15. Stockholders' Equity

At both December 31, 2011 and 2010, the Company's authorized capital stock was 55 million shares, consisting of 45 million shares of common stock, par value $0.01 per share, and 10 million shares of preferred stock, par value $0.01 per share. In September 2008, the Company designated and issued 2.4 million preferred shares as 8% Non-Cumulative Convertible Perpetual Preferred Stock, Series A ("Series A Preferred") which was exchanged for 7,200,000 shares of common stock in May 2010. In November 2008, the Company designated and issued 104,823 shares of preferred stock as Fixed Rate Cumulative Perpetual Preferred Stock, Series B ("Series B Preferred"). In May 2010, the Company designated and issued 1,276,480 shares of preferred stock as 8% Non-Cumulative, Convertible Perpetual Preferred Stock, Series C ("Series C Preferred") which was converted to 3,517,887 shares of common stock in December 2011. In October 2010, the Company designated and issued 405,330 preferred shares as Nonvoting, Convertible Preferred Stock, Series D ("Series D Preferred"). In October 2010, the Company also designated and issued 223,520 preferred shares of 8% Nonvoting Non-Cumulative Convertible Perpetual Preferred stock, Series E ("Series E Preferred") which was converted to 616,020 shares of Non-Voting, Convertible Preferred Stock, Series G ("Series G Preferred") in December 2011. In March 2011, the Company designated and issued 1,000,000 shares of preferred stock as 8% Non-Cumulative, NonVoting, Contingent Convertible Preferred Stock, Series F ("Series F Preferred") and designated 1,350,000 shares of preferred stock as Series G Preferred. The Series F Preferred was immediately converted to 2,280,000 shares of common stock and 220,000 shares of Series G Preferred. In December 2011, the Company issued an additional 616,020 shares of Series G Preferred on conversion of the Series E Preferred. The Company has agreed, consistent with its past practice, to continue to provide its regulators notice before the payment of any dividends on its preferred stock.

Common Stock:

The holders of outstanding shares of common stock and any participating securities (as defined by the certificate of designation) are entitled to receive dividends out of assets legally available at such times and in such amounts as the Company's Board of Directors may determine. The terms of the Series B Preferred require the Company to obtain consent, under certain circumstances, before paying common dividends. The terms of the junior subordinated debentures and subordinated notes place defined restrictions on the Company's ability to pay common dividends in the event of deferral of the payment of interest or dividends on those securities. The shares of common stock are neither redeemable nor convertible, and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to receive, pro rata, the assets of the Company which are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of preferred stock then outstanding. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders.

In November 2011, the Company launched a rights offering that involved the distribution, at no charge, to holders of the Company's common stock, Series C Preferred, Series D Preferred, Series E Preferred, Series G Preferred and certain warrants to purchase common stock of nontransferable subscription rights to purchase a total of 4,424,778 shares of the Company's common stock or a nonvoting common stock equivalent. Each subscription right entitled the holder to purchase 0.1671 shares of common stock or a non-voting common stock equivalent at the purchase price of $7.91 per share. The rights offering expired on December 14, 2011. The rights offering was fully subscribed and 4,424,761 shares of common stock were issued with total gross proceeds to the Company of $35.0 million.

Preferred Stock:

The Company's Third Amended and Restated Certificate of Incorporation authorizes its Board of Directors to issue preferred stock in classes or series and to establish the designations, preferences, qualifications, limitations or restrictions of any class or series with respect to the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the terms and conditions for conversion or exchange into any other class or series of the stock, voting rights and other terms.

Series A Preferred: In May 2010, the Company completed an exchange offering in which all of its outstanding shares of Series A Preferred were exchanged for 7,200,000 shares of common stock that included 1,200,000 shares as an inducement to exchange the Series A Preferred for common shares. The $15.8 million value attributed to the additional shares was considered an implied noncash dividend to holders of the Series A Preferred and resulted in no net impact on total stockholders' equity. This non-cash dividend was a deduction in arriving at net loss applicable to common stockholders on the Consolidated Statement of Operations and was considered in the determination of basic and diluted loss per common share. After the payment of the regular quarterly dividend of $1.2 million on April 15, 2010, the Company did not declare or pay any further dividends on the Series A Preferred. This compares to the period ended December 31, 2009, when the Company declared and paid dividends on Series A Preferred in the amount of $4.8 million.

