................. $236,771 $92,032 $144,739
Less: reclassification adjustment for
gain included in net income............. 39,894 15,509 24,385
-------- ------- --------
Net unrealized gains....................... $196,877 $76,523 $120,354
======== ======= ========
</TABLE>
At December 31, 1998, securities carried at $35,319,869 were pledged to
secure public and trust deposits and for other purposes as required or
permitted by law.
Equity securities consist of Federal Home Loan Bank of Chicago capital stock
and Neighborhood Housing Services certificates. These securities do not have a
readily determinable fair value for purposes of SFAS No. 115 since their
ownership is restricted and they lack a market. Accordingly, such securities
are carried at an amount equal to cost.
In the opinion of management, there were no investments in securities at
December 31, 1998, which constituted an unusual credit risk for the Company.
5. Loans:
Amounts outstanding by selected loan categories at December 31, 1998 and
1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Real estate--
Residential................................... $ 47,746,331 $ 54,129,790
Commercial.................................... 94,392,491 55,429,205
Construction.................................. 22,407,610 10,140,104
Commercial...................................... 46,799,787 33,862,056
Personal........................................ 64,194,340 62,756,792
Held for sale................................... 6,424,337 2,176,600
------------ ------------
$281,964,896 $218,494,547
============ ============
</TABLE>
Loans held for sale are residential real estate loans intended to be sold in
the secondary market. Under the Bank's sales program, such loans are sold at
face value. No lower-of-cost-or-market adjustments were required at December
31, 1998 or 1997.
There were no loans on which the accrual of interest has been discontinued
(impaired loans) at December 31, 1998 and 1997, respectively, as well as at any
time during 1998. The average balance of impaired loans and the related amount
of interest income recognized while such loans were impaired amounted to $2,272
and $0 in 1997.
F-12
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
6. Allowance for Loan Losses:
The changes in the allowance for loan losses for the three years ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance..................... $3,050,000 $2,450,000 $1,955,000
Loans charged off..................... (1,986) (2,991) (28,679)
Provision for loan losses............. 361,986 602,991 523,679
---------- ---------- ----------
Ending balance........................ $3,410,000 $3,050,000 $2,450,000
========== ========== ==========
</TABLE>
There were no impaired loans at December 31, 1998 and 1997.
7. Bank Premises and Equipment:
Bank premises and equipment at December 31, 1998 and 1997, consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Furniture, fixtures and equipment.................. $2,408,164 $2,230,145
Leasehold improvements............................. 1,344,354 1,331,138
---------- ----------
3,752,518 3,561,283
Accumulated depreciation and amortization.......... 2,164,798 1,656,945
---------- ----------
$1,587,720 $1,904,338
========== ==========
</TABLE>
Included in occupancy expense in the consolidated statements of income is
depreciation and amortization expense of $507,853, $472,669 and $329,013 for
1998, 1997 and 1996, respectively.
The Bank leases its main banking facility and branch facilities under
noncancellable operating lease agreements. The minimum annual rental
commitments under these leases, at December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999.......................... $ 338,527
2000.......................... 319,907
2001.......................... 330,456
2002.......................... 244,404
2003.......................... 254,952
2004 and thereafter........... 689,022
----------
$2,177,268
==========
</TABLE>
Total rent expense included in the consolidated statements of income was
$635,761, $601,461, and $494,757 for 1998, 1997, and 1996, respectively.
F-13
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
8. Income Taxes:
The components of total income tax provision in the consolidated statements
of income for the years ended December 31, 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Income tax provision--
Current--
Federal............................. $1,758,748 $1,609,697 $963,602
State............................... 371,246 73,037 --
---------- ---------- --------
2,129,994 1,682,734 963,602
---------- ---------- --------
Deferred--
Federal............................. (255,235) (298,018) (201,729)
State............................... (35,465) (142,369) --
---------- ---------- --------
(290,700) (440,387) (201,729)
---------- ---------- --------
Total............................. $1,839,294 $1,242,347 $761,873
========== ========== ========
</TABLE>
The tax effect of fair value adjustments on securities available for sale is
recorded directly to other comprehensive income in a separate component of
stockholders' equity. The net tax provision (benefit) recorded directly to
other comprehensive income amounted to $76,523, $47,698, and $(4,685) in 1998,
1997 and 1996, respectively.
A summary reconciliation of the differences between the total income tax
provision (benefit) and the amounts computed at the statutory federal tax rate
of 34% for the years ended December 31, 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Income tax provision at statutory
federal income tax rate................ $1,648,806 $1,151,798 $746,265
Increase (decrease) in taxes resulting
from:
Tax exempt income..................... (67,264) -- --
State income taxes.................... 221,615 6,525 --
Other................................. 36,137 84,024 15,608
---------- ---------- --------
Total............................... $1,839,294 $1,242,347 $761,873
========== ========== ========
</TABLE>
F-14
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
A net deferred tax asset is included in other assets in the consolidated
balance sheet as a result of temporary differences between the carrying amounts
of assets and liabilities in the financial statements and their related tax
bases. The components of the net deferred tax asset as of December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Gross deferred tax assets--
Allowance for loan losses....................... $1,182,193 $1,041,960
Leasehold improvements.......................... 231,316 159,524
Amortization of restricted stock................ 109,240 51,298
Other........................................... 51,829 36,434
---------- ----------
1,574,578 1,289,216
Valuation allowance............................... -- --
---------- ----------
Gross deferred tax assets......................... 1,574,578 1,289,216
Gross deferred tax liabilities.................... (215,233) (144,048)
---------- ----------
Net deferred tax asset............................ $1,359,345 $1,145,168
========== ==========
</TABLE>
9. Funds Borrowed:
As of December 31, 1998, funds borrowed consisted of a $20 million FHLB term
note, with an interest rate of 5.20%. The term note matured on January 7, 1999.
There were no funds borrowed as of December 31, 1997.
10. Employee Benefit and Incentive Plans:
a. Savings and Profit Sharing Plan
The Bank maintains The PrivateBank and Trust Company Savings and Profit
Sharing Plan (the "Plan") pursuant to Section 401(k) of the Internal Revenue
Code, whereby eligible employees may contribute a percentage of compensation,
but not in excess of the maximum amount allowed under the Code. The Bank can
make discretionary contributions to the Plan as determined and approved by the
Bank's Board of Directors. Total discretionary contributions to the Plan
amounted to $61,462, $47,001, and $43,130 in 1998, 1997 and 1996, respectively.
b. Stock Options
Pursuant to initial stockholder stock option agreements as amended, the
Company granted to each initial stockholder an option to purchase up to the
number of shares equal to that number of shares purchased by the investor in
the initial offering at an exercise price of $6.25 per share. All 80,800 shares
reserved for issuance to these initial stockholders were issued by the Company
in January and February, 1996, upon the exercise of these option agreements.
The Company has stock options outstanding under its Stock Incentive Plan, a
director stock option program and certain compensation replacement options.
As in effect as of December 31, 1998, the Stock Incentive Plan allows up to
15% of the then number of common shares issued and outstanding, plus an
additional 136,000 shares, to be issued under the Plan either pursuant to the
exercise of stock options granted thereunder or as restricted stock awards. The
option price may not be less than the fair market value on the date of grant.
All options have a term of 10 years. Options granted
F-15
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
in 1998 are first exercisable five years from the date of grant or up to two
years earlier if certain conditions for total stockholder return are met.
Options granted in 1997 and prior are first exercisable beginning at least two
years following the date of grant.
Since 1992 the Company has compensated non-employee directors with annual
option grants. The option price of the director options is fair market value
on the date of grant, and the exercise period is 10 years from the date of
grant.
In 1992, the Company granted compensation replacement options to certain
officers of the Company who agreed to reduced cash compensation. The option
price is the fair market value on the date of grant. The compensation
replacement options are exercisable during a 10-year period from the date of
grant.
The following table summarizes the status of the Company's stock option
agreements and stock option program as of December 31, 1998 and 1997, and
changes during the years then ended:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ 543,168 $ 7.57 523,264 $ 7.38
Granted............... 80,960 17.19 35,360 11.00
Exercised............. (81,920) 7.02 (15,456) 6.25
Forfeited............. -- --
------- ------ ------- ------
Outstanding at end of
year................... 542,208 $ 9.09 543,168 $ 7.57
======= ====== ======= ======
Options exercisable at
year-end............... 433,808 425,168
======= =======
Weighted average fair
value of options
granted during the
year................... $17.19 $11.00
</TABLE>
The range of exercise prices and weighted average remaining contractual
life for stock options outstanding as of December 31, 1998, was $6.25-$17.19
and 7 years, respectively.
The Company applies APB Opinion 25 in accounting for stock-based
compensation. Accordingly, no compensation expense has been recognized for its
stock option program. Had compensation expense for stock options been
determined based on the fair value at the grant dates for awards under the
stock option program consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income--
As reported........................... $3,010,138 $2,145,295 $1,433,023
Pro forma............................. 2,869,569 1,996,145 1,282,268
========== ========== ==========
Basic earnings per share--
As reported........................... $ .91 $ .69 $ .49
Pro forma............................. .87 .64 .44
Diluted earnings per share--
As reported........................... $ .86 $ .65 $ .47
Pro forma............................. .82 .61 .42
========== ========== ==========
</TABLE>
F-16
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
In determining the fair value of each option grant for purposes of the above
pro forma disclosures, the Company used an option pricing model with the
following assumptions for grants in 1998 and 1997, respectively: dividend yield
of 0.6% and 0.7% for 1998 and 1997 respectively; risk-free interest rate of
6.0% for both years; and expected lives for both years of 10 years for the
Stock Incentive Plan options, 10 years for the compensation replacement options
and 10 years for the various director options.
c. Restricted Stock
In 1998 and 1997, the Company issued 13,600 and 36,800 shares, respectively,
of restricted stock under the Stock Incentive Plan. These shares had a fair
value of $13.75 and $10.94 per share, respectively, as of the grant date.
During 1997, 1,600 restricted shares were forfeited. These shares carry voting
and dividend rights. Sale of the shares is restricted prior to vesting. Subject
to continued employment, vesting occurs five years from the date of grant.
Shares issued under the plan are recorded at their fair market value on the
date of grant with a corresponding charge to deferred compensation. The
deferred compensation, a component of stockholders' equity, is being amortized
as compensation expense on a straight-line basis over the vesting period.
Included in salaries and employee benefits in the consolidated statements of
income is compensation expense for restricted shares of $149,566, $98,917, and
$33,500 for 1998, 1997, and 1996 respectively.
11. Related-Party Transactions:
An analysis of loans made to directors and executive officers of the Company
and the Bank follows:
<TABLE>
<S> <C>
Balance, December 31, 1997................................... $11,308,339
Additions.................................................. 3,226,741
Collections................................................ (3,791,197)
-----------
Balance, December 31, 1998................................... $10,743,883
===========
</TABLE>
Directors and executive officers of the Company and Bank were clients of and
had transactions with the Bank in the ordinary course of business during the
period presented above and additional transactions may be expected in the
future. In management's opinion, all outstanding loans, commitments and deposit
relationships included in such transactions were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others, and did not involve more than a normal
risk of collectibility or other unfavorable features.
In addition to the loans reflected above, in June, 1998, the Company made a
$949,741 loan to the chief executive officer of the Company and the Bank, the
proceeds of which were put towards the purchase of $1 million of common stock
of the Company. The loan has a five year term but is payable sooner under
certain conditions. The loan bears interest at the rate of 5.69% per annum.
Provided that the officer remains employed by the Bank, the loan agreement
calls for forgiveness of 0% up to 100% of the interest based on how many years
the loan remains outstanding. The loan is reflected in the consolidated
financial statements as a reduction in stockholders' equity.
The Company is the general partner in a partnership for investment purposes.
Through a contractual arrangement, the Bank's trust department maintains the
partnership's records and earns an administrative fee from the partnership.
During 1998, the Bank began offering insurance products to its clients
through a strategic alliance with a Chicago based financial services firm which
is a stockholder of the Company. In addition, this financial
F-17
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
services firm serves as an insurance agency in coordinating certain insurance
coverage for the Company and Bank. During 1998, the Bank earned commission
revenue of $5,761 for referred business and paid $131,690 in fees to this
financial services firm for insurance and related services.
During 1998 and 1997, the Bank acquired selected furniture with a total cost
of $2,655 and $71,875, respectively, through related parties.
The Bank incurred professional fees in 1998, 1997 and 1996 for services
provided by one law firm, whose partner is a director of the Company and the
Bank.
12. Credit-Related Instruments:
The Company has, through its subsidiary Bank, credit-related instruments
with off-balance-sheet risk in the normal course of business to meet the
financing needs of its clients. These financial instruments include commitments
to extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated financial statements. Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties failed to
completely perform as contracted.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments, assuming that the amounts are fully advanced and that collateral
or other security is of no value. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments. At December 31, 1998 and 1997, the Bank had the following
categories of credit-related financial instruments (at contract amount):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commitments to extend credit..................... $97,487,444 $67,184,442
Standby letters of credit........................ 10,147,140 2,971,656
</TABLE>
Commitments to extend credit are agreements to lend to a client as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each client's
creditworthiness on a cash-by-case basis. The amount of collateral obtained, if
deemed necessary, upon extension of credit is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a client to a third party. Those guarantees are
primarily issued to support commercial business activities of Bank clients. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to clients. The Bank holds
collateral supporting those commitments for which collateral is deemed
necessary.
13. Concentrations of Credit Risk:
Loan concentrations are defined as amounts loaned to a multiple number of
borrowers engaged in similar activities, which would cause them to be similarly
impacted by economic or other conditions. The Bank grants
F-18
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
loans to clients located primarily in the metropolitan Chicago area. There are
no other significant concentrations of loans and commitments to make loans
other than the categories of loans disclosed in Note 5.
14. Estimated Fair Value of Financial Instruments:
The following presents the carrying value and estimated fair value of the
various classes of financial instruments, all nontrading, held by the Company,
through its subsidiary Bank, at December 31, 1998 and 1997. This information is
presented solely for compliance with SFAS No. 107 and is subject to change over
time based on a variety of factors. Because no active market exists for a
significant portion of the financial instruments presented below and the
inherent imprecision involved in the estimation process, management does not
believe the information presented reflects the amounts that would be received
if the Company's assets and liabilities were sold nor does it represent the
fair value of the Company as an entity.
Where possible, the Company has utilized quoted market prices to estimate
fair value. Since quoted market prices were not available for a significant
portion of the financial instruments, the fair values were approximated using
discounted cash flow techniques. Fair value estimates are made at a specific
point in time, based on judgments regarding future expected loss experience,
current economic conditions, risk conditions, risk characteristics of various
financial instruments and other factors. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------- -------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets--
Cash and cash
equivalents.......... $ 15,514,218 $ 15,514,218 $ 26,206,121 $ 26,206,121
Securities............ 116,890,739 116,890,739 65,383,252 65,383,252
Net loans............. 278,554,896 281,547,896 215,444,547 216,343,547
Accrued interest
receivable........... 2,264,195 2,264,195 1,581,728 1,581,728
Liabilities--
Deposits with no
stated maturity...... 236,711,317 236,711,317 195,941,957 195,941,957
Time deposits......... 128,282,346 128,506,346 89,831,506 89,905,506
------------ ------------ ------------ ------------
Total deposits...... 364,993,663 365,217,663 285,773,463 285,847,463
------------ ------------ ------------ ------------
Accrued interest
payable................ 720,874 720,874 453,056 453,056
Funds borrowed.......... 20,000,000 20,000,000 -- --
============ ============ ============ ============
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. These assumptions were based on
subjective estimates of market conditions and perceived risks of the financial
instruments at a certain point in time.
a. Cash and Cash Equivalents, Accrued Interest Receivable and Interest Payable
For these short-term instruments, the carrying value approximates fair value
because these instruments are short-term in nature and do not present
unanticipated credit concerns.
F-19
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
b. Securities
For securities held to maturity or available for sale, fair values are based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
instruments.
c. Net Loans
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the Company's and the industry's historical
experience with repayments for each loan classification, modified, as required,
by an estimate of the effect of current economic and lending conditions.
Fair value for significant nonaccrual (impaired) loans is based on estimated
cash flows which are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgmentally determined using available
market information and specific borrower information.
d. Deposit Liabilities
The fair value of deposits with no stated maturity, such as non-interest-
bearing deposits, interest-bearing deposits, savings and money market deposit
accounts, is equal to the amount payable on demand as of year-end. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
e. Funds Borrowed
Rates currently available to the Company and Bank for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
f. Unrecognized Financial Instruments
The fair value of unrecognized financial instruments, including commitments
to extend credit, standby letters of credit and financial guarantees, is
insignificant and, therefore, not presented.
15. Regulatory Requirements:
The Bank is subject to federal and state laws, which restrict the payment of
dividends to the Company. Based on these restrictions, at January 1, 1999, the
Bank could have declared approximately $6,954,418 in dividends without
requesting approval of the applicable federal or state regulatory agency.
The Bank is required to maintain noninterest-bearing cash balances with the
Federal Reserve based on the types and amounts of deposits held. During 1998
and 1997, the average balances maintained to meet the requirement were $829,000
and $649,000, respectively.
The Company and Bank are subject to various regulatory capital requirements
as established by the applicable federal or state banking regulatory
authorities. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and Bank must meet specific capital
guidelines that
F-20
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items. The quantitative measures for capital adequacy
require the Company and Bank to maintain minimum amounts and ratios of total
and Tier 1 capital to risk weighted assets and of Tier 1 capital to average
assets (leverage). The Company's and Bank's capital components,
classification, risk weightings and other factors are also subject to
qualitative judgments by regulators. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a material effect on the Company's financial statements. Management
believes that as of December 31, 1998, the Company and Bank meet all minimum
capital adequacy requirements to which they are subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action and management believes that no events or changes in
conditions have occurred subsequent to such notification to change the Bank's
category.
The following table presents selected capital information for the Company
(Consolidated) and Bank as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------------- -------------- ---------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- ------
(000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998--
Total risk-based capital--
Consolidated............ $34,978 11.53% $24,274 8.00%
Bank.................... 31,473 10.41 24,188 8.00 $30,235 10.00%
Tier 1 risk-based
capital--
Consolidated............ 31,568 10.40% 12,137 4.00%
Bank.................... 28,063 9.29 12,094 4.00 18,141 6.00%
Tier 1 (leverage)
capital--
Consolidated............ 31,568 7.88% 16,018 4.00%
Bank.................... 28,063 7.27 15,456 4.00 19,320 5.00%
As of December 31, 1997--
Total risk-based capital--
Consolidated............ $28,159 11.75% $19,165 8.00%
Bank.................... 25,837 10.79 19,164 8.00 23,955 10.00%
Tier 1 risk-based
capital--
Consolidated............ 25,164 10.50% 9,582 4.00%
Bank.................... 22,843 9.54 9,582 4.00 14,373 6.00%
Tier 1 (leverage)
capital--
Consolidated............ 25,164 8.70% 11,563 4.00%
Bank.................... 22,843 8.16 11,208 4.00 14,011 5.00%
</TABLE>
16. Operating Segments:
As noted in Note 2, the Bank provides personal and commercial banking
services to affluent individuals, professionals and their business interests
in the Chicago metropolitan area. Such services include loans, deposit
instruments, investments, and trust services. For purposes of making operating
decisions and assessing performance, management treats the Company and Bank as
one operating segment.
