-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nybp2dS9FzGB9SVPk7vbcbnvDNhQG3/IUqSrv6TFZR5xSHSg9AGNr36DIZqVi5/P cDDjpjCdgZVXIMmNgmB5GQ== 0000950124-96-005542.txt : 19961225 0000950124-96-005542.hdr.sgml : 19961225 ACCESSION NUMBER: 0000950124-96-005542 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961224 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINTRUST FINANCIAL CORP CENTRAL INDEX KEY: 0001015328 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 363873352 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18699 FILM NUMBER: 96685494 BUSINESS ADDRESS: STREET 1: 727 N BANK LANE CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 8472342882 MAIL ADDRESS: STREET 1: 727 N BANK LN CITY: LAKE FOREST STATE: IL ZIP: 60045 S-1 1 FORM S-1 1 As filed with the Securities and Exchange Commission on December 24, 1996. REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 WINTRUST FINANCIAL CORPORATION (Exact Name of Registrant as Specified in Its Charter) 6712 (Primary Standard Industrial Classification Code Number) ILLINOIS 36-3873352 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 727 NORTH BANK LANE, LAKE FOREST, ILLINOIS 60045-1951, (847) 615-4096 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DAVID A. DYKSTRA EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 727 NORTH BANK LANE, LAKE FOREST, ILLINOIS 60045-1951 (847) 615-4096 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies To: JENNIFER R. EVANS, ESQ. MICHAEL J. GAMSKY, ESQ. VEDDER, PRICE, KAUFMAN & KAMMHOLZ MUCH SHELIST FREED DENENBERG AMENT 222 NORTH LASALLE STREET BELL & RUBENSTEIN, P.C. CHICAGO, ILLINOIS 60601 200 NORTH LASALLE STREET (312) 609-7500 CHICAGO, ILLINOIS 60601 (312) 346-3100 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effectiveness of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE ================================================================================================================ Title of each class of Proposed maximum aggregate securities to be registered offering price(1) Amount of registration fee - ---------------------------------------------------------------------------------------------------------------- Common Stock, without par value . . . . . $18,000,000 $5,455 ================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o). 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. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996 1,200,000 SHARES WINTRUST FINANCIAL CORPORATION COMMON STOCK Wintrust Financial Corporation (the "Company") is offering hereby up to 1,200,000 newly issued shares of common stock, without par value (the "Common Stock") at a price of $_____ per share. The shares are being offered on a priority basis to shareholders of record of the Company as of __________, 1996 ("Record Date Shareholders"), and to customers of the Company's banking subsidiaries as of __________, 1996 ("Record Date Customers"), in a Subscription Offering (the "Subscription Offering"). The highest priority will be given in the Subscription Offering to those Record Date Shareholders placing purchase orders for shares of Common Stock offered hereby prior to Noon, Central Time, on __________, 1997. To the extent shares of Common Stock are available after satisfying purchase orders in the Subscription Offering, the Company is offering shares of Common Stock for sale to the general public in a direct community offering (the "Community Offering") with preference given to residents of the communities in which the Company's banking subsidiaries have offices. (The Subscription Offering and Community Offering are collectively referred to herein as the "Subscription and Community Offering.") Depending on market conditions, shares of Common Stock may be offered for sale in the Community Offering to the general public on a best efforts basis by a selling group of broker-dealers managed by EVEREN Securities, Inc. (the "Selling Agent"). The Company reserves the right in its sole discretion, regardless of any priorities or preferences, to accept or reject orders in whole or in part in the Subscription and Community Offering, which will expire at Noon, Central Time, on __________, 1997. ONCE MADE, SUBSCRIPTIONS ARE IRREVOCABLE. COMPLETION OF THE SUBSCRIPTION AND COMMUNITY OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER OF SHARES. In addition, depending on market conditions, upon completion of the Subscription and Community Offering, any shares of Common Stock then remaining available for sale may be offered to the general public in an underwritten public offering (the "Public Offering") to be managed by the Selling Agent. The Subscription and Community Offering and the Public Offering are referred to collectively herein as the "Offering." While the Company's Common Stock has traded occasionally in the over-the-counter "OTC" market, and bid and ask prices are quoted on the OTC Bulletin Board, prior to this Offering there has not been an active trading market for the Company's shares. See "MARKET FOR COMMON STOCK AND DIVIDENDS." For information relating to the determination of the initial public offering price of the Common Stock, see "TERMS OF THE OFFERING." The Company has applied to have its Common Stock approved for quotation on The Nasdaq National MarketSM under the symbol "WTFC," subject to the completion of the Offering. FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK, PLEASE CALL THE STOCK SALE CENTER AT (847) ___-____ AND ASK FOR AN EVEREN SECURITIES, INC. REPRESENTATIVE. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE ___ OF THIS PROSPECTUS. THE SHARES OF COMMON STOCK OFFERED HEREBY 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. 3 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================ SELLING AGENT DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1)(2) COMPANY(3) - ------------------------------------------------------------------------------------------------------------ Per Share . . . . . . . . . . $ $ $ - ------------------------------------------------------------------------------------------------------------ Total(4) . . . . . . . . . . $ $ $ ============================================================================================================
(1) The Company has agreed to indemnify the Selling Agent against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "TERMS OF THE OFFERING." (2) Up to 1,200,000 of the shares may be offered by the Company on a "best efforts" basis with the assistance of the Selling Agent. Assumes all 1,200,000 shares are sold on such basis without the assistance of the Selling Agent's commissioned brokers. Based upon negotiations between the Company and the Selling Agent, the Company has agreed to pay the Selling Agent a commission equal to 2.5% of the aggregate sales price for shares sold without the use of the Selling Agent's commissioned registered representatives; in the event that the Company elects to offer shares in the Community Offering through a selling group of selected broker-dealers managed by the Selling Agent using the assistance of commissioned registered representatives, the Company would pay discounts and commissions equal to 4.0% of the aggregate sales price of Common Stock sold in such manner; and, in the event an underwritten Public Offering is commenced to offer any remaining shares, the Company would agree to sell such shares at the per share Price to Public shown above, less discounts and commissions currently estimated to be 6.6% of the per share price. (3) Assumes no exercise of the over-subscription or over-allotment option and the sale of 1,200,000 shares on a best efforts basis in the Offering directly by the Company (although there is no minimum number of shares required to be sold), before deducting offering expenses payable by the Company estimated to be approximately $__________, including the maximum of $75,000 reimbursable to the Selling Agent for out-of-pocket expenses. (4) The Company may, in its sole discretion, increase the number of shares of Common Stock sold by up to 180,000 additional shares to satisfy unfilled purchase orders in the Subscription and Community Offering. In addition, in the event the Selling Agent undertakes an underwritten Public Public Offering, the Company will grant to the Selling Agent an option, exercisable within 30 days of the completion date of the Public Offering, to purchase up to an additional 15% of the number of shares sold in the Public Offering at the same price per share to be paid by the Selling Agent for the other shares sold in the Public Offering. The Selling Agent may exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the Common Stock. ____________________ EVEREN SECURITIES, INC. The date of the Prospectus is __________, 1997 2 4 WINTRUST FINANCIAL CORPORATION [Map of greater Chicago metropolitan area depicting locations of Company's banking facilities and main bank offices.] IN THE EVENT THERE IS AN UNDERWRITTEN PUBLIC OFFERING, THE SELLING AGENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Company intends to furnish to its shareholders annual reports of the Company containing consolidated financial statements, certified by independent public accountants. 3 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Company's Combined and Consolidated Financial Statements, including the accompanying notes, appearing elsewhere in this Prospectus. Unless otherwise indicated, all information in this Prospectus assumes no exercise of the Company's over-subscription option or the Selling Agent's over-allotment option. This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those addressed in the forward-looking statements as a result of certain factors, including those described under "RISK FACTORS" and elsewhere in this Prospectus. THE COMPANY Wintrust Financial Corporation, an Illinois corporation (the "Company"), is a financial services holding company headquartered in Lake Forest, Illinois. The Company engages in community banking and specialty finance through its direct and indirect wholly-owned operating subsidiaries: North Shore Community Bank and Trust Company ("North Shore Bank"); Lake Forest Bank and Trust Company ("Lake Forest Bank"); Hinsdale Bank and Trust Company ("Hinsdale Bank"); Libertyville Bank and Trust Company ("Libertyville Bank"); Barrington Bank and Trust Company, N.A. ("Barrington Bank"); and First Premium Services, Inc. ("First Premium"). Through its banking subsidiaries, Lake Forest Bank, Hinsdale Bank, North Shore Bank, Libertyville Bank and Barrington Bank (collectively, the "Banks"), the Company provides community-oriented, personal and commercial banking services in different affluent suburbs of Chicago, Illinois. Through First Premium, the Company is in the business of originating commercial insurance premium finance receivables, a portion of which are purchased by the Banks using the relatively lower-cost funds obtained from the Banks' deposit activities. Each of the Banks was organized as a de novo banking organization within the last five years and provides a variety of financial services to individuals, small businesses, local governmental units and institutional clients. These services include demand, NOW, money market, savings and time deposit accounts; real estate, commercial and consumer loans; safe deposit facilities; trust services and other innovative and traditional services tailored for the customer base. The Company employs a community banking philosophy, focusing on providing a highly personal, professional level of service to commercial and retail customers residing in its local service areas to generate deposit growth, loan demand and other banking business. The Company has successfully pursued unique earning asset niches which management believes offer, relative to their respective risk profiles, attractive yields on earning assets, such as the Company's indirect auto loan program, insurance premium finance activities, and mortgage warehouse lending. The Company plans to expand its operations through continued internal growth, expansion of existing businesses, potential acquisitions and the formation of additional de novo banks in selected new markets believed to offer good opportunities for successful community banking. Key elements of the Company's business and growth strategies include: - Maintaining decision-making authority locally within each of the Banks and First Premium; - Focusing on a highly personal, professional level of service; - Employing fewer, highly qualified individuals at relatively higher compensation rates; - Continued emphasis on trust services provided to small businesses and affluent individuals residing in the Banks' market areas;. - Identifying and developing additional niche lending businesses to deploy the Banks' expanding deposit base at attractive yields and risk profiles; - Expanding through internal growth of existing operations; - Establishment of branch offices in nearby communities; - Formation of additional de novo banks; and - Potential specialty finance company acquisitions. 4 6 The Company's executive offices are located at 727 North Bank Lane, Lake Forest, Illinois, 60045-1951, and its telephone number is (847) 615-4096. THE OFFERING COMMON STOCK OFFERED BY THE COMPANY . . 1,200,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING . . . . . . . . . . . . 7,803,420 shares(1) PRICE TO PUBLIC . . . . . . . . . . . . $_____ per share USE OF PROCEEDS . . . . . . . . . . . . The Company will use the net proceeds from the sale of shares of Common Stock offered hereby to repay approximately $___ million of the debt currently outstanding under the Company's $25 million revolving line of credit. Following such repayment, the unused portion of the line will remain available for future borrowings from time to time for general corporate purposes, including continued growth of the Company's banking and finance subsidiaries, for future branch office openings and additional de novo bank formations, and for potential future acquisitions of specialty finance companies or investments in businesses engaged in niche consumer lending or selected commercial finance activities. SUBSCRIPTION OFFERING . . . . . . . . . The Common Stock is being offered by the Company on a priority basis to shareholders of record of the Company as of __________, 1997 and to customers of the Company's banking subsidiaries as of __________, 1997. The highest priority will be given to those Record Date Shareholders placing purchase orders prior to Noon, Central Time, on __________, 1997. COMMUNITY OFFERING . . . . . . . . . . To the extent shares of Common Stock are available after satisfying purchase orders in the Subscription Offering, the Common Stock is being offered by the Company for sale to the general public with a preference given to residents of the communities in which the Company's banking subsidiaries have offices. Depending on market conditions, shares of Common Stock may be offered for sale in the Community Offering to the general public on a best efforts basis by a selling group of broker-dealers managed by the Selling Agent. SUBSCRIPTION AND COMMUNITY OFFERING PERIOD . . . . . . . . . . . . . . . The Subscription and Community Offering will terminate at Noon, Central Time, on __________, 1997 (the "Expiration Date"), unless extended by the Company. - ------------------ (1) Excludes an aggregate of 1,410,203 shares reserved for issuance upon the exercise of outstanding warrants, rights and options to purchase Common Stock of the Company, of which an aggregate of 904,783 shares are subject to currently exercisable warrants, rights and options. 5 7 PUBLIC OFFERING . . . . . . . . . . . . Depending on market conditions, any shares of Common Stock then remaining available for sale upon completion of the Subscription and Community Offering may be offered for sale to the general public in an underwritten Public Offering to be managed by the Selling Agent. OVER-SUBSCRIPTION AND OVER-ALLOTMENT OPTIONS . . . . . . . . . . . . . . The Company may, in its sole discretion, increase the number of shares of Common Stock sold by up to 180,000 additional shares to satisfy unfilled purchase orders in the Subscription and Community Offering. In addition, in the event a Public Offering is commenced, the Company will grant to the Selling Agent an option, exercisable within 30 days of the completion date of the Public Offering, to purchase up to 15% of the number of shares sold in the Public Offering. PROCEDURES FOR ORDERING SHARES OF COMMON STOCK IN THE SUBSCRIPTION AND COMMUNITY OFFERING . . . . . . . . . Record Date Shareholders, Record Date Customers and other interested investors in the Subscription and Community Offering must return to the Company the accompanying original Stock Order Form (facsimile copies and photocopies will not be accepted) and a fully executed Certification Form, along with full payment (or appropriate instructions for authorizing a withdrawal from a deposit account at one of the Banks) at $___ per share for all shares subscribed for or ordered prior to Noon, Central Time, on __________, 1997. To receive the highest priority in the Subscription Offering, Record Date Shareholders must place purchase orders prior to Noon, Central Time, on __________, 1997. The Company reserves the right in its sole discretion, regardless of priorities or preferences, to accept or reject orders in whole or in part in the Subscription and Community Offering. Subscription proceeds will be held in a non-interest bearing escrow account at one of the Banks pending closing of the Offering. ONCE MADE, SUBSCRIPTIONS ARE IRREVOCABLE. COMPLETION OF THE SUBSCRIPTION AND COMMUNITY OFFERING IS NOT CONDITIONED UPON THE SALE OF ANY MINIMUM NUMBER OF SHARES. Delivery of certificates evidencing the shares will be made directly to purchasers of the shares as soon as practicable following completion of the Offering. See "TERMS OF THE OFFERING" for complete instructions for ordering shares and terms and conditions of the Subscription and Community Offering. DIVIDEND POLICY . . . . . . . . . . . . Although the Company anticipates that it may commence payment of quarterly dividends in the future, the Company's current policy is to retain earnings to facilitate the continued growth of the Company. PROPOSED NASDAQ NATIONAL MARKET(SM) SYMBOL . . . . . . . . . . . . . . . WTFC 6 8 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The summary consolidated financial and operating data should be read in conjunction with the Consolidated Financial Statements and the notes thereto appearing elsewhere in this Prospectus and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION." Results for interim periods are not necessarily indicative of results to be expected during the remainder of the year or for any future period. Results shown for periods prior to September 1, 1996, the date of the Company's recent reorganization transaction which was accounted for using the pooling-of-interests method of accounting, reflect the consolidated historical results of the Company and its predecessors. See "THE COMPANY -- Background."
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, -------------------- ------------------------------------------------------- 1996 1995 1995 1994 1993 1992(1) 1991(2) ------ ------ ------ ------ ------ ------ ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total interest income . . . . . . . . . . $27,398 $18,022 $25,472 $17,744 $8,239 $5,843 $11,388 Total interest expense . . . . . . . . . . 17,011 11,124 15,772 9,871 3,884 3,515 7,090 ------- ------- ------- ------- ------ ------ ------- Net interest income . . . . . . . . . . . 10,387 6,898 9,700 7,873 4,355 2,328 4,298 Provision for possible loan losses . . . . 1,344 770 1,430 607 1,127 1,116 1,445 ------- ------- ------- ------- ------ ------ ------- Net interest income after provision for possible loan losses . . . . . . . 9,043 6,128 8,270 7,266 3,228 1,212 2,853 ------- ------- ------- ------- ------ ------ ------- Gain on sale of premium finance loans . . 2,659 3,551 4,421 -- -- -- -- Loan servicing fees . . . . . . . . . . . 1,035 782 1,083 -- -- -- -- Fees on mortgage loans sold . . . . . . . 1,023 503 850 399 551 -- -- Trust fees . . . . . . . . . . . . . . . . 412 281 399 202 92 -- -- Service charges on deposit accounts . . . 309 187 196 112 92 42 -- Securities gains, net . . . . . . . . . . 18 -- -- 21 23 -- -- Other . . . . . . . . . . . . . . . . . . 400 300 1,595 752 386 717 7,589 ------- ------- ------- ------- ------ ------ ------- Total non-interest income . . . . . . . 5,856 5,604 8,544 1,486 1,144 759 7,589 ------- ------- ------- ------- ------ ------ ------- Salaries and employee benefits . . . . . . 8,133 5,395 8,011 5,319 3,536 3,475 5,095 Occupancy expense, net . . . . . . . . . . 1,245 723 1,520 1,165 790 617 918 Data processing . . . . . . . . . . . . . 732 440 624 335 177 114 63 Advertising and marketing . . . . . . . . 710 367 682 288 150 232 288 Nonrecurring merger related expenses . . . 849 -- -- -- -- -- -- Amortization of deferred financing fee . . 337 451 768 641 511 126 -- Other non-interest expenses . . . . . . . 4,448 3,325 4,207 3,004 2,354 3,244 4,164 ------- ------- ------- ------- ------ ------ ------- Total non-interest expense . . . . . . 16,454 10,701 15,812 10,752 7,518 7,808 10,528 ------- ------- ------- ------- ------ ------ ------- Income (loss) from continuing operations before income taxes . . . . . . . . . . (1,555) 1,031 1,002 (2,000) (3,146) (5,837) (86) Income tax benefit . . . . . . . . . . . . (34) (198) (512) -- -- -- -- ------- ------- ------- ------- ------ ------ ------- Income (loss) from continuing operations . (1,521) 1,229 1,514 (2,000) (3,146) (5,837) (86) Income (loss) from operations and sale of discontinued operations . . . . . . . -- (96) (17) (236) (193) 102 1,261 ------- ------- ------- ------- ------ ------ ------- Net income (loss) . . . . . . . . . . . $ (1,521) $1,133 $ 1,497 $(2,236) $(3,339) $(5,735) $1,175 ======= ======= ======= ======= ======= ======= ====== Net income (loss) per common share . . . $ (0.25) $ 0.19 $ 0.24 $ (0.56) $ (1.14) $ (2.59) $ 0.93 ======= ======= ======= ======= ======= ======= ====== Cash dividends per common share . . . . . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======= ======= ======= ======= ======= ======= ======
7 9
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- ------------------------------------------------------- 1996 1995 1995(1) 1994(1) 1993(1) 1992(1) 1991(2) ---- ---- ---- ---- ---- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) SELECTED FINANCIAL CONDITION DATA: Total assets at end of period .......... $621,264 $376,143 $470,890 $354,158 $188,590 $82,864 $52,422 Total deposits at end of period......... 549,303 322,516 405,658 221,985 98,264 42,996 2,361 Total loans at end of period............ 414,405 218,730 258,231 193,982 109,276 48,527 33,482 Notes payable and subordinated debt at end of period....................... 16,554 13,028 10,758 6,905 4,837 16,050 32,413 SELECTED FINANCIAL RATIOS AND OTHER DATA(3): Performance Ratios: Net interest margin(4)................ 2.86% 2.98% 2.96% 3.35% 3.83% 3.85% N/M Net interest spread(5)................ 2.32% 2.47% 2.41% 3.07% 3.30% 2.87% N/M Non-interest income to average assets............................... 1.47% 2.19% 2.36% 0.57% 0.89% 1.05% N/M Non-interest expense to average assets(7)............................ 4.13% 4.18% 4.37% 4.14% 5.84% 10.77% N/M Return on average assets(6)(7)........ (0.38)% 0.43% 0.40% (0.88)% (2.60)% (7.91)% 1.51% Return on average equity(7)(8)........ (4.95)% 5.37% 4.66% (12.02)% (25.40)% (46.01)% 14.46% Loans-to-deposits ratio............... 75.4% 67.8% 63.7% 87.4% 111.2% 112.9% N/M Average interest-earning assets to average interest-bearing liabilities. 111.47% 110.56% 111.37% 106.61% 115.42% 116.93% N/M Asset Quality Ratios: Non-performing loans to total loans... 0.53% 0.71% 0.80% 0.01% 0.00% 0.27% 0.02% Allowance for possible loan losses to: Total loans.......................... 0.90% 1.02% 1.07% 0.88% 1.24% 1.98% 2.44% Non-performing loans................. 171.89% 143.58% 143.91% N/M N/M N/M N/M Net charge-offs to average loans...... 0.15% 0.20% 0.20% 0.18% 0.92% 2.38% 1.38% Non-performing assets to total assets............................... 0.35% 0.41% 0.41% 0.01% 0.00% 0.16% 0.01% Other Data at end of period: Number of: Bank subsidiaries(9)................... 4 3 4 3 2 1 1 Banking offices(9) .................... 13 7 12 6 3 1 1
- ------------------- (1) For 1995, 1994 and 1993, reflects results of those Banks then in operation or in organization, results of finance and leasing subsidiary operations (some of which have since been curtailed) and results of discontinued operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OEPRATIONS." For 1992, reflects first full-year of Lake Forest Bank operations and results of finance and lease subsidiary operations (some of which have since been curtailed, sold or discontinued). (2) Reflects results of finance and leasing subsidiary operations, some of which have since been sold, curtailed or discontinued, and start-up of Lake Forest Bank which opened in December 1991. (3) Certain financial ratios for interim periods have been annualized. (4) Net interest income divided by average interest-earning assets. (5) Yield on average interest-earning assets less rate on average interest- bearing liabilities. (6) Net income less preferred dividends divided by average total assets. (7) For the nine-month period ended September 30, 1996, includes nonrecurring merger-related expenses of $849,000. Absent such expenses, non-interest expense to average assets, the return on average assets and return on average equity for such period would have been 3.92%, (0.17)% and (2.18)%, respectively. (8) Net income less preferred dividends divided by average common equity. (9) Excludes Barrington Bank which commenced operations on December 19, 1996. 8 10 RISK FACTORS Prospective investors should consider carefully the following factors associated with the ownership of Common Stock together with the other information contained in this Prospectus. IMPACT OF DE NOVO OPERATIONS AND BRANCH OPENINGS ON PROFITABILITY The Company's recent historical results have been impacted by its strategy of de novo bank formations and branch openings. Each of the Banks was organized as a de novo banking organization within the past six years and each of the various branch facilities was also newly opened by the respective Banks. Management believes that de novo banks may typically require 18 months to three years of operations before becoming profitable, due to the impact of organizational and overhead expenses, the start-up phase of generating deposits and the time lag typically involved in redeploying deposits into attractively priced loans and other higher yielding earning assets. While the Company achieved first months of profitable operations at Lake Forest Bank and Hinsdale Bank within 12 to 18 months, openings of additional full-service branches in Glencoe in 1995 and in Winnetka in 1996 have extended the time for North Shore Bank to achieve profitability. North Shore Bank, which commenced operations in September 1994, recorded net losses for 1994 and 1995 and is still not yet profitable. Barrington Bank, which was opened in December 1996, is still in its initial phase of operations and is not yet profitable. Libertyville Bank, which commenced operations in October 1995, is also in its start-up phase and is not expected to be profitable until 1997. While management believes that each of the Banks has demonstrated significant success to date in deposit generation and will likely continue to increase its loan-to-deposit ratio as loan origination activities increase, the level of reported net income and return on average assets for the Company will in the near term continue to be impacted by start-up costs associated with these de novo and branching operations. While the Company expects to be profitable in 1997, to the extent the Company undertakes additional branching and de novo bank formations, the Company is likely to continue to experience the effects of higher operating expenses relative to operating income from the new banks, which may limit increases in profitability. RELIANCE ON KEY PERSONNEL The Company's success to date has been influenced strongly by its ability to attract and to retain senior management experienced in banking and financial services. The Company's ability to retain the management teams of each of the Banks and First Premium, and, as the Company grows, to attract and retain qualified additional senior and middle management will continue to be important to successful implementation of the Company's business plan. The Company does not currently maintain key-man life insurance policies. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on the Company's business and financial results. The Company has entered into employment agreements with each of Howard D. Adams and Edward J. Wehmer, the Company's Chairman and President, respectively, and it is expected that the Company and its subsidiaries will enter into similar employment contracts with the other selected senior management and senior Bank officers providing for certain non-compete agreements and reasonable and customary benefits and severance arrangements. See "MANAGEMENT." ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses is established in consultation with management of its operating subsidiaries and is maintained at a level considered adequate by management to absorb anticipated loan losses. The Company has not experienced any significant charge-offs since 1991 except for certain losses on the sale of lease portfolios in 1991 and 1992. The Company ceased its leasing operations in 1992. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond the Company's control, and such losses may exceed current estimates. Though management uses the best information available to it and draws upon many years of banking experience in estimating the allowance for loan losses, de novo bank loan portfolios are by their nature unseasoned. As a result, estimating loan loss 9 11 allowances for the Banks is more difficult, and therefore may be more susceptible to changes in estimate, than for banks with more seasoned loan portfolios. Although management believes that the allowances for loan losses are adequate to absorb any losses on existing loans that may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. In particular, First Premium is currently seeking to recover the approximately $1.2 million remaining amount related to an approximately $5.0 million premium finance loan that was fraudulently obtained by the obligor, through pending litigation in which First Premium has filed claims against several defendants, including the obligor corporation, certain agents of the obligor and the insurance company. While First Premium management believes it will ultimately recover the remaining amount and associated costs of recovery and therefore has not fully reserved against possible loss of these sums, there can be no assurances when or if such funds will be received. EFFECT OF INTEREST RATES Like most banks, the Banks realize income primarily from the spread between interest earned on loans and investments and the interest paid on deposits and borrowings. It is expected that the Banks, from time to time, will experience "gaps" in the interest rate sensitivities of their assets and liabilities, meaning that either their interest-bearing liabilities will be more sensitive to changes in market interest rates than their interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to the Banks' position, the "gap" will work against the Banks and their earnings may be negatively affected. Management actively monitors the interest rate sensitivities of the assets and liabilities of the Banks and works to prevent any gaps from approaching imprudent levels. LIMITED MARKET FOR SHARES While the shares of the Company's Common Stock are freely tradeable by persons other than those who are currently affiliates of the Company, prior to this Offering there has been a very limited public market for the shares of the Company in the OTC market through the OTC Bulletin Board system. The Company has made application for inclusion of the Common Stock in The Nasdaq National MarketSM, subject to issuance of the shares in this Offering; however, there can be no assurance that an active public market will necessarily develop for the Common Stock. The per share offering price does not necessarily reflect the price at which the Common Stock might trade in an active or limited market following the Offering, and there can be no assurance that following the Offering the Common Stock will trade at or above the subscription price. DETERMINATION OF OFFERING PRICE The Company will determine the aggregate offering price of shares issuable in the Subscription and Community Offering based upon a number of valuation factors such as prevailing economic and market conditions, revenues and earnings of the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business and operations, an assessment of the Company's management, and the consideration of the foregoing factors in relation to market valuations of companies in related businesses, and, to a lesser extent, the prior trading history for shares of Common Stock. BEST EFFORTS SUBSCRIPTION AND COMMUNITY OFFERING The Company, and the Selling Agent as agent for the Company, are offering the Common Stock on a best efforts basis in the Subscription and Community Offering. Completion of the Offering is not contingent upon the sale of any minimum number of shares, and the number of shares actually issued may be substantially less than the maximum 1,200,000 shares offered hereby. This may occur even though the Company may receive orders at or above such maximum, as the Company reserves the right to accept or reject, in whole or in part, any purchase orders in the Subscription and Community Offering. Additionally, depending on market conditions, the Company may elect to offer shares in the Community Offering through a selling group of broker-dealers and/or commence an underwritten Public Offering. In such event(s), the Company may reduce from the maximum the number of shares actually issued and would incur additional selling costs. See "TERMS OF THE OFFERING -- Plan of 10 12 Distribution for the Subscription, Community, and Public Offerings." If the Offering is completed with a materially fewer number of shares of Common Stock issued and/or the payment of additional selling costs, the resultant net proceeds would be reduced from the amounts set forth herein. A lower level of capitalization may limit the Company's ability to implement future growth strategies. RISK OF DELAYED OFFERING Once made, subscriptions are irrevocable, even if the market price for the Common Stock falls below the $___ per share subscription price during the Subscription and Community Offering. Though the Company anticipates completing the Offering as soon as practicable following the Expiration Date, the Company has reserved the right to extend the Offering until __________, 1997. Accordingly, investors placing purchase orders in the Subscription and Community Offering, including any extensions thereof, are placed at the risk of (i) foregoing potential investment income and having subscription funds unavailable as a result of subscription funds being placed in non-interest-bearing escrow accounts, and/or (ii) having holds placed on deposit accounts at the Banks as a result of account withdrawal authorizations used as payment for shares subscribed. SHARES ELIGIBLE FOR FUTURE SALE Following completion of the Offering, the Company will have 7,803,420 shares of Common Stock issued and outstanding (assuming no exercise of the over-subscription and over-allotment options), and also assuming no exercise of outstanding options to purchase shares of Common Stock (the "Options"), no exercise of outstanding rights to purchase shares of Common Stock (the "Rights") and no exercise of outstanding warrants representing the right to purchase shares of Common Stock (the "Warrants"). After the Offering, a total of 5,754,072 shares, including the 1,200,000 shares offered hereby (assuming no exercise of the over-subscription and over-allotment options), will be freely tradeable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), except for any shares which are purchased in the Offering by affiliates of the Company. Of the 1,429,165 shares currently held by affiliates of the Company, 1,341,609 of these shares (representing 17.2% of the total number of shares which will be outstanding following completion of the Offering) could be resold following the Offering by persons who are affiliates of the Company, subject to certain requirements of Rule 144 under the Securities Act which generally limit the number of shares that may be sold in any three-month period to the greater of (a) 1% of the shares outstanding (78,034 shares following completion of the Offering or 79,834 if the over-subscription option is exercised in full) or (b) the average weekly trading volume of shares of Common Stock for the four-week period prior to the time of such resale. See "SHARES ELIGIBLE FOR FUTURE SALE." COMPETITION The Company competes in the financial services industry primarily by emphasizing highly responsive personalized customer service. The financial services business is highly competitive and the Company encounters strong direct competition for deposits, loans and other financial services in all of its market areas. The Company's principal competitors include other commercial banks, savings banks, savings and loan associations, mutual funds, money market funds, finance companies, credit unions, mortgage companies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms. In addition, in recent years, several major multi-bank holding companies have entered or expanded in the Chicago metropolitan market. Generally, these financial institutions are significantly larger than the Company and have access to greater capital and other resources. Many of the Company's non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks and national or Illinois chartered banks. As a result, such non-bank competitors have advantages over the Company in providing certain services. The Company competes for deposits principally by offering depositors a variety of deposit programs at attractive interest rates, convenient office locations, hours and other services, and competes for loan originations primarily through the interest rates and loan fees it charges, the efficiency and quality of services it provides to borrowers and the variety of its loan products. See "BUSINESS - -- Competition." 11 13 SUBSTANTIAL CONTROL BY OFFICERS, DIRECTORS AND OTHER AFFILIATED SHAREHOLDERS After this Offering, the officers and directors of the Company and certain members of their families will in aggregate beneficially own approximately 20.28% of the outstanding shares of Common Stock (assuming 1,200,000 shares are sold in the Offering) and are likely to continue to exercise substantial control over the Company's affairs. Howard D. Adams and members of his immediate family will beneficially own approximately 11.87% of the Common Stock after the Offering. See "PRINCIPAL SHAREHOLDERS." CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Amended and Restated Articles of Incorporation (the "Articles") and by-laws (the "By-Laws") and the Illinois Business Corporation Act ("IBCA") may have the effect of impeding the acquisition or control of the Company by means of a tender offer, a proxy fight, open-market purchases or otherwise in a transaction not approved by the board of directors of the Company (the "Board of Directors"). In addition, it is anticipated that the Board of Directors may consider and may implement a shareholder rights plan to deter coercive, hostile bids for corporate control. Such provisions, and a rights plan if adopted, may have the effect of discouraging a future takeover attempt which is not approved by the Board of Directors. Certain provisions will also render the removal of the current Board of Directors or management of the Company more difficult. Among other provisions, the Company's Articles and By-Laws include the authorization of "blank check" preferred stock, a staggered board of directors, limiting the filling of Board of Directors vacancies to the Board of Directors, prohibitions on shareholder action by written consent, election of the IBCA "fair price" provision, requiring advance notice with respect to shareholder proposals and director nominations and requiring an 85 percent vote of the shareholders to amend certain anti-takeover provisions in the Articles and By-Laws. REGULATORY RESTRICTIONS ON DIVIDENDS The Company has not previously paid regular quarterly dividends. While there can be no assurances, it is anticipated that the Company may commence payment of dividends, out of funds legally available therefor. The Company's sources of funds for dividend payments will consist primarily of dividends from its direct and indirect subsidiaries. Under the provisions of the Illinois Banking Act, dividends may not be declared by North Shore Bank, Lake Forest Bank, Hinsdale Bank nor Libertyville Bank except out of each Bank's net profits (as defined therein), and unless each Bank has transferred to surplus at least one-tenth of its net profits since the date of the declaration of the last preceding dividend, until the amount of its surplus is at least equal to its capital. Presently, the surplus of each of these Banks equals or exceeds regulatory capital. As a national association, dividends declared in any calendar year by Barrington Bank may not exceed its net profit for the year plus the retained net profits for the preceding two years. However, each of North Shore Bank, Libertyville Bank and Barrington Bank is subject to additional restrictions prohibiting the payment of dividends by a de novo bank in its first three years of operations. The de novo periods will end for North Shore Bank, Libertyville Bank and Barrington Bank in September 1997, October 1998, and December 1999, respectively. Subsequent to these dates, the Banks would be allowed to pay dividends subject to the regulatory limitations that are applicable to all state-chartered banks, or in the case of Barrington Bank, national banks. As of September 30, 1996, based upon applicable regulatory limitations, Lake Forest Bank had approximately $2.4 million available to pay as dividends to the Company. The Company has a covenant with its lender, LaSalle National Bank, that dividends will not be paid without the lender's prior consent, which consent will not be unreasonably withheld. In addition, there are certain dividend restrictions in the financial covenants of First Premium's securitization facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION." FINANCIAL INSTITUTION REGULATION The Company, the Banks and their bank holding companies are subject to extensive federal and state legislation, regulation and supervision. See "SUPERVISION AND REGULATION." Recently enacted, proposed and future legislation and regulations have had, will continue to have or may have significant impact on the financial 12 14 services industry. Some of the legislative and regulatory changes may benefit the Company and the Banks; others, however, may increase their costs of doing business and thereby assist competitors. FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements may be deemed to include, among other things, statements relating to the Company's anticipated internal growth and plans to pursue additional specialized earning asset niches, to form additional de novo banks and new branch offices, and to pursue potential development or acquisition of specialty finance businesses. Actual results could differ materially from those addressed in the forward-looking statements as a result of the factors discussed above in this "RISK FACTORS" section and elsewhere in this Prospectus. USE OF PROCEEDS The net proceeds to the Company from the sale of 1,200,000 shares of Common Stock in this Offering are estimated to be approximately $____ million (assuming all shares are sold directly by the Company in the Subscription and Community Offering with no exercise of the over- subscription option) after deducting commissions and estimated expenses payable by the Company of $__________. The Company will use the net proceeds of this offering to repay approximately $___ million of indebtedness outstanding as of January __, 1997, under the Company's $25 million revolving line of credit. Borrowings under the line bears interest at a floating rate equal to, at the Company's option, either the lender's prime rate or the London Inter-Bank Offered Rate ("LIBOR") plus 150 basis points. The weighted average rate at December 31, 1996 was _____% and loans drawn on the line mature on or before September 1, 1997. The revolving line of credit is secured by a pledge of the stock of each of the subsidiary Banks, other than Barrington Bank, and the subsidiary bank holding companies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -- Liquidity and Capital Resources." Following such repayment, the unused portion of the entire line will remain available and the Company may use the line for future borrowings from time to time for general corporate purposes, including continued growth of the Company's banking and finance subsidiaries, for future branch office openings, and additional de novo bank formations, and for potential future acquisitions of specialty finance companies or investments in businesses engaged in niche consumer lending or selected commercial finance activities. 13 15 MARKET FOR COMMON STOCK AND DIVIDENDS LIMITED TRADING MARKET The Company's Common Stock is freely tradeable by persons other than those who are currently affiliates of the Company, and it has traded occasionally in the OTC market where bid and ask prices are quoted on the OTC Bulletin Board; however, prior to this Offering there has been no active trading in the Common Stock. While the Company has made application for inclusion of the Common Stock in The Nasdaq National MarketSM, there can be no assurance that an active or liquid public market will necessarily develop for the Common Stock. See "RISK FACTORS -- Limited Market for Shares." As of the Record Date, the Company had approximately _____ holders of record of its Common Stock. DIVIDENDS Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors from time to time and paid out of funds legally available therefor. Because the Company's consolidated net income consists largely of net income of the Banks and First Premium, the Company's ability to pay dividends depends upon its receipt of dividends from the Banks and First Premium. The Banks' ability to pay dividends is regulated by banking statutes. See "Financial Institution Regulation Generally -- Dividend Limitations" under "SUPERVISION AND REGULATION." The declaration by the Company of dividends on the Common Stock is discretionary and will depend on the Company's earnings and financial condition, regulatory limitations, tax considerations, and other factors including limitations imposed by the terms of the Company's revolving line of credit and First Premium's securitization facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -- Liquidity and Capital Resources." The Company has not previously paid quarterly dividends on the Common Stock but rather has retained earnings to facilitate the continued growth of the Company. Although there can be no assurances that the Company will ever commence payment of regular dividends, it is anticipated that the Company may commence payment of dividends on the Common Stock in the future, out of funds legally available therefor. 14 16 CAPITALIZATION The following table sets forth the total indebtedness and capitalization of the Company as of September 30, 1996, pro forma capitalization adjusted to give effect to the issuance by the Company of 87,556 shares of Common Stock in December 1996 in connection with the recent acquisition described in "RECENT ACQUISITION" and pro forma capitalization as further adjusted to reflect the issuance and sale by the Company of the maximum of 1,200,000 shares of Common Stock offered hereby in the Subscription and Community Offering (assuming no exercise of the over-subscription or over-allotment options) and the application of the estimated net proceeds as set forth under "USE OF PROCEEDS."
SEPTEMBER 30, 1996 ---------------------------------------------------- PRO FORMA AS ADJUSTED ACTUAL PRO FORMA FOR THE OFFERING --------- ---------- ----------------- (IN THOUSANDS) INDEBTEDNESS: Notes payable . . . . . . . . . . . . . . $ 16,554 $ 17,054 $ -- ======== ========= ========= SHAREHOLDERS' EQUITY: Preferred Stock . . . . . . . . . . . . . . $ -- $ -- $ -- Common Stock, without par value, 30,000,000 shares authorized; 6,515,864 shares issued and outstanding; 6,603,420 shares outstanding pro forma; 7,803,420 shares outstanding pro forma as adjusted (1) . . 6,516 6,603 7,803 Common stock warrants; 138,592 warrants issued and outstanding; 155,430 warrants outstanding pro forma and pro forma as adjusted . . . . . . . . . 75 100 100 Surplus . . . . . . . . . . . . . . . . . 51,681 52,871 Retained earnings . . . . . . . . . . . . (17,511) (17,511) (17,511) Unrealized gain on investments available for sale . . . . . . . . . . . . . . . 24 24 24 ------- -------- --------- Total shareholders' equity . . . . . . 40,785 42,087 ------- -------- --------- Total capitalization . . . . . . . . $57,339 $59,141 $ ======= ======== =========
__________________ (1) On a pro forma basis, excludes 1,151,537 shares of Common Stock reserved for issuance upon exercise of currently outstanding Options, of which Options to purchase 646,117 shares of Common Stock are currently exercisable; exercisable Rights to purchase an aggregate of 103,236 shares of Common Stock; and Warrants to purchase an aggregate of 155,430 shares of Common Stock. The following table sets forth the Company's actual consolidated regulatory capital ratios at September 30, 1996, and as adjusted to give effect to the application of the estimated net proceeds from the Subscription and Community Offering, assuming the sale of 1,200,000 shares. 15 17
SEPTEMBER 30, 1996 -------------------------------------------------------------------------------------- ACTUAL PRO FORMA ADJUSTED ---------------------------------------- ---------------------------------------- "WELL-CAPITALIZED" EXCESS "WELL-CAPITALIZED" EXCESS CAPITAL STANDARD(1) CAPITAL CAPITAL STANDARD(1) CAPITAL ------- ------------------ ---------- ------- ------------------ ---------- (DOLLARS IN THOUSANDS) DOLLAR BASIS: Tier 1 capital(1) . . . . . . . . . . . . $40,291 $31,040 $ 9,251 $ $ $ Total risk-based capital . . . . . . . . . 44,040 45,400 (1,360) PERCENTAGE BASIS: Average equity-to-average asset ratio . . 7.7% N/A N/A % N/A % Leverage ratio . . . . . . . . . . . . . . 6.5% 5.0% 1.5% 5.0% Tier 1 risk-based capital ratio . . . . . 8.9% 6.0% 2.9% 6.0% Total risk-based capital ratio . . . . . . 9.7% 10.0% (0.3)% 10.0% __________________
(1) Reflects the amount of capital necessary to meet the "well-capitalized" regulatory standard. See "SUPERVISION AND REGULATION." The Company currently meets the "adequately capitalized" standard in both Tier 1 and risk-based capital. 16 18 DILUTION As of September 30, 1996, giving pro forma effect to the issuance of 87,556 shares in the Company's recent acquisition, the Company had an aggregate of 6,603,420 shares of Common Stock outstanding, and the Common Stock had a pro forma net tangible book value of $6.10 per share. "Net tangible book value per share" represents the tangible net worth of the Company (total assets less goodwill and total liabilities), divided by the number of shares of Common Stock deemed to be outstanding. Without taking into account any other changes in net tangible book value after September 30, 1996, other than those resulting from the sale by the Company of 1,200,000 shares offered hereby, the pro forma net tangible book value at September 30, 1996, would have been $_____ per share, representing an immediate increase of $_____ per share to current shareholders and an immediate dilution of $_____ per share to persons purchasing the shares offered hereby. The following table illustrates this per share dilution. Per share Offering price . . . . . . . . . . . . . . . . . . . . . . . . . $ Pro forma net tangible book value per share as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . $6.10 Increase attributable to new shareholders . . . . . . . . . . . . . . . ------- Pro forma net tangible book value per share after Offering . . . . . . . . ---------- Per share dilution to new shareholders(1) . . . . . . . . . . . . . . . . . $ ==========
________________ (1) Does not give effect to and assumes no prior exercise of the 155,430 outstanding Warrants; or any of the outstanding Options to purchase up to an aggregate of 646,117 shares of Common Stock which were exercisable as of September 30, 1996; or any of the outstanding Rights to purchase 103,236 shares, all of which are currently exercisable. The following table compares, on a pro forma basis at September 30, 1996, the total number of shares of Common Stock purchased from the Company, the total cash consideration paid and the average price per share paid by existing shareholders prior to the Offering and by the persons purchasing shares offered hereby (giving effect to the issuance of 87,556 shares in the recent acquisition and assuming the sale of 1,200,000 shares, before deduction of Selling Agent fees and commissions and estimated Offering expenses).
SHARES PURCHASED TOTAL CONSIDERATION ---------------------- --------------------- AVERAGE PERCENT PERCENT PRICE NUMBER OF TOTAL AMOUNT OF TOTAL PER SHARE -------- --------- ------ -------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Existing shareholders(1) . . . . . . . . . . . 6,603,420 85% $62,835 % $9.52 Investors participating in Offering . . . . . . 1,200,000 15 --------- --- ------- --- Total . . . . . . . . . . . . . . . . . . . . 7,803,420 100% $ 100% ========= === ======= ===
_________________ (1) Does not give effect to and assumes no prior exercise of the 155,430 outstanding Warrants; or any of the outstanding Options to purchase up to an aggregate of 646,117 shares of Common Stock which were exercisable as of September 30, 1996; or any of the outstanding Rights to purchase 103,236 shares, all of which are currently exercisable. 17 19 TERMS OF THE OFFERING THE OFFERING The Company is offering for sale up to 1,200,000 newly issued shares of its Common Stock, without par value, at an offering price of $ _____ per share. The Company has entered into an agency agreement (the "Agency Agreement") with the Selling Agent. Subject to the terms and conditions set forth in the Agency Agreement, the Selling Agent has agreed to offer up to 1,200,000 shares as agent of and for the account of the Company on a "best efforts" basis. The Subscription Offering. The shares are being offered on a priority basis to shareholders of the Company as of _______________, 1996 ("Record Date Shareholders") and to certain customers of the Company's banking subsidiaries as of _________________, 1996 ("Record Date Customers"). The highest priority will be given to those Record Date Shareholders placing purchase orders prior to Noon, Central Time, on ______________, 1997. The Community Offering. While the shares are being offered on a priority basis to eligible subscribers in the Subscription Offering, the Common Stock is also being offered concurrently by the Company for sale to the general public, with a preference being given to residents of the communities in which the Banks have offices. Depending on market conditions, shares of Common Stock may be offered for sale in the Community Offering to the general public on a "best efforts" basis by a selling group of broker dealers managed by the Selling Agent. Unless extended by the Company, the Subscription and Community Offering will terminate at Noon Central Time, on _________________, 1997. The Company reserves the right in its sole discretion, notwithstanding the priorities described above, to accept or reject in whole or in part orders in the Subscription and Community Offering. Procedures for Subscribing for Common Stock in the Subscription and Community Offering. The Company will mail, hand deliver, or make available at its offices Prospectuses and related subscription documents (the "Stock Order Forms" and the "Certification Forms"). In accordance with Rule 15c2-8 of the Exchange Act, to ensure that each purchaser receives a Prospectus at least 48 hours prior to the Expiration Date, no Prospectus will be mailed any later than five days prior to such date or hand delivered any later than two days prior to such date. Record Date Shareholders, Record Date Customers, and other investors interested in subscribing for shares of Common Stock in the Subscription and Community Offering must return to the Company a properly completed original Stock Order Form (facsimile copies and photocopies will not be accepted) and a fully executed Certification Form along with full payment (or appropriate instructions for authorizing a withdrawal from a deposit account at one of the Banks) at $___ per share for all shares subscribed for or ordered prior to Noon, Central Time, on __________, 1997. To receive preference in the Subscription Offering, Record Date Shareholders must place purchase orders prior to Noon, Central Time, on __________, 1997. Original Stock Order Forms and Certification Forms accompany this Prospectus. In order to ensure that prospective investors are properly identified as to their stock purchase priorities, Record Date Shareholders and Record Date Customers must provide the identifying information requested on the Stock Order Forms. Payment for shares of Common Stock must be made by check, bank draft or money order drawn upon a United States bank payable to "Wintrust Financial Corporation" or by withdrawal authorization from a deposit account at one of the Banks. Wire transfers will not be accepted. Payment by non-certified personal check will be considered received only upon clearance, and the Company in its sole discretion may reject subscriptions for which funds have not cleared at the Expiration Date. Payments made by check, bank draft, or money order will be placed in a non-interest-bearing escrow account at one of the Banks until completion or termination of the Offering. The Stock Order Form contains blanks to authorize deposit withdrawals as payment for shares subscribed, and holds will be placed on such deposit accounts for the amount of the subscription until completion or termination of the Offering. Interest on these accounts will continue at their contractual rates, and no early withdrawal penalty will be assessed on certificates of deposits used as payment. To the extent subscription orders are filled, the 18 20 foregoing escrow and deposit accounts will be charged as of the closing date of the Offering against issuance of certificates evidencing ownership of the shares of Common Stock. In the event subscription orders are not filled at all or only in part, or if the Offering is terminated or extended beyond __________, 1997, funds placed in escrow will be returned to subscribers without interest and deposit account holds will be terminated. The methods of delivery of Stock Order Forms, Certification Forms and payment for shares are at the election and risk of Record Date Shareholders, Record Date Customers, and other prospective investors. The Company recommends that such parties deliver in person to one of the Banks or their full-service branch offices the properly completed original Stock Order Form along with the fully executed Certification Form and full payment in advance of the Expiration Date. Alternatively, such parties may mail them in the pre-addressed, postage-prepaid business reply envelope accompanying the Prospectus, allowing for sufficient time for delivery of the mail to the Company and the clearance of any non- certified personal checks prior to the Expiration Date. Once made, subscriptions are irrevocable, even if the market price for the Common Stock falls below the subscription price of $___ per share during the Subscription and Community Offering. Completion of the Subscription and Community Offering is not conditioned upon the sale of any minimum number of shares. See "RISK FACTORS -- Best Efforts Subscription and Community Offering." All questions concerning the timeliness, validity, form, and eligibility of Stock Order Forms received will be determined by the Company in its sole discretion, including the absolute right of the Company to reject any order in whole or part in the Subscription and Community Offering without assigning any reason therefor. The Company may, in its sole discretion, permit the correction of incomplete or improperly executed Stock Order Forms or waive the Expiration Date receipt deadline but does not represent that it will do so. The Company assumes no responsibility to provide, nor will it incur any liability for failure to give, notification of any defect or irregularity in connection with the submission of Stock Order Forms. Prospective investors with questions or needing assistance concerning the procedures for subscribing for shares of Common Stock should call the Stock Sale Center at (847) __________ and ask for an EVEREN Securities, Inc. representative. The Public Offering. Depending on market conditions, upon the completion of the Subscription and Community Offering, any shares then remaining available for sale may be offered to the general public in an underwritten Public Offering to be managed by the Selling Agent. Completion of the Public Offering will be subject to the execution of an underwriting agreement between the Company and the Selling Agent. Whether a Public Offering occurs and an underwriting agreement is executed with the Selling Agent will depend upon, among other factors, the negotiation of a mutually acceptable underwriting agreement, the market conditions then prevailing, the aggregate number of shares of Common Stock not subscribed for in the Subscription and Community Offering, and the then-current financial condition of the Company. The number of shares of Common Stock to be sold in the Public Offering, if any, will be determined by the Selling Agent and the Company. Limitations on Purchase of Shares. Record Date Shareholders, Record Date Customers and other prospective investors must subscribe for at least 100 shares. In addition, no subscription orders will be accepted from parties or groups which, when combined with any current holdings of Common Stock, would cause any undue concentration of ownership control as determined by the Company in its sole discretion. There can be no assurance that Common Stock will be available to satisfy all subscription orders, and the Company reserves the absolute right to allocate available shares in its sole discretion. Delivery of Certificates. Certificates evidencing ownership of shares purchased in the Subscription and Community Offering will be delivered, along with any refund due, by U.S. mail, postage-prepaid, directly to the purchasers thereof at the address indicated on the Stock Order Form as soon as practicable following completion of the Offering. Until share certificates are available and delivered to purchasers, purchasers may be unable to sell the shares of Common Stock purchased by them. 19 21 PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, COMMUNITY AND PUBLIC OFFERINGS The Company, pursuant to the terms of the Agency Agreement, engaged the Selling Agent as a financial and marketing adviser in connection with the Offering. The Selling Agent has agreed to use its best efforts to assist the Company with the solicitation of subscriptions and purchase orders for shares of Common Stock in the Subscription and Community Offering. Based upon negotiations between them, the Company and the Selling Agent have entered into an Agency Agreement engaging the Selling Agent as financial adviser and marketing agent with respect to the Offering. Pursuant to the Agency Agreement, the Selling Agent will provide the Company certain financial and marketing advice regarding the structure of the Offering and sale of the Common Stock; prepare certain marketing documents ancillary to the Prospectus; establish, staff, and manage a Stock Sale Center to solicit purchase orders for the Common Stock and provide technical and administrative support; and conduct informational meetings for prospective investors. The Agency Agreement does not obligate the Selling Agent to take or purchase any of the shares of Common Stock. As compensation for the foregoing services, the Company will pay the Selling Agent 2.5% of the aggregate actual sale price of the shares of Common Stock sold directly by the Company in the Subscription and Community Offering without the use of commissioned registered representatives. In addition, in the event the Company and the Selling Agent elect to employ selected broker-dealers (including the Selling Agent) to solicit purchase orders in the Community Offering using the assistance of commissioned registered representatives, the Company would pay the Selling Agent 4.0% of the aggregate actual sale price of the shares of Common Stock sold by the Company in such manner of which 2.5% would represent the management fee of the Selling Agent and 1.5% would be paid by the Selling Agent to the selected broker-dealers. No commissions will be paid to any broker-dealer except the Selling Agent unless a broker-dealer enters into a written selected dealer's agreement with the Selling Agent with respect to the Community Offering. The Company will also reimburse the Selling Agent for certain out-of-pocket expenses (including fees and expenses of the Selling Agent's counsel) up to a maximum of $75,000. The Company has also agreed to indemnify the Selling Agent against certain liabilities, including civil liabilities arising under the Securities Act, or to contribute to certain payments made in respect thereof. The Company may, in its sole discretion, increase the number of shares of Common Stock sold by up to 180,000 additional shares to satisfy unfilled purchase orders in the Subscription and Community Offering. The offering price of the shares issued in the Subscription and Community Offering has been determined by the Company based on a number of valuation factors including prevailing market and economic conditions, revenues and earnings of the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business and operations, an assessment of the Company's management, and the consideration of the foregoing factors in relation to market valuations of companies in related businesses, and, to a lesser extent, the prior trading history for the shares of Common Stock. PUBLIC OFFERING The Company has also retained the Selling Agent to serve as the managing underwriter of the Public Offering, if any. In the event the Company and the Selling Agent determine to commence the Public Offering, the terms thereof would be set forth in a mutually satisfactory underwriting agreement executed between them. The nature of the underwriting agreement would be such that the Selling Agent would offer a specified number of shares to the general public at the offering price per share set forth on the cover page hereof and purchase such shares from the Company at such price less an underwriting discount currently estimated to be 6.6%. In the underwriting agreement the Company would also grant the Selling Agent an option, exercisable within 30 days of the completion of the Public Offering, to purchase up to an additional 15% of the shares offered in the Public Offering to cover over-allotments, if any, at the same price as would be paid by the Selling Agent for the other shares purchased pursuant to the underwriting agreement. The Selling Agent would exercise the option only for the purpose of covering over-allotments, if any, made in connection with the distribution of the Common Stock offered in the Public Offering. 20 22 THE COMPANY BACKGROUND The Company, an Illinois corporation headquartered in Lake Forest, Illinois, which was organized in 1992, is a financial services holding company consisting of five commercial banks operating in selected affluent suburban Chicago communities and an insurance premium finance company headquartered in Deerfield, Illinois, with commercial borrowers in 38 states. The principal founding shareholders of the Company are Howard D. Adams, Chairman and Chief Executive Officer, and Edward J. Wehmer, President. Together with other founding investors, over the past six years Messrs. Adams and Wehmer organized separate de novo banking operations and completed stock financings to separately capitalize the holding companies of each of the Banks. Each Bank was organized to serve the banking and trust needs of individuals and businesses who prefer the highly personalized service of a locally owned and managed community-oriented bank. Mr. Adams was also the founder of the holding company of First Premium, which at one time owned a number of other specialty finance and insurance businesses. Combined with members of his family, Mr. Adams is the largest shareholder of the Company. Effective September 1, 1996, pursuant to the terms of a reorganization agreement dated as of May 28, 1996, which was approved by shareholders of all parties, the Company completed a reorganization transaction to combine the separate activities of the holding companies of each of the Company's operating subsidiaries (other than Barrington Bank which was opened in December 1996). As a result of the transaction, the Company (formerly known as North Shore Community Bancorp, Inc., the name of which was changed to Wintrust Financial Corporation in connection with the reorganization) became the parent holding company of each of the separate businesses, and the shareholders and warrant holders of each of the separate holding companies exchanged their shares for Common Stock and warrants of the Company (the "Reorganization"). The Reorganization was accounted for as a pooling of interests transaction and, accordingly, the Company's financial statements have been restated on a combined and consolidated basis to give retroactive effect to the combined operations throughout the reported historical periods. The Company is committed to an operational philosophy of retaining decision making in the on-site Bank officers and personnel and the First Premium management team and their respective boards of directors. This is key to the Company's strategy of prioritizing highly responsive and personalized attention to customer service in all of its operations with an emphasis on the delivery of quality products through traditional and state-of-the-art systems. Senior management of the Company provides expertise to each of the Banks and First Premium in the areas of capital planning, long-term strategic planning, marketing and advertising, financial management, asset/liability management and technology, while the management teams of the Banks and First Premium have the full managerial responsibilities with respect to customer service and the ongoing day-to-day operations of their respective subsidiaries. The boards of directors of the Company's operating subsidiaries, comprised largely of local community leaders and influential business persons in their respective target markets in the case of the Banks, and of First Premium have full oversight responsibilities of their respective management teams. Prior to the Reorganization, each of the Banks shared the services of the persons now serving as the Company's five senior executive officers, who allocated their time among the different entities. As a larger, combined financial services company, the Company expects to benefit from greater access to financial and managerial resources while maintaining its commitment to localized decision-making and to its community banking philosophy. Management also believes the Company is positioned to compete more effectively with other larger and more diversified banks, bank holding companies and other financial services companies as it pursues its growth strategy through additional branch openings and de novo bank formations, potential acquisitions of specialized finance companies and other expansion. See "BUSINESS." The purpose of the Offering is to enable the Company to repay a portion of the debt outstanding under the Company's $25 million revolving line of credit. Following such repayment, the unused portion of the entire line will remain available for future borrowings from time to time for general corporate purposes, including continued growth of the Company's banking and finance subsidiaries, for additional branching and de novo bank formations and for potential future acquisitions. 21 23 DE NOVO COMMUNITY BANKING Since Lake Forest Bank was opened in 1991, the management team has systematically expanded the Company's operations through successive de novo bank formations, each time implementing the community banking strategy developed, and continually enhanced, by the Company. In total, the Company has opened five new Banks, the most recent in Barrington, Illinois in December 1996. In each case, in planning for a de novo bank formation, the Company has carefully evaluated potential new markets to identify affluent communities in the Chicago metropolitan area where management believed the Company's community banking philosophy could be successfully deployed. Among other factors, communities attractive to the Company usually exhibit a high level of local pride by residents in the community and offer potential bank locations in well-trafficked town or village center areas. The table below sets forth certain information with respect to each of the Banks:
Total Assets at Date September 30, Communities Number of Bank CEO & President Opened 1996 Served Facilities ---- --------------- ------- ------------ ------------- ------------ (in thousands) Lake Forest Bank Edward J. Wehmer December 1991 $242,000 Lake Forest, Illinois 3 Lake Bluff, Illinois 1 Hinsdale Bank Dennis Jones, October 1993 $143,000 Hinsdale, Illinois 2 CEO Clarendon Hills, Illinois(1) 1 Richard Murphy, Western Springs, Illinois - President Burr Ridge, Illinois - North Shore Bank John W. Close September 1994 $151,000 Wilmette, Illinois 2 Kenilworth, Illinois - Glencoe, Illinois 1 Winnetka, Illinois 1 Libertyville Bank J. Albert Carsten October 1995 $66,000 Libertyville, Illinois 2 Mundelein, Illinois - Vernon Hills, Illinois - Barrington Bank James Bishop December 1996 N/A Barrington, Illinois 1 Barrington Hills, Illinois - Lake Barrington, Illinois - North Barrington, Illinois - South Barrington, Illinois - Inverness, Illinois -
(1) Operates in this community as Clarendon Hills Bank, a branch of Hinsdale Bank. Each of the Banks provides a variety of financial services to individuals, businesses, local governmental units, and institutional clients. These services include federally insured deposits (demand, NOW, money market, savings, and time deposit accounts); real estate, consumer, and commercial loans; and safe deposit services and related services tailored for the client base. In addition, Lake Forest Bank provides trust services to its customers and customers of the other Banks. At September 30, 1996, the Company had consolidated total assets of $621.3 million, deposits of $549.3 million, loans receivable of $414.4 million, and shareholders' equity of $40.8 million. See "BUSINESS." 22 24 OPERATIONAL PHILOSOPHY Key elements of the Company's business strategy include: - Maintaining decision-making authority locally within each of the Banks. The Company's community banking philosophy is driven by its emphasis on local independence intended to maintain decision-making authority within each of the Banks. Each Bank is staffed with a management team which has full managerial responsibilities with respect to customer service and the ongoing day-to-day operations of their respective Bank. The board of directors of each Bank, ranging in size from 14 to 20, is comprised largely of local community leaders and influential business persons in that Bank's target market and has full oversight responsibilities for that Bank's management team. Management believes this strategy enables each Bank to maximize its focus on serving the needs of its particular communities in a highly responsive manner in an effort to compete most effectively for market share within its target markets. - Focusing on a highly personal, professional level of service. The Company's guiding principle is to provide customers with quality products and services delivered through traditional and state-of-the art systems, while prioritizing highly responsive and personalized attention to customer service in all of its operations. The Company believes that local management of the Banks with point-of-sale decisionmaking is essential to providing a high level of personal service and attracting and maintaining deposit, loan and trust customers. - Utilizing innovative community-oriented marketing. Each of the Banks has developed a niche within the communities that it serves through the utilization of innovative community-oriented marketing programs which the Company expects to continue to utilize as it pursues branching and additional de novo bank formations. In connection with openings of Bank or branch facilities, the Banks have offered local residents highly competitive retail products designed to attract customers to the Bank, providing an opportunity to introduce the full range of personalized banking services. Different innovative deposit and loan products have been designed to appeal to the unique needs of different types of Bank customers such as age groups and other special segments of the target markets. The Banks market their products aggressively through creative newspaper and other advertising, special promotions and frequently sponsored community events. To increase commercial banking services provided in their respective market areas, the Banks also emphasize business development calling programs and superior servicing of existing commercial loan customers consisting primarily of small businesses. - Employing fewer, experienced individuals at relatively higher compensation rates. Key to the Company's growth and profitability is management's extensive experience in providing community banking services. The Banks' presidents and chief executive officers were selected not only for their years of banking experience but also for their business development skills and their strong ties to the communities they serve. To achieve its objective of providing a highly personal, professional level of service to commercial and retail customers of the Banks, the Company emphasizes the recruiting and training of competent and highly motivated employees at all levels of the organization. Management expects that a well-trained and highly motivated core of employees will produce lower than average turnover and will allow maximum personal contact with customers in order to understand and fulfill customer needs and preferences. The Company's compensation policies and practices are central to the maintenance of its decentralized management structure, and are intended to promote and support local Bank autonomy while at the same time enhancing overall Company performance. In addition to cash incentive plans, the Company maintains stock option plans to provide incentives for superior performance and to align the interests of its executive officers and the Banks' presidents and managers with those of the Company's shareholders. - Emphasizing trust service needs of small businesses and affluent individuals residing in the Banks' market areas. Through Lake Forest Bank's trust department, the Company is currently providing investment management and trust services to small businesses and individuals residing in many of the Banks' market areas. The Company intends to more aggressively market its trust services going forward in an effort to expand its market share in this fee income segment of banking business. The Company may in the future establish trust operations in other Bank locations. Management believes the Company can successfully compete for trust business by targeting 23 25 customers whose needs will be better served by the personalized attention offered by the Company's community-oriented Banks. - Deploying the Banks' expanding deposit base in specialized earning asset niches at attractive yields and risk profiles. In order to minimize the time lag typically experienced by de novo banks in redeploying deposits into higher yielding earning assets, the Company is developing lending programs focused on specialized earning asset niches having large volumes of homogeneous assets that can be acquired for the Banks' portfolios and possibly sold in the secondary market to generate fee income. Currently, the Banks are investing in premium finance loans generated by First Premium, indirect auto paper and mortgage warehouse loans. GROWTH STRATEGY The Company has experienced significant growth over the last five years. It has expanded through internal growth and the successive openings of de novo community banks in selected new market areas where management identified a perceived need for a community bank alternative. Following the first Bank opening in 1991, the Company has formed four additional de novo Banks in district communities and has added four additional full-service branches. As of December 31, 1996, the Company had a total of 13 banking facilities. In order to continue the growth of the Company, key elements of the Company's growth strategy include: - Internal growth. Management believes that the communities now served by the Banks' offices, as well as nearby communities, offer attractive opportunities for profitable growth of its commercial banking operations. Although the financial services industry continues to be highly competitive as the rapid pace of consolidation in the industry persists, in light of the disenchantment of many individuals and small businesses with the perceived lower level of service offered by the resulting larger institutions, the Company's community banking philosophy allows it to compete principally on the basis of a high level of personalized service and responsiveness. The Company has assembled what management believes to be teams of highly qualified, experienced community banking officers and personnel at each of its Banks and has implemented professional, innovative marketing programs. In addition, each of the Banks has a large board of directors comprised of influential business persons and well-connected individuals within the respective communities who assist with business development for the Banks. Due to the relative start-up nature of its banking operations, however, the Company believes it has not yet realized the full deposit and asset generation potential of its market areas. The Company intends to continue to market aggressively, with special promotions as well as customized loan products, to increase loan-to-deposit ratios while also pursuing additional specialized earning asset niches. In addition, the Company intends to actively pursue increased trust business within the Banks' markets. - The establishment of branch banks in nearby communities. An integral part of the Company's growth strategy is the establishment of additional branches of the Banks in nearby communities. In connection with the Company's five operating Banks, and additional de novo banks, if any, the Company intends to expand operations by opening branch facilities in adjacent areas where management believes targeted customers would benefit from a community banking alternative. Management believes opening additional branches will offer a cost-effective means for the Company to gain market share and provide additional services to clients in the communities they serve. - The formation of additional de novo banks. The Company plans to continue its expansion through additional de novo bank formations, seeking new markets in the Chicago area that offer similar community banking opportunities where the Company can leverage its experience. Management has identified several attractive markets as possibilities for a new bank as early as late 1997, although future bank locations have not yet been completely evaluated or selected. 24 26 - Identifying and developing niche lending businesses and potential specialty finance company acquisitions. In order to expand the Company's opportunities to invest in specialized earning asset niches, the Company may consider acquisitions or development of specialty finance businesses engaged in asset generation suitable for bank investment and/or secondary market sales. While the Company has not yet targeted any specific potential acquisitions of specialty finance businesses, management has and will continue to explore various commercial and consumer finance activities. RECENT ACQUISITION On October 24, 1996, the Board of Directors approved the acquisition of Wolfhoya Investments, Inc. ("Wolfhoya"), a company organized prior to the Reorganization by Howard D. Adams, Edward J. Wehmer and certain other persons who are directors and/or executive officers of the Company or Barrington Bank, for purposes of organizing a de novo bank in Barrington, Illinois. In December 1996, the Company issued an aggregate of 87,556 shares of Common Stock to complete the acquisition, all of which shares are restricted securities under Rule 144 promulgated under the Securities Act. In addition, there were outstanding common stock warrants of Wolfhoya that, as a result of the transaction, converted by their terms into the right to purchase 16,838 shares of Common Stock of the Company. See "SHARES ELIGIBLE FOR FUTURE SALE" and "CERTAIN TRANSACTIONS." By acquiring Wolfhoya in its organizational phase rather than commencing its own de novo bank formation, the Company achieved an expedited entry into an affluent community not yet served by the Company's other Banks. Prior to the acquisition, Wolfhoya had purchased property for the bank site, leased and furnished a temporary facility in a prime downtown location, and hired James Bishop to serve as the bank's President. Mr. Bishop has almost 30 years of banking experience in Chicago's northwest suburbs and was key to attracting other highly qualified senior officers for the Barrington Bank operation. Management believes the same community banking concept and similar marketing strategies used by the other Banks can be employed successfully in the Barrington market under the leadership of the Barrington Bank management team and the Barrington Bank board of directors to achieve additional growth in assets for the Company. Barrington Bank opened for business and first received deposits from community residents on December 19, 1996. 25 27 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial and other data of the Company. The selected statements of condition and statements of operations data, insofar as they relate to the five years in the five-year period ended December 31, 1995, have been derived from the Company's consolidated financial statements. The following information should be read in conjunction with the Company's audited Consolidated Financial Statements and the Notes thereto, included elsewhere herein. The selected financial data for the nine months ended September 30, 1996 and 1995, are derived from the Company's unaudited interim financial statements. Such unaudited interim financial statements include all adjustments (consisting only of normal, recurring accruals) that the Company considers 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. The following information should also be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION" included elsewhere in this Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, --------------------- ----------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total interest income . . . . . . . . . . . . . $ 27,398 $ 18,022 $ 25,472 $ 17,744 $ 8,239 $ 5,843 $ 11,388 Total interest expense . . . . . . . . . . . . . 17,011 11,124 15,772 9,871 3,884 3,515 7,090 -------- -------- -------- -------- -------- -------- -------- Net interest income . . . . . . . . . . . . . . 10,387 6,898 9,700 7,873 4,355 2,328 4,298 Provision for possible loan losses . . . . . . . 1,344 770 1,430 607 1,127 1,116 1,445 -------- -------- -------- -------- -------- -------- -------- Net interest income after provi- sion for possible loan losses . . . . . . . 9,043 6,128 8,270 7,266 3,228 1,212 2,853 -------- -------- -------- -------- -------- -------- -------- Gain on sale of premium finance loans . . . . . . . . . . . . . . . . . . . . 2,659 3,551 4,421 -- -- -- -- Loan servicing fees . . . . . . . . . . . . . . 1,035 782 1,083 -- -- -- -- Fees on mortgage loans sold . . . . . . . . . . 1,023 503 850 399 551 -- -- Trust fees . . . . . . . . . . . . . . . . . . 412 281 399 202 92 -- -- Service charges on deposit accounts . . . . . . 309 187 196 112 92 42 -- Securities gains, net . . . . . . . . . . . . . 18 -- -- 21 23 -- -- Other . . . . . . . . . . . . . . . . . . . . . 400 300 1,595 752 386 717 7,589 -------- -------- -------- -------- -------- -------- -------- Total non-interest income. . . . . . . . . . 5,856 5,604 8,544 1,486 1,144 759 7,589 -------- -------- -------- -------- -------- -------- -------- Salaries and employee benefits. . . . . . . . . 8,133 5,395 8,011 5,319 3,536 3,475 5,095 Occupancy expense, net. . . . . . . . . . . . . 1,245 723 1,520 1,165 790 617 918 Data processing . . . . . . . . . . . . . . . . 732 440 624 335 177 114 63 Advertising and marketing . . . . . . . . . . . 710 367 682 288 150 232 288 Nonrecurring merger related expenses . . . . . . . . . . . . . . . . . . . 849 -- -- -- -- -- -- Amortization of deferred financing fee. . . . . . . . . . . . . . . . . . . . . . 337 451 768 641 511 126 -- Other non-interest expenses . . . . . . . . . . 4,448 3,325 4,207 3,004 2,354 3,244 4,164 -------- -------- -------- -------- -------- -------- -------- Total non-interest expense . . . . . . . . . 16,454 10,701 15,812 10,752 7,518 7,808 10,528 -------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes. . . . . . . . (1,555) 1,031 1,002 (2,000) (3,146) (5,837) (86) Income tax benefit. . . . . . . . . . . . . . . (34) (198) (512) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Net income (loss) from continuing operations. . . . . . . . . . . . . . . . . . (1,521) 1,229 1,514 (2,000) (3,146) (5,837) (86) Income (loss) from operations and sale of discontinued operations . . . . . . . -- (96) (17) (236) (193) 102 1,261 -------- -------- -------- -------- -------- -------- -------- Net income (loss) . . . . . . . . . . . . . . . $ (1,521) $ 1,133 $ 1,497 $ (2,236) $ (3,339) $ (5,735) $ 1,175 ======== ======== ======== ======== ======== ======== ======== Net income (loss) per common share . . . . . . . . . . . . . . . . . . . . $ (0.25) $ 0.19 $ 0.24 $ (0.56) $ (1.14) $ (2.59) $ 0.93 ======== ======== ======== ======== ======== ======== ======== Cash dividends per common share . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ========
26 28
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, --------------------- ---------------------------------------------------------- 1996 1995 1995(1) 1994(1) 1993(1) 1992(1) 1991(2) ---- ---- ---- ---- ---- ---- ---- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Selected Financial Condition Data: Total assets at end of period ............ $621,264 $376,143 $470,890 $354,158 $188,590 $82,864 $52,422 Total deposits at end of period........... 549,303 322,516 405,658 221,985 98,264 42,996 2,361 Total loans at end of period.............. 414,405 218,730 258,231 193,982 109,276 48,527 33,482 Notes payable and subordinated debt at end of period......................... 16,554 13,028 10,758 6,905 4,837 16,050 32,413 SELECTED FINANCIAL RATIOS AND OTHER DATA(3): Performance Ratios: Net interest margin(4)................. 2.86% 2.98% 2.96% 3.35% 3.83% 3.85% N/M Net interest spread(5)................. 2.32% 2.47% 2.41% 3.07% 3.30% 2.87% N/M Non-interest income to average assets................................ 1.47% 2.19% 2.36% 0.57% 0.89% 1.05% N/M Non-interest expense to average assets(7)............................. 4.13% 4.18% 4.37% 4.14% 5.84% 10.77% N/M Return on average assets(6)(7)......... (0.38%) 0.43% 0.40% (0.88)% (2.60)% (7.91)% 1.51% Return on average equity(7)(8)......... (4.95)% 5.37% 4.66% (12.02)% (25.40)% (46.01)% 14.46% Loans-to-deposits ratio................ 75.4% 67.8% 63.7% 87.4% 111.2% 112.9% N/M Average interest-earning assets to average interest-bearing liabilities.. 111.47% 110.56% 111.37% 106.61% 115.42% 116.93% 14.46% Asset Quality Ratios: Non-performing loans to total loans.... 0.53% 0.71% 0.80% 0.01% 0.00% 0.27% 0.02% Allowance for possible loan losses to: Total loans.......................... 0.90% 1.02% 1.07% 0.88% 1.24% 1.98% 2.44% Non-performing loans................. 171.89% 143.58% 143.91% N/M N/M N/M N/M Net charge-offs to average loans....... 0.15% 0.20% 0.20% 0.18% 0.92% 2.38% 1.38% Non-performing assets to total assets.. 0.35% 0.41% 0.41% 0.01% 0.00% 0.16% 0.01% Other Data at end of period: Number of: Bank subsidiaries(9).................. 4 3 4 3 2 1 1 Banking offices(9)........................ 13 7 12 6 3 1 1
- ------------------- (1) For 1995, 1994 and 1993, reflects results of those Banks then in operation or in organization, results of finance and leasing subsidiary operations (some of which have since been curtailed) and results of discontinued operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OEPRATIONS." For 1992, reflects first full-year of Lake Forest Bank operations and results of finance and lease subsidiary operations (some of which have since been curtailed, sold or discontinued). (2) Reflects results of finance and leasing subsidiary operations, some of which have since been sold, curtailed or discontinued, and start-up of Lake Forest Bank which opened in December 1991. (3) Certain financial ratios for interim periods have been annualized. (4) Net interest income divided by average interest-earning assets. (5) Yield on average interest-earning assets less rate on average interest-bearing liabilities. (6) Net income less preferred dividends divided by average total assets. (7) For the nine-month period ended September 30, 1996, includes nonrecurring merger-related expenses of $849,000. Absent such expenses, non-interest expense to average assets, the return on average assets and return on average equity for such period would have been 3.92%, (0.17)% and (2.18)%, respectively. (8) Net income less preferred dividends divided by average common equity. (9) Excludes Barrington Bank which commenced operations on December 19, 1996. 27 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion should be read in conjunction with "SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA" and the Company's Combined and 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 Operation contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "RISK FACTORS" contained elsewhere in this Prospectus. GENERAL The profitability of the Company's operations depends primarily on its net interest income, provision for possible loan losses, non- interest income, and non-interest expense. Net interest income is the difference between the income the Company receives on its loan and investment portfolios and its cost of funds, which consists of interest paid on deposits and borrowings. The provision for possible loan losses reflects the cost of credit risk in the Company's loan portfolio. Non-interest income consists of gains on sales of loans, loan servicing fees, fees on loans sold, trust fees, and miscellaneous fees and income. Non-interest expense includes salaries and employee benefits as well as occupancy, data processing, marketing, and other expenses. Non-interest expense also includes amortization of deferred financing fees and, in 1996, certain non-recurring merger-related expenses resulting from the Reorganization. Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts and rates on interest- bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the Company's asset/liability management 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, as well as economic and market factors. Gain on sale of loans and loan servicing fees relate principally to the Company's historical practice of selling insurance premium finance loans originated into the secondary market through a securitization facility. The Company's current strategy is to retain more premium finance loans in the Banks' loan portfolios. As a result, the Company expects in the future to report relatively higher net interest income as a result of retaining these relatively higher-yielding assets in the Company's portfolio and relatively lower gains on sale of insurance premium finance loans and related loan servicing fee income. Fees on loans sold relate to the Company's practice of originating long-term fixed-rate mortgage loans for sale into the secondary market in order to satisfy customer demand for such loans while avoiding the interest-rate risk associated with holding long-term fixed-rate mortgages in the Banks' portfolios. These fees are highly dependent on the volume of real estate transactions and mortgage refinancing activity. Substantially all of the fees on loans sold related to the servicing rights that have been sold along with the mortgage loans. The Company earns trust fees for managing and administering investment funds for affluent individuals and small businesses. Miscellaneous fees and income include service charges on deposit accounts and for ancillary banking services. Non-interest expenses are heavily influenced by the growth of operations, with additional employees necessary to staff new banks and to open new branch facilities and marketing expenses necessary to promote them. Growth in the number of account relationships directly affects such expenses as data processing costs, supplies, postage and other miscellaneous expenses. CHARACTERISTICS OF THE COMPANY'S PROFITABILITY The nature of the Company's de novo bank strategy has led to, and will likely continue to lead to, differences in earnings patterns as compared to other established community banking organizations. The Company's net interest margin, which has ranged from 2.86% to 3.83% over the last three years, is low compared to industry standards for a variety of reasons. Upon entering new markets, the Company has aggressively pursued business through competitive rates in order to garner market share. The Company has been cautious in its loan origination activities, focusing on strong borrowers who often command favorable loan rates. Finally, the Company has maintained a relatively shorter term, and therefore lower-yielding, investment portfolio, in order to facilitate loan 28 30 demand as it emerges, provide funds to retain increasingly larger amounts of insurance premium finance loans in the portfolio, and maintain excess liquidity in the event deposit levels fluctuate. As the Company has been growing its balance sheet at relatively high rates over the past five years, the Company has experienced high overhead levels in relation to its assets, reflecting the necessary start-up investment in human resources and facilities to organize additional de novo banks and open new branch facilities. The Company expects that as its existing Banks mature, the organizational and start-up expenses associated with future de novo banks and new banking offices will not have as significant an impact on the Company's overhead ratio. DE NOVO BANK FORMATION AND BRANCH OPENING ACTIVITY The following table illustrates the progression of Bank and branch openings that have impacted the Company's results of operation over the past five years.
