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Taylor Capital Group DEF 14A 2008 Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant x Filed by a Party other than the Registrant ¨ Check the appropriate box:
TAYLOR CAPITAL GROUP, INC. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box):
Table of ContentsTAYLOR CAPITAL GROUP, INC. 9550 West Higgins Road Rosemont, Illinois 60018 (847) 653-7978 Dear Stockholder: You are cordially invited to attend a Special Meeting of Stockholders of Taylor Capital Group, Inc., that will be held on Monday, September 29, 2008, at 9:00 a.m., central time, at the Standard Club, 320 South Plymouth Court, Chicago, Illinois, 60604. On September 4, 2008, we announced that we entered into a securities purchase agreement to sell 2,400,000 shares of 8.0% non-cumulative convertible perpetual preferred stock, Series A, to certain accredited investors, including certain of our directors, officers and other employees, in a private placement for a total purchase price of $60 million. The investors in the transaction include Harrison I. Steans and Jennifer W. Steans, certain of their family members and affiliates, members of the Taylor family and their affiliates, members of our management and of Cole Taylor Bank’s management, and a number of Chicago-based investment firms and individuals. Holders of the preferred stock will be entitled to non-cumulative dividends at an annual rate of 8.0% of the $25.00 per share liquidation preference of the preferred stock, and the preferred stock will be convertible into an aggregate of 6,000,000 shares of our common stock at a conversion price of $10.00 per share, subject to adjustment as described in the accompanying proxy statement. The preferred stock transaction will be subject to a number of closing conditions, including the approval by our stockholders of the proposals set forth in the accompanying proxy statement and the receipt of any required regulatory and other consents and approvals. As previously announced, we are also pursuing a private placement to certain accredited investors, including certain of our directors, officers and other employees, of units consisting of 10% subordinated notes issued by our wholly-owned subsidiary bank, Cole Taylor Bank, and warrants to purchase an aggregate of 900,000 shares of our common stock at an exercise price of $10.00 per share (subject to adjustment as described in the accompanying proxy statement). We are seeking to raise $60 million in additional capital in this unit offering, and anticipate that it will be consummated concurrently with the preferred stock transaction. The net proceeds of the preferred stock offering and the subordinated debt and warrant unit offering will be used primarily to strengthen the balance sheet and regulatory capital of our wholly-owned subsidiary bank, Cole Taylor Bank; for debt service and dividends payable by us; and to help fund our strategic growth initiative. We have agreed to appoint Harrison I. Steans and Jennifer W. Steans to serve as directors effective upon the consummation of the preferred stock transaction, or, if earlier, any closing with respect to the Designated Preferred as described in the accompanying proxy statement. If the proposals set forth in the accompanying proxy statement are approved by stockholders at the Special Meeting, then upon the filing of our Third Amended and Restated Certificate of Incorporation, we will also establish an Executive Committee in accordance with Section 141(a) of the Delaware General Corporation Law. The Executive Committee will serve for a period of up to five years from the consummation of the preferred stock transaction and will be comprised of three members of our Board, who shall consist of (1) Harrison I. Steans, Jennifer W. Steans or a director designated for nomination by Financial Investments Corporation (“FIC”), a corporation controlled by Harrison I. Steans and Jennifer W. Steans, (2) a director designated for nomination by the Taylor family and (3) our most senior executive officer not affiliated with FIC or the Taylor family. It is contemplated that the initial members of the Executive Committee will be myself (i.e., Bruce W. Taylor), Harrison I. Steans, and Mark A. Hoppe. The powers and authority of the Executive Committee will be set forth in a proposed Third Amended and Restated Certificate of Incorporation, which our Board of Directors has approved and recommended for adoption by our stockholders. In connection with the foregoing matters, our Board of Directors also has approved, and recommended that our stockholders approve, certain amendments to our Second Amended and Restated By-laws. The proposed amendments to our Certificate of Incorporation and By-laws are described in the accompanying proxy statement. In connection with the transaction, we will also enter into a Management Services Agreement with FIC pursuant to which FIC will receive a warrant to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $20.00 per share (subject to adjustment) as described in the accompanying proxy statement.
Table of ContentsAt the Special Meeting, stockholders will be asked to consider and vote upon the following proposals:
Our Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that stockholders vote “FOR” each of the foregoing proposals. Each of these matters is more fully described in the attached Notice of Special Meeting of Stockholders and the accompanying proxy statement. Members of the Taylor family, who collectively held approximately 44% of the total voting power of our outstanding shares of common stock as of the Record Date for the Special Meeting, have agreed to vote their shares of common stock in favor of each of the above proposals at the Special Meeting. Your vote is important. Regardless of your plans for attending in person, it is important that your shares be represented at the Special Meeting. On behalf of our Board of Directors, I urge you to vote your shares by telephone or via the Internet, as explained on the proxy card, or to complete, sign, date and return the enclosed proxy card in the enclosed stamped envelope. Signing this proxy will not prevent you from voting in person should you be able to attend the Special Meeting, but will assure that your vote will be counted if for any reason you are unable to attend. We look forward to seeing you at the Special Meeting. Thank you for your continued support of the Company.
Rosemont, Illinois September 15, 2008
Table of ContentsTAYLOR CAPITAL GROUP, INC. 9550 West Higgins Road Rosemont, Illinois 60018 (847) 653-7978 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held September 29, 2008 A special meeting of Stockholders of Taylor Capital Group, Inc. will be held at the Standard Club, 320 South Plymouth Court, Chicago, Illinois, 60604, on Monday, September 29, 2008, at 9:00 a.m., central time, for the purpose of considering and voting upon the following proposals:
These matters are more fully described in the proxy statement accompanying this notice. The Board of Directors has fixed the close of business on August 28, 2008 as the Record Date for determining stockholders entitled to notice of, and to vote at, the Special Meeting and at any adjournments or postponements thereof. Ten days prior to the Special Meeting, a list of all stockholders entitled to vote at the meeting will be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, at our office in Rosemont, Illinois. A proxy statement, form of proxy and self-addressed envelope are enclosed. Please complete, sign and date the proxy card, and return it promptly in the enclosed stamped envelope. You may also choose to vote your shares by telephone or the Internet, as explained on the proxy card. If you attend the meeting, you may withdraw your proxy and vote in person.
Rosemont, Illinois September 15, 2008
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Table of Contents9550 West Higgins Road Rosemont, Illinois 60018 (847) 653-7978 PROXY STATEMENT For the Special Meeting of Stockholders To Be Held On Monday, September 29, 2008 Our Board of Directors is soliciting proxies to be voted at the Special Meeting of Stockholders on September 29, 2008, at 9:00 a.m., central time, and at any adjournments or postponements thereof (the “Special Meeting”), for the purposes set forth in the attached Notice of Special Meeting of Stockholders. The notice, this proxy statement and the form of proxy enclosed are first being sent to stockholders on or about September 15, 2008. As used in this proxy statement, the terms “the Company,” “we,” “us” and “our” refer to Taylor Capital Group, Inc. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL STOCKHOLDERS MEETING TO BE HELD ON SEPTEMBER 29, 2008 The Company’s Proxy Statement for the Special Meeting of Stockholders to be held on September 29, 2008 is available at: http://www.taylorcapitalgroup.com Questions and Answers About These Proxy Materials and the Special Meeting The following questions and answers briefly discuss some commonly asked questions about these proxy materials and the Special Meeting. These questions and answers may not address all questions that may be important to you as a stockholder. You should read carefully this entire proxy statement, including each of the appendices.
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In connection with the Preferred Stock transaction, we will also enter into a Management Services Agreement with FIC, pursuant to which, upon the consummation of the Preferred Stock transaction (or the Designated Preferred transaction, if applicable), we will issue to FIC the FIC Warrant (i.e., a warrant to purchase 500,000 shares of our common stock at an exercise price of $20.00 per share (subject to adjustment as described in this proxy statement)).
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Table of ContentsWe also are pursuing a private placement to accredited investors, including certain of our directors, officers and other employees, of $60 million in a unit offering, in which each unit consists of (1) a 10% subordinated note in the principal amount of $1,000, issued by our wholly-owned subsidiary bank, Cole Taylor Bank (the “Bank”), and (2) a warrant to purchase 15 shares (subject to adjustment as described herein) of our common stock, which will be exercisable after the Special Meeting whether or not Proposal 2 is approved by the stockholders at the Special Meeting. The exercise price of the warrants will be $10.00 per share of our common stock (subject to adjustment as described in this proxy statement), except that at any time prior to stockholder approval of Proposal 2, the exercise price of such warrants purchased by any of our officers, directors (other than any person who becomes a director at the closing of the transaction), employees or consultants will be equal to the closing bid price of our common stock (as reported by Nasdaq) on September 4, 2008 (the date on which all of the subscription agreements were executed and delivered, which occurred after 4:00 p.m., New York City time).
The 6,000,000 shares of common stock issuable upon conversion of the Preferred Stock, 500,000 shares of common stock issuable upon the exercise of the FIC Warrant, and 900,000 shares of common stock issuable in the aggregate upon the exercise of all of the unit offering warrants (in each such case subject to adjustment as described in this proxy statement) would in the aggregate represent far in excess of 20% of the 11,011,184 outstanding shares of our common stock on September 4, 2008, the date we entered into the Securities Purchase Agreement for the Preferred Stock offering. The conversion price for the Preferred Stock and the exercise price of the unit offering warrants will in each case be greater than $8.50, the closing bid price of our common stock on the date we entered into the letter of intent with respect to this transaction on Friday, July 25, 2008 (which we publicly announced on July 29, 2008). However, the Preferred Stock conversion price and the unit offering warrant exercise prices will each be less than the closing bid price and the book value per share of our common stock on September 4, 2008, the last completed trading day prior to execution and delivery of the Securities Purchase Agreement. Further, while the exercise price of the FIC Warrant will also be greater than the price of our common stock on the date we entered into the letter of intent with respect to this transaction, and will be greater than the closing bid price of our common stock on September 4, 2008, the last completed trading day prior to execution and delivery of the Securities Purchase Agreement, it will be less than the book value per share of our common stock on September 4, 2008. On the date of our entry into the Securities Purchase Agreement (which occurred after 4:00 p.m., New York City time), the closing bid price per share of our common stock on Nasdaq was $12.75 and the book value of our common stock was $20.19 per share (based on our stockholders’ equity as of June 30, 2008). Furthermore, certain of our directors, executive officers and employees will be purchasing shares of Preferred Stock and unit offering warrants. Under Nasdaq Marketplace Rule 4350(i)(1)(A), the shares of Preferred Stock and warrants issued to these individuals constitute an equity compensation arrangement subject to stockholder approval because these securities will be issued with a conversion price and exercise price, respectively, below the market value of our common stock (i.e., the closing bid price of our common stock as reported by Nasdaq) on September 4, 2008, the date we entered into the Securities Purchase Agreement (which occurred after 4:00 p.m., New York City time) and the last completed trading day prior to the execution and delivery of the subscription agreements for the unit offering. Please see the section of
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Table of Contentsthis proxy statement captioned “Interests of Certain Persons in Matters to be Acted Upon” for additional information. In addition, the proposed Third Amended and Restated Certificate of Incorporation and Third Amended and Restated By-laws require the approval of our stockholders under Delaware law and the terms of our Second Amended and Restated Certificate of Incorporation.
After considering several potential financing and other alternatives, including the possibility of curtailing the Bank’s growth strategy, our Board of Directors determined that the Preferred Stock transaction and the subordinated debt and warrant unit offering were the most effective and efficient means to address our capital needs in a timely manner and were in the best interests of our stockholders. Additionally, our Board of Directors viewed the role that Harrison I. Steans and Jennifer W. Steans are committed to playing in the Company as a significant strategic advantage to us. Accordingly, our Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that stockholders vote “FOR” each of the Proposals contained in this proxy statement.
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On September 4, 2008, we entered into a voting agreement with certain members of the Taylor family, including Bruce W. Taylor and Jeffrey W. Taylor, and a trust controlled by certain members of the Taylor family. Collectively, such Taylor family members and the trust hold approximately 44% of the total voting power of our outstanding shares of common stock as of the Record Date for the Special Meeting. Pursuant to the voting agreement, such members of the Taylor family and such trust have agreed to vote their shares of common stock in favor of each of the Proposals to be considered at the Special Meeting. The execution of the voting agreement was a condition to the Preferred Stock investors’ execution of the Securities Purchase Agreement.
In the event the Proposals are not approved by our stockholders at the Special Meeting, a majority in interest of the Preferred Stock investors will have the right to terminate the Securities Purchase Agreement if the transaction has not already been closed. Upon such a termination by the Preferred Stock investors , we will be required under the Securities Purchase Agreement to pay FIC a fee of $1.5 million. If we close the issuance of the Designated Preferred and (1) the Proposals are not approved by our stockholders, (2) the Third Amended and Restated Certificate of Incorporation including the designation of the Preferred Stock is not filed with the Secretary of State of the State of Delaware, and (3) all Designated Preferred has not been exchanged for Preferred Stock, on or prior to November 15, 2008, then dividends will be deemed to have accrued on the Designated Preferred, on a cumulative basis and compounded quarterly at an annual rate equal to 16.0% on the liquidation preference of $25.00 per share, from the date of issuance, and will continue to accrue at that rate. If we close the issuance of the Designated Preferred and (1) the Proposals are not approved by our stockholders, (2) the Third Amended and Restated Certificate of Incorporation including the designation of the Preferred Stock is not filed with the Secretary of State of the State of Delaware, and (3) all Designated Preferred has not been exchanged for Preferred Stock, on or before December 31, 2008, then (a) we will be required to pay FIC a fee of $1.5 million, and (b) the holders of at least a majority of the Designated
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Table of ContentsPreferred then outstanding may require us to register for resale all of the Designated Preferred and we must use our reasonable best efforts to cause the listing of the Designated Preferred on a national securities exchange. If after the Special Meeting any shares of Designated Preferred remain outstanding, the holders of our Designated Preferred may convert, in the aggregate, up to that number of shares of Designated Preferred that would result in the issuance of a number of shares of our common stock equal to 1,301,135 shares, which represents 19.99% of the 11,011,184 shares of our common stock outstanding immediately prior to the execution of the Securities Purchase Agreement, less the 900,000 shares of our common stock issuable upon exercise of the warrants issued in the unit offering. Regardless of whether the Proposals are approved at the Special Meeting, the unit offering warrants will be exercisable for 900,000 shares of our common stock (subject to adjustment as described in this proxy statement) after the Special Meeting. In any event, we will be required under the Management Services Agreement and Securities Purchase Agreement to pay FIC an amount equal to all of the reasonable disbursements and out-of-pocket expenses incurred by or on behalf of FIC and its affiliates in connection with the negotiation and documentation of the transactions or in connection with services performed for us.
Required Votes: Proposal 1: In accordance with Nasdaq Marketplace Rule 4350(i)(6) and our Second Amended and Restated By-laws, Proposal 1 to approve the issuance of 2,400,000 shares (subject to adjustment as described in this proxy statement) of Preferred Stock (including the issuance of the Preferred Stock to certain of our directors, officers and employees) and the issuance of shares of our common stock upon conversion of the Preferred Stock, and the related issuance to FIC of a warrant to purchase up to 500,000 shares (subject to adjustment as described in this proxy statement) of our common stock and the issuance of those shares upon exercise of the warrant, requires the affirmative vote of the holders of a majority of the shares of our voting stock, present in person or represented by proxy, with respect to such proposal at the Special Meeting. Proposal 2: In accordance with Nasdaq Marketplace Rule 4350(i)(6) and our Second Amended and Restated By-laws, Proposal 2 with respect to the issuance of warrants to purchase up to 900,000 shares (subject to adjustment as described in this proxy statement) of our common stock (including the issuance of the warrants to certain of our directors and executive officers) and the issuance of those shares upon exercise of the warrants, requires the affirmative vote of the holders of a majority of the shares of our voting stock, present in person or represented by proxy, with respect to such proposal at the Special Meeting. Proposal 3: In accordance with Section 242(b) of Delaware General Corporation Law, Proposal 3 with respect to the adoption of the proposed Third Amended and Restated Certificate of Incorporation requires the approval of a majority of the outstanding shares of common stock entitled to vote thereon. Proposal 4: In accordance with our Second Amended and Restated By-laws and Second Amended and Restated Certificate of Incorporation, Proposal 4 with respect to the approval of the proposed Third Amended and Restated By-laws requires the affirmative vote of the holders of a majority of our total outstanding voting stock, present in person or represented by proxy, with respect to such proposal at the Special Meeting. At the date of this proxy meeting, we do not know of any matters to be raised at the Special Meeting other than those referred to in this proxy statement. The Proxies named in the proxy card are authorized to vote in their discretion upon such other matters as may properly come before the meeting or any adjournments or postponements thereof.
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Table of ContentsEach outstanding share of our common stock is entitled to one vote on each Proposal at the Special Meeting. Please see the discussion under the caption “General Information” in this proxy statement for additional information about the required votes and voting procedures.
Holders of Company common stock are not entitled to appraisal rights under the General Corporation Law of the State of Delaware in connection with the transactions described in this proxy statement.
The telephone and Internet voting procedures have been set up for your convenience. We encourage you to save corporate expense by submitting your vote by telephone or via the Internet. The procedures have been designed to authenticate your identity, to allow you to give voting instructions, and to confirm that those instructions have been recorded properly. Further information regarding voting by telephone or the via the Internet is below in the response to the question “How may I cast my vote via the Internet or by telephone?” Whichever method you use, the Proxies identified on the proxy card will vote the shares of which you are the stockholder of record in accordance with your instructions. If you submit a proxy card (or submit your vote by Internet or telephone) without giving specific voting instructions, the Proxies will vote the shares as recommended by our Board of Directors. If you hold your shares in “street name” (through a broker, bank or other nominee), that institution will instruct you as to how your shares may be voted by proxy.
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Table of ContentsVoting by telephone: If you are a stockholder of record, you may call the telephone number indicated on the proxy card, and use any touch-tone telephone to transmit your vote up until 11:59 p.m., New York City time, on September 28, 2008. Have your proxy card available when you call and then follow the instructions. If you hold your shares in “street name” (through a broker, bank or other nominee), that institution will instruct you as to how your shares may be voted by proxy, including whether telephone or Internet voting options are available.
If your shares are held in street name and you have instructed a broker, bank or other nominee to vote your shares of our common stock, you may revoke those instructions by following the directions received from your broker, bank or other nominee to change those instructions.
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Table of ContentsGeneral Information This proxy statement is furnished beginning on or about September 15, 2008 to stockholders of Taylor Capital Group, Inc., a Delaware corporation, in connection with the solicitation by our Board of Directors of proxies to be voted at the Special Meeting of Stockholders, and at any adjournments or postponements thereof. The cost of soliciting proxies will be borne by us. Copies of solicitation materials may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of our common stock and normal handling charges may be paid for such forwarding service. Solicitation of proxies may be made by us by mail or by personal interview, telephone or facsimile by our directors, officers and other employees, who will receive no additional compensation for their services. The Company has engaged MacKenzie Partners, a proxy solicitor, to assist in the distribution of proxies and proxy solicitation materials, and in the solicitation of proxies. The fee for such services is estimated to be approximately $7,500 plus expenses. Any stockholder of record giving a proxy pursuant to this solicitation may revoke it prior to exercise of the proxy by (1) voting again by telephone or Internet prior to 11:59 p.m., New York City time, on September 28, 2008, (2) submitting a later dated properly completed proxy card, (3) delivering written notice of such revocation to the attention of our Office of the Secretary prior to 5:00 p.m., central time, on September 26, 2008, at our executive offices at 9550 West Higgins Road, Rosemont, Illinois 60018, or (4) attending the Special Meeting and voting in person (although attendance at the Special Meeting will not, by itself, revoke a proxy). Only stockholders of record as of the close of business on August 28, 2008 will be entitled to vote at the Special Meeting, and each share will have one vote for any matter that may be presented for consideration and action by stockholders at the Special Meeting. At the close of business on August 28, 2008, there were 11,011,184 shares of our common stock outstanding and entitled to vote at the Special Meeting. Quorum The presence at the Special Meeting, in person or by proxy, of holders of 35% of our issued and outstanding shares of common stock as of the Record Date entitled to vote there at the Special Meeting will be considered a quorum for the transaction of business at the Special Meeting. If you submit a properly completed proxy or if you appear at the Special Meeting to vote in person, your shares of common stock will be considered part of the quorum. If you are a beneficial owner of shares and do not provide your broker, as stockholder of record, with voting instructions and the broker is a member of NYSE, your broker may not vote your shares and your shares will constitute broker non-votes with respect to Proposals that are not “routine” matters. None of the Proposals to be considered at the Special Meeting is considered a “routine” matter. Abstentions and broker non-votes will be counted as present to determine if a quorum for the transaction of business is present. Once a quorum is present, voting on specific Proposals may proceed. In the absence of a quorum, the Special Meeting may be adjourned or postponed by the Chairman of our Board of Directors or our President. Set forth below is information regarding the required vote to approve each Proposal, assuming the presence of a quorum at the Special Meeting. Required Votes Proposal 1 – Approval of the Issuance of Preferred Stock, the FIC Warrant and Shares of Common Stock Issuable Upon the Conversion of the Preferred Stock and the Exercise of the FIC Warrant In accordance with Nasdaq Marketplace Rule 4350(i)(6) and our Second Amended and Restated By-laws, Proposal 1 with respect to the issuance of shares of Preferred Stock (including the issuance of the Preferred Stock to certain of our directors, officers and employees) and the issuance of shares of our common stock upon conversion of the Preferred Stock, and the related issuance to FIC of a warrant and the issuance of shares of our common stock upon exercise of that warrant, requires the affirmative vote of the holders of a majority of the shares of our voting stock, present in person or represented by proxy, with respect to such proposal at the Special Meeting. The aggregate number of votes entitled to be cast by all stockholders present in person or represented
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Table of Contentsby proxy at the Special Meeting, whether those stockholders vote “For,” “Against” or “Abstain,” will be counted for purposes of determining the minimum number of affirmative votes required for approval of this Proposal, and the total number of votes cast “For” this will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting will have the same effect as a vote “Against” this Proposal. Broker non-votes will have no effect on the vote on this Proposal. Proposal 2 – Approval of the Unit Offering Warrants In accordance with Nasdaq Marketplace Rule 4350(i)(6) and our Second Amended and Restated By-laws, Proposal 2 with respect to the issuance of warrants to purchase up to 900,000 shares (subject to adjustment as provided in the warrants and including the issuance of the warrants to certain of our directors and executive officers) of our common stock and the issuance of shares of common stock upon exercise of these warrants, requires the affirmative vote of the holders of a majority of the shares of our voting stock, present in person or represented by proxy, with respect to such proposal at the Special Meeting. The aggregate number of votes entitled to be cast by all stockholders present in person or represented by proxy at the Special Meeting, whether those stockholders vote “For,” “Against” or “Abstain,” will be counted for purposes of determining the minimum number of affirmative votes required for approval of this Proposal, and the total number of votes cast “For” this matter will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting will have the same effect as a vote “Against” this Proposal. Broker non-votes will have no effect on the vote on this Proposal. Proposal 3 – Approval of the Third Amended and Restated Certificate of Incorporation In accordance with Section 242(b) of Delaware General Corporation Law, Proposal 3 with respect to the adoption of the proposed Third Amended and Restated Certificate of Incorporation requires the approval of a majority of the outstanding shares of common stock entitled to vote thereon. The aggregate number of shares of common stock outstanding as of the Record Date, whether those shares are voted “For,” “Against” or “Abstain” or are not voted at all, will be counted for purposes of determining the minimum number of affirmative votes required for approval of this Proposal, and the total number of votes cast “For” this matter will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting will have the same legal effect as a vote “Against” this Proposal. Broker non-votes will also have the same effect as a vote “Against” this Proposal. Proposal 4 – Approval of the Third Amended and Restated By-laws In accordance with our Second Amended and Restated By-laws, Proposal 4 with respect to the approval of the proposed Third Amended and Restated By-laws requires the affirmative vote of the holders of a majority of our total outstanding voting stock, present in person or represented by proxy, at the Special Meeting. The aggregate number of votes entitled to be cast by all stockholders present in person or represented by proxy at the Special Meeting, whether those stockholders vote “For,” “Against” or “Abstain,” will be counted for purposes of determining the minimum number of affirmative votes required for approval of this Proposal, and the total number of votes cast “For” this matter will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting will have the same effect as a vote “Against” this Proposal. Broker non-votes will have no effect on the vote on this Proposal. Voting Agreement On September 4, 2008, we entered into a voting agreement with certain members of the Taylor family, including Bruce W. Taylor and Jeffrey W. Taylor, and a trust controlled by certain members of the Taylor
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Table of Contentsfamily. Collectively, such Taylor family members and the trust held approximately 44% of the total voting power of our outstanding shares of common stock as of the Record Date for the Special Meeting. Pursuant to the voting agreement, they have agreed to vote their shares of common stock in favor of each of the Proposals to be considered at the Special Meeting. The execution of the voting agreement was a condition to the execution of the Securities Purchase Agreement. Proxy Information Proxies properly executed and received by us prior to the Special Meeting and not revoked will be voted as directed therein on all matters presented at the meeting, or any adjournments or postponements thereof. In the absence of specific direction from a stockholder, properly executed and delivered proxies will be voted for the approval of each of the Proposals contained in this proxy statement. If your shares are held in a stock brokerage account or by a bank or other nominee (sometimes referred to as being held in “street name”), you are considered the beneficial owner of those shares. Your broker, bank or other nominee is considered the stockholder of record of those shares and is required to forward these proxy materials to you. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote, and you are also invited to attend the Special Meeting. However, because you are not the stockholder of record, you may not directly vote those shares unless you obtain a signed proxy from the record holder giving you the right to do so. Your broker, bank or other nominee has enclosed or provided a voting instruction card for you to use in directing it how to vote your shares. Financial Advisor Our Board of Directors, on our behalf, engaged Keefe, Bruyette & Woods, Inc., an investment banking firm, to render financial advisory services in connection with the transactions. Keefe, Bruyette & Woods, Inc. assisted us in evaluating our short- and long-term capital planning requirements and analyzed a variety of alternative capital transactions. As financial advisor, Keefe, Bruyette & Woods, Inc. will receive an advisory fee of $2,750,000. An affiliate of Keefe, Bruyette & Woods, Inc. has agreed to purchase 136,000 shares of Preferred Stock on the same terms and conditions as the other investors in the Preferred Stock transaction. Cautionary Note Regarding Forward-Looking Statements Certain statements included in this proxy statement are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995, including statements about the proposed terms, timing, completion and effects of the proposed transactions and the other matters described herein. We may not be able to complete either or both of the Preferred Stock transaction and subordinated debt and warrant unit offering on the terms described herein or other acceptable terms or at all because of a number of factors, including the failure of the parties to receive any required regulatory approvals or the failure to satisfy other closing conditions, even if all of the Proposals are approved by our stockholders at the Special Meeting. Factors that may affect our business or financial results are described in our filings with the Securities and Exchange Commission, including those described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the period ended June 30, 2008. We urge you to consider these risks carefully in evaluating the forward-looking statements made herein and caution you to not place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this proxy statement and, except as required by the federal securities laws, we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances or for any other reason.