F-21
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
The financial information contained in the Company's consolidated financial
statements, such as net interest income, other income, net income and total
assets, is used by management as a key input in evaluating the performance of
the Company and Bank on an aggregate basis.
17. Contingent Liabilities
Because of the nature of its activities, the Company is from time to time
involved in legal actions that arise in the normal course of business. In the
judgment of management, after consultation of legal counsel, none of the
litigation to which the Company or its subsidiary is a party will have a
material effect, either individually or in the aggregate, on the consolidated
financial position or results of operations.
18. Privatebancorp, Inc. (Parent Company Only)--Condensed Financial Statements:
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Cash and due from banks--bank subsidiary............... $ 668,753 $ 1,766,193
Investment in bank subsidiary.......................... 28,269,290 22,871,969
Other assets........................................... 353,350 67,149
----------- -----------
Total assets....................................... $29,291,393 $24,705,311
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Other liabilities...................................... $ 17,745 $ 17,556
----------- -----------
Total liabilities...................................... 17,745 17,556
Stockholders' equity................................... 29,273,648 24,687,755
----------- -----------
Total liabilities and stockholders' equity......... $29,291,393 $24,705,311
=========== ===========
</TABLE>
F-22
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating income:
Interest income--other................... $ 31,523 $ -- $ --
Total.................................. 31,523 -- --
---------- ---------- ----------
Operating expense:
Amortization of deferred compensation.... 149,566 98,917 33,500
Amortization of organization costs....... -- -- 23,295
Other.................................... 225,853 67,974 23,788
---------- ---------- ----------
Total.................................. 375,419 166,891 80,583
---------- ---------- ----------
(Loss) before income taxes and equity
in undistributed net income of bank
subsidiary............................ (343,896) (166,891) (80,583)
Income tax (benefit)....................... (134,119) (56,743) (34,546)
---------- ---------- ----------
(Loss) before equity in undistributed
net income of bank subsidiary......... (209,777) (110,148) (46,037)
---------- ---------- ----------
Equity in undistributed net income of bank
subsidiary................................ 3,219,915 2,255,443 1,479,060
---------- ---------- ----------
Net income............................. $3,010,138 $2,145,295 $1,433,023
========== ========== ==========
</TABLE>
The Parent Company Only Statements of Changes in Stockholders' Equity are
the same as the Consolidated Statements of Changes in Stockholders' Equity.
F-23
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
PRIVATEBANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 3,010,138 $ 2,145,295 $ 1,433,023
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities--
Equity in net income of bank
subsidiary......................... (3,219,915) (2,255,443) (1,479,060)
Amortization of organization costs.. -- -- 23,295
Amortization of deferred
compensation....................... 149,566 98,917 33,500
(Increase) decrease in other assets. (135,187) (57,731) 2,474
Increase (decrease) in other
liabilities........................ 189 49,593 (27,398)
----------- ----------- -----------
Total adjustments................. (3,205,347) (2,164,664) (1,447,189)
----------- ----------- -----------
Net cash (used in) operating
activities....................... (195,209) (19,369) (14,166)
----------- ----------- -----------
Cash flows from investing activities:
Net (increase) in capital investments
in bank subsidiary................... (2,000,000) (2,000,000) --
----------- ----------- -----------
Net cash (used in) investing
activities........................... (2,000,000) (2,000,000) --
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock.............. 1,360,859 2,347,946 505,000
Dividends paid........................ (263,090) (217,358) (184,608)
----------- ----------- -----------
Net cash provided by financing
activities....................... 1,097,769 2,130,588 320,392
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (1,097,440) 111,219 306,226
Cash and cash equivalents at beginning
of year................................ 1,766,193 1,654,974 1,348,748
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 668,753 $ 1,766,193 $ 1,654,974
=========== =========== ===========
Other cash flow disclosures:
Income tax payment (receipt).......... $ 1,826,826 $ 1,562,726 $ 977,432
=========== =========== ===========
Non-cash transactions:
Loan to executive officer for purchase
of common stock...................... $ 949,741 $ -- $ --
=========== =========== ===========
</TABLE>
F-24
<PAGE>
PRIVATEBANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
December 31, 1998 and 1997
19. Subsequent Event:
During March and April, 1999, the Company's Board of Directors and
stockholders approved an increase in the number of authorized shares to
12,000,000 shares of common stock and 1,000,000 shares of preferred stock. The
Board also approved a change in the per share stated value of the common stock
from $2.50 to $1.00 per share, and declared a two-for-one common stock split to
be effected in the form of a stock dividend. Such change in authorized shares
and change in stated value became effective prior to the effectiveness of the
registration statement covering the Company's initial public offering. On June
24, 1999 to effect a two-for-one stock split, the Company's Board of Directors
declared a one-for-one stock dividend on its common stock payable on June 28,
1999 to stockholders of record as of the close of business on June 25, 1999.
All references to number of shares, per share amounts and stock option data in
the consolidated financial statements have been adjusted to reflect the stock
split on a retroactive basis.
F-25
<PAGE>
[Logo of PrivateBancorp, Inc.]
<PAGE>
APPENDIX B
Delaware Code Title 8. Corporations
Chapter 1. General Corporation Law
Subchapter IX Merger or Consolidation
((S)) 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ((S)) 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ((S)) 251 (other than a merger effected pursuant to ((S))
251(g) of this title), ((S)) 252, ((S)) 254, ((S)) 257, ((S)) 258, ((S)) 263 or
((S)) 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ((S)) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to ((S))((S)) 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
B-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ((S)) 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such a merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to ((S)) 228
or ((S)) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such
B-2
<PAGE>
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
B-3
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law grants each corporation
organized thereunder the powers to indemnify any individual made party or
threatened to be made party to any threatened, pending or completed action, suit
or proceeding because the individual is or was a director, officer, employee or
agent of the corporation, against actual and reasonable expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred with
respect to an action, suit or proceeding if the individual acted in good faith,
and the individual reasonably believed: (a) that the individual's conduct was in
the corporation's best interests; (b) that the individual's conduct was at least
not opposed to the corporation's best interests; and (c) in the case of any
criminal proceeding, that the individual had no reasonable cause to believe the
individual's conduct was unlawful. However, there will be limited or no
indemnification for directors, officers, employees or agents adjudged to be
liable to the corporation where such individuals are parties to any action by or
in the right of the corporation.
Article Ninth of the Company's Restated Certificate of Incorporation
provides as follows:
NINTH: The Corporation shall indemnify, to the full extent that it
shall have power under applicable 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 or officer of the Corporation against liabilities and
expenses reasonably incurred or paid by such person in connection with such
action, suit or proceeding. The Corporation may indemnify, to the full
extent that it shall have power under applicable 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 investigate, by reason of the
fact that he is or was an 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 limitation:
liabilities, losses, damages, judgments, fines, penalties, amounts paid in
settlement, expenses, attorneys' fees and costs. The indemnification
provided by this Article NINTH shall not be deemed exclusive of any other
rights to which any person indemnified may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, 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
Article NINTH or otherwise.
For purposes of this Article NINTH, references 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 a 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 Article 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 Article NINTH shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this Article and the relevant provisions of the
General Corporation Law of the State of Delaware or other applicable law,
if any, are in effect, and any repeal or modification of any such law or of
this Article shall not affect any rights 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 any such state of facts.
For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the Corporation" shall
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner not opposed to the best interests of the
Corporation.
Article XI of the Amended and Restated By-laws of the Company provides as
follows:
Section 11.1 Third-Party Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, including all appeals
(other than an action by or in the right of the Corporation) by reason of
the fact that the person 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, trustee, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgment, fines, and amounts paid in settlement
actually and reasonably incurred by him or her in connection with the
action, suit, or proceeding; if the person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or on a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner that he or she reasonably believed to
be in or not opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 11.2 Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit, including all appeals, by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that the person 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, trustee, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, actually and reasonably
incurred by the person in connection with the defense or settlement of the
action or suit, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation. However, no indemnification shall be made in respect of any
claim, issue, or matter as to which the person is adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the court of common pleas or
the court in which the action or suit was brought determines on application
that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for expenses that the court of common pleas or other court shall
deem proper.
Section 11.3 Rights After Successful Defense. To the extent that a
director, trustee, officer, employee, or agent has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred
to in Section 11.1 or 11.2, above, or in defense of any claim, issue, or
matter in that action, suit, or proceeding, he or she shall be indemnified
against expenses, including attorneys' fees, actually and reasonably
incurred by him or her in connection with the action, suit, or proceeding.
II-2
<PAGE>
Section 11.4 Other Determination of Rights. Unless ordered by a
court, any indemnification made under Section 11.1 or 11.2, above, shall be
made by the Corporation only as authorized in the specific case on a
determination that indemnification of the director, trustee, officer,
employee, or agent is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in Section 11.1 or 11.2,
above. The determination shall be made (a) by a majority vote of a quorum
consisting of directors who were not and are not parties to or threatened
with the action, suit, or proceeding; (b) if the described quorum is not
obtainable or if a majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; (c) by the
stockholders; or (d) by the court in which the action, suit, or proceeding
was brought.
Section 11.5 Advances of Expenses. Expenses of each person seeking
indemnification under Section 11.1 or 11.2, above, may be paid by the
Corporation as they are incurred, in advance of the final disposition of
the action, suit, or proceeding, as authorized by the Board of Directors in
the specific case, on receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay the amount if it is
ultimately determined that he or she is not entitled to be indemnified by
the Corporation.
Section 11.6 Nonexclusiveness; Heirs. The indemnification provided
by this Article shall not be deemed exclusive of, and shall be in addition
to, any other rights to which those seeking indemnification may be entitled
as a matter of law or under the Certificate of Incorporation, these By-
Laws, any agreement, vote of stockholders, any insurance purchased by the
Corporation, or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding that office,
and shall continue as to a person who has ceased to be a director, trustee,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of that person.
The effect of the foregoing provisions of the Delaware General Corporation
Law, the Company's Restated Certificate of Incorporation and Amended and
Restated By-laws would be to permit such indemnification of officers and
directors by the Company for liabilities arising under the Securities Act of
1933.
The Company has purchased $10 million of insurance policies which insure
the Company's directors and officers against liability which they may incur as a
result of actions taken in such capacities. In addition, the Company maintains
trust errors and omissions coverage up to a limit of $10 million.
Item 21. Exhibits
2.1 Agreement and Plan of Reorganization dated as of June 24, 1999, by and
between PrivateBancorp, Inc. and Towne Square Financial Corporation.+
2.2 Form of Building Lease by and between Towne Square Realty, L.L.C. and
The PrivateBank and Trust Company.
2.3 Form of Advisory Board and Support Agreement by and between
PrivateBancorp, Inc. and the stockholders of Towne Square Financial
Corporation.
2.4 Form of Stock Restriction Agreement by and between PrivateBancorp,
Inc. and the stockholders of Towne Square Financial Corporation.
2.5 Form of Employment Agreement by and between PrivateBancorp, Inc. and
Thomas N. Castronovo.
2.6 Form of Non-Competition and Support Agreement by and between
PrivateBancorp, Inc. and Thomas N. Castronovo.
3.1 Amended and Restated Certificate of Incorporation of PrivateBancorp,
Inc.***
3.2 [Intentionally left blank]
II-3
<PAGE>
3.3 Amended and Restated By-laws of PrivateBancorp, Inc.*
4.1 Specimen Common Stock Certificate.**
5 Opinion of Vedder, Price, Kaufman & Kammholz regarding legality.
8 Opinion of Vedder, Price, Kaufman & Kammholz regarding certain federal
income tax matters.
10.1 Lease Agreement for banking facility located at Ten North Dearborn,
Chicago, Illinois dated January 1, 1992, as amended, by and between
General American Life Insurance Company as successor-in-interest to
LaSalle National Trust, N.A., as successor trustee to LaSalle National
Bank, not personally but as Trustee under Trust Agreement dated
November 6, 1985 and known as Trust No. 110519 and The PrivateBank and
Trust Company.*
10.2 Lease Agreement for banking facility located at 1603 West Sixteenth
Street, Oak Brook, Illinois dated October ____, 1996, by and between
Columbia Lisle Limited Partnership and The PrivateBank and Trust
Company.*
10.3 Lease Agreement for banking facility located at 517 Green Bay Road,
Wilmette, Illinois dated as of May 2, 1994 by and between Gunnar H.
Hedlund, Doris S. Hedlund, Robert P. Hedlund and Gerald A. Hedlund,
LaSalle National Trust, N.A., as successor trustee to LaSalle National
Bank, not personally but solely as Trustee under Trust Agreement dated
December 28, 1972 and known as Trust No. 45197 and The PrivateBank and
Trust Company.*
10.4 Stock Purchase Agreement dated as of May 28, 1998 by and among
PrivateBancorp, Inc., Delaware Charter Guarantee and Trust Co.,
Trustee FBO Ralph B. Mandell, IRA and The Ralph B. Mandell Revocable
Trust UTA dated June 5, 1997.*
10.5 Pledge Agreement dated as of May 28, 1998 by and between the Ralph B.
Mandell Revocable Trust UTA dated June 5, 1997 and PrivateBancorp,
Inc. (included as Exhibit B to Stock Purchase Agreement dated as of
May 28, 1998 by and among PrivateBancorp, Inc., Delaware Charter
Guarantee and Trust Co., Trustee FBO Ralph B. Mandell, IRA and The
Ralph B. Mandell Revocable Trust UTA dated June 5, 1997 filed as
Exhibit 10.4 herewith).*
10.6 PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan, as to
be amended.***
10.7 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. effective as of July 1, 1999.**
10.8 Employment Agreement by and between Donald A. Roubitchek and
PrivateBancorp, Inc. effective as of July 1, 1999.**
10.9 Outsourcing Agreement by and between The PrivateBank and Trust Company
and Marshall & Ilsley Corporation, acting through its division M&I
Data Services, dated as of April 9, 1999.**
10.10 Form of Indemnification Agreement by and between PrivateBancorp, Inc.
and its directors and executive officers.**
21 Subsidiary of the Registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in their
opinions filed as Exhibits 5 and 8).
II-4
<PAGE>
24 Power of Attorney (set forth on signature page to Registration
Statement).
99.1 Consent of National Decision Systems.*
- --------------
* Filed under corresponding exhibit number to the Company's registration
statement on Form S-1 (File No. 333-77147) and incorporated herein by
reference.
** Filed under corresponding exhibit number to Amendment No. 1 to the
Company's registration statement on Form S-1 (File No. 333-77147) and
incorporated herein by reference.
*** Filed under corresponding exhibit number to Amendment No. 2 to the
Company's registration statement on Form S-1 (File No. 333-77147) and
incorporated herein by reference.
+ Filed as Exhibit No. 10.11 to Amendment No. 2 to the Company's registration
statement on Form S-1 (File No. 333-77147) and incorporated herein by
reference.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, offering or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of Illinois,
on this _____ day of July, 1999.
PrivateBancorp, Inc.
By: /s/ Ralph B. Mandell
----------------------------------
Ralph B. Mandell
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph B. Mandell or Donald A. Roubitchek 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 or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ralph B. Mandell Chairman, President, CEO and Director July 16, 1999
- --------------------------- (principal executive officer)
Ralph B. Mandell
/s/ Caren L. Reed Vice Chairman and Director July 16, 1999
- ---------------------------
Caren L. Reed
/s/ Donald A. Roubitchek Chief Financial Officer and Director July 16, 1999
- --------------------------- (principal financial officer)
Donald A. Roubitchek
/s/ Jeanene V. Meisser Controller July 16, 1999
- --------------------------- (principal accounting officer)
Jeanene V. Meisser
/s/ Donald L. Beal Director July 16, 1999
- ---------------------------
Donald L. Beal
/s/ Naomi T. Borwell Director July 16, 1999
- ---------------------------
Naomi T. Borwell
/s/ William A. Castellano Director July 16, 1999
- ---------------------------
William A. Castellano
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Robert F. Coleman Director July 16, 1999
- ---------------------------
Robert F. Coleman
/s/ W. James Farrell Director July 16, 1999
- ---------------------------
W. James Farrell
/s/ John E. Gorman Director July 16, 1999
- ---------------------------
John E. Gorman
/s/ Alvin J. Gottlieb Director July 16, 1999
- ---------------------------
Alvin J. Gottlieb
/s/ James M. Guyette Director July 16, 1999
- ---------------------------
James M. Guyette
/s/ Philip M. Kayman Director July 16, 1999
- ---------------------------
Philip M. Kayman
/s/ William R. Langley Director July 16, 1999
- ---------------------------
William R. Langley
/s/ Thomas F. Meagher Director July 16, 1999
- ---------------------------
Thomas F. Meagher
/s/ Michael B. Susman Director July 16, 1999
- ---------------------------
Michael B. Susman
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
Item 21. Exhibits
2.1 Agreement and Plan of Reorganization dated as of June 24, 1999, by and
between PrivateBancorp, Inc. and Towne Square Financial Corporation.+
2.2 Form of Building Lease by and between Towne Square Realty, L.L.C. and
The PrivateBank and Trust Company.
2.3 Form of Advisory Board and Support Agreement by and between
PrivateBancorp, Inc. and the stockholders of Towne Square Financial
Corporation.
2.4 Form of Stock Restriction Agreement by and between PrivateBancorp,
Inc. and the stockholders of Towne Square Financial Corporation.
2.5 Form of Employment Agreement by and between PrivateBancorp, Inc. and
Thomas N. Castronovo.
2.6 Form of Non-Competition and Support Agreement by and between
PrivateBancorp, Inc. and Thomas N. Castronovo.
3.1 Amended and Restated Certificate of Incorporation of PrivateBancorp,
Inc.***
3.2 [Intentionally left blank]
3.3 Amended and Restated By-laws of PrivateBancorp, Inc.*
4.1 Specimen Common Stock Certificate.**
5 Opinion of Vedder, Price, Kaufman & Kammholz regarding legality.
8 Opinion of Vedder, Price, Kaufman & Kammholz regarding certain federal
income tax matters.
10.1 Lease Agreement for banking facility located at Ten North Dearborn,
Chicago, Illinois dated January 1, 1992, as amended, by and between
General American Life Insurance Company as successor-in-interest to
LaSalle National Trust, N.A., as successor trustee to LaSalle National
Bank, not personally but as Trustee under Trust Agreement dated
November 6, 1985 and known as Trust No. 110519 and The PrivateBank and
Trust Company.*
10.2 Lease Agreement for banking facility located at 1603 West Sixteenth
Street, Oak Brook, Illinois dated October ____, 1996, by and between
Columbia Lisle Limited Partnership and The PrivateBank and Trust
Company.*
10.3 Lease Agreement for banking facility located at 517 Green Bay Road,
Wilmette, Illinois dated as of May 2, 1994 by and between Gunnar H.