MONTH YEAR BANK LOCATION TYPE OF FACILITY - ------- ------ ------- ---------- ---------------- December 1996 Barrington Bank Barrington, Illinois Bank August 1996 Hinsdale Bank Clarendon Hills, Illinois(1) Branch May 1996 North Shore Bank Winnetka, Illinois Branch November 1995 North Shore Bank Wilmette, Illinois Drive-up/walk-up October 1995 Hinsdale Bank Hinsdale, Illinois Drive-up/walk-up October 1995 Libertyville Bank Libertyville, Illinois Bank Libertyville Bank Libertyville, Illinois Drive-up/walk-up October 1995 North Shore Bank Glencoe, Illinois Branch May 1995 Lake Forest Bank West Lake Forest, Illinois Branch December 1994 Lake Forest Bank Lake Bluff, Illinois Branch October 1994 North Shore Bank Wilmette, Illinois Bank April 1994 Lake Forest Bank Lake Forest, Illinois New permanent facilities October 1993 Hinsdale Bank Hinsdale, Illinois Bank April 1993 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up December 1991 Lake Forest Bank Lake Forest, Illinois Bank
- --------------------- (1) Operates in this location as Clarendon Hills Bank, a branch of Hinsdale Bank. ANALYSIS OF FINANCIAL CONDITION Deposits. The Company has experienced significant growth in deposits over the past three years primarily as a result of de novo bank formations and new branch openings. Total deposits balances increased to $549.3 million at September 30, 1996 compared to $405.7 million at December 31, 1995 and $222.0 million at the end of 1994. This followed a $123.7 million increase in deposits in 1994 from the $98.3 million deposit level at the end of 1993. 29 31 The following table presents deposit balances by the Banks (excluding Barrington Bank) and the relative percentage of total deposits held by each Bank at September 30, 1996 and at December 31 during the past three years:
DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------- 1996 1995 1994 1993 ---------------------- --------------------- ------------------ ----------------- PERCENT PERCENT PERCENT PERCENT BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL ----------- ---------- ------------ -------- --------- -------- -------- -------- (DOLLARS IN THOUSANDS) Lake Forest . . . . . . . . . . . $ 224,935 41% $181,186 45% $126,067 57% $81,452 83% Hinsdale . . . . . . . . . . . . . 129,730 24% 104,402 26% 59,182 27% 16,812 17% North Shore . . . . . . . . . . . 137,518 25% 93,657 23% 36,736 16% -- -- Libertyville . . . . . . . . . . . 57,120 10% 26,413 6% -- -- -- -- --------- --- -------- --- -------- --- ------- --- Total Deposits . . . . . . . . . . $ 549,303 100% $405,658 100% $221,985 100% $98,264 100% ========= === ======== === ======== === ======= === Annualized percentage increase from prior year-end . . . . . . . . . . . . 47.2% 82.7% 125.9% 128.5% ==== ==== ===== =====
Other liabilities. Other liabilities, consisting of accrued interest payable and other accrued expenses, increased to $13.1 million at December 31, 1995 from $11.2 million at December 31, 1994. Total assets and earning assets. Total assets and earning assets were $621.3 million and $565.6 million, respectively, at September 30, 1996 compared to $470.9 million and $427.5 million, respectively, at December 31, 1995. These asset increases during 1996 follow increases in 1995 from year-end 1994 levels of $354.2 million and $322.5 million, respectively. The increases in total assets and earning assets were funded primarily from continued growth in the Banks' core deposits. The level of earning assets as a percentage of total assets remained steady at approximately 91% of total assets at each of September 30, 1996 and December 31, 1995 and 1994, despite the addition of bank-owned premises during the period. The composition of earning assets has shifted as the Company increased the level of deposit funds invested into loans from shorter-term money market investments. Loans comprised 73.3%, 60.4% and 60.1% of total earning assets at September 30, 1996, December 31, 1995 and December 31, 1994, respectively. CONSOLIDATED RESULTS OF OPERATIONS COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 General. The net loss for the nine months ended September 30, 1996 was $1.5 million compared to net income of $1.1 million for the nine months ended September 30, 1995. The nine months ended September 30, 1996, included $849,000 of merger-related expenses from the Reorganization and $312,000 in legal fees related to the collection of a significant non-performing asset. Excluding these expenses, the pre-tax net loss for the nine-month period would have been $393,000. In addition, the prior nine months included an initial gain of $763,000 on the sale of premium finance loans into a securitization facility. Excluding this gain, pre-tax income for the nine months ended September 30, 1995 would have been $172,000. The $563,000 decrease in pre-tax income, as adjusted for merger-related expenses, exceptional legal fees, and the initial gain on sale, was primarily the result of non-interest expenses associated with the opening of several banking facilities exceeding the increase in net interest income and non-interest income resulting from the Company's rapid asset and deposit growth. Net interest income. Net interest income increased to $10.4 million for the nine months ended September 30, 1996, from $6.9 million for the comparable period of 1995. This increase in net interest income 30 32 of $3.5 million, or 50.6%, was attributable to a 57.0% increase in average earning assets in 1996 compared to 1995. Partially offsetting the changes due to volume was a slight decline in net interest margin to 2.86% for the first nine months of 1996 from 2.98% for the comparable period in 1995, due to a decline in the general interest rate environment during 1996. Because the Company's overall earning asset portfolio reprices at a rate quicker than its liabilities, the decline in interest rates had an unfavorable impact on the Company's net interest margin. Provision for possible loan losses. The provision for possible loan losses increased to $1.3 million in the nine months ended September 30, 1996, from $770,000 in the prior year period. At September 30, 1996, the allowance for possible loan losses represented at 0.90% of loans outstanding which management believed was adequate to cover potential losses in the portfolio. There can be no assurance that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for possible loan losses will be dependent upon the economy, changes in real estate values, interest rates, the view of regulatory agencies toward adequate reserve levels, and past due and non-performing loan levels. Non-interest income. Total non-interest income increased approximately $252,000, or 4.5%, to $5.9 million for the first nine months of 1996, as compared to $5.6 million in the same period in 1995. Gains on the sale of premium finance loans, which are dependent upon the total loans originated and sold into a securitization facility, decreased to $2.7 million for the first nine months of 1996 from $3.6 million for the first nine months of 1995. While total insurance premium finance loans originated and sold during the first nine months of 1996 remained relatively steady at $224.0 million compared to $225.0 million for the first nine months of 1995, an initial gain of $763,000 was recorded in February 1995 when a significant portion of the existing premium finance loan portfolio was sold to a newly structured securitization facility. Absent the initial gain recognition in 1995, the amount of gains recorded was relatively stable. Loan servicing fees increased to $1.0 million for the first nine months of 1996 compared to $782,000 for the same period of 1995, primarily due to an increase in the amount of average managed insurance premiums in the 1996 period. During the first nine months of 1996, average managed insurance premiums that were serviced by the Company for others were $111.0 million. Due to the change in the structure of the securitization facility in February 1995 whereby the loans sold into the securitization facility were treated as sales and therefore qualified to receive a servicing fee, the comparable 1995 period had only seven months of service fee income on average managed insurance premium loans for that seven-month period of $102.0 million. Fees on mortgage loans sold relate to income derived by the Banks for services rendered in originating and selling residential mortgages into the secondary market. Such fees doubled to $1.0 million for the first nine months of 1996 from $503,000 for the first nine months of 1995 primarily due to increased volume. Approximately $306,000 of the increase was generated from North Shore Bank which only began such activities during 1995 but which had a complete period of loan sales in 1996. Libertyville Bank also contributed approximately $125,000 during the first nine months of 1996. Service charges on deposit accounts increased by 65.2% to $309,000 for the nine months ended September 30, 1996, from $187,000 for the nine months ended September 30, 1995. The increase is a direct result of the 70.3% increase in deposit balances from September 30, 1995 to September 30, 1996. The majority of service charges on deposit accounts relates to customary fees on accounts in overdraft positions and for returned items on an account. Trust fees increased to $412,000 from $281,000 for the nine months ended September 30, 1996 and 1995, respectively, due primarily to increased trust business. Non-interest expense. Total non-interest expense increased approximately $5.8 million, or 53.8%, to $16.5 million for the first nine months of 1996, as compared to $10.7 million in the same period of 1995. Despite the increases in various non-interest expense categories during the first nine months of 1996 compared to 1995, the 31 33 Company's ratio of non-interest expenses, excluding the merger-related costs, to total average assets declined to 3.9% in 1996 from 4.2% in 1995. Salaries and employee benefits increased to $8.1 million for the nine months ended September 30, 1996 as compared to $5.4 million for the same period of the prior year, principally due to the increase in the number of banking facilities to 13 at September 30, 1996, from six at September 30, 1995. The increase of $2.7 million reflects an increase of approximately $700,000 related to Libertyville Bank, which only had organizational phase salaries in 1995 but which had a fully operational staff during the first nine months of 1996, and an increase of $1.1 million at North Shore Bank as a result of four banking locations being operational in 1996 compared to only one banking location during the first nine months of 1995. North Shore Bank opened a full service banking facility in Glencoe, Illinois and a drive-up/walk-up banking facility in Wilmette, Illinois during the fourth quarter of 1995 and began organizing a full service banking facility in Winnetka, Illinois during the first quarter of 1996. The Winnetka facility began full operations during the second quarter of 1996 in addition to the increased staffing to support the new banking facility, the growth in deposit and loan accounts at the previously existing banking locations requiring additional staffing to maintain the standard of customer service. Also contributing to the increase in salaries were normal salary increases and the addition of certain additional executive officers during mid-1995 and early 1996 to help manage the Company's growth. Occupancy expenses increased to $1.2 million for the nine months ended September 30, 1996, from $723,000 for the first nine months of 1995, primarily due to the significant increase in the number of the Company's facilities to almost double the number of physical locations. For the nine months ended September 30, 1996, data processing expenses increased by $292,000, or 66.4%, compared to the first nine months of 1995, as a result of the increase of deposit and loan balances of approximately 70.3% and 89.5%, respectively. Advertising and marketing expenses increased to $710,000 for the first nine months of 1996 compared to $367,000 for the first nine months of 1995, primarily due to the addition of seven banking locations during the past twelve months. Management anticipates that higher levels of marketing expense are likely to be incurred in the future as the Company continues to establish its base of customers, promotes its newly opened Barrington Bank, and opens additional banking facilities. Nonrecurring merger-related expenses were $849,000 through the first nine months of 1996. The merger of the five entities as discussed earlier in this report resulted in various legal expenses, accounting and tax related expenses, printing, and Securities and Exchange Commission filing expenses, and other applicable expenses to consummate the Reorganization. Other non-interest expenses increased by $1.1 million, or 33.8%, to $4.4 million for the nine months ended September 30, 1996 from $3.3 million for the first nine months of 1995, primarily due to the higher volume of accounts outstanding at the Banks. Also contributing to the increase was approximately $312,000 in legal fees related to efforts to collect a significant nonperforming insurance premium finance asset during the first nine months of 1996 compared to approximately $78,000 in the same period of 1995. See "BUSINESS -- Lending Activities." Income taxes. The Company recorded an income tax benefit of $34,000 for the first nine months of 1996, whereas an income tax benefit of approximately $198,000 was recorded in the same period of 1995. Prior to completion of the Reorganization on September 1, 1996, each of the merging companies except Lake Forest Bank had net operating losses and, based upon the start-up nature of the organization, there was not sufficient evidence to justify the full realization of the net deferred tax assets generated by those losses. Accordingly, a valuation allowance was established against a portion of the deferred tax assets with the combined result being that a minimal amount of Federal tax benefit was recorded. As the entities become profitable, it is anticipated that each entity will have the opportunity to recognize its own tax loss benefits to the extent it generates operating income. 32 34 COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994 General. The Company had net income of $1.5 million for the year ended December 31, 1995, compared with a net loss of $2.2 million for the year ended December 31, 1994. The increase in net income was due to an increase in net interest income of $1.8 million, an increase in non-interest income of $7.1 million and the realization of $512,000 in income tax benefits, offset by increases in the provision for possible loan losses of $823,000 and other non-interest expenses of $5.1 million. Net interest income. Net interest income increased by $1.8 million, or 23.2%, to $9.7 million in 1995 from $7.9 million in 1994. Interest income increased as average interest-earning assets increased in each major category due to growth at North Shore Bank, which was in its first year of operations in 1995, the opening of Libertyville Bank in October 1995, and continued growth at the Company's other subsidiary Banks. Interest income also increased as a result of generally higher interest rates in 1995 which led to higher yields on the Company's short-term investments and investment securities. An increase in net earning assets (average interest-earning assets less interest-bearing liabilities) of $18.9 million in 1995 over 1994, reflecting increased non-interest bearing funding provided by a $13.7 million increase in average non-interest bearing deposits and approximately $12.5 million increase in average shareholders' equity, also contributed to the increase in interest income. These increases were offset in part by increased interest expense. Deposit costs increased primarily due to the higher volume of deposits funding the higher earning-asset volume as well as higher market rates of interest and the Company's competitive deposit pricing strategies in its new markets. Net interest income was also impacted in 1995 by a lower net interest margin, which declined to 2.96% in 1995 from 3.35% in 1994. The margin decline was largely due to an unfavorable shift in the Company's earning asset mix in 1995 compared to 1994 from higher-yielding premium finance loans to loans originated or purchased by the Banks and other lower-yielding earning assets. Average premium finance loans decreased by 73.1% in 1995 as a result of the sale in February 1995 of a significant portion of this portfolio into a securitization facility. However, as discussed below, the decrease in interest income attributable to premium finance loans was offset by gains recognized in 1995 on the sale of such loans. Provision for possible loan losses. The provision for possible loan losses increased to $1.4 million in 1995 from $607,000 in 1994, due to volume increases in the loan portfolio. Total loans increased approximately $64.2 million, or 33.1%, from December 31, 1994 to December 31, 1995. At December 31, 1995, the allowance for possible loan losses represented 1.07% of loans outstanding, which management believed was adequate to cover potential losses in the portfolio. Non-interest income. Non-interest income increased to $8.5 million in 1995 from $1.5 million in 1994 primarily due to a change in the structure of the securitization facility resulting in recognition of gains on sales of premium finance loans sold to others. Gain on the sale of insurance premium finance loans was $4.4 million in 1995 versus none in 1994. The increase was a result of restructuring the securitization facility in February 1995 which dictated different accounting treatment for loans sold pursuant to the securitization facility. The new structure allowed the Company to record gains on insurance premium finance loans sold to an independent third party at the time of sale rather than recording the income over the life of the loan as a component of interest income. As a result, an initial gain of $763,000 was recorded in February 1995 when existing loans were sold to the new securitization facility, and sales of receivables subsequent to February 1995 were recorded as gains. Substantially all of the $1.1 million increase in loan servicing fees related to premium finance receivables. Beginning in 1995, the change in the structure of the securitization facility allowed for the insurance premium finance loans to be sold with servicing retained, while in 1994 no servicing fees were received on that portfolio. Fees on mortgage loans sold increased approximately $451,000 in 1995 compared to 1994. Approximately $181,000 of the increase was generated from Hinsdale Bank which only began such activities during late 1994 but which had a complete period of mortgage loan sales in 1995. Also, North Shore Bank, which did not open until the last quarter of 1994, contributed approximately $196,000 during 1995. 33 35 Trust fees increased to $399,000 in 1995 from $202,000 in 1994 primarily attributable to new trust business generated by new trust officers. Service charges on deposit accounts increased by 75.0% to $196,000 in 1995 from $112,000 in 1994. The increase is a direct result of the 82.7% increase in deposits from December 31, 1994 to December 31, 1995. The gain on settlement of contingencies is primarily a result of a one-time $735,000 gain from the repurchase of a minority interest in a now discontinued subsidiary and the settlement of various related contingencies. The actual costs required to complete the transaction were less than amounts previously accrued therefor, resulting in recognition of gain as the accruals were reversed into income. Non-interest expense. Total non-interest expense increased approximately $5.0 million, or 47.1%, to $15.8 million in 1995 from $10.8 million in 1994. Salaries and employee benefits expense increased approximately $2.7 million, principally attributable to growth in the deposit base of 82.7% from December 31, 1994 to December 31, 1995. The operation of additional facilities required additional employees in those locations and the Company's successful generation of new business from new and existing customers required additional customer support personnel to service the expanding relationships. At Lake Forest Bank, a branch established in the neighboring community of Lake Bluff in December 1994 was operational for a full year and another branch was opened in May 1995 in West Lake Forest, requiring expansion of the payroll by 10 full-time equivalent employees. At Hinsdale Bank, six full-time equivalent employees were added by year-end 1995, as the Company initiated a lending department to originate indirect automobile loans for its own portfolio and for sale to other financial institutions, requiring the addition of three lending officers. North Shore Bank was in its initial year of operation in 1994 and thus did not have a full year of salaries and employee benefits in 1994. Staffing levels began to accumulate in April 1994 and the Bank became operational in September 1994. In late 1995, North Shore Bank added a drive-through facility and opened a full-service banking facilities in Glencoe, with organizational efforts relating to its full-service facility in Winnetka also well underway. At the end of 1995, North Shore Bank had 22 full-time equivalent employees. Libertyville Bank began to accumulate staff in May 1995, and a full staffing complement of 20 full-time equivalent employees was achieved by October 1995. Occupancy expenses increased $355,000 to $1.5 million for 1995 from $1.2 million in 1994 primarily due to the increase in the number of facilities. Advertising and marketing expenses amounted to $682,000 during 1995 compared to $288,000 in 1994, due to the promotion of the opening of the new banking facilities during 1995 and the desire of management to effectively integrate the opening of those facilities into the Company's overall marketing plan. Data processing. Data processing expense increased by approximately $289,000 or 86.3% in 1995 compared to 1994, reflecting the Company's increase in deposits and loans over such period. An increase in trust accounts during 1995 also contributed to higher data processing charges. Other non-interest expense. Other non-interest expenses increased by approximately $1.2 million or 40.0% to $4.2 million for 1995 from $3.0 million for 1994, primarily due to the higher volume of accounts outstanding and the additional depreciation, supplies, and other sundry expenses related to the opening of the new facilities. Income taxes. The Company had no consolidated Federal or state income tax expense for 1995 or 1994. In 1995, an income tax benefit of $512,000 was recorded. Management determined that the Company's earnings history and projected future earnings were sufficient to make a judgment that the realization of a portion of the net deferred tax assets not previously valued was more likely than not to occur. In 1994, management had established a valuation allowance against its net deferred tax assets with the result being that no federal or state income tax expense or benefit was realized in the financial statements. See Note 11 to the Company's Consolidated Financial Statements included elsewhere herein. 34 36 COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993 General. The Company recorded a net loss of $2.2 million for the year ended December 31, 1994, compared to a net loss of $3.3 million for the year ended December 31, 1993. The decrease in net loss was due to an increase in net interest income of $3.5 million, an increase in non-interest income of $342,000, and a reduction in the provision for possible loan losses of $520,000, offset by a $3.3 million increase in non-interest expense. Net interest income. Net interest income increased to $7.9 million in 1994, or 80.8%, from $4.4 million in 1993. The increase in net interest income of $3.5 million was attributable to a 106.9% increase in average earning assets in 1994 compared to 1993. Offsetting the positive impact of the volume increase was a decline in the proportion of average interest-earning assets to average interest-bearing liabilities to 106.6% in 1994 from 115.4% in 1993. The Company's net interest margin declined to 3.35% in 1995 form 3.83% in 1994. The decline in the margin is primarily due to unfavorable shifts in the earning asset mix, as the level of premium finance loans grew at a lower rate than other earning asset categories and lower-yielding investments at the Banks comprised a greater percentage of total average earning asset of the Company. Net interest margins of de novo banks are typically adversely affected by a time lag in redeploying the funds generated from deposits into loans with higher yields than alternative short-term investments. Because 1994 included the first full year of operations for Hinsdale Bank and the initial months of operation for North Shore Bank, the impact of the lag in redeploying deposits was heightened for the Company. These two Banks comprised approximately 21.7% of total average earning assets for 1994. Another factor contributing to the decline in the net interest margin was the impact of the aggressive deposit pricing utilized by the Banks to attract potential customers so that the Banks could further promote their community based banking services. Provision for possible loan losses. The provision for possible loan losses decreased to $607,000 in 1994 from $1.1 million in 1993. The comparatively high provision for possible loan losses in the prior year related primarily to the Company's leasing business which was discontinued in 1992. Management continued to provide for additions to the allowance for possible loan losses as the loan portfolio increased approximately $146.0 million between the year-end periods. At December 31, 1994, the allowance for possible loan losses was 0.88% of total loans which management determined was adequate to cover potential losses in the portfolio. Non-interest income. Non-interest income increased by $342,000 to $1.5 million in 1994 from $1.1 million in 1993. Contributing to this increase was a result of a $110,000 increase in trust administration fees to $202,000 in 1994 and a gain on the sale of certain fixed assets of approximately $112,000. Fees on loans sold decreased by $152,000 in 1994 as compared to 1993 due to lower volume of loan refinancings. Non-interest expense. Total non-interest expense increased by approximately $3.3 million to $10.8 million in 1994 from $7.5 million in 1993, primarily due to a full year of operations at Hinsdale Bank, start-up operations at North Shore Bank and increased origination of insurance premium finance loans. Salaries and employee benefits expense increased by $1.8 million in 1994 from 1993 due to the additional staffing required to open Lake Forest Bank's permanent offices; commencement of salaries and benefits at North Shore Bank where staffing levels began to accumulate in April 1994; a full year of staffing at Hinsdale Bank during 1994; increased salaries and employee benefits primarily attributable to producing and servicing an increased volume of insurance premium finance loans; and normal annual salary and wage increases. Occupancy expense increased $375,000 to $1.2 million, or 47.5%, for the year ended December 31, 1994 from $790,000 for the year ended December 31, 1993, primarily due to the construction of one new facility as well as the increase in the number of facilities. Advertising and marketing expenses increased to $288,000 for 1994 compared to $150,000 for 1993, primarily due to the promotion of the opening of Lake Forest Bank's permanent offices, the marketing of the 35 37 opening of North Shore Bank during 1994 and the ongoing marketing at Hinsdale Bank during its first full year of operations. Data processing. Data processing expenses increased by approximately $158,000, or 89.3%, for 1994 compared to 1993, primarily due to the approximately 125.9% increase during 1994 in deposit balances and the number of accounts processed. Other non-interest expense. Other non-interest expenses increased by approximately $3.2 million, or 27.2%, for 1994 from $2.5 million for 1993, primarily attributable to the growth in loans and deposits at the Banks and the increased volume of premium finance loans originated. Income taxes. The Company had no consolidated Federal or state income tax expense or benefit for 1994 or 1993. The net operating losses generated by the Banks during initial years of operation were available to be carried forward to offset income of the respective entities in these years. 36 38 DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' 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 shareholders' equity for the nine months ended September 30, 1996 and 1995, and the years ended December 31, 1995, 1994 and 1993.
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- 1996 1995 ------------------------------------- ------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST ----------- -------- ------- ---------- -------- ------- ASSETS Interest bearing deposits with banks .......... $ 31,478 $ 1,323 5.60% $ 52,447 $ 2,507 6.37% Federal funds sold............................. 43,804 1,733 5.28% 32,540 1,409 5.77% Investment securities.......................... 93,231 3,315 4.74% 54,974 1,933 4.69% Loans, net of unearned discount ............... 316,279 21,027 8.86% 168,854 12,173 9.61% -------- ------- ---- -------- ------- ---- Total earning assets....................... $484,792 $27,398 7.54% $308,815 $18,022 7.78% -------- ------- ---- -------- ------- ---- Cash and due from banks-non-interestbearing.... 11,977 7,512 Allowance for possible loan losses............. (3,166) (1,922) Premises and equipment, net.................... 26,400 14,281 Other assets................................... 11,150 12,261 -------- -------- Total assets............................... $531,153 $340,947 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits-interest bearing...................... NOW accounts................................. 41,907 1,158 3.68% 20,041 524 3.49% Savings and money market deposits ........... 133,688 4,049 4.04% 103,828 3,356 4.31% Time deposits................................ 244,513 10,794 5.89% 128,343 5,970 6.20% -------- ------- ---- -------- ------- ---- Total interest-bearing deposits........... 420,108 16,001 5.08% 252,212 9,850 5.21% -------- ------- ---- -------- ------- ---- Short-term borrowings.......................... 647 18 3.71% 13,770 440 4.26% Term-debt and subordinated debt................ 14,168 992 9.34% 13,349 834 8.33% -------- ------- ---- -------- ------- ---- Total interest-bearing liabilities......... 434,923 17,011 5.22% 279,331 11,124 5.31% -------- ------- ---- -------- ------- ---- Non-interest bearing deposits.................. 49,123 26,893 Other liabilities.............................. 6,133 7,407 Shareholders' equity........................... 40,974 27,316 -------- -------- Total liabilities and shareholders' equity................................... $531,153 340,947 ======== ======== Interest income/average earning assets......... 484,792 27,398 7.54% 308,815 18,022 7.78% Interest expenses/average interest-bearing liabilities.................................. 434,923 17,011 5.22% 279,331 11,124 5.31% ------- ---- ------- ---- Net interest spread............................ 10,387 2.32% 6,898 2.47% ======= ==== ======= ==== Net yield on average earning assets............ 2.86% 2.98% ==== ==== YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 1995 1994 ------------------------------------- ------------------------------- AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST ----------- -------- ------- ---------- -------- ------- ASSETS Interest bearing deposits with banks ........... $ 51,159 $ 3,194 6.24% $ 28,077 $ 1,290 4.59% Federal funds sold.............................. 35,172 2,048 5.82% 18,323 791 4.32% Investment securities........................... 58,015 3,202 5.52% 40,721 2,046 5.02% Loans, net of unearned discount................. 183,614 17,028 9.27% 148,209 13,617 9.19% -------- ------- ---- --------- ------- ---- Total earning assets........................ $327,960 $25,472 7.77% $ 235,330 $17,744 7.54% -------- ------- ---- --------- ------- ---- Cash and due from banks-non-interestbearing..... 8,031 5,026 Allowance for possible loan losses ............. (2,038) (1,447) Premises and equipment, net..................... 17,687 9,034 Other assets.................................... 10,485 11,460 -------- --------- Total assets................................ $362,125 $ 259,404 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits-interest bearing....................... NOW accounts.................................. 23,214 844 3.64% 7,586 202 2.66% Savings and money market deposits............. 106,247 4,541 4.27% 80,324 3,210 4.00% Time deposits................................. 140,724 8,705 6.19% 44,709 2,086 4.67% -------- ------- ---- --------- ------- ---- Total interest-bearing deposits............ 270,185 14,090 5.21% 132,619 5,498 4.15% -------- ------- ---- --------- ------- ---- Short-term borrowings........................... 10,238 474 4.63% 78,741 3,577 4.54% Term-debt and subordinated debt................. 14,044 1,208 8.60% 9,373 796 8.49% -------- ------- ---- --------- ------- ---- Total interest-bearing liabilities.......... 294,467 15,772 5.36% 220,733 9,871 4.47% -------- ------- ---- --------- ------- ---- Non-interest bearing deposits................... 29,304 15,593 Other liabilities............................... 7,181 4,445 Shareholders' equity............................ 31,173 18,633 -------- --------- Total liabilities and shareholders' equity.. $362,125 $ 259,404 ======== ========= Interest income/average earning assets.......... 327,960 25,472 7.77% 235,330 17,744 7.54% Interest expenses/average interest-bearing liabilities................................... 294,467 15,772 5.36% 220,733 9,871 4.47% ------- ---- ------- ---- Net interest spread............................. 9,700 2.41% 7,873 3.07% ======= ==== ======= ==== Net yield on average earning assets............ 2.96% 3.35% ==== ==== YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1993 -------------------------------------------------------- AVERAGE AVERAGE YIELD/ BALANCE(1) INTEREST COST ----------- --------- ------- ASSETS Interest bearing deposits with banks.................... $ 7,932 $ 274 3.45% Federal funds sold...................................... 9,005 275 3.05% Investment securities................................... 17,761 847 4.77% Loans, net of unearned discount......................... 79,052 6,843 8.66% -------- ------ ---- Total earning assets................................ $113,750 $8,239 7.24% -------- ------ ---- Cash and due from banks-non-interestbearing............. 3,703 Allowance for possible loan losses...................... (985) Premises and equipment, net............................. 3,148 Other assets............................................ 9,194 -------- Total assets........................................ $128,810 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits-interest bearing............................... NOW accounts.......................................... 3,100 83 2.68% Savings and money market deposits..................... 39,083 1,365 3.49% Time deposits......................................... 13,752 525 3.82% -------- ------ ---- Total interest-bearing deposits..................... 55,935 1,973 3.53% -------- ------ ---- Short-term borrowings................................... 34,761 1,321 3.80% Term-debt and subordinated debt......................... 7,861 590 7.51% -------- ------ ---- Total interest-bearing liabilities.................. 98,557 3,884 3.94% -------- ------ ---- Non-interest bearing deposits........................... 7,461 Other liabilities....................................... 9,601 Shareholders' equity.................................... 13,191 -------- Total liabilities and shareholders' equity.......... $128,810 ======== Interest income/average earning assets.................. 113,750 8,239 7.24% Interest expenses/average interest-bearing liabilities........................................... 98,557 3,884 3.94% ------ ---- Net interest spread..................................... 4,355 3.30% ====== ==== Net yield on average earning assets..................... 3.83% ====
- -------------- (1) Average balances were generally computed using daily balances. 37 39 CHANGES IN INTEREST INCOME AND EXPENSE The following table shows the dollar amount of changes in interest income and expense by major categories of interest-earning assets and interest-bearing liabilities attributable to changes in volume or rate or both, for the periods indicated:
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, --------------------------------- ----------------------------------------------------- 1996 COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993 ------------------------------- --------------------- --------------------- 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) Interest earning deposits with banks ....................... $ (275) $ (909) $(1,184) $ 579 $1,325 $ 1,904 $117 $ 899 $1,016 Federal funds sold ............... (108) 432 324 346 911 1,257 147 369 516 Investment securities ............ 22 1,360 1,382 218 938 1,156 48 1,151 1,199 Loans, net of discount............ (866) 9,720 8,854 129 3,282 3,411 444 6,330 6,774 ------ ------- ------- ------ ------- ------- ---- ------ ------ Total interest income .......... (1,227) 10,603 9,376 1,272 6,456 7,728 756 8,749 9,505 ------ ------- ------- ------ ------- ------- ---- ------ ------ NOW accounts ..................... 31 603 634 97 545 642 -- 119 119 Savings and money market deposits. (194) 887 693 236 1,095 1,331 222 1,623 1,845 Time deposits .................... (288) 5,112 4,824 872 5,747 6,619 140 1,421 1,561 Short-term borrowings............. (50) (372) (422) 70 (3,173) (3,103) 302 1,954 2,256 Term debt and subordinated debt... 105 53 158 10 402 412 84 122 206 ------ ------- ------- ------ ------- ------- ---- ------ ------ Total interest expense.......... (396) 6,283 5,887 1,285 4,616 5,901 748 5,239 5,987 ------ ------- ------- ------ ------- ------- ---- ------ ------ Net interest income ............ $ (831) $ 4,320 $ 3,489 $ (13) $ 1,840 $ 1,827 $ 8 $3,510 $3,518 ====== ======= ======= ====== ======= ======= ==== ====== ======
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. ASSET-LIABILITY MANAGEMENT As a continuing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on its net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Asset-liability management policies are established and monitored by management in conjunction with the boards of directors of the Banks, subject to general oversight by the Company's Board of Directors. The policy establishes guidelines for acceptable limits on the sensitivity of the market value of assets and liabilities to changes in interest rates. 38 40 The following table illustrates the Company's estimated interest rate sensitivity and periodic and cumulative gap positions as calculated as of September 30, 1996. An institution with more assets than liabilities repricing over a given time frame is considered asset sensitive and will generally benefit from rising rates.
0-90 91-365 1-5 OVER 5 DAYS DAYS YEARS YEARS TOTAL ---- ----- ----- ------ ----- (DOLLARS IN THOUSANDS) ASSETS: Loans ............................ $201,974 $104,364 $81,223 $ 26,844 $414,405 Taxable investments .............. 50,791 15,113 5,467 2,653 74,024 Interest-bearing bank deposits.... 10,000 15,100 -- -- 25,100 Federal funds sold ............... 52,033 -- -- -- 52,033 Other ............................ -- -- -- 55,702 55,702 -------- -------- ------- ------- -------- Total assets.................... $314,798 $134,577 $86,690 $ 85,199 $621,264 ======== ======== ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: NOW .............................. $ 52,658 $ -- $ -- $ -- $ 52,658 Savings and money market.......... 114,103 -- -- 28,566 142,669 Time deposits..................... 151,240 105,494 40,829 890 298,453 Short term borrowings............. 1,812 -- -- -- 1,812 Term debt......................... 16,554 -- -- -- 16,554 Other............................. -- -- -- 109,118 109,118 -------- -------- ------- -------- -------- Total liabilities and shareholders' equity.......... $336,367 $105,494 $40,829 $138,574 $621,264 ======== ======== ======= ======== ======== Rate sensitive assets (RSA)......... $314,798 $449,375 $536,065 $621,264 $621,264 Rate sensitive liabilities (RSL).... $336,367 $441,861 $482,690 $621,264 $621,264 Cumulative gap...................... $(21,569) $ 7,514 $ 53,375 RSA/RSL............................. 0.94 1.02 1.11 RSA/Total assets.................... 0.51 0.72 0.86 RSL/Total assets.................... 0.54 0.71 0.78 GAP/Total assets.................... -3.47% 1.21% 8.59% GAP/RSA............................. -6.85% 1.67% 9.96%
While the gap position illustrated above is a useful tool that management can assess for general positioning of the Company's and its subsidiaries' balance sheets, management uses an additional measurement tool to evaluate its asset/liability sensitivity which determines exposure to changes in interest rates by measuring the percentage change in net income due to changes in rates over a two-year time horizon. Management measures such percentage change assuming an instantaneous permanent parallel shift in the yield curve of 200 basis points, both upward and 39 41 downward. Utilizing this measurement concept, the interest rate risk of the Company, expressed as a percentage change in net income over a two-year time horizon due to changes in interest rates, at September 30, 1996, is as follows:
+200 BASIS -200 BASIS POINTS POINTS ---------- ----------- Percentage change in net income due to an immediate 200 basis point change in interest rates over a two-year time horizon . . . . . 64.6% (20.4)%
LIQUIDITY AND CAPITAL RESOURCES The following table reflects various measures of the Company's capital at September 30, 1996, and at December 31, 1995 and 1994:
DECEMBER 31, SEPTEMBER 30, ------------------------ 1996 1995 1994 ------------- ------ ------ Average equity-to-average asset ratio . . . 7.7% 8.6% 7.2% Ending leverage ratio . . . . . . . . . . . 6.5% 8.5% 7.1% Ending Tier 1 risk-based capital ratio . . 8.9% 11.1% 8.9% Ending total risk-based capital ratio . . . 9.7% 11.9% 9.6% Dividend payout ratio . . . . . . . . . . . 0.0% 0.0% 0.0%
The Company's consolidated leverage ratio (Tier 1 capital/total assets less intangibles) was 6.5% at September 30, 1996 which places the Company above the "well capitalized" regulatory level. Consolidated Tier 1 and total risk-based capital were 8.9% and 9.7%, respectively. Based on guidelines established by the Federal Reserve Bank, a bank holding company is required to maintain a Tier 1 capital to risk-adjusted asset ratio of 4.0% and a total capital to risk-adjusted asset ratio of 8.0%. See "CAPITALIZATION" for the anticipated pro forma effect of the Offering on the Company's capital ratios. The Company's principal funds at the holding company level are dividends from its subsidiaries, and if necessary, borrowings or additional equity offerings. Effective September 1, 1996, the Company obtained a $25.0 million revolving credit line from a major commercial bank to consolidate separate lines previously maintained at the subsidiary holding companies. As of September 30, 1996, the Company had borrowed $16.6 million under the line. The revolving line is secured by all of the shares of common stock of the subsidiary bank holding companies and of each of the Banks, other than Barrington Bank, and bears interest on the amounts outstanding from time to time, at the Company's option, at an interest rate of either (a) LIBOR plus 150 basis points, or (b) the lender's prime rate. All principal payments due under the credit line will mature on or before September 1, 1997. Banking laws impose restrictions upon the amount of dividends which can be paid to the Company by the Banks. Based on these laws, the Banks could, subject to minimum capital requirements, declare dividends to the Company without obtaining regulatory approval in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for the current and prior two years. At September 30, 1996, $2.4 million was available as dividends from the Banks without prior regulatory approval, compared to $1.5 million at January 1, 1996, and no dividend availability from the Banks at December 31, 1994. No cash dividends were paid to the Company by its subsidiaries during the nine-month period ended September 30, 1996 or the years ended December 31, 1995, 1994, or 1993. 40 42 To finance its insurance premium loans, First Premium has in the past relied primarily on proceeds of loan sales to a securitization facility. In such transactions, First Premium transferred loans to First Premium Funding Corp., its wholly-owned special-purpose corporation, which in turn sold the loans to an independent multi-seller conduit, which issued commercial paper to finance the acquisition of the loans. Loans are also financed by short-term lines of credit. Liquidity management at the Banks involves planning to meet anticipated funding needs at a reasonable cost. Liquidity management is guided by policies formulated and monitored by the Company's senior management and each Bank's asset/liability committee, which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. Liquid assets refers to money market assets such as Federal funds sold and interest bearing deposits with banks, as well as available-for-sale debt securities and held-to-maturity securities with a remaining maturity less than one year. Net liquid assets would represent the sum of the liquid asset categories less the amount of assets pledged to secure public funds. At September 30, 1996, net liquid assets totaled approximately $97.8 million, compared to approximately $129.1 million at December 31, 1995 and $88.8 million at December 31, 1994. Long-term liquidity needs are provided by a large core deposit base, which is the most stable source of liquidity a community bank can have due to the nature of long-term relationships generally established with depositors and the security of deposit insurance provided by the FDIC. At September 30, 1996, 64.5% of total assets were funded by core deposits with balances less than $100,000, while remaining assets were funded by other funding sources such as core deposits with balances in excess of $100,000, public funds, purchased funds, and the capital of the Banks. At December 31, 1995 and 1994, 66.3% and 51.6% of total assets were funded by core deposits, respectively. The Banks routinely accept deposits from a variety of municipal entities. Typically, these municipal entities require that banks pledge marketable securities to collateralize these public deposits. At September 30, 1996, December 31, 1995 and December 31, 1994, the Banks had approximately $48.4 million, $34.6 million and $15.4 million of securities collateralizing such public deposits, respectively. 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. 41 43 BUSINESS The Company is a financial services holding company engaging in community banking and specialty finance through six operating subsidiaries. The Banks make secured and unsecured commercial, home equity, mortgage, and consumer loans, and provide numerous other financial services to their commercial and individual retail customers within their respective communities. Management intends to continue to concentrate on servicing the local communities and expects to achieve growth in its markets by providing high quality, competitive, personal service leading to comprehensive, long-term relationships with the Banks' customers. First Premium originates and services insurance premium finance receivables, almost exclusively from commercial borrowers, an increasing portion of which loans are being sold to the Banks to increase the Company's average yield on earning assets. As part of its growth strategy, the Company intends to pursue additional specialized earning asset niches that offer attractive yields and risk profiles. See "THE COMPANY -- Strategy." MARKETS The Banks are headquartered and have branch offices in various affluent suburbs of Chicago, including communities located in suburban Cook, DuPage and Lake Counties. Each of Lake Forest Bank, Hinsdale Bank and Barrington Bank is the only locally owned and managed full-service commercial bank in its primary service area. Libertyville Bank is one of only two and North Shore Bank is one of few locally owned and managed full service commercial banks in their primary service areas. The table below sets forth certain information with respect to market areas of each of the Banks:
COMMUNITIES AVERAGE PER BANK SERVED POPULATION(1) CAPITA INCOME(3) ---- ------------ ------------- ---------------- Lake Forest Bank Lake Forest, Illinois 18,771 $ 47,200 Lake Bluff, Illinois 6,125 38,100 Hinsdale Bank Hinsdale, Illinois 16,357 39,215 Clarendon Hills, Illinois(2) 7,491 24,884 Western Springs, Illinois 12,464 27,848 Burr Ridge, Illinois 9,232 37,797 North Shore Bank Wilmette, Illinois 27,547 38,465 Kenilworth, Illinois 2,521 69,814 Glencoe, Illinois 8,705 60,012 Winnetka, Illinois 12,899 62,482 Libertyville Bank Libertyville, Illinois 19,757 25,428 Mundelein, Illinois 23,995 16,950 Vernon Hills, Illinois 18,830 20,625 Barrington Bank Barrington, Illinois 9,830 30,048 Barrington Hills, Illinois 4,629 60,257 Lake Barrington, Illinois 4,065 47,156 South Barrington, Illinois 3,760 47,248 North Barrington, Illinois 2,365 51,948 Inverness, Illinois 7,564 47,637
- -------------------- (1) Reflects 1994 estimates published by Bureau of the Census, U.S. Department of Commerce. (2) Operates in this location as Clarendon Hills Bank, a branch of Hinsdale Bank. (3) Reflects 1989 information; 1990 US Census Data 42 44 First Premium is licensed or otherwise qualified to do business as an insurance premium finance company in 38 states. Virtually all of its outstanding receivables are commercial accounts. DEPOSITS The Banks offer a variety of accounts for depositors designed to attract both short-term and long-term deposits. The Banks' deposit accounts include certificates of deposit, savings accounts, checking and NOW accounts and money market accounts. The Banks continue to aggressively promote products to the community through innovative marketing programs and attempt to meld competitive products with superior customer service. For example, the Company has been successful in attracting NOW account deposits from municipalities within the Banks' markets by offering a high level of personalized attention. The following table presents the balances of deposits by category and each category as a percentage of total deposits at September 30, 1996 and at December 31, 1995, 1994 and 1993.
DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------------------------ 1996 1995 1994 1993 --------------- ------------------- -------------------- ------------------- PERCENT PERCENT PERCENT PERCENT BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL -------- -------- --------- -------- ---------- --------- --------- -------- (dollars in thousands) Demand . . . . . . . $ 55,523 10% $ 45,869 11% $ 25,118 11% $ 15,051 15% Savings . . . . . . 55,194 10% 47,189 12% 45,368 21% 31,786 32% NOW . . . . . . . . 52,658 10% 33,685 8% 13,087 6% 4,409 5% Money market . . . . 87,475 16% 74,243 18% 57,814 26% 26,885 27% Certificates of deposit . . . . . 298,453 54% 204,672 51% 80,598 36% 20,133 21% ------- --- -------- --- -------- --- -------- --- Total deposits . . $549,303 100% $405,658 100% $221,985 100% $ 98,264 100% ======== === ======== === ======== === ======== ===
In connection with its successive openings of new banking facilities, the Company has aggressively marketed innovative deposit products at highly competitive rates to garner market share in the communities served. As part of its strategy to continue to attract deposits, the Banks have at different times offered a variety of certificate of deposit products, with varying maturities and rates, including variable rate CDs. The aggregate amounts of time deposits, in denominations of $100,000 or more, by maturity, are shown below as of the dates indicated (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------ ------------ Three months or less . . . . . . . . . . . . . . . $ 54,872 $ 43,057 Over three through six months . . . . . . . . . . 43,240 13,138 Over six through twelve months . . . . . . . . . . 32,509 16,827 Over twelve months . . . . . . . . . . . . . . . . 17,933 20,596 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . $148,554 $ 93,618 ======== ========
LENDING ACTIVITIES The Banks aggressively seek quality loan relationships. The Banks' boards and management teams believe in sound credit analysis and loan documentation. Management also seeks to avoid undue concentrations of loans to a single industry or based on a single class of collateral. The Company has concentrated asset origination efforts on building lending businesses in the areas of small business and residential real estate loans, including home equity loans and lines of credit, in addition to the insurance premium finance activities conducted by First Premium. The 43 45 Company also purchases loans in the secondary market, primarily indirect auto paper and mortgage warehouse loans, some of which are later resold. Classification of loans. The following table sets forth the Company's loans at September 30, 1996 and as of December 31 for the previous five fiscal years (in thousands):
DECEMBER 31, SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------- --------- ---------- ------- --------- -------- Commercial and commercial real estate . . . . . . . . . . . . . . . $167,727 $101,271 $45,587 $13,642 $4,659 $ -- Home equity . . . . . . . . . . . . . . . 80,034 54,592 26,244 13,090 6,351 -- Indirect auto . . . . . . . . . . . . . . 79,068 37,323 -- -- -- -- Residential real estate . . . . . . . . . 50,576 37,074 26,188 14,095 9,020 -- Premium finance . . . . . . . . . . . . . 14,838 15,447 91,098 62,256 22,855 5,460 Other loans . . . . . . . . . . . . . . . 22,162 12,524 4,865 6,193 5,642 28,022 -------- -------- -------- -------- ------- ------- Total loans . . . . . . . . . . . . . . $414,405 $258,231 $193,982 $109,276 $48,527 $33,482 ======== ======== ======== ======== ======= =======
Commercial and commercial real estate loans. The commercial loan component is comprised primarily of commercial real estate loans, lines of credit for working capital purposes, and term loans for the acquisition of equipment. Commercial real estate is predominantly owner occupied and secured by a first mortgage lien and assignment of rents on the property. Equipment loans are fully amortized over 24 to 60 months and secured by titles and/or U.C.C. filings. Working capital lines are renewable annually and supported by business assets, personal guarantees and often some sort of additional collateral. Commercial business lending is generally considered to involve a higher degree of risk than traditional bank lending. The vast majority of commercial loans are made within the Banks' immediate market area. The increase can be attributed to an emphasis on business development calling programs and superior servicing of existing commercial loan customers which has increased referrals. The following table classifies the commercial loan portfolio category at December 31, 1995 by date at which the loans mature (in thousands):
1 YEAR FROM 1 AFTER OR LESS TO 5 YEARS 5 YEARS TOTAL -------- ------------ -------- -------- Commercial loans and commercial real estate loans . . . . . . . . . . $ 71,284 $ 15,927 $ 3,300 $ 90,511 Commercial paper . . . . . . . . . . . 10,760 -- -- 10,760 --------- --------- -------- -------- $ 82,044 $ 15,927 $ 3,300 $101,271 ========= ========= ======== ========
Of those loans maturing after one year, $17.6 million have fixed rates. Home equity loans. The Company's home equity loan products are generally structured as lines of credit secured by first or second position mortgage liens on the underlying property with loan-to-value ratios not exceeding 80%, including prior liens, if any. The Banks' home equity loans feature competitive rate structures and fee arrangements. In addition, during 1995, the Banks offered several promotional home equity loan products as part of its marketing strategy. Indirect auto loans. The Company purchases fixed rate indirect automobile loans from unaffiliated automobile dealers. Indirect auto loans comprise approximately 81.9% of the Company's consumer loan portfolio and is one of the Company's specialized earning asset niches. Indirect automobile loans are secured by new and 44 46 used automobiles and are generated by a network of automobile dealers located in the Chicago area with which the Company has established relationships. These credits generally have an original maturity of 36 to 60 months and the average actual maturity is estimated to be approximately 37 months. The risk associated with this portfolio is diversified amongst many individual borrowers. Management continually monitors the dealer relationships and the Banks are not dependent on any one dealer as a source of such loans. Like other consumer loans, the indirect auto loans are subject to the Banks' stringent credit standards. Residential real estate mortgages. The residential real estate category includes one- to four-family adjustable rate mortgages that have repricing terms from one to three years, construction loans to individuals, and bridge financing loans for qualifying customers. The adjustable rate mortgages are often non-agency conforming, may have terms based on differing indexes, and relate to properties located principally in the Chicago metropolitan area or vacation homes owned by local residents. Adjustable-rate mortgage loans decrease, but do not eliminate, the risks associated with changes in interest rates. Because periodic and lifetime caps limit the interest rate adjustments, the value of adjustable-rate mortgage loans fluctuates inversely with changes in interest rates. In addition, as interest rates increase, the required payments by the borrower increases, thus increasing the potential for default. The Company does not generally originate loans for its own portfolio with long-term fixed rates due to interest rate risk considerations. However, the Banks do accommodate customer requests for fixed rate loans by originating and selling the loans into the secondary market, in connection with which the Company receives fee income. In addition to the mortgages originated by the Banks' lending officers, the Company participates in mortgage warehouse lending by initially funding residential mortgages originated by mortgage banking companies and then selling the mortgages into the secondary market. All mortgage warehouse loans, another specialized asset niche for the Company, are subject to the Banks' underwriting standards. Premium finance loans. The Company's most significant specialized earning asset niche is commercial insurance premium finance receivables. The Company internally originates premium finance loans at First Premium which generally sells them to the Banks or funds the loans through asset securitization facilities. All premium finance loans financed in this manner are subject to the Company's stringent credit standards. The Company rarely finances consumer insurance premiums which are regarded by management as riskier loans. First Premium offers financing of approximately 80% of an insurance premium primarily to commercial purchasers of property and casualty and liability insurance who desire to pay insurance premiums on an installment basis. The premium finance loan allows the insured to spread the cost of the insurance policy over time. First Premium markets its financial services primarily by establishing and maintaining relationships with insurance brokers and agents and by offering a high degree of service and innovative products. Senior management is significantly involved in First Premium's marketing efforts, currently focused almost exclusively on commercial accounts which it believes provide higher returns at lower risk. In financing insurance premiums, the Company does not assume the risk of loss normally borne by insurance carriers. Typically the insured buys an insurance policy from an independent insurance agent or broker who offers financing through First Premium. The insured pays a down payment of approximately 15% to 25% of the total premium and signs a premium finance agreement for the balance due. The unearned portion of the premium secures payment of the balance due. Under the terms of the Company's standard form of financing contract, the Company has the power to cancel the insurance policy if there is a default in the payment on the finance contract and to collect the unearned portion of the premium from the insurance carrier. In the event of cancellation of a policy, the cash returned in payment of the unearned premium by the insurer is sufficient to cover the loan balance and generally the interest and other charges due as well. Other. Included in other loans are a wide variety of personal and consumer loans to individuals. The Banks have been originating consumer loans in recent years in order to provide a wider range of financial services to their customers and because such loans typically have higher interest rate spreads than mortgage loans. Consumer 45 47 loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans due to the type and nature of the collateral. The Company has no loans to businesses or governments of foreign countries. ASSET QUALITY Nonaccrual, Past Due and Restructured Loans. The following table sets forth nonaccrual loans as of the dates shown (in thousands):
DECEMBER 31, SEPTEMBER 30, --------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------- --------- ---------- ------- --------- -------- Nonaccrual loans . . . . . . . . . . . . . . . $2,002 $1,778 $ 4 $ 4 $ 44 $ 7 Loans past due 90 days or more . . . . . . . . 179 142 16 -- 88 -- Restructured loans . . . . . . . . . . . . . . -- -- -- -- -- -- ------ ------ --- ---- ---- --- Total nonperforming loans . . . . . . . . . 2,181 1,920 20 4 132 7 Other real estate owned . . . . . . . . . . . . -- -- -- -- -- -- ------ ------ --- ---- ---- ---- Total nonperforming assets . . . . . . . . . $2,181 $1,920 $20 $ 4 $132 $ 7 ====== ====== === ==== ==== ==== Total nonperforming loans to total loans . . . 0.53% 0.74% 0.01% --% 0.27% 0.02% Total nonperforming assets to total assets . . 0.35% 0.41% 0.01% --% 0.16% 0.01% Nonaccrual loans to total loans . . . . . . . . 0.48% 0.69% --% --% 0.09% 0.02%
It is the policy of the Company to discontinue the accrual of interest income on any loan for which there is a 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 indicated above, the Company had no significant loans (i) for which the terms had been renegotiated, or (ii) for which there were serious doubts as to the ability of the borrower to comply with repayment terms. Potential Problem Loans. In addition to those loans disclosed under "Nonaccrual, Past Due and Restructured Loans," there are certain loans in the portfolio which management has identified, through its problem loan identification system which exhibit a higher than normal credit risk. However, these loans do not represent non-performing loans to the Company. Management's review of the total loan portfolio to identify loans where there is concern that the borrower will not be able to continue to satisfy present loan repayment terms includes factors such as review of individual loans, recent loss experience and current economic conditions. Loans in this category include those with characteristics such as those past maturity more than 45 days, those that have recent adverse operating cash flow or balance sheet trends, or have general risk characteristics that the loan officer believes might jeopardize the future timely collection of principal and interest payments. The principal amount of loans in this category as of September 30, 1996, and December 31, 1995 were approximately $1.1 million and $604,000, respectively. Loans in this category generally include loans that were classified for regulatory purposes. At September 30, 1996, 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. The Company had no concentrations of loans exceeding 10% of total loans at September 30, 1996 or December 31, 1995, except for indirect auto loans as discussed above. 46 48 Other Real Estate Owned. The Company did not have any Other Real Estate Owned at the end any of the reporting periods. Summary of Loan Loss Experience. The following table summarizes average loan balances, changes in the allowance for possible loan losses arising from additions to the allowance which have been charged to earnings, and loans charged-off and recoveries on loans previously charged-off by loan category for the periods shown.
DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------ -------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Balance at beginning of period . . . . . . . $ 2,763 $ 1,702 $ 1,357 $ 961 $ 818 $ 1,115 Loans charge off: ----------------- Residential real estate . . . . . . . . . . -- -- -- -- -- -- Commercial and commercial real estate . . . -- -- (20) -- -- -- Home equity . . . . . . . . . . . . . . . . (111) (25) -- -- -- -- Premium finance . . . . . . . . . . . . . . (107) (247) (40) (5) -- -- Financing leases . . . . . . . . . . . . . . (84) (109) (205) (728) (965) (779) Other loans . . . . . . . . . . . . . . . . (72) (18) -- -- -- -- -------- -------- -------- ------- ------- ------- Total charge-offs . . . . . . . . . . . . (374) (399) (265) (733) (965) (779) -------- -------- -------- ------- ------- ------- Recoveries: ----------- Residential real estate . . . . . . . . . . -- -- -- -- -- -- Commercial and commercial real estate . . . -- -- -- -- -- -- Home equity . . . . . . . . . . . . . . . . -- -- -- -- -- -- Premium finance . . . . . . . . . . . . . . -- 30 3 2 -- -- Financing leases . . . . . . . . . . . . . . -- -- -- -- -- -- Other loans . . . . . . . . . . . . . . . . 16 -- -- -- -- -- -------- -------- -------- ------- ------- ------- Total recoveries . . . . . . . . . . . . . 16 30 3 2 -- -- -------- -------- -------- ------- ------- ------- Net loans charged-off . . . . . . . . . . . (358) (369) (262) (731) (965) (779) -------- -------- -------- ------- ------- ------- Reduction due to subsidiary sold . . . . . . -- -- -- -- (8) (963) Provision for possible loan losses . . . . . 1,344 1,430 607 1,127 1,116 1,445 -------- -------- -------- ------- ------- ------- Balance at end of period . . . . . . . . . . $ 3,749 $ 2,763 $ 1,702 $ 1,357 $ 961 $ 818 ======== ======== ======== ======= ======= ======= Average total loans outstanding . . . . . . $316,279 $183,614 $148,209 $79,052 $40,528 $56,567 ======== ======== ======== ======= ======= ======= Net charge-offs to average total loans . . . 0.15% 0.20% 0.18% 0.92% 2.38% 1.38% ======== ======== ======== ======= ======= =======
47 49 At September 30, 1996, management of the Company allocated the allowance for possible loan losses by specific category as shown in the following table (dollars in thousands). The allocations were made after considering all relevant qualitative and quantitative factors about the loan portfolio.
PERCENT OF LOANS IN EACH CATEGORY TO AMOUNT TOTAL LOANS -------- ------------- Commercial and commercial real estate . . . . . . . . $1,242 40% Home equity . . . . . . . . . . . . . . . . . . . . . 416 19% Indirect auto . . . . . . . . . . . . . . . . . . . . 366 19% Residential real estate . . . . . . . . . . . . . . . 34 12% Premium finance . . . . . . . . . . . . . . . . . . . 316 4% Other . . . . . . . . . . . . . . . . . . . . . . . . 115 6% Unallocated . . . . . . . . . . . . . . . . . . . . . 1,260 N/A ------ ---- Total . . . . . . . . . . . . . . . . . . . . . . $3,749 100% ====== ====
Control of the Company's loan quality is continually monitored by management and is reviewed by the boards of directors and credit committees of the Banks on a monthly basis, subject to the oversight by the Company's Board of Directors through its members who serve on such credit committees. Independent external review of the loan portfolio is provided by the examinations conducted by regulatory authorities, independent public accountants in conjunction with their annual audit, and an independent loan review performed by an entity engaged by the Board of Directors. The amount of additions to the allowance for possible loan losses which are charged to earnings through the provision for possible loan losses are determined based on a variety of factors, including actual charge-offs during the year, historical loss experience, delinquent loans, and an evaluation of current and prospective economic conditions in the market area. Management believes the allowance for possible loan losses is adequate to cover any potential losses. INVESTMENT ACTIVITIES Money Market Investments and Investment Securities. The Company's objective in managing its securities portfolio is to balance liquidity risk, interest rate risk and credit quality such that the earnings of the Company are maximized. Management has maintained the funds that were not invested in loans in short-term investment securities and money market investments. The carrying value of such investments is set forth in the table below.
DECEMBER 31, SEPTEMBER 30, -------------------- 1996 1995 1994 ------------ --------- --------- (IN THOUSANDS) Federal funds sold . . . . . . . . . . . . . . . . . $ 52,033 $ 55,812 $ 24,799 Interest bearing deposits with banks . . . . . . . . 25,100 50,600 42,199 Investment securities . . . . . . . . . . . . . . . 74,024 62,890 61,546 -------- -------- -------- Total money market investments and investment securities . . . . . . . . . . . . . . $151,157 $169,302 $128,544 ======== ======== ========
Federal Funds Sold, Interest Bearing Deposits with Banks and Investment Securities. Federal funds sold and interest bearing deposits with banks are very short-term investments with high-quality banks. The balances in these accounts fluctuate based upon deposit inflows and loan demand. These accounts are extremely liquid and provide management with the ability to meet liquidity needs for supplying loan demand or for other reasons. 48 50 Investment Securities. The table below sets forth the carrying value of securities at the dates indicated, presented by category:
DECEMBER 31, SEPTEMBER 30, ------------------------------ 1996 1995(1) 1994 1993 ------------ --------- --------- -------- (IN THOUSANDS) Available-for-Sale U.S. Treasury obligations . . . . . . . . . . . . $30,794 $ 5,529 $ -- $ 4,919 Federal agency obligations . . . . . . . . . . . . 21,130 25,671 -- -- Corporate notes and other securities . . . . . . . 15,808 25,762 4,773 9,390 Federal Reserve Bank stock . . . . . . . . . . . . 1,290 925 637 385 ------- ------- ------- ------- Total available-for-sale . . . . . . . . . . . . 69,022 57,887 5,410 14,694 ------- ------- ------- ------- Held-to-Maturity U.S. Treasury obligations . . . . . . . . . . . . 5,002 5,002 10,596 -- Federal agency obligations . . . . . . . . . . . . -- -- 42,504 10,317 Corporate notes . . . . . . . . . . . . . . . . . -- -- 3,036 2,811 ------- ------- ------- ------- Total held-to-maturity . . . . . . . . . . . . . 5,002 5,002 56,136 13,128 ------- ------- ------- ------- Total investment securities . . . . . . . . . . . $74,024 $62,889 $61,546 $27,822 ======= ======= ======= =======
_______________ (1) During 1995, the Company elected to transfer securities from the held-to-maturity classification to the available-for-sale classification as allowed by SFAS 115. See Note 2 to Consolidated Financial Statements included elsewhere herein. Maturities of total investment securities as of September 30, 1996 are as follows (in thousands):
FEDERAL WITHIN FROM 1 FROM 5 TO AFTER RESERVE 1 YEAR TO 5 YEARS 10 YEARS 10 YEARS BANK STOCK TOTAL ------- ---------- --------- ---------- ---------- ------- U.S. Treasuries . . . . . . . . . . . . . . $30,794 $ 5,002 $ -- $ -- $ -- $35,796 Federal agency obligations . . . . . . . . . 21,130 -- -- -- -- 21,130 Corporate notes and other securities . . . . 6,428 9,380 -- -- -- 15,808 Federal Reserve Bank stock . . . . . . . . . -- -- -- -- 1,290 1,290 ------- ------- ------- ------- -------- ------- Total . . . . . . . . . . . . . . . . . . $58,352 $14,382 $ -- $ -- $ 1,290 $74,024 ======= ======= ======= ======= ======== =======
The weighted average yield for each range of maturities of securities is shown below as of September 30, 1996:
FEDERAL WITHIN FROM 1 FROM 5 TO AFTER RESERVE 1 YEAR TO 5 YEARS 10 YEARS 10 YEARS BANK STOCK TOTAL ------- ---------- --------- ---------- ---------- ------- U.S. Treasuries . . . . . . . . . . . . . . 5.54% 4.99% -- -- -- 5.46% Federal agency obligations . . . . . . . . . 5.46% -- -- -- -- 5.46% Corporate notes and other securities . . . . 6.16% 5.62% -- -- -- 5.85% Federal Reserve Bank stock . . . . . . . . . -- -- -- -- 6.00% 6.00%
49 51 There were no securities of any single issuer which had book value in excess of 10% of shareholders' equity at September 30, 1996. TRUST SERVICES Currently, through Lake Forest Bank's trust department, the Company provides investment management and trust services for the customers of Lake Forest Bank, Hinsdale Bank, North Shore Bank and Libertyville Bank. The trust department had in excess of $100 million of assets under management as of September 30, 1996. Providing a full complement of asset management services for individuals and corporations, the major area of concentration for trust business has been investment management for individuals and small businesses. The Company markets its trust services primarily to customers whose needs it believes can be better met through the personalized attention of community bank trust officers. The Company's strategy includes a focused emphasis on further growth of the trust business, and management anticipates establishing trust departments at one or more of the other Banks as deemed appropriate to service and attract new trust business. PROPERTIES The Company's property consists of the property occupied by each of the Banks and First Premium. Lake Forest Bank has four physical banking locations. Lake Forest Bank owns its main bank facility, a three story, 18,000 square foot brick building located at 727 North Bank Lane in Lake Forest, Illinois. Lake Forest Bank constructed a drive-in, walk-up banking facility on land leased from the City of Lake Forest on the corner of Bank Lane and Wisconsin Avenue in Lake Forest, approximately one block north of the main banking facility. Lake Forest Bank also leases a 1,200 square foot, full service banking facility at 103 East Scranton Avenue in Lake Bluff, Illinois and a 2,100 square foot, full service banking facility on the west side of Lake Forest, Illinois at 810 South Waukegan Road. Lake Forest Bank maintains automated teller machines at each of its locations except the 810 South Waukegan Road facility. Lake Forest Bank has no offsite automated teller machines. Hinsdale Bank currently has three physical banking locations. Hinsdale Bank owns its main bank facility, a two story brick building located at 25 East First Street in downtown Hinsdale, Illinois. Hinsdale Bank constructed a 1,000 square foot drive-in, walk-up banking facility at 130 West Chestnut, approximately two blocks west of the main banking facility. Hinsdale Bank maintains automated teller machines at both of its locations. Hinsdale Bank has no offsite automated teller machines. Hinsdale Bank also has a building in Clarendon Hills which has approximately 6,000 square feet. Clarendon Hills Bank, a branch of Hinsdale Bank, currently occupies approximately 2,000 square feet as a full service banking facility and leases the remainder of the space to unrelated parties. North Shore Bank currently has four physical banking locations. North Shore Bank owns its main bank facility, a one story brick building that is located at 1145 Wilmette Avenue in downtown Wilmette, Illinois. North Shore Bank also owns a newly constructed 9,600 square foot drive-in, walk-up banking facility at 720 12th Street, approximately one block west of the main banking facility. North Shore Bank leases a full service banking facility at 362 Park Avenue in Glencoe, Illinois. Additionally, during May, 1996, North Shore Bank opened a branch banking facility in Winnetka, Illinois where it leases approximately 4,000 square feet. North Shore Bank maintains automated teller machines at each of its locations, except Glencoe and Winnetka. North Shore Bank has no offsite automated teller machines. Libertyville Bank currently has two physical banking locations. Libertyville Bank owns its main bank facility, a 13,000 square foot two story brick building located at 507 North Milwaukee Avenue in downtown Libertyville, Illinois, which was a former bank building. Libertyville Bank also owns a 2,500 square foot drive-in, walk-up banking facility at 201 Hurlburt Court, approximately five blocks southeast of the main banking facility. Libertyville Bank maintains automated teller machines at both of its locations. Libertyville Bank has no offsite automated teller machines. 50 52 Barrington Bank currently has one physical banking location, a 2,860 square foot space which it is leasing. The building is located at 202A South Cook Street in Barrington. This location will serve as a temporary facility for the Bank until such time as its permanent facility is completed. Barrington Bank has purchased property located at 201 South Hough in Barrington and has designed for new construction a 15,000 square foot frame structure with an attached drive-through facility. This building will serve as Barrington Bank's main bank facility when construction is completed, currently scheduled for late 1997. First Premium's offices are located at 520 Lake Cook Road, Suite 300, Deerfield, Illinois 60015. First Premium leases approximately 12,000 square feet of office space at a cost of $27,000 per month under a five-year lease expiring in the year 2000. COMPETITION The Company competes in the commercial banking industry through its subsidiaries, North Shore Bank, Lake Forest Bank, Hinsdale Bank, Libertyville Bank and Barrington Bank, in the communities each serves. The commercial banking industry is highly competitive, and the Banks face strong direct competition for deposits, loans, and other financial-related services. The Banks compete directly in Cook, DuPage and Lake counties with other commercial banks, thrifts, credit unions, stockbrokers, and the finance divisions of automobile companies. Some of these competitors are local, while others are statewide or nationwide. The Banks have developed a community banking and marketing strategy. In keeping with this strategy, the Banks provide highly personalized and responsive service unique to locally-owned and managed institutions. As such, the Banks compete for deposits principally by offering depositors a variety of deposit programs, convenient office locations, hours and other services, and for loan originations primarily through the interest rates and loan fees they charge, the efficiency and quality of services they provide to borrowers and the variety of their loan products. Some of the financial institutions and financial services organizations with which the Banks compete are not subject to the same degree of regulation as that imposed on bank holding companies, Illinois banking corporations and national bank associations. In addition, the larger banking organizations have significantly greater resources than those that will be available to the Banks. As a result, such competitors have advantages over the Banks in providing certain non-deposit services. Currently, major competitors in certain of the Banks' markets include banking subsidiaries of Harris Bankcorp, Inc., Northern Trust Corporation, and First Chicago/NBD Corp. First Premium encounters intense competition from numerous other firms, including a number of national commercial premium finance companies, companies affiliated with insurance carriers, independent insurance brokers who offer premium finance services, banks and other lending institutions. Some of First Premium's competitors are larger and have greater financial and other resources and are better known than First Premium. In addition, there are few, if any, barriers to entry into this industry in the event other firms, particularly insurance carriers and their affiliates, seek to compete in this market. First Premium believes that it offers better service and more flexibility with regard to late payments and policy cancellations than affiliates of insurance carriers, banks and other lending institutions. First Premium competes with these entities by emphasizing a high level of knowledge of the insurance industry, flexibility in structuring financing transactions, and the timely purchase of qualifying contracts. First Premium believes that its commitment to account service also distinguishes it from its competitors. It is First Premium's policy to notify the insurance agent when an insured is in default and to assist in collection, if requested by the agent. To the extent that affiliates of insurance carriers, banks, and other lending institutions add greater service and flexibility to their financing practices in the future, the company's operations could be adversely affected. There can be no assurance that First Premium will be able to continue to compete successfully in its markets. LEGAL PROCEEDINGS The Company and its subsidiaries from time to time are subject to pending and threatened legal action and proceedings arising in the normal course of business. Since the Banks act as depositories of funds, they are from time to time named as defendants in various lawsuits (such as garnishment proceedings) involving claims to the 51 53 ownership of funds in particular accounts. Any such litigation currently pending is incidental to such Bank's business and, based on information currently available to management, management believes the outcome of such actions or proceedings will not have a material adverse effect on the operations or financial condition of the Company or its subsidiaries. EMPLOYEES As of September 30, 1996, the Company had 211 full-time equivalent employees of which 58 full-time equivalent employees were employed by Lake Forest Bank, 38 full-time equivalent employees were employed by Hinsdale Bank, 51 full-time equivalent employees were employed by North Shore Bank, 21 full-time equivalent employees were employed by Libertyville Bank and 44 full-time equivalent employees were employed by First Premium. In December of 1996, Barrington Bank opened with 13 full-time equivalent employees. The Company and the Banks provide their 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. Management considers its relationship with its employees to be good. MANAGEMENT BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes of Directors who are elected to hold office for staggered three-year terms as provided in the Company's By-laws. Those persons currently serving as Class I Directors will hold office until the Annual Shareholder Meeting to be held in 1997; Class II Directors will hold office until the Annual Shareholder Meeting to be held in 1998; and Class III Directors will hold office until the Annual Shareholder Meeting to be held in 1999. The names, ages and certain background information of the persons who constitute the Board of Directors of the Company (the "Directors") are set forth below. Howard D. Adams -- (63) Chairman and Chief Executive Officer; Class I Director. Mr. Adams was the principal organizer of the Company and each of its subsidiaries. For more than the past 10 years, he has concentrated his business activities primarily in diversified financial services businesses. Since 1986, Mr. Adams has served as Chairman of Crabtree Capital Corporation ("Crabtree") and has been an officer and director of its various subsidiaries, including First Premium. Together with Edward J. Wehmer and certain other organizers, he founded Lake Forest Bancorp, Inc. ("Lake Forest") in 1991, Hinsdale Bancorp, Inc. ("Hinsdale") in 1993, North Shore Bank in 1994 and Libertyville Bancorp, Inc. ("Libertyville") in 1995. He is currently the Chairman and a Director of Crabtree, Lake Forest and Libertyville, and he is the Vice-Chairman and a Director of Hinsdale. He also serves as a director of each of the Banks and First Premium. Prior to 1986, Mr. Adams was associated in various capacities with the firm of Booz, Allen & Hamilton Inc. for 23 years. For several years during his tenure, he was the partner responsible for domestic and international banking and financial consulting services. When he left Booz Allen in 1986, he had been serving as the senior advisor in those areas. Mr. Adams is a Trustee of the Chicago Horticultural Society and Colby College of Waterville, Maine (retired) and is a member of the Lake Forest Open Lands Association. Edward J. Wehmer -- (42) President and Class I Director. Mr. Wehmer has been a principal organizer, together with Howard D. Adams, of each of the banking organizations. He has served as the President of Lake Forest and Lake Forest Bank since its establishment in 1991. Mr. Wehmer serves as the Vice Chairman and a Director of First Premium, Lake Forest, Hinsdale, Libertyville and each of the Banks. 52 54 Prior to joining Lake Forest, Mr. Wehmer was President and a director of Lincoln National Bank, Chicago, Illinois and from 1985 to 1991, Senior Vice President, Chief Financial Officer, and a director of its parent company, River Forest Bancorp, Chicago, Illinois. Mr. Wehmer also served as a managing director of that organization's six other banking subsidiaries and as President of a mortgage banking subsidiary and a commercial finance subsidiary. Mr. Wehmer is also a certified public accountant and earlier in his career spent seven years with the accounting firm of Ernst & Whinney specializing in the banking field and particularly in the area of bank mergers and acquisitions. Mr. Wehmer is a Trustee of Barat College, Lake Forest, Illinois, and is involved in several other charitable and fraternal organizations. Alan W. Adams -- (31) Class I Director. Mr. Adams has been Vice President/Lending at Lake Forest Bank since August 1993 after obtaining his law degree. He is licensed to practice law in the State of Illinois and is a member of the Illinois and American Bar Associations. Prior to law school and his association with Lake Forest Bank, Mr. Adams was the Senior Financial and Strategic Analyst for Crabtree from March through August 1990. From 1987 through 1989, Mr. Adams was a commercial lending representative for Harris Trust and Savings Bank, specializing in banking relationships with companies in the food and agribusiness industries. Mr. Adams serves on the board of directors of the Gorton Community Center and the Associate Board of the Lake Forest Open Lands Association. He is the son of Howard D. Adams. Peter Crist -- (44) Class III Director. Mr. Crist is President of Crist Partners, Ltd., an executive search firm he founded in 1994. Immediately prior thereto he was the Managing Director of the Chicago office of Russell Reynolds Associates, Inc., the largest executive search firm in the Midwest, where he was employed for more than 18 years. He is a Director of Hinsdale and Hinsdale Bank. Maurice F. Dunne, Jr. -- (69) Class II Director. Mr. Dunne has been the President of Maurice F. Dunne Ltd., an educational consulting firm, since September 1991. Prior thereto, he served as President of the Lake Forest Graduate School of Management, Lake Forest, Illinois for more than 25 years. Mr. Dunne also served as the chief operating officer of the Northern Illinois Business Association from September 1991 to June 1993. Mr. Dunne is a Director of Lake Forest, Lake Forest Bank and North Shore Bank. Eugene Hotchkiss III -- (68) Class II Director. Mr. Hotchkiss served as the President of Lake Forest College from 1970 to 1993 and has been the President Emeritus of Lake Forest College since 1993. Since 1994, Mr. Hotchkiss has been Senior Fellow of the Foundation for Independent Higher Education, Chicago, Illinois and since 1996 has been Senior Fellow of the Association of Governing Boards, Washington, D.C. Mr. Hotchkiss is a Director of Lake Forest and Lake Forest Bank. James Knollenberg -- (48) Class II Director. Mr. Knollenberg serves as the President of First Premium, which he helped organize, together with an experienced management team, in 1990. Mr. Knollenberg has 25 years experience in corporate financial services. In 1975, he co-founded Borg-Warner Insurance Finance Corp., the premium finance unit of Borg Warner Financial Services, which was later acquired by Transamerica Corporation. In the 1980's he served four years as Chief Financial Officer of Willis Corroon's Brokerage Services Group followed by four years as Director of Receivables Management for Sedgwick, Inc. Mr. Knollenberg is a Director of First Premium. 53 55 John S. Lillard -- (66) Class III Director. Mr. Lillard spent more than 15 years as an executive with JMB Institutional Realty Corporation, a real estate investment firm, where he served as President from 1979 to 1991 and as Chairman-Founder from 1992 to 1994. In addition, Mr. Lillard serves as a director of Cintas Corporation and Stryker Corporation. Mr. Lillard was a general partner of Scudder Stevens & Clark until joining JMB in 1979. Mr. Lillard is a Director of Lake Forest and Lake Forest Bank. James E. Mahoney -- (59) Class I Director. From 1978 to present, Mr. Mahoney has been the owner and President of Heidi's Cheese Products, Inc., Mundelein, Illinois. Mr. Mahoney is a Director of Libertyville and Libertyville Bank. James B. McCarthy -- (45) Class I Director. From 1991 to present, Mr. McCarthy has been President and a Director of Gemini Consulting Group, Inc., Oak Brook, Illinois, a management consulting firm focusing on the health care industry. Mr. McCarthy is a Director of Hinsdale and Hinsdale Bank. Marguerite Savard McKenna -- (54) Class II Director. Ms. McKenna, an attorney, has practiced law in Wilmette since 1983. She is a member of the Rotary Club, the Wilmette Chamber of Commerce and the North Suburban Bar Association. Ms. McKenna is a Director of North Shore Bank. Albin F. Moschner -- (44) Class II Director. Mr. Moschner is currently Vice Chairman and director and an officer of Diba, Inc., a development stage internet technology company, a position he has held since August 1996. Mr. Moschner served as President and CEO and a director of Zenith Electronics, Glenview, Illinois, from 1991 to July 1996. Previously he held the positions of Chief Operating Officer and Senior Vice President of Operations of Zenith. Mr. Moschner is also a director of Polaroid Corporation and Pella Windows Corporation. He serves as a Director of Lake Forest and Lake Forest Bank. Hollis W. Rademacher -- (61) Class III Director. Mr. Rademacher is currently self-employed as a business consultant and private investor. He has participated with Mr. Adams and Mr. Wehmer as an organizer of four of the five Banks. From 1957 to 1993, Mr. Rademacher held various positions, including Officer in Charge, U.S. Banking Department and Chief Credit Officer, of Continental Bank, N.A., Chicago, Illinois, and from 1988 to 1993 held the position of Chief Financial Officer. Mr. Rademacher is a director of Schawk, Inc. and Cityscape Financial Corp. He currently serves as a Director of each of the subsidiary holding companies and each of the Banks. J. Christopher Reyes -- (43) Class I Director. Since 1979, Mr. Reyes has been Chairman and President of Chicago Beverage Systems, Inc., a beverage distributorship headquartered in Lake Forest, Illinois. Mr. Reyes serves on the board of directors of the Boys & Girls Clubs of Chicago. Mr. Reyes is a Director of Lake Forest and Lake Forest Bank. 54 56 John N. Schaper -- (45) Class III Director. Since 1991, Mr. Schaper has been a general agent for American United Life Insurance Company. Mr. Schaper is a Director of Libertyville and Libertyville Bank. John J. Schornack -- (65) Class III Director. Mr. Schornack is Chairman and CEO of KraftSeal Corporation, Lake Forest, Illinois, and is currently serving as Chairman and a director of Binks Manufacturing Company, Chicago, Illinois. From 1955 to 1991 Mr. Schornack was with Ernst & Young, serving most recently as Vice Chairman and Managing Partner of the Midwest Region. He also is the Chairman of the Board of Trustees of Barat College, Lake Forest, Illinois. Mr. Schornack is a Director of North Shore Bank. Jane R. Stein -- (52) Class II Director. Since 1983, Ms. Stein has been the Executive Director of the Lake County Medical Society, Vernon Hills, Illinois, a not-for-profit professional association for physicians in Lake County. Ms. Stein is a Director of Libertyville and Libertyville Bank. Katharine V. Sylvester -- (56) Class II Director. Ms. Sylvester has been active in civic affairs in the Hinsdale area for many years. She is on the Board of Trustees of the Hinsdale Community House and is an Associate Member of the Women's Auxiliary of the Robert Crown Center for Health Education. Ms. Sylvester is a Director of Hinsdale and Hinsdale Bank. Lemuel H. Tate, Jr. -- (70) Class I Director. From 1982 to 1988, Mr. Tate was an executive with Northwestern Telecommunication Services (now known as Northwestern Technologies Group) which is a venture partnership jointly owned by Northwestern University and Northwestern Memorial Hospital Group. He retired as President and Chief Operating Officer of the company in 1988. Since 1988, he has been active in volunteer work in the local Chicago area. He is a member of the Evanston Rotary Club and is active in the International Executive Service Corps. Since its establishment, Mr. Tate has been Chairman and a Director of North Shore Bank, which opened in 1994. Larry Wright -- (56) Class III Director. For the past 32 years, Mr. Wright has been Vice President of Milbank Corporation, Chicago, Illinois, an investment advisory firm. He is a Director of Crabtree. COMPENSATION OF BOARD OF DIRECTORS Non-employee members of the Board of Directors are compensated at a rate of $500 for each board meeting attended. In addition, Directors receive $200 per meeting for attendance at meetings of any committees of the board on which they serve. Those Directors who serve on subsidiary boards are also entitled to compensation for such service. COMMITTEES OF THE BOARD OF DIRECTORS Members of the Company's Board of Directors have been appointed to serve on various committees of the Board of Directors. The Board of Directors has currently established three committees: (i) the Executive Committee; (ii) the Compensation Committee (which will also act as a nominating committee); and (iii) the Audit Committee. 55 57 Executive Committee. The Executive Committee has the authority to act in place of the full Board of Directors, when required, in connection with the following matters: critical real estate purchases and sales; temporary funding requirements; limited personnel issues (especially as they relate to strategic expansion initiatives); acquisition negotiations within specifically approved parameters; capital allocation among subsidiaries; and other issues as specifically approved by the full Board of Directors. Actions of the Executive Committee are generally subject to the ratification of the full Board of Directors. The Executive Committee consists of Mr. Rademacher (Chairman) and Messrs. Alan Adams, McCarthy, McKenna, Schaper, Tate, Wehmer and Wright. Compensation Committee. The Compensation Committee is responsible for reviewing and recommending compensation of the Company's officers and the chairmen and presidents of the Banks and First Premium; reviewing and recommending non-cash compensation programs including stock option plans and grants thereunder, retirement plans, 401(k) plans and employee stock purchase plans; recommending and slating the Company's Directors; reviewing and recommending Director compensation for the Company, the Banks and First Premium; and the preparation of the proxy statement report regarding compensation philosophy. With respect to stock option grants, it is anticipated that the committee will recommend allocations among the Banks and First Premium and will generally rely on recommendations of the Banks and First Premium as to awards to key employees. The members of the Compensation Committee are Mr. Howard D. Adams (Chairman) and Messrs. Crist, Dunne, Hotchkiss, Lillard, Mahoney and Rademacher. Audit Committee. The Audit Committee reports to the Board of Directors in discharging its responsibilities relating to the accounting, reporting and financial control practices of the Company. The Audit Committee has general responsibility for oversight of financial controls, as well as the Company's accounting and audit activities, and annually reviews the qualifications of the independent auditors. The Audit Committee is composed entirely of outside directors who are not now, and have never been, officers of the Company. The members of the Audit Committee are Mr. Schornack (Chairman) and Messrs. Moschner, Stein and Sylvester. EXECUTIVE OFFICERS The following persons serve as the executive officers of the Company. Howard D. Adams -- (63) Chairman and Chief Executive Officer. Mr. Adams serves as the Company's Chairman and Chief Executive Officer and oversees the long-term strategic, marketing and organizational planning of the Company. See the description above under "Board of Directors" for biographical information. Edward J. Wehmer -- (42) President. Mr. Wehmer serves as the Company's President and performs the functions of the Chief Operating Officer. Accordingly, he is responsible for overseeing the execution of the Company's day-to-day operations and strategic initiatives. Mr. Wehmer also serves as President of Lake Forest and Lake Forest Bank. See the description above under "Board of Directors" for biographical information. David A. Dykstra -- (35) Executive Vice President, Chief Financial Officer and Treasurer. Mr. Dykstra serves as the Company's Chief Financial Officer and oversees all financial affairs of the Company, including internal and external financial reporting. Prior thereto, Mr. Dykstra was employed from 1990 to 1995 in a similar capacity by River Forest Bancorp, Inc., Chicago, Illinois, most recently holding the position of Senior Vice President and Chief Financial Officer. Prior to his association with River Forest Bancorp, Mr. Dykstra spent seven years with KPMG Peat Marwick LLP, most recently holding the position of Audit Manager in the Financial Institutions practice. In addition to various civic and charitable activities, Mr. Dykstra is a Trustee of the Village of Lake Villa. Mr. Dykstra is a Director of Libertyville and Libertyville Bank. 56 58 Lloyd M. Bowden -- (42) Executive Vice President -- Technology. Mr. Bowden serves as Executive Vice President - Technology for the Company and is responsible for planning, implementing and maintaining all aspects of the Banks' internal data processing systems and technology designed to service the Banks' customer base. Mr. Bowden joined the Company in April 1996 to serve as the Director of Technology with responsibility for implementing technological improvements to enhance customer service capabilities and operational efficiencies. Prior thereto, he was employed by Electronic Data Systems, Inc. in various capacities since 1982, most recently in an executive management position with the Banking Services Division and previously in the Banking Group of the Management Consulting Division. Robert F. Key -- (41) Executive Vice President -- Marketing. Mr. Key serves as the Executive Vice President - Marketing for the Company and directs all advertising and marketing programs for each of the Banks. Mr. Key joined the Company in March 1996 to serve as Executive Vice President of Marketing. From 1978 through March 1996, Mr. Key was a Vice President/Account Director at Leo Burnett Company where he most recently had responsibility for the $30 million advertising budget of a business with $600 million in sales. EXECUTIVE COMPENSATION The following table summarizes the compensation paid by the Company and its subsidiaries to the Chairman and Chief Executive Officer and the four other most highly paid executive officers (the "Named Executive Officers") during 1995 and 1994 and the aggregate salary and certain other compensation estimated to be paid in 1996 based on current compensation arrangements between the Named Executive Officers and the Company.
SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------------------- LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ----------------------------------- ----------- OTHER ANNUAL SECURITIES ALL OTHER COMPEN- UNDERLYING COMPEN- NAME AND SALARY BONUS SATION(1) OPTIONS/ SATION(2) PRINCIPAL POSITION YEAR ($) ($) ($) SARS(#) ($) - ----------------------- ---- ------- ----- --------- ----------- ---------- Howard D. Adams(3) 1996 331,250 40,000 --(1) -- -- Chairman and CEO 1995 190,000 43,000 629 -- -- 1994 141,000 10,000 -- -- -- Edward J. Wehmer(4) 1996 395,000 40,000 --(1) -- -- Chief Operating Officer 1995 326,250 43,000 5,935 -- 3,482 1994 255,000 25,000 4,862 -- -- David A. Dykstra 1996 155,000 32,000 --(1) 6,825 582 Exec. Vice President & Chief 1995 80,889 12,000 2,486 30,880 -- Financial Officer 1994 N/A N/A N/A -- -- Robert F. Key 1996 121,634 40,000 --(1) 29,226 -- Exec. Vice President & 1995 N/A N/A N/A -- -- Director of Marketing 1994 N/A N/A N/A -- -- Lloyd M. Bowden 1996 90,000 20,000 --(1) 18,671 -- Exec. Vice President & 1995 N/A N/A N/A -- -- Director of Technology 1994 N/A N/A N/A -- --
- --------------- (1) Other compensation represents the sum of compensation for the use of a Company car and/or the payment of club dues. 57 59 (2) Represents compensation to the executive officer for the aggregate life insurance premium paid on behalf of the named executive officer by the Company and other miscellaneous compensation. (3) Howard D. Adams also received a salary from HDA Capital Corporation ("HDA") of $50,000 for 1995 and 1994. Such amounts are not included as compensation in the above table. HDA was paid consulting fees from Crabtree for Mr. Adams' services. Specifically, HDA received consulting fees of $95,548, $142,692 and $111,030 for the year ended December 31, 1996, 1995 and 1994, respectively. Subsequent to the Reorganization, these consulting fees were discontinued. HDA is owned by the Alan W. Adams Family Trust and the Sarah K. Adams Family Trust. See "CERTAIN TRANSACTIONS." (4) During 1996, Edward J. Wehmer entered into deferred compensation plans with Libertyville and Lake Forest. The deferred compensation plans are in the form of "Phantom Stock Agreements" whereby the amount of compensation deferred is equal to the value which Mr. Wehmer would have received had he held 6,000 shares of Libertyville and 1,300 shares of Lake Forest as of the date of the awards, respectively. The information presented below summarizes certain information about the Common Stock underlying options which were granted in 1995 by the Company or its subsidiaries to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR % OF POTENTIAL REALIZABLE NUMBER OF TOTAL VALUE AT ASSUMED WINTRUST OPTIONS/ ANNUAL RATES OF SHARES SARS STOCK PRICE UNDERLYING GRANTED TO EXERCISE APPRECIATION OPTIONS/ EMPLOYEES OR BASE FOR OPTION TERM SARS IN FISCAL PRICE EXPIRATION ------------------------ NAME GRANTED YEAR ($/SH) DATE 5% 10% ---- --------- --------- ------- ---------- ---------- --------- Howard D. Adams ........... -- -- -- -- -- -- Edward J. Wehmer........... -- -- -- -- -- -- David A. Dykstra........... 30,880 18.38% --(1) 2005 $207,850 $526,732 Robert F. Key.............. -- -- -- -- -- -- Lloyd M. Bowden............ -- -- -- -- -- --
- ---------------- (1) The exercise price per share is $9.30 for Options to purchase 11,608 shares of Common Stock; $10.77 for Options to purchase 7,241 shares of Common Stock; $11.62 for Options to purchase 6,194 shares of Common Stock; and $12.42 for Options to purchase 5,837 shares of Common Stock. 58 60 Prior to the Reorganization, the following table summarizes the number and value of stock options relating to Common Stock that were unexercised at December 31, 1995. No stock options were exercised by the named executives during 1995 or the first three quarters of 1996. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT DECEMBER 31, 1995 (#) DECEMBER 31, 1995 ($) SHARES ---------------------- ------------------------ ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) REALIZED ($) UNEXERCISABLE (1) UNEXERCISABLE (1) ---- ------------- ----------- -------------------- ------------------- Howard D. Adams ........... -- -- 11,234/2,902 18,349/ 10,500 Edward J. Wehmer........... -- -- 84,622/31,458 413,658/144,354 David A. Dykstra........... -- -- 4,712/26,168 9,000/ 45,000 Robert F. Key.............. -- -- --/-- --/-- Lloyd M. Bowden............ -- -- --/-- --/--
- -------------------- (1) The numbers and amounts in the above table represent shares of Common Stock subject to stock Options granted by the Company or its subsidiaries that were unexercised as of December 31, 1995. EMPLOYMENT AGREEMENTS The Company entered into employment agreements with Howard D. Adams on November 27, 1996 and with Edward J. Wehmer on December 16, 1996. The employment agreements provide for certain non-compete and confidentiality agreements as well as reasonable and customary benefits and severance arrangements. The base salaries to be paid to Messrs. Adams and Wehmer pursuant to the terms of each of their respective employment agreements, will be such salary as may from time to time be agreed upon between each of them and the Company. As such, it is not expected that the base salaries of Mr. Adams or Mr. Wehmer will differ materially from the amounts estimated in the Summary Compensation Table above. It is anticipated that the Company will, together with its subsidiaries, enter into employment agreements with the other members of senior management, including the Named Executive Officers other than Messrs. Adams and Wehmer. It is expected that the base salaries provided for will not differ materially from the amounts estimated above. Such agreements are also expected to provide for non-compete and confidentiality agreements as well as reasonable and customary benefits and severance arrangements. CERTAIN TRANSACTIONS Some of the executive officers and Directors of the Company are, and have been during the preceding three years, customers of the Bank, and some of the officers and directors of the Company are direct or indirect owners of 10% or more of the stock of corporations which are, or have been in the past, customers of the Bank. As such customers, they have had transactions in the ordinary course of business of the Bank, 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 management of the Company, none of the transactions involved more than the normal risk of collectibility or presented any other unfavorable features. At September 30, 1996, the Bank had $7.2 million in loans outstanding to certain Directors and executive officers of the Company and certain executive officers of the Banks, which amount represented 17.6% of total shareholders' equity as of that date. 59 61 On October 24, 1996, the Board of Directors approved the acquisition of Wolfhoya, a company organized prior to the Reorganization by Howard D. Adams and Edward J. Wehmer, and certain other persons who are Directors and/or executive officers of the Company, for purposes of establishing a de novo bank in Barrington, Illinois. See "RECENT ACQUISITION." In December 1996, the Company issued an aggregate of 87,556 shares of Common Stock to complete the acquisition, all of which shares are restricted securities under Rule 144 promulgated under the Securities Act. Pursuant to the terms of the transaction, the family of Howard D. Adams, and Messrs. Edward J. Wehmer, David A. Dykstra, Robert F. Key, Hollis W. Rademacher and Lemuel H. Tate, Jr. received, in exchange for their respective ownership interests in Wolfhoya, Common Stock of the Company in the amounts of 36,054 shares (including 18,027 shares which are held in trust for the benefit of Alan W. Adams, a Director of the Company), 15,342 shares, 5,479 shares, 5,479 shares, 1,095 shares and 5,479 shares, respectively. In addition, outstanding warrants to purchase shares of Wolfhoya were converted, in accordance with their terms, to Warrants to purchase Common Stock of the Company, and as a result, members of Howard Adams' Family and Edward J. Wehmer received Warrants to purchase shares of Common Stock in the amounts of 12,096 (including Warrants to purchase 6,048 shares which are held in trust for the benefit of Alan W. Adams) and 4,742, respectively, at a purchase price of $14.85 per share. Prior to such acquisition by the Company, Wolfhoya's debt of approximately $500,000 was in the form of a $500,000 promissory note which was personally guaranteed by Howard D. Adams and Edward J. Wehmer. Following the acquisition, the outstanding principal balance and accrued interest on the $500,000 promissory note was repaid in full. Prior to the Reorganization, certain of the Directors and officers of the Company held rights and options to acquire common stock of the various predecessor companies. In the Reorganization, such rights and options were converted on the basis of the applicable exchange ratios so as to represent the right to acquire an aggregate of 1,186,239 shares of Common Stock, at appropriately adjusted exercise prices. In addition, certain of the Directors and officers of the Company held warrants to purchase the common stock of predecessor companies which were exchanged, in connection with and as part of the Reorganization, for a combination of Common Stock and Warrants to purchase Common Stock on a basis reflective of and consistent with the applicable exchange ratios. As a result of the contribution of the outstanding warrants to the Company in exchange for Common Stock and Warrants, such directors and officers acquired an aggregate of 98,381 additional shares of Common Stock in the Reorganization without being required to pay any portion of the cash exercise price relating to their warrants, as all of such exercise price was reallocated to the Warrants issued as part of the exchange and will be payable only in the event of subsequent exercise of the Warrants. Of the Common Stock and Warrants issued in exchange for outstanding warrants, Howard D. Adams and/or certain members of his family and Edward J. Wehmer received 35,318 and 10,268 shares, respectively, and 56,231 and 14,398 Warrants, respectively. Howard D. Adams held certain options relating to shares of a subsidiary of Crabtree that had discontinued operations prior to the Reorganization. Such options were amended in connection with the Reorganization so as to convert to Options to acquire 9,299 shares of Common Stock at an exercise price appropriately adjusted to reflect such conversion. In addition, Mr. Adams owned 40,000 shares of Crabtree common stock which were purchased at a discount of $20 per share from the fair value determined at the time by the board and were subject to continuing restrictions pursuant to the Crabtree Capital Corporation 1990 Stock Purchase Plan. As a result of the Reorganization, Crabtree shares were converted into shares of Common Stock with no continuing restrictions or discounts on repurchase. Prior to the Reorganization, Mr. James Knollenberg, the President of First Premium and a Director of the Company, held certain Options to purchase 950 shares of First Premium. Such Options were converted in the Reorganization so as to represent options to acquire 65,510 shares of Common Stock at an exercise price appropriately adjusted to reflect such conversion. The conversion in the Reorganization was intended to eliminate the possibility of minority interests in one of the Company's operating subsidiaries from which the Company may look to receive dividends. Absent such provision of the Reorganization, Mr. Knollenberg would have continued to hold an option to purchase a minority position in a wholly-owned subsidiary of a mid-tier holding company for which it is unlikely there would have developed any established market for such shares. 60 62 During 1995, 1994 and 1993, certain of Crabtree's bank debt was guaranteed by Mr. Howard D. Adams in connection with which Crabtree paid an annual fee to Mr. Adams at a rate of 1.5 percent of the average balance outstanding of the debt guaranteed. Pursuant to this arrangement, Crabtree incurred expense and Mr. Adams received income of $32,973, $29,840 and $68,339 in 1995, 1994 and 1993, respectively. Subsequent to the Reorganization, the Company repaid the bank debt which terminated Mr. Adams' liability on the personal guarantee. Prior to the Reorganization, each of the predecessor companies jointly reimbursed expenses incurred by HDA for their share of marketing and secretarial personnel and direct costs incurred on behalf of the respective companies. HDA provided periodic invoices to each of the companies for such marketing and secretarial time and direct expenses based upon specific activities attributable to each of the respective companies and based on actual cost. The Alan W. Adams Family Trust and the Sarah K. Adams Family Trust are co-trusteed by Emmett McCarthy and either Alan W. Adams and Sarah K. Adams, respectively, the two adult children of Howard D. Adams. Alan W. Adams is also a Director of the Company. In addition to the expense sharing arrangement noted above, HDA received consulting fees from Crabtree for services rendered by Howard D. Adams. Such fees amounted to $95,548, $142,692 and $111,030 for the nine months ended September 30, 1996, and the years ended December 31, 1995 and 1994, respectively. Following consummation of the Reorganization, Howard D. Adams is compensated directly for his services as an executive officer of the Company. 61 63 PRINCIPAL SHAREHOLDERS The following table sets forth the beneficial ownership of the Common Stock as of December 31, 1996, and as adjusted to give effect to the Offering assuming the maximum number of shares are sold in the Offering (assuming no exercise of the oversubscription or overallotment options), with respect to (i) each Director and executive officer of the Company; (ii) all Directors and executive officers of the Company as a whole; and (iii) any shareholder known to hold in excess of 5% of any class of the Company's voting securities.