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Table of ContentsApproval of the Issuance of the Preferred Stock and the FIC Warrant This Proposal 1 contemplates the approval of the issuance of 2,400,000 shares (subject to adjustment as described in this proxy statement) of the Preferred Stock (including the issuance of the Preferred Stock to certain of our directors, officers and employees) and the issuance of shares of our common stock upon conversion of the Preferred Stock, and the related issuance to FIC of a warrant to purchase up to 500,000 shares (subject to adjustment as described in this proxy statement) of our common stock and the issuance of those shares upon exercise of that warrant, all as contemplated by the Securities Purchase Agreement. As we have previously disclosed, as part of our strategic plan to expand our commercial lending business, in February 2008 we hired Mark A. Hoppe as our President and the President and Chief Executive Officer of the Bank. Since that time, we have hired approximately 40 additional employees and have significantly expanded our commercial lending operations. While we believe that the expansion of our operations in this manner will enable us to grow and diversify our business, which we expect to lead to increased stockholder value, we have been required to expend substantial resources in order to implement this plan. At the same time, the impact of the sustained downturn in the residential real estate market has caused us to incur significantly greater losses in our residential real estate loan portfolio than our historical experience. We expect that the depressed residential real estate market, the lack of liquidity in the real estate market and difficult general economic conditions will continue to impact our business, and accordingly have increased our provision for loan losses, nonperforming loans and other nonperforming asset expenses. As a result of these factors, our Board of Directors undertook a process to re-evaluate our short- and long-term capital requirements. Our Board of Directors, on behalf of the Company, engaged Keefe, Bruyette & Woods, Inc. as financial advisor, to assist us in this process. From this evaluation, our Board of Directors determined that it would be prudent to seek significant additional capital in the near term to strengthen our balance sheet and to ensure that we and the Bank remain “well-capitalized” under applicable bank regulatory guidance for bank holding companies and banks. Our Board of Directors also concluded that additional capital would further enable us to execute more effectively on our strategic growth initiative. The Board of Directors considered a variety of other factors, including capital markets volatility and general economic uncertainties, and determined that any process to raise additional capital be executed promptly and with a high degree of certainty of completion. Our ability to fulfill our strategic plan and meet minimum regulatory capital requirements to be considered well-capitalized at the Company and at the Bank as of September 30, 2008 will be dependent on us being able to consummate these transactions. If we are unable to successfully consummate these transactions, we expect our earning asset growth to significantly decrease in future periods and we likely will be required to sell assets on terms not favorable to us. Our Board of Directors directed Keefe, Bruyette & Woods, Inc. and management to analyze a variety of different possible capital transactions, with an objective of assessing fully all reasonably available funding alternatives, including the Preferred Stock transaction. After exploring and considering a broad range of potential financing and other alternatives, our Board of Directors determined that the Preferred Stock transaction and the subordinated debt and warrant unit offering described in this proxy statement were the most effective means to address our capital needs on a timely basis and were in the best interests of our stockholders. Among other things, our Board of Directors considered the terms of the transactions relative to recent transactions undertaken by other bank holding companies, the strong reputation of Harrison I. Steans and Jennifer W. Steans in the banking industry and the potential business synergies that could be achieved through an investment in the Company by them. Further, our Board of Directors believed that these transactions would proceed on an expedited basis. As a result, our Board of Directors directed management to finalize the structure and negotiate the transactions to effect a capital infusion to the Company and the Bank prior to the end of the third quarter of 2008.
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Table of ContentsThe Preferred Stock In connection with the Preferred Stock transaction, our Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) authorized us to enter into the Securities Purchase Agreement to sell 2,400,000 shares of the Preferred Stock to certain accredited investors, including certain of our directors, officers and other employees, in a private placement for a total purchase price of $60 million. The investors in the Preferred Stock transaction will include Harrison I. Steans and Jennifer W. Steans, certain of their family members and affiliates, certain of our executive officers and directors and other unrelated accredited investors. Holders of the Preferred Stock will be entitled to dividends at an annual rate of 8.0% of the $25.00 per share liquidation preference of the Preferred Stock, and the Preferred Stock will be convertible into a total of 6,000,000 shares of our common stock at a conversion price of $10.00 per share (subject to adjustment as described below). Because our common stock is traded on the Nasdaq, we are subject to the Nasdaq’s rules and regulations. Nasdaq Marketplace Rule 4350(i)(1)(D)(ii) requires stockholder approval prior to any sale, issuance or potential issuance of shares of common stock, or securities convertible into or exercisable for shares of common stock, in any private placement transaction if the number of shares of common stock (or securities convertible into or exercisable for shares of common stock) is equal to 20% or more of the shares of common stock outstanding before the issuance at a price per share less than the greater of book or market value of our common stock. The 6,000,000 shares of common stock issuable upon conversion of the Preferred Stock would exceed 20% of the number of shares of our common stock outstanding. The conversion price of $10.00 per share for the Preferred Stock will be greater than $8.50, the closing bid price of our common stock on the date we entered into the letter of intent with respect to this transaction on July 25, 2008. However, the Preferred Stock conversion price will be less than the closing bid price and book value per share of our common stock on September 4, 2008, the last completed trading day prior to the execution and delivery of the Securities Purchase Agreement (which was executed and delivered after 4:00 p.m., New York City time). On the date of our entry into the Securities Purchase Agreement, the closing bid price per share of our common stock on Nasdaq was $12.75, and the book value per share of our common stock was $20.11 per share (based upon our stockholders’ equity as of June 30, 2008). Accordingly, stockholder approval is required in order for the Preferred Stock to be issued and the Preferred Stock transaction to be consummated. Furthermore, as described in the section of this proxy statement captioned “Interests of Certain Persons in Matters to be Acted Upon,” certain of our directors, officers and other employees will be purchasing shares of Preferred Stock in the transaction. Under Nasdaq Marketplace Rule 4350(i)(1)(A), the shares of Preferred Stock issued to these individuals constitute a compensation arrangement subject to stockholder approval because such shares will be issued at a conversion price below the market value of our common stock (i.e., the closing bid price of our common stock as reported by Nasdaq). Please see the section of this proxy statement captioned “Interests of Certain Persons in Matters to be Acted Upon,” including the table thereunder entitled “New Plan Benefits,” for additional information regarding the benefits that will be received by certain of our directors, officers and employees as a result of this compensation arrangement. The following is a summary of the material terms and provisions of the preferences, limitations, voting powers and relative rights of the Preferred Stock as contained in paragraph C of Article FOURTH of the Third Amended and Restated Certificate of Incorporation. A copy of the Third Amended and Restated Certificate of Incorporation is attached to this proxy statement as Appendix A and is incorporated by reference herein. Stockholders are urged to carefully read the Third Amended and Restated Certificate of Incorporation in its entirety. Although we believe this summary covers the material terms and provisions of the Preferred Stock as contained in Third Amended and Restated Certificate of Incorporation, it may not contain all of the information that is important to you. Authorized Shares and Liquidation Preference. We will be authorized to designate 10,000,000 shares of preferred stock, of which 2,400,000 shares will be designated as Preferred Stock (i.e., 8.0% non-cumulative convertible perpetual preferred stock, Series A), which Preferred Stock will have a par value of $0.01 per share
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Table of Contentsand a liquidation preference of $25.00 per share. In the event that the Designated Preferred is issued and the Preferred Stock is not exchanged therefor by November 15, 2008, the number of shares of Preferred Stock authorized and issued in exchange for such Designated Preferred will be increased to adjust for the amount of accrued and unpaid dividends with respect to such Designated Preferred. Ranking. The Preferred Stock will rank senior to our common stock and any other class or series of our stock now existing or hereafter authorized with respect to the payment of dividends and/or the distribution of assets on liquidation, dissolution or winding up of our affairs. Dividends. Holders of Preferred Stock will be entitled to receive, when, as and if declared by our Board of Directors, non-cumulative dividends at an annual rate of 8.0% of the $25.00 per share liquidation preference, payable quarterly in arrears. Dividends will cease to be payable on the Preferred Stock upon the earliest to the following:
Dividends on the Preferred Stock will be non-cumulative. If our Board of Directors does not declare a dividend on the Preferred Stock in respect of any dividend period, the holders of the Preferred Stock will have no right to receive any dividend for that dividend period, and we will have no obligation to pay a dividend for that dividend period. Subject to limited exceptions, if full quarterly dividends payable on all outstanding shares of the Preferred Stock for any dividend period have not been declared and paid or declared and a sum sufficient for the payment of those dividends has not been set aside for such dividend period, we will not be permitted to declare or pay dividends with respect to, or redeem, purchase, acquire or make a liquidation payment or distributions relating to, any of our common stock or other junior securities during the next succeeding dividend period, or make any related guarantee payment. Liquidation. In the event we voluntarily or involuntarily liquidate, dissolve or wind up, the holders of the Preferred Stock will be entitled, before any distribution or payment out of our assets may be made to or set aside for the holders of any of our junior capital stock and subject to the rights of our creditors, to receive a liquidation distribution in an amount equal to $25.00 per share, plus any accrued but unpaid dividends. A merger, consolidation or sale of all or substantially all of our assets is deemed to be a liquidation for purposes of the preceding sentence. Optional Conversion. Each holder of Preferred Stock will have the right, at such holder’s option, to convert all or any portion of such holder’s Preferred Stock at any time into 2.5 shares of our common stock, subject to adjustments for stock splits, stock dividends, stock combinations, recapitalizations and distributions of assets. However, other than Steans family members, Taylor family members and their respective affiliates, holders of
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Table of ContentsPreferred Stock may not convert any of their Preferred Stock if such conversion would cause the holder, together with its affiliates, to beneficially own a number of shares of our common stock which would exceed 9.99% of our then outstanding common stock (the “Preferred Stock Blocker”), excluding for purposes of such determination shares of our common stock issuable upon conversion of the Preferred Stock which are not being converted by the holder or issuable upon exercise or conversion of unexercised or unconverted securities of us subject to a similar restriction on holding a number of shares of common stock; provided that, such restriction will not apply in certain circumstances after the announcement of possible sale or merger or in connection with the mandatory conversion of the Preferred Stock. Mandatory Conversion. We have the right, at our option, to cause some or all of the shares of Preferred Stock to be converted into shares of our common stock, upon the earliest to occur of:
Voting Rights. Each share of Preferred Stock will entitle its holder to vote on all matters voted on by holders of the capital stock of the Company into which such share of the Preferred Stock is convertible, voting together as a single class with the other shares entitled to vote, at all meetings of stockholders of the Company, including with respect to the election of directors. With respect to any such vote in which the holders of Preferred Stock participate, each share of Preferred Stock will entitle the holder thereof to cast the number of votes equal to the lesser of (A) the number of votes which could be cast in such vote by a holder of the number of shares of capital stock of the Company into which such share of Preferred Stock will be convertible on the record date for such vote (after giving effect to the Preferred Stock Blocker); or (B) 1.961 votes (subject to adjustment for stock splits, combinations or reclassifications). Consent Rights. The consent of the holders of a majority of the outstanding shares of Preferred Stock will be required to:
Preemptive Rights. For so long as either (a) 800,000 shares of Preferred Stock are outstanding (subject to customary anti-dilution adjustments), or (b) the outstanding shares of Preferred Stock represent 10% or more of the total combined voting power of all outstanding shares of our capital stock, each holder of Preferred Stock will have the preemptive right to purchase a pro rata portion of certain new securities issued by us.
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Table of ContentsThe FIC Warrant In connection with the Securities Purchase Agreement, we will enter into a Management Services Agreement with FIC, pursuant to which we will issue to FIC a warrant to purchase up to 500,000 shares of our common stock at an exercise price of $20.00 per share (subject to adjustment of exercise price and number of shares of common stock purchasable in the event of certain business combinations, share reclassifications and other events, to account for the kind and amount of consideration received by the holders of our common stock in connection with such event). The exercise price of $20.00 per share will be greater than $8.50, the closing bid price of our common stock on the date we entered into the letter of intent with respect to this transaction on July 25, 2008, and will be greater than the closing bid price of our common stock on September 4, 2008, the date on which we entered into the Securities Purchase Agreement (which was executed after 4:00 p.m., New York City time), but will be less than the book value per share of our common stock on that date. The FIC Warrant will be exercisable for a period of 10 years following the closing of the Preferred Stock transaction. The FIC Warrant is not transferable or assignable after its initial issuance. The shares of our common stock issuable upon the exercise of the FIC Warrant may be registered for public resale pursuant to the terms of the Registration Rights Agreement described below. The foregoing is a summary of the material terms of the FIC Warrant and is qualified in its entirety by reference to that document, a copy which is attached as Appendix E to this proxy statement and is incorporated by reference herein. The Securities Purchase Agreement The following is a summary of the material terms of the Securities Purchase Agreement and is qualified in its entirety by reference to that document, a copy of which is attached as Appendix C to this proxy statement and is incorporated by reference herein. You should read the Securities Purchase Agreement (including the exhibits thereto) in its entirety because it, and not this proxy statement, is the legal document that governs the issuance of the Preferred Stock. Purchase and Sale of Preferred Stock. Under the Securities Purchase Agreement, we agreed to issue and sell to each of the investors listed on the Schedule of Buyers attached to the Securities Purchase Agreement (each, a “Preferred Stock investor”), and each Preferred Stock investor agreed to purchase from us, a specified number of shares of Preferred Stock. Representations and Warranties. In the Securities Purchase Agreement, we made customary representations and warranties to the Preferred Stock investors relating to us, our business and our capital stock, including with respect to the shares of Preferred Stock to be issued to the Preferred Stock investors in connection with the Securities Purchase Agreement. The representations and warranties in the Securities Purchase Agreement were made for purposes of the Securities Purchase Agreement and are subject to the qualifications and limitations set forth in the Securities Purchase Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a standard of materiality different from what might be viewed as material to stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts. The representations and warranties and other provisions of the Securities Purchase Agreement should not be read alone, but instead should only be read together with the information provided elsewhere in this proxy statement. Covenants. In the Securities Purchase Agreement, we agreed to call and hold a special meeting of our stockholders, as promptly as reasonably practicable after the SEC staff confirms that it has no further comments on this proxy statement or we otherwise determine in good faith that this proxy statement will not be reviewed by the SEC staff. We also agreed that if we do not obtain stockholder approval of the Proposals at the Special Meeting, upon the request of a majority of the Preferred Stock investors, we will seek to obtain such stockholder approval at any subsequent meeting of our stockholders until stockholder approval is obtained. In addition, we agreed to prepare and file this proxy statement with the SEC, as well as any necessary amendments or supplements.
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Table of ContentsPursuant to the Securities Purchase Agreement, we also agreed to a number of covenants requiring us to take certain actions related to the conduct of our business and the reservation and continued listing of our common stock on the Nasdaq. In addition, in connection with the consummation of the offering, we have agreed to, among other things:
Further, we agreed that our Board of Directors shall take all necessary action so that Harrison I. Steans and Jennifer W. Steans will be appointed to our Board of Directors, each with a term commencing immediately following the closing of the Preferred Stock transaction and ending at the next annual meeting of our stockholders, and we agreed to execute and deliver an indemnification agreement with each of them. We also agreed that our Board of Directors shall take all action necessary so that the size of the Board of Directors, after the appointment of Harrison I. Steans and Jennifer W. Steans, shall be 13 directors. Registration Rights. We agreed to enter into a Registration Rights Agreement with the Preferred Stock investors, members of the Taylor family and FIC. The Registration Rights Agreement will grant certain demand and “piggyback” registration rights with respect to (1) shares of our common stock then owned (a) by such persons if they are our officers, directors or 10% stockholders or (b) by the affiliates or immediate family members of any such person, and (2) shares of our common stock issued or issuable upon the conversion or exercise of shares of Preferred Stock, Designated Preferred or warrants. This Registration Rights Agreement will replace and supersede the registration rights agreement previously entered into between members of the Taylor family and the Company, which also provided members of the Taylor family with demand and “piggyback” registration rights. In addition, if the Designated Preferred is issued and we fail to obtain the requisite stockholder approval for the Third Amended and Restated Certificate of Incorporation or the Third Amended and Restated Certificate of Incorporation otherwise is not filed with the Secretary of State of the State of Delaware prior to January 1, 2009, then the Preferred Stock investors may require us to register for resale all of their Designated Preferred and use our reasonable best efforts to list the Designated Preferred on a national securities exchange. The foregoing is a summary of the material terms of the Registration Rights Agreement and is qualified in its entirety by reference to that document, a copy of which is attached as Exhibit F to the Securities Purchase Agreement, attached to this proxy statement as Appendix C and is incorporated by reference herein. Issuance of Designated Preferred Upon a Potential Delay. Under the Securities Purchase Agreement, we agreed to issue 2,400,000 shares of Designated Preferred in advance of the approval by our stockholders of the issuance of the Preferred Stock at a special meeting in certain circumstances if the parties determine that a stockholders meeting called for the purpose of approving the issuance of the Preferred Stock is not reasonably
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Table of Contentsexpected to occur on or before September 29, 2008, and the stockholder approval has not been obtained on or before September 30, 2008; provided that all applicable closing conditions (other than the receipt of stockholder approval and the filing of the Third Amended and Restated Certificate of Incorporation) have been satisfied or waived. The purpose of the Designated Preferred issuance is to enable the parties to fund the transaction prior to the end of the third quarter of 2008 even if a special meeting of stockholders cannot be convened within that time period. Our ability to support our growth initiative and meet minimum regulatory capital requirements to be considered well-capitalized at the Bank as of September 30, 2008 is dependent on us being able to consummate these transactions, either through the transaction to be approved by our stockholders at the Special Meeting or through the issuance of the Designated Preferred. In the event the Designated Preferred is issued under the Securities Purchase Agreement, we will be required to use our reasonable best efforts to convene a stockholders meeting to approve the issuance of the Preferred Stock. Upon such approval, the shares of Designated Preferred will automatically be exchanged for shares of Preferred Stock. If the Designated Preferred is issued and we fail to obtain the requisite stockholder approval for the issuance of the Preferred Stock by December 31, 2008, we will be required to pay FIC the Company Fee (as defined below). In such circumstances we may also be required to register the Designated Preferred and list it on a national securities exchange as described above under “Registration Rights Agreement.” In the event that a closing with respect to the Designated Preferred is consummated prior to obtaining stockholder approval, no party will have the right to terminate the Securities Purchase Agreement. Please see the section of this proxy statement captioned “Description of the Designated Preferred” for additional information. Closing Conditions. The Company’s and the Preferred Stock investors’ obligations under the Securities Purchase Agreement are subject to the receipt by the Company of the required stockholder, governmental and regulatory approvals, as well as the absence of an injunction or other governmental restraint. The Company’s obligation to consummate the transactions contemplated by the Securities Purchase Agreement is subject to the execution by the Preferred Stock investors of the relevant transaction documents, the payment of the purchase price by each Preferred Stock investor and the satisfaction by each Preferred Stock investor of its covenants, agreements and conditions under the Securities Purchase Agreement. The Preferred Stock investors’ obligations to consummate the transactions and acquire the Preferred Stock (or the Designated Preferred, if applicable) are subject to the following conditions, among others:
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Regulatory Approval. On August 29, 2008, Harrison I. Steans and Jennifer W. Steans filed an Interagency Notice of Change in Control with the Federal Reserve Bank of Chicago pursuant to the Change in Bank Control Act, as amended. This filing is generally required when a proposed acquisition will result in one or more persons owning or controlling the power to vote 10% or more of any class of voting securities of a bank holding company. Receipt of the approval of the Federal Reserve Bank of Chicago pursuant to such change in control notice is a condition of the closing of the Preferred Stock transaction. The Management Services Agreement In connection with the Securities Purchase Agreement, we will enter into a Management Services Agreement with FIC, pursuant to which FIC or its designated affiliates will agree to provide to us certain management, advisory and consulting services. The scope of such services will be subject to our mutual agreement with FIC. In connection with the Management Services Agreement, we will pay to FIC a cash fee of $750,000 and will issue to FIC or its designee the FIC Warrant. Under the Management Services Agreement, from the closing of the transaction until the first date that both (a) the Third Amended and Restated Certificate of Incorporation has been filed with the Secretary of State of the State of Delaware and the Preferred Stock has been issued and (b) so long as (x) 800,000 shares of Preferred Stock are issued and outstanding, and (y) the outstanding shares of Preferred Stock represent less than 10% of the total combined voting power of all outstanding shares of all classes of capital stock which are then entitled to vote on matters presented to a vote of the corporation’s stockholders generally, FIC shall be entitled to nominate two candidates for election to our Board of Directors at any annual meeting of stockholders or special meeting of stockholders called for the purpose of electing directors (such candidates also constituting the director candidates of FIC pursuant to the Third Amended and Restated By-laws). In addition, we will agree to make our best efforts to cause the two persons designated by FIC to be elected to our Board of Directors. In the event of any vacancy on our Board of Directors as a result of a Board member nominated by FIC no longer serving in such capacity, we will cause the vacancy to be filled by a designee of FIC. The Management Services Agreement further provides that we shall cause such nominees of FIC to be elected to and maintained as members of the board of directors of the Bank. In the event that there is a change in control of the beneficial ownership of FIC (as set forth in the Management Services Agreement), the rights granted to FIC to nominate candidates to our Board of Directors and the board of directors of the Bank will immediately cease. FIC’s rights with respect to our Board of Directors will not limit or preclude our Board of Directors or the board of directors of the Bank from taking or failing to take any action that such board determines in good faith would violate its fiduciary duties under applicable law. Each non-employee candidate nominated by FIC that is elected to our Board of Directors will receive customary cash, equity and other compensation for board service on the same terms and conditions as other non-employee directors of the Company. In addition, we have agreed to enter into an indemnification agreement with each candidate nominated by FIC that is elected to our Board of Directors in the form attached as an exhibit to the Securities Purchase Agreement or such other form as such candidate and the Company mutually agree. Under the Management Services Agreement, we are required to pay FIC for all reasonable out-of-pocket expenses including costs are incurred by FIC or its affiliates in connection with FIC’s performance of the services contemplated under the Management Services Agreement.
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Table of ContentsThe foregoing is a summary of the material terms of the form of Management Services Agreement, and is qualified in its entirety by reference to that agreement, a copy of which is attached as Exhibit G to the Securities Purchase Agreement attached to this proxy statement as Appendix C and is incorporated by reference herein. Tax Treatment, Accounting Treatment and Regulatory Consequences Tax Treatment to Company. The Preferred Stock transaction and other related transactions as described in this proxy statement will have certain tax consequences to us. For income tax purposes, dividends payable to holders of Preferred Stock will not be considered a deductible expense. Any issuance costs associated with the Preferred Stock transaction will be considered capital and not deductible for income tax purposes. We also will enter into a Management Services Agreement with FIC in which we will pay FIC a $750,000 fee and issue warrants to purchase shares of our common stock in exchange for advice in connection with the proposed transactions and certain other advisory and consulting services. The portion of the total fee, which includes the $750,000 fee and the warrants, attributed to advice on the capital portions of this transaction, if any, will not be deductible for income tax purposes. The portion of the $750,000 fee attributed to advice on the subordinated debt transaction and on-going advisory and consulting services FIC will be considered a deductible expense for income tax purposes when paid. The Company will receive a deduction for income tax purposes if and when the warrants are exercised in the amount by which the fair value of the common stock exceeds the warrant exercise price for the number of warrants that are attributed to advice on the subordinated debt transition and on-going advisory and consulting services. Accounting Treatment to Company. The Preferred Stock transaction and other related transactions as described in this proxy statement will have certain accounting consequences to us. For financial reporting purposes, the Preferred Stock will be treated as a separate component of stockholders’ equity in our consolidated balance sheets. Any issuance costs associated with the Preferred Stock will be considered a reduction of additional paid-in-capital. In addition, appropriate disclosures about the Preferred Stock will be made on our consolidated balance sheets and the related notes to the consolidated financial statements. For financial reporting purposes, any dividends paid on the Preferred Stock will not be considered as an expense for the purposes of the determination of net income on our consolidated statements of operations. However, dividends payable to Preferred Stock shareholders will be reported as a deduction from net income in the determination of net income available to holders of our common stock and earnings per share of our common stock. We will record as an expense in the non-interest expense section of our consolidated statement of operations the total value of the cash and warrants issued to FIC associated with the Management Services Agreement. This expense will be recognized ratably over the term of the agreement. The total expense will equal the $750,000 cash paid plus the fair value of the warrants at the date of grant. In the event the warrants are converted into shares of our common stock, we will report the conversion price received as additional paid-in-capital in stockholders’ equity in our consolidated balance sheets. If the event the warrants expire unused, we will not record a reduction in the expense previously recorded. We will also make appropriate disclosures related to the warrants in the notes to our consolidated financial statements. Regulatory Treatment of Capital and Other Consequences. The Preferred Stock transaction described in this proxy statement will have the effect of increasing our regulatory capital. The Preferred Stock will qualify as Tier 1 regulatory capital primarily because of its non-cumulative, perpetual terms and its ability to be converted into shares of our common stock. The Preferred Stock issuance will further increase our Tier 1 regulatory capital and preserve our existing “well-capitalized” status under the Tier 1 risk-based capital guidelines. Regulatory capital guidelines allow preferred stock to be considered a core capital or Tier 1 element of regulatory capital, if it is perpetual and callable only at the option of the issuer and if the issuer has the ability and legal right to defer or eliminate preferred dividends. As more fully described elsewhere in this proxy statement, the Preferred Stock is non-cumulative with respect to dividends and does not have a stated maturity nor can it be redeemed by us. The Preferred Stock will also be convertible into shares of our common stock, which is also a core capital element of Tier I capital. Under certain circumstances, we may issue Designated Preferred which will be converted to the Preferred Stock upon the occurrence of certain events. The Designated Preferred will qualify as Tier 2 regulatory capital.