Series B Preferred: In November 2008, as part of the UST TARP Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement ("Purchase Agreement") with the UST, pursuant to which the Company sold, for an aggregate purchase price of $104.8 million, 104,823 shares of Series B Preferred, with a purchase price and liquidation preference of $1,000 per share, and warrants to purchase 1,462,647 shares of the Company's common stock.

The total proceeds received of $104.8 million were allocated to the Series B Preferred and the warrants based upon their relative fair values. The fair values allocated to the Series B Preferred and warrants upon issuance were $96.6 million and $8.2 million, respectively. The Series B Preferred is recorded on the Company's Consolidated Balance Sheets at the aggregate liquidation amount less the discount created by the allocation of a portion of the proceeds to the warrants. At December 31, 2011, the recorded balance of the Series B Preferred was $102.0 million, which is equal to the liquidation amount, net of unamortized discount of $3.6 million plus accumulated but undeclared dividends of $670,000. This compares to December 31, 2010 when the recorded balance of the Series B Preferred was $100.4 million, which was equal to the liquidation amount, net of unamortized discount of $5.1 million plus accumulated but undeclared dividends of $670,000. The discount on the Series B Preferred is being accreted as a dividend yield adjustment over five years, the period that the Company expects the Series B Preferred to remain outstanding. During 2011, the total discount accreted as a non-cash dividend was $1.7 million compared to $1.5 million during 2010. The discount amortization decreased net income applicable to common stockholders and the earnings per common share during 2011 and increased the net loss applicable to common stockholders and the net loss per common share during 2010.

The Series B Preferred qualifies as Tier 1 capital for regulatory capital purposes and pays cumulative compounding dividends at a rate of 5% per year until November 21, 2013, and 9% per year thereafter. During 2011 and 2010, the Company declared and paid dividends on the Series B Preferred in the amount of $5.2 million per year.

The Company's Third Amended and Restated Certificate of Incorporation, as amended by the certificate of designations for the Series B Preferred (as amended, the "Charter"), provided that the Company may not redeem the Series B Preferred prior to November 21, 2011, except with proceeds from the sale of equity securities of the Company that qualify as Tier 1 capital at the time of issuance. Since November 21, 2011, the Company may redeem shares of the Series B Preferred for the per share liquidation amount of $1,000 per share, plus any accrued and unpaid dividends.

In February 2009, subsequent to the issuance of the Series B Preferred, the American Recovery and Reinvestment Act of 2009 ("ARRA") was enacted. Among other things, the ARRA provided that the Secretary of Treasury, after consultation with the appropriate federal banking agency, will permit any recipient of TARP funds to repay such funds without regard to the source of the funds or any waiting period. Furthermore, if such assistance has been repaid, the Secretary of Treasury shall liquidate any associated warrants at the current market value.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, each holder of Series B Preferred will be entitled to receive the liquidation amount per share and the amount of any accrued and unpaid dividends, whether or not declared to the date of payment, out of the Company's assets or proceeds available for distribution to stockholders of the Company, subject to the rights of any creditors and before any distribution of such assets or proceeds is made to or set aside for the Company's common stock stockholders.

Series C Preferred: In December 2011, the Company completed the conversion of all of its outstanding shares of Series C Preferred into 3,517,887 shares of common stock that included 919,249 shares issued in accordance with the amended terms of the stock, which were in addition to the number of shares to be issued upon such a conversion according to the original terms of the stock. The $8.9 million value attributed to the additional shares was considered an implied noncash dividend to holders of the Series C Preferred and resulted in no net impact on total stockholders' equity. This non-cash dividend was a deduction in arriving at net income applicable to common stockholders on the Consolidated Statement of Operations and was considered in the determination of basic and diluted earnings per common share. Excluding the implied noncash dividend, the dividends declared and paid for the period ended December 31, 2011 totaled $1.9 million and were paid in 235,869 shares of common stock. This compares to the period ended December 31, 2010, when the Company declared and paid cash dividends on Series C Preferred in the amount of $1.6 million.