PERCENT OF PERCENT OF AMOUNT AND NATURE CLASS BEFORE CLASS AFTER OF BENEFICIAL OWNERSHIP(1) OFFERING(1) OFFERING -------------------------- ------------- --------- DIRECTOR - -------- Alan W. Adams(2) . . . . . . . 213,266 3.21% 2.72% Howard D. Adams(3)** . . . . . 504,261 7.62% 6.45% Peter Crist . . . . . . . . . . 28,556 * * Maurice F. Dunne, Jr. . . . . . 55,336 * * Eugene Hotchkiss III . . . . . 4,035 * * James Knollenberg . . . . . . . 79,110 1.18% 1.00% John S. Lillard . . . . . . . . 52,451 * * James E. Mahoney . . . . . . . 7,124 * * James B. McCarthy . . . . . . . 16,392 * * Marguerite Savard McKenna . . . 19,230 * * Albin F. Moschner. . . . . . . 3,869 * * Hollis W. Rademacher . . . . . 60,453 * * J. Christopher Reyes . . . . . 148,478 2.25% 1.90% John N. Schaper . . . . . . . . 1,811 * * John J. Schornack . . . . . . . 10,632 * * Jane R. Stein . . . . . . . . . 604 * * Katharine V. Sylvester . . . . 5,913 * * Lemuel H. Tate . . . . . . . . 21,949 * * Edward J. Wehmer** . . . . . . 269,487 3.99% 3.39% Larry Wright(4) . . . . . . . . 487,997 7.36% 6.23% --------- ----- ----- Total Directors . . . . . . . 1,990,954 29.97% 25.39% --------- ----- ----- NON-DIRECTOR EXECUTIVE OFFICERS - ------------------------------- Lloyd M. Bowden . . . . . . . . 15,641 * * David A. Dykstra . . . . . . . 22,601 * * Robert F. Key . . . . . . . . . 20,152 * * --------- ----- ----- Total Directors and Executive Officers . . . . . . . . . 2,049,348 30.86% 26.14% ========= ===== ===== OTHER SIGNIFICANT SHAREHOLDERS - ------------------------------ Milbank Corporation(5) . . . . 497,670 7.51% 6.36% Emmett McCarthy(6) . . . . . . 421,937 6.35% 5.38%
- --------------------------- * Less than 1% ** Denotes executive officer (in addition to Director) (1) Beneficial ownership percentages are calculated in accordance with SEC Rule 13d-3 promulgated under the Securities Exchange Act of 1934. (2) Includes shares held in certain family trusts for the benefit of Alan W. Adams and with respect to which he has shared voting and investment power. Does not include shares held in certain other family trusts (for which 62 64 Alan W. Adams does not act as co-trustee) and does not include shares held directly by, or indirectly through other family trusts for the benefit of Sarah K. Adams, Alan W. Adams' sister. See footnote (6) below. Sarah K. Adams and Alan W. Adams are the two adult children of Howard D. Adams. (3) Includes shares held in certain family trusts for the benefit of Mr. Howard D. Adams' children or in charitable foundations with respect to which either Mr. Adams or his wife has voting power and with respect to which Mr. Adams disclaims beneficial ownership. Does not include shares held directly by, or indirectly through certain other family trusts (for which neither Mr. Adams nor his wife act as co- trustees) for the benefit of, Mr. Adams' two adult children. (4) Includes (i) 21,379 shares and 4,667 Warrants to acquire common shares held directly by Larry Wright; (ii) 3,000 shares held by Milbank Corporation ("Milbank") of which Mr. Wright is an officer, director and principal shareholder and with respect to which shares he exercises shared voting and investment power; (iii) 26,173 shares and 3,334 Warrants to acquire Common Stock held by an employee retirement plan of Milbank of which Mr. Wright is a trustee with shared voting and investment power; (iv) 401,884 shares and 22,733 Warrants to acquire Common Stock held in Deerpath Investments LLP, a limited partnership ("Deerpath"), to which Milbank serves as investment advisor and with respect to which Mr. Wright exercises shared voting and investment power; and (v) 4,827 shares held in certain family trusts of another officer of Milbank with respect to which certain officers of Milbank act as co-trustees and exercise shared voting power. See footnote (5) below for a description of Milbank's total pro forma beneficial ownership which includes that of Mr. Wright. (5) Includes (i) 21,379 shares and 4,667 Warrants to acquire Common Stock held by Larry Wright, a director of the Company, who is an officer of Milbank; (ii) 3,000 shares held by Milbank; (iii) 26,173 shares and 3,334 Warrants to acquire Common Stock held by an employee retirement plan of Milbank of which Mr. Wright is a trustee with voting and investment power; (iv) 401,884 shares and 22,733 Warrants to acquire Common Stock held in Deerpath to which Milbank serves as investment advisor and with respect to which Mr. Wright exercises voting and investment power; and (v) 14,500 shares held in certain family trusts of another officer of Milbank with respect to which certain officers of Milbank act as co-trustees and exercise shared voting power. See footnote (4) above for a description of the beneficial ownership of Mr. Wright included within that of Milbank. (6) Includes 17,550 shares owned by Emmett D. McCarthy and his family. Also reflects 197,529 shares held by the Alan W. Adams Family Trust and 206,858 shares held by the Sarah K. Adams Family Trust, irrevocable trusts for which Emmett D. McCarthy and either Alan W. Adams or Sarah K. Adams, respectively, serve as co-trustees. The beneficiaries of the respective trusts are Alan W. Adams and Sarah K. Adams, respectively, the two adult children of Howard D. Adams, and Mr. McCarthy disclaims beneficial ownership of all such shares. See footnote (2) above regarding beneficial ownership of Alan W. Adams, a vice president of Lake Forest Bank and a Director of the Company. 63 65 SUPERVISION AND REGULATION Bank holding companies and banks are extensively regulated under federal and state law. References under this heading to applicable statutes or regulations are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference to those statutes and regulations. Any change in applicable laws or regulations may have a material adverse effect on the business of commercial banks and bank holding companies, including the Company and the Banks. However, management is not aware of any current recommendations by any regulatory authority which, if implemented, would have or would be reasonably likely to have a material effect on liquidity, capital resources, or operations of the Company or the Banks. BANK HOLDING COMPANY REGULATION The Company and each of its bank holding company subsidiaries, Lake Forest, Hinsdale and Libertyville, are registered as "bank holding companies" with the Federal Reserve and, accordingly, are subject to supervision by the Federal Reserve under the Bank Holding Company Act (the Bank Holding Company Act and the regulations issued thereunder, are collectively the "BHC Act"). The Company is required to file with the Federal Reserve periodic reports and such additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve examines the Company and may examine the Banks. The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than five percent of the voting shares or substantially all the assets of any bank or bank holding company, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined, by regulation or order, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto, such as owning and operating the premium finance business conducted by Crabtree. Under the BHC Act and Federal Reserve regulations, the Company and the Banks are prohibited from engaging in certain tie-in arrangements in connection with an extension of credit, lease, sale of property, or furnishing of services. Any person, including associates and affiliates of and groups acting in concert with such person, who purchases or subscribes for five percent or more of the Company's Common Stock may be required to obtain prior approval of the Illinois Commissioner and the Federal Reserve. Under the Illinois Banking Act, any person who thereafter acquires stock of the Company such that its interest exceeds ten percent of the Company, may be required to obtain the prior approval of the Illinois Commissioner and under the Change in Bank Control Act, a person may be required to obtain the prior regulatory approval of the FDIC or OCC, in the case of Barrington Bank, and the Federal Reserve before acquiring the power to directly or indirectly direct the management, operations or policies of the Company or the Banks or before acquiring control of 25 percent or more of any class of the Company's or Banks' outstanding voting stock. In addition, any corporation, partnership, trust or organized group that acquires a controlling interest in the Company or the Banks may have to obtain approval of the Federal Reserve to become a bank holding company and thereafter be subject to regulation as such. It is the policy of the Federal Reserve that the Company is expected to act as a source of financial strength to the Banks and to commit resources to support the Banks. The Federal Reserve takes the position that in implementing this policy, it may require the Company to provide such support when the Company otherwise would not consider itself able to do so. The Federal Reserve has adopted risk-based capital requirements for assessing bank holding company capital adequacy. These standards define regulatory capital and establish minimum capital standards in relation to assets and off-balance sheet exposures, as adjusted for credit risks. The Federal Reserve's risk-based guidelines 64 66 apply on a consolidated basis for bank holding companies with consolidated assets of $150 million or more and on a "bank-only" basis for bank holding companies with consolidated assets of less than $150 million, subject to certain terms and conditions. Under the Federal Reserve's risk-based guidelines, capital is classified into two categories. For bank holding companies, Tier 1 or "core" capital consists of common shareholders' equity, perpetual preferred stock (subject to certain limitations) and minority interests in the common equity accounts of consolidated subsidiaries, and is reduced by goodwill, certain other intangible assets and certain investments in other corporations ("Tier 1 Capital"). Tier 2 capital consists of the allowance for loan and lease losses (subject to certain conditions and limitations), perpetual preferred stock, "hybrid capital instruments," perpetual debt and mandatory convertible debt securities, and term subordinated debt and intermediate-term preferred stock. Under the Federal Reserve's capital guidelines, bank holding companies are required to maintain a minimum ratio of qualifying capital to risk-weighted assets of eight percent, of which at least four percent must be in the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to total assets of three percent, except that bank holding companies not rated in the highest category under the regulatory rating system are required to maintain a leverage ratio of one percent to two percent above such minimum. The three percent Tier 1 Capital to total assets ratio constitutes the minimum leverage standard for bank holding companies, and will be used in conjunction with the risk-based ratio in determining the overall capital adequacy of banking organizations. In addition, the Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities. In its capital adequacy guidelines, the Federal Reserve emphasizes that the foregoing standards are supervisory minimums and that banking organizations generally are expected to operate well above the minimum ratios. These guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum levels. As of September 30, 1996, on a pro forma combined basis, the Company had regulatory capital in excess of the Federal Reserve's minimum requirements. The Company had a total risk-based capital ratio of 8.9% and a leverage ratio of 6.5% as of September 30, 1996. BANK REGULATION Under Illinois law, each of North Shore Bank, Lake Forest Bank, Hinsdale Bank and Libertyville Bank are subject to supervision and examination by the Illinois Commissioner. As an affiliate of these Banks, the Company is also subject to examination by the Illinois Commissioner. Barrington Bank is subject to supervision and examination by the OCC pursuant to the National Bank Act and regulations promulgated thereunder. Each of the Banks is a member of the Federal Home Loan Bank and the Federal Reserve Bank. The deposits of the Banks are insured by the Bank Insurance Fund under the provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Banks are, therefore, also subject to supervision and examination by the FDIC. The FDIA requires that the appropriate federal regulatory authority (the Federal Reserve Bank and/or the FDIC in the case of Lake Forest Bank, North Shore Bank, Hinsdale Bank and Libertyville Bank, or the OCC, in the case of Barrington Bank) approve any merger and/or consolidation by or with an insured bank, as well as the establishment or relocation of any bank or branch office. The FDIC also supervises compliance with the provisions of federal law and regulations which place restrictions on loans by FDIC-insured banks to their directors, executive officers and other controlling persons. Furthermore, banks are affected by the credit policies of other monetary authorities, including the Federal Reserve, which regulate the national supply of bank credit. Such regulation influences overall growth of bank loans, investments, and deposits and may also affect interest rates charged on loans and paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. 65 67 All banks located in Illinois have traditionally been restricted as to the number and geographic location of branches which they may establish. The Illinois Banking Act was amended in June, 1993, however, to eliminate such branching restrictions. Accordingly, banks located in Illinois are now permitted to establish branches anywhere in Illinois without regard to the location of other banks' main offices or the number of branches previously maintained by the bank establishing the branch. RECENT REGULATORY EXAMS The following table describes the most recent regulatory examinations, listed by type, for the Banks and their holding companies:
EXAMINING DATE OF MOST REGULATORY RECENT BANK AGENCY EXAMINATION TYPE OF EXAMINATION ---- -------------- --------------- --------------------- North Shore Bank Federal Reserve Bank of Chicago March 1995 Safety and Soundness Federal Reserve Bank of Chicago August 1995 Consumer Affairs and Community Reinvestment Act Illinois Commissioner November 1996 Safety and Soundness Lake Forest Bank Federal Reserve Bank of Chicago September 1995 Safety and Soundness Federal Reserve Bank of Chicago December 1996 Consumer Affairs and Community Reinvestment Act Federal Reserve Bank of Chicago December 1995 Trust Department Illinois Commissioner September 1996 Safety and Soundness Illinois Commissioner June 1995 Trust Department Hinsdale Bank Federal Reserve Bank of Chicago June 1996 Safety and Soundness Federal Reserve Bank of Chicago April 1995 Consumer Affairs and Community Reinvestment Act Illinois Commissioner July 1996 EDP Examination Illinois Commissioner January 1996 Safety and Soundness Libertyville Bank Federal Reserve Bank of Chicago March 1996 Safety and Soundness Federal Reserve Bank of Chicago November 1996 Consumer Affairs and Community Reinvestment Act Illinois Commissioner November 1996 Safety and Soundness Barrington Bank Federal Reserve Bank of Chicago N/A N/A OCC N/A N/A
While the examination reports relating to the examinations listed above contained certain recommendations by the regulatory agencies for management and the Board of Directors to consider, such recommendations by regulatory agencies are typical and are not necessarily indicative of any systemic problems. The results of the examinations listed above did not contain any material adverse findings by the respective regulatory agencies. FINANCIAL INSTITUTION REGULATION GENERALLY Transactions with Affiliates. Transactions between a bank and its holding company or other affiliates are subject to various restrictions imposed by state and federal regulatory agencies. Such transactions include loans and other extensions of credit, purchases of securities and other assets, and payments of fees or other distributions. In general, these restrictions limit the amount of transactions between an institution and an affiliate of such institution, 66 68 as well as the aggregate amount of transactions between an institution and all of its affiliates, and require transactions with affiliates to be on terms comparable to those for transactions with unaffiliated entities. Dividend Limitations. As a holding company, the Company is primarily dependent upon dividend distributions from its operating subsidiaries for its income. Federal and state statutes and regulations impose restrictions on the payment of dividends by the Company and the Banks. Federal Reserve policy provides that a bank holding company should not pay dividends unless (i) the bank holding company's net income over the prior year is sufficient to fully fund the dividends and (ii) the prospective rate of earnings retention appears consistent with the capital needs, asset quality and overall financial condition of the bank holding company and its subsidiaries. Illinois law also places certain limitations on the ability of the Company to pay dividends. For example, the Company may not pay dividends to its shareholders if, after giving effect to the dividend, the Company would not be able to pay its debts as they become due. Since a major source of the Company's revenue is dividends the Company receives and expects to receive from the Banks, the Company's ability to pay dividends is likely to be dependent on the amount of dividends paid by the Banks. No assurance can be given that the Banks will, in any circumstances, pay dividends on their stock. As Illinois state-chartered banks, none of Lake Forest Bank, North Shore Bank, Hinsdale Bank nor Libertyville Bank may pay dividends in an amount greater than its current net profits after deducting losses and bad debts out of undivided profits provided that its surplus equals or exceeds its capital. For the purpose of determining the amount of dividends that an Illinois bank 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. Without the prior approval of the OCC, Barrington Bank may not declare dividends in any calendar year in excess of its net profit for the year plus the retained net profits for the preceding two years. In addition to the foregoing, the ability of the Company and the Banks 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. Furthermore, the OCC may, after notice and opportunity for hearing, prohibit the payment of a dividend by a national bank if it determines that such payment would constitute an unsafe or unsound practice. The right of the Company, its shareholders and its creditors to participate in any distribution of the assets or earnings of its subsidiaries is further subject to the prior claims of creditors of the respective subsidiaries. Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994 requires the Federal Reserve, together with the other federal bank regulatory agencies, to prescribe standards of safety and soundness, by regulations or guidelines, relating generally to operations and management, asset growth, asset quality, earnings, stock valuation, and compensation. The Federal Reserve, the OCC and the federal bank regulatory agencies have adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, each of the Federal Reserve and the OCC adopted regulations that authorize, but do not require, the Federal Reserve or the OCC, as the case may be, to order an institution that has been given notice by the Federal Reserve or the OCC, as the case may be, that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the Federal Reserve or the OCC, as the case may be, must issue an order directing action to correct the deficiency and may issue an order directing other 67 69 actions of the types to which an undercapitalized association is subject under the "prompt corrective action" provisions of FDICIA. If an institution fails to comply with such an order, the Federal Reserve or the OCC, as the case may be, may seek to enforce such order in judicial proceedings and to impose civil money penalties. The Federal Reserve, the OCC and the other federal bank regulatory agencies also proposed guidelines for asset quality and earnings standards. A range of other provisions in FDICIA include requirements applicable to closure of branches; additional disclosures to depositors with respect to terms and interest rates applicable to deposit accounts; uniform regulations for extensions of credit secured by real estate; restrictions on activities of and investments by state-chartered banks; modification of accounting standards to conform to generally accepted accounting principles including the reporting of off-balance sheet items and supplemental disclosure of estimated fair market value of assets and liabilities in financial statements filed with the banking regulators; increased penalties in making or failing to file assessment reports with the FDIC; greater restrictions on extensions of credit to directors, officers and principal shareholders; and increased reporting requirements on agricultural loans and loans to small businesses. In August, 1995, the Federal Reserve, OCC, FDIC and other federal banking agencies published a final rule modifying their existing risk-based capital standards to provide for consideration of interest rate risk when assessing the capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC and the FDIC must explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor in evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC and other federal banking agencies also have adopted a joint agency policy statement providing guidance to banks for managing interest rate risk. The policy statement emphasizes the importance of adequate oversight by management and a sound risk management process. The assessment of interest rate risk management made by the banks' examiners will be incorporated into the banks' overall risk management rating and used to determine the effectiveness of management. Prompt Corrective Action. FDICIA requires the federal banking regulators, including the Federal Reserve, the OCC and the FDIC, to take prompt corrective action with respect to depository institutions that fall below certain capital standards and prohibits any depository institution from making any capital distribution that would cause it to be undercapitalized. Institutions that are not adequately capitalized may be subject to a variety of supervisory actions including, but not limited to, restrictions on growth, investment activities, capital distributions and affiliate transactions and will be required to submit a capital restoration plan which, to be accepted by the regulators, must be guaranteed in part by any company having control of the institution (such as the Company). In other respects, FDICIA provides for enhanced supervisory authority, including greater authority for the appointment of a conservator or receiver for under-capitalized institutions. The capital-based prompt corrective action provisions of FDICIA and their implementing regulations apply to FDIC-insured depository institutions. However, federal banking agencies have indicated that, in regulating bank holding companies, the agencies may take appropriate action at the holding company level based on their assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository institutions pursuant to the prompt corrective action provisions of FDICIA. Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution, each of the Banks is required to pay deposit insurance premiums based on the risk it poses to the insurance fund. The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve certain designated reserve ratios in the insurance funds and to impose special additional assessments. The FDIC recently amended the risk-based assessment system and on December 11, 1995, adopted a new assessment rate schedule for BIF insured deposits. The new assessment rate schedule, effective with respect to the semiannual premium assessment beginning January 1, 1996, 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 68 70 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 the first six months of 1996, the Banks, exclusive of Barrington Bank, were assessed at an average annual rate of the statutory minimum of $2,000. Deposit insurance may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The management of each of the Banks does not know any practice, condition or violation that might lead to termination of deposit insurance. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted on September 30, 1996 provides that beginning with semi-annual periods after December 31, 1996, Bank Insured Fund ("BIF") deposits will also be assessed to pay interest on the bonds (the "FICO Bonds") issued in the late 1980s by the Financing Corporation to recapitalize the now defunct Federal Savings & Loan Insurance Corporation. For purposes of the assessments to pay interest on the FICO Bonds, BIF deposits will be assessed at a rate of 20% of the assessment rate applicable to SAIF deposits until December 31, 1999. After the earlier of December 31, 1999 or the date on which the last savings association ceases to exist, full pro rata sharing of FICO assessments will begin. It has been estimated that the rates of assessment for the payment of interest on the FICO Bonds will be approximately 1.3 basis points for BIF-assessable deposits and approximately 6.4 basis points for SAIF- assessable deposits. The payment of the assessment to pay interest on the FICO Bonds should not materially affect the Banks. Federal Reserve System. The Banks are subject to Federal Reserve regulations requiring depository institutions to maintain non-interest-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve regulations generally require three percent reserves on the first $51.9 million of transaction accounts and $1.6 million plus ten percent on the remainder. The first $4.0 million of otherwise reservable balances (subject to adjustments by the Federal Reserve) are exempted from the reserve requirements. The Banks are in compliance with the foregoing requirements. Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a financial institution has a continuing and affirmative obligation, consistent with the safe and sound operation of such institution, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions. The CRA also requires that all institutions make public disclosure of their CRA ratings. Each of the Banks received "satisfactory" ratings from the FDIC on their most recent CRA performance evaluations. As of the date of this Prospectus, Barrington Bank has not undergone a regulatory CRA performance evaluation. In April 1995, the Federal Reserve, the OCC and other federal banking agencies adopted amendments revising their CRA regulations. Among other things, the amended CRA regulations substitute for the prior process-based assessment factors a new evaluation system that would rate an institution based on its actual performance in meeting community needs. In particular, the proposed system would focus on three tests: (i) a lending test, to evaluate the institution's record of making loans in its assessment areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution's delivery of services through its branches, ATMs and other offices. The amended CRA regulations also clarify how an institution's CRA performance would be considered in the application process. 69 71 Brokered Deposits. Well-capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. None of the Banks currently intends to seek brokered deposits, although they are eligible under the statutory standard to do so. Enforcement Actions. Federal and state statutes and regulations provide financial institution regulatory agencies with great flexibility to undertake enforcement action against an institution that fails to comply with regulatory requirements, particularly capital requirements. Possible enforcement actions range from the imposition of a capital plan and capital directive to receivership, conservatorship or the termination of deposit insurance. Interstate Banking and Branching Legislation. On September 29, 1994, the Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate Banking Act") was enacted. Under the Interstate Banking Act, adequately capitalized and adequately managed bank holding companies will be allowed to acquire banks across state lines subject to certain limitations. In addition, under the Interstate Banking Act, beginning on June 1, 1997, banks will be permitted to merge with one another across state lines and thereby create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, a bank could 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. Under the Interstate Banking Act, states may adopt legislation permitting interstate mergers before June 1, 1997. Alternatively, states may adopt legislation before June 1, 1997, subject to certain conditions, opting out of interstate branching. Illinois adopted legislation, effective September 29, 1995, permitting interstate mergers beginning on June 1, 1997. It is anticipated that this interstate merger and branching ability will increase competition and further consolidate the financial institutions industry. MONETARY POLICY AND ECONOMIC CONDITIONS The earnings of banks and bank holding companies are affected by general economic conditions and also by the fiscal and monetary policies of federal regulatory agencies, including the Federal Reserve. Through open market transactions, variations in the discount rate and the establishment of reserve requirements, the Federal Reserve exerts considerable influence over the cost and availability of funds obtainable for lending or investing. The above monetary and fiscal policies and resulting changes in interest rates have affected the operating results of all commercial banks in the past and are expected to do so in the future. The Banks and their respective holding companies cannot fully predict the nature or the extent of any effects which fiscal or monetary policies may have on their business and earnings. DESCRIPTION OF CAPITAL STOCK GENERAL The Company is authorized to issue 30,000,000 shares, without par value, of common stock (the "Common Stock") and 20,000,000 shares, without par value, of preferred stock (the "Preferred Stock"). As of January __, 1997, there were issued and outstanding 6,603,420 shares of Common Stock and no shares of Preferred Stock, with 1,410,203 additional shares of Common Stock reserved for issuance upon the exercise of currently outstanding Options, Rights and Warrants which represent the right to purchase Common Stock. 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 share offered hereby will be (when issued and delivered in accordance with the terms and conditions of this offering) duly authorized, fully paid and nonassessable. The transfer agent and registrar for the Common Stock is Illinois Stock Transfer Company, Chicago, Illinois. 70 72 COMMON STOCK Dividends. The holders of Common Stock will be entitled to receive and share equally in such dividends, if any, declared by the Board of Directors out of funds legally available therefor. The Company may pay dividends if, as and when declared by its Board of Directors. The payment of dividends by the Company is subject to limitations which are imposed by the IBCA. If the Company issues Preferred Stock, the holders thereof may have a priority over the holders of the Common Stock with respect to dividends. Voting Rights. The holders of Common Stock possess voting rights in the Company. They elect the Company's Board of Directors and act on such other matters as are required to be presented to them under Illinois law or the Company's Articles 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. Although there are no present plans to do so, if the Company issues Preferred Stock, holders of the Preferred Stock may also possess voting rights. Certain matters require an 85% shareholder vote. See "Certain Anti-Takeover Effects of the Company's Articles and By-Laws and Illinois Law" below. Liquidation. In the event of any liquidation, dissolution or winding up of the Company, the holders of its Common Stock would be entitled to receive, after payment or provision for payment of all debts and liabilities of the Company, all assets of the Company available for distribution. If Preferred Stock is issued, the holders thereof may have a priority over the holders of the Common Stock in the event of any liquidation or dissolution. Preemptive Rights and Redemption. Holders of the Common Stock will not be entitled to preemptive rights with respect to any shares which may be issued by the Company in the future. The Common Stock is not subject to mandatory redemption by the Company. PREFERRED STOCK Currently, no shares of the Company's authorized Preferred Stock are issued or outstanding. The Preferred Stock authorized may be issued at such time as the Board of Directors may determine, without further shareholder action, except as otherwise provided by law. Shareholders will not have preemptive rights to subscribe for shares of Preferred Stock. 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 (i) restrictions on dividends; (ii) dilution of the voting power to the extent that the Preferred Stock were given voting rights; (iii) dilution of the equity interest and voting power if the Preferred Stock were convertible into Common Stock; and (iv) 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 it has no present intention to do so, the Board of Directors could cause the Company 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 or may be observed by the Company) in amounts which could make more difficult and, therefore, less likely, a takeover, proxy contest, change in management of the Company 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 the Company's shareholders. 71 73 WARRANTS As of January ___, 1997, there were outstanding 155,340 of the Company's transferable Warrants. Each Warrant represents the right to subscribe for and purchase from the Company one share of its Common Stock (subject to certain adjustments as more fully described in the Company's Warrant Agreement). Of the total Warrants outstanding, 138,592 have an exercise price of $15.00 per share and the other 16,838 Warrants are exercisable at $14.85 per share, in each case subject to adjustment. CERTAIN ANTI-TAKEOVER EFFECTS OF THE COMPANY'S ARTICLES AND BY-LAWS AND ILLINOIS LAW General. Certain provisions of the Company's Articles, By-Laws and the IBCA 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 the Board of Directors. These provisions may have the effect of discouraging a future takeover attempt which is not approved by the Board of Directors but which individual shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of the current Board of Directors or management of the Company more difficult. The provisions of the Articles and By-Laws described below are designed to reduce, or have the effect of reducing, the vulnerability of the Company to an unsolicited proposal for the restructuring or sale of all or substantially all of the assets of the Company or an unsolicited takeover attempt which is unfair to shareholders. It is anticipated that the Board of Directors may consider and may implement a shareholder rights plan to deter coercive, hostile bids for corporate control and encourage a potential acquiror to negotiate with the Board of Directors. If a rights plan is implemented, each share of Common Stock would include an associated preferred or common share purchase right. The purchase right would entitle the holder to purchase shares of Common Stock at a price and under such other terms and conditions as set forth in the rights plan. A rights plan, if implemented, will have certain anti-takeover effects in addition to those measures described below. The following description of certain of the provisions of the Articles and By-Laws of the Company is necessarily general and is qualified in its entirety by reference to the Articles and By-Laws of the Company and the IBCA. Although no specific proposals have yet been made, the Board of Directors expressly reserves the right to introduce in the future additional measures, including the rights plan, which might have an anti-takeover effect. Authorized Shares. The Company's Articles authorize the issuance of 30,000,000 shares of Common Stock and 20,000,000 shares of Preferred Stock. The shares of Common Stock and Preferred Stock have been authorized in an amount which provides the Board of Directors with as much flexibility as possible to effect, among other things, transactions, financings, acquisitions, stock dividends, stock splits, employee stock options and a rights plan. 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. 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. The Board of Directors is divided into three classes, each of which contains approximately one-third of the whole number of the members of the Board of 72 74 Directors. Each class serves a staggered term, with approximately one-third of the total number of Directors being elected each year. The Articles and By-Laws provide that the size of the Board of Directors is determined by a majority of the Directors. The Articles and By-Laws also provide that any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of Directors or resulting from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled for the remainder of the unexpired term exclusively by a majority vote of the Directors then in office. Although under Illinois law shareholders together owning one- fifth of the shares of the Company may call a special meeting for the purpose of removing a Director with or without cause, shareholders may not elect Directors other than at an annual meeting. 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 shareholder group to fully use its voting power to gain control of the Board of Directors without the consent of the incumbent Board of Directors. Cumulative Voting; Action by Written Consent and Shareholder Meetings. The Articles do not provide for cumulative voting for any purpose. The Articles and By-Laws also provide that any action required or permitted to be taken by the shareholders may be taken only at an annual or special meeting and prohibits shareholder action by written consent in lieu of a meeting. Directors also retain the right to postpone any previously scheduled shareholder meeting and adjourn any shareholder meeting at any time, whether or not a quorum is present. Shareholder Vote Required to Approve Business Combinations. Under Illinois law, a plan of merger, consolidation or exchange may be approved only upon each corporation receiving the affirmative vote of at least 2/3 of the outstanding shares entitled to vote on such plan. Shareholder Vote Required to Approve Business Combinations with Interested Shareholders. The Company's Articles expressly elect to be governed by the provisions of Section 7.85 of the IBCA which applies to a transaction with an "Interested Shareholder" (as defined below) (the "IBCA fair price provision"). Under the IBCA, absent this provision, business combinations, including mergers, consolidations and sales of substantially all of the assets of a corporation must, subject to certain exceptions, be approved by the vote of the holders of 2/3 of the outstanding shares of common stock of the corporation and any other affected class of stock. Under the IBCA fair price provision and the Company's Articles, the approval of at least 80 percent of the shares is required in connection with any transaction involving an Interested Shareholder except (i) in cases where the proposed transaction has been approved in advance by a majority of those members of the Company's Board of Directors who are unaffiliated with the Interested Shareholder and were directors prior to the time when the Interested Shareholder became an Interested Shareholder or (ii) if the proposed transaction met certain conditions set forth therein which are designed to afford the shareholders a fair price in consideration for their shares, in which case approval of only a majority of the outstanding shares of voting stock is required. The term "Interested Shareholder" is defined to include any individual, corporation, partnership or other entity (other than the Company or any Subsidiary) which owns beneficially or controls, directly or indirectly, 10 percent or more of the outstanding shares of the Company's voting stock. This provision of the Company's Articles applies to any "Business Combination," which is defined to include (i) any merger or consolidation of the Company or any of its subsidiaries with or into any Interested Shareholder or Affiliate or Associate (as defined in the Articles) of an Interested Shareholder; (ii) any sale, lease, exchange, mortgage, transfer, or other disposition to or with any Interested Shareholder or Affiliate or Associate of 10 percent or more of the assets of the Company on a consolidated basis; (iii) the issuance or transfer to any Interested Shareholder or its Affiliate or Associate by the Company (or any Subsidiary) of any securities of the Company in exchange for any assets, cash or securities the value of which equals or exceeds 10 percent of the consolidated assets of the Company; (iv) the adoption of any plan for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Shareholder or Affiliate or Associate thereof; and (v) any reclassification of securities, recapitalization, merger or consolidation of the Company which has the effect of increasing the proportionate share of Common Stock or any class of equity or convertible securities of the Company owned directly or indirectly, by an Interested Shareholder or Affiliate or Associate thereof. 73 75 In a Business Combination involving cash or other consideration being paid to the Company's shareholders, the consideration would be required to be either cash or the same type of consideration used by the Interested Shareholder in acquiring the largest portion of shares previously acquired by it. In the case of payments to holders of Common Stock, the per share fair market value of such payments generally would have to be at least equal in value to the higher of (i) the highest per share price paid (including any brokerage commissions, transfer taxes and soliciting dealers' fees) by the Interested Shareholder in acquiring any Common Stock during the two-year period prior to the first public announcement of the proposed Business Combination (although not an Interested Shareholder at the time of any such acquisitions) or in the transaction in which it became an Interested Shareholder (whichever is higher); or (ii) the fair market value of the Company's shares on the first trading date after the date of such announcement date or on the first trading date after the date on which the Interested Shareholder became an Interested Shareholder (whichever is higher); in any case appropriately adjusted for any stock dividend, stock split, combination of shares or similar event. In a Business Combination involving cash or other consideration being paid to the holders of the Company's shares other than Common Stock, the consideration would have to be at least equal in value to the higher of (i) the highest per-share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder in acquiring any Common Stock during the two-year period prior to the first public announcement of the proposed business combination (although not an Interested Shareholder at the time of any such acquisitions) or in the transaction in which it became an Interested Shareholder (whichever is higher); or (ii) the highest per-share amount to which the holders of shares are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company; or (iii) the fair market value of the Company's shares on the first trading date after such announcement date or the date on which the Interested Shareholder became an Interested Shareholder (whichever is higher); and (iv) the price per-share equal to the fair market value per-share determined in (iii) above, multiplied by the ratio of (x) the highest per-share price paid by the Interested Shareholder in acquiring any Common Stock during the two-year period prior to such announcement date (although not an Interested Shareholder at the time of any such acquisitions) to (y) the fair market value per-share on the first day in such two-year period upon which the Interested Shareholder acquired any shares; in any case appropriately adjusted for any stock dividend, stock split, combination of shares or similar event. Fair price provisions are designed to impede two-step takeover transactions which might otherwise result in disparate treatment of the Company's shareholders. Amendment of the Articles and By-Laws. Amendment of the Articles must be approved by a majority vote of the Board of Directors and also by a 2/3 vote of the outstanding shares of Common Stock, provided, however, that an affirmative vote of at least 85 percent of the outstanding voting stock entitled to vote is required to amend or repeal certain provisions of the Articles, including provisions (i) limiting voting rights, (ii) relating to certain business combinations, (iii) limiting the shareholders ability to act by written consent, (iv) regarding the number, classification of directors, filling of Board of Directors vacancies, newly created directorships, indemnification of Directors and officers by the Company and limitation of liability for Directors, (v) regarding shareholder proposals and Director nominations and (vi) regarding amendment of the foregoing super majority provisions of the Company's Articles. The Company's By-Laws may be amended only by the Board of Directors. Certain By-Law Provisions. The By-Laws of the Company also require a shareholder who intends to nominate a candidate for election to the Board of Directors, or to raise new business at a shareholder meeting to provide advance notice to the Secretary of the Company. The notice provision requires a shareholder who desires to raise new business to provide certain information to the Company concerning the nature of the new business, the shareholder and such shareholder's interest in the business matter. Similarly, a shareholder wishing to nominate any person for election as a director must provide the Company with certain information concerning the nominee and such proposing shareholder. The provisions described above are intended to reduce the Company's vulnerability to takeover attempts and certain other transactions which have not been negotiated with and approved by members of its Board of Directors. 74 76 Attempts to take over corporations have recently become increasingly common. An unsolicited non-negotiated 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 its shareholders to encourage potential acquirors to negotiate directly with management and that these provisions will encourage such negotiations and discourage non-negotiated takeover attempts. It is also the view of the Boards of Directors that these provisions should not discourage persons from proposing a merger or other transaction at a price that reflects the true value of the Company and that otherwise is in the best interest of all shareholders. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 7,803,420 shares of Common Stock issued and outstanding, assuming no exercise of any Options, Rights or Warrants (7,983,420 if the over-subscription or over-allotment option is exercised in full). Of these shares, 6,374,255 shares, including 1,200,000 shares to be sold in this Offering (assuming no exercise of the over-subscription or over-allotment option) will be freely tradeable by persons other than "affiliates" of the Company without restriction or registration under the Securities Act. Of the remaining 1,429,165 shares (the "Affiliate Shares"), all but 87,556 shares (the "Restricted Shares") were previously registered and are held by certain Directors, officers and other affiliates of the Company and can be resold by such persons subject to certain requirements. The Restricted Shares were issued and sold by the Company in reliance upon exemptions from registration under the Securities Act. Neither the Affiliate Shares nor the Restricted Shares may be sold in the absence of registration under the Securities Act unless an exemption from registration is available. Subject to the 180-day lock-up agreements, if any, described below, the Affiliate Shares will be eligible for sale after the Offering, and the Restricted Shares will be eligible for sale commencing in November 1998, pursuant to the exemption set forth in Rule 144 under the Securities Act, if the conditions of that rule have been met. In general, under Rule 144, as currently in effect, a person (or persons whose shares are aggregated) who, together with any prior holder who was not an affiliate of the Company, has beneficially owned Restricted Shares for at least two years is entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of Common Stock (78,034 shares immediately after this Offering or 79,834 if the over-allotment option is exercised in full) or the average weekly trading volume in the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions, notice requirements and the availability of current public information about the Company. However, a person who is deemed not to have been an "affiliate" of the Company at any time during the three months preceding a sale and who, together with any prior holder who was not an affiliate of the Company, has beneficially owned Restricted Shares for at least three years, would be entitled to sell such shares under Rule 144 without regard to volume limitations, manner-of-sale provisions, notice requirements or the availability of current public information about the Company. Pursuant to lock-up agreements to be entered into between the Directors and officers of the Company and the Selling Agent in the event of a Public Offering, it is contemplated that the Directors and officers, who own an aggregate of 1,429,165 shares as of the date of this Prospectus, will agree not to offer, sell or contract to sell any Common Stock for a period of 180 days after the Company's issuance of the Common Stock without the prior written consent of the Selling Agent. Upon expiration of this 180-day period, if applicable, all of these shares, except the Restricted Shares, could be resold by the Directors, officers and other persons who are affiliates of the Company, subject to certain requirements of Rule 144 under the Securities Act as discussed above. Prior to this offering, there has been only a limited public market for the Common Stock. The shares are traded occasionally in the OTC Market and bid and ask prices are quoted on the OTC Bulletin Board. The Company has applied to have its Common Stock approved for quotation and trading on The Nasdaq National MarketSM, under the symbol "WTFC." No predictions can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. 75 77 LEGAL MATTERS Certain legal matters in connection with this offering are being passed upon for the Company by Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, Chicago, Illinois 60601 and for the Selling Agent by Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C., Chicago, Illinois. Douglas J. Lipke, a partner in the law firm of Vedder, Price, Kaufman & Kammholz, serves as a non-voting advisor to the Hinsdale Board of Directors and as of January __, 1997, owned 5,105 shares, Warrants to purchase 1,834 shares and Options to purchase 2,413 shares of the Common Stock. EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP ("KPMG"), independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. KPMG's report on the accompanying consolidated financial statements, insofar as it relates to the amounts included for Crabtree Capital Corporation, is based upon the report of Arthur Andersen LLP. The financial statements of Crabtree Capital Corporation (not included in this registration statement) to the extent and for the periods indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, which is included herein in reliance upon the authority of said firm as experts in giving said report. AVAILABLE INFORMATION The Company has filed a Registration Statement on Form S-1 under the Securities Act with the Securities and Exchange Commission (the "Commission") 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 the Company has filed with the Commission. Such materials may be inspected and copied upon payment of prescribed rates, at the public reference facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional Office of the Commission 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. This information is also available on the Internet at the Commission's website. The address for the web site is: http://www.sec.gov. For further information with respect to 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. The Company will furnish to its shareholders annual reports of the Company, including consolidated financial statements of the Company, certified by independent public accountants. The Company is subject to the reporting requirements of the Exchange Act and, in accordance therewith, files reports and other information with the Commission including but not limited to filing with the Commission annual reports on Form 10-K within 90 days of year-end, quarterly reports on Form 10-Q within 45 days of quarter end, and other current reports on Form 8-K. As a reporting company, the Company is subject to the proxy solicitation rules, reporting requirements and restrictions on stock purchases and sales by Directors, officers and greater than 10% shareholders, the annual and periodic reporting and certain other requirements of the Exchange Act. Reports, proxy statements and other information filed by the Company under the Exchange Act may be inspected and copied at prescribed rates at the public reference facilities of the Commission at the addresses set forth above. 76 78 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS WINTRUST FINANCIAL CORPORATION
Page ---- Report of KPMG Peat Marwick LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Report of Arthur Andersen LLP, Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Condition as of September 30, 1996 (unaudited), and December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1995 (unaudited), and for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 1996 (unaudited), and for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (unaudited), and for the years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
77 79 Independent Auditors' Report The Board of Directors Wintrust Financial Corporation: We have audited the accompanying consolidated balance sheets of Wintrust Financial Corporation and subsidiaries (Company) as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of Crabtree Capital Corporation and subsidiaries, a wholly-owned subsidiary of Wintrust Financial Corporation, which statements reflect total assets constituting 4 percent and 28 percent as of December 31, 1995 and 1994, respectively and total revenues constituting 27 percent, 54 percent and 51 percent for the years ended December 31, 1995, 1994, and 1993, respectively, of the related consolidated totals. Those financial statements were audited by Arthur Andersen LLP whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Crabtree Capital Corporation and subsidiaries, is based solely on the report of Arthur Andersen LLP. 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 and the report of Arthur Andersen LLP provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of Arthur Andersen LLP, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wintrust Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Chicago, Illinois December 23, 1996 F-1 80 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors Crabtree Capital Corporation: We have audited the consolidated balance sheets of CRABTREE CAPITAL CORPORATION (an Illinois corporation) AND SUBSIDIARIES (the "Company") as of December 31, 1995 and 1994 (not presented in this registration statement), and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years ended December 31, 1995 (not presented in this registration statement). 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 (not included in this registration statement) present fairly, in all material respects, the financial position of Crabtree Capital Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years ended December 31, 1995, in conformity with generally accepted accounting principles. As explained in Note 2 to the financial statements (not included in this registration statement), the Company has given retroactive effect to the change in accounting for the consolidation of First Premium Funding Corporation and the recording of compensation expense related to the issuance of permanent discount stock under the 1990 Stock Purchase Plan. ARTHUR ANDERSEN LLP Chicago, Illinois May 20, 1996 F-2 81 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (IN THOUSANDS)
September 30 December 31 December 31 1996 1995 1994 ----------- ----------- ----------- (Unaudited) ASSETS Cash and due from banks-noninterest bearing $ 19,753 $ 12,622 $ 11,023 Federal funds sold 52,033 55,812 24,799 Interest-bearing deposits with banks 25,100 50,600 42,199 Available-for-Sale securities, at fair value 69,022 57,887 5,410 Held-to-Maturity securities, at amortized cost (fair value of $4,875 in 1996, $4,959 in 1995, and $55,244 in 1994) 5,002 5,002 56,136 Loans 414,405 258,231 193,982 Less: Allowance for possible loan losses 3,749 2,763 1,702 ----------- ----------- ----------- Net loans 410,656 255,468 192,280 Premises and equipment, net 28,410 23,999 13,538 Accrued interest receivable and other assets 10,818 8,919 8,224 Goodwill and organizational costs 470 581 549 ----------- ----------- ----------- Total assets $ 621,264 $ 470,890 $ 354,158 ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest bearing $ 55,523 $ 45,869 $ 25,118 Interest bearing 493,780 359,789 196,867 ----------- ----------- ----------- Total deposits 549,303 405,658 221,985 Short-term borrowings 1,812 867 88,696 Notes payable 16,554 10,758 6,905 Other liabilities 12,810 13,120 11,206 ----------- ----------- ----------- Total liabilities 580,479 430,403 328,792 ----------- ----------- ----------- Shareholders' equity Preferred stock, 20,000,000 shares authorized; no shares issued and outstanding at September 30, 1996, and 113,063 issued and outstanding at December 31, 1995 and 1994. -- 503 503 Common stock, no par value; 30,000,000 shares authorized; 6,515,864, 5,830,866 and 4,744,747 shares issued and outstanding at September 30, 1996, December 31, 1995 and December 31, 1994, respectively 6,516 5,831 4,745 Surplus 51,681 50,053 38,621 Common stock warrants 75 75 75 Retained deficit (17,511) (15,990) (18,442) Unrealized holding gains (losses) on Available-for-Sale securities, net of tax 24 15 (136) ----------- ----------- ----------- Total shareholders' equity 40,785 40,487 25,366 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 621,264 $ 470,890 $ 354,158 ----------- ----------- -----------
See accompanying notes to consolidated financial statements F-3 82 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31, ------------------------ -------------------------------------- 1996 1995 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (unaudited) Interest income Interest and fees on loans $ 21,045 $ 12,174 $ 17,028 $ 13,617 $ 6,843 Interest-bearing deposits with banks 1,323 2,516 3,194 1,290 274 Federal funds sold 1,733 1,400 2,048 791 275 Securities 3,297 1,932 3,202 2,046 847 ---------- ---------- ---------- ---------- ---------- Total interest income 27,398 18,022 25,472 17,744 8,239 ---------- ---------- ---------- ---------- ---------- Interest expense Interest on deposits 16,001 9,875 14,090 5,498 1,973 Interest on short-term borrowings and notes payable 1,010 1,249 1,682 4,373 1,911 ---------- ---------- ---------- ---------- ---------- Total interest expense 17,011 11,124 15,772 9,871 3,884 ---------- ---------- ---------- ---------- ---------- Net interest income 10,387 6,898 9,700 7,873 4,355 Provision for possible loan losses 1,344 770 1,430 607 1,127 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses 9,043 6,128 8,270 7,266 3,228 ---------- ---------- ---------- ---------- ---------- Noninterest income Gain on sale of loans 2,659 3,551 4,421 -- -- Loan servicing fees 1,035 782 1,101 -- -- Fees on loans sold 1,023 503 850 399 551 Trust fees 412 281 399 202 92 Service charges on deposit accounts 309 187 196 112 92 Securities gains, net 18 -- -- 21 23 Gain on settlement of contingencies (note 14) -- -- 735 -- -- Other 400 300 842 752 386 ---------- ---------- ---------- ---------- ---------- Total noninterest income 5,856 5,604 8,544 1,486 1,144 ---------- ---------- ---------- ---------- ---------- Noninterest expense Salaries and employee benefits 8,133 5,395 8,011 5,319 3,536 Occupancy, net 1,245 723 1,520 1,165 790 Data processing 732 440 624 335 177 Marketing 710 367 682 288 150 Amortization of deferred financing fee 337 451 768 641 511 Merger related expenses 849 -- -- -- -- Other 4,448 3,325 4,207 3,004 2,354 ---------- ---------- ---------- ---------- ---------- Total noninterest expense 16,454 10,701 15,812 10,752 7,518 ---------- ---------- ---------- ---------- ---------- Income (loss) before from continuing operations before income taxes (1,555) 1,031 1,002 (2,000) (3,146) Income tax benefit (34) (198) (512) -- -- ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations (1,521) 1,229 1,514 (2,000) (3,146) Income (loss) from operations of discontinued subsidiaries -- (96) (17) (236) (193) ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 1,521 $ 1,133 $ 1,497 $ (2,236) $ (3,339) ---------- ---------- ---------- ---------- ---------- Net income (loss) per common share $ (0.25) $ 0.19 $ 0.24 $ (0.56) $ (1.14) ---------- ---------- ---------- ---------- ---------- Weighted average common shares outstanding 5,992 5,571 6,153 4,035 2,948 ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements F-4 83 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
NOTES RECEIVABLE FROM OFFICERS PREFERRED COMMON FROM SALE OF STOCK STOCK SURPLUS COMMON STOCK ---------- ---------- ---------- ----------- Balance at December 31, 1992 $ 503 $ 2,437 $ 23,347 $ (202) Payment of note receivable from Officer from sale of common stock -- -- -- 144 Issuance of common stock, net of issuance costs -- 1,046 7,555 -- Issuance of warrant to acquire common stock -- -- -- -- Allocation of undivided profit -- -- (1,000) -- Issuance of preferred stock 500 -- -- -- Conversion of preferred stock to common stock (500) 127 373 -- Dividends on preferred stock -- -- -- -- Net loss -- -- -- -- Change in unrealized gain on securities available-for-sale, net of tax effect -- -- -- -- ---------- ---------- ---------- ----------- Balance at December 31, 1993 503 3,610 30,275 (58) Payment of note receivable from Officer from sale of common stock -- -- -- 58 Issuance of common stock, net of issuance costs -- 1,016 8,965 -- Issuance of preferred stock 500 -- -- -- Issuance of warrant to acquire common stock -- -- -- -- Conversion of preferred stock to common stock (500) 119 381 -- Dividends on preferred stock -- -- -- -- Allocation of undivided profit -- -- (1,000) -- Net loss -- -- -- -- Change in unrealized gain (loss) on securities available-for-sale, net of tax effect -- -- -- -- ---------- ---------- ---------- ----------- Balance at December 31, 1994 503 4,745 38,621 -- Issuance of common stock, net of issuance costs -- 1,086 12,432 -- Dividends on preferred stock -- -- -- -- Allocation of undivided profit -- -- (1,000) -- Net income -- -- -- -- Change in unrealized gain on securities available-for-sale, net of tax effect -- -- -- -- ---------- ---------- ---------- ----------- Balance at December 31, 1995 503 5,831 50,053 -- Common stock issuance -- 567 1,298 -- Conversion of preferred stock to common stock (503) 122 381 -- Repurchase of common stock -- (4) (44) -- Net loss -- -- -- -- Cash value of fractional shares -- -- (7) -- Change in unrealized gain on securities available-for-sale, net of tax effect -- -- -- -- ---------- ---------- ---------- ----------- Balance at September 30, 1996 (unaudited) $ -- $ 6,516 $ 51,681 $ -- ========== ========== ========== ===========
NET UNREALIZED GAIN (LOSS) TOTAL ON SECURITIES SHARE- RETAINED AVAILABLE HOLDERS' WARRANTS DEFICIT FOR SALE EQUITY ---------- ---------- ---------- ----------- Balance at December 31, 1992 $ 25 $ (14,819) $ -- $ 11,291 Payment of note receivable from Officer from sale of common stock -- -- -- 144 Issuance of common stock, net of issuance costs -- -- -- 8,601 Issuance of warrant to acquire common stock 25 -- -- 25 Allocation of undivided profit -- 1,000 -- -- Issuance of preferred stock -- -- -- 500 Conversion of preferred stock to common stock -- -- -- -- Dividends on preferred stock -- (11) -- (11) Net loss -- (3,339) -- (3,339) Change in unrealized gain on securities available-for-sale, net of tax effect -- -- 16 16 ---------- ---------- ---------- ----------- Balance at December 31, 1993 50 (17,169) 16 17,227 Payment of note receivable from Officer from sale of common stock -- -- -- 58 Issuance of common stock, net of issuance costs -- -- -- 9,981 Issuance of preferred stock -- -- -- 500 Issuance of warrant to acquire common stock 25 -- -- 25 Conversion of preferred stock to common stock -- -- -- -- Dividends on preferred stock -- (37) -- (37) Allocation of undivided profit -- 1,000 -- -- Net loss -- (2,236) -- (2,236) Change in unrealized gain (loss) on securities available-for-sale, net of tax effect -- -- (152) (152) ---------- ---------- ---------- ----------- Balance at December 31, 1994 75 (18,442) (136) 25,366 Issuance of common stock, net of issuance costs -- -- -- 13,518 Dividends on preferred stock -- (45) -- (45) Allocation of undivided profit -- 1,000 -- -- Net income -- 1,497 -- 1,497 Change in unrealized gain on securities available-for-sale, net of tax effect -- -- 151 151 ---------- ---------- ---------- ----------- Balance at December 31, 1995 75 (15,990) 15 40,487 Common stock issuance -- -- -- 1,865 Conversion of preferred stock to common stock -- -- -- -- Repurchase of common stock -- -- -- (48) Net loss -- (1,521) -- (1,521) Cash value of fractional shares -- -- -- (7) Change in unrealized gain on securities available-for-sale, net of tax effect -- -- 9 9 ---------- ---------- ---------- ----------- Balance at September 30, 1996 (unaudited) $ 75 $ (17,511) $ 24 $ 40,785 ========== ========== ========== ===========
See accompanying notes to consolidated financial statements F-5 84 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine months ended September 30, Year ended December 31, ------------------------- --------------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- (unaudited) OPERATING ACTIVITIES: Net income (loss) from continuing operations $ (1,521) $ 1,133 $ 1,514 $ (2,000) $ (3,146) Adjustments to reconcile net income (loss) to net cash used for, or provided by, operating activities: Provision for possible loan losses 1,344 770 1,430 607 1,127 Depreciation and amortization 1,147 931 1,811 1,124 855 Deferred income tax benefit (34) (198) (331) -- -- Gain on sale of investment securities, net -- -- -- (21) (23) Net accretion/amortization of investment securities -- -- (390) (97) 281 Net loss of discontinued operations -- -- (17) (236) (193) Decrease in net assets of discontinued operations -- -- 1,875 666 734 (Increase) decrease in other assets, net (1,866) (993) (4,813) (1,809) 1,640 Increase (decrease) in other liabilities, net (301) (325) 1,907 6,533 461 ----------- ----------- ----------- ----------- ----------- NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (1,231) 1,318 2,986 4,767 1,736 ----------- ----------- ----------- ----------- ----------- INVESTING ACTIVITIES: Proceeds from maturities of Available-for-Sale securities 288,102 24,698 80,234 8,900 -- Proceeds from sales of Available-for-Sale securities 498 3,755 5,006 4,944 6,140 Proceeds from maturities of Held-to-Maturity securities -- 64,766 64,766 31,320 14,955 Purchases of securities (299,734) (87,994) (150,805) (78,972) (43,124) Net decrease (increase) in interest bearing deposits at banks 25,500 5,099 (8,401) (29,000) (3,199) Net increase in loans (156,532) (24,996) (62,649) (85,764) (63,484) Other, net -- -- -- (131) (270) Purchases of premises and equipment, net (5,447) (6,245) (11,409) (6,334) (5,952) ----------- ----------- ----------- ----------- ----------- NET CASH USED FOR INVESTING ACTIVITIES (147,613) (20,917) (83,258) (155,037) (94,934) ----------- ----------- ----------- ----------- ----------- FINANCING ACTIVITIES: Increase in deposit accounts 143,645 100,531 183,673 123,721 55,268 Increase (decrease) in short-term borrowings, net 945 (8,747) (4,849) 70 5,413 Commercial paper notes originated -- 310,040 310,040 1,051,245 566,107 Commercial paper notes principal repaid -- (393,020) (393,020) (1,027,677) (514,557) Proceeds from notes payable 5,796 10,286 5,822 4,542 2,750 Repayment of notes payable -- -- (1,998) (2,500) (15,900) Repurchase of common stock (48) -- -- -- -- Other, net -- -- (257) 58 (190) Cash value of fractional shares upon exchange of shares (7) -- -- -- -- Issuance of common stock 1,865 2,132 13,518 9,980 8,601 Issuance of preferred stock -- -- -- 500 500 Issuance of common stock warrants -- -- -- 25 25 Cash dividends paid on preferred shares -- (45) (45) (37) (11) ----------- ----------- ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 152,196 21,177 112,884 159,927 108,006 ----------- ----------- ----------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,352 1,578 32,612 9,657 14,808 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 68,434 35,822 35,822 26,165 11,357 ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 71,786 $ 37,400 $ 68,434 $ 35,822 $ 26,165 ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - CASH PAID DURING THE YEAR FOR: INTEREST $ 16,978 $ 11,012 $ 14,880 $ 6,225 $ 2,594 INCOME TAXES -- -- -- -- -- ----------- ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements F-6 85 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Wintrust Financial Corporation ("Wintrust" or "Company") is a multi-bank holding company currently engaged in the business of providing financial services primarily through its banking subsidiaries to customers in the Chicago metropolitan area and financing the payment of insurance premiums, on a national basis, through its subsidiary, First Premium Services, Inc. ("First Premium"). First Premium is a wholly owned subsidiary of Crabtree Capital Corporation ("Crabtree"). As of September 30, 1996, Wintrust owned four bank subsidiaries ("Banks"), all of which were de novo institutions, including Lake Forest Bank & Trust Company ("Lake Forest"), Hinsdale Bank & Trust Company ("Hinsdale"), North Shore Community Bank & Trust Company ("North Shore"), Libertyville Bank & Trust Company ("Libertyville"). The consolidated Wintrust entity was formed on September 1, 1996 through a merger transaction (the "Reorganization") whereby the holding companies of Lake Forest, Hinsdale, Libertyville and First Premium were merged with newly formed wholly-owned subsidiaries of North Shore Community Bancorp, Inc. (which changed its name to Wintrust Financial Corporation concurrent with the merger). The merger transaction was accounted for in accordance with the pooling-of-interest method of accounting for a business combination. Accordingly, the consolidated financial statements included herein reflect the combination of the historical financial results of the five entities and the recorded assets and liabilities have been carried forward to the consolidated company at their historical cost. In the preparation of the consolidated financial statements, management is required to make certain estimates and assumptions that affect the reported amounts contained in the consolidated financial statements. Management believes that the estimates made are reasonable; however, changes in estimates may be required if economic or other conditions change significantly beyond management's expectations. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of Wintrust have been prepared in conformity with generally accepted accounting principles and prevailing practices of the banking industry. All material inter-company accounts and transactions have been eliminated in the consolidated financial statements. F-7 86 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ INVESTMENT SECURITIES The Company classifies securities in one of three categories: trading, held-to-maturity, or available-for-sale. Trading securities are bought principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Bank has the ability and positive intent to hold the security until maturity. All other securities are classified as available-for-sale as they may be sold prior to maturity. Held-to-maturity securities are stated at amortized cost which represents actual cost adjusted for amortization of premium and accretion of discount using methods that generally approximate the effective interest method. Available-for-sale securities are stated at fair value. Unrealized holding gains and losses on available-for-sale securities, net of related taxes, are excluded from earnings and reported as a separate component of shareholders' equity until realized. A decline in the market value of any available-for-sale or held-to-maturity security below cost, that is deemed to be other than temporary, is charged to earnings. Trading account securities are stated at fair value. Trading account gains and losses from closing positions and from changes in market values of the trading inventory are reflected in the accompanying statement of operations as part of other noninterest income. The Company did not maintain any trading account securities in 1995, 1994, or 1993. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in noninterest income and are derived using the specific identification method for determining the cost of securities sold. F-8 87 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES Loans are recorded at the principal amount outstanding. Interest income is recognized when earned. The Bank receives loan fees for loans originated by the Bank, as well as for loan referrals. Fees and costs associated with loans originated by the Bank are generally deferred and amortized over the life of the loan as an adjustment of yield using the interest method. Loan fees for referrals are recognized as income when received. Finance charges on premium finance receivables are earned over the term of the loan based on actual funds outstanding, beginning with the funding date, using a method which approximates the effective yield actuarial method. Interest income is not accrued on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations, or where interest or principal is 90 days or more past due, unless the loans are adequately secured and in the process of collection. Cash receipts on nonaccrual loans are generally applied to the principal balance until the remaining balance is considered collectible, at which time interest income may be recognized when received. The allowance for possible loan losses is maintained at a level adequate to provide for possible loan losses. In estimating possible losses, the Company recognizes impaired loans. A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due. Impaired loans are generally considered by the Company to be nonaccrual loans, restructured loans and loans with principal and/or interest at risk, even if the loan is current with all payments of principal and interest. Impairment is measured by determining the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. If the fair value of the loan is less than the recorded book value, a valuation allowance is established as a component of the allowance for possible loan losses. F-9 88 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ On January 1, 1996, the Company adopted Financial Accounting Standards Board Statement No. 122, Accounting for Mortgage Servicing Rights, an amendment to FASB Statement No. 65 (SFAS No. 122). SFAS No. 122 provides guidance for the recognition of mortgage servicing rights as a separate asset when servicing mortgage loans for others, regardless of how those rights are acquired. Also, SFAS No. 122 requires the measurement of impairment of those servicing rights based upon the difference between the carrying amount of the servicing rights and their current fair value with a valuation allowance utilized to account for the difference. The impact of the adoption of SFAS No. 122 was not material to the Company. SERVICED PREMIUM FINANCE RECEIVABLES Beginning in February, 1995, First Premium began selling its premium finance receivables to a wholly owned subsidiary, First Premium Financing Corporation ("FPFIN") which in turn sells the receivables to an independent third party who issues commercial paper to fund the purchase ("Commercial Paper Issuer"). FPFIN is a bankruptcy remote subsidiary established to facilitate the sale to the independent third party. First Premium retains servicing rights in connection with the sales of receivables. First Premium recognizes the contractual servicing and management fee income over the term of the receivables as it is earned. In addition, any excess income earned by the Commercial Paper Issuer above that which is required to fund interest on its outstanding commercial paper and provide for normal servicing to First Premium is payable as additional servicing ("Excess Servicing"). Excess Servicing income over the expected life of the receivables sold is estimated by First Premium at the time of each sale and recorded as a sales gain receivable on the financial statements of First Premium. F-10 89 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. For financial reporting purposes depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets ranging from three to ten years for equipment and the useful life or life of the lease for premises and leasehold improvements. Additions to premises are capitalized. Maintenance and repairs are charged to expense as incurred. LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF On January 1, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of," which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The impairment is measured based on the present value of expected future cash flows from the use of the asset and its eventual disposition. If the expected future cash flows are less than the carrying amount of the asset, an impairment loss is recognized based on current fair values. As the Company regularly reviews its long-lived assets for impairment and adjusts the carrying amounts as appropriate, the adoption of this statement did not have a material impact on the consolidated financial statements of the Company. INTANGIBLE ASSETS Goodwill, representing the cost in excess of the fair value of net assets acquired is amortized on a straight-line basis over a period of 25 years. Deferred organizational costs consist primarily of professional fees and other start-up costs and are being amortized over 5 years. F-11 90 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ TRUST ASSETS Assets held in fiduciary or agency capacity for customers are not included in the consolidated financial statements as such are not assets of Wintrust or its subsidiaries. Fee income is recognized on an accrual basis for financial reporting purposes. INCOME TAXES Beginning September 1, 1996, Wintrust will file consolidated Federal and state income tax returns. The subsidiaries will provide for income taxes on a separate return basis and remit to Wintrust amounts determined to be currently payable. Prior to the Reorganization on September 1, 1996, each of the Lake Forest, Hinsdale, Libertyville, North Shore, and First Premium and their respective holding companies filed separate consolidated Federal and state income tax returns. Tax benefits attributable to losses are recognized and allocated to the extent that such losses can be utilized in the consolidated return. Wintrust and subsidiaries record income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance shall be established against deferred tax assets to the extent there is not sufficient evidence for management to conclude that it is more likely than not that such asset will be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. CASH EQUIVALENTS For purposes of the consolidated statement of cash flows, Wintrust considers all cash on hand, cash items in the process of collection, amounts due from correspondent banks and federal funds sold to be cash equivalents. F-12 91 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ EARNINGS PER SHARE Earnings per share are calculated by dividing net income, after consideration of preferred stock dividends, by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents were calculated using the treasury stock method. Because no active market for the Company's stock existed during the three years ended December 31, 1995, estimates of market value based on limited trading volume were used to determine the dilutive effects of the outstanding stock options, stock rights and stock warrants. DISCONTINUED OPERATIONS The Company has presented as discontinued operations, the results of operations and loss on sale of certain insurance operating subsidiaries. Information regarding the results of operations are not presented as they are not deemed material by management. UNAUDITED FINANCIAL INFORMATION The accompanying unaudited financial information as of and for the period ended September 30, 1996 and 1995 has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments necessary for a fair presentation for the periods presented have been reflected and are of a normal and recurring nature. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the year. F-13 92 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (2) INVESTMENT SECURITIES The following tables present carrying amounts and gross unrealized gains and losses for the investment securities held-to-maturity and available- for-sale at December 31, 1995 and 1994 (in thousands). This table is by contractual maturity which may differ from actual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
December 31, 1995 ---------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value - ------------------------------------------------------------------------------ Held-to-maturity: U.S. Treasury - due in one to five years $ 5,002 - (43) 4,959 - ------------------------------------------------------------------------------ Available-for-sale: U.S. Treasury - due in one year or less 5,520 9 - 5,529 Federal agencies - due in one year or less 23,197 - (17) 23,180 Federal agencies - due in one to five years 2,503 - (12) 2,491 Corporate notes - due in one year or less 15,594 16 (3) 15,607 Corporate notes - due in one to five years 10,125 39 (9) 10,155 Federal Reserve Bank stock 925 - - 925 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Total securities available-for-sale 57,864 64 (41) 57,887 ============================================================================== Total investment securities $ 62,866 64 (84) 62,846 ==============================================================================
F-14 93 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================
December 31, 1994 ---------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value - ------------------------------------------------------------------------------ Held-to-maturity: U.S. Treasury - due in one year or less $ 587 - (3) 584 U.S. Treasury - due in one to five years 10,009 - (494) 9,515 Federal agencies - due in one year or less 42,504 8 (337) 42,175 Corporate notes - due in one year or less 899 1 - 900 Corporate notes - due in one to five years 2,137 31 (98) 2,070 - ------------------------------------------------------------------------------ Total securities held-to-maturity 56,136 40 (932) 55,244 - ------------------------------------------------------------------------------ Available-for-sale: Corporate notes - due in one year or less 700 1 - 701 Corporate notes - due in one to five years 4,208 19 (155) 4,072 Federal Reserve Bank stock 637 - - 637 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Total securities available-for-sale 5,545 20 (155) 5,410 ============================================================================== Total investment securities $ 61,681 60 (1,087) 60,654 ==============================================================================
In 1995, 1994 and 1993, Wintrust had gross realized gains on sales of investment securities classified as available for sale of $200, $21,000 and $46,000, respectively. Wintrust had no realized losses on sales of investment securities in 1995 and 1994. In 1993, Wintrust had gross realized losses of $23,000. Proceeds from sales of investment securities during 1995, 1994 and 1993 were $5,006,000, $4,944,000 and $6,140,000, respectively. At December 31, 1995 and 1994, investment securities having a carrying value of $29,240,000 and $27,559,000, respectively, were pledged as collateral for securities sold under F-15 94 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ agreement to repurchase, public deposits, and trust deposits. Securities carried at $0 and $5,006,000 were sold under agreement to repurchase at December 31, 1995 and 1994, respectively. The Financial Accounting Standards Board's (FASB's) issuance of A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt & Equity Securities, permitted the transfer of securities from the Held-to-Maturity classification to the Available-for-Sale classification during the period from November 15, 1995 to December 31, 1995, with no recognition of any related unrealized gain or loss in current earnings. On December 29, 1995, the amortized cost and net unrealized gain of Wintrust's portfolio of securities held-to-maturity transferred to the securities available-for-sale classification was $59,356,000 and $334,000, respectively. (3) LOANS A summary of the loan portfolio by category at December 31, 1995 and 1994 is as follows (in thousands):
- ------------------------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------------------------ Commercial and commercial real estate $ 101,271 45,587 Home equity 54,592 26,244 Residential 37,074 26,188 Installment 51,355 4,865 Premium finance 15,703 93,349 - ------------------------------------------------------------------------------ 259,995 196,233 Less: Unearned finance charges 1,764 2,251 - ------------------------------------------------------------------------------ Total loans $ 258,231 193,982 ==============================================================================
Certain officers and directors of Wintrust and its subsidiaries and certain corporations and individuals related to such persons borrowed funds from the Bank. These loans totaling $4,430,000 at December 31, 1995 were made at substantially the same terms, including interest F-16 95 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ rates and collateral, as those prevailing at the time for comparable transactions with other borrowers. (4) ALLOWANCE FOR POSSIBLE LOAN LOSSES A summary of the allowance for possible loan losses for years ending December 31, 1995, 1994 and 1993 is as follows (in thousands):
------------------------------------------------------------------------ 1995 1994 1993 ------------------------------------------------------------------------ Allowance at beginning of period $ 1,702 1,357 961 Provision 1,430 607 1,127 Charge-offs (399) (265) (733) Recoveries 30 3 2 ------------------------------------------------------------------------ Allowance at end of period $ 2,763 1,702 1,357 ------------------------------------------------------------------------
The provision for loan losses are charged to operations, and recognized loan losses (recoveries) are charged (credited) to the allowance. At December 31, 1995 and 1994, non-accrual loans had a carrying value of $1,778,000 and $0, respectively. At December 31, 1995, loans that were considered to be impaired totaled $1,736,000 for which no specific allowance for loan losses was required as of and for the year ended December 31, 1995. The average balance of impaired loans during 1995 was approximately $930,000. All of the impaired loans are included in the nonaccrual loan amount listed above. Management evaluated the value of the loans primarily by using the fair value of the collateral. Interest income foregone on these loans during 1995 was not material. (5) SERVICED RECEIVABLES AND SECURITIZATION FACILITY Receivables sold and serviced by First Premium amount to $101,248,000 at December 31, 1995. The receivables are sold pursuant to a securitization facility established January 31, 1995. Unamortized deferred costs associated with this facility amounted to $461,000 at December 31, 1995. F-17 96 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ The securitization facility is an independent vehicle into which $200 million of receivables may be sold and funded by the Commercial Paper Issuer, subject to certain terms and conditions. In connection with this facility, First Premium formed a wholly owned, bankruptcy remote subsidiary, FPFIN, to purchase the receivables from First Premium and simultaneously sell the receivables to the Commercial Paper Issuer. All the receivable sales are without recourse. The sale of loans to the Commercial Paper Issuer were accounted for as sales and, accordingly, the loans are not included in the consolidated financial position of the Company. FPFIN recognizes a gain at the time of each sale based on its estimate of excess servicing, as defined in Note 1, to be earned over the life of the receivables sold. All of FPFIN's accounts are maintained by First Premium and consolidated in the financial statements. Also, pursuant to the Sales and Servicing Agreement, First Premium is required to maintain facility collateral at an amount equal to 105.5% of commercial paper outstanding. The amount of this overcollateralization is recorded as loans on the Company's consolidated financial statements and was $6,630,000 at December 31, 1995. (6) PREMISES AND EQUIPMENT, NET A summary of premises and equipment at December 31, 1995 and 1994 is as follows (in thousands):
======================================================================== 1995 1994 ------------------------------------------------------------------------ Land $ 4,159 1,800 Buildings and improvements 16,392 8,900 Furniture and equipment 5,308 3,149 Construction in progress 30 681 ------------------------------------------------------------------------ 25,889 14,530 Less accumulated depreciation and amortization 1,890 992 ------------------------------------------------------------------------ Premises and equipment, net $ 23,999 13,538 ========================================================================
F-18 97 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (7) TIME DEPOSITS Certificates of deposit in amounts of $100,000 or more approximated $93,618,000 and $39,257,000, respectively, at December 31, 1995 and 1994. Interest expense related to these deposits approximated $2,769,000, $955,000 and $297,000 for the periods ended December 31, 1995, 1994 and 1993, respectively. (8) COMMERCIAL PAPER Prior to the formation of its current securitization facility on February 2, 1995, First Premium sold its premium finance receivables to First Premium Funding Corporation ("FPFC"), a special purpose corporation nominally capitalized by a third party, which issued commercial paper to fund its purchases. The commercial paper notes had maturities of 1 to 270 days, and were secured by the premium finance receivables. Due to the nominal third party capitalization of FPFC, the Company's consolidated financial statements include the results of operations and financial position of FPFC, including the related commercial paper. The table below sets forth information concerning outstanding commercial paper and its related cost. These amounts are computed using the average daily balances during the period from January 1, 1995 through February 2, 1995, and January 1, 1994, through December 31, 1994.