Hedlund, Doris S. Hedlund, Robert P. Hedlund and Gerald A. Hedlund,
LaSalle National Trust, N.A., as successor trustee to LaSalle National
Bank, not personally but solely as Trustee under Trust Agreement dated
December 28, 1972 and known as Trust No. 45197 and The PrivateBank and
Trust Company.*
10.4 Stock Purchase Agreement dated as of May 28, 1998 by and among
PrivateBancorp, Inc., Delaware Charter Guarantee and Trust Co.,
Trustee FBO Ralph B. Mandell, IRA and The Ralph B. Mandell Revocable
Trust UTA dated June 5, 1997.*
II-9
<PAGE>
10.5 Pledge Agreement dated as of May 28, 1998 by and between the Ralph B.
Mandell Revocable Trust UTA dated June 5, 1997 and PrivateBancorp,
Inc. (included as Exhibit B to Stock Purchase Agreement dated as of
May 28, 1998 by and among PrivateBancorp, Inc., Delaware Charter
Guarantee and Trust Co., Trustee FBO Ralph B. Mandell, IRA and The
Ralph B. Mandell Revocable Trust UTA dated June 5, 1997 filed as
Exhibit 10.4 herewith).*
10.6 PrivateBancorp, Inc. Amended and Restated Stock Incentive Plan, as to
be amended.***
10.7 Employment Agreement by and between Ralph B. Mandell and
PrivateBancorp, Inc. effective as of July 1, 1999.**
10.8 Employment Agreement by and between Donald A. Roubitchek and
PrivateBancorp, Inc. effective as of July 1, 1999.**
10.9 Outsourcing Agreement by and between The PrivateBank and Trust Company
and Marshall & Ilsley Corporation, acting through its division M&I
Data Services, dated as of April 9, 1999.**
10.10 Form of Indemnification Agreement by and between PrivateBancorp, Inc.
and its directors and executive officers.**
21 Subsidiary of the Registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included in their
opinions filed as Exhibits 5 and 8).
24 Power of Attorney (set forth on signature page to Registration
Statement).
99.1 Consent of National Decision Systems.*
- -----------------
+ Filed as Exhibit No. 10.11 to Amendment No. 2 to the Company's registration
statement on Form S-1 (File No. 333-77147) and incorporated herein by
reference.
* Filed under corresponding exhibit number to the Company's registration
statement on Form S-1 (File No. 333-77147) and incorporated herein by
reference.
** Filed under corresponding exhibit number to Amendment No. 1 to the Company's
registration statement on Form S-1 (File No. 333-77147) and incorporated
herein by reference.
***Filed under corresponding exhibit number to Amendment No. 2 to the Company's
registration statement on Form S-1 (File No. 333-77147) and incorporated
herein by reference.
II-10
<PAGE>
EXHIBIT 2.2
-----------
FORM OF
BUILDING LEASE
--------------
LANDLORD: Towne Square Realty, L.L.C.,
- -------- an Illinois Limited Liability Company
1536 Fargo Boulevard
Geneva, IL 60134
TENANT: PrivateBank and Trust Company
- ------ Ten North Dearborn
Chicago, IL 60602
LEASED PREMISES: The First Floor of the building located on the property
- ---------------
commonly known as 24 South Second Street, St. Charles, IL
60174
DATE: July _____, 1999
- ----
<PAGE>
BUILDING LEASE
--------------
This BUILDING LEASE ("Lease") is entered into this ___ day of July, 1999,
by and between TOWNE SQUARE REALTY, L.L.C., an Illinois Limited Liability
Company (the "Landlord"), and PRIVATEBANK AND TRUST COMPANY, an Illinois state
banking corporation (the "Tenant") who hereby mutually covenant and agree as
follows:
ARTICLE 1. AGREEMENT TO LEASE.
------------------
1.1 Grant. Landlord, for and in consideration of the Rents to be paid by
-----
Tenant herein and the covenants and agreements herein to be performed by Tenant,
hereby leases to Tenant, and Tenant hereby lets from Landlord, the following
described real estate and the improvements (including the existing structure)
located thereon from time to time (the "Leased Premises"):
The first floor (excluding any common area lobbies) as depicted on Exhibit
"A" attached hereto of the building located on the property commonly known
as 24 South Second Street, in the City of St. Charles, Kane County,
Illinois (the "Property") and the use of the sidewalks, if any, and other
common facilities located on the Property in common with Landlord and other
tenants of the building. The use of the common area lobbies, building
entrance and stairways between the first floor and basement of the Property
shall be in common with the use by other building tenants and Landlord.
1.2 Quiet Enjoyment. Subject to the foregoing, Landlord covenants and
---------------
agrees that so long as Tenant shall timely pay all Rents due to Landlord from
Tenant hereunder and keep, observe and perform all covenants, promises and
agreements on Tenant's part to be kept, observed and performed hereunder, Tenant
shall and may peacefully and quietly have, hold and occupy the Premises free of
any interference from Landlord; subject, however, to each of the terms,
provisions and conditions of this Lease.
Tenant acknowledges that the City of St. Charles (the "City") contemplates
demolition of the building directly to the east of the Leased Premises and
further plans to construct a parking structure on the property to the east.
Tenant acknowledges that the City has the right to proceed with the demolition
work and that the City's performance of such work shall not constitute in any
way a breach of Landlord's obligations under this Lease. Landlord and Tenant
agree to work cooperatively with the City to permit the demolition and
construction work to be completed at no additional cost or expense to Tenant.
Landlord shall not be liable to Tenant in any way for the City's performance or
failure to perform the demolition or construction work.
ARTICLE 2. TERM.
----
2.1 Term. The term of this Lease shall commence on August 1, 1999. That
----
date shall hereinafter sometimes be referred to as "Commencement Date." In the
event this Lease is executed after August 1, 1999, the Commencement Date shall
be retroactive to August 1, 1999.
2
<PAGE>
This Lease shall have a Term of ten years and three months and shall end on
October 31, 2009 (unless sooner terminated as provided elsewhere in this Lease
or unless Tenant exercises its option to extend this Lease in accordance with
the terms of paragraph 2.2 herein). The date on which this Lease shall end
shall be sometimes referred to herein as the "Termination Date."
2.2 Options to Extend. On the condition that Tenant has faithfully
-----------------
performed all of its obligations under this Lease and cured any defaults within
the time periods provided herein, Tenant shall have the option to extend this
Lease for two consecutive additional five year periods beyond the Termination
Date. In order for Tenant to exercise the first option to extend, Tenant must
first give Landlord six (6) months' advanced written notice prior to the end of
the initial ten year Lease Term. In order to exercise the second five year
option, Tenant must give Landlord six (6) months advance written notice prior to
the end of the first extended Lease Term. In the event that Tenant fails to
give the requisite notice of its intent to exercise an option within the time
period provided herein, then Tenant's options to extend this Lease shall lapse
and become null and void. In the event that Tenant breaches and fails to cure
within the time periods provided herein any of its obligations under this Lease,
then Tenant's options to extend shall likewise lapse and become null and void.
In the event that Tenant's options lapse, Tenant shall, at Landlord's request,
execute any and all documents necessary to evidence the lapse of said options.
In the event that an option is exercised by Tenant, then all provisions of this
Lease shall remain in full force and effect through the Option Period, and Base
Rent during each successive 12-month lease period shall be increased at a rate
of 2.5% more than the prior 12 months' Base Rent.
ARTICLE 3. RENT
3.1 Rent. Each lease year throughout the Term, Tenant shall pay to
----
Landlord, in lawful money of the United States of America, without any prior
demand by Landlord and without any deduction or set-off (except as otherwise
specifically permitted herein), as rent hereunder a combination of Base Rent and
Additional Rent (as those terms are hereinafter defined and described). All
such payments of Rent shall be made at the time, in the manner and in the
amounts hereinafter specified in this Article 3 by check payable to Landlord
mailed or delivered to Landlord at the address herein specified or to such other
person or at such other address as Landlord may hereafter designate by written
notice to Tenant.
All Rent shall be made to Landlord at 1536 Fargo Boulevard, Geneva,
Illinois 60134, or to such other individual or location as Landlord directs in
writing. Monthly Rent payments shall be paid in advance and shall be due on the
first day of each consecutive month. Each installment of Rent which is not paid
when due or within a ten (10) day grace period beyond any due date shall bear
interest at a rate of twelve percent (12%) per annum from the date when the same
is payable under the terms of this Lease until the same shall be paid.
3.2 Base Rent. During the first 15 months of this Agreement, Tenant
---------
shall pay to Landlord monthly Base Rent of $8,900.00. The monthly Base Rent for
each succeeding lease year (12 months) shall be increased to an amount equal to
the prior year's monthly Base Rent multiplied by 102.5%.
3
<PAGE>
3.3 Additional Rent. During each month of this Lease, Tenant shall pay
---------------
to Landlord as Additional Rent, in advance, and simultaneously with each monthly
installment of Base Rent Tenant's pro rata share of the following attributable
to the Leased Premises:
A. Real Estate/Special Service Area Taxes. One-twelfth of
--------------------------------------
Landlord's reasonable estimate of the annual general real estate or Special
Service Area taxes with respect to the Property which accrue for each year of
the Lease during the Lease Term (even though such taxes may not be payable
during the Lease Term). To the extent that Landlord's estimate is greater or
less than the actual real estate tax bill, then the parties shall settle the
difference within 15 days of the issuance of the final tax bill.
B. Special Assessments. One-twelfth of all special assessments for
-------------------
the Property which accrue for each year of the Lease or are imposed during the
Lease Term with respect to the Property.
C. Insurance. One-twelfth of the property and casualty insurance
---------
premiums paid by Landlord and attributable to the Property and all buildings and
improvements thereon. Such insurance shall be underwritten on a replacement cost
basis by companies having a Best's rating of A or better.
D. Common Area Maintenance/Utilities. One-twelfth of all common
---------------------------------
area maintenance expenses for the Property and the non-separately metered or
zoned utilities provided by Landlord to the Leased Premises. Common area
maintenance expenses shall include Landlord's expenses for repairs and
maintenance performed pursuant to Section 7.5.
For purposes of this Lease, Landlord and Tenant agree that 66.67% of all
general real estate taxes, special service area taxes, and special assessments,
Property in which the Leased Premises (i.e. 24 South Second Street, St. Charles,
Illinois 60174) are located are attributable to the Leased Premises and 50.0% of
all insurance and common area maintenance expenses and non-separately metered or
zoned utilities are attributable to the Leased Premises.
In addition, all sums reasonably expended by Landlord (including reasonable
attorney's fees) in satisfying an obligation of Tenant under this Lease or in
enforcing the Terms of this Lease, together with all late fees due hereunder,
shall constitute Additional Rent.
ARTICLE 4. PURPOSE.
-------
4.1 Purpose. The Leased Premises shall be used and occupied by Tenant
-------
solely for the purpose of a bank or other similar financial institution or
general office use and for no other use without Landlord's consent, which shall
not be unreasonably withheld, delayed or conditioned. Tenant shall not use or
occupy the Leased Premises or permit the Leased Premises to be used or occupied
contrary to any statute, rule, order, ordinance, building code (including the
ADA), covenants, government regulations or in any manner which would violate the
Certificate of Occupancy relating to the Leased Premises. Tenant shall pay when
due all taxes (including
4
<PAGE>
sales and use taxes) arising out of Tenant's business operations. Furthermore,
Tenant shall not permit the Leased Premises to be used in such a way so as to
cause structural injury to the Leased Premises or the improvements located
thereon, to increase the rate of insurance thereon, or so as to cause a public
or private nuisance. Upon completion of Tenant's improvements Tenant shall open
for business on a continuous basis.
Tenant further agrees that it shall not use the Leased Premises or any
portion of the Property on which the Leased Premises is located for the burial,
dumping, storage, handling, transportation, treatment, use or disposal of any
contaminates, pollutants, oil or other petroleum products, toxic substances,
hazardous substances or hazardous wastes. The terms "hazardous substances" or
"hazardous wastes" shall be defined as those substances or materials regulated
under or described as hazardous in any applicable State or Federal environmental
laws or regulations.
4.2 Landlord agrees that it shall not lease the basement space in the
Property to any bank, savings bank, credit union or similar financial
institution, insurance broker or agent, securities or investment broker, or
person or entity who or which specializes primarily in investment management or
financial planning. Landlord may lease such basement space to a person or
entity who or which processes insurance claims or an accounting firm whose
primary business is providing accounting services.
ARTICLE 5. UTILITIES/LANDLORD'S SERVICES/TRASH REMOVAL/MONITORING.
------------------------------------------------------
5.1 Utility Availability. Landlord represents and warrants that
--------------------
currently there is available for connection to the Leased Premises by Tenant
lines, pipes or conduits supplying electric power, natural gas, telephone,
cable, if available, potable water, and sanitary sewer utility services. Tenant
shall be responsible for any "tap on" or connection fees and deposits for the
use of said utilities at the Leased Premises. If additional or special utility
services are required for the conduct of the business contemplated by this Lease
to be operated and conducted by Tenant within and from the Leased Premises, the
cost thereof shall be borne by Tenant and shall be paid by Tenant to Landlord
prior to Tenant's occupancy of the Premises.
5.2 Utility Services. Tenant shall and hereby agrees to make all
----------------
appropriate applications and arrangements for electric, telephone and cable, if
available, utility services required to serve the Leased Premises directly with
those utility companies providing such utilities and to pay all fees, changes
and deposits and for all meters required by such utility companies as a
condition to their providing such utility services to the Premises.
5.3 Payment for Utility Services. Tenant shall be solely liable and
----------------------------
responsible for, and shall pay directly to such utility companies, all
separately metered or zoned bills for utility services including, without
limitation, electricity, telephone and cable, or any other utility provided by
them to and consumed and used on, at, in and from the Leased Premises, on or
before the date due, in accordance with the payment instructions contained in
such bills. After notice to Tenant and opportunity to cure as provided herein,
Landlord shall have the right to pay
5
<PAGE>
any past due bills and shall be entitled to assess any charges therefor to
Tenant as Additional Rent hereunder.
5.4 Interruption of Utility Services. Landlord shall have no liability or
--------------------------------
responsibility for any loss or damage occasioned by any interruption or failure
in the supply of any utility services to the Leased Premises or occasioned by
any required termination of such utility services necessary to effect repairs or
improvements or occasioned by any other cessation of such utility services for
any cause or reason other than any interruptions or failures wholly or partially
caused by the intentional or negligent acts or omissions of Landlord or its
employees, agents, contractors, licensees, guests or invitees. No such
interruption, termination or cessation of utility services shall relieve Tenant
of any of its duties and obligations pursuant to this Lease, including, without
limitation, its obligation to pay all Rents as and when the same shall be due.
If such service interruption is due to Landlord's failure to pay for any utility
or service furnished by Landlord hereunder, then after notice to Landlord and 5
days' opportunity to cure, Tenant may pay the amount necessary to restore such
service including, but not limited to, interest and penalties thereon. If Tenant
does so, Tenant may set-off the amounts so paid against the next installments of
Rent and Additional Rent due to Landlord hereunder.
5.5 Landlord's Services. During the term of this Lease, Landlord shall
-------------------
provide the following services to the extent not separately metered or zoned to
the Leased Premises.
A. Air cooling and heating as necessary to provide a temperature of
70F +/-2F (or such other temperature required by law or government regulation)
throughout the Leased Premises Monday through Friday from 8:00 a.m. to 6:00 p.m.
and Saturdays from 8:00 a.m. to 1:00 p.m., federal holidays excepted, and
B. Hot and cold water for use in lavatories and cold potable water
in other areas where water service is provided.
Landlord shall pay for such services and related sanitary sewer services and
shall charge Tenant its allocable (50%) share thereof as part of its common area
maintenance charges; provided however, that, until Landlord enters into its
initial lease of all or any portion of the basement space in the Property,
Tenant shall pay for all of such services allocable to the Leased Premises.
Tenant shall not pay for any portion of such services allocable to Landlord's
Work or any other user.
5.6 Trash Removal. Tenant shall remove trash and rubbish generated by
-------------
Tenant in the ordinary course of the operation of Tenant's business in the
Leased Premises and shall store trash in containers provided or approved by
Landlord and stored in locations designated by Landlord. The cost of trash
removal shall be included in common area maintenance expenses, and Tenant shall
pay its allocable (50%) share thereof; provided however, that, until Landlord
enters into its initial lease of all or any portion of the basement space in the
Property, Tenant shall pay for all of such services allocable to the Leased
Premises. Tenant shall not pay for any portion of such services allocable to
Landlord's Work or any other use.
6
<PAGE>
5.7 Fire Monitoring. Landlord shall provide, or cause others to provide,
---------------
monitoring of an automated fire detection system which is integrated into the
fire sprinkler system that is part of the Leased Premises, and Tenant's 50%
share of the reasonable cost therefor shall be paid by Tenant. Tenant
acknowledges that Landlord shall not, by virtue of having elected to provide
such service, be deemed to have accepted any responsibility or liability in the
event of any malfunction of the fire monitoring system or service or in the
event of any negligence of any party in the operation and monitoring of the fire
monitoring service, and Landlord shall not, by virtue of having elected to
provide such service, be liable for any damage, loss, injury, cost or expense
that may be sustained by Tenant as the result of any fire that may hereafter
occur in the Leased Premises or any alleged or actual failure of the fire
monitoring system to minimize any damage resulting therefrom.
ARTICLE 6. SIGNS AND SIGNAGE.
-----------------
6.1 Building Signage. Landlord agrees that Tenant shall, at its expense,
----------------
be permitted to identify and advertise Tenant's business by the placement upon
the facade of the Building, such signs, symbols, words, names, logos, trademarks
or other identifying features, graphics or advertising materials (collectively,
"Signs") as are generally or customarily associated with Tenant, its business
and/or its products and services; provided, however, that any and all of such
Signs, and the number, size, color, arrangement, placement and location of the
same upon said Building shall be subject at all times to the prior written
consent and approval of Landlord which shall not be unreasonably withheld,
delayed or conditioned. Initially, matters of Building Signs for Tenant's
business shall be addressed in and included as part of Tenant's Plans and
Specifications and Landlord's consent to and approval of Tenant's Plans and
Specifications, to the extent that they shall address matters of Building Signs,
shall constitute Landlord's consent to and approval of those Building Signs
reflected therein. All such signage must also comply with applicable
governmental laws and ordinances. Tenant shall have the right to use up to two-
thirds of the space permitted for signage by the Village of St. Charles and
shall have first choice of the face of the building on which such signage shall
be located, it being the intention of the parties that Tenant's signage be
"prominently" displayed.
6.2 Maintenance of Signage. Tenant shall and hereby agrees to keep and
----------------------
maintain any and all Signs erected, placed or installed by it upon the building
or within the Leased Premises as may be approved by Landlord, including, without
limitation, all mechanical and all electrical components thereof, in a neat,
clean and orderly fashion and in good condition and repair. All damaged Signs
and all burned out bulbs, tubes and lighting of any kind shall be promptly
repaired and replaced by Tenant, at its expense.
6.3 Removal of Signage. At the end of the Lease Term or earlier
------------------
termination of this Lease, if requested by Landlord, Tenant shall, at its
expense remove all of its signs from the building and, upon removal thereof, at
its expense, repair any damage to the Leased Premises and said building
(including the facade thereof) caused by such removal.
6.4 Signage of Other Tenants. Subject to Section 6.1, Landlord shall have
------------------------
the right to designate portions of the building exterior for signs of other
building Tenants.
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ARTICLE 7. CONDITION, BUILD OUT AND UPKEEP OF LEASED PREMISES.
