PrivateBancorp (PVTB)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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PrivateBancorp, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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April 4, 2008

 

Dear Stockholders:

 

You are invited to attend the 2008 Annual Meeting of Stockholders of PrivateBancorp, Inc., which will be held at The Standard Club, 320 South Plymouth Court, Chicago, Illinois 60604, on Thursday, May 22, 2008, at 3:00 p.m. local time.

 

The attached Notice of Annual Meeting of Stockholders and proxy statement describe the formal business to be conducted at the meeting. Directors and officers of PrivateBancorp as well as representatives of Ernst & Young LLP, our independent public accountants, will be present at the meeting to respond to any questions that you may have regarding the business to be transacted.

 

The Board of Directors of PrivateBancorp has determined that the specific proposals to be considered at the meeting are in the best interests of the Company and its stockholders. For the reasons set forth in the proxy statement, the Board unanimously recommends a vote “FOR” each of these proposals.

 

YOUR VOTE IS IMPORTANT. Please sign and return the enclosed proxy card promptly in the postage-paid envelope. Your cooperation is appreciated since a majority of the common stock must be represented, either in person or by proxy, to constitute a quorum for the conduct of business at the meeting.

 

On behalf of the Board of Directors and all the employees of The PrivateBank, I thank you for your continued support.

 

Sincerely,

 

Ralph B. Mandell

Chairman of the Board

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 22, 2008

 

NOTICE IS HEREBY GIVEN that the 2008 Annual Meeting of Stockholders of PrivateBancorp, Inc. will be held at The Standard Club, 320 South Plymouth Court, Chicago, Illinois 60604, on Thursday, May 22, 2008, at 3:00 p.m. local time.

 

The meeting is for the purpose of considering and voting upon the following matters:

 

 

The Board of Directors has fixed March 26, 2008 as the record date for determining stockholders entitled to notice of, and to vote at, the meeting and at any adjournments thereof. Only record holders of the Company’s common stock as of the close of business on the record date will be entitled to vote at the meeting. In the event there are not sufficient shares represented for a quorum, the meeting may be adjourned in order to permit the Company to solicit additional proxies. A list of stockholders entitled to vote at the meeting will be available for inspection at the Company’s offices located at 70 West Madison, Suite 900, Chicago, Illinois 60602, for a period of ten days prior to the meeting and will also be available at the meeting.

 

By order of the Board of Directors,

 

Christopher J. Zinski

General Counsel and Corporate Secretary

 

April 4, 2008

 

PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ENVELOPE PROVIDED

 

PROXY STATEMENT
FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS

 

TO BE HELD ON THURSDAY, MAY 22, 2008

 

Solicitation and Voting of Proxies

 

These proxy materials are furnished in connection with the solicitation by the Board of Directors of PrivateBancorp, Inc. (the “Company”), a Delaware corporation, of proxies to be used at the Company’s 2008 Annual Meeting of Stockholders and at any adjournment of such meeting. The meeting is scheduled to be held on May 22, 2008, at 3:00 p.m. local time, at The Standard Club, 320 South Plymouth Court, Chicago, Illinois 60604. The Company anticipates first mailing this proxy statement, together with its 2007 Annual Report on Form 10-K, including audited consolidated financial statements for the fiscal year ended December 31, 2007, and a proxy card to record holders of the Company’s common stock on or about April 4, 2008.

 

Stockholders are requested to vote by completing, signing and dating the enclosed proxy card and returning it in the enclosed postage-paid envelope. Stockholders are urged to indicate their vote in the spaces provided on the proxy card. Proxies solicited by the Board of Directors will be voted in accordance with the directions given by the stockholders on the proxy card. When no instructions are indicated for any or all of the proposals, signed proxy cards will be voted FOR each of the proposals for which no instructions are given.

 

Participants in the Company’s Savings, Retirement & Employee Stock Ownership Plan (the “KSOP”) will receive one proxy card representing the total shares allocated to the participant’s account in the KSOP. This proxy card will also serve as a voting instruction card for Delaware Charter Guarantee & Trust Company (the “Trustee”), the trustee of the KSOP, with respect to the shares held in the participants’ accounts. A participant cannot direct the voting of shares allocated to the participant’s account in the KSOP unless the KSOP proxy card is signed and returned. If proxy cards representing shares in the KSOP are not returned, those shares will be voted by the Trustee in the same proportion as the shares for which signed proxy cards are returned by the other participants in the KSOP.

 

Other than the matters listed in the attached Notice of Annual Meeting of Stockholders, the Board of Directors knows of no additional matters that will be presented for consideration at the meeting. Execution of a proxy, however, confers on the designated proxy holders discretionary authority to vote the shares in accordance with their best judgment on such other business, if any, that may properly come before the meeting and at any adjournments of the meeting, including whether or not to adjourn the meeting.

 

A proxy may be revoked at any time prior to its exercise by: (1) filing a written notice of revocation with the Corporate Secretary of the Company; (2) delivering to the Company a duly executed proxy bearing a later date; or (3) attending the meeting and voting in person. However, if you are a stockholder whose shares are not registered in your own name, you will need appropriate documentation from your record holder to vote personally at the meeting.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of
Stockholders to be Held on May 22, 2008

 

Our proxy statement and 2007 annual report to stockholders on Form 10-K are available at:
www.edocumentview.com/PVTB.

 

If you have any questions or need assistance in submitting your proxy, voting your shares or need additional copies of this proxy statement or the enclosed proxy card, you should contact our proxy solicitation agent, Georgeson Inc., at:

 

Georgeson Inc.

199 Water Street

26th Floor

New York, NY 10038

 

Banks and brokerage firms, please call collect (212) 440-9800. All other stockholders, please call toll-free (866) 729-6814.

 

Cost of Proxy Solicitation

 

The cost of solicitation of proxies on behalf of management will be borne by the Company. In addition to the solicitation of proxies by mail, proxies may be solicited personally or by telephone by directors, officers and other employees of the Company and its subsidiaries. The Company has retained Georgeson Inc. to assist in the solicitation of proxies for a fee of $15,000 and reimbursement of the firm’s out-of-pocket expenses. The Company also will request persons, firms and corporations holding shares in their names, or in the name of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from such beneficial owners, and will reimburse such holders for their reasonable expenses in doing so.

 

Voting Securities and Stockholders Entitled to Vote

 

The Board of Directors has fixed the close of business on March 26, 2008, as the record date for determining stockholders entitled to notice of, and to vote at, the meeting. On the record date, the Company had outstanding 28,319,491 shares of common stock and 1,428.074 shares of Series A Junior Nonvoting Preferred Stock. Each outstanding share of common stock entitles the holder to one vote. Holders of shares of preferred stock are not entitled to vote on any of the matters to be presented at the annual meeting. The Company’s Amended and Restated By-laws state that a majority of the Company’s outstanding shares entitled to vote on a matter, present in person or represented by proxy, shall constitute a quorum for the consideration of such matters at any meeting of stockholders. Abstentions and broker non-votes are counted as shares present for the purpose of determining whether the shares represented at the meeting constitute a quorum. In the event that there are not sufficient votes to constitute a quorum, the meeting may be adjourned in order to permit the further solicitation of proxies. Proxies received from stockholders in proper form will be voted at the meeting and, if specified, as directed by the stockholder.

 

As to the election of directors, the proxy card being provided by the Board of Directors enables a stockholder of record to vote “FOR” election of nominees proposed by the Board, or to “WITHHOLD” authority to vote “FOR” one or more of the nominees being proposed. Directors are elected by a plurality of votes cast, without regard to either broker non-votes or proxies as to which authority to vote for one or more of the nominees being proposed is withheld.

 

As to the approval of the 2007 Long-Term Incentive Compensation Plan (the “Plan”) under proposal 2, the proxy card enables a stockholder to check the appropriate box to vote “FOR” approval of the Plan; vote “AGAINST” approval of the Plan; or “ABSTAIN” from voting on the Plan. Approval of the Plan requires the affirmative vote of a majority of the shares of the Company’s common stock present in person or represented by proxy and entitled to vote at the meeting. Brokers who hold shares in street name for customers who are the beneficial owners of such shares may not give a proxy to vote those shares as to this proposal absent specific instructions from their customers. Proxies marked “ABSTAIN” as to this proposal will have the same effect as a vote cast “AGAINST” the Plan; however, broker non-votes will have no effect on the outcome of the approval of the Plan.