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Table of ContentsThe Designated Preferred issuance would further increase our Tier 2 regulatory capital and preserve our existing “well-capitalized” status under the total risk-based capital guidelines. As more fully described elsewhere in this proxy statement, the Designated Preferred is cumulative as to the payment of dividends and therefore, does not qualify for Tier 1 regulatory capital treatment. However, the Designated Preferred qualifies as a supplementary capital element of Tier 2 capital up to certain limits. In accordance with regulatory guidelines, Tier 2 capital cannot be more than 50% of total regulatory capital (Tier 1 and Tier 2 capital). As a result, if the addition of the Designated Preferred to Tier 2 capital causes total Tier 2 capital to exceed total Tier 1 capital, the excess will not be included in Tier 2 capital. The regulatory capital treatment at the consolidated (and parent company) level is based on the actual form of the preferred stock issued and outstanding. However, one of the intended uses of the proceeds from the preferred stock issuance is to contribute capital to the Bank to support the Bank’s growth plan and preserve the Bank’s well-capitalized status. The contribution of the capital to the Bank will qualify as Tier 1 regulatory capital at the Bank level regardless of the form of preferred stock issued by the Company. Expenses Under the Securities Purchase Agreement, we are required to reimburse FIC for all expenses incurred by or on behalf of FIC or its affiliates in connection with the Preferred Stock transaction, the related documents, the review of this proxy statement, and their due diligence investigation of us. In addition, we have agreed to reimburse Prairie Capital IV, L.P. and Prairie Capital IV QP, L.P. for the fees and expenses of their regulatory counsel in connection with their participation in the transaction. Termination and Company Fee Termination. The Securities Purchase Agreement may be terminated at any time by mutual written consent of the Company and a majority of the Preferred Stock investors as represented by the number of shares of Preferred Stock for which such investors have subscribed. The Securities Purchase Agreement may also be terminated by either the Company or a majority of the Preferred Stock investors if:
In addition, either the Company or the holders of a majority of the shares subscribed for pursuant to the Securities Purchase Agreement may terminate the Securities Purchase Agreement upon written notice to the other in the event of a material breach of a covenant or agreement to be performed or complied with by the other party and such breach is incapable of being cured prior to the Outside Date. Company Fee. In the event that (a) the Securities Purchase Agreement is terminated because the transactions contemplated thereby have not closed prior to the Outside Date due to (1) the failure of our stockholders to approve the Proposals set forth in this proxy statement, or (2) our failure to obtain the necessary bank regulatory approvals, or (b) shares of Designated Preferred have been issued but the Proposals have not been approved at the Special Meeting, we have not filed the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, and all shares of Designated Preferred have not been exchanged on or prior to December 31, 2008, then we would be obligated to pay FIC a cash fee of $1.5 million, plus an amount equal to all of the reasonable documented out-of-pocket expenses (including reasonable fees and disbursements of their counsel) incurred by or on behalf of FIC and its affiliates in connection with the Preferred Stock transaction, the related documents and the issuance (and exchange, if any) of the Designated Preferred and
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Table of Contentscertain other costs contemplated by the Securities Purchase Agreement, and incurred prior to the earlier of (a) the date of termination of the Securities Purchase Agreement and (b) the filing of the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (such fee and amount, the “Company Fee”). We would also be required to pay the Company Fee if the transactions contemplated by the Securities Purchase Agreement close but our stockholders fail to approve the Proposals set forth in this proxy statement at the Special Meeting. Standstill Agreements In connection with our Preferred Stock offering, in July 2008 we entered into confidentiality and standstill agreements with certain of the Preferred Stock investors, pursuant to which they agreed, among other things, for a period of 18 months not to acquire additional shares of our common stock, not to engage in any solicitation of proxies with respect to the Company, and to keep confidential certain of our proprietary and business information. On September 4, 2008, our confidentiality and standstill agreement with FIC was amended to, among other things, (a) except as contemplated by the Securities Purchase Agreement and the acquisition of up to 500,000 additional shares of our common stock, prohibit FIC and its affiliates from acquiring any of our voting securities if such acquisition would result in the beneficial ownership of FIC when added to the beneficial ownership of each of its affiliates specified therein (in each case without duplication) being in the aggregate 20% or more of our outstanding voting securities, (b) amend the time period for which the restrictions apply to terminate on January 22, 2010, and (c) provide that the restrictions on certain actions would not apply after the occurrence of certain events related to our sale or possible sale, including related announcements. The confidentiality and standstill agreements with the other Preferred Stock investors were amended by the Securities Purchase Agreement entered into between the Company and each Preferred Stock investor to permit each investor to purchase up to that number of shares of our common stock equal to the quotient obtained by dividing (x) the aggregate purchase price paid by such investor for the investor’s Preferred Stock by (y) 20 (e.g., an investor who subscribed for Preferred Stock with an aggregate purchase price of $1,000,000 would have the ability to purchase up to 50,000 shares of our common stock without restriction under the standstill provision of the confidentiality and standstill agreement between the investor and us). Description of the Designated Preferred The following is a summary of the material terms and provisions of the preferences, limitations, voting powers and relative rights of the Designated Preferred as contained in the Certificate of Designation of Series B Convertible Preferred Stock of Taylor Capital Group, Inc. (the “Designated Preferred Certificate”), a copy of which is attached to this proxy statement as Appendix D and is incorporated by reference into this proxy statement. Stockholders are urged to read the Designated Preferred Certificate in its entirety. Although we believe this summary covers the material terms and provisions of the Designated Preferred Certificate, it may not contain all of the information that is important to you. If issued pursuant to the Securities Purchase Agreement, the Designated Preferred will have substantially similar terms as the Preferred Stock as described above in the section captioned “Description of the Preferred Stock,” with the following exceptions: No Voting Rights. The holders of shares of Designated Preferred will not be entitled to voting rights, except to the extent required by law. Conversion. Each holder of shares of Designated Preferred will have the right, at such holder’s option, to convert all or any of such holder’s shares of Designated Preferred into shares of our common stock at any time after the Special Meeting and subject to the limitations set forth in the immediately following paragraph of this proxy statement entitled “Conversion Cap.” The conversion price for each share of Designated Preferred for holders that are not officers, directors (other than any person who becomes a director at the closing of the Preferred Stock transaction), employees or consultants of the Company or any of its subsidiaries (or any affiliated entity of any such person) will be $10.00 per share of our common stock. For officers, directors (other than any person who becomes a director at the closing of the
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Table of ContentsPreferred Stock transaction), employees and consultants of the Company or any of its subsidiaries (or any affiliated entity of any such person), the conversion price will be equal to $12.75, which represents the closing bid price of our common stock on September 4, 2008, which was the date of the execution of the Securities Purchase Agreement (which was executed after 4:00 p.m., New York City time). Conversion Cap. The Designated Preferred will not be convertible into shares of our common stock at any time prior to the date of the Special Meeting. At any time after the date of the Special Meeting, so long as shares of Designated Preferred are outstanding, the holders of the Designated Preferred may only convert, in the aggregate, up to that number of shares of Designated Preferred that would result in the issuance of a number of shares of our common stock equal 1,301,135 shares, which represents 19.99% of the 11,011,184 shares of our common stock outstanding immediately prior to the execution of the Securities Purchase Agreement, less the 900,000 shares of our common stock issuable upon exercise of the warrants issued in the unit offering. Dividend Payments. Dividends on the Designated Preferred will accrue on a cumulative basis and compound quarterly at an annual rate equal to 16.0% of the liquidation preference; provided that no such dividends will be deemed to have accrued if the Third Amended and Restated Certificate of Incorporation is approved by the stockholders and filed with the Secretary of State of Delaware on or prior to November 15, 2008. Current stockholders will likely experience substantial dilution of their ownership interest in the Company upon the exercise of the FIC Warrant or the conversion of the Preferred Stock or Designated Preferred. Please see the section of this proxy statement captioned “Potential Consequences If the Proposals Are Approved – Dilution” for additional information. The Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that you vote “FOR” the issuance of the shares of Preferred Stock and the FIC Warrant, and the issuance of shares of common stock upon conversion of the Preferred Stock and exercise of the warrant.
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Table of ContentsApproval of the Issuance of the Unit Offering Warrants This Proposal 2 contemplates the approval of the issuance of warrants to purchase up to 900,000 shares (subject to adjustment as described below) of our common stock (including the issuance of the warrants to certain of our directors and executive officers) and the issuance of those shares upon exercise the warrants, all in connection with our subordinated debt and warrant unit offering. As described above, contemporaneously with the Preferred Stock offering, we are pursuing a private placement to certain accredited investors, including certain of our directors, officers and other employees, of units consisting of subordinated notes issued by the Bank, our wholly-owned subsidiary bank, and warrants to purchase an aggregate of 900,000 shares of our common stock. The exercise price for such warrants will be $10.00 per share of our common stock (subject to adjustment of exercise price and common stock share total in the event of stock splits, stock dividends, stock combinations, recapitalizations, distributions of assets and certain business combinations, share reclassifications and other events, to account for the kind and amount of consideration received by the holders of our common stock in connection with such event), except that at any time prior to stockholder approval of this Proposal 2, the exercise price of such warrants purchased by any of our officers, directors (other than any person who becomes a director at the closing of the Preferred Stock transaction), employees or consultants will be equal to $12.75 per share, the closing bid price of our common stock (as reported by Nasdaq) on the last completed trading day prior to the execution and delivery of such persons’ respective subscription agreements for the unit offering. We are seeking to raise $60 million in additional capital in this unit offering, and anticipate that it will be consummated concurrently with the Preferred Stock transaction. A condition of the Preferred Stock investors’ obligation to close the Preferred Stock transaction is that we obtain, by the closing date of that transaction, at least $30 million in non-binding commitments or indications of interest with respect to the unit offering. We have satisfied this condition as of the date of this proxy statement. Our reasons for conducting this unit offering are substantially similar to those set forth in Proposal 1 with respect to the Preferred Stock offering. We are seeking stockholder approval of the issuance of the unit offering warrants pursuant to Nasdaq Marketplace Rule 4350(i)(1)(D)(ii) and Rule 4350(i)(1)(A) because the warrants will be issued to certain of our directors, officers and other employees and other unaffiliated investors with an exercise price per share below the market value of our common stock (i.e., the closing bid price of our common stock as reported by Nasdaq) on the date we enter into the transaction and, together with the shares of our common stock issuable upon conversion of the preferred stock and exercise of the FIC Warrant, will exceed 20% of the number of shares of our common stock outstanding on September 4, 2008, the date of the Securities Purchase Agreement and the Subscription Agreements. Please see the section of this proxy statement captioned “Interests of Certain Persons in Matters to be Acted Upon,” including the table thereunder entitled “New Plan Benefits,” for additional information regarding the benefits that will be received by certain of our directors, officers and employees as a result of this compensation arrangement. Subscription Agreement The following is a summary of the material terms of the subscription agreements (each, a “Subscription Agreement”) entered into between us, the Bank and each of the investors in the unit offering (each, a “Unit Offering investor”). A copy of the form of Subscription Agreement is attached to this proxy statement as Appendix G and is incorporated by reference herein. Purchase and Sale of Preferred Stock. Under each Subscription Agreement, we and the Bank agreed to issue and sell to the Unit Offering investors, and each Unit Offering investor agreed to purchase, 10% subordinated notes issued by the Bank in a specified principal amount (as described below under “The Subordinated Notes”), together with a number of warrants to purchase a number of shares of our common stock (as described below under “The Warrants”). For each $1,000 face amount of the subordinated notes purchased, we will issue one
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Table of Contentsdetachable warrant to purchase 15 shares of our common stock, as further described below under “The Warrants.” Representations and Warranties. In the Subscription Agreements, we and the Bank made customary representations and warranties to the Unit Offering investors relating to us, our business and our capital stock. Our and the Bank’s representations and warranties in the Subscription Agreements were substantially similar to our representations in the Securities Purchase Agreement. The representations and warranties in the Subscription Agreements were made for purposes of the respective Subscription Agreements and are subject to the qualifications and limitations set forth in such Subscription Agreements. In addition, certain of our and the Bank’s representations and warranties were made as of a specific date, may be subject to a standard of materiality different from what might be viewed as material to stockholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts. The representations and warranties and other provisions of the Subscription Agreements should not be read alone, but instead should only be read together with the information provided elsewhere in this proxy statement. Covenants. In the Subscription Agreements, we made covenants, including covenants regarding the unit offering transaction, the subordinated notes and warrants (and our common stock which may be purchased upon exercise of the warrants) and the Special Meeting and this proxy statement. The covenants were substantially similar to, but more limited in some respects than, those we made in the Securities Purchase Agreement, and include, among others, covenants with respect to calling and holding a special meeting of our stockholders to consider the Proposals, preparing and filing this proxy statement with the SEC (and any necessary amendments or supplements), seeking to obtain stockholder approval of the Proposals at subsequent meetings of our stockholders if the Proposals are not approved at the Special Meeting, and using the proceeds of the unit offering. Closing Conditions. Our, the Bank’s and the Unit Offering investors’ obligations under the Subscription Agreements are subject to the receipt by us and Bank of the required stockholder, governmental and regulatory approvals, as well as the absence of any law, injunction or other governmental requirement that would restrain, prohibit or make illegal the unit offering. Our and the Bank’s obligation to consummate the transactions contemplated by the Subscription Agreements is subject to the execution by the respective Unit Offering investors of the relevant transaction documents, the payment of the purchase price by each respective Unit Offering investor and the satisfaction by each respective Unit Offering investor of its covenants, agreements and conditions under the investor’s Subscription Agreement. Each Unit Offering investor’s obligations to consummate the transactions and acquire the subordinated notes and warrants are subject to the following conditions, among others:
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The Warrants For each $1,000 face amount of the subordinated notes purchased, we will issue one detachable warrant to purchase 15 shares of our common stock at an exercise price of $10.00 per share, subject to a customary anti-dilution adjustment; provided however, that at any time prior to stockholder approval of this Proposal, the exercise price for such warrants purchased by any of our officers, directors (other than any person who becomes a director at the closing of the Preferred Stock transaction), employees or consultants will be equal to $12.75 per share, the closing bid price of our common stock (as reported by Nasdaq) on September 4, 2008, the date of execution of the subscription agreements for the unit offering (which occurred after 4:00 p.m. New York City time). The warrants will expire on the fifth anniversary of the closing of the unit offering; provided that the expiration date will be extended if the stockholder vote to approve this Proposal 2 is not held prior to December 31, 2008. Such warrants will be exercisable into shares of our common stock on the later of the date of the Special Meeting or the 180th day following the date on which such warrants are issued, at the holder’s option, in cash or by “cashless” (net issue) exercise. Even if the stockholders do not approve this Proposal, such warrants will become exercisable for 900,000 shares of our common stock (subject to adjustment as described above). Current stockholders will likely experience substantial dilution of their ownership interest in the Company upon the exercise of the warrants. Please see the section of this proxy statement captioned “Potential Consequences If the Proposals Are Approved – Dilution” for additional information. There are certain restrictions on transfer of the warrants prior to the second anniversary of their issuance date. A copy of the form of warrant is attached to this proxy statement as Appendix F and is incorporated herein by reference. The Subordinated Notes The subordinated notes will be issued by the Bank, our wholly-owned subsidiary, to certain accredited investors, including certain of our directors, officers and other employees, as part of the unit offering. We intend to issue $60 million aggregate principal amount of the notes, each with a face amount of $1,000. The annual interest rate on the subordinated notes will be 10%, payable quarterly in arrears. The subordinated notes will mature on the eighth anniversary of the closing of the unit offering. The notes will be subordinated unsecured obligations of the Bank and will not be guaranteed by us or any of our subsidiaries or any subsidiary of the Bank. The notes will be subordinate to all deposits, purchased funds and senior indebtedness of the Bank. The Bank will have the option to redeem the subordinated notes, in whole or in part, at any time after three years of the closing of the unit offering. A copy of the form of subordinated note is attached to this proxy statement as Appendix H and is incorporated herein by reference. Tax Treatment, Accounting Treatment and Regulatory Consequences Tax Treatment to Company. For income tax purposes, the interest on the subordinated debt that accrues at the contractual interest rate will be deductible as interest expense. The issuance costs allocated to the subordinated debt will be deductible for income tax purposes ratable over the term of the notes. The portion of the proceeds and issuance costs allocated to the warrants will be considered capital and not deductible for income tax purposes. Accounting Treatment to Company. For financial reporting purposes, we will account for the subordinated debt and the warrants as separate financial instruments on our consolidated financial statements. The portion of the proceeds from the issuance of the subordinated debt with the detachable warrants that is allocable to the warrants will be accounted for as additional paid-in-capital in the equity section of our consolidated balance sheets. The allocation will be based on the relative fair values of the two securities at the time of issuance. At the time the warrants are converted by the holder into shares of our common stock, we will record the conversion
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Table of Contentsprice received as additional paid-in-capital. Any appropriate disclosures about the warrants will also be made in the notes to the consolidated financial statements. The portion of the proceeds allocated to the subordinated debt will be reported as a liability on our consolidated balance sheet under the separate caption of “Subordinated Notes Payable.” In addition, appropriate disclosures about the subordinated notes will be made in the notes to our consolidated financial statements. The liability reported on our consolidated balance sheet will be net of any discount created through the allocation of a portion of the proceeds to the warrants. The amortization of that discount, along with any interest that accrues on the subordinated notes at the contractual interest rate, will be reported as interest expense on our consolidated statement of operations. The discount will be amortized using a method to create a level cost over the term of the subordinated debt. The issuance costs will be allocated between the subordinated notes and the warrants based upon the fair value of each security at the time of issuance. The costs associated with the subordinated notes will be treated as an asset on our consolidated balance sheets and amortized to interest expense on our consolidated statement of operations over the term of the notes. The portion of the issuance costs allocated to the warrants will be reported as a reduction of additional paid-in-capital. Regulatory Treatment of Capital and Other Consequences. The unit offering transaction described in this proxy statement will have the effect of increasing our regulatory capital. The subordinated debt to be issued in the unit offering (“Subordinated Debt”) qualifies as a supplementary capital element of Tier 2 capital if it complies with certain specific terms. In order to qualify as Tier 2 capital, the Subordinated Debt must be: (1) unsecured, (2) subordinated to the Bank’s general creditors and claims of depositors, and (3) have an original weighted average life of at least five years. The inclusion of the Subordinated Debt as Tier 2 regulatory capital may be limited. First, under applicable regulatory guidelines, the total amount of Subordinated Debt that can be included in Tier 2 capital may not exceed 50% of Tier 1 capital. Further, in accordance with regulatory guidelines, Tier 2 capital cannot be more than 50% of total regulatory capital (Tier 1 and Tier 2 capital). As a result, if the aggregate amount of Subordinated Debt exceeds 50% of Tier 1 capital, the excess amount will not be included in Tier 2 capital. Further, if the aggregate amount of Subordinated Debt is less than 50% of the Tier 1 capital but the addition of the Subordinated Debt to Tier 2 capital causes total Tier 2 capital to exceed total Tier 1 capital, the excess amount will not be included in Tier 2 capital. We believe that the proposed issuance of the Subordinated Debt by the Bank will qualify at issuance as a supplementary capital element of Tier 2 capital for regulatory capital purposes. In addition, the outstanding amount of term Subordinated Debt eligible for inclusion in Tier 2 capital is reduced as the Subordinated Debt approaches maturity. One-fifth of the outstanding amount is excluded each year during the Subordinated Debt’s last five years before maturity. When remaining maturity is less than one year, the Subordinated Debt is excluded from Tier 2 capital. Although the Subordinated Debt will be issued from the Bank, regulatory capital guidelines allow its inclusion in regulatory capital at the consolidated level, subject to the limits described for supplementary Tier 2 capital. In connection with the issuance of the Subordinated Debt, warrants for the purchase of our common stock will also be issued. The warrants will be includable in Tier I capital upon conversion into common stock. The foregoing is a summary of the material terms of the Subscription Agreements, unit offering warrants and subordinated notes and is qualified in its entirety by reference to the forms of such Subscription Agreement, warrant and subordinated notes, copies of which are attached as Appendices G, F and H, respectively, to this proxy statement and are incorporated by reference herein. This summary may not contain all of the information that is important to you. We encourage you to read the forms of Subscription Agreement, warrant and subordinated note and the other appendices to this proxy statement carefully and in their entirety. The Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that you vote “FOR” the issuance of warrants to purchase an aggregate of up to 900,000 shares (subject to adjustment as described above) of common stock, and the issuance of those shares of common stock upon the exercise of the unit warrants.
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Table of ContentsApproval of the Third Amended and Restated Certificate of Incorporation Our Board of Directors adopted a resolution declaring it advisable and in our best interests and the best interests of our stockholders to amend and restate our Second Amended and Restated Certificate of Incorporation as our Third Amended and Restated Certificate of Incorporation. This Proposal 3 contemplates the approval of our Third Amended and Restated Certificate of Incorporation, which will, among other things, create the class of preferred stock being issued in the Preferred Stock offering, increase the number of authorized shares of common stock from 18,000,000 to 45,000,000 shares and the number of authorized shares of preferred stock from 5,000,000 to 10,000,000, and provide for the establishment of the Executive Committee. The Board of Directors further directed that the proposed action be submitted for consideration by our stockholders at a special meeting to be called for that purpose. Creation of the Preferred Stock Article Fourth of our Second Amended and Restated Certificate of Incorporation does not permit the issuance by us of any class or series of preferred stock with voting rights. If the stockholders approve this Proposal, we will amend and restate Article Fourth of the Second Amended and Restated Certificate of Incorporation to permit us to designate certain shares of preferred stock into one or more series with voting rights, including the Preferred Stock to be issued pursuant to the Securities Purchase Agreement. This proposed amendment is therefore required in order for us to satisfy our obligation to deliver the shares of the Preferred Stock to investors in accordance with the terms of the Securities Purchase Agreement. Please see the section of this proxy statement above captioned “Proposal 1 – The Preferred Stock” for information regarding the terms of the Preferred Stock. Increase in Authorized Shares of Capital Stock Adoption of the Third Amended and Restated Certificate of Incorporation would increase our authorized shares to 45,000,000 shares of common stock and 10,000,000 shares of preferred stock and will designate 2,400,000 shares of preferred stock as Preferred Stock. The primary purpose of the proposed amendments to increase our authorized capital stock is to satisfy our obligations under the Securities Purchase Agreement and other transaction documents, including our obligation to reserve a sufficient number of shares of common stock issuable upon conversion of the Preferred Stock (without giving effect to the Preferred Stock Blocker) and the exercise of the unit offering warrants and the FIC Warrant. Under the Second Amended and Restated Certificate of Incorporation, we had 18,000,000 shares of common stock authorized and, as of the Record Date, 11,011,184 shares of our common stock were outstanding, with an additional 804,098 shares of our common stock reserved for issuance under the Taylor Capital Group, Inc. 2002 Incentive Compensation Plan. Under the Second Amended and Restated Certificate of Incorporation, there are 5,000,000 shares of undesignated preferred stock authorized, none of which are outstanding as of the Record Date. We are seeking to increase the number of authorized shares of capital stock to ensure that we maintain a sufficient number of authorized shares of common stock to effect the conversion of all the Preferred Stock, and the exercise of all of the warrants, into shares of common stock. The additional authorized shares of common stock not reserved for conversion of the Preferred Stock or exercise of the warrants will be available for general corporate purposes, including capital raising transactions, employee benefit plans, acquisitions, stock dividends and other uses. We currently have no specific plans or understandings with respect to the issuance of any shares of our common stock or preferred stock except as described in this proxy statement. We do expect from time to time to issue awards, with respect to shares of our common stock to officers, directors, employees and consultants under our 2002 Incentive Compensation Plan, as previously approved by our stockholders. If our stockholders approve the Third Amended and Restated Certificate of Incorporation, which will increase the authorized shares of our capital stock, the Board of Directors may cause the issuance of additional shares of common stock and preferred stock without further stockholder approval, unless stockholder approval is
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Table of Contentsotherwise required by law or the rules of Nasdaq or any stock exchange on which our common stock is then listed. The additional shares of common stock would have rights identical to the currently outstanding common stock, and the additional shares of preferred stock would increase the number of shares of undesignated preferred stock available for designation and issuance by our Board from time to time in the future. The issuance of additional shares of capital stock could decrease the proportionate equity interest and voting power of our current stockholders and, depending on the price paid for the additional shares, could result in dilution in the book value of shares held by the current stockholders. See the section of this proxy statement below captioned “Potential Consequences If the Proposals Are Approved” for additional information. The increase in authorized capital stock of the Company could have possible anti-takeover effects. See the section of this proxy statement below captioned “Anti-Takeover Effects” for additional information. Establishment of the Executive Committee The Third Amended and Restated Certificate of Incorporation will establish an Executive Committee consisting of three members of our Board of Directors. One member of the Executive Committee shall be a member of our Board of Directors who was designated for nomination of the Taylor family, one member shall be Harrison I. Steans, Jennifer W. Steans or another member of our Board of Directors who was designated for nomination by FIC, and one member shall be our most senior executive officer serving on the Board of Directors and not affiliated with FIC or the Taylor family. It is contemplated that the initial members of the Executive Committee will be Bruce W. Taylor, our Chairman and Chief Executive Officer, Harrison I. Steans, who will serve as the initial Chairman of the Executive Committee, and Mark A. Hoppe, our President. The Executive Committee will be established in accordance with Section 141(a) of the Delaware General Corporation Law and will, along with our Board of Directors, have oversight responsibility with respect to various operational and strategic matters involving the Company and the Bank. Although no responsibilities will be taken away from the Board of Directors or any Board committees as a result of the establishment of the Executive Committee, certain corporate matters will require the separate approval of the Executive Committee (in addition to the approval of our Board or an authorized committee thereof) in order to be implemented. Some corporate matters require the unanimous approval of all members of the Executive Committee and some require only the approval of a majority of the members. The following is a brief summary of various matters that will be subject to either unanimous or majority approval of the Executive Committee: Matters Requiring Unanimous Executive Committee Approval
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Matters Requiring Majority Executive Committee Approval
The Executive Committee will not have the authority to cause us to take any action on its own, and any Board and/or Board committee actions required before the formation of the Executive Committee will still be required. We believe that this structure will provide the Preferred Stock investors and the Taylor family with a level of involvement in our governance and operations commensurate with their respective significant equity interests, while still retaining proper authority for the Board and the committees of the Board to act in accordance with their fiduciary responsibilities and applicable Nasdaq Marketplace Rules. The establishment of the Executive Committee could have possible anti-takeover effects. See the section of this proxy statement below captioned “Anti-Takeover Effects” for additional information. In addition, see the section of this proxy statement below captioned “Potential Consequences If the Proposals Are Approved” for additional information regarding the consequences of the establishment of the Executive Committee. The foregoing is a summary of the material terms of the Third Amended and Restated Certificate of Incorporation and is qualified in its entirety by reference to that document, a copy which is attached as Appendix A to this proxy statement and which is incorporated by reference herein. This summary may not
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Table of Contentscontain all of the information that is important to you. We encourage you to read the Third Amended and Restated Certificate of Incorporation and the other appendices to this proxy statement carefully and in their entirety. The Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that you vote “FOR” the adoption of the Third Amended and Restated Certificate of Incorporation of the Company.