January 1, 1995 January 1, 1994 through through February 2, 1995 December 31, 1994 ---------------- ----------------- Average amount outstanding $ 81,015,757 $ 74,769,633 Maximum month-end amount outstanding during the $ 85,000,000 $ 82,565,000 period Average yield at: End of period 6.10% 6.12% During the period 5.96% 4.54%
FPFC was required to pledge finance receivables as collateral for the commercial paper. As of December 31, 1994, FPFC had pledged $85,865,000 of finance receivables to secure the commercial paper outstanding at that date. F-19 98 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ A party provided credit enhancement ("Credit Enhancer") for commercial paper issued by FPFC. The Credit Enhancer also provided temporary liquidity to FPFC. As an incentive for the Credit Enhancer to participate in the facility, First Premium issued warrants to purchase its common stock and a subordinated promissory note with a face value of $557,000 to the Credit Enhancer. In conjunction with the Reorganization, the Credit Enhancer exchanged its warrants to acquire First Premium stock for Wintrust common stock. The exercise price for the warrants were contributed to Wintrust by the warrant holder and the proceeds thereof were used to retire the subordinated promissory note held by the Credit Enhancer. (9) NOTES AND LOANS PAYABLE A summary of notes and loans payable at December 31, 1995 and 1994, is as follows (in thousands):
1995 1994 ----- ---- Revolving credit line - secured Banking subsidiaries $ 5,552 $ 2,742 Premium finance subsidiary 200 - Revolving credit line - unsecured 1,700 1,950 Subordinated notes payable 1,992 1,963 Note payable, other 1,314 250 ----------- ------------ $ 10,758 $ 6,905 =========== ============
Revolving credit lines - secured, premium finance subsidiary, represents amounts outstanding under a revolving loan agreement used to fund overcollateralization requirements for the securitization facility. The credit line, which matures on March 31, 1996, provides a lien and first security interest in the retained premium finance receivables as well as restrictions on maintenance of various operating ratios and tangible net worth. The credit line provides financing up to a maximum of $13,000,000 with interest charged at prime or prime plus 1.5% depending upon the extent of funds borrowed. The average daily amount outstanding pursuant to the credit line was approximately $2,976,000 and $2,988,000 respectively for 1995 and 1994. F-20 99 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ Revolving credit lines - secured, banking subsidiaries, represent various financing arrangements to meet operating needs. These arrangements are 100% secured by the common stock of the banks and bear interest at prime rate with commitment fees of 1/4 of 1% per annum on amounts undrawn. The average daily amount outstanding pursuant to the credit lines was $4,120,000 and $1,670,000, respectively, for 1995 and 1994. Revolving credit line - unsecured represents amounts outstanding under a $2,000,000 loan arrangement. This loan is guaranteed by a shareholder of the Company. Average amounts outstanding were approximately $1,954,000 and $1,739,000 in 1995 and 1994 respectively. Subordinated notes represent $1,500,000 due to a shareholder and $492,000 representing advances from the credit enhancer of the securitization facility. The $1,500,000 note bears interest at prime plus 0.5% to 1.5% and matures on December 23, 1997. The note may be repaid at the option of the holder through exercise of stock warrants issued in connection with the subordinated note. No value has been assigned to the warrants as the exercise price is substantially in excess of the fair value of common stock involved. The $492,000 note has a face value of $557,000, and is discounted to result in an effective rate of 6.0% and matures on February 2, 1998. Notes payable - other consists principally of amounts borrowed to fund the purchase of banking subsidiary real estate and to cover initial start-up expenses. This note bears interest at 9% per annum and matures on July 1, 1999. Total interest expense for notes and loans payable aggregated approximately $1,208,000, $796,000 and $590,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Subsequent to the Reorganization, each of the above referenced notes and loans payable were retired. Effective September 1, 1996, the Company entered into a $25 million revolving credit line of credit, which bears interest at a floating rate equal to, at the Company's option, either the lender's prime rate or the London Inter-Bank Offered Rate plus 1.50%. This revolving credit line is secured by the stock of the subsidiary bank holding companies and the subsidiary banks. F-21 100 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (10) LEASE EXPENSE AND OBLIGATIONS Gross rental expense for all noncapitalized leases was $203,000, $134,000, and $127,000, in 1995, 1994, and 1993, respectively. Lease commitments are primarily for office space. Minimum gross rental commitments as of December 31, 1995 for all noncancelable leases are as follows (in thousands): ========================================================================== 1996 $ 652 1997 628 1998 643 1999 664 2000 545 2001 and thereafter 1,201 -------------------------------------------------------------------------- Total minimum future rentals $ 4,333 ==========================================================================
Minimum gross rental income as of December 31, 1995 for all noncancelable leases are as follows: ========================================================================== 1996 $ 80 1997 32 1998 34 1999 28 2000 27 2001 and thereafter 45 -------------------------------------------------------------------------- Total minimum future rentals $ 246 ==========================================================================
(11) INCOME TAXES Wintrust had no Federal or state income tax expense in each of the years in the three-year period ended December 31, 1995. In 1995, Wintrust recorded a tax benefit of $512,000 as management determined that the realization of certain deferred tax assets not previously valued was more likely than not to occur. Income taxes for 1995, 1994 and 1993 differ from the expected tax expense for those years (computed by applying the applicable statutory U.S. Federal income tax rate to income before income taxes) as follows (in thousands). F-22 101 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================
===================================================================================== 1995 1994 1993 - ------------------------------------------------------------------------------------- Computed "expected" income tax expense (benefit) $ 341 (679) (1,070) Increase (decrease) in tax resulting from: Change in the beginning-of-the-year balance of the valuation allowance for deferred tax assets (698) 684 (1,070) Other, net (155) (5) - - ------------------------------------------------------------------------------------- Income tax benefit $ (512) - - =====================================================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below (in thousands):
================================================================================ 1995 1994 - -------------------------------------------------------------------------------- Deferred tax assets: Allowance for possible loan losses $ 503 309 Startup costs 425 222 Federal net operating loss carryforward 8,685 8,055 State net operating loss carryforward 1,496 1,230 Unrealized loss on marketable equity securities - 53 Other, net 396 310 - -------------------------------------------------------------------------------- Total gross deferred tax assets 11,505 10,179 Valuation allowance 8,990 8,898 - -------------------------------------------------------------------------------- Total net deferred tax assets 2,515 1,281 - -------------------------------------------------------------------------------- Deferred tax liabilities: Premises and equipment, due to differences in depreciation 313 115 Accrual to cash adjustment 1,218 747 Unrealized gain on marketable equity securities 114 - Other, net 521 419 - -------------------------------------------------------------------------------- Total gross deferred tax liabilities 2,166 565 - -------------------------------------------------------------------------------- Net deferred tax assets $ 349 - - --------------------------------------------------------------------------------
F-23 102 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ During 1994, realization of deferred tax assets was uncertain due to the lack of an adequate earnings history for Wintrust and its subsidiaries. As a result, in 1994, a valuation allowance was established for the portion of the gross deferred tax assets not offset by deferred tax liabilities. During 1995, management determined that a valuation allowance should only be established for a portion of the deferred tax asset. This determination was made based upon the profitability attained by certain of the operating subsidiaries during 1995 and future earnings estimates for 1996. As such, management established a valuation allowance as indicated in the table above. At December 31, 1995, Wintrust and its subsidiaries had Federal net operating losses of approximately $25,600,000 and state net operating losses of approximately $20,800,000. Such amounts are available for carryforward to offset future taxable income and expire in 2000-2010. (12) COMPENSATION PLANS Wintrust, Lake Forest Bancorp, Inc., Hinsdale Bancorp, Inc., North Shore Community Bancorp, Inc., Libertyville Bancorp, Inc., Crabtree Capital Corporation and First Premium Services, Inc. each have authorized and approved various stock option plans (Plans) which provides options to purchase shares of Wintrust's common stock at the fair market value of the stock on the date the option is granted. The Plans permit the grant of incentive stock options, nonqualified stock options, and restricted stock. Collectively, the Plans cover substantially all employees of Wintrust. The incentive and nonqualified options expire at such time as the Stock Option Committee shall determine at the time of grant, however, in no case shall they be exercisable later than ten years after the grant. At the subsidiary bank holding companies, the options generally vest at a rate of 10% in the first year subsequent to the grant, 10% in the second year subsequent to the grant, and continue to vest 20% in the year in which the Bank attains certain profitability levels, and 20% in the subsequent three years, if the respective subsidiary bank holding company is profitable. All of the Crabtree and First Premium options are or will become fully vested during 1996. F-24 103 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ A summary of the aggregate activity of the Plans for 1995, 1994 and 1993 is as follows:
================================================================================ Common Range of Shares Strike Prices -------------------------------------------------------------------------- Outstanding at December 31, 1992 410,444 $5.80-$21.13 Granted 112,685 $7.75 Exercised - Forfeited or canceled - -------------------------------------------------------------------------- Outstanding at December 31, 1993 523,129 $5.80-$21.13 Granted 253,059 $7.75-$9.69 Exercised 1,935 $7.24 Forfeited or canceled 22,249 $7.24 -------------------------------------------------------------------------- Outstanding at December 31, 1994 752,004 $5.80-$21.13 Granted 168,029 $9.30-$14.53 Exercised 11,250 $7.75 Forfeited or canceled 2,418 $7.75-$9.30 -------------------------------------------------------------------------- Outstanding at December 31, 1995 906,365 $5.80-$21.13 ================================================================================
Wintrust and its subsidiaries also provide a 401(k) Retirement Savings Plans (401(k) Plans). The plans cover all employees meeting certain eligibility requirements. Contributions by employees are made through salary reductions at their direction, limited to $9,240 annually. Employer contributions to the 401(k) Plans are made at the employer's discretion. Generally, participants completing 501 hours of service are eligible to share in an allocation of employer contributions. The Company's expense for the employer contributions to the 401(k) Plans was $32,718, $22,986, and $14,610 in 1995, 1994 and 1993, respectively. The Company does not currently offer other postretirement benefits such as health care or other pension plans. F-25 104 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (13) REGULATORY RESTRICTIONS Banking laws place restrictions upon the amount of dividends which can be paid to Wintrust by the Banks. Based on these laws, the Bank could, subject to minimum capital requirements, declare dividends to Wintrust without obtaining regulatory approval in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for the current and prior two years. No cash dividends were paid to Wintrust during the periods ended December 31, 1995, 1994 and 1993. The Banks are also required by the Federal Reserve Act to maintain reserves against deposits. Reserves are held either in the form of vault cash or balances maintained with the Federal Reserve Bank and are based on the average daily deposit balances and statutory reserve ratios prescribed by the type of deposit account. At December 31, 1995 and 1994, reserve balances of approximately $1,686,000 and $726,400 , respectively, were required. (14) COMMITMENTS AND CONTINGENCIES In connection with a purchase agreement for a subsidiary of Crabtree, a provision was made for additional contingent consideration pending the outcome of certain tax litigation and other contingencies of that subsidiary. If such contingencies were favorably resolved, Crabtree would have been required to contribute up to $3,450,000 to the subsidiary. This additional capital contribution was fully reserved for in the Company's financial statements in 1987. In early 1995, the last remaining contingency under the purchase agreement was satisfied and in March, 1995, the subsidiary made a formal request of Crabtree for the maximum amount of the contribution. Crabtree disputed the amounts owed and in September, 1995, Crabtree reached a settlement with the subsidiary. Under the terms of the settlement agreement, Crabtree effectively bought out the minority shareholders of the subsidiary by having the subsidiary repurchase all of its stock held by the minority shareholders. A purchase price was negotiated which included a deemed capital contribution by Crabtree of $1.7 million. As a result of this settlement, a gain of $735,000 was recorded in 1995. First Premium has filed suit against an obligor in federal court to collect the remaining balance of approximately $1,094,000 owing on an original premium finance loan in the amount of $4,592,000. In addition, First Premium seeks accumulated interest, late charges, and attorney fees due it. Additional defendants include (1) the obligor Director of Insurance of over 16 years, who executed the premium finance agreement, (2) two separate insurance agents who, along with the obligor's Director of Insurance, falsely presented in writing to First Premium the named insurers involved and the effective dates, policy numbers, premium amounts, insurer names and policy terms for the insurance policies being financed, (3) three separate insurance companies and the managing general agent for two of them, who directed that premiums be remitted to them via the insurance agent (their agent) who falsely represented the coverages to First Premium, and who also were unjustly enriched because they misappropriated premiums paid by First Premium for specific financed policies to pay other policies not financed by First Premium. In addition, at an appropriate time, First Premium anticipates filing suit against Errors and Omissions insurance companies covering the obligor, obligor's Director of Insurance and one of the insurance agents. F-26 105 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ The lawsuit is expected to go to trial in late 1996 or early 1997. Presently, discovery via depositions of defendants and document production and examination is occurring. Management, after consultation with legal counsel, believes the ultimate result of this legal action in this matter will result in a favorable settlement or, in the alternative, a favorable jury verdict and subsequent collection in full of the amount due to First Premium because of the underlying facts, applicable law, the number of defendants, many of which appear to be severally liable for the entire amount due to First Premium and the financial ability of the defendants to pay the anticipated settlement or judgment. In the ordinary course of business, there are various other legal proceedings pending against the Company. Management considers that the aggregate liabilities, if any, resulting from such actions would not have a material adverse effect on the financial position of the Company. (15) FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of Wintrust's financial instruments at December 31, 1995. Financial Accounting Standards Board Statement No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. F-27 106 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================
========================================================================== Carrying Fair Value Value ------------------------------------------------------------------------- Financial Assets: Cash and demand balances from banks $ 12,622 12,622 Interest-bearing deposits at banks 50,600 50,600 Federal funds sold 55,812 55,812 Held-to-maturity securities 5,002 4,959 Available-for-sale securities 57,888 57,888 Loans 258,231 258,424 Allowance for possible loan losses (2,763) -- Accrued interest receivable 2,742 2,742 ------------------------------------------------------------------------- Financial liabilities: Non-maturity deposits 200,986 200,986 Deposits with stated maturities 204,672 206,170 Notes payable 10,758 10,758 Short-term borrowings 867 867 Accrued interest payable 649 649 =========================================================================
Cash and demand balances from banks and Federal funds sold: The carrying value of cash and demand balances from banks approximates fair value due to the short maturity of those instruments. Interest-bearing deposits at banks and securities: Fair values of these instruments are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of comparable assets. Loans: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented into fixed and variable interest rate terms. For variable-rate loans that reprice frequently, estimated fair values are based on carrying values. The fair value of residential real estate loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other F-28 107 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate inherent in the loan. Accrued interest receivable and accrued interest payable: The carrying value of accrued interest receivable and accrued interest payable approximates market value due to the relatively short period of time to expected realization. Deposit liabilities: The fair value of deposits with no stated maturity, such as non-interest bearing deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand as of year-end (i.e. the carrying value). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. Notes payable and Short-term borrowings: The carrying value of notes payable and short-term borrowings approximate fair value due to the relatively short period of time to maturity or repricing. Commitments to extend credit and standby letters of credit: The fair value of commitments to extend credit is based on fees currently charged to enter into similar arrangements, the remaining term of the agreement, the present creditworthiness of the counterparty, and the difference between current interest rates and committed interest rates on the commitments. Because most of Wintrust's commitment agreements were recently entered into and/or contain variable interest rates, the carrying value of Wintrust's commitments to extend credit approximates fair value. The fair value of letters of credit is based on fees currently charged for similar arrangements. (16) RELATED-PARTY TRANSACTIONS During 1995 and 1994, Crabtree's bank debt was guaranteed by a significant shareholder and principal officer of the Company. Crabtree agreed to pay a fee to this individual for the guarantee at a rate of 1.5% of the balance of the debt guaranteed. These transactions resulted in expense of $32,973, $29,840 and $68,339 in 1995, 1994 and 1993, respectively, and are included in other expense on the Company's consolidated statement of income. Various shareholders, from time to time, perform advisory and consulting services for the Company. Amounts paid to shareholders and other related parties for these services were $301,000, $282,000 and $409,000 in 1995, 1994 and 1993, respectively. F-29 108 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (17) RIGHTS AND WARRANTS TO ACQUIRE COMMON STOCK The Company maintains a stock rights plan that entitles the holder to purchase one share of the Company's common stock at purchase prices ranging from $7.75 to $11.62 per share. The plan was adopted on December 1, 1993 and expires on December 1, 2003. The plan provides for the issuance of a total of 103,236 such rights. All of the stock rights under the plan have been awarded. As of December 31, 1995, none of the stock rights have been exercised. From time to time, the Company has also issued warrants to acquire common stock. The warrants entitle the holder to purchase one share of the Company's common stock at purchase prices ranging from $5.22 to $12.42 per share. There were 169,724 outstanding warrants to acquire common stock at December 31, 1995 with expirations dates ranging from December, 2002 through November, 2005. (18) BUSINESS COMBINATION On September 1, 1996, Wintrust Financial Corporation (formerly known as North Shore Community Bancorp, Inc.) issued approximately 5.3 million shares of common stock and approximately 122,000 warrants to acquire common stock in exchange for all outstanding common stock and warrants, if applicable, of Lake Forest Bancorp, Inc., Hinsdale Bancorp, Inc., Libertyville Bancorp, Inc. and Crabtree Capital Corporation based upon exchange ratios approved by shareholders of each of the companies. The combination was accounted for under the pooling of interests method. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below.
Year ended ----------------------------------- 1995 1994 1993 ----------- ------------ --------- Net interest income: Lake Forest Bancorp, Inc. $ 4,431 $ 2,877 $ 1,804 Hinsdale Bancorp, Inc. 2,067 573 7 North Shore Community Bancorp, Inc. 1,746 184 - Libertyville Bancorp, Inc. 157 - - Crabtree Capital Corporation 1,299 4,239 2,544 -------- ------- --------- Combined $ 9,700 $ 7,873 $ 4,355 ======== ======= ========= Other noninterest income: Lake Forest Bancorp, Inc. $ 1,115 $ 649 $ 783 Hinsdale Bancorp, Inc. 572 237 43 North Shore Community Bancorp, Inc. 264 36 - Libertyville Bancorp, Inc. 21 - - Crabtree Capital Corporation 6,572 564 318 -------- ------- --------- Combined $ 8,544 $ 1,486 $ 1,144 ======== ======= =========
F-30 109 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================
Year ended ---------------------------------- 1995 1994 1993 Net income (loss): Lake Forest Bancorp, Inc. $ 1,015 $ 508 $ 200 Hinsdale Bancorp, Inc. 420 (893) (565) North Shore Community Bancorp, Inc. (862) (896) - Libertyville Bancorp, Inc. (958) - - Crabtree Capital Corporation 1,882 (955) (2,974) -------- --------- -------- Combined $ 1,497 $ (2,236) $ (3,339) ======== ========= ========
(19) NET INCOME (LOSS) PER AVERAGE COMMON SHARE The following table sets forth the number of shares and the net income used to determine net income per common share for 1995, 1994, and 1993:
1995 1994 1993 ------ ------- ------- Net income (loss) available for common shareholders (A) $1,452 ($2,273) ($3,350) ====== ======= ======= Average common shares outstanding 5,315 4,035 2,948 Average common share equivalents 838 -- -- ------ ------- ------- Weighted average common shares and common share equivalents (B) 6,153 4,035 2,948 ====== ======= ======= Net income (loss) per average common share (A/B) $ 0.24 ($ 0.56) ($ 1.14) ====== ======= =======
Common share equivalents result from stock options, stock rights and stock warrants being treated as if they had been exercised and are computed by application of the treasury stock method. No common share equivalents were assumed to be outstanding for the years ended December 31, 1994 and 1993 because accounting standards require that the computation of earnings per share shall not give effect to common stock equivalents for any period in which their inclusion would have the effect of decreasing the loss per share amount otherwise computed. F-31 110 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ (20) WINTRUST FINANCIAL CORPORATION (PARENT COMPANY ONLY) The Company's condensed balance sheets as of December 31, 1995 and 1994, and the related condensed statements of operations and cash flows for the two years ended December 31, 1995 are as follows (in thousands):
=============================================================== BALANCE SHEET DATA - --------------------------------------------------------------- As of December 31 1995 1994 - --------------------------------------------------------------- ASSETS Cash $ 1,113 $ 1,027 Investment in subsidiaries 39,162 24,219 Other assets 212 120 - --------------------------------------------------------------- Total assets $ 40,487 $ 25,366 =============================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Other liabilities $ $ - - Shareholders' equity 40,487 25,366 - --------------------------------------------------------------- Total liabilities and shareholders' equity $ 40,487 $ 25,366 ===============================================================
F-32 111 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================ Prior to the Reorganization, Wintrust Financial Corporation was North Shore Community Bancorp, Inc. As a result of the reorganization, North Shore Community Bancorp, Inc. was renamed Wintrust Financial Corporation. North Shore Community Bancorp, Inc. had no operations prior to 1994 and, as such, the following statements of operations and cash flows are not applicable for the year ended December 31, 1993.
=============================================================== STATEMENTS OF OPERATION DATA - --------------------------------------------------------------- Years Ended December 31 1995 1994 - --------------------------------------------------------------- INCOME: Interest income $ - $ 26 Other income - 19 - --------------------------------------------------------------- Total income - 45 - --------------------------------------------------------------- EXPENSES: Interest expense - 12 Salaries and employee benefits - 243 Other expenses 56 95 Goodwill and organizational cost amortization 14 9 - --------------------------------------------------------------- Total expenses 70 359 - --------------------------------------------------------------- Loss before income taxes and equity in undistributed net income (loss) of subsidiaries (70) (314) Income tax benefit - - - --------------------------------------------------------------- Loss before equity in undistributed net income (loss) of subsidiaries (70) (314) Equity in undistributed net income (loss) of subsidiaries 1,567 (1,922) - --------------------------------------------------------------- Net income (loss) $ 1,497 $ (2,236) - --------------------------------------------------------------- Net income (loss) per common share $ 0.24 $ (0.56) ===============================================================
F-33 112 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements ================================================================================
=============================================================== STATEMENTS OF CASH FLOWS - --------------------------------------------------------------- Years Ended December 31 1995 1994 - --------------------------------------------------------------- Operating activities: Net income (loss) $ 1,497 $ (2,236) Adjustments to reconcile net income (loss) to net cash provided by operating activities Amortization of goodwill and organizational costs 14 9 Increase in other assets 92 120 Equity in undistributed net income (loss) of subsidiaries 1,567 (1,922) - --------------------------------------------------------------- Net cash provided by (used for) operating activities 3,170 (4,029) - --------------------------------------------------------------- Investing activities: Capital infusions to subsidiaries (16,557) (5,471) - --------------------------------------------------------------- Net cash used for investing activities (16,557) (5,471) - --------------------------------------------------------------- Financing activities: Common stock issuance, net 13,518 9,981 Preferred stock issuance - 500 Dividends on preferred stock (45) (37) Issuance of common stock warrants - 25 Other - 58 - --------------------------------------------------------------- Net cash provided by financing activities 13,473 10,527 - --------------------------------------------------------------- Net increase in cash 86 1,027 Cash at beginning of year 1,027 - - --------------------------------------------------------------- Cash at end of year $ 1,113 $ 1,027 ===============================================================
F-34 113 ================================================================================ No dealer, salesperson or other person has been authorized to give information or to make any representation not contained in this Prospectus in connection with the offer contained herein and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date as of which information is set forth herein. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. TABLE OF CONTENTS Prospectus Summary . . . . . . . . . . . . . . 4 Risk Factors . . . . . . . . . . . . . . . . . 9 Use of Proceeds . . . . . . . . . . . . . . . . 13 Market for Common Stock and Dividends . . . . . 14 Capitalization . . . . . . . . . . . . . . . . 15 Dilution . . . . . . . . . . . . . . . . . . . 17 Terms of the Offering . . . . . . . . . . . . . 18 The Company . . . . . . . . . . . . . . . . . . 21 Recent Acquisition . . . . . . . . . . . . . . 25 Selected Consolidated Financial Data . . . . . 26 Management's Discussion and Analysis of Financial Condition and Results of Operation. 28 Business . . . . . . . . . . . . . . . . . . . 42 Management . . . . . . . . . . . . . . . . . . 52 Certain Transactions . . . . . . . . . . . . . 59 Principal Shareholders . . . . . . . . . . . . 62 Supervision and Regulation . . . . . . . . . . 64 Description of Capital Stock . . . . . . . . . 70 Shares Eligible for Future Sale . . . . . . . . 75 Legal Matters . . . . . . . . . . . . . . . . . 76 Experts . . . . . . . . . . . . . . . . . . . . 76 Available Information . . . . . . . . . . . . . 76 Index to Consolidated Financial Statements . . 77 1,200,000 SHARES WINTRUST FINANCIAL CORPORATION COMMON STOCK -------------------- PROSPECTUS --------------------- EVEREN SECURITIES, INC. __________________ , 1996 ================================================================================ 114 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses in connection with this offering are as set forth in the following table. SEC registration fee . . . . . . . . . . . . . . . . $ 5,455 NASD filing fee . . . . . . . . . . . . . . . . . . . 2,300 Nasdaq listing fee . . . . . . . . . . . . . . . . . * Printing and engraving expenses . . . . . . . . . . . * Accounting fees and expenses . . . . . . . . . . . . * Legal fees and expenses . . . . . . . . . . . . . . . * Blue Sky fees and expenses . . . . . . . . . . . . . * Transfer agent fees . . . . . . . . . . . . . . . . . * Miscellaneous . . . . . . . . . . . . . . . . . . . . * ------- $ * =======
_________ * To be provided by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. In accordance with the Illinois Business Corporation Act (being Chapter 805, Act 5 of the Illinois Compiled Statutes), Articles Eight and Nine of the Registrant's Certificate of Incorporation provide as follows: ** ARTICLE EIGHT: No director of the corporation shall be liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director except for liability (a) for any breach of the director's duty of loyalty to the corporation or its shareholders, (b) for acts or omissions not in good faith or that involve intentional misconduct of a knowing violation of law, (c) under Section 8.65 of the BCA, as the same exists or hereafter may be amended, or (d) for any transaction from which the director derived an improper personal benefit. ** ARTICLE NINE, PARAGRAPH 1: 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 or she is or was a director, officer, employee or agent of the corporation, or who 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 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 investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against liabilities and expenses reasonably incurred or paid by such person in connection with such action, suit or proceeding. The words "liabilities" and "expenses" shall include, without limitation: liabilities, losses, damages, judgments, fines, penalties, amounts paid in settlement, expenses, attorneys' fees and costs. Expenses incurred in defending a civil, criminal, administrative, investigative or other action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding in accordance with the provisions of Section 8.75 of the BCA. The indemnification and advancement of expenses provided by this Article 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 II-1 115 shareholders, or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other 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. PARAGRAPH 2: The corporation may purchase and maintain insurance on behalf of any person referred to in the preceding paragraph against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article or otherwise. PARAGRAPH 3: For purposes of this Article, 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, 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 or she would have with respect to such constituent corporation if its separate existence had continued. PARAGRAPH 4: The provisions of this Article 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 BCA, 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. PARAGRAPH 5: 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 any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she 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. The Illinois Business Corporation Act provides for indemnification of officers, directors, employees and agents as follows: 5/8.75 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE. (a) A corporation may indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such 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 upon 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 which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. II-2 116 (b) A corporation may indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such 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, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such 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, provided that no indemnification shall be made with respect to any claim, issue, or matter as to which such person, has been adjudged to have been liable to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. (c) To the extent that a director, officer, employee or agent of a corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in subsections (a) and (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsections (a) or (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized in this Section. (f) The indemnification and advancement of expenses provided by or granted under the other subsections of this Section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. (g) A corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Section. (h) If a corporation has paid indemnity or has advanced expenses to a director, officer, employee or agent, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders meeting. (i) For purposes of this Section, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, and employees or agents, so that any person who was a director, II-3 117 officer, employee or agent of such merging corporation, or was serving at the request of such merging 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 Section with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. (j) For purposes of this Section, reference to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an 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. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interest of the corporation" as referred to in this Section. (k) The indemnification and advancement of expenses provided by or granted under this Section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of that person. (Last amended by P.A. 88-43, L. '93, eff. 1-1-94.) ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Wintrust Financial Corporation (the "Company") was formed pursuant to a reorganization of five companies as more fully described in the Company's Registration Statement on Form S-4, as amended, as filed with the Commission on July 22, 1996 (Registration No. 333-4645). Pursuant to that reorganization, all previously issued and outstanding shares of stock, and all outstanding warrants representing a right to purchase shares of common stock, of the five separate companies were exchanged effective September 1, 1996, for shares of common stock (the "Common Stock") and Common Stock warrants of the Company registered pursuant to the Registration Statement on Form S-4. The predecessor companies had also issued, prior to the reorganization, certain rights and options to purchase shares of common stock of the respective companies. Such rights and options were issued by the predecessor companies in transactions exempt from registration under Rule 701 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), or Section 4(2) of the Securities Act. In connection with the reorganization, such rights and options were automatically adjusted in accordance with their terms into options and rights to purchase shares of the Company's Common Stock, not involving the sale of securities by the Company. In December 1996, in connection with the Company's acquisition of Wolfhoya Investments, Inc. ("Wolfhoya"), the Company issued an aggregate of 87,556 shares of Common Stock to the shareholders of Wolfhoya, all of whom are directors or officers of the Company or its subsidiaries, in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act. As part of such acquisition, each outstanding warrant to purchase shares of common stock of Wolfhoya was adjusted in accordance with its terms to represent the right to purchase an appropriately adjusted number of shares of Common Stock of the Company. An aggregate of 16,838 Warrants were received by the former shareholders of Wolfhoya as a result of that transaction, not involving the sale of securities by the Company. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The exhibits filed as a part of this Registration Statement are as follows: 1.1* Form of Agency Agreement. 3.1 Amended and Restated Articles of Incorporation of Wintrust Financial Corporation. II-4 118 3.2 By-laws of Wintrust Financial Corporation (incorporated by reference to pages AC-1 to AC-16 of Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 5.1* Opinion of Vedder, Price, Kaufman & Kammholz re: legality. 10.1 $25 Million Revolving Loan Agreement between LaSalle National Bank and Wintrust Financial Corporation, dated September 1, 1996. 10.2 Form of Wintrust Financial Corporation Warrant Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645), filed with the Securities and Exchange Commission on July 22, 1996). 10.3 Hinsdale Bancorp, Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.4 Lake Forest Bancorp, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.5 Lake Forest Bancorp, Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.6 Libertyville Bancorp, Inc. 1995 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.7 North Shore Community Bancorp, Inc. 1994 Stock Options Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.8 Crabtree Capital Corporation 1987 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.9 The Credit Life Companies, Incorporated 1987 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.10 First Premium Services, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.11 Wolfhoya Investments, Inc. 1995 Stock Option Plan (Barrington Bank and Trust Company Stock Option Plan). 10.12 North Shore Community Bancorp, Inc. 1993 Stock Rights Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). II-5 119 10.13 Crabtree Capital Corporation 1990 Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.14 Phantom Stock Agreement between Lake Forest Bancorp, Inc. and Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.15 Phantom Stock Agreement between Libertyville Bancorp, Inc. and Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.16 Phantom Stock Agreement between North Shore Community Bancorp, Inc. and Anne M. Adams (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.17 Form of Warrant Agreement relating to the right to purchase shares of North Shore Community Bancorp, Inc. (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.18 Lake Forest Bank & Trust Company Lease for drive-up facility located at the corner of Bank Lane & Wisconsin Avenue, Lake Forest, Illinois, dated December 11, 1992 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.19 Lake Forest Bank & Trust Company Lease for banking facility located at 810 South Waukegan Road, Lake Forest, Illinois (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333- 4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.20 Lake Forest Bank & Trust Company Lease for banking facility located at 666 North Western Avenue, Lake Forest, Illinois, dated July 19, 1991 and Amendment (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.21 Lake Forest Bank & Trust Company Lease for banking facility located at 103 East Scranton Avenue, Lake Bluff, Illinois, dated November 1, 1994 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.22 North Shore Bank & Trust Company Lease for banking facility located at 362 Park Avenue, Glencoe, Illinois, dated July 27, 1995 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.23 North Shore Bank & Trust Company Lease for banking facility located at 794 Oak Street, Winnetka, Illinois, dated June 16, 1995 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). II-6 120 10.24 Barrington Bank and Trust Company Lease for property located at 202A South Cook Street, Barrington, Illinois, dated December 29, 1995. 10.25 Real Estate Contract by and between Wolfhoya Investments, Inc. and Amoco Oil Company, dated March 25, 1996, and amended as of __________, 1996, relating to the purchase of property located at 201 South Hough, Barrington, Illinois. 10.26 Form of Employment Agreement (entered into between the Company and each of Howard D. Adams, Chairman and Chief Executive Officer, and Edward J. Wehmer, President). 21.1 Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Vedder, Price, Kaufman & Kammholz (included in Exhibit 5.1). 24.1 Powers of Attorney (set forth on Signature page). 99.1 Subscription and Community Offering Stock Order Form and Certification Form. - ----------------------- * To be filed by amendment ITEM 17. 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 recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee." (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. II-7 121 (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. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (h) 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 Item 20 of this Registration Statement, 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, officer 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 Securities Act of 1933 and will be governed by the final adjudication of such issue. (i) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 122 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the State of Illinois, on December 23, 1996. WINTRUST FINANCIAL CORPORATION By: HOWARD D. ADAMS ----------------------------- Howard D. Adams, Chairman and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Howard D. Adams, Edward J. Wehmer or David A. Dykstra, or any of them, his true and lawful attorneys-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 (including post-effective 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 for all intents and purposes as he might or could do in person, hereby ratifying and confirming any and all such acts said attorneys-in-fact and agents or their substitutes or substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Name Title Date HOWARD D. ADAMS Chairman and December 23, 1996 - ---------------------- Chief Executive Officer Howard D. Adams EDWARD J. WEHMER President and Director December 23, 1996 - ---------------------- Edward J. Wehmer DAVID A. DYKSTRA Chief Financial Officer December 23, 1996 - ---------------------- (and principal accounting officer) David A. Dykstra ALAN W. ADAMS Director December 23, 1996 - ---------------------- Alan W. Adams PETER CRIST Director December 23, 1996 - ---------------------- Peter Crist MAURICE F. DUNNE, JR. Director December 23, 1996 - ----------------------- Maurice F. Dunne, Jr. EUGENE HOTCHKISS, III Director December 23, 1996 - ----------------------- Eugene Hotchkiss, III JAMES C. KNOLLENBERG Director December 23, 1996 - ----------------------- James C. Knollenberg
II-9 123 JOHN S. LILLARD Director December 23, 1996 - ---------------------------- John S. Lillard JAMES E. MAHONEY Director December 23, 1996 - ---------------------------- James E. Mahoney JAMES B. MCCARTHY Director December 23, 1996 - ---------------------------- James B. McCarthy MARGUERITE SAVARD MCKENNA Director December 23, 1996 - ---------------------------- Marguerite Savard McKenna Director December 23, 1996 - ---------------------------- Albin F. Moschner HOLLIS W. RADEMACHER Director December 23, 1996 - ---------------------------- Hollis W. Rademacher J. CHRISTOPHER REYES Director December 23, 1996 - ---------------------------- J. Christopher Reyes JOHN N. SCHAPER Director December 23, 1996 - ---------------------------- John N. Schaper JOHN J. SCHORNACK Director December 23, 1996 - ---------------------------- John J. Schornack Director December 23, 1996 - ---------------------------- Jane R. Stein Director December 23, 1996 - ---------------------------- Katharine V. Sylvester LEMUEL H. TATE, JR. Director December 23, 1996 - ---------------------------- Lemuel H. Tate, Jr. LARRY WRIGHT Director December 23, 1996 - ---------------------------- Larry Wright
II-10 124 EXHIBIT INDEX Exhibit 1.1* Form of Agency Agreement. 3.1 Amended and Restated Articles of Incorporation of Wintrust Financial Corporation. 3.2 By-laws of Wintrust Financial Corporation (incorporated by reference to pages AC-1 to AC-16 of Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 5.1* Opinion of Vedder, Price, Kaufman & Kammholz re: legality. 10.1 $25 Million Revolving Loan Agreement between LaSalle National Bank and Wintrust Financial Corporation, dated September 1, 1996. 10.2 Form of Wintrust Financial Corporation Warrant Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645), filed with the Securities and Exchange Commission on July 22, 1996). 10.3 Hinsdale Bancorp, Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.4 Lake Forest Bancorp, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.5 Lake Forest Bancorp, Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.6 Libertyville Bancorp, Inc. 1995 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.7 North Shore Community Bancorp, Inc. 1994 Stock Options Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.8 Crabtree Capital Corporation 1987 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.9 The Credit Life Companies, Incorporated 1987 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.10 First Premium Services, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). II-11 125 10.11 Wolfhoya Investments, Inc. 1995 Stock Option Plan (Barrington Bank and Trust Company Stock Option Plan). 10.12 North Shore Community Bancorp, Inc. 1993 Stock Rights Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.13 Crabtree Capital Corporation 1990 Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.14 Phantom Stock Agreement between Lake Forest Bancorp, Inc. and Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.15 Phantom Stock Agreement between Libertyville Bancorp, Inc. and Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.16 Phantom Stock Agreement between North Shore Community Bancorp, Inc. and Anne M. Adams (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.17 Form of Warrant Agreement relating to the right to purchase shares of North Shore Community Bancorp, Inc. (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.18 Lake Forest Bank & Trust Company Lease for drive-up facility located at the corner of Bank Lane & Wisconsin Avenue, Lake Forest, Illinois, dated December 11, 1992 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.19 Lake Forest Bank & Trust Company Lease for banking facility located at 810 South Waukegan Road, Lake Forest, Illinois (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.20 Lake Forest Bank & Trust Company Lease for banking facility located at 666 North Western Avenue, Lake Forest, Illinois, dated July 19, 1991 and Amendment (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.21 Lake Forest Bank & Trust Company Lease for banking facility located at 103 East Scranton Avenue, Lake Bluff, Illinois, dated November 1, 1994 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.22 North Shore Bank & Trust Company Lease for banking facility located at 362 Park Avenue, Glencoe, Illinois, dated July 27, 1995 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.23 North Shore Bank & Trust Company Lease for banking facility located at 794 Oak Street, Winnetka, Illinois, dated June 16, 1995 (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to II-12 126 Registrant's Form S-4 Registration Statement (No. 333-4645) filed with the Securities and Exchange Commission on July 22, 1996). 10.24 Barrington Bank and Trust Company Lease for property located at 202A South Cook Street, Barrington, Illinois, dated December 29, 1995. 10.25 Real Estate Contract by and between Wolfhoya Investments, Inc. and Amoco Oil Company, dated March 25, 1996, and amended as of __________, 1996, relating to the purchase of property located at 201 South Hough, Barrington, Illinois. 10.26 Form of Employment Agreement (entered into between the Company and each of Howard D. Adams, Chairman and Chief Executive Officer, and Edward J. Wehmer, President). 21.1 Subsidiaries of the Registrant. 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Vedder, Price, Kaufman & Kammholz (included in Exhibit 5.1). 24.1 Powers of Attorney (set forth on Signature pages). 99.1 Subscription and Community Offering Stock Order Form and Certification Form. - ------------------ * To be filed by amendment. II-13 EX-3.1 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF WINTRUST FINANCIAL CORPORATION Wintrust Financial Corporation (the "Corporation") was incorporated on December 30, 1992 under the name Wintrust Investment Corporation. On March 18, 1993, the name of the Corporation was changed to Wintrust Investments, Inc. On May 27, 1994, the name of the Corporation was changed to North Shore Community Bancorp, Inc. The Articles of Incorporation be and the same hereby are amended and restated to read as follows: **ARTICLE ONE: The name of the Corporation is Wintrust Financial Corporation. *ARTICLE TWO: The name and address of the registered agent and registered office are: Registered Agent - John F. Purtill, Esq. Registered Office - 1515 East Woodfield Road Suite 250 Schaumburg, Illinois 60173-5431 **ARTICLE THREE: Purpose or purposes for which the Corporation is organized: The transaction of any or all lawful businesses for which corporations may be incorporated under the Illinois Business Corporation Act of 1983, as amended (the "BCA"). **ARTICLE FOUR, Paragraph 1: Authorized Shares, Issued Shares and Consideration Received. The class, number of shares, and the par value, if any, of each class of stock which the Corporation shall have authority to issue shall be as follows:
Number of Shares Number of Class Par Value Per Share Authorized Shares Issued ----- ------------------- ---------- ------------- Common no par value 30,000,000 254,217 Preferred no par value 20,000,000 0
The Paid-In Capital is: $12,513,980 Shares of the Corporation may be issued from time to time in such manner, amounts and proportions and for such consideration as shall be fixed by the Board of Directors of the Corporation. 2 Paragraph 2: The preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the shares of each class are as follows: COMMON STOCK (a) Dividends. Subject to any rights to receive dividends to which the holders of the shares of the Preferred Stock may be entitled, the holders of shares of Common Stock shall be entitled to receive dividends, if and when declared payable from time to time by the Board of Directors from any funds legally available therefor. (b) Liquidation. In the event of any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, after there shall have been paid to the holders of shares of Preferred Stock the full amounts to which they shall be entitled, the holders of the then outstanding shares of Common Stock shall be entitled to receive, pro rata, all of the remaining assets of the Corporation available for distribution to its shareholders. The Board of Directors may distribute in kind to the holders of the shares of Common Stock such remaining assets of the Corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporation, trust or entity, or any combination thereof, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of the shares of Common Stock. The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the Corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the Corporation for the purpose of this paragraph (b). (c) Voting. Each outstanding share of Common Stock of the Corporation shall entitle the holder thereof to one vote on each matter submitted to a vote at a meeting of the shareholders. PREFERRED STOCK The Board of Directors is expressly authorized to adopt, from time to time, a resolution or resolutions providing for the issuance of Preferred Stock in one or more series, to fix the number of shares in each such series and to fix the designations and powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of each such series. The authority of the Board of Directors with respect to each such series shall include a determination of the following (which may vary as between the different series of Preferred Stock): -2- 3 (a) The number of shares constituting the series and the distinctive designation of the series; (b) The dividend rate on the shares of the series, the conditions and dates upon which dividends thereon shall be payable, the extent, if any, to which dividends thereon shall be cumulative, and the relative rights of preference, if any, of payment of dividends thereon; (c) Whether or not the shares of the series are redeemable and, if redeemable, including the times during which they shall be redeemable and the amount per share payable in case of redemption, which amount may, but need not, vary according to the time and circumstances of such action; (d) The amount payable in respect of the shares of the series, in the event of any liquidation, dissolution or winding up of the Corporation, which amount may, but need not, vary according to the time or circumstances of such action, and the relative rights of preference, if any, of payment of such amount; (e) Any requirement as to a sinking fund for the shares of the series, or any requirement as to the redemption, purchase or other retirement by the Corporation of the shares of the series; (f) The right, if any, to exchange or convert shares of the series into shares of any other series or class of stock of the Corporation and the rate or basis, time, manner and condition of exchange or conversion; (g) The voting rights, if any, to which the holders of shares of the series shall be entitled in addition to the voting rights provided by law; and (h) Any other term, condition or provision with respect to the series not inconsistent with the provisions of this Article Four or any resolution adopted by the Board of Directors pursuant thereto. **ARTICLE FIVE: No holder of any class of shares of the Corporation shall have any cumulative voting rights in the election of directors or in any other circumstances. **ARTICLE SIX: No holder of any class of shares of the Corporation shall be entitled as such as a matter of right to subscribe for or purchase any part (a) of any shares of any class of the Corporation whether now authorized or hereafter created, or (b) of any securities whether non- convertible, or convertible into or evidencing the right to purchase or acquire shares of any class of the Corporation, whether now authorized or hereafter created and whether in either case issued or sold for cash, property, services or otherwise. -3- 4 **ARTICLE SEVEN: Any action required or permitted to be taken by the holders of any class of shares of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. **ARTICLE EIGHT: No director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its shareholders, (b) for acts or omissions not in good faith or that involve intentional misconduct of a knowing violation of law, (c) under Section 8.65 of the BCA, as the same exists or hereafter may be amended, or (d) for any transaction from which the director derived an improper personal benefit. **ARTICLE NINE, Paragraph 1: 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 or she is or was a director, officer, employee or agent of the Corporation, or who 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 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 investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against liabilities and expenses reasonably incurred or paid by such person in connection with such action, suit or proceeding. The words "liabilities" and "expenses" shall include, without limitation: liabilities, losses, damages, judgments, fines, penalties, amounts paid in settlement, expenses, attorneys' fees and costs. Expenses incurred in defending a civil, criminal, administrative, investigative or other action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding in accordance with the provisions of Section 8.75 of the BCA. The indemnification and advancement of expenses provided by this Article 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 shareholders, or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other 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. Paragraph 2: The Corporation may purchase and maintain insurance on behalf of any person referred to in the preceding paragraph against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, -4- 5 whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article or otherwise. Paragraph 3: For purposes of this Article, 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, 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 or she would have with respect to such constituent corporation if its separate existence had continued. Paragraph 4: The provisions of this Article 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 BCA, 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. Paragraph 5: 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 any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she 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 TEN: The number of directors of the Corporation shall be that number set forth in the By-laws, as may be increased or decreased from time to time; provided, however, that such number shall never be less than six (6). Paragraph 1: The directors shall be divided into three classes, as equal in number as possible, with respect to the times for which they shall hold office. Directors of the first class first elected shall hold office for one year or until the first annual election following their election, directors of the second class first elected shall hold office for two years or until the second annual election following their election, and directors of the third class first elected shall hold office for three years or until the third annual election following their election and in each case until their successors shall be duly elected and shall qualify. -5- 6 Paragraph 2: At each annual meeting of the shareholders following such first election of the directors of all classes, the successors to the class of directors whose terms shall expire at such meeting shall be elected to hold office for a term of three years, so that in each year the term of office of one class of directors shall expire. Paragraph 3: Directors need not be residents of Illinois or shareholders of the Corporation. **ARTICLE ELEVEN: The Corporation expressly elects to be governed by Section 7.85 of the BCA as may be amended from time to time. **ARTICLE TWELVE: The Corporation expressly elects not to be governed by Section 11.75 of the BCA. **ARTICLE THIRTEEN: Notwithstanding any other provision of these Articles of Incorporation or the By-laws of the Corporation (and not withstanding the fact that a lessor percentage may be specified by law, these Articles of Incorporation or the By-laws of the Corporation), the affirmative vote of the holders of 85% or more of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision inconsistent with Articles Five, Six, Seven, Eight, Nine, Ten, Eleven, Twelve and this Article Thirteen. - -------------------------- * Restated only ** Amended and Restated -6- EX-10.1 3 REVOLVING LOAN AGREEMENT 1 Exhibit 10.1 LOAN AGREEMENT This LOAN AGREEMENT (the ,"Agreement") , dated as of September 1, 1996, is entered into between WINTRUST FINANCIAL CORPORATION, an Illinois corporation (the "Borrower") , and LASALLE NATIONAL BANK, a national banking association ("LaSalle"). RECITALS WHEREAS, the Borrower desires to borrow from LaSalle up to the sum of TWENTY FIVE MILLION DOLLARS ($25,000,000) in order to refinance existing debt and to provide for Borrower's working capital needs; WHEREAS, as a prerequisite for making such loans, LaSalle has requested and the Borrower has agreed to pledge to LaSalle and grant a security interest in favor of LaSalle with respect to the capital stock of Hinsdale Bancorp ("Hinsdale") , Lake Forest Bancorp ("Lake Forest") , North Shore Community Bank & Trust ("North Shore") and Libertyville Bancorp ("Libertyville") (Hinsdale, Lake Forest, North Shore and Libertyville are referred to herein individually as a "Holding Company" and collectively as the "Holding Companies"; the capital stock of such Holding Companies shall be collectively referred to herein as the "Holding Company Stock"), as set forth in the Pledge and Security Agreement of the Borrower of even date herewith (the "Borrower Pledge Agreement"); WHEREAS, the Holding Company Stock constitutes 100% of the issued and outstanding capital stock of the Holding Companies; WHEREAS, as a further prerequisite for making such loans, LaSalle has requested and the Holding Companies have agreed to pledge to LaSalle and grant a security interest in favor of LaSalle with respect to the capital stock of each of their respective subsidiaries (individually a "Subsidiary" and collectively, the "Subsidiaries"; the capital stock of such Subsidiaries shall be collectively referred to herein as the "Subsidiary Stock") as set forth in the Pledge and Security Agreement of the Holding Companies of even date herewith (the "Holding Company Pledge Agreement" and collectively with the Borrower Pledge Agreement, the "Pledge Agreements"); WHEREAS, the Subsidiary Stock constitutes 100% of the issued and outstanding capital stock of the Subsidiaries; and WHEREAS, LaSalle is willing to make a loan to the Borrower in accordance with the terms, subject to the conditions and in reliance upon the representations, warranties and covenants set forth herein and in the other documents and instruments entered into or delivered in connection with or relating to the loan contemplated in this Agreement. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 2 AGREEMENT: 1. Commitment of LaSalle. LaSalle agrees to extend a loan (the "Loan") to the Borrower in the principal amount of TWENTY FIVE MILLION, DOLLARS ($25,000,000), evidenced by a promissory note (the "Note") and secured by the Pledge Agreements, in accordance with terms and subject to the conditions set forth in this Agreement, the Note and the Pledge Agreements. 2. Conditions of Borrowing. Notwithstanding any other provision of this Agreement, LaSalle shall not be required to extend the Loan: (a) if, since the date of this Agreement and up to the agreed upon date of the Loan, there has occurred, in LaSalle's sole and complete discretion, a material adverse change in the financial condition or affairs of the Borrower, any Holding Company or any Subsidiary; (b) if any Default (as such term is defined below) has occurred or any event which, with the giving of notice or lapse of time, or both, would constitute such a Default; (c) if any litigation or governmental proceeding has been instituted or threatened against the Borrower, any Holding Company, any Subsidiary or any of their respective officers or shareholders which, in the sole discretion of LaSalle, could materially adversely affect the financial condition or operations of the Borrower or such Holding Company or Subsidiary; (d) if all necessary or appropriate actions and proceedings shall not have been taken in connection with, or relating to the transactions contemplated hereby and all documents incident thereto shall not have been completed and tendered for delivery, in form and substance satisfactory to LaSalle, including, but not limited to, LaSalle's failure to have received evidence that: (i) the Borrower has received all necessary regulatory approvals to acquire the Holding Company Stock; and (ii) the Borrower has provided such notices to all appropriate federal banking agencies as to satisfy the requirements of 12 U.S.C. Section 1817(j)(9)(E); (e) if the Borrower shall not have tendered for delivery the Note and the Borrower Pledge Agreement, together with all of the Pledged Security (as such term is defined in the Borrower Pledge Agreement) all in form and substance satisfactcry to LaSalle; (f) if the Holding Companies shall not have tendered for delivery the Holding Company Pledge Agreement, together with all of the Pledged Security (as such term is defined in the Holding Company Pledge Agreement) in form and substance satisfactory to LaSalle; (g) if the Borrower shall not have tendered for delivery a legal opinion from the Borrower's counsel in form and substance satisfactory to LaSalle and LaSalle's legal counsel; 3 or (h) if LaSalle shall not have received, in form and substance satisfactory to LaSalle, all certificates, affidavits, schedules, resolutions, opinions, notes and other documents which are provided for hereunder, or which it may reasonably request. 3. Note Evidencing Borrowing. The Loan shall be evidenced by the Note executed by the Borrower in the Principal amount of TWENTY FIVE MILLION DOLLARS ($25,000,000) , which Note shall be in the form set forth as Exhibit A hereto. (a) Interest on amounts outstanding under the Note shall be payable quarterly, in arrears, commencing on December 1, 1996 and continuing on the first day of each March, June, September and December thereafter. A final payment of all outstanding amounts due under the Note; including, but not limited to Principal, interest and any amounts owing under Subsection 10(m) of this Agreement, if not payable earlier, shall be due and payable on September 1, 1997. The amounts outstanding under the Note from time to time shall bear interest calculated on the actual number of days elapsed on the basis of a 360 day year, at a rate equal, at the Borrower's option, to either (a) the London Inter- Bank Offered Rate ("LIBOR") plus 150 basis points, or (b) the Prime Rate (whichever rate is so selected, the "Interest Rate"). For purposes of this Agreement, the term "Prime Rate" shall mean the floating prime rate in effect from time to time as set by LaSalle, and referred to by LaSalle as its Prime Rate. The Borrower acknowledges that the Prime Rate is not necessarily LaSalle's lowest or most favorable rate of interest at any one time. The effective date of any change in the Prime Rate shall for purposes hereof be the date the rate change is publicly announced by LaSalle. For purposes of this Agreement, "LIBOR" shall mean the per annum rate of interest at which U.S. dollar deposits in an amount comparable to the amount of the relevant LIBOR Loan and for a period equal to the relevant "Interest Period" (hereinafter defined) are offered generally to LaSalle (rounded upward if necessary, to the nearest 1/16 of 1.00%) in the London Interbank Eurodollar market at 11:00am (London time) two banking days prior to the commencement of each Interest Period, such rate to remain fixed for such interest period. "Interest Period" shall mean successive one, two, three or six month periods as selected from time to time by the Borrower by notice given to LaSalle not less than three banking days prior to the first day of each respective Interest Period; provided that: (i) each such one, two, three or six month period occurring after such initial period shall commence on the day on which the next preceding period expires; (ii) the final Interest Period shall be such that its expiration occurs on or before the stated maturity date hereof; and (iii) if for any reason the Borrower shall fail to select timely a period, then it shall be deemed to have selected a one month period. Interest shall be payable on the last banking day of each interest Period, commencing on the first such date to occur after the date hereof, at maturity, after maturity on demand, and on the date of any payment hereon on the amount paid. The Borrower hereby further promises to pay to the order of LaSalle, on demand, interest on the unpaid principal amount hereof after maturity (whether by acceleration or 4 otherwise) at a rate of two per cent per annum in excess of the rate in effect at the time of maturity. LaSalle's determination of LIBOR as provided above shall be conclusive, absent manifest error. Furthermore, if LaSalle determines, in good faith (which determination shall be conclusive, absent manifest error), prior to the commencement of any Interest Period that (a) U.S. dollar deposits of sufficient amount and maturity for funding any LIBOR Loan are not available to LaSalle in the London Interbank Eurodollar market in the ordinary course of business, or (b) by reason of circumstances affecting the London Interbank Eurodollar market, adequate and fair means do not exist for ascertaining the rate of interest to be applicable to the relevant LIBOR Loan, LaSalle shall promptly notify the Borrower and such LIBOR Loan shall be immediately due and payable on the last banking day of the then existing Interest Period, without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. If, after the date hereof, the introduction of, or any change in any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental authority or any central bank or other fiscal, monetary or other authority having jurisdiction over LaSalle or its lending office (a "Regulatory Change"), shall, in the opinion of counsel to LaSalle, makes it unlawful for LaSalle to make or maintain any LIBOR Loan evidenced hereby, then LaSalle shall promptly notify the Borrower and such LIBOR Loan shall be immediately due and payable on the last banking day of the then existing Interest Period or on such earlier date as required by law, all without further demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrower. If, for any reason, any LIBOR Loan is paid prior to the last banking day of its then current Interest Period, the Borrower agrees to indemnify LaSalle against any loss (including any loss on redeployment of the funds repaid), cost or expense incurred by LaSalle as a result of such prepayment. If any Regulatory Change (whether or not having force of law) shall (a) impose, modify or deem applicable any assessment, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of or loans by, or any other acquisition of funds or disbursements by, LaSalle; (b) subject LaSalle or any LIBOR Loan to any tax, duty, charge, stamp tax or fee or change the basis of taxation of payments to LaSalle of principal or interest due from the Borrower to LaSalle hereunder (other than a change in the taxation of the overall net income of LaSalle) ; or (c) impose on LaSalle any other condition regarding such LIBOR Loan or LaSalle's funding thereof, and LaSalle shall determine (which determination shall be conclusive, absent manifest error) that the result of the foregoing is to increase the cost to LaSalle of making or maintaining such LIBOR Loan or to reduce the amount of principal or interest received by LaSalle hereunder, then the Borrower shall pay to LaSalle, on demand, such additional amounts as LaSalle shall, from time to time, determine are sufficient to compensate and indemnify LaSalle for such increased cost or reduced amount. (b) Any amount of principal or interest on the Note which is not paid when due, whether at stated maturity, by acceleration or otherwise shall bear interest payable on 5 demand at an interest rate equal at all times to two percent (2%) above the Interest Rate. (c) Each Loan shall be made available to the Borrower upon its written or verbal request, from any person whose authority to so act has not been revoked by the Borrower in writing previously received by LaSalle. Such request must be received by no later than 11:00 a.m. Chicago, Illinois time, on the day it is to be funded. The Proceeds of each Revolving Loan shall be made available at the office of LaSalle by credit to the account of the Borrower or by other means requested by the Borrower and acceptable to LaSalle. LaSalle is authorized to rely on the telephonic, telecopy or telegraphic loan requests which LaSalle believes in its good faith judgment to emanate from a properly authorized representative of the Borrower, whether or not that is in fact the case. The Borrower does hereby irrevocably confirm, ratify and approve all such advances by LaSalle and does hereby indemnify LaSalle against losses and expenses (including court costs, attorneys' and Paralegals fees) and shall hold LaSalle harmless with respect thereto. (d) If any payment to be made by the Borrower hereunder shall become due on a Saturday, Sunday or bank holiday under the laws of the State of Illinois, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing any interest in respect of such payment. 4. Principal Prepayments. Prepayments of Prime Rate Loans are permitted at any time, and shall be applied to the next succeeding principal payment due. Any prepayments of LIBOR Loans shall be subject to the terms of Section 3(a), above. 5. Representations and Warranties. To induce LaSalle to make the Loan provided for herein, the Borrower represents and warrants as follows: (a) The Borrower: (i) is a corporation duly organized and validly existing and in good standing under the laws of the State of Illinois; (ii) is duly qualified as a foreign corporation and is in good standing in all states in which it is doing business except where the failure to so qualify would not have a material adverse effect on the Borrower or its business; and (iii) has all requisite power and authority, corporate or otherwise, to own, operate and lease its property and to carry on its business as now being conducted. Each Holding Company is an Illinois corporation (except for Lake Forest, which is a Delaware corporation) , and has all requisite power and authority, corporate or otherwise, to own, operate and lease its property and to carry on its business as now being conducted. Each Subsidiary is an Illinois banking corporation, and has all requisite Dower a-id authority, corporate or otherwise, to own, operate and lease its property and to carry on its business as now being conducted. The Borrower, the Holding Companies and the Subsidiaries have made payment of all franchise and similar taxes in the State of Illinois and in all of the respective jurisdictions in which they are incorporated or qualified, insofar as such taxes are due and payable at the date of this Agreement, except for any 6 such taxes the validity of which is being contested in good faith and for which proper reserves have been set aside on the books of the Borrower or such Holding Company or Subsidiary, as the case may be. (b) The Borrower is the owner of 100%; of the issued and outstanding capital stock of the Holding Companies. (c) The Holding Company Stock has been duly authorized, legally and validly issued, fully paid and nonassessable, and is owned by the Borrower free and clear of all pledges, liens, security interests, charges or encumbrances, except, upon consummation of the transactions contemplated herein, for the security interest granted by the Borrower to LaSalle. There are, as of the date hereof, no outstanding options, rights or warrants obligating the Borrower to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of any Holding Company or obligating the Borrower to grant, extend or enter into any such agreement or commitment, except for such agreements or commandments existing as of the date of this Agreement and disclosed to LaSalle. (d) The Holding Companies are the owners of 100% of the issued and outstanding capital stock of the Subsidiaries. (e) The Subsidiary Stock has been duly authorized, legally and validly issued, fully paid and nonassessable, and is owned by the Holding Companies free and clear of all pledges, liens, security interests, charges or encumbrances, except, upon consummation of the transactions contemplated herein, for the security interest granted by the Holding Companies to LaSalle. There are, as of the date hereof, no outstanding options, rights or warrants obligating any Holding Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the Capital stock of any Subsidiary or obligating any Holding Company to grant, extend or enter into any such agreement or commitment, except for such agreements or commitments existing as of the date of this Agreement and disclosed to LaSalle. (f) The financial statements of: (i) the Borrower, all of which have heretofore been furnished to LaSalle, have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") and maintained by the Borrower throughout the periods involved, and fairly present the financial condition of the Borrower individually and on a consolidated basis at such dates specified therein and the results of its operations for the periods then ended; and (ii) each Holding Company and Subsidiary, all of which have heretofore been furnished to LaSalle, to the best knowledge of the Borrower have been prepared in accordance with GAAP and maintained by such Holding Company or Subsidiary throughout the periods involved, and fairly present the financial condition of such Holding Company or Subsidiary at such dates specified therein and the results of its operations for the periods then entered. 7 (g) To the best knowledge of the Borrower, since the latest date of the financial statements referred to in Section 5(f) above, there have been no material changes in the assets, liabilities, or condition, financial or otherwise, of the Borrower, any Holding Company or any subsidiary other than changes arising from transactions in the ordinary course of business, and no such changes have been materially adverse, whether in the ordinary course of business or otherwise. To the best knowledge of the Borrower, neither the business nor the properties of the Borrower , any Holding Company or Subsidiary have been materially and or adversely affected in any way, including, without limitation, as a result of any fire, explosion, accident, strike, lockout, labor dispute, flood, drought, embargo, imposition of governmental restrictions, confiscation by a governmental agency or acts of God. (h) There are no actions, suits, proceedings or written agreements pending, nor to the best of the knowledge of the Borrower threatened or proposed, against the Borrower or, to the best knowledge of the Borrower, any Holding Company or Subsidiary, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board or other administrative agency, domestic or foreign, which are of a material nature. Neither of the Borrower nor, to the best knowledge of the Borrower, any Holding Company or Subsidiary is in default with respect to any order, writ, injunction or decree of, or any written agreement with, any court, commission, board or agency, domestic or foreign. (i) All tax returns and reports of the Borrower and, to the best knowledge of the Borrower, each Holding Company and Subsidiary, required by law to be filed have been duly filed, and all taxes, assessments, fees and other governmental charges upon the Borrower and the Holding Companies and Subsidiaries or upon any of their properties or assets which are due and payable have been paid, and the Borrower knows of no additional assessment of a material nature against the Borrower, the Holding Companies or the Subsidiaries for taxes, or, except as disclosed on the final statements referred to in Section 5(f) above, of any basis for any such additional assessment. (j) The Borrower's primary business is that of a financial holding company. All necessary regulatory approvals have been obtained for the Borrower to conduct its business. (k) The deposit accounts of the Subsidiaries are insured by the Federal Deposit Insurance Corporation ("FDIC"). (l) None of the Pledged Security constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System ("FRS"). The foregoing representations and warranties shall survive the making of this Agreement, and execution and delivery of the Note and the Pledge Agreements, and shall be deemed to be continuing representations and warranties until such time as the Borrower has satisfied all of its obligations to LaSalle; including, but not limited to the obligation to pay in full all principal, interest and other amounts in accordance with the terms of this Agreement, the Note and the Pledge Agreements. 