As to the approval of the amendment to the Company’s Amended and Restated Certificate of Incorporation under proposal 3, the proxy card enables a stockholder to check the appropriate box to vote “FOR” approval of the amendment; vote “AGAINST” approval of the amendment; or “ABSTAIN” from voting on the amendment. Approval of the amendment requires the affirmative vote of the holders of a majority of the shares of the Company’s common stock outstanding and entitled to vote. Brokers who hold shares in street name for customers who are the beneficial owners of such shares should be able to give a proxy to vote those shares as to this proposal absent specific instructions from their customers. For this proposal, proxies marked “ABSTAIN” and broker non-votes will have the same effect as a vote cast “AGAINST” the amendment.

 

As to the ratification of the appointment of Ernst & Young as the Company’s independent registered accounting firm under proposal 4, the proxy card enables a stockholder to check the appropriate box to vote “FOR” ratification; vote “AGAINST” ratification; or “ABSTAIN” from voting on the proposal. Approval of the proposal requires the affirmative vote of a majority of the shares of the Company’s common stock present in person or represented by proxy and entitled to vote at the meeting. Brokers who hold shares in street name for customers who are the beneficial owners of such shares may give a proxy to vote those shares as to this proposal absent specific instructions from their customers. Proxies marked “ABSTAIN” as to this proposal will have the effect of a vote AGAINST ratification, and broker non-votes will have no effect on the vote for ratification.

 

With respect to all other matters that may properly come before the meeting, unless otherwise required by law, our Amended and Restated Certificate of Incorporation or the rules of NASDAQ, such matters may be approved by the affirmative vote of the holders of a majority of the shares of the Company’s common stock present at the meeting, in person or by proxy, and entitled to vote.

 

Your vote is important. Because many stockholders may not be able to personally attend the meeting, it is necessary that a large number be represented by proxy. Prompt return of your proxy card in the postage-paid envelope provided is appreciated.

 

PROPOSAL 1. ELECTION OF DIRECTORS

 

The Company’s Board of Directors currently consists of 18 members, divided into three classes, who are elected to hold office for staggered three-year terms as provided in the Company’s Amended and Restated By-laws. There are six persons currently serving as Class I Directors whose terms will expire at the 2008 Annual Meeting. The terms of the six persons currently serving as Class II Directors expire at the annual stockholder meeting to be held in 2009 and the terms of the six persons serving as Class III Directors expire at the annual stockholder meeting to be held in 2010. Of the 18 current members of the Board, 13 directors have been determined by the Board to be “independent” within the meaning of the NASDAQ rules.

 

Of the six persons named below, all of whom are currently serving as directors, four are “independent.” Each has been nominated by the Board upon the recommendation of the Nominating and Corporate Governance Committee for election as a Class I Director to serve for a term to end at the annual meeting of stockholders in the year 2011, or until his or her successor is elected and qualified. All of the nominees have indicated a willingness to serve, and the Board of Directors has no reason to believe that any of the nominees will not be available for election. However, if any nominee is not available for election, proxies may be voted for the election of such other person selected by the Board of Directors. Proxies cannot be voted for a greater number of persons than the number of nominees for director named. To be elected as a director, each nominee must receive the affirmative vote of a plurality of the shares present in person or represented by proxy and entitled to vote at the meeting. Stockholders have no cumulative voting rights with respect to the election of directors.

 

The names, ages and certain background information of the director nominees and the persons continuing to serve on the Company’s Board of Directors are set forth below.

 

Nominees for Class I Directors To Serve Until 2011

 

William A. Castellano (66) has been a director since 1991. Since 1996 he has been chairman and founder of Worknet, Inc. located in Naperville, Illinois. Worknet provides computer network hosting, engineering and support services to businesses. From 1995 to 2001 he was also the founder and Chairman of Workspace, a firm marketing office furniture to companies in the Chicago area. Also he was the founder and CEO of Chrysler Systems Leasing from 1977 to 1991.

 

Patrick F. Daly (59) has been a director since July 2004. He is the founder and chief executive officer of The Daly Group LLC, a Chicago-based group of companies focused on real estate development, brokerage and construction management services.

 

Cheryl Mayberry McKissack (52) has been a director since December 2003. She is the founder, president and chief executive officer of NIA Enterprises, LLC, a Chicago-based research and marketing services firm. Prior to founding NIA Enterprises in 2000, she served as worldwide senior vice president and general manager of Open Port Technology from 1997 to 2000. Ms. McKissack currently serves on the board of directors of Deluxe Corporation (NYSE: DLX), a company that designs, manufactures and distributes printed checks. She is also an adjunct Associate Professor of Entrepreneurship for the Kellogg School of Business at Northwestern University.

 

Ralph B. Mandell (67) is Chairman and co-founder of PrivateBancorp. He has been a director since 1989, and is a director of each of the Company’s bank subsidiaries. Mr. Mandell served as Chairman and Chief Executive Officer of PrivateBancorp and The PrivateBank and Trust Company (“The PrivateBank — Chicago”) since 1994 and assumed the additional title of President of both entities in March 1999, until November 2007 upon the recent succession of the Chief Executive Officer and President roles to Mr. Richman. From inception until 1994, Mr. Mandell had the title of Co-Chairman. Prior to starting The PrivateBank — Chicago and PrivateBancorp, Mr. Mandell was the chief operating officer of First United Financial Services, Inc., from 1985 to 1989, and served as its president from 1988 to 1989. First United, a company that was traded on the NASDAQ National Market, was sold to First Chicago Corporation in 1987. He also served as president of Oak Park Trust and Savings Bank, a subsidiary of First United, from 1985 until 1988. Prior thereto, Mr. Mandell had served as executive vice president of Oak Park Trust and Savings Bank since 1979.

Edward W. Rabin, Jr. (61) has been a director since December 2003. Mr. Rabin was president of Hyatt Hotels Corporation until his retirement in 2006. Mr. Rabin is a director of WMS Industries (NYSE: WMS), Sally Beauty Holdings (NYSE: SBH) and Oneida Holdings Inc.

 

Larry D. Richman (55) has been a director since November 5, 2007, when he joined the Company as president and chief executive officer of PrivateBancorp, and chairman, president and chief executive officer of The PrivateBank — Chicago. Mr. Richman was previously president and chief executive officer of LaSalle Bank N.A. and president of LaSalle Bank Midwest N.A., which was sold to Bank of America Corporation on October 1, 2007. Mr. Richman began his career with American National Bank and joined Exchange National Bank in 1981, which merged with LaSalle Bank in 1990. As a member of LaSalle’s executive leadership team, Mr. Richman played a key role in its growth from approximately $7 billion in total assets in 1990 to $120 billion in 2007.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH NOMINEE FOR CLASS I DIRECTOR.

 

Class II Directors Serving Until 2009

 

Donald L. Beal (61) has been a director since 1991.  He has been the owner of Kar-Don, Inc., commercially known as Arrow Lumber Company, located in Chicago, Illinois, since 1980. Prior to that, Mr. Beal served as vice president of Hyde Park Bank & Trust with responsibilities including commercial lending and personal banking. Mr. Beal is also the sole owner of Ashland Investment, Inc. and Cab Development, LLC, firms focused in real estate development.

 

William A. Goldstein (68) is the President of Lodestar Investment Counsel, LLC, an investment advisory firm acquired by PrivateBancorp in 2002, and a Managing Director of The PrivateBank — Chicago, and has over 40 years of experience in the investment industry. Mr. Goldstein was appointed to the board of directors of The PrivateBank — Chicago in January 2003 and elected as a director of PrivateBancorp in April 2003. Prior to founding Lodestar in 1989, he was a principal in the founding of Burton J. Vincent, Chesley & Co. where he served as executive vice president and director. In 1983 the firm was acquired by Prescott, Ball & Turben (a subsidiary of Kemper Corporation). There Mr. Goldstein was chairman and director of Prescott Asset Management and president of Selected Special Shares, a publicly traded mutual fund.

 

Richard C. Jensen (62) has been a director since January 2000, and has been a Managing Director of The PrivateBank — Chicago since November 1999. He became Chairman, Chief Executive Officer and a Managing Director of The PrivateBank — St. Louis upon its receipt of its banking charter in June 2000. From May 1998 until joining us, Mr. Jensen served as chairman and chief executive officer of Missouri Holding, Inc. From March to May 1998, he served as president and chief executive officer of Royal Banks of Missouri. For the previous 18 years, Mr. Jensen served in various executive positions with Bank of America and its predecessor, Boatmen’s Bank, in St. Louis.