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Table of ContentsApproval of the Third Amended and Restated By-laws Under Article Seventh of our Second Amended and Restated Certificate of Incorporation, stockholder approval is required in order to amend certain provisions of our Second Amended and Restated By-laws. In connection with the Preferred Stock transaction, our Board of Directors deemed it advisable to amend and restate our Second Amended and Restated By-laws to ensure that the provisions therein will be consistent with the terms of the proposed Third Amended and Restated Certificate of Incorporation (including the terms of the Preferred Stock). This Proposal 4 contemplates the approval of our Third Amended and Restated By-laws, which proposes to, among other things, update the notice requirements for stockholder proposals, add a description of the Chief Executive Officer position, and make technical modifications to certain provisions to provide for electronic stockholder meetings and other matters. The Board of Directors has directed that the proposed Third Amended and Restated By-laws be submitted for consideration by our stockholders at a special meeting to be called for that purpose, and has recommended that stockholders approve the Third Amended and Restated By-laws. Amendments to Board Composition Provisions. The Third Amended and Restated By-laws will amend our by-laws to provide that the unanimous approval of the Executive Committee is required in order for the Board of Directors to amend the By-laws to decrease the size of the Board to fewer than 11 members or increase the size of the Board to greater than 13 members. The purpose of this proposed change is to ensure that the By-laws will be consistent with the Third Amended and Restated Certificate of Incorporation (including the terms of the Preferred Stock). Executive Committee Provisions. The Third Amended and Restated By-laws will further amend our by-laws to accommodate the establishment of the Executive Committee upon the consummation of the Preferred Stock transaction, including specifying the Executive Committee’s authority to approve certain officer appointments. Stockholder Proposal Notice Requirements. The Third Amended and Restated By-laws will also amend our by-laws to further specify the informational requirements associated with stockholder proposals and director nominations. The primary purpose of these changes is to require that stockholder notices include disclosure of information regarding: a stockholder candidate that would be necessary to include in a proxy statement in a contested election; the candidate’s independence and any material relationships between the candidate and the nominating stockholder; all ownership interests, including derivatives, hedge positions and other economic and voting interests of the stockholder proponent; and any interests of the proponent stockholder in the outcome of the proposal and other matters. The Third Amended and Restated By-laws will also amend the time period within which stockholder proposals, including director nominations, must be received in advance of our annual meetings of stockholders. As amended, the by-laws will provide that, with respect to an annual meeting of stockholders, in order to be timely, a stockholder’s notice must be delivered to, or mailed and received by, our Corporate Secretary not more than 90 days nor less than 60 days prior to the first anniversary of the date on which we first mailed our proxy materials for the preceding year’s annual meeting of stockholders. Taylor Family Nominations. The Third Amended and Restated By-laws will also provide that for so long as (i) the Taylor family beneficially owns in the aggregate 25% or more of the total voting power of the outstanding stock entitled to vote generally in the election of directors, the Taylor family shall be entitled to nominate up to three candidates for election to the Board of Directors at any annual meeting of stockholders or special meeting of stockholders called for the purpose of electing directors, and (ii) at any time at which the Taylor family beneficially owns in the aggregate 15% or more, but less than 25%, of the total voting power of the outstanding stock entitled to vote generally in the election of directors, the Taylor family shall be entitled to nominate up to two candidates for election to the Board of Directors at any annual meeting of stockholders or special meeting of stockholders called for the purpose of electing directors.
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Table of ContentsFIC Nominations. The Third Amended and Restated By-laws will also provide that for so long as (a) 800,000 shares of Preferred Stock are issued and outstanding, and (b) the outstanding shares of Preferred Stock represent less than 10% of the total combined voting power of all outstanding shares of all classes of capital stock which are then entitled to vote on matters presented to a vote of our stockholders generally, FIC will be entitled to nominate up to two candidates for election to the Board of Directors at any annual meeting of stockholders or special meeting of stockholders called for the purpose of electing directors. Pursuant to the Management Services Agreement with FIC, we will agree to make our best efforts to cause the two persons designated by FIC to be elected to our Board of Directors. In the event of any vacancy on our Board of Directors as a result of a Board member nominated by FIC no longer serving in such capacity, we will cause the vacancy to be filled by a designee of FIC. Each non-employee candidate nominated by FIC that is elected to our Board of Directors will be entitled to receive customary cash, equity and other compensation for board service on the same terms and conditions as our other non-employee directors. In addition, we will agree to enter into an indemnification agreement with each such nominee that is elected to our Board of Directors. The Management Services Agreement further provides that we will cause such nominees of FIC to be elected to and maintained as members of the Board of Directors of the Bank. We have agreed that our Board of Directors will take all necessary action so that Harrison I. Steans and Jennifer W. Steans will be appointed to our Board of Directors, each with a term commencing immediately following the closing of the Preferred Stock transaction and ending at the next annual meeting of our stockholders. Indemnification Provisions. The Third Amended and Restated By-laws will also change the indemnification provisions in our by-laws. Among other things, the amended provisions will specify that director indemnification rights extend equally to members of the Executive Committee and will provide for mandatory indemnification of directors and permissive indemnification for our officers. Duties of the Chief Executive Officer. The Third Amended and Restated By-laws will amend our by-laws to further specify the duties of our Chief Executive Officer. Such specified duties will include the supervision and control of all of our business and affairs. Miscellaneous. The Third Amended and Restated By-laws will contain a number of miscellaneous revisions proposed by the Board of Directors including with respect to the issuance of uncertificated shares of capital stock in accordance with Nasdaq rules, electronic transmission of notices, electronic access to stockholder lists and other matters. Some of the provisions of the Third Amended and Restated By-laws could have anti-takeover effects. See the section of this proxy statement below captioned “Anti-Takeover Effects” for additional information. The foregoing is a summary of the material terms of the Third Amended and Restated By-laws and is qualified in its entirety by reference to that document, a copy which is attached as Appendix B to this proxy statement and which is incorporated by reference herein. This summary may not contain all of the information that is important to you. We encourage you to read the Third Amended and Restated By-laws and the other appendices to this proxy statement carefully and in their entirety. In the event any one or more of the Proposals set forth in this proxy statement are not approved by our stockholders at the Special Meeting, the Third Amended and Restated By-laws are not expected to become effective. The Board of Directors (with each of Bruce Taylor, Jeffrey Taylor, Mark Hoppe and M. Hill Hammock abstaining and not participating in such vote) recommends that you vote “FOR” the adoption of the Third Amended and Restated By-laws of the Company.
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Table of ContentsANTI-TAKEOVER EFFECTS Our Third Amended and Restated Articles of Incorporation and our Third Amended and Restated By-laws, if approved at the Special Meeting, may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by stockholders. These provisions are summarized in the following paragraphs. Third Amended and Restated Certificate of Incorporation Increase in Authorized Shares of Capital Stock. The increase in authorized but unissued shares of common stock and preferred stock under our Third Amended and Restated Certificate of Incorporation could (within the limits imposed by applicable law and Nasdaq rules) be issued in one or more transactions that could make a change of control of us more difficult, and therefore more unlikely. The additional authorized shares could be used to discourage persons from attempting to gain control of us by diluting the voting power of shares then outstanding or increasing the voting power of persons who would support the Board of Directors in a potential takeover situation, including by preventing or delaying a proposed business combination that is opposed by the Board of Directors although perceived to be desirable by some stockholders. Creation and Issuance of Preferred Stock. The holders of Preferred Stock will be entitled to vote on all matters voted on by holders of capital stock of the Company into which such shares of Preferred Stock are convertible, at all meetings of stockholders of the Company, including with respect to the election of directors. As of the closing of the Preferred Stock transaction, the Preferred Stock issued in the Preferred Stock transaction, without giving effect to any limitation on conversion, will represent approximately 30% of the voting power of the outstanding stock entitled to vote, and therefore, the holders of Preferred Stock potentially could frustrate a proposed change of control transaction involving the Company. If all of the Proposals are approved by our stockholders at the Special Meeting and the transactions are consummated, it is expected that Harrison I. Steans and Jennifer W. Steans, in the aggregate and without duplication, will immediately thereafter beneficially own by virtue of having or sharing voting or investment power over shares representing approximately 14% of the outstanding Preferred Stock and approximately 11% of the outstanding shares of our common stock (assuming the exercise in full of the FIC Warrant at an exercise price of $20 per share and the conversion of Preferred Stock held by such persons (and not any other holders thereof)). If all of the Proposals are approved by our stockholders at the Special Meeting and the transactions are consummated, the members of the Taylor family in the aggregate would immediately thereafter beneficially own approximately 45% of our outstanding shares of common stock (assuming the exercise in full of any options and warrants owned by such persons to purchase our common stock (and not any other holders thereof)). Although members of the Taylor family and members of the Steans family have not entered into any agreement or arrangement with respect to their voting of our securities after the closing of the transactions, the Steans family, the Taylor family and their respective affiliates, were they to collectively vote in favor of or against any proposal, will be able to exercise significant control over all matters requiring approval of the Company’s stockholders, including the election of directors and approval of significant corporate transactions and matters including mergers or similar transactions and amendments to our certificate of incorporation, as amended. Each of the Steans family and the Taylor family, were their respective members to collectively vote in favor of or against any proposal, could also separately exercise significant control over matters requiring approval of the Company’s stockholders. Creation of Executive Committee. If approved, the Third Amended and Restated Certificate of Incorporation will create an Executive Committee, the members of which will be members of our Board of Directors with one director designated for nomination by FIC, one director designated for nomination by the members of the Taylor family and one member will be our most senior executive officer serving on the Board of Directors and not affiliated with either FIC or the Taylor family.
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Table of ContentsWe may not take action with respect to certain matters, including engaging in certain transactions and entering into certain agreements, without the unanimous approval of the Executive Committee. The required approval of the Executive Committee for us to take many actions or engage in many transactions, including most change of control transactions such as mergers, consolidations or other business combinations, could prevent us from entering into such transactions despite our Board of Director’s support of the transaction. The members of the Executive Committee may have interests that are not aligned with those of other holders of capital stock of the Company, including with respect to a change of control transaction, and the failure of any one of them to provide approval could prevent us from taking advantage of a transaction potentially beneficial to us and our stockholders. Please see the sections of this proxy statement above captioned “Proposal 3 – Establishment of the Executive Committee” and “Proposal 3 – Matters Requiring Unanimous Executive Committee Approval” for additional information regarding matters requiring unanimous approval of the Executive Committee. Third Amended and Restated By-laws Limitations on Right to Call Special Meetings; No Action by Written Consent; Stockholder Proposal Notice Requirements. Under our Third Amended and Restated By-laws, special meetings of our stockholders may be called by our President, Chairman of the Board of Directors, or a majority of the Board of Directors. Our stockholders will be entitled to request that our Board of Directors convene a special meeting of stockholders only upon the written request to the Board of Directors by the holders of at least 35% of the total voting power of the outstanding stock entitled to vote generally in the election of the members our Board of Directors. Further, our stockholders will be unable to take action by written consent, and therefore, may only take action at stockholder meetings. Additionally, our Third Amended and Restated By-laws will require that stockholder proposals meet certain advanced notice and minimum informational requirements. These provisions could have the effect of delaying until the next annual stockholders meeting stockholder actions which are favored by the holders of a majority of our outstanding voting securities. These provisions could also discourage a third party from making a tender offer for our common stock, because even if it acquired a majority of our outstanding voting securities, it would only be able to take action as a stockholder, such as electing new directors or approving a merger, at a duly called stockholders meeting and not by written consent. Executive Committee Provisions. If approved, the Third Amended and Restated By-Laws will accommodate the Executive Committee, consistent with the provisions of the Third Amended and Restated Certificate of Incorporation. See “– Creation of Executive Committee” above. Delaware Law As we have not elected to opt out of the applicability of Section 203 of the Delaware General Corporation Law in either of our Second Amended Certificate of Incorporation or our proposed Third Amended and Restated Certificate of Incorporation, we are currently governed by Section 203 of the Delaware General Corporation Law. Under Section 203 of the Delaware General Corporation Law, subject to exceptions, we are prohibited from engaging in any business combination with any interested stockholder for a period of three years following the time that the stockholder became an interested stockholder. The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our Board of Directors. These provisions may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.
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Table of ContentsPOTENTIAL CONSEQUENCES IF THE PROPOSALS ARE APPROVED If the Proposals are approved by stockholders at the Special Meeting and all other conditions to closing the transaction are satisfied or waived by the parties, we expect to consummate the Preferred Stock transaction and subordinated note and warrant unit offering promptly after such approval. We will also enter into the Management Services Agreement with FIC and issue the FIC Warrant to FIC. The following is a discussion of certain potential consequences if the Proposals are approved: Improved Balance Sheet and Capital Levels. Upon closing of the Preferred Stock transaction and unit offering, the Company and the Bank will receive aggregate gross proceeds of $120 million. With the proceeds of the Preferred Stock transaction and unit offering, we believe that our regulatory capital ratios will remain well above required levels in 2008 and 2009. We further believe that this additional capital will enable us to execute on our strategic growth initiative and generate value for our stockholders. Expected Strategic Benefits. We expect that Harrison I. Steans and his daughter, Jennifer W. Steans, will be actively involved in helping formulate the strategic direction of the Company and the Bank. We believe that the Steans’ involvement in our business will enable us to capitalize on their expertise, reputation and strong ties to the Chicago area banking community. Mr. Steans, a former Chairman of LaSalle National Bank, NBD Illinois and USAmeribancs, Inc., has had a long and successful career in the banking industry and is the Chairman of the Executive Committee of FIC, a Chicago-based private asset management firm with over $600 million in equity investment commitments, and Chairman of the Steans Family Foundation. Ms. Steans is the President of FIC and is responsible for its private equity investment activities, and, as a former member of the Board of Directors of PCB Bancorp and current Chairman of USAmeribancorp, Inc., has substantial banking and investment experience. In connection with the Preferred Stock offering, it is contemplated that Mr. Steans will serve as Chairman of a newly formed Executive Committee, which is further described above under “Proposal 3 – Establishment of the Executive Committee” and below under “Potential Consequences If the Proposals Are Approved – Establishment of the Executive Committee.” Rights of Investors. Upon closing, the rights and privileges associated with our common stock issuable upon conversion of the Preferred Stock and exercise of the warrants, as applicable, will be identical to the rights and privileges associated with our common stock held by the existing holders of our common stock, including voting rights. Market Effects. The ability of holders of the Preferred Stock and warrants to convert or exercise, as applicable, all such Preferred Stock and warrants into shares of our common stock may impact trading patterns and adversely affect the market price of our common stock. In addition, the holders of the Preferred Stock will have registration rights with respect to shares of our common stock issuable upon conversion or exercise, as applicable, of such Preferred Stock and warrants held by them and other shares of common stock held by them. Any such shares of our common stock, if and when registrable for resale pursuant to an effective registration statement, will be freely transferable without restriction under the Securities Act of 1933. The shares of common stock issuable upon conversion or exercise, as applicable, of such Preferred Stock and warrants may also be transferable under Rule 144 under the Securities Act of 1933, subject in some cases to limitations imposed by Rule 144. If large quantities of our common stock are issued upon conversion of the Preferred Stock and/or exercise of the warrants and are sold (or if it is perceived that they may be sold) into the public market, the trading price of our common stock could be materially adversely affected. In addition, any registration of the Preferred Stock would cause us to incur significant expense related to the registration and ongoing compliance costs related to the continued listing of a second class of securities. Dilution. Upon closing, the shares of Preferred Stock will be immediately convertible into 6,000,000 shares (subject to adjustment) of our common stock by the holders thereof. Subject to applicable restrictions, there will also be approximately 900,000 shares (subject to adjustment) of common stock issuable upon the exercise of the warrants in the unit offering and up to 500,000 shares (subject to adjustment) of common stock issuable upon the exercise of the FIC Warrant, which will be immediately exercisable. The aggregate number of 7,400,000 shares of common stock issuable upon the conversion of the Preferred Stock and exercise of the warrants will represent approximately 67% of the 11,011,184 outstanding shares of our common stock on September 4, 2008, the date we entered into the Securities Purchase Agreement for the Preferred Stock offering, and approximately 40% of
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Table of Contentsthe total number of shares of our common stock outstanding after giving effect to the conversion and exercise of all of these securities. As a result, our existing stockholders will likely incur substantial dilution to their voting interests and will own a significantly smaller percentage of our outstanding shares of common stock as a result of the consummation of these transactions. We expect that the transactions will have a dilutive effect on both the earnings per share of our common stock and the book value per share of our common stock. Each period, we report basic and diluted earnings per share of our common stock. The computation of these earnings per share amounts take into account net income available to holders of our common stock and the number of shares of common stock outstanding. Diluted earnings per share of common stock also takes into consideration the dilutive impact of certain financial instruments that could be converted into shares of common stock, such as warrants, employee stock options and convertible preferred securities. As a result of these transactions, net income available to holders of our common stock will be reduced by any dividends declared on the Preferred Stock. In addition, dilutive shares outstanding may increase to take into account the dilutive impact of the assumed exercise of the warrants and conversion of preferred shares into shares of common stock. Because the computation of diluted earnings per share of common stock assumes that the warrants and Preferred Stock are exercised for, or converted into, shares of our common stock, the computation will be impacted regardless of whether or not these instruments actually are exercised or converted. The impact of a reduction in net income available to common stockholders and an increase in shares of common stock outstanding because of the actual or assumed conversion of the warrants and preferred shares into shares of common stock could cause a dilution to our reported earnings per share of common stock. Our reported book value per share of common stock will also be diluted because of these transactions. Book value per share of common stock is computed by dividing stockholders’ equity attributable to holders of common stock by our shares of common stock outstanding. As the warrants are exercised, the common stockholders’ equity will increase by the amount of the exercise price received; however, shares outstanding will also increase, resulting in a dilutive impact to the extent that the exercise price received is less than the current book value of our common stock. In addition, as shares of our Preferred Stock are converted into shares of our common stock, the equity of holders of our common stock equity will increase by the amount of the conversion price; however, the shares of our common stock outstanding would also increase, resulting in a dilutive impact to the extent that the common stock conversion price is less than the then current book value. At June 30, 2008, the Company’s book value per share of common stock was $20.19, as compared to the $10.00 exercise price of the warrants to be issued in the unit offering, the $20.00 per share exercise price of the FIC Warrant and the $10.00 per share conversion price of the Preferred Stock. Since the exercise and conversion prices will be less than the then current book value per share of common stock, if the warrants or Preferred Stock were to be immediately converted into common stock, the impact would be dilutive to book value per share of common stock. If all of the warrants and Preferred Stock were assumed to have been issued and exercised for, or converted into, common stock as of June 30, 2008, the Company’s book value per share of common stock would have been $16.36. Concentration of Ownership. Our Board of Directors, our officers and their immediate families and related entities currently hold approximately 47% of the outstanding shares of our common stock, with certain members of the Taylor family holding approximately 44%. As our Chairman and Chief Executive Officer and our Executive Vice President, respectively, and as beneficial owners of the largest block of our common stock, Bruce W. Taylor and Jeffrey W. Taylor (and other Taylor family members and related entities) may exercise substantial control over our future direction and operation. Such a concentration of control may have the effect of discouraging, delaying or preventing a change in control and may also have an adverse effect on the market price of our common stock. In addition, if the Proposals are approved by stockholders at the Special Meeting, members of the Taylor family, the Steans and their respective affiliates will own securities with a substantial portion of the total combined voting power of our outstanding voting shares. Although members of the Taylor family and members of the Steans family have not entered into any agreement or arrangement with respect to their voting of our securities after the closing of the transactions, the Steans family, the Taylor family and their respective affiliates,
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Table of Contentswere they to vote in the same way, will be able to exercise significant control over all matters requiring approval of the Company’s stockholders, including the election of directors and approval of significant corporate transactions and matters including mergers or similar transactions and amendments to our certificate of incorporation. Each of the Steans family and the Taylor family, separately, were their respective members to collectively vote in the same way, could also separately exercise significant control over matters requiring approval of the Company’s stockholders. The current ownership of our voting securities, and the expected ownership after the consummation of the Preferred Stock and subordinated debt and warrant transactions, are further described below in the section of this proxy statement captioned “Security Ownership of Certain Beneficial Owners and Management.” Establishment of the Executive Committee. Upon closing of the Preferred Stock transaction and the filing of the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, the Executive Committee will be established. The Executive Committee, which will initially be comprised of Bruce W. Taylor, as the Taylor family designee, Harrison Steans, as the FIC designee, and Mark Hoppe, as the senior officer designee, will be able to exercise significant authority over significant matters affecting the Company. The unanimous approval of the Executive Committee is required for us to take many significant corporate actions, and any member of the Executive Committee could, by himself or herself, block our taking action that is approved by our board of directors and that may be in the best interests of our stockholders. It is possible that the interests of the members of the Executive Committee may differ from those of our other stockholders with respect to corporate actions requiring Executive Committee approval. In addition, the requirement to obtain Executive Committee approval prior to taking actions or engaging in transactions could create logistical difficulties in consummating the actions or transactions if an Executive Committee member is for any reason incapacitated, unreachable or otherwise unavailable to provide his or her approval. Please see the section of this proxy statement above captioned “Anti-Takeover Effects” for additional information. Corporate Governance Documents. If the Proposals are approved by the stockholders, then in connection with the consummation of the Preferred Stock transaction, we will file the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, at which time it will become effective. The Third Amended and Restated By-laws will become effective upon their approval by the stockholders at the Special Meeting. The provisions of the Third Amended and Restated Certificate of Incorporation and By-laws may have anti-takeover effects. Please see the section of this proxy statement above captioned “Anti-Takeover Effects” for additional information. Tax Treatment and Accounting Treatment of the Company. If the Proposals are approved, each of the Preferred Stock transaction, the unit offering and other related transactions as described in this proxy statement will have certain tax and accounting consequences to us. See the sections of this proxy statement captioned “Proposal 1 – Tax Treatment, Accounting Treatment and Regulatory Consequences” and “Proposal 2 – Tax Treatment, Accounting Treatment and Regulatory Consequences,” for additional information.
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Table of ContentsPOTENTIAL CONSEQUENCES IF THE PROPOSALS ARE NOT APPROVED All Proposals Are Interrelated. All Proposals set forth for consideration in this proxy statement are interrelated. In the event any one or more of the Proposals set forth in this proxy statement are not approved by our stockholders at the Special Meeting and we have not already consummated the transaction contemplated by the Proposals, (A) the transactions contemplated by any of the Proposals may not be consummated (B) the Third Amended and Restated By-laws will not become effective, and (C) a majority of Preferred Stock investors, as represented by the number of shares of Preferred Stock for which such investors have subscribed, will have the right to terminate the Securities Purchase Agreement. Upon such a termination by the Preferred Stock investors, we will be required under the Securities Purchase Agreement to pay FIC a fee of $1.5 million. Additional Meetings. If all of the Proposals are not approved by our stockholders at the Special Meeting, then upon the request of a majority of the Preferred Stock investors as represented by the number of shares of Preferred Stock for which such investors have subscribed, or upon the request of a majority of the Unit Offering investors as represented by the principal amount of subordinated notes for which such investors have subscribed, we are required to seek to obtain the stockholder approval of the Proposals at any subsequent meeting of stockholders of the Company until the approval is obtained. Capitalization. Our ability to support our growth initiative and meet minimum regulatory capital requirements to be considered well-capitalized at the Company and at the Bank is dependent in part on us being able to consummate the Preferred Stock transaction. If we are unable to successfully consummate this transaction, we would be required to significantly reduce our earning asset growth in future periods and our business, reputation, ability to remain well-capitalized and ability to attract and retain qualified personnel may be materially adversely affected. We would also be required to seek additional capital, and events or circumstances in the capital markets generally that are beyond our control may adversely affect our ability to do so on terms acceptable to us, or at all. We may also fail to meet minimum capital levels for qualification as “well-capitalized” under applicable bank regulations. In that event, our access to capital and ability attract and retain deposits would be adversely effected. Designated Preferred Dividends. Under certain circumstances, prior to the issuance of the Preferred Stock, we may issue the Designated Preferred pursuant to the Securities Purchase Agreement, which shares of Designated Preferred will be automatically exchanged for shares of Preferred Stock upon the approval of the Proposals at the Special Meeting and the filing of the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. If we close the issuance of the Designated Preferred and (1) the Proposals are not approved by our stockholders, (2) the Third Amended and Restated Certificate of Incorporation including the designation of the Preferred Stock is not filed with the Secretary of State of the State of Delaware, and (3) all Designated Preferred has not been exchanged for Preferred Stock, on or prior to November 15, 2008, then dividends will be deemed to have accrued on the Designated Preferred, on a cumulative basis and compounded quarterly at an annual rate equal to 16.0% on the liquidation preference of $25.00 per share, from the date of issuance, and will continue to accrue at such rate. Our continuing obligation to pay this dividend could reduce our available financial resources and otherwise negatively affect our financial condition. If we are unable to pay such dividends with respect to the Designated Preferred, we will be prohibited from paying dividends with respect to our common stock. Potential Registration of Designated Preferred. If we close the issuance of the Designated Preferred and (1) the Proposals are not approved by our stockholders, (2) the Third Amended and Restated Certificate of Incorporation including the designation of the Preferred Stock is not filed with the Secretary of State of the State of Delaware, and (3) all Designated Preferred has not been exchanged for Preferred Stock, on or before December 31, 2008, then (a) we will be required to pay FIC a fee of $1.5 million, and (b) the holders of at least a majority of the Designated Preferred then outstanding may require us to register for resale all of the Designated Preferred and we must use our reasonable best efforts to cause the listing of the Designated Preferred on a national securities exchange. Consequently, any such shares of our Designated Preferred that are issued or sold pursuant to an effective registration statement will be freely transferable without restriction under the Securities
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Table of ContentsAct of 1933. In addition, any registration of the Designated Preferred would cause us to incur significant expense related to the registration and ongoing compliance costs related to the continued listing of a second class of securities. Potential Conversion of Designated Preferred. If we close the issuance of the Designated Preferred and after the Special Meeting any shares of Designated Preferred remain outstanding, the holders of our Designated Preferred may convert, in the aggregate, up to that number of shares of Designated Preferred that would result in the issuance of a number of shares of our common stock equal to 1,301,135 shares, which represents 19.99% of the 11,011,184 shares of our common stock outstanding immediately prior to the execution of the Securities Purchase Agreement, less the 900,000 shares of our common stock issuable upon exercise of the warrants issued in the unit offering. The issuance of any such additional shares of our common stock upon such a conversion would likely cause our existing stockholders to incur substantial dilution to their voting interests and own a smaller percentage of our outstanding shares of common stock as a result of the conversion. However, such dilution will be substantially less than if the Proposals are approved and the Preferred Stock is issued as described in this proxy statement. Exercisability of Warrants. The unit offering warrants will be exercisable into shares of our common stock on the later of the date of the Special Meeting and the 180th day following the date on which the warrants are issued. Even if our stockholders do not approve the Proposals, the unit offering warrants will still become exercisable for shares of our common stock.