---------------------------------------------------
7.1 Condition of Leased Premises. With the exception of Landlord's
----------------------------
obligation to complete Landlord's Work as set forth in Section 7.2 and the
representations and warranties set forth below, Tenant certifies that it has
inspected the Leased Premises and accepts the Leased Premises in its existing
"AS-IS" condition. No other repair work, alterations or remodeling of the Leased
Premises is required to be done by Landlord as a condition of this Lease.
Landlord represents and warrants to Tenant that on the Commencement
Date and throughout the Term:
(a) The Property and all improvements thereon (except
interior improvements to the Leased Premises to be performed by
Tenant pursuant to Section 7.3) are or, upon completion of Landlord's
Work pursuant to Section 7.2, will be in compliance in all material
respects with all applicable federal, state, and local laws,
statutes, ordinances, rules and regulations including, but not
limited to, building codes, health, safety and environmental laws,
and the Americans With Disabilities Act as it pertains to space used
by the public (collectively "Applicable Laws"). After the date
hereof, Landlord shall not be responsible for compliance of the
Leased Premises with the preceding sentence or for any non-compliance
caused by Tenant or its agents or employees.
(b) The plumbing, electrical, heating, ventilating, air
conditioning and mechanical systems which connect to the Leased
Premises are or, upon completion of Landlord's work pursuant to
Section 7.2, will be in good working order and repair and adequate to
service the Leased Premises for the use contemplated herein subject
to completion of Tenant's Work (defined below).
(c) At all times during the term of this Lease, the roof,
foundation and structural members of the building on the Property
shall be in good working order and repair.
7.2 Landlord's Work. Landlord shall perform the following work
----------------
("Landlord's Work") at its expense in a good and workmanlike manner, lien free,
using new, first-quality materials and experienced labor and in accordance with
applicable laws and plans and specifications therefor, copies of which have been
provided to Tenant. The interior work to be done by Landlord shall be
substantially completed on or before the Commencement Date. The exterior work to
be done by Landlord shall be substantially completed on or before October 31,
1999. Landlord shall perform Landlord's Work regardless of whether Landlord
obtains the facade grant described below.
1. Replace or repair the roof.
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2. Replace or repair all existing windows and doorways on the west
side of the building.
3. Replace or repair the HVAC mechanical units, excluding duct work,
and upgrade the fire monitoring system.
4. Replace or upgrade landscaping.
5. Paint exterior trim.
In the event Landlord does not substantially complete Landlord's Work on or
before the dates specified above, then after written notice to Landlord and 15
days' opportunity to cure, Tenant may complete Landlord's Work and deduct the
cost thereof plus a 15% administrative fee from the Rent and Additional Rent due
to Landlord hereunder until Tenant is fully reimbursed therefor.
Landlord has applied for and received preliminary approval for a facade
grant in the amount of $47,500.00 from the City of St. Charles to help improve
portions of the exterior of the building on the Property. Landlord agrees to
use its best efforts to obtain the facade grant, and Tenant shall cooperate with
Landlord in attempting to obtain the grant at no cost to Tenant. The proceeds
of the grant shall be applied toward Landlord's work described in clause 7.2.2
hereof.
7.3 Tenant's Work.
-------------
A. Tenant's Plans and Specifications. Not later than August 1,
---------------------------------
1999, Tenant shall submit to Landlord for its review and approval and, if
necessary, resubmit the same from time to time within fifteen (15) days after
receipt of written notice of disapproval thereof from Landlord, until the same
are approved by Landlord, detailed drawings and plans and specifications of and
for all interior and exterior improvements to be constructed and installed by
Tenant in the Leased Premises as Tenant's Work (as hereinafter defined),
including, without limitation, layout, lighting plan, interior finish and
material samples, typical display technique, if applicable, interior and
exterior signage plans and specifications, store front, and any work or
equipment to be done or installed by Tenant affecting any structural, mechanical
or electrical part of the Leased Premises, the building in which the Leased
Premises is located, and also showing all Trade Fixtures (as hereinafter
defined) to be installed therein by Tenant (the "Plans and Specifications").
Tenant's Plans and Specifications shall be prepared by a licensed architect or
other professional approved by Landlord. Tenant shall not commence the
construction and installation of any of Tenant's Work or Trade Fixtures unless
and until Landlord shall give its written consent and approval to Tenant's Plans
and Specifications, which consent shall not be unreasonably withheld, delayed or
conditioned. Landlord shall have fifteen (15) days after receipt of Tenant's
original or resubmitted Plans and Specifications to review and approve or
disapprove same. Any disapproval by Landlord shall set forth with specificity
the items or aspects of Tenant's Plans and Specifications which Landlord does
not approve. Upon receipt of Landlord's approval of Tenant's Plans and
Specifications, Tenant shall promptly thereafter, at its
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sole cost and expense, seek and obtain all necessary building permits and
governmental approvals required to enable Tenant to construct Tenant's work.
B. Commencement of Tenant's Work. Within a reasonable period of
-----------------------------
time following Tenant's receipt of written notice from Landlord approving
Tenant's Plans and Specifications, Tenant shall, at its expense, commence the
construction and installation to the interior of the Leased Premises of those
improvements including those more particularly listed and described on the
schedule of work to be accomplished by Tenant attached hereto as Exhibit B (the
"Tenant's Work"). Tenant shall use its commercially reasonable efforts to cause
all of Tenant's Work to be substantially completed and a certificate of
occupancy issued therefor and for the Leased Premises on or before December 31,
1999, subject to force majeure. Tenant warrants and represents to Landlord that
all such Tenant's Work will be performed in a good and workmanlike manner and in
conformance with all applicable laws, ordinances, requirements, orders,
directions, rules and regulations of all governmental authorities, and in
accordance with Tenant's Plans and Specifications. The contractor selected by
Tenant to perform Tenant's Work shall be approved by Landlord in writing prior
to commencement of construction, which approval shall not be unreasonably
withheld, delayed or conditioned. The construction contract to be executed by
Tenant and its contractor for Tenant's Work shall expressly provide that the
contractor shall be insured in amounts reasonably satisfactory to Landlord and
Tenant and shall name Landlord and Tenant as additional insureds. Tenant shall
provide evidence of such contractor's insurance to Landlord prior to commencing
Tenant's Work.
C. Trade Fixtures. Immediately following the completion of Tenant's
--------------
Work in Section 7.3B above, Tenant shall cause to be installed within the Leased
Premises all trade fixtures reasonably required for the operation, as conducted
by Tenant, of the business contemplated by this Lease to be operated on, in, and
from the Leased Premises, including those trade fixtures, if any, contemplated,
shown and described on Tenant's Plans and Specifications (the "Trade Fixtures").
All Trade Fixtures so installed in the Leased Premises by Tenant shall be new
and of first-class quality and workmanship.
D. Landlord Not Bound. Landlord's approval of Tenant's Plans and
------------------
Specifications shall not be construed as approval of the structural adequacy or
integrity of the work detailed therein or of the conformity of the same to
applicable building codes and other legal requirements; it being agreed that
Tenant shall indemnify and save and hold Landlord harmless from and against any
and all claims and liabilities arising therefrom. Any work which does not
substantially conform with the Plans and Specifications, if so required by
Landlord or by law, shall be removed or reconstructed by Tenant, at Tenant's
sole cost and expense.
E. Compliance With Laws. Prior to Tenant's opening for business,
--------------------
Landlord and Tenant shall perform an inspection of the Property and the Leased
Premises in order to determine that the same is in good order and repair and
that both Landlord's Work and Tenant's Work have been completed in substantial
compliance with the terms of this Lease and, as to Tenant's Work, the Plans and
Specifications. At the walk-through, Landlord and Tenant shall create a written
"Punch List" of items to be completed. The party responsible for a given Punch
List item agrees that the given Punch List item shall be completed as soon as is
reasonably
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practical following the walk-through but not later than 30 days after the date
of the walk-through, subject to force majeure. If a party fails to complete any
item in the time period set forth herein, then after notice and opportunity to
cure as provided herein, the other party shall be entitled to cause said items
to be completed and assess the cost thereof to the other party. With the
exception of the items set forth on the Punch List, Tenant agrees to accept the
Leased Premises as being in good order and repair.
F. Force Majeure. If Landlord or Tenant fails to timely perform any
-------------
of the terms, covenants and conditions of this Lease on its part to be performed
and such failure is due in whole or in part to any strike, lockout, labor
trouble, civil disorder, inability to procure materials, failure of power,
restrictive governmental laws and regulations, riots, insurrections, war, fuel
shortages, accidents, casualties, acts of God, acts caused directly or
indirectly by the other party (or the other party's agents, employees,
contractors, licensees or invitees) or any other cause beyond the reasonable
control of Landlord or Tenant, as the case may be, then such party shall not be
deemed in default under this Lease as a result of such failure, and any time for
performance provided herein shall be extended by the period of delay resulting
from such cause.
7.4 Landlord's and Tenant's Work. The parties acknowledge that Landlord
----------------------------
is in discussion with the city of St. Charles regarding modifications to the
northerly facade of the building in order to permit the construction of a new
main entrance to the Leased Premises and windows on the northerly facade. On
the condition that Landlord obtains City approval, Landlord agrees to construct
said new main entrance and windows in accordance with the standards for
Landlord's Work set forth above, and the cost thereof shall be shared by the
parties with the Tenant paying two-thirds of the cost and Landlord paying one-
third of the cost. The parties agree that Tenant's share of the cost shall not
exceed $75,000.00. Payment for the proportionate share of the costs shall be
due immediately upon completion of the work. Landlord shall furnish Tenant with
a separate bill and breakdown for expenses for this work.
7.5 Maintenance and Repairs by Landlord. During the term of this Lease,
-----------------------------------
Landlord shall maintain, repair and replace, if necessary, the roof, the
exterior walls, the structural elements, and the exterior (exclusive of glass)
of the Leased Premises, all heating, air conditioning, ventilating, electrical,
mechanical, sprinkler and plumbing systems, equipment, machinery or fixtures
together with all pipes, conduits, ducts and drains servicing the Leased
Premises and other portions of the Property, and the remainder of the building
in which the Leased Premises are located including, without limitation, the
common areas of the building and the Property including, without limitation, the
sidewalks and landscaping, and keep the foregoing in a clean, sightly and
sanitary condition, free of snow, ice, debris, refuse, obstructions and hazards.
Landlord shall not, however, be responsible for maintaining or repairing any
window or window frames, doors, tracks and frames; pedestrian doors and frames;
exterior grills and ports for heating, ventilating and air conditioning units or
exhausts for inlets exclusively serving the Leased Premises. Notwithstanding
the foregoing, Landlord shall have no obligation to perform any maintenance or
repairs wholly or partially caused by the negligence or fault of Tenant or any
of its agents, visitors or licensees, or by Tenant's breach of any provision of
this Lease. Capitalized improvements to the Property shall not be deemed to be
common area maintenance.
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Tenant agrees, on a timely basis, to provide Landlord with written notice
of the need for any repairs or maintenance of the type described above.
7.6 Maintenance and Repairs by Tenant. Tenant, at its expense, shall
---------------------------------
maintain and repair the interior of the Leased Premises, and all heating, air
conditioning, ventilating, electrical, mechanical, sprinkler and plumbing
systems, equipment, machinery or fixtures exclusively servicing the Leased
Premises, together with all pipes, conduits, ducts and drains therefor.
Furthermore Tenant, at its expense, shall replace any broken glass in the
interior or exterior of the Leased Premises, and shall maintain and repair all
entryway doors to the Leased Premises. Landlord shall assign to Tenant all
assignable manufacturers' warranties with respect to equipment and fixtures
installed in the Leased Premises.
Tenant further agrees to keep the Leased Premises in good, tenantable,
sanitary, sightly and clean condition and to keep all lobbies and entryways
which are part of the Leased Premises clean and free from debris, refuse,
obstructions or hazardous conditions. Tenant agrees to notify Landlord in the
event an excessive amount of snow accumulates on the roof of the Leased
Premises.
Tenant shall be responsible for all maintenance or repairs wholly or
partially (to the extent of Tenant's part) caused by the negligence or fault of
Tenant or any of its agents, visitors or licensees, or by Tenant's breach of any
provision of this Agreement.
If Tenant does not make the repairs or perform the maintenance required
hereunder in a prompt and adequate manner, then after notice to Tenant and
opportunity cure as provided herein, Landlord may make such repairs or perform
such maintenance and pay the costs thereof, and such costs shall be so much
Additional Rent which shall become immediately due and payable by Tenant to
Landlord.
7.7 Future Drive-Up Teller Facility. Landlord is currently in discussion
-------------------------------
with the City of St. Charles in order to purchase or lease additional land to
the east of the Leased Premises to accommodate drive up teller lanes. If the
City makes said land available for purchase or lease as a drive up, then
Landlord shall submit a proposal to Tenant containing additional lease terms
(including additional rent and construction costs responsibilities) in relation
thereto. Tenant shall then decide whether or not to proceed with the
installation of the drive-up facility and to add such property to this Lease and
the Leased Premises described herein. Nothing contained herein shall obligate
Landlord to provide or make available a drive-up facility at any time during
this Lease and the failure to provide same shall not constitute a breach of
Landlord's obligations under this Lease.
7.8 Surrender of the Leased Premises. Upon the termination of this Lease
--------------------------------
whether by forfeiture, lapse of time, or otherwise, or upon the termination of
Tenant's rights to possession of the Leased Premises, Tenant will at once
surrender and deliver up to Landlord possession of the Leased Premises together
with all improvements thereon in good condition and repair, ordinary wear and
tear excepted. Said improvements shall include all plumbing, lighting,
electrical, heating, cooling and ventilating fixtures and equipment and other
articles of personal property
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used in the operation of the Leased Premises (as distinguished from the Trade
Fixtures which are used in the operation of Tenant's business). All additions,
hardware, non-trade fixtures and improvements to the Leased Premises shall
become Landlord's property and shall remain upon the Leased Premises, without
compensation to Tenant, unless Landlord requests their removal in writing at the
time of approval of installation (if applicable). Upon termination of this
Lease, the Tenant agrees to deliver to Landlord all of the keys to the Leased
Premises.
The Tenant may remove Tenant's Trade Fixtures from the Leased Premises
provided, however, that Tenant shall repair any injury to or damage to the
Leased Premises caused by the removal of its Trade Fixtures. In the event that
Tenant fails to remove its Trade Fixtures, Landlord may, at its option, remove
the same and deliver the same to any other place of business of Tenant or
warehouse the same, and Tenant shall be responsible for paying the cost of said
removal, including the cost of repairing any damage to the Leased Premises
resulting from such removal, delivery and warehousing, to Landlord on demand.
7.9 Holding Over. Any holding over by Tenant of the Leased Premises after
------------
the expiration of this Lease shall operate and be construed to be a tenancy from
month to month only at the same monthly rate of rent and other charges payable
hereunder for the Lease Term. If the parties are not then engaged in bona fide
negotiations to renew or to extend the Lease, and if Tenant continues to hold
over after a written demand by Landlord for possession at the expiration of the
Lease Term or after termination by either party of a month-to-month tenancy
created pursuant to this paragraph, then Tenant shall pay Monthly Rent at a rate
equal to double the rate of Monthly Rent for the month immediately prior to the
hold over period. Nothing contained in this section shall be construed to give
Tenant a right to hold over at any time, and Landlord may exercise any and all
remedies at law or in equity to recover possession of the Leased Premises.
7.10 Mechanic's Liens. Tenant will not permit any mechanic's lien or liens
----------------
(other than those caused by the acts of Landlord) to be placed upon the Leased
Premises or the Real Property or any building or improvement thereon during the
term hereof, and in case of filing of any such lien, Tenant shall promptly pay
for or cause a title company to bond over same. Tenant shall have the right to
contest any such lien provided that Tenant pursues such contest diligently, such
contest does not result in the forfeiture of the Property, and Tenant posts
adequate security with a title company or Landlord therefor. If Tenant fails
promptly to pay for or bond over any such lien, Landlord, at its option, after
notice to Tenant and opportunity to cure as provided herein, may pay for said
lien, and any amounts so paid, including expenses and interest, shall become so
much Additional Rent hereunder due from Tenant to Landlord and shall be paid to
Landlord immediately.
7.11 Alterations. Tenant shall not make any material changes or structural
-----------
alterations to the Leased Premises, without first obtaining the Landlord's
written consent, which consent shall not be unreasonably withheld, delayed or
conditioned. Upon the completion of any such changes or alterations, Tenant
shall provide Landlord with such documents as Landlord may require (including,
without limitation, Sworn Contractor's Statements and supporting lien waivers)
evidencing payment in full for such work. Any such changes or alterations must
be made in accordance with applicable building codes or other governmental
regulations.
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ARTICLE 8. INSURANCE.
---------
As Additional Rent, Tenant shall procure and maintain, during the term of
this Lease, policies of insurance at Tenant's own cost and expense insuring the
following:
1. Landlord and Tenant from all claims, demands or actions for
injury to or death of any person in an amount of not less than
$3,000,000.00, for injury to or death of more than one person in any one
occurrence in an amount of not less than $3,000,000.00, and for damage to
property in an amount of not less then $1,000,000.00 made by, or on behalf
of, any person or persons, firm or corporation arising from, related to, or
connected with Tenant's use or occupancy of the Leased Premises.
2. Landlord and Tenant from all worker's compensation claims;
3. All contents, and all of Tenant's personal property and Trade
Fixtures, machinery, equipment and furniture and furnishings contained in
the Leased Premises to the extent of at least ninety percent (90%) of their
replacement cost under the standard fire and extended coverage insurance,
including without limitation to, vandalism and malicious mischief and
sprinkler leakage endorsements.
The aforesaid insurance shall be issued by companies and in form,
substance, and amount (where not stated above) reasonably satisfactory to
Landlord and any mortgagee of Landlord, and shall contain standard mortgage
clauses satisfactory to Landlord's mortgagee. Each such policy shall name
Landlord and its individual members as additional insureds. The aforesaid
insurance shall not be subject to cancellation except after at least thirty (30)
days prior written notice to Landlord and any mortgagee of Landlord. Duplicate
original policies (or certificates thereof satisfactory to Landlord) together
with satisfactory evidence of payment of the premiums thereon shall be deposited
with Landlord at the Commencement Date and renewals thereof not less than thirty
(30) days prior to the end of the term of such coverage. If Tenant fails to pay
the premiums on any of said insurance policies, then after ten (10) days' notice
to Tenant and opportunity to cure, Landlord may at its option pay said premiums,
and any payments made by Landlord shall constitute Additional Rent which shall
become immediately due and payable.
ARTICLE 9. INDEMNITY FOR ACCIDENTS.
-----------------------
Tenant covenants and agrees that it will protect and save and keep the
Landlord forever harmless and indemnified against any penalty or damages or
charges imposed for any violation of any laws or ordinances, or any civil claim
with respect to the Leased Premises which occurs during the Lease Term or any
holdover period, whether occasioned by the neglect of Tenant or those holding
under Tenant, but not for any actions or inactions of the Landlord or its
agents, servants, employees, contractors, licensees, guests, invitees or other
tenants. Pursuant to said obligation, Tenant will at all times protect,
indemnify and save and keep harmless the Landlord against and from any and all
loss, costs, damage or expense, including reasonable attorney's fees, arising
out of and from any accident or other occurrence on or about the Leased Premises
causing
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injury to any person or property whomsoever or whatsoever and will protect,
indemnify, and save and keep harmless the Landlord against and from any and all
claims and against and from any and all loss, costs, damage or expense arising
out of any failure of Tenant in any respect to comply with and perform all of
the requirements and provisions hereof.