8 6. Negative Covenants The Borrower agrees that until the Borrower satisfies all of its obligations to LaSalle, including, but not limited to its obligations to pay in full all principal, interest and other amounts owing in accordance with the terms of this Agreement, the Note and the Pledge Agreements, the Borrower shall not, nor shall the Borrower cause, Permit or allow any, Holding Company or Subsidiary to: (a) create, assume, incur, have outstanding, or in any manner become liable in respect of any indebtedness for borrowed money, except in the case of Borrower, secured indebtedness under Section 6 (b)(vi) and, in the case of the Subsidiaries, indebtedness incurred in the ordinary course of the business of banking and in accordance with applicable laws and regulations and safe and sound banking practices. For purposes of this Agreement , the phrase "indebtedness" shall mean and include: (i) all items arising from the borrowing of money, which according to generally accepted accounting principles now in effect, would be included in determining total liabilities as shown on the balance sheet; (ii) all indebtedness secured by any lien in property owned by the Borrower whether or not such indebtedness shall have been assumed; (iii) all guarantees and similar contingent liabilities in respect to indebtedness of others; and (iv) all other interest-bearing obligations evidencing indebtedness in others; (b) create, assume, incur, suffer or permit to exist any mortgage, pledge, deed of trust, encumbrance (including the lien or retained security title of a conditional vendor.), security interest, assignment, lien or charge of any kind or character upon or with respect to property whether owned at the date hereof or hereafter acquired by the Borrower or a Subsidiary, or assign or otherwise convey any right to receive income, except: (i) liens for taxes, assessments or other Governmental charges for the then current year or which are not yet due or delinquent; (ii) liens for taxes, assessments or other governmental charges already due, but the validity of which is being contested in good faith in such a manner as not to make the property forfeitable; (iii) liens and charges incidental to current operations which are not due or delinquent; (iv) liens for workmen's compensation awards not due or delinquent; 9 (v) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation; (vi) purchase money mortgages or other liens on real property including those incurred for the construction of a banking facility, and bank furniture and fixtures acquired or held in the ordinary course of business to secure the purchase price of such property or to secure the indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject: to such mortgages or other 'liens, or mortgages or other liens existing on any such property at the time of acquisition, or extensions, renewals, or replacements of any of the foregoing for the same or a lesser amount; provided that no such mortgage or other !liens shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the mortgage or lien being extended, renewed or replaced, and provided further that no such mortgage or lien shall exceed 75% of the price of acquisition, construction or improvement at the time of acquisition, construction or improvement; and provided further that the aggregate principal amount of consolidated indebtedness at any one time outstanding and secured by mortgages, liens, conditional sale agreements and other security interests permitted by this clause (vi) shall not exceed 10% of the consolidated capital of the Borrower or a Subsidiary, as the case may be; (vii) liens existing on the date hereof as shown on the financial statements; and (viii) in the case of a Subsidiary, liens incurred in the ordinary course of the business of banking and in accordance with applicable laws and regulations and safe and sound banking practices; (c) dispose by sale, assignment, lease or otherwise property or assets now owned or hereinafter acquired, outside the ordinary course of business in excess of 10% of its consolidated assets in any fiscal year; (d) merge into or consolidate with or into any other person, firm or corporation, except for such corporations or banks as set forth in Exhibit B hereto; (e) make any loans or advances whether secured or unsecured to any person, firm or corporation, other than loans or advances made by a Subsidiary in the ordinary course of its banking business and in accordance with applicable laws and regulations and safe and sound banking practices or such loans and advances made by a Subsidiary to First Premium, a subsidiary of Crabtree Capital Corporation; (f) engage in any business or activity not permitted by all applicable laws and regulations, including without limitation, the Bank Holding Company Act of 1954, the Illinois Banking Act, the Federal Deposit Insurance Act and any regulations promulgated thereunder; (g) make any loan or advance secured by the capital stock of another bank or depository institution (except for loans made in the ordinary course of business) , or acquire the 10 capital stock, assets or obligations of or any interest in another bank or depository institution, without prior written approval of LaSalle, except or such banks or deposit institutions as provided in Exhibit B hereto; (h) directly or indirectly create, assume, incur, suffer or permit to exist any pledge, encumbrance, security interest, assignment, lien or charge of any kind or character on the Holding Company Stock or any other capital stock owned by the Borrower, nor permit the Holding Companies, to directly or indirectly create, assume, incur, suffer or permit to exist any pledge, encumbrance, security interest, assignment, lien or charge of any kind or character on the Subsidiary Stock; (i) cause or allow the percent of Holding Company Stock to diminish as a percentage of the outstanding capital stock of the Holding Companies, nor permit the Holding Companies to cause or allow the percent of Subsidiary Stock to diminish as a percentage of the outstanding capital stock of the Subsidiaries; (j) sell, transfer, issue, re-issue, exchange or grant any option with respect to the Holding Company Stock, nor permit the Holding Companies to sell, transfer, issue, reissue, exchange or grant any option with respect to the Subsidiary Stock, except pursuant to such agreements or commitments therefor existing as of the date of this Agreement and disclosed to LaSalle; (k) redeem any of its capital stock, declare a stock dividend or split or otherwise change the capital structure of Borrower, any Holding Company or any Subsidiary without prior written approval of the Bank, if such redemption, dividend, split or other action would result in any change in the identity of the individuals or entities previously in control of the Borrower, any Holding Company or any Subsidiary or grant a security interest in any ownership interest of any individual or entity, directly or indirectly controlling the Borrower, any Holding Company or any Subsidiary, which could result in a change in the identity of the individuals or entities previously in control of the Borrower, any Holding Company or any Subsidiary. For the purpose hereof, the terms "control" or "controlling" shall mean the possession of the power to direct, or cause the direction of, the management and policies of the Borrower, a Holding Company or a Subsidiary, as applicable, by contract or voting of securities; (l) breach or fail to perform or observe any of the terms and conditions of the Note, the Pledge Agreements or any other document or agreement entered into or delivered in connection with, or relating to, the Loan; (m) engage in any unsafe or unsound banking practices; or (n) violate any law or regulation, or any condition imposed by or undertaking provided to the FRS, the FDIC or the Illinois Commissioner of Banks and Trust Companies in connection with the Borrower's ownership of the Holding Company Stock or the ownership by the Holding Companies of the Subsidiary Stock. 11 7. Affirmative Covenants. The Borrower agrees that until the Borrower satisfies all of its obligations to LaSalle; including, but not limited to its obligations to pay in full all principal, interest and other amounts in accordance with the terms of the Agreement, the Note and the Pledge Agreements, it shall: (a) furnish and deliver to LaSalle: (i) as soon as practicable, and in no event later than forty-five (45) days after the end of each of the first three calendar quarters of the Borrower and each Holding Company and Subsidiary, a copy of: (1) the balance sheet, profit and loss statement, surplus statement and any supporting schedules prepared in accordance with GAAP and signed by the presidents and chief financial officers of the Borrower, the Holding Companies and the Subsidiaries; and (2) all financial statements, including, but not limited to, all call reports, filed with any state or federal bank regulatory authority; (ii) as soon as practicable, and in no event later than one hundred twenty (120) days after the end of each calendar year, a copy of: (1) the consolidated balance sheets as of -the end of such year and the consolidated profit and loss and surplus statements for the Borrower, the Holding Companies and each Subsidiary for such year, audited by independent certified public accountants satisfactory to LaSalle and accompanied by an unqualified opinion; and (2) all financial statements and reports, including, but not limited to call reports and annual reports filed annually with any state or federal regulatory authority; (iii) as soon as practicable, and in no event later than forty-five (45) days after the end of each calendar quarter, copies of the then current loan/asset watch list, the substandard loan/asset list, the nonperforming loan/asset list and other real estate owned list of the Subsidiaries; (iv) immediately after receiving knowledge thereof, notice in writing of all charges, assessment, actions, suits and proceedings that are proposed or initiated by, or brought before, any court or governmental department, commission, board or other administrative agency, in connection with the Borrower, any Holding Company or any Subsidiary (other than litigation in the ordinary course of business not involving the FRS, the FDIC or the Illinois Commissioner of Banks and Trust Companies, which, if adversely decided, would not have a material effect on the financial condition or operations of the Borrower or such Holding Company or Subsidiary); and (v) promptly after the occurrence thereof, notice of any other matter which has resulted in a materially adverse change in the financial condition or operations of the Borrower, any Holding Company or any Subsidiary; (b) contemporaneously with the furnishing of a copy of each annual report and of each quarterly statement provided Pursuant to Section 7(a)(I) and (ii) above, deliver to LaSalle, a certificate signed by the President and the Treasurer of the Borrower, containing a 12 computation of the then current financial ratios specified in Subsections 7(d) through (h) of this Agreement, and stating that no Default or unmatured Default has occurred cr is continuing, or, if such event exists, describing such event and the steps, if any, that are being taken to cure it, and the time within ,which such cure will occur; (c) maintain such capital as is necessary to cause the Borrower to have adequate capital in accordance with the regulations of the FRS and any requirements or conditions that the FRS has or may impose on the Borrower; (d) maintain such capital as is necessary to cause each Subsidiary to be classified as a "well capitalized" institution in accordance with the regulations of the FDIC, currently measured on the basis of information filed by Borrower in its quarterly Consolidated Report of Income and Condition (the "Call Report"l) as follows: (i) Total Capital to Risk Weighted Assets of not less than 10%; (ii) Tier I Capital to Risk-Weighted Assets of not less than 6%; and (iii) Tier 1 Capital to average Total Assets of not less than 5% (For the purposes of this subsection (d)(iii), the average Total Assets shall be determined on the basis of information contained in the preceding four (4) Call Reports); (e) cause the Borrower, on a consolidated basis, to maintain tangible equity capital of no less than $37,000,000. For the purposes of this Section 7(e), "tangible equity capital", shall mean the sum of the common stock, surplus and retained earning accounts of the Borrower, reduced by the amount of any goodwill; (f) cause the ratio of nonperforming loans to the primary capital of the Subsidiaries, on a consolidated basis, to be not more than twenty percent (20%) at all times. For purposes of this Section 7(f), "primary capital", shall mean the sum of he common stock, surplus and retained earning accounts plus the reserve for loan and lease losses, and "non-performing loans" shall mean the sum of all non-accrual loans and loans on which any payment is ninety (90) or more days past. due; (g) cause the ratios of the loan and lease loss reserve to the total loans of the Subsidiaries, on a consolidated basis, to be not less than one half of one percent (.50%) at all times; (h) cause the Borrower's return on assets, determined on the basis of information filed in the Borrower's Call Report to be at least zero (0) during 1997 and one quarter of one percent (.25%) during 1998; (i) promptly pay and discharge all taxes, assessments and other governmental charges imposed upon the Borrower, the Holding Companies or the Subsidiaries or upon the income, profits, or property of the Borrower, the Holding Companies or the Subsidiaries and all 13 claims for labor, material or supplies which, if unpaid, may by law become a lien or charge upon the property of the Borrower, the Holding Companies or the Subsidiaries. Neither the Borrower, the Holding Companies nor the Subsidiaries shall he required to pay any such tax, assessment, charge or claim, so long as the validity thereof shall be contested in good faith by appropriate Proceedings, and reserves therefor shall be maintained on the book's of the Borrower or any such Holding Company or Subsidiary as are deemed reasonably adequate by LaSalle; (j) maintain bonds and insurance and cause each Holding Company or Subsidiary to maintain bonds and insurance with responsible and reputable insurance companies or associations in such amounts and covering such risk as is usually carried by owners of similar businesses and Properties in the same general area in which the Borrower or such Holding Company or Subsidiary respectively operate, and such additional bonds and insurance as may be reasonably required by LaSalle; (k) permit and cause the Holding Companies and Subsidiaries to permit LaSalle, through its employees, attorneys, accountants or other agents, to inspect any of the properties, corporate books and financial books and records of the Borrower, the Holding Companies and the Subsidiaries at such times and as often as LaSalle reasonably may request; and (l) promptly provide and cause the Holding Companies and the Subsidiaries promptly to provide LaSalle with such other information concerning the business, operations, financial condition and regulatory status of the Borrower, the Holding companies and the Subsidiaries as LaSalle may from time to time reasonably request. 8. Collateral. Pursuant to the Borrower Pledge Agreement, the Borrower has concurrently herewith assigned, transferred, pledged and delivered to LaSalle as collateral for all of the Borrower's obligations from time to time to LaSalle the Holding Company Stock and any other Pledged Security (as defined in the Borrower Pledge Agreement) whether not or hereafter pledged. Pursuant to the Holding Company Pledge Agreement, the Holding Companies have concurrently herewith assigned, transferred, pledged and delivered to LaSalle as collateral for all of the Borrower's obligations from time to time the Subsidiary Stock and any other Pledged Security (as defined in the Holding Company Pledge Agreement) whether now or hereafter pledged. 9. Events of Default; Default; Rights Upon Default. The happening or occurrence of any of the following events or acts shall each constitute a default hereunder (each, a "Default") , and any such default shall also constitute a Default under the Note, the Pledge Agreements and any other loan document, without right to notice or time to cure in favor of the Borrower except as indicated below: (a) if the Borrower fails to make any payment, as provided for herein; 14 (b) if there continues to exist any breach under any obligation of any other documents executed pursuant to this Agreement including, without limitation, the Note and the Pledge Agreements and such breach remains uncured beyond the applicable time period, if any, specifically provided therefor; (c) if any representation or warranty made in this Agreement shall be false when made or be false at any time during the term of this Agreement or any extension hereof, or if the Borrower fails to perform or observe any covenant or agreement contained in this agreement within thirty (30) days after notice thereof by LaSalle; (d) if the Borrower fails to perform or observe any covenant or agreement contained in any other agreement between the Borrower or any Holding Company or Subsidiary and LaSalle, or if any condition contained in any agreement between the Borrower or any Holding Company or Subsidiary and LaSalle is not fulfilled and such failure remains uncured beyond the cure period, if any, specifically provided therefor; (e) if the Borrower shall continue to fail to perform and observe, or cause or permit any Holding Company or Subsidiary to fail to perform and observe any covenants under this Agreement, without limitation, all affirmative and negative covenants set forth in Sections 6 and 7 of this Agreement for fifteen (15) days after notice thereof by LaSalle; (f) if the FRS, the FDIC, the Illinois Commissioner of Banks and Trust Companies or other governmental agency charged with the regulation of bank holding companies or depository institutions: (i) issues to the Borrower, any Holding Company or Subsidiary, or initiates any action, suit or proceeding to obtain against, impose on or require from the Borrower, any Holding Company or any Subsidiary, a cease and desist order or similar regulatory order, the assessment of Civil Monetary Penalties, articles of agreement, a memorandum of understanding, a capital directive, a capital restoration plan, restrictions that prevent or as a practical matter impair the payment of dividends by any Holding Company or Subsidiary or the payments of any debt by the Borrower, restrictions that make the payment of dividends by any Holding Company or Subsidiary or the payment of debt by the Borrower subject to prior regulatory approval, a notice or finding under Section 51 or Section 52 of the Illinois Banking Act or Section 8(a) of the Federal Deposit Insurance Act, or any similar enforcement action, measure or proceeding; or (ii) issues to any officer or director of the Borrower, any Holding Company or any Subsidiary, or initiates any action, suit or proceeding to obtain against, impose on or require from any such officer or director, a cease and desist order or similar regulatory order, a removal order, a suspension order, or the assessment of civil monetary penalties; (g) if any Subsidiary is notified that it is considered an institution in "troubled condition" within the meaning of 12 U.S.C. Section 1831i and the regulations promulgated thereunder, or if a conservator or receiver is appointed for any Subsidiary; (h) if the Borrower, any Holding Company or any Subsidiary (i) becomes insolvent or is unable to pay its debts as they mature; (ii) makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts as they mature; (iii) suspends 15 transaction of its usual business; or (iv) if a trustee of any substantial part of the assets of the Borrower, any Holding Company or any Subsidiary is applied for or appointed, and if appointed in a proceeding brought against the Borrower, the Borrower by any action or failure to act indicates its approval of, consent to, or acquiescence in such appointment, or within thirty (30) days such appointment is not vacated or stayed on appeal or otherwise, or shall not otherwise have ceased to continue in effect; (i) if any proceedings involving the Borrower, any Holding Company or any Subsidiary are commenced by or against the Borrower, any Holding Company or any Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or statute of the federal government or any state government and if such proceedings are instituted against the Borrower, the Borrower by any action or failure to act indicates its approval of, consent to or acquiescence therein, or an order shall be entered approving the petition in such proceedings and within thirty (30) days after the entry thereof such order is not vacated or stayed on appeal or otherwise, or shall not otherwise have ceased to continue in effect; or (j) if the Borrower, any Holding Company or any Subsidiary continues to be in default in any payment of principal or interest for any other obligation or in the performance of any other term, condition or covenant contained in any agreement including, but not limited to, an agreement in connection with the acquisition of capital equipment on a title retention or net lease basis), under which any such obligation is created, the effect of which default is to cause or permit the holder of such obligation to cause such obligation to become due prior to its stated maturity. Upon the occurrence of a Default, LaSalle shall have all rights and remedies provided by applicable law and, without limiting the generality of the foregoing, may, at its option, declare its commitments to be terminated and the Note shall thereupon be and become forthwith, due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein, in the Note or the Pledge Agreements to the contrary notwithstanding, and may, also without limitation, appropriate and apply toward the payment of the Note any indebtedness of LaSalle to the Borrower however created or arising, and may, also without limitation exercise any and all rights in and to the Pledged Security referred to in Section 8 above and in the Pledge Agreements. There shall be no obligation to liquidate the Pledged Security nor any other collateral pledged hereunder in any order or with any priority or to exercise any remedy available to LaSalle in any order. 10. Miscellaneous. (a) No -failure or delay on the part of LaSalle in exercising any right, power or remedy hereunder shall operate as a waiver thereof. No single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Time is of the essence in the performance of the covenants, agreements and obligations of the Borrower, the Holding Companies and the 16 Subsidiaries. (b) This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements between LaSalle and the Borrower with respect to the subject matter hereof. No amendment, modification, termination or waiver of any provision of this Agreement, the Pledge Agreements or the Note, or consent to any departure by the Borrower therefrom, shall be effective unless in writing and signed by LaSalle, and then such waiver or consent shall be effective only for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (c) All notices, requests, demands and other communications provided or hereunder shall be: (i) in writing, (ii) made in one of the following manners, and (iii) shall be deemed given (A) if and when personally delivered; (B) on the next business day if sent by nationally recognized overflight courier addressed to the appropriate party as set forth below; or (C) on the second business day after being deposited in United States certified or registered mail, and addressed as follows: If to Borrower: Wintrust Financial Corporation 727 Bank Lane Lake Forest, Illinois 60645 Attention: Edward J. Wehmer If to LaSalle: LaSalle National Bank 135 South LaSalle Street Chicago, Illinois 60674 Attention: Jeffery J. Bowden or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this subsection. (d) This Agreement may be executed in any number of counterparts and by different Parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. (e) This Agreement shall become effective when it shall have been executed by the Borrower and LaSalle and hereafter shall be binding upon and inure to the benefit of the Borrower, LaSalle and their respective successors and assigns; provided, that the Borrower shall not assign its rights hereunder or any interest herein without the prior written consent of LaSalle. (f) This Agreement and the Note shall be governed by the internal laws of the State of Illinois, and for all purposes shall be construed in accordance with the laws of said State without giving effect to the choice of law provisions of such State. (g) Any provision of this Agreement which is prohibited or unenforceable in 17 any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or lack of enforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Wherever possible, each Provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. (h) All covenants, agreements, representations and warranties made by the Borrower herein shall, notwithstanding any investigation by or knowledge on the part of LaSalle, be deemed material and relied on by LaSalle and shall survive the execution and delivery to LaSalle of this Agreement and the Note. (i) This Agreement shall govern the terms of any extensions or renewals of the Note, subject to any additional terms and conditions imposed by LaSalle in connection with any such extension or renewal. (j) The Borrower hereby represents that the indebtedness evidenced hereby constitutes a loan made by LaSalle to enable the Borrower to carry on a commercial enterprise for the purpose of investment or profit; and that such loan is a loan for business purposes under the intent and purview of Ill. Rev. Stat. Ch. 17, Section 6404(c). (k) LASALLE AND THE BORROWER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE COLLATERAL, OR ANY OTHER AGREEMENT EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH LASALLE AND THE BORROWER ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LASALLE GRANTING ANY FINANCIAL ACCOMMODATION TO THE BORROWER. (l) INDUCE LASALLE TO MAKE THE LOAN, THE BORROWER IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT OR CONSEQUENCE OF THIS AGREEMENT, THE NOTE, THE PLEDGE AGREEMENTS OR ANY OTHER AGREEMENT WITH LASALLE SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS. THE BORROWER HEREBY CONSENTS TO THE EXCLUSIVE AND VENUE OF ANY STATE OR FEDERAL COURT HAVING ITS SITUS IN CHICAGO, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS. THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE BORROWER AS SET FORTH HEREIN IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE. 18 (m) The Borrower will pay all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees) in connection with the preparation, negotiation, documentation, execution and delivery of this Agreement; provided, that such costs and expenses shall not exceed $2,500, and shall have all reasonable costs and expenses (including, without limitation, reasonable attorneys, fees) for the administration, amendment, modification, collection and enforcement of this Agreement, the Note, the Pledge Agreements and the other instruments and documents to be delivered hereunder. In addition, the Borrower shall pay, and save LaSalle harmless from any liability for, any and all stamp and other taxes determined to be payable in connection with the execution and delivery of this Agreement, the borrowings hereunder, or the Note and the other instruments and documents to be delivered hereunder, and agrees to save LaSalle harmless from and against any and all liabilities with respect to or resulting from any delay in paying or emitting to pay such taxes. The foregoing obligations shall survive any termination of this Agreement, the Note or the Pledge Agreements. Any of the foregoing amounts incurred by LaSalle and not paid by the Borrower upon demand shall bear interest from the date incurred at the Interest Rate plus two percent (2%) per annum and shall be deemed part of the indebtedness hereunder. (n) Any accounting term not specifically defined herein shall be construed in accordance with generally accepted accounting principles and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles, (o) LaSalle reserves the right to sell participations in this Loan or otherwise assign, transfer or hypothecate all or any part of this Loan. (p) All covenants, agreements, warranties and representations of the Borrower herein shall be deemed to have been made jointly and severally by the Borrower, the Holding Companies and the Subsidiaries. (q) The Borrower agrees to do such further acts and things and to execute and deliver to LaSalle such additional assignments, agreements, powers and instruments as LaSalle may reasonably require or deem advisable to carry into effect the purpose of this Agreement, the Note, the Pledge Agreements or any agreement or instrument in connection herewith, or to better assure and confirm unto the LaSalle its rights, powers and remedies hereunder or under such other loan documents. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. WINTRUST FINANCIAL CORPORATION By: /s/David A. Dykstra ------------------------------------ Its: Executive Vice President ----------------------------------- 19 LASALLE NATIONAL BANK By:______________________________________________ Its:______________________________________________ September 17, 1996 51567.1 20 Exhibit A REVOLVING NOTE $25,000,000 Dated: September 1, 1996 FOR VALUE RECEIVED, WINTRUST FINANCIAL CORPORATION, an Illinois corporation (the "Maker") promises to pay to the order of LASALLE NATIONAL BANK, a national banking association (the "Bank") the lesser of: the principal sum of TWENTY FIVE MILLION DOLLARS ($25,000,000) , or the aggregate unpaid principal amount outstanding under the Loan Agreement dated September 1, 1996 (as amended from time to time, the "Loan Agreement") between the Bank and the Maker at the maturity or maturities and in the amount or amounts as stated on the records of the Bank together with interest (computed on actual days elapsed on the basis of a 360 day year) on any and all principal amounts outstanding hereunder from time to time from the date hereof until maturity. Interest shall be parable at the rates of interest and the times set forth in the Loan Agreement. In no event shall any principal amount have a maturity later than September 1, 1997. This Note shall be available for direct advances. Principal and interest shall be paid to the Bank at its office at 135 South LaSalle Street, Chicago, Illinois 60674, or at such other place as the holder of this Note may designate in writing to the Maker. This Note may be prepaid in whole or in part as provided for in the Loan Agreement. This Note evidences indebtedness incurred under the Loan Agreement, to which reference is hereby made for a statement of the terms and conditions under which the due date of the Note or any payment thereon may be accelerated. The holder of this Note is entitled to all of the benefits provided for in the Loan Agreement. The Maker agrees that in action or proceeding instituted to collect or enforce collection of this Note, the amount on the Bank's records shall be conclusive and binding evidence, absent demonstrable error, of the unpaid principal balance of this Note. WINTRUST FINANCIAL CORPORATION By: /s/ David A. Dykstra ---------------------------------- Its: Executive Vice President --------------------------------- September 17, 1996 51567.3 21 Exhibit B The acquisition of Wolflhoya Investments, Inc. 22 REVOLVING NOTE $25,000,000 Dated: September 1, 1996 FOR VALUE RECEIVED, WINTRUST FINANCIAL CORPORATION, an Illinois corporation (the "Maker") promises to pay to the order of LASALLE NATIONAL BANK, a national banking association (the "Bank") the lesser of: the principal sum of TWENTY FIVE MILLION DOLLARS ($25,000,000) , or the aggregate unpaid principal amount outstanding under the Loan Agreement dated September 1, 1996 (as amended from time to time, the "Loan Agreement") between the Bank and the Maker at the maturity or maturities and in the amount or amounts as stated on the records of the Bank together with interest (computed on actual days elapsed on the basis of a 360 day year) on any and all principal amounts outstanding hereunder from time to time from the date hereof until maturity. Interest shall be payable at the rates of interest and the times set forth in the Loan Agreement. In no event shall any principal amount have a maturity later than September. 1, 1997. This Note shall be available for direct advances. Principal and interest shall be paid to the Bank at its office at 135 South LaSalle Street, Chicago, Illinois 60674, or at such other place as the holder of this Note may designate in writing to the Maker. This Note may be prepaid in whole or in part as provided for in the Loan Agreement. This Note evidences indebtedness incurred under the Loan Agreement, to which reference is hereby made for a statement of the terms and conditions under which the due date of the Note or any payment thereon may be accelerated. The holder of this Note is entitled to all of the benefits provided for in the Loan Agreement. The Maker agrees that in action or proceeding instituted to collect or enforce collection of this Note, the amount on the records shall be conclusive and binding evidence, absent Bank's demonstrable error, of the unpaid principal balance of this Note. WINTRUST FINANCIAL CORPORATION By: /s/ David A. Dykstra -------------------------------- Its: Executive Vice President ------------------------------- 23 PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement") dated as of September 1, 1996, is made by WINTRUST FINANCIAL CORPORATION, an Illinois corporation (the "Pledgor") , whose address is 727 Bank Lane, Lake Forest, Illinois 60045, for the benefit of LASALLE NATIONAL BANK, a national banking association (the "Bank") whose address is 135 South LaSalle Street, Chicago, Illinois 60674. RECITALS: WHEREAS, the Pledgor is the owner of the capital stock of each subsidiary listed on Exhibit A hereto (each is referred to herein as a "Subsidiary" and collectively as the "Subsidiaries"); WHEREAS, the capital stock of the Subsidiaries owned by the Pledgor constitutes 100% of the issued and outstanding capital stock of the Subsidiaries; WHEREAS, the Pledgor desires to borrow from the Bank the sum of TWENTY FIVE MILLION DOLLARS ($25,000,000); WHEREAS, the Bank is willing to lend to the Pledgor TWENTY FIVE MILLION DOLLARS ($25,000,000) in accordance with the terms, subject to the conditions and in reliance on the representations, warranties and covenants set forth in the Loan Agreement dated the date hereof between the Pledgor and the Bank (the "Loan Agreement") and in all of the other documents and instruments entered into or delivered in connection with or relating to the loan contemplated in the Loan Agreement; and WHEREAS, the Pledgor has agreed to provide security for the loan contemplated in the Loan Agreement in accordance with the terms of this Pledge Agreement; NOW, THEREFORE, in order to induce the Bank to make the loan contemplated in the Loan Agreement and in consideration of the mutual representations, warranties, covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: AGREEMENT 1. Grant of Security Interest. To secure the Obligations (as defined below), the Pledgor hereby pledges and grants to the Bank a security interest in and transfers and delivers to the Bank the following: (a) the number of shares of capital stock of each of the Subsidiaries set forth on Schedule A hereto, which constitute one hundred percent (100%) of the issued and outstanding capital stock of the Subsidiaries, and any and all shares of the capital stock of any Subsidiary that Pledgor subsequently acquires, directly or indirectly, including all substitutions of, and 24 additions to, such stock; (b) executed and undated stock powers for the capital stock described in (a) above, in form and content satisfactory to the Bank duly executed in blank, containing all requisite federal and state stock transfer tax stamps, if any (the items described in (a) and (b) above may collectively be referred to as the "Pledged Stock"); (c) all income and profits therefrom, all distributions thereon, all other proceeds therefrom and all rights, benefits and privileges pertaining to or arising from the Pledged Stock; and (d) such other collateral that may be provided after the date hereof to secure the Obligations. All property at any time pledged to the Bank hereunder or in which the Bank is granted a security interest hereunder (whether described herein or not, subject to the provisions of Paragraph 3 (c) below) , all income therefrom and proceeds therefrom, may be referred to collectively as the "Pledged Security." 2. Obligations. The obligations secured by this Pledge Agreement are the following (referred to collectively hereafter as the "Obligations",): (a) all obligations and agreements of Pledgor contained in (including, without limitation, the payment of all indebtedness of the Pledgor in respect of) the Loan Agreement, and any and all amendments, modifications or renewals thereof; (b) all amounts due to the Bank under that certain promissory note of even date herewith in the principal amount of TWENTY FIVE MILLION DOLLARS ($25,000,000) from the Pledgor to the Bank and any and all modifications, extensions, renewals or refinancings thereof (the "Note"), including, but not limited to, all Principal, interest and other amounts due under the Note; (c) all sums advanced by, or on behalf of, the Bank in connection with, or relating to, the Loan Agreement, the Note or the Pledged Security including, but not limited to, any and all sums advanced to preserve the Pledged Security, or to perfect the Bank's security interest in the Pledged Security; (d) in the event of any proceeding to enforce the satisfaction of the Obligations, or any of them, or to preserve and protect the Bank's rights under the Loan Agreement, the Note, this Pledge Agreement or any other agreement, document or instrument relating to the transactions contemplated in the Loan Agreement, the reasonable expenses of retaking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Pledged Security, or of any exercise by the Bank of its rights, together with reasonable attorney's fees, expenses and court costs; and (e) any indebtedness, obligation or liability of the Pledgor or the Subsidiaries to the Bank, weather direct or indirect, joint or several, absolute or contingent, now or hereafter existing, however created or arising and however evidenced. 3. Additional Terms. (a) The Pledgor agrees that the Bank shall have full and irrevocable right, power and authority, to collect, withdraw or receipt for all amounts due or to become due and payable upon, in connection with, or relating to, the Pledged Security, to execute any withdrawal receipts 25 respecting the Pledged Security, and to endorse the name of the Pledgor on any or all documents, instruments or commercial paper given in payment thereof, and at the Bank's discretion to take any other action, including, without limitation, the transfer of any Pledged Security into the Bank's own name or the name of any nominee for the Bank, which the Bank may deem necessary or appropriate to preserve or protect the Bank's interest in any of the Pledged Security. (b) Unless a Default (as hereinafter defined) shall have occurred, the Pledgor shall be entitled to vote any and all shares of the Pledged Stock and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast, no consent, waiver or ratification shall be given and no action shall be taken by the Pledgor which would violate or be inconsistent with any of the terns of the Loan Agreement, the Note or this Pledge Agreement, or which would have the effect of impairing the position or interests of the Pledgor or any holder of the Note. All such rights of the Pledgor to vote and to give consents, waivers and ratifications shall cease upon the occurrence of a Default. (c) unless a Default shall have occurred, all dividends and other distributions payable in respect of the Pledged Security shall be paid to the Pledgor. Upon the occurrence of a Default, all such dividends and other distributions and payments shall be paid to the Bank. After a Default shall have occurred, all such amounts paid in respect of the Pledged Security shall, until paid or delivered to the Bank, be held in trust for the benefit of the Bank as additional Pledged Security to secure the Obligations. 4. Representations, Warranties and Covenants. The Pledgor further represents, warrants and agrees that: (a) The Pledgor is the legal, record and beneficial owner of, and has good and marketable title to, the Pledged Security, subject to no lien, claim, security interest or other encumbrance, except the security interest created by this Pledge Agreement. (b) without the prior written consent of the Bank, the Pledgor will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Security, nor will it create, incur or permit to exist any lien, claim, security interest or other encumbrance with respect to any of the Pledged Security, or any interest therein, or any proceeds thereof, except for the security interest provided for by this Pledge Agreement. Without the prior written consent of the Bank, the Pledgor agrees that it will not, and it will not permit any Subsidiary to. (i) issue or reissue any capital stock or other securities (or warrants therefor or other rights with respect thereto) in addition to or issue other securities of any nature in exchange or substitution for any of the Pledged Security; (ii) redeem any of the Pledged Security, or (iii) declare any stock dividend or split or otherwise change the capital structure of any Subsidiary. (c) The Pledged Security is genuine and in all respects represents what it purports to be and all the shares of the Pledged Stock have been duly and validly issued, and are fully paid and non-assessable. 26 (d) The pledge, assignment and delivery of the Pledged Security pursuant to this Pledge Agreement creates a valid perfected security interest in the Pledged Security, and the proceeds thereof, subject to no prior lien, claim, security interest or other encumbrance or to any agreement purporting to grant to any third party a perfected security interest in the assets of the Pledgor which would include any of the Pledged Security. The Pledgor will at all times defend the Bank's right, title and security interest in and to the Pledged Security and the proceeds thereof against any and all claims and demands of any person adverse to the claims of the Bank. (e) The Pledgor will take, and will cause the subsidiaries to take, such action and to execute such documents as the Bank may from time to time reasonably request relating to the Pledged Security or the proceeds thereof. (f) The Pledgor has full right, power and authority to enter into, to execute and to deliver this Pledge Agreement and this Pledge Agreement is binding upon, and enforceable against the Pledgor in accordance with its terms. (g) The Pledgor shall pay any fees, assessments, charges or taxes arising with respect to the Pledged Security. In case of failure by the Pledgor to pay any such fees, assessments, charges or taxes, the Bank shall have the right, but shall not be obligated, to any such fees, assessments, charges or taxes, as the case may be, and, in that event, the cost thereof shall be payable by the Pledgor to the Bank immediately upon demand together with interest at the rate equal to the Prime Rate (or, after the occurrence of a Default, the Prime Rate plus 2%) (Prime Rate shall have the meaning provided in the Note) from the date of disbursement by the Bank to the date of payment by the Pledgor. (h) None of the Pledged Stock constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System. 5. Events of Default. The Pledgor shall be in default under this Pledge Agreement upon the occurrence of any one or more of the following events or conditions (each, a "Default"): (a) nonpayment of any of the obligations, whether by acceleration or otherwise; (b) the nonperformance of any obligation or any breach of any warranty, representation or covenant made by the Pledgor in this Pledge Agreement, and the same is not cured within fifteen(15)days after notice thereof by the Bank; (c) the nonperformance of any obligation in any other instrument, document or agreement relating to the Obligations, including, without limitation, the Loan Agreement and the Note, which nonperformance continues beyond the applicable cure period, if any, specifically provided therefor; (d) any breach of any warranty, representation or covenant made by the Pledgor in any other instrument, document or agreement between the Pledgor and Bank which breach remains uncured beyond any applicable time period, if any, specifically provided therefor; 27 (e) any oral or written misrepresentation is made by the Pledgor in this Pledge Agreement or in any document furnished by the Pledgor, or on the Pledgor's behalf, to the Bank in connection with this Pledge Agreement or the Pledged Security; (f) the claim or creation of any lien, claim, security interest or other encumbrance upon any of the Pledged Security or the making of any levy, judicial seizure, or attachment thereof; or (g) the dissolution, bankruptcy, insolvency or failure of the Pledgor or any Subsidiary. 6. Rights of, Parties upon Default. (a) Upon the occurrence of a Default, in addition to all the rights, power and remedies the Bank shall be entitled to exercise, whether vested in the Bank by the terms of this Pledge Agreement, the terms of the Loan Agreement, the terms of the Note, by law, in equity, by statute (including, without limitation, Article 9 of the Illinois Uniform Commercial Code) or otherwise, for the protection and enforcement of the Bank's rights in. respect of the Pledged Security, the Bank may be entitled to, without limitation (but is under no obligation to the Pledgor so to do) (i) transfer all or any part of the Pledged Security into the Bank's name or the name of its nominee or nominees; (ii) after first obtaining all necessary regulatory approvals, vote all or any part of the Pledged Security (whether or not transferred into the name of the Bank or any nominee) and give all consents, waivers and ratifications in respect of the Pledged Security and otherwise act with respect thereto as though it were the outright owner thereof; (iii) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Pledged Security, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk and for such price or prices and on such terms as the Bank in its absolute discretion may determine, provided that unless, in the sole discretion of the Bank, any of the Pledged Security threatens to decline in value or is or becomes a type sold on a recognized market, the Bank will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any requirements of reasonable notice shall be met if such notice is mailed to the Pledgor as Provided in Paragraph 14 below, at least fifteen (15) days before the time of the sale or disposition. Any sale of any of the Pledged Security conducted in conformity with customary practices of banks, insurance companies or other financial institutions disposing of property similar to the Pledged Security shall be deemed to be commercially reasonable. Any remaining Pledged Security shall remain subject to the terms of this Pledge Agreement; and (iv) collect any and all money due or to become due and enforce in the Pledgor's name all rights with respect to the Pledged Security. 28 (b) Pledgor agrees to cause each Subsidiary to give the Bank, any prospective purchaser of the Pledged Security (pursuant to Section 6(a)(iii)) and their respective representatives, reasonable access to further information (including, but not limited to, records, files, correspondence, tax work papers and audit work papers) relating to or concerning the Pledgor or such Subsidiary. 7. Remedies Cumulative. Each right, power and remedy of the Bank provided in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or partial exercise by the Bank of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Bank of all such other rights, powers or remedies, and no failure or delay on the part of the Bank to exercise any such right, power or remedy shall operate as a waiver thereof. 8. Waiver of Defenses. No renewal or extension of the time of payment of the Obligations, nor any release, surrender of, or failure to perfect or enforce any security interest for the Obligations; no release of any person primarily or secondarily liable on the Obligations (including any maker, endorser, or guarantor); no delay in enforcement of payment of the obligations; and no delay or omission in exercising any right or power with respect of the Obligations or any security agreement securing the Obligations shall affect the rights of the Bank in the Pledged Security. 9. Waiver. Waiver by the Bank of any Default hereunder, or of any breach of the provisions of this Pledge Agreement by the Pledgor, or any right of the Bank hereunder, shall not constitute a waiver of any other Default or breach or right, nor the same Default or breach or right on a future occasion. 10. Law Governing. This Pledge Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the law of the State of Illinois applicable to agreements made and to be wholly Performed in such state. Whenever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law; provided, if any provision of this Pledge Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining Provisions of this Pledge Agreement. 11. The Pledgor's Obligations Absolute. The Obligations of the Pledgor under this Pledge Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way impaired by any circumstance whatsoever, including without limitation: (a) any amendment or modification of the Note, the Loan Agreement or any other document or instrument provided for herein or therein or related thereto, cr any assignment, transfer or other disposition of any thereof; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such document or instrument or any exercise or on exercise of any right, remedy, power or privilege under or in respect of any such document or instrument or this Pledge Agreement; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, or similar proceeding with respect to the 29 Pledgor or any of its properties or creditors; or (d) any limitation on the Pledgor's liabilities or obligations under any such instrument or any invalidity or lack of enforceability, in whole or in part, of any such document or instrument or any term thereof; whether or not the Pledgor shall have notice or knowledge of the foregoing. 12. Termination. This Pledge Agreement shall terminate upon the receipt by the Bank of evidence satisfactory to the Bank, in the Bank's sole and absolute discretion, of the payment in full of the obligations. At the time of such termination the Bank, at the request and expense of the Pledgor, will execute and deliver to the Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Pledge Agreement, and will duly assign, transfer and deliver to the Pledgor such of the Pledged Security as has not yet theretofore been sold or otherwise applied or released pursuant to this Pledge Agreement. 13. Further Assurances. The Pledgor shall, at its expense, duly execute, acknowledge and deliver all such instruments and take all such action as the Bank from time to time may request in order to further effectuate the Purposes of this Pledge Agreement and to carry out the terms hereof. The Pledgor, at its expense, at all times cause this Pledge Agreement (or a proper notice or statement, in respect hereof) to be duly recorded, published and filed and rerecorded, republished and refiled in such manner and in such places, if any, and shall pay or cause to be paid all such recording, filing and other taxes, fees and charges, if any, and will comply with all such statutes and regulations, if any, as may be required by law in order to establish, perfect, preserve and protect the rights and security interests of the Bank hereunder. 14. Notices. All communications provided for or related hereto shall be given in accordance with Paragraph 10(c) of the Loan Agreement. 15. Amendments. Any term of this Pledge Agreement may be amended only with the written consent of the Pledgor and the Bank. Any amendment effected in accordance with this Paragraph 15 shall be binding upon (i) each holder of the Note at the time outstanding; (ii) each future holder of the Note; and (iii) the Pledgor. 16. Assigns. This Pledge Agreement and all rights and liabilities hereunder and in and to any and all Pledged Security shall inure to the benefit of the Bank and its successors and assigns, and shall be binding on the Pledgor. and the Pledgor's successors and assigns; provided, however, the Pledgor may not assign its rights or liabilities hereunder or to any of the Pledged Security without the written consent of the Bank. 17. Miscellaneous. This Pledge Agreement embodies the entire agreement and understanding between the Bank and the Pledgor and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Pledge Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 30 The Pledgor acknowledges that this Pledge Agreement is and shall be effective upon execution by the Pledgor and delivery to and acceptance hereof by the Bank, and it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof to the Pledgor. WINTRUST FINANCIAL CORPORATION By: /S/David A. Dykstra -------------------------------- Its: Executive Vice President -------------------------------- 31 SCHEDULE A Subsidiary Number Of Shares Owned - ---------- ---------------------- Hinsdale Bancorp 198,295 Lake Forest Bancorp 164,009 Libertyville Bancorp 210,851 North Shore Community Bank Trust Co. 142,500 32 PLEDGE AND SECURITY AGREEMENT This PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement") dated as of September 1, 1996, is made by HINSDALE BANCORP, an Illinois corporation, LAKE FOREST BANCORP, a Delaware corporation and LIBERTYVILLE BANCORP, an Illinois corporation (each a "Pledgor" and collectively, the "Pledgors") , whose address is 727 Bank Lane, Lake Forest, Illinois 60045, for the benefit of LASALLE NATIONAL BANK, a national banking association (the "Bank") whose address is 135 South LaSalle Street, Chicago, Illinois 60674. RECITALS: WHEREAS, each Pledgor is the owner of the capital stock of the bank set forth opposite its name on Exhibit A hereto (each is referred to herein as a "Subsidiary" and collectively as the "Subsidiaries"); WHEREAS, the capital stock of the Subsidiaries owned by the Pledgors constitutes 100% of the issued and outstanding capital stock of the Subsidiaries; WHEREAS, the Wintrust Financial Corporation (the "Borrower"), the owner of 100% of the issued and outstanding capital stock of Pledgors, desires to borrow from the Bank the sum of TWENTY FIVE MILLION DOLLARS ($25,000,000); WHEREAS, the Bank is willing to lend to the Borrower TWENTY FIVE MILLION DOLLARS ($25,000,000) in accordance with the terms, subject to the conditions and in reliance on the representations, warranties and covenants set forth in the Loan Agreement dated the date hereof between the Borrower and the Bank (the "Loan Agreement") and in all of the other documents and instruments entered into or delivered in connection with or relating to the loan contemplated in the Loan Agreement; and WHEREAS, the Pledgors have agreed to provide security for the loan contemplated in the Loan Agreement in accordance with the terms of this Pledge Agreement; NOW, THEREFORE, in order to induce the Bank to make the loan contemplated in the Loan Agreement and in consideration of the mutual representations, warranties, covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: AGREEMENT 1. Grant of Security Interest. To secure the Obligations (as defined below), the Pledgors hereby pledge and grant to the Bank a security interest in and transfer and deliver to the Bank the following: (a) the number of shares of capital stock of each of the Subsidiaries set forth on Schedule A hereto, which constitute one hundred percent (100%) of the issued and outstanding capital stock of the Subsidiaries, and any and all shares of the capital stock of any Subsidiary that Pledgors subsequently 33 acquire, directly or indirectly, including all substitutions of, and additions to, such stock; (b) executed and undated stock powers for the capital stock described in (a) above, in form and content satisfactory to the Bank duly executed in blank, containing all requisite federal and state stock transfer tax stamps, if any (the items described in (a) and (b) above may collectively be referred to as the "Pledged Stock"); (c) all income and profits therefrom, all distributions thereon, all other proceeds therefrom and all rights, benefits and privileges pertaining to or arising from the Pledged Stock; and (d) such other collateral that may be provided after the date hereof to secure the Obligations. All property at any time pledged to the Bank hereunder or in which the Bank is granted a security interest hereunder (whether described herein or not, subject to the provisions of Paragraph 3 (c) below) , all income therefrom and proceeds therefrom, may be referred to collectively as the "Pledged Security." 2. Obligations. The obligations secured by this Pledge Agreement are the following (referred to collectively hereafter as the "Obligations",): (a) all obligations and agreements of Borrower contained in (including, without limitation, the payment of all indebtedness of the Borrower in respect of) the Loan Agreement, and any and all amendments, modifications or renewals thereof; (b) all amounts due to the Bank under that certain promissory note of even date herewith in the principal amount of TWENTY FIVE MILLION DOLLARS ($25,000,000) from the Borrower to the Bank and any and all modifications, extensions, renewals or refinancings thereof (the "Note"), including, but not limited to, all Principal, interest and other amounts due under the Note; (c) all sums advanced by, or on behalf of, the Bank in connection with, or relating to, the Loan Agreement, the Note or the Pledged Security including, but not limited to, any and all sums advanced to preserve the Pledged Security, or to perfect the Bank's security interest in the Pledged Security; (d) in the event of any proceeding to enforce the satisfaction of the Obligations, or any of them, or to preserve and protect the Bank's rights under the Loan Agreement, the Note, this Pledge Agreement or any other agreement, document or instrument relating to the transactions contemplated in the Loan Agreement, the reasonable expenses of retaking, holding, preparing for sale, selling or otherwise disposing of or realizing on the Pledged Security, or of any exercise by the Bank of its rights, together with reasonable attorney's fees, expenses and court costs; and (e) any indebtedness, obligation or liability of the Borrower, Pledgors or the Subsidiaries to the Bank, weather direct or indirect, joint or several, absolute or contingent, now or hereafter existing, however created or arising and however evidenced. 3. Additional Terms. (a) The Pledgors agree that the Bank shall have full and irrevocable right, power and authority, to collect, withdraw or receipt for all amounts due or to become due and payable upon, in connection with, or relating to, the Pledged Security, to execute any withdrawal receipts 34 respecting the Pledged Security, and to endorse the name of the Pledgors on any or all documents, instruments or commercial paper given in payment thereof, and at the Bank's discretion to take any other action, including, without limitation, the transfer of any Pledged Security into the Bank's own name or the name of any nominee for the Bank, which the Bank may deem necessary or appropriate to preserve or protect the Bank's interest in any of the Pledged Security. (b) Unless a Default (as hereinafter defined) shall have occurred, the Pledgors shall be entitled to vote any and all shares of the Pledged Stock and to give consents, waivers and ratifications in respect thereof, provided that no vote shall be cast, no consent, waiver or ratification shall be given and no action shall be taken by the Pledgors which would violate or be inconsistent with any of the terns of the Loan Agreement, the Note or this Pledge Agreement, or which would have the effect of impairing the position or interests of the Pledgors or any holder of the Note. All such rights of the Pledgors to vote and to give consents, waivers and ratifications shall cease upon the occurrence of a Default. (c) unless a Default shall have occurred, all dividends and other distributions payable in respect of the Pledged Security shall be paid to the Pledgors. Upon the occurrence of a Default, all such dividends and other distributions and payments shall be paid to the Bank. After a Default shall have occurred, all such amounts paid in respect of the Pledged Security shall, until paid or delivered to the Bank, be held in trust for the benefit of the Bank as additional Pledged Security to secure the Obligations. 4. Representations, Warranties and Covenants. The Pledgors further represent, warrant and agree that: (a) The Pledgors are the legal, record and beneficial owner of, and has good and marketable title to, the Pledged Security, subject to no lien, claim, security interest or other encumbrance, except the security interest created by this Pledge Agreement. (b) without the prior written consent of the Bank, the Pledgors will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Security, nor will it create, incur or permit to exist any lien, claim, security interest or other encumbrance with respect to any of the Pledged Security, or any interest therein, or any proceeds thereof, except for the security interest provided for by this Pledge Agreement. Without the prior written consent of the Bank, the Pledgors agrees that it will not, and it will not permit any Subsidiary to. (i) issue or reissue any capital stock or other securities (or warrants therefor or other rights with respect thereto) in addition to or issue other securities of any nature in exchange or substitution for any of the Pledged Security; (ii) redeem any of the Pledged Security, or (iii) declare any stock dividend or split or otherwise change the capital structure of any Subsidiary. (c) The Pledged Security is genuine and in all respects represents what it purports to be and all the shares of the Pledged Stock have been duly and validly issued, and are fully paid and non-assessable. 35 (d) The pledge, assignment and delivery of the Pledged Security pursuant to this Pledge Agreement creates a valid perfected security interest in the Pledged Security, and the proceeds thereof, subject to no prior lien, claim, security interest or other encumbrance or to any agreement purporting to grant to any third party a perfected security interest in the assets of the Pledgors which would include any of the Pledged Security. The Pledgors will at all times defend the Bank's right, title and security interest in and to the Pledged Security and the proceeds thereof against any and all claims and demands of any person adverse to the claims of the Bank. (e) The Pledgors will take, and will cause the subsidiaries to take, such action and to execute such documents as the Bank may from time to time reasonably request relating to the Pledged Security or the proceeds thereof. (f) The Pledgors have full right, power and authority to enter into, to execute and to deliver this Pledge Agreement and this Pledge Agreement is binding upon, and enforceable against the Pledgors in accordance with its terms. (g) The Pledgors shall pay any fees, assessments, charges or taxes arising with respect to the Pledged Security. In case of failure by the Pledgors to pay any such fees, assessments, charges or taxes, the Bank shall have the right, but shall not be obligated, to any such fees, assessments, charges or taxes, as the case may be, and, in that event, the cost thereof shall be payable by the Pledgors to the Bank immediately upon demand together with interest at the rate equal to the Prime Rate (or, after the occurrence of a Default, the Prime Rate plus 2%) (Prime Rate shall have the meaning provided in the Note) from the date of disbursement by the Bank to the date of payment by the Pledgors. (h) None of the Pledged Stock constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System. 5. Events of Default. The Pledgors shall be in default under this Pledge Agreement upon the occurrence of any one or more of the following events or conditions (each, a "Default"): (a) nonpayment of any of the obligations, whether by acceleration or otherwise; (b) the nonperformance of any obligation or any breach of any warranty, representation or covenant made by the Pledgors in this Pledge Agreement, and the same is not cured within fifteen(15)days after notice thereof by the Bank; (c) the nonperformance of any obligation in any other instrument, document or agreement relating to the Obligations, including, without limitation, the Loan Agreement and the Note, which nonperformance continues beyond the applicable cure period, if any, specifically provided therefor; (d) any breach of any warranty, representation or covenant made by any Pledgor in any other instrument, document or agreement between such Pledgor and Bank which breach remains uncured beyond any applicable time period, if any, specifically provided therefor; 36 (e) any oral or written misrepresentation is made by any Pledgor in this Pledge Agreement or in any document furnished by the Pledgor, or on the Pledgor's behalf, to the Bank in connection with this Pledge Agreement or the Pledged Security; (f) the claim or creation of any lien, claim, security interest or other encumbrance upon any of the Pledged Security or the making of any levy, judicial seizure, or attachment thereof; or (g) the dissolution, bankruptcy, insolvency or failure of the Pledgor or any Subsidiary. 6. Rights of, Parties upon Default. (a) Upon the occurrence of a Default, in addition to all the rights, power and remedies the Bank shall be entitled to exercise, whether vested in the Bank by the terms of this Pledge Agreement, the terms of the Loan Agreement, the terms of the Note, by law, in equity, by statute (including, without limitation, Article 9 of the Illinois Uniform Commercial Code) or otherwise, for the protection and enforcement of the Bank's rights in. respect of the Pledged Security, the Bank may be entitled to, without limitation (but is under no obligation to the Pledgors so to do) (i) transfer all or any part of the Pledged Security into the Bank's name or the name of its nominee or nominees; (ii) after first obtaining all necessary regulatory approvals, vote all or any part of the Pledged Security (whether or not transferred into the name of the Bank or any nominee) and give all consents, waivers and ratifications in respect of the Pledged Security and otherwise act with respect thereto as though it were the outright owner thereof; (iii) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Pledged Security, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Pledgors), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk and for such price or prices and on such terms as the Bank in its absolute discretion may determine, provided that unless, in the sole discretion of the Bank, any of the Pledged Security threatens to decline in value or is or becomes a type sold on a recognized market, the Bank will give the Pledgors reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any requirements of reasonable notice shall be met if such notice is mailed to the Pledgors as Provided in Paragraph 14 below, at least fifteen (15) days before the time of the sale or disposition. Any sale of any of the Pledged Security conducted in conformity with customary practices of banks, insurance companies or other financial institutions disposing of property similar to the Pledged Security shall be deemed to be commercially reasonable. Any remaining Pledged Security shall remain subject to the terms of this Pledge Agreement; and (iv) collect any and all money due or to become due and enforce in the Pledgor's name all rights with respect to the Pledged Security. 37 (b) Pledgors agrees to cause each Subsidiary to give the Bank, any prospective purchaser of the Pledged Security (pursuant to Section 6(a)(iii)) and their respective representatives, reasonable access to further information (including, but not limited to, records, files, correspondence, tax work papers and audit work papers) relating to or concerning the Pledgors or such Subsidiary. 7. Remedies Cumulative. Each right, power and remedy of the Bank provided in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Pledge Agreement or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or partial exercise by the Bank of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Bank of all such other rights, powers or remedies, and no failure or delay on the part of the Bank to exercise any such right, power or remedy shall operate as a waiver thereof. 8. Waiver of Defenses. No renewal or extension of the time of payment of the Obligations, nor any release, surrender of, or failure to perfect or enforce any security interest for the Obligations; no release of any person primarily or secondarily liable on the Obligations (including any maker, endorser, or guarantor); no delay in enforcement of payment of the obligations; and no delay or omission in exercising any right or power with respect of the Obligations or any security agreement securing the Obligations shall affect the rights of the Bank in the Pledged Security. 9. Waiver. Waiver by the Bank of any Default hereunder, or of any breach of the provisions of this Pledge Agreement by the Pledgors, or any right of the Bank hereunder, shall not constitute a waiver of any other Default or breach or right, nor the same Default or breach or right on a future occasion. 10. Law Governing. This Pledge Agreement and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with the law of the State of Illinois applicable to agreements made and to be wholly Performed in such state. Whenever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law; provided, if any provision of this Pledge Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining Provisions of this Pledge Agreement. 11. Each Pledgor's Obligations Absolute. The Obligations of each Pledgor under this Pledge Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way impaired by any circumstance whatsoever, including without limitation: (a) any amendment or modification of the Note, the Loan Agreement or any other document or instrument provided for herein or therein or related thereto, cr any assignment, transfer or other disposition of any thereof; (b) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such document or instrument or any exercise or on exercise of any right, remedy, power or privilege under or in respect of any such document or instrument or this Pledge Agreement; (c) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, or similar proceeding with respect to any 38 Pledgor or any of its properties or creditors; or (d) any limitation on the Pledgor's liabilities or obligations under any such instrument or any invalidity or lack of enforceability, in whole or in part, of any such document or instrument or any term thereof; whether or not the Pledgor shall have notice or knowledge of the foregoing. 12. Termination. This Pledge Agreement shall terminate upon the receipt by the Bank of evidence satisfactory to the Bank, in the Bank's sole and absolute discretion, of the payment in full of the obligations. At the time of such termination the Bank, at the request and expense of the Pledgors, will execute and deliver to the Pledgors a proper instrument or instruments acknowledging the satisfaction and termination of this Pledge Agreement, and will duly assign, transfer and deliver to the Pledgors such of the Pledged Security as has not yet theretofore been sold or otherwise applied or released pursuant to this Pledge Agreement. 13. Further Assurances. The Pledgors shall, at its expense, duly execute, acknowledge and deliver all such instruments and take all such action as the Bank from time to time may request in order to further effectuate the Purposes of this Pledge Agreement and to carry out the terms hereof. The Pledgors, at its expense, at all times cause this Pledge Agreement (or a proper notice or statement, in respect hereof) to be duly recorded, published and filed and rerecorded, republished and refiled in such manner and in such places, if any, and shall pay or cause to be paid all such recording, filing and other taxes, fees and charges, if any, and will comply with all such statutes and regulations, if any, as may be required by law in order to establish, perfect, preserve and protect the rights and security interests of the Bank hereunder. 14. Notices. All communications provided for or related hereto shall be given in accordance with Paragraph 10(c) of the Loan Agreement. 15. Amendments. Any term of this Pledge Agreement may be amended only with the written consent of the Pledgors and the Bank. Any amendment effected in accordance with this Paragraph 15 shall be binding upon (i) each holder of the Note at the time outstanding; (ii) each future holder of the Note; and (iii) the Pledgors. 16. Assigns. This Pledge Agreement and all rights and liabilities hereunder and in and to any and all Pledged Security shall inure to the benefit of the Bank and its successors and assigns, and shall be binding on the Pledgors and the Pledgor's successors and assigns; provided, however, the Pledgor may not assign its rights or liabilities hereunder or to any of the Pledged Security without the written consent of the Bank. 17. Miscellaneous. This Pledge Agreement embodies the entire agreement and understanding between the Bank and the Pledgors and supersedes all prior agreements and understandings relating to the subject matter hereof. The headings in this Pledge Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 39 The Pledgors acknowledges that this Pledge Agreement is and shall be effective upon execution by the Pledgors and delivery to and acceptance hereof by the Bank, and it shall not be necessary for the Bank to execute any acceptance hereof or otherwise to signify or express its acceptance hereof to the Pledgors. HINSDALE BANCORP By: /s/David A. Dykstra Its: Executive Vice President & CFO LAKE FOREST BANCORP By: /s/David A. Dykstra Its: Executive Vice President & CFO LIBERTYVILLE BANCORP By: /s/David A. Dykstra Its: Executive Vice President & CFO 40 SCHEDULE A
Pledgor Subsidiary Number Of Shares Owned - ------- ---------- ---------------------- Hinsdale Bancorp Hinsdale Bank & Trust 107,500 Lake Forest Bancorp Lake Forest Bank & Trust 210,780 Libertyville Bancorp Libertyville Bank & Trust 125,000
EX-10.11 4 STOCK OPTION PLAN 1 Exhibit 10.11 (EXHIBIT A) WOLFHOYA INVESTMENTS, INC. 1995 STOCK OPTION PLAN 2 WOLFHOYA INVESTMENTS, INC. 1995 STOCK OPTION PLAN TABLE OF CONTENTS
Article Section Page - ------- ------- ---- 1 ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN -------------------------------------------------- 1.1 Establishment of the Plan 6 1.2 Purpose of the Plan 6 1.3 Duration of the Plan 6 2 DEFINITIONS AND CONSTRUCTION ---------------------------- 2.1 Definitions 7 2.2 Gender and Number 10 2.3 Severability 10 3 ADMINISTRATION -------------- 3.1 The Committee 11 3.2 Authority of the Committee 11 3.3 Selection of Participants 11 3.4 Decisions Binding 11 3.5 Delegation of Certain Responsibilities 11 3.6 Procedures of the Committee 12 3.7 Award Agreements 12 4 STOCK SUBJECT TO THE PLAN ------------------------- 4.1 Number of Shares 13 4.2 Lapsed Awards 13 4.3 Adjustments in Authorized Shares 13
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Article Section Page - ------- ------- ---- 5 ELIGIBILITY AND PARTICIPATION ----------------------------- 5.1 Eligibility 14 5.2 Actual Participation 14 6 STOCK OPTIONS ------------- 6.1 Grant of Options 14 6.2 Option Agreement 15 6.3 Option Price 15 6.4 Duration of Options 15 6.5 Exercise of Options 15 6.6 Payment 15 6.7 Restrictions on Stock Transferability 16 6.8 Termination of Employment Due to Death, Disability, or Retirement 16 6.9 Termination of Employment for Other Reasons 17 6.10 Nontransferability of Options 17 7 RESTRICTED STOCK ---------------- 7.1 Grant of Restricted Stock 17 7.2 Restricted Stock Agreement 17 7.3 Transferability 17 7.4 Other Restrictions 18 7.5 Certificate Legend 18 7.6 Removal of Restrictions 18 7.7 Voting Rights 18 7.8 Dividend and Other Distributions 18
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Article Section Page - ------- ------- ---- 7.9 Termination of Employment Due to Retirement 19 7.10 Termination of Employment Due to Death or Disability 19 7.11 Termination of Employment for Other Reasons 19 7.12 Nontransferability of Restricted Stock 19 8 BENEFICIARY DESIGNATION ----------------------- 8.1 Beneficiary Designation 20 9 RIGHTS OF EMPLOYEES ------------------- 9.1 Employment 20 9.2 Participation 20 10 CHANGE IN CONTROL ----------------- 10.1 In General 20 11 AMENDMENT, MODIFICATION, AND TERMINATION ---------------------------------------- 11.1 Amendment, Modification, and Termination 20 11.2 Awards Previously Granted 21 12 WITHHOLDING ----------- 12.1 Tax Withholding 21 12.2 Stock Withholding Elections 21 12.3 Special Insider Stock Withholding Restrictions 22 12.4 Stock Withholding Delivery Requirements 22 13 INDEMNIFICATION --------------- 13.1 Indemnification 23
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Article Section Page - ------- ------- ---- 14 SUCCESSORS ---------- 14.1 Successors 23 15 REQUIREMENTS OF LAW ------------------- 15.1 Requirements of Law 23 15.2 Governing Law 23 16 RIGHTS OF FIRST REFUSAL ----------------------- 16.1 Rights of First Refusal 24