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Table of ContentsInterests of Certain Persons in Matters to be Acted Upon Director and Executive Officer Participation. Four of our directors, including three who are executive officers, and one of our other executive officers (and/or entities controlled by them, respectively) have agreed to purchase shares of Preferred Stock at the price of $25.00 per share in the transaction. These individuals have agreed to purchase an aggregate of 120,000 shares of Preferred Stock for a total purchase price of $3,000,000. In addition, two of our directors (who are also executive officers) have subscribed to purchase an aggregate of $700,000 in units of subordinated debt and warrants in the unit offering. In addition, 22 of our other employees have agreed to participate in the Preferred Stock transaction. The following table reflects the participation of our directors, executive officers and other employees in the Preferred Stock transaction and unit offering. The below table is titled “New Plan Benefits,” in accordance with rules of the SEC: New Plan Benefits
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Table of ContentsEach of the directors who participated in the Preferred Stock transaction recused himself from our Board of Directors vote to approve the transaction and to authorize and recommend the Proposals described in this proxy statement. In addition, prior to its approval of the transactions, our Board of Directors, as required under the rules of The Nasdaq Stock Market and our internal corporate governance guidelines relating to “related party transactions,” referred the transactions to the Audit Committee for its approval. The Audit Committee reviewed the terms and conditions of the transactions with a view to the potential conflict of interest and determined that the transactions are in the best interest of our stockholders, and specifically approved the participation of our directors, executive officers and other employees in the Preferred Stock transaction and unit offering. Bruce W. Taylor Employment Agreement. In connection with the transactions described in this proxy statement, we entered into an employment agreement with Bruce W. Taylor, the effectiveness of which is conditioned upon the closing of the Preferred Stock transaction. Please see the section of this proxy statement captioned “Compensation of Directors and Executive Officers – 2008 Compensation Actions” for a summary of the material terms of the employment agreement. Jeffrey W. Taylor Consulting Agreement. In connection with the transactions described in this proxy statement, we entered into a consulting agreement with Jeffrey W. Taylor, the effectiveness of which is conditioned upon the closing of the Preferred Stock transaction. Please see the section of this proxy statement captioned “Compensation of Directors and Executive Officers – 2008 Compensation Actions” for additional information. Executive Committee. In connection with the adoption of the proposed Third Amended and Restated Certificate of Incorporation and the approval of the proposed Third Amended and Restated By-laws, an Executive Committee, which will consist of three members of our Board of Directors, will be established. The Executive Committee and its authority and powers are further described above under “Proposal 3 – Establishment of the Executive Committee.” It will consist of one member who is a director designated for nomination by members of the Taylor family, one member designated for nomination by FIC and one member that is our most senior executive officer serving on the Board of Directors and not affiliated with either FIC or the Taylor family. It is contemplated that the initial members of the Executive Committee will be Bruce W. Taylor, our Chairman and Chief Executive Officer, Harrison I. Steans, who will serve as the initial Chairman of the Executive Committee, and Mark A. Hoppe, our President. Voting Agreement. In connection with the Securities Purchase Agreement, on September 4, 2008, we entered into a voting agreement with members of the Taylor family, including Bruce W. Taylor, Jeffrey W. Taylor, and a trust controlled by members of the Taylor family. Collectively, the Taylor family members and the trust held approximately 44% of the total voting power of our outstanding shares of common stock as of the Record Date for the Special Meeting. They have agreed to vote their shares of common stock in favor of each of the Proposals to be considered at the Special Meeting. Registration Rights Agreement. In connection with the Securities Purchase Agreement, we agreed to enter into a Registration Rights Agreement with the Preferred Stock investors, members of the Taylor family and FIC. FIC, the Steans, members of the Taylor family and other Preferred Stock investors including other directors, officers and other employees of the Company, may require the Company to register their Company securities, as further described above in the section of this proxy statement captioned “Proposal 1 – Registration Rights Agreement.” Company Securities Ownership. Members of the Taylor family held approximately 44% of the total voting power of our outstanding shares of common stock as of the Record Date for the Special Meeting. If all of the Proposals are approved by our stockholders at the Special Meeting and the transactions are consummated, significant Preferred Stock investors, including FIC, Harrison I. Steans and Jennifer W. Steans, would become significant stockholders of the Company as described above in the section of this proxy statement captioned “Potential Consequences If the Proposals Are Approved – Concentration of Ownership” and below in the section of this proxy statement captioned “Security Ownership of Certain Beneficial Owners and Management.”
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Table of ContentsSecurity Ownership of Certain Beneficial Owners and Management Our Board of Directors, our officers and their immediate families and related entities hold approximately 47% of the outstanding shares of our common stock, with members of the Taylor family owning approximately 44%. As the Chairman, Chief Executive Officer and Executive Vice President of the Company and as beneficial owners of the largest block of our common stock, Mr. Bruce W. Taylor and Mr. Jeffrey W. Taylor may exercise substantial control over our future direction and operation. Such a concentration of control may have the effect of discouraging, delaying or preventing a change in control and may also have an adverse effect on the market price of our common stock. The table below sets forth information regarding beneficial ownership of our common stock as of the close of business on August 28, 2008 by (1) each stockholder known by us to be the beneficial owner of more than five percent of the outstanding shares of our common stock, (2) each of our Chief Executive Officer, Chief Financial Officer, as well as our three other most highly compensated executive officers for the year ended December 31, 2007 (collectively, the “Named Officers”), (3) each of our directors, and (4) all of our directors and executive officers as a group. The table also sets forth information regarding the expected beneficial ownership of our common stock and our Preferred Stock by such persons and other persons that are expected to beneficially own more than five percent or more of the Preferred Stock or common stock following the consummation of preferred stock and unit transactions (if all of the Proposals are approved at the Special Meeting). Beneficial ownership is determined according to the rules of the SEC and generally includes any shares over which a person possesses sole or shared voting or investment power as well as any shares that such person has the right to acquire within 60 days of the applicable date, including through the exercise of options or other rights or the conversion of another security. Except as otherwise indicated, we believe that the beneficial owners of common stock listed below have sole investment and voting power with respect to the shares described below. The information presented in the tables is based upon the most recent filings with the SEC by such persons or upon information otherwise provided by such persons to us prior to August 28, 2008. The applicable percentage ownership for each person listed below is based upon 11,011,184 shares of common stock outstanding as of August 28, 2008, and with respect to the adjusted information, an estimated total of 11,011,184 shares of common stock outstanding. Shares of common stock subject to options, warrants or other rights that are exercisable or convertible within 60 days after the applicable date are deemed outstanding for the purpose of calculating the percentage ownership of the person holding those options, warrants or other rights but are not treated as outstanding for the purpose of calculating the percentage ownership of any other person. Unless otherwise noted, the address for each holder of five percent or more of our common stock listed below is: c/o Taylor Capital Group, Inc., 9550 West Higgins Road, Rosemont, Illinois 60018.
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Table of ContentsCapitalization The following table sets forth our consolidated capitalization and capital ratios as of June 30, 2008 on an actual basis and on a pro forma basis as adjusted to give effect to (1) the expected issuance of 2,400,000 shares of Preferred Stock, for a total purchase price of $60 million, which Preferred Stock will be convertible into an aggregate of 6,000,000 shares of our common stock at a conversion price of $10.00 per share, (2) in connection with such Preferred Stock transaction, the related issuance to FIC of a warrant to purchase up to 500,000 shares of our common stock at an exercise price of $20.00 per share, and (3) the issuance of units in an aggregate amount of $60 million, each unit of which consists of a 10% subordinated note in the principal amount of $1,000, issued by the Bank, and a warrant to purchase 15 shares of our common stock at an exercise price of $10.00 per share, as if all of those transaction occurred at June 30, 2008. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto from our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our Quarterly Report on Form 10-Q, as amended, for the period ended June 30, 2008, included as Appendices I, J, K and L to this proxy statement. Certain amounts included in the “Pro Forma As Adjusted” column contain estimates, including estimates of fair value and issuance costs, which may not reflect actual amounts when the transactions are consummated.
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Table of ContentsFINANCIAL STATEMENTS The Company’s Audited Consolidated Financial Statements (including Notes thereto) for the fiscal years ended, and as of, December 31, 2007, December 31, 2006 and December 31, 2005, as included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, are attached to this proxy statement as Appendix I and thereby incorporated by reference herein. The Company’s Consolidated Financial Statements (including Notes thereto) for the three-month and six-month periods ended June 30, 2008 and June 30, 2007, and as of December 31, 2007 and June 30, 2008, as included in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008, are attached to this proxy statement as Appendix K and thereby incorporated by reference herein. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal years ended December 31, 2007, December 31, 2006 and December 31, 2005, as included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, is attached to this proxy statement as Appendix J and thereby incorporated by reference herein. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three-month and six-month periods ended June 30, 2008 and June 30, 2007, as included in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008, is attached to this proxy statement as Appendix L and thereby incorporated by reference herein. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with our accountants required to be disclosed pursuant to Item 304 of Regulation S-K. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding our quantitative and qualitative disclosures about market risk is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations as reported in our Annual Report on Form 10-K and attached hereto as Appendix H and in our in Management’s Discussion and Analysis of Financial Condition and Results of Operations as reported in our Quarterly Report on Form 10-Q attached hereto as Appendix L, in each case in the section thereof entitled “Quantitative and Qualitative Disclosures About Market Risk.”
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Table of ContentsCOMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS As described above under the section of this proxy statement captioned “Interests of Certain Persons in Matters to be Acted Upon,” certain of our directors and executive officers will be participating in the Preferred Stock transaction and the unit offering. Under Nasdaq Marketplace Rule 4350(i)(1)(A), the shares of Preferred Stock and unit offering warrants issued to these individuals constitute a compensation arrangement because such shares will be issued a price below the book value of the Company’s common stock. As a result, we are required to include the following information in this proxy statement with respect to the compensation of our directors and executive officers. Compensation Discussion and Analysis Overview The Company’s compensation programs for executive officers and key employees are administered under the direction of the Compensation Committee (the “Committee”). The Committee’s primary responsibilities include reviewing and making recommendations to our Board of Directors with respect to the Company’s compensation programs and overseeing the administration of the Company’s employee benefit plans. The Committee reviews and approves the compensation of Bruce W. Taylor, the Company’s Chairman and Chief Executive Officer, and Jeffrey W. Taylor, the Company’s Executive Managing Director, Market Development and New Ventures. The Committee also considers the compensation recommendations of the Company’s Chairman and Chief Executive Officer in making its compensation decisions relative to other executive officers. The Human Resources Department collects all relevant and historical compensation information, and works at the direction of the Committee in putting forth preliminary recommendations regarding compensation levels for the Company’s executive officers. Objectives of Compensation Program The primary objectives of the Committee with respect to the Company’s executive compensation program are to (1) attract, motivate and retain individuals who will contribute to the Company’s success, (2) align the interests of the Company’s executives with the long-term interests of our stockholders through award opportunities that can result in the ownership of our common stock, and (3) motivate behavior to attain the Company’s vision. To achieve these objectives, the Committee has designed and implemented an executive compensation program using the following criteria:
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Table of ContentsThe executive compensation program’s objectives are achieved through a pay-for-performance, total compensation approach, inclusive of base salary, annual and long-term cash incentives, and equity compensation. Pay-for-performance is addressed through the design of the variable elements of the executive compensation program, which generally includes cash compensation tied to financial-based performance metrics, competitive pay practices and equity compensation. Consistent with the pay-for-performance approach, target compensation levels are established through a review of analyses that are prepared by the Company’s compensation consulting firm on a bi-annual basis and updated in the intervening years by our Human Resources Department. The Committee considers these analyses as it determines the cash and incentive compensation elements of executive compensation packages with the intention of paying the Company’s executives at or near the median of base salary, total cash compensation and equity incentive compensation (within dilution constraints) relative to the published survey data of Towers Perrin. Compensation Consultant In July 2006, the Committee retained Towers Perrin, a compensation consulting firm, to provide information, to evaluate and make recommendations on the Company’s compensation practices. Towers Perrin performed analysis of compensation compared to Towers Perrin’s 2006 Financial Services Executive Compensation Database. The Committee considered this analysis as it determined the cash and incentive compensation elements of executive compensation packages for 2007 with the intention of paying the Company’s executives at or near the median of base salary, total cash compensation, and equity incentive compensation (within dilution constraints) relative to the Towers Perrin published survey data. During 2007, the Committee retained Towers Perrin to provide compensation information and recommendations for specific executive officers who were promoted or newly hired in their positions. The Human Resources Department also updated the 2006 published survey data from Towers Perrin in order to bring our assessment of pay levels current using recommended projection methods. The Committee expects to periodically retain a compensation consultant to provide the Committee with information regarding competitive market data, guidance with respect to certain legal and regulatory requirements and compensation best practices. The Committee believes that a compensation consultant’s input and guidance provides an appropriate framework for the Committee to make informed decisions with respect to our executive compensation program. The Committee does not prohibit management from engaging the same compensation consultant for other compensation advisory projects and Towers Perrin has performed services for the Company separate from its work for the Committee. However, the Committee believes the nature of those engagements, and the fees paid on those engagements, have not compromised Towers Perrin’s independence or advice to the Committee. Elements of the Compensation Program Total Compensation. The Committee considers all components of the Company’s compensation program in the aggregate rather than focusing on any one component in isolation. The Committee reviews the dollar value of each of the following compensation components for each Named Officer:
At a Committee meeting held during the first quarter of each year, the Committee reviews and approves the compensation of each Named Officer and sets base salaries (effective in late March), establishes annual incentive
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Table of Contentsbonus plan targets and performance goals under the 2007 Incentive Bonus Plan, approves equity incentive awards for the current year and determines annual incentive cash bonus plan awards for the year just concluded. The meeting at which the Committee approves annual equity incentive awards for the current year typically is scheduled after the earnings press release for the prior year at a time when the Company has not imposed a blackout period for transactions involving its common stock. The following describes in more specific terms the elements of Named Officer compensation in 2007: Base Salary. Base salary is established for each Named Officer based on his or her unique value and historical contributions to the Company’s success. The Committee, among other things, takes into account competitive market compensation paid by companies in the published survey data of Towers Perrin for similar positions. The information used by the Committee in setting base salary levels includes data available from objective, professionally conducted market studies, such as the Towers Perrin reports discussed above, which is then integrated with Company and individual performance considerations. The Committee annually reviews the base compensation of our Named Officers to assure that a competitive position is maintained. As discussed above, executive officer base salaries are targeted at or near the median of the Towers Perrin published survey data. Base salaries are determined by evaluating each executive officer’s level of responsibility and experience and the Company’s performance for the immediately completed period. Increases to base salaries, if granted, are driven primarily by individual performance and comparative data from the Towers Perrin published survey data. Individual performance is evaluated by reviewing the Named Officer’s success in achieving business results, promoting our core values and demonstrating leadership abilities. In setting the base salaries of the executive officers for 2007, the Committee reviewed the compensation of comparable senior executives from the Towers Perrin published survey data. In 2007, the Committee increased the base salaries of many of our Named Officers by approximately 4%. However, the Committee decreased the base salary of Jeffrey W. Taylor by approximately 6% in light of the changes in his responsibilities. In making this determination, the Committee recognized the lack of comparable market compensation data for the new position held by Jeffrey W. Taylor, and the Committee acknowledged that his compensation should be reassessed for 2008. The Committee also increased the base salary of Robin VanCastle by approximately 9% in connection with her promotion to Chief Accounting Officer in October 2006 and by approximately 30% in connection with her promotion to Chief Financial Officer in May 2007. Notwithstanding the significant percentage increase in Ms. VanCastle’s base salary, the Committee recognized that her resulting base salary was less than the median of the Towers Perrin published survey data for a chief financial officer. However, the Committee felt this base salary level was appropriate given her recent promotion to this position, and the Committee determined that the Towers Perrin published survey data may play a greater role in assessing her base salary in future years. The Committee does not target base salary at any particular percent of total compensation, however, in setting base salary levels, the Committee does review information regarding the projected total compensation that each executive officer can earn to ensure that each executive’s total pay package remains reasonable and appropriate for the position, in the Committee’s view. Cash Incentive Bonuses. Cash incentive bonuses are used to focus our management group on achieving key corporate financial objectives, to motivate certain desired individual behaviors and to reward substantial achievement of Company financial objectives and individual goals. The Committee uses cash bonuses to reward performance achievements generally only as to years in which the Company is profitable. Bonuses, if any, are determined and paid on an annual basis after completion of the bonus year. The Committee administers our 2007 Incentive Bonus Plan, which was approved by our Board of Directors on April 26, 2007, and by our stockholders on June 7, 2007. Under this plan, the Named Officers and designated officers are eligible to receive cash bonuses based on the attainment of the financial objectives described below. The bonus plan is comprised of two components: Annual Incentive Bonus. Annual incentive bonuses are primarily based upon the achievement of measurable performance goals established at the beginning of each fiscal year. In the past, the Committee has based bonuses for the Named Officers on achievement of pre-established net income targets because it
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Table of Contentsbelieves that the Company should reward profitability. Individual performance objectives are determined by the executive officer to whom the potential bonus recipient reports or, in the case of our Named Officers, by the Committee. The Committee considers factors such as the Named Officer’s position and responsibility, performance and contributions, years of experience with the Company and in the industry, knowledge of the banking industry, ability to recruit and build a management team and commitment to the Company’s stated goals and objectives. For 2007, the incentive bonus targets (as a percentage of base salary) ranged from 35% to 50% of base salary. While net income is not the only criteria, because we did not achieve our corporate 2007 net income target, and reported a loss for the year, no annual incentive bonuses were paid to any of our Named Officers. Long Term Incentive Plan. The Committee terminated the Company’s previous LTIP at the end of 2004. Under a revised 2005 LTIP, only Jeffrey W. Taylor and Bruce W. Taylor, in their capacities as Chief Executive Officer of the Company during different periods in 2006, were eligible to participate in the plan and in connection with that, the Committee eliminated the equity compensation component from Jeffrey W. Taylor’s and Bruce W. Taylor’s overall long-term compensation packages, taking into consideration their existing equity in the Company and the significant number of shares represented by outstanding equity awards. The LTIP consists of a series of independent three-year performance-based plans. The performance-based plans are intended to further the growth and improve the profitability of the Company. The LTIP provides long-term opportunities for participants to share in the value they help create as the Company achieves and exceeds targeted performance goals. Jeffrey W. Taylor and Bruce W. Taylor were each eligible to receive a targeted award amount of $400,000 in LTIP cash compensation with a minimum of $0 and a maximum of $1,000,000 with respect to the 2005 plan year, payable in 2008. The Committee approved another three-year performance-based plan in April 2006, which has a target award amount of $400,000, with a minimum of $0 and a maximum of $1,000,000, payable in 2009. The Committee did not approve a three-year performance-based plan in 2007. The actual award amounts are determined based on attainment of diluted earnings per share (“EPS”) and return on average equity (“ROAE”) targets as of the last day of each three-year performance cycle. For the three-year period ended December 31, 2007, the minimum EPS target was $2.00 per share and the minimum ROAE target was 11.93%. No award payments were made from the LTIP during 2008 because we did not achieve such targets for the three-year period ended December 31, 2007. No award payments are expected to be made from the LTIP during 2009 for the three-year period ending December 31, 2008 because we do not anticipate meeting the minimum EPS and ROAE targets for such period. The Committee believes that including an annual incentive bonus program as a part of the executive compensation program improves the Company’s ability to attract and retain talented individuals by using variable, performance-based pay. The intent of the program is to reward short-term performance that increases stockholder value. The Committee believes that this component of executive compensation should increase if performance goals are achieved or exceeded and, correspondingly, should decrease if performance goals are not achieved. As Messrs. Taylor and Taylor already beneficially own a significant amount of our common stock, if LTIP goals are met or exceeded, LTIP awards paid in cash reduce the dilution to stockholders that otherwise would result from equity awards. Equity Compensation. The Company’s Board of Directors and the Committee believe that long-term equity compensation incentives are appropriate to motivate and retain key personnel and that stock ownership by management is beneficial in aligning management’s and stockholders’ interests to increase stockholder value. The Committee administers the Company’s 2002 Incentive Compensation Plan, which was approved by our Board of Directors on June 20, 2002, and by our stockholders on June 27, 2002. Under this plan, directors, officers and employees selected by the Committee are eligible to receive awards, including incentive stock
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Table of Contentsoptions, non-qualified stock options, restricted stock awards, stock appreciation rights, stock awards and performance awards. Options granted under the plan may be incentive stock options or nonqualified stock options. Stock appreciation rights may be granted at any time either in tandem with an option or on a freestanding basis. Subject to the provisions of the plan, the Committee will determine the type of award, when and to whom awards will be granted, the number of shares or amount of cash covered by each award and the terms and kinds of consideration payable with respect to awards. To date, the Committee has only authorized stock option and restricted stock awards under the plan. Stock options provide executives with the opportunity to acquire an equity interest in the Company and to share in the appreciation of the value of our common stock. Stock options are granted with an exercise price equal to the closing sale price of the Company’s common stock on the date of grant, and are subject to vesting over time (generally over four years). All stock options granted in 2007 are exercisable, subject to vesting, at any time during a term of eight years from the date of grant. However, the term of an option will be shortened following a termination of employment. Grants of restricted stock also provide executives with the opportunity to accumulate an equity interest in our company. The value of restricted stock shares granted under the plan is determined based upon the last closing sale price of our common stock on the date of grant, and such shares are subject to vesting over time. Specifically, half of the underlying shares vest on the third anniversary of the grant date, and an additional 25% of these underlying shares vest on each of the fourth and fifth anniversaries of the grant date. In March 2005, the Committee eliminated the equity compensation component from Jeffrey W. Taylor’s and Bruce W. Taylor’s overall long-term compensation packages due to considerations related to the perceived aggregate common stock overhang of the Company’s outstanding equity awards. Accordingly, neither of them were granted stock options or restricted stock in 2007. In May 2007, the Committee granted stock options and restricted stock awards to the Other Named Officers. The factors influencing stock option and restricted stock grants to our Named Officers include Company performance, particularly net income, relative levels of responsibility and contributions to the businesses of our company and pay competitiveness with comparable companies. Retirement, Health and Welfare Benefits. The Company offers a variety of retirement, health and welfare programs to eligible employees. The Named Officers generally are eligible for the same health and welfare benefit programs on the same basis as the rest of the Company’s employees. The Company’s health and welfare programs include medical, dental, vision, life insurance, disability insurance, accidental death and disability and flexible spending accounts. The Company also offers retirement programs that are intended to supplement the employee’s personal savings and social security benefits, including a profit sharing plan (the “401(k) Plan”) and a non-qualified deferred compensation plan. The purpose of each of these plans is to enable employees to adequately save for retirement. The Company’s 401(k) Plan is intended to satisfy the tax qualification requirements of Section 401(k) of the Code. The Committee approved the transfer of the profit sharing portion of the Profit Sharing/ESOP plan to the 401(k) Plan effective for the prior year to achieve administrative efficiencies. All eligible employees, including executive officers, may participate in the 401(k) Plan and are permitted to contribute up to the maximum percentage allowable not to exceed the limits of the Code. The Company makes a matching contribution to the 401(k) Plan equal to 100% of each participant’s first 1% of compensation deferred and 50% of a participant’s deferrals above 1% of compensation, up to a maximum of 6% of the participant’s salary. The Company has discretion to change or discontinue matching contributions under the 401(k) Plan. In the Company’s sole discretion, the Company may make contributions to the profit sharing portion of the 401(k) Plan in the form of cash. Employer discretionary contributions and profit sharing accounts are subject to vesting requirements.
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Table of ContentsThe Company also maintains a defined contribution ESOP plan covering employees who (1) have completed 30 days of continuous service during a year in which they complete 1,000 hours of service by year-end, as defined in the plan, (2) are at least 18 years old, and (3) meet certain other eligibility requirements. In addition, the Company maintains the Taylor Capital Group Non-Qualified Deferred Compensation Plan for the Company’s senior managers, including the Named Officers. Senior managers may elect to defer their own salary and incentive earnings, and the Committee, in its sole discretion, may provide cash contributions into the plan through non-qualified deferred compensation (“NQDC”) and supplemental executive retirement (“SERP”) contributions. The Committee also has the authority to make discretionary contributions into the plan. NQDC and SERP contributions are determined based upon different formula and have different vesting schedules. The purpose of the NQDC and SERP contributions is to enable senior managers, including Named Officers, to adequately save for their retirement. All contributions under this plan are maintained in a rabbi trust. Perquisites and Other Compensation. The Company provides perquisites to our Named Officers which the Committee believes are reasonable and within market practice. While there is a personal element, in the case of perquisites such as club memberships, these benefits are intended to be used by the Named Officers primarily with customers and business prospects. The Named Officers are provided with the following perquisites as a supplement to their other compensation:
Accounting and Tax Considerations The Committee considers the financial accounting treatment to the Company of various elements of compensation as one of several factors in its determination of the amount and form of compensation. The Company has intended for our compensation program to comply with Internal Revenue Code Section 162(m). Section 162(m) of the Code includes a limitation on tax deductions of any publicly-held corporation for individual compensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. The Company has no executive officers with non-performance based compensation in excess of the Section 162(m) tax deduction limit in 2007. However, if compensation is based on the achievement of performance goals that the Committee sets pursuant to plans approved by the Company’s stockholders, the compensation is not included in the computation of the limit. Although the Committee may award non-deductible compensation in circumstances where the Company deems it appropriate, the Committee generally intends for all compensation paid to the Company’s executive officers to be tax deductible pursuant to the Code.