 

John (Jay) B. Williams (56) has been a director since April 2004, and serves as Chief Operating Officer of the Company and Chairman and Chief Executive Officer of The PrivateBank — Wisconsin. Prior to joining The PrivateBank, Mr. Williams was president of U.S. Bank Wisconsin from 2000 through 2003. For the previous 31 years, Mr. Williams held various positions with U.S. Bank and its predecessors Firstar and First Wisconsin.

 

Alejandro Silva (60) has been a director since August 2005. Mr. Silva is chairman of the board and chief executive officer of Evans Food Group, Ltd., one of the largest Hispanic-owned company in the Chicagoland area, with snack food plants located in Texas, Ohio, California, St. Louis, Missouri and Mexico. Prior to acquiring Evans Food Group in 1985, Mr. Silva was operating manager and assistant plant manager of KIR Alimentos S.A. from 1972 to 1979. In 1979, he began a venture — Alimentos Finos del Norte, S.A. in Saltillo, Mexico — which produced pork rinds at plants located in Mexico and Iowa. Mr. Silva is a director of Walgreen Co. (NYSE: WAG) and a member of that company’s audit and nominating committees.

 

James C. Tyree (50) was appointed to the board of directors upon the closing of the Company’s $200 million private placement on December 11, 2007. Mr. Tyree has spent his entire career with Mesirow

Financial Holdings, Inc., a diversified financial services firm located in Chicago, joining the firm in 1980. He was named president in 1990, chief executive officer in 1992 and became chairman and chief executive officer in 1994. Mr. Tyree founded the firm’s private equity division and led Mesirow Financial’s expansion of its investment management, investment banking, investment services, consulting, insurance services and real estate businesses.

 

Class III Directors Serving Until 2010

 

Robert F. Coleman (63) has been a director since 1990. He is a principal of Robert F. Coleman & Associates, a law firm located in Chicago, Illinois. He concentrates his practice on business and professional litigation.

 

James M. Guyette (62) has been a director since 1990.  Since 1997, he has been president and chief executive officer of Rolls Royce North America, Inc. Mr. Guyette served as executive vice president of UAL Corporation, the parent company of United Air Lines, Inc., from 1985 to 1995 when he retired after more than 28 years of employment with that company. He is currently a director of Rolls-Royce North America Holdings, Inc., Rolls-Royce plc, International Aero Engines and Priceline.com (NASDAQ: PCLN).

 

Philip M. Kayman (66) has been a director since 1990.  Mr. Kayman is an attorney in private practice, concentrating in real estate law. Mr. Kayman was a senior partner with the law firm of Neal, Gerber & Eisenberg, LLP in Chicago, Illinois from the firm’s founding in 1986 until June 2006, and was also formerly special counsel to Global Hyatt Corporation from June 2006 until 2007.

 

William J. Podl (63) has been a director since August 1999. Mr. Podl was an organizer of Towne Square Financial Corporation, which was purchased by the Company in August 1999. Mr. Podl founded Doran Scales, Inc., located in Batavia, Illinois, in 1976, and is currently chairman of that company.

 

Collin E. Roche (37) was appointed to the board of directors upon the closing of the Company’s $200 million private placement on December 11, 2007. He has been a principal of GTCR Golder Rauner, LLC (“GTCR”) since 1996 and currently is head of its investment committee. Prior to joining GTCR, Mr. Roche was an investment banker with EVEREN Securities, Inc. and Goldman Sachs & Co. Mr. Roche is a director of numerous private companies as well as public companies VeriFone (NYSE: PAY) and Syniverse (NYSE: SVR).

 

William R. Rybak (57) has been a director since December 2003. Mr. Rybak retired from VanKampen Investments, Inc. in 2000, where he served as executive vice president and chief financial officer since 1986. Mr. Rybak was previously a partner with the accounting firm of KPMG LLP (formerly Peat, Marwick, Mitchell & Co.) since 1982, and is a certified public accountant. Mr. Rybak is currently a member of the board of directors of Howe Barnes Hoefer & Arnett, Inc., an investment services firm located in Chicago, and a member of the board of trustees of Jackson National Life Funds and the Calamos Mutual Funds, and Chairman of the Board of Trustees of Lewis University. Mr. Rybak previously served as a director of Alliance Bancorp, Inc. and its predecessor, Hinsdale Financial Corp., from 1986 until 2001.

 

CORPORATE GOVERNANCE

 

Director Independence

 

In addition to the transactions disclosed under the section captioned “Transactions With Related Persons” below, in making its determination regarding director independence, the Nominating and Corporate Governance Committee as well as the full Board of Directors consider any other material relationships each of our directors may have with the Company, other than as a director, that would impair his or her independence. To assist the Committee and the Board in this regard, each director completes a questionnaire designed to identify relationships that could affect their independence. The Committee and the Board reached its determinations by considering all relevant available facts and circumstances surrounding a director’s business, commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others.

 

Based upon this analysis and the recommendations of the Nominating and Corporate Governance Committee, the Board of Directors determined that Messrs. Beal, Castellano, Coleman, Daly, Guyette, Kayman, Podl, Rabin, Roche, Rybak, Tyree, Silva and Ms. McKissack are “independent” directors, in accordance with the NASDAQ listing standards.

 

Director Nomination Procedures

 

The Board of Directors has delegated responsibility to the Nominating and Corporate Governance Committee to identify and select director nominees who can exercise business judgment and have the necessary personal traits and skills to provide effective oversight of management and serve the best interests of stockholders. The Nominating and Corporate Governance Committee, comprised entirely of independent directors, recommends to the full Board for approval the proposed slate of director nominees for election at the annual meeting of stockholders.

 

In selecting director nominees, the Nominating and Corporate Governance Committee will consider the existing composition of the Board and the committee’s evaluation of the mix of disciplines, experience and other characteristics of Board members appropriate for the perceived needs of the Company. The Board and the Nominating and Corporate Governance Committee believes that an appropriate mix of experience, knowledge and judgment and a diversity of perspectives on the Board, along with a commitment to active participation, will enhance Board effectiveness. The Board and the Nominating and Corporate Governance Committee also believe that continuity in leadership and board tenure maximizes the Board’s ability to exercise meaningful board oversight. Because qualified incumbent directors are generally uniquely positioned to provide stockholders the benefit of continuity of leadership and seasoned judgment gained through experience as a director of the Company, the Nominating and Corporate Governance Committee will generally consider as potential candidates those incumbent directors interested in standing for re-election who the committee believes have satisfied director performance expectations, including regular attendance at, preparation for and meaningful participation in Board and committee meetings.

 

Under its policies, the Nominating and Corporate Governance Committee also considers the following in selecting the proposed nominee slate:

 

 

Policies approved by the Board recognize the following characteristics and skills as minimum qualifications for any potential director candidate:

 

 

 

Stockholder Director Nominee Recommendations. It is generally the policy of the Nominating and Corporate Governance Committee to consider stockholder recommendations of proposed director nominees if such recommendations are serious and timely received. To be timely, recommendations must be received in writing at the Company’s principal executive offices, addressed to the Nominating and Corporate Governance Committee, at least 120 days prior to the anniversary date of mailing of the Company’s proxy statement for the prior year’s annual meeting. In addition, any stockholder director nominee recommendation must include the following information:

 

 

Board Committees

 

Members of the Company’s Board of Directors have been appointed to serve on various committees of the Board. The Board of Directors currently has five standing committees: (1) the Compensation Committee; (2) the Nominating and Corporate Governance Committee; (3) the Audit Committee; (4) the Executive and Planning Committee; and (5) the Information Technology Committee. Each of the Compensation Committee, Nominating and Corporate Governance Committee and Audit Committee are comprised entirely of “independent” directors in accordance with the NASDAQ rules.

 

We anticipate that we will reduce the size of our Board from 18 directors currently to a smaller number by the end of 2009. In connection with this reduction in size, we also anticipate restructuring certain committees of the Board, including creating one or more new committees and possibly consolidating some of the other committees. One of the specific initiatives under consideration is defining the role and scope of the Executive and Planning Committee to allow it to serve as a liaison between the Board and management in between formal Board meetings and to support management on major strategic initiatives and special projects.