Likewise, Landlord covenants and agrees that it will protect and save
Tenant forever harmless and indemnified against any penalty or damages or
charges imposed as a result of any violation of any laws or ordinances or any
civil claim with respect to the Property (other than those with respect to the
Leased Premises), whether occasioned by Landlord's or its agents', servants',
employees', contractors', guests', or invitees' (excluding other tenants')
negligent or unlawful conduct or intentional acts or omissions other than such
guests' or invitees' criminal acts.
ARTICLE 10. FIRE AND CASUALTY.
-----------------
In the event that the Leased Premises shall be rendered substantially
untenantable or unsuitable for Tenant's purposes during the term of this Lease
by fire or other casualty, Landlord at its option may terminate this Lease
effective as of the date of such casualty or Landlord may elect to repair the
Leased Premises. If Landlord elects to repair this Lease will remain in effect
provided that such repairs are promptly commenced, diligently pursued and
completed in a timely manner but not more than 180 days after the date of the
fire or other casualty. If more than 40% of the Leased Premises is rendered
substantially untenantable or unsuitable by fire or casualty and Landlord does
not complete the repair and restoration thereof within said 180 days, then
Tenant may terminate this Lease effective as of the date of such fire or
casualty. If this Lease is terminated by reason of fire or casualty as herein
specified, monthly Base Rent and Additional Rent shall be apportioned and paid
to the day of such fire or other casualty. During any time period that the
Leased Premises is untenantable, rent will abate if the cause of the casualty is
not the result of Tenant's negligent acts or omissions.
Whenever (a) any loss, cost, damage or expense resulting from fire,
exploding or any other casualty or occurrence is incurred by either of the
parties to this Lease in connection with the Leased Premises, and (b) such party
is then covered in whole or in part by insurance with respect to such loss,
cost, damage or expense, then the party so insured hereby releases the other
party from any liability it may have on account of such loss, cost, damage or
expense to the extent of any amount recovered by reason of such insurance and
waives any right of subrogation which might otherwise exist in or accrue to any
person on account thereof, provided that such release of liability and waiver of
the right of subrogation shall not be operative in any case where the effect
thereof is to invalidate such insurance overage or increase the cost thereof.
ARTICLE 11. MISCELLANEOUS PROVISIONS.
------------------------
11.1 Subordination. This Lease is subordinate and shall be subordinate to
-------------
any and all mortgages which may now or hereafter affect the Leased Premises.
15
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11.2 Assignment and Subletting. Tenant shall not, without Landlord's prior
-------------------------
written consent (which consent shall not be unreasonably withheld, delayed or
conditioned), assign, convey or mortgage this Lease or any interest in the
Leased Premises or sublet any and all or part of the Leased Premises.
Notwithstanding anything herein to the contrary, Tenant shall be permitted to
assign this Lease in whole, but not in part, to any parent, subsidiary or other
entity affiliated with Tenant or to any survivor of any merger or consolidation
with or reorganization of Tenant.
11.3 Abandonment and Reletting. If Tenant shall abandon or vacate the
-------------------------
Leased Premises, or if Tenant's right to occupy the Leased Premises shall be
terminated by Landlord by reason of Tenant's breach of any of the covenants
herein, the same may be relet by Landlord (acting reasonably) for such rent and
upon such terms as Landlord may deem fit, and if a sufficient sum shall not thus
be realized monthly, after paying expenses of such reletting and collecting to
satisfy the rent hereby reserved, Tenant agrees to satisfy and pay all
deficiencies monthly during the remaining term of this Lease.
11.4 Rights Reserved to Landlord. During the term of this Lease the
---------------------------
Landlord shall possess, the following rights:
1. Upon reasonable notice to Tenant, to inspect the Leased Premises
and to make repairs, additions or alterations to the Leased Premises
required by the terms of this Lease;
2. In the event of an emergency, to enter the Leased Premises
without notice to Tenant and to take any reasonable steps necessary in
order to eliminate said emergency.
3. During the last six months of the Lease Term (if not renewed or
extended by Tenant), to place and maintain a "For Rent" sign on the Leased
Premises; and
4. To show the Leased Premises to prospective purchasers, mortgagees
or other persons having a legitimate interest in viewing the same and to
place and maintain a "For Sale" sign on the Property.
5. To install an elevator in the west lobby area, at Landlord's
expense if Landlord elects to do so.
11.5 Default. In the event that Tenant defaults on any of the covenants or
-------
provisions contained in this Lease, Landlord shall give Tenant written notice of
such default and 10 days' opportunity to cure in the case of a monetary default
or 30 days opportunity to cure in the case of a non-monetary default, provided
that if such default cannot reasonably be cured within a 30 day period and if
Tenant has commenced and is diligently proceeding to cure such default, Tenant
shall be given a reasonable period of time to cure such default. If any such
default remains uncured after the aforesaid time period, then Landlord at its
election may terminate this Lease or terminate Tenant's right to possession
only, without terminating the Lease. Upon termination of
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this Lease or Tenant's right of possession, Landlord may re-enter the Leased
Premises without process of law and remove all persons, fixtures, and property
therefrom, and Landlord shall not be liable for any damages resulting therefrom.
Upon the termination of the Lease, or upon termination of Tenant's right of
possession without termination of the Lease, the Tenant shall surrender
possession and vacate the Leased Premises immediately, and deliver possession
thereof to the Landlord, and hereby grants to Landlord the full and free right
to enter upon the Leased Premises and to repossess the Leased Premises as
Landlord's former estate and to expel or remove the Tenant and any others who
may be occupying or within the Leased Premises without relinquishing the
Landlord's rights to rent or any other right given to Landlord hereunder or by
operation of law.
In the event that Tenant breaches any of the provisions or covenants of
this Lease, Landlord shall be entitled to recover as damages, all rent and other
sums due and payable by Tenant as well as the cost of performing any covenants
to be performed by Tenant. Furthermore, Landlord shall be entitled to recover
any court costs or attorney's fees incurred as a result of Tenant's breach.
The rights and remedies of Landlord under this Lease are cumulative. The
exercise or use of any one or more thereof shall not bar the Landlord from
exercise or use of any other right or remedy provided herein or otherwise
provided by law, nor shall the exercise nor the use of any right or remedy by
Landlord waive any other right or remedy.
11.6 Successors. All covenants and agreements contained herein shall be
----------
binding upon and inure to, the respective rights of Landlord or Tenant or their
successors, heirs, executors, administrators or assigns.
11.7 Severability. Wherever possible, each provision of this Lease will be
------------
interpreted in a manner so as to be effective and valid under applicable law,
but if any provision of this Lease shall be prohibited by or be held invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Lease.
11.8 Estoppel Certificates. Tenant shall from time to time, upon not less
---------------------
then ten (10) business days prior written request from Landlord, execute,
acknowledge and deliver to Landlord in a form reasonably satisfactory to
Landlord or Landlord's mortgagee a written statement certifying, if true, that
Tenant has accepted the Leased Premises, that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), that the
Landlord is not in default hereunder, the date to which the rental or other
charges have been paid in advance, if any, or such other accurate certification
as may be reasonably required by Landlord or Landlord's mortgagee. It is
intended that any such statement delivered pursuant to this section may be
relied upon by any prospective purchaser or mortgagee of the Leased Premises,
and its respective successors and assigns.
17
<PAGE>
11.9 Amendments. None of the covenants, terms or conditions of this
----------
Lease, to be kept and performed by either party shall in any manner be altered,
waived, modified, changed or abandoned except by a written instrument, duly
signed, acknowledged and delivered by both parties.
11.10 Notices. All notices or demands upon Landlord or Tenant desired or
-------
required to be given hereunder shall be in writing and shall be deemed to have
been duly and sufficiently given if delivered personally or by reputable courier
or mailed by United States registered or certified mail in an envelope properly
stamped and addressed as follows:
As to Landlord: Towne Square Realty, L.L.C.
1536 Fargo Boulevard
Geneva, IL 60134
Fax: _____________________
with copy to: John J. Hoscheit
1001 E. Main Street, Ste. B
St. Charles, IL 60174
Fax: (630) 513-8799
As to Tenant: PrivateBank and Trust Company
10 North Dearborn, Suite 900
Chicago, IL 60602
Attn: President
Fax: (312) 683-7111
with a copy to: Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Suite 2600
Chicago, IL 60601
Attn.: Daniel O'Rourke
Fax: (312) 609-5005
or at such other address as either party designates by proper notice to the
other party. The effective date of such notice, if mailed, shall be three days
after delivery of the same to the United States Postal Service.
11.11 Time is of the Essence. Time is of the essence of this Lease, and
----------------------
all provisions relating thereto shall be strictly constructed.
11.12 Captions. The captions of this Lease are for convenience only and
--------
are not to be construed as part of the Lease and shall not be construed as
defining or limiting in any way the scope or intent of the provisions hereof.
18
<PAGE>
11.13 Law Applicable. This Lease is executed in Kane County, Illinois, and
--------------
shall be construed and enforced in accordance with the laws of the State of
Illinois.
11.14 Real Estate Brokers. Tenant warrants that it has had no dealings
-------------------
with any broker or agent in connection with this Lease.
LANDLORD: TENANT:
TOWNE SQUARE REALTY, L.L.C. PRIVATEBANK AND TRUST
COMPANY
By: _____________________________ By: _____________________________
Its: ____________________________ Its: ____________________________
19
<PAGE>
EXHIBIT "A"
DIAGRAM OF LEASED PREMISES
<PAGE>
EXHIBIT "B"
TENANT'S IMPROVEMENTS
Complete interior finish of Leased Premises in compliance with all
applicable codes, laws and ordinances. Said work shall be done in a form
suitable to obtain an occupancy permit prior to Tenant opening for business.
<PAGE>
EXHIBIT 2.3
-----------
FORM OF
ADVISORY BOARD AND SUPPORT AGREEMENT
------------------------------------
This Advisory Board and Support Agreement dated as of __________, 1999 (the
"Agreement"), is entered into by and between ______________ ("Covenantor") and
PrivateBank & Trust Company ("Private").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, PrivateBancorp, Inc., a Delaware corporation, ("Bancorp") owns
100% of the issued and outstanding shares of Private, and Towne Square Financial
Corporation, a Delaware corporation ("TSFC"), and the stockholders of TSFC
(including Covenantor) are currently negotiating an Agreement and Plan of
Reorganization dated as of June 24, 1999 (the "Merger Agreement") providing,
among other things, for the acquisition by Bancorp of all of the outstanding
common stock of TSFC (the "Merger");
WHEREAS, pursuant to the Merger, Private will commit the capital and other
resources necessary to complete the business plan of TSFC by establishing the
St. Charles office of Private (the "Office") and, in the event Private receives
regulatory approval to establish the Office, Covenantor will be appointed as a
member of the Fox Valley Advisory Board of Private ("Advisory Board"); and
WHEREAS, Covenantor acknowledges that as member of the Advisory Board he
will be responsible for the growth, development and success of the Office, and
he will become familiar with the customers and related customer information of
Private;
NOW, THEREFORE, in consideration of and as a condition and inducement to
Private entering into the Merger Agreement and the appointment of Covenantor to
the Advisory Board, and in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained,
Covenantor and Private agree as follows:
1. Covenants.
---------
(a) Covenantor acknowledges that Private by nature of its business
has a legitimate and protectable interest in its prospects, clients, customers
and employees with whom it has established or may establish business
relationships as a result of a substantial investment of time and money by
Private, and but for his advisory director relationship (the "Relationship")
hereunder, he would not have had contact with, or the financial or other
resources necessary to take advantage of the business opportunities related to
such prospects, clients, customers and employees. Covenantor agrees that during
the period of his Relationship with Private and for a period of one (1) year
after termination of his Relationship for any reason (the "Non-Compete Period");
provided however, that in all events the Non-Compete Period shall remain in full
force and effect for a minimum of three (3) years from the date hereof, he will
not (except in his capacity as an advisory director of Private) directly or
indirectly, for his own account, or as an agent, employee, director,
<PAGE>
owner, partner, or consultant of any corporation, firm, partnership, joint
venture, syndicate, sole proprietorship or other entity which has a place of
business (whether as a principal, division, subsidiary, affiliate, related
entity, or otherwise) located within the Market Area (as hereinafter defined):
(i) solicit or induce, or attempt to solicit or induce any
prospect, client or customer of Private or its affiliates not to do
business with Private or any of its subsidiaries or affiliates; or
(ii) solicit or induce, or attempt to solicit or induce, any
employee or agent of Private or any of its affiliates to terminate his or
her relationship with Private or any of its affiliates.
(b) For purposes of this Agreement, "Market Area" shall be an area
encompassed within a ten (10) mile radius surrounding the Office's intended
location of 24 South Second Street, St. Charles, Illinois 60174.
(c) The foregoing provisions shall not be deemed to prohibit (1)
Covenantor's ownership, not to exceed five percent (5%) of the outstanding
shares, of capital stock of any corporation or (2) Covenantor serving as a
director of other corporations and entities to the extent these directorships do
not inhibit the performance of his duties hereunder or conflict with the
business of Private.
2. Support of Private and the Office; Duty of Loyalty. Covenantor
--------------------------------------------------
recognizes, that during the period of his Relationship with Private, he owes a
duty of loyalty to Private and agrees to devote reasonable time and attention to
the performance of said duties and responsibilities. Covenantor agrees to use
his best efforts to promote, support and develop the business of Private and the
Office during the terms hereof in every way reasonably practicable by the
introduction of business opportunities, new customers, cross-marketing
opportunities, by membership on the Advisory Board of the Office, by other
actions of civic involvement and the like. Covenantor also promises not to take
any action, or allow any action to occur, whether intentional or not, which is
not taken in good faith and/or is against the best interests of Private and the
Office, or to disparage such entities, or to cause such entities to be subject
to public criticism or disregard.
3. 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 Bancorp's purchase of TSFC and the establishment of the
Office. Covenantor agrees that the breach of any covenant or agreement
contained herein will result in irreparable injury to Private, 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, Private, Bancorp 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 Private, Bancorp or
their successors or assigns will constitute a defense or bar to the specific
enforcement of such
2
<PAGE>
obligations. In the event of a lawsuit, the prevailing party shall be entitled
to recover from the other party 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-Compete Period (but not of
Covenantor's obligations hereunder) shall be tolled during the period of the
continuance of any actual breach or violation.
4. 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.
5. Indemnification. In the event that legal action is instituted against
---------------
Covenantor during or after the term hereof by a third party (or parties) based
on the performance or nonperformance by Covenantor of his duties including, but
not limited to, his duties as a member of the Advisory Board, Private will
assume the defense of such action by its attorneys or attorneys selected by
Covenantor reasonably satisfactory to Private and advance the costs and expenses
thereof (including reasonable attorneys' fees) and will indemnify the Covenantor
with respect to damages, fines and losses resulting from each legal action
without prejudice to or waiver by Private of its rights and remedies against
Covenantor.
6. Assignment. Covenantor agrees that this Agreement may be assigned by
----------
Private to any direct or indirect majority owned affiliate of Private and/or
Bancorp, and that upon such assignment, such affiliate shall acquire all of
Private's rights under this Agreement, including, without limitation, the right
of assignment set forth in this Section 5.
7. 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.
8. 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
3
<PAGE>
(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.________________________
___________________________
___________________________
If to Private:
PrivateBancorp, Inc.
Ten North Dearborn
Chicago, Illinois 60602
Attention: Ralph B. Mandell
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Attention: Daniel O'Rourke, Esq.
9. 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.
10. 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.
11. 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.
12. Binding Effect. This Agreement shall be binding upon Covenantor's
--------------
executors, administrators, legal representatives, heirs and legatees and the
successors and permitted assigns of Private.
[SIGNATURES FOLLOW]
4
<PAGE>
IN WITNESS WHEREOF, the party has executed this Advisory Board and Support
Agreement on the date first above written.
[INSERT NAME]
______________________________________
PRIVATEBANCORP, INC.
By:___________________________________
Its:__________________________________
5
<PAGE>
EXHIBIT 2.4
-----------
FORM OF
STOCK TRANSFER RESTRICTION AGREEMENT
This Stock Transfer Restriction Agreement dated as of __________, 1999 (the
"Agreement"), is entered into by and between _______________ ("Stockholder") and
PrivateBancorp, Inc. ("Private").
W I T N E S S E T H
-------------------
WHEREAS, Private, a Delaware corporation, and Towne Square Financial
Corporation, a Delaware corporation ("TSFC"), and the Stockholders of TSFC have
entered into an Agreement and Plan of Reorganization dated as of June 24, 1999
(the "Merger Agreement") providing, among other things, for the acquisition by
Private of all of the outstanding common stock of TSFC (the "Merger");
WHEREAS, Stockholder is entitled to receive certain shares of Private
common stock pursuant to the Merger Agreement as consideration for his shares of
TSFC common stock (the "Shares").
NOW, THEREFORE, in consideration of, and as a condition to, Private
entering into the Merger Agreement, and in consideration of the premises and the
mutual covenants, representations, warranties and agreements herein contained,
Stockholder and Private agree as follows:
1. Restrictions on Transfer for One Year. Stockholder agrees not to sell,
assign, pledge, or otherwise transfer or encumber in any manner by any means
whatsoever 54.5% shares of Private common stock which he shall hereafter acquire
pursuant to the Merger Agreement for a period of one (1) year following the
Effective Time (as defined in the Merger Agreement) of the Merger.
2. Restrictions on Transfer for Three Years. Stockholder agrees not to
sell, assign, pledge, or otherwise transfer or encumber in any manner by any
means whatsoever 45.5% shares of Private common stock which he shall hereafter
acquire pursuant to the Merger Agreement for a period of three (3) years
following the Effective Time (as defined in the Merger Agreement) of the Merger.
3. Involuntary Transfer Upon Death. The restrictions set forth in
Sections 1 and 2 above shall not apply in the event of an involuntary transfer
upon Stockholder's death so long as the transferee of Stockholder's shares of
Private common stock shall enter into an agreement containing similar terms as
the Agreement prior to such transfer.
4. Legend of Certificates. Each certificate representing the Shares
----------------------
issued pursuant to the Merger Agreement shall bear the following legend:
<PAGE>
The shares of stock represented by this Certificate are
subject to, and are transferable only upon compliance with,
the provisions of the Stock Transfer Restriction Agreement
dated , 1999, as the same may be amended from time to time,
by and between PrivateBancorp, Inc. and the registered
holder hereof, a copy of which is on file in the office of
the Secretary of PrivateBancorp, Inc. (the "Agreement"). The
Agreement provides, among other things, a restriction on the
transfer of the shares of stock.
5. Termination. This Agreement and all restrictions on the transfer of
Shares created hereby shall terminate upon the execution of a written agreement
by and between Stockholder and Private providing for such termination. Private
shall provide stockholder or his permitted transferee with certificates
representing the shares, without the legend set forth in Section 4, upon the
expiration of the restrictive provisions of Section 1 or 2 hereof and on the
termination of the Agreement pursuant to this Section 5, as the case may be.
6. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered, telegraphed or mailed by certified or registered mail, charges
prepaid,
a. if to Private, to:
PrivateBancorp, Inc.