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Table of ContentsStock Ownership Guidelines In March 2003, the Company adopted a share retention policy that supports the Committee’s belief that longer-term incentives are appropriate to motivate and retain key personnel and that stock ownership by management is beneficial in aligning management’s and stockholders’ interests to increase stockholder value. The Company and the Bank require that Bank officers, including the Named Officers, at or above the level of executive vice president own at least the lower of (1) 35,000 shares of our common stock and (2) a number of shares of our common stock having a value of 2.5 times their base salary. Shares which count toward the fulfillment of this requirement include vested and unvested ESOP and restricted shares, vested stock options and shares owned outright. A Named Officer’s failure to satisfy these guidelines may be a factor for consideration in future equity grants. Recovery of Compensation The Company does not have a policy to seek to adjust retroactively or recover Named Officers’ salaries or bonuses. 2008 Compensation Actions Mark A. Hoppe was appointed the Company’s President and the President and Chief Executive Officer of its wholly-owned subsidiary Cole Taylor Bank, effective February 4, 2008. We entered into an employment agreement expiring in January 2012, subject to automatic one year extensions, with Mr. Hoppe which provided that Mr. Hoppe will be paid an initial annual base salary of $550,000. Mr. Hoppe is also eligible for a performance-based annual cash bonus to be determined in accordance with the Company’s annual incentive compensation program, provided, that Mr. Hoppe’s annual cash bonus level target is set at 100% of his base salary and he is entitled to receive a minimum of $300,000 of incentive compensation under the incentive compensation program for 2008. The employment agreement further provides that Mr. Hoppe is eligible to participate in our incentive compensation bonus plan with an annual starting target of 100% of base salary; which will be paid in accordance with the terms of the incentive compensation plan, and is eligible to receive additional benefits and participate in other Company benefit plans, including the Company’s Deferred Compensation Plan, 401(k) profit sharing plan and health and welfare benefit plans. The Committee approved the grant to Mr. Hoppe of an option to purchase an aggregate of 50,000 shares of common stock of the Company at a price of $19.99 per share and a one-time award of 60,030 shares of restricted stock each grant vesting 25% per year. On April 22, 2008, upon the recommendation of the Committee, the Board of Directors approved the amendment and restatement of the Taylor Capital Group, Inc. 2002 Incentive Compensation Plan, subject to stockholder approval of such amendment and restatement of the plan at the Annual Meeting. The plan was approved by stockholders at the annual meeting. Bruce Taylor serves as the Company’s Chief Executive Officer and chairman of its board of directors and the chairman of the board of directors of the Bank. The Company entered into an Employment Agreement with Mr. Taylor on September 4, 2008. The Employment Agreement will be effective upon the closing of the preferred stock transaction, and will be void if such transaction does not close before December 31, 2008. Under the Employment Agreement, Mr. Taylor will be paid an initial annual base salary of $525,200 (the “Base Salary”). The Base Salary will be reviewed on an annual basis by the Committee, and may be increased, but not decreased (other than permitted proportionate reductions applicable to all similarly situated senior executives of the Company or the Bank, unless such reduction occurs during the two-year period commencing upon a “change in control” of the Company (as defined in the Employment Agreement)), by the Committee in its sole discretion. Mr. Taylor is also eligible for a performance-based annual cash bonus to be determined in accordance with the Company’s annual incentive compensation program; provided, that Mr. Taylor’s annual cash bonus level target is set at sixty percent of Base Salary for the year 2008. The Employment Agreement further provides that Mr. Taylor will be eligible to participate in the Company’s 2002 Incentive Compensation Plan or any successor plan (“Incentive Plan”). Mr. Taylor’s annual
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Table of Contentstargets under the Incentive Plan will be consistent with similar executive officers of the Company and the Bank, and any benefits to be received by Mr. Taylor under the Incentive Plan will depend on the satisfaction of other terms and conditions of the Incentive Plan. Under the Employment Agreement, Mr. Taylor is also eligible to receive additional benefits and participate in other Company benefit plans, including the Company’s Deferred Compensation Plan, 401(k) profit sharing plan and health and welfare benefit plans, payment of club dues, automobile expenses and wealth management services, and is entitled to payment of legal fees and expenses incurred by Mr. Taylor in connection with the negotiation and preparation of the Employment Agreement, provided that such fees and expenses together with certain other fees and expenses of the Taylor family would not exceed $100,000. The Employment Agreement provides that, in the event that Mr. Taylor’s employment is terminated (i) by the Company other than for disability or “cause” (as defined in the Employment Agreement), or (ii) by Mr. Taylor for “good reason” (as defined in the Employment Agreement), then the Company will pay to Mr. Taylor (A) any accrued but unpaid Base Salary and benefits up to the date of termination, (B) any accrued but unpaid cash bonus with respect to the Company’s fiscal year prior to the year in which the date of termination occurs, (C) subject to his provision of a release, an amount equal to his prior year’s bonus multiplied by a fraction, the numerator of which is the number of days lapsed from January 1st through the date of his termination, and the denominator of which is 365, (D) subject to his provision of a release, an amount (payable in installments) equal to one and one-half times the sum of the Base Salary plus the average of (1) the bonus paid to Mr. Taylor for the year prior to the year in which the date of termination occurs and (2) the greater of (I) the amount described in clause (1) above, and (II) Mr. Taylor’s bonus at target for the year in which the termination occurs, and (E) 18 months of COBRA coverage. In the event Mr. Taylor’s employment is terminated (i) by Mr. Taylor other than for good reason, or (ii) by the Company for cause, Mr. Taylor shall be entitled to receive all previously earned and accrued but unpaid Base Salary and benefits up to the date of termination. The Employment Agreement provides that Mr. Taylor will receive additional severance payments if his employment is terminated other than for cause or disability by the Company, or if his employment is terminated by him for good reason, during the “Change in Control Period” (as defined in the Employment Agreement). In such circumstance, Mr. Taylor will be entitled to receive (in addition to the payments and benefits he would be entitled to receive pursuant to the preceding paragraph) (i) subject to his provision of a release, an amount equal to one-half times the sum of his Base Salary on the effective date of the change in control or his Base Salary immediately prior to the date when the notice of termination was given (whichever rate is greater) and (ii) the average of (A) his prior year’s bonus, and (B) the greatest of (1) his prior year’s bonus, (2) his actual bonus for the year in which his termination occurs, or (3) his bonus at target for the year in which his termination occurs. In such circumstance, Mr. Taylor shall also be entitled to continuation of medical benefits for up to 36 months, and the vesting of his Incentive Plan benefits or equity awards will be governed by the controlling plan documents. The Employment Agreement also contains provisions related to circumstances where an excise tax equalization gross-up payment for any severance or other payments may apply; provided, however, that any such payment shall not exceed $350,000. The Employment Agreement includes provisions with regard to non-solicitation of customers and employees of the Company and the Bank (including during the term of the Employment Agreement and for one year following the termination of Mr. Taylor’s employment), and ownership of work product, non-disparagement and confidentiality. Jeffrey W. Taylor was appointed vice chairman of the board of directors of the Company, a member of the board of directors of the Bank, and as a consultant to provide services to the Bank. On September 4, 2008, the Company entered into a Consulting Agreement with Mr. Taylor, a member of the Company’s Board of Directors and Executive Managing Director, Market Development and New Ventures of the Company. The Consulting Agreement, which has a one-year term, will be effective upon the closing of the preferred stock transaction, and will be void if such transaction does not close before December 31, 2008. Mr. Taylor will provide, among other things, certain advisory and consulting services to the Company and the Bank and will cease the terms of his
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Table of Contentsemployment and position as an executive officer of the Company as of the effective date of the Consulting Agreement. Mr. Taylor will serve as Vice Chairman of the Board of Directors of the Company and as a member of the board of directors of the Bank under the terms of the Consulting Agreement. The Consulting Agreement provides that the Bank will pay Mr. Taylor a monthly fee of $40,000 during the term of the Consulting Agreement and, upon a separation from service with the Registrant and the Bank, subject to his provision of a release, a final payment equal to $1,250,000, payable in a cash lump sum on the 70th day following the date such separation from service occurs; provided that such final payment shall not be required to be paid if the parties enter into a new consulting or employment agreement prior to the date on which such final payment is due. In addition, if Mr. Taylor dies during the term of the Consulting Agreement, the Bank will be obligated to pay Mr. Taylor’s beneficiary $480,000 in 12 equal monthly installments and the final payment of $1,250,000. The Consulting Agreement provides that during the health care continuation period under COBRA, if Mr. Taylor so elects, Mr. Taylor, his spouse and dependents shall be provided with medical and dental coverage at the cost applicable from time to time, to active senior executives of the Bank. After the COBRA continuation period, the Bank shall make commercially reasonable efforts to continue to cover Mr. Taylor and his family under the Bank’s medical and dental plans at his cost until he attains eligibility for Medicare. If such continued coverage is not feasible, the Bank shall make commercially reasonable efforts to assist Mr. Taylor in securing medical and dental insurance coverage at his cost. The Consulting Agreement further provides for reimbursement of Mr. Taylor’s reasonable business expenses during the term of the Consulting Agreement, Mr. Taylor will also be entitled to customary cash, equity and other compensation for board service on the same terms and conditions as other non-employee directors of the Company, though he will not be entitled to any compensation for his service as a director of the Bank. Mr. Taylor is entitled to payment of legal fees and expenses incurred by him in connection with the negotiation and preparation of the Consulting Agreement, provided that such fees and expenses together with certain other fees and expenses of the Taylor family would not exceed $100,000. Mr. Taylor also has two option grants of 20,000 shares of common stock each, one at an exercise price of $26.08, the other at $20.00 per share, which are anticipated to fully vest, and may be exercised through, March 17, 2014 and March 19, 2013, respectively. The Consulting Agreement also provides that for so long as Mr. Taylor is a “Taylor family” nominee to the Company’s Board of Directors in accordance with the Company’s By-laws, the Company will use its best efforts to cause Mr. Taylor to be elected to its Board of Directors and as its Vice Chairman and will recommend that stockholders elect Mr. Taylor to the Board of Directors at each stockholders meeting at which directors are to be elected and in each proxy statement related thereto. The Consulting Agreement further provides that, if the Company fails to cause Mr. Taylor to be appointed to the Board, the Company will cause Mr. Taylor to be appointed an observer of its Board of Directors. The Consulting Agreement includes provisions with regard to non-solicitation of customers and employees of the Company and the Bank (including during the term of the Consulting Agreement and for one year after his separation from service) and ownership of work product, non-disparagement and confidentiality. On August 20, 2008, the board of directors of the Company ratified the termination of the Taylor Capital Group, Inc. 1997 Long-Term Incentive Plan which had been terminated as of June 20, 2002, and it also ratified the termination of the Long Term Incentive Plan program under the Taylor Capital Group, Inc. Incentive Bonus Plan which had been terminated as of December 31, 2004. On August 20, 2008, the board of directors of the Company also approved the amendment of the Trust Under the Taylor Capital Group, Inc. Deferred Compensation Plan (the “Trust”) to eliminate the requirement to fund the Trust on a change in control, and to eliminate the status of the Trust as irrevocable on a change in control. The Company is awaiting approval of this amendment to the Trust by the trustee of the Trust, State Street Bank & Trust.
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Table of ContentsCOMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of our executive officers currently serve, or in the past served, on the compensation committee or board of directors of any other company the executive officers of which serve on our Compensation Committee or Board of Directors. COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this Proxy Statement. Based on the review referred to above, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. COMPENSATION COMMITTEE Melvin E. Pearl (Chairman) Louise O’Sullivan Richard W. Tinberg The above report of the Compensation Committee is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the SEC’s proxy rules or to the liabilities of Section 18 of the Exchange Act, and the report shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act or the Exchange Act.
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Table of ContentsEXECUTIVE COMPENSATION The following table provides information concerning the compensation for the Company’s Named Officers who served in such capacities during the years ended December 31, 2007 and 2006. SUMMARY COMPENSATION TABLE
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Table of Contents2007 ALL OTHER COMPENSATION The following table and related footnotes set forth certain information concerning the amounts under the “All Other Compensation” column in the 2007 Summary Compensation Table above.
Perquisites and Other Personal Benefits in 2007 consisted of:
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Table of Contents2007 GRANTS OF PLAN-BASED AWARDS The following table sets forth certain information with respect to options to purchase shares of our common stock and restricted stock granted during the year ended December 31, 2007, to each of our Named Officers:
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Table of ContentsOUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2007 The following table includes certain information with respect to the value of all unexercised options to purchase shares of the Company’s common stock and unvested shares of restricted stock previously awarded to the Named Officers as of December 31, 2007:
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Table of Contents2007 OPTION EXERCISES AND STOCK VESTED The following table includes certain information with respect to options exercised by our Named Officers, and restricted stock held by our Named Officers that vested, during the year ended December 31, 2007:
2007 NONQUALIFIED DEFERRED COMPENSATION
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Table of Contents2007 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL The following table and related footnotes describe the potential payments upon termination or a change in control for Bruce Taylor, Jeffrey Taylor, Robin VanCastle, John Timmer and Mark Garrigus, in each case assuming termination or a change in control occurred as of December 31, 2007. Bruce Taylor
Jeffrey Taylor
Robin VanCastle
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Table of ContentsJohn F. Timmer
Mark T. Garrigus
Ms. VanCastle, Mr. Timmer, and Mr. Garrigus have change in control agreements with the Company. As a result of the termination of employment of Messrs. Timmer and Garrigus subsequent to December 31, 2007, no benefits under the change of control agreements will be payable to Messrs. Timmer and Garrigus. These change in control agreements are effective for a period of two years after a change of control event. If they are terminated during the Change Period (as defined in the agreements), they receive the benefits as articulated within the agreement.
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Table of ContentsDIRECTOR COMPENSATION Our non-employee directors receive an annual fee of $10,000 and an attendance fee of $750 for each Board meeting attended and $650 for each committee meeting attended. The chairman of each committee receives an additional annual fee of $5,000 for chairing a committee. In addition, all directors may be reimbursed for expenses incurred in connection with attendance at Board and committee meetings. Each non-employee director may also receive an annual equity award, at the discretion of the Compensation Committee of our Board of Directors, under our 2002 Incentive Compensation Plan. In 2007, each of our non-employee directors received options to purchase 801 shares of our common stock and two of those non-employee directors, who are also directors of our Bank, received options to purchase an additional 401 shares of our common stock. These options vest in four equal annual installments beginning on the first anniversary of the date of grant. In addition, during 2007, each of our non-employee directors received a restricted stock grant of 178 shares of our common stock and two of those non-employee directors, who are directors of the Bank, received an additional restricted stock grant of 89 shares of our common stock. The restricted stock grants vest 50% on the third anniversary date of grant and 25% on each of the fourth and fifth anniversary date of grant. Other than with respect to reimbursement of expenses, directors who are our employees or officers do not receive additional compensation for their services as a director. 2007 DIRECTOR COMPENSATION TABLE
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Set forth below is information regarding compensation plans under which equity securities of the Company are authorized for issuance as of December 31, 2007. Security holders previously approved all equity compensation plans of our company in existence at December 31, 2007. Equity Compensation Plan Information
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Table of ContentsFuture Stockholder Proposals In accordance with Rule 14a-8 promulgated under the Exchange Act, proposals of stockholders intended to be considered for inclusion in the Company’s proxy statement and proxy for the 2009 Annual Meeting of Stockholders must be received by the Secretary of the Company by December 30, 2008, the date not less than 120 days prior to April 29, 2009 (the first anniversary of the date on which we first mailed our proxy materials for the 2008 annual meeting of stockholders). In addition, our Second Amended and Restated By-laws provides that any stockholder proposals and direct nominations, to be considered at the 2009 Annual Meeting of Stockholders, must be stated in writing and delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Company not less than 120 days nor more than 150 days prior to April 29, 2009, the first anniversary of the date on which the Company first mailed its proxy materials for the Annual Meeting of Stockholders. In the event the proposed Third Amended and Restated By-laws are approved by our stockholders at the 2008 Annual Meeting, future stockholder proposals and director nominations will be governed by Section 2.9 thereof. Section 2.9 provides that, with respect to an annual meeting of stockholders, in order to be timely, a stockholder’s notice shall be delivered to, or mailed and received by, our Corporate Secretary not more than 90 nor less than 60 days prior to the anniversary of the mailing of the proxy statement for the prior year’s annual meeting (which for purposes of our 2009 Annual Meeting of Stockholders will be April 29, 2009). If, however, the date of our 2009 Annual Meeting of Stockholders is advanced more than 30 days prior to, or delayed by more than 60 days after, the anniversary of our 2008 Annual Meeting, notice by the stockholder to be timely must be so delivered not later than the close of business on the later of (a) the 90th day prior to such annual meeting, or (b) the 10th day following the day on which public announcement of the date of the 2009 Annual Meeting is first made. If approved, stockholders are urged to read carefully the additional notice requirements for stockholder proposals and director nominations in Section 2.9 of the proposed Third Amended and Restated By-laws. Where You Can Find More Information We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Exchange Act. These reports, proxy statements and other information contain additional information about us and will be made available for inspection and copying at our executive offices during regular business hours by any stockholder or a representative of a stockholder as so designated in writing. Stockholders may also read and copy any reports, statements or other information filed by us at the SEC’s public reference room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of this information by mail from the public reference section of the SEC at Station Place, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. A list of stockholders will be available for inspection by stockholders of record at our executive offices at 9550 West Higgins Road, Rosemont, Illinois 60618, during ordinary business hours beginning ten days prior to the date of the Special Meeting, and will be available for review at the Special Meeting or any adjournments or postponements thereof. The list of stockholders will be available at the Special Meeting or any adjournment or postponement thereof. We will furnish a copy of our Annual Report on Form 10-K for fiscal year 2007, as filed with the SEC, including the financial statements and attached schedules, upon written or telephonic request. We reserve the right to require payment of a reasonable fee in exchange for furnishing any related exhibit, which fee shall be limited to our reasonable expenses in furnishing such exhibit. Requests for such materials should be directed to Taylor Capital Group, Inc. Attention: Corporate Secretary 9550 West Higgins Road Rosemont, Illinois 60618 Telephone number: (847) 653-7978
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Table of ContentsOur filings with the SEC, as well as all of our committee charters and other corporate governance documents, are also available without charge through our website, www.taylorcapitalgroup.com, and from the SEC at its website, www.sec.gov. This proxy statement is dated September 15, 2008. You should rely only on the information contained in this proxy statement (including the appendices hereto) to vote on the proposals described in this proxy statement. No person has been authorized to give any information or to make any representations not contained in this proxy statement in connection with the matters described in this proxy statement and, if given or made, such information and representations must not be relied upon as having been authorized by us. No assumption should be made that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement will not create any implication to the contrary. Other Matters As of the date of this proxy statement, we know of no matters that will be presented for consideration at the Special Meeting other than as described in this proxy statement. If, however, other matters are brought before the Special Meeting, the persons named as proxies will vote in accordance with their judgment on such other matters unless otherwise indicated on the proxy. Representatives of KPMG LLP, our principal accountants for the current year and for the most recently completed fiscal year, are expected to attend the Special Meeting and be available to respond to appropriate questions from stockholders, if the need arises, or make a statement if the representatives desire to do so. It is important that your shares be represented at the meeting, regardless of the number of shares which you hold. You are, therefore, urged to vote your shares by telephone or via the Internet, as explained on the proxy card, or to execute promptly and return the accompanying proxy card in the envelope which has been enclosed for your convenience. We encourage you to save corporate expense by submitting your vote by telephone or via the Internet. Stockholders who are present at the meeting may revoke their proxies and vote in person or, if they prefer, may refrain from voting in person and allow their proxies to be voted.
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Table of ContentsAppendix A Proposed Third Amended and Restated Certificate of Incorporation of Taylor Capital Group, Inc.
Table of ContentsTHIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TAYLOR CAPITAL GROUP, INC. (Original Certificate of Incorporation Filed October 9, 1996; Amended and Restated Certificate of Incorporation Filed , 2008) Taylor Capital Group, Inc., a corporation originally incorporated on October 9, 1996 and organized and existing under, and by virtue of, the General Corporation Law of the State of Delaware, as amended (“DGCL”), does hereby certify that this Third Amended and Restated Certificate of Incorporation of the corporation (the “Certificate of Incorporation”) set forth below has been duly adopted in accordance with Sections 242 and 245 of the DGCL. FIRST: The name of the corporation is Taylor Capital Group, Inc. SECOND: The corporation’s registered office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the corporation’s registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business and the objects and purposes to be transacted, promoted and carried on are to engage in any lawful act or activity for which corporations may be organized under the DGCL. FOURTH: The total number of shares of all classes of stock which the corporation shall have authority to issue is Fifty Five Million (55,000,000), consisting of (a) Forty Five Million (45,000,000) shares of common stock, par value $0.01 per share (the “Common Stock”), and (b) Ten Million (10,000,000) shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”), [Two Million Four Hundred Thousand (2,400,000)] [Subject to increase in certain circumstances if Designated Preferred is issued] shares of which shall be designated as 8.0% Non-Cumulative Convertible Perpetual Preferred Stock, Series A (the “Series A Preferred”) with the voting powers, preferences, rights and qualifications, limitations set forth in Section B.2 below. The designations, powers, preferences and relative participating, optional or other special rights of the common stock and the preferred stock, and the qualifications, limitations or restrictions thereof, are as follows: A. COMMON STOCK 1. Voting. Except as otherwise provided by law, on all matters on which the holders of Common Stock shall be entitled to vote, each share of Common Stock shall entitle the holder thereof to one vote per share. 2. Dividends. Subject to the express terms of any series of the Preferred Stock outstanding from time to time, such dividend or distribution as may be determined by the Board of Directors of the corporation may from time to time be declared and paid or made upon the Common Stock out of any source at the time lawfully available for the payment of dividends. 3. Liquidation. The holders of Common Stock shall be entitled to share ratably upon any liquidation, dissolution or winding up of the affairs of the corporation (voluntary or involuntary), all assets of the corporation which are legally available for distribution, if any, remaining after payment of all debts and other liabilities and subject to the prior rights of any holders of Preferred Stock of the preferential amounts, if any, to which they are entitled. 4. Purchases. Subject to any applicable provisions of this Article FOURTH, the corporation may at any time or from time to time purchase or otherwise acquire shares of its Common Stock in any manner now or hereafter permitted by law, publicly or privately, or pursuant to any agreement.
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Table of ContentsB. PREFERRED STOCK 1. Subject to the other provisions of this Certificate of Incorporation, the Board of Directors is expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting rights, designations, powers, preferences and relative, participating, optional or other rights, and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares as may be permitted by law. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. The authority of the Board of Directors of the corporation with respect to each series shall include, but not be limited to, the determination or fixing of the following: (i) the designation of such series; (ii) the dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock or any other series of any class of stock of the corporation, and whether such dividends shall be cumulative or non-cumulative; (iii) whether the shares of such series shall be subject to redemption by the corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption; (iv) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (v) whether or not the shares of such series shall be convertible into or exchangeable for shares of any other class or classes of any stock or any other series of any class of stock of the corporation, and, if provision is made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (vi) the extent, if any, to which the holders of shares of such series shall be entitled to vote with respect to the election of directors or otherwise; (vii) the restrictions, if any, on the issue or reissue of any additional shares of such series; and (viii) the rights of the holders of the shares of such series upon the liquidation, dissolution or distribution of assets of the corporation. 2. In accordance with this Article FOURTH, the Board of Directors has designated certain shares of preferred stock into a series with the voting powers, preferences, rights, qualifications, limitations and restrictions with respect to the Series A Preferred of the corporation as set forth herein in Article Fourth, paragraph C below. C. SERIES A PREFERRED STOCK 1. Designation. The designation of the series of preferred stock shall be “8.0% Non-Cumulative Convertible Perpetual Preferred Stock, Series A”. Each share of Series A Preferred shall be identical in all respects to every other share of Series A Preferred. The Series A Preferred will rank senior to Junior Stock with respect to the payment of dividends and/or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. 2. Number of Shares. The number of authorized shares of Series A Preferred shall be [2,400,000] [Subject to increase in certain circumstances if Designated Preferred is issued]. The Company shall have the authority to issue fractional shares of Series A Preferred. 3. Definitions. As used solely within this paragraph C of this Article FOURTH, the following terms shall have the meanings set forth below: “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. “Beneficial Ownership Limitation” shall have the meaning set forth in paragraph C(7)(b) of this Article FOURTH.
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Table of Contents“Business Day” means any weekday that is not a legal holiday in New York, New York or Chicago, Illinois and is not a day on which banking institutions in New York, New York or Chicago, Illinois are authorized or required by law or regulation to be closed. “Closing Price” of the Common Stock on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price at 4:00 p.m., New York City time of the Common Stock on the Nasdaq Global Select Market on such date. If the Common Stock is not traded on the Nasdaq Global Select Market on any date of determination, the Closing Price of the Common Stock on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is so listed, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed at 4:00 p.m., New York City time, or if the Common Stock is not so listed on a U.S. national or regional securities exchange, but is quoted on the OTC Bulletin Board (or any successor thereof), the last quoted bid price thereon at 4:00 p.m., New York City time, or if the Common Stock is not listed on a national or regional securities exchange or quoted on the OTC Bulletin Board (or any successor thereof), the last quoted bid price for the Common Stock in the over-the-counter market as reported by Pink Sheets LLC or similar organization at 4:00 p.m., New York City time, or, if that bid price is not available, the market price of the Common Stock on that date as determined by a nationally recognized investment banking firm (unaffiliated with the corporation) retained by the corporation for this purpose. “Common Stock” means the common stock of the corporation, par value $0.01 per share, or any other shares of the capital stock of the corporation into which such shares of common stock shall be reclassified or changed. “Conversion Agent” means the Transfer Agent acting in its capacity as conversion agent for the shares of the Series A Preferred, and its successors and assigns. “Conversion at the Option of the Corporation Date” has the meaning set forth in paragraph C(9)(c) of this Article FOURTH. “Conversion Date” has the meaning set forth in paragraph C(8)(d) of this Article FOURTH. “Conversion Price” is $10.00, as adjusted from time to time as provided in Section 10. “Conversion Rate” means, for each share of Series A Preferred, an amount equal to the quotient of $25.00 (subject to adjustment for stock splits, combinations or reclassifications of the Series A Preferred), divided by the Conversion Price in effect at the time of conversion. “Distribution” shall have the meaning set forth in paragraph C(10)(b) of this Article FOURTH. “Dividend Conversion Date” means the earliest to occur of the following: (i) the first date on which the average of VWAP of the Common Stock has exceeded 200% of the then applicable Conversion Price of the Series A Preferred for at least 20 Trading Days within any period of 30 consecutive Trading Days occurring after the second anniversary of the Closing (as defined in the Stock Purchase Agreement); or (ii) the first date on which the average of the VWAP of the Common Stock has exceeded 130% of the then-applicable Conversion Price of the Series A Preferred for at least 20 Trading Days within any period of 30 consecutive Trading Days occurring after the third anniversary of the Closing; and (iii) the Fifth Anniversary Date.