Series D Preferred: In October 2010, the Company issued a total of 405,330 shares of Series D Preferred, in exchange for 405,330 shares of common stock held by certain investors. The Series D Preferred participates in any dividends paid to holders of the Company's common stock. Each share of Series D Preferred will be automatically converted into one share of common stock immediately on any Widely Dispersed Offering or Conversion Event, (as defined in the Certificate of Designation), establishing the Series D Preferred.

The holders of Series D Preferred are entitled to notice of all stockholder meetings at which all holders of common stock shall be entitled to vote, but the Series D Preferred holders shall not be entitled to vote on any matter presented to the stockholders of the Company unless required by law.

In the event of any reorganization, reclassification, consolidation, merger or sale of the Company, each holder of the Series D Preferred shall be treated the same as each holder of common stock. In the event that holders of common stock have the option to elect the form of consideration to be received, holders of Series D Preferred shall have the same election privileges. In all cases, if any of the securities otherwise receivable are "voting securities" for bank regulatory purposes, each Series D Preferred holder shall have the right to elect to receive "nonvoting securities" in lieu of voting securities.

Series E Preferred: In December 2011, the Company completed the conversion of all of its outstanding Series E Preferred were converted into 616,020 shares of Series G Preferred that included 160,972 shares issued in accordance with the amended terms of such stock, which were in addition to the number of shares to be issued upon such a conversion according to the original terms of the stock. The $1.6 million value attributed to the additional shares was considered an implied noncash dividend to holders of the Series E Preferred and resulted in no net impact on total stockholders' equity. This implied noncash dividend was a deduction in arriving at net income applicable to common stockholders on the Consolidated Statement of Operations and was considered in the determination of basic and diluted earnings per common share. Excluding the implied noncash dividend, the dividends declared and paid for the period ended December 31, 2011 totaled $335,000 and were paid in 41,324 shares of Series G Preferred. This compares to the period ended December 31, 2010, when the Company declared and paid cash dividends on Series E Preferred in the amount of $103,000.

Series F Preferred: In connection with a private placement in March 2011, the Company issued 1,000,000 shares of Series F Preferred with a purchase price and liquidation preference of $25.00 per share. After stockholder approval was obtained at a special meeting of the Company's stockholders held on March 29, 2011, all shares of the Series F Preferred were converted into an aggregate of 2,280,000 shares of the Company's common stock and 220,000 shares of the Company's Series G Preferred at a conversion price of $10.00 per share.

Series G Preferred: In connection with a private placement in March 2011, the Company designated for issuance 1,350,000 shares of Series G Preferred. After stockholder approval was obtained at a special meeting of the Company's stockholders held on March 29, 2011, the shares of Series F Preferred held by Prairie Capital IV, L.P. and Prairie Capital IV QP, L.P. (collectively, the "Prairie Funds") were converted into 220,000 shares of Series G Preferred at a conversion price of $10.00 per share. In December 2011, the Company completed the conversion of all of its outstanding shares of Series E Preferred into 616,020 shares of Series G Preferred.

The Series G Preferred participates in any dividends paid to holders of the Company's common stock. Each share of Series G Preferred will be automatically converted into one share of common stock immediately on any Widely Dispersed Offering or Conversion Event (as defined in the Certificate of Designation establishing the Series G Preferred). The holders of Series G Preferred are entitled to notice of all stockholder meetings at which all holders of common stock shall be entitled to vote, but the Series G Preferred holders shall not be entitled to vote on any matter presented to the stockholders of the Company.

In the event of any reorganization, reclassification, consolidation, merger or sale of the Company, each holder of the Series G Preferred shall be treated the same as each holder of common stock. In the event that holders of common stock have the option to elect the form of consideration to be received, holders of Series G Preferred shall have the same election privileges. In all cases, if any of the securities otherwise receivable are "voting securities" for bank regulatory purposes, each Series G Preferred holder shall have the right to elect to receive "nonvoting securities" in lieu of voting securities.