5 6 WOLFHOYA INVESTMENTS, INC. 1995 STOCK OPTION PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN 1.1 Establishment of the Plan. Wolfhoya Investments, Inc. (hereinafter referred to as the "Company"), hereby establishes an incentive compensation plan to be known as the "1995 Stock Option Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of incentive stock options, nonqualified stock options, and restricted stock. Subject to ratification by a majority of the shareholders of the Company within twelve (12) months, the Plan shall become effective as of December 1, 1995 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. Awards may be granted hereunder on or after the Effective Date but in no event be exercisable or payable to a participant prior to such stockholder approval; and, if such approval is not obtained within twelve (12) months after the Effective Date, such awards shall be of no force and effect. 1.2 Purpose of the Plan. The purpose of the Plan is to promote the success of the Company by providing incentives to Key Employees that will link their personal interests to the long-term financial success of the Company and to the growth in shareholder value. The Plan is intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Key Employees upon whose judgement, interest, and special effort the successful conduct of its operation is largely dependent. 1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as described in Article 1.1. herein, and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 11, until all Stock subject to it shall have been purchased or acquired according to the provisions herein. However, in no event may an Award be 6 7 granted under the Plan on or after the tenth (10th) anniversary of the Plan's Effective Date. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1 Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) "Award" means, individually or collectively, a grant under this Plan of Incentive Stock Options, Nonqualified Stock Options, or Restricted Stock. (b) "Beneficial Owner" shall have the meaning ascribed to such terms in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (c) "Board" or "Board of Directors" means the Board of Directors of the Company. (d) "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (i) A change in the ownership of sixty-six and two thirds percent (66.67%) or more of the Corporation's outstanding common stock, within a twelve month period; or, (ii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than: a) a merger or consolidation involving affiliated companies ("Affiliates"). For purposes of this Plan, the term Affiliates shall have the same definition as in Federal reserve Regulation L (Section 212.2) or, b) a merger or consolidation which would result in the voting Stock outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 80% of the total voting power represented by the voting Stock or the voting securities of such surviving entity outstanding 7 8 immediately after such merger or consolidation; or (iii) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. However, in no event shall a Change in Control be deemed to have occurred, with respect to the Participant, if the Participant is part of a purchasing group which consummates the Change in Control transaction. The Participant shall be deemed "part of a purchasing group..." for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (a) passive ownership of less than 5% of the Stock of the purchasing company or (b) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the nonemployee continuing directors). The Board has final authority to determine the exact date on which a change in control has been deemed to have occurred under (i), (ii), and (iii) above. (e) "Cause" means: (i) misappropriation of any funds or property of the Corporation; or (ii) attempting to obtain any personal profit from any transaction in which the Participant has a personal financial interest, unless the Participant shall have first obtained the consent of the Board of Directors; or (iii) material neglect or refusal to perform the duties reasonably assigned to the Participant; or (iv) participating in a course of conduct which is injurious to the Corporation or its subsidiaries, as interpreted by the Board of Directors; or (v) being convicted of a felony; or 8 9 (vi) being adjudicated a bankrupt; or (vii) suspension due to the direction of any authorized bank regulatory agency. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Stock Option Committee of the Board, or any other committee appointed by the Board to administer the Plan pursuant to Article 3 herein. (h) "Company" means Wolfhoya Investments, Inc., a bank holding corporation or any successor thereto as provided in Article 14 herein. (i) "Disability" means a permanent and total disability as determined by the Committee in good faith, upon receipt of sufficient competent medical advice. (j) "Fair Market Value" means the average of the highest and lowest price at which the Stock was traded on the twenty trading days prior to the relevant date, as reported by the established market in which the shares are traded. If the shares are not really tradable, a determination of Fair Market Value shall be made by the Board of Directors of the Company. (k) "Incentive Stock Option" or "ISO" means an option to purchase Stock, granted under Article 6 herein, which is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422A of the Code. (l) "Key Employee" means an employee of the Company, including an employee who is an officer or a director of the Company, who, in the opinion of members of the Committee, can contribute significantly to the growth and profitability of the Company. "Key Employee" also may include those employees, identified by the Committee, in situations concerning extraordinary performance, promotion, retention, or recruitment. The granting of an Award under this Plan shall be deemed a determination by the Committee that such employee is a Key Employee. 9 10 (m) "Nonqualified Stock Option" or "NSO" means an option to purchase Stock, granted under Article 6 herein, which is not intended to be an Incentive Stock Option. (n) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. (o) "Outstanding Option" means any Option awarded to a Participant under the Plan for which and conditions and/or restrictions on exercisability have been met. (p) "Participant" means a Key Employee of the Company who has been granted an Award under the Plan. (q) "Period of Restriction" means the period during which the transfer of Shares of Restricted Stock is restricted, during which the Participant is subject to a substantial risk of forfeiture, pursuant to Article 8 herein. (r) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as defined in Section 13(d). (s) "Plan" means the Libertyville Bancorp 1995 Stock Option Plan, as herein described. (t) "Restricted Stock" means a Stock Award granted to a Participant pursuant to Article 8 herein. (u) "Stock" or "Shares" means the common Stock of the Company. 2.2 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 2.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 10 11 ARTICLE 3. ADMINISTRATION 3.1 The Committee. The Plan shall be administered by a committee (the "Committee") consisting of not less than three directors who shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors. 3.2 Authority of the Committee. Subject to the provisions of the Plan and subject to ratification by the Board, the Committee shall have full power to construe and interpret the Plan; to establish, amend or waive rules and regulations for its administration to accelerate the exercisability of any Award or the end of a Period of Restriction or the termination of any Award Agreement, or any other instrument relating to an Award under the Plan; and (subject to the provisions of Article 12 herein) to amend the terms and conditions of any outstanding Option, or Restricted Stock Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Notwithstanding the foregoing, no action of the Committee may, without the consent of the person or persons entitled to exercise any outstanding Option or to receive payment of any other outstanding Award, adversely affect the rights of such person or persons. 3.3 Selection of Participants. The Committee shall have the authority to grant Awards under the Plan, from time to time, to such Key Employees of the Company (including officers and directors who are employees) as may be selected by it. The committee shall select Participants from among those who they have identified as being Key Employees. 3.4 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive and binding on all persons, including the Company, its stockholders, Employees, Participants and their estates and beneficiaries. 3.5 Delegation of Certain Responsibilities. The Committee may, in its sole discretion, delegate to appropriate officers of the Company the administration of the Plan under this Article 3; 11 12 provided, however, that no such delegation by the Committee shall be made with respect to the administration of the Plan as it affects officers or directors of the Company and provided further that the Committee may not delegate its authority to correct errors, omissions or inconsistencies in the Plan. All authority delegated by the Committee under this Section 3.5 shall be exercised in accordance with the provisions of the Plan and any guidelines for the exercise of such authority that may from time to time be established by the Committee. 3.6 Procedures of the Committee. All determinations of the Committee shall be made by not less than a majority of its members present at the meeting (in person or otherwise) at which a quorum is present. A majority of the entire Committee shall constitute a quorum for the transaction of business. Any action required or permitted to be taken at a meeting of the Committee may be taken without a meeting if a unanimous written consent, which sets for the action, is signed by each member of the Committee and filed with the minutes for proceedings of the Committee. No member of the Committee shall be liable, in the absence of bad faith, for any act or omission with respect to his or her other services on the committee. Service on the Committee shall constitute service as a director of the Company so that members of the committee shall be entitled to indemnification (as provided in Article 14 herein), and limitation of liability and reimbursement with respect to their services as members of the Committee to the same extent as for services as directors of the Company. 3.7 Award Agreements. Each Award under the Plan shall be evidenced by an Award Agreement which shall be signed by an officer of the Company and by the Participant, and shall contain such terms and conditions as may be approved by the Committee, which need not be the same in all cases. Any Award Agreement may be supplemented or amended in writing from time to time as approved by the Committee, provided the terms of such agreements as amended or supplemented, as well as the terms of the original award agreement, are not inconsistent with the 12 13 provisions of the Plan. Nothing contained in the Plan or any resolutions adopted or to be adopted by the Board of Directors or by the stockholders of the Company shall constitute the granting of an Award under the Plan. An Employee who receives an Award under the Plan will not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, unless and until such Employee has executed an Award Agreement or other instrument evidencing the Award and shall have delivered an executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of the Award. ARTICLE 4. STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to adjustment as provided in Article 4.3 herein, the aggregate number of Shares of Stock subject to Awards under the Plan shall not exceed 32,000. Stock delivered under the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. 4.2 Lapsed Awards. If any Award granted under this Plan terminates, expires or lapses for any reason any Stock subject to such Award again shall be available for the grant of an Award under the Plan. 4.3 Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, Stock divided, split-up, share combination, or other change in the corporate structure of the Company affecting the Stock, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Options, and Restricted Stock Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the 13 14 number of Shares subject to any Award shall always be a whole number. Any adjustment of an Incentive Stock Option under this paragraph shall be made in such a manner so as not to constitute a "modification" within the meaning of Section 425(h)(3) of the Code. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1 Eligibility. Persons eligible to participate in this Plan include all employees of the Company who, in the opinion of the members of the Committee, are Key Employees. "Key Employees" may include employees who are members of the Board, but may not include directors who are not full-time employees. 5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time select from Key Employees, those of whom Awards shall be granted and determine the nature and amount of each Award. No employee shall have any rights to be granted an Award under this Plan. ARTICLE 6. STOCK OPTIONS 6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Key Employees at anytime and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Shares of Stock subject to Options granted to each Participant. The Committee may grant any type of option to purchase Stock that is permitted by law at the time of grant including, but not limited to, ISOs and NSOs. However, no employee may receive an Award of Incentive Stock Options that are first exercisable during any calendar year to the extent that the aggregate Fair Market Value of the Stock (determined at the time the options are granted) exceeds $100,000. Nothing in this Article 6 shall be deemed to prevent the grant of NSOs in excess of the maximum established by Section 422A of the Code. Unless otherwise expressly provided at the time of grant, options granted under the Plan will be NSOs. 14 15 6.2 Option Agreement. Each Option grant shall be evidenced by an option agreement that shall specify the type of option granted, the option price, the vesting period and conditions of the options granted, the duration of the option, the number of Shares of Stock to which the option pertains, and such other provisions as the Committee shall determine. The option agreement shall specify whether the option is intended to be an Incentive Stock Option within the meaning of Section 422A of the Code, or a Nonqualified Stock Option whose grant is intended not to fall under the Code provisions of Section 422A. 6.3 Option Price. The purchase price per share of Stock covered by an Option shall not be less than 100% of the Fair Market Value of such Stock on the date the option is granted. An Incentive Stock Option granted to an Employee who, at the time of grant owns (within the meaning of Section 425(d) of the Code) Stock possessing more than 10% of the total combined voting power of all classes of Stock of the Company, shall have an exercise price which is at least 110% of the Fair Market Value of the Stock subject to the Option. 6.4 Duration of Options. Each Option shall expire at such time as the Committee shall determine at the time of grant provided, however, that no ISO shall be exercisable later than the tenth (10th) anniversary date of its grant. 6.5 Exercise of Options. Options granted under the Plan shall be exercisable at such time and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for all Participants. 6.6 Payment. Options shall be exercised by the delivery of a written notice to the Company setting forth the number of Shares of Stock with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option price upon exercise of any Option shall be payable to the Company in full either (a) in cash or its equivalent, or (b) by tendering Shares of previously acquired stock having a Fair Market Value at the time of exercise equal to the total 15 16 Option price, or (c) by combination of (a) and (b). The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes. As soon as practicable, after receipt of written notification and payment, the Company shall deliver to the participant, Stock certificates in an appropriate amount based upon the number of Option exercised, issued in the Participant's name. 6.7 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any Shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, with limitation, restrictions under applicable Federal securities law, under the requirements of any stock exchange upon which such Shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares. 6.8 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of a Participant is terminated by reasons of death, any Outstanding Option shall be exercisable at any time prior to the expiration date of the Options or within 90 days after such date of termination of employment, whichever period is shorter, by such person or persons as shall have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. In the event the employment of Participant is terminated by reason of Disability, any Outstanding Options shall be exercisable at any time prior to the expiration date of the Options or within 90 days after such date of termination of employment, whichever period is shorter. In the event the employment of a Participant is terminated by reason of retirement (as defined under the then established rules of the Company), any Outstanding Options shall be exercisable at any time prior to the expiration date of the Options or within one year after such date of termination of employment, whichever period is shorter. In the case of Incentive Stock Options, the favorable tax treatment prescribed under Section 422A of the Internal Revenue Code of 1986, as amended may not be available if the options are not exercised within the Section 422A prescribed time period after 16 17 termination of employment for death, disability, or retirement. 6.9 Termination of Employment for Other Reasons. If the employment of the Participant shall terminate for any reason other than death, disability, retirement, or for Cause, all Outstanding Options shall terminate one month after such date of termination. In its sole discretion, the Committee may extend the exercisability of Outstanding Option for up to 180 days but, however, in no event beyond the expiration date of the Option. If the employment of the Participant shall terminate for Cause, rights under all outstanding Options shall be immediately terminated upon termination of employment. 6.10 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of decent and distribution. Further, all options granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. ARTICLE 7. RESTRICTED STOCK 7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock under the Plan to such Participants and in such amounts as it shall determine. 7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Agreement that shall specify the Period of Restriction, or periods, the number of Restricted Stock Shares granted, and such other provisions as the Committee shall determine. 7.3 Transferability. Except as provided in this Article 7, the Shares of Restricted Stock granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the termination of the applicable Period of Restriction or for such period of time as shall be established by the Committee and as shall be specified in the Restricted Stock Agreement, or upon earlier satisfaction of other conditions as specified by the Committee in its sole discretion 17 18 and set forth in the Restricted Stock Agreement. All rights with respect to the Restricted Stock granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. 7.4 Other Restrictions. The Committee shall impose such other restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions under applicable Federal or state securities laws, and may legend the certifications representing Restricted Stock to give appropriate notice of such restrictions. 7.5 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 7.4 herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan shall bear the following legend: "The sale or other transfer of the Shares of Stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the 1995 Stock Option Plan of Wolfhoya Investments, Inc., in the rules and administrative procedures adopted pursuant to such Plan, and in a Restricted Stock Agreement dated ______. A copy of the Plan, such rules and procedures, and such Restricted Stock Agreement may be obtained from the Secretary of Wolfhoya Investments, Inc." 7.6 Removal of Restrictions. Except as otherwise provided in this Article, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant shall be entitled to have the legend required by Article 7.5 removed from his Stock certificate. 7.7 Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares. 7.8 Dividends and Other Distributions. During the Period of Restriction, participants 18 19 holding Shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those Shares while they are so held. If any such dividends or distributions are paid in Shares of Stock, the Shares shall be subject to the same restrictions on transferability as the Shares of Restricted Stock with respect to which they were paid. 7.9 Termination of Employment Due to Retirement. In the event that a Participant terminates his employment with the Company because of normal retirement (as defined under the then established rules of the Company), any remaining Period of Restriction applicable to the Restricted Stock pursuant to Article 7.3 hereof shall automatically terminate and, except as otherwise provided in Article 7.4, the Shares of Restricted Stock shall thereby be free of restrictions and freely transferable. In the event that a Participant terminates his employment with the Company because of early retirement (as defined under the then established rules of the Company), the Committee, in its sole discretion, may waive the restrictions remaining on any or all Shares of Restricted Stock pursuant to Article 7.3 herein and add such new restrictions to those Shares of Restricted Stock as it deems appropriate. 7.10 Termination of Employment Due to Death or Disability. In the event a Participant's employment is terminated because of death or Disability during the Period of Restriction, any remaining Period of Restriction applicable to the Restricted Stock pursuant to Article 7.3 herein shall automatically terminate and, except as otherwise provided in Article 7.4, the Shares of Restricted Stock shall thereby be free of restrictions and fully transferable. 7.11 Termination of Employment for Other Reasons. In the event that a Participant terminates his employment with the Company for any reason other than for Death, Disability, or Retirement, as set forth in Articles 7.9 and 7.10 herein, during the Period of Restriction, then any Shares of Restricted Stock still subject to restrictions as of the date of such termination shall automatically be forfeited and returned to the Company; provided, however, that, in the event of an 19 20 involuntary termination of employment of a Participant by the Company other than for Cause, the Committee, in its sole discretion, may waive the automatic forfeiture of any or all such Shares and may add such new restrictions to such Shares of Restricted Stock as it deems appropriate. 7.12 Nontransferability of Restricted Stock. No shares of Restricted Stock granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Period of Restriction. All rights with respect to Restricted Stock granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. ARTICLE 8. BENEFICIARY DESIGNATION 8.1 Beneficiary Designation. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his death before he receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 9. RIGHTS OF EMPLOYEES 9.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 9.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. ARTICLE 10. CHANGE IN CONTROL 10.1 In General. In the event of a Change in Control of the Company as defined, all awards 20 21 under the Plan shall vest 100%, whereupon all Options shall become exercisable in full, and the restrictions applicable to Restricted Stock shall terminate. ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION 11.1 Amendment, Modification, and Termination. With the approval of the Board, at any time and from time to time, the Committee may terminate, amend, or modify the Plan. However, without the approval of the stockholders of the Company (as may be required by the Code, by the insider trading rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Stock is then listed or reported, or by a regulatory body having jurisdiction with respect hereto) no such termination, amendment or modification may: (a) Increase the total amount of Stock which may be issued under this plan, except as provided in Article 4.3 herein; or (b) Change the class of Employees eligible to participate in the Plan; or (c) Materially increase the cost of the Plan or materially increase the benefits to Participants; or (d) Extend the maximum period after the date of grant during which Options may be exercised; or (e) Change the provisions of the Plan regarding Option price. 11.2 Awards, Previously Granted. No termination, amendment or modification of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the written consent of the Participant. ARTICLE 12. WITHHOLDING 12.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, State and local taxes (including the participant's FICA obligation) required by law to be withheld 21 22 with respect to any grant, exercise, or payment made under or as a result of this Plan. 12.2 Stock Withholding Elections. Subject to the consent of the Committee, due to the exercise of a (a) Nonstatutory (Nonqualified) Stock Option, (b) lapse of restrictions on Restricted Stock, or (c) the issuance of any other Stock Award under the Plan, a Participant may make an irrevocable election to (i) have shares of Stock otherwise issuable under (a) withheld, or (ii) tender back to the Company shares of Stock received pursuant to (a), (b), or (c), or (iii) deliver back to the Company pursuant to (a), (b), or (c) previously-acquired shares of Stock having a Fair Market Value sufficient to satisfy all or part of the Participant's estimated total federal, state, and local tax obligations associated with the transaction. Such elections must be made by a Participant on or prior to the Tax Date. The Committee may disapprove of any election, may suspend or terminate the right to make elections, or may provide with respect to any Award under the Plan that the right to make elections shall not apply to such Awards. 12.3 Special Insider Stock Withholding Restrictions. Elections by Participants who are subject to the short swing profit restrictions of Section 16(b) of the Securities Exchange Act of 1934 are subject to the following additional restrictions: (a) the election may not be made within six months after the grant of a Nonstatutory (nonqualified) Stock Option or Restricted Stock Award (except that this limitation does not apply if the Participant dies or becomes disabled prior tot he expiration of the six-month period), and (b) the election must be made either (i) at least six months prior to the Tax Date or (ii) on or prior to the Tax Date and during the period beginning on the third business day and ending on the twelfth business day following the date on which the Company has released for publication its regular quarterly (or, in the case of the fourth quarter of its fiscal year, annual) summary financial information. For purposes of the preceding sentence, "business day" shall mean any calendar day other than Saturday, Sunday, or a national holiday. 12.4 Stock Withholding Delivery Requirements. Pursuant to rules adopted by the Committee, when the Tax Date of a Participant is deferred pursuant to Code Section 83(c)(3) until 22 23 six months after the exercise of a Nonstatutory (Nonqualified) Stock Option the participant does not make an election under Code Section 13.3 above, the full number of shares of Stock shall be issued or transferred to the Participant upon the exercise of the Nonstatutory (nonqualified) Stock Option, but the Participant shall be unconditionally obligated to tender back or deliver to the Company the proper number of shares on the Tax Date. When the Tax Date occurs in connection with the lapse of restrictions on Restricted Stock and the Participant elects share withholding, the Participant shall be unconditionally obligated to tender back or deliver to the Company a sufficient number of shares of Stock of the Company to satisfy the tax obligations on the Tax Date. ARTICLE 13. INDEMNIFICATION 13.1 Indemnification. Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of any judgement in any such action, suite, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. ARTICLE 14. SUCCESSORS 14.1 Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such 23 24 successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company. ARTICLE 15. REQUIREMENTS OF LAW 15.1 Requirements of Law. The granting of Awards and the issuance of Shares of Stock under this Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by an governmental agencies or national securities exchanges as may be required. 15.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois. 24 25 ARTICLE 16. RIGHTS OF FIRST REFUSAL 16.1 Rights of First Refusal. If any Shares issued under the Plan are not readily tradable on an established market on the date an employee or his successor intends to sell such Shares, the employee or his successor may offer such Shares to the Company for purchase at a price and the Company shall have thirty days to exercise its right to purchase such Shares. Payment may be in a lump sum or in substantially equal annual or more frequent installments over a period not exceeding five years in the discretion of the Board. If the Board selects a method of deferred payments, the unpaid balance shall earn interest at a rate which is substantially equal to the rate at which the Company could borrow the amount due and shall be secured by a pledge of the Shares purchased or such other adequate security as agreed to by the Company and the employee or his successor. For purposes of this Paragraph, Shares shall be considered not readily tradable on an established market if such Shares are not publicly tradable or because such Shares are subject to a trading limitation under any Federal or state securities law or regulation which would make such Shares less freely tradable than stock not so restricted. 25 EX-10.24 5 BARRINGTON BANK AND TRUST COMPANY LEASE 1 EXHIBIT 10.24 STORE LEASE
TERM OF LEASE DATE OF LEASE BEGINNING ENDING 12-29-95 4-1-96 4-30-96 = Abated rent 5-1-96 3-31-97 = $3330.00 per month
MONTHLY RENT Rider/letter of 12-28-95 attached to lease $3300.00 per month LOCATION OF PREMISES 202A So. Cook St., Barrington, Il. 60010 PURPOSE
LESSEE LESSOR NAME - Wolf Hoya Investments Inc. NAME - Seger Enterprises Inc. ADDRESS - 9029 Lincolnwood Dr. ADDRESS - 358 Old Sutton Rd. CITY - Evanston, Il. 60203-1824 CITY - Barrington, Il. 60010
In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose the premises designated above (the "Premises"), together with the appurtenances thereto, for the above Term. LEASE COVENANTS AND AGREEMENTS 1. RENT. Lessee shall pay Lessor or Lessor's agent as rent for the Premises the sum stated above, monthly in advance, until termination of this lease, at Lessor's address stated above or such other address as Lessor may designate in writing. 2. WATER, GAS AND ELECTRIC CHARGES. Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light and power bills taxed, levied or charged on the Premises, for and during the time for which this lease is granted, and in case said 2 water rents and bills for gas, electric light and power shall not be paid when due, Lessor shall have the right to pay the same, which amounts so paid, together with any sums paid by Lessor to keep the Premises in a clean and health condition, as herein specified, are declared to be so much additional rent and payable with the installment of rent next due thereafter. 3. SUBLETTING; ASSIGNMENT. The Premises shall not be sublet in whole or in part to any person other than Lessee, and Lessee shall not assign this lease without, in each case, the consent in writing of Lessor first had and obtained; nor permit to take place by any act or default of himself or any person within his control any transfer by operation of law of Lessee's interest created hereby; nor offer for lease or sublease the Premises, nor any portion thereof, by placing notices or signs of "To Let," or any other similar sign or notice in any place, nor by advertising the same in any newspaper or place or manner whatsoever without, in each case, the consent in writing of Lessor first had and obtained. If Lessee, or any one or more of the Lessees, if there be more than one, shall make an assignment for the benefit of creditors, or shall be adjudged a bankrupt, Lessor may terminate this lease, and in such event Lessee shall at once pay Lessor a sum of money equal to the entire amount of rent reserved by this lease for the then unexpired portion of the term hereby created, as liquidated damages. 4. LESSEE NOT TO MISUSE. Lessee will not permit any unlawful or immoral practice, with or without his knowledge or consent, to be committed or carried on in the Premises by himself or by any other person. Lessee will not allow the Premises to be used for any purpose that will increase the rate of insurance thereon, nor for any purpose other than that hereinbefore specified. Lessee will not keep or use or permit to be kept or used in or on the Premises or any place contiguous thereto any flammable fluids or explosives, without the written permission of Lessor first had and obtained. Lessee will not load floors beyond the floor load rating prescribed by applicable municipal ordinances. Lessee will not use or allow the use of the Premises for any purpose whatsoever that will injure the reputation of the Premises or of the building of which they are a part. 5. CONDITION ON POSSESSION. Lessee has examined and knows the condition of the Premises and has received the same in good order and repair, and acknowledges that no representations as to the condition and repair thereof, and no agreements or promises to decorate, alter, repair or improve the Premises, have been made by Lessor or his agent prior to or at the execution of this lease that are not herein expressed. 6. REPAIRS AND MAINTENANCE. Lessee shall keep the Premises and appurtenances thereto in a clean, sightly and healthy condition, and in good repair, all according to the statutes and ordinances in such cases made and provided, and the directions of public officers thereunto duly authorized, all at his own expense, and shall yield the same back to Lessor upon the termination of this lease, whether such termination shall occur by expiration of the term, or in any other manner whatsoever, in the same condition of cleanliness, repair and sightliness as at the date of the execution hereof, loss by fire and reasonable wear and tear excepted. Lessee shall make all necessary repairs and renewals upon Premises and replace broken globes, glass and fixtures with material of the same size and quality as that broken and 2 3 shall insure all glass in windows and doors of the Premises at his own expense. If, however, the Premises shall not thus be kept in good repair and in a clean, sightly and healthy condition by Lessee, as aforesaid, Lessor may enter the same, himself or by his agents, servants or employees, without such entering causing or constituting a termination of this lease or an interference with the possession of the Premises by Lessee, and Lessor may replace the same in the same condition of repair, sightliness, healthiness and cleanliness as existed at the date of execution hereof, and Lessee agrees to pay Lessor, in addition to the rent hereby reserved, the expenses of Lessor in thus replacing the Premises in that condition. Lessee shall not cause or permit any waste, misuse or neglect of the water, or of the water, gas or electric fixtures. 7. ACCESS TO PREMISES. Lessee shall allow Lessor or any person authorized by Lessor free access to the Premises for the purpose of examining or exhibiting the same, or to make any repairs or alterations thereof which Lessor may see fit to make, and Lessee will allow Lessor to have placed upon the Premises at all times notices of "For Sale" and "For Rent", and Lessee will not interfere with the same. 8. NON-LIABILITY OF LESSOR. Except as provided by Illinois statute, Lessor shall not be liable to Lessee for any damage or injury to him or his property occasioned by the failure of Lessor to keep the Premises in repair, and shall not be liable for any injury done or occasioned by wind or by or from any defect of plumbing, electric wiring or of insulation thereof, gas pipes, water pipes or steam pipes, or from broken stairs, porches, railings or walks, or from the backing up of any sewer pipe or down-spout, or from the bursting, leaking or running of any tank, tub, washstand, water closet or waste pipe, drain, or any other pipe or tank in, upon or about the Premises or the building of which they are a part nor from the escape of steam or hot water from any radiator, it being agreed that said radiators are under the control of Lessee, nor for any such damage or injury occasioned by water, snow or ice being upon or coming through the roof, skylight, trap-door, stairs, walks or any other place upon or near the Premises, or otherwise, nor for any such damage or injury done or occasioned by the falling of any fixture, plaster or stucco, nor for any damage or injury arising from any act, omission or negligence of co-tenants or of other persons, occupants of the same building or of adjoining or contiguous buildings or of owners of adjacent or contiguous property, or of Lessor's agents or Lessor himself, all claims for any such damage or injury being hereby expressly waived by Lessee. 9. RESTRICTIONS (SIGNS, ALTERATIONS, FIXTURES). Lessee shall not attach, affix or exhibit or permit to be attached, affixed or exhibited, except by Lessor or his agent, any articles of permanent character or any sign, attached or detached, with any writing or printing thereon, to any window, floor, ceiling, door or wall in any place in or about the Premises, or upon any of the appurtenances thereto, without in each case the written consent of Lessor first had and obtained; and shall not commit or suffer any waste in or about said premises; and shall make no changes or alterations in the Premises by the erection of partitions or the papering of walls, or otherwise, without the consent in writing of Lessor; and in case Lessee shall affix additional locks or bolts on doors or window, or shall place in the Premises lighting fixtures or any fixtures of any kind, without the consent of Lessor first had and 3 4 obtained, such locks, bolts and fixtures shall remain for the benefit of Lessor, and without expense of removal or maintenance to Lessor. Lessor shall have the privilege of retaining the same if he desires. If he does not desire to retain the same, he may remove and store the same, and Lessee agrees to pay the expense of removal and storage thereof. The provisions of this paragraph shall not however apply to Lessee's trade fixtures, equipment and movable furniture. 10. HEAT. Where building is equipped for the purpose, Lessor shall furnish to Lessee a reasonable amount of heat, from October 1st to May 1st, whenever in Lessor's judgment necessary for comfortable use of the Premises, during customary business hours (excluding Sundays and holidays), but not earlier than 8 a.m. nor later than 6 p.m. unless specifically stated herein. Lessor does not warrant that heating service will be free from interruptions caused by strike, accident or other cause beyond the reasonable control of Lessor, or by renewal or repair of the heating apparatus in the building. Any such interruption shall not be deemed an eviction or disturbance of Lessee's use and possession of Premises, nor render Lessor liable to Lessee in damages. All claims against Lessor for injury or damage arising from failure to furnish heat are hereby expressly waived by Lessee. 11. FIRE AND CASUALTY. In case the Premises shall be rendered untenantable by fire, explosion or other casualty, Lessor may, at his option, terminate this lease or repair the Premises within sixty days. If Lessor does not repair the Premises within said time, or the building containing the Premises shall have been wholly destroyed, the term hereby created shall cease and terminate. 12. TERMINATION; HOLDING OVER. At the termination of the term of this lease, by lapse of time or otherwise, Lessee will yield up immediate possession of the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted, and will return the keys therefor to Lessor at the place of payment of rent. If Lessee retains possession of the Premises or any part thereof after the termination of the term by lapse of time or otherwise, then Lessor may at its option within thirty days after termination of the term serve written notice upon Lessee that such holding over constitutes either (a) renewal of this lease for one year, and from year to year thereafter, at double the rental (computed on an annual basis) specified in Section 1, or (b) creation of a month to month tenancy, upon the terms of this lease except at double the monthly rental specified in Section 1, or (c) creation of a tenancy at sufferance, at a rental of $150.00 dollars per day, for the time Lessee remains in possession. If no such written notice is served then a tenancy at sufferance with rental as stated at (c) shall have been created. Lessee shall also pay to Lessor all damages sustained by Lessor resulting from retention of possession by Lessee. The provisions of this paragraph shall not constitute a waiver by Lessor of any right of re-entry as hereinafter set forth; nor shall receipt of any rent or any other act in apparent affirmance of tenancy operate as a waiver of the right to terminate this lease for a breach of any of the covenants herein. 13. LESSOR'S REMEDIES. If Lessee shall vacate or abandon the Premises or permit the same to remain vacant or unoccupied for a period of ten days, or in case of the non-payment of the rent reserved hereby, or any part thereof, or of the breach of any covenant in 4 5 this lease contained Lessee's right to the possession of the Premises thereupon shall terminate with or (to the extent permitted by law) without any notice or demand whatsoever, and the mere retention of possession thereafter by Lessee shall constitute a forcible detainer of the Premises; and if the Lessor so elects, but not otherwise, and with or without notice of such election or any notice or demand whatsoever, this lease shall thereupon terminate, and upon the termination or Lessee's right of possession, as aforesaid, whether this lease be terminated or not, Lessee agrees to surrender possession of the Premises immediately, without the receipt of any demand for rent, notice to quit or demand for possession of the Premises whatsoever, and hereby grants to Lessor full and free license to enter into and upon the Premises or any part thereof, to take possession thereof with or (to the extent permitted by law) without process of law, and to expel and to remove Lessee or any other person who may be occupying the Premises or any part thereof, and Lessor may use such force in and about expelling and removing Lessee and other persons as may reasonably be necessary, and Lessor may re-possess himself of the Premises as of his former estate, but such entry of the Premises shall not constitute a trespass or forcible entry or detainer, nor shall it cause a forfeiture of rents due by virtue thereof, nor a waiver of any covenant, agreement or promise in this lease contained, to be performed by Lessee. Lessee hereby waives all notice of any election made by Lessor hereunder, demand for rent, notice to quit, demand for possession, and any and all notices and demand whatsoever, of any and every nature, which may or shall be required by any statute of this state relating to forcible entry and detainer, or to landlord and tenant, or any other statute, or by the common law, during the term of this lease or any extension thereof. The acceptance of rent, whether in a single instance or repeatedly, after it falls due, or after knowledge of any breach hereof by Lessee, or the giving or making of any notice or demand, whether according to any statutory provision or not, or any act or series of acts except an express written waiver, shall not be construed as a waiver of Lessor's rights to act without notice or demand or of any other right hereby given Lessor, or as an election not to proceed under the provisions of this lease. 14. RIGHT TO RELET. If Lessee's right to the possession of the Premises shall be terminated in any way, the Premises, or any part thereof, may, but need not (except as provided by Illinois statute), be relet by Lessor, for the account and benefit of Lessee, for such rent and upon such terms and to such person or persons and for such period or periods as may seem fit to the Lessor, but Lessor shall not be required to accept or receive any tenant offered by Lessee, nor to do any act whatsoever or exercise any diligence whatsoever, in or about the procuring of any care or diligence by Lessor in the reletting thereof; and if a sufficient sum shall not be received from such reletting to satisfy the rent hereby reserved, after paying the expenses of reletting and collection, including commissions to agents, and including also expenses of redecorating. Lessee agrees to pay and satisfy all deficiency; but the acceptance of a tenant by Lessor, in place of Lessee, shall not operate as a cancellation hereof, nor to release Lessee from the performance of any covenant, promise or agreement herein contained, and performance by any substituted tenant by the payment of rent, or otherwise, shall constitute only satisfaction pro tanto of the obligations of Lessee arising hereunder. 15. COSTS AND FEES. Lessee shall pay upon demand all Lessor's costs, charges and expenses, including fees of attorneys, agents and others retained by Lessor, incurred in 5 6 enforcing any of the obligations of Lessee under this lease or in any litigation, negotiation or transaction in which Lessor shall, without Lessor's fault, become involved through or on account of this lease. 16. CONFESSION OF JUDGMENT. Lessee hereby irrevocably constitutes and appoints any attorney of any court of record in this State, to be his true and lawful attorney for him and in his name and stead, to enter his appearance in any suit or suits that may be brought in any court in this State at any time when any money is due hereunder for rent or otherwise, to waive the issuing of process and service thereof and trial by jury or otherwise, and to confess a judgment or judgments for such money so due and for costs of suit and for reasonable attorney's fees in favor of Lessor, and to release all errors that may occur or intervene in such proceedings, including the issuance of execution upon any such judgment, and to stipulate that no writ of error or appeal shall be prosecuted from such judgment or judgments, nor any bill in equity filed, nor any proceedings of any kind taken in law or equity to interfere in any way with the operation of such judgment or judgments or of execution issued thereon and to consent that execution may immediately issue thereon. 17. LESSOR'S LIEN. Lessor shall have a first lien upon the interest of Lessee under this lease, to secure the payment of all moneys due under this lease, which lien may be foreclosed in equity at any time when money is overdue under this lease; and the Lessor shall be entitled to name a receiver of said leasehold interest, to be appointed in any such foreclosure proceeding, who shall take possession of said Premises who may relet the same under the orders of the court appointing him. 18. REMOVAL OF OTHER LIENS. In event any lien upon Lessor's title results from any act or neglect of Lessee, and Lessee fails to remove said lien within ten days after Lessor's notice to do so, Lessor may remove the lien by paying the full amount thereof or otherwise and without any investigation or contest of the validity thereof, and Lessee shall pay Lessor upon request the amount paid out by Lessor in such behalf, including Lessor's costs, expenses and counsel fees. 19. REMEDIES NOT EXCLUSIVE. The obligation of Lessee to pay the rent reserved hereby during the balance of the term hereof, or during any extension hereof, shall not be deemed to be waived, released or terminated, nor shall the right and power to confess judgment given in paragraph 16 hereof be deemed to be waived or terminated by the service of any five-day notice, other notice to collect, demand for possession, or notice that the tenancy hereby created will be terminated on the date therein named, the institution of any action of forcible detainer or ejectment or any judgment for possession that may be rendered in such action, or any other act or acts resulting in the termination of Lessee's right to possession of the Premises. The Lessor may collect and receive any rent due from Lessee, and payment or receipt thereof shall not waive or affect any such notice, demand, suit or judgment, or in any manner whatsoever waive, affect, change, modify or alter any rights or remedies which Lessor may have by virtue hereof. 6 7 20. NOTICES. Notices may be served on either party, at the respective addresses given at the beginning of this lease, either (a) by delivering or causing to be delivered a written copy thereof, or (b) by sending a written copy thereof by United States certified or registered mail, postage prepaid, addressed to Lessor or Lessee at said respective addressees in which event the notice shall be deemed to have been served at the time the copy is mailed. 21. MISCELLANEOUS. (a) Provisions typed on this lease and all riders attached to this lease and signed by Lessor and Lessee are hereby made a part of this lease. (b) Lessor shall keep and observe such reasonable rules and regulations now or hereafter required by Lessor, which may be necessary for the proper and orderly care of the building of which the Premises are a part. (c) All covenants, promises, representations and agreements herein contained shall be binding upon, apply and inure to the benefit of Lessor and Lessee and their respective heirs, legal representatives, successors and assigns. (d) The rights and remedies hereby created are cumulative and the use of one remedy shall not be taken to exclude or waive the right to the use of another. (e) The words "Lessor" and "Lessee" wherever used in this lease shall be construed to mean Lessors or Lessees in all cases where there is more than one Lessor or Lessee, and to apply to individuals, male or female, or to firms or corporations, as the same may be described as Lessor or Lessee herein, and the necessary grammatical changes shall be assumed in each case as though fully expressed. If there is more than one Lessee the warrant of attorney in paragraph 16 is given jointly and severally and shall authorize the entry of appearance of, and waiver of issuance of process and trial by jury by, and confession of judgment against any one or more of such Lessees, and shall authorize the performance of every other act in the name of and on behalf of any one or more of such Lessees. 22. SEVERABILITY. If any clause, phrase, provision or portion of this lease or the application thereof to any person or circumstance shall be invalid, or unenforceable under applicable law, such event shall not affect, impair or render invalid or unenforceable the 7 8 remainder of this lease nor any other clause, phrase, provision or portion hereof, nor shall it affect the application of any clause, phrase, provision or portion hereof to other persons or circumstances. WITNESS the hands and seals of the parties hereto, as of the Date of Lease stated above. LESSEE: LESSOR: (SEAL) (SEAL) --------------------------------------------- -------------------------------------------- Lemuel H. Tate, Vice President Wolfhoya Investments, Inc. (SEAL) (SEAL) --------------------------------------------- --------------------------------------------
ASSIGNMENT BY LESSOR On this ________________, 19___, for value received, Lessor hereby transfers, assigns and sets over to __________________________, all right, title and interest in and to the above Lease and the rent thereby reserved, except rent due and payable prior to _______________, 19___. (SEAL) (SEAL) --------------------------------------------- -------------------------------------------- (SEAL) (SEAL) --------------------------------------------- --------------------------------------------
GUARANTEE On this __________________, 19___, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned Guarantor hereby guarantees the payment of rent and performance by Lessee, Lessee's heirs, executors, administrators, successors or assigns of all covenants and agreements of the above Lease. (SEAL) (SEAL) --------------------------------------------- -------------------------------------------- (SEAL) (SEAL) --------------------------------------------- --------------------------------------------
8 9 LEMUEL H. TATE - 9029 LINCOLNWOOD DRIVE - EVANSTON, ILLINOIS 60203 December 28, 1995 ATTACHED TO AND PART OF LEASE DATED 12-29-95. Mrs. Raynette Seger Seger Enterprises, Inc. Real Estate Management 358 Old Sutton Road Barrington Hills, Illinois 60010 Subject: Proposed lease on Commercial Premises at 202A South Cook Street, Barrington, Illinois 60010 -- approximately 2860 square feet on first floor and approximately 2145 square feet in basement Dear Mrs. Seger: We are pleased to provide you with the proposed "Rider" conditions for the above property. We understand that a "Cole" standard commercial lease will include the following "Rider" conditions: $3,300.00 security deposit payable upon acceptance and non-refundable if lease is not consummated within one year. If we give written notice to the lessor, the lessor will give a 30 day written notice to the current tenant to vacate the premises. At that point the rent of $3,300.00 per month would begin for a period of one year. If we vacate early, best efforts must be used to find a new tenant to cancel our remaining balance of the one year lease. We would require, as an option, a second year lease at an annual increase not to exceed the Chicago Area Consumer Price Index as published. The lease will not be executed until we receive the necessary approval of all local, state and federal agencies for a financial institution. This contingency may be waived by the lessee at their own discretion. Remodeling expenses to meet our specifications would be at the expense of the lessee. Lessor shall not withhold approval with undue restraints to complete work. Lessor will provide access and schematics of space for use of lessee in preparing architectural and construction drawings. If you should have any further questions, please contact me at 708-675-5445. Sincerely, Lemuel H. Tate EX-10.25 6 REAL ESTATE CONTRACT 1 [AMOCO LOGO] Exhibit 10.25 SS# 15093 ------------------------- 201 S. Hough Barrington,IL Real Estate Contract (Surplus Property) 26-884-SP9(3-94) E THIS CONTRACT, made this 25 day of March, 1996, between Amoco Oil Company, a Maryland corporation, with offices at 200 East Randolph, Mail Code 1408B, Chicago, IL 60601, hereinafter called Seller, and Wolfhoya Investments, Inc., whose address is 9029 Lincolnwood Drive, Evanston, IL 60203 hereinafter called Purchaser. WITNESSETH: That in consideration of the mutual covenants and agreements herein contained, Seller hereby agrees to sell, and Purchaser hereby agrees to buy, for the price of FOUR HUNDRED TWENTY FIVE THOUSAND AND NO/100 Dollars ($425,000.00 ), and upon the terms and conditions hereinafter set forth, the real estate described in Attachment #1 annexed hereto and made a part hereof, together with all improvements located thereon (the "Property", and the personal property and equipment, if any, set forth in Bill of Sale labelled Exhibit "A" annexed hereto and made a part hereof; all other trade fixtures and equipment are excepted. Seller hereby agrees, subject to the conditions hereinafter set forth, to convey title to the Property to Purchaser by Special Warranty Deed, subject to: (1) Existing leases, easements, sidetrack and license agreements, if any, whether of record or not. (2) Covenants and conditions of record, if any. (3) Taxes and special assessments against the Property, if any. (4) Zoning laws and municipal regulations, if any; environmental laws and regulations, if any; building line restrictions, use restrictions and building restrictions of record, if any; and any party wall agreements of record. (5) Encroachments, overlaps and other matters which would be disclosed by an accurate current survey. (6) The Release and Right-of-Entry as hereinafter set forth. (7) The following covenants and agreements of the Purchaser: "The Grantee(s) herein and hereby covenant(s) and agree(s) for Them, selves, and Their, heirs, executors and assigns, that no part of the real estate herein conveyed shall be used by said grantee(s) heirs, executors, grantees or assigns, for the purpose of conducting or carrying on the business of selling, handling or dealing in gasoline, diesel fuel, kerosene, benzol, naphtha, greases, lubricating oils, or any fuel used for internal combustion engines, or lubricants in any form." "The foregoing restriction shall terminate and be of no further force and effect upon the expiration of a period of 10 years from the date hereof." "The foregoing covenants shall run with the land and be binding on said Grantee(s) Their , heirs, executors, grantees and assigns, and inure to the benefit of the Grantor herein, its successors and assigns." It is further agreed between Seller and Purchaser that: 1. Purchaser has deposited with Seller the sum of FIVE THOUSAND AND NO/100 TO BE INCREASED TO $21,250 AND NO/100 Dollars ($5000.00), as earnest money to be applied against the purchase price. On the date of closing as set forth in Paragraph 13 (the "Closing Date"), Purchaser agrees to pay to Seller the balance of the purchase price in the amount of FOUR HUNDRED THREE THOUSAND SEVEN HUNDRED FIFTY AND NO/100 Dollars ($403,750.00). 2 2. Seller agrees to furnish to Purchaser within thirty (30) days from the date hereof a preliminary title report or commitment to insure title to the Property issued by a responsible title insurance company, or the equivalent under the Torrens Act in the event that the Property is registered under the Torrens System, showing title in Seller subject only to the exceptions above specified and the usual exclusions and exceptions contained in standard title insurance policies. 3. Purchaser shall, within thirty (30) days after receiving said title report or commitment, deliver to Seller a written statement of any objection to the title or a written statement to the effect that the title is satisfactory. In the event Seller does not receive Purchaser's written statement of objections within such thirty (30) day period, it shall be conclusively presumed that Purchaser has waived all objections to title. In the event there are objections to the title, Seller shall be allowed thirty (30) days or until the Closing Date, whichever is longer, to cure the same, and should such objections be not cured or waived within such period, then Seller agrees to refund the earnest money deposit, this agreement shall thereafter be inoperative and void and neither Seller nor Purchaser shall have further liability hereunder. 4. Purchaser's obligation to close hereunder shall be subject to Purchaser, at Purchaser's sole cost and expense, inspecting or causing an inspection to be made by qualified professionals on Purchaser's behalf of the Property and other assets described herein, including at Purchaser's option, environmental inspections or tests for hydrocarbons or for any toxic or hazardous substances. Purchaser, his agents or employees may enter upon the Property for the purpose of making such inspections and tests; provided, however, that Purchaser shall schedule such inspections and tests with Seller, who shall have the right to have a representative present at all times during inspections and tests performed by Purchaser; that Purchaser shall provide to Seller complete copies of the results of all such inspections and tests; that the results of such tests shall be confidential and shall not be reproduced or disclosed by Purchaser to anyone without written consent of Seller; that Purchaser shall promptly repair any and all damages to the Property caused by that such activities, and shall restore the property to the same condition as before the inspections or tests to the satisfaction of Seller; that such inspections and tests shall not be conducted in such a manner as to interfere with business operations conducted on the Property; and that Purchaser shall indemnify and hold Seller harmless from and against any and all claims arising from or by reason of Purchaser's entry upon the Property. In the event such inspections disclose conditions unsatisfactory to Purchaser in Purchaser's sole discretion, and Purchaser so notifies Seller in writing on or before August 17, 1996, then this Contract shall become null and void, and Seller shall return the earnest money deposit to Purchaser. In the event Seller does not receive Purchaser's written notice by such date, it shall be conclusively presumed that Purchaser has satisfied or has waived this contingency. 5. Purchaser expressly acknowledges and agrees (i) that the Property has been used as a retail gasoline station; (ii) that Purchaser is relying on the results of his own investigation of the physical and environmental condition of the Property; (iii) that Purchaser is relying solely on his own judgment in completing the purchase of the Property, and (iv) that Purchaser is acquiring the Property "as is" with all faults on the date of conveyance, except as set forth in this Contract. Seller makes no representations or warranties whatsoever regarding the condition of the real estate or improvements, including but not limited to the environmental condition of the Property and warranties of merchantability or fitness for a particular purpose. 6. Seller agrees to remove the underground tanks and product lines now on the Property and to backfill the tank hole(s) within thirty (30) days after the Closing Date, subject to the availability of labor, weather conditions, and other factors beyond Seller's control. Purchaser hereby grants to Seller the right to enter on the Property, agrees to cooperate with Seller in the removal of the existing tanks and lines, and hereby releases Seller from all claims of loss of profits or interference with Purchaser's business resulting therefrom. Purchaser hereby expressly assumes all responsibility for grading, compacting and resurfacing the Property. 7. Purchaser acknowledges receipt of copies of the assessments, reports and/or correspondence regarding the Property, copies of which are labelled Exhibit 'B' annexed hereto and made a part hereof. Purchaser further acknowledges that additional assessments or diagnostic measures may be required to be performed upon the Property to determine and to design and implement a reasonable and cost effective plan for remediation of hydrocarbon contamination, and that such assessments and remediation activities may be disruptive of Purchaser's use and occupancy of the Property and may continue for an indefinite period of time. Notwithstanding the foregoing, Purchaser desires to complete the purchase of the Property and agrees to cooperate with Seller in the performance of assessment and remediation activities after the Closing Date. 8. Seller agrees to perform reasonable and cost effective assessment and remediation measures to address hydrocarbon contamination on the Property caused by Seller prior to the Closing Date as deemed necessary or advisable by Seller, in its sole discretion, or as Seller is required to perform by the ILLINOIS ENVIRONMENTAL PROTECTION AGENCY (the 'Department'), for a period of time ending upon expiration of the petroleum restriction set forth in (7) above, or sooner as hereinafter provided (the 'Ending Date'); provided, however, at such sooner time as (i) no further remediation activities are required from Seller by the Department, or (ii) any gasoline, diesel fuel, kerosene, benzol, naphtha or any fuel used for internal combustion engine is sold, handled or stored on the Property; or (iii) Purchaser shall materially default in compliance with any applicable environmental law or regulation, or shall otherwise default in the performance of any material covenant of this Contract relating to environmental contamination, assessment or remediation, including but not limited to Paragraph 10 hereafter, or (iv) a material spill, leak, or other release of hydrocarbons or other contamination occurs following the Closing Date which makes Seller's remedial work significantly more difficult, or significantly increases the cost or extends the time to complete the remedial work, then Seller shall thereafter have no further responsibility to Purchaser, or to Purchaser's heirs, personal representatives, grantees, successors and assigns, or to anyone claiming by, through or under Purchaser, for remediation of any contamination on the Property and all indemnity obligations of Seller shall end. 9. For the period of time commencing on the Closing Date, and ending on the Ending Date, Seller agrees to indemnify and hold harmless Purchaser and Purchaser's heirs, legal representatives and successors (collectively the "Indemnified Purchaser Parties"), from and against all claims, demands, damages, losses, judgments, penalties and liabilities which arise as a result of any enforcement action resulting from the presence of hydrocarbon contamination on the Property caused by Seller's use thereof prior to the Closing Date; provided, however, that (i) Seller's indemnity shall be limited to remediation costs actually incurred by or imposed upon Indemnified Purchaser Parties as a result of such enforcement action, (ii) Indemnified Purchaser Parties shall promptly notify Seller and provide to Seller copies of all notices received by Indemnified Purchaser Parties pertaining to any such enforcement action, and (iii) Indemnified Purchaser Parties shall incur no costs or expenses for remediation without the prior written consent of Seller. Page 2 - REAL ESTATE CONTRACT For Purchaser...Dated (Surplus Property) Wolfhoya Investments, Inc., 25 March, 1996 3 10. As of the Closing Date, Purchaser hereby expressly assumes all responsibility and liability for compliance with all environmental laws and regulations and for any environmental assessment, inspection, monitoring and remediation relating to or resulting from Purchaser's use of the Property. Purchaser shall, at Seller's request, provide to Seller assurance of compliance with all environmental laws and regulations, including but not limited to the results of all future environmental tests, product inventory data, tank gauging data, tank leak detection data and sampling data; shall promptly notify Seller of all leaks, spills or releases of hydrocarbons or other regulated substances which occur or of which Purchaser becomes aware; and shall, at Seller's request, permit Seller to perform product tracing and other reasonable tests and procedures during the period of any assessment or remediation activities by Seller, it being the intent of the parties that Purchaser shall be responsible and liable for any and all spills, leaks and releases which occur subsequent to the Closing Date. Commencing on the Closing Date, Purchaser agrees, collectively, and jointly and severally, for themselves and on behalf of their agents, employees, heirs, personal representatives, grantees, successors and assigns (collectively "Purchaser Indemnifying Parties"), to indemnify and hold harmless Seller, its parent, affiliates, and each of their respective agents, employees, officers, directors, shareholders, successors and assigns (collectively the "Indemnified Seller Parties") from and against all claims, demands, damages, losses, liabilities, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from the presence of hydrocarbon or other contamination occurring after the Closing Date; provided, however, that from and after the Ending Date, Purchaser Indemnifying Parties shall indemnify and hold harmless the Indemnified Seller Parties from and against all claims, demands, damages, losses, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from all contamination of the Property. 11. Seller reserves the right, for itself, its agents, employees, successors and assigns, to enter upon the Property, both before and after the Closing Date, for the purpose of (i) engaging in environmental assessment, inspection, monitoring and remediation, including but not limited to the installation of such facilities and the conduct of such activities as deemed necessary or advisable by Seller, in its sole discretion, or as are required by governmental authorities having jurisdiction, for a period of time required to comply with any applicable environmental laws or regulations affecting the Property, and (ii) removing from the Property any property and equipment not sold hereunder. Seller shall not be liable for any damages to Purchaser, direct or indirect, resulting from contamination of the Property existing on the Closing Date or for any interruption or interference with any business or activities being conducted on the Property, or loss of opportunity, or any other loss, damage, cost or expense of any kind whatsoever, caused by or resulting from the condition of the Property or the performance of any activities authorized herein; provided, however, Seller shall use reasonable efforts to minimize such interruption or interference. Purchaser agrees to cooperate fully with Seller in the performance of the activities authorized herein so as to minimize the time and expense to Seller, including the granting of access to on-site utilities (e.g., electricity, sewer, and water), if required for such activities, and further agrees that, during the period of any assessment or remediation activities by Seller, (i) no construction or improvements shall be made upon the Property which would impede or restrict access to monitoring wells, remediation or monitoring equipment, or to the hydrocarbon plume, or which would modify or affect the size, location or nature of the plume without the prior written consent of Seller, which consent shall not be unreasonably withheld; and (ii) no gasoline, diesel fuel or other motor fuels shall be sold, handled or stored on the Property. 12. As further consideration without which Seller would not have entered into this Contract, Purchaser agrees to execute and deliver to Seller at closing the following documents: (i) the Bill of Sale in the form set forth in Exhibit "A" annexed hereto and made a part hereof, and (ii) the Release and Right-of-Entry in the form set forth in Exhibit "C" attached hereto and made a part hereof, each of said documents to be effective as of the Closing Date. 13. The Closing Date shall be fifteen (15) days after all conditions have been satisfied or waived, but not later than August 27, 1996. Closing shall be effected through escrow with the title insurance company acting as escrow agent for both parties. Seller shall deliver to the escrow agent its Special Warranty Deed, any other documents required hereunder, and all customary documents required by the title company not inconsistent with this Contract. Purchaser shall deliver to the escrow agent the balance of the purchase price in cash or certified funds, the Release and Right-of-Entry, any other documents required hereunder, and all customary documents required by the title company not inconsistent with this Contract. The escrow agent shall record the Special Warranty Deed and the Release and Right-of-Entry; shall deliver to Seller its Settlement Statement, a cashier's check for the purchase price less Seller's expenses, and the recorded Release and Right-of-Entry; and shall deliver to Purchaser its Settlement Statement, the recorded Special Warranty Deed and the owner's title insurance policy. Seller shall pay the fees for recording the Release and Right-of-Entry and the title insurance premium. Purchaser shall pay the fees for recording the Special Warranty Deed. Seller and Purchaser each agree to pay 50% of the escrow fee. 14. Rents and other current charges, if any, shall be adjusted pro rata as of date of delivery of deed. General taxes for the year of closing shall be prorated from January 1st to date of delivery of deed. If the amount of such taxes is not then ascertainable, prorating shall be on the basis of the amount of the most recent ascertainable taxes. Purchaser agrees to pay any and all Federal, State, and local real estate transfer taxes and documentary stamp taxes applicable to this transaction, and a present or future retailer's occupation tax, sales, use, excise or similar tax applicable to the sale of goods, equipment or other personal property covered by this Contract. 15. If, after the date of execution of this Contract and prior to closing, a casualty loss occurs that results in damage or destruction such that greater than five (5) percent of the value of improvements and equipment are damaged or destroyed, then either party shall have the right to terminate this Contract by notice to the other, in which case this Contract shall be deemed null and void, the earnest money shall be returned to Purchaser, and neither Seller nor Purchaser shall have any further liability under this Contract. Seller shall have no duty whatsoever to restore any improvements or equipment on the Property. 16. Seller and Purchaser each represent and warrant to the other that no brokers or finders have been involved in this transaction, except HIFFMAN SHAFFER ASSOCIATES & BRADBURY ROMEY EGAN & ("Realtor"), and that no commissions or fees are due to any broker or to any other party with regard to this transaction, except as set forth in the Commission Agreement labelled Exhibit "D" annexed hereto and made a part hereof. Seller and Purchaser each agree to indemnify, defend and hold the other harmless from any claims, loss, damage, costs and expense arising from any breach hereof by the indemnifying party. Page 3 - REAL ESTATE CONTRACT For Purchaser...Dated (Surplus Property) Wolfhoya Investments, Inc.- 25 March 1996 4 17. (a) In the event of default hereunder by Purchaser prior to closing, Seller's remedies shall include, in addition to specific performance and other remedies available at law or in equity, terminating this Contract upon written notice to Purchaser, in which event Seller may retain the earnest money at its option as liquidated damages, and Seller or Purchaser shall thereafter have no further claim against or liability to the other and this Contract shall be inoperative and void. (b) In the event of default hereunder by Seller prior to closing, Purchaser's remedies shall include, in addition to specific performance and other remedies available at law or in equity, terminating this Contract upon written notice to Seller, in which event Seller expressly agrees to refund to Purchaser the earnest money deposit, and Seller or Purchaser shall thereafter have no further claim or liability against the other and this Contract shall be inoperative and void. 18. All notices required or sent hereunder shall be in writing and delivered in person, by messenger or other express delivery service, or by U.S. Mail Certified, Return Receipt Requested, to the address of the other party as set forth in the first paragraph of this Contract, or to such other address as the parties may from time to time designate. A copy of any notice to Seller shall also be sent to Amoco Oil Company 200 East Randolph Drive, Chicago, Illinois 60601, Attention: West Zone Real Estate. Each such notice shall be deemed served and effective on the date of delivery or refusal, if delivered personally, on the date of the delivery receipt, if delivered by messenger or express service, or the date of mailing shown on the certified mail receipt, if delivered by certified mail. 19. Purchaser acknowledges that Seller has made no representations or warranties to Purchaser regarding (i) the economic viability, profitability or business potential of the Property; (ii) the condition or suitability of any assets sold to Purchaser for operating Purchaser's business or for any other use; or (iii) the environmental condition or status of the Property. 20. This Contract and Exhibits "A" through "D" annexed hereto contain the entire understanding and agreement between the parties hereto relative to the subject matter hereof. No representations or statements, other than those expressly set forth herein, were relied upon by the parties in entering into this Contract. No modification, waiver of, addition to, or deletion from the terms of this Contract shall be effective unless reduced to writing and signed by Seller and Purchaser, each of whom expressly waives, releases and forever forswears any right under ILLINOIS law which permits a contract, by its terms amendable only in writing, to be orally amended. 21. Any covenant or provision hereof which by its nature requires observance or performance after the Closing Date shall survive delivery of the deed and shall continue in full force and effect. 22. The provisions hereof shall inure to the benefit of and bind the parties hereto, their respective heirs, personal representatives, successors and assigns. Purchaser shall not assign his rights under this Contract without the prior written approval of Seller. 23. It is expressly understood and agreed that this Contract shall not be binding on Seller unless and until it is executed on behalf of Seller by an authorized representative and a signed copy thereof is delivered to Purchaser. In Witness Whereof, the parties hereto have duly signed these presents the day and year first above written. Witness: AMOCO OIL COMPANY, Seller - ------------------------------ By /s/ Thomas J. Buehler ---------------------------------- THOMAS J. BUEHLER, REAL ESTATE MANAGER Taxpayer I.D. No. 36-2440313 ------------------ Witness: PURCHASER /s/ Wolfhoya Investments, Inc. - ----------------------------- ------------------------------------- /s/ L.H. Tate, Vice President - ----------------------------- ------------------------------------- L.H. TATE, VICE PRESIDENT Taxpayer I.D. No. 36-4044480 ------------------- Page 4 - REAL ESTATE CONTRACT For Purchaser....Dated (Surplus Property) Wolffhoya Investments, Inc. - 25 March 1996 5 SS #15093 201 S. Hough & Station Barrington, IL ATTACHMENT #1 Property Description: Lots 7 and 8 in Block 2 in "Village of Barrington", in the East one-half of the Northwest quarter of Section 1, Township 42 North, Range 9, East of the Third Principal Meridian, in Cook County, Illinois. 6 SS #15093 201 S. Hough & Station Barrington, IL ADDENDUM TO REAL ESTATE CONTRACT THIS ADDENDUM, attached to and made a part of that certain Real Estate Contract dated the 25th day of March, 1996,is made and given as further consideration for Seller's agreement to sell and Purchaser's agreement to buy the Property. WITNESSETH: It is further agreed as follows: 1. SURVEY ALLOWANCE. Seller shall give Purchaser a credit at closing up to the amount of $2,000 upon presentation of an invoice for a current survey of the property. Purchaser shall be totally responsible for obtaining the survey. 2. CONTINGENCIES. APPROVALS. This sales agreement is wholly subject to Purchaser securing State, FDIC and Federal Reserve Banking approvals for a financial institution on the property within 145 days hereof. In the event Purchaser is unable to secure such approvals within said 145 days, then the earnest money deposit made by Purchaser shall be refunded by Seller and this agreement shall be declared null and void. SPECIAL ASSESSMENTS. This sales ageement is contingent upon Purchaser's verification that there are no special assessments against the property and that none are planned. In the event Purchaser is unable to satisfy this contingency then this agreement shall become null and void at Purchaser's election and any and all earnest money deposited by Purchaser shall be refunded by Seller. IN WITNESS WHEREOF, the parties hereto have duly signed these presents all this 25th day of March, 1996. WITNESS: AMOCO OIL COMPANY - Seller By: /s/ Thomas Buehler - ---------------------------------- ------------------------------------ Thomas Buehler, Real Estate Manager WITNESS: WOLFHOYA INVESTMENTS, INC. - Purchaser By: /s/ Lemuel H. Tate - ---------------------------------- ------------------------------------ Lemuel H. Tate, Vice President 7 SS # 15093 ------------------------------ 201 S. Hough, Barrington, IL ------------------------------ AMENDMENT OF REAL ESTATE CONTRACT THIS AMENDMENT is hereby made a part of the annexed Real Estate Contract, dated the 25th day of March, 1996, between AMOCO OIL COMPANY, a Maryland corporation, therein and herein called Seller, and Wolfhoya Investments, Inc., therein and herein called Purchaser (the "Contract"). WITNESSETH, that the Contract is further subject to the following terms and conditions, to-wit: 1. Paragraph 8 of the Contract is hereby amended by adding thereto the following: A. For the purpose of this Paragraph 8, a material spill, leak or other release of hydrocarbons or other contamination which occurs at the Property following closing (a "subsequent release") and is not caused by Seller shall be designated as either a "Superseding Release" or a "Proportionate Release." B. A "Superseding Release" shall mean a spill, leak or other release of hydrocarbons or other contamination occurring after Closing at the Property, which is not due to any negligence or other wrongful conduct by Seller in performing remediation, and which renders superfluous any continuing corrective action or remediation efforts by Seller. For the purpose of this Paragraph 8, the corrective action or remediation efforts of Seller shall be deemed to have been rendered superfluous in circumstances which include, but are not limited to the following: (i) if a subsequent release significantly increases the cost to Seller or significantly extends the time required to perform the corrective action or remediation work, or (ii) if Seller has attained levels of residual contamination approved by or meeting the criteria of the governmental agency having jurisdiction for a "monitor only" course of remedial action before the occurrence of a subsequent release. Upon the occurrence of a Superseding Release, (i) Seller shall have no further responsibility to Purchaser for corrective action or remediation of any contamination of property impacted by the Superseding Release; (ii) any indemnity obligation of Seller with regard to contamination of property impacted by the Superseding Release shall end; and (iii) Purchaser Indemnifying Parties shall thereafter indemnify and hold Indemnified Seller Parties harmless from and against all claims, demands, damages, losses, liabilities, judgments, penalties, suits, actions, cost and expenses (including consultants' and attorneys' fees) from all contamination or alleged contamination of the Property. C. A "Proportionate Release" shall mean any spill, leak or release of hydrocarbons or other contamination occurring after Closing at the Property, which is not due to any negligence or other wrongful conduct by Seller in performing remediation, 8 and which is not a Superseding Release. For the purpose of this Paragraph 8, a subsequent release shall be a Proportionate Release in circumstances which include, but are not limited to the following: (i) if such subsequent release is in a location physically removed from any area in which Seller is engaged in remediation work and such subsequent release does not significantly increase the quantity or extent of the existing contamination to which Seller's remediation work is directed, or (ii) if such subsequent release does not significantly increase the cost to Seller or significantly extend the time required to perform the corrective action or remediation work. Upon the occurrence of a Proportionate Release, (i) Purchaser shall be solely responsible for all assessment, corrective action, remediation and monitoring activities necessary to address such subsequent release in accordance with the requirements of the governmental agencies having jurisdiction, (ii) Seller shall remain responsible for continuing corrective action and remediation work to address contamination caused by Seller provided, however, that Seller's continuing obligations shall be limited to the cost to attain levels of contamination necessary to obtain approval of the governmental agency having jurisdiction for a "monitor only" course of remedial action, absent such subsequent release; and (iii) the parties agree to cooperate with each other and to coordinate corrective action and remediation work in order to minimize the time and expense to both parties in performing such activities. D. In the event the parties cannot determine and agree whether a material default by Purchaser has occurred under Paragraph 8(i) or whether a subsequent release is a Superseding Release or a Proportionate Release, or in the event the parties cannot determine and agree how to split or coordinate corrective action or remediation work and/or costs, or otherwise resolve differences involving a Proportionate Release, then such matters shall be submitted to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a single arbitrator appointed in accordance with such rules. The decision of the arbitrator shall be final, and judgment may be entered upon it in any court having jurisdiction. 2. Paragraph 9 of the Contract is hereby amended by adding thereto the following: In addition, for the period of time commencing on the Closing Date and ending 10 years thereafter, Seller shall indemnify and hold harmless the Indemnified Purchaser Parties against claims and demands made by a private third party unrelated to Purchaser arising solely out of or pertaining solely to the presence of hydrocarbon contamination originating on the Property caused by Seller's use thereof prior to the Closing Date which has emanated from the Property and purportedly caused damage to the claiming third party ("Third Party Claims"); provided, however, Seller's indemnity regarding such Third Party Claims shall be limited as follows: A. Indemnified Purchaser Parties shall provide to Seller written notice of such Third Party Claim no later than 60 days after Indemnified Purchaser Parties receive 9 notice of the claim or demand made by the third party on an Indemnified Purchaser Party. Failure to provide such notice shall terminate any obligation of Seller to provide indemnity to the Indemnified Purchaser Parties with regard to such claim. B. At the time that notice is provided to Seller as set forth in Subparagraph 2(A), Indemnified Purchaser Parties shall tender defense of such claim to Seller and shall provide Seller with copies of all documents and information in the possession of Indemnified Purchaser Parties that pertain or relate to such claim; provided, however, Indemnified Purchaser Parties at their sole cost and expense shall have the right to employ their own counsel in defense of any such claim. Indemnified Purchaser Parties shall continue to cooperate with Seller in the defense of such claim until such time as the claim is resolved or otherwise disposed of to the satisfaction of Seller. C. Indemnified Purchaser Parties shall incur no costs or expenses in relation to such Third Party Claim without the prior written consent of Seller, and any costs or expenses so incurred without such prior written consent shall not be covered by Seller's indemnity. 3. Paragraph 10 of the Contract is hereby amended by adding thereto the following: Nothing in this Paragraph 10 shall be construed to obligate Purchaser Indemnifying Parties to indemnify Indemnified Seller Parties against Third Party Claims. 