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Table of Contents“Dividend Payment Date” shall have the meaning set forth in paragraph C(4)(a) of this Article FOURTH. “Dividend Period” shall have the meaning set forth in paragraph C(4)(a) of this Article FOURTH. “Dividend Record Date” shall have the meaning set forth in paragraph C(4)(a) of this Article FOURTH. “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. “Ex-date” when used with respect to any issuance or distribution, means the first date on which the shares of Common Stock or other securities trade without the right to receive an issuance or distribution. “Fifth Anniversary Date” is , 2013 [the fifth anniversary of the issuance of the Series A Preferred]. “Holder” means the Person in whose name shares of the Series A Preferred are registered, which may be treated by the corporation, Transfer Agent, Registrar, paying agent and Conversion Agent as the absolute owner of such shares of Series A Preferred for the purpose of making payment and settling the related conversions and for all other purposes. “Junior Stock” means the Common Stock and any other class or series of stock of the corporation now or hereafter authorized. “Liens” means any security interests, liens, claims, pledges, mortgages, options, rights of first refusal, agreements, limitations on voting rights, charges, easements, servitudes, encumbrances and other restrictions of any nature whatsoever. “Limited Holder” shall have the meaning set forth in paragraph C(7)(b) of this Article FOURTH. “Liquidation Event” shall have the meaning set forth in paragraph C(5)(a) of this Article FOURTH. “Mandatory Conversion Event” means the earlier to occur of the following dates: (i) the Fifth Anniversary Date; and (ii) the first date after a Dividend Conversion Date has occurred on which the outstanding shares of Series A Preferred represent less than 10% of the Total Voting Power of Company. “Market Disruption Event” means any of the following events that has occurred: (i) any suspension of, or limitation imposed on, trading by any exchange or quotation system on which the Closing Price is determined pursuant to the definition of the Trading Day (a “Relevant Exchange”) during the one-hour period prior to the close of trading for the regular trading session on the Relevant Exchange (or for purposes of determining the VWAP per share of Common Stock any period or periods aggregating one hour or longer during the regular trading session on the relevant day) and whether by reason of movements in price exceeding limits permitted by the Relevant Exchange, or otherwise relating to the Common Stock or in futures or options contracts relating to the Common Stock on the Relevant Exchange; (ii) any event (other than an event described in clause (iii)) that disrupts or impairs (as determined by the corporation in its reasonable discretion) the ability of market participants during the one-hour period prior to the close of trading for the regular trading session on the Relevant Exchange (or for purposes of determining the VWAP per share of Common Stock any period or periods aggregating one hour or longer during the regular
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Table of Contentstrading session on the relevant day) in general to effect transactions in, or obtain market values for, the Common Stock on the Relevant Exchange or to effect transactions in, or obtain market values for, futures or options contracts relating to the Common Stock on the Relevant Exchange; or (iii) the failure to open of the Relevant Exchange on which futures or options contracts relating to the Common Stock are traded or the closure of such exchange prior to its respective scheduled closing time for the regular trading session on such day (without regard to after hours or any other trading outside of the regular trading session hours) unless such earlier closing time is announced by such exchange at least one hour prior to the earlier of the actual closing time for the regular trading session on such day and the submission deadline for orders to be entered into such exchange for execution at the actual closing time on such day. “Notice of Conversion at the Option of the Corporation” has the meaning set forth in paragraph C(9)(c) of this Article FOURTH. “Officer” means each of the Chief Executive Officer, the Chairman, the Chief Administrative Officer, any Vice Chairman, the Chief Financial Officer, the Controller, the Chief Accounting Officer, the Treasurer, the General Counsel and Corporate Secretary and any Assistant Secretary of the corporation. “Officers’ Certificate” means a certificate signed (i) by the Chief Executive Officer, the Chairman, the Chief Administrative Officer, any Vice Chairman, the Chief Financial Officer, the Controller or the Chief Accounting Officer of the corporation, and (ii) by the Treasurer, the General Counsel and Corporate Secretary or any Assistant Secretary of the corporation, and delivered to the Conversion Agent. “Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust. “Purchase Rights” shall have the meaning set forth in paragraph C(10)(c) of this Article FOURTH. “Registrar” means the Transfer Agent acting in its capacity as registrar for the Series A Preferred, and its successors and assigns. “Relevant Exchange” has the meaning set forth above in the definition of Market Disruption Event. “Sale Transaction” means any consolidation or merger of the corporation or similar transaction or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the property and assets of the corporation to any Person, in each case pursuant to which the Common Stock will be converted into cash, securities or other property, other than pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, voting stock of the corporation immediately prior to such transaction beneficially own, directly or indirectly, voting stock representing a majority of the total voting power of all outstanding classes of voting stock of the continuing or surviving Person immediately after the transaction. “SEC” means the Securities and Exchange Commission. “Stock Purchase Agreement” means the Securities Purchase Agreement, dated as of September 4, 2008, by and among the corporation and each of the investors listed on the Schedule of Buyers attached thereto. “Total Voting Power of the Company” means the total combined voting power of all outstanding shares of all classes of capital stock of the corporation that are then entitled to vote in matters presented to a vote of the corporation’s stockholders generally.
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Table of Contents“Trading Day” means, for purposes of determining a VWAP or Closing Price per share of Common Stock or a Closing Price, a Business Day on which the Relevant Exchange is scheduled to be open for business and on which there has not occurred or does not exist a Market Disruption Event. “Transfer Agent” means acting as Transfer Agent, Registrar, paying agent and Conversion Agent for the Series A Preferred, and its successors and assigns. “VWAP” per share of the Common Stock on any Trading Day means the per share volume-weighted average price as displayed under the heading Bloomberg VWAP on Bloomberg page C UN <equity> AQR (or its equivalent successor if such page is not available) in respect of the period from the official open of trading on the relevant Trading Day until the official close of trading on the relevant Trading Day (or if such volume-weighted average price is unavailable, the market price of one share of Common Stock on such Trading Days determined, using a volume-weighted average method, by a nationally recognized investment banking firm (unaffiliated with the corporation) retained for this purpose by the corporation). 4. Dividends. (a) Rate. Holders shall be entitled to receive, if, as and when declared by the corporation’s Board of Directors or any duly authorized committee thereof, but only out of assets legally available therefor, non-cumulative dividends on the liquidation preference of $25.00 per share (subject to adjustment for stock splits, combinations or reclassifications of the Series A Preferred) of Series A Preferred, and no more, payable quarterly in arrears on each January 15, April 15, July 15 and October 15, commencing on January 15, 2009; provided, however, if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day, unless that next succeeding day falls in the next calendar year, in which case payment of such dividend will occur on the immediately preceding Business Day (in either case, without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “Dividend Payment Date”). The period from and including the date of issuance of the Series A Preferred or any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period.” Dividends on each share of Series A Preferred will accrue on the liquidation preference of $25.00 per share (subject to adjustment for stock splits, combinations or reclassifications of the Series A Preferred) at a rate per annum equal to 8.0%. The record date for payment of dividends on the Series A Preferred will be the 30th day of the calendar month immediately preceding the month during which the Dividend Payment Date falls or such other record date fixed by the corporation’s Board of Directors or any other duly authorized committee thereof that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date will be a Dividend Record Date whether or not such day is a Business Day. The amount of dividends payable will be computed on the basis of a 360-day year of twelve 30-day months. Dividends shall be payable in cash. (b) Limitation on Accrual of Dividends. Notwithstanding anything in this paragraph C(4) of this Article FOURTH to the contrary, from and after a Dividend Conversion Date, except for any previously declared dividends, Holders shall no longer be entitled to receive any dividends pursuant to paragraph C(4)(a) of this Article FOURTH; provided that, in the event that the Board of Directors or any duly authorized committee thereof shall determine to pay any cash or non cash dividends or distributions on shares of Common Stock on or after the Dividend Conversion Date, the Holders shall be entitled to receive cash and non cash dividends or distributions in an amount and of kind equal to the dividends or distributions that would have been payable to such Holder if the shares of Series A Preferred held by such Holder had been converted into Common Stock immediately prior to the record date for the determination of the holders of Common Stock entitled to each such dividend or distribution. (c) Non-Cumulative Dividends. Subject to paragraph C(4)(b) of this Article FOURTH, if the corporation’s Board of Directors or any duly authorized committee thereof does not declare a dividend on the Series A Preferred for any Dividend Period prior to the related Dividend Payment Date, that dividend will not accrue, and the corporation will have no obligation to pay, and Holders shall have no right to
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Table of Contentsreceive, a dividend for that Dividend Period on the related Dividend Payment Date or at any future time, whether or not dividends on the Series A Preferred or any other series of preferred stock or common stock are declared for any subsequent Dividend Period with respect to Series A Preferred, Junior Stock or any other class or series of authorized preferred stock of the corporation. References herein to the “accrual” of dividends refer only to the determination of the amount of such dividend and do not imply that any right to a dividend arises prior to the date on which a dividend is declared. (d) Priority of Dividends. So long as any share of Series A Preferred remains outstanding, unless as to a Dividend Payment Date, full dividends on all outstanding shares of the Series A Preferred have been declared and paid or declared and a sum sufficient for the payment of those dividends has been set aside for the Dividend Period then ending, the corporation will not, and will cause its subsidiaries not to, during the next succeeding Dividend Period that commences on such Dividend Payment Date, declare or pay any dividend on, make any distributions relating to, or redeem, purchase, acquire or make a liquidation payment relating to, any Junior Stock, or make any guarantee payment with respect thereto, other than: (i) purchases, redemptions or other acquisitions of shares of Junior Stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants of the corporation or any of its subsidiaries; (ii) purchases of shares of Common Stock pursuant to a contractually binding requirement to buy stock existing prior to the commencement of the then-current dividend period, including under a contractually binding stock repurchase plan; or (iii) as a result of an exchange or conversion of any class or series of Junior Stock for any other class or series of Junior Stock. The foregoing restriction, however, will not apply to any Junior Stock dividends paid by the corporation where the dividend stock is the same stock as that on which the dividend is being paid. Except as provided below, for so long as any share of Series A Preferred remains outstanding, if dividends are not declared and paid in full upon the shares of Series A Preferred, all dividends declared upon shares of Series A Preferred will be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share of Series A Preferred bear to each other. Subject to the foregoing and paragraph C(4)(b) of this Article FOURTH , and not otherwise, such dividends payable in cash, stock or otherwise, as may be determined by the corporation’s Board of Directors or any duly authorized committee thereof, may be declared and paid on any Junior Stock from time to time out of any assets legally available for such payment, and Holders will not be entitled to participate in those dividends. (e) Conversion Following A Record Date. If a Conversion Date for any shares of Series A Preferred is prior to the close of business on a Dividend Record Date for any declared dividend for the then-current Dividend Period, the Holder of such shares will not be entitled to any such dividend. If the Conversion Date for any shares of Series A Preferred is after the close of business on a Dividend Record Date for any declared dividend for the then-current Dividend Period, but prior to the corresponding Dividend Payment Date, the Holder of such shares shall be entitled to receive such dividend, notwithstanding the conversion of such shares prior to the Dividend Payment Date. However, such shares, upon surrender for conversion, must be accompanied by funds equal to the dividend on such shares; provided that no such payment need be made (i) if the corporation has issued a notice of a Sale Transaction during the then-current Dividend Period or (ii) if the corporation has issued a notice of conversion at its option of the Series A Preferred. 5. Liquidation Rights. (a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the corporation (a “Liquidation Event”), Holders shall be entitled, out of assets legally
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Table of Contentsavailable therefor, before any distribution or payment out of the assets of the corporation may be made to or set aside with respect to any Junior Stock and subject to the rights of the corporation’s creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $25.00 per share (subject to adjustment for stock splits, combinations or reclassifications of the Series A Preferred), plus an amount equal to any accrued dividends thereon from the last Dividend Payment Date to, but excluding, the date of the Liquidation Event if and to the extent declared. Holders shall not be entitled to any further payments in the event of any such Liquidation Event other than what is expressly provided for in this paragraph C(5) of this Article FOURTH. (b) Partial Payment. If the assets of the corporation are not sufficient to pay in full the liquidation preference plus any dividends which have been declared but not yet paid to all Holders, the amounts paid to the Holders shall be pro rata in accordance with the respective aggregate liquidating distributions to which they would otherwise be entitled. (c) Residual Distributions. If the respective aggregate liquidating distributions to which all Holders are entitled have been paid, the holders of Junior Stock shall be entitled to receive all remaining assets of the corporation according to their respective rights and preferences. 6. Sale Transaction. (a) Liquidation Event. A Sale Transaction shall be deemed to be a Liquidation Event for purposes of paragraph C(5) of Article FOURTH. (b) Notices. In case at any time or from time to time: (i) the corporation shall declare a dividend (or any other distribution) on its shares of Common Stock; or (ii) the corporation shall enter into a binding, definitive agreement with respect to a Sale Transaction; then the corporation shall mail to each Holder of shares of Series A Preferred at such holder’s address as it appears on the transfer books of the corporation, as promptly as possible but in any event at least 30 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or, if a record is not to be taken, the date as of which the holders of Common Stock of record will be entitled to such dividend or distribution or (B) the date on which such Sale Transaction is expected to become effective. (c) Notwithstanding anything contained herein to the contrary, (i) each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s Series A Preferred at any time prior to the consummation of a Sale Transaction into shares of Common Stock as set forth in paragraph C(7) of this Article FOURTH and subject to the conversion procedures of paragraph C(8) of this Article FOURTH; and (ii) the corporation will not effect any Sale Transaction unless proper provision is made to ensure that the Holders of shares of Series A Preferred outstanding immediately prior to the Sale Transaction shall be entitled to liquidating distributions as provided in paragraph C(5) of this Article FOURTH. 7. Right of the Holders to Convert. (a) General. Each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s Series A Preferred at any time into shares of Common Stock at the Conversion Rate per share of Series A Preferred (subject to the conversion procedures of paragraph C(8) of this Article FOURTH and the other provisions hereof), plus cash in lieu of fractional shares. (b) Beneficial Ownership Limitation. Notwithstanding paragraph C(7)(a) of this Article FOURTH, the corporation shall not effect any conversion of shares of Series A Preferred held by a Holder other than member of the Steans Family or the Taylor Family (each as defined in Article FIFTH of this Third Amended and Restated Certificate of Incorporation) or any Affiliate of any such member (any such other
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Table of ContentsHolder, a “Limited Holder”), and a Limited Holder shall not have the right to convert any shares of Series A Preferred, to the extent that, after giving effect to the conversion set forth in the applicable Conversion Notice, such Limited Holder (together with such Limited Holder’s Affiliates, and any other person or entity acting as a group together with such Limited Holder or any of such Limited Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below); provided, however that the limitations set forth in this sentence shall not apply to any conversion of the Series A Preferred (i) at the option of the corporation pursuant to paragraph 9 of this Article FOURTH or (ii) immediately prior to the consummation of a Sale Transaction (provided that the Limited Holder may submit a Conversion Notice with respect to such conversion prior thereto and contingent thereon). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Limited Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted shares of Series A Preferred beneficially owned by such Limited Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Limited Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph C(7)(b) of this Article FOURTH, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. The submission by a Holder of a Conversion Notice shall be deemed to be a representation by such Holder that such Holder has determined that all of the shares of Series A Preferred to be converted as set forth in such Conversion Notice may be converted without violating the restrictions set forth in this paragraph C(7)(b) of this Article FOURTH, and the corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this paragraph C(7)(b) of this Article FOURTH, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the corporation’s most recent quarterly or annual report filed with Commission, as the case may be, (B) a more recent public announcement by the corporation or (C) a more recent written notice by the corporation or the corporation’s transfer agent setting forth the number of shares of Common Stock outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the corporation, including the Series A Preferred, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series A Preferred by the applicable Holder as set forth in the applicable Conversion Notice. The provisions of this paragraph C(7)(b) of this Article FOURTH shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this paragraph C(7)(b) of this Article FOURTH to correct this paragraph C(7)(b) of this Article FOURTH (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph C(7)(b) of this Article FOURTH shall apply to any successor Limited Holder of shares of Series A Preferred. 8. Conversion Procedures. (a) Conversion Date. Effective immediately prior to the close of business on any applicable Conversion Date, dividends shall no longer be declared on any such converted shares of Series A Preferred, and such shares of Series A Preferred shall represent only the right to receive shares of Common Stock issuable upon conversion of such shares, as set forth in paragraph C(7) of this Article FOURTH, in each case, subject to the right of Holders to receive any declared and unpaid dividends on such shares and any other payments to which they are otherwise entitled pursuant to the terms hereof.
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Table of Contents(b) Rights Prior to Conversion. No allowance or adjustment, except pursuant to paragraph C(10) of this Article FOURTH, shall be made in respect of dividends payable to holders of the Common Stock of record as of any date prior to the close of business on any applicable Conversion Date. Prior to the close of business on any applicable Conversion Date, shares of Common Stock issuable upon conversion of, or other securities issuable upon conversion of, any shares of Series A Preferred shall not be deemed outstanding for any purpose, and Holders shall have no rights with respect to the Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion or rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding shares of Series A Preferred. (c) Record Holder as of Conversion Date. The Person or Persons entitled to receive the Common Stock issuable upon conversion of Series A Preferred shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on any applicable Conversion Date. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or cash, securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series A Preferred should be registered or paid or the manner in which such shares should be delivered, the corporation shall be entitled to register and deliver such shares, and make such payment, in the name of the Holder and in the manner shown on the records of the corporation. (d) Conversion Procedure. On the date of any conversion, if a Holder’s interest is in certificated form, a Holder must do each of the following in order to convert: (i) complete and manually sign an irrevocable conversion notice in the form provided by the Conversion Agent (a “Conversion Notice”), or a facsimile of such Conversion Notice, and deliver such Conversion Notice to the Conversion Agent; (ii) surrender the shares of Series A Preferred to the Conversion Agent; (iii) if required, furnish appropriate endorsements and transfer documents; (iv) if required, pay any stock transfer, documentary, stamp or similar taxes not payable by the corporation pursuant to paragraph C(19)(a) of this Article FOURTH; and (v) if required, pay funds equal to any declared and unpaid dividend payable on the next Dividend Payment Date to which such Holder is entitled. Notwithstanding the foregoing, a Conversion Notice given by any Holder in contemplation of a Sale Transaction or a public offering of Common stock may be revocable and conditional upon the consummation of such Sale Transaction or public offering, as applicable. The term “Conversion Date” means the earlier of (x) the Conversion at the Option of the Corporation Date (as defined in paragraph C(9)(c) of this Article FOURTH), or (y) the date on which a Holder satisfies all of the requirements of this paragraph C(8)(d) of this Article FOURTH. The Conversion Agent shall, on a Holder’s behalf, convert the Series A Preferred into shares of Common Stock, in accordance with the terms of the notice delivered by such Holder described in clause (i) of this paragraph C(8)(d) of this Article FOURTH above. 9. Conversion at the Option of the Corporation. (a) Corporation Conversion Right. The corporation shall have the right, at its option, to cause some or all of the Series A Preferred to be converted into shares of Common Stock at the then-applicable Conversion Rate at any time after a Mandatory Conversion Event. (b) Partial Conversion. If the corporation elects to cause less than all the shares of the Series A Preferred to be converted under clause (a) above, the Conversion Agent shall select the Series A Preferred to be converted on a pro rata basis. (c) Conversion Procedure. In order to exercise the conversion right described in this paragraph C(9) of this Article FOURTH, the corporation shall provide notice of such conversion to each Holder (such notice, a
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Table of Contents“Notice of Conversion at the Option of the Corporation”). The Conversion Date shall be a date selected by the corporation (the “Conversion at the Option of the Corporation Date”) and shall be no more than 20 days after the date on which the corporation provides such Notice of Conversion at the Option of the Corporation. In addition to any information required by applicable law or regulation, the Notice of Conversion at the Option of the Corporation shall state, as appropriate: (i) the Conversion at the Option of the Corporation Date; (ii) the aggregate number of shares of Series A Preferred to be converted; and (iii) the number of shares of Common Stock to be issued upon conversion of each share of Series A Preferred and, if fewer than all the shares of Series A Preferred of a Holder are to be converted, the number of such shares to be converted. 10. Anti-Dilution Adjustments. (a) General. If the corporation at any time after the effective date hereof subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of the Series A Preferred will be proportionately increased. If the corporation at any time after the effective date hereof combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of the Series A Preferred will be proportionately decreased. Any subdivision or combination of shares of Common Stock, and adjustment of the Conversion Price resulting therefrom pursuant to this paragraph C(10) of this Article FOURTH, shall be subject to the prior approval of the Executive Committee in accordance with Article FIFTH hereof. (b) Distribution of Assets. If the corporation shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction but excluding any ordinary cash dividend payable with respect to the Common Stock consistent with past practice) (a “Distribution”), at any time after the issuance of the Series A Preferred and prior to a Dividend Conversion Date, then, in each such case, the Conversion Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Conversion Price by a fraction of which (A) the numerator shall be the VWAP of the Common Stock on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the VWAP of the Common Stock on the trading day immediately preceding such record date. (c) Purchase Rights. If at any time the corporation grants, issues or sells any options to purchase shares of Common Stock, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of its capital stock (the “Purchase Rights”) prior to a Dividend Conversion Date, then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights that such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s shares of Series A Preferred immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (d) No Fractional Shares. No fractional shares of Common Stock will be issued to holders of the Series A Preferred upon conversion. In lieu of fractional shares otherwise issuable, holders will be entitled to
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Table of Contentsreceive an amount in cash equal to the fraction of a share of Common Stock, calculated on an aggregate basis in respect of the shares of Series A Preferred being converted, multiplied by the Closing Price of the Common Stock on the Trading Day immediately preceding the applicable Conversion Date. 11. Voting Rights. (a) General. The Holders shall not be entitled to vote on any matter except as set forth in this paragraph C(11) of this Article FOURTH or as required by Delaware law. (b) General Voting Rights. Each share of Series A Preferred shall entitle the Holder thereof to vote on all matters voted on by holders of the capital stock of the corporation into which such share of Series A Preferred is convertible, voting together as a single class with the other shares entitled to vote, at all meetings of stockholders of the corporation, including with respect to the election of directors. With respect to any such vote in which the Holders participate, the shares of Series A Preferred shall entitle the Holder thereof to cast the number of votes equal to the lesser of (i) the total number of votes which could be cast in such vote by a holder of the number of shares of capital stock of the corporation into which such shares of Series A Preferred are convertible on the record date for such vote (giving effect to paragraph C(7)(b) of this Article FOURTH) and (ii) the product of the aggregate number of shares of Series A Preferred held by such Holder, multiplied by 1.961 (subject to adjustment for stock splits, combinations or reclassifications). 12. Consents. Except as otherwise required by applicable law, the consent of the Holders of a majority of the number of shares of Series A Preferred at the time outstanding, given in person or by proxy, either in writing or by vote, at a special or annual meeting, voting or consenting as a separate class, shall be necessary to: (i) authorize or issue, or obligate the corporation to issue, any other capital stock or security or right convertible or exchangeable for capital stock of the corporation that is senior to or on a parity with the Series A Preferred as to payment of dividends or rights on liquidation; (ii) issue any shares of Series A Preferred; (iii) increase the authorized number of shares of the Series A Preferred; (iv) enter any agreement, contract or understanding or otherwise incur any obligation which by its terms would violate or be in conflict in any material respect with the rights or preferences of the Series A Preferred designated hereunder; (v) amend the Certificate of Incorporation or By-laws of the corporation, if such amendment would alter or change the powers, preferences or special rights of the holders of the Series A Preferred so as to affect them adversely; or (vi) amend or waive any provision of this paragraph C of this Article FOURTH. 13. Preemptive Rights. For so long as either (x) at least 800,000 shares of Series A Preferred are issued and outstanding (subject to anti dilution adjustment for stock splits, stock dividends and the like) or (y) the outstanding shares of Series A Preferred represent 10% or more of the Total Voting Power of the Company: (a) Each Holder shall have the right to purchase, pro rata, a portion of any New Securities (as hereinafter defined) that the corporation may, from time to time hereafter, propose to sell and issue. Each such Holder’s pro rata share of New Securities, for the purposes of this right, is the ratio of the sum of (x) the number of shares of Common Stock into which the shares of Series A Preferred have been converted and which are held of record by such Holder at the time the New Securities are offered and (y) the number of shares of Common Stock into which the shares of Series A Preferred held by such Holder at the time the New Securities are offered are then convertible (the “Conversion Shares”) to the total number of then outstanding shares of Common Stock, including such Conversion Shares and the Conversion Shares then issuable upon all other then outstanding shares of Series A Preferred. “New Securities” shall mean any shares of capital stock or securities or rights convertible, exercisable or exchangeable for capital stock of the corporation (“Convertible Securities”); provided, however, that New Securities does not include: (i) capital stock issued or issuable on conversion or exercise of the Series A Preferred, options or warrants to purchase Common Stock or other convertible securities that either are (x) outstanding on the date of the effectiveness of this paragraph C of this Article FOURTH, (y) warrants to purchase Common Stock issued on or within 90 days after the date of the effectiveness of this paragraph C of
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Table of Contentsthis Article FOURTH in connection with the offering of up to $60,000,000 of subordinated indebtedness by the corporation’s wholly-owned subsidiary Cole Taylor Bank; or (z) issued after the date of the effectiveness of this paragraph C of this Article FOURTH, provided that, in the case of this clause (z) only, the rights established by this paragraph C(13) of this Article FOURTH applied with respect to the initial issuance by the corporation of such options, warrants or convertible securities; (ii) capital stock or Convertible Securities issued by the corporation pursuant to any public offering; (iii) Common Stock issued in connection with any stock split, payment of a dividend or other distribution in respect of its capital stock or recapitalization of the corporation; (iv) capital stock or Convertible Securities issued to a third party in connection with any acquisition of the stock or assets of another Person by the corporation or any of its subsidiaries by merger, purchase, joint venture or other reorganization or business combination; (v) shares of Common Stock, options to purchase Common Stock or other rights with respect thereto issued to employees, officers, directors or consultants of the corporation or any of its subsidiaries; (vi) capital stock or Convertible Securities issued to a third party in consideration of services provided by such third party; (vii) capital stock issued to a third party in connection with a debt financing consummated by the corporation or any of its subsidiaries; and (vii) trust preferred securities. (b) If the corporation proposes to undertake an issuance of New Securities, it shall give each Holder written notice of its intention, describing the type of New Securities, the price and the general terms and conditions upon which the corporation proposes to issue the same. Each such Holder shall have 25 calendar days from the giving of such notice to agree to purchase its pro rata share of New Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the corporation and stating therein the quantity of New Securities to be purchased. (c) If any of the Holders fail to exercise its right under this paragraph C(13) of this Article FOURTH to purchase its pro-rata share of the New Securities within 25 calendar days following the date of the first notice contemplated by paragraph C(13)(b) of this Article FOURTH, the corporation shall have until the 90th day following such date to enter into a letter of intent or definitive agreement and a period of 90 days thereafter to sell any of the New Securities in respect of which such Investor’s rights were not exercised, at a price and upon terms and conditions no more favorable to the purchasers thereof than specified in the corporation’s notice to the Holders pursuant to paragraph C(13)(b) of this Article FOURTH. If the corporation has not entered into such a letter of intent or agreement or sold such New Securities within such period, the corporation shall not thereafter issue or sell any such New Securities without again first offering such securities to the Holders in the manner provided in this paragraph C(13) of this Article FOURTH. 14. Unissued or Reacquired Shares. Shares of Series A Preferred that have been issued and converted, redeemed or otherwise purchased or acquired by the corporation shall be retired upon their acquisition, shall not be reissued as shares of Series A Preferred and, upon the taking of any action required by law, shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series. 15. No Sinking Fund. Shares of Series A Preferred are not subject to the operation of a sinking fund. 16. Reservation of Common Stock. (a) Sufficient Shares. The corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock or shares acquired by the corporation, solely for issuance upon the conversion of shares of Series A Preferred as provided in this paragraph C of this Article FOURTH, free from any
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Table of Contentspreemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series A Preferred then outstanding (without giving effect to the paragraph C(7)(b) of this Article FOURTH). For purposes of this paragraph C(16)(a) of this Article FOURTH, the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series A Preferred shall be computed as if at the time of computation all such outstanding shares were held by a single Holder (without giving effect to paragraph C(7)(b) of this Article FOURTH). (b) Use of Acquired Shares. Notwithstanding the foregoing, the corporation shall be entitled to deliver upon conversion of shares of Series A Preferred, as herein provided, shares of Common Stock acquired by the corporation and held as treasury shares (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such acquired shares are free and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders). (c) Free and Clear Delivery. All shares of Common Stock delivered upon conversion of the Series A Preferred shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders). (d) Compliance with Law. Prior to the delivery of any securities that the corporation shall be obligated to deliver upon conversion of the Series A Preferred, the corporation shall use its reasonable best efforts to comply with any federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (e) Listing. The corporation hereby covenants and agrees that, if at any time the Common Stock shall be traded on the Nasdaq Global Select Market or any other national securities exchange, the corporation will, if permitted by the rules of such exchange, list and keep listed, so long as the Common Stock shall be so listed on such exchange, all the Common Stock issuable upon conversion of the Series A Preferred; provided, however, that if the rules of such exchange require the corporation to defer the listing of such Common Stock until the first conversion of Series A Preferred into Common Stock in accordance with the provisions hereof, the corporation covenants to list such Common Stock issuable upon conversion of the Series A Preferred in accordance with the requirements of such exchange at such time. 17. Transfer Agent, Conversion Agent, Registrar and Paying Agent. The duly appointed Transfer Agent, Conversion Agent, Registrar and paying agent for the Series A Preferred shall be [ ]. The corporation may, in its sole discretion, remove the Transfer Agent in accordance with the agreement between the corporation and the Transfer Agent; provided that the corporation shall appoint a successor transfer agent that shall accept such appointment prior to the effectiveness of such removal. Upon any such removal or appointment, the corporation shall send notice thereof by first-class mail, postage prepaid, to the Holders. 18. Replacement Certificates. (a) Mutilated, Destroyed, Stolen and Lost Certificates. If physical certificates are issued, the corporation shall replace any mutilated certificate at the Holder’s expense upon surrender of that certificate to the Transfer Agent. The corporation shall replace any certificate that becomes destroyed, stolen or lost at the Holder’s expense upon delivery to the corporation and the Transfer Agent of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity and bond that may be required by the Transfer Agent and the corporation. (b) Certificates Following Conversion. If physical certificates are issued, the corporation shall not be required to issue any certificates representing the Series A Preferred on or after the applicable Conversion Date. In place of the delivery of a replacement certificate following the applicable Conversion Date, the Transfer Agent, upon delivery of the evidence and indemnity described in clause (a) above, shall deliver the shares of Common Stock pursuant to the terms of the Series A Preferred formerly evidenced by the certificate.