Ten North Dearborn
Chicago, IL 60602
Attention: Ralph B. Mandell
b. if to Stockholder, to Stockholder's last address appearing on the
books of Private;
or to such other address or addresses as Stockholder or the Company shall
communicate in writing to the other.
7. Partial Invalidity. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, as finally determined by a court of competent
jurisdiction, the remainder of this Agreement or the application of such term or
provisions to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by law.
<PAGE>
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
9. Amendment. This Agreement can be amended or modified from time to
time only by a written instrument signed by Stockholder and a duly authorized
officer of Private.
10. Remedies for Breach. The Shares are unique property and Private shall
have the remedies which are available to it for the violation of any of the
terms of this Agreement, including, but not limited to, the equitable remedy of
specific performance.
11. Effect of Termination. The termination of this Agreement for any
reason shall not affect any right or remedy existing hereunder prior to the
effective date of the termination hereof.
12. Binding Effect. This Agreement is binding upon and inures to the
--------------
benefit of Private, its successors and assigns, and to Stockholder, and
Stockholder's successors and assigns.
IN WITNESS WHEREOF, the parties have executed the Stock Restriction
Agreement on the date first written above.
STOCKHOLDER
_____________________________________
PRIVATEBANCORP, INC.
By:__________________________________
Its:_________________________________
<PAGE>
EXHIBIT 2.5
-----------
FORM OF
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and entered into as of ________ ___, 1999 (the
"Effective Date"), by and between PrivateBank & Trust Company (hereinafter
called the "Employer "), and Thomas N. Castronovo (hereinafter called the
"Employee").
WITNESSETH THAT:
WHEREAS, Employee currently serves as President of Towne Square Financial
Corporation ("TSFC"), which is in the process of organizing a "de novo" Illinois
chartered bank to be located in St. Charles, Illinois;
WHEREAS, Employee owns, directly or indirectly, 16 2/3% of the outstanding
common stock of TSFC;
WHEREAS, Employer, an Illinois chartered bank, is a wholly-owned subsidiary
of PrivateBancorp, Inc. ("Bancorp");
WHEREAS, Bancorp has entered into a stock purchase/merger agreement (the
"Acquisition Agreement") between Bancorp, TSFC and the stockholders of TSFC for
the purpose of acquiring 100% of the outstanding common stock of TSFC in
exchange for shares of Bancorp (the "Acquisition");
WHEREAS, in connection with the Acquisition, Bancorp and TSFC have agreed
that Employee would be employed by Employer as of the effective date of the
Acquisition Agreement; and
WHEREAS, subject to the consummation of the Acquisition, Employer desires
to employ Employee, and Employee desires to serve, as Managing Director of the
new St. Charles Office of Employer (the "Office"), or in the event Employer does
not receive regulatory approval to establish the Office, a position with
comparable duties and responsibilities.
NOW THEREFORE, in consideration of the mutual promises herein contained and
subject to the conditions precedent that the Acquisition shall be consummated,
the parties agree as follows:
<PAGE>
1. Employment and Term.
-------------------
(a) Employment. The Employer shall employ Employee as the Managing
----------
Director of the Office, and the Employee shall so serve for the term set forth
in this Paragraph.
(b) Term. The initial term of the Employee's employment under this
----
Agreement shall commence on the Effective Date hereof and end on the third
anniversary date of such Effective Date (the "Initial Term") subject to
extension of such Initial Term as hereafter provided and subject to earlier
termination as provided in Paragraph 7.
(c) The Initial Term shall be automatically extended for one (1)
additional year, after the Initial Term expires, and thereafter a similar
extension shall occur on each succeeding anniversary date of the Effective Date
hereof, unless at least ninety (90) days prior to the end of the Initial Term or
any other anniversary date, either the Board of Directors of Employer or the
Employee gives written notice to the other that the term of this Agreement shall
not be so extended. In the event the Board of Directors of Employer exercises
its option not to extend the term in the manner described above, Employee shall
be considered discharged without cause, and shall receive the benefits described
in Paragraph 8(b).
2. Duties and Responsibilities.
---------------------------
(a) The duties and responsibilities of Employee shall be of an
employee nature as shall be required by the Employer in the conduct of its
business. Employee's powers and authority shall include such duties and
responsibilities as from time to time may be assigned to him by the Board of
Directors of Employer consistent with the position of Managing Director of an
office of Employer, including, but not limited to in the event Employer receives
regulatory approval to establish the Office, the organization, development,
administration, growth and success of the Office. Employee recognizes, that
during the period of his employment hereunder, he owes an undivided duty of
loyalty to the Employer and agrees to devote his entire business time and
attention to the performance of said duties and responsibilities and to use his
best efforts to promote and develop the business of the Employer. Employee will
not perform any duties for any other business without the prior written consent
of the Employer but may engage in charitable, civic or community activities,
provided that such duties or activities do not materially interfere with the
proper performance of his duties under this Agreement.
(b) Notwithstanding that this Agreement provides for the employment
of Employee as the Employer's Managing Director of the Office or a similar
position as described in Paragraph 1(a), nothing herein contained shall assure
Employee, nor in any manner be construed to constitute an agreement by the
Employer to continue the employment of Employee after the expiration of this
Agreement in such capacity or in any other capacity.
-2-
<PAGE>
3. Salary.
------
(a) Base Salary. For services performed by the Employee for the
-----------
Employer pursuant to this Agreement during the period of employment as provided
in Paragraph 1(b) hereof, the Employer shall pay the Employee a base salary at
the rate of One hundred twelve thousand dollars ($112,000) per year, payable in
substantially equal installments in accordance with the Employer's regular
payroll practices. The Employee's base salary (with any increases under
paragraph (b), below) shall not be subject to reduction without the Employee's
written consent. Any compensation which may be paid to the Employee under any
additional compensation or incentive plan of the Employer or which may be
otherwise authorized from time to time by the Board of Employer (or an
appropriate committee thereof) shall be in addition to the base salary to which
the Employee shall be entitled under this Agreement.
(b) Board Review of Base Salary. Employee's base salary shall be
---------------------------
subject to review from time to time, and the Employer may (but is not required
to) increase the base salary as the Board of Employer (or a duly authorized
committee thereof), in its discretion, may determine.
4. Annual Bonuses. For each fiscal year during the term of employment,
--------------
the Employee shall be eligible to receive a bonus in the amount, if any, as may
be determined from time to time by the Board of Directors of Employer in its
sole discretion. Employee shall receive a $25,000 bonus for the 1999 calendar
year ("1999 Bonus"). The 1999 Bonus shall be payable in January, 2000.
5. Equity Incentive Compensation.
-----------------------------
(a) Participation in Stock Incentive Plan. During the term of
-------------------------------------
employment hereunder the Employee shall be eligible to participate in the
Bancorp Stock Incentive Plan ("Stock Incentive Plan"), and in any other equity-
based incentive compensation plan or program adopted by Bancorp, including (but
not by way of limitation) any plan providing for the granting of (i) options to
purchase stock, (ii) restricted stock or (iii) similar equity-based units or
interests to officers of the Employer.
(b) Incentive Stock Options. The Employer shall grant to Employee an
-----------------------
option to purchase 7,000 shares of Bancorp common stock (such shares calculated
after taking into effect the stock split of Bancorp scheduled to occur on or
about June 30, 1999), which option shall be granted under the Stock Incentive
Plan, and shall provide for a vesting schedule as follows (i) fifty percent
(50%) of the shares granted shall vest on the second anniversary of the grant;
(ii) seventy-five percent (75%) of the shares granted shall vest on the third
anniversary of the grant; and (iii) one hundred percent (100%) of the shares
granted shall vest on the fourth anniversary of the grant. The strike price for
said option shall be the initial offering price for the Bancorp initial public
offering ("IPO") now pending.
(c) Restricted Stock. The Employer shall grant to Employee a
----------------
restricted stock award for 3,000 shares of Bancorp common stock (such shares
calculated after taking into effect the
-3-
<PAGE>
stock split of Bancorp scheduled to occur on or about June 30, 1999), which
award shall be granted under the Stock Incentive Plan, and shall vest 100% on
the fifth anniversary date of the Effective Date. The incentive stock option and
the restricted stock award shall be evidenced by separate agreements between
Bancorp and Employee.
(d) Delay or Termination of the Initial Public Offering. In the event
---------------------------------------------------
the IPO of Bancorp is projected to be delayed beyond July 31, 1999, or is
terminated, for any reason, the fair market value (strike price) of the
incentive stock options and restricted stock granted to Employee pursuant to
Paragraphs 5(b) and (c) above, shall be seventeen dollars ($17.00) per share.
6. Other Benefits. In addition to the compensation described in
--------------
Paragraphs 3, 4 and 5, above, the Employee shall also be entitled to the
following:
(a) Sign-on Bonus. Employee shall be granted a $150,000 sign-on bonus
-------------
upon execution of this Agreement ("Sign-on Bonus"). The Sign-on Bonus shall be
paid as follows: (i) $75,000 payable on the date the Office is fully functional
and first opens for business at 24 South Second Street, St. Charles, Illinois
60174 (the "Opening Date"); (ii) $75,000 payable on the six-month anniversary of
the Opening Date.
(b) No-interest Loan. Bancorp has provided Employee with a no-
----------------
interest loan in the amount of $175,000 (the "Employee Loan") which is
evidenced by a promissory note. The proceeds of the Employee Loan have been
used by Employee to purchase shares of common stock of Bancorp pursuant to the
IPO of Employer. The Employee Loan shall be repaid with the proceeds of the
Sign-On Bonus and the 1999 Bonus, the proceeds which shall be directly applied
by the Employer to reduce the Employee Loan. Such loan shall be repaid in full
by the earlier of: (i) the six-month anniversary of the Opening Date, (ii)
December 31, 2000, (iii) the termination of Employee's employment with Employer,
or (iv) the sale of the shares of common stock of Bancorp. If the IPO is delayed
or terminated as provided above, such shares shall be sold directly by the
Company to the Employee at the Fair Market Value.
(c) Participation in Benefit Plans. The Employee shall be entitled to
------------------------------
participate in all of the various retirement, welfare, fringe benefit, and
expense reimbursement plans, programs and arrangements of the Employer to the
extent the Employee is eligible for participation under the terms of such plans,
programs and arrangements, including, but not limited to non-qualified
retirement programs and deferred compensation plans.
(d) Vacation. The Employee shall be entitled to such number of days
--------
of vacation with pay during each calendar year during the period of employment
in accordance with the Employer's applicable personnel policy as in effect from
time to time.
(e) Employee Perquisites. The Employer shall furnish Employee with
--------------------
such perquisites which may from time to time be provided by the Employer which
are suitable to the Employee's position and adequate for the performance of his
duties hereunder and reasonable in the circumstances.
-4-
<PAGE>
(f) Expense Reimbursement. The Employer shall reimburse Employee's
---------------------
reasonable expenses incurred in performing services hereunder, which are
incurred and accounted for in accordance with Employer's regular policies and
procedures applicable thereto including, but not limited to, a five hundred
dollar ($500) per month car allowance from Employer.
(g) Country Club Membership. Employer shall pay Employee's monthly
-----------------------
dues (but not assessments) at the St. Charles Country Club.
7. Termination. Unless earlier terminated in accordance with the
-----------
following provisions of this Paragraph 7, the Employer shall continue to employ
the Employee and the Employee shall remain employed by the Employer during the
entire term of this Agreement as set forth in Paragraph 1(b) and any extension
of said term provided under Paragraph 1(c). Paragraph 8 hereof sets forth
certain obligations of the Employer in the event that the Employee's employment
hereunder is terminated. Certain capitalized terms used in this Paragraph 7 and
in Paragraph 8 hereof are defined in Paragraph 7(d), below.
(a) Death or Disability. Except to the extent otherwise provided in
-------------------
Paragraph 8 with respect to certain post-Date of Termination payment obligations
of the Employer, this Agreement shall terminate immediately as of the Date of
Termination in the event of the Employee's death or in the event that the
Employee becomes disabled. The Employee will be deemed to be disabled upon the
earlier of (i) the end of a six (6)-consecutive month period, or of an aggregate
period of nine (9) months out of any consecutive twelve (12) months, during
which, by reason of physical or mental injury or disease, the Employee has been
unable to perform substantially all of his usual and customary duties under this
Agreement or (ii) the date that a reputable physician selected by the Board of
Directors of Employer, and as to whom the Employee has no reasonable objection,
determines in writing that the Employee will, by reason of physical or mental
injury or disease, be unable to perform substantially all of the Employee's
usual and customary duties under this Agreement for a period of at least six (6)
consecutive months. If any question arises as to whether the Employee is
disabled, upon reasonable request therefor by the Board of Directors of
Employer, the Employee shall submit to reasonable medical examination for the
purpose of determining the existence, nature and extent of any such disability.
The Board of Directors of Employer shall promptly give the Employee written
notice of any such determination of the Employee's disability and of any
decision of the Board of Directors of Employer to terminate the Employee's
employment by reason thereof. In the event of disability, until the Date of
Termination, the base salary payable to the Employee under Paragraph 3 hereof
shall be reduced dollar-for-dollar by the amount of disability benefits, if any,
paid to the Employee in accordance with any disability policy or program of the
Employer.
(b) Discharge for Cause. In accordance with the procedures
-------------------
hereinafter set forth, the Board of Directors of Employer may discharge the
Employee from his employment hereunder for Cause (as hereinafter defined).
Except to the extent otherwise provided in Paragraph 8 with respect to certain
post-Date of Termination obligations of the Employer, this Agreement shall
terminate immediately as of the Date of Termination in the event the Employee is
discharged for
-5-
<PAGE>
Cause. Any discharge of the Employee for Cause shall be communicated by a Notice
of Termination to the Employee given in accordance with Paragraph 14 of this
Agreement.
(c) Termination for Other Reasons. The Employer may discharge the
-----------------------------
Employee without Cause by giving written notice to the Employee in accordance
with Paragraph 14. The Employee may resign from his employment with or without
Good Reason by giving written notice to the Employer in accordance with
Paragraph 14 at least thirty (30) days prior to the Date of Termination;
provided, however, that no resignation shall be treated as a resignation for
Good Reason unless the written notice thereof is given within sixty (60) days
after the occurrence which constitutes "Good Reason." Paragraph 8 below
provides for the consequences of any such termination.
(d) Definitions. For purposes of this Agreement, the following
-----------
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
-------------------
Termination, the sum of (A) the Employee's base salary under Paragraph 3 through
the Date of Termination to the extent not theretofore paid, (B) the amount of
any deferred compensation and other cash compensation accrued by the Employee as
of the Date of Termination to the extent not theretofore paid, (C) any vacation
pay, expense reimbursements and other cash entitlements accrued by the Employee
as of the Date of Termination to the extent not theretofore paid, (D) any grants
and awards vested or accrued under any equity-based incentive compensation plan
or program and (E) all other benefits which have accrued as of the Date of
Termination. For the purpose of this Paragraph 7(d)(i), except as provided in
the applicable plan, program or policy, amounts shall be deemed to accrue
ratably over the period during which they are earned, but no discretionary
compensation shall be deemed earned or accrued until it is specifically approved
by the pertinent Board of Directors in accordance with the applicable plan,
program or policy.
(ii) "Cause" shall mean (A) any felony conviction; (B) any act
-----
(reasonably proven by Employer) of fraud or embezzlement by the Employee or any
substantial breach of trust by the Employee related to the Employee's employment
with Employer; (C) a written recommendation for removal of the Employee from his
position with Employer by any of Employer's federal or state regulators, in
which case Employer shall furnish written notice of the foregoing to Employee
and Employee shall then have forty-five (45) days from the date of said notice
to have the regulators withdraw their recommendation; (D) any material violation
by the Employee of any local, state, or federal law or regulation, the
Employee's compliance with which is material to the performance of his duties
under this Agreement; (E) Employee's refusal to so comply with the reasonable
rules, regulations, policies, directions, and restrictions as may be established
from time to time by the Board of Directors of Employer (and which Employee has
been advised in writing) or the willful failure or misconduct or gross
negligence by Employee in connection with the performance of the Employee's
duties, responsibilities, agreements, and covenants hereunder, which misconduct,
gross negligence, or refusal to comply continues for a period of ten (10) days
after written notice from Employer specifically identifying the manner in which
Employee has refused or grossly negligently or willfully failed to fulfill or
perform any such
-6-
<PAGE>
rules, regulations, policies, directions, restrictions, duties,
responsibilities, agreements or covenants hereunder; (F) repeated abuse
(following at least one written warning) of alcohol or any illegal use of
narcotics; or (G) any other material breach of this Agreement by Employee.
(iii) "Change in Control" shall mean the occurrence of any one
-----------------
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 Bancorp or any of its subsidiaries, or (ii) a corporation
owned directly or indirectly by the stockholders of Bancorp in
substantially the same proportions as their ownership of stock of Bancorp,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of Bancorp representing 25% or
more of the total voting power of the then outstanding shares of capital
stock of Bancorp entitled to vote generally in the election of directors
(the "Voting Stock"), provided, however, that the following shall not
constitute a change in control: (1) such person becomes a beneficial owner
of 25% or more of the Voting Stock as the result of an acquisition of such
Voting Stock directly from Bancorp, or (2) such person becomes a beneficial
owner of 25% or more of the Voting Stock as a result of the decrease in the
number of outstanding shares of Voting Stock caused by the repurchase of
shares by Bancorp; provided, further, that in the event a person described
in clause (1) or (2) shall thereafter increase (other than in circumstances
described in clause (1) or (2)) beneficial ownership of stock representing
more than 1% of the Voting Stock, such person shall be deemed to become a
beneficial owner of 25% or more of the Voting Stock for purposes of this
paragraph (A), provided such person continues to beneficially own 25% or
more of the Voting Stock after such subsequent increase in beneficial
ownership, or
(B) During any period of two consecutive years,
individuals (the "Incumbent Board"), who at the beginning of such period
constitute the board of directors of Bancorp, and any new director, whose
election by the board of directors of Bancorp or nomination for election by
Bancorp's stockholders 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) Consummation of a reorganization, merger or
consolidation or the sale or other disposition of all or substantially all
of the assets of Bancorp (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 Corporation
resulting from the Business Combination (including, without limitation, a
Corporation which as a result of the Business Combination owns Bancorp's or
all or substantially all of Bancorp's assets either directly or through one
or more subsidiaries)
-7-
<PAGE>
in substantially the same proportions as their ownership, immediately prior
to the Business Combination of the Voting Stock of Bancorp, and (2) at
least a majority of the members of the board of directors of the
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 stockholders of Bancorp approve a plan of complete
liquidation or dissolution of Bancorp.
The board of directors of Employer has final authority to construe and interpret
the provisions of the foregoing paragraphs (A), (B), (C) and (D) and to
determine the exact date on which a change in control has been deemed to have
occurred thereunder.
(iv) "Date of Termination" shall mean (A) in the event of a
-------------------
discharge of the Employee for or without Cause, the date the Employee receives a
Notice of Termination, or any later date specified in such Notice of
Termination, as the case may be, (B) in the event of a resignation by the
Employee, the date specified in the written notice to the Employee, which date
shall be no less than thirty (30) days from the date of such written notice, (C)
in the event of the Employee's death, the date of the Employee's death, and (D)
in the event of termination of the Employee's employment by reason of disability
pursuant to Paragraph 7(a), the date the Employee receives written notice of
such termination.