 

Compensation Committee. The Compensation Committee is responsible for reviewing the performance of the Chief Executive Officer; reviewing and recommending the compensation of the Company’s officers, including the Chief Executive Officer; recommending and approving equity and non-equity compensation awards under the Company’s incentive compensation plans to management; reviewing and recommending compensation programs including awards of stock options, stock appreciation rights, restricted stock units and

shares of restricted stock, KSOP contributions, deferred compensation, and annual bonuses; reviewing and recommending director compensation; advising the Chief Executive Officer on miscellaneous compensation issues; and advising management regarding management succession planning issues. The Compensation Committee also advises and assists management in formulating policies regarding compensation and submits its Compensation Committee Report included elsewhere in this proxy statement. The current members of the Compensation Committee are Messrs. Guyette (Chairman), Daly, Rabin, Silva and Ms. McKissack. Messrs. Roche and Tyree will become members of the Compensation Committee in May 2008, after the annual meeting. A copy of the current charter of the Compensation Committee is posted under the Investor Relations portion of the Company’s website at www.pvtb.com.

 

Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for proposing to the Board a slate of nominees for election as directors by stockholders at each annual meeting. The Nominating and Corporate Governance Committee is also responsible for taking a leadership role in shaping the Company’s corporate governance practices. In carrying out its duties, the Nominating and Corporate Governance Committee has also been delegated the responsibility to: determine criteria for the selection and qualification of the Board members; recommend for Board approval persons to fill vacancies on the Board which occur between annual meetings; evaluate, at least annually, each Board member’s “independence” and make recommendations, at least annually, regarding each Board member’s “independence” status consistent with then applicable legal requirements; make recommendations regarding director orientation and continuing education; consider the effectiveness of corporate governance practices and policies followed by the Company and the Board; and conduct, at least annually, a performance assessment of the Board.

 

The Board of Directors has adopted a charter for the Nominating and Corporate Governance Committee, which is posted under the Investor Relations portion of the Company’s website at www.pvtb.com. The current members of the Nominating and Corporate Governance Committee are Messrs. Guyette (Chairman), Daly, Rabin, Roche, Silva, Tyree and Ms. McKissack.

 

Audit Committee. The Audit Committee is responsible for supervising the Company’s accounting, reporting and internal control practices. Generally, the Audit Committee reviews the quality and integrity of the Company’s financial information and reporting functions, the adequacy and effectiveness of the Company’s system of internal accounting and financial controls, and the independent audit process, and annually reviews the qualifications of the independent public accountants. The independent public accountants are responsible for auditing the Company’s consolidated financial statements and expressing an opinion as to their conformity with generally accepted accounting principles. In addition to being “independent” directors within the meaning of the NASDAQ listing standards, as currently in effect, all members of the Audit Committee satisfy the heightened independence standards under the SEC rules, as currently in effect. The Board of Directors has determined that Mr. Rybak is an “audit committee financial expert” as that term is defined in SEC rules. The current members of the Audit Committee are Messrs. Coleman (Chairman), Beal, Guyette, Podl and Rybak. A copy of the current charter of the Audit Committee is posted under the Investor Relations portion of the Company’s website at www.pvtb.com.

 

Executive and Planning Committee. The Executive and Planning Committee is responsible for studying strategic issues prior to submission to the entire Board of Directors for approval. The Executive and Planning Committee currently consists of Messrs. Mandell, Castellano, Coleman, Guyette, Kayman, Richman, Roche and Tyree.

 

Information Technology Committee. The Information Technology Committee reports to the Audit Committee regarding its responsibilities related to the Company’s information technology infrastructure. The Information Technology Committee has oversight responsibility related to the quality and integrity of the Company’s information technology functions. This Committee is composed entirely of outside directors who are not officers of the Company. The current members of the Information Technology Committee are Messrs. Podl (Chairman), Castellano, Coleman, Kayman and Ms. McKissack.

Board Meetings

 

During 2007, the Board of Directors met 14 times. In addition, the Compensation Committee met 23 times, the Nominating and Corporate Governance Committee met five times, the Audit Committee met 21 times, the Information Technology Committee met four times. The Executive and Planning Committee did not meet during 2007. Each of the directors of the Company attended at least 75% of the total number of meetings held of the Board and Board committees on which such director served during fiscal year 2007.

 

The Board of Directors met in “executive session” in February, March, April, May, October and December 2007. The Board of Directors meets in regularly scheduled “executive sessions” at least twice annually, usually at its June or July meeting and again at its December meeting. The Board’s policy is that the chairman of the Nominating and Corporate Governance Committee, or in his absence the chairman of the Audit Committee, presides at executive sessions of the Board.

 

Director Continuing Education

 

The Company’s directors are encouraged to seek out and attend director education seminars throughout the year. The Company reimburses directors for their attendance at such seminars. This is in addition to director education provided during regularly scheduled meetings of the Board of Directors and its various committees as well as planned educational programming for the entire Board held outside of regularly scheduled Board meetings. During 2007, the following directors attended the continuing education programs mentioned below:

 

 

Stockholder Communications with Directors

 

Generally, stockholders who have questions or concerns regarding the Company should contact the Company’s Investor Relations department at (312) 683-7100 or visit the Investor Relations page on the Company’s website at www.pvtb.com. However, any stockholder who wishes to communicate directly with the Board of Directors, or one or more individual directors, may direct correspondence in writing to the Board, any committee of the Board or any named directors, c/o the Corporate Secretary of the Company at PrivateBancorp, Inc., 70 West Madison, Suite 900, Chicago, Illinois 60602. The Company’s policy is to forward written communications received from stockholders to the appropriate directors, unless the communication consists of marketing materials or other general solicitations.

 

Policies adopted by the Board of Directors encourage directors to attend the Company’s annual meeting of stockholders each year. With the exception of Messrs. Richman, Roche and Tyree, each of whom joined the Board of Directors during the fourth quarter of 2007, each of the directors then serving attended the Company’s 2007 annual meeting other than Messrs. Castellano and Guyette.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth the beneficial ownership of the Company’s common stock as of March 26, 2008, with respect to (1) each director, nominee for director and named executive officer of the Company; (2) all directors and executive officers of the Company as a group; and (3) each beneficial owner of more than 5% of any class of voting securities of the Company.

 

 

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Summary

 

2007 was a transformational year for us. Beginning in the latter part of 2006 and continuing into early 2007, declining market conditions affecting lending and business levels put pressure on our ability to grow our franchise at the same pace as in past years. In addition, our Chairman and then Chief Executive Officer, Mr. Mandell, who turned 66 during the year, increased our focus on succession planning. By themselves, these factors signaled that 2007 would be a transition year. The April 2007 announcement by ABN AMRO of its agreement to sell LaSalle Bank, N.A., Chicago’s and the Midwest’s leading relationship-based, middle market commercial lender, to Bank of America presented us with a once-in-a-lifetime strategic opportunity.

 

We, like other banks in Chicago, anticipated that the sale of LaSalle Bank would cause significant disruption in the Chicago middle market for commercial bankers and for commercial banking relationships. We believed a gap in middle market lending and commercial banking would be created by the sale. We determined that if we could recruit a significant number of senior commercial banking and other officers from LaSalle, we could successfully execute a plan to fill that gap. In doing so, we could transform the Company into a larger and more diversified financial institution with a broader and deeper management team. We believed that if we could successfully exploit this opportunity, we could resume or even exceed the pace of growth we had experienced in prior years while enhancing stockholder value over the long term. In order to seize the opportunity, we developed a Strategic Growth Plan and management succession plan that had, at the core, tactics for recruiting LaSalle’s top middle market lenders, commercial bankers and executives.

 

We were successful in executing the recruiting goal of our Strategic Growth Plan. During the fourth quarter of 2007, we hired our new Chief Executive Officer, Larry Richman, and approximately 62 commercial banking and other officers from LaSalle joined us in Chicago and other market locations. We attribute our success to an aggressive recruiting plan executed by our senior officers, led by Mr. Mandell, the support of our Board of Directors and our willingness to commit substantial resources and use significant performance-based pay to capture this strategic opportunity.

 

The competition for the LaSalle senior officers we recruited was substantial. We believe we prevailed over our competitors for this talent for several reasons.

 

 

We also took significant steps to recognize, reward and motivate our existing management team by making performance-based transformation equity awards and adjusting pay levels to align those with the new compensation program. We believe these steps were key in order to achieve an effective succession to our new CEO, retain what has been a successful group of officers and promote a one-team approach to growing our franchise.