4. In the event of any inconsistency between the Contract and this Amendment, this Amendment shall prevail and control. IN WITNESS WHEREOF, the parties hereto have duly signed these presents the day and year first above written. WITNESS: AMOCO OIL COMPANY By: /s/ Thomas J. Buehler - ------------------------------- --------------------------------- Thomas J. Buehler, Real Estate Manager WITNESS: PURCHASER Wolfhoya Investments, Inc. - ------------------------------- -------------------------------------- /s/ L.H. Tate - ------------------------------- -------------------------------------- L.H. Tate, Vice President 10 EXHIBIT "A" SS # 15093 -------------------- 201 S. Hough, Barrington, IL ---------------------------- Bill of Sale (Excludes Tanks) 26-885-ET (3-94)E Know all men by these presents: That Amoco Oil Company, a Maryland corporation hereinafter called "Seller," for and in consideration of the sum of Ten Dollars and other valuable consideration ($10.00), the receipt and sufficiency whereof being hereby acknowledged, does hereby bargain, sell, transfer, set over, and convey to Wolfhoya Investments Inc. , - ------------------------------------------------------------------------------- hereinafter called "Buyer," all of the following described items of personal property: All trade fixtures and equipment owned by Seller and located on the premises legally described as set forth in Attachment #1 attached hereto on the date hereof, but expressly excluding: all underground storage tanks, pipes and lines, Seller's corporate identification and "image" material (including but not limited to all signs and pedestals), all dispensers and associated above-ground electronics, point of sale equipment, credit processing equipment, observation wells and remediation equipment. Seller covenants and agrees with Buyer that it is the lawful owner of said property and has good right and title to sell and convey the same to Buyer. It is expressly understood that this sale is on an "as is" basis and that Seller does not warrant the fitness or condition of said items of property for any purpose whatsoever. If this sale includes any equipment previously used for storage, handling or dispensing of gasoline or other inflammable liquids, Buyer hereby acknowledges that Seller has so informed Buyer and that Buyer understands that said equipment may contain residuals of gasoline or other liquids which are inflammable, toxic and explosive and that said gasoline or other inflammable liquids may be hazardous or poisonous. Buyer expressly assumes, as of the date of this sale, all risk of loss, damage, or injury by reason of the aforesaid exposures and otherwise, and Buyer expressly releases Seller from all claims of every kind or nature arising by reason of, or in connection with, the ownership, possession, handling, or use of said property. 11 Buyer agrees to defend, indemnify and save harmless Seller from and against any claims, demands, causes of action, losses, damages, costs or expenses of any kind whatsoever (including without limitation, attorneys' fees), by any person arising from or in any way connected with the ownership, possession, handling or use of the property subject to this Bill of Sale, including claims for which Seller is held strictly liable and/or claims for which Seller is held partly or wholly at fault. If Buyer enters premises under Seller's control to remove any property sold hereby, Buyer assumes and agrees, in consideration of the foregoing sale, to indemnify and save harmless Seller from and against any claims, demands, causes of action, losses, damages, costs or expenses of any kind whatsoever (including without limitation attorneys' fees), by any person arising from or in any way connected with removal of said property. To have and to hold unto buyer its personal representatives, successors, and assigns. In Witness Whereof, the parties hereto have executed this instrument on this the ______ day of ________________, 19_____. Witness: Amoco Oil Company By - ---------------------------------- ------------------------------------ Witness: Buyer - ---------------------------------- -------------------------------------- - ---------------------------------- -------------------------------------- 12 SS#15093 201 Hough Street, Barrington, IL EXHIBIT "B" Environmental assessments, reports, correspondence: 1. Annual Ground Water Monitoring Report dated January 31, 1996, prepared by Delta Environmental Consultants, Inc., and submitted to Illinois Environmental Protection Agency by letter dated February 2, 1996, from Dawn Wurt Remediation Coordinator of Amoco Oil Company 2. Environmental Status Report dated December 9, 1994, prepared by Ecova Corporation and submitted to Jonathan Steel of Hiffman Shaffer & Associates Inc. 3. Report of Findings dated November 11, 1994, prepared by Environmental Services of America, Inc., and submitted to Amoco Oil Company remediation Services Division, and submitted to Illinois Environmental Protection Agency by letter dated August 18, 1994, from W.E. Barry of Amoco Oil Company 4. Final Report of Findings for the Tank Removal Assessment dated August 11, 1994, prepared by Earth Science Technologies, Inc., and submitted to Amoco Oil Company 4. Expanded Site Investigation dated June 2, 1992, prepared by Earth Science Technologies of Illinois, Inc., and submitted to Amoco Oil Company Remediation Services Division by letter dated June 2, 1992, and submitted to Illinois Environmental Protection Agency by letter dated June 16, 1992, from Linda Curran, Project Engineer for Amoco Oil Company. Letter Report of Findings dated June 15, 1992, prepared by Earth Science Technologies of Illinois, Inc., and submitted to Amoco Oil Company Remediation Services Division. 5. Letter Report of Findings Expanded Investigation dated June 2, 1992, prepared by Earth Science Technologies of Illinois, Inc., and submitted to Amoco Oil Company Remediation Services Division by letter dated June 2, 1992 6. Ground Water Quality Assessment dated October, 3 1991, prepared by Earth Science Technologies of Illinois, Inc., and submitted to Amoco Oil Company by letter dated February 13, 1992, from Kay L. Tauscher, Senior Hydrogeologist of Earth Science Technologies of Illinois, Inc. 7. Ground Water Quality Assessment dated October 3, 1991, prepared by Earth Science Technologies of Illinois, Inc., and prepared for John Wise of Amoco Oil Company 13 page 2 of 2 SS#15093 201 Hough Street Barrington, IL 8. Preliminary Contamination Assessment Report dated January 18, 1990, prepared by Law Environmental, Inc., and submitted to Illinois Environmental Protection Agency by letter dated January 18, 1990 Receipt of attached copies acknowledged: Purchaser(s): Wolfhoya Investments, Inc. /s/ L.H. Tate 2/28/96 - --------------------------------------------- Wolfhoya Investments, Inc. Its: Vice-President ----------------------------------------- 14 EXHIBIT "C" SS # 15093 -------------------- 201 S. Hough, Barrington, IL ---------------------------- RELEASE AND RIGHT-OF-ENTRY 26-884-RRE (3-94) E KNOW ALL MEN BY THESE PRESENTS THAT: WHEREAS, AMOCO OIL COMPANY, a Maryland corporation ("Seller"), with offices at 200 East Randolph, Mail Code 1408B, Chicago, IL 60601, and Wolfhoya Investments, Inc. ("Purchaser"), whose address is 9029 Lincolnwood Drive, Evanston, IL 60203, entered into a Real Estate Sales Contract and Addendum to Real Estate Sale Contract dated March 25, 1996, (the "Contract"), covering certain real estate and the improvements thereon described as set forth in Attachment #1 annexed hereto and made a part hereof (the "Property"); AND WHEREAS, Seller has agreed to sell and assign and Purchaser has agreed to purchase and accept the Property "as is" in its present condition without any representations or warranties regarding its fitness for any purpose; AND WHEREAS, Seller has provided to Purchaser a copy of the environmental assessment performed by or at the request of Seller, as set forth in the Contract; AND WHEREAS, Seller has further provided to Purchaser access to and the opportunity to inspect the Property and to perform such soil, groundwater or other tests upon the Property as Purchaser deemed necessary or appropriate; AND WHEREAS, Seller has agreed to perform certain environmental assessment, monitoring and remediation measures pursuant to the Contract to address hydrocarbon contamination, if any, of the Property resulting from Seller's use prior to the date of transfer of title, and Purchaser has agreed to assume all responsibility and liability for any and all hydrocarbons or other contaminants or regulated substances which occur after the date of transfer of title; AND WHEREAS, Purchaser and Seller desire to provide a continuing right of access to the Property to allow Seller to perform assessment, monitoring and remediation measures after conveyance of the Property; NOW, THEREFORE, in consideration of the mutual covenants of the parties herein and as set forth in the Contract, the terms of which are by this reference incorporated in full herein: 15 1. For the period of time ending upon the expiration of the petroleum restriction set forth in the deed from Seller to Purchaser, or at such sooner time as is (i) no further remediation activities are required from Seller by the Illinois Environmental Protection Agency (the "Department"); or (ii) any gasoline, diesel fuel, kerosene, benzol, naphtha or any fuel used for internal combustion engines is sold, handled or stored on the Property; or (iii) Purchaser shall materially default in compliance with any applicable environmental laws or regulations, or shall otherwise default in the performance of any material covenant in the Contract relating to environmental contamination, assessment or remediation; or (iv) a material spill, leak or other release of hydrocarbons or other contamination occurs following the date of transfer of title which makes Seller's remedial work significantly more difficult, or significantly increases the cost or extends the time to complete the remedial work (the "Ending Date"), Seller agrees to indemnify and hold harmless Purchaser and Purchaser's heirs, legal representatives and successors (collectively the "Indemnified Purchaser Parties"), from and against all claims, demands, damages, losses, judgments, penalties and liabilities which arise as a result of any enforcement action arising from the presence of hydrocarbon contamination on the Property caused by Seller's use thereof prior to the date of transfer of title; provided, however, that (i) Seller's indemnity shall be limited to remediation costs actually incurred by or imposed upon Indemnified Purchaser Parties as a result of such enforcement action, (ii) Indemnified Purchaser Parties shall promptly notify Seller and provide to Seller copies of all notices received by Indemnified Purchaser Parties pertaining to any such enforcement action, and (iii) Indemnified Purchaser Parties shall incur no costs or expenses for remediation without the prior written consent of Seller. 2. Pursuant to the Contract, as of the date of transfer of title, Purchaser expressly (i) assumed all responsibility and liability for compliance with all environmental laws and regulations and for any environmental assessment, inspection, monitoring and remediation relating to or resulting form Purchaser's use of the Property; (ii) agreed at Seller's request, to provide to Seller assurance of compliance with all environmental laws and regulations, including but not limited to the results of all future environmental tests, product inventory data, tank gauging data, tank leak detection data and sampling data; (iii) agreed to promptly notify Seller of all leaks, spills or releases of hydrocarbons or other regulated substances which occur or of which Purchaser becomes aware, and (iv) agreed to permit Seller to perform product tracing and other reasonable tests and procedures during the period of any assessment or remediation activities by Seller, it being the intent of the parties that Purchaser shall be responsible and liable for any and all releases which occur subsequent to the date of transfer of title. Commencing on the date of transfer of title, the Purchaser, for themselves and on behalf of their agents, employee, heirs, personal representatives, grantees, successors and assigns (collectively the "Purchaser Indemnifying Parties) agree to indemnify and hold harmless Seller, its parent, affiliates and each of their respective agents, employees, officers, directors, shareholders, successor and assigns (collectively the "Indemnified Seller Parties) from and against all claims, demands, damages, losses, liabilities, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from the presence of hydrocarbon or other contamination occurring after the Closing Date; provided, however, that from and after the Ending Date, the Purchaser Indemnifying Parties shall indemnify and hold harmless Indemnified 16 Seller Parties from and against all claims, demands, damages, losses, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from all contamination of the Property. 3. Purchaser, collectively, and jointly and severally, for themselves and on behalf of Purchaser Indemnifying Parties, and all persons claiming by, through or under Purchaser, hereby release and forever discharge Indemnified Seller Parties from all claims, demands, losses, liabilities, judgments, penalties, suits, actions, costs and expenses whatsoever, that may now exist or hereafter accrue with respect to contamination of the Property existing at the time of transfer of title or occurring after the date of transfer of title, but not, except as hereinafter set forth, Seller's obligation to remediate hydrocarbon contamination of the Property resulting from Seller's use of the Property prior to transfer of title; and further covenant and agree to forever refrain and desist from instituting or asserting against the Indemnified Seller Parties, any claim, demand, action or suit whatsoever, either directly or indirectly, arising or resulting from contamination or alleged contamination of the soil or groundwater of the Property, or from the environmental condition of the Property, except to enforce the remediation provisions of the Contract. 4. Purchaser hereby grants to Seller, its agents, employees, successors and assigns, the irrevocable right to enter upon the Property, from and after the date of transfer of title, for the purpose of (i) engaging in environmental assessments, inspection and remediation, including but not limited to the installation of such facilities and the conduct of such activities as deemed necessary or advisable by Seller, in its sole discretion, or as are required by governmental authorities having jurisdiction, for a period of time required to comply with any applicable environmental law or regulation affecting the Property and (ii) removing from the Property any property and equipment not sold pursuant to the Contract. Seller shall not be liable for any damages to the Purchaser, direct or indirect, resulting from contamination of the Property existing on the date of transfer of title, or for any interruption or interference with any business or activities being conducted on the Property, or loss of opportunity, or any other loss, damage, costs or expense of any kind whatsoever, caused by or resulting from the condition of the Property or the performance of any activities authorized herein; provided, however, Seller shall use reasonable efforts to minimize such interruption or interference. Purchaser agrees to cooperate fully with Seller in the performance of the activities authorized herein so as to minimize the time and expense to Seller, including the grant of access to on-site utilities (e.g., electricity, sewer, and water), if required for such activities; and further agrees that, during the period of any assessment or remediation activities by Seller (i) no construction or improvements shall be permitted on the Property which would impede or restrict access to monitoring wells, remediation or monitoring equipment, or to the hydrocarbon plume, or which would modify or affect the size, location or nature of the hydrocarbon plume, without the prior written consent of Seller, which consent shall not be unreasonably withheld; and (ii) no gasoline fuel or other motor fuels shall be sold, handled or stored on the Property. 5. Purchaser warrants that no promise or inducement has been offered except as set forth herein; that this Release and Right-of-Entry is executed by Purchaser without reliance upon any 17 statement or representation by Seller, its agents or employees, concerning the measure or extent of any contamination or the legal liability therefor; that Purchaser is of legal age, legally competent to execute this Release and Right-of-Entry and accepts full responsibility therefor; that this Release and Right-of-Entry contains the entire agreement between Purchaser and Seller with respect to this matter; and that the terms of this Release and Right-of-Entry are contractual and not merely recital. THIS RELEASE AND RIGHT-OF-ENTRY, and each of the covenants herein contained shall run with the land and be binding upon the grantees, assigns and other successors in title or interest of Purchaser. SIGNED AND SEALED this ___________ day of _____________________, 19____. WITNESS: AMOCO OIL COMPANY _______________________________ By____________________________________ WITNESS: P U R C H A S E R - W O L F H O Y A INVESTMENTS, INC. _______________________________ By____________________________________ _______________________________ ______________________________________ Page 2 - Release and Right-of-Entry For Purchaser (Exhibit "C") Wolfhoya Investments, Inc. 18 STATE OF ILLINOIS ) )SS COUNTY OF COOK ) Be it remembered that on this __________ day of __________________, 19_____, before me, personally appeared ______________________________ who is personally known to me to be the ________________________________ of Amoco Oil Company, a Maryland corporation, and the same person who executed the foregoing instrument, and they duly acknowledged the execution of the same for and on behalf of and as the act and deed of said corporation. In witness whereof, I have hereunto set my hand and fixed my seal the day and year above written. _______________________________________ My commission expires on _________________________, 19___. STATE OF ) )SS COUNTY OF ) On this day of _____________________, in the year 19____, before me, a Notary Public in and for said State, personally appeared __________________________________ personally known to me to be the persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacity, and that by their signature on the instrument the persons, or the entity upon behalf of which the persons acted, executed the instrument. Witness my hand and official seal. _______________________________________ My commission expires on _______________________ 19____. Page 3 - Release and Right-of-Entry For Purchaser (Exhibit "C") Wolfhoya Investments, Inc. 19 SS #15093 201 S. Hough & Station Barrington, IL ADDENDUM TO REAL ESTATE CONTRACT THIS ADDENDUM, attached to and made a part of that certain Real Estate Contract dated the 25th day of March, 1996, is made and given as further consideration for Seller's agreement to sell and Purchaser's agreement to buy the Property. WITNESSETH: It is further agreed as follows: [1. MODIFICATION OF RIDER TO REAL ESTATE CONTRACT. The parties hereby agree that paragraph 1) concerning an attorney's approval, and paragraph 2) concerning clarification of environmental issues, in the Rider to the Real Estate Contract dated 1-8-96 are hereby deleted and shall be of no further force or effect.] 2. SURVEY ALLOWANCE. Seller shall give purchaser a credit at closing up to the amount of $2,000 upon presentation of an invoice for a current survey of the property. Purchaser shall be totally responsible for obtaining the survey. IN WITNESS WHEREOF, the parties hereto have duly signed these presents all this 25th day of March, 1996. WITNESS: AMOCO OIL COMPANY - Seller /s/ Thomas J. Buehler - ------------------------------- ---------------------------------------- Thomas J. Buehler WITNESS: Wolfhoya Investments, Inc. - Purchaser By/s/ Lemuel H. Tate - ------------------------------- -------------------------------------- Lemuel H. Tate , Vice President Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 20 AMOCO 15093 201 S.Hough Barrington, IL Real Estate Contract (Surplus Property) 26-884-SP (3-94) E THIS CONTRACT, made this 25th day of March 1996 between Amoco Oil Company, a Maryland corporation, with offices at 200 East Randolph, Mail Code 1408B, Chicago, IL 60601 hereinafter called Seller, and Wolfhoya Investments, Inc., whose address is 9029 Lincolnwood Drive, Evanston, IL 60203 hereinafter called Purchaser. WITNESSETH: That in consideration of the mutual covenants and agreements herein contained, Seller hereby agrees to sell, and Purchaser hereby agrees to buy, for the price of FOUR HUNDRED TWENTY-FIVE THOUSAND AND NO/100 Dollars ($425,000.00), and upon the terms and conditions hereinafter set forth, the real estate described in Attachment #1 annexed hereto and made a part hereof, together with all improvements located thereon (the "Property"), and the personal property and equipment, if any, set forth in Bill of Sale labeled Exhibit "A" annexed hereto and made a part hereof; all other trade fixtures and equipment are excepted. Seller hereby agrees, subject to the conditions hereinafter set forth, to convey title to the Property to Purchaser by Special Warranty Deed, subject to: (1) Existing leases, easements, sidetrack and license agreements, if any, whether of record or not. (2) Covenants and conditions of record, if any. (3) Taxes and special assessments against the Property, if any. (4) Zoning laws and municipal regulations, if any; environmental laws and regulations, if any; building line restrictions, use restrictions and building restrictions of record, if any; and any party wall agreements of record. (5) Encroachments, overlaps and other matters which would be disclosed by an accurate current survey. (6) The Release and Right-of-Entry as hereinafter set forth. 21 (7) The following covenants and agreements of the Purchaser: "The Grantee(s) herein and hereby covenant(s) and agree(s) for themselves and their, executors and assigns, that no part of the real estate herein conveyed shall be used by said grantee(s) heirs, executors, grantees or assigns, for the purpose of conducting or carrying on the business of selling, handling or dealing in gasoline, diesel fuel, kerosene, benzol, naphtha, greases, lubricating oils, or any fuel used for internal combustion engines, or lubricants in any form." "The foregoing restriction shall terminate and be of no further force and effect upon the expiration of a period of 10 years from the date hereof." "The foregoing covenants shall run with the land and be binding on said Grantee(s) their heirs, executors, grantees and assigns, and inure to the benefit of the Grantor herein, its successors and assigns" It is further agreed between Seller and Purchaser that: 1. Purchaser has deposited with Seller the sum of FIVE THOUSAND AND NO/100 TO BE INCREASED TO $21,250 AND NO/100 Dollars ($5,000.00 ), as earnest money to be applied against the purchase price. On the date of closing as set forth in Paragraph 13 (the "Closing Date"), Purchaser agrees to pay to Seller the balance of the purchase price in the amount of FOUR HUNDRED THREE THOUSAND SEVEN HUNDRED FIFTY AND NO/100's Dollars ($403,750.00). 2. Seller agrees to furnish to Purchaser within thirty (30) days from the date hereof a preliminary title report or commitment to insure title to the Property issued by a responsible title insurance company, or the equivalent under the Torrens Act in the event that the Property is registered under the Torrens System, showing title in Seller subject only to the exceptions above specified and the usual exclusions and exceptions contained in standard title insurance policies. 3. Purchaser shall, within thirty (30) days after receiving said title report or commitment, deliver to Seller a written statement of any objection to the title or a written statement to the effect that the title is satisfactory. In the event Seller does not receive Purchaser's written statement of objections within such thirty (30) day period, it shall be conclusively presumed that Purchaser has waived all objections to title. In the event there are objections to the title, Seller shall be allowed thirty (30) days or until the Closing Date, whichever is longer, to cure the same, and should such objections be not cured or waived within such period, then Seller agrees to refund the earnest money deposit, this agreement shall thereafter be inoperative and void and neither Seller nor Purchaser shall have further liability hereunder. 4. Purchaser's obligation to close hereunder shall be subject to Purchaser, at Purchaser's sole cost and expense, inspecting or causing an inspection to be made by qualified 22 professionals on Purchaser's behalf of the Property and other assets described herein, including at Purchaser's option, environmental inspections or tests for hydrocarbons or for any toxic or hazardous substances. Purchaser, his agents or employees may enter upon the Property for the purpose of making such inspections and tests; provided, however, that Purchaser shall schedule such inspections and tests with Seller, who shall have the right to have a representative present at all times during inspections and tests performed by Purchaser; that Purchaser shall provide to Seller complete copies of the results of all such inspections and tests; that the results of such tests shall be confidential and shall not be reproduced or disclosed by Purchaser to anyone without written consent of Seller; that Purchaser shall promptly repair any and all damages to the Property caused by that such activities, and shall restore the property to the same condition as before the inspections or tests to the satisfaction of Seller; that such inspections and tests shall not be conducted in such a manner as to interfere with business operations conducted on the Property; and that Purchaser shall indemnify and hold Seller harmless from and against any and all claims arising from or by reason of Purchaser's entry upon the property. In the event such inspections disclose conditions unsatisfactory to Purchaser, in purchaser's sole discretion, and Purchaser so notifies Seller in writing on or before August 17, 1996 then this Contract shall become null and void, and Seller shall return the earnest money deposit to Purchaser. In the event Seller does not receive Purchaser's written notice by such date, it shall be conclusively presumed that Purchaser has satisfied or has waived this contingency. 5. Purchaser expressly acknowledges and agrees (i) that the Property has been used as a retail gasoline station; (ii) that Purchaser is relying on the results of his own investigation of the physical and environmental condition of the Property; (iii) that Purchaser is relying solely on his own judgment in completing the purchase of the Property, and (iv) that Purchaser is acquiring the Property 'as is' with all faults on the date of conveyance, except as set forth in this Contract. Seller makes no representations or warranties whatsoever regarding the condition of the real estate or improvements, including but not limited to the environmental condition of the Property and warranties of merchantability or fitness for a particular purpose. 6. Seller agrees to remove the underground tanks and product lines now on the Property and to backfill the tank hole(s) within thirty (30) days after the Closing Date, subject to the availability of labor, weather conditions, and other factors beyond Seller's control. Purchaser hereby grants to Seller the right to enter on the Property, agrees to cooperate with Seller in the removal of the existing tanks and lines, and hereby releases Seller from all claims of loss of profits or interference with Purchaser's business resulting therefrom. Purchaser hereby expressly assumes all responsibility for grading, compacting and resurfacing the Property. 7. Purchaser acknowledges receipt of copies of the assessments, reports and/or correspondence regarding the Property, copies of which are labeled Exhibit 'B" annexed hereto and made a part hereof. Purchaser further acknowledges that additional assessments or diagnostic measures may be required to be performed upon the Property 23 to determine and to design and implement a reasonable and cost effective plan for remediation of hydrocarbon contamination, and that such assessments and remediation activities may be disruptive of Purchaser's use and occupancy of the Property and may continue for an indefinite period of time. Notwithstanding the foregoing, Purchaser desires to complete the purchase of the Property and agrees to cooperate with Seller in the performance of assessment and remediation activities after the Closing Date. 8. Seller agrees to perform reasonable and cost effective assessment and remediation measures to address hydrocarbon contamination on the Property caused by Seller prior to the Closing Date as deemed necessary or advisable by Seller, in its sole discretion, or as Seller is required to perform by the ILLINOIS ENVIRONMENTAL PROTECTION AGENCY (the 'Department'), for a period of time ending upon expiration of the petroleum restriction set forth in (7) above, or sooner as hereinafter provided (the 'Ending Date'); provided, however, at such sooner time as (i) no further remediation activities are required from Seller by the Department, or (ii) any gasoline, diesel fuel, kerosene, benzol, naphtha or any fuel used for internal combustion engine is sold, handled or stored on the Property; or (iii) Purchaser shall materially default in compliance with any applicable environmental law or regulation, or shall otherwise default in the performance of any material covenant of this Contract relating to environmental contamination, assessment or remediation, including but not limited to Paragraph 10 hereafter, or (iv) a material spill, leak, or other release of hydrocarbons or other contamination occurs following the Closing Date which makes Seller's remedial work significantly more difficult, or significantly increases the cost or extends the time to complete the remedial work, then Seller shall thereafter have no further responsibility to Purchaser, or to Purchaser's heirs, personal representatives, grantees, successors and assigns, or to anyone claiming by, through or under Purchaser, for remediation of any contamination on the Property and all indemnity obligations of Seller shall end. 9. For the period of time commencing on the Closing Date, and ending on the Ending Date, Seller agrees to indemnify and hold harmless Purchaser and Purchaser's heirs, legal representatives and successors (collectively the 'Indemnified Purchaser Parties"), from and against all claims, demands, damages, losses, judgments, penalties and liabilities which arise as a result of any enforcement action resulting from the presence of hydrocarbon contamination on the Property caused by Seller's use thereof prior to the Closing Date; provided, however, that (i) Seller's indemnity shall be limited to remediation costs actually incurred by or imposed upon Indemnified Purchaser Parties as a result of such enforcement action, (ii) Indemnified Purchaser Parties shall promptly notify Seller and provide to Seller copies of all notices received by Indemnified Purchaser Parties pertaining to any such enforcement action, and (iii) Indemnified Purchaser Parties shall incur no costs or expenses for remediation without the prior written consent of Seller. 10. As of the Closing Date, Purchaser hereby expressly assumes all responsibility and liability for compliance with all environmental laws and regulations and for any environmental assessment, inspection, monitoring and remediation relating to OR resulting 24 from Purchaser's use of the Property. Purchaser shall, at Seller's request, provide to Seller assurance of compliance with all environmental laws and regulations, including but not limited to the results of all future environmental tests, product inventory data, tank gauging data, tank leak detection data and sampling data; shall promptly notify Seller of all leaks, spills or releases of hydrocarbons or other regulated substances which occur or of which Purchaser becomes aware; and shall, at Seller's request, permit Seller to perform product tracing and other reasonable tests and procedures during the period of any assessment or remediation activities by Seller, it being the intent of the parties that Purchaser shall be responsible and liable for any and all spills, leaks and releases which occur subsequent to the Closing Date. Commencing on the Closing Date, Purchaser agrees, collectively, and jointly and severally, for themselves and on behalf of their agents, employees, heirs, personal representatives, grantees, successors and assigns (collectively 'Purchaser Indemnifying Parties"), to indemnify and hold harmless Seller, its parent, affiliates, and each of their respective agents, employees, officers, directors, shareholders, successors and assigns (collectively the 'Indemnified Seller Parties') from and against all claims, demands, damages, losses, liabilities, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from the presence of hydrocarbon or other contamination occurring after the Closing Date; provided, however, that from and after the Ending Date, Purchaser Indemnifying Parties shall indemnify and hold harmless the Indemnified Seller Parties from and against all claims, demands, damages, losses, judgments, penalties, suits, actions, costs and expenses (including consultants' and attorneys' fees) arising from all contamination of the Property. 11. Seller reserves the right, for itself, its agents, employees, successors and assigns, to enter upon the Property, both before and after the Closing Date, for the purpose of (I) engaging in environmental assessment, inspection, monitoring and remediation, including but not limited to the installation of such facilities and the conduct of such activities as deemed necessary or advisable by Seller, in its sole discretion, or as are required by governmental authorities having jurisdiction, for a period of time required to comply with any applicable environmental laws or regulations affecting the Property, and (ii) removing from the Property any property and equipment not sold hereunder. Seller shall not be liable for any damages to Purchaser, direct or indirect, resulting from contamination of the Property existing on the Closing Date or for any interruption or interference with any business or activities being conducted on the Property, or loss of opportunity, or any other loss, damage, cost or expense of any kind whatsoever, caused by or resulting from the condition of the Property or the performance of any activities authorized herein; provided, however, Seller shall use reasonable efforts to minimize such interruption or interference. Purchaser agrees to cooperate fully with Seller in the performance of the activities authorized herein so as to minimize the time and expense to Seller, including the granting of access to on-site utilities (e.g., electricity, sewer, and water), if required for such activities, and further agrees that, during the period of any assessment or remediation activities by Seller, (i) no construction or improvements shall be made upon the Property which would impede or restrict access to monitoring wells, remediation or monitoring equipment, or to the hydrocarbon plume, or which would modify or affect the size, location or nature of the plume without the prior written consent of Seller, which 25 consent shall not be unreasonably withheld; and (ii) no gasoline, diesel fuel or other motor fuels shall be sold, handled or stored on the Property. 12. As further consideration without which Seller would not have entered into this Contract, Purchaser agrees to execute and deliver to Seller at closing the following documents: (i) the Bill of Sale in the form set forth in Exhibit "A" annexed hereto and made a part hereof, and Oil the Release and Right-of-Entry in the form set forth in Exhibit 'C" attached hereto and made a part hereof, each of said documents to be effective as of the Closing Date. 13. The Closing Date shall be fifteen (15) days after all conditions have been satisfied or waived, but not later than August 27, 1996. Closing shall be effected through escrow with the title insurance company acting as escrow agent for both parties. Seller shall deliver to the escrow agent its Special Warranty Deed, any other documents required hereunder, and all customary documents required by the title company not inconsistent with this Contract. Purchaser shall deliver to the escrow agent the balance, of the purchase price in cash or certified funds, the Release and Right-of-Entry, any other documents required hereunder, and all customary documents required by the title company not inconsistent with this Contract. The escrow agent shall record the Special Warranty Deed and the Release and Right-of-Entry; shall deliver to Seller its Settlement Statement, a cashier's check for the purchase price less Seller's expenses, and the recorded Release and Right-of-Entry; and shall deliver to Purchaser its Settlement Statement, the recorded Special Warranty Deed and the owner's title insurance policy. Seller shall pay the fees for recording the Release and Right-of-Entry and the title insurance premium. Purchaser shall pay the fees for recording the Special Warranty Deed. Seller and Purchaser each agree to pay 50% of the escrow fee. 14. Rents and other current charges, if any, shall be adjusted pro rata as of date of delivery of deed. General taxes for the year of closing shall be prorated from January 1st to date of delivery of deed. If the amount of such taxes is not then ascertainable, prorating shall be on the basis of the amount of the most recent ascertainable taxes. Purchaser agrees to pay any and all Federal, State, and local real estate transfer taxes and documentary stamp taxes applicable to this transaction, and a present or future retailer's occupation tax, sales, use, excise or similar tax applicable to the sale of goods, equipment or other personal property covered by this Contract. 15. If, after the date of execution of this Contract and prior to closing, a casualty loss occurs that results in damage or destruction such that greater than five (5) percent of the value of improvements and equipment are damaged or destroyed, then either party shall have the right to terminate this Contract by notice to the other, in which case this Contract shall be deemed null and void, the earnest money shall be returned to Purchaser, and neither Seller nor Purchaser shall have any further liability under this Contract. Seller shall have no duty whatsoever to restore any improvements or equipment on the Property. 26 16. Seller and Purchaser each represent and warrant to the other that no brokers or finders have been involved in this transaction, except HIFFMAN SHAFFER ASSOCIATES & BRADBURY ROMEY EGAN & ("Realtor"), and that no commissions or fees are due to any broker or to any other party with regard to this transaction, except as set forth in the Commission Agreement labeled Exhibit "D" annexed hereto and made a part hereof. Seller and Purchaser each agree to indemnify, defend and hold the other harmless from any claims, loss, damage, costs and expense arising from any breach hereof by the indemnifying party. 17. (a) In the event of default hereunder by Purchaser prior to closing, Seller's remedies shall include, in addition to specific performance and other remedies available at law or in equity, terminating this Contract upon written notice to Purchaser, in which event Seller may retain the earnest money at its option as liquidated damages, and Seller or Purchaser shall thereafter have no further claim against or liability to the other and this Contract shall be inoperative and void. (b) In the event of default hereunder by Seller prior to closing, Purchaser's remedies shall include, in addition to specific performance and other remedies available at law or in equity, terminating this Contract upon written notice to Seller, in which event Seller expressly agrees to refund to Purchaser the earnest money deposit, and Seller or Purchaser shall thereafter have no further claim or liability against the other and this Contract shall be inoperative and void. 18. All notices required or sent hereunder shall be in writing and delivered in person, by messenger or other express delivery service, or by U.S. Mail Certified, Return Receipt Requested, to the address of the other party as set forth in the first paragraph of this Contract, or to such other address as the parties may from time to time designate. A copy of any notice to Seller shall also be sent to Amoco Oil Company, 200 East Randolph Drive, Chicago, Illinois 60601, Attention: West Zone Real Estate. Each such notice shall be deemed served and effective on the date of delivery or refusal, if delivered personally, on the date of the delivery receipt, if delivered by messenger or express service, or the date of mailing shown on the certified mail receipt, if delivered by certified mail. 19. Purchaser acknowledges that Seller has made no representations or warranties to Purchaser regarding (i) the economic viability, profitability or business potential of the Property; (ii) the condition or suitability of any assets sold to Purchaser for operating Purchaser's business or for any other use; or (iii) the environmental condition or status of the Property. 20. This Contract and Exhibits "A' through 'D" annexed hereto contain the entire understanding and agreement between the parties hereto relative to the subject matter hereof. No representations or statements, other than those expressly set forth herein, were relied upon by the parties in entering into this Contract. No modification, waiver of, addition to, or deletion from the terms of this Contract shall be effective unless reduced to writing and signed by Seller and Purchaser, each of whom expressly waives, releases and 27 forever forswears any right under Illinois law which permits a contract, by its terms amendable only in writing, to be orally amended. 21. Any covenant or provision hereof which by its nature requires observance or performance after the Closing Date shall survive delivery of the deed and shall continue in full force and effect. 22. The provisions hereof shall inure to the benefit of and bind the parties hereto, their respective heirs, personal representatives, successors and assigns. Purchaser shall not assign his rights under this Contract without the prior written approval of Seller. 23. It is expressly understood and agreed that this Contract shall not be binding on Seller unless and until it is executed on behalf of Seller by an authorized representative and a signed copy thereof is delivered to Purchaser. In Witness Whereof, the parties hereto have duly signed these presents the day and year first above written. AMOCO OIL COMPANY, Seller By: Signed ------------------------------------- Thomas Buehler, Real Estate Manager WOLFHOYA INVESTMENTS, INC. By: Signed ------------------------------------- Lemuel H. Tate, Vice President 28 SS #15093 201 S. Hough & Station Barrington, IL ATTACHMENT #I Property Description: Lots 7 and 8 in Block 2 in "Village of Barrington", in the East one-half of the Northwest quarter of Section 1, Township 42 North, Range 9, East of the Third Principal Meridian, in Cook County, Illinois. 29 SS #15093 201 S. Hough & Station Barrington, IL ADDENDUM TO REAL ESTATE CONTRACT THIS ADDENDUM,attached to and made a part of that certain Real Estate Contract dated the 25th day of March, 1996,is made and given as further consideration for Seller's agreement to sell and Purchaser's agreement to buy the Property. WITNESSETH: It is further agreed as follows: 1.SURVEY ALLOWANCE. Seller shall give Purchaser a credit at closing up to the amount of $2,000 upon presentation of an invoice for a current survey of the property. Purchaser shall be totally responsible for obtaining the survey. 2. CONTINGENCIES. APPROVALS. This sales agreement is wholly subject to Purchaser securing State, FDIC and Federal Reserve Banking approvals for a financial institution on the property within 145 days hereof. In the event Purchaser is unable to secure such approvals within said 145 days, then the earnest money deposit made by Purchaser shall be refimded by Seller and this agreement shall be declared null and void. SPECIAL ASSESSMENTS. This sales ageement is contingent upon Purchaser's verification that there are no special assessments against the property and that none are planned. In the event Purchaser is unable to satisfy this contingency then this agreement shall become null and void at Purchaser's election and any and all earnest money deposited by Purchaser shall be refunded by Seller. IN WITNESS WHEREOF, the parties hereto have duly signed these presents all this 25th day of 1996. AMOCO OIL COMPANY, Seller By: Signed -------------------------------------- Thomas Buehler, Real Estate Manager WOLFHOYA INVESTMENTS, INC. By: Signed -------------------------------------- Lemuel H. Tate, Vice President EX-10.26 7 FORM OF EMPLOYMENT AGREEMENT 1 EXHIBIT 10.26 EMPLOYMENT AGREEMENT This Employment Agreement is made by and between WINTRUST FINANCIAL CORPORATION ("Wintrust"), an Illinois bank holding company, and ____________ _____________, an individual resident in the State of Illinois ("Executive"). WITNESSETH THAT: WHEREAS, Wintrust is an Illinois bank holding company; WHEREAS, Executive has particular expertise and knowledge concerning the business of Wintrust and its operations and is a valued member of Wintrust's senior management; WHEREAS, Wintrust desires to continue to employ Executive on the terms and conditions set forth herein and Executive desires to continue to be employed by Wintrust on the terms and conditions set forth herein; WHEREAS, by virtue of his employment with Wintrust, Executive will become acquainted with certain confidential information regarding the services, customers, methods of doing business, strategic plans, marketing, and other aspects of the business of or related to the business of Wintrust or its Affiliates. NOW THEREFORE, in consideration of the covenants and agreements contained herein, of Executive's employment, of the compensation to be paid by Wintrust for Executive's services, and of Wintrust's other undertakings in this Agreement, the parties hereto do hereby agree as follows: 1. SCOPE OF EMPLOYMENT. Executive will be employed as_______________ of Wintrust and shall perform such duties as he may be assigned in such position. Executive agrees that during his employment he will be subject to and abide by the policies and practices of Wintrust. Executive also agrees to assume such new or additional positions and responsibilities as he may from time to time be assigned for or on behalf of Wintrust or any Affiliate of Wintrust. For purposes of this Agreement, the term "Affiliate" shall include but not be limited to Barrington Bank & Trust Company, Hinsdale Bank & Trust Company, Lake Forest Bank & Trust Company, Libertyville Bank & Trust Company, North Shore Community Bank & Trust Company, First Premium Services, Inc. and any subsidiary of any of them and shall further include any affiliate of any of them as defined by the rules and regulations of the Federal Reserve Board. 2. COMPENSATION AND BENEFITS. Executive will be paid such salary as may from time to time be agreed upon between Executive and Wintrust. Executive will be entitled to coverage under such insurance plans and other fringe benefit plans and programs as may from time to time be established for employees of Wintrust in accordance with the terms and conditions of such plans and programs. 2 3. COMPETITION. During the period in which Executive performs services for Wintrust and for a period of two years after termination of Executive's employment with Wintrust, regardless of the reason, Executive shall not, directly or indirectly, either alone or in conjunction with any person, firm, association, company or corporation: (a) compete with Wintrust or any Affiliate as principal, agent, employee, or in any other capacity of or for a bank or other financial institution that operates in the market area of Wintrust or any Affiliate; (b) in any way participate in planning or opening a bank or other financial institution which operates or is to operate in the market area of Wintrust or any Affiliate; (c) hire, solicit, induce or attempt to solicit or induce any employee, consultant, or agent of Wintrust or any Affiliate: (i) to terminate his or her employment or association with Wintrust or any Affiliate; or (ii) to become employed by or to serve in any capacity a bank or other financial institution which operates or is planned to operate in market area of Wintrust or any Affiliate. For purposes of this Agreement, the market area of Wintrust or of an Affiliate shall be the area within a ten (10) mile radius of the principal office and branches of Wintrust and of any Affiliate. 4. CONFIDENTIAL INFORMATION. Executive acknowledges that, during his employment with Wintrust, he has and will obtain access to Confidential Information of and for Wintrust or its Affiliates. For purposes of this Agreement, "Confidential Information" shall mean information not generally known or available without restriction to the trade or industry, including, without limitation, the following categories of information and documentation: shareholder information for Wintrust or any Affiliate; credit files of Wintrust or any Affiliate; marketing and product data and documentation and information used by Wintrust or any Affiliate and the nature and scope of the use of such marketing data and product information and documentation by Wintrust or any Affiliate; computer programs, computer software and systems used by Wintrust or any Affiliate in the development of marketing, credit and management programs of Wintrust or any Affiliate; information and documentation regarding the depositor and creditor base of Wintrust or any Affiliate; the strategic growth plans of Wintrust or any Affiliate; the business plans of Wintrust or any Affiliate; information, documentation and data on all deposit, lending and trust customers of Wintrust or any Affiliate; information and documentation in any way relating to trusts managed and controlled by Wintrust or any Affiliate; lists of actual or potential customers of Wintrust or any Affiliate; identification of the various suppliers of Wintrust or any Affiliate. Absent prior authorization by Wintrust or as required in Executive's duties for Wintrust, Executive will not at any time, directly or indirectly, use, permit the use of, disclose or permit the disclosure to any third party of any such Confidential Information, either during his employment with Wintrust or thereafter. 5. INVENTIONS. All discoveries, designs, improvements, ideas, and inventions, whether patentable or not, relating to (or suggested by or resulting from) products, services, or other technology of Wintrust or any Affiliate or relating to (or suggested by or resulting from) methods or processes used or usable in connection with the business of Wintrust or any Affiliate that may be conceived, developed, or made by Executive during his employment with Wintrust (hereinafter "Inventions"), either solely or jointly with others, shall automatically become the sole property of Wintrust or an Affiliate. Executive shall immediately disclose to Wintrust all such Inventions and shall, without additional compensation, execute all assignments and other documents deemed necessary to perfect the property rights of Wintrust or any Affiliate therein. These obligations shall 2 3 continue beyond the termination of Executive's employment with respect to Inventions conceived, developed, or made by Executive during his employment with Wintrust. The provisions of this Paragraph 5 shall not apply to any Invention for which no equipment, supplies, facility, or trade secret information of Wintrust or any Affiliate is used by Executive and which is developed entirely on Executive's own time, unless (a) such Invention relates (i) to the business of Wintrust or an Affiliate or (ii) to the actual or demonstrably anticipated research or development of Wintrust or an Affiliate, or (b) such Invention results from work performed by Executive for Wintrust. 6. REMEDIES. Executive acknowledges that his compliance with the terms of this Agreement is necessary to protect the Confidential Information and goodwill of Wintrust and its Affiliates and that any breach by him of this Agreement will cause continuing and irreparable injury to Wintrust and its Affiliates for which money damages would not be an adequate remedy. Executive acknowledges that Affiliates are and are intended to be third party beneficiaries of this Agreement. Executive acknowledges that Wintrust and any Affiliate shall, in addition to any other rights or remedies they may have, be entitled to injunctive relief for any breach by Executive of any part of this Agreement. This Agreement shall not in any way limit the remedies in law or equity otherwise available to Wintrust and its Affiliates. 7. TERM OF EMPLOYMENT. a. The initial term of Executive's employment pursuant to this Agreement shall be five (5) years, commencing on the date of this Agreement. After such initial term, this Agreement shall be extended automatically for successive one (1) year terms, unless either Executive or Wintrust gives contrary written notice not less than ninety (90) days in advance of the expiration of the initial or any succeeding term of this Agreement. b. Executive's employment and any and all of Wintrust's obligations under this Agreement shall terminate upon the death of Executive or his death or permanent disability. For purposes of this Agreement, "permanent disability" means any mental or physical illness, disability or incapacity which renders Executive unable to perform his duties hereunder for ninety (90) consecutive working days. In the event Executive's employment terminates due to permanent disability, the Board of Directors of Wintrust will consider whether to pay him Severance Pay under the terms of Paragraph 8 of this Agreement. c. Upon termination of employment with Wintrust for any reason, Executive shall promptly deliver to Wintrust all writings, records, data, memoranda, contracts, orders, sales literature, price lists, client lists, data processing materials, and other documents, whether or not obtained from Wintrust or any Affiliate, which pertain to or were used by Executive in connection with his employment by Wintrust or which pertain to any Affiliate, including, but not limited to, Confidential Information. d. Termination of employment shall not affect the obligations of Executive that, pursuant to the express provisions this Agreement, continue in effect. 3 4 8. SEVERANCE PAY a. Executive expressly acknowledges and agrees that he is an employee at will and that Wintrust may terminate his employment at any time for any reason. The termination of Executive's employment shall terminate this Agreement and any and all of Wintrust's obligations under this Agreement except: (i) for the payment of Severance Pay pursuant to this Paragraph 8 and (ii) that within thirty (30) days of the termination of Executive's employment, Wintrust will pay to him the full amount of any unpaid compensation earned pursuant to this Agreement through and including the date of his termination. b. In the event Executive's employment is terminated by Wintrust other than upon the expiration of the initial term or the expiration of any succeeding one (1) year terms of this Agreement, Wintrust shall, except as provided in subparagraph (c) of this Paragraph 8, pay Severance Pay to Executive. Severance Pay shall be paid to the Executive in equal twenty-four (24) monthly installments commencing with the first day of the month following the date of his termination. The amount of Severance Pay shall be the Executive's current base annual salary at the time of his termination plus the amount of any bonuses paid to him over the preceding twelve month period, reduced by any income received by Executive during the twenty-four (24) month Severance Pay period from employment of any sort, including without limitation full, part time or temporary employment or work as an independent contractor or as a consultant. Executive agrees that he will promptly notify Wintrust if he obtains employment of any sort during the twenty-four (24) month Severance Pay period. c. Executive shall not be entitled to Severance Pay if Wintrust terminates his employment for Good Cause. For purposes of this Agreement, "Good Cause" means: i. the commission of an act of dishonesty or moral turpitude; ii. the use of illegal drugs or abuse of legal drugs; iii. conviction of a felony or pleading guilty or nolo contendere to same; iv. failure to follow a specific written or oral directive relating to his duties and responsibilities under this Agreement, provided, however, that Executive shall be given prior written notice of the intention to terminate his employment for such reason and shall have seven days following the giving of such written notice to cure, if curable, his failure to follow the specific written or oral directive given to him; v. any act of fraud or embezzlement or the breach of any fiduciary duty; vi. a material breach by Executive of any provision of this Agreement; vii. a material violation by Executive of any local, state or federal law, regulation or ordinance with which Executive's compliance is material to the performance of his duties under 4 5 this Agreement or to the compliance of Wintrust or any Affiliate with applicable law, regulations or ordinances; viii. a material breach by Executive of any standard, rule or policy adopted by Wintrust; ix. Executive's refusal or negligent or intentional failure to fulfill or inability to perform any material duties required to be performed by Wintrust. Wintrust shall specifically state in writing to Executive its reasons for termination on such basis; or x. a written recommendation for removal of Executive from his position with Wintrust by any regulatory agency or body. d. Executive shall not be paid severance pay in the event he terminates his employment with Wintrust, provided, however, Executive will be paid Severance Pay if: i. Wintrust is sold to an unrelated entity and Executive is not offered employment after the sale in a position substantially equivalent to the position he occupied immediately prior to the closing of such sale; ii. Executive terminates his employment by Wintrust because of a material reduction by Wintrust in the duties and responsibilities of Executive; or iii. Executive terminates his employment by Wintrust because Wintrust has reduced his base annual compensation to less than seventy-five percent (75%) of the base annual compensation of Executive on the first day following the execution of this Agreement. e. Executive's right to receive Severance Pay is contingent upon his not violating any of his on-going obligations under this Agreement. f. The payment of Severance Pay to Executive pursuant to this Paragraph 8 shall be liquidated damages for and in full satisfaction of any and all claims Executive may have relating to or arising out of his employment and termination of employment by Wintrust, any and all claims he may have relating to or arising out of this Agreement and the termination thereof and any and all claims he may have arising under any statute, ordinance or regulation or under common law. Executive expressly acknowledges and agrees that, except for whatever claim he may have to Severance Pay, he shall not have any claim for damages or other relief of any sort relating to or arising out of his employment or termination of employment by Wintrust or relating to or arising out of this Agreement and the termination thereof. 9. GENERAL PROVISIONS. a. All provisions of this Agreement are intended to be interpreted and construed in a manner to make such provisions valid, legal, and enforceable. To the extent that any paragraph of 5 6 this Agreement or any word, phrase, clause, or sentence hereof shall be deemed by any court to be illegal or unenforceable, such word, clause, phrase, sentence, or paragraph shall be deemed modified, restricted, or omitted to the extent necessary to make this Agreement enforceable. Without limiting the generality of the foregoing, if the scope of any covenant in this Agreement is too broad to permit enforcement to its full extent, such covenant shall be enforced to the maximum extent provided by law; and Executive agrees that such scope may be judicially modified accordingly. b. This Agreement may be assigned by Wintrust. This Agreement and the covenants set forth herein shall inure to the benefit of and shall be binding upon the successors and assigns of Wintrust. c. This Agreement may not be assigned by Executive, but shall be binding upon Executive's executors, administrators, heirs, and legal representatives. d. No waiver by either party of any breach by the other party of any of the obligations, covenants, or representations under this Agreement shall constitute a waiver by any prior or subsequent breach. e. Where in this Agreement the masculine gender is used, it shall include the feminine if the sense so requires. f. The use of any number shall be construed as singular or plural, as the case may require. g. This instrument constitutes the entire agreement of the parties with respect to its subject matter. This Agreement may not be changed or amended orally but only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. Any other understandings and agreements, oral or written, respecting the subject matter hereof are hereby superseded and cancelled. 10. GOVERNING LAW. The parties agree that this Agreement shall be construed and governed by the laws of the State of Illinois, excepting its conflict of laws principles. Further, the parties acknowledge and specifically agree to the jurisdiction of the courts of the State of Illinois in the event of any dispute regarding this Agreement. 6 7 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date written opposite their signatures. WINTRUST FINANCIAL CORPORATION By: ------------------------------- Its ------------------------------ Dated: ---------------------------- [Executive] - ---------------------------------- Dated: ------------ 7 EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 Subsidiaries of the Registrant
State or Jurisdication of Organization Subsidiary or Incorporation ---------- --------------------- Lake Forest Bank and Trust Company Illinois Lake Forest Bancorp, Inc. Delaware North Shore Community Bank and Trust Company Illinois Hinsdale Bank and Trust Company Illinois Hinsdale Bancorp, Inc. Illinois Libertyville Bank and Trust Company Illinois Libertyville Bancorp, Inc. Illinois Barrington Bank and Trust Company N.A. United States Crabtree Capital Corporation Delaware First Premium Services, Inc. Illinois
EX-23.1 9 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 The Board of Directors Wintrust Financial Corporation We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG PEAT MARWICK LLP Chicago, Illinois December 20, 1996 EX-23.2 10 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report on the financial statements of Crabtree Capital Corporation and Subsidiaries (not included in this registration statement), dated May 20, 1996 and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Chicago, Illinois December 23, 1996 EX-99.1 11 SUBSCRIPTION & COMMUNITY OFFERING STOCK ORDER FORM 1 EXHIBIT 99.1 WINTRUST FINANCIAL CORPORATION Expiration Date: [ ] [ ], 1997 - North Shore Community Bank and Trust Company Noon, Central Time - Lake Forest Bank and Trust Company - Hinsdale Bank and Trust Company Stock Sale Center - Clarendon Hills Bank 727 North Bank Lane - Libertyville Bank and Trust Company Lake Forest, Illinois 60045 - Barrington Bank and Trust Company, N.A. (847) [ - ] SUBSCRIPTION AND COMMUNITY OFFERING STOCK ORDER FORM Please read the Stock Order Form Instructions and Guide as you complete this form. STOCK REGISTRATION Write one letter/number per box, beginning from the left. Leave one blank box for a space. (1) Form of Stock Ownership: __Individual __Joint tenants __Tenants in common __Fiduciary __UTMA __IRA __Corporation __Partnership __Other____________ (2) Name(s) in which your stock is to be registered (PLEASE PRINT CLEARLY IN CAPITAL LETTERS. USE BLACK OR BLUE INK.) First Name_______________________ M.I.____ Last Name____________________ Joint Name________________________________________________________________ Joint Name________________________________________________________________ Address____________________________________________________________________ City___________________ State___ Zip Code_________ County of Residence (First 8 Letters)_____________ Social Security or Tax ID No.______________ Daytime Phone__________________ Evening Phone________________ Check one: __Social Security No. or __Tax ID No. (3) AFFILIATIONS Under the regulations of the National Association of Securities Dealers, Inc. ("NASD"), certain persons may not be eligible to purchase shares. ___Check here if you are: (i) A member of the NASD, a person associated with an NASD member, a member of the immediate family of any such person to whose support such person contributes, directly or indirectly, or the holder of an account in which an NASD member or person associated with an NASD member has a beneficial interest; or (ii) A senior officer of a bank, savings and loan institution, insurance company, registered investment company, registered invesetment advisory firm or any other institutional-type account, or a person who is employed in the securities department of any such institution or who otherwise may influence or whose activities directly or indirectly are related to the buying and/or selling of securities by any of such institutions, or a member of the immediate family of any such person. 2 (4) ASSOCIATES AND PERSONS ACTING IN CONCERT Check here, and complete the reverse side of this Stock Order Form, if you or any associates ("associate" is defined on the reverse side of this Stock Order Form) or persons acting in concert with you ("acting in concert" is defined on the reverse side of this Stock Order Form), have submitted other orders for shares in the Subscription and Community Offering. AMOUNT OF ORDER FILL BLANKS BEGINNING FROM THE LEFT (EXCEPT DOLLAR AMOUNTS) Subscription Total (5) Number of Price Payment Shares _______ x $[ . ] = Due $______________ (mininum number 100) METHOD OF PAYMENT FILL BLANKS BEGINNING FROM THE LEFT (EXCEPT DOLLAR AMOUNTS) (6) __Check, bank draft, or money order made payable Check Amount to "Wintrust Financial Corporation" $______________ (7) __The undersigned authorizes withdrawal from Account Number(s) Amount this (these) account(s) at the Bank listed on the _________________ $ ______________ reverse side of this Stock Order Form under (8)b. _________________ $ ______________ If using an IRA account to subscribe for stock, _________________ $ ______________ please call the Stock Sale Center immediately at (847) [ - ]. SPECIAL ADVANCE ARRANGEMENTS MUST BE MADE FOR IRA ACCOUNTS BY [ ] [ ], 1997. TOTAL (must match Total Payment Due in Item #5 above) $ ______________
PURCHASER INFORMATION Check the appropriate box(es) below indicating whether you were: (8)a __A Record Date Shareholder (i.e., as of [ ] [ ], 1996), (8)b __A Record Date Customer (i.e., as of [ ] [ ], 1996), and/or (8)c __A resident of one of the following metropolitan Chicago communities: Barrington, Barrington Hills, Clarendon Hills, Glencoe, Hinsdale, Inverness, Kenilworth, Lake Barrington, Lake Bluff, Lake Forest, Libertyville, Mundelein, North Barrington, South Barrington, Vernon Hills, Western Springs, Wilmette, or Winnetka. If you checked box (8)a and/or (8)b, please enter the identifying information regarding these relationships on the reverse side of this Stock Order Form. This information will be used to identify your stock purchase priority. 3 ACKNOWLEDGMENT (9) To be effective, this fully completed original Stock Order Form and accompanying Certification Form, fully executed, must be actually received by Wintrust Financial Corporation no later than Noon, Central Time, on [ ] [ ], 1997, unless extended (or by [ ] [ ], 1997, to receive highest priority as a Record Date Shareholder). Completed original Stock Order Forms (facsimile copies and photocopies will not be accepted) and executed Certification Forms, together with the required payment or withdrawal authorization, may be delivered to the Stock Sale Center or to the main or any full-service branch office of any of the Banks. Alternatively, you may mail these documents in the postage-paid envelope that has been provided. It is understood that this Stock Order Form will be accepted in accordance with, and subject to, the terms and conditions described under the caption "TERMS OF THE OFFERING" in the Wintrust Financial Corporation Prospectus dated as of [ ] [ ], 1997, receipt of which is hereby acknowledged at least 48 hours prior to the return of this Stock Order Form to Wintrust. SIGNATURE (10)The undersigned agrees that after receipt by Wintrust Financial Corporation, this Stock Order Form may not be modified, withdrawn, or canceled without Wintrust's consent unless the offering is not completed or terminated by [ ] [ ], 1997, and if authorization to withdraw from a deposit account at one of the Banks has been given as payment for shares, the amount authorized for withdrawal will not be available for withdrawal by the undersigned. THE UNDERSIGNED ACKNOWLEDGES THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. Under penalty of perjury, I (we) certify that the Social Security or Tax ID Number and the information provided under items 2, 3, and 4 of this Stock Order Form are true, correct, and complete and that I am (we are) not subject to back-up withholding. Signature______________________ Date____________ Signature____________________ Date____________ YOUR ORDER CANNOT BE PROCESSED WITHOUT AN EXECUTED CERTIFICATION FORM. 4 ITEM (4) - CONTINUED List below all other orders submitted by you or "associates" (as defined below) or by persons "acting in concert" (as defined below) with you. Name(s) listed on the other Stock Order Form(s) Number of Shares Ordered 1._______________________________________________________ 2._______________________________________________________ 3._______________________________________________________ 4._______________________________________________________ The term "associate" is used above to indicate any of the following relationships with a person: (i) any corporation or organization (other than Wintrust Financial Corporation or any of the Banks or a majority-owned subsidiary thereof of which a person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity security; (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such person or any relative of such spouse who has the same home as such person or who is director or officer of Wintrust or any of the Banks or any subsidiary thereof. The term "acting in concert" is defined to mean (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement; (ii) a combination of pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise; or (iii) a person or company which acts in concert with another person or company ("other party") shall also be deemed to be acting in concert with any person or company who is also acting in concert with that other party, except that any employee stock benefit plan of will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated. No director of Wintrust or any of the Banks shall be deemed to be acting in concert with any other director of Wintrust or any of the Banks solely by reason of their services in such capacities. ITEM (8)A - CONTINUED If you were a Record Date Shareholder, please enter the information below: 1. Exact name in which stock is held: ________________________________________ 2. Nominee name if held by other(s):__________________________________________ 3. Number of shares:__________________________________________________________ ITEM (8)B - CONTINUED If you were a Record Date Customer, please list the following information for your deposit and/or loan accounts. Name of Bank Account Number Account Title 1.__________________ ______________________ ______________________ 2.__________________ ______________________ ______________________ 3.__________________ ______________________ ______________________ 4.__________________ ______________________ ______________________ 5 SUBSCRIPTION AND COMMUNITY OFFERING STOCK ORDER FORM INSTRUCTIONS AND GUIDE COMPLETING THE STOCK ORDER FORM Information on this Stock Order Form will be mechanically scanned. As a result, it is important that the Stock Order Form be completed neatly and legibly. Please print in capital letters, using black or blue ink, within the confines of each box. Write one letter per box, from left to right, leaving one box blank for a space. Write dollar amounts in the appropriate boxes utilizing the commas and decimal places provided. Please see the example below. First Name M.I. Last Name _____________ _______ _____________ You may deliver your completed Stock Order Form, executed Certification Form, and full payment to the Stock Sale Center or to the main or any full-service branch office of any of the Banks. Alternatively, you may mail these documents in the postage-paid envelope that has been provided. Your properly completed original Stock Order Form (facsimile copies and photocopies will not be accepted) and executed Certification Form, and payment in full (or withdrawal authorization), at $[ . ] per share, must be actually received by Wintrust no later than Noon, Central Time, on [ ] [ ], 1997 or your order will become void. If you need further assistance, please call the Stock Sale Center at (847) [ - ] and ask for an EVEREN Securities, Inc. representative. An EVEREN Securities representative will be pleased to help you with the completion of your Stock Order Form and Certification Form or answer any questions you may have. ITEM 1 INSTRUCTIONS Please check the box for the desired form of stock ownership. The stock transfer industry has developed a uniform system of stockholder registrations that will be used in the issuance of your Wintrust Financial Corporation common stock certificate. Stock ownership must be registered in one of the ways described under these guidelines. If you have any questions or concerns regarding the registration of your stock, please consult your legal adviser. Listed below are some general guidelines for stockholder registration. INDIVIDUAL Include the first name, middle initial, and the last name of the subscriber. Avoid the use of two initials. Please omit words that do not affect ownership rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc. JOINT TENANTS Joint tenants with right of survivorship may be specified to identify two or more owners. When stock is held by joint tenants with right of survivorship, ownership passes automatically to the surviving joint tenant(s) upon the death of any joint tenant. All parties must agree to the transfer or sale of shares held by joint tenants. TENANTS IN COMMON Tenants in common may also be specified to identify two or more owners. When stock is held by tenants in common, upon the death of one co-tenant, ownership of the stock will be held by the surviving co-tenant(s) and by the heirs of the deceased co-tenant. All parties must agree to the transfer or sale of shares held by tenants in common. UNIFORM TRANSFER TO MINORS OR UNIFORM GIFT TO MINORS Stock may be held in the name of a custodian for a minor under the Uniform Gift to Minors Act ("UGTMA") or Uniform Transfer to Minors Act ("UTMA") of each state. There may be only one custodian and one minor designated on a stock certificate. The minor is the actual owner of the stock with the adult custodian responsible for the investment until the minor reaches legal age. The standard abbreviation for Custodian is "CUST". Standard U.S. Postal Service state abbreviations should be used to describe the appropriate state. For example, stock held by John Doe as custodian for Susan Doe under the Illinois Uniform Transfers to Minors Act will be abbreviated John Doe, CUST Susan Doe UTMA, IL. Use minor's social security number. 6 FIDUCIARIES Information provided with respect to stock to be held in a fiduciary capacity must contain the following: 1. The name(s) of the fiduciary. If an individual, list the first name, middle initial, and last name. If a corporation, list the corporation's title before the individual. 2. The fiduciary capacity, such as administrator, executor, personal representative, conservator, trustee, committee, etc. 3. A description of the document governing the relationship, such as a trust agreement or court order. 4. The date of the document governing the relationship, except that the date of a trust created by a will need not be included in the description. 5. The name of the maker, donor, or testator and the name of the beneficiary. An example of fiduciary ownership of stock in the case of a trust is: John Doe, Trustee UAD 10-1-87 for Susan Doe. The standard abbreviation for "Under Agreement Dated" is "UAD". ITEM 2 INSTRUCTIONS Please complete Item 2 as fully and accurately as possible. Please print in capital letters and use black or blue ink. Leave one blank box for a space. Please be certain to supply your social security or tax identification number as well as your daytime and evening telephone number(s). It may be necessary to call you if your order cannot be executed as given. ITEM 3 INSTRUCTIONS Please check this box if either of these descriptions applies to you. ITEM 4 INSTRUCTIONS Please check this box if you or any associate, as defined on the reverse side of the Stock Order Form, or person acting in concert with you, also defined on the reverse side of the Stock Order Form, has submitted another order for shares and complete the continuation of Item 4 on the reverse side of the Stock Order Form. ITEM 5 INSTRUCTIONS Fill in the number of shares for which you wish to subscribe and the total payment due. The amount due is determined by multiplying the number of shares by the subscription price of $[ . ] per share. Wintrust Financial Corporation has reserved the right to reject the subscription of any order received in the Subscription and Community Offering, in whole or in part. The minimum order is 100 shares. ITEM 6 INSTRUCTIONS Please check this box if your method of payment is by check, bank draft, or money order and fill in the boxes to the right of Item 6 with the total amount of checks, bank drafts, and money orders submitted. Checks, bank drafts, or money orders should made payable to Wintrust Financial Corporation. Your funds will be held in a non-interest-bearing escrow account at one of the Banks until completion or termination of the Offering. ITEM 7 INSTRUCTIONS Please check this box if you intend to pay for your stock by a withdrawal from a deposit account at one of the Banks. Supply the name of the Bank (See Item 8 below), account number(s), and the total amount of your withdrawal authorization for each account in the boxes provided. The amount submitted under Item 6 (if applicable) when added to the amount withdrawn under Item 7 should equal the total amount of your stock purchase under Item 5. There will be no penalty assessed for early withdrawals from certificates of deposit used for stock purchases. SPECIAL ARRANGEMENTS MUST BE MADE BY [ ] [ ], 1997 IF USING AN INDIVIDUAL RETIREMENT ACCOUNT ("IRA") FOR STOCK PURCHASES. PLEASE CONTACT THE STOCK SALE CENTER AT (847) [ - ] FOR INFORMATION REGARDING SUBSCRIPTIONS USING AN IRA. 7 ITEM 8 INSTRUCTIONS a. Please check this box only if you were a shareholder of Wintrust Financial Corporation as of [ ] [ ], 1996. b. Please check this box only if you were a deposit or loan customer as of [ ] [ ], 1996 of: - North Shore Community Bank and Trust Company, - Lake Forest Bank and Trust Company, - Hinsdale Bank and Trust Company (including Clarendon Hills Bank), - Libertyville Bank and Trust Company, and/or - Barrington Bank and Trust Company, N.A. c. Please check this box if you were a resident of one of the following metropolitan Chicago communities: Barrington, Barrington Hills, Clarendon Hills, Glencoe, Hinsdale, Inverness, Kenilworth, Lake Barrington, Lake Bluff, Lake Forest, Libertyville, Mundelein, North Barrington, South Barrington, Vernon Hills, Western Springs, Wilmette, or Winnetka. To ensure proper identification of your stock purchase priorities, you must list the Wintrust stock registration or Bank account information requested on the reverse side of the Stock Order Form. ITEM 10 INSTRUCTIONS Please sign and date the Stock Order Form and Certification Form where indicated. Review both documents carefully before you sign. Normally, only one signature is required. An additional signature is required only when payment is to be made by withdrawal from a deposit account that requires multiple signatures to withdraw funds. ALL PERSONS LISTED IN ITEM 2 MUST SIGN THE CERTIFICATION FORM. If you have any remaining questions, or if you would like assistance in completing your Stock Order Form, you may call the special Stock Sale Center telephone number (847) [ - ] and ask for a representative of EVEREN Securities. The Stock Sale Center is open between the hours of 8:00 A.M. and 5:00 P.M., Central Time, Monday through Friday. 8 CERTIFICATION FORM This Certification Form must be carefully reviewed and executed by all the parties listed on the accompanying Stock Order Form for Wintrust Financial Corporation common stock. I ACKNOWLEDGE THAT THE COMMON STOCK OF WINTRUST FINANCIAL CORPORATION IS NOT A DEPOSIT OR ACCOUNT, IS NOT AN OBLIGATION OF ANY BANK, AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR BY ANY GOVERNMENTAL AGENCY. I further certify that, before purchasing the common stock, no par value, of Wintrust Financial Corporation (the "Company"), I have received a Prospectus dated as of [ ] [ ], 1997 which contains disclosure regarding the nature of the Company's common stock being offered and describes the risks involved in the investment, including, but not limited to: - The impact of the Company's de novo bank operations and branch opening strategy on profitability; - The Company's reliance on certain key personnel, including senior management of the Company and other executive and management personnel of the Banks; - The risk that the Company's allowance for loan losses may prove to be inadequate; - The potential adverse effects that changes in market rates of interest may have on the Company's profitability; - The limited trading market for the shares of common stock; - The risk that the $[ ] offering price per share the Company has determined for the common stock will be higher than the market trading price following the Offering; - The "best efforts" nature of the Subscription and Community Offering, which does not require any minimum number of shares to be sold; - The risks associated with potential delay in completing the Offering; - The risk that additional shares of common stock becoming eligible for sale in the future could lead to a decrease in the market price of the common stock; - The substantial control of the Company held by officers, directors, and other affiliated shareholders who will beneficially own approximately [ ]% of the outstanding shares of common stock after the Offering; - The effects of substantial competition in the financial services industry; - The anti-takeover effects of certain provisions of the Company's Articles of Incorporation and By-Laws; - The restrictions various regulations place upon the ability of the Company to pay dividends; - The effects financial institutions regulation generally have on the Company's costs of doing business and ability to compete; and - The risk that actual results will vary from those projected in the forward-looking statements contained in the Prospectus. For a more detailed description of the risks involved in the Offering, see "RISK FACTORS" at pages [ ] through [ ] of the Prospectus. Note: If the stock is to Signature: be held in joint name, ------------------------------- all parties must sign. Signature: ------------------------------- Date: ------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----