(v) "Good Reason" shall mean the occurrence, other than in
-----------
connection with a discharge, of any of the following without the Employee's
consent: (A) Employee is not re-elected or is removed from the position with the
Employer set forth in Paragraph 1(a), other than as a result of Employee's
election or appointment to positions of equal or superior scope and
responsibility; or (B) Employee shall fail to be vested (or continue to be
vested) by the Employer with the power and authority of any of said position,
excluding for this purpose any isolated action not taken in bad faith and which
is remedied by the Employer promptly after receipt of written notice thereof
given by the Employee in accordance with Paragraph 14; or (C) any failure by the
Employer to comply with any of the provisions of this Agreement, other than any
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Employer promptly after receipt of written notice
thereof given by the Employee in accordance with Paragraph 14; or (D) the
Employer requiring the Employee to be based at an office or location which is
more than 50 miles from the Employee's office as of the Effective Date.
(vi) "Notice of Termination" shall mean a written notice which
---------------------
(A) indicates the specific termination provision in this Agreement relied upon,
(B) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated and (C) if the Date of Termination is to be other than the date of
receipt of such notice, specifies the termination date.
-8-
<PAGE>
8. Obligations of the Employer Upon Termination. The following
--------------------------------------------
provisions describe the obligations of the Employer to the Employee under this
Agreement upon termination of employment. However, except as explicitly
provided in this Agreement, nothing in this Agreement shall limit or otherwise
adversely affect any rights which the Employee may have under applicable law,
under any other agreement with the Employer or any of its affiliates or
subsidiaries, or under any compensation or benefit plan, program, policy or
practice of the Employer or any of its affiliates or subsidiaries.
(a) Death, Disability, Discharge for Cause or Resignation Without
-------------------------------------------------------------
Good Reason. In the event this Agreement terminates pursuant to Paragraph 7(a)
- -----------
by reason of the death or disability of the Employee, or pursuant to Paragraph
7(b) by reason of the discharge of the Employee by the Employer for Cause or
pursuant to Paragraph 7(c) by reason of the resignation of the Employee other
than for Good Reason, the Employer shall pay to the Employee, or his heirs or
estate, in the event of the Employee's death, all Accrued Obligations in a lump
sum in cash within thirty (30) days after the Date of Termination; provided,
however, that any portion of the Accrued Obligations which consists of bonus,
deferred compensation, incentive compensation, insurance benefits or other
employee benefits shall be determined and paid in accordance with the terms of
the relevant plan or policy as applicable to the Employee. In addition, in the
event of Employee's death during the term hereof, an additional six (6) month
base salary shall be due Employee.
(b) Discharge Without Cause, Expiration of Term or Resignation with
---------------------------------------------------------------
Good Reason. In the event that this Agreement terminates pursuant to: (A)
- -----------
Paragraph 7(c) by reason of the discharge of the Employee by the Employer other
than for Cause or his disability or his death; (B) due to the resignation of the
Employee for Good Reason, or (C) because the term hereof has expired:
(i) The Employer shall pay all Accrued Obligations to the
Employee in a lump sum in cash within thirty (30) days after the Date of
Termination; provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, incentive compensation,
insurance benefits or other employee benefits shall be determined and paid in
accordance with the terms of the relevant plan or policy as applicable to the
Employee. Notwithstanding any other contract between Employee and Employer,
Employer plan or policy to the contrary, all shares granted to Employee under
Paragraph 5(b) and (c) shall vest in full upon any termination of this Agreement
pursuant to Paragraph 7(c) other than by way of a resignation by Employee where
such resignation is not justified by "Good Reason" as provided in said Paragraph
7(c);
(ii) Within thirty (30) days after the Date of Termination, the
Employer shall pay to the Employee a bonus for the year during which termination
occurs, calculated as a prorata portion of his prior year's bonus amount (if
any) based on the number of days elapsed during the year through the Date of
Termination;
(iii) Continuation for a period of twelve (12) months (the
"Severance Period") of his then current annual base salary, payable in
substantially equal installments in
-9-
<PAGE>
accordance with the Employer's regular payroll practices, provided, however, in
-------- -------
the event Employee is discharged by the Employer other than for Cause or his
disability or death under Paragraph 7(c) above, the Severance Period shall be
the greater of a period of twelve (12) months, or the remainder of the Initial
Term hereof. In the event Employee's Severance Period is extended beyond a
period of twelve (12) months, pursuant to this subparagraph any compensation
received, or to be received, by Employee from another employer or party
compensating Employee for services rendered during, or with respect to, such
period of time greater than twelve (12) months shall be deducted from any
compensation owed pursuant to this Paragraph 8(b);
(iv) Continuation for the Severance Period of the Employee's
right to maintain COBRA continuation coverage under the applicable plans at
premium rates on the same "cost-sharing" basis as the applicable premiums paid
for such coverage by active employees as of the Date of Termination; and
(v) Outplacement counseling, the scope and provider of which
shall be selected by the Employer for a period beginning on the Date of
Termination and ending on the date the Employee is first employed elsewhere or
otherwise is provided compensated services of any type (including self-
employment), provided that in no event shall such outplacement services be
provided for a period greater than two (2) years.
In the event that upon the expiration of the Severance Period, Employee is not
employed or otherwise providing compensated services of any type (including
self-employment), and has not done so during the final ninety (90) days of the
Severance Period, the Employer may, in its sole discretion (which discretion
need not be applied in a consistent manner from one Employee to another), agree
to extend the Severance Period for up to an additional six (6) months (the
"Extended Severance Period"). The payments to Employee described in
subparagraph (iii) above and the reduced COBRA continuation premium described in
subparagraph (iv) above shall continue during the Extended Severance Period,
subject to earlier termination effective as of the first day of the month
following the date on which the Employee becomes employed or provides
compensated services of any type (including self-employment).
The Employee shall provide such information as the Employer may reasonably
request to determine Employee's continued eligibility for the payments and
benefits provided by this Paragraph 8(b).
(c) Effect of Change in Control. In the event that a Change in
---------------------------
Control occurs and this Agreement thereafter terminates pursuant to Paragraph
7(c) either (a) by reason of the discharge of the Employee by the Employer
(other than for Cause, death or disability), or (b) by reason of the resignation
of the Employee for Good Reason; with such resignation occurring within one year
from the effective date of the Change in Control:
(i) The Employer shall pay all Accrued Obligations to the
Employee in a lump sum in cash within thirty (30) days after the Date of
Termination; provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, incentive compensation,
insurance benefits or other employee benefits shall be determined and paid in
-10-
<PAGE>
accordance with the terms of the relevant plan or policy as applicable to the
Employee, notwithstanding any other contract between Employee and Employer,
Employer plan or policy to the contrary, all shares granted to Employee under
Paragraph 5(b) and (c) shall vest in full upon the termination of this Agreement
under the circumstances set forth in Paragraph 8(c);
(ii) Within thirty (30) days after the Date of Termination, the
Employer shall pay to the Employee a bonus for the year during which termination
occurs, calculated as a prorata portion of his prior year's bonus amount (if
any) based on the number of days elapsed during the year through the Date of
Termination;
(iii) The Employer shall pay the Employee a lump sum payment
within thirty (30) days after such termination of employment in the amount of
two (2) times the sum of the following:
(A) the amount of Employee's annual base salary
determined as of the Date of Termination, or the date immediately preceding
the date of the Change in Control, whichever is greater; plus
(B) the greater of (A) the Employee's bonus amount, if
any, for the contract year immediately preceding that in which the Date of
Termination occurs, or (B) the average of the sum of the bonus amounts
earned by Employee with respect to the three (3) contract years immediately
preceding the contract year in which Employee's Date of Termination occurs,
or if such sum would be greater, with respect to the three (3) contract
years immediately preceding the contract year of the date of the Change in
Control; plus
(C) the sum of:
(I) the annual value of the contributions that
would have been expected to be made or credited by the Employer to,
and benefits expected to be accrued under, the qualified and non-
qualified employee profit sharing, 401(k), pension and any other
benefit plans maintained by the Employer to or for the benefit of
Employee; plus
(II) the annual value of the Other Benefits
described in Paragraph 6(c) and (e) above.
For purposes of paragraph (C)(I) above, the annual value of the contributions
and accruals to or under the employee benefit plans shall be determined on the
basis of the actual rate of contributions or accruals, as applicable, and the
provisions of the plans as in effect during the contract year immediately
preceding the date of the Change in Control, or if the value so determined would
be greater, during the contract year immediately preceding the Date of
Termination. The "annual value" of the Employee perquisites described in
Paragraph 6(e) for purposes of paragraph (C)(I) above shall be 7.5% of the
annual base salary amount applicable under clause (iii)(A) above.
-11-
<PAGE>
Employee shall also be entitled to out-placement counseling from a firm selected
by Employer for a period beginning on the date of termination of employment and
ending on the date Employee is first employed or otherwise providing compensated
services of any type (including, but not limited to, self-employment), provided,
that in no event shall Employee be entitled to out-placement counseling after
the date which is two (2) years from the date of termination of employment.
Notwithstanding the foregoing, if a Change in Control occurs and this Agreement
is terminated prior to the Change in Control pursuant to Paragraph 7(c) by
reason of the discharge of the Employee by the Employer, other than for Cause or
death or disability, or by reason of the resignation of the Employee for Good
Reason, then Employee shall be deemed for purposes of this Paragraph 8(c) to
have so terminated pursuant to Paragraph 7(c) immediately following the date the
Change in Control occurs if it is reasonably demonstrated by Employee that such
earlier termination was (i) at the request of a third party who had taken steps
reasonably calculated to effect the Change in Control, or (ii) otherwise arose,
or the circumstances that precipitated the termination otherwise arose, in
connection with or in anticipation of the Change in Control.
(d) Effect on Other Amounts. The payments provided for in this
-----------------------
Paragraph 8 shall be, in addition to all other sums then payable and owing to
Employee, be subject to applicable federal and state income and other
withholding taxes and shall be in full settlement and satisfaction of all of
Employee's claims and demands. Upon such termination of this Agreement,
Employer shall have no obligations under this Agreement, other than its
obligations under this Paragraph 8, and Employee shall have no obligations under
this Agreement, other than Employee's obligations under Paragraphs 12 and 15;
the parties are also parties to the separate Non-Compete and Support Agreement
between Employee and Employer ("Non-Compete and Support Agreement") (attached
hereto as Exhibit B) which shall survive the termination hereof.
(e) Conditions. Any payments of benefits made or provided pursuant to
----------
this Paragraph 8 are subject to the Employee's:
(i) compliance with the provisions of Paragraph 12 and the
separate Non-Compete and Support Agreement to which Employee is a party;
(ii) delivery to the Employer of an executed Release and
Severance Agreement, which shall be substantially in the form attached hereto as
Exhibit A, with such changes therein or additions thereto as needed under then
applicable law to give effect to its intent and purpose; and
(iii) delivery to the Employer of a resignation from all
offices, directorships and fiduciary positions with the Employer, its affiliates
and employee benefit plans.
Notwithstanding the due date of any post-employment payments, any amounts due
under this Paragraph 8 shall not be due until after the expiration of any
revocation period applicable to the Release and Severance Agreement.
-12-
<PAGE>
9. Certain Additional Payments by the Employer.
-------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Employer to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Paragraph 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code")
or if any interest or penalties are incurred by the Employee with respect to
such excise tax (such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the "Excise Tax"), then the
Employee shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by the Employee of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of paragraph (c), below, all
determinations required to be made under this Paragraph 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the independent public accountants then regularly retained by the Employer
(the "Accounting Firm") in consultation with counsel acceptable to Employee,
which shall provide detailed supporting calculations both to the Employer and
the Employee within fifteen (15) business days of the receipt of notice from the
Employee that there has been a Payment, or such earlier time as is requested by
the Employer. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting a Change in Control, the
Employer shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder) in consultation with counsel acceptable to
Employee. All fees and expenses of the Accounting Firm and such counsel shall
be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant
to this Paragraph 9, shall be paid by the Employer to the Employee within five
(5) days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Employee, it
shall furnish the Employee with a written opinion that failure to report the
Excise Tax on the Employee's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. Any good faith
determination by the Accounting Firm shall be binding upon the Employer and the
Employee. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Employer should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Employer
exhausts its remedies pursuant to paragraph (c), below, and the Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Employer to or for the benefit of the
Employee.
-13-
<PAGE>
(c) The Employee shall notify the Employer in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Employer of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than fifteen (15) business days after the Employee is
informed in writing of such claim and shall apprise the Employer of the nature
of such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the thirty (30)-day
period following the date on which Employee gives such notice to the Employer
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employer notifies the Employee in writing
prior to the expiration of such period that it desires to contest such claim,
the Employee shall:
(i) Give the Employer any information reasonably requested by
the Employer relating to such claim,
(ii) Take such action in connection with contesting such claim
as the Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Employer,
(iii) Cooperate with the Employer in good faith in order
effectively to contest such claim, and
(iv) Permit the Employer to participate in any proceedings
relating to such claim;
provided, however, that the Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this paragraph (c), the Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner; and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Employer shall
determine; provided, however, that if the Employer directs the Employee to pay
such claim and sue for a refund, the Employer shall advance the amount of such
payment to the Employee on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Employee with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Employer's control of the contest shall be limited to
issues with
-14-
<PAGE>
respect to which a Gross-Up Payment would be payable hereunder and the Employee
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by
the Employer pursuant to paragraph (c), above, the Employee becomes entitled to
receive any refund with respect to such claim, the Employee shall (subject to
the Employer's complying with the requirements of said paragraph (c)) promptly
pay to the Employer the amount of such refund (together with any interest paid
or credited thereon, after taxes applicable thereto). If, after the receipt by
the Employee of an amount advanced by the Employer pursuant to said paragraph
(c), a determination is made that the Employee shall not be entitled to any
refund with respect to such claim and the Employer does not notify the Employee
in writing of its intent to contest such denial of refund prior to the
expiration of thirty (30) days after such determination, then such advance shall
be forgiven and shall not be required to be repaid; and the amount of such
advance shall offset, to the extent thereof, the amount of the Gross-Up Payment
required to be paid.
10. Dispute Resolution. In the event any dispute arises and the parties
------------------
after good faith efforts are unable to agree as to the calculation of the
amounts payable under this Agreement, it shall be settled in accordance with the
majority opinion of a committee consisting of an accountant chosen by the
Employer, an accountant chosen by Employee and an independent accountant
acceptable to both Employee and the Employer, as the case may be. The
committee's determination shall be binding and conclusive on the parties hereto.
The Employer shall pay all fees and expenses of the dispute resolution.
11. Enforcement. In the event the Employer shall fail to pay any amounts
-----------
due to Employee under this Agreement as they come due, the Employer agrees to
pay interest on such amounts at a rate equal to the prime rate (as from time to
time published in The Wall Street Journal (Midwest Edition) plus four percent
-----------------------
(4%) per annum. The Employer agrees that Employee and any successor shall be
entitled to recover all costs of enforcing any provision of this Agreement,
including reasonable attorneys' fees and costs of litigation.
12. Confidential Information. Employee shall not at any time during or
------------------------
following his employment hereunder, directly or indirectly, disclose or use on
his behalf or another's behalf, publish or communicate, except in the course of
his employment and in the pursuit of the business of the Employer or Bancorp or
affiliates, any proprietary information or data of the Employer or Bancorp or
affiliates, which is not generally known in the banking business and which the
Employer and/or Bancorp may reasonably regard as confidential and proprietary.
Employee recognizes and acknowledges that all knowledge and information which he
has or may acquire in the course of his employment, such as, but not limited to
the business, developments, procedures, techniques, activities or services of
the Employer and/or Bancorp or the business affairs and activities of any
customer, prospective customer, individual firm or entity doing business with
the Employer and/or Bancorp are its sole valuable property, and shall be held by
Employee in confidence and in trust for their sole benefit. All records of
every nature and description which come into Employee's possession, whether
prepared by him, or otherwise, shall remain the sole property of the Employer
-15-
<PAGE>
and/or Bancorp and upon termination of his employment for any reason, said
records shall be left with the Employer and/or Bancorp as part of its property.
13. Remedies. Employee acknowledges that the restraints and agreements
--------
herein provided are fair and reasonable, that enforcement of the provisions of
Paragraph 12 and the Non-Compete and Support Agreement will not cause him undue
hardship and that said provisions are reasonably necessary and commensurate with
the need to protect the Employer and its legitimate and proprietary business
interests and property from irreparable harm. Employee acknowledges and agrees
that (a) a breach of any of the covenants and provisions contained in Paragraph
12 or the Non-Compete and Support Agreement, will result in irreparable harm to
the business of the Employer, (b) a remedy at law in the form of monetary
damages for any breach by him of any of the covenants and provisions contained
in Paragraph 12 or the Non-Compete and Support Agreement is inadequate, (c) in
addition to any remedy at law or equity for such breach, the Employer shall be
entitled to institute and maintain appropriate proceedings in equity, including
a suit for injunction to enforce the specific performance by Employee of the
obligations hereunder and to enjoin Employee from engaging in any activity in
violation hereof and (d) the covenants on his part contained in Paragraph 12 or
the Non-Compete and Support Agreement, shall be construed as agreements
independent of any other provisions in this Agreement, and the existence of any
claim, setoff or cause of action by Employee against the Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense or bar
to the specific enforcement by the Employer of said covenants. In the event of
a breach or a violation by Employee of any of the covenants and provisions of
this Agreement, the running of the Non-Compete Period, as defined in the Non-
Compete and Support Agreement (but not of Employee's obligation thereunder),
shall be tolled during the period of the continuance of any actual breach or
violation.
14. Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be determined to have been duly given to any party (a)
upon delivery to the address of such party specified below if delivered
personally or by courier; (b) upon dispatch if transmitted by telecopy or other
means of facsimile, provided a copy thereof is also sent by regular mail or
courier; or (c) within forty-eight (48) hours after deposit thereof in the U.S.
mail, postage prepaid, for delivery as certified mail, return receipt requested,
addressed, in any case to the party at the following address(es) or telecopy
numbers:
(a) If to Employee, at the address set forth on the signature page
hereof.
(b) If to the Employer:
PrivateBancorp, Inc.
Ten North Dearborn Street
Suite 900
Chicago, Illinois 60602
Attn: Mr. Ralph B. Mandell
Telecopy No.: (312) 683-7111
-16-
<PAGE>
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
Attn: Mr. Daniel O'Rourke
Telecopy No.: (312) 609-5005
or to such other address(es) or telecopy number(s) as any party may designate by
Written Notice in the aforesaid manner.
15. Indemnification.
---------------
(a) In the event that legal action is instituted against Employee
during or after the term hereof by a third party (or parties) based on the
performance or nonperformance by Employee of his duties hereunder, the Employer
will assume the defense of such action by its attorneys or attorneys selected by
Employee reasonably satisfactory to the Employer and advance the costs and
expenses thereof (including reasonable attorneys' fees) without prejudice to or
waiver by the Employer of its rights and remedies against Employee. In the
event that there is a final judgment entered against Employee in any such
litigation, and the Employer's Board of Directors determines that Employee
should, in accordance with its charter, By-Laws, or insurance reimburse such
entities, Employee shall be liable to the Employer for all such costs and
expenses paid or incurred by them in the defense of any such litigation (the
"Reimbursement Amount"). The Reimbursement Amount shall be paid by Employee
within thirty (30) days after rendition of the final judgment. The Employer
shall be entitled to set off the reimbursement amount against all sums which may
be owed or payable by the Employer to Employee hereunder or otherwise. The
parties shall cooperate in the defense of any asserted claim, demand or
liability against Employee or the Employer or its subsidiaries or affiliates.