Our Strategic Growth Plan calls for us to evolve and reposition our business and brand and thereby capture new and larger client relationships. Substantial growth and improvement in our financial performance and return to stockholders will be required to meet the financial goals of our Strategic Growth Plan. Our new compensation program reflects a major shift in our approach to executive compensation consistent with this evolution. We have repositioned our compensation program to enable us to attract and retain the talent and relationships needed for our strategic initiative to be successful. Although the new program represents substantial cost and dilution to our stockholders, it is appropriate in light of the strategic opportunity we captured. We have made a substantial majority of the value of the compensation package contingent on performance. To earn the bulk of the compensation, we must achieve our strategic plan goals of significant long-term earnings per share and stock price growth. This assures alignment between the interests of our management team and our stockholders.

 

The compensation reported in this proxy statement primarily reflects the new compensation program mentioned. In the following sections of this Compensation Discussion and Analysis, we describe and analyze:

 

 

Our Compensation Committee and Its Practices

 

Membership. The Compensation Committee of our Board of Directors has five members: Messrs. Guyette (Chairman), Daly, Rabin and Silva and Ms. McKissack. Each of the members is an “independent” director in accordance with NASDAQ rules. During 2007, certain decisions affecting compensation were made by the Special Committee of the Board of Directors formed by the Board to oversee the Company’s efforts relating to the implementation of the Strategic Growth Plan. The members of the Special Committee were Messrs. Coleman, Guyette and Rybak, each of whom is also an “independent” director. The participation of Mr. Guyette, the Chairman of the Compensation Committee, gave the Special Committee the benefit of the perspective of the Compensation Committee when the Special Committee acted on compensation-related matters.

 

Duties and Process. The Compensation Committee operates under a written charter adopted by the Board of Directors. A copy of the current charter is posted under the Investor Relations portion of the Company’s website at www.pvtb.com.

 

The Compensation Committee is responsible for implementing and monitoring our overall executive compensation program. This responsibility includes:

 

 

 

In performing its responsibilities, the Compensation Committee takes into account any number of relevant factors, which may include:

 

 

Compensation Consultant. The Compensation Committee receives the advice of a compensation consultant in determining the amount and form of executive and director compensation. In years prior to 2007 and during the early part of 2007, the Committee’s outside consultant was Frederic Cook & Associates. Frederic Cook provided the Committee with comparative, competitive pay data and advice with respect to decisions affecting the Company’s CEO, Mr. Mandell, and other senior executives and directors.

 

In May 2007, the Compensation Committee retained Deloitte Consulting as special compensation consultant in connection with its succession planning activities and review of our agreements with Mr. Mandell. As our Strategic Growth Plan evolved, Deloitte provided benchmarking and advice relating to the development of the new compensation program that was designed in connection with our recruitment efforts. This program included the development of the long-term transformational equity incentive opportunity levels, performance hurdles, salaries and bonus amounts. In October 2007, the Committee determined to retain Deloitte Consulting as its on-going consultant, replacing Frederic Cook.

 

Benchmarking and Peer Group Data. Prior to developing the new compensation program, we targeted a compensation package for our executive officers intended to provide total compensation between the median and the 75th percentile of the total compensation paid by a peer group of bank holding companies consisting of financial institutions with which we competed for talent or which are of a size or business focus similar to ours. To assist in making this comparison, Frederic Cook provided benchmarking information annually regarding current compensation practices of the peer group. The Committee determines the companies included in the Peer Group annually with input from our compensation consulting firm and our chief executive officer. For the last completed fiscal year, the Peer Group consisted of the following 18 companies:

 

 

We attempt to maintain continuity in the peer group from year to year, but changes in the peer group have occurred over the years as our Company has grown in size, and other companies have either entered or exited the publicly-traded marketplace.

 

In late 2007, we asked Deloitte to review our existing peer group and make recommendations for an updated peer group based upon our new strategic direction and goals we had set for asset size and profitability.

With the input of Deloitte and management, in January 2008 the Committee approved a peer group consisting of the following 17 financial institutions:

 

 

This peer group reflects bank holding companies from around the country that emphasize commercial lending and wealth management and match our target asset size and market capitalization. The peer group entities range in asset size from approximately $6.6 billion to $20.9 billion as of September 30, 2007 and market capitalization at year-end 2007 from approximately $830 million to $3.5 billion, as compared to our asset size and market capitalization at December 31, 2007 of approximately $5.0 billion and $917 million, respectively. These companies reflect an appropriate group against which to benchmark our performance and compensation given their size compared to where we believe we can grow with successful execution of our Strategic Growth Plan. Notably, the long-term incentive awards made in support of our Strategic Growth Plan are largely conditioned on achieving asset and market capitalization growth to match this peer group.

 

Consideration of Internal Pay Equity and Local Market Considerations. In addition to benchmarking and peer group data, the Committee also considers internal pay comparisons and local market considerations as part of its decision-making process. The pay levels of the recruited executives with LaSalle were a material factor in setting their compensation coming into the Company and, in turn, have influenced the pay decisions made with respect to existing officers as it is important to have a unified compensation structure to support a unified management team.

 

Role of Management and Counsel. The Committee seeks input and recommendations from the CEO, CFO, General Counsel, Chief Human Resources Officer, Deloitte and outside counsel as part of its decision-making process. The executives and counsel provide support to the Committee in the discharge of its responsibilities, including information relating to individual and Company performance, tax, accounting and cost information and legal and corporate governance analysis and recommendations. Neither the CEO nor any other executive participates in the Committee’s deliberations with respect to the CEO’s compensation.

 

Executive Sessions. The Committee meets regularly in executive session with only Committee members and, occasionally the consultant or outside counsel present, to discuss matters and take final action with respect to compensation decisions.

 

Our Compensation Philosophy

 

Objectives of Our New Executive Compensation Program. Our new executive compensation program is designed to deliver superior pay for superior performance consistent with the building of long-term stockholder value. The program supports our objectives, including to:

 

 

 

Target Total Direct Compensation Opportunity. Our new executive compensation program reflects a new executive compensation philosophy. Our new Strategic Growth Plan reflects an aggressive repositioning of our executive pay practices to mirror the aggressive repositioning of our Company through our Strategic Growth Plan. In short, our new philosophy:

 

 

Performance Requirements. Our Strategic Growth Plan calls for substantial growth in earnings and stock price over the next five years. We have incorporated the goals of the Strategic Growth Plan into performance targets upon which we have conditioned a significant portion of the overall compensation our executives may earn. For example, a substantial majority of the special, multi-year transformational equity inducement awards made to the recruited officers and the corresponding awards made to officers of the foundation company during the fourth quarter of 2007 are subject to performance vesting. These awards include performance targets based on achieving 20% compound annual growth in earnings per share (EPS) from our EPS of $1.65 for the twelve months ended September 30, 2007 and on achieving 20% compound annual growth in our stock price from $27.91, the ten-day average prior to the date of the awards. The required levels of EPS and stock price growth for the long-term performance-based incentive awards to vest are illustrated in the table below. If achieved, we believe these performance targets would reflect top decile performance based on historical industry growth rates.

 

 

These performance targets and awards are discussed more fully below.

 

The Elements of Our New Compensation Program

 

Under our new compensation program, total target compensation is allocated among base salary, annual bonus, long-term incentives and benefits and perquisites. The average percentages for each of the three components for our CEO and other named executive officers for 2008 is reflected in the table below. For purposes of this table, we have evenly divided the GAAP accounting value of the special equity awards made in the fourth quarter of 2007 by five years, which represents the vesting period applicable to the transformational equity awards.

 

Base Salary. Base salary and benefits are the only non-variable elements of our executive compensation program. The Compensation Committee annually assesses a number of factors in determining base salaries for our executive officers. With respect to Messrs. Mandell and Klaeser, the Committee made salary adjustments during the first quarter of 2007 representing base salary increases of approximately 5% each. These adjustments were made with the input of the Committee’s compensation consultant, Frederic Cook, and continued the Committee’s prior practice of setting salaries below the peer group median.

 

With respect to Messrs. Richman, Hague and Lubin and Ms. Case, their initial salaries, which have been carried over into 2008, were determined in reference to their salaries at the time they left LaSalle Bank and, in the case of Ms. Case, the increase in responsibilities associated with her new position. In December 2007, the Committee adjusted Mr. Klaeser’s salary to bring it into line with the salary levels of the comparable officers who joined from LaSalle and the new compensation program. The 2008 base salaries for our named executive officers are set forth in the following table:

 

 

In addition, the Committee adjusted the base salary of Mr. Mandell, our Chairman and former CEO, to $660,000, retroactive to the beginning of 2007, in connection with the updating of his employment arrangements to reflect the success to date of our Strategic Growth Plan and CEO succession. Under those arrangements, Mr. Mandell’s base salary for 2008 will be $710,000.