Warrants to Purchase Common Stock:

At December 31, 2011, an aggregate of 3,847,918 warrants were issued and outstanding to purchase shares of the Company's common stock. The warrants were issued in five different transactions as follows:


	Warrants issued		Warrants outstanding at Dec. 31, 2011		Exercise price		Date exercisable		Expiration date
Warrant:
FIC warrants		500,000		500,000	$	20.00		Sept. 29, 2008		Sept. 29, 2018
Detachable warrants issued with Cole Taylor Bank subordinated notes		900,000		900,000	$	10.00		Mar. 29, 2009		Sept. 29, 2013
Detachable warrants issued with Taylor Capital Group subordinated notes		848,450		848,450	$	12.28		Nov. 24, 2010		May 28, 2015
Detachable warrants issued with Taylor Capital Group subordinated notes		89,050		89,050	$	12.28		Oct. 21, 2010		May 28, 2015
Series B Preferred warrants		1,510,418		1,510,418	$	10.41		Nov. 21, 2008		Nov. 21, 2018

Total		3,847,918		3,847,918

On September 29, 2008, the Company issued Financial Investments Corporation ("FIC") warrants to purchase up to 500,000 shares of the Company's common stock at an exercise price of $20.00 per share. The FIC warrants are not transferable or assignable after their initial issuance, and are exercisable at any time up to the September 29, 2018 expiration date. As of December 31, 2011, no warrants had been exercised.

In connection with the issuance by the Bank of $60 million of subordinated notes in September 2008, the Company issued detachable warrants to purchase an aggregate amount of 900,000 shares of the Company's common stock. The exercise price of the warrants is $10.00 and the warrants became exercisable on March 29, 2009 and expire on September 29, 2013. The proceeds from the subordinated notes offering were allocated to the subordinated notes and the warrants based upon their relative fair values. The fair value of the warrants of $4.7 million was credited to surplus resulting in an increase in stockholders' equity. As of December 31, 2011, no warrants had been exercised.

In connection with the issuance by the Company of $33.9 million of subordinated notes in May 2010, the Company issued detachable warrants to purchase an aggregate amount of 848,450 shares of the Company's common stock. The exercise price of the warrants is $12.28 and the warrants became exercisable on November 24, 2010 and expire on May 28, 2015. The proceeds from the subordinated notes offering were allocated to the subordinated notes and the warrants based on their relative fair value. The fair value of the warrants totaling $4.4 million at the issuance date of May 2010, net of issuance costs, was credited to surplus in stockholders' equity resulting in an increase in stockholders' equity. As of December 31, 2011, no warrants had been exercised.

In connection with the issuance by the Company of $3.6 million of subordinated notes in October 2010, the Company issued detachable warrants to purchase an aggregate amount of 89,050 shares of the Company's common stock. The exercise price of the warrants is $12.28 and the warrants are exercisable immediately after issuance and expire on May 28, 2015. The proceeds from the subordinated notes offering were allocated to the subordinated notes and the warrants based on their relative fair value. The fair value of the warrants totaling $420,000 at the issuance date of October 21, 2010, net of issuance costs, was credited to surplus in stockholders' equity resulting in an increase in stockholders' equity. As of December 31, 2011, no warrants had been exercised.

In connection with the Series B Preferred offering in November 2008, the Company issued to the Treasury a warrant to purchase 1,462,647 shares of the Company's common stock. This warrant has a 10-year term and was immediately exercisable upon its issuance, with an initial exercise price, subject to anti-dilution adjustments, equal to $10.75 per share of the common stock. The warrant is not subject to any contractual restrictions on transfer. Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant. As a result of the issuance of the subscription rights in the Company's rights offering in November 2011, the TARP warrant required anti-dilution adjustments as defined in the original warrant. This adjustment caused the number of shares that can be purchased under the warrant to increase to 1,510,418 at the reduced exercise price of $10.41. As of December 31, 2011, no warrants had been exercised.