The term "final judgment" as used herein shall be defined to mean the decision
of a court of competent jurisdiction, and in the event of an appeal, then the
decision of the appellate court, after petition for rehearing has been denied,
or the time for filing the same (or the filing of further appeal) has expired.
(b) The rights to indemnification under this Paragraph 15 shall be in
addition to any rights which Employee may now or hereafter have under the
charter or By-laws of the Employer or any of its affiliates or subsidiaries,
under any insurance contract maintained by the Employer or any of its affiliates
or subsidiaries, or any agreement between Employee and the Employer or any of
its affiliates or subsidiaries.
16. Full Settlement; No Mitigation. The Employer's obligation to make
------------------------------
the payments and provide the benefits provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defense or other claim, right or action which the
Employer may have against the Employee or others. In no event shall the
Employee be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Employee under any of the provisions
of this Agreement, and such
-17-
<PAGE>
amounts shall not be reduced whether or not the Employee obtains other
employment, except as provided in Paragraph 8(b)(iii).
17. Payment in the Event of Death. In the event payment is due and owing
-----------------------------
by the Employer to Employee under this Agreement upon the death of Employee,
payment shall be made to such beneficiary as Employee may designate in writing,
or failing such designation, then the executor of his estate, in full settlement
and satisfaction of all claims and demands on behalf of Employee, shall be
entitled to receive all amounts owing to Employee at the time of death under
this Agreement. Such payments shall be in addition to any other death benefits
of the Employer and in full settlement and satisfaction of all severance benefit
payments provided for in this Agreement.
18. Entire Understanding. This Agreement constitutes the entire
--------------------
understanding between the parties relating to Employee's employment hereunder
and supersedes and cancels all prior written and oral understandings and
agreements with respect to such matters, except for the terms and provisions of
any employee benefit or other compensation plans (or any agreements or awards
thereunder), referred to in this Agreement, or as otherwise expressly
contemplated by this Agreement.
19. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the heirs and representatives of the Employee and the successors and
assigns of the Employer. The Employer shall require any successor (whether
direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation, or otherwise) to all or a
substantial portion of its assets, by agreement in form and substance reasonably
satisfactory to the Employee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Employer would be
required to perform this Agreement if no such succession had taken place.
Regardless of whether such an agreement is executed, this Agreement shall be
binding upon any successor of the Employer in accordance with the operation of
law, and such successor shall be deemed the "Employer" for purposes of this
Agreement.
20. Tax Withholding. The Employer shall provide for the withholding of
---------------
any taxes required to be withheld by federal, state, or local law with respect
to any payment in cash, shares of stock and/or other property made by or on
behalf of the Employer to or for the benefit of the Employee under this
Agreement or otherwise. The Employer may, at its option: (a) withhold such
taxes from any cash payments owing from the Employer to the Employee, (b)
require the Employee to pay to the Employer in cash such amount as may be
required to satisfy such withholding obligations and/or (c) make other
satisfactory arrangements with the Employee to satisfy such withholding
obligations.
21. No Assignment. Except as otherwise expressly provided herein, this
-------------
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
22. Execution in Counterparts. This Agreement may be executed by the
-------------------------
parties hereto in two (2) or more counterparts, each of which shall be deemed to
be an original, but all such
-18-
<PAGE>
counterparts shall constitute one and the same instrument, and all signatures
need not appear on any one counterpart.
23. Jurisdiction and Governing Law. Except as provided in Paragraph 10,
------------------------------
jurisdiction over disputes with regard to this Agreement shall be exclusively in
the courts of the State of Illinois, and this Agreement shall be construed and
interpreted in accordance with and governed by the laws of the State of
Illinois, without regard to the choice of laws provisions of such laws.
24. Severability. If any provision of this Agreement shall be adjudged by
------------
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and the
Employee consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
25. Waiver. The waiver of any party hereto of a breach of any provision
------
of this Agreement by any other party shall not operate or be construed as a
waiver of any subsequent breach.
26. Amendment. No change, alteration or modification hereof may be made
---------
except in a writing, signed by each of the parties hereto.
27. Construction. The language used in this Agreement will be deemed to
------------
be the language chosen by Employer and Employee to express their mutual intent
and no rule of strict construction shall be applied against any person.
Wherever from the context it appears appropriate, each term stated in either the
singular of plural shall include the singular and the plural, and the pronouns
stated in either the masculine, the feminine or the neuter gender shall include
the masculine, feminine or neuter. The headings of the Paragraphs of this
Agreement are for reference purposes only and do not define or limit, and shall
not be used to interpret or construe the contents of this Agreement.
[SIGNATURE PAGE FOLLOWS]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
ATTEST: EMPLOYER
_________________________________ ______________________________________
By: Ralph B. Mandell
-------------------------------
Title: Chairman, President and Chief
-------------------------------
Executive Officer
-------------------------------
Address: EMPLOYEE
__________________________ ______________________________________
Name: Thomas N. Castronovo
__________________________ -------------------------------
Title: Managing Director
__________________________ -------------------------------
-20-
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
---------------------------------
RELEASE AND SEVERANCE AGREEMENT
-------------------------------
THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day
of _________, _____ by and between PrivateBancorp, Inc. and its subsidiary,
PrivateBank & Trust Company (collectively ("PBI") and Thomas N. Castronovo
(hereinafter "Employee").
Employee's employment with PBI terminated on __________, ______; and
Employee has voluntarily agreed to the terms of this RELEASE AND SEVERANCE
AGREEMENT in exchange for severance benefits under the Employment Agreement
("Employment Agreement") to which Employee otherwise would not be entitled.
NOW THEREFORE, in consideration for severance benefits provided under the
Employment Agreement, Employee on behalf of himself and his spouse, heirs,
executors, administrators, children, and assigns does hereby fully release and
discharge PBI, its officers, directors, employees, agents, subsidiaries and
divisions, benefit plans and their administrators, fiduciaries and insurers,
successors, and assigns from any and all claims or demands for wages, back pay,
front pay, attorney's fees and other sums of money, insurance, benefits,
contracts, controversies, agreements, promises, damages, costs, actions or
causes of action and liabilities of any kind or character whatsoever, whether
known or unknown, from the beginning of time to the date of these presents,
relating to his employment or termination of employment from PBI, including but
not limited to any claims, actions or causes of action arising under the
statutory, common law or other rules, orders or regulations of the United States
or any State or political subdivision thereof including the Age Discrimination
in Employment Act and the Older Workers Benefit Protection Act.
Employee acknowledges that Employee's obligations pursuant to Paragraph 12
of the Employment Agreement relating to the use or disclosure of confidential
information, and the obligations pursuant to the Non-Compete and Support
Agreement between PBI and Employee, shall continue to apply to Employee.
This Release and Settlement Agreement supersedes any and all other
agreements between Employee and PBI except agreements relating to proprietary or
confidential information belonging to PBI and the Non-Compete and Support
Agreement between PBI and Employee, and any other agreements, promises or
representations relating to severance pay or other terms and conditions of
employment are null and void.
This release does not affect Employee's right to any benefits to which
Employee may be entitled under any employee benefit plan, program or arrangement
sponsored or provided by PBI, including but not limited to the Employment
Agreement and the plans, programs and arrangements referred to therein.
A-1
<PAGE>
Employee and PBI acknowledge that it is their mutual intent that the Age
Discrimination in Employment Act waiver contained herein fully comply with the
Older Workers Benefit Protection Act. Accordingly, Employee acknowledges and
agrees that:
(a) The Severance benefits exceed the nature and scope of that to
which he would otherwise have been legally entitled to receive.
(b) Execution of this Agreement and the Age Discrimination in
Employment Act waiver herein is his knowing and voluntary act;
(c) He has been advised by PBI to consult with his personal attorney
regarding the terms of this Agreement, including the aforementioned waiver;
(d) He has had at least twenty-one (21) calendar days within which to
consider this Agreement;
(e) He has the right to revoke this Agreement in full within seven (7)
calendar days of execution and that none of the terms and provisions of
this Agreement shall become effective or be enforceable until such
revocation period has expired;
(f) He has read and fully understands the terms of this agreement; and
(g) Nothing contained in this Agreement purports to release any of
Employee's rights or claims under the Age Discrimination in Employment Act
that may arise after the date of execution.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
indicated above.
PRIVATEBANCORP, INC., for itself and its EMPLOYEE
Subsidiary, PRIVATEBANK & TRUST
COMPANY
By:________________________________________ _____________________________
Thomas N. Castronovo
Its:_______________________________________
A-2
<PAGE>
Exhibit B to Employment Agreement
---------------------------------
B-1
<PAGE>
EXHIBIT 2.6
-----------
FORM OF
NON-COMPETITION AND SUPPORT AGREEMENT
-------------------------------------
This Non-Competition Agreement dated as of _________ ____, 1999 (the
"Agreement"), is entered into by and between Thomas N. Castronovo ("Covenantor")
and PrivateBank & Trust Company ("Private").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, PrivateBancorp, Inc., a Delaware corporation, ("Bancorp") owns
100% of the issued and outstanding shares of Private, and Towne Square Financial
Corporation, a Delaware corporation ("TSFC"), and the stockholders of TSFC are
currently negotiating an Agreement and Plan of Reorganization dated as of June
24, 1999 (the "Merger Agreement") providing, among other things, for the
acquisition by Bancorp of all of the outstanding common stock of TSFC (the
"Merger");
WHEREAS, Covenantor and Private have entered into an Employment Agreement
dated as of _________ ____, 1999 ("Employment Agreement") providing, among other
things, for Covenantor to serve as Managing Director of the St. Charles office
of Private (the "Office"), or in the event Private does not receive regulatory
approval to establish the Office, a position with comparable duties and
responsibilities, and, pursuant to the Merger, Private will commit the capital
and other resources necessary to complete the business plan of TSFC by
establishing such St. Charles office of Private;
WHEREAS, Covenantor acknowledges that as Managing Director of the Office he
will be responsible for the growth, development and success of the Office, and
he will become familiar with the customers and related customer information of
Private; and
NOW, THEREFORE, in consideration of and as a condition and inducement to
Private entering into the Merger Agreement and entering into the Employment
Agreement with Covenantor, and in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained,
Covenantor and Private agree as follows:
1. Covenants.
---------
(a) Covenantor acknowledges that Private by nature of its business
has a legitimate and protectable interest in its prospects, clients, customers
and employees with whom it has established or may establish business
relationships as a result of a substantial investment of time and money by
Private, and but for his employment hereunder, he would not have had contact
with, or the financial or other resources necessary to take advantage of the
business opportunities related to such prospects, clients, customers and
employees. Covenantor agrees that during the period of his employment with
Private and for a period of one (1) year after termination of his employment for
any reason (the "Non-Compete Period"); provided, however, that the Non-Compete
Period shall
<PAGE>
remain in full force for so long as Covenantor receives severance benefits
pursuant to the Employment Agreement; and further provided, that in all events
the Non-Compete Period shall remain in full force and effect for a minimum of
three (3) years from the date hereof, he will not (except in his capacity as an
employee of Private) directly or indirectly, for his own account, or as an
agent, employee, director, owner, partner, or consultant of any corporation,
firm, partnership, joint venture, syndicate, sole proprietorship or other entity
which has a place of business (whether as a principal, division, subsidiary,
affiliate, related entity, or otherwise) located within the Market Area (as
hereinafter defined):
(i) solicit or induce, or attempt to solicit or induce any
prospect, client or customer of Private or its affiliates not to do
business with Private or any of its subsidiaries or affiliates; or
(ii) solicit or induce, or attempt to solicit or induce, any
employee or agent of Private or any of its affiliates to terminate his or
her relationship with Private or any of its affiliates.
(b) In the event Covenantor is entitled to benefits pursuant to
Paragraph 8(c) in the Employment Agreement relating to a change in control, the
non-compete obligations (as provided for in Section 1(a) above) shall not apply.
(c) For purposes of this Agreement, "Market Area" shall be an area
encompassed within a ten (10) mile radius surrounding the Office's intended
location of 24 South Second Street, St. Charles, Illinois 60174.
(d) The foregoing provisions shall not be deemed to prohibit (1)
Covenantor's ownership, not to exceed five percent (5%) of the outstanding
shares, of capital stock of any corporation or (2) Covenantor serving as a
director of other corporations and entities to the extent these directorships do
not inhibit the performance of his duties hereunder or conflict with the
business of Private.
2. Support of Private and the Office; Duty of Loyalty. Covenantor
--------------------------------------------------
recognizes, that during the period of his employment with Private, he owes an
undivided duty of loyalty to Private and agrees to devote his entire business
time and attention to the performance of said duties and responsibilities.
Covenantor agrees to use his best efforts to promote, support and develop the
business of Private and the Office during the term hereof in every way
practicably feasible, by the introduction of business opportunities, new
customers, cross-marketing opportunities, by leadership of the Advisory Board of
the Office, by other actions of civic involvement and the like. Covenantor also
promises not to take any action, or allow any action to occur, whether
intentional or not, which is not taken in good faith and/or is against the best
interests of Private and the Office, or to disparage such entities, or to cause
such entities to be subject to public criticism or disregard.
2
<PAGE>
3. 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 Bancorp's purchase of TSFC and the establishment of the
Office. Covenantor agrees that the breach of any covenant or agreement
contained herein will result in irreparable injury to Private, 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, Private, Bancorp 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 Private, Bancorp or
their successors or assigns will constitute a defense or bar to the specific
enforcement of such obligations. In the event of a lawsuit, the prevailing
party shall be entitled to recover from the other party 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-
Compete Period (but not of Covenantor's obligations hereunder) shall be tolled
during the period of the continuance of any actual breach or violation.
4. 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.
5. Assignment. Covenantor agrees that this Agreement may be assigned by
----------
Private to any direct or indirect majority owned affiliate of Private and/or
Bancorp, and that upon such assignment, such affiliate shall acquire all of
Private's rights under this Agreement, including, without limitation, the right
of assignment set forth in this Section 5.
6. 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.
7. 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
3
<PAGE>
(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 N. Castronovo
2nd & Main Partners, LLC
1536 Fargo Boulevard
Geneva, Illinois 60134
If to Private:
PrivateBancorp, Inc.
Ten North Dearborn
Chicago, Illinois 60602
Attention: Ralph B. Mandell
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601-1003
Attention: Daniel O'Rourke, Esq.
8. 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.
9. 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.
10. 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.
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 Private.
4
<PAGE>
[SIGNATURES FOLLOW]
5
<PAGE>
IN WITNESS WHEREOF, the party has executed this Non-Competition and Support
Agreement on the date first above written.
THOMAS N. CASTRONOVO
_________________________________________
PRIVATEBANCORP, INC.
By:______________________________________
Its:_____________________________________
6
<PAGE>
Exhibit 5
---------
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
July 19, 1999
PrivateBancorp, Inc.
Ten North Dearborn Street
Chicago, Illinois 60602
Ladies and Gentlemen:
Reference is hereby made to the Registration Statement on Form S-4 filed as
of the date hereof with the Securities and Exchange Commission by
PrivateBancorp, Inc., a Delaware corporation (the "Company"), relating to the
registration of 91,668 shares of the Company's common stock, no par value
("PrivateBancorp Common Stock"), to be issued to stockholders of Towne Square
Financial Corporation, a Delaware corporation, in exchange for shares of Towne
Square Financial Corporation common stock, par value $0.01 per share, pursuant
to the proposed merger (the "Merger") of Towne Square Financial Corporation with
and into the Company in accordance with the terms and conditions of that certain
Agreement and Plan of Reorganization dated as of June 24, 1999 (the "Merger
Agreement"). We have acted as counsel for the Company in connection with the
Merger.
It is our opinion that such shares of PrivateBancorp Common Stock, when
issued to Towne Square Financial Corporation stockholders in accordance with and
pursuant to the Merger Agreement, will be validly issued, fully paid and non-
assessable.
We hereby consent to the use of this opinion in connection with said
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Vedder, Price, Kaufman & Kammholz
<PAGE>
EXHIBIT 8
---------
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
July 19, 1999
PrivateBancorp, Inc.
Ten North Dearborn Street
Chicago, Illinois 60602
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
We have acted as counsel to PrivateBancorp, Inc., a Delaware corporation
("Private"), in connection with the proposed merger (the "Merger") of Towne
Square Financial Corporation, a Delaware corporation ("TSFC"), with and into
Private, pursuant to the terms of that certain Agreement and Plan of
Reorganization dated as of June 24, 1999, by and among Private and TSFC (the
"Plan of Reorganization"), as described in the Registration Statement on Form
S-4, filed by Private with the Securities and Exchange Commission (the
"Commission") on July 19, 1999 (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"). This opinion is being rendered
pursuant to the requirements of Form S-4 under the Act.
In rendering this opinion, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of (i) the Plan of Reorganization,
(ii) the Registration Statement and (iii) such other documents, certificates and
records as we have deemed necessary or appropriate for purposes of rendering the
opinion set forth herein. We have also assumed that, in rendering this opinion,
the Merger will be consummated pursuant to Delaware law strictly in accordance
with the terms of the Plan of Reorganization.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Prospectus included as part of the Registration Statement under
the heading "TERMS OF THE MERGER - Certain Federal Income Tax Consequences of
the Merger" constitutes, in all material respects, a fair and accurate summary
of the United States federal income tax consequences of the Merger to the
parties described therein.
<PAGE>
Vedder Price
PrivateBancorp, Inc.
July 19, 1999
Page 2
This opinion is based on the Internal Revenue Code of 1986, as amended, the
Income Tax Regulations promulgated by the Treasury Department thereunder and
judicial authority reported as of the date hereof. Although we are not aware of
any pending changes to these authorities that would alter our opinion, there can
be no assurances that future legislation or administrative changes, court
decisions or Internal Revenue Service interpretations will not significantly
modify the opinion expressed herein.
Although the discussion under the heading "TERMS OF THE MERGER - Certain
Federal Income Tax Consequences of the Merger" in the Prospectus is based on our
interpretation of existing sources of law and expresses what we believe a court
would properly conclude if presented with the same issues, no assurances can be
given that such interpretations would be followed if they were to become the
subject of judicial or administrative proceedings.
We hereby consent to the use of this opinion in connection with said
Registration Statement and to the use of our name under the heading "TERMS OF
THE MERGER - Certain Federal Income Tax Consequences of the Merger" in the
Prospectus included therein. In giving this consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder. This opinion is expressed as of the date hereof and applies only to
the disclosures set forth in the Prospectus and Registration Statement. We
disclaim any undertaking to advise you of any subsequent changes of the facts
stated or assumed herein or any subsequent changes in applicable law.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE>
EXHIBIT 23.1
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 29, 1999 (except with respect to the matter discussed
in Note 19, as to which the date is June 25, 1999) (and to all references
to our Firm) included in or made a part of this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
July 16, 1999