 

Annual Bonus. Our annual bonus payments have historically represented a significant portion of the overall compensation package for our executives. As noted above, this will continue to be the case in 2008, as the annual bonus opportunity represents approximately 32% of the total target compensation opportunity.

 

During 2007 and in prior years, we used a bonus pool approach when determining annual bonus payments. The potential bonus pool was established in relation to our profit planning process with achievement of target EPS generating a bonus pool sufficient to award bonuses at above target levels. At EPS below the target level, the level of the bonus pool would decline, with the pool becoming entirely discretionary if 2007 EPS fell below a threshold level.

 

Once a bonus pool, if any, is established, all employees are eligible for bonus consideration. For 2007, we did not include any of the newly hired officers or staff for bonus consideration under our bonus pool approach as many of those officers, including Messrs. Hague and Lubin and Ms. Case, were entitled to “sign on” or “make whole” bonuses as part of their recruitment package. Mr. Richman agreed not to receive a “sign on” or “make whole” bonus as part of his compensation package, and he was not covered by the bonus pool and did not receive a bonus from the Company in 2007.

 

For 2007, the target EPS to fund the full bonus pool was $2.00, which represented an improvement of approximately 14% over 2006 EPS, and the threshold level was $1.91. Our EPS for 2007, even after adjusting to remove the costs associated with our Strategic Growth Plan, fell far short of both target and threshold EPS in 2007. As a result, determination of the bonus pool, if any, fell to the discretion of the Committee.

 

Prior to making the decision with respect to 2007 annual bonuses, the Committee considered recommendations from Mr. Richman and performance information and recommendations from Deloitte Consulting. Mr. Richman acknowledged that the Company’s 2007 financial performance, standing alone, suggested no bonus pool for 2007. However, Mr. Richman pointed out to the Committee that the bonus pool participants were a critical foundation upon which the execution of the Strategic Growth Plan was built and, accordingly, some amount of meaningful bonus payments was desirable to reinforce retention in light of the transformation taking place. Deloitte Consulting provided information regarding the Company’s trailing one,

three and five-year earnings growth and stock price performance, along with information regarding the anticipated 2007 bonus payout practices of other banking institutions.

 

Mr. Richman recommended that a bonus pool equal to approximately 50% of the original bonus pool be established to be allocated in a “waterfall” approach, with the largest percentage payouts relative to 2006 payouts being made to staff and lower level managing directors and associate managing directors. Under Mr. Richman’s approach, senior executives including Mr. Klaeser, would receive, on average, an annual bonus of 25% of their 2006 bonus. Deloitte Consulting noted that while current year financial performance lagged peers, the multi-year track record of the Company’s management and staff was strong when compared to peers. From Deloitte Consulting’s perspective, paying bonuses in the manner described by Mr. Richman was a reasonable method of balancing the Company’s pay for performance philosophy with the need to retain key people in the Company and that use of the “waterfall” approach enabled the Company to recognize and reward staff and lower level officers for their significant contributions while reducing the bonus payouts for senior management commensurate with the poorer current year financial performance and reflective of who had the most responsibility for the overall financial results than lower level employees.

 

Based on these recommendations and advice, the Committee approved a discretionary bonus pool for managing directors and associate managing directors for 2007 in the amount of $4.6 million and independently determined to apply the waterfall pattern in determining Mr. Mandell’s bonus. The Committee awarded a 2007 annual bonus of $300,000 to Mr. Mandell, which represented approximately 25% of the target bonus under his revised employment arrangements, and of $47,500 to Mr. Klaeser, which represented approximately 15% of Mr. Klaeser’s 2006 annual bonus. Mr. Klaeser’s award was set lower than the average level of 25% in recognition of a $100,000 special bonus the Committee had awarded to Mr. Klaeser in connection with his substantial efforts relating to the Strategic Growth Plan, including the successful completion of an approximately $200 million private place of common stock during November 2007.

 

In February 2008, the Committee established the annual bonus plan for 2008. Under the terms of the plan, a bonus pool will be established based on the Company’s 2008 financial performance. The financial performance metrics and weightings for the 2008 annual bonus plan are:

 

 

The Committee determined that these metrics and weightings emphasize important financial performance measures in light of the continuing transitioning of the Company’s business during 2008. The targets for each of the metrics are based upon the Company’s operating plan for 2008 as approved by the Board in February 2008. The 2008 operating plan establishes aggressive goals for revenue growth, EPS, core deposit growth and efficiency ratio improvement which reflect a trajectory toward attainment of the long-term compound annual growth targets for EPS applicable to the transitional equity awards and the effects of the continuing investments expected to be made in this transitional year for the Company under the Strategic Growth Plan. Achievement of the operating plan goals for each of the metrics will result in funding of the bonus pool at 75% of the target bonus level. Performance that exceeds or falls short of operating plan will result in funding levels in accordance with the matrix below.

 

As the matrix indicates, performance above the operating plan is required to reach bonus pool funding at 100% of target bonus levels. The Committee established the requirement for above plan performance in recognition of the fact that target total cash compensation levels for the Company’s executives are set at the 75th percentile of peer group. The bonus plan also provides that in the event EPS is below the threshold level, no amount will be funded in the incentive pool.

 

In accordance with their employment agreements, the Committee established target bonus percentages for Mr. Richman and other named executive officers as set forth in the following table. Mr. Mandell’s target bonus for 2008 is 185% of his base salary.

 

 

The actual bonus awarded will depend on the level of the bonus pool funded by the Company’s full year financial performance relative to the financial performance metrics and individual performance factors. For those executives with responsibility for specific units or functions, individual factors will tie primarily to the performance of those units and functions as well as achievement of individual performance goals in areas such as integrity, client service, team building, and contributions to the Company’s culture. It is anticipated that at least half of the final bonus amount will be subject to consideration of individual performance factors and, as a result, an executive’s final bonus amount will represent a greater or lesser percentage than the percentage of bonus pool funding, and total bonuses awarded may be more or less than the aggregate incentive pool funded on the bases of Company-wide financial performance.

 

Long Term Incentives. Prior to 2007, we provided long-term incentive compensation exclusively through time-vested stock options and restricted stock awards under our stockholder approved Incentive Compensation Plan. During 2007, we established two new equity-based incentive compensation plans to facilitate the execution of our Strategic Growth Plan:

 

 

As described above, we used multi-year, performance-based transformational equity awards as a material inducement for the former LaSalle Bank officers to join us. The amount and design of these awards was developed by the Committee with input from management, Deloitte Consulting and its other advisors. In developing the long-term incentive piece of the new compensation program, the Committee sought to provide the newly recruited executives and employees with the potential for substantial upside gain only if those

executives remain with the Company for the long term and are able to deliver significant value to the stockholders. We achieved this objective by:

 

 

The inducement awards for Messrs. Richman, Hague and Lubin and Ms. Case were made on November 1, 2007, the day Mr. Richman joined the Company, in accordance with agreements entered into in connection with the recruitment of each of the executives. The inducement award was a combination of performance-vested stock options, time-vested stock options, and performance shares.

 

The stock options have an exercise price of $26.10, the closing price of the Company’s common stock on November 1, 2007. One-half of the stock options (the performance-vesting options) and the performance shares will vest subject to satisfying financial performance requirements and continued employment during the five-year performance period of 2008 through 2012. Under the performance vesting provisions, one-fifth of the performance-vesting options will vest as of December 31st of each year beginning in 2008 if the required 20% compound annual growth in earnings per share (EPS) has been achieved and one-fifth of the performance shares will vest as of December 31st of each year beginning in 2008 if a required 20% compound annual growth in the Company’s stock price has been achieved during such year. The other half of the stock options are time-vesting options which will vest on each December 31st of each year beginning in 2008 through 2012, subject to continued employment on each such date.

 

Under the terms of the performance-based awards, achievement of the stock price requirement is based on attainment of the required stock price for a period of twenty consecutive trading days during the year. The performance share awards have a catch-up provision permitting amounts to vest in a subsequent year if the stock price requirement for a later year is achieved. The performance-vesting options provide an opportunity for partial vesting at the end of the five-year performance period if cumulative five-year EPS reflects a compound annual growth rate of at least 15%. Each of the performance awards provides for minimum vesting of one-fourth of the performance-vesting options and performance shares, less amounts previously vested, if employment continues through December 31, 2012. In the event of a change in control, death or disability prior to December 31, 2012, any unvested awards will vest in full. Additional vesting is also provided in the event of involuntary termination other than for cause.