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Table of Contents19. Taxes. (a) Transfer Taxes. The corporation shall pay any and all stock transfer, documentary, stamp and similar taxes that may be payable in respect of any issuance or delivery of shares of Series A Preferred or shares of Common Stock or other securities issued on account of Series A Preferred pursuant hereto or certificates representing such shares or securities; provided, however, that the corporation shall not be required to pay any such tax that may be payable in respect of any transfer involved in the issuance or delivery of shares of Series A Preferred, shares of Common Stock or other securities in a name other than that in which the shares of Series A Preferred with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any Person other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the Person otherwise entitled to such issuance, delivery or payment has paid to the corporation the amount of any such tax or has established, to the satisfaction of the corporation, that such tax has been paid or is not payable. (b) Withholding. All payments and distributions (or deemed distributions) on the shares of Series A Preferred (and on the shares of Common Stock received upon their conversion) shall be subject to withholding and backup withholding of tax to the extent required by law, subject to applicable exemptions, and amounts withheld, if any, shall be treated as received by the Holders. 20. Notices. All notices referred to in this paragraph C of this Article FOURTH shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given (i) upon receipt, when delivered personally; (ii) one Business Day after deposit with an overnight courier service; or (iii) three Business Days after the mailing thereof if sent by registered or certified mail (unless first class mail shall be specifically permitted for such notice under the terms of this paragraph C of this Article FOURTH) with postage prepaid, in each case addressed: (x) if to the corporation, to its office at 9550 West Higgins Road, Rosemont, Illinois 60018 (Attention: Corporate Secretary) or to the Transfer Agent at its office at [ ] (Attention: Corporate Trust Office), or other agent of the corporation designated as permitted by this paragraph C of this Article FOURTH, or (y) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the corporation (which may include the records of the Transfer Agent) or (z) to such other address as the corporation or any such Holder, as the case may be, shall have designated by notice similarly given. D. ISSUANCE OF STOCK. Subject to any applicable preemptive rights of any series of Preferred Stock as may then be outstanding, shares of capital stock of the corporation may be issued by the corporation from time to time, in accordance with the procedures set forth in the corporation’s By-laws, in such amounts and proportions and for such consideration (not less than the par value thereof in the case of capital stock having par value) as may be fixed and determined from time to time by the Board of Directors and as shall be permitted by law. FIFTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and stockholders, it is further provided that: A. Upon the initial issuance of Series A Preferred by the corporation and continuing until the earlier of (i) , 2013 [the 5th anniversary of Series A closing], and (ii) the date on which neither (x) at least 800,000 shares of Series A Preferred are issued and outstanding (subject to anti-dilution adjustment for stock splits, stock dividends and the like with respect to the Series A Preferred), nor (y) the outstanding shares of Series A Preferred represent 10% or more of the total combined voting power of all outstanding shares of all classes of capital stock which are then entitled to vote in matters presented to a vote of the corporation’s stockholders generally: 1. The power and authority conferred upon the Board of Directors by the DGCL shall be exercised and performed, in accordance with Section 141(a) thereof, by the Board of Directors of the corporation; provided, however, that pursuant to Section 141(a) of the DGCL certain of such powers and authority of the
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Table of ContentsBoard of Directors shall also be exercised by and require the further approval of the Executive Committee as provided in this paragraph A of Article FIFTH. 2. There is hereby established the Executive Committee, which shall have the power and authority provided herein. The Executive Committee shall not be a committee of the Board of Directors as provided in Section 141(c) of the DGCL, but shall instead be a separate body pursuant to Section 141(a) of the DGCL and shall consist of three members of the Board of Directors, one of whom shall at all times be Harrison I. Steans, Jennifer W. Steans, or a director designated for nomination by Financial Investments Corporation (“FIC”) (the “FIC Designee”), one of whom shall at all times be a director designated for nomination by the Taylor Family at all times that such right exists (the “Taylor Designee”), and one of whom shall be the most senior executive of the corporation serving on the Board of Directors of the corporation who, other than through involvement in the corporation, is not an affiliate of either the Steans Family or the Taylor Family (the “Senior Officer”). The Executive Committee initially shall be comprised of Harrison I. Steans as Chairman (the initial FIC Designee), Mark A. Hoppe, President of the corporation (the initial Senior Officer), and Bruce W. Taylor, Chief Executive Officer of the corporation (the initial Taylor Designee). Each such person shall be a member of such committee for so long as such person remains a member of the Board of Directors or until his earlier death, Permanent Disability (as defined herein) or resignation by written notice delivered to the Corporate Secretary at the principal executive office of the corporation (the “Term of Service”). Each of Jennifer W. Steans and Jeffrey W. Taylor shall have the right to attend and observe Executive Committee meetings for so long as they serve on the Board of Directors of the corporation. Vacancies. FIC Designee. Upon the conclusion of the Term of Service of Harrison I. Steans as a member of the Executive Committee, he shall be succeeded as Chairman and a member of the Executive Committee by Jennifer W. Steans. Upon the conclusion of the Term of Service of Jennifer W. Steans, the resulting vacancy in such seat on the Executive Committee, and any subsequent vacancies in such seat of the Executive Committee, shall be filled by one of the then-serving directors nominated by FIC within 30 days thereafter by written notice signed by the then-serving directors nominated by FIC to the Corporate Secretary at the principal executive offices of the corporation; provided, however, that in the event such then-serving directors nominated by FIC do not designate such successor within 30 days or there are no then-serving directors nominated by FIC, then the successor FIC Designee shall, within 30 days after the end of such first 30-day period, be filled by the then-serving director who was issued (directly or to an Affiliate of such person) by the Company, in its initial issuance of the Series A Preferred, the greatest number of shares of Series A Preferred (or if such person is unwilling to serve as the FIC Designee, the then-serving director who was issued (directly or to an Affiliate of such person) by the Company, in its initial issuance of the Series A Preferred, the second greatest number of shares of Series A Preferred) upon the initial issuance of the Series A Preferred (in each case other than any director who is a member of the Taylor Family or nominated by the Taylor Family and other than the Senior Officer) within 30 days thereafter by written notice delivered by such person to the Corporate Secretary at the principal executive offices of the corporation; provided, however, that if no such notice is delivered within such time period, the successor FIC Designee shall be appointed by a majority of all of the members of the Board of Directors (excluding any director who is a member of the Taylor Family or was nominated by the Taylor Family and excluding the Senior Officer). Taylor Designee. Upon the conclusion of the Term of Service of Bruce W. Taylor as a member of the Executive Committee, the resulting vacancy on the Executive Committee, and any subsequent vacancies in such seat of the Executive Committee, shall be filled by one of the then-serving directors nominated by the Taylor Family within 30 days thereafter by written notice signed by the then-serving directors nominated by the Taylor Family to the Corporate Secretary at the principal executive offices of the corporation; provided, however, that in the event such then-serving directors nominated by the Taylor Family do not designate such successor within 30 days or there are no then-serving directors nominated by the Taylor Family, then the successor Taylor Designee shall, within 30 days after the end of such first 30-day period, be appointed by a majority of all of the members of
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Table of Contentsthe Board of Directors (excluding any director who is a member of the Steans Family or nominated by FIC and excluding the Senior Officer). Senior Officer. Upon the conclusion of the Term of Service of Mark A. Hoppe as a member of the Executive Committee, the resulting vacancy on the Executive Committee, and any subsequent vacancies in such seat of the Executive Committee, shall be filled by the then-current Senior Officer . Chairman. The Chairman of the Executive Committee shall provide reasonable notice of all meetings to each other member of the Executive Committee. Each member of the Executive Committee shall have the right to propose matters for consideration by the Executive Committee. Harrison I. Steans shall serve as Chairman of the Executive Committee for so long as he is a member of such committee. Jennifer W. Steans shall serve as Chairman of the Executive Committee for so long as she is a member of such committee. Following the Term of Service of Jennifer W. Steans, the Chairman of the Executive Committee shall be Bruce W. Taylor or his successor selected pursuant to the last sentence of the paragraph above captioned “Taylor Designee” for so long as such person’s Term of Service on the Executive Committee is continuing). In the event Bruce W. Taylor or his successor is for any reason unable to succeed Harrison I. Steans or Jennifer W. Steans (as the case may be) as Chairman of the Executive Committee or if he succeeds either of them and thereafter ceases to serve as Chairman of the Executive Committee, the Senior Officer serving on the Executive Committee at such time shall succeed him as Chairman of the Executive Committee. Other. A quorum of the Executive Committee shall not be deemed present unless at least two-thirds of the members of the Executive Committee are present. The Executive Committee shall have the authority to retain special legal, accounting or other consultants or experts as necessary or advisable to advise the Executive Committee. The corporation shall provide appropriate funding for such matters and for the ordinary administrative expenses of the Executive Committee that are necessary or appropriate in carrying out its duties. 3. Matters Requiring Unanimous Executive Committee Approval: Pursuant to Section 141(a) of the DGCL, the corporation and/or the Board of Directors of the corporation (or any committee thereof) shall not, without the prior approval of all of the members of the Executive Committee (by affirmative vote at a duly called meeting or by written consent signed by all three members of the Executive Committee), directly or indirectly: (a) authorize, approve, or enter into any agreement with respect to, or consummate, any merger, consolidation or other business combination by the corporation or any Controlled Affiliate of the corporation into or with any other Person, other than any transaction involving only the corporation and/or one or more directly or indirectly wholly-owned Subsidiaries of the corporation; (b) authorize, approve, or enter into any agreement with respect to, or consummate, any acquisition by the corporation or any Controlled Affiliate of any assets or properties (including stock or other equity interests of a third party) of any other Person in one transaction or a series of related transactions, where such transaction has (or considering any contingent consideration could have) an aggregate purchase price or value in excess of $1,000,000; (c) authorize, approve, or issue, or obligate the corporation or any Controlled Affiliate to issue any equity securities, including securities convertible, exercisable or exchangeable for any equity security, other than in connection with: (i) that certain Securities Purchase Agreement dated September 4, 2008, and any of the securities issued pursuant to, or upon the exercise, conversion or exchange of securities issued pursuant to, any of the Transactions contemplated by the Transaction Documents, including the securities issued pursuant to the Subdebt and Warrant Transaction (as such terms are defined therein); (ii) the exercise of employee stock options or other compensatory equity incentives outstanding upon the effectiveness of this Third Amended and Restated Certificate of Incorporation, and (iii) the grant and exercise of equity compensation awards to employees, officers, directors or consultants of the corporation or its subsidiaries; provided, however, that this exception (iii) shall apply with respect to employees, officers, directors or consultants of the corporation or its Subsidiaries who are Related Persons only if such awards are
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Table of Contents(A) comparable in size and terms to grants being made to similarly situated Persons who are not Related Persons, (B) approved by the Compensation Committee of the Board of Directors, the Audit Committee of the Board of Directors or the full Board of the Directors, or (C) with respect to any Related Person who is not an employee of the corporation or its Subsidiaries, compensation for service on the Board of Directors of the corporation or committees thereof; (d) authorize, approve, or enter into any agreement with respect to, or consummate, any (i) disposition by the corporation or any Controlled Affiliate of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions having an aggregate value in excess of $1,000,000, or (ii) any liquidation or dissolution of the corporation or any Controlled Affiliate with assets or properties (including stock or other equity interests of a third party) having an aggregate value in excess of $1,000,000 (other than, in the case of a Controlled Entity, a disposition (or liquidation or dissolution where all of the assets and properties of the liquidated or dissolved Controlled Entity are distributed) solely to the Company and/or one or more of its wholly-owned Subsidiaries); (e) authorize, approve, or issue, or obligate the corporation or any Controlled Affiliate to, directly or indirectly, issue, guarantee or otherwise become obligated with respect to any Indebtedness other than Permitted Indebtedness; (f) authorize, approve, or issue, or obligate the corporation or any Controlled Affiliate to, directly or indirectly, purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the corporation or any of its Controlled Affiliates excluding (i) any inter-company Indebtedness between or among the corporation and any of its wholly-owned Subsidiaries, or (ii) any Permitted Indebtedness, except for regularly scheduled or otherwise required payments; (g) authorize, approve, or issue, or obligate the corporation or any Controlled Affiliate to, directly or indirectly, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired) except (i) for Permitted Liens and (ii) in connection with real property leases, letters of credit and other agreements and documentation entered into in connection therewith; (h) authorize, approve, or issue, or obligate the corporation or any Controlled Affiliate to, enter into any agreement, contract or arrangement restricting the ability of any Controlled Affiliate of the corporation to pay or make dividends or distributions in cash or kind to the corporation, to make loans, advances or other payments of whatsoever nature to the corporation, or to make transfers or distributions of all or any part of its assets to the corporation, in each case other than (i) restrictions on specific assets which assets are the subject of purchase money security interests or deposit arrangements, (ii) customary anti-assignment provisions contained in leases and licensing agreements entered into by the corporation or such Controlled Affiliate in the ordinary course of its business, (iii) in connection with any Requirement of Law and (iv) in connection with any agreement for the sale or other disposition of a Controlled Affiliate that restricts distributions by that Controlled Affiliate pending the sale or other disposition; (i) authorize, approve or permit the corporation or any of its Controlled Affiliates to, directly or indirectly, create or otherwise permit, cause or suffer to exist or become effective, including without limitation by authorizing, approving or permitting any election to defer the payment of interest related to any Indebtedness (including, without limitation, any subordinated debentures of the corporation or any Controlled Affiliate), any consensual encumbrance or restriction on the ability of the corporation or any Controlled Affiliate to (a)(i) pay dividends or make any other distributions on its capital stock to the corporation or any of its Controlled Affiliates or with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness owed to the corporation or any of its Controlled Affiliates, (b) make loans or advances to the corporation or any of its Controlled Affiliates or (c) sell, lease or transfer any of its properties or assets to the corporation or any of its Controlled Affiliates, except for such encumbrances or restrictions existing under or by reason of (i) the terms of the Transaction Documents; (ii) the Series A Preferred; (iii) an applicable Requirement of Law; (iv) customary non-assignment provisions in contracts and licenses entered into in the ordinary course of business; (v) any
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Table of Contentsagreement for the sale or other disposition of a Controlled Affiliate that restricts distributions by that Controlled Affiliate pending the sale or other disposition; and (vi) Permitted Liens; (j) authorize, approve, or enter into or modify any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) (including any Indebtedness or guarantee of Indebtedness) in which the corporation (including any of its Controlled Affiliates) was, is or will be a participant and the amount involved will or may reasonably be expected to exceed $120,000, and in which any Related Person (as defined below) had, has or will have a direct or indirect interest, other than (i) transactions subject to Regulation O (Loans to Executive Officers, Directors and Principal Shareholders) that have been reviewed and approved by the Loan Committee and the Board of Directors of the Cole Taylor Bank and the corporation, as required, in accordance with Cole Taylor Bank’s policy with respect thereto, (ii) with respect to any Related Party who is an employee of the corporation or any of its Subsidiaries (but not an executive officer or director of the corporation), compensation matters to (A) the extent that the total compensation and benefits being provided to such Related Person is comparable in size and terms as those being provided to similarly situated persons serving in the same or similar capacity, or (B) approved by the Compensation Committee of the Board of Directors, the Audit Committee of the Board of Directors or the full Board of the Directors, (iii) with respect to any Related Party who is a director or executive officer of or consultant to the corporation, compensation matters to the extent approved by the Compensation Committee of the Board of Directors, the Audit Committee of the Board of Directors or the full Board of the Directors, (iv) with respect to any Related Person who is not an employee of the corporation or its Subsidiaries, compensation for service on the Board of Directors of the corporation or committees thereof; (v) compensatory benefits provided to all employees of the corporation or its Subsidiaries generally or to all salaried employees of the corporation or its Subsidiaries generally; or (vi) transactions in which the interest of the Related Person arises solely from the ownership of a class of the corporation’s securities and all holders of that class receive the same benefit on a pro rata basis; (k) authorize, approve, adopt, amend or repeal (A) any provision of any board committee charter or other document in a manner that would usurp any power or authority of the Executive Committee provided for herein, or impair the ability of the Executive Committee to exercise any such power or authority, (B) any provision of any Bylaw (as it may be amended from time to time) of the corporation (other than any such Bylaw actions taken solely by action of stockholders of the corporation in their capacity as such), or (C) any provision of this Certificate of Incorporation (as it may be amended from time to time); (l) change the authorized size of the Board to fewer than 11 members or greater than 13 members; (m) authorize any stock split, reorganization, consolidation, recapitalization or similar action involving the corporation or any Controlled Affiliate; (n) authorize or approve the hiring, promotion or termination of any Person who reports directly to the President or Chief Executive Officer of the corporation; or (o) authorize, approve, adopt or enter into any Change in Control Arrangement with any Person; provided that, if the members of the Executive Committee approve a form of Change in Control Arrangement for officers at or above a certain level, the corporation may thereafter enter into such Change in Control Arrangement with any newly hired or promoted officers at or above such level. Any purported approval or action with respect to any of the foregoing matters without such unanimous approval of the Executive Committee shall be void and of no effect and shall not be an authorized act of the corporation. 4. Matters Requiring Majority Executive Committee Approval: Pursuant to Section 141(a) of the DGCL, the corporation and/or the Board of Directors of the corporation (or any committee thereof other than the Executive Committee) shall not, without the approval by a majority of all of the members of the Executive Committee, directly or indirectly: (a) authorize or approve the entry by Cole Taylor Bank into any significant new line of business;
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Table of Contents(b) authorize or approve Cole Taylor Bank to open any new branch bank or otherwise commence conducting business in any material respect within a new geographic location; (c) authorize or approve the annual budget of the corporation; or (d) authorize the declaration or payment of any dividend on any capital stock of the Corporation or any Controlled Affiliate, or the making of any distribution to, or any other action with respect to the declaration or payment of dividends or distributions to, stockholders of the corporation or the equity holders of any Controlled Affiliate of the corporation (other than to the corporation or a wholly-owned Subsidiary). Any action required or permitted to be taken at any meeting of the Executive Committee may be taken without a meeting if all three members of the Executive Committee consent thereto in writing or by electronic transmission. Any action of the Executive Committee effected by written consent hereunder shall be effective only upon delivery of an executed copy thereof to (i) each member of the Executive Committee and (ii) to the Corporate Secretary at the principal executive office of the corporation. Any purported approval or action with respect to any of the foregoing matters without such majority approval of the Executive Committee shall be void and of no effect and shall not be an authorized act of the corporation. 5. Certain Definitions. Unless the context otherwise requires, the terms defined in this paragraph shall have, for all purposes of this Article FIFTH, the meanings herein specified: “Change in Control Arrangement” means any plan, agreement, program, policy, arrangement, trust, or instrument that provides for a benefit or a payment or vesting in any benefit or payment, to or for the benefit of any Person as a result of any event, simultaneous events, or series of events over time, at least one of which would include a corporate transaction of any kind (including by way of example only and not limitation, any reorganization, merger, consolidation, liquidation, dissolution, sale or other disposition of any securities or assets, or a “going private” transaction within the meaning of Section 13(e) of the 1934 Act), any addition to or change in the composition of the Board of Directors or other governing body of the corporation or any Subsidiaries or other Controlled Affiliates of the corporation, any change in the beneficial ownership of the corporation or any Subsidiaries or other Controlled Affiliates of the corporation, or any other similar transactions. “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto, other than obligations resulting from the endorsement of negotiable instruments for collection in the ordinary course of business. “Control” shall mean the direct or indirect power to direct the management and policies of any Person, whether through the ownership of voting securities, by contract, management agreement or otherwise. “Controlled Affiliate” shall mean, as to any Person, any other Person which is Controlled by such Person; provided, however, that the corporation shall not be deemed to be a Controlled Affiliate of any Person or such Person’s Controlled Affiliates. “Indebtedness” of any Person means, without duplication (i) all items arising from the borrowing of money that, according to generally accepted accounting principles in the United States, would be included in determining total liabilities as shown on the consolidated balance sheet of such Person or any Subsidiary of such Person; (ii) all obligations secured by any Lien in property owned by such Person whether or not such obligations shall have been assumed; (iii) all guarantees and similar contingent liabilities with respect to obligations of others; (iv) all monetary obligations under any leasing or similar arrangement which, in
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Table of Contentsconnection with generally accepted accounting principles in the United States, consistently applied for the periods covered thereby, are classified as a capital leases; and (v) all other obligations (including, without limitation, letters of credit, surety bonds and other similar instruments) evidencing obligations to others; provided, however, Indebtedness shall not include trade payables incurred in the ordinary course of business and, in the case of Cole Taylor Bank, Indebtedness shall not include deposits or other indebtedness incurred in the ordinary course of business and in accordance with customary banking practices and applicable laws and regulations. “Liens” means any security interests, liens, claims, pledges, mortgages, options, rights of first refusal, agreements, limitations on voting rights, charges, easements, servitudes, encumbrances and other restrictions of any nature whatsoever. “Permanent Disability” shall mean a mental or physical condition that renders an Executive Committee member incapable, after reasonable accommodation, of carrying out such Person’s essential duties with respect to the Executive Committee, which condition has existed for at least consecutive three months, and which, in the professional opinion of a physician selected by the Board and reasonably acceptable to the Executive Committee member or his legal representative, is permanent or expected to last for an indefinite duration. “Permitted Indebtedness” means (i) Indebtedness in existence as of the date of adoption of the Third Amended and Restated Certificate of Incorporation and reflected in the corporation’s consolidated balance sheet for the fiscal quarter ended June 30, 2008 as filed by the corporation with the Securities and Exchange Commission on August 8, 2008, (ii) Contingent Obligations in existence as of the date of adoption of the Third Amended and Restated Certificate of Incorporation and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