 

In addition, on November 1, 2007 and on several dates subsequent, we made awards under the new 2007 Long-Term Incentive Compensation Plan to 28 foundation officers of the Company to provide similar incentives to them to align them with the newly-recruited officers, to support the Strategic Growth Plan and to build long-term stockholder value. The amount of the awards made to the existing officers was less than those made in connection with recruitment, primarily in recognition of the inducement premium embedded in the awards made to the former LaSalle Bank officers and the upside potential represented by stock options and other awards previously granted to incumbent management.

 

As discussed above, we believe these provisions align all of our executives’ interests with the interests of the stockholders by encouraging behavior intended to result in significant growth in EPS and stock price and represent an appropriate allocation of the potential upside gain to management.

 

Because the recruitment grants and special equity grants represent multiple years’ awards, it is not anticipated that significant additional long term incentive awards will be made to Mr. Richman or the other named executive officers until 2010. We do expect to make awards to new hires and to newly promoted officers. We plan to make such awards periodically on a fixed date, such as the first business day of the month following the hire or promotion and will not time those awards based on earnings releases or other

announcements. We also anticipate making annual long-term incentive awards to officers who did not receive transformation equity awards following approval of the 2007 Long-Term Incentive Compensation Plan. We expect to make those grants on or shortly after the annual meeting of stockholders and anticipate that in future years annual awards, if any, will be made around the time of our annual meeting. Stock options are priced at the closing price on the date of grant. We do not back date stock option grants.

 

In April 2007, the Committee approved equity grants for Mr. Mandell of awards originally scheduled to be made in September 2006 but which were delayed pending a complete review of his compensation arrangements. The Committee reviewed benchmarking data provided by Frederic Cook and an analysis of historical awards to Mr. Mandell and his direct reports in determining the size of the awards.

 

On November 1, 2007, we made a special award of 37,500 restricted stock units to Mr. Mandell in recognition of his completion of his succession planning goals that had been established earlier in the year. The award has a three-year vesting schedule and the first tranche vested on December 31, 2007. In addition, in accordance with our arrangements with Mr. Mandell, he received an annual equity incentive award of restricted stock units and stock options in December 2007. These annual awards vest in full on the first anniversary of the date of grant. That award, as well as the succession planning award, were made to Mr. Mandell in recognition of his contributions to the Company and implementation of the Strategic Growth Plan.

 

Executive Benefits and Perquisites.  Executive benefits and perquisites are not a significant portion of the compensation we provide to our CEO and other senior executives.

 

Our CEO and each of our named executive officers participate in the employee benefit programs we provide to our employees generally, including our 401(k) savings and employee stock ownership (KSOP) plan and health and life insurance programs, and in disability insurance program for senior officers. We do not maintain a defined benefit plan or supplemental executive retirement plan (SERP). We do maintain a non-qualified deferred compensation plan under which our executives may defer all or a portion of their current cash compensation. We do not provide a matching or other contribution under this plan.

 

During 2007, we provided Mr. Mandell with a driver who is also a Company employee in order to assist him with the discharge of his duties. We reimburse our senior executives, including our CEO, for dues and business expenses associated with membership at certain clubs. We provide these benefits because we believe it is a fairly standard benefit within the financial institutions industry and one that assists our executives with their business development activities on behalf of the Company. During 2007, we also reimbursed some of the named executive officers for legal expenses they incurred in connection with the negotiation and review of their employment arrangements. We provided this benefit in order to facilitate recruitment and the standardization of our employment agreements.

 

Employment Agreements. Since becoming a public company, we have maintained employment agreements with our CEO and other senior executives. We have done so because employment agreements provide certainty and stability to our management team and are typical within our industry, particularly in light of consolidation that has and is likely to continue to take place. The employment agreements contain commitments with respect to the executive’s position and compensation, provide for severance benefits in the event of involuntary termination within or outside the context of a change in control and obtain commitments from the executive with respect to confidentiality and restrictive covenants.

 

In connection with the execution of our Strategic Growth Plan, we entered into employment agreements with Mr. Richman and other newly-recruited officers. Our willingness to enter into these agreements was an important factor in our ability to attract the executives. We subsequently entered into new employment agreements with Mr. Mandell as part of our succession planning process and with Mr. Klaeser and other members of our management team to conform their arrangements to those of the newly-recruited executives as part of our desire to develop a one-team approach. The agreements were based on our assessment of current competitive practice, recruitment considerations, input from Deloitte Consulting and our advisors and negotiations with the executives. For a more complete description of the employment agreements and potential payments to the CEO and other named executive officers in the event of termination of employment or a

change in control, see “Executive Compensation — Employment Agreements” and “Potential Payments on Termination or Change in Control” below.

 

Additional Information Relating to Executive Compensation

 

Stock Ownership Guidelines. The Company believes that significant stock ownership by our executive officers and directors strengthens the alignment of the executive officers and directors with the interests of our stockholders and promotes our long term business objectives. Prior to the recruitment of executives in connection with our Strategic Growth Plan, our executive officers and directors in general had provided long service to the Company and held significant amounts of our stock. In light of the significant recruitment that has occurred as a result of our Strategic Growth Plan and to reflect our commitment to sound corporate governance practices, in March 2008 we adopted stock ownership guidelines for our executive officers and directors.

 

Under the stock ownership guidelines, our Chairman of the Board, non-employee directors, Chief Executive Officer and other executive officers are expected to accumulate shares of our common stock to meet the applicable ownership level within five years of the later of March 31, 2008 or their election or appointment (the “accumulation period”). For purposes of the guidelines, “shares” include shares held as of March 1, 2008 and shares acquired thereafter in open market purchases, upon exercise of stock options or vesting of performance shares or restricted shares or other stock-based awards, or shares or units accumulated through our 401(k)/ESOP plan or deferred compensation plan. To meet the required level, the officer or director must have acquired and hold shares having a value equal to the applicable level. Until the officer or director has reached the applicable level, the officer or director must retain at least 50% of the number of shares (net of taxes) received by the officer or director upon exercise of stock options or vesting of stock awards. The ownership guidelines are indicated in the following table.

 

 

The Compensation Committee will review progress toward compliance with the guidelines from time to time and may impose additional restrictions or limitations on a director or officer as appropriate to achieve the purposes of the guidelines.

 

Policy Regarding Deductibility of Executive Compensation. Section 162(m) of the Internal Revenue Code limits the tax deductibility of executive compensation for officers of public companies. Section 162(m) generally disallows the ordinary business expense deduction for compensation in excess of $1,000,000 paid to the CEO and of the three most highly compensated individuals who are employed as executive officers at year-end and included as named executive officers in the proxy statement. However, certain performance-based compensation is excluded from the Section 162(m) limits if paid pursuant to plans approved by stockholders of the Company, such as the Company’s existing Incentive Compensation Plan and, if approved by the stockholders, the 2007 Long-Term Incentive Plan. Generally, it has been the Committee’s practice to structure incentive compensation paid to such officers as performance-based compensation under Section 162(m). For example, in connection with the 2008 annual bonus program, the Committee established performance-based awards under the Incentive Compensation Plan in order to qualify any bonus earned by the Chief Executive Officer and other executive officers as performance-based compensation under Section 162(m). However, the long-term incentive compensation and sign-on and make-up bonuses awarded in connection with the recruitment of Mr. Richman and other officers, as well as the special equity awards made to the existing management team, were not awarded under a stockholder approved plan and will not qualify for the “performance-based” compensation exception. In light of the importance of the Strategic Growth Plan and succession planning initiatives, and the need to make the awards without the delay that would have been required to obtain stockholder approval or the recruitment uncertainty had the awards been contingent on such approval, the Committee determined it to be appropriate to make these awards knowing that some nondeductability may arise. The Committee or the Board may again pay or provide compensation that is subject to the deduction limitations under Code Section 162(m) in circumstances where the Committee believes it to be appropriate to do so.

 

COMPENSATION COMMITTEE REPORT

 

The following Compensation Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Acts”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

 

The Compensation Committee of the Board of Directors of the Company oversees the Company’s compensation program on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee reviewed and discussed with management the foregoing Compensation Discussion and Analysis set forth in this proxy statement.

 

In addition, during 2007, the Special Committee of the Board of Directors established in connection with implementation of our Strategic Growth Plan authorized certain actions relating to the Company’s executive compensation program. The Special Committee has also reviewed and discussed with the Compensation Committee and management the foregoing Compensation and Discussion and Analysis set forth in this proxy statement.

 

In reliance on the review and discussions referred to above, the Compensation Committee and Special Committee have each recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and the Company’s proxy statement in connection with the Company’s 2008 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission.

 

Compensation Committee

 

Patrick F. Daly
James M. Guyette (Chair)
Cheryl Mayberry McKissack
Edward W. Rabin
Alejandro Silva

 

Special Committee

 

Robert F. Coleman
James M. Guyette
William R. Rybak

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table shows cash and non-cash compensation for the year ended December 31, 2007 and December 31, 2006, for the persons serving as the Company’s “Principal Executive Officer” and “Principal Financial Officer” during those year if applicable, and for the next three most highly-compensated executive officers who were serving as executive officers at December 31, 2007.

 

 

 

 

Plan-Based Award Grants in Last Fiscal Year

 

The following table shows awards of restricted stock, performance shares and stock options made to each NEO in 2007 and the fair value of the awards as of the grant date. For a discussion of the terms of these awards see “Compensation Discussion and Analysis — Long-Term Incentives.”

 

2007 Grants of Plan-Based Awards

 

 

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table summarizes for each NEO the number of shares of common stock subject to outstanding equity awards and the value of such awards that were unexercised or that have not vested at December 31, 2007.

 

Outstanding Equity Awards as of December 31, 2007

 

 

 

 

 

 

 

 

 

 

 

2007 Option Exercises and Stock Vested

 

The following table shows the number of stock option awards exercised by each NEO in 2007 and the value realized on exercise. It also shows the number of shares acquired upon the vesting of restricted stock awards and the value realized on vesting.

 

 

 

 

2007 Nonqualified Deferred Compensation

 

Our executive officers and members of the boards of directors of the Company and its subsidiaries are eligible to participate in the PrivateBancorp Inc. Deferred Compensation Plan. The Deferred Compensation Plan is a non-qualified plan that permits participants to defer receipt of cash compensation otherwise payable to them. Except for an “earnings” credit on the deferred amounts, the Company does not provide any contributions or credits to participants under the Deferred Compensation Plan.

 

Executive officers who participate in the Plan may elect to defer up to 50% of annual base salary and 100% of annual bonus amounts under the Deferred Compensation Plan. Directors may elect to defer up to 100% of annual directors fees. Amounts deferred are credited to an account maintained under the Plan. This account reflects our liability to the participant; we do not deposit amounts into a trust or otherwise set aside funds to pay the deferred amounts. Amounts deferred will be paid at a future date, which may be the date of a change in control of the Company, or at termination of employment or service as a director, as the participant may elect. Payment is made in a lump sum or annual installments up to ten years. All elections and payments under the Plan are subject to compliance with requirements of Section 409A of the Code which may limit elections and require a delay in payment of benefits in certain circumstances.

 

While deferred, amounts are credited with “earnings” as if they were invested in either a fixed income account with interest credited based on our prime rate, or in deferred stock units (“DSUs”), as the participant may elect at the time the amounts are deferred. Our prime rate of interest changes periodically based on market conditions and ranged in 2007 from 8.25% to 7.25%. The balance of the participants accounts under the Plan are adjusted from time to time, depending on the performance of the investment options elected. The participant’s account credited to the fixed income option is paid in cash and the amount credited in DSUs is paid in shares of our stock.

The following table sets forth information relating to the activity in the Deferred Compensation Plan accounts of the named executive officers during 2007 and the aggregate balance of the accounts as of December 31, 2007. Similar information relating to our non-employee directors can be found in the Director Compensation Table.

 

 

 

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

 

Our current agreements are based on the form of agreements used in the recruitment of Mr. Richman and the other former LaSalle officers. In addition to the agreements with the newly-recruited executives, we entered into new agreements with our foundation officers patterned after the agreements for the new recruits. In general, the employment agreements we have entered into with Messrs Richman, Klaeser, Hague and Lubin, Ms. Case and our other current executive officers include the following provisions:

 

 

In connection with the management succession and Strategic Growth Plan, Mr. Mandell became the executive Chairman of the Board of Directors. As a result, we entered into changes to Mr. Mandell’s employment arrangements to provide for his continuing service through 2012. Mr. Mandell’s base compensation has been set at $660,000 for 2007, $710,000 for 2008 and $760,000 for 2009, with a target bonus in each of those years of 185% of base salary and annual equity awards with a value of $600,000, provided one-half in stock options and one-half in restricted stock. Mr. Mandell will be entitled to receive total compensation of $2 million in 2010 and $1 million in each of 2011 and 2012, and will not participate in bonus or incentive plans during those years. Mr. Mandell also received a special retention equity award and a succession equity award.

 

Information with respect to the levels of base salary, annual bonus opportunity, inducement equity, sign-on, make-whole or special retention awards provided to Messrs. Richman, Klaeser, Hague and Lubin and Ms. Case and compensation provided to Mr. Mandell, is set forth in the Compensation Discussion and Analysis and tables and narrative set forth above. The following discussion looks at each termination of employment situation — voluntary resignation, discharge for cause, discharge without cause, resignation due to constructive discharge, death and disability — and a change in control of the Company, and describes any additional amounts that the Company would pay or provide to these executive officers or their beneficiaries as a result. The discussion below and the amounts shown reflect certain assumptions we have made in accordance with the SEC’s rules. These assumptions are that the termination of employment or change in control occurred on December 31, 2007 and that the value of a share of our stock on that day was $32.65, the closing price on December 31, 2007, the last trading day of 2007.

 

In addition, the following discussion and amounts do not include the payments and benefits that are not enhanced by the termination of employment or change in control. These payments and benefits include:

 

 

For convenience, the payments and benefits described above are referred to in the following discussion as the executive’s “vested benefits.”

Voluntary Resignation; Retirement

 

We are not obligated to pay amounts over and above vested benefits in the event of employment termination due to voluntary resignation. Upon voluntary resignation, the executive is bound by the confidentiality agreement and restrictive covenants contained in the employment agreement.

 

A voluntary resignation that qualifies as a retirement may affect the disposition of outstanding equity awards. An executive who retires after age 55 and completion of seven years of service is entitled to a three-year (or the remaining term, if shorter) post-retirement exercise period for certain vested options held at the time of resignation. If the executive is at least age 62 and has completed at least ten years of service at the time of resignation, and the executive remains fully retired from the banking industry, he or she will be eligible for special retirement status. Special retirement status permits the executive to continue to vest in all or a portion of certain equity awards while a special retiree.

 

Except for Mr. Mandell, none of our named executive officers has qualified for retirement treatment with respect to any equity awards as of December 31, 2007. If Mr. Mandell had retired on December 31, 2007, he would have been entitled to the extended, post-retirement exercise period with respect to all of his vested options and to special retiree treatment with respect to the options and restricted stock units granted to him in April 2007 and December 2007. With respect to the awards made in November 2007, Mr. Mandell would be entitled to vest in the performance-vesting options and performance shares to the extent of the portion of those awards, if any, that vest on December 31, 2008, to a pro rata portion of the time-vesting options based on the two month period from the date of grant to December 31, 2007 and would not receive any additional vesting with respect to the succession planning award. For additional information regarding these awards, see the “Outstanding Equity Awards as of December 31, 2007” table.

 

Discharge for Cause

 

We are not obligated to pay any amounts over and above vested benefits if an executive’s employment terminates because of discharge for cause and the executive is bound by the confidentiality commitment and restrictive covenants contained in his employment agreement with us. The executive’s right to exercise vested options expires upon discharge for cause. A discharge will be for cause if the executive has intentionally failed to perform his or her duties, willfully engaged in illegal or gross misconduct that harms the Company, or been convicted of a felony.

 

Death or Disability

 

We provide our employees, including our NEOs, with group life, accidental death and dismemberment, and disability insurance coverage. The group life insurance benefit is equal to two times base salary (and commissions, if applicable) to a maximum of $400,000. The death benefit for each NEO is $400,000. The accidental death and dismemberment benefit is equal to two times base salary to a maximum of $400,000 for each of our NEOs. The disability benefit, which is set forth in the next table below, is a monthly benefit equal to 60% of monthly earnings at the time of disability up to a maximum benefit of $10,000 per month, payable until the executive reaches age 67. The amount of the payments, assuming disability occurred on December 31, 2007, are set forth in